MSCI Inc. 10-Q

Item 1. Financial Statements MSCI INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands, except per share and share data) As of September 30, December 31, 2022 2021 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 867,112 $ 1,421,449 Accounts receivable, net of allowances 525,360 664,511 Prepaid income taxes 82,678 5,951 Prepaid and other assets 51,758 51,499 Total current assets 1,526,908 2,143,410 Property, equipment and leasehold improvements, net 54,341 66,715 Right of use assets 131,772 144,584 Goodwill 2,226,141 2,236,386 Intangible assets, net 565,582 593,341 Equity method investment 215,370 218,763 Deferred tax assets 27,939 40,119 Other non-current assets 29,474 63,385 Total assets $ 4,777,527 $ 5,506,703 LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 5,303 $ 13,448 Income taxes payable 3,770 59,635 Accrued compensation and related benefits 142,282 207,640 Current portion of long-term debt 8,711 — Other accrued liabilities 171,476 145,302 Deferred revenue 735,710 824,912 Total current liabilities 1,067,252 1,250,937 Long-term debt 4,504,291 4,161,422 Long-term operating lease liabilities 137,265 150,029 Deferred tax liabilities 47,142 3,650 Other non-current liabilities 98,968 104,132 Total liabilities 5,854,918 5,670,170 Commitments and Contingencies (see Note 8) Shareholders’ equity (deficit): Preferred stock (par value $ 0.01 , 100,000,000 shares authorized; no shares issued) — — Common stock (par value $ 0.01 ; 750,000,000 common shares authorized; 133,620,870 and 133,162,178 common shares issued and 80,121,138 and 82,439,449 common shares outstanding at September 30, 2022 and December 31, 2021, respectively) 1,336 1,332 Treasury shares, at cost ( 53,499,732 and 50,722,729 common shares held at September 30, 2022 and December 31, 2021, respectively) ( 5,867,881 ) ( 4,540,144 ) Additional paid in capital 1,504,274 1,457,623 Retained earnings 3,358,892 2,976,517 Accumulated other comprehensive loss ( 74,012 ) ( 58,795 ) Total shareholders’ equity (deficit) ( 1,077,391 ) ( 163,467 ) Total liabilities and shareholders’ equity (deficit) $ 4,777,527 $ 5,506,703 See Notes to Condensed Consolidated Financial Statements (Unaudited) 4 Table of Contents MSCI INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (unaudited) Operating revenues $ 560,639 $ 517,099 $ 1,672,390 $ 1,493,702 Operating expenses: Cost of revenues (exclusive of depreciation and amortization) 98,418 89,674 301,957 262,781 Selling and marketing 65,545 59,819 192,671 174,477 Research and development 25,941 28,352 78,179 80,745 General and administrative 30,702 38,110 112,993 103,020 Amortization of intangible assets 23,375 14,105 67,274 59,569 Depreciation and amortization of property, equipment and leasehold improvements 7,127 6,809 20,426 20,972 Total operating expenses 251,108 236,869 773,500 701,564 Operating income 309,531 280,230 898,890 792,138 Interest income ( 3,938 ) ( 396 ) ( 5,160 ) ( 1,129 ) Interest expense 44,162 42,137 125,961 119,278 Other expense (income) 103 37,839 ( 90 ) 61,616 Other expense (income), net 40,327 79,580 120,711 179,765 Income before provision for income taxes 269,204 200,650 778,179 612,373 Provision for income taxes 52,612 30,774 122,577 80,255 Net income $ 216,592 $ 169,876 $ 655,602 $ 532,118 Earnings per share: Basic $ 2.69 $ 2.06 $ 8.09 $ 6.45 Diluted $ 2.68 $ 2.03 $ 8.05 $ 6.38 Weighted average shares outstanding: Basic 80,500 82,470 81,001 82,521 Diluted 80,874 83,554 81,481 83,446 See Notes to Condensed Consolidated Financial Statements (Unaudited) 5 Table of Contents MSCI INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (unaudited) Net income $ 216,592 $ 169,876 $ 655,602 $ 532,118 Other comprehensive (loss) income: Foreign currency translation adjustments ( 10,978 ) ( 3,226 ) ( 25,724 ) ( 4,052 ) Income tax effect 1,453 422 3,921 999 Foreign currency translation adjustments, net ( 9,525 ) ( 2,804 ) ( 21,803 ) ( 3,053 ) Pension and other post-retirement adjustments 293 186 7,779 383 Income tax effect ( 79 ) ( 48 ) ( 1,193 ) ( 146 ) Pension and other post-retirement adjustments, net 214 138 6,586 237 Other comprehensive (loss) income, net of tax ( 9,311 ) ( 2,666 ) ( 15,217 ) ( 2,816 ) Comprehensive income $ 207,281 $ 167,210 $ 640,385 $ 529,302 See Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Table of Contents MSCI INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (in thousands) Common Stock Treasury Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total (unaudited) Balance at December 31, 2021 $ 1,332 $ ( 4,540,144 ) $ 1,457,623 $ 2,976,517 $ ( 58,795 ) $ ( 163,467 ) Net income 228,423 228,423 Dividends declared ($ 1.04 per common share) ( 87,280 ) ( 87,280 ) Dividends paid in shares 77 77 Other comprehensive income (loss), net of tax ( 2,022 ) ( 2,022 ) Common stock issued 4 4 Shares withheld for tax withholding and exercises ( 105,000 ) ( 105,000 ) Compensation payable in common stock 22,754 22,754 Common stock repurchased and held in treasury ( 772,657 ) ( 772,657 ) Common stock issued to Directors and (held in)/released from treasury ( 21 ) ( 21 ) Balance at March 31, 2022 1,336 ( 5,417,822 ) 1,480,454 3,117,660 ( 60,817 ) ( 879,189 ) Net income 210,587 210,587 Dividends declared ($ 1.04 per common share) ( 84,593 ) ( 84,593 ) Dividends paid in shares 22 22 Other comprehensive income (loss), net of tax ( 3,884 ) ( 3,884 ) Common stock issued — Shares withheld for tax withholding and exercises ( 3,862 ) ( 3,862 ) Compensation payable in common stock 11,858 11,858 Common stock repurchased and held in treasury ( 276,994 ) ( 276,994 ) Common stock issued to Directors and (held in)/released from treasury ( 391 ) ( 391 ) Balance at June 30, 2022 1,336 ( 5,699,069 ) 1,492,334 3,243,654 ( 64,701 ) ( 1,026,446 ) Net income 216,592 216,592 Dividends declared ($ 1.25 per common share) ( 101,354 ) ( 101,354 ) Dividends paid in shares 27 27 Other comprehensive income (loss), net of tax ( 9,311 ) ( 9,311 ) Common stock issued — Shares withheld for tax withholding and exercises ( 3,741 ) ( 3,741 ) Compensation payable in common stock 11,913 11,913 Common stock repurchased and held in treasury ( 165,044 ) ( 165,044 ) Common stock issued to Directors and (held in)/released from treasury ( 27 ) ( 27 ) Balance at September 30, 2022 $ 1,336 $ ( 5,867,881 ) $ 1,504,274 $ 3,358,892 $ ( 74,012 ) $ ( 1,077,391 ) See Notes to Condensed Consolidated Financial Statements (Unaudited) 7 Table of Contents MSCI INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (in thousands) Common Stock Treasury Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total (unaudited) Balance at December 31, 2020 $ 1,328 $ ( 4,342,535 ) $ 1,402,537 $ 2,554,295 $ ( 58,859 ) $ ( 443,234 ) Net income 196,819 196,819 Dividends declared ($ 0.78 per common share) ( 65,947 ) ( 65,947 ) Dividends paid in shares 66 66 Other comprehensive income (loss), net of tax ( 957 ) ( 957 ) Common stock issued 3 3 Shares withheld for tax withholding and exercises ( 52,814 ) ( 52,814 ) Compensation payable in common stock 18,842 18,842 Common stock repurchased and held in treasury ( 134,340 ) ( 134,340 ) Common stock issued to Directors and (held in)/released from treasury ( 20 ) ( 20 ) Balance at March 31, 2021 1,331 ( 4,529,709 ) 1,421,445 2,685,167 ( 59,816 ) ( 481,582 ) Net income 165,423 165,423 Dividends declared ($ 0.78 per common share) ( 64,863 ) ( 64,863 ) Dividends paid in shares 20 20 Other comprehensive income (loss), net of tax 807 807 Common stock issued — Shares withheld for tax withholding and exercises ( 620 ) ( 620 ) Compensation payable in common stock 12,252 12,252 Common stock repurchased and held in treasury — Common stock issued to Directors and (held in)/released from treasury 756 756 Balance at June 30, 2021 1,331 ( 4,529,573 ) 1,433,717 2,785,727 ( 59,009 ) ( 367,807 ) Net income 169,876 169,876 Dividends declared ($ 1.04 per common share) ( 86,476 ) ( 86,476 ) Dividends paid in shares 21 21 Other comprehensive income (loss), net of tax ( 2,666 ) ( 2,666 ) Common stock issued 1 1 Shares withheld for tax withholding and exercises ( 5,286 ) ( 5,286 ) Compensation payable in common stock 12,263 12,263 Common stock repurchased and held in treasury — Common stock issued to Directors and (held in)/released from treasury 49 49 Balance at September 30, 2021 $ 1,332 $ ( 4,534,810 ) $ 1,446,001 $ 2,869,127 $ ( 61,675 ) $ ( 280,025 ) See Notes to Condensed Consolidated Financial Statements (Unaudited) 8 Table of Contents MSCI INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Nine Months Ended September 30, 2022 2021 (unaudited) Cash flows from operating activities Net income $ 655,602 $ 532,118 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets 67,274 59,569 Stock-based compensation expense 46,432 43,218 Depreciation and amortization of property, equipment and leasehold improvements 20,426 20,972 Amortization of right of use assets 18,555 18,255 Loss on impairment of right of use assets, net 705 — Amortization of debt origination fees 3,868 3,658 Loss on extinguishment of debt — 59,103 Deferred taxes 59,324 ( 101,840 ) Other adjustments ( 3,654 ) 5,706 Changes in assets and liabilities: Accounts receivable 127,043 69,324 Prepaid income taxes ( 77,908 ) 4,165 Prepaid and other assets ( 1,678 ) ( 2,178 ) Other non-current assets 32,547 332 Accounts payable ( 8,144 ) ( 6,347 ) Accrued compensation and related benefits ( 58,042 ) ( 206 ) Income taxes payable ( 52,939 ) 11,981 Other accrued liabilities 31,297 7,201 Deferred revenue ( 66,982 ) ( 57,932 ) Long-term operating lease liabilities ( 19,492 ) ( 15,644 ) Other non-current liabilities 6,105 5,763 Other ( 397 ) ( 813 ) Net cash provided by operating activities 779,942 656,405 Cash flows from investing activities Capitalized software development costs ( 44,425 ) ( 29,078 ) Capital expenditures ( 8,012 ) ( 7,119 ) Acquisition of a business, net of cash acquired — ( 948,695 ) Acquisition of equity method investment ( 5 ) ( 77 ) Other 29 ( 910 ) Net cash used in investing activities ( 52,413 ) ( 985,879 ) Cash flows from financing activities Proceeds from borrowings, inclusive of premium 355,000 1,803,750 Repayment of borrowings ( 5,000 ) ( 1,051,810 ) Repurchase of common stock held in treasury ( 1,327,298 ) ( 193,060 ) Payment of dividends ( 272,759 ) ( 216,496 ) Payment of debt issuance costs in connection with debt ( 2,559 ) ( 21,135 ) Payment of contingent consideration ( 211 ) — Net cash (used in) provided by financing activities ( 1,252,827 ) 321,249 Effect of exchange rate changes ( 29,039 ) ( 7,632 ) Net (decrease) increase in cash ( 554,337 ) ( 15,857 ) Cash and cash equivalent, beginning of period 1,421,449 1,300,521 Cash and cash equivalent, end of period $ 867,112 $ 1,284,664 Supplemental disclosure of cash flow information: Cash paid for interest $ 107,162 $ 101,631 Cash paid for income taxes, net of refunds received $ 154,725 $ 163,732 Supplemental disclosure of non-cash investing activities Property, equipment and leasehold improvements in other accrued liabilities $ 1,926 $ 4,821 Supplemental disclosure of non-cash financing activities Cash dividends declared, but not yet paid $ 3,270 $ 2,096 See Notes to Condensed Consolidated Financial Statements (Unaudited) 9 Table of Contents MSCI INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. INTRODUCTION AND BASIS OF PRESENTATION MSCI Inc., together with its wholly owned subsidiaries (the “Company” or “MSCI”) is a leading provider of critical decision support tools and solutions for the global investment community. Our mission-critical offerings help investors address the challenges of a transforming investment landscape and power better investment decisions. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, we enable our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios. Our products and services include indexes; portfolio construction and risk management tools; environmental, social and governance (“ESG”) and climate solutions; and real estate market and transaction data and analysis. Basis of Presentation and Use of Estimates These unaudited condensed consolidated financial statements include the accounts of MSCI and its wholly owned subsidiaries and include all adjustments of a normal, recurring nature necessary to state fairly the financial condition as of September 30, 2022 and December 31, 2021, the results of operations, comprehensive income and shareholders’ equity (deficit) for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021. The unaudited condensed consolidated statement of financial condition and related financial statement information as of December 31, 2021 have been derived from the 2021 audited consolidated financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in MSCI’s Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for interim periods are not necessarily indicative of results for the entire year. The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The Company makes certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of operating revenues and expenses during the periods presented. Significant estimates and judgments made by management include such examples as assessment of impairment of goodwill and intangible assets and income taxes. The Company believes that estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from these estimates. Inter-company balances and transactions are eliminated in consolidation. Concentrations For the nine months ended September 30, 2022 and 2021, BlackRock, Inc. (“BlackRock”) accounted for 10.5 % and 12.9 % of the Company’s consolidated operating revenues, respectively. For the nine months ended September 30, 2022 and 2021, BlackRock accounted for 17.7 % and 20.6 % of the Index segment’s operating revenues, respectively. No single customer represented 10.0% or more of operating revenues within the Analytics, ESG and Climate or All Other – Private Assets segments for the nine months ended September 30, 2022 and 2021. Allowance for Doubtful Accounts Changes in the allowance for doubtful accounts from December 31, 2020 to September 30, 2022 were as follows: Amount (in thousands) Balance as of December 31, 2020 $ 1,583 Addition (reduction) to credit loss expense 1,210 Write-offs, net of recoveries ( 456 ) Balance as of December 31, 2021 $ 2,337 Addition (reduction) to credit loss expense 855 Adjustments and write-offs, net of recoveries ( 569 ) Balance as of September 30, 2022 $ 2,623 10 Table of Contents 2. RECENT ACCOUNTING STANDARDS UPDATES There are no pending accounting standards updates that are currently expected to have a material impact on the Company. 3. REVENUE RECOGNITION MSCI’s operating revenues are reported by product type, which generally reflects the timing of recognition. The Company’s operating revenue types are recurring subscriptions, asset-based fees and non-recurring revenues. The Company also disaggregates operating revenues by segment. The tables that follow present the disaggregated operating revenues for the periods indicated: For the Three Months Ended September 30, 2022 Segments (in thousands) Index Analytics ESG and Climate All Other - Private Assets Total Operating Revenue Types Recurring subscriptions $ 185,531 $ 142,751 $ 56,353 $ 35,581 $ 420,216 Asset-based fees 125,620 — — — 125,620 Non-recurring 11,089 2,164 1,242 308 14,803 Total $ 322,240 $ 144,915 $ 57,595 $ 35,889 $ 560,639 For the Nine Months Ended September 30, 2022 Segments (in thousands) Index Analytics ESG and Climate All Other - Private Assets Total Operating Revenue Types Recurring subscriptions $ 539,740 $ 420,047 $ 160,962 $ 106,276 $ 1,227,025 Asset-based fees 402,889 — — — 402,889 Non-recurring 31,319 6,349 3,790 1,018 42,476 Total $ 973,948 $ 426,396 $ 164,752 $ 107,294 $ 1,672,390 For the Three Months Ended September 30, 2021 Segments (in thousands) Index Analytics ESG and Climate All Other - Private Assets Total Operating Revenue Types Recurring subscriptions $ 165,310 $ 134,320 $ 42,592 $ 15,418 $ 357,640 Asset-based fees 141,745 — — — 141,745 Non-recurring 14,448 1,978 1,099 189 17,714 Total $ 321,503 $ 136,298 $ 43,691 $ 15,607 $ 517,099 For the Nine Months Ended September 30, 2021 Segments (in thousands) Index Analytics ESG and Climate All Other - Private Assets Total Operating Revenue Types Recurring subscriptions $ 480,488 $ 399,360 $ 115,299 $ 48,355 $ 1,043,502 Asset-based fees 404,593 — — — 404,593 Non-recurring 34,876 6,857 2,450 1,424 45,607 Total $ 919,957 $ 406,217 $ 117,749 $ 49,779 $ 1,493,702 11 Table of Contents The tables that follow present the change in accounts receivable, net of allowances, and current deferred revenue between the dates indicated: Accounts receivable, net Deferred revenue (in thousands) Opening (December 31, 2021) $ 664,511 $ 824,912 Closing (September 30, 2022) 525,360 735,710 Increase/(decrease) $ ( 139,151 ) $ ( 89,202 ) Accounts receivable, net Deferred revenue (in thousands) Opening (December 31, 2020) $ 558,569 $ 675,870 Closing (September 30, 2021) 496,726 643,352 Increase/(decrease) $ ( 61,843 ) $ ( 32,518 ) The amounts of revenue recognized in the periods that were included in the opening current deferred revenue, which reflects contract liability amounts, were $ 149.4 million and $ 722.0 million for the three and nine months ended September 30, 2022, respectively and $ 145.2 million and $ 623.8 million for the three and nine months ended September 30, 2021, respectively. The difference between the opening and closing balances of the Company’s deferred revenue is primarily driven by an increase in the amortization of deferred revenue to operating revenues, partially offset by an increase in billings. As of September 30, 2022 and December 31, 2021, the Company carried a long-term deferred revenue balance of $ 27.7 million and $ 23.4 million, respectively, in “Other non-current liabilities” on the Unaudited Condensed Consolidated Statement of Financial Condition. For contracts that have a duration of one year or less, the Company has not disclosed either the remaining performance obligation as of the end of the reporting period or when the Company expects to recognize the revenue. The remaining performance obligations for contracts that have a duration of greater than one year and the periods in which they are expected to be recognized are as follows: As of September 30, 2022 (in thousands) First 12-month period $ 572,644 Second 12-month period 332,957 Third 12-month period 138,779 Periods thereafter 84,390 Total $ 1,128,770 4. EARNINGS PER COMMON SHARE Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the assumed conversion of all dilutive securities, including, when applicable, restricted stock units (“RSUs”), performance stock units (“PSUs”) and performance stock options (“PSOs”). 12 Table of Contents The following table presents the computation of basic and diluted EPS: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands, except per share data) Net income $ 216,592 $ 169,876 $ 655,602 $ 532,118 Basic weighted average common shares outstanding 80,500 82,470 81,001 82,521 Effect of dilutive securities: PSUs, RSUs and PSOs 374 1,084 480 925 Diluted weighted average common shares outstanding 80,874 83,554 81,481 83,446 Earnings per common share: Basic $ 2.69 $ 2.06 $ 8.09 $ 6.45 Diluted $ 2.68 $ 2.03 $ 8.05 $ 6.38 5. ACQUISITIONS On September 13, 2021, MSCI acquired all of the issued and outstanding preferred and common shares of Real Capital Analytics, Inc (“RCA”) for an aggregate cash purchase price of $ 949.0 million. This acquisition expands MSCI’s suite of real estate solutions, providing the real estate industry with data, analytics and support tools to manage investments and understand performance and risk, including climate risk, within their portfolios. RCA has been accounted for as a business combination using the acquisition method of accounting and has been integrated into the All Other – Private Assets reportable segment, as a component of the Real Assets operating segment. A portion of RCA’s client agreements do not have automatic renewal clauses at the end of the subscription period. Due to the historically high retention rate and expectation that a substantial portion of the client agreements will be renewed, the associated revenue is recorded as recurring subscription revenue. The table below represents the final purchase price allocation to total assets acquired and liabilities assumed based on their respective estimated fair values as of September 13, 2021 and the associated estimated useful lives at that date. In the fourth quarter of 2021, the Company early adopted ASU 2021-08, which resulted in an increase to deferred revenue and goodwill and a decrease in deferred tax liabilities recorded as of the opening balance sheet date. 13 Table of Contents Estimated Useful Life Fair Value (in thousands) Accounts receivable $ 9,700 Other current assets 3,721 Property, equipment and leasehold improvements, net 1,204 Right of use assets 6,441 Other non-current assets 3,398 Deferred revenue ( 35,194 ) Other current liabilities ( 15,525 ) Long-term operating lease liabilities ( 4,849 ) Deferred tax liabilities ( 83,737 ) Other non-current liabilities ( 223 ) Intangible assets: Proprietary data 11 years 185,500 Customer relationships 20 years 175,800 Acquired technology and software 9 years 31,500 Trademarks 2 years 890 Goodwill 670,333 Purchase price, net of cash acquired $ 948,959 The recorded goodwill is primarily attributable to the utilization of the acquired data as well as expanded market opportunities. Goodwill attributable to the acquisition is not deductible for income tax purposes. Revenue of RCA recognized within the condensed consolidated financial statements was $ 21.3 million and $ 59.8 million for the three and nine months ended September 30, 2022, respectively. 6. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET Property, equipment and leasehold improvements, net consisted of the following as of the dates indicated: As of September 30, December 31, 2022 2021 (in thousands) Computer & related equipment $ 178,523 $ 179,557 Furniture & fixtures 13,451 14,194 Leasehold improvements 54,183 56,308 Work-in-process 2,105 2,699 Subtotal 248,262 252,758 Accumulated depreciation and amortization ( 193,921 ) ( 186,043 ) Property, equipment and leasehold improvements, net $ 54,341 $ 66,715 Depreciation and amortization expense of property, equipment and leasehold improvements was $ 7.1 million and $ 6.8 million for the three months ended September 30, 2022 and 2021, respectively. Depreciation and amortization expense of property, equipment and leasehold improvements was $ 20.4 million and $ 21.0 million for the nine months ended September 30, 2022 and 2021, respectively. 14 Table of Contents 7. GOODWILL AND INTANGIBLE ASSETS, NET Goodwill The following table presents goodwill by reportable segment: (in thousands) Index Analytics ESG and Climate All Other - Private Assets Total Goodwill at December 31, 2021 $ 1,205,443 $ 290,976 $ 48,047 $ 691,920 $ 2,236,386 Acquisitions (1) — — — ( 541 ) ( 541 ) Foreign exchange translation adjustment ( 6,003 ) — — ( 3,701 ) ( 9,704 ) Goodwill at September 30, 2022 $ 1,199,440 $ 290,976 $ 48,047 $ 687,678 $ 2,226,141 ___________________________ (1) Reflects the impact of measurement period adjustments associated with the acquisition of RCA. The Company completed its annual goodwill impairment test as of July 1, 2022 on its Index, Analytics, ESG and Climate, and Real Assets reporting units, which are also the Company’s operating segments, and no impairments were noted. The Company determined that it was not more likely than not that the fair value of its reporting units is less than their respective carrying values. See Note 12, “Segment Information,” for further descriptions of the operating segments. Intangible Assets, Net The following table presents the amount of amortization expense related to intangible assets by category for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2022 2021 2022 2021 Amortization expense of acquired intangible assets $ 15,810 $ 9,602 $ 47,562 $ 26,346 Amortization expense of internally developed capitalized software 7,565 4,503 19,712 17,210 Write-off of internally developed capitalized software — — — 16,013 Total amortization of intangible assets expense $ 23,375 $ 14,105 $ 67,274 $ 59,569 15 Table of Contents The gross carrying and accumulated amortization amounts related to the Company’s intangible assets were as follows: As of September 30, December 31, 2022 2021 (in thousands) Gross intangible assets: Customer relationships $ 532,500 $ 532,400 Proprietary data 220,778 220,639 Acquired technology and software 209,220 209,220 Trademarks 208,190 208,190 Internally developed capitalized software 150,480 106,181 Subtotal 1,321,168 1,276,630 Foreign exchange translation adjustment ( 16,875 ) ( 5,782 ) Total gross intangible assets $ 1,304,293 $ 1,270,848 Accumulated amortization: Customer relationships $ ( 300,800 ) $ ( 277,865 ) Proprietary data ( 37,034 ) ( 22,678 ) Acquired technology and software ( 178,805 ) ( 175,718 ) Trademarks ( 159,650 ) ( 152,468 ) Internally developed capitalized software ( 69,214 ) ( 49,394 ) Subtotal ( 745,503 ) ( 678,123 ) Foreign exchange translation adjustment 6,791 616 Total accumulated amortization $ ( 738,712 ) $ ( 677,507 ) Net intangible assets: Customer relationships $ 231,700 $ 254,535 Proprietary data 183,744 197,961 Acquired technology and software 30,415 33,502 Trademarks 48,540 55,722 Internally developed capitalized software 81,266 56,787 Subtotal 575,665 598,507 Foreign exchange translation adjustment ( 10,083 ) ( 5,166 ) Total net intangible assets $ 565,582 $ 593,341 The following table presents the estimated amortization expense for the remainder of the year ending December 31, 2022 and succeeding years: Years Ending December 31, Amortization Expense (in thousands) Remainder of 2022 $ 24,562 2023 94,309 2024 87,153 2025 60,949 2026 37,318 Thereafter 261,291 Total $ 565,582 16 Table of Contents 8. COMMITMENTS AND CONTINGENCIES As of September 30, 2022, the Company had outstanding an aggregate of $ 4,200.0 million in senior unsecured notes (collectively, the “Senior Notes”) and an aggregate of $ 350.0 million in senior unsecured tranche A term loans (the “Tranche A Term Loans”) under the term loan A facility (the “TLA Facility”), as presented in the table below: Principal Amount Outstanding at Carrying Value at Carrying Value at Fair Value at Fair Value at Maturity Date September 30, 2022 September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 (in thousands) Debt 4.000 % senior unsecured notes due 2029 November 15, 2029 1,000,000 992,273 991,455 864,190 1,047,950 3.625 % senior unsecured notes due 2030 September 1, 2030 900,000 894,760 894,263 753,471 924,777 3.875 % senior unsecured notes due 2031 February 15, 2031 1,000,000 990,793 989,973 842,510 1,046,620 3.625 % senior unsecured notes due 2031 November 1, 2031 600,000 594,031 593,538 483,858 625,536 3.250 % senior unsecured notes due 2033 August 15, 2033 700,000 692,695 692,193 540,778 710,906 Variable rate Tranche A Term Loans due 2027 February 16, 2027 350,000 348,450 — 348,250 — Total debt $ 4,550,000 $ 4,513,002 $ 4,161,422 $ 3,833,057 $ 4,355,789 Interest payments attributable to the Company’s outstanding indebtedness are due as presented in the following table: Interest payment frequency First interest payment date Senior Notes and Tranche A Term Loans 4.000 % senior unsecured notes due 2029 Semi-Annual May 15 3.625 % senior unsecured notes due 2030 Semi-Annual March 1 3.875 % senior unsecured notes due 2031 Semi-Annual June 1 3.625 % senior unsecured notes due 2031 Semi-Annual May 1 3.250 % senior unsecured notes due 2033 Semi-Annual February 15 Variable rate Tranche A Term Loans due 2027 1 Quarterly October 15 ___________________________ (1) The first payment occurred on October 15, 2022. The fair market value of the Company’s debt obligations represent Level 2 valuations. The Company utilizes the market approach and obtains security pricing from a vendor who uses broker quotes and third-party pricing services to determine fair values. Credit Agreement. Since November 20, 2014, the Company has maintained a revolving credit agreement with a syndicate of banks. On June 9, 2022, the Company, the guarantors party thereto and the lenders and agents party thereto, entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), amending and restating in its entirety the Company’s prior revolving credit agreement (the “Prior Revolving Credit Agreement”). The Credit Agreement makes available to the Company an aggregate of $ 500.0 million of revolving loan commitments, which may be drawn until February 16, 2027, and the TLA Facility. At September 30, 2022, the revolving loan commitments were undrawn. As noted above, at September 30, 2022, the commitments under the TLA Facility were drawn in full, and the resulting Tranche A Term Loans mature on February 16, 2027 . The obligations under the Credit Agreement are general unsecured obligations of the Company and the guarantors. Interest on the Tranche A Term Loans under the TLA Facility accrues, at a variable rate, based on the secured overnight funding rate (“SOFR”) or the alternate base rate (“Base Rate”), plus, in each case, an applicable margin and will be due on each Interest Payment Date (as defined in the Credit Agreement). The applicable margin is calculated by reference to the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement) and ranges between 1.50 % to 2.00 % for SOFR loans, and 0.50 % to 1.00 % for Base Rate loans. At September 30, 2022, the interest rate on the TLA Facility was 4.29 %. In connection with the closings of the Senior Notes offerings, entry into the Prior Revolving Credit Agreement and the subsequent amendments thereto and entry into the Credit Agreement, the Company paid certain financing fees which, together with the existing fees related to prior credit facilities, are being amortized over their related lives. At September 30, 2022, $ 39.3 million of the deferred financing fees and premium remain unamortized, $ 0.5 million of which is included in “Prepaid and other assets,” $ 1.8 million of which is included in “Other non-current assets” and $ 37.0 million of which is included in “Long-term debt” on the Unaudited Condensed Consolidated Statement of Financial Condition. 17 Table of Contents 9. LEASES The Company recognized $ 7.3 million and $ 7.6 million of operating lease expenses for the three months ended September 30, 2022 and 2021, respectively. The Company recognized $ 22.4 million and $ 22.7 million of operating lease expenses for the nine months ended September 30, 2022 and 2021, respectively. The amounts associated with variable lease costs, short-term lease costs and sublease income were not material for any of the three and nine months ended September 30, 2022 and 2021. Maturities of the Company’s operating lease liabilities as of September 30, 2022 are as follows: Maturity of Lease Liabilities Operating (in thousands) Leases Remainder of 2022 $ 5,395 2023 28,346 2024 23,457 2025 22,273 2026 20,736 Thereafter 82,118 Total lease payments $ 182,325 Less: Interest ( 22,924 ) Present value of lease liabilities $ 159,401 Other accrued liabilities $ 22,136 Long-term operating lease liabilities $ 137,265 Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows: As of September 30, December 31, Lease Term and Discount Rate 2022 2021 Weighted-average remaining lease term (years) 8.08 8.16 Weighted-average discount rate 3.15 % 3.09 % Other information related to the Company’s operating leases are as follows: Other Information Nine Months Ended September 30, (in thousands) 2022 2021 Operating cash flows used for operating leases $ 22,025 $ 23,038 Right of use assets obtained in exchange for new operating lease liabilities $ 14,929 $ 20,109 10. SHAREHOLDERS’ EQUITY (DEFICIT) Return of capital On July 28, 2022, the Board of Directors authorized a stock repurchase program (the “2022 Repurchase Program”) for the purchase of up to $ 1,000.0 million worth of shares of MSCI’s common stock in addition to the $ 539.1 million of authorization then remaining under a previously existing share repurchase program that was replaced by, and incorporated into, the 2022 Repurchase Program for a total of $ 1,539.1 million of stock repurchase authorization available under the 2022 Repurchase Program. Share repurchases made pursuant to the 2022 Repurchase Program may take place in the open market or in privately negotiated transactions from time to time based on market and other conditions. This authorization may be modified, suspended or terminated by the Board of Directors at any time without prior notice. As of September 30, 2022, there was $ 1,374.5 million of available authorization remaining under the 2022 Repurchase Program. 18 Table of Contents The following table provides information with respect to repurchases of the Company’s common stock made on the open market: Nine Months Ended Average Price Paid Per Share Total Number of Shares Repurchased Dollar Value of Shares Repurchased (in thousands) September 30, 2022 $ 473.26 2,567 $ 1,214,695 September 30, 2021 $ 407.70 330 $ 134,340 The following table presents dividends declared per common share as well as total amounts declared, distributed and deferred for the periods indicated: Dividends (in thousands, except per share amounts) Per Share Declared Distributed (Released)/Deferred 2022 Three Months Ended March 31, $ 1.04 $ 87,280 $ 87,846 $ ( 566 ) Three Months Ended June 30, 1.04 84,593 84,189 404 Three Months Ended September 30, 1.25 101,354 100,849 505 Total $ 3.33 $ 273,227 $ 272,884 $ 343 2021 Three Months Ended March 31, $ 0.78 $ 65,947 $ 66,153 $ ( 206 ) Three Months Ended June 30, 0.78 64,863 64,489 374 Three Months Ended September 30, 1.04 86,476 85,961 515 Total $ 2.60 $ 217,286 $ 216,603 $ 683 19 Table of Contents Common Stock. The following table presents activity related to shares of common stock issued and repurchased during the nine months ended September 30, 2022: Common Stock Treasury Common Stock Issued Stock Outstanding Balance at December 31, 2021 133,162,178 ( 50,722,729 ) 82,439,449 Dividend payable/paid 82 — 82 Common stock issued 417,508 — 417,508 Shares withheld for tax withholding — ( 190,766 ) ( 190,766 ) Shares repurchased under stock repurchase programs — ( 1,498,143 ) ( 1,498,143 ) Shares issued to directors 41 ( 41 ) — Balance at March 31, 2022 133,579,809 ( 52,411,679 ) 81,168,130 Dividend payable/paid 23 — 23 Common stock issued 20,178 — 20,178 Shares withheld for tax withholding — ( 9,749 ) ( 9,749 ) Shares repurchased under stock repurchase programs — ( 685,522 ) ( 685,522 ) Shares issued to directors 4,122 ( 924 ) 3,198 Balance at June 30, 2022 133,604,132 ( 53,107,874 ) 80,496,258 Dividend payable/paid — — — Common stock issued 16,678 — 16,678 Shares withheld for tax withholding — ( 8,812 ) ( 8,812 ) Shares repurchased under stock repurchase programs — ( 382,986 ) ( 382,986 ) Shares issued to directors 60 ( 60 ) — Balance at September 30, 2022 133,620,870 ( 53,499,732 ) 80,121,138 11. INCOME TAXES The Company’s provision for income taxes was $ 122.6 million and $ 80.3 million for the nine months ended September 30, 2022 and 2021, respectively. These amounts reflect effective tax rates of 15.8 % and 13.1 % for the nine months ended September 30, 2022 and 2021, respectively. The effective tax rate of 15.8 % for the nine months ended September 30, 2022 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $ 28.2 million, primarily related to $ 28.4 million of excess tax benefits recognized on share-based compensation vested during the period. The effective tax rate of 13.1 % for the nine months ended September 30, 2021 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $ 49.3 million, primarily related to $ 22.7 million of excess tax benefits recognized on share-based compensation vested during the period and $ 15.2 million related to the tax impact of loss on debt extinguishment recognized during the period on the redemption of the Company’s 5.375 % senior unsecured notes due 2027 (the “2027 Senior Notes”) and 4.750 % senior unsecured notes due 2026 (the “2026 Senior Notes”). Also included in the discrete items is a $ 5.1 million benefit related to prior year settlements, a $ 2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in the UK corporate tax rate, a $ 2.0 million benefit related to the filing of prior year refund claims and $ 2.0 million of tax benefits related to other prior year items. The Company is under or open to examination by the IRS and other tax authorities in certain jurisdictions, including foreign jurisdictions, such as the United Kingdom, Switzerland and India, and states in the United States in which the Company has significant operations, such as New York and California. The tax years currently under or open to examination vary by jurisdiction but include years ranging from 2008 onwards. The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions in which it files income tax returns. The Company has established unrecognized tax benefits that the Company believes are adequate in relation to the potential for additional assessments. Once established, the Company adjusts unrecognized tax benefits only when more information is available or when an event occurs necessitating a change. Based on the current status of income tax audits, the Company believes it is 20 Table of Contents reasonably possible that the total amount of unrecognized benefits may decrease by approximately $ 29.4 million in the next twelve months as a result of the resolution of tax examinations. The Inflation Reduction Act of 2022 (“IRA”), enacted on August 16, 2022, is not currently anticipated to have a material impact on the Company’s provision for income taxes. 12. SEGMENT INFORMATION The Company has five operating segments: Index, Analytics, ESG and Climate, Real Assets and The Burgiss Group, LLC (“Burgiss”), which are presented as the following four reportable segments: Index, Analytics, ESG and Climate and All Other – Private Assets. During the three months ended June 30, 2022, the Company renamed the Real Estate operating segment to Real Assets. The Index operating segment offers equity and fixed income indexes. The indexes are used in many areas of the investment process, including indexed product creation (e.g., Exchange Traded Funds (“ETFs”), mutual funds, annuities, futures, options, structured products and over-the-counter derivatives), performance benchmarking, portfolio construction and rebalancing, and asset allocation. The Analytics operating segment offers risk management, performance attribution and portfolio management content, applications and services that provide clients with an integrated view of risk and return and tools for analyzing market, credit, liquidity, counterparty and climate risk across all major asset classes, spanning short-, medium- and long-term time horizons. Clients access Analytics tools and content through MSCI’s proprietary applications and application programming interfaces, third-party applications or directly through their own platforms. Additionally, the Analytics operating segment also provides various managed services to help clients operate more efficiently, including consolidation of client portfolio data from various sources, review and reconciliation of input data and results, and customized reporting. The ESG and Climate operating segment offers products and services that help institutional investors understand how ESG and climate considerations can impact the long-term risk and return of their portfolio and individual security-level investments. In addition, the ESG and Climate operating segment provides data, ratings, research and tools to help investors navigate increasing regulation, meet new client demands and better integrate ESG and climate elements into their investment processes. The Real Assets operating segment offers real estate market and transaction data, benchmarks, return-analytics, climate assessments and market insights for funds, investors, managers and other real estate market participants. In addition, Real Assets performance and risk analytics range from enterprise-wide to property-specific analysis. The Real Assets operating segment also provides business intelligence products to real estate owners, managers, developers and brokers worldwide. The Burgiss operating segment represents the Company’s equity method investment in Burgiss, a global provider of investment decision support tools for private capital. The Chief Operating Decision Maker (“CODM”) measures and evaluates reportable segments based on segment operating revenues as well as Adjusted EBITDA and other measures. The Company excludes the following items from segment Adjusted EBITDA: provision for income taxes, other expense (income), net, depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments, including certain non-recurring acquisition-related integration and transaction costs, that the CODM does not consider for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although these amounts are excluded from segment Adjusted EBITDA, they are included in reported consolidated net income and are included in the reconciliation that follows. The following table presents operating revenues by reportable segment for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) Operating revenues Index $ 322,240 $ 321,503 $ 973,948 $ 919,957 Analytics 144,915 136,298 426,396 406,217 ESG and Climate 57,595 43,691 164,752 117,749 All Other - Private Assets 35,889 15,607 107,294 49,779 Total $ 560,639 $ 517,099 $ 1,672,390 $ 1,493,702 21 Table of Contents The following table presents segment profitability and a reconciliation to net income for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) Index Adjusted EBITDA $ 245,967 $ 245,587 $ 737,012 $ 698,934 Analytics Adjusted EBITDA 67,634 50,291 181,484 145,836 ESG and Climate Adjusted EBITDA 15,910 9,820 42,334 20,585 All Other - Private Assets Adjusted EBITDA 11,450 897 29,819 12,775 Total operating segment profitability 340,961 306,595 990,649 878,130 Amortization of intangible assets 23,375 14,105 67,274 59,569 Depreciation and amortization of property, equipment and leasehold improvements 7,127 6,809 20,426 20,972 Acquisition-related integration and transaction costs (1) 928 5,451 4,059 5,451 Operating income 309,531 280,230 898,890 792,138 Other expense (income), net 40,327 79,580 120,711 179,765 Provision for income taxes 52,612 30,774 122,577 80,255 Net income $ 216,592 $ 169,876 $ 655,602 $ 532,118 ___________________________ (1) Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction. Operating revenues by geography are based on the shipping address of the ultimate customer utilizing the product. The following table presents operating revenues by geographic area for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) Operating revenues Americas: United States $ 233,196 $ 213,756 $ 696,284 $ 611,226 Other 24,450 22,060 70,559 63,259 Total Americas 257,646 235,816 766,843 674,485 Europe, the Middle East and Africa ("EMEA"): United Kingdom 88,681 87,101 264,854 250,984 Other 125,607 113,102 379,695 332,554 Total EMEA 214,288 200,203 644,549 583,538 Asia & Australia: Japan 21,784 23,384 67,817 68,019 Other 66,921 57,696 193,181 167,660 Total Asia & Australia 88,705 81,080 260,998 235,679 Total $ 560,639 $ 517,099 $ 1,672,390 $ 1,493,702 22 Table of Contents Long-lived assets consist of property, equipment and leasehold improvements, right of use assets and internally developed capitalized software, net of accumulated depreciation and amortization. The following table presents long-lived assets by geographic area on the dates indicated: As of September 30, December 31, 2022 2021 (in thousands) Long-lived assets Americas: United States $ 177,089 $ 167,870 Other 12,272 13,480 Total Americas 189,361 181,350 EMEA: United Kingdom 18,552 19,563 Other 22,376 34,240 Total EMEA 40,928 53,803 Asia & Australia: Japan 657 1,150 Other 34,930 31,873 Total Asia & Australia 35,587 33,023 Total $ 265,876 $ 268,176 13. SUBSEQUENT EVENTS Subsequent to the three months ended September 30, 2022 and through trade date of October 24, 2022, the Company repurchased an additional 0.2 million shares of common stock at an average price of $ 430.07 per share for a total value of $ 70.1 million. On October 24, 2022, the Board of Directors declared a quarterly cash dividend of $ 1.25 per share for the three months ending December 31, 2022 (“fourth quarter 2022”). The fourth quarter 2022 dividend is payable on November 30, 2022 to shareholders of record as of the close of trading on November 10, 2022 . 23 Table of Contents