MSCI Inc (MSCI)

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MSCI (MSCI)

Q2 2011 Earnings Call

August 04, 2011 11:00 am ET

Executives

David Obstler - Chief Financial Officer

Edings Thibault -

Henry Fernandez - Chairman, Chief Executive Officer and President

Analysts

David Scharf - JMP Securities LLC

Georgios Mihalos

Suzanne Stein - Morgan Stanley

Unknown Analyst -

Robert Riggs - William Blair & Company L.L.C.

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the MSCI Second Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the program over to Edings Thibault, Head of Investor Relations. Sir, the floor is yours.

Edings Thibault

Thank you, Harry. Good morning and thank you all for joining our second quarter 2011 earnings call. Please note that earlier this morning we issued a press release describing our results for the second quarter and first 6 months of 2011. A copy of that release can be viewed on our website at msci.com under the Investor Relations tab.

This presentation 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 the future results of the company, please see the description of risk factors and forward-looking statements in our Form 10-K for our fiscal year ending November 30, 2010.

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: Third-party transaction expenses resulting from the acquisition of RiskMetrics; restructuring costs related to the acquisition of RiskMetrics; and nonrecurring 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 for the required reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures and other related disclosures.

Since we won't be referring to run rate frequently on our discussion this morning, let me remind you that a run rate is an approximation at a given point in time of the forward-looking fees for subscriptions and product licenses that we will record over the next 12 months assuming no cancelations, new sales, changes in assets and ETF licensed our indices or changes in foreign currency rates. Please refer to table 12 in our press release for a detailed explanations.

Our chairman and CEO Henry Fernandez, will begin the discussion this morning with an overview of the second quarter. And then our Chief Financial Officer, David Obstler, will provide some details on our financial results. In the case of financial accounting metrics, the discussion will focus on pro forma results, which assume the acquisition of RiskMetrics occurred at the beginning of MSCI's 2010 fiscal year.

Pro forma second quarter 2010 results reflect the combination of MSCI's historical fiscal second quarter ending May 31, 2010, with RiskMetrics first quarter ending March 31, 2010. Pro forma 6 months 2010 includes MSCI's results for the 6 months ended May 31, 2010, and RiskMetrics fourth quarter ended December 31, 2009, and first quarter ended March 31, 2010. All operating metrics as distinct from financial accounting metrics have been restated to reflect the company's results on a combined basis during the comparable period in 2010. That means all quarterly operating metrics reflect the calendar quarter or 6 months indicated rather than the prior fiscal period.

I will now turn the call over to Mr. Henry Fernandez. Henry?

Henry Fernandez

Thank you, Eding. Hello everyone and thank you for joining us. This morning we reported second quarter revenue of $226 million, adjusted EBITDA of $107 million and adjusted EPS of $0.47. For the first 6 months of 2011, we reported revenues of $450 million, adjusted EBITDA of $211 million and adjusted EPS of $0.90. Our second quarter revenues grew by 12% versus second quarter 2010 and our adjusted EBITDA rose 25%. Our adjusted EBITDA margin rose to 47.2% from 42.3%. Our adjusted EPS rose 34% versus the second quarter of 2010.

From an operating perspective, MSCI benefited from solid overall sales and a continued and sustained improvement in retention rate. Our second quarter run rate grew by 17% versus second quarter 2010 and by 3% from the first quarter of 2011.

Our subscription run rate, which as you know excludes the impact of our fast-growing asset-based fee business, grew by 13% year-over-year and by 3% sequentially.

Total sales, which include recurring subscription sales as well as one-time sales, were $39 million in the second quarter, down 4% from last year. New recurring subscription sales were $30 million, a decrease of 10% from the second quarter of 2010.

Our retention rate remained very strong during the second quarter, rising in each of our 4 largest product lines.

MSCI's Aggregate Retention Rate rose to 92% from 89% in the second quarter of 2010 as cancellations fell by 18% year-over-year. The strength in retention rate speaks to the mission-critical nature of many of our products and is a testament to our efforts to invest in our client service organization.

I would like now to discuss the performance of each of our 4 major product lines in more detail. Index and ESG products. Our Index and ESG business continued its strong performance in the second quarter of 2011, with reported revenues of $103 million, up 21% from second quarter 2010 and a run rate of $398 million, up 26% year-over-year. Total index and ESG sales rose 9% year-over-year to $18 million. Recurring subscription sales were $14 million, down slightly from the very strong levels that we experienced in the second quarter of 2010.

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