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Q4 2012 Earnings Call

February 07, 2013 11:00 am ET


Edings Thibault

Robert Qutub - Chief Financial Officer and Principal Accounting Officer

Henry A. Fernandez - Chairman, Chief Executive Officer and President


Georgios Mihalos - Crédit Suisse AG, Research Division

David Togut - Evercore Partners Inc., Research Division

Toni Kaplan - Morgan Stanley, Research Division

William A. Warmington - Raymond James & Associates, Inc., Research Division

Christopher Shutler - William Blair & Company L.L.C., Research Division

Edward Ditmire - Macquarie Research



Good day, ladies and gentlemen, and welcome to your MSCI Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to hand the conference over to Mr. Edings Thibault, Head of Investor Relations. Sir, you may begin.

Edings Thibault

Thank you, Saeed. Good morning, everyone, and thank you for joining our fourth quarter and full year 2012 earnings call. Please note that earlier this morning, we issued a press release describing our results for fourth quarter and full year 2012, and a copy of that release may be viewed on our website at under the Investor Relations tab. You'll also find on our website, a slide presentation that we have prepared to accompany this call.

This call may contain forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management's current estimates, projections, expectations or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of additional risks and uncertainties that may affect MSCI's future results, please see the description of risk factors and forward-looking statements on our Form 10-K for our fiscal year ended December 31, 2011, and other SEC filings.

Today's earnings call may also include discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EPS. Adjusted EBITDA and adjusted EPS exclude the following: lease exit charge charge, restructuring costs and non-recurring stock-based expense. Adjusted EPS also excludes the amortization of intangibles resulting from acquisitions and debt repayment and refinancing expenses.

Please refer to today's earnings release and the relevant slides in the investor presentation for the required reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures and other related disclosures.

We will be referring to run rate frequently in our discussion this morning, so let me remind you again that our run rate is an approximation at a given point in time of the forward-looking revenues for subscriptions and product licenses that we will record over the next 12 months, assuming no cancellations, new sales, changes in the assets and ETFs license to our indices or changes in foreign currency rates. Please refer to Table 10 in our press release for a detailed explanation.

I will now turn the call over to Bob Qutub.

Robert Qutub

Thank you, Edings, and thank you, everyone, for joining us on this call. Earlier this morning, MSCI reported strong financial results for the fourth quarter of 2012. Our operating results were highlighted by another strong quarter for our Performance and Risk segment with the index and ESG subscription run rate increasing by 25%, aided by the acquisition of IPD, and 11% organic growth. Our Government segment continued to make progress on our path to sustainable growth.

While there remains work to be done, we are pleased with the trend to results we have reported in the past 3 quarters. MSCI's results benefited from strong net inflows in the MSCI-linked ETFs during the fourth quarter. The vast majority of these flows came after Vanguard announced their decision to switch indices for certain ETFs. Since the switch was announced, MSCI has seen the assets under management and other ETFs linked to MSCI indices increase. As MSCI-linked ETFs gained almost 2/3 of all flows into U.S. listed cross-border ETFs. That kind of voted confidence in the value of MSCI indices is extremely gratifying.

The run rate of our portfolio management analytics business, which accounted for 11% of our total, continued to decline with much of that decline in run rate can be traced to foreign currency moves and the impact of product swaps, the combination of tough conditions for our client and ongoing price competition improved to be a strong headwind. We do not believe that we are losing ground to our competitors and we will work to continue to harvest and stabilize this important product line.

Another topic I want to highlight is the deployment of our capital. Over the course of 2012, we did a great deal of talking to our Board, investors and others about how we can deploy our capital to support our medium and long-term growth while balancing the needs of our shareholders. I'll review the details of how we use our capital in 2012 later in the call but the result of that process was a balanced approach that funded our internal investment, enabled us to take advantage of limited strategic opportunities and return capital.

Now let's get into the numbers. MSCI reported fourth quarter net income of $54.5 million, representing an increase of 22% over fourth quarter 2011. Revenues were $247.1 million, up 9% from fourth quarter 2011, adjusted EBITDA was $116.6 million, up 12% year-over-year with adjusted EPS rising 16% to $0.52. For the full year, MSCI reported net income of $184.2 million, an increase of 6% over 2011. Revenues were $950.1 million, an increase of 5% from 2011. Adjusted EBITDA was up $434.5 million, up 4%. And adjusted EPS was up $1.94, up 5%.

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