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 for the year ended December 31, 2019 should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The discussion summarizing the significant factors affecting the results of operations and financial condition of MSCI for the year ended December 31, 2018 can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”), which was filed with the Securities and Exchange Commission on February 22, 2019.

Overview

We are a leading provider of critical decision support tools and services for the global investment community. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, our actionable solutions power better investment decisions by enabling our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios.

Investors all over the world use our tools and services to gain insight and improve transparency throughout their investment processes, including to help define their investment universe, inform and analyze their asset allocation and portfolio construction decisions, measure and manage portfolio performance and risk, conduct performance attribution, implement sustainable and other investment strategies, design and issue ETFs and other index-enabled financial products, and facilitate reporting to stakeholders.

Our industry-leading, research-enhanced products and services include indexes; portfolio construction and risk management analytics; ESG research and ratings; and real estate benchmarks, return-analytics and market insights. Through our integrated franchise we provide solutions across our products and services to support our clients’ dynamic and complex needs. We are flexible in the delivery of our content and capabilities, much of which can be accessed by our clients through multiple channels and platforms.

We are focused on staying at the forefront of investment trends to address the evolving needs of our clients in a changing industry. In order to most effectively serve our clients, we are committed to driving an integrated solutions-based approach, achieving service excellence, enhancing our differentiated research and content, and delivering flexible, cutting-edge technology and platforms.

Our clients comprise a wide spectrum of the global investment industry and include the following key client types:

	•	Asset owners (pension funds, endowments, foundations, central banks, sovereign wealth funds, family offices and insurance companies)

	•	Asset managers (institutional funds and accounts, mutual funds, hedge funds, ETFs, insurance products, private banks and real estate investment trusts)

	•	Financial intermediaries (banks, broker-dealers, exchanges, custodians, trust companies and investment consultants)

	•	Wealth managers (including an increasing number of “robo-advisors”)

As of December 31, 2019, we had offices in more than 30 cities across more than 20 countries to help serve our diverse client base, with 49.0% of our revenues coming from clients in the Americas, 36.0% in Europe, the Middle East and Africa (“EMEA”) and 15.0% in Asia and Australia.

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 by 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.

Recurring subscription revenues represent fees earned from clients primarily under renewable contracts and are generally recognized ratably over the term of the license or service pursuant to the contract terms. 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, which are generally recognized at a point in time.

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 estimated allocation based on the type of effort involved.

Cost of Revenues

Cost of revenues expenses consist 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 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 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 non-GAAP 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, including the impact related to the vesting of multi-year restricted stock units granted in 2016 to certain senior executives that are subject to the achievement of multi-year total shareholder return targets, which are performance targets with a market condition (the “2016 Multi-Year PSUs”).

“Adjusted EBITDA expenses,” a non-GAAP 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, including the impact related to the vesting of the 2016 Multi-Year PSUs.

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 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, 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 10, “Shareholders’ Equity (Deficit),” of the Notes to Consolidated Financial Statements included herein for additional information on our stock repurchase program.

The weighted average shares outstanding used to calculate our diluted earnings per share for the year ended December 31, 2019 decreased by 4.6% compared to the year ended December 31, 2018. The decrease primarily reflects the impact of share repurchases made prior to March 31, 2019 pursuant to the 2016 and 2018 Repurchase Programs and the vesting of the restricted stock units that were included in the dilutive share count in the prior year.

Senior Notes

We have an aggregate $3,100.0 million of Senior Notes outstanding as of December 31, 2019. 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

Tax Reform which was enacted on December 22, 2017, 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, 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.

Results of Operations

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

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

		Years Ended
		December 31,				December 31,
		2019				2018				Increase/(Decrease)
		(in thousands, except per share data)
Operating revenues		$	1,557,796			$	1,433,984			$	123,812				8.6	%
Operating expenses:
Cost of revenues			294,961				287,335				7,626				2.7	%
Selling and marketing			219,298				192,923				26,375				13.7	%
Research and development			98,334				81,411				16,923				20.8	%
General and administrative			110,093				99,882				10,211				10.2	%
Amortization of intangible assets			49,410				54,189				(4,779	)			(8.8	%)
Depreciation and amortization of property, equipment and leasehold improvements			29,999				31,346				(1,347	)			(4.3	%)
Total operating expenses			802,095				747,086				55,009				7.4	%
Operating income			755,701				686,898				68,803				10.0	%
Other expense (income), net			152,383				57,002				95,381				167.3	%
Income before provision for income taxes			603,318				629,896				(26,578	)			(4.2	%)
Provision for income taxes			39,670				122,011				(82,341	)			(67.5	%)
Net income		$	563,648			$	507,885			$	55,763				11.0	%
Earnings per basic common share		$	6.66			$	5.83			$	0.83				14.2	%
Earnings per diluted common share		$	6.59			$	5.66			$	0.93				16.4	%
Operating margin			48.5	%			47.9	%

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,
		2019					2018			Increase/(Decrease)
		(in thousands)
Recurring subscriptions		$	1,154,040			$	1,066,536			$	87,504				8.2	%
Asset-based fees			361,927				336,565				25,362				7.5	%
Non-recurring			41,829				30,883				10,946				35.4	%
Total operating revenues		$	1,557,796			$	1,433,984			$	123,812				8.6	%

Total operating revenues grew 8.6% to $1,557.8 million for the year ended December 31, 2019 compared to $1,434.0 million for the year ended December 31, 2018. Adjusting for the impact of foreign currency exchange rate fluctuations, total operating revenues would have increased 8.9% for the year ended December 31, 2019 compared to the year ended December 31, 2018.

Revenue from recurring subscriptions increased 8.2% to $1,154.0 million for the year ended December 31, 2019 compared to $1,066.5 million for the year ended December 31, 2018, primarily driven by growth in Index products, which increased $53.4 million, or 11.2%, and growth in All Other products, which increased $22.2 million, or 19.4%. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptions would have increased 8.5% for the year ended December 31, 2019 compared to the year ended December 31, 2018.

Revenues from asset-based fees increased 7.5% to $361.9 million for the year ended December 31, 2019 compared to $336.6 million for the year ended December 31, 2018. The increase in asset-based fees was primarily driven by an increase in revenues from exchange traded futures and options contracts linked to MSCI indexes. The increase in revenues from futures and options contracts was driven by approximately $5.0 million in additional fees associated with prior periods attributed to a retrospective price increase from a renegotiated contract entered into during the year ended December 31, 2019, as well as the cumulative impact of price and volume increases. The increase in revenues from asset-based fees was also driven by higher revenues from ETFs linked to MSCI indexes which was driven by a 7.6% increase in average AUM, partially offset by the impact of a change in product mix. In addition, the increase in revenues from asset-based fees was driven by higher revenues from non-ETF passive products linked to MSCI indexes. 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
		2018																2019
(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(1), (2), (3)		$	764.9			$	744.7			$	765.5			$	695.6			$	802.2			$	819.3			$	815.0			$	934.4
Sequential Change in Value
Market Appreciation/ (Depreciation)		$	(11.7	)		$	(19.4	)		$	15.6			$	(94.7	)		$	78.3			$	14.9			$	(9.2	)		$	63.5
Cash Inflows			32.3				(0.8	)			5.2				24.8				28.3				2.2				4.9				55.9
Total Change		$	20.6			$	(20.2	)		$	20.8			$	(69.9	)		$	106.6			$	17.1			$	(4.3	)		$	119.4

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

		Year-to-Date Average
		2018																2019
		March				June				September				December				March				June				September				December
AUM in ETFs linked to MSCI indexes(1), (2), (3)		$	779.5			$	778.0			$	770.6			$	757.2			$	766.0			$	788.7			$	796.1			$	814.4

(1)

The historical values of the AUM 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 mid-month 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. 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.

(2)	The values for periods prior to April 26, 2019 were based on data from Bloomberg and MSCI, while the values for periods on or after April 26, 2019 were based on data from Refinitiv and MSCI. De minimis amounts of data are reported on a delayed basis.

(3)	The value of AUM in ETFs linked to MSCI indexes is calculated by multiplying the ETF net asset value by the number of shares outstanding.

For the year ended December 31, 2019, the average value of AUM in ETFs linked to MSCI equity indexes was $814.4 billion, up $57.2 billion, or 7.6%, from $757.2 billion for the year ended December 31, 2018.

Non-recurring revenues increased 35.4% to $41.8 million for the year ended December 31, 2019, compared to $30.9 million for the year ended December 31, 2018, primarily driven by growth in Index products, which increased $6.7 million, or 31.7%, and growth in Analytics products, which increased $5.0 million, or 89.9%.

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

		Years Ended
		December 31,				December 31,
		2019					2018			Increase/(Decrease)
		(in thousands)
Operating revenues:
Index
Recurring subscriptions		$	530,968			$	477,612			$	53,356				11.2	%
Asset-based fees			361,927				336,565				25,362				7.5	%
Non-recurring			28,042				21,298				6,744				31.7	%
Index total			920,937				835,475				85,462				10.2	%
Analytics
Recurring subscriptions			486,282				474,334				11,948				2.5	%
Non-recurring			10,643				5,605				5,038				89.9	%
Analytics total			496,925				479,939				16,986				3.5	%
All Other
Recurring subscriptions			136,790				114,590				22,200				19.4	%
Non-recurring			3,144				3,980				(836	)			(21.0	%)
All Other total			139,934				118,570				21,364				18.0	%
Total operating revenues		$	1,557,796			$	1,433,984			$	123,812				8.6	%

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

Operating Expenses

Operating expenses increased 7.4% to $802.1 million for the year ended December 31, 2019 compared to $747.1 million for the year ended December 31, 2018. Adjusting for the impact of foreign currency exchange rate fluctuations, total operating expenses would have increased 9.0% for the year ended December 31, 2019 compared to the year ended December 31, 2018.

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

		Years Ended
		December 31,				December 31,
		2019				2018				Increase/(Decrease)
		(in thousands)
Operating expenses:
Cost of revenues		$	294,961			$	287,335			$	7,626				2.7	%
Selling and marketing			219,298				192,923				26,375				13.7	%
Research and development			98,334				81,411				16,923				20.8	%
General and administrative			110,093				99,882				10,211				10.2	%
Amortization of intangible assets			49,410				54,189				(4,779	)			(8.8	%)
Depreciation and amortization of property, equipment and leasehold improvements			29,999				31,346				(1,347	)			(4.3	%)
Total operating expenses		$	802,095			$	747,086			$	55,009				7.4	%

Cost of Revenues

Cost of revenues for the year ended December 31, 2019 increased 2.7% to $295.0 million compared to $287.3 million for the year ended December 31, 2018, reflecting increases across the Index and the All Other reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to $7.0 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs, and higher incentive compensation, partially offset by lower wages and salaries, as well as increases in non-compensation costs, including professional fees.

Selling and Marketing

Selling and marketing expenses for the year ended December 31, 2019 increased 13.7% to $219.3 million compared to $192.9 million for the year ended December 31, 2018, reflecting increases in all three reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries, $4.5 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs, and higher severance costs, as well as increases in non-compensation costs, including marketing costs, professional fees and recruiting costs.

Research and Development

R&D expenses for the year ended December 31, 2019 increased 20.8% to $98.3 million compared to $81.4 million for the year ended December 31, 2018, reflecting higher investments across all three reportable segments. The change was driven by increases in compensation and benefits costs which includes an insignificant amount of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs. Additionally, there were increases in non-compensation costs, including professional fees, information technology costs, occupancy costs, recruiting costs and travel and entertainment costs.

General and Administrative

G&A expenses for the year ended December 31, 2019 increased 10.2% to $110.1 million compared to $99.9 million for the year ended December 31, 2018, reflecting increases across all three reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and $3.5 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs, offset, in part, by lower incentive compensation.

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

		Years Ended
		December 31,				December 31,
		2019				2018				Increase/(Decrease)
		(in thousands)
Compensation and benefits		$	518,730			$	471,655			$	47,075				10.0	%
Non-compensation expenses			203,956				189,896				14,060				7.4	%
Amortization of intangible assets			49,410				54,189				(4,779	)			(8.8	%)
Depreciation and amortization of property, equipment and leasehold improvements			29,999				31,346				(1,347	)			(4.3	%)
Total operating expenses		$	802,095			$	747,086			$	55,009				7.4	%

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 3,396 employees as of December 31, 2019 compared to 3,112 employees as of December 31, 2018, reflecting a 9.1% 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, 2019, 62.9% of our employees were located in emerging market centers compared to 61.4% as of December 31, 2018.

Compensation and benefits costs for the year ended December 31, 2019 increased 10.0% to $518.7 million compared to $471.7 million for the year ended December 31, 2018, driven by $15.4 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs, higher severance costs, incentive compensation, wages and salaries and benefit costs.

Non-compensation expenses for the year ended December 31, 2019 increased 7.4% to $204.0 million compared to $189.9 million for the year ended December 31, 2018, primarily driven by higher costs relating to professional fees, information technology costs, recruiting costs, travel and entertainment costs, marketing and personnel related costs.

Amortization of Intangible Assets

Amortization of intangible assets expense for the year ended December 31, 2019 decreased 8.8% to $49.4 million compared to $54.2 million for the year ended December 31, 2018, primarily driven by the absence of amortization following the write-off of the IPD trade name used by the Real Estate segment in June 2018 and the October 2018 InvestorForce divestiture, partially offset by higher amortization of internally-developed capitalized software.

Depreciation and Amortization of Property, Equipment and Leasehold Improvements

Depreciation and amortization of property, equipment and leasehold improvements for the year ended December 31, 2019 and 2018 was $30.0 million and $31.3 million, respectively.

Other Expense (Income), Net

Other expense (income), net for the year ended December 31, 2019 increased 167.3% to $152.4 million compared to $57.0 million for the year ended December 31, 2018. The increase was primarily driven by the absence of the $46.6 million and $10.6 million of gains realized from the InvestorForce and FEA divestitures, respectively, which occurred in 2018. The increase was also driven by the $16.8 million loss on extinguishment associated with the partial pre-maturity redemption of the 2024 Senior Notes which included approximately $13.1 million of call premium paid in accordance with the redemption prices set forth in the indenture and the write-off of approximately $3.7 million of unamortized costs associated with the 2024 Senior Notes. In addition, the increase also reflects higher interest expense associated with higher outstanding debt and higher foreign currency exchange losses.

Income Taxes

The provision for income tax decreased 67.5% to $39.7 million for the year ended December 31, 2019 compared to $122.0 million for the year ended December 31, 2018. These amounts reflect effective tax rates of 6.6% and 19.4% for the years ended December 31, 2019 and 2018, respectively.

The effective tax rate of 6.6% for the year ended December 31, 2019 reflects the impact of certain favorable discrete items totaling $85.7 million. These discrete items primarily relate to $66.6 million of excess tax benefits recognized upon vesting of the 2016 Multi-Year PSUs and $16.1 million of excess tax benefits on other share-based compensation recognized during the period. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings.

The effective tax rate of 19.4% for the year ended December 31, 2018 reflects the impact of certain favorable discrete items totaling $31.9 million. These discrete items include $8.8 million of excess tax benefits related to stock-based compensation, $11.9 million related to the release of valuation allowances previously recorded on capital loss carryforwards and $11.2 million related to the final impact of Tax Reform.

Net Income

As a result of the factors described above, net income for the year ended December 31, 2019 increased 11.0% to $563.6 million compared to $507.9 million for the year ended December 31, 2018.

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,
		2019				2018				Increase/(Decrease)
		(in thousands)
Operating revenues:		$	1,557,796			$	1,433,984			$	123,812				8.6	%
Adjusted EBITDA expenses			707,297				661,551				45,746				6.9	%
Adjusted EBITDA		$	850,499			$	772,433			$	78,066				10.1	%
Adjusted EBITDA margin %			54.6	%			53.9	%
Operating margin %			48.5	%			47.9	%

Adjusted EBITDA increased 10.1% to $850.5 million for the year ended December 31, 2019 compared to $772.4 million for the year ended December 31, 2018. Adjusted EBITDA margin increased to 54.6% for the year ended December 31, 2019 compared to 53.9% for the year ended December 31, 2018. The increase in Adjusted EBITDA margin reflects a higher rate of growth in operating revenues 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,
		2019				2018				Increase/(Decrease)
		(in thousands)
Index Adjusted EBITDA		$	670,188			$	607,853			$	62,335				10.3	%
Analytics Adjusted EBITDA			152,113				143,645				8,468				5.9	%
All Other Adjusted EBITDA			28,198				20,935				7,263				34.7	%
Consolidated Adjusted EBITDA			850,499				772,433				78,066				10.1	%
2016 Multi-Year PSUs grant payroll tax expense			15,389				—				15,389			n/a
Amortization of intangible assets			49,410				54,189				(4,779	)			(8.8	%)
Depreciation and amortization of property, equipment and leasehold improvements			29,999				31,346				(1,347	)			(4.3	%)
Operating income			755,701				686,898				68,803				10.0	%
Other expense (income), net			152,383				57,002				95,381				167.3	%
Provision for income taxes			39,670				122,011				(82,341	)			(67.5	%)
Net income		$	563,648			$	507,885			$	55,763				11.0	%

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

		Years Ended
		December 31,				December 31,
		2019				2018				Increase/(Decrease)
		(in thousands)
Index Adjusted EBITDA expenses		$	250,749			$	227,622			$	23,127				10.2	%
Analytics Adjusted EBITDA expenses			344,812				336,294				8,518				2.5	%
All Other Adjusted EBITDA expenses			111,736				97,635				14,101				14.4	%
Consolidated Adjusted EBITDA expenses			707,297				661,551				45,746				6.9	%
2016 Multi-Year PSUs grant payroll tax expense			15,389				—				15,389			n/a
Amortization of intangible assets			49,410				54,189				(4,779	)			(8.8	%)
Depreciation and amortization of property, equipment and leasehold improvements			29,999				31,346				(1,347	)			(4.3	%)
Total operating expenses		$	802,095			$	747,086			$	55,009				7.4	%

Segment Results

The results for each of our three reportable segments for the years ended December 31, 2019 and 2018 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,
		2019				2018				Increase/(Decrease)
		(in thousands)
Operating revenues:
Recurring subscriptions		$	530,968			$	477,612			$	53,356				11.2	%
Asset-based fees			361,927				336,565				25,362				7.5	%
Non-recurring			28,042				21,298				6,744				31.7	%
Operating revenues total			920,937				835,475				85,462				10.2	%
Adjusted EBITDA expenses			250,749				227,622				23,127				10.2	%
Adjusted EBITDA		$	670,188			$	607,853			$	62,335				10.3	%
Adjusted EBITDA margin %			72.8	%			72.8	%

Revenues related to Index products increased 10.2% to $920.9 million for the year ended December 31, 2019 compared to $835.5 million for the year ended December 31, 2018.

Revenues from recurring subscriptions were up 11.2% to $531.0 million for the year ended December 31, 2019 compared to $477.6 million for the year ended December 31, 2018. The increase was driven by strong growth in core developed market modules, factor and ESG index products and emerging market modules. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.

Revenues from asset-based fees increased 7.5% to $361.9 million for the year ended December 31, 2019 compared to $336.6 million for the year ended December 31, 2018. The increase in asset-based fees was primarily driven by an increase in revenues from exchange traded futures and options contracts linked to MSCI indexes. The increase in revenues from futures and options contracts was driven by approximately $5.0 million in additional fees associated with prior periods attributed to a retrospective price increase from a renegotiated contract entered into during the year ended December 31, 2019, as well as the cumulative impact of price and volume increases. The increase in revenues from asset-based fees was also driven by higher revenues from ETFs linked to MSCI indexes, which was driven by a 7.6% increase in average AUM, partially offset by the impact of a change in product mix. In addition, the increase in revenues from asset-based fees was driven by higher revenues from non-ETF passive products linked to MSCI indexes. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.

Index segment Adjusted EBITDA expenses increased 10.2% to $250.7 million for the year ended December 31, 2019 compared to $227.6 million for the year ended December 31, 2018, 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 12.1% for the year ended December 31, 2019 compared to the year ended December 31, 2018.

Analytics Segment

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

		Years Ended
		December 31,				December 31,
		2019				2018				Increase/(Decrease)
		(in thousands)
Operating revenues:
Recurring subscriptions		$	486,282			$	474,334			$	11,948				2.5	%
Non-recurring			10,643				5,605				5,038				89.9	%
Operating revenues total			496,925				479,939				16,986				3.5	%
Adjusted EBITDA expenses			344,812				336,294				8,518				2.5	%
Adjusted EBITDA		$	152,113			$	143,645			$	8,468				5.9	%
Adjusted EBITDA margin %			30.6	%			29.9	%

Analytics segment revenues increased 3.5% to $496.9 million for the year ended December 31, 2019 compared to $479.9 million for the year ended December 31, 2018, primarily driven by strong growth in Multi-Asset Class products as well as the timing of client implementations, partially offset by declines from the October 2018 InvestorForce divestiture and the April 2018 FEA divestiture. The impact of foreign currency exchange rate fluctuations on Analytics segment revenues was negligible. Adjusting for foreign currency exchange rate fluctuations and excluding the impact of the InvestorForce and FEA divestitures, Analytics segment revenues would have increased 7.5% for the year ended December 31, 2019 compared to the year ended December 31, 2018.

Analytics segment Adjusted EBITDA expenses increased 2.5% to $344.8 million for the year ended December 31, 2019 compared to $336.3 million for the year ended December 31, 2018, primarily driven by higher expenses across the selling and marketing and R&D expense activity categories, partially offset by lower expenses across the cost of sales expense activity category. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 4.0% for the year ended December 31, 2019 compared to the year ended December 31, 2018.

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,
		2019				2018				Increase/(Decrease)
		(in thousands)
Operating revenues:
Recurring subscriptions		$	136,790			$	114,590			$	22,200				19.4	%
Non-recurring			3,144				3,980				(836	)			(21.0	%)
Operating revenues total			139,934				118,570				21,364				18.0	%
Adjusted EBITDA expenses			111,736				97,635				14,101				14.4	%
Adjusted EBITDA		$	28,198			$	20,935			$	7,263				34.7	%
Adjusted EBITDA margin %			20.2	%			17.7	%

All Other segment revenues increased 18.0% to $139.9 million for the year ended December 31, 2019 compared to $118.6 million for the year ended December 31, 2018. The increase in All Other revenues was driven by a $19.3 million, or 27.0%, increase in ESG revenues to $90.7 million and by a $2.1 million, or 4.4%, increase in Real Estate revenues to $49.3 million. The increase in ESG revenues was driven by strong growth in the ESG Ratings products and the ESG Screening products. The increase in Real Estate revenues was primarily driven by strong growth in our Global Intel products. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other operating revenues would have increased 21.6%, ESG revenues would have increased 29.5% and Real Estate revenues would have increased 9.7% for the year ended December 31, 2019 compared to the year ended December 31, 2018. Adjusting for the impact of foreign currency exchange rate fluctuations and excluding the impact of the Carbon Delta acquisition, ESG revenues would have increased 29.3%.

All Other segment Adjusted EBITDA expenses increased 14.4% to $111.7 million for the year ended December 31, 2019 compared to $97.6 million for the year ended December 31, 2018, driven by higher expenses attributable mostly to ESG operations. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 16.8% for the year ended December 31, 2019 compared to the year ended December 31, 2018.

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
		December 31,				December 31,
			2019				2018			Increase/(Decrease)
		(in thousands)
Index:
Recurring subscriptions		$	559,257			$	502,665				11.3	%
Asset-based fees			396,140				311,908				27.0	%
Index total			955,397				814,573				17.3	%
Analytics			526,845				491,861				7.1	%
All Other			152,247				124,886				21.9	%
Total Run Rate		$	1,634,489			$	1,431,320				14.2	%
Recurring subscriptions total		$	1,238,349			$	1,119,412				10.6	%
Asset-based fees			396,140				311,908				27.0	%
Total Run Rate		$	1,634,489			$	1,431,320				14.2	%

Total Run Rate grew 14.2% to $1,634.5 million as of December 31, 2019 compared to $1,431.3 million as of December 31, 2018. Recurring subscription Run Rate grew 10.6% to $1,238.3 million as of December 31, 2019 compared to $1,119.4 million as of December 31, 2018. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscription Run Rate would have increased 10.6% as of December 31, 2019 compared to December 31, 2018.

Run Rate from asset-based fees increased 27.0% to $396.1 million as of December 31, 2019, from $311.9 million as of December 31, 2018, driven by higher AUM in ETFs linked to MSCI indexes as well as higher AUM in non-ETF passive funds also linked to MSCI indexes and higher fees in futures and options. As of December 31, 2019, the value of AUM in ETFs linked to MSCI indexes was $934.4 billion, up $238.8 billion, or 34.3%, from $695.6 billion as of December 31, 2018. The increase of $238.8 billion consisted of net inflows of $91.3 billion and a market appreciation of $147.5 billion. Partially offsetting the impact of the increase in AUM in ETFs linked to MSCI indexes was a change in product mix, which was the primary driver of a decline in average basis point fees to 2.82 at December 31, 2019 from 2.92 at December 31, 2018.

Index recurring subscription Run Rate grew 11.3% to $559.3 million as of December 31, 2019 compared to $502.7 million as of December 31, 2018, primarily driven by strong growth in core developed and emerging market modules and factor, ESG and custom index products with strong growth across our asset management clients and growth across our banking, hedge fund, wealth management and asset owner clients.

Run Rate from Analytics products increased 7.1% to $526.8 million as of December 31, 2019 compared to $491.9 million as of December 31, 2018, primarily driven by strong 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 7.2% as of December 31, 2019 compared to December 31, 2018.

Run Rate from All Other products increased 21.9% to $152.2 million at December 31, 2019 compared to $124.9 million at December 31, 2018. The $27.4 million increase was primarily driven by a $21.9 million, or 27.6%, increase in ESG Run Rate to $101.4 million, and a $5.4 million, or 12.0%, increase in Real Estate Run Rate to $50.8 million. The increase in ESG Run Rate was primarily driven by strong growth in ESG Ratings products and 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, All Other Run Rate would have increased 21.7%, ESG Run Rate would have increased 27.6% and Real Estate Run Rate would have increased 11.3% at December 31, 2019 compared to December 31, 2018.

Subscription Sales

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

		Years Ended
		December 31,				December 31,
		2019				2018				Increase/(Decrease)
		(in thousands)
New recurring subscription sales
Index		$	78,325			$	72,660				7.8	%
Analytics			66,992				64,986				3.1	%
All Other			32,552				26,201				24.2	%
New recurring subscription sales total			177,869				163,847				8.6	%
Subscription cancellations
Index			(21,767	)			(20,819	)			4.6	%
Analytics			(31,623	)			(33,671	)			(6.1	%)
All Other			(6,468	)			(6,421	)			0.7	%
Subscription cancellations total			(59,858	)			(60,911	)			(1.7	%)
Net new recurring subscription sales
Index			56,558				51,841				9.1	%
Analytics			35,369				31,315				12.9	%
All Other			26,084				19,780				31.9	%
Net new recurring subscription sales total			118,011				102,936				14.6	%
Non-recurring sales
Index			30,262				22,729				33.1	%
Analytics			15,947				10,209				56.2	%
All Other			2,890				3,438				(15.9	%)
Non-recurring sales total			49,099				36,376				35.0	%
Gross sales(1)
Index		$	108,587			$	95,389				13.8	%
Analytics			82,939				75,195				10.3	%
All Other			35,442				29,639				19.6	%
Total gross sales		$	226,968			$	200,223				13.4	%
Net sales
Index		$	86,820			$	74,570				16.4	%
Analytics			51,316				41,524				23.6	%
All Other			28,974				23,218				24.8	%
Total net sales		$	167,110			$	139,312				20.0	%

(1)	Gross sales equals new recurring subscription sales plus non-recurring sales.

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, 2019 and 2018:

		Index				Analytics				All Other				Total
2019
Three Months Ended March 31,			96.5	%			93.7	%			95.9	%			95.2	%
Three Months Ended June 30,			97.1	%			94.2	%			93.9	%			95.5	%
Three Months Ended September 30,			96.0	%			93.6	%			96.8	%			95.0	%
Three Months Ended December 31,			93.0	%			92.8	%			92.7	%			92.9	%
Year Ended December 31,			95.7	%			93.6	%			94.8	%			94.7	%
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	%

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 2019, we recorded cancellations of $19.9 million. To derive the Retention Rate for the fourth quarter, we annualized the actual cancellations during the quarter of $19.9 million to derive $79.7 million of annualized cancellations. This $79.7 million was then divided by the $1,119.4 million subscription Run Rate at the beginning of the year to derive a cancellation rate of 7.1%. The 7.1% was then subtracted from 100.0% to derive a Retention Rate of 92.9% 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.

For the year ended December 31, 2019, 33.3% of our cancellations occurred in the fourth quarter. In our product lines, Retention Rate is generally 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, fund our working capital requirements for capital expenditures, investments, acquisitions, dividend payments and repurchases of our common stock. In connection with our business strategy, we regularly evaluate acquisition and strategic partnership 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 an aggregate of $3,100.0 million in senior unsecured notes (collectively, the “Senior Notes”) consisting of five discrete private placement offerings and entered into a $400.0 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, 2019, our Consolidated Leverage Ratio was 3.30:1.00 and our Consolidated Interest Coverage Ratio was 6.42:1.00. 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 $883.4 million, or 56.7%, of our total revenue for the 12 months ended December 31, 2019, approximately $267.0 million, or 35.3%, of our consolidated operating income for the 12 months ended December 31, 2019, and approximately $910.1 million, or 21.6%, of our consolidated total assets (excluding intercompany assets) and $624.3 million, or 14.6%, of our consolidated total liabilities, in each case as of December 31, 2019.

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 10, “Shareholders’ Equity (Deficit),” of the Notes to Consolidated Financial Statements included herein for additional information on our stock repurchase program.

As of February 12, 2020, a total of $1,456.1 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 29, 2020, the Board of Directors declared a quarterly dividend of $0.68 per share of common stock to be paid on March 6, 2020 to shareholders of record as of the close of trading on February 21, 2020.

Cash Flows

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

		As of
		December 31,				December 31,
			2019				2018
		(in thousands)
Cash and cash equivalents		$	1,506,567			$	904,176

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

		Years Ended
		December 31,				December 31,
			2019			2018
		(in thousands)
Net cash provided by operating activities		$	709,523			$	612,762
Net cash provided by (used in) investing activities			(71,937	)			34,874
Net cash used in financing activities			(36,667	)			(626,483	)
Effect of exchange rates on cash and cash equivalents			1,472				(6,479	)
Net increase in cash and cash equivalents		$	602,391			$	14,674

Cash and Cash Equivalents

Cash and cash equivalents were $1,506.6 million and $904.2 million as of December 31, 2019 and 2018, 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, 2019 and 2018, $321.2 million and $275.6 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.

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 $709.5 million and $612.8 million for the years ended December 31, 2019 and 2018, respectively. The year-over-year increase was primarily driven by higher cash collections from customers and the benefit of lower payments for income taxes, partially offset by higher payments for cash expenses and interest.

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 used in investing activities was $71.9 million for the year ended December 31, 2019 compared to cash provided by investing activities of $34.9 million for the year ended December 31, 2018. The year-over-year change was primarily driven by the absence of the proceeds received from the InvestorForce and FEA divestitures in 2018 and the acquisition payment of Carbon Delta.

Cash Flows From Financing Activities

Cash used in financing activities was $36.7 million for the year ended December 31, 2019 compared to $626.5 million for the year ended December 31, 2018. The year-over-year change primarily reflects lower share repurchases and the proceeds from the $1,000.0 million 2029 Senior Notes offering in November 2019, partially offset by the payment for the pre-maturity redemption or repurchase of the $500.0 million aggregate principal amount of the 2024 Senior Notes and higher dividend payments.

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.

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, 2019:

						Years Ending December 31,
(in thousands)		Total				2020				2021				2022				2023				2024				Thereafter
Operating leases		$	221,216				28,162				27,562				23,801				22,678				17,231				101,782
Vendor obligations			110,510				44,073				15,901				14,466				11,794				12,022				12,254
Senior Notes (1)			4,222,563				152,375				152,375				152,375				152,375				452,375				3,160,688
Other obligations (2)			19,391				—				—				—				1,465				7,967				9,959
Total contractual obligations		$	4,573,680			$	224,610			$	195,838			$	190,642			$	188,312			$	489,595			$	3,284,683

(1)

Includes the impact of payments for the principal amount on the 2024 Senior Notes, the $800.0 million aggregate principal amount of 5.750% senior unsecured notes due 2025 (the “2025 Senior Notes”), the $500.0 million aggregate principal amount of 4.750% senior unsecured notes due 2026 (the “2026 Senior Notes”), the 2027 Senior Notes and the 2029 Senior Notes plus interest based on the 5.25%, 5.75%, 4.75%, 5.375% and 4.00% coupon interest rates, respectively.

(2)	Primarily includes amounts payable related to the estimated Toll Charge. The Toll Charge is included within “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, 2019 and 2018, 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.