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

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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, 2021 (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 solutions for the global investment community. Our mission-critical offerings help investors address the challenges of a transforming investment landscape and power better investment decisions. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, we enable our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios. We operate in four reportable segments as follows: Index, Analytics, ESG and Climate, and All Other – Private Assets.

Our growth strategy includes: (a) extending leadership in research-enhanced content across asset classes, (b) leading the enablement of ESG and climate investment integration, (c) enhancing distribution and content-enabling technology, (d) expanding solutions that empower client customization, (e) strengthening client relationships and growing into strategic partnerships with clients and (f) executing strategic relationships and acquisitions with complementary content and technology companies. For more information about our Company’s operations, see “Item 1: Business” in our Form 10-K.

As of June 30, 2022, we served over 6,5001 clients in more than 95 countries.

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 Assets 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.

In evaluating our financial performance, we focus on revenue and profit growth, including results accounted for under generally accepted accounting principles in the United States (“GAAP”) as well as non-GAAP measures, for the Company as a whole and by operating segment.

We present revenues disaggregated by types and by segments, which represent our major product lines. 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 manage and assess performance and to provide deeper insights into the recurring portion of our business.

In the discussion that follows, we provide certain variances excluding the impact of foreign currency exchange rate fluctuations and acquisitions. 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.

For the six months ended June 30, 2022, our largest client organization by revenue, BlackRock, accounted for 10.8% of our total revenues, with 95.5% of the revenue from BlackRock coming from fees based on the assets in BlackRock’s ETFs that are based on our indexes.

The discussion of our results of operations for the three and six months ended June 30, 2022 and 2021 are presented below. The results of operations for interim periods may not be indicative of future results.

1Represents the aggregate of all related clients under their respective parent entity.

Results of Operations

Operating Revenues

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

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

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Recurring subscriptions$407,049$348,13016.9%$806,809$685,86217.6%
Asset-based fees132,216136,142(2.9%)277,269262,8485.5%
Non-recurring12,54113,908(9.8%)27,67327,893(0.8%)
Total operating revenues$551,806$498,18010.8%$1,111,751$976,60313.8%

Total operating revenues increased 10.8% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Adjusting for the impact of acquisitions and foreign currency exchange rate fluctuations individually, total operating revenues would have increased 6.8% and 12.4%, respectively.

Operating revenues from recurring subscriptions increased 16.9% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by strong growth in Index products, which increased $19.7 million, or 12.3%, strong growth in All Other – Private Assets products, which increased $17.7 million, or 109.5%, mainly reflecting the acquisition of RCA, and strong growth in ESG and Climate products, which increased $15.5 million, or 40.1%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, operating revenues from recurring subscriptions would have increased 13.4%.

Operating revenues from asset-based fees decreased 2.9% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, driven by a decline in revenues from ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes, partially offset by an increase in revenues from exchange traded futures and options contracts linked to MSCI indexes. Operating revenues from ETFs linked to MSCI equity indexes decreased by 5.2%, primarily driven by a decrease in average AUM and average basis point fees. Operating revenues from non-ETF indexed funds linked to MSCI indexes decreased by 7.0%, primarily driven by adjustments to revenue related to lower period over period client-reported AUM balances. Operating revenues from exchange traded futures and options contracts linked to MSCI indexes increased 26.6%, driven by volume increases.

Total operating revenues increased 13.8% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Adjusting for the impact of acquisitions and foreign currency exchange rate fluctuations individually, total operating revenues would have increased 9.8% and 15.0%, respectively.

Operating revenues from recurring subscriptions increased 17.6% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by strong growth in Index products, which increased $39.0 million, or 12.4%, strong growth in All Other – Private Assets products, which increased $37.8 million, or 114.6%, mainly reflecting the acquisition of RCA, and strong growth in ESG and Climate products, which increased $31.9 million, or 43.9%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, operating revenues from recurring subscriptions would have increased 13.5%.

Operating revenues from asset-based fees increased 5.5% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, driven by growth in operating revenues from all index-linked investment product categories. Operating revenues from non-ETF indexed funds linked to MSCI indexes increased by 7.7%, primarily driven by an increase in average AUM, partially offset by a decrease in average basis point fees. The increase in operating revenues from asset-based fees was also driven by a 18.1% increase in exchange traded futures and options contracts linked to MSCI indexes, driven by volume increases. Operating revenues from ETFs linked to MSCI equity indexes increased by 2.5%, primarily driven by an increase in average AUM, partially offset by a decrease in average basis point fees.

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
20212022
(in billions)March 31,June 30,September 30,December 31,March 31,June 30,
AUM in ETFs linked to MSCI equity indexes(1), (2)$1,209.6$1,336.2$1,336.6$1,451.6$1,389.3$1,189.5
Sequential Change in Value
Market Appreciation/(Depreciation)$43.2$73.7$(30.7)$56.5$(89.7)$(207.3)
Cash Inflows62.852.931.158.527.47.5
Total Change$106.0$126.6$0.4$115.0$(62.3)$(199.8)

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

20212022
(in billions)MarchJuneSeptemberDecemberMarchJune
AUM in ETFs linked to MSCI equity indexes(1), (2)
Quarterly average$1,169.2$1,292.4$1,361.9$1,414.8$1,392.5$1,285.4
Year-to-date average$1,169.2$1,230.8$1,274.5$1,309.6$1,392.5$1,338.9
(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 June 30, 2022, was down $7.0 billion, or 0.5%, compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, it was up $108.1 billion, or 8.8%, compared to the six months ended June 30, 2021.

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

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Operating revenues:
Index
Recurring subscriptions$179,711$160,06112.3%$354,209$315,17812.4%
Asset-based fees132,216136,142(2.9%)277,269262,8485.5%
Non-recurring9,0229,760(7.6%)20,23020,428(1.0%)
Index total320,949305,9634.9%651,708598,4548.9%
Analytics
Recurring subscriptions139,497133,3684.6%277,296265,0404.6%
Non-recurring2,1872,534(13.7%)4,1854,879(14.2%)
Analytics total141,684135,9024.3%281,481269,9194.3%
ESG and Climate
Recurring subscriptions54,03738,56740.1%104,60972,70743.9%
Non-recurring1,09174147.2%2,5481,35188.6%
ESG and Climate total55,12839,30840.2%107,15774,05844.7%
All Other - Private Assets
Recurring subscriptions33,80416,134109.5%70,69532,937114.6%
Non-recurring241873(72.4%)7101,235(42.5%)
All Other - Private Assets total34,04517,007100.2%71,40534,172109.0%
Total operating revenues$551,806$498,18010.8%$1,111,751$976,60313.8%

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. Cost of revenues, selling and marketing, R&D and G&A all include both compensation as well as non-compensation related expenses.

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

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Operating expenses:
Cost of revenues$100,768$87,32715.4%$203,539$173,10717.6%
Selling and marketing61,07358,1915.0%127,126114,65810.9%
Research and development23,91627,531(13.1%)52,23852,393(0.3%)
General and administrative36,72430,18221.7%82,29164,91026.8%
Amortization of intangible assets22,17930,396(27.0%)43,89945,464(3.4%)
Depreciation and amortization of property, equipment and leasehold improvements6,7657,020(3.6%)13,29914,163(6.1%)
Total operating expenses$251,425$240,6474.5%$522,392$464,69512.4%

Total operating expenses increased 4.5% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 8.4%.

Total operating expenses increased 12.4% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 15.4%.

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 increased 15.4% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by increases across the All Other – Private Assets, ESG and Climate, and Index reportable segments. The change was driven by increases in non-compensation costs, primarily relating to higher information technology costs, market data costs and professional fees, as well as higher compensation and benefits costs, primarily reflecting higher wages and salaries as a result of increased headcount.

Cost of revenues increased 17.6% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, reflecting increases across all reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and benefits costs as a result of increased headcount as well as higher non-compensation costs, primarily reflecting higher information technology costs, professional fees 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 departments associated with acquiring new business, including product management, research, technology and sales operations.

Selling and marketing expenses increased 5.0% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, reflecting increases across the All Other – Private Assets and ESG and Climate reportable segments, partially offset by decreases in the Analytics and Index reportable segments. The change was primarily driven by increases in non-compensation costs, primarily relating to higher marketing costs and travel and entertainment costs, as well as higher compensation and benefits costs, primarily reflecting higher wages and salaries and benefits costs driven by increased headcount, partially offset by lower incentive compensation.

Selling and marketing expenses increased 10.9% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by increases across the All Other – Private Assets and ESG and Climate reportable segments. The change was primarily driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and benefits costs, driven by increased headcount, partially offset by lower severance costs. The change was also driven by higher non-compensation costs, primarily reflecting higher marketing costs and travel and entertainment costs.

Research and Development

R&D expenses consist of costs to develop new or enhance existing products and the costs to develop new or enhanced technologies 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 directly associated with these activities.

R&D expenses decreased 13.1% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by increased capitalization of expenses related to internally developed software projects and lower incentive compensation costs, partially offset by higher wages and salaries driven by headcount increases, as well as higher non-compensation costs, reflecting increased information technology costs. Taking into consideration investments eligible for capitalization, R&D spending increased across the All Other – Private Assets, Index and ESG and Climate reportable segments.

R&D expenses decreased 0.3% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by increased capitalization of expenses related to internally developed software projects. The decrease was partially offset by higher wages and salaries and benefits costs, driven by headcount increases, as well as higher non-compensation costs, reflecting increased information technology costs. Taking into consideration investments eligible for capitalization, R&D spending increased across the All Other– Private Assets, Index and ESG and Climate reportable segments.

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 increased 21.7% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by increases in the All Other – Private Assets and Index reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher severance costs as well as higher benefits costs and wages and salaries driven by increased headcount. The increase was also driven by higher non-recurring transaction and integration costs related to the acquisition of RCA and non-compensation costs, primarily driven by higher professional fees.

G&A expenses increased 26.8% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by increases across the All Other – Private Assets, Index and ESG and Climate reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher stock-based compensation expense, wages and salaries and benefits costs, driven by increased headcount, and severance costs. The increase was also driven by higher non-recurring transaction and integration costs related to the acquisition of RCA and non-compensation costs, primarily driven by higher 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 EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Compensation and benefits$154,242$148,1804.1%$334,080$299,69711.5%
Non-compensation expenses68,23955,05124.0%131,114105,37124.4%
Amortization of intangible assets22,17930,396(27.0%)43,89945,464(3.4%)
Depreciation and amortization of property, equipment and leasehold improvements6,7657,020(3.6%)13,29914,163(6.1%)
Total operating expenses$251,425$240,6474.5%$522,392$464,69512.4%

Compensation and Benefits

Compensation and benefits costs increased 4.1% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, the increase was 11.5% compared to the six months ended June 30, 2021. The increase in both the three and six months ended June 30, 2022 was primarily driven by headcount growth across all spending categories. We had 4,513 employees as of June 30, 2022, compared to 3,910 employees as of June 30, 2021, reflecting a 15.4% growth in the number of employees. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefits costs. As of June 30, 2022, 64.1% of our employees were located in emerging market centers compared to 65.9% as of June 30, 2021. Adjusting for the impact of foreign currency exchange rate fluctuations, compensation and benefits costs would have increased by 9.4% and 15.4%, respectively, for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.

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 increased 24.0% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by higher information technology costs, professional fees, market data costs and non-recurring transaction and integration costs related to the acquisition of RCA.

Non-compensation expenses increased 24.4% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by higher information technology costs, professional fees, market data costs and non-recurring transaction and integration costs related to the acquisition of RCA.

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 capitalization of internally developed software projects recognized over their estimated useful lives. Amortization of intangible assets expense decreased 27.0% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The decrease was primarily driven by the absence of intangible assets write-off costs, partially offset by additional amortization recognized on acquired intangible assets following the acquisition of RCA.

Amortization of intangible assets expense decreased 3.4% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the absence of intangible assets write-off costs, partially offset by additional amortization recognized on acquired intangible assets following the acquisition of RCA.

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 computer and related equipment, leasehold improvements, software and furniture and fixtures over the estimated useful life of the assets. Depreciation and amortization of property, equipment and leasehold improvements remained

relatively flat for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, respectively.

Other Expense (Income), Net

The following table shows our other expense (income), net for the periods indicated:

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Interest income$(924)$(347)(166.3%)$(1,222)$(733)(66.7%)
Interest expense41,08539,5573.9%81,79977,1416.0%
Other expense (income)18822,628(99.2%)(193)23,777(100.8%)
Total other expense (income), net$40,349$61,838(34.8%)$80,384$100,185(19.8%)

Other expense (income), net decreased 34.8% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 and 19.8% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decreases in net expenses were primarily driven by the absence of debt extinguishment costs, partially offset by higher interest expense associated with higher average outstanding debt balances.

Income Taxes

The following table shows our income tax provision and effective tax rate for the periods indicated:

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Provision for income taxes49,44530,27263.3%69,96549,48141.4%
Effective tax rate19.0%15.5%22.6%13.7%12.0%14.2%

The effective tax rate of 19.0% for the three months ended June 30, 2022 reflects the Company’s estimate of the effective tax rate for the period. The level of discrete items was not impactful to the effective tax rate for the period.

The effective tax rate of 15.5% for the three months ended June 30, 2021 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $11.9 million, primarily related to the $5.6 million tax impact of loss on debt extinguishment recognized during the period with respect to the redemption of the 2026 Senior Notes. Also included in the discrete items is 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 $2.1 million benefit related to the filing of prior year refund claims, $1.0 million of excess tax benefits recognized on share-based compensation vested during the period and $0.9 million of tax benefits related to other prior year items.

The effective tax rate of 13.7% for the six months ended June 30, 2022 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $27.2 million, primarily related to $28.3 million of excess tax benefits recognized on share-based compensation vested during the period.

The effective tax rate of 12.0% for the six months ended June 30, 2021 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $34.2 million, primarily related to $21.4 million of excess tax benefits recognized on share-based compensation vested during the period and $5.6 million related to the tax impact of loss on debt extinguishment recognized during the period with respect to the redemption of the 2026 Senior Notes. Also included in the discrete items is 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 $2.1 million benefit related to the filing of prior year refund claims and $2.8 million of tax benefits related to other prior year items.

Net Income

The following table shows our net income for the periods indicated:

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Net income$210,587$165,42327.3%$439,010$362,24221.2%

As a result of the factors described above, net income increased 27.3% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, and increased 21.2% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Weighted Average Shares and Common Shares Outstanding

The following table shows our weighted average shares outstanding for the periods indicated:

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Weighted average shares outstanding:
Basic80,92382,454(1.9%)81,25582,546(1.6%)
Diluted81,29583,295(2.4%)81,78983,393(1.9%)

The following table shows our common shares outstanding for the periods indicated:

As of
June 30,December 31,
20222021% Change
(in thousands)
Common shares outstanding80,49682,439(2.4%)

The decrease in weighted average shares and common shares outstanding primarily reflects 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, when applicable, impairment related to sublease of leased property and 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, when applicable, impairment related to sublease of leased property and certain non-recurring acquisition-related integration and transaction costs.

Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures for management to assess 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 the non-GAAP Adjusted EBITDA measure for the periods indicated:

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Operating revenues$551,806$498,18010.8%$1,111,751$976,60313.8%
Adjusted EBITDA expenses220,662203,2318.6%462,063405,06814.1%
Adjusted EBITDA$331,144$294,94912.3%$649,688$571,53513.7%
Adjusted EBITDA margin %60.0%59.2%58.4%58.5%
Operating margin %54.4%51.7%53.0%52.4%

The change in Adjusted EBITDA margin reflects changes in the rate of growth of Adjusted EBITDA expenses as compared to the rate of growth of operating revenues, driven by the factors previously described.

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 EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Index Adjusted EBITDA$245,170$233,4685.0%$491,045$453,3478.3%
Analytics Adjusted EBITDA62,96149,81426.4%113,85095,54519.2%
ESG and Climate Adjusted EBITDA14,3325,720150.6%26,42410,765145.5%
All Other - Private Assets Adjusted EBITDA8,6815,94746.0%18,36911,87854.6%
Consolidated Adjusted EBITDA331,144294,94912.3%649,688571,53513.7%
Amortization of intangible assets22,17930,396(27.0%)43,89945,464(3.4%)
Depreciation and amortization of property, equipment and leasehold improvements6,7657,020(3.6%)13,29914,163(6.1%)
Acquisition-related integration and transaction costs (1)1,819—n/a3,131—n/a
Operating income300,381257,53316.6%589,359511,90815.1%
Other expense (income), net40,34961,838(34.8%)80,384100,185(19.8%)
Provision for income taxes49,44530,27263.3%69,96549,48141.4%
Net income$210,587$165,42327.3%$439,010$362,24221.2%
(1)Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction.

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

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Index Adjusted EBITDA expenses$75,779$72,4954.5%$160,663$145,10710.7%
Analytics Adjusted EBITDA expenses78,72386,088(8.6%)167,631174,374(3.9%)
ESG and Climate Adjusted EBITDA expenses40,79633,58821.5%80,73363,29327.6%
All Other - Private Assets Adjusted EBITDA expenses25,36411,060129.3%53,03622,294137.9%
Consolidated Adjusted EBITDA expenses220,662203,2318.6%462,063405,06814.1%
Amortization of intangible assets22,17930,396(27.0%)43,89945,464(3.4%)
Depreciation and amortization of property, equipment and leasehold improvements6,7657,020(3.6%)13,29914,163(6.1%)
Acquisition-related integration and transaction costs (1)1,819—n/a3,131—n/a
Total operating expenses$251,425$240,6474.5%$522,392$464,69512.4%
(1)Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction.

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 EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Operating revenues:
Recurring subscriptions$179,711$160,06112.3%$354,209$315,17812.4%
Asset-based fees132,216136,142(2.9%)277,269262,8485.5%
Non-recurring9,0229,760(7.6%)20,23020,428(1.0%)
Operating revenues total320,949305,9634.9%651,708598,4548.9%
Adjusted EBITDA expenses75,77972,4954.5%160,663145,10710.7%
Adjusted EBITDA$245,170$233,4685.0%$491,045$453,3478.3%
Adjusted EBITDA margin %76.4%76.3%75.3%75.8%

Index operating revenues increased 4.9% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by growth from recurring subscriptions, partially offset by a decline in asset-based fees. Adjusting for the impact of foreign currency exchange rate fluctuations, Index operating revenues would have increased 5.3%.

Operating revenues from recurring subscriptions increased 12.3% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by strong growth from both market cap-weighted and factor, ESG and climate Index products.

Operating revenues from asset-based fees decreased 2.9% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, driven by a decline in revenues from ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes, partially offset by an increase in revenues from exchange traded futures and options contracts linked to MSCI indexes. Operating revenues from ETFs linked to MSCI equity indexes decreased by 5.2%, primarily driven by a decrease in average AUM and average basis point fees. Operating revenues from non-ETF indexed funds linked to MSCI indexes decreased by 7.0%, primarily driven by adjustments to revenue related to lower period over period client-reported AUM balances. Operating revenues from exchange traded futures and options contracts linked to MSCI indexes increased 26.6%, driven by volume increases.

Index segment Adjusted EBITDA expenses increased 4.5% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, reflecting higher non-compensation expenses to support growth across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased by 8.7%.

Index operating revenues increased 8.9% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by growth from recurring subscriptions and asset-based fees. Adjusting for the impact of foreign currency exchange rate fluctuations, Index operating revenues would have increased 9.2%.

Operating revenues from recurring subscriptions increased 12.4% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by strong growth from both market cap-weighted and factor, ESG and climate Index products.

Operating revenues from asset-based fees increased 5.5% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, driven by growth in operating revenues from all index-linked investment product categories. Operating revenues from non-ETF indexed funds linked to MSCI indexes increased by 7.7%, primarily driven by an increase in average AUM, partially offset by a decrease in average basis point fees. Operating revenues from exchange traded futures and options contracts linked to MSCI indexes increased by 18.1%, driven by volume increases. Operating revenues from ETFs linked to MSCI equity indexes increased by 2.5%, primarily driven by an increase in average AUM, partially offset by a decrease in average basis point fees.

Index segment Adjusted EBITDA expenses increased 10.7% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, reflecting higher compensation and non-compensation expenses to support growth across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased by 13.8%.

Analytics Segment

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

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Operating revenues:
Recurring subscriptions$139,497$133,3684.6%$277,296$265,0404.6%
Non-recurring2,1872,534(13.7%)4,1854,879(14.2%)
Operating revenues total141,684135,9024.3%281,481269,9194.3%
Adjusted EBITDA expenses78,72386,088(8.6%)167,631174,374(3.9%)
Adjusted EBITDA$62,961$49,81426.4%$113,850$95,54519.2%
Adjusted EBITDA margin %44.4%36.7%40.4%35.4%

Analytics operating revenues increased 4.3% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by growth from recurring subscriptions related to Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics operating revenues would have increased 5.2%.

Analytics segment Adjusted EBITDA expenses decreased 8.6% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, reflecting lower compensation expenses across all expense activity categories, driven by lower incentive compensation, and increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have decreased 5.3%.

Analytics operating revenues increased 4.3% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by growth from recurring subscriptions related to Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics operating revenues would have increased 5.0%.

Analytics segment Adjusted EBITDA expenses decreased 3.9% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, reflecting increased capitalization of expenses related to internally developed software projects and lower compensation expenses across all expense activity categories, driven by lower incentive compensation. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have decreased 1.5%.

ESG and Climate Segment

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

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Operating revenues:
Recurring subscriptions$54,037$38,56740.1%$104,609$72,70743.9%
Non-recurring1,09174147.2%2,5481,35188.6%
Operating revenues total55,12839,30840.2%107,15774,05844.7%
Adjusted EBITDA expenses40,79633,58821.5%80,73363,29327.6%
Adjusted EBITDA$14,332$5,720150.6%$26,424$10,765145.5%
Adjusted EBITDA margin %26.0%14.6%24.7%14.5%

ESG and Climate operating revenues increased 40.2% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 50.0%.

ESG and Climate segment Adjusted EBITDA expenses increased 21.5% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, reflecting higher compensation and non-compensation expenses to support growth, reflected across the cost of revenues, selling and marketing and G&A expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate segment Adjusted EBITDA expenses would have increased 26.6%.

ESG and Climate operating revenues increased 44.7% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 51.2%.

ESG and Climate segment Adjusted EBITDA expenses increased 27.6% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, reflecting higher compensation and non-compensation expenses to support growth, reflected 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 31.6%.

All Other – Private Assets Segment

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

Three Months EndedSix Months Ended
June 30,June 30,
20222021% Change20222021% Change
(in thousands)
Operating revenues:
Recurring subscriptions$33,804$16,134109.5%$70,695$32,937114.6%
Non-recurring241873(72.4%)7101,235(42.5%)
Operating revenues total34,04517,007100.2%71,40534,172109.0%
Adjusted EBITDA expenses25,36411,060129.3%53,03622,294137.9%
Adjusted EBITDA$8,681$5,94746.0%$18,369$11,87854.6%
Adjusted EBITDA margin %25.5%35.0%25.7%34.8%

All Other – Private Assets operating revenues increased 100.2% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by revenues attributable to the acquisition of RCA, partially offset by decreased recurring subscriptions revenues related to Enterprise Analytics products and unfavorable 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 decreased 5.5%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations individually, All Other – Private Assets operating revenues would have decreased 13.5% and increased 111.9%, respectively.

All Other – Private Assets segment Adjusted EBITDA expenses increased 129.3% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily driven by the acquisition of RCA. All Other - Private Assets segment Adjusted EBITDA expenses would have increased 1.8% when excluding the impact of acquisitions and increased 142.9% when excluding the impact of foreign currency exchange rate fluctuations.

All Other – Private Assets operating revenues increased 109.0% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by revenues attributable to the acquisition of RCA, partially offset by unfavorable 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 3.1%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations individually, All Other – Private Assets operating revenues would have decreased 3.7% and increased 118.8%, respectively.

All Other – Private Assets segment Adjusted EBITDA expenses increased 137.9% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the acquisition of RCA. All Other - Private Assets segment Adjusted EBITDA expenses would have increased 5.9% when excluding the impact of acquisitions and increased 148.4% when excluding the impact of foreign currency exchange rate fluctuations.

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 Run Rates by reportable segment as of the dates indicated and the growth percentages over the periods indicated:

As of
June 30,June 30,%
20222021Change
(in thousands)
Index:
Recurring subscriptions$732,081$653,44812.0%
Asset-based fees520,092539,984(3.7%)
Index total1,252,1731,193,4324.9%
Analytics592,043563,9385.0%
ESG and Climate231,222164,09240.9%
All Other - Private Assets137,71358,088137.1%
Total Run Rate$2,213,151$1,979,55011.8%
Recurring subscriptions total$1,693,059$1,439,56617.6%
Asset-based fees520,092539,984(3.7%)
Total Run Rate$2,213,151$1,979,55011.8%

Total Run Rate increased 11.8%, driven by an 17.6% increase from recurring subscriptions, partially offset by a 3.7% decrease from asset-based fees. Adjusting for the impact of the acquisition of RCA and foreign currency exchange rate fluctuations individually, recurring subscriptions Run Rate would have increased 12.1% and 19.8%, respectively.

Run Rate from Index recurring subscriptions increased 12.0%, primarily driven by strong growth from market cap-weighted, factor, ESG and climate, and custom and specialized Index products, and the increase reflected growth across all regions and client segments.

Run Rate from Index asset-based fees decreased 3.7%, primarily driven by lower AUM in ETFs linked to MSCI equity indexes and a 0.1 average basis point fee decrease in ETFs, partially offset by higher exchange traded futures and options volume and higher AUM in non-ETF indexed funds linked to MSCI indexes.

Run Rate from Analytics products increased 5.0%, primarily driven by growth in both Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics Run Rate would have increased 7.4%.

Run Rate from ESG and Climate products increased 40.9%, driven by strong growth in Ratings, Climate and Screening products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate Run Rate would have increased 47.2%.

Run Rate from All Other - Private Assets increased 137.1%, primarily driven by the acquisition of RCA and growth in Climate Value-at-Risk and Global Intel products, partially offset by unfavorable foreign currency exchange rate fluctuations. Adjusting for both the impact of the acquisition and foreign currency exchange rate fluctuations, All Other - Private Assets Run Rate would have increased 8.7%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations individually, All Other - Private Assets Run Rate would have increased 0.8% and 149.8%, respectively.

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 EndedSix Months Ended
June 30,June 30,%June 30,June 30,%
20222021Change20222021Change
(in thousands)
New recurring subscription sales
Index$27,946$25,6359.0%$50,363$46,4918.3%
Analytics18,75416,28215.2%32,82328,49215.2%
ESG and Climate22,20517,75625.1%41,34729,39640.7%
All Other - Private Assets5,7131,860207.2%11,2723,544218.1%
New recurring subscription sales total74,61861,53321.3%135,805107,92325.8%
Subscription cancellations
Index(7,161)(6,791)5.4%(13,081)(11,989)9.1%
Analytics(8,366)(10,096)(17.1%)(16,494)(15,975)3.2%
ESG and Climate(1,369)(1,246)9.9%(2,012)(2,298)(12.4%)
All Other - Private Assets(1,358)(887)53.1%(3,336)(1,585)110.5%
Subscription cancellations total(18,254)(19,020)(4.0%)(34,923)(31,847)9.7%
Net new recurring subscription sales
Index20,78518,84410.3%37,28234,5028.1%
Analytics10,3886,18667.9%16,32912,51730.5%
ESG and Climate20,83616,51026.2%39,33527,09845.2%
All Other - Private Assets4,355973347.6%7,9361,959305.1%
Net new recurring subscription sales total56,36442,51332.6%100,88276,07632.6%
Non-recurring sales
Index14,26710,76932.5%27,98221,97427.3%
Analytics2,4182,773(12.8%)5,9075,7462.8%
ESG and Climate8701,140(23.7%)2,1781,83718.6%
All Other - Private Assets455185145.9%6071,071(43.3%)
Non-recurring sales total18,01014,86721.1%36,67430,62819.7%
Gross sales
Index$42,213$36,40416.0%$78,345$68,46514.4%
Analytics21,17219,05511.1%38,73034,23813.1%
ESG and Climate23,07518,89622.1%43,52531,23339.4%
All Other - Private Assets6,1682,045201.6%11,8794,615157.4%
Total gross sales$92,628$76,40021.2%$172,479$138,55124.5%
Net sales
Index$35,052$29,61318.4%$65,264$56,47615.6%
Analytics12,8068,95942.9%22,23618,26321.8%
ESG and Climate21,70617,65023.0%41,51328,93543.5%
All Other - Private Assets4,8101,158315.4%8,5433,030181.9%
Total net sales$74,374$57,38029.6%$137,556$106,70428.9%

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 EndedSix Months Ended
June 30,June 30,
2022202120222021
Index95.9%95.6%96.2%96.1%
Analytics94.3%92.7%94.4%94.2%
ESG and Climate97.3%96.4%98.0%96.7%
All Other - Private Assets (1)96.0%93.7%95.1%94.4%
Total95.5%94.4%95.7%95.3%
(1)Includes RCA’s Run Rate for the current-year period. Retention rate for All Other – Private Assets excluding the impact of RCA was 97.1% and 95.8% for the three and six months ended June 30, 2022, respectively.

Retention Rate is an important metric because subscription cancellations decrease our Run Rate and ultimately our future 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 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 Assets 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, 2021 or critical accounting estimates applied in the fiscal year ended December 31, 2021.

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 make 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

As of June 30, 2022, we had an aggregate of $4,200 million in Senior Notes outstanding. In addition, under the Credit Agreement, we had as of June 30, 2022: (i) an aggregate of $350 million in Tranche A Term Loans outstanding under the TLA Facility and (ii) $500 million of undrawn borrowing capacity under the revolving credit facility. See Note 8, “Commitments and Contingencies,” of the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein for additional information on our outstanding indebtedness and revolving credit facility.

The Senior Notes and the 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 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 Computershare, National Association, as trustee and successor to Wells Fargo Bank, National Association, 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 Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and/or 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 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 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 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 Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) measured quarterly on a rolling four-quarter basis not to 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 Credit Agreement) measured quarterly on a rolling four-quarter basis of at least 4.00:1.00. As of June 30, 2022, our Consolidated Leverage Ratio was 3.23:1.00 and our Consolidated Interest Coverage Ratio was 8.74:1.00.

Our non-guarantor subsidiaries under the Senior Notes and the Credit Agreement 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 $1,318.0 million, or 60.5%, of our total revenue for the trailing 12 months ended June 30, 2022, approximately $494.1 million, or 43.0%, of our consolidated operating income for the trailing 12 months ended June 30, 2022, and approximately $949.5 million, or 19.6%, of our consolidated total assets (excluding intercompany assets) and $762.0 million, or 13.0%, of our consolidated total liabilities, in each case as of June 30, 2022.

Share Repurchases

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

Six Months EndedAverage Price Paid Per ShareTotal Number of Shares RepurchasedDollar Value of Shares Repurchased
(in thousands)
June 30, 2022$480.682,184$1,049,651
June 30, 2021$407.70330$134,340

As of June 30, 2022, there was $539.5 million of available authorization remaining under the 2020 Repurchase Program.

Cash Dividend

On July 25, 2022, the Board of Directors declared a quarterly cash dividend of $1.25 per share for the three months ending September 30, 2022. This reflects an increase of 20.2% over the quarterly cash dividend declared for the three months ended June 30, 2022. The third quarter 2022 dividend is payable on August 31, 2022 to shareholders of record as of the close of trading on August 12, 2022.

Cash Flows

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

As of
June 30,December 31,
20222021
(in thousands)
Cash and cash equivalents$842,300$1,421,449

We typically seek to maintain minimum cash balances globally of approximately $200.0 million to $250.0 million for general operating purposes. As of June 30, 2022 and December 31, 2021, $319.2 million and $542.2 million, respectively, of the Company’s 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

Six Months Ended
June 30,
20222021
(in thousands)
Net cash provided by operating activities$456,873$440,514
Net cash used in investing activities(34,413)(22,321)
Net cash (used in) provided by financing activities(982,936)256,858
Effect of exchange rate changes(18,673)(3,570)
Net (decrease) increase in cash$(579,149)$671,481

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. The year-over-year increase was primarily driven by higher cash collections from customers, partially offset by higher payments for cash expenses, mainly reflecting higher cash compensation expenses, information technology costs, professional fees and market data costs.

Our primary uses of cash from operating activities are for the payment of cash compensation expenses, interest expenses, income taxes, technology costs, professional fees, market data costs and office rent. 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

The year-over-year change was primarily driven by increased capitalized software development costs.

Cash Flows From Financing Activities

The year-over-year change was primarily driven by the impact of higher share repurchases and less proceeds from borrowings, partially offset by lower repayments on debt.

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