Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those described below. Such risks and uncertainties include, but are not limited to, those identified below and those described in Part 1, Item 1A. “Risk Factors,” within this Annual Report on Form 10-K.

Overview

We are a leading provider of mission-critical investment decision support tools and services — we power investors to make better decisions about their investment portfolios. Our tools and services help investors better understand the drivers of risk and return and build portfolios to more effectively and efficiently achieve their investment objectives. We are able to do this by leveraging our knowledge of the global investment process and our expertise in research, data, and technology in order to deliver actionable solutions to our clients. We are dynamic and flexible in the delivery of our content and capabilities, such as our indexes; portfolio construction tools and risk-management services; ESG research and ratings; and real estate benchmarks, return analytics services and market insights; much of which can be accessed by our clients through multiple channels and platforms.

Our clients comprise a wide spectrum of the global investment industry and include the following key client segments: asset owners (pension funds, endowments, foundations, central banks, sovereign wealth funds, family offices and insurance companies), asset managers (institutional, mutual funds, hedge funds, ETFs, insurance, private wealth, private banks and real estate investment trusts), financial intermediaries (banks, broker-dealers, exchanges, custodians, trust companies and investment consultants) and wealth managers (including an increasing number of “robo-advisors”).

Through a combined use of the content and capabilities provided by each of our operating segments — Index, Analytics, ESG and Real Estate — our clients gain a broad view of the global investment industry, which enables them to manage their investment objectives across multiple asset classes in an increasingly integrated manner.

As of December 31, 2018, we had over 7,000 clients across 90 countries. To calculate the number of clients, we use the shipping address of the ultimate customer utilizing the product which counts affiliates, user locations, or business units within a single organization as separate clients. If we aggregate all related clients under their respective parent entity, the number of clients would be over 4,000 as of December 31, 2018. As of December 31, 2018, we had offices in 31 cities in 21 countries to help serve our diverse client base, with 50.2% of our revenues coming from clients in the Americas, 35.4% in Europe, the Middle East and Africa (“EMEA”) and 14.4% in Asia and Australia.

Our principal business model is generally to license annual, recurring subscriptions for the majority of our Index, Analytics and ESG products and services for a fee due in advance of the service period. We also license annual recurring subscriptions for the majority of our Real Estate products for a fee which is primarily paid in arrears after the product is delivered, with the exception of the Market Information product for which the fees are generally paid in advance. Recurring fees may vary based on a number of factors including by product or service, number of users or volume of services. Our recurring client contracts do not have a financing component and the consideration received is typically not variable. A portion of our fees are variable and comes from clients who use our indexes as the basis for index-linked investment products, such as ETFs, passively managed funds and separate accounts. These clients commonly pay us a license fee, typically in arrears, primarily based on the AUM in their investment products and these fees are typically variable. We also have variable fees from certain exchanges that use our indexes as the basis for futures and options contracts and pay us in arrears, primarily based on the volume of trades or number of instruments. We also realize one-time fees commonly related to customized reports, historical data sets, certain derivative financial products and certain implementation and consulting services, as well as from particular products and services that are purchased on a non-renewal basis.

In evaluating our financial performance, we focus on revenue and profit growth, including results accounted for under accounting principles generally accepted in the United States (“GAAP”) as well as non-GAAP measures, for the Company as a whole and by operating segment. In addition, we focus on operating metrics, including Run Rate, subscription sales and Retention Rate to manage the business. Our business is not highly capital intensive and, as such, we expect to continue to convert a high percentage of our profits into excess cash in the future. Our growth strategy includes: (a) expanding leadership in research-enhanced content, (b) strengthening existing and new client relationships by providing solutions, (c) improving access to our solutions through cutting-edge technology and platforms, (d) expanding value-added service offerings and (e) executing strategic relationships and acquisitions with complementary content and technology companies.

Key Financial Metrics and Drivers

As discussed in the previous section, we utilize a portfolio of key financial metrics to manage the Company, including GAAP and non-GAAP measures. As detailed below, we review revenues by type and by segment, or major product line. We also review expenses by activity, which provides more transparency into how resources are being deployed. In addition, we utilize operating metrics including Run Rate, subscription sales and Retention Rate to analyze past performance and to provide insight into our latest reported portfolio of recurring business.

In the discussion that follows, we provide certain variances excluding the impact of foreign currency exchange rate fluctuations. Foreign currency exchange rate fluctuations reflect the difference between the current period results as reported compared to the current period results recalculated using the foreign currency exchange rates in effect for the comparable prior period. While operating revenues adjusted for the impact of foreign currency fluctuations includes asset-based fees that have been adjusted for the impact of foreign currency fluctuations, the underlying AUM, which is the primary component of asset-based fees, is not adjusted for foreign currency fluctuations. Approximately two-thirds of the AUM are invested in securities denominated in currencies other than the U.S. dollar, and accordingly, any such impact is excluded from the disclosed foreign currency adjusted variances.

Revenues

Our revenues are characterized by type, which broadly reflects the nature of how they are recognized or earned. Our revenue types are recurring subscription, asset-based fees and non-recurring revenues. We also group our revenues by segment and provide the revenue type within each segment. See Part 1, Item 1. “Business—Our Operating Segments” above for additional details on the products and services that we offer.

Recurring subscription revenues represent fees earned from clients primarily under renewable contracts or agreements and are recognized in most cases ratably over the term of the license or service pursuant to the contract terms. The contracts state the terms under which these fees are to be calculated. The fees are recognized as we provide the product and service to the client over the license period and are generally billed in advance, prior to the license start date.

Asset-based fees represent fees earned on the AUM linked to our indexes from independent third-party sources or the most recently reported information provided by the client. Asset-based fees also include revenues related to futures and options contracts linked to our indexes, which are primarily based on trading volumes.

Non-recurring revenues primarily represent fees earned on products and services where we do not have renewal contracts and primarily include revenues for providing historical data, certain implementation services and other special client requests.

Effective January 1, 2018, MSCI adopted the new revenue standard as set forth under ASC Subtopic 606-10, “Revenue from Contracts with Customers.” See Note 1, “Introduction and Basis of Presentation—Significant Accounting Policies—Revenue Recognition,” of the Notes to the Consolidated Financial Statements included herein for further information on our revenue recognition policy.

Operating Expenses

We group our operating expenses into the following activity categories:

	•	Cost of revenues;

	•	Selling and marketing;

	•	Research and development (“R&D”);

	•	General and administrative (“G&A”);

	•	Amortization of intangible assets; and

	•	Depreciation and amortization of property, equipment and leasehold improvements.

Costs are assigned to these activity categories based on the nature of the expense or, when not directly attributable, an estimate is allocated based on the type of effort involved.

Cost of Revenues

Cost of revenues consists of costs related to the production and servicing of our products and services and primarily includes related information technology costs, including data center, platform and infrastructure costs; costs to acquire, produce and maintain market data information; costs of research to support and maintain existing products; costs of product management teams; costs of client service and consultant teams to support customer needs; as well as other support costs directly attributable to the cost of revenues including certain human resources, finance and legal costs.

Selling and Marketing

Selling and marketing expenses consist of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales force and marketing teams, as well as costs incurred in other groups associated with acquiring new business, including product management, research, technology and sales operations.

Research and Development

R&D expenses consist of costs to develop new or enhance existing products and the costs to develop new or improved technology and service platforms for the delivery of our products and services and primarily include the costs of development, research, product management, project management and the technology support associated with these efforts.

General and Administrative

G&A expenses consist of costs primarily related to finance operations, human resources, office of the CEO, legal, corporate technology, corporate development and certain other administrative costs that are not directly attributed, but are instead allocated, to a product or service.

Amortization of Intangible Assets

Amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and internal capitalized software projects. Intangibles arising from past acquisitions consist of customer relationships, trademarks and trade names, technology and software, proprietary processes and data and non-competition agreements. We amortize definite-lived intangible assets over their estimated useful lives. Definite-lived intangible assets are tested for impairment when impairment indicators are present, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. We have no indefinite-lived intangible assets.

Depreciation and amortization of property, equipment and leasehold improvements

This category consists of expenses related to depreciating or amortizing the cost of furniture and fixtures, computer and related equipment and leasehold improvements over the estimated useful life of the assets.

Other Expense (Income), net

This category consists primarily of interest we pay on our outstanding indebtedness, interest we collect on cash and short-term investments, foreign currency exchange rate gains and losses as well as other non-operating income and expense items.

Non-GAAP Financial Measures

Adjusted EBITDA

“Adjusted EBITDA,” a measure used by management to assess operating performance, is defined as net income before (1) provision for income taxes, (2) other expense (income), net, (3) depreciation and amortization of property, equipment and leasehold improvements, (4) amortization of intangible assets and, at times, (5) certain other transactions or adjustments.

“Adjusted EBITDA expenses,” a measure used by management to assess operating performance, is defined as operating expenses less depreciation and amortization of property, equipment and leasehold improvements and amortization of intangible assets and, at times, certain other transactions or adjustments.

Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures of the operating performance of the Company because they adjust for significant one-time, unusual or non-recurring items as well as eliminate the accounting effects of capital spending and acquisitions that do not directly affect what management considers to be the Company’s core operating performance in the period. All companies do not calculate adjusted EBITDA and adjusted EBITDA expenses in the same way. These measures can differ significantly from company to company depending on, among other things, long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. Accordingly, the Company’s computation of the Adjusted EBITDA and Adjusted EBITDA expenses measures may not be comparable to similarly titled measures computed by other companies.

Run Rate

Run Rate is a key operating metric and is important because an increase or decrease in our Run Rate ultimately impacts our operating revenues over time. At the end of any period, we generally have subscription and investment product license agreements in place for a large portion of total revenues for the following 12 months. We measure the fees related to these agreements and refer to this as “Run Rate.” See “—Operating Metrics—Run Rate” below for additional information on the calculation of this metric.

Subscription Sales

Subscription sales is a key operating metric and is important because new subscription sales increase our Run Rate and ultimately our operating revenues over time. See “—Operating Metrics—Subscription Sales” below for additional information.

Retention Rate

Another key operating metric is Retention Rate which is important because subscription cancellations decrease our Run Rate and ultimately our operating revenues over time. See “—Operating Metrics—Retention Rate” below for additional information on the calculation of this metric.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We believe the estimates and judgments upon which we rely are reasonable based upon information available to us at the time these estimates and judgments are made. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected. See Note 1, “Introduction And Basis Of Presentation—Significant Accounting Policies,” and Note 2, “Recent Accounting Standards Updates,” of the Notes to the Consolidated Financial Statements included herein for a listing of our accounting policies.

Factors Affecting the Comparability of Results

Divestitures

On August 1, 2016, we completed the divestiture of our Real Estate occupiers business, which was included as a component of the All Other segment through the date of divestiture. The value of the disposed assets and liabilities and the resulting gain on disposal were not material to the Company.

On April 9, 2018, we completed the divestiture of FEA for $21.0 million in cash, which resulted in a gain of $10.6 million. FEA was included as a component of the Analytics segment through the date of divestiture. The results of operations from FEA were not material to the Company.

On October 12, 2018, we completed the divestiture of InvestorForce and received $62.8 million in cash, subject to a working capital adjustment, which resulted in a gain of $46.6 million. InvestorForce was included as a component of the Analytics segment through the date of divestiture. The results of operations from InvestorForce were not material to the Company.

Share Repurchases

The Board of Directors has approved a stock repurchase program for the purchase of the Company’s common stock. See Note 9, “Shareholders’ Equity (Deficit),” of the Notes to Consolidated Financial Statements included herein for additional information on our stock repurchase program.

For the year ended December 31, 2016, the Company repurchased approximately 10.3 million shares at an average price of $73.71 per share for a total value of $759.4 million pursuant to open market repurchases.

For the year ended December 31, 2017, the Company repurchased approximately 1.6 million shares at an average price of $87.96 per share for a total value of $136.9 million pursuant to open market repurchases.

For the year ended December 31, 2018, the Company repurchased approximately 6.2 million shares at an average price of $148.34 per share for a total value of $925.0 million pursuant to open market repurchases.

The weighted average shares outstanding used to calculate our diluted earnings per share for the year ended December 31, 2018 decreased by 2.4% compared to the year ended December 31, 2017, and by 4.8% for the year ended December 31, 2017 compared to the year ended December 31, 2016. The decreases in both periods primarily reflect the impact of share repurchases made pursuant to the 2016 and 2018 Repurchase Programs, partially offset by the impact of higher dilution, primarily caused by restricted stock units for which the ultimate payout is tied to the achievement of multi-year total shareholder return targets.

Senior Notes and Credit Agreement

We have issued an aggregate of $2.6 billion in Senior Notes and entered into a $250 million Revolving Credit Agreement with a syndicate of banks. See “–Liquidity and Capital Resources–Senior Notes and Credit Agreement” below and Note 5, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements included herein for additional information on our Senior Notes and Revolving Credit Agreement.

Tax Cuts and Jobs Act of 2017

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform”). Tax Reform significantly revised the U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system and imposing a one-time tax on deemed repatriation of historic earnings of foreign subsidiaries (the “Toll Charge”).

In the year ended December 31, 2017, as part of Tax Reform, the Company recorded a provisional net charge to the provision for income taxes of $34.5 million for the year ended December 31, 2017. The net charge of $34.5 million primarily included an estimated tax charge of approximately $47.5 million related to the Toll Charge and an estimated tax charge of approximately $16.0 million related to a change in assertion that profits were permanently reinvested overseas as of December 31, 2017, partially offset by an estimated tax benefit of approximately $29.0 million related to the revaluation of deferred taxes at the now-lower statutory corporate rate.

In the year ended December 31, 2018, the Company finalized the Toll Charge and determined the final impact of Tax Reform resulting in a net benefit of $11.2 million that included a benefit of $5.7 million on the true-up of the Toll Charge and a benefit of $2.6 million for a reduction in the expected withholding taxes from foreign subsidiaries. The Company also recorded a benefit of $2.9 million related to the revaluation of deferred taxes at the lower statutory rate as a result of tax planning. The cumulative net charge of Tax Reform was $23.3 million.

Basis of Presentation

Certain prior period amounts have been reclassified to conform to the current period presentation.

Results of Operations

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

The following table presents the results of operations for the years indicated:

	Years Ended
	December 31,			December 31,
	2018			2017			Increase/(Decrease)
	(in thousands, except per share data)
Operating revenues	$	1,433,984		$	1,274,172		$	159,812		12.5	%
Operating expenses:
Cost of revenues		287,335			273,681			13,654		5.0	%
Selling and marketing		192,923			177,121			15,802		8.9	%
Research and development		81,411			75,849			5,562		7.3	%
General and administrative		99,882			87,764			12,118		13.8	%
Amortization of intangible assets		54,189			44,547			9,642		21.6	%
Depreciation and amortization of property, equipment and leasehold improvements		31,346			35,440			(4,094	)	(11.6	%)
Total operating expenses		747,086			694,402			52,684		7.6	%
Operating income		686,898			579,770			107,128		18.5	%
Other expense (income), net		57,002			112,871			(55,869	)	(49.5	%)
Income before provision for income taxes		629,896			466,899			162,997		34.9	%
Provision for income taxes		122,011			162,927			(40,916	)	(25.1	%)
Net income	$	507,885		$	303,972		$	203,913		67.1	%

Earnings per basic common share	$	5.83		$	3.36		$	2.47		73.5	%

Earnings per diluted common share	$	5.66		$	3.31		$	2.35		71.0	%

Operating margin		47.9	%		45.5	%

Operating Revenues

Our revenues are grouped by the following types: recurring subscription, asset-based fees and non-recurring revenues. We also group revenues by major product lines as follows: Index, Analytics and All Other, which includes the ESG and Real Estate product lines.

The following table presents operating revenues by recurring subscriptions, asset-based fees and non-recurring revenues for the years indicated:

	Years Ended
	December 31,		December 31,
	2018			2017	Increase/(Decrease)
	(in thousands)
Recurring subscriptions	$	1,066,536	$	973,023	$	93,513	9.6	%
Asset-based fees		336,565		276,092		60,473	21.9	%
Non-recurring		30,883		25,057		5,826	23.3	%
Total operating revenues	$	1,433,984	$	1,274,172	$	159,812	12.5	%

Total operating revenues grew 12.5% to $1,434.0 million for the year ended December 31, 2018 compared to $1,274.2 million for the year ended December 31, 2017. Adjusting for the impact of foreign currency exchange rate fluctuations, total operating revenues would have increased 12.4% for the year ended December 31, 2018 compared to the year ended December 31, 2017.

Revenue from recurring subscriptions increased 9.6% to $1,066.5 million for the year ended December 31, 2018 compared to $973.0 million for the year ended December 31, 2017, primarily driven by growth in Index products, which increased $50.3 million, or 11.8%, and growth in Analytics products, which increased $22.1 million, or 4.9%. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptions would have increased 9.4% for the year ended December 31, 2018 compared to the year ended December 31, 2017.

Revenues from asset-based fees increased 21.9% to $336.6 million for the year ended December 31, 2018 compared to $276.1 million for the year ended December 31, 2017. The increase in asset-based fees was driven by strong growth across all types of index-linked investment products, including a $34.7 million, or 18.2%, increase in revenue from ETFs linked to MSCI indexes, which was driven by a 21.9% increase in average AUM, partially offset by the impact of a change in product mix. In addition, revenue from non-ETF passive products grew $22.0 million, or 30.3%, primarily driven by higher AUM and an increased contribution from higher-fee products. Revenues from exchange traded futures and options contracts based on MSCI indexes grew $3.8 million, or 28.2%, driven, in part, by an increase in total trading volumes. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.

The following table presents the value of AUM in ETFs linked to MSCI indexes and the sequential change of such assets as of the end of each of the periods indicated:

	Period Ended (1)
	2017								2018
(in billions)	March 31,		June 30,		September 30,		December 31,		March 31,			June 30,			September 30,		December 31,
AUM in ETFs linked to MSCI indexes (2), (3)	$	555.7	$	624.3	$	674.3	$	744.3	$	764.9		$	744.7		$	765.5	$	695.6
Sequential Change in Value
Market Appreciation/ (Depreciation)	$	35.8	$	23.6	$	32.2	$	32.0	$	(11.7	)	$	(19.4	)	$	15.6	$	(94.7	)
Cash Inflows		38.5		45.0		17.8		38.0		32.3			(0.8	)		5.2		24.8
Total Change	$	74.3	$	68.6	$	50.0	$	70.0	$	20.6		$	(20.2	)	$	20.8	$	(69.9	)

Source: Bloomberg and MSCI

(1)	The historical values of the assets in ETFs linked to our indexes as of the last day of the month and the monthly average balance can be found under the link “AUM in ETFs Linked to MSCI indexes” on our

	Investor Relations homepage at http://ir.msci.com. This information is updated on or about the second U.S. business day of each month. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report filed with the SEC.

(2)	The value of assets under management in ETFs linked to MSCI Indexes is calculated by multiplying the ETF net asset value by the number of shares outstanding.

(3)	The AUM in ETFs numbers also include AUM in Exchange Traded Notes, the value of which is less than 1.0% of the AUM amounts presented.

The following table presents the average value of AUM in ETFs linked to MSCI indexes for the periods indicated:

	Year-to-Date Average (1)
	2017								2018
	March		June		September		December		March		June		September		December
AUM in ETFs linked to MSCI Indexes	$	524.1	$	559.5	$	591.1	$	621.4	$	779.5	$	778.0	$	770.6	$	757.2
_____________
Source: Bloomberg and MSCI
(1)For additional information on AUM amounts presented in this table, please refer to the footnotes in the table presenting AUM in ETFs linked to MSCI equity indexes for "Period Ended" in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Operating Revenues."

For the year ended December 31, 2018, the average value of AUM in ETFs linked to MSCI equity indexes was $757.2 billion, up $135.8 billion, or 21.9%, from $621.4 billion for the year ended December 31, 2017.

Non-recurring revenues increased 23.3% to $30.9 million for the year ended December 31, 2018, compared to $25.1 million for the year ended December 31, 2017, primarily driven by growth in Index products, which increased $5.7 million, or 36.7%.

The following table presents operating revenues by reportable segment and revenue type for the years indicated:

	Years Ended
	December 31,		December 31,
	2018			2017	Increase/(Decrease)
	(in thousands)
Operating revenues:
Index
Recurring subscriptions	$	477,612	$	427,289	$	50,323		11.8	%
Asset-based fees		336,565		276,092		60,473		21.9	%
Non-recurring		21,298		15,578		5,720		36.7	%
Index total		835,475		718,959		116,516		16.2	%
Analytics
Recurring subscriptions		474,334		452,253		22,081		4.9	%
Non-recurring		5,605		6,016		(411	)	(6.8	%)
Analytics total		479,939		458,269		21,670		4.7	%
All Other
Recurring subscriptions		114,590		93,481		21,109		22.6	%
Non-recurring		3,980		3,463		517		14.9	%
All Other total		118,570		96,944		21,626		22.3	%
Total operating revenues	$	1,433,984	$	1,274,172	$	159,812		12.5	%

Refer to the section titled, “Segment Results of Operations” for an explanation of the results.

Operating Expenses

Operating expenses increased 7.6% to $747.1 million for the year ended December 31, 2018 compared to $694.4 million for the year ended December 31, 2017. Adjusting for the impact of foreign currency exchange rate fluctuations, total operating expenses would have increased 7.3% for the year ended December 31, 2018 compared to the year ended December 31, 2017.

The following table presents operating expenses by activity for the years indicated:

	Years Ended
	December 31,		December 31,
	2018		2017		Increase/(Decrease)
	(in thousands)
Operating expenses:
Cost of revenues	$	287,335	$	273,681	$	13,654		5.0	%
Selling and marketing		192,923		177,121		15,802		8.9	%
Research and development		81,411		75,849		5,562		7.3	%
General and administrative		99,882		87,764		12,118		13.8	%
Amortization of intangible assets		54,189		44,547		9,642		21.6	%
Depreciation and amortization of property, equipment and leasehold improvements		31,346		35,440		(4,094	)	(11.6	%)
Total operating expenses	$	747,086	$	694,402	$	52,684		7.6	%

Cost of Revenues

Cost of revenues for the year ended December 31, 2018 increased 5.0% to $287.3 million compared to $273.7 million for the year ended December 31, 2017, reflecting increases across all reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to benefits, incentive compensation and wages and salaries, as well as increases in non-compensation costs, including professional fees, market data costs, miscellaneous expenses and information technology costs.

Selling and Marketing

Selling and marketing expenses for the year ended December 31, 2018 increased 8.9% to $192.9 million compared to $177.1 million for the year ended December 31, 2017, reflecting increases in the Index and All Other segments. The change was driven by increases in compensation and benefits costs, as well as increases in non-compensation costs, including marketing and occupancy costs, partially offset by lower miscellaneous expenses.

Research and Development

R&D expenses for the year ended December 31, 2018 increased 7.3% to $81.4 million compared to $75.8 million for the year ended December 31, 2017, reflecting higher investments across all reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to incentive compensation, benefits, and wages and salaries, as well as increases in non-compensation costs, including information technology, occupancy and travel and entertainment costs and professional fees.

General and Administrative

G&A expenses for the year ended December 31, 2018 increased 13.8% to $99.9 million compared to $87.8 million for the year ended December 31, 2017, reflecting increases across all reportable segments. The change was driven by increases in non-compensation costs primarily relating to professional fees, non-income taxes and miscellaneous fees, as well as increases in compensation and benefits costs, primarily due to higher wages and salaries, incentive compensation and benefits.

The following table presents operating expenses using compensation and non-compensation categories, rather than using activity categories, for the years indicated:

	Years Ended
	December 31,		December 31,
	2018		2017		Increase/(Decrease)
	(in thousands)
Compensation and benefits	$	471,655	$	440,307	$	31,348		7.1	%
Non-compensation expenses		189,896		174,108		15,788		9.1	%
Amortization of intangible assets		54,189		44,547		9,642		21.6	%
Depreciation and amortization of property, equipment and leasehold improvements		31,346		35,440		(4,094	)	(11.6	%)
Total operating expenses	$	747,086	$	694,402	$	52,684		7.6	%

Compensation and benefits costs are our most significant expense and typically represent more than 60% of operating expenses or more than 70% of Adjusted EBITDA expenses. We had 3,112 employees as of December 31, 2018 compared to 3,038 employees as of December 31, 2017, reflecting a 2.4% growth in the number of employees. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefits costs. As of December 31, 2018, 61.4% of our employees were located in emerging market centers compared to 59.0% as of December 31, 2017.

Compensation and benefits costs for the year ended December 31, 2018 increased 7.1% to $471.7 million compared to $440.3 million for the year ended December 31, 2017, primarily driven by increases in incentive compensation, wages and salaries and benefits, partially offset by lower severance.

Non-compensation expenses for the year ended December 31, 2018 increased 9.1% to $189.9 million compared to $174.1 million for the year ended December 31, 2017, primarily driven by higher professional fees, information technology, market data, occupancy, non-income taxes and travel and entertainment costs and miscellaneous fees.

Amortization of Intangibles

Amortization of intangible asset expense for the year ended December 31, 2018 increased 21.6% to $54.2 million compared to $44.5 million for the year ended December 31, 2017. The increase during the year was due to a $7.9 million non-cash charge related to the write-off of the IPD tradename used by the Real Estate segment, as well as higher amortization of capitalized software development costs released into production, partially offset by other intangible assets becoming fully amortized.

Depreciation and amortization of property, equipment and leasehold improvements

Depreciation and amortization of property, equipment and leasehold improvements for the year ended December 31, 2018 decreased 11.6% to $31.3 million compared to $35.4 million for the year ended December 31, 2017. The decrease was primarily the result of certain storage and data center assets becoming fully depreciated.

Other Expense (Income), Net

Other expense (income), net for the year ended December 31, 2018 decreased 49.5% to $57.0 million compared to $112.9 million for the year ended December 31, 2017, primarily reflecting the impact of the $10.6 million and $46.6 million gains realized from the FEA and InvestorForce divestitures, respectively. In addition, higher interest expense associated with higher outstanding debt, was partially offset by higher interest income associated with higher yields on higher cash balances.

Income Taxes

The provision for income tax expense decreased 25.1% to $122.0 million for the year ended December 31, 2018 compared to $162.9 million for the year ended December 31, 2017, primarily relating to the year-over-year change of $45.7 million attributed to Tax Reform. In addition, the Company benefited from a lower U.S. statutory tax rate of 21.0% for the year ended December 31, 2018 compared to 35.0% for the year ended December 31, 2017, as well as tax planning to reduce withholding taxes on repatriation of foreign earnings. These amounts reflect effective tax rates of 19.4% and 34.9% for the years ended December 31, 2018 and 2017, respectively.

Included in the effective tax rate of 19.4% for the year ended December 31, 2018 is a 1.8 percentage point benefit related to Tax Reform, a 6.9 percentage point benefit related to the reduction in the operating tax rate and a 1.9 percentage point benefit as a result of tax planning and other miscellaneous favorable discrete items.

Net Income

As a result of the factors described above, net income for the year ended December 31, 2018 increased 67.1% to $507.9 million compared to $304.0 million for the year ended December 31, 2017.

Adjusted EBITDA

The following table presents the calculation of the non-GAAP Adjusted EBITDA measure for the years indicated:

	Years Ended
	December 31,			December 31,
	2018			2017			Increase/(Decrease)
	(in thousands)
Operating revenues:	$	1,433,984		$	1,274,172		$	159,812	12.5	%
Adjusted EBITDA expenses		661,551			614,415			47,136	7.7	%
Adjusted EBITDA	$	772,433		$	659,757		$	112,676	17.1	%
Adjusted EBITDA margin %		53.9	%		51.8	%
Operating margin %		47.9	%		45.5	%

Adjusted EBITDA increased 17.1% to $772.4 million for the year ended December 31, 2018 compared to $659.8 million for the year ended December 31, 2017. Adjusted EBITDA margin increased to 53.9% for the year ended December 31, 2018 compared to 51.8% for the year ended December 31, 2017. The improvement in margin reflects a higher rate of growth in operating revenues, primarily attributable to the Index segment, as compared to the rate of growth of Adjusted EBITDA expenses.

Reconciliation of Adjusted EBITDA to Net Income and Adjusted EBITDA Expenses to Operating Expenses

The following table presents the reconciliation of Adjusted EBITDA to net income for the years indicated:

	Years Ended
	December 31,		December 31,
	2018		2017		Increase/(Decrease)
	(in thousands)
Index Adjusted EBITDA	$	607,853	$	522,241	$	85,612		16.4	%
Analytics Adjusted EBITDA		143,645		125,624		18,021		14.3	%
All Other Adjusted EBITDA		20,935		11,892		9,043		76.0	%
Consolidated Adjusted EBITDA		772,433		659,757		112,676		17.1	%
Amortization of intangible assets		54,189		44,547		9,642		21.6	%
Depreciation and amortization of property, equipment and leasehold improvements		31,346		35,440		(4,094	)	(11.6	%)
Operating income		686,898		579,770		107,128		18.5	%
Other expense (income), net		57,002		112,871		(55,869	)	(49.5	%)
Provision for income taxes		122,011		162,927		(40,916	)	(25.1	%)
Net income	$	507,885	$	303,972	$	203,913		67.1	%

The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the years indicated:

	Years Ended
	December 31,		December 31,
	2018		2017		Increase/(Decrease)
	(in thousands)
Index Adjusted EBITDA expenses	$	227,622	$	196,718	$	30,904		15.7	%
Analytics Adjusted EBITDA expenses		336,294		332,645		3,649		1.1	%
All Other Adjusted EBITDA expenses		97,635		85,052		12,583		14.8	%
Consolidated Adjusted EBITDA expenses		661,551		614,415		47,136		7.7	%
Amortization of intangible assets		54,189		44,547		9,642		21.6	%
Depreciation and amortization of property, equipment and leasehold improvements		31,346		35,440		(4,094	)	(11.6	%)
Total operating expenses	$	747,086	$	694,402	$	52,684		7.6	%

Segment Results

The results for each of our three reportable segments for the years ended December 31, 2018 and 2017 are presented below:

Index Segment

The following table presents the results for the Index segment for the years indicated:

	Years Ended
	December 31,			December 31,
	2018			2017			Increase/(Decrease)
	(in thousands)
Operating revenues:
Recurring subscriptions	$	477,612		$	427,289		$	50,323	11.8	%
Asset-based fees		336,565			276,092			60,473	21.9	%
Non-recurring		21,298			15,578			5,720	36.7	%
Operating revenues total		835,475			718,959			116,516	16.2	%
Adjusted EBITDA expenses		227,622			196,718			30,904	15.7	%
Adjusted EBITDA	$	607,853		$	522,241		$	85,612	16.4	%
Adjusted EBITDA margin %		72.8	%		72.6	%

Revenues related to Index products increased 16.2% to $835.5 million for the year ended December 31, 2018 compared to $719.0 million for the year ended December 31, 2017.

Revenues from recurring subscriptions were up 11.8% to $477.6 million for the year ended December 31, 2018 compared to $427.3 million for the year ended December 31, 2017. The increase was driven by growth in core products and strong growth in factor and ESG indexes and custom and specialized index products. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptions would have increased 11.7% for the year ended December 31, 2018 compared to the year ended December 31, 2017.

Index segment Adjusted EBITDA expenses increased 15.7% to $227.6 million for the year ended December 31, 2018 compared to $196.7 million for the year ended December 31, 2017, reflecting higher expenses across all expense activity categories to fund current and future revenue growth. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 15.4% for the year ended December 31, 2018 compared to the year ended December 31, 2017.

Analytics Segment

The following table presents the results for the Analytics segment for the years indicated:

	Years Ended
	December 31,			December 31,
	2018			2017			Increase/(Decrease)
	(in thousands)
Operating revenues:
Recurring subscriptions	$	474,334		$	452,253		$	22,081		4.9	%
Non-recurring		5,605			6,016			(411	)	(6.8	%)
Operating revenues total		479,939			458,269			21,670		4.7	%
Adjusted EBITDA expenses		336,294			332,645			3,649		1.1	%
Adjusted EBITDA	$	143,645		$	125,624		$	18,021		14.3	%
Adjusted EBITDA margin %		29.9	%		27.4	%

Analytics segment revenues increased 4.7% to $479.9 million for the year ended December 31, 2018 compared to $458.3 million for the year ended December 31, 2017, primarily driven by growth in both Equity and Multi-Asset Class Analytics products, partially offset by declines in Energy and Commodity Analytics products, resulting from the FEA divestiture, and declines from the divestiture of InvestorForce. Adjusting for foreign currency exchange rate fluctuations, Analytics segment revenues would have increased 4.6% for the year ended December 31, 2018 compared to the year ended December 31, 2017. Adjusting for foreign currency exchange rate fluctuations and excluding the impact of the divestiture of InvestorForce and FEA, Analytics segment revenues would have increased 7.0% for the year ended December 31, 2018 compared to the year ended December 31, 2017.

Analytics segment Adjusted EBITDA expenses increased 1.1% to $336.3 million for the year ended December 31, 2018 compared to $332.6 million for the year ended December 31, 2017, primarily reflecting higher expenses across the G&A and R&D expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 0.9% for the year ended December 31, 2018 compared to the year ended December 31, 2017.

All Other Segment

The following table presents the results for the All Other segment, which consists of the ESG and Real Estate product lines, for the years indicated:

	Years Ended
	December 31,			December 31,
	2018			2017			Increase/(Decrease)
	(in thousands)
Operating revenues:
Recurring subscriptions	$	114,590		$	93,481		$	21,109	22.6	%
Non-recurring		3,980			3,463			517	14.9	%
Operating revenues total		118,570			96,944			21,626	22.3	%
Adjusted EBITDA expenses		97,635			85,052			12,583	14.8	%
Adjusted EBITDA	$	20,935		$	11,892		$	9,043	76.0	%
Adjusted EBITDA margin %		17.7	%		12.3	%

All Other segment revenues increased 22.3% to $118.6 million for the year ended December 31, 2018 compared to $96.9 million for the year ended December 31, 2017. The increase in All Other revenues was driven by a $16.6 million, or 30.2%, increase in ESG revenues to $71.4 million, and a $5.1 million, or 12.0%, increase in Real Estate revenues to $47.2 million. The increase in ESG revenues was driven by strong growth in ESG Ratings product revenues. The increase in Real Estate revenues was primarily driven by higher revenues from Enterprise Analytics and Market Information products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG revenues would have increased 30.4%, Real Estate revenues would have increased 8.3% and All Other operating

revenues would have increased 20.8% for the year ended December 31, 2018 compared to the year ended December 31, 2017.

All Other segment Adjusted EBITDA expenses increased 14.8% to $97.6 million for the year ended December 31, 2018 compared to $85.1 million for the year ended December 31, 2017, primarily driven by higher expenses attributable to both ESG and Real Estate operations. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 14.6% for the year ended December 31, 2018 compared to the year ended December 31, 2017.

Results of Operations

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

The following table presents the results of operations for the years indicated:

	Years Ended
	December 31,			December 31,
	2017			2016			Increase/(Decrease)
	(in thousands, except per share data)
Operating revenues	$	1,274,172		$	1,150,669		$	123,503		10.7	%
Operating expenses:
Cost of revenues		273,681			252,107			21,574		8.6	%
Selling and marketing		177,121			166,666			10,455		6.3	%
Research and development		75,849			75,204			645		0.9	%
General and administrative		87,764			87,235			529		0.6	%
Amortization of intangible assets		44,547			47,033			(2,486	)	(5.3	%)
Depreciation and amortization of property, equipment and leasehold improvements		35,440			34,320			1,120		3.3	%
Total operating expenses		694,402			662,565			31,837		4.8	%
Operating income		579,770			488,104			91,666		18.8	%
Other expense (income), net		112,871			102,166			10,705		10.5	%
Income before provision for income taxes		466,899			385,938			80,961		21.0	%
Provision for income taxes		162,927			125,083			37,844		30.3	%
Income from continuing operations	$	303,972		$	260,855		$	43,117		16.5	%

Earnings per basic common share	$	3.36		$	2.72		$	0.64		23.5	%

Earnings per diluted common share	$	3.31		$	2.70		$	0.61		22.6	%

Operating margin		45.5	%		42.4	%

Operating Revenues

The following table presents operating revenues by recurring subscriptions, asset-based fees and non-recurring revenues for the years indicated:

	Years Ended
	December 31,		December 31,
	2017			2016	Increase/(Decrease)
	(in thousands)
Recurring subscriptions	$	973,023	$	913,668	$	59,355		6.5	%
Asset-based fees		276,092		210,229		65,863		31.3	%
Non-recurring		25,057		26,772		(1,715	)	(6.4	%)
Total operating revenues	$	1,274,172	$	1,150,669	$	123,503		10.7	%

Total operating revenues grew 10.7% to $1,274.2 million for the year ended December 31, 2017 compared to $1,150.7 million for the year ended December 31, 2016. Adjusting for the impact of foreign currency exchange rate fluctuations, total operating revenues would have increased 11.1% for the year ended December 31, 2017 compared to the year ended December 31, 2016.

Revenue from recurring subscriptions increased 6.5% to $973.0 million for the year ended December 31, 2017 compared to $913.7 million for the year ended December 31, 2016, primarily driven by growth in Index products, which increased $37.9 million, or 9.7%. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscription revenues would have increased 7.0% for the year ended December 31, 2017 compared to the year ended December 31, 2016.

Revenues from asset-based fees increased 31.3% to $276.1 million for the year ended December 31, 2017 compared to $210.2 million for the year ended December 31, 2016. The increase in asset-based fees was driven by several items, including a $48.2 million, or 33.9%, growth in revenue from ETFs linked to MSCI indexes, which was driven by a 39.2% increase in average AUM, partially offset by the impact of a change in the product mix. In addition, revenue from non-ETF passive products grew $14.0 million, or 23.8%, driven by higher AUM and an increased contribution from higher fee products. Revenues from exchange traded futures and options contracts based on MSCI indexes also grew $3.7 million, or 38.8%, driven by a strong increase in total trading volumes and a more favorable product mix.

The following table presents the value of AUM in ETFs linked to MSCI indexes and the sequential change of such assets as of the end of each of the periods indicated:

	Period Ended (1)
	2016											2017
(in billions)	March 31,			June 30,			September 30,		December 31,			March 31,		June 30,		September 30,		December 31,
AUM in ETFs linked to MSCI indexes (2), (3)	$	438.3		$	439.7		$	474.9	$	481.4		$	555.7	$	624.3	$	674.3	$	744.3
Sequential Change in Value
Market Appreciation/ (Depreciation)	$	(1.7	)	$	(2.5	)	$	23.7	$	(8.7	)	$	35.8	$	23.6	$	32.2	$	32.0
Cash Inflows		6.6			3.9			11.5		15.2			38.5		45.0		17.8		38.0
Total Change	$	4.9		$	1.4		$	35.2	$	6.5		$	74.3	$	68.6	$	50.0	$	70.0

Source: Bloomberg and MSCI

(1)

The historical values of the assets in ETFs linked to our indexes as of the last day of the month and the monthly average balance can be found under the link “AUM in ETFs Linked to MSCI indexes” on our Investor Relations homepage at http://ir.msci.com. This information is updated on or about the second U.S. business day of each month. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report filed with the SEC.

(2) The value of assets under management in ETFs linked to MSCI Indexes is calculated by multiplying the ETF net asset value by the number of shares outstanding.

(3) The AUM in ETFs numbers also include AUM in Exchange Traded Notes, the value of which is less than 1.0% of the AUM amounts presented.

	Year-to-Date Average (1)
	2016								2017
	March		June		September		December		March		June		September		December
AUM in ETFs linked to MSCI Indexes	$	407.9	$	423.5	$	438.1	$	446.4	$	524.1	$	559.5	$	591.1	$	621.4
______________
Source: Bloomberg and MSCI
(1) For additional information on AUM amounts presented in this table, please refer to the footnotes in the table presenting AUM in ETFs linked to MSCI equity indexes for "Period Ended" in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Operating Revenues."

For the year ended December 31, 2017, the average value of AUM in ETFs linked to MSCI equity indexes was $621.4 billion, up $175.0 billion, or 39.2%, from $446.4 billion for the year ended December 31, 2016.

Non-recurring revenues decreased 6.4% to $25.1 million for the year ended December 31, 2017, compared to $26.8 million for the year ended December 31, 2016, primarily resulting from lower one-time sales of Analytics products.

The following table presents operating revenues by reportable segment and revenue type for the years indicated:

	Years Ended
	December 31,		December 31,
	2017		2016		Increase/(Decrease)
	(in thousands)
Operating revenues:
Index
Recurring subscriptions	$	427,289	$	389,348	$	37,941		9.7	%
Asset-based fees		276,092		210,229		65,863		31.3	%
Non-recurring		15,578		13,974		1,604		11.5	%
Index total		718,959		613,551		105,408		17.2	%
Analytics
Recurring subscriptions		452,253		439,864		12,389		2.8	%
Non-recurring		6,016		8,489		(2,473	)	(29.1	%)
Analytics total		458,269		448,353		9,916		2.2	%
All Other
Recurring subscriptions		93,481		84,456		9,025		10.7	%
Non-recurring		3,463		4,309		(846	)	(19.6	%)
All Other total		96,944		88,765		8,179		9.2	%
Total operating revenues	$	1,274,172	$	1,150,669	$	123,503		10.7	%

Refer to the section titled, “Segment Results of Operations” for an explanation of the results.

Operating Expenses

Operating expenses increased 4.8% to $694.4 million for the year ended December 31, 2017 compared to $662.6 million for the year ended December 31, 2016. Adjusting for the impact of foreign currency exchange rate fluctuations, operating expenses would have increased 5.1% for the year ended December 31, 2017 compared to the year ended December 31, 2016.

The following table presents operating expenses by activity for the years indicated:

	Years Ended
	December 31,		December 31,
	2017		2016		Increase/(Decrease)
	(in thousands)
Operating expenses:
Cost of revenues	$	273,681	$	252,107	$	21,574		8.6	%
Selling and marketing		177,121		166,666		10,455		6.3	%
Research and development		75,849		75,204		645		0.9	%
General and administrative		87,764		87,235		529		0.6	%
Amortization of intangible assets		44,547		47,033		(2,486	)	(5.3	%)
Depreciation and amortization of property, equipment and leasehold improvements		35,440		34,320		1,120		3.3	%
Total operating expenses	$	694,402	$	662,565	$	31,837		4.8	%

Cost of Revenues

Cost of revenues for the year ended December 31, 2017 increased 8.6% to $273.7 million compared to $252.1 million for the year ended December 31, 2016, reflecting increases across all three reportable segments. The change was driven by increases in compensation and benefit costs, primarily relating to wages and salaries, severance and incentive compensation, as well as higher non-compensation information technology costs, market data costs, occupancy costs, personnel related costs and travel and entertainment costs.

Selling and Marketing

Selling and marketing expenses for the year ended December 31, 2017 increased 6.3% to $177.1 million compared to $166.7 million for the year ended December 31, 2016, reflecting increases in the Index and All Other segments. The change was driven by an overall increase in compensation and benefit costs, relating to incentive compensation, severance, wages and salaries and benefits, as well as higher non-compensation marketing costs and travel and entertainment costs.

Research and Development

R&D expenses for the year ended December 31, 2017 increased 0.9% to $75.9 million compared to $75.2 million for the year ended December 31, 2016, reflecting higher investments in the Analytics segment and ESG within the All Other segment, offset by decreases in the Index segment. The change was driven by higher non-compensation information technology costs partially offset by lower occupancy costs.

General and Administrative

G&A expenses for the year ended December 31, 2017 increased 0.6% to $87.8 million compared to $87.2 million for the year ended December 31, 2016, driven by higher costs in the Index segment partially offset by lower costs in Real Estate within the All Other segment. The change was driven by an increase in compensation and benefits costs, primarily relating to an increase in wages and salaries and benefits, partially offset by a decrease in severance, as well as the impact of lower non-compensation professional fees.

The following table presents operating expenses using compensation and non-compensation categories, rather than using activity categories, for the years indicated:

	Years Ended
	December 31,		December 31,
	2017		2016		Increase/(Decrease)
	(in thousands)
Compensation and benefits	$	440,307	$	414,322	$	25,985		6.3	%
Non-compensation expenses		174,108		166,890		7,218		4.3	%
Amortization of intangible assets		44,547		47,033		(2,486	)	(5.3	%)
Depreciation and amortization of property, equipment and leasehold improvements		35,440		34,320		1,120		3.3	%
Total operating expenses	$	694,402	$	662,565	$	31,837		4.8	%

Compensation and benefits costs are our most significant expense and typically represent more than 60% of our operating expenses or more than 70% of the combined total of the cost of revenues, selling and marketing, R&D and G&A expense categories. We had 3,038 employees as of December 31, 2017 compared to 2,862 employees as of December 31, 2016. Our continued growth in emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefits expenses. As of December 31, 2017, 59.0% of our employees were located in emerging market centers compared to 56.2% of our employees as of December 31, 2016.

Compensation and benefits costs for the year ended December 31, 2017 increased 6.3% to $440.3 million compared to $414.3 million for the year ended December 31, 2016, primarily driven by increases in wages and salaries, incentive compensation, severance and benefits.

Non-compensation expenses for the year ended December 31, 2017 increased 4.3% to $174.1 million compared to $166.9 million for the year ended December 31, 2016, primarily driven by higher information technology, marketing, travel and entertainment and market data costs, partially offset by lower professional fees and recruiting costs.

Amortization of Intangibles

Amortization of intangible asset expense for the year ended December 31, 2017 decreased 5.3% to $44.5 million compared to $47.0 million for the year ended December 31, 2016. The decrease during the year was due to $5.5 million of lower amortization from intangibles associated with past acquisitions primarily related to certain intangible assets associated with the RiskMetrics acquisition becoming fully amortized, partially offset by $3.0 million of increased amortization of capitalized software development costs relating to new internally developed software implementations.

Depreciation and amortization of property, equipment and leasehold improvements

Depreciation and amortization of property, equipment and leasehold improvements for the year ended December 31, 2017 increased 3.3% to $35.4 million compared to $34.3 million for the year ended December 31, 2016. The increase was primarily the result of increased depreciation associated with continued investment in our data centers as well as increased software amortization relating to new system implementations.

Other Expense (Income), Net

Other expense (income), net for the year ended December 31, 2017 increased 10.5% to $112.9 million compared to $102.2 million for the year ended December 31, 2016, primarily driven by $14.4 million of higher interest expense resulting from the increased level of indebtedness associated with the 2026 Senior Notes offering, partially offset by higher interest income associated with higher cash balances as well as the impact of a $3.7 million charge in 2016 related to estimated losses associated with miscellaneous transactions.

Income Taxes

The provision for income tax expense increased 30.3% to $162.9 million for the year ended December 31, 2017 compared to $125.1 million for the year ended December 31, 2016 as a result of a net charge of $34.5 million related to Tax Reform discussed above and higher income before provision for income taxes. These amounts reflect effective tax rates of 34.9% and 32.4% for the years ended December 31, 2017 and 2016, respectively.

Included in the effective tax rate of 34.9% for the year ended December 31, 2017 is 7.4 percentage points related to Tax Reform, with the remaining 27.5 percentage points related to the operating tax rate and other miscellaneous favorable discrete items. The ongoing efforts to better align our tax profile with our global operating footprint helped improve our operating tax rate. The discrete items included $5.7 million of stock-based compensation excess tax benefits related to the adoption of new accounting guidance that first impacted results during the year ended December 31, 2017. See Note 2, “Recent Accounting Standards Updates,” of the Notes to Consolidated Financial Statements included herein for more information.

Tax Reform significantly revises the future ongoing U.S. corporate income tax rate for U.S. corporations, reducing it from a maximum of 35.0% to a flat 21.0% effective beginning on January 1, 2018.

Net Income

As a result of the factors described above, net income for the year ended December 31, 2017 increased 16.5% to $304.0 million compared to $260.9 million for the year ended December 31, 2016.

Adjusted EBITDA

The following table presents the calculation of the non-GAAP Adjusted EBITDA measure for the years indicated:

	Years Ended
	December 31,			December 31,
	2017			2016			Increase/(Decrease)
	(in thousands)
Operating revenues:	$	1,274,172		$	1,150,669		$	123,503	10.7	%
Adjusted EBITDA expenses		614,415			581,212			33,203	5.7	%
Adjusted EBITDA	$	659,757		$	569,457		$	90,300	15.9	%
Adjusted EBITDA margin %		51.8	%		49.5	%
Operating margin %		45.5	%		42.4	%

Adjusted EBITDA increased 15.9% to $659.8 million for the year ended December 31, 2017 compared to $569.5 million for the year ended December 31, 2016. Adjusted EBITDA margin increased to 51.8% for the year ended December 31, 2017 compared to 49.5% for the year ended December 31, 2016. The improvement in margin reflects a higher rate of growth in operating revenues, primarily attributable to strong operating results within the Index segment, as compared to the rate of growth of Adjusted EBITDA expenses.

Reconciliation of Adjusted EBITDA to Net Income and Adjusted EBITDA Expenses to Operating Expenses

The following table presents the reconciliation of Adjusted EBITDA to net income for the years indicated:

	Years Ended
	December 31,		December 31,
	2017		2016		Increase/(Decrease)
	(in thousands)
Index Adjusted EBITDA	$	522,241	$	431,478	$	90,763		21.0	%
Analytics Adjusted EBITDA		125,624		128,507		(2,883	)	(2.2	%)
All Other Adjusted EBITDA		11,892		9,472		2,420		25.5	%
Consolidated Adjusted EBITDA		659,757		569,457		90,300		15.9	%
Amortization of intangible assets		44,547		47,033		(2,486	)	(5.3	%)
Depreciation and amortization of property, equipment and leasehold improvements		35,440		34,320		1,120		3.3	%
Operating income		579,770		488,104		91,666		18.8	%
Other expense (income), net		112,871		102,166		10,705		10.5	%
Provision for income taxes		162,927		125,083		37,844		30.3	%
Net income	$	303,972	$	260,855	$	43,117		16.5	%

The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the years indicated:

	Years Ended
	December 31,		December 31,
	2017		2016		Increase/(Decrease)
	(in thousands)
Index Adjusted EBITDA expenses	$	196,718	$	182,073	$	14,645		8.0	%
Analytics Adjusted EBITDA expenses		332,645		319,846		12,799		4.0	%
All Other Adjusted EBITDA expenses		85,052		79,293		5,759		7.3	%
Consolidated Adjusted EBITDA expenses		614,415		581,212		33,203		5.7	%
Amortization of intangible assets		44,547		47,033		(2,486	)	(5.3	%)
Depreciation and amortization of property, equipment and leasehold improvements		35,440		34,320		1,120		3.3	%
Total operating expenses	$	694,402	$	662,565	$	31,837		4.8	%

Segment Results

The results for each of our three reportable segments for the years ended December 31, 2017 and 2016 are presented below:

Index Segment

The following table presents the results for the Index segment for the years indicated:

	Years Ended
	December 31,			December 31,
	2017			2016			Increase/(Decrease)
	(in thousands)
Operating revenues:
Recurring subscriptions	$	427,289		$	389,348		$	37,941	9.7	%
Asset-based fees		276,092			210,229			65,863	31.3	%
Non-recurring		15,578			13,974			1,604	11.5	%
Operating revenues total		718,959			613,551			105,408	17.2	%
Adjusted EBITDA expenses		196,718			182,073			14,645	8.0	%
Adjusted EBITDA	$	522,241		$	431,478		$	90,763	21.0	%
Adjusted EBITDA margin %		72.6	%		70.3	%

Revenues related to Index products increased 17.2% to $719.0 million for the year ended December 31, 2017 compared to $613.6 million for the year ended December 31, 2016.

Revenues from recurring subscriptions were up 9.7% to $427.3 million for the year ended December 31, 2017 compared to $389.3 million for the year ended December 31, 2016. The increase was primarily driven by strong growth in core products, growth in new products, including factor and ESG indexes, as well as growth in custom index products.

Index segment Adjusted EBITDA expenses increased 8.0% to $196.7 million for the year ended December 31, 2017 compared to $182.1 million for the year ended December 31, 2016, primarily reflecting higher cost of revenues and selling and marketing expenses associated with stronger operating performance and growth in the product line. Partially offsetting these increases were lower R&D expenses associated with higher allocations and investments in the prior year. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 8.4% for the year ended December 31, 2017 compared to the year ended December 31, 2016.

Analytics Segment

The following table presents the results for the Analytics segment for the years indicated:

	Years Ended
	December 31,			December 31,
	2017			2016			Increase/(Decrease)
	(in thousands)
Operating revenues:
Recurring subscriptions	$	452,253		$	439,864		$	12,389		2.8	%
Non-recurring		6,016			8,489			(2,473	)	(29.1	%)
Operating revenues total		458,269			448,353			9,916		2.2	%
Adjusted EBITDA expenses		332,645			319,846			12,799		4.0	%
Adjusted EBITDA	$	125,624		$	128,507		$	(2,883	)	(2.2	%)
Adjusted EBITDA margin %		27.4	%		28.7	%

Analytics segment revenues increased 2.2% to $458.3 million for the year ended December 31, 2017 compared to $448.4 million for the year ended December 31, 2016, primarily driven by growth in both Equity and Multi-Asset Class Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment revenues would have increased 2.9% for the year ended December 31, 2017 compared to the year ended December 31, 2016.

Analytics segment Adjusted EBITDA expenses increased 4.0% to $332.6 million for the year ended December 31, 2017 compared to $319.8 million for the year ended December 31, 2016, primarily driven by higher R&D expenses associated with investments in the MSCI Analytics Platform and Fixed Income and Multi-Asset Class offerings, as well as higher cost of revenues.

All Other Segment

The following table presents the results for the All Other segment, which consists of the ESG and Real Estate product lines, for the years indicated:

	Years Ended
	December 31,			December 31,
	2017			2016			Increase/(Decrease)
	(in thousands)
Operating revenues:
Recurring subscriptions	$	93,481		$	84,457		$	9,024		10.7	%
Non-recurring		3,463			4,308			(845	)	(19.6	%)
Operating revenues total		96,944			88,765			8,179		9.2	%
Adjusted EBITDA expenses		85,052			79,293			5,759		7.3	%
Adjusted EBITDA	$	11,892		$	9,472		$	2,420		25.5	%
Adjusted EBITDA margin %		12.3	%		10.7	%

All Other segment revenues increased 9.2% to $96.9 million for the year ended December 31, 2017 compared to $88.8 million for the year ended December 31, 2016. The increase in All Other revenues was driven by a 21.8% increase in ESG revenues to $54.8 million, partially offset by a decrease in Real Estate revenues of 3.8% to $42.1

million. The increase in ESG revenues was driven by higher ESG Ratings product revenues, which benefited from increased investments. The decrease in Real Estate revenues was driven by lower revenues from Portfolio Analysis Service products, partially offset by an increase in revenues from Market Information products. Adjusted for the impact of foreign currency exchange rate fluctuations and the divestiture of the Real Estate occupiers business, Real Estate revenues increased 0.3% and All Other operating revenues increased 11.3% for the year ended December 31, 2017 compared to the year ended December 31, 2016.

All Other segment Adjusted EBITDA expenses increased 7.3% to $85.1 million for the year ended December 31, 2017 compared to $79.3 million for the year ended December 31, 2016, primarily driven by higher cost of revenues attributable to ESG operations, partially offset by lower general and administrative and selling and marketing costs attributable to Real Estate operations. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 7.8% for the year ended December 31, 2017 compared to the year ended December 31, 2016.

Operating Metrics

Run Rate

“Run Rate” estimates at a particular point in time the annualized value of the recurring revenues under our client license agreements (“Client Contracts”) for the next 12 months, assuming all Client Contracts that come up for renewal are renewed and assuming then-current currency exchange rates, subject to the adjustments and exclusions described below. For any Client Contract where fees are linked to an investment product’s assets or trading volume/fees, the Run Rate calculation reflects, for ETFs, the market value on the last trading day of the period, for futures and options, the most recent quarterly volumes and/or reported exchange fees, and for other non-ETF products, the most recent client-reported assets. Run Rate does not include fees associated with “one-time” and other non-recurring transactions. In addition, we add to Run Rate the annualized fee value of recurring new sales, whether to existing or new clients, when we execute Client Contracts, even though the license start date, and associated revenue recognition, may not be effective until a later date. We remove from Run Rate the annualized fee value associated with products or services under any Client Contract with respect to which we have received a notice of termination or non-renewal during the period and have determined that such notice evidences the client’s final decision to terminate or not renew the applicable products or services, even though such notice is not effective until a later date.

Changes in our recurring revenues typically lag changes in Run Rate. The actual amount of recurring revenues we will realize over the following 12 months will differ from Run Rate for numerous reasons, including:

	•	fluctuations in revenues associated with new recurring sales;

	•	modifications, cancellations and non-renewals of existing Client Contracts, subject to specified notice requirements;

	•	differences between the recurring license start date and the date the Client Contract is executed due to, for example, contracts with onboarding periods;

	•	fluctuations in asset-based fees, which may result from changes in certain investment products’ total expense ratios, market movements, including foreign currency exchange rates, or from investment inflows into and outflows from investment products linked to our indexes;

	•	fluctuations in fees based on trading volumes of futures and options contracts linked to our indexes;

	•	fluctuations in the number of hedge funds for which we provide investment information and risk analysis to hedge fund investors;

	•	price changes;

	•	revenue recognition differences under U.S. GAAP, including those related to the timing of implementation and report deliveries for certain of our products and services;

	•	fluctuations in foreign currency exchange rates; and

	•	the impact of acquisitions and divestitures.

The following table presents Run Rates by reportable segment as of the dates indicated and the growth percentages over the years indicated:

	As of						Comparison of
	December 31,		December 31,		December 31,		December 31,			December 31,
		2018		2017		2016	2018 to 2017			2017 to 2016
	(in thousands)
Index:
Recurring subscriptions	$	502,665	$	451,048	$	406,729		11.4	%		10.9	%
Asset-based fees		311,908		316,812		216,982		(1.5	%)		46.0	%
Index total		814,573		767,860		623,711		6.1	%		23.1	%
Analytics		491,861		489,451		451,533		0.5	%		8.4	%
All Other		124,886		108,413		88,074		15.2	%		23.1	%
Total Run Rate	$	1,431,320	$	1,365,724	$	1,163,318		4.8	%		17.4	%

Recurring subscriptions total	$	1,119,412	$	1,048,912	$	946,336		6.7	%		10.8	%
Asset-based fees		311,908		316,812		216,982		(1.5	%)		46.0	%
Total Run Rate	$	1,431,320	$	1,365,724	$	1,163,318		4.8	%		17.4	%

December 31, 2018 Compared to December 31, 2017

Total Run Rate grew 4.8% to $1,431.3 million as of December 31, 2018 compared to $1,365.7 million as of December 31, 2017. Recurring subscription Run Rate grew 6.7% to $1,119.4 million as of December 31, 2018 compared to $1,048.9 million as of December 31, 2017. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscription Run Rate would have increased 7.3% as of December 31, 2018 compared to December 31, 2017.

Run Rate from asset-based fees decreased 1.5% to $311.9 million as of December 31, 2018, from $316.8 million as of December 31, 2017, primarily driven by lower AUM in ETFs, partially offset by increases in non-ETF passive funds and futures and options contracts, all linked to MSCI indexes. As of December 31, 2018, the value of AUM in ETFs linked to MSCI indexes was $695.6 billion, down $48.7 billion, or 6.5%, from $744.3 billion as of December 31, 2017. The decrease of $48.7 billion consisted of market depreciation of asset values of $110.2 billion, partially offset by net inflows of $61.5 billion.

Index recurring subscription Run Rate grew 11.4% to $502.7 million as of December 31, 2018 compared to $451.0 million as of December 31, 2017, driven by growth in core products, factor and ESG indexes and custom and specialized index products and growth in the asset owners, hedge fund and wealth management client segments.

Run Rate from Analytics products increased 0.5% to $491.9 million as of December 31, 2018 compared to $489.5 million as of December 31, 2017, primarily driven by growth in both Multi-Asset Class and Equity Analytics products, partially offset by the removal of Run Rate associated with FEA, which was divested in April 2018 and InvestorForce, which was divested in October 2018. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics Run Rate would have increased 1.0% as of December 31, 2018 compared to December 31, 2017. Adjusting for the impact of foreign currency exchange rate fluctuations and excluding the impact of the divestitures of InvestorForce and FEA, Analytics Run Rate would have increased 6.5% as of December 31, 2018 compared to December 31, 2017.

Run Rate from All Other products increased 15.2% to $124.9 million at December 31, 2018 compared to $108.4 million at December 31, 2017. The $16.5 million increase was primarily driven by a $14.8 million, or 23.0%, increase in ESG Run Rate to $79.5 million, and a $1.6 million, or 3.7%, increase in Real Estate Run Rate to $45.4 million. The increase in ESG Run Rate was primarily driven by strong growth in ESG Ratings products and an

increase in ESG Screening products. The increase in Real Estate Run Rate was primarily driven by growth in Market Information products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG Run Rate would have increased 25.1%, Real Estate Run Rate would have increased 8.9% and All Other Run Rate would have increased 18.6%, in each case, as of December 31, 2018 compared to December 31, 2017.

December 31, 2017 Compared to December 31, 2016

Total Run Rate grew 17.4% to $1,365.7 million as of December 31, 2017 compared to $1,163.3 million as of December 31, 2016. Recurring subscription Run Rate grew 10.8% to $1,048.9 million as of December 31, 2017 compared to $946.3 million as of December 31, 2016. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscription Run Rate would have increased 9.5% as of December 31, 2017 compared to December 31, 2016.

Run Rate from asset-based fees increased 46.0% to $316.8 million as of December 31, 2017, from $217.0 million as of December 31, 2016, primarily driven by higher AUM in ETFs as well as increases in non-ETF passive funds and futures and options contracts, all linked to MSCI indexes. As of December 31, 2017, the value of AUM in ETFs linked to MSCI indexes was $744.3 billion, up $262.9 billion, or 54.6%, from $481.4 billion as of December 31, 2016. The increase of $262.9 billion consisted of net inflows of $139.3 billion and market appreciation of $123.6 billion.

Index recurring subscription Run Rate grew 10.9% to $451.0 million as of December 31, 2017 compared to $406.7 million as of December 31, 2016, driven by strong growth in core products, growth in new products, including factor and ESG indexes, as well as growth in custom index products.

Run Rate from Analytics products increased 8.4% to $489.5 million as of December 31, 2017 compared to $451.5 million as of December 31, 2016, primarily driven by growth in both Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics Run Rate would have increased 6.8% as of December 31, 2017 compared to December 31, 2016.

Run Rate from All Other products increased 23.1% to $108.4 million at December 31, 2017 compared to $88.1 million at December 31, 2016, driven by a $15.5 million, or 31.5%, increase in ESG Run Rate to $64.6 million and a $4.9 million, or 12.5%, increase in Real Estate Run Rate to $43.8 million. The increase in ESG Run Rate was primarily driven by growth in ESG Ratings products. The increase in Real Estate Run Rate was primarily driven by growth in Market Information and Portfolio Analysis Service products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG Run Rate would have increased 27.3%, Real Estate Run Rate would have increased 3.8% and All Other Run Rate would have increased 16.9%, in each case, as of December 31, 2017 compared to December 31, 2016.

Subscription Sales

The following table presents our recurring subscription sales, cancellations and non-recurring sales by reportable segment for the years indicated:

	Years Ended									Comparison of
	December 31,			December 31,			December 31,			December 31,			December 31,
	2018			2017			2016			2018 to 2017			2017 to 2016
	(in thousands)
New recurring subscription sales
Index	$	72,660		$	61,308		$	55,279			18.5	%		10.9	%
Analytics		64,986			64,177			55,255			1.3	%		16.1	%
All Other		26,201			22,544			19,978			16.2	%		12.8	%
New recurring subscription sales total		163,847			148,029			130,512			10.7	%		13.4	%
Subscription cancellations
Index		(20,819	)		(16,995	)		(17,417	)		22.5	%		(2.4	%)
Analytics		(33,671	)		(33,674	)		(39,205	)		(0.0	%)		(14.1	%)
All Other		(6,421	)		(7,717	)		(8,288	)		(16.8	%)		(6.9	%)
Subscription cancellations total		(60,911	)		(58,386	)		(64,910	)		4.3	%		(10.1	%)
Net new recurring subscription sales
Index		51,841			44,313			37,862			17.0	%		17.0	%
Analytics		31,315			30,503			16,050			2.7	%		90.0	%
All Other		19,780			14,827			11,690			33.4	%		26.8	%
Net new recurring subscription sales total		102,936			89,643			65,602			14.8	%		36.6	%
Non-recurring sales
Index		22,729			16,310			17,850			39.4	%		(8.6	%)
Analytics		10,209			10,306			8,830			(0.9	%)		16.7	%
All Other		3,438			3,875			4,247			(11.3	%)		(8.8	%)
Non-recurring sales total		36,376			30,491			30,927			19.3	%		(1.4	%)
Gross sales
Index	$	95,389		$	77,618		$	73,129			22.9	%		6.1	%
Analytics		75,195			74,483			64,085			1.0	%		16.2	%
All Other		29,639			26,419			24,225			12.2	%		9.1	%
Total gross sales	$	200,223		$	178,520		$	161,439			12.2	%		10.6	%
Net sales
Index	$	74,570		$	60,623		$	55,712			23.0	%		8.8	%
Analytics		41,524			40,809			24,880			1.8	%		64.0	%
All Other		23,218			18,702			15,937			24.1	%		17.3	%
Total net sales	$	139,312		$	120,134		$	96,529			16.0	%		24.5	%

Retention Rate

Another key metric is our “Retention Rate.” The following table presents our Retention Rate by reportable segment and product category for the periods indicated for the years ended December 31, 2018, 2017 and 2016:


2018
Three Months Ended March 31,	96.4	%	93.0	%	94.4	%	94.6	%
Three Months Ended June 30,	95.9	%	92.1	%	94.9	%	94.1	%
Three Months Ended September 30,	96.1	%	94.1	%	94.3	%	95.0	%
Three Months Ended December 31,	93.2	%	92.7	%	92.8	%	92.9	%
Year Ended December 31,	95.4	%	93.0	%	94.1	%	94.1	%
2017
Three Months Ended March 31,	96.9	%	93.3	%	92.4	%	94.7	%
Three Months Ended June 30,	97.0	%	93.9	%	90.8	%	94.9	%
Three Months Ended September 30,	95.5	%	93.4	%	90.7	%	94.0	%
Three Months Ended December 31,	93.9	%	89.7	%	91.1	%	91.6	%
Year Ended December 31,	95.8	%	92.5	%	91.2	%	93.8	%
2016
Three Months Ended March 31,	96.3	%	94.6	%	92.2	%	95.1	%
Three Months Ended June 30,	95.6	%	91.7	%	89.2	%	93.1	%
Three Months Ended September 30,	95.8	%	90.4	%	90.8	%	92.7	%
Three Months Ended December 31,	93.4	%	87.4	%	87.8	%	89.9	%
Year Ended December 31,	95.3	%	91.0	%	90.0	%	92.7	%

Retention Rate is an important metric because subscription cancellations decrease our Run Rate and ultimately our operating revenues over time. The annual Retention Rate represents the retained subscription Run Rate (subscription Run Rate at the beginning of the fiscal year less actual cancels during the year) as a percentage of the subscription Run Rate at the beginning of the fiscal year.

The Retention Rate for a non-annual period is calculated by annualizing the cancellations for which we have received a notice of termination or for which we believe there is an intention not to renew during the non-annual period, and we believe that such notice or intention evidences the client’s final decision to terminate or not renew the applicable agreement, even though such notice is not effective until a later date. This annualized cancellation figure is then divided by the subscription Run Rate at the beginning of the fiscal year to calculate a cancellation rate. This cancellation rate is then subtracted from 100% to derive the annualized Retention Rate for the period.

For example, in the fourth quarter of 2018, we recorded cancellations of $18.2 million. To derive the Retention Rate for the fourth quarter, we annualized the actual cancellations during the quarter of $18.2 million to derive $72.7 million of annualized cancellations. This $72.7 million was then divided by the $1,048.9 million subscription Run Rate at the beginning of the year to derive a cancellation rate of 6.9%. The 6.9% was then subtracted from 100.0% to derive a Retention Rate of 93.1% for the fourth quarter.

Retention Rate is computed by operating segment on a product/service-by-product/service basis. In general, if a client reduces the number of products or services to which it subscribes within a segment, or switches between products or services within a segment, we treat it as a cancellation for purposes of calculating our Retention Rate except in the case of a product or service switch that management considers to be a replacement product or service. In those replacement cases, only the net change to the client subscription, if a decrease, is reported as a cancel. In the Analytics and the ESG segments, substantially all product or service switches are treated as replacement products or services and netted in this manner, while in our Index and Real Estate segments, product or service switches that are treated as replacement products or services and receive netting treatment occur only in certain limited instances. In addition, we treat any reduction in fees resulting from a down-sale of the same product or service as a cancellation to the extent of the reduction. We do not calculate Retention Rate for that portion of our Run Rate attributable to assets in index-linked investment products or futures and options contracts, in each case, linked to our indexes.

This definition of Retention Rate was revised and was previously provided in our quarterly report on Form 10-Q filed with the SEC on August 3, 2018 to describe our methodology for calculating cancellations. We believe this

methodology has been applied in all material respects in calculating cancellation rates reported in the periods prior to the quarter ended June 30, 2018, and accordingly, we do not believe changes to those previously reported cancellation rates are required.

For the year ended December 31, 2018, 29.8% of our cancellations occurred in the fourth quarter. Historically, the Retention Rate has generally been higher during the first three quarters and lower in the fourth quarter, as the fourth quarter is traditionally the largest renewal period in the year.

Liquidity and Capital Resources

We require capital to fund ongoing operations, internal growth initiatives and acquisitions. Our primary sources of liquidity are cash flows generated from our operations, existing cash and cash equivalents and credit capacity under our existing credit facilities. In addition, we believe we have access to additional funding in the public and private markets. We intend to use these sources of liquidity to, among other things, service our existing and future debt obligations and fund our working capital requirements, capital expenditures, investments, acquisitions, dividend payments and repurchases of our common stock. In connection with our business strategy, we regularly evaluate acquisition opportunities. We believe our liquidity, along with other financing alternatives, will provide the necessary capital to fund these transactions and achieve our planned growth.

Senior Notes and Credit Agreement

We have issued an aggregate of $2.6 billion in Senior Notes and entered into a $250 million Revolving Credit Agreement with a syndicate of banks. See Note 5, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements included herein for additional information on our Senior Notes and Revolving Credit Agreement.

The Senior Notes and the Revolving Credit Agreement are fully and unconditionally, and jointly and severally, guaranteed by our direct or indirect wholly-owned domestic subsidiaries that account for more than 5% of our and our subsidiaries’ consolidated assets, other than certain excluded subsidiaries (the “subsidiary guarantors”). Amounts due under the Revolving Credit Agreement are our and the subsidiary guarantors’ senior unsecured obligations and rank equally with the Senior Notes and any of our other unsecured, unsubordinated debt, senior to any of our subordinated debt and effectively subordinated to our secured debt to the extent of the assets securing such debt.

The indentures governing our Senior Notes (the “Indentures”) among us, each of the subsidiary guarantors, and Wells Fargo Bank, National Association, as trustee, contain covenants that limit our and certain of our subsidiaries’ ability to, among other things, incur liens, enter into sale/leaseback transactions and consolidate, merge or sell all or substantially all of our assets. In addition, the Indentures restrict our non-guarantor subsidiaries’ ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiaries guaranteeing the Senior Notes on a pari passu basis.

The Revolving Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and the ability of our existing or future subsidiaries to:

	•	incur liens and further negative pledges;

	•	incur additional indebtedness or prepay, redeem or repurchase indebtedness;

	•	make loans or hold investments;

	•	merge, dissolve, liquidate, consolidate with or into another person;

	•	enter into acquisition transactions;

	•	enter into sale/leaseback transactions;

	•	issue disqualified capital stock;

	•	sell, transfer or dispose of assets;

	•	pay dividends or make other distributions in respect of our capital stock or engage in stock repurchases, redemptions and other restricted payments;

	•	create new subsidiaries;

	•	permit certain restrictions affecting our subsidiaries;

	•	change the nature of our business, accounting policies or fiscal periods;

	•	enter into any transactions with affiliates other than on an arm’s-length basis; and

	•	amend our organizational documents or amend, modify or change the terms of certain agreements relating to our indebtedness.

The Revolving Credit Agreement and the Indentures also contain customary events of default, including those relating to non-payment, breach of representations, warranties or covenants, cross-default and cross-acceleration, bankruptcy and insolvency events, invalidity or impairment of loan documentation or collateral, change of control and customary ERISA defaults. None of the restrictions above are expected to impact our ability to effectively operate the business.

The Revolving Credit Agreement also requires us and our subsidiaries to achieve financial and operating results sufficient to maintain compliance with the following financial ratios on a consolidated basis through the termination of the Revolving Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall not exceed 4.25:1.00 and (2) the minimum Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall be at least 4.00:1.00. As of December 31, 2018, our Consolidated Leverage Ratio was 3.13:1.00 and our Consolidated Interest Coverage Ratio was 6.59:1.00. There have been no amounts drawn under the Revolving Credit Agreement since it was entered into on November 20, 2014.

Our non-guarantor subsidiaries of the Senior Notes consist of: (i) domestic subsidiaries of the Company that account for 5% or less of consolidated assets of the Company and its subsidiaries and (ii) any foreign or domestic subsidiary of the Company that is deemed to be a controlled foreign corporation within the meaning of Section 957 of the Internal Revenue Code of 1986, as amended. Our non-guarantor subsidiaries accounted for approximately $797.4 million, or 55.6%, of our total revenue for the 12 months ended December 31, 2018, approximately $241.0 million, or 35.1%, of our consolidated operating income for the 12 months ended December 31, 2018, and approximately $733.2 million, or 21.6%, of our consolidated total assets (excluding intercompany assets) and $485.6 million, or 13.7%, of our consolidated total liabilities, in each case as of December 31, 2018.

Share Repurchases

The Board of Directors has approved a stock repurchase program for the purchase of the Company’s common stock in the open market. See Note 9, “Shareholders’ Equity (Deficit),” of the Notes to Consolidated Financial Statements included herein for additional information on our stock repurchase program.

The following table provides information with respect to repurchases of our common stock pursuant to open market repurchases:

Year Ended	Average Price Paid Per Share		Total Number of Shares Repurchased		Dollar Value of Shares Repurchased
			(in thousands, except per share data)
December 31, 2016	$	73.71		10,303	$	759,427
December 31, 2017	$	87.96		1,556	$	136,899
December 31, 2018	$	148.34		6,236	$	924,989

Subsequent to the year ended December 31, 2018 and through February 15, 2019, the Company repurchased an additional 0.7 million shares of common stock at an average price of $147.97 per share for a total value of $102.1 million.

As of February 15, 2019, a total of $706.1 million remained available on the share repurchase authorization. This authorization may be modified, suspended or terminated by the Board of Directors at any time without prior notice.

Cash Dividends

On September 17, 2014, our Board of Directors approved a plan to initiate a regular quarterly cash dividend to our shareholders. On October 30, 2014, we began paying regular quarterly cash dividends and have paid such dividends each quarter thereafter.

On January 30, 2019, the Board of Directors declared a quarterly dividend of $0.58 per share of common stock to be paid on March 15, 2019 to shareholders of record as of the close of trading on February 22, 2019.

Cash Flows

The following table presents the Company’s cash and cash equivalents as of the dates indicated:

	As of
	December 31,		December 31,
		2018		2017
	(in thousands)
Cash and cash equivalents	$	904,176	$	889,502

The following table presents the breakdown of the Company’s cash flows for the periods indicated:

	Years Ended
	December 31,			December 31,			December 31,
		2018		2017			2016
	(in thousands)
Net cash provided by operating activities	$	612,762		$	404,158		$	442,363
Net cash provided by (used in) investing activities		34,874			(48,046	)		(42,031	)
Net cash used in financing activities		(626,483	)		(267,543	)		(372,899	)
Effect of exchange rates on cash and cash equivalents		(6,479	)		9,099			(13,305	)
Net increase in cash and cash equivalents	$	14,674		$	97,668		$	14,128

Cash and Cash Equivalents

Cash and cash equivalents were $904.2 million and $889.5 million as of December 31, 2018 and 2017, respectively. We seek to maintain minimum cash balances globally of approximately $200.0 million to $250.0 million for general operating purposes. As of December 31, 2018 and 2017, $275.6 million and $503.0 million, respectively, of the cash and cash equivalents were held by foreign subsidiaries. As a result of Tax Reform, we can now more efficiently access a significant portion of our cash held outside of the U.S. in the short-term without being subject to U.S. income taxes. Repatriation of some foreign cash may be subject to certain withholding taxes in local jurisdictions and other distribution restrictions. The global cash and cash equivalent balances that are maintained will be available to meet our global needs whether for general corporate purpose or other needs, including acquisitions or expansion of our products.

We believe that global cash flows from operations, together with existing cash and cash equivalents and funds available under our existing credit facility and our ability to access the debt and capital markets for additional funds, will continue to be sufficient to fund our global operating activities and cash commitments for investing and

financing activities, such as material capital expenditures and share repurchases, for at least the 12 months following issuance of this Form 10-K and for the foreseeable future thereafter. In addition, we expect that foreign cash flows from operations, together with existing cash and cash equivalents, will continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the 12 months following issuance of this Form 10-K and for the foreseeable future thereafter.

Cash Flows From Operating Activities

Cash flows from operating activities consist of net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities was $612.8 million and $404.2 million for the years ended December 31, 2018 and 2017, respectively. The year-over-year increase was primarily driven by higher cash collections, partially offset by higher payments of cash expenses and higher income tax and interest payments.

Cash provided by operating activities was $404.2 million and $442.4 million for the years ended December 31, 2017 and 2016, respectively. The year-over-year decrease reflects higher cash expenses, including higher interest and income tax payments, partially offset by increased cash collections.

Our primary uses of cash from operating activities are for the payment of cash compensation expenses, office rent, technology costs, market data costs, interest expenses and income taxes. Historically, the payment of cash for compensation and benefits is at its highest level in the first quarter when we pay discretionary employee compensation related to the previous fiscal year.

Cash Flows From Investing Activities

Cash provided by investing activities was $34.9 million for the year ended December 31, 2018 compared to cash used in investing activities of $48.0 million for the year ended December 31, 2017. The year-over-year change was primarily driven by the proceeds received from the FEA and InvestorForce divestitures.

Cash used in investing activities was $48.0 million and $42.0 million for the years ended December 31, 2017 and 2016, respectively, primarily reflecting higher capitalized software development costs mainly related to investments in the MSCI Analytics Platform and Fixed Income products.

Cash Flows From Financing Activities

Cash used in financing activities was $626.5 million for the year ended December 31, 2018 compared to $267.5 million for the year ended December 31, 2017. The year-over-year change primarily reflects higher repurchases of shares and higher dividend payments, partially offset by the proceeds from our debt offering in May 2018.

Cash used in financing activities was $267.5 million for the year ended December 31, 2017 compared to $372.9 million for the year ended December 31, 2016. The year-over-year change primarily reflects lower repurchases of treasury shares, partially offset by lower proceeds from borrowings and higher dividend payments.

Contractual Obligations

Our contractual obligations consist primarily of leases for office space, leases for equipment and other operating leases, obligations to vendors arising out of market data contracts and our debt obligations arising from the issuance of the Senior Notes. The following table summarizes our contractual obligations for the periods indicated as of December 31, 2018:

			Years Ending December 31,
(in thousands)	Total		2019		2020		2021		2022		2023		Thereafter
Operating leases	$	262,156		33,525		31,966		29,288		25,335		24,277		117,765
Vendor obligations		108,206		45,472		16,555		13,100		10,976		10,942		11,161
Senior Notes (1)		3,592,438		138,625		138,625		138,625		138,625		138,625		2,899,313
Other obligations (2)		20,204		—		—		—		—		2,278		17,926
Total contractual obligations	$	3,983,004	$	217,622	$	187,146	$	181,013	$	174,936	$	176,122	$	3,046,165

(1)	Includes the impact of payments for the principal amount on the 2024 Senior Notes, 2025 Senior Notes, 2026 Senior Notes and 2027 Senior Notes plus interest based on the 5.25%, 5.75%, 4.75% and 5.375% coupon interest rates, respectively.

(2)	Primarily includes amounts payable related to the estimated Toll Charge. The Toll Charge is included within “Prepaid income taxes” and “Other non-current liabilities” in our Consolidated Statements of Financial Condition.

The obligations related to our uncertain tax positions, which are not considered material, have been excluded from the table above because of the uncertainty surrounding the timing and final amounts of any settlement.

Off-Balance Sheet Arrangements

At December 31, 2018 and 2017, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Recent Accounting Standards Updates

See Note 2, “Recent Accounting Standards Updates,” of the Notes to the Consolidated Financial Statements included herein for further information.

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