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, 2023 (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. The Company has five operating segments: Index, Analytics, ESG and Climate, Real Assets and Private Capital Solutions (formerly Burgiss), which are presented as the following four reportable segments: Index, Analytics, ESG and Climate and All Other – Private Assets.

During the year ended December 31, 2023, we renamed the The Burgiss Group, LLC (“Burgiss”) operating segment to Private Capital Solutions. The operating segments of Real Assets and Private Capital Solutions do not individually meet the segment reporting thresholds and have been combined and presented as part of the All Other – Private Assets reportable segment.

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 data, content and technology companies. For more information about our Company’s operations, see “Item 1: Business” in our Form 10-K.

As of March 31, 2024, we served approximately 6,9001 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. Private 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.

1 Represents the aggregate of all related clients under their respective parent entity. At acquisition, we align an acquired Company’s client count to our methodology.

For the three months ended March 31, 2024, our largest client organization by revenue, BlackRock, accounted for 10.0% of our consolidated operating revenues, with 95.7% of the operating revenues from BlackRock coming from fees based on the assets in BlackRock’s ETFs and non-ETF products that are based on our indexes.

The discussion of our results of operations for the three months ended March 31, 2024 and 2023 are presented below. The results of operations for interim periods may not be indicative of future results.

Factors Affecting the Comparability of Results

Acquisitions of Burgiss, Trove and Fabric

On October 2, 2023, the Company acquired the remaining 66.4% interest in Burgiss for $696.8 million in cash. The Company’s existing 33.6% interest had a fair value at acquisition date of $353.2 million which resulted in a non-taxable gain of $143.0 million for the three months ending December 31, 2023.

Prior to the acquisition, the Company’s ownership interest in Burgiss was classified as an equity-method investment. Therefore, the All Other – Private Assets segment did not include the Company’s proportionate share of operating revenues and Adjusted EBITDA related to Burgiss. The Company’s proportionate share of the income or loss from its equity-method investment in Burgiss was reported as a component of other (expense) income, net.

Following the acquisition, the consolidated results of Burgiss are included in the Company’s Private Capital Solutions operating segment (formerly known as Burgiss), which is combined and presented as part of the All Other – Private Assets reportable segment. See Note 5, “Acquisitions,” and Note 12, “Segment Information” of the Notes to the Consolidated Financial Statements included herein for additional information on the acquisition of Burgiss.

On November 1, 2023 MSCI completed the acquisition of Trove Research Ltd (“Trove”), a carbon markets intelligence provider for approximately $37.5 million in cash. Trove is a part of the ESG and Climate operating segment.

On January 2, 2024 MSCI completed the acquisition of Fabric RQ, Inc. (“Fabric”), a wealth technology platform specializing in portfolio design, customization and analytics for wealth managers and advisors for approximately $8.0 million in cash and contingent consideration with an acquisition date fair value of $8.1 million that is payable based on future sales of Fabric’s products. Fabric is a part of the Analytics operating segment.

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.

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

Three Months Ended March 31,% Change
(in thousands)20242023
Recurring subscriptions$513,055$445,24715.2%
Asset-based fees150,259133,12612.9%
Non-recurring16,65113,84520.3%
Total operating revenues$679,965$592,21814.8%

Total operating revenues increased 14.8%. Adjusting for the impact of foreign currency exchange rate fluctuations and acquisitions, total operating revenues would have increased 10.3%.

Operating revenues from recurring subscriptions increased 15.2%, driven by growth in All Other – Private Assets which increased $24.8 million, or 64.7% and included $24.2 million of Burgiss revenue, Index products, which increased $16.3 million, or 8.3%, and strong growth in both Analytics products, which increased $16.0 million, or 11.1%, and ESG and Climate products, which increased $10.7 million, or 16.3%. Adjusting for the impact of foreign currency exchange rate fluctuations and acquisitions, operating revenues from recurring subscriptions would have increased 9.3%.

Operating revenues from asset-based fees increased 12.9%, mainly driven by growth in revenues from ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes, partially offset by a decrease in revenue from exchange traded futures and options contracts linked to MSCI indexes. Operating revenues from ETFs linked to MSCI equity indexes increased 15.0%, primarily driven by an increase in average AUM, partially offset by decreases in average basis point fees. Operating revenues from non-ETF indexed funds linked to MSCI indexes increased by 14.4%, primarily driven by an increase in average AUM, partially offset by decreases in average basis point fees. Operating revenues from exchange traded futures and options contracts linked to MSCI indexes decreased by 7.0%, driven by volume decreases.

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
20232024
(in billions)March 31,June 30,September 30,December 31,March 31,
AUM in ETFs linked to MSCI equity indexes(1), (2)$1,305.4$1,372.5$1,322.8$1,468.9$1,582.6
Sequential Change in Value
Market Appreciation/(Depreciation)$75.1$48.4$(56.1)$130.5$92.8
Cash Inflows7.418.76.415.620.9
Total Change$82.5$67.1$(49.7)$146.1$113.7

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

20232024
(in billions)MarchJuneSeptemberDecemberMarch
AUM in ETFs linked to MSCI equity indexes(1), (2)
Quarterly average$1,287.5$1,333.8$1,376.5$1,364.9$1,508.8
Year-to-date average$1,287.5$1,310.7$1,332.6$1,340.7$1,508.8

(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 deemed part of or 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 March 31, 2024, was up $221.3 billion, or 17.2%, compared to the three months ended March 31, 2023.

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

Three Months Ended March 31,% Change
(in thousands)20242023
Operating revenues:
Index
Recurring subscriptions$212,952$196,6788.3%
Asset-based fees150,259133,12612.9%
Non-recurring10,6619,57811.3%
Index total373,872339,38210.2%
Analytics
Recurring subscriptions160,551144,50311.1%
Non-recurring3,4152,56733.0%
Analytics total163,966147,07011.5%
ESG and Climate
Recurring subscriptions76,41865,73216.3%
Non-recurring1,4661,32610.6%
ESG and Climate total77,88467,05816.1%
All Other - Private Assets
Recurring subscriptions63,13438,33464.7%
Non-recurring1,109374196.5%
All Other - Private Assets total64,24338,70866.0%
Total operating revenues$679,965$592,21814.8%

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 Ended March 31,% Change
(in thousands)20242023
Operating expenses:
Cost of revenues$128,514$108,64718.3%
Selling and marketing72,16866,4758.6%
Research and development40,52531,32329.4%
General and administrative56,69141,04438.1%
Amortization of intangible assets38,60424,66756.5%
Depreciation and amortization of property, equipment and leasehold improvements4,0815,460(25.3%)
Total operating expenses$340,583$277,61622.7%

Total operating expenses increased 22.7%. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 21.9%.

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 18.3%, reflecting increases across all reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries, incentive compensation and benefits costs as a result of increased headcount, as well as increases in non-compensation costs, primarily reflecting higher information technology 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 8.6%, reflecting increases across the All Other- Private Assets, Index and Analytics reportable segments, partially offset by decreases in the ESG and Climate reportable segment. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation, wages and salaries and benefits costs as a result of increased headcount.

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 increased 29.4%, reflecting increases across all reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries, incentive compensation and benefits costs as a result of increased headcount, partially offset by increased capitalization of costs related to internally developed software projects.

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, acquisition integration, changes in the fair value of contingent consideration and certain other administrative costs that are not directly attributed to a product or service, but are instead allocated to G&A expenses.

G&A expenses increased 38.1%, reflecting increases across all reportable segments. The change was driven by increases in compensation and benefits costs, primarily related to higher incentive compensation,wages and salaries and benefits costs as a result of increased headcount, as well as increases in non-compensation costs, primarily reflecting higher professional fees. The increase was also driven by higher transaction and integration costs primarily related to the step acquisition of Burgiss.

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

Three Months Ended March 31,% Change
(in thousands)20242023
Compensation and benefits$222,994$181,57922.8%
Non-compensation expenses74,90465,91013.6%
Amortization of intangible assets38,60424,66756.5%
Depreciation and amortization of property, equipment and leasehold improvements4,0815,460(25.3%)
Total operating expenses$340,583$277,61622.7%

Compensation and Benefits

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.

We had 5,858 employees as of March 31, 2024, compared to 4,846 employees as of March 31, 2023, reflecting a 20.9% increase in the number of employees which is primarily related to acquisitions. 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 March 31, 2024, 67.2% of our employees were located in emerging market centers compared to 65.4% as of March 31, 2023.

Compensation and benefits costs increased 22.8%, primarily driven by an increase in wages and salaries, incentive compensation and benefits costs due to headcount growth, partially offset by increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations and the step acquisition of Burgiss, and the Trove and Fabric acquisitions, compensation and benefits costs would have increased by 10.9%.

Non-Compensation Expenses

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.

Non-compensation expenses increased 13.6%, primarily driven by higher professional fees, information technology and market data costs. The increase was also driven by higher non-recurring transaction and integration costs primarily related to the step acquisition of Burgiss. Adjusting for the impact of foreign currency exchange rate fluctuations and the step acquisition of Burgiss, and the Trove and Fabric acquisitions, non-compensation expenses would have increased by 4.3%.

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 increased 56.5%, primarily driven by higher amortization recognized on acquired intangible assets from recent acquisitions and amortization of internal use software.

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 decreased 25.3%, primarily driven by lower depreciation on computer and related equipment.

Total Other Expense (Income), Net

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

Three Months Ended March 31,% Change
(in thousands)20242023
Interest income$(6,048)$(10,362)(41.6%)
Interest expense46,67446,2061.0%
Other expense (income)2,8632,38620.0%
Total other expense (income), net$43,489$38,23013.8%

Total other expense (income), net increased 13.8%, primarily driven by lower interest income reflecting lower average cash balances as well as loss on extinguishment related to unamortized debt issuance costs associated with the prepayment of the Tranche A Term Loans and the entry into the Credit Agreement, partially offset by favorable foreign currency exchange rate fluctuations.

Income Taxes

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

Three Months Ended March 31,% Change
(in thousands)20242023
Provision for income taxes39,93937,6446.1%
Effective tax rate13.5%13.6%(0.7%)

The effective tax rate of 13.5% for the three months ended March 31, 2024 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $20.2 million, primarily related to $13.0 million of excess tax benefits recognized on share-based compensation vested during the period and $7.2 million of tax benefits related to prior year items.

The effective tax rate of 13.6% for the three months ended March 31, 2023 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $16.5 million, primarily related to $11.1 million of excess tax benefits recognized on share-based compensation vested during the period and $4.6 million of tax benefits related to the resolution of prior year items.

Net Income

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

Three Months Ended March 31,% Change
(in thousands)20242023
Net income$255,954$238,7287.2%

As a result of the factors described above, net income increased 7.2%.

Weighted Average Shares and Common Shares Outstanding

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

Three Months Ended March 31,% Change
(in thousands)20242023
Weighted average shares outstanding:
Basic79,19580,041(1.1%)
Diluted79,50880,482(1.2%)

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

As of% Change
(in thousands)March 31, 2024December 31, 2023
Common shares outstanding79,22479,0910.2%

The decrease in weighted average shares outstanding primarily reflects the impact of share repurchases made pursuant to the stock repurchase program during the twelve months ended December 31, 2023. The increase in common shares outstanding primarily reflects the vesting of certain share-based awards during the three months ended March 31, 2024.

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 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, certain acquisition-related integration and transaction costs.

“Adjusted EBITDA margin” is defined as Adjusted EBITDA divided by operating revenues.

Adjusted EBITDA, Adjusted EBITDA margin 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, adjusted EBITDA margin 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, Adjusted EBITDA margin and Adjusted EBITDA expenses measures may not be comparable to similarly titled measures computed by other companies.

The following table presents non-GAAP Adjusted EBITDA for the periods indicated:

Three Months Ended March 31,% Change
(in thousands)20242023
Operating revenues$679,965$592,21814.8%
Adjusted EBITDA expenses296,392247,48919.8%
Adjusted EBITDA$383,573$344,72911.3%
Operating margin %49.9%53.1%
Adjusted EBITDA margin %56.4%58.2%

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

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

Three Months Ended March 31,% Change
(in thousands)20242023
Net income$255,954$238,7287.2%
Provision for income taxes39,93937,6446.1%
Other expense (income), net43,48938,23013.8%
Operating income339,382314,6027.9%
Amortization of intangible assets38,60424,66756.5%
Depreciation and amortization of property, equipment and leasehold improvements4,0815,460(25.3%)
Acquisition-related integration and transaction costs (1)1,506—100.0%
Consolidated Adjusted EBITDA383,573344,72911.3%
Index Adjusted EBITDA$277,760$253,6829.5%
Analytics Adjusted EBITDA72,21260,78018.8%
ESG and Climate Adjusted EBITDA21,09117,87618.0%
All Other - Private Assets Adjusted EBITDA12,51012,3911.0%
Consolidated Adjusted EBITDA383,573344,72911.3%

(1)Represents transaction expenses and other costs directly related to the acquisition and integration of acquired businesses, including professional fees, severance expenses, regulatory filing fees and other costs, in each case that are incurred no later than 12 months after the close of the relevant acquisition.

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

Three Months Ended March 31,% Change
(in thousands)20242023
Total operating expenses$340,583$277,61622.7%
Amortization of intangible assets38,60424,66756.5%
Depreciation and amortization of property, equipment and leasehold improvements4,0815,460(25.3%)
Acquisition-related integration and transaction costs (1)1,506—100.0%
Consolidated Adjusted EBITDA expenses296,392247,48919.8%
Index Adjusted EBITDA expenses$96,112$85,70012.1%
Analytics Adjusted EBITDA expenses91,75486,2906.3%
ESG and Climate Adjusted EBITDA expenses56,79349,18215.5%
All Other - Private Assets Adjusted EBITDA expenses51,73326,31796.6%
Consolidated Adjusted EBITDA expenses$296,392$247,48919.8%

(1)Represents transaction expenses and other costs directly related to the acquisition and integration of acquired businesses, including professional fees, severance expenses, regulatory filing fees and other costs, in each case that are incurred no later than 12 months after the close of the relevant acquisition.

Segment Results

Index Segment

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

Three Months Ended March 31,% Change
(in thousands)20242023
Operating revenues:
Recurring subscriptions$212,952$196,6788.3%
Asset-based fees150,259133,12612.9%
Non-recurring10,6619,57811.3%
Operating revenues total373,872339,38210.2%
Adjusted EBITDA expenses96,11285,70012.1%
Adjusted EBITDA$277,760$253,6829.5%
Adjusted EBITDA margin %74.3%74.7%

Index operating revenues increased 10.2%, driven by strong growth from asset-based fees as well as revenue growth from recurring subscriptions. Adjusting for the impact of foreign currency exchange rate fluctuations, Index operating revenues would have increased 10.4%.

Operating revenues from recurring subscriptions increased 8.3%, primarily driven by strong growth from market cap-weighted Index products.

Operating revenues from asset-based fees increased 12.9%, mainly driven by growth in revenues from ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes, partially offset by a decrease in revenue from exchange traded futures and options contracts linked to MSCI indexes. Operating revenues from ETFs linked to MSCI equity indexes increased 15.0%, primarily driven by an increase in average AUM, partially offset by decreases in average basis point fees. Operating revenues from non-ETF indexed funds linked to MSCI indexes increased by 14.4%, primarily driven by an increase in average AUM, partially offset by decreases in average basis point fees. Operating revenues from exchange traded futures and options contracts linked to MSCI Indexes decreased by 7%, driven by volume decreases.

Index segment Adjusted EBITDA expenses increased 12.1%, primarily driven by higher compensation expenses across all expense activity categories. The increase reflects higher incentive compensation, wages and salaries and benefits costs. The change was also driven by higher non-compensation expenses across the G&A, cost of revenues and R&D expense activity categories, partially offset by lower non-compensation expenses in the selling and marketing expense activity category. The increase in non-compensation expenses is primarily due to higher professional fees. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased by 11.2%.

Analytics Segment

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

Three Months Ended March 31,% Change
(in thousands)20242023
Operating revenues:
Recurring subscriptions$160,551$144,50311.1%
Non-recurring3,4152,56733.0%
Operating revenues total163,966147,07011.5%
Adjusted EBITDA expenses91,75486,2906.3%
Adjusted EBITDA$72,212$60,78018.8%
Adjusted EBITDA margin %44.0%41.3%

Analytics operating revenues increased 11.5%, primarily driven by growth from recurring subscriptions related to both Multi-Asset Class and Equity Analytics products. Adjusting for the impact of the acquisition of Fabric and foreign currency exchange rate fluctuations, Analytics operating revenues would have increased 11.9%.

Analytics segment Adjusted EBITDA expenses increased 6.3%, primarily driven by higher compensation expenses across all expense activity categories. The increase reflects higher incentive compensation, wages and salaries and severance costs. The increase was also driven by higher non-compensation expenses across the G&A, selling and marketing and R&D expense activity categories, partially offset by lower non-compensation expenses in the cost of revenues expense activity category. The increase in non-compensation expenses is primarily due to higher professional fees and information technology costs. Adjusting for the impact of the acquisition of Fabric and foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have increased 4.8%.

ESG and Climate Segment

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

Three Months Ended March 31,% Change
(in thousands)20242023
Operating revenues:
Recurring subscriptions$76,418$65,73216.3%
Non-recurring1,4661,32610.6%
Operating revenues total77,88467,05816.1%
Adjusted EBITDA expenses56,79349,18215.5%
Adjusted EBITDA$21,091$17,87618.0%
Adjusted EBITDA margin %27.1%26.7%

ESG and Climate operating revenues increased 16.1%, primarily driven by growth from recurring subscriptions related to Ratings, Climate and Screening products. Adjusting for the impact of the acquisition of Trove and foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 11.0%.

ESG and Climate segment Adjusted EBITDA expenses increased 15.5%, primarily driven by higher compensation expenses across cost of revenues, R&D and G&A expense activity categories, partially offset by lower compensation expense in the selling and marketing expense activity category. The increase reflects higher incentive compensation, wages and salaries, and benefits costs, primarily driven by the acquisition of Trove. The increase was partially offset by increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of the acquisition of Trove and foreign currency exchange rate fluctuations, ESG and Climate segment Adjusted EBITDA expenses would have increased 6.9%.

All Other – Private Assets Segment

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

Three Months Ended March 31,% Change
(in thousands)20242023
Operating revenues:
Recurring subscriptions$63,134$38,33464.7%
Non-recurring1,109374196.5%
Operating revenues total64,24338,70866.0%
Adjusted EBITDA expenses51,73326,31796.6%
Adjusted EBITDA$12,510$12,3911.0%
Adjusted EBITDA margin %19.5%32.0%

All Other – Private Assets operating revenues increased 66.0%, primarily driven by revenues attributable to the acquisition of Burgiss as well as growth in recurring subscriptions related to Index Intel products and favorable foreign currency exchange rate

fluctuations, partially offset by a decrease in recurring subscriptions related to our Property Intel product. Adjusting for the impact of the step acquisition of Burgiss and foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have increased 2.6%.

All Other – Private Assets segment Adjusted EBITDA expenses increased 96.6%, reflecting higher compensation and non-compensation expenses across all expense activity categories, primarily driven by the step acquisition of Burgiss. The increase reflects higher wages and salaries, incentive compensation, benefits and information technology costs, partially offset by increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of the step acquisition of Burgiss and foreign currency exchange rate fluctuations, All Other - Private Assets segment Adjusted EBITDA expenses would have decreased 3.7%.

Operating Metrics

Run Rate

“Run Rate” estimates at a particular point in time the annualized value of the recurring revenues under our client license agreements (“Client Contracts”) for the next 12 months, assuming all Client Contracts that come up for renewal, 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;

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

  • 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% Change
(in thousands)March 31, 2024March 31, 2023
Index:
Recurring subscriptions$869,931$795,6219.3%
Asset-based fees619,431534,49115.9%
Index total1,489,3621,330,11212.0%
Analytics662,079621,6116.5%
ESG and Climate320,611278,94714.9%
All Other - Private Assets254,432148,44071.4%
Total Run Rate$2,726,484$2,379,11014.6%
Recurring subscriptions total$2,107,053$1,844,61914.2%
Asset-based fees619,431534,49115.9%
Total Run Rate$2,726,484$2,379,11014.6%

Total Run Rate increased 14.6%, driven by a 14.2% increase from recurring subscriptions and a 15.9% increase from asset-based fees. Adjusting for the impact of acquisitions and foreign currency exchange rate fluctuations, recurring subscriptions Run Rate would have increased 8.7%.

Run Rate from Index recurring subscriptions increased 9.3%, primarily driven by growth from market cap-weighted and custom Index products and special packages. The increase reflected growth across all regions.

Run Rate from Index asset-based fees increased 15.9%, primarily driven by higher AUM in ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes.

Run Rate from Analytics products increased 6.5%, driven by growth in both Multi-Asset Class and Equity Analytics products, and reflected growth across all regions and client segments. Adjusting for the impact of the acquisition of Fabric and foreign currency exchange rate fluctuations, Analytics Run Rate would have increased 7.0%.

Run Rate from ESG and Climate products increased 14.9%, driven by strong growth in Ratings, Climate and Screening products with contributions across all all regions and client segments. Adjusting for the impact of the acquisition of Trove and foreign currency exchange rate fluctuations, ESG and Climate Run Rate would have increased 13.3%.

Run Rate from All Other - Private Assets increased 71.4%, and included $101.0 million associated with Burgiss. Excluding the impact of the step acquisition of Burgiss, the growth was primarily driven by Index Intel, RCA and Performance Insights products, partially offset by a decline in our Property Intel product. This increase reflected growth across all regions. Adjusting for the impact of the step acquisition of Burgiss and foreign currency exchange rate fluctuations, All Other - Private Assets Run Rate would have increased 3.5%.

Sales

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

reductions in price, resulting in reductions to Run Rate. Net new recurring subscription sales represent the amount of new recurring subscription sales net of subscription cancellations during the period, which reflects the net impact to Run Rate during the period.

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

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

Three Months Ended% Change
(in thousands)March 31, 2024March 31, 2023
New recurring subscription sales
Index$23,513$25,090(6.3%)
Analytics14,08813,6743.0%
ESG and Climate11,47112,486(8.1%)
All Other - Private Assets8,2645,14360.7%
New recurring subscription sales total57,33656,3931.7%
Subscription cancellations
Index(14,702)(7,082)107.6%
Analytics(10,794)(9,183)17.5%
ESG and Climate(7,351)(2,635)179.0%
All Other - Private Assets(4,922)(2,856)72.3%
Subscription cancellations total(37,769)(21,756)73.6%
Net new recurring subscription sales
Index8,81118,008(51.1%)
Analytics3,2944,491(26.7%)
ESG and Climate4,1209,851(58.2%)
All Other - Private Assets3,3422,28746.1%
Net new recurring subscription sales total19,56734,637(43.5%)
Non-recurring sales
Index12,81112,7820.2%
Analytics2,4621,37079.7%
ESG and Climate1,6721,21937.2%
All Other - Private Assets1,089213411.3%
Non-recurring sales total18,03415,58415.7%
Gross sales
Index$36,324$37,872(4.1%)
Analytics16,55015,04410.0%
ESG and Climate13,14313,705(4.1%)
All Other - Private Assets9,3535,35674.6%
Total gross sales$75,370$71,9774.7%
Net sales
Index$21,622$30,790(29.8%)
Analytics5,7565,861(1.8%)
ESG and Climate5,79211,070(47.7%)
All Other - Private Assets4,4312,50077.2%
Total net sales$37,601$50,221(25.1%)

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

Retention Rate

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

Three Months Ended March 31,
20242023
Index93.2%96.4%
Analytics(1)93.5%94.0%
ESG and Climate(1)90.8%96.1%
All Other - Private Assets(1)92.2%92.1%
Total(1)92.8%95.2%

(1)Retention rate for Analytics excluding the impact of the acquisition of Fabric was 93.5% for the three months ended March 31, 2024. Retention rate for ESG and Climate excluding the impact of the acquisition of Trove was 90.7% for the three months ended March 31, 2024. Retention rate for All Other – Private Assets excluding the impact of the step acquisition of Burgiss was 89.9% for the three months and year ended March 31, 2024. Total retention rate excluding the impact of the acquisitions of Fabric, Trove and Burgiss was 92.6%.

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, 2023 or critical accounting estimates applied in the fiscal year ended December 31, 2023.

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 March 31, 2024, we had an aggregate of $4,200.0 million in Senior Notes outstanding. In addition, under the Credit Agreement, we had as of March 31, 2024 an aggregate of $336.9 million in outstanding borrowings under the revolving credit facility. See Note 8, “Debt,” of the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein for additional information on our outstanding indebtedness and revolving credit facility.

On January 26, 2024, we entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) amending and restating in its entirety the Prior Credit Agreement. The Credit Agreement makes available an aggregate of $1,250.0 million of revolving loan commitments under the Revolving Credit Facility, which may be drawn until January 26, 2029. The Revolving Credit Facility under the Credit Agreement was drawn at closing in an amount sufficient to prepay all term loans outstanding under the TLA Facility under the Prior Credit Agreement. The obligations under the Credit Agreement are general unsecured obligations of the Company.

The Senior Notes and the Prior Credit Agreement were previously 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”). Upon the closing of the Credit Agreement on January 26, 2024, the subsidiary guarantors’ were released from their guarantees under the Prior Credit Agreement and the indentures governing our Senior Notes (the “Indentures”).

The Indentures among us and Computershare, National Association, as trustee and successor to Wells Fargo Bank, National Association, contain covenants that limit our and 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, and that limit the ability of our subsidiaries to incur certain indebtedness. The Credit Agreement also contains covenants that limit our and 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, and that limit the ability of our subsidiaries to incur certain 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 four 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 March 31, 2024, our Consolidated Leverage Ratio was 2.56:1.00 and our Consolidated Interest Coverage Ratio was 9.16:1.00.

Share Repurchases

We made no repurchases of the Company’s common stock pursuant to open market repurchases during the three months ended March 31, 2024 or 2023.

As of March 31, 2024, there was $845.7 million of available authorization remaining under the 2022 Repurchase Program. This authorization may be modified, suspended or terminated by the Board of Directors at any time without prior notice.

Cash Dividends

On April 22, 2024, the Board of Directors declared a quarterly cash dividend of $1.60 per share for the three months ending June 30, 2024. The second quarter 2024 dividend is payable on May 31, 2024 to shareholders of record as of the close of trading on May 17, 2024.

Cash Flows

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

As of
(in thousands)March 31, 2024December 31, 2023
Cash and cash equivalents (includes restricted cash of $3,842 and $3,878 at March 31, 2024 and December 31, 2023, respectively)$519,315$461,693

We typically seek to maintain minimum cash balances globally of approximately $225.0 million to $275.0 million for general operating purposes. As of March 31, 2024 and December 31, 2023, $209.8 million and $285.2 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 bank debt, private debt and the 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

Three Months Ended March 31,
(in thousands)20242023
Net cash provided by operating activities$300,137$264,141
Net cash (used in) investing activities(32,333)(21,762)
Net cash (used in) provided by financing activities(207,223)(158,293)
Effect of exchange rate changes(2,959)2,958
Net (decrease) increase in cash, cash equivalents and restricted cash$57,622$87,044

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 change was primarily driven by cash collections from customers, partially offset by higher payments for cash expenses.

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 higher capitalized software development costs and the acquisition of Fabric.

Cash Flows From Financing Activities

The year-over-year change was primarily driven by the impact of higher dividend payments and higher share repurchases on vested share-based awards.

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