Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Item 1A.—Risk Factors,” in our Form 10-K.

Except as the context otherwise indicates, the terms “MSCI,” the “Company,” “we,” “our” and “us” refer to MSCI Inc., together with its subsidiaries.

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 indexed financial products, and facilitate reporting to stakeholders.

Our leading research-enhanced products and services include indexes; portfolio construction and risk management analytics; ESG and climate solutions; and real estate market and transaction data, benchmarks, return-analytics, climate assessments and market insights. Through our integrated franchise we provide solutions across our products and services to support our clients’ dynamic and complex needs. Our content and capabilities can be accessed by our clients through multiple channels and platforms.

We are focused on product innovation to address the evolving needs of our clients in light of changing investment trends and an increasingly complex 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 robo-advisors and self-directed brokerages)

	•	Corporates

As of September 30, 2021, we served over 4,5001 clients in more than 90 countries. As of September 30, 2021, we had offices in more than 35 cities across more than 20 countries to help serve our diverse client base, with 45.1% of our revenues coming from clients in the Americas, 39.1% in EMEA and 15.8% in Asia and Australia.

Our principal business model is generally to license annual, recurring subscriptions for the majority of our Index, Analytics and ESG and Climate products and services for a fee due in advance of the service period. Real Estate products are also licensed annually through subscriptions, which are generally recurring, for a fee which is paid in advance when products are generally delivered ratably over the subscription period or in arrears after the product is delivered. A portion of our fees comes from clients who use our indexes as the basis for index-linked investment products. Such fees are primarily based on a client’s assets under management (“AUM”), trading volumes and fee levels.

1	Represents the aggregate of all related clients under their respective parent entity, excluding clients of Real Capital Analytics, Inc. (“RCA”) which were not previously MSCI’s clients.

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) extending leadership in research-enhanced content across asset classes, (b) enhancing distribution and content-enabling technology, (c) expanding solutions that empower client customization, (d) strengthening existing and developing new client relationships and (e) executing strategic relationships and acquisitions with complementary content and technology companies.

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 three-fifths of the AUM is 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.

The discussion of our results of operations for the three and nine months ended September 30, 2021 and 2020 are presented below. The results of operations for interim periods may not be indicative of future results.

Results of Operations

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

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2021				2020								2021				2020				% Change
	(in thousands, except per share data)
Operating revenues	$	517,099			$	425,333				21.6	%		$	1,493,702			$	1,251,729				19.3	%
Operating expenses:
Cost of revenues		89,674				70,704				26.8	%			262,781				215,769				21.8	%
Selling and marketing		59,819				52,668				13.6	%			174,477				159,834				9.2	%
Research and development		28,352				24,901				13.9	%			80,745				73,997				9.1	%
General and administrative		38,110				27,613				38.0	%			103,020				86,755				18.7	%
Amortization of intangible assets		14,105				14,333				(1.6	%)			59,569				42,171				41.3	%
Depreciation and amortization of property, equipment and leasehold improvements		6,809				7,494				(9.1	%)			20,972				22,524				(6.9	%)
Total operating expenses		236,869				197,713				19.8	%			701,564				601,050				16.7	%
Operating income		280,230				227,620				23.1	%			792,138				650,679				21.7	%
Other expense (income), net		79,580				38,577				106.3	%			179,765				159,620				12.6	%
Income before provision for income taxes		200,650				189,043				6.1	%			612,373				491,059				24.7	%
Provision for income taxes		30,774				6,685				360.3	%			80,255				45,453				76.6	%
Net income	$	169,876			$	182,358				(6.8	%)		$	532,118			$	445,606				19.4	%
Earnings per basic common share	$	2.06			$	2.18				(5.5	%)		$	6.45			$	5.30				21.7	%
Earnings per diluted common share	$	2.03			$	2.16				(6.0	%)		$	6.38			$	5.26				21.3	%
Operating margin		54.2	%			53.5	%							53.0	%			52.0	%

Operating Revenues

Our revenues are grouped by the following types: recurring subscriptions, asset-based fees and non-recurring. We also group revenues by major product or reportable segment as follows: Index, Analytics, ESG and Climate and All Other – Private Assets, which includes the Real Estate product line.

The following table presents operating revenues by type for the periods indicated:

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2021				2020				% Change				2021				2020				% Change
	(in thousands)
Recurring subscriptions	$	357,640			$	313,190				14.2	%		$	1,043,502			$	927,499				12.5	%
Asset-based fees		141,745				100,371				41.2	%			404,593				288,642				40.2	%
Non-recurring		17,714				11,772				50.5	%			45,607				35,588				28.2	%
Total operating revenues	$	517,099			$	425,333				21.6	%		$	1,493,702			$	1,251,729				19.3	%

Total operating revenues for the three months ended September 30, 2021 increased 21.6% to $517.1 million compared to $425.3 million for the three months ended September 30, 2020. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, total operating revenues would have increased 20.4% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase of total operating revenues was 19.3%, growing to $1,493.7 million compared to $1,251.7 million for the nine months ended September 30, 2020. Adjusting for the impact of foreign currency exchange rate fluctuations and the acquisition, total operating revenues would have increased 18.3% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Operating revenues from recurring subscriptions for the three months ended September 30, 2021 increased 14.2% to $357.6 million compared to $313.2 million for the three months ended September 30, 2020, primarily driven by growth in Index products, which increased $18.9 million, or 12.9%, strong growth in ESG and Climate products, which increased $14.4 million, or 51.3%, and growth in Analytics products, which increased $8.1 million, or 6.4%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, operating revenues from recurring subscriptions would have increased 12.6% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase of operating revenues from recurring subscriptions was 12.5%, growing to $1,043.5 million compared to $927.5 million for the nine months ended September 30, 2020, primarily driven by growth in Index products, which increased $48.9 million, or 11.3%, strong growth in ESG and Climate products, which increased $36.3 million, or 46.0%, and growth in Analytics products, which increased $22.9 million, or 6.1%. Adjusting for the impact of foreign currency exchange rate fluctuations and the acquisition, operating revenues from recurring subscriptions would have increased 11.2% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Operating revenues from asset-based fees for the three months ended September 30, 2021 increased 41.2% to $141.7 million compared to $100.4 million for the three months ended September 30, 2020. The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked to MSCI equity indexes that was primarily driven by a 52.4% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.

For the nine months ended September 30, 2021, revenues from asset-based fees increased 40.2% to $404.6 million compared to $288.6 million for the nine months ended September 30, 2020. The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked to MSCI equity indexes that was primarily driven by a 50.1% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. 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 equity indexes and the sequential change of such assets as of the end of each of the periods indicated:

		Period Ended
		2020																2021
(in billions)		March 31,				June 30,				September 30,				December 31,				March 31,				June 30,				September 30,
AUM in ETFs linked to MSCI equity indexes(1), (2)		$	709.5			$	825.4			$	908.9			$	1,103.6			$	1,209.6			$	1,336.2			$	1,336.6
Sequential Change in Value
Market Appreciation/(Depreciation)		$	(216.5	)		$	117.4			$	57.0			$	135.7			$	43.2			$	73.7			$	(30.7	)
Cash Inflows			(8.4	)			(1.5	)			26.5				59.0				62.8				52.9				31.1
Total Change		$	(224.9	)		$	115.9			$	83.5			$	194.7			$	106.0			$	126.6			$	0.4

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

		2020																2021
(in billions)		March				June				September				December				March				June				September
AUM in ETFs linked to MSCI equity indexes(1), (2)
Quarterly average		$	877.1			$	776.9			$	893.4			$	999.2			$	1,169.2			$	1,292.4			$	1,361.9
Year-to-date average		$	877.1			$	827.0			$	849.1			$	886.7			$	1,169.2			$	1,230.8			$	1,274.5

(1)

The historical values of the AUM in ETFs linked to our equity 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 Equity 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 Quarterly Report on Form 10-Q or any other report filed with the SEC. The AUM in ETFs also includes AUM in Exchange Traded Notes, the value of which is less than 1.0% of the AUM amounts presented.

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

The average value of AUM in ETFs linked to MSCI equity indexes for the three months ended September 30, 2021 was $1,361.9 billion, up $468.5 billion, or 52.4%, from $893.4 billion for the three months ended September 30, 2020. For the nine months ended September 30, 2021, it was $1,274.5 billion, up $425.4 billion, or 50.1%, from $849.1 billion for the nine months ended September 30, 2020.

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

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2021				2020				% Change				2021				2020				% Change
	(in thousands)
Operating revenues:
Index
Recurring subscriptions	$	165,310			$	146,387				12.9	%		$	480,488			$	431,631				11.3	%
Asset-based fees		141,745				100,371				41.2	%			404,593				288,642				40.2	%
Non-recurring		14,448				8,933				61.7	%			34,876				27,582				26.4	%
Index total		321,503				255,691				25.7	%			919,957				747,855				23.0	%
Analytics
Recurring subscriptions		134,320				126,251				6.4	%			399,360				376,505				6.1	%
Non-recurring		1,978				2,086				(5.2	%)			6,857				4,903				39.9	%
Analytics total		136,298				128,337				6.2	%			406,217				381,408				6.5	%
ESG and Climate
Recurring subscriptions		42,592				28,152				51.3	%			115,299				78,961				46.0	%
Non-recurring		1,099				399				175.4	%			2,450				1,125				117.8	%
ESG and Climate total		43,691				28,551				53.0	%			117,749				80,086				47.0	%
All Other - Private Assets
Recurring subscriptions		15,418				12,400				24.3	%			48,355				40,402				19.7	%
Non-recurring		189				354				(46.6	%)			1,424				1,978				(28.0	%)
All Other - Private Assets total		15,607				12,754				22.4	%			49,779				42,380				17.5	%
Total operating revenues	$	517,099			$	425,333				21.6	%		$	1,493,702			$	1,251,729				19.3	%

Refer to the section titled "Segment Results" that follows for further discussion of segment revenues.

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.

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

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2021				2020				% Change				2021				2020				% Change
	(in thousands)
Operating expenses:
Cost of revenues	$	89,674			$	70,704				26.8	%		$	262,781			$	215,769				21.8	%
Selling and marketing		59,819				52,668				13.6	%			174,477				159,834				9.2	%
Research and development		28,352				24,901				13.9	%			80,745				73,997				9.1	%
General and administrative		38,110				27,613				38.0	%			103,020				86,755				18.7	%
Amortization of intangible assets		14,105				14,333				(1.6	%)			59,569				42,171				41.3	%
Depreciation and amortization of property, equipment and leasehold improvements		6,809				7,494				(9.1	%)			20,972				22,524				(6.9	%)
Total operating expenses	$	236,869			$	197,713				19.8	%		$	701,564			$	601,050				16.7	%

Total operating expenses for the three months ended September 30, 2021 increased 19.8% to $236.9 million compared to $197.7 million for the three months ended September 30, 2020. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 18.4% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase was 16.7%, growing to $701.6 million compared to $601.1 million for the nine months ended September 30, 2020. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 14.4% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

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, cloud service, 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.

Cost of revenues for the three months ended September 30, 2021 increased 26.8% to $89.7 million compared to $70.7 million for the three months ended September 30, 2020, reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and incentive compensation, as well as higher non-compensation costs, reflecting higher professional fees, information technology costs and market data costs.

For the nine months ended September 30, 2021, the increase was 21.8%, growing to $262.8 million compared to $215.8 million for the nine months ended September 30, 2020, reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and incentive compensation, as well as higher non-compensation costs, reflecting higher professional fees, information technology costs and market data 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.

Selling and marketing expenses for the three months ended September 30, 2021 increased 13.6% to $59.8 million compared to $52.7 million for the three months ended September 30, 2020, reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, including higher incentive compensation and wages and salaries, partially offset by lower severance costs, as well as higher non-compensation costs, primarily relating to higher marketing and information technology costs.

For the nine months ended September 30, 2021, the increase was 9.2%, growing to $174.5 million compared to $159.8 million for the nine months ended September 30, 2020, reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, including incentive compensation and wages and salaries.

Research and Development

R&D expenses consist of the 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.

R&D expenses for the three months ended September 30, 2021 increased 13.9% to $28.4 million compared to $24.9 million for the three months ended September 30, 2020, reflecting higher investment in the Index and ESG and Climate reportable segments, partially offset by lower investment in the Analytics reportable segment. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation, as well as higher non-compensation costs, reflecting higher information technology costs.

For the nine months ended September 30, 2021, the increase was 9.1%, growing to $80.7 million compared to $74.0 million for the nine months ended September 30, 2020, reflecting higher investment in the Index and ESG and Climate reportable segments, partially offset by lower investment in the Analytics reportable segment. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation, as well as higher non-compensation costs, reflecting higher information technology costs.

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.

G&A expenses for the three months ended September 30, 2021 increased 38.0% to $38.1 million compared to $27.6 million for the three months ended September 30, 2020, reflecting increases across all four reportable segments. The change was driven by higher non-compensation costs, primarily driven by non-recurring transaction and integration costs related to the acquisition of RCA, higher professional fees and information technology costs, as well as higher compensation costs, reflecting higher incentive compensation and wages and salaries, partially offset by lower severance costs.

For the nine months ended September 30, 2021, the increase was 18.7%, growing to $103.0 million compared to $86.8 million for the nine months ended September 30, 2020, reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation and wages and salaries, partially offset by lower severance costs, and higher non-compensation costs related to non-recurring transaction and integration costs related to the acquisition of RCA, information technology costs, insurance costs and professional fees.

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

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2021				2020				% Change				2021				2020				% Change
	(in thousands)
Compensation and benefits	$	152,540			$	129,920				17.4	%		$	452,237			$	395,985				14.2	%
Non-compensation expenses		63,415				45,966				38.0	%			168,786				140,370				20.2	%
Amortization of intangible assets		14,105				14,333				(1.6	%)			59,569				42,171				41.3	%
Depreciation and amortization of property, equipment and leasehold improvements		6,809				7,494				(9.1	%)			20,972				22,524				(6.9	%)
Total operating expenses	$	236,869			$	197,713				19.8	%		$	701,564			$	601,050				16.7	%

Compensation and Benefits

Compensation and benefits costs are our most significant expense and typically represent approximately 65% of operating expenses or more than 70% of Adjusted EBITDA expenses. We had 4,237 and 3,545 employees as of September 30, 2021 and 2020, respectively, reflecting a 19.5% 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 benefit expenses. As of September 30, 2021, 62.5% of our employees were located in emerging market centers compared to 64.2% as of September 30, 2020.

Compensation and benefits costs for the three months ended September 30, 2021 increased 17.4% to $152.5 million compared to $129.9 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, the increase was 14.2%, growing to $452.2 million compared to $396.0 million for the nine months ended September 30, 2020. The increase in both the three and nine months ended September 30, 2021 was primarily driven by higher incentive compensation and wages and salaries.

A significant portion of the incentive compensation component of operating expenses is based on the achievement of a number of financial and operating metrics. In a scenario where operating revenue growth and profitability moderate, incentive compensation would be expected to decrease accordingly.

Non-Compensation Expenses

Non-compensation expenses for the three months ended September 30, 2021 increased 38.0% to $63.4 million compared to $46.0 million for the three months ended September 30, 2020, primarily driven by higher non-recurring transaction and integration costs related to the acquisition of RCA, professional fees, information technology costs and market data costs.

For the nine months ended September 30, 2021, the increase was 20.2%, growing to $168.8 million compared to $140.4 million for the nine months ended September 30, 2020, primarily driven by higher information technology costs, professional fees, non-recurring transaction and integration costs related to the acquisition of RCA and market data costs.

Fixed costs constitute a significant portion of the non-compensation component of operating expenses. The discretionary non-compensation component of operating expenses could, however, be reduced in the near-term in a scenario where operating revenue growth moderates.

Amortization of Intangible Assets

Amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and internal capitalized software projects recognized over their estimated useful lives. Amortization of intangible assets expense for the three months ended September 30, 2021 remained consistent at $14.1 million compared to $14.3 million for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, it increased 41.3% to $59.6 million compared to $42.2 million for the nine months ended September 30, 2020, primarily driven by a write-off of $16.0 million of certain internally developed capitalized software intangible assets as a result of management’s decision during the three months ended June 30, 2021 to discontinue development and cease related sales activities of certain Analytics segment products and transition existing customers to other product offerings.

Depreciation and Amortization of Property, Equipment and Leasehold Improvements

Depreciation and amortization of property, equipment and leasehold improvements 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. Depreciation and amortization of property, equipment and leasehold improvements for the three months ended September 30, 2021 decreased 9.1% to $6.8 million compared to $7.5 million for the three months ended September 30, 2020. The decrease was primarily the result of lower depreciation on software, computer and related equipment and furniture.

For the nine months ended September 30, 2021, it decreased 6.9% to $21.0 million compared to $22.5 million for the nine months ended September 30, 2020. The decrease was primarily the result of lower depreciation on software, computer and related equipment and leasehold improvements.

Other Expense (Income), Net

Other expense (income), net for the three months ended September 30, 2021 increased 106.3% to $79.6 million compared to $38.6 million for the three months ended September 30, 2020. The increase in net expenses was primarily driven by the approximately $37.3 million loss on debt extinguishment associated with the redemption of all of the $500.0 million aggregate principal amount of the 2027 Senior Notes (the “2027 Senior Notes Redemption”) during the three months ended September 30, 2021. The loss on debt extinguishment associated with the 2027 Senior Notes Redemption included an applicable premium of approximately $33.6 million (as set forth in the indenture governing the terms of the 2027 Senior Notes) and the write-off of approximately $3.7 million of unamortized debt issuance costs associated with the 2027 Senior Notes.

For the nine months ended September 30, 2021, net expenses increased 12.6% to $179.8 million compared to $159.6 million for the nine months ended September 30, 2020. The increase in net expenses was primarily driven by the approximately $37.3 million and $21.8 million loss on debt extinguishment associated with the 2027 Senior Notes Redemption and the redemption of all of the $500.0 million aggregate principal amount of the 2026 Senior Notes that remained outstanding (the “2026 Senior Notes Redemption”) during the nine months ended September 30, 2021, respectively. The loss on debt extinguishment associated with the 2026 Senior Notes Redemption included an applicable premium of approximately $18.2 million (as set forth in the indenture governing the terms of the 2026 Senior Notes) and the write-off of approximately $3.6 million of unamortized debt issuance costs associated with the 2026 Senior Notes. This was partially offset by the absence of the $35.0 million and $10.0 million loss on debt extinguishment associated with the redemption of all of the outstanding $800.0 million aggregate principal amount of the 2025 Senior Notes (“2025 Senior Notes Redemption”) and the redemption of all of the remaining $300.0 million of the 5.250% Senior Notes due 2024 (“2024 Senior Notes Redemption”) during the nine months ended September 30, 2020, respectively.

Income Taxes

The Company’s provision for income taxes for the three months ended September 30, 2021 and 2020 was $30.8 million and $6.7 million, respectively. These amounts reflect effective tax rates of 15.3% and 3.5% for the three months ended September 30, 2021 and 2020, respectively.

The effective tax rate of 15.3% for the three months ended September 30, 2021 reflects the Company’s estimate of the effective tax rate for the period, which was impacted by certain favorable discrete items totaling $15.1 million. For the three months ended September 30, 2021, these discrete items primarily related to the $9.6 million tax impact of loss on debt extinguishment recognized during the period on the 2027 Senior Notes Redemption. Also included in the discrete items was a $3.8 million benefit related to prior year settlements, $1.3 million of excess tax benefits recognized on share-based compensation vested during the period and $0.4 million of tax benefits related to other prior year items. In addition, the effective tax rate was impacted by the level of earnings.

The effective tax rate of 3.5% for the three months ended September 30, 2020 reflects the Company’s estimate of the effective tax rate for the period, which was impacted by certain favorable discrete items totaling $27.7 million. For the three months ended September 30, 2020, these discrete items primarily related to the $20.8 million tax impact from the favorable impact on prior years of financial regulations released during the three months ended September 30, 2020 clarifying certain provisions established in the 2017 Tax Act. The discrete items also included a $5.5 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings.

The Company’s provision for income taxes for the nine months ended September 30, 2021 and 2020 was $80.3 million and $45.5 million, respectively. These amounts reflect effective tax rates of 13.1% and 9.3% for the nine months ended September 30, 2021 and 2020, respectively.

The effective tax rate of 13.1% for the nine months ended September 30, 2021 reflects the Company’s estimate of the effective tax rate for the period, which was impacted by certain favorable discrete items totaling $49.3 million in relation to pretax income. For the nine months ended September 30, 2021, these discrete items primarily related to $22.7 million of excess tax benefits recognized on share-based compensation vested during the period and $15.2 million related to the tax impact of loss on debt extinguishment recognized during the period on the 2027 Senior Notes Redemption and 2026 Senior Notes Redemption. Also included in the discrete items is a $5.1 million benefit related to prior year settlements, a $2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in the UK corporate tax rate, a $2.0 million benefit related to the filing of prior year refund claims and $2.0 million of tax benefits related to other prior year items. In addition, the effective tax rate was impacted by the level of earnings.

The effective tax rate of 9.3% for the nine months ended September 30, 2020 reflects the Company’s estimate of the effective tax rate for the period, which was impacted by certain favorable discrete items totaling $61.7 million. For the nine months ended September 30, 2020, these discrete items primarily related to $21.9 million of excess tax benefits recognized on share-based compensation vested during the period, the $20.8 million tax impact from the favorable impact on prior years of financial regulations released during the three months ended September 30, 2020 clarifying certain provisions established in the 2017 Tax Act and $11.5 million related to the tax impact of loss on debt extinguishment recognized during the period. The discrete items also included a $6.3 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings.

Net Income

As a result of the factors described above, net income for the three months ended September 30, 2021 decreased 6.8% to $169.9 million compared to $182.4 million for the three months ended September 30, 2020 and for the nine months ended September 30, 2021 increased 19.4% to $532.1 million compared to $445.6 million for the nine months ended September 30, 2020.

Weighted Average Shares

The weighted average shares outstanding used to calculate basic and diluted earnings per share for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 decreased by 1.4% and 1.1%, respectively. For the nine months ended September 30, 2021, the weighted average shares outstanding used to calculate basic and diluted earnings per share compared to the nine months ended September 30, 2020 decreased by 1.8% and 1.6%, respectively. The decrease in both the three and nine months ended September 30, 2021, primarily reflect the impact of share repurchases made pursuant to the stock repurchase program.

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 certain non-recurring acquisition-related integration and transaction costs.

“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 certain non-recurring acquisition-related integration and transaction costs.

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 certain capital spending and acquisitions that do not directly affect what management considers to be the Company’s ongoing 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.

The following table presents the calculation of Adjusted EBITDA for the periods indicated:

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2021				2020				% Change				2021				2020				% Change
	(in thousands)
Operating revenues	$	517,099			$	425,333				21.6	%		$	1,493,702			$	1,251,729				19.3	%
Adjusted EBITDA expenses		210,504				175,886				19.7	%			615,572				536,355				14.8	%
Adjusted EBITDA	$	306,595			$	249,447				22.9	%		$	878,130			$	715,374				22.8	%
Adjusted EBITDA margin %		59.3	%			58.6	%							58.8	%			57.2	%
Operating margin %		54.2	%			53.5	%							53.0	%			52.0	%

Adjusted EBITDA for the three months ended September 30, 2021 increased 22.9% to $306.6 million compared to $249.4 million for the three months ended September 30, 2020. Adjusted EBITDA margin for the three months ended September 30, 2021 increased to 59.3% compared to 58.6% for the three months ended September 30, 2020. For the nine months ended September 30, 2021, Adjusted EBITDA increased 22.8% to $878.1 million compared to $715.4 million for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, Adjusted EBITDA margin increased to 58.8% compared to 57.2% for the nine months ended September 30, 2020. The increase in Adjusted EBITDA margin for both the three and nine months ended

September 30, 2021, 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 periods indicated:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2021				2020				2021				2020
		(in thousands)
Index Adjusted EBITDA		$	245,587			$	194,720			$	698,934			$	561,563
Analytics Adjusted EBITDA			50,291				45,056				145,836				127,540
ESG and Climate Adjusted EBITDA			9,820				7,658				20,585				16,783
All Other - Private Assets Adjusted EBITDA			897				2,013				12,775				9,488
Consolidated Adjusted EBITDA			306,595				249,447				878,130				715,374
Acquisition-related integration and transaction costs			5,451				—				5,451				—
Amortization of intangible assets			14,105				14,333				59,569				42,171
Depreciation and amortization of property, equipment and leasehold improvements			6,809				7,494				20,972				22,524
Operating income			280,230				227,620				792,138				650,679
Other expense (income), net			79,580				38,577				179,765				159,620
Provision for income taxes			30,774				6,685				80,255				45,453
Net income		$	169,876			$	182,358			$	532,118			$	445,606

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2021				2020				2021				2020
		(in thousands)
Index Adjusted EBITDA expenses		$	75,916			$	60,971			$	221,023			$	186,292
Analytics Adjusted EBITDA expenses			86,007				83,281				260,381				253,868
ESG and Climate Adjusted EBITDA expenses			33,871				20,893				97,164				63,303
All Other - Private Assets Adjusted EBITDA expenses			14,710				10,741				37,004				32,892
Consolidated Adjusted EBITDA expenses			210,504				175,886				615,572				536,355
Acquisition-related integration and transaction costs			5,451				—				5,451				—
Amortization of intangible assets			14,105				14,333				59,569				42,171
Depreciation and amortization of property, equipment and leasehold improvements			6,809				7,494				20,972				22,524
Total operating expenses		$	236,869			$	197,713			$	701,564			$	601,050

The discussion of the segment results is presented below.

Segment Results

Index Segment

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

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2021				2020				% Change				2021				2020				% Change
	(in thousands)
Operating revenues:
Recurring subscriptions	$	165,310			$	146,387				12.9	%		$	480,488			$	431,631				11.3	%
Asset-based fees		141,745				100,371				41.2	%			404,593				288,642				40.2	%
Non-recurring		14,448				8,933				61.7	%			34,876				27,582				26.4	%
Operating revenues total		321,503				255,691				25.7	%			919,957				747,855				23.0	%
Adjusted EBITDA expenses		75,916				60,971				24.5	%			221,023				186,292				18.6	%
Adjusted EBITDA	$	245,587			$	194,720				26.1	%		$	698,934			$	561,563				24.5	%
Adjusted EBITDA margin %		76.4	%			76.2	%							76.0	%			75.1	%

Revenues related to Index products for the three months ended September 30, 2021 increased 25.7% to $321.5 million compared to $255.7 million for the three months ended September 30, 2020 and for the nine months ended September 30, 2021, the increase was 23.0%, growing to $920.0 million compared to $747.9 million for the nine months ended September 30, 2020.

Recurring subscriptions for the three months ended September 30, 2021 increased 12.9% to $165.3 million compared to $146.4 million for the three months ended September 30, 2020. The increase was primarily driven by strong growth from market cap-weighted index products and from factor, ESG and climate index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.

For the nine months ended September 30, 2021, the increase was 11.3%, growing to $480.5 million compared to $431.6 million for the nine months ended September 30, 2020. The increase was primarily driven by strong growth from market cap-weighted index products and from factor, ESG and climate index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.

Revenues from asset-based fees for the three months ended September 30, 2021 increased 41.2% to $141.7 million compared to $100.4 million for the three months ended September 30, 2020. The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked to MSCI equity indexes that was primarily driven by a 52.4% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.

For the nine months ended September 30, 2021, the increase was 40.2%, growing to $404.6 million compared to $288.6 million for the nine months ended September 30, 2020. The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked to MSCI equity indexes that was primarily driven by a 50.1% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.

Non-recurring revenues for the three months ended September 30, 2021 increased 61.7% to $14.4 million compared to $8.9 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, the increase was 26.4%, growing to $34.9 million compared to $27.6 million for the nine months ended September 30, 2020. The increase in both the three and nine months ended September 30, 2021, was primarily driven by client license and usage fees related to prior periods.

Index segment Adjusted EBITDA expenses for the three months ended September 30, 2021 increased 24.5% to $75.9 million compared to $61.0 million for the three months ended September 30, 2020, reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased 22.8% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase was 18.6%, growing to $221.0 million compared to $186.3 million for the nine months ended September 30, 2020, reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased 16.0% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Analytics Segment

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

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2021				2020				% Change				2021				2020				% Change
	(in thousands)
Operating revenues:
Recurring subscriptions	$	134,320			$	126,251				6.4	%		$	399,360			$	376,505				6.1	%
Non-recurring		1,978				2,086				(5.2	%)			6,857				4,903				39.9	%
Operating revenues total		136,298				128,337				6.2	%			406,217				381,408				6.5	%
Adjusted EBITDA expenses		86,007				83,281				3.3	%			260,381				253,868				2.6	%
Adjusted EBITDA	$	50,291			$	45,056				11.6	%		$	145,836			$	127,540				14.3	%
Adjusted EBITDA margin %		36.9	%			35.1	%							35.9	%			33.4	%

Analytics segment revenues for the three months ended September 30, 2021 increased 6.2% to $136.3 million compared to $128.3 million for the three months ended September 30, 2020, primarily driven by growth in Multi-Asset Class and Equity Analytics products. The impact of foreign currency exchange rate fluctuations on Analytics segment revenues was negligible.

For the nine months ended September 30, 2021, the increase was 6.5%, growing to $406.2 million compared to $381.4 million for the nine months ended September 30, 2020, primarily driven by growth in Multi-Asset Class and Equity Analytics products. The impact of foreign currency exchange rate fluctuations on Analytics segment revenues was negligible.

Analytics segment Adjusted EBITDA expenses for the three months ended September 30, 2021 increased 3.3% to $86.0 million compared to $83.3 million for the three months ended September 30, 2020, reflecting higher expenses across the cost of revenues, G&A and selling and marketing expense activity categories, partially offset by lower expense across the R&D expense activity category. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have increased 2.1% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase was 2.6%, growing to $260.4 million compared to $253.9 million for the nine months ended September 30, 2020, reflecting higher expenses across the cost of revenues, G&A and selling and marketing expense activity categories, partially offset by lower expense across the R&D expense activity category. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have increased 0.7% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

ESG and Climate Segment

The following table presents the results for the ESG and Climate segment for the periods indicated:

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2021				2020				% Change				2021				2020				% Change
	(in thousands)
Operating revenues:
Recurring subscriptions	$	42,592			$	28,152				51.3	%		$	115,299			$	78,961				46.0	%
Non-recurring		1,099				399				175.4	%			2,450				1,125				117.8	%
Operating revenues total		43,691				28,551				53.0	%			117,749				80,086				47.0	%
Adjusted EBITDA expenses		33,871				20,893				62.1	%			97,164				63,303				53.5	%
Adjusted EBITDA	$	9,820			$	7,658				28.2	%		$	20,585			$	16,783				22.7	%
Adjusted EBITDA margin %		22.5	%			26.8	%							17.5	%			21.0	%

ESG and Climate segment revenues for the three months ended September 30, 2021 increased 53.0% to $43.7 million compared to $28.6 million for the three months ended September 30, 2020. The increase in ESG and Climate revenues was primarily driven by strong growth from Ratings, Screening and Climate products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 47.2%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase was 47.0%, growing to $117.7 million compared to $80.1 million for the nine months ended September 30, 2020. The increase in ESG and Climate revenues was primarily driven by strong growth from Ratings, Climate and Screening products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and

Climate operating revenues would have increased 39.6%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

ESG and Climate segment Adjusted EBITDA expenses for the three months ended September 30, 2021 increased 62.1% to $33.9 million compared to $20.9 million for the three months ended September 30, 2020, reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate segment Adjusted EBITDA expenses would have increased 60.4% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase was 53.5%, growing to $97.2 million compared to $63.3 million for the nine months ended September 30, 2020, reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate segment Adjusted EBITDA expenses would have increased 49.7% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

All Other – Private Assets Segment

The following table presents the results for the All Other – Private Assets segment for the periods indicated:

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2021				2020				% Change				2021				2020				% Change
	(in thousands)
Operating revenues:
Recurring subscriptions	$	15,418			$	12,400				24.3	%		$	48,355			$	40,402				19.7	%
Non-recurring		189				354				(46.6	%)			1,424				1,978				(28.0	%)
Operating revenues total		15,607				12,754				22.4	%			49,779				42,380				17.5	%
Adjusted EBITDA expenses		14,710				10,741				37.0	%			37,004				32,892				12.5	%
Adjusted EBITDA	$	897			$	2,013				(55.4	%)		$	12,775			$	9,488				34.6	%
Adjusted EBITDA margin %		5.7	%			15.8	%							25.7	%			22.4	%

All Other – Private Assets segment revenues for the three months ended September 30, 2021 increased 22.4% to $15.6 million compared to $12.8 million for the three months ended September 30, 2020. The increase in All Other – Private Assets revenues was primarily driven by the acquisition of RCA, which contributed $3.4 million of operating revenues. Excluding the acquisition of RCA, All Other – Private Assets segment revenues were lower due to lower volume of deliveries to clients in three months ended September 30, 2021 as compared to the three months ended September 30, 2020. Adjusting for both the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have decreased 7.6% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have decreased 4.4% and increased 19.2%, respectively, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase was 17.5%, growing to $49.8 million compared to $42.4 million for the nine months ended September 30, 2020. The increase in All Other – Private Assets revenues was primarily driven by the acquisition of RCA and favorable foreign currency exchange rate fluctuations. Adjusting for both the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have increased 1.6% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have increased 9.4% and 9.7%, respectively, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

All Other – Private Assets segment Adjusted EBITDA expenses for the three months ended September 30, 2021 increased 37.0% to $14.7 million compared to $10.7 million for the three months ended September 30, 2020, driven by higher expenses across the cost of revenues, G&A and selling and marketing expense activity categories. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets segment Adjusted EBITDA expenses would have increased 4.0% and 34.1%, respectively, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase was 12.5%, growing to $37.0 million compared to $32.9 million for the nine months ended September 30, 2020, driven by higher expenses across the cost of revenues and G&A expense activity categories. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets segment Adjusted EBITDA expenses would have increased 1.8% and 8.3%, respectively, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

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, or reach the end of

the committed subscription period, 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, non-renewal or an indication the client does not intend to continue their subscription 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 or fee waiver 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 or discounts;

	•	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 the Run Rates as of the dates indicated and the growth percentages over the periods indicated:

	As of
	September 30,				September 30,				%
		2021				2020			Change
	(in thousands)
Index:
Recurring subscriptions	$	667,023			$	598,799				11.4	%
Asset-based fees		550,230				401,196				37.1	%
Index total		1,217,253				999,995				21.7	%
Analytics		568,932				544,315				4.5	%
ESG and Climate		178,398				122,273				45.9	%
All Other - Private Assets		131,678				52,970				148.6	%
Total Run Rate	$	2,096,261			$	1,719,553				21.9	%
Recurring subscriptions total	$	1,546,031			$	1,318,357				17.3	%
Asset-based fees		550,230				401,196				37.1	%
Total Run Rate	$	2,096,261			$	1,719,553				21.9	%

Total Run Rate grew 21.9% to $2,096.3 million as of September 30, 2021 compared to $1,719.6 million as of September 30, 2020. Recurring subscriptions Run Rate grew 17.3% to $1,546.0 million as of September 30, 2021 compared to $1,318.4 million as of September 30, 2020. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, recurring

subscriptions Run Rate would have increased 11.7% and 17.4%, respectively, as of September 30, 2021 compared to September 30, 2020.

Run Rate from asset-based fees increased 37.1% to $550.2 million as of September 30, 2021 from $401.2 million as of September 30, 2020, primarily driven by higher AUM in ETFs linked to MSCI equity indexes and higher AUM in non-ETF indexed funds linked to MSCI indexes. Partially offsetting the impact of the increase in AUM in ETFs linked to MSCI equity indexes was a change in fee levels of certain products, which was the primary driver of a decline in average basis point fees to 2.57 as of September 30, 2021 from 2.67 as of September 30, 2020. As of September 30, 2021, the value of AUM in ETFs linked to MSCI equity indexes was $1,336.6 billion, up $427.7 billion, or 47.1%, from $908.9 billion as of September 30, 2020. The increase of $427.7 billion consisted of market appreciation of $221.9 billion and net inflows of $205.8 billion.

Index recurring subscriptions Run Rate grew 11.4% to $667.0 million as of September 30, 2021 compared to $598.8 million as of September 30, 2020, driven by growth in market cap-weighted index products and strong growth in factor, ESG and climate index products and reflected growth across all regions and all client segments.

Run Rate from Analytics products increased 4.5% to $568.9 million as of September 30, 2021 compared to $544.3 million as of September 30, 2020, primarily driven by growth in both Equity Analytics and Multi-Asset Class products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics Run Rate would have increased 4.9% as of September 30, 2021.

Run Rate from ESG and Climate products increased 45.9% to $178.4 million as of September 30, 2021 compared to $122.3 million as of September 30, 2020, primarily driven by strong growth in both Ratings and Climate products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate Run Rate would have increased 46.3% as of September 30, 2021 compared to September 30, 2020.

Run Rate from All Other – Private Assets products increased 148.6% to $131.7 million as of September 30, 2021 compared to $53.0 million as of September 30, 2020, primarily driven by the acquisition of RCA, growth in both Global Intel and Enterprise Analytics products and strong growth from new sales of Real Estate Climate Value-at-Risk products. Adjusting for both the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets Run Rate would have increased 7.3% as of September 30, 2021 compared to September 30, 2020. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets Run Rate would have increased 9.1% and 147.4%, respectively, as of September 30, 2021 compared to September 30, 2020.

Sales

Sales represents the annualized value of products and services clients commit to purchase from MSCI and will result in additional operating revenues. Non-recurring sales represent the actual value of the customer agreements entered into during the period and are not a component of Run Rate. New recurring subscription sales represent additional selling activities, such as new customer agreements, additions to existing agreements or increases in price that occurred during the period and are additions to Run Rate. Subscription cancellations reflect client activities during the period, such as discontinuing products and services and/or reductions in price, resulting in reductions to Run Rate. Net new recurring subscription sales represent the amount of new recurring subscription sales net of subscription cancellations during the period, which reflects the net impact to Run Rate during the period.

Total gross sales represent the sum of new recurring subscription sales and non-recurring sales. Total net sales represent the total gross sales net of the impact from subscription cancellations.

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

	Three Months Ended												Nine Months Ended
	September 30,				September 30,				%				September 30,				September 30,				%
	2021				2020				Change				2021				2020				Change
	(in thousands)
New recurring subscription sales
Index	$	19,546			$	18,743				4.3	%		$	66,037			$	58,073				13.7	%
Analytics		15,889				15,229				4.3	%			44,381				41,426				7.1	%
ESG and Climate		17,310				7,932				118.2	%			46,706				26,128				78.8	%
All Other - Private Assets		2,479				1,412				75.6	%			6,023				3,733				61.3	%
New recurring subscription sales total		55,224				43,316				27.5	%			163,147				129,360				26.1	%
Subscription cancellations
Index		(6,203	)			(7,050	)			(12.0	%)			(18,192	)			(19,589	)			(7.1	%)
Analytics		(9,213	)			(8,211	)			12.2	%			(25,188	)			(27,008	)			(6.7	%)
ESG and Climate		(1,338	)			(1,215	)			10.1	%			(3,636	)			(4,473	)			(18.7	%)
All Other - Private Assets		(1,296	)			(656	)			97.6	%			(2,881	)			(1,694	)			70.1	%
Subscription cancellations total		(18,050	)			(17,132	)			5.4	%			(49,897	)			(52,764	)			(5.4	%)
Net new recurring subscription sales
Index		13,343				11,693				14.1	%			47,845				38,484				24.3	%
Analytics		6,676				7,018				(4.9	%)			19,193				14,418				33.1	%
ESG and Climate		15,972				6,717				137.8	%			43,070				21,655				98.9	%
All Other - Private Assets		1,183				756				56.5	%			3,142				2,039				54.1	%
Net new recurring subscription sales total		37,174				26,184				42.0	%			113,250				76,596				47.9	%
Non-recurring sales
Index		17,366				10,001				73.6	%			39,340				30,734				28.0	%
Analytics		2,377				2,562				(7.2	%)			8,123				7,486				8.5	%
ESG and Climate		1,090				135				707.4	%			2,927				702				317.0	%
All Other - Private Assets		130				112				16.1	%			1,201				1,150				4.4	%
Non-recurring sales total		20,963				12,810				63.6	%			51,591				40,072				28.7	%
Gross sales
Index	$	36,912			$	28,744				28.4	%		$	105,377			$	88,807				18.7	%
Analytics		18,266				17,791				2.7	%			52,504				48,912				7.3	%
ESG and Climate		18,400				8,067				128.1	%			49,633				26,830				85.0	%
All Other - Private Assets		2,609				1,524				71.2	%			7,224				4,883				47.9	%
Total gross sales	$	76,187			$	56,126				35.7	%		$	214,738			$	169,432				26.7	%
Net sales
Index	$	30,709			$	21,694				41.6	%		$	87,185			$	69,218				26.0	%
Analytics		9,053				9,580				(5.5	%)			27,316				21,904				24.7	%
ESG and Climate		17,062				6,852				149.0	%			45,997				22,357				105.7	%
All Other - Private Assets		1,313				868				51.3	%			4,343				3,189				36.2	%
Total net sales	$	58,137			$	38,994				49.1	%		$	164,841			$	116,668				41.3	%

A significant portion of MSCI's operating revenues are derived from subscriptions or licenses of products and services, which are provided over contractually-agreed periods of time that are subject to renewal or cancellation at the end of current contract terms.

Retention Rate

The following table presents our Retention Rate by reportable segment for the periods indicated:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
		2021				2020				2021				2020
Index	96.0%				95.0%				96.1%				95.3%
Analytics	93.4%				93.8%				94.0%				93.2%
ESG and Climate	96.1%				95.2%				96.5%				94.1%
All Other - Private Assets (1)	91.0%				94.8%				91.2%				95.6%
Total	94.5%				94.5%				94.9%				94.3%

(1)	Retention rate for All Other – Private Assets excluding the impact of RCA was 93.7% and 94.2% for the three and nine months ended September 30, 2021, respectively.

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. Retention Rate is an important metric because subscription cancellations decrease our Run Rate and ultimately our future operating revenues over time.

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 or discontinue the subscription 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.

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 and Climate operating 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 operating 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-sell 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.

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.

Critical Accounting Policies and Estimates

We describe our significant accounting policies in Note 1, “Introduction and Basis of Presentation,” of the Notes to Consolidated Financial Statements included in our Form 10-K. There have been no significant changes in our accounting policies since the end of the fiscal year ended December 31, 2020 or critical accounting estimates applied in the fiscal year ended December 31, 2020. In accordance with our acquisition of Real Capital Analytics, Inc. (“RCA”) on September 13, 2021, the initial valuation of intangible assets, as part of the acquisition method of accounting, are subjective and based, in part, on inputs that are unobservable. These inputs include, but are not limited to, forecasted cash flows, operating revenues growth rates, client attrition rates and discount rates. These estimates are inherently uncertain and unpredictable, and if different estimates were used, the purchase price for the acquisition could be allocated to the acquired assets and assumed liabilities differently from the allocation that we have made.

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 facility. 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 and 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 $4,200.0 million in Senior Notes outstanding and a $500.0 million undrawn Revolving Credit Agreement with a syndicate of banks. See Note 8, “Commitments and Contingencies,” of the Notes to Condensed Consolidated Financial Statements (Unaudited) 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;

	•	in the case of our subsidiaries that are not guarantors under the Revolving Credit Agreement, incur additional indebtedness;

	•	merge, dissolve, liquidate, consolidate with or into another person or sell all or substantially all assets of the Company and its subsidiaries on a consolidated basis;

	•	enter into sale/leaseback transactions;

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

	•	change the nature of our business.

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, and bankruptcy and insolvency events, and, in the case of the Revolving Credit Agreement, invalidity or impairment of loan documentation, change of control and customary ERISA defaults in addition to the foregoing. 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 (or 4.50:1.00 for two fiscal quarters following a material acquisition) 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 September 30, 2021, our Consolidated Leverage Ratio was 3.56:1.00 and our Consolidated Interest Coverage Ratio was 7.42:1.00. As of September 30, 2021, there were no amounts drawn and outstanding under the Revolving Credit Agreement.

Our non-guarantor subsidiaries under 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 $1,173.8 million, or 60.6%, of our total revenue for the trailing 12 months ended September 30, 2021, approximately $418.3 million, or 40.8%, of our consolidated operating income for the trailing 12 months ended September 30, 2021, and approximately $2,185.8 million, or 42.5%, of our consolidated total assets (excluding intercompany assets) and $851.1 million, or 15.7%, of our consolidated total liabilities, in each case as of September 30, 2021.

Share Repurchases

The following table provides information with respect to repurchases of the Company’s common stock pursuant to open market repurchases:

Nine Months Ended		Average Price Paid Per Share				Total Number of Shares Repurchased				Dollar Value of Shares Repurchased
						(in thousands)
September 30, 2021		$	407.70				330			$	134,340
September 30, 2020		$	278.69				2,021			$	563,336

As of September 30, 2021, there was $1,594.4 million of available authorization remaining under the 2020 Repurchase Program.

Cash Dividend

On October 25, 2021, the Board of Directors declared a quarterly cash dividend of $1.04 per share for the three months ending December 31, 2021. The fourth quarter 2021 dividend is payable on November 30, 2021 to shareholders of record as of the close of trading on November 12, 2021.

Cash Flows

		As of
		September 30,				December 31,
			2021				2020
		(in thousands)
Cash and cash equivalents		$	1,284,664			$	1,300,521

Cash and cash equivalents were $1,284.7 million and $1,300.5 million as of September 30, 2021 and December 31, 2020, respectively. We typically seek to maintain minimum cash balances globally of approximately $200.0 million to $250.0 million for general operating purposes. As of September 30, 2021 and December 31, 2020, $514.4 million and $423.4 million, respectively, of the cash and cash equivalents were held by foreign subsidiaries. Repatriation of some foreign cash may be subject to certain withholding taxes in local jurisdictions and other distribution restrictions. We believe the global cash and cash equivalent balances that are maintained will be available to meet our global needs whether for general corporate purposes 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 revolving 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 next 12 months 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 next 12 months and for the foreseeable future thereafter.

Net Cash Provided by (Used In) Operating, Investing and Financing Activities

		Nine Months Ended
		September 30,
			2021			2020
		(in thousands)
Net cash provided by operating activities		$	656,405			$	575,181
Net cash used in investing activities			(985,879	)			(224,899	)
Net cash provided by (used in) financing activities			321,249				(549,484	)
Effect of exchange rate changes			(7,632	)			(4,507	)
Net decrease in cash		$	(15,857	)		$	(203,709	)

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 $656.4 million and $575.2 million for the nine months ended September 30, 2021 and 2020, respectively. The year-over-year increase was driven by higher cash collections from customers, partially offset by higher payments for income taxes and cash expenses.

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. In addition, during the three months ended December 31, 2021, we expect higher payments to satisfy tax liabilities by approximately $110.0 million resulting from the temporary acceleration of the recognition of income for tax purposes. The timing and amount of the payments is contingent upon execution of transactions that result in higher tax obligations for the current fiscal year.

Cash Flows From Investing Activities

Cash used in investing activities was $985.9 million for the nine months ended September 30, 2021 compared to $224.9 million for the nine months ended September 30, 2020. The year-over-year change was primarily driven by the acquisition of RCA, partially offset by the absence of the $190.8 million equity method investment in Burgiss.

Cash Flows From Financing Activities

Cash provided by financing activities was $321.2 million for the nine months ended September 30, 2021 compared to cash used in financing activities of $549.5 million for the nine months ended September 30, 2020. The year-over-year change was primarily driven by the impact of lower share repurchases and higher proceeds from the new senior notes offerings made during the nine months ended September 30, 2021.

Off-Balance Sheet Arrangements

We do 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.