Item 1. Financial Statements

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Item 1. Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except per share and share data)


	As of
	September 30,		December 31,
	2022		2021
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	867,112	$	1,421,449
Accounts receivable, net of allowances	525,360		664,511
Prepaid income taxes	82,678		5,951
Prepaid and other assets	51,758		51,499
Total current assets	1,526,908		2,143,410

Property, equipment and leasehold improvements, net	54,341		66,715
Right of use assets	131,772		144,584
Goodwill	2,226,141		2,236,386
Intangible assets, net	565,582		593,341
Equity method investment	215,370		218,763
Deferred tax assets	27,939		40,119
Other non-current assets	29,474		63,385
Total assets	$	4,777,527	$	5,506,703


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	5,303	$	13,448
Income taxes payable	3,770		59,635
Accrued compensation and related benefits	142,282		207,640
Current portion of long-term debt	8,711		—
Other accrued liabilities	171,476		145,302
Deferred revenue	735,710		824,912
Total current liabilities	1,067,252		1,250,937

Long-term debt	4,504,291		4,161,422
Long-term operating lease liabilities	137,265		150,029
Deferred tax liabilities	47,142		3,650
Other non-current liabilities	98,968		104,132
Total liabilities	5,854,918		5,670,170


Commitments and Contingencies (see Note 8)

Shareholders’ equity (deficit):
Preferred stock (par value $0.01, 100,000,000 shares authorized; no shares issued)	—		—
Common stock (par value $0.01; 750,000,000 common shares authorized; 133,620,870 and 133,162,178 common shares issued and 80,121,138 and 82,439,449 common shares outstanding at September 30, 2022 and December 31, 2021, respectively)	1,336		1,332
Treasury shares, at cost (53,499,732 and 50,722,729 common shares held at September 30, 2022 and December 31, 2021, respectively)	(5,867,881)		(4,540,144)
Additional paid in capital	1,504,274		1,457,623
Retained earnings	3,358,892		2,976,517
Accumulated other comprehensive loss	(74,012)		(58,795)
Total shareholders’ equity (deficit)	(1,077,391)		(163,467)

Total liabilities and shareholders’ equity (deficit)	$	4,777,527	$	5,506,703

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(unaudited)
Operating revenues	$	560,639	$	517,099	$	1,672,390	$	1,493,702

Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)	98,418		89,674		301,957		262,781
Selling and marketing	65,545		59,819		192,671		174,477
Research and development	25,941		28,352		78,179		80,745
General and administrative	30,702		38,110		112,993		103,020
Amortization of intangible assets	23,375		14,105		67,274		59,569
Depreciation and amortization of property, equipment and leasehold improvements	7,127		6,809		20,426		20,972
Total operating expenses	251,108		236,869		773,500		701,564


Operating income	309,531		280,230		898,890		792,138

Interest income	(3,938)		(396)		(5,160)		(1,129)
Interest expense	44,162		42,137		125,961		119,278
Other expense (income)	103		37,839		(90)		61,616

Other expense (income), net	40,327		79,580		120,711		179,765


Income before provision for income taxes	269,204		200,650		778,179		612,373
Provision for income taxes	52,612		30,774		122,577		80,255
Net income	$	216,592	$	169,876	$	655,602	$	532,118


Earnings per share:
Basic	$	2.69	$	2.06	$	8.09	$	6.45
Diluted	$	2.68	$	2.03	$	8.05	$	6.38

Weighted average shares outstanding:
Basic	80,500		82,470		81,001		82,521
Diluted	80,874		83,554		81,481		83,446

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(unaudited)
Net income	$	216,592	$	169,876	$	655,602	$	532,118
Other comprehensive (loss) income:
Foreign currency translation adjustments	(10,978)		(3,226)		(25,724)		(4,052)
Income tax effect	1,453		422		3,921		999
Foreign currency translation adjustments, net	(9,525)		(2,804)		(21,803)		(3,053)


Pension and other post-retirement adjustments	293		186		7,779		383
Income tax effect	(79)		(48)		(1,193)		(146)
Pension and other post-retirement adjustments, net	214		138		6,586		237

Other comprehensive (loss) income, net of tax	(9,311)		(2,666)		(15,217)		(2,816)

Comprehensive income	$	207,281	$	167,210	$	640,385	$	529,302

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(in thousands)


	Common Stock		Treasury Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	(unaudited)
Balance at December 31, 2021	$	1,332	$	(4,540,144)	$	1,457,623	$	2,976,517	$	(58,795)	$	(163,467)
Net income							228,423				228,423
Dividends declared ($1.04 per common share)							(87,280)				(87,280)
Dividends paid in shares					77						77
Other comprehensive income (loss), net of tax									(2,022)		(2,022)
Common stock issued	4										4
Shares withheld for tax withholding and exercises			(105,000)								(105,000)
Compensation payable in common stock					22,754						22,754
Common stock repurchased and held in treasury			(772,657)								(772,657)
Common stock issued to Directors and (held in)/released from treasury			(21)								(21)

Balance at March 31, 2022	1,336		(5,417,822)		1,480,454		3,117,660		(60,817)		(879,189)

Net income							210,587				210,587
Dividends declared ($1.04 per common share)							(84,593)				(84,593)
Dividends paid in shares					22						22
Other comprehensive income (loss), net of tax									(3,884)		(3,884)
Common stock issued											—
Shares withheld for tax withholding and exercises			(3,862)								(3,862)
Compensation payable in common stock					11,858						11,858
Common stock repurchased and held in treasury			(276,994)								(276,994)
Common stock issued to Directors and (held in)/released from treasury			(391)								(391)

Balance at June 30, 2022	1,336		(5,699,069)		1,492,334		3,243,654		(64,701)		(1,026,446)

Net income							216,592				216,592
Dividends declared ($1.25 per common share)							(101,354)				(101,354)
Dividends paid in shares					27						27
Other comprehensive income (loss), net of tax									(9,311)		(9,311)
Common stock issued											—
Shares withheld for tax withholding and exercises			(3,741)								(3,741)
Compensation payable in common stock					11,913						11,913
Common stock repurchased and held in treasury			(165,044)								(165,044)
Common stock issued to Directors and (held in)/released from treasury			(27)								(27)
Balance at September 30, 2022	$	1,336	$	(5,867,881)	$	1,504,274	$	3,358,892	$	(74,012)	$	(1,077,391)

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(in thousands)


	Common Stock		Treasury Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	(unaudited)





































Balance at December 31, 2020	$	1,328	$	(4,342,535)	$	1,402,537	$	2,554,295	$	(58,859)	$	(443,234)
Net income							196,819				196,819
Dividends declared ($0.78 per common share)							(65,947)				(65,947)
Dividends paid in shares					66						66
Other comprehensive income (loss), net of tax									(957)		(957)
Common stock issued	3										3
Shares withheld for tax withholding and exercises			(52,814)								(52,814)
Compensation payable in common stock					18,842						18,842
Common stock repurchased and held in treasury			(134,340)								(134,340)
Common stock issued to Directors and (held in)/released from treasury			(20)								(20)

Balance at March 31, 2021	1,331		(4,529,709)		1,421,445		2,685,167		(59,816)		(481,582)

Net income							165,423				165,423
Dividends declared ($0.78 per common share)							(64,863)				(64,863)
Dividends paid in shares					20						20
Other comprehensive income (loss), net of tax									807		807
Common stock issued											—
Shares withheld for tax withholding and exercises			(620)								(620)
Compensation payable in common stock					12,252						12,252
Common stock repurchased and held in treasury											—
Common stock issued to Directors and (held in)/released from treasury			756								756

Balance at June 30, 2021	1,331		(4,529,573)		1,433,717		2,785,727		(59,009)		(367,807)

Net income							169,876				169,876
Dividends declared ($1.04 per common share)							(86,476)				(86,476)
Dividends paid in shares					21						21
Other comprehensive income (loss), net of tax									(2,666)		(2,666)
Common stock issued	1										1
Shares withheld for tax withholding and exercises			(5,286)								(5,286)
Compensation payable in common stock					12,263						12,263
Common stock repurchased and held in treasury											—
Common stock issued to Directors and (held in)/released from treasury			49								49
Balance at September 30, 2021	$	1,332	$	(4,534,810)	$	1,446,001	$	2,869,127	$	(61,675)	$	(280,025)

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Nine Months Ended September 30,
	2022		2021
	(unaudited)
Cash flows from operating activities
Net income	$	655,602	$	532,118
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets	67,274		59,569
Stock-based compensation expense	46,432		43,218
Depreciation and amortization of property, equipment and leasehold improvements	20,426		20,972
Amortization of right of use assets	18,555		18,255
Loss on impairment of right of use assets, net	705		—
Amortization of debt origination fees	3,868		3,658
Loss on extinguishment of debt	—		59,103
Deferred taxes	59,324		(101,840)
Other adjustments	(3,654)		5,706
Changes in assets and liabilities:
Accounts receivable	127,043		69,324
Prepaid income taxes	(77,908)		4,165
Prepaid and other assets	(1,678)		(2,178)
Other non-current assets	32,547		332
Accounts payable	(8,144)		(6,347)
Accrued compensation and related benefits	(58,042)		(206)
Income taxes payable	(52,939)		11,981
Other accrued liabilities	31,297		7,201
Deferred revenue	(66,982)		(57,932)
Long-term operating lease liabilities	(19,492)		(15,644)
Other non-current liabilities	6,105		5,763
Other	(397)		(813)
Net cash provided by operating activities	779,942		656,405


Cash flows from investing activities
Capitalized software development costs	(44,425)		(29,078)
Capital expenditures	(8,012)		(7,119)
Acquisition of a business, net of cash acquired	—		(948,695)
Acquisition of equity method investment	(5)		(77)
Other	29		(910)
Net cash used in investing activities	(52,413)		(985,879)


Cash flows from financing activities
Proceeds from borrowings, inclusive of premium	355,000		1,803,750
Repayment of borrowings	(5,000)		(1,051,810)
Repurchase of common stock held in treasury	(1,327,298)		(193,060)
Payment of dividends	(272,759)		(216,496)
Payment of debt issuance costs in connection with debt	(2,559)		(21,135)
Payment of contingent consideration	(211)		—
Net cash (used in) provided by financing activities	(1,252,827)		321,249


Effect of exchange rate changes	(29,039)		(7,632)

Net (decrease) increase in cash	(554,337)		(15,857)

Cash and cash equivalent, beginning of period	1,421,449		1,300,521
Cash and cash equivalent, end of period	$	867,112	$	1,284,664


Supplemental disclosure of cash flow information:
Cash paid for interest	$	107,162	$	101,631
Cash paid for income taxes, net of refunds received	$	154,725	$	163,732

Supplemental disclosure of non-cash investing activities
Property, equipment and leasehold improvements in other accrued liabilities	$	1,926	$	4,821

Supplemental disclosure of non-cash financing activities
Cash dividends declared, but not yet paid	$	3,270	$	2,096

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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MSCI INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. INTRODUCTION AND BASIS OF PRESENTATION

MSCI Inc., together with its wholly owned subsidiaries (the “Company” or “MSCI”) is a leading provider of critical decision support tools and solutions for the global investment community. Our mission-critical offerings help investors address the challenges of a transforming investment landscape and power better investment decisions. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, we enable our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios. Our products and services include indexes; portfolio construction and risk management tools; environmental, social and governance (“ESG”) and climate solutions; and real estate market and transaction data and analysis.

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements include the accounts of MSCI and its wholly owned subsidiaries and include all adjustments of a normal, recurring nature necessary to state fairly the financial condition as of September 30, 2022 and December 31, 2021, the results of operations, comprehensive income and shareholders’ equity (deficit) for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021. The unaudited condensed consolidated statement of financial condition and related financial statement information as of December 31, 2021 have been derived from the 2021 audited consolidated financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in MSCI’s Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for interim periods are not necessarily indicative of results for the entire year.

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The Company makes certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of operating revenues and expenses during the periods presented. Significant estimates and judgments made by management include such examples as assessment of impairment of goodwill and intangible assets and income taxes. The Company believes that estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from these estimates. Inter-company balances and transactions are eliminated in consolidation.

Concentrations

For the nine months ended September 30, 2022 and 2021, BlackRock, Inc. (“BlackRock”) accounted for 10.5% and 12.9% of the Company’s consolidated operating revenues, respectively. For the nine months ended September 30, 2022 and 2021, BlackRock accounted for 17.7% and 20.6% of the Index segment’s operating revenues, respectively. No single customer represented 10.0% or more of operating revenues within the Analytics, ESG and Climate or All Other – Private Assets segments for the nine months ended September 30, 2022 and 2021.

Allowance for Doubtful Accounts

Changes in the allowance for doubtful accounts from December 31, 2020 to September 30, 2022 were as follows:


	Amount
	(in thousands)
Balance as of December 31, 2020	$	1,583
Addition (reduction) to credit loss expense	1,210
Write-offs, net of recoveries	(456)
Balance as of December 31, 2021	$	2,337

Addition (reduction) to credit loss expense	855
Adjustments and write-offs, net of recoveries	(569)
Balance as of September 30, 2022	$	2,623

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2. RECENT ACCOUNTING STANDARDS UPDATES

There are no pending accounting standards updates that are currently expected to have a material impact on the Company.

3. REVENUE RECOGNITION

MSCI’s operating revenues are reported by product type, which generally reflects the timing of recognition. The Company’s operating revenue types are recurring subscriptions, asset-based fees and non-recurring revenues. The Company also disaggregates operating revenues by segment.

The tables that follow present the disaggregated operating revenues for the periods indicated:


	For the Three Months Ended September 30, 2022
	Segments
(in thousands)	Index		Analytics		ESG and Climate		All Other - Private Assets		Total
Operating Revenue Types
Recurring subscriptions	$	185,531	$	142,751	$	56,353	$	35,581	$	420,216
Asset-based fees	125,620		—		—		—		125,620
Non-recurring	11,089		2,164		1,242		308		14,803
Total	$	322,240	$	144,915	$	57,595	$	35,889	$	560,639


	For the Nine Months Ended September 30, 2022
	Segments
(in thousands)	Index		Analytics		ESG and Climate		All Other - Private Assets		Total
Operating Revenue Types
Recurring subscriptions	$	539,740	$	420,047	$	160,962	$	106,276	$	1,227,025
Asset-based fees	402,889		—		—		—		402,889
Non-recurring	31,319		6,349		3,790		1,018		42,476
Total	$	973,948	$	426,396	$	164,752	$	107,294	$	1,672,390


	For the Three Months Ended September 30, 2021
	Segments
(in thousands)	Index		Analytics		ESG and Climate		All Other - Private Assets		Total
Operating Revenue Types
Recurring subscriptions	$	165,310	$	134,320	$	42,592	$	15,418	$	357,640
Asset-based fees	141,745		—		—		—		141,745
Non-recurring	14,448		1,978		1,099		189		17,714
Total	$	321,503	$	136,298	$	43,691	$	15,607	$	517,099


	For the Nine Months Ended September 30, 2021
	Segments
(in thousands)	Index		Analytics		ESG and Climate		All Other - Private Assets		Total
Operating Revenue Types
Recurring subscriptions	$	480,488	$	399,360	$	115,299	$	48,355	$	1,043,502
Asset-based fees	404,593		—		—		—		404,593
Non-recurring	34,876		6,857		2,450		1,424		45,607
Total	$	919,957	$	406,217	$	117,749	$	49,779	$	1,493,702

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The tables that follow present the change in accounts receivable, net of allowances, and current deferred revenue between the dates indicated:


	Accounts receivable, net		Deferred revenue
	(in thousands)
Opening (December 31, 2021)	$	664,511	$	824,912
Closing (September 30, 2022)	525,360		735,710
Increase/(decrease)	$	(139,151)	$	(89,202)


	Accounts receivable, net		Deferred revenue
	(in thousands)
Opening (December 31, 2020)	$	558,569	$	675,870
Closing (September 30, 2021)	496,726		643,352
Increase/(decrease)	$	(61,843)	$	(32,518)

The amounts of revenue recognized in the periods that were included in the opening current deferred revenue, which reflects contract liability amounts, were $149.4 million and $722.0 million for the three and nine months ended September 30, 2022, respectively and $145.2 million and $623.8 million for the three and nine months ended September 30, 2021, respectively. The difference between the opening and closing balances of the Company’s deferred revenue is primarily driven by an increase in the amortization of deferred revenue to operating revenues, partially offset by an increase in billings. As of September 30, 2022 and December 31, 2021, the Company carried a long-term deferred revenue balance of $27.7 million and $23.4 million, respectively, in “Other non-current liabilities” on the Unaudited Condensed Consolidated Statement of Financial Condition.

For contracts that have a duration of one year or less, the Company has not disclosed either the remaining performance obligation as of the end of the reporting period or when the Company expects to recognize the revenue. The remaining performance obligations for contracts that have a duration of greater than one year and the periods in which they are expected to be recognized are as follows:


	As of
	September 30,
	2022
	(in thousands)
First 12-month period	$	572,644
Second 12-month period	332,957
Third 12-month period	138,779
Periods thereafter	84,390
Total	$	1,128,770

4. EARNINGS PER COMMON SHARE

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the assumed conversion of all dilutive securities, including, when applicable, restricted stock units (“RSUs”), performance stock units (“PSUs”) and performance stock options (“PSOs”).

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The following table presents the computation of basic and diluted EPS:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
(in thousands, except per share data)
Net income	$	216,592	$	169,876	$	655,602	$	532,118

Basic weighted average common shares outstanding	80,500		82,470		81,001		82,521
Effect of dilutive securities:
PSUs, RSUs and PSOs	374		1,084		480		925
Diluted weighted average common shares outstanding	80,874		83,554		81,481		83,446


Earnings per common share:
Basic	$	2.69	$	2.06	$	8.09	$	6.45
Diluted	$	2.68	$	2.03	$	8.05	$	6.38

5. ACQUISITIONS

On September 13, 2021, MSCI acquired all of the issued and outstanding preferred and common shares of Real Capital Analytics, Inc (“RCA”) for an aggregate cash purchase price of $949.0 million. This acquisition expands MSCI’s suite of real estate solutions, providing the real estate industry with data, analytics and support tools to manage investments and understand performance and risk, including climate risk, within their portfolios. RCA has been accounted for as a business combination using the acquisition method of accounting and has been integrated into the All Other – Private Assets reportable segment, as a component of the Real Assets operating segment. A portion of RCA’s client agreements do not have automatic renewal clauses at the end of the subscription period. Due to the historically high retention rate and expectation that a substantial portion of the client agreements will be renewed, the associated revenue is recorded as recurring subscription revenue.

The table below represents the final purchase price allocation to total assets acquired and liabilities assumed based on their respective estimated fair values as of September 13, 2021 and the associated estimated useful lives at that date. In the fourth quarter of 2021, the Company early adopted ASU 2021-08, which resulted in an increase to deferred revenue and goodwill and a decrease in deferred tax liabilities recorded as of the opening balance sheet date.

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	Estimated Useful Life	Fair Value
		(in thousands)
Accounts receivable		$	9,700
Other current assets		3,721
Property, equipment and leasehold improvements, net		1,204
Right of use assets		6,441
Other non-current assets		3,398
Deferred revenue		(35,194)
Other current liabilities		(15,525)
Long-term operating lease liabilities		(4,849)
Deferred tax liabilities		(83,737)
Other non-current liabilities		(223)
Intangible assets:
Proprietary data	11 years	185,500
Customer relationships	20 years	175,800
Acquired technology and software	9 years	31,500
Trademarks	2 years	890
Goodwill		670,333
Purchase price, net of cash acquired		$	948,959

The recorded goodwill is primarily attributable to the utilization of the acquired data as well as expanded market opportunities. Goodwill attributable to the acquisition is not deductible for income tax purposes.

Revenue of RCA recognized within the condensed consolidated financial statements was $21.3 million and $59.8 million for the three and nine months ended September 30, 2022, respectively.

6. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

Property, equipment and leasehold improvements, net consisted of the following as of the dates indicated:


	As of
	September 30,		December 31,
	2022		2021
	(in thousands)
Computer & related equipment	$	178,523	$	179,557
Furniture & fixtures	13,451		14,194
Leasehold improvements	54,183		56,308
Work-in-process	2,105		2,699
Subtotal	248,262		252,758

Accumulated depreciation and amortization	(193,921)		(186,043)
Property, equipment and leasehold improvements, net	$	54,341	$	66,715

Depreciation and amortization expense of property, equipment and leasehold improvements was $7.1 million and $6.8 million for the three months ended September 30, 2022 and 2021, respectively. Depreciation and amortization expense of property, equipment and leasehold improvements was $20.4 million and $21.0 million for the nine months ended September 30, 2022 and 2021, respectively.

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7. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The following table presents goodwill by reportable segment:


(in thousands)	Index		Analytics		ESG and Climate		All Other - Private Assets		Total
Goodwill at December 31, 2021	$	1,205,443	$	290,976	$	48,047	$	691,920	$	2,236,386
Acquisitions (1)	—		—		—		(541)		(541)
Foreign exchange translation adjustment	(6,003)		—		—		(3,701)		(9,704)
Goodwill at September 30, 2022	$	1,199,440	$	290,976	$	48,047	$	687,678	$	2,226,141

(1)Reflects the impact of measurement period adjustments associated with the acquisition of RCA.

The Company completed its annual goodwill impairment test as of July 1, 2022 on its Index, Analytics, ESG and Climate, and Real Assets reporting units, which are also the Company’s operating segments, and no impairments were noted. The Company determined that it was not more likely than not that the fair value of its reporting units is less than their respective carrying values. See Note 12, “Segment Information,” for further descriptions of the operating segments.

Intangible Assets, Net

The following table presents the amount of amortization expense related to intangible assets by category for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
Amortization expense of acquired intangible assets	$	15,810	$	9,602	$	47,562	$	26,346
Amortization expense of internally developed capitalized software	7,565		4,503		19,712		17,210
Write-off of internally developed capitalized software	—		—		—		16,013
Total amortization of intangible assets expense	$	23,375	$	14,105	$	67,274	$	59,569

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The gross carrying and accumulated amortization amounts related to the Company’s intangible assets were as follows:


	As of
	September 30,		December 31,
	2022		2021
	(in thousands)
Gross intangible assets:
Customer relationships	$	532,500	$	532,400
Proprietary data	220,778		220,639
Acquired technology and software	209,220		209,220
Trademarks	208,190		208,190
Internally developed capitalized software	150,480		106,181
Subtotal	1,321,168		1,276,630

Foreign exchange translation adjustment	(16,875)		(5,782)
Total gross intangible assets	$	1,304,293	$	1,270,848

Accumulated amortization:
Customer relationships	$	(300,800)	$	(277,865)
Proprietary data	(37,034)		(22,678)
Acquired technology and software	(178,805)		(175,718)
Trademarks	(159,650)		(152,468)
Internally developed capitalized software	(69,214)		(49,394)
Subtotal	(745,503)		(678,123)

Foreign exchange translation adjustment	6,791		616
Total accumulated amortization	$	(738,712)	$	(677,507)

Net intangible assets:
Customer relationships	$	231,700	$	254,535

Proprietary data	183,744		197,961

Acquired technology and software	30,415		33,502

Trademarks	48,540		55,722

Internally developed capitalized software	81,266		56,787

Subtotal	575,665		598,507

Foreign exchange translation adjustment	(10,083)		(5,166)
Total net intangible assets	$	565,582	$	593,341

The following table presents the estimated amortization expense for the remainder of the year ending December 31, 2022 and succeeding years:


Years Ending December 31,	Amortization Expense
	(in thousands)
Remainder of 2022	$	24,562
2023	94,309
2024	87,153
2025	60,949
2026	37,318
Thereafter	261,291
Total	$	565,582

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8. COMMITMENTS AND CONTINGENCIES

As of September 30, 2022, the Company had outstanding an aggregate of $4,200.0 million in senior unsecured notes (collectively, the “Senior Notes”) and an aggregate of $350.0 million in senior unsecured tranche A term loans (the “Tranche A Term Loans”) under the term loan A facility (the “TLA Facility”), as presented in the table below:


		Principal Amount Outstanding at		Carrying Value at		Carrying Value at		Fair Value at		Fair Value at
	Maturity Date	September 30, 2022		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
	(in thousands)
Debt
4.000% senior unsecured notes due 2029	November 15, 2029	1,000,000		992,273		991,455		864,190		1,047,950
3.625% senior unsecured notes due 2030	September 1, 2030	900,000		894,760		894,263		753,471		924,777
3.875% senior unsecured notes due 2031	February 15, 2031	1,000,000		990,793		989,973		842,510		1,046,620
3.625% senior unsecured notes due 2031	November 1, 2031	600,000		594,031		593,538		483,858		625,536
3.250% senior unsecured notes due 2033	August 15, 2033	700,000		692,695		692,193		540,778		710,906
Variable rate Tranche A Term Loans due 2027	February 16, 2027	350,000		348,450		—		348,250		—
Total debt		$	4,550,000	$	4,513,002	$	4,161,422	$	3,833,057	$	4,355,789

Interest payments attributable to the Company’s outstanding indebtedness are due as presented in the following table:


	Interest payment frequency	First interest payment date
Senior Notes and Tranche A Term Loans
4.000% senior unsecured notes due 2029	Semi-Annual	May 15
3.625% senior unsecured notes due 2030	Semi-Annual	March 1
3.875% senior unsecured notes due 2031	Semi-Annual	June 1
3.625% senior unsecured notes due 2031	Semi-Annual	May 1
3.250% senior unsecured notes due 2033	Semi-Annual	February 15
Variable rate Tranche A Term Loans due 20271	Quarterly	October 15

(1)The first payment occurred on October 15, 2022.

The fair market value of the Company’s debt obligations represent Level 2 valuations. The Company utilizes the market approach and obtains security pricing from a vendor who uses broker quotes and third-party pricing services to determine fair values.

Credit Agreement. Since November 20, 2014, the Company has maintained a revolving credit agreement with a syndicate of banks. On June 9, 2022, the Company, the guarantors party thereto and the lenders and agents party thereto, entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), amending and restating in its entirety the Company’s prior revolving credit agreement (the “Prior Revolving Credit Agreement”). The Credit Agreement makes available to the Company an aggregate of $500.0 million of revolving loan commitments, which may be drawn until February 16, 2027, and the TLA Facility. At September 30, 2022, the revolving loan commitments were undrawn. As noted above, at September 30, 2022, the commitments under the TLA Facility were drawn in full, and the resulting Tranche A Term Loans mature on February 16, 2027. The obligations under the Credit Agreement are general unsecured obligations of the Company and the guarantors.

Interest on the Tranche A Term Loans under the TLA Facility accrues, at a variable rate, based on the secured overnight funding rate (“SOFR”) or the alternate base rate (“Base Rate”), plus, in each case, an applicable margin and will be due on each Interest Payment Date (as defined in the Credit Agreement). The applicable margin is calculated by reference to the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement) and ranges between 1.50% to 2.00% for SOFR loans, and 0.50% to 1.00% for Base Rate loans. At September 30, 2022, the interest rate on the TLA Facility was 4.29%.

In connection with the closings of the Senior Notes offerings, entry into the Prior Revolving Credit Agreement and the subsequent amendments thereto and entry into the Credit Agreement, the Company paid certain financing fees which, together with the existing fees related to prior credit facilities, are being amortized over their related lives. At September 30, 2022, $39.3 million of the deferred financing fees and premium remain unamortized, $0.5 million of which is included in “Prepaid and other assets,” $1.8 million of which is included in “Other non-current assets” and $37.0 million of which is included in “Long-term debt” on the Unaudited Condensed Consolidated Statement of Financial Condition.

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9. LEASES

The Company recognized $7.3 million and $7.6 million of operating lease expenses for the three months ended September 30, 2022 and 2021, respectively. The Company recognized $22.4 million and $22.7 million of operating lease expenses for the nine months ended September 30, 2022 and 2021, respectively. The amounts associated with variable lease costs, short-term lease costs and sublease income were not material for any of the three and nine months ended September 30, 2022 and 2021.

Maturities of the Company’s operating lease liabilities as of September 30, 2022 are as follows:


Maturity of Lease Liabilities	Operating
(in thousands)	Leases
Remainder of 2022	$	5,395
2023	28,346
2024	23,457
2025	22,273
2026	20,736
Thereafter	82,118
Total lease payments	$	182,325

Less: Interest	(22,924)
Present value of lease liabilities	$	159,401


Other accrued liabilities	$	22,136
Long-term operating lease liabilities	$	137,265

Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:


	As of
	September 30,		December 31,
Lease Term and Discount Rate	2022		2021
Weighted-average remaining lease term (years)	8.08		8.16
Weighted-average discount rate	3.15	%	3.09	%

Other information related to the Company’s operating leases are as follows:


Other Information	Nine Months Ended September 30,
(in thousands)	2022		2021
Operating cash flows used for operating leases	$	22,025	$	23,038
Right of use assets obtained in exchange for new operating lease liabilities	$	14,929	$	20,109

10. SHAREHOLDERS’ EQUITY (DEFICIT)

Return of capital

On July 28, 2022, the Board of Directors authorized a stock repurchase program (the “2022 Repurchase Program”) for the purchase of up to $1,000.0 million worth of shares of MSCI’s common stock in addition to the $539.1 million of authorization then remaining under a previously existing share repurchase program that was replaced by, and incorporated into, the 2022 Repurchase Program for a total of $1,539.1 million of stock repurchase authorization available under the 2022 Repurchase Program.

Share repurchases made pursuant to the 2022 Repurchase Program may take place in the open market or in privately negotiated transactions from time to time based on market and other conditions. This authorization may be modified, suspended or terminated by the Board of Directors at any time without prior notice. As of September 30, 2022, there was $1,374.5 million of available authorization remaining under the 2022 Repurchase Program.

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


Nine Months Ended	Average Price Paid Per Share		Total Number of Shares Repurchased	Dollar Value of Shares Repurchased
			(in thousands)
September 30, 2022	$	473.26	2,567	$	1,214,695
September 30, 2021	$	407.70	330	$	134,340

The following table presents dividends declared per common share as well as total amounts declared, distributed and deferred for the periods indicated:


	Dividends
(in thousands, except per share amounts)	Per Share		Declared		Distributed		(Released)/Deferred
2022
Three Months Ended March 31,	$	1.04	$	87,280	$	87,846	$	(566)
Three Months Ended June 30,	1.04		84,593		84,189		404
Three Months Ended September 30,	1.25		101,354		100,849		505

Total	$	3.33	$	273,227	$	272,884	$	343

2021
Three Months Ended March 31,	$	0.78	$	65,947	$	66,153	$	(206)
Three Months Ended June 30,	0.78		64,863		64,489		374
Three Months Ended September 30,	1.04		86,476		85,961		515

Total	$	2.60	$	217,286	$	216,603	$	683

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Common Stock.

The following table presents activity related to shares of common stock issued and repurchased during the nine months ended September 30, 2022:


	Common Stock		Treasury	Common Stock
	Issued	Stock	Outstanding
Balance at December 31, 2021	133,162,178		(50,722,729)	82,439,449
Dividend payable/paid	82		—	82
Common stock issued	417,508		—	417,508
Shares withheld for tax withholding	—		(190,766)	(190,766)
Shares repurchased under stock repurchase programs	—		(1,498,143)	(1,498,143)
Shares issued to directors	41		(41)	—
Balance at March 31, 2022	133,579,809		(52,411,679)	81,168,130

Dividend payable/paid	23		—	23
Common stock issued	20,178		—	20,178
Shares withheld for tax withholding	—		(9,749)	(9,749)
Shares repurchased under stock repurchase programs	—		(685,522)	(685,522)
Shares issued to directors	4,122		(924)	3,198
Balance at June 30, 2022	133,604,132		(53,107,874)	80,496,258

Dividend payable/paid	—		—	—
Common stock issued	16,678		—	16,678
Shares withheld for tax withholding	—		(8,812)	(8,812)
Shares repurchased under stock repurchase programs	—		(382,986)	(382,986)
Shares issued to directors	60		(60)	—
Balance at September 30, 2022	133,620,870		(53,499,732)	80,121,138

11. INCOME TAXES

The Company’s provision for income taxes was $122.6 million and $80.3 million for the nine months ended September 30, 2022 and 2021, respectively. These amounts reflect effective tax rates of 15.8% and 13.1% for the nine months ended September 30, 2022 and 2021, respectively.

The effective tax rate of 15.8% for the nine months ended September 30, 2022 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $28.2 million, primarily related to $28.4 million of excess tax benefits recognized on share-based compensation vested during the period.

The effective tax rate of 13.1% for the nine months ended September 30, 2021 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $49.3 million, primarily related to $22.7 million of excess tax benefits recognized on share-based compensation vested during the period and $15.2 million related to the tax impact of loss on debt extinguishment recognized during the period on the redemption of the Company’s 5.375% senior unsecured notes due 2027 (the “2027 Senior Notes”) and 4.750% senior unsecured notes due 2026 (the “2026 Senior Notes”). Also included in the discrete items is a $5.1 million benefit related to prior year settlements, a $2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in the UK corporate tax rate, a $2.0 million benefit related to the filing of prior year refund claims and $2.0 million of tax benefits related to other prior year items.

The Company is under or open to examination by the IRS and other tax authorities in certain jurisdictions, including foreign jurisdictions, such as the United Kingdom, Switzerland and India, and states in the United States in which the Company has significant operations, such as New York and California. The tax years currently under or open to examination vary by jurisdiction but include years ranging from 2008 onwards.

The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions in which it files income tax returns. The Company has established unrecognized tax benefits that the Company believes are adequate in relation to the potential for additional assessments. Once established, the Company adjusts unrecognized tax benefits only when more information is available or when an event occurs necessitating a change. Based on the current status of income tax audits, the Company believes it is

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reasonably possible that the total amount of unrecognized benefits may decrease by approximately $29.4 million in the next twelve months as a result of the resolution of tax examinations.

The Inflation Reduction Act of 2022 (“IRA”), enacted on August 16, 2022, is not currently anticipated to have a material impact on the Company’s provision for income taxes.

12. SEGMENT INFORMATION

The Company has five operating segments: Index, Analytics, ESG and Climate, Real Assets and The Burgiss Group, LLC (“Burgiss”), which are presented as the following four reportable segments: Index, Analytics, ESG and Climate and All Other – Private Assets. During the three months ended June 30, 2022, the Company renamed the Real Estate operating segment to Real Assets.

The Index operating segment offers equity and fixed income indexes. The indexes are used in many areas of the investment process, including indexed product creation (e.g., Exchange Traded Funds (“ETFs”), mutual funds, annuities, futures, options, structured products and over-the-counter derivatives), performance benchmarking, portfolio construction and rebalancing, and asset allocation.

The Analytics operating segment offers risk management, performance attribution and portfolio management content, applications and services that provide clients with an integrated view of risk and return and tools for analyzing market, credit, liquidity, counterparty and climate risk across all major asset classes, spanning short-, medium- and long-term time horizons. Clients access Analytics tools and content through MSCI’s proprietary applications and application programming interfaces, third-party applications or directly through their own platforms. Additionally, the Analytics operating segment also provides various managed services to help clients operate more efficiently, including consolidation of client portfolio data from various sources, review and reconciliation of input data and results, and customized reporting.

The ESG and Climate operating segment offers products and services that help institutional investors understand how ESG and climate considerations can impact the long-term risk and return of their portfolio and individual security-level investments. In addition, the ESG and Climate operating segment provides data, ratings, research and tools to help investors navigate increasing regulation, meet new client demands and better integrate ESG and climate elements into their investment processes.

The Real Assets operating segment offers real estate market and transaction data, benchmarks, return-analytics, climate assessments and market insights for funds, investors, managers and other real estate market participants. In addition, Real Assets performance and risk analytics range from enterprise-wide to property-specific analysis. The Real Assets operating segment also provides business intelligence products to real estate owners, managers, developers and brokers worldwide.

The Burgiss operating segment represents the Company’s equity method investment in Burgiss, a global provider of investment decision support tools for private capital.

The Chief Operating Decision Maker (“CODM”) measures and evaluates reportable segments based on segment operating revenues as well as Adjusted EBITDA and other measures. The Company excludes the following items from segment Adjusted EBITDA: provision for income taxes, other expense (income), net, depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments, including certain non-recurring acquisition-related integration and transaction costs, that the CODM does not consider for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although these amounts are excluded from segment Adjusted EBITDA, they are included in reported consolidated net income and are included in the reconciliation that follows.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Operating revenues
Index	$	322,240	$	321,503	$	973,948	$	919,957
Analytics	144,915		136,298		426,396		406,217
ESG and Climate	57,595		43,691		164,752		117,749
All Other - Private Assets	35,889		15,607		107,294		49,779
Total	$	560,639	$	517,099	$	1,672,390	$	1,493,702

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The following table presents segment profitability and a reconciliation to net income for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Index Adjusted EBITDA	$	245,967	$	245,587	$	737,012	$	698,934
Analytics Adjusted EBITDA	67,634		50,291		181,484		145,836
ESG and Climate Adjusted EBITDA	15,910		9,820		42,334		20,585
All Other - Private Assets Adjusted EBITDA	11,450		897		29,819		12,775
Total operating segment profitability	340,961		306,595		990,649		878,130

Amortization of intangible assets	23,375		14,105		67,274		59,569
Depreciation and amortization of property, equipment and leasehold improvements	7,127		6,809		20,426		20,972
Acquisition-related integration and transaction costs(1)	928		5,451		4,059		5,451
Operating income	309,531		280,230		898,890		792,138

Other expense (income), net	40,327		79,580		120,711		179,765
Provision for income taxes	52,612		30,774		122,577		80,255
Net income	$	216,592	$	169,876	$	655,602	$	532,118

(1)Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction.

Operating revenues by geography are based on the shipping address of the ultimate customer utilizing the product. The following table presents operating revenues by geographic area for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Operating revenues
Americas:
United States	$	233,196	$	213,756	$	696,284	$	611,226
Other	24,450		22,060		70,559		63,259
Total Americas	257,646		235,816		766,843		674,485


Europe, the Middle East and Africa ("EMEA"):
United Kingdom	88,681		87,101		264,854		250,984
Other	125,607		113,102		379,695		332,554
Total EMEA	214,288		200,203		644,549		583,538


Asia & Australia:
Japan	21,784		23,384		67,817		68,019
Other	66,921		57,696		193,181		167,660
Total Asia & Australia	88,705		81,080		260,998		235,679


Total	$	560,639	$	517,099	$	1,672,390	$	1,493,702

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Long-lived assets consist of property, equipment and leasehold improvements, right of use assets and internally developed capitalized software, net of accumulated depreciation and amortization. The following table presents long-lived assets by geographic area on the dates indicated:


	As of
	September 30,		December 31,
	2022		2021
	(in thousands)
Long-lived assets
Americas:
United States	$	177,089	$	167,870
Other	12,272		13,480
Total Americas	189,361		181,350


EMEA:
United Kingdom	18,552		19,563
Other	22,376		34,240
Total EMEA	40,928		53,803


Asia & Australia:
Japan	657		1,150
Other	34,930		31,873
Total Asia & Australia	35,587		33,023


Total	$	265,876	$	268,176

13. SUBSEQUENT EVENTS

Subsequent to the three months ended September 30, 2022 and through trade date of October 24, 2022, the Company repurchased an additional 0.2 million shares of common stock at an average price of $430.07 per share for a total value of $70.1 million.

On October 24, 2022, the Board of Directors declared a quarterly cash dividend of $1.25 per share for the three months ending December 31, 2022 (“fourth quarter 2022”). The fourth quarter 2022 dividend is payable on November 30, 2022 to shareholders of record as of the close of trading on November 10, 2022.

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