MSCI Inc. Reports Record Revenues for Second Quarter 2008

Business Wire, July 2, 2008

NEW YORK -- MSCI Inc. (NYSE: MXB), a leading global provider of investment decision support tools, including indices and portfolio risk and performance analytics, today announced results for the second quarter and six months ended May 31, 2008.

(Note: Percentage changes are referenced to the comparable period in fiscal year 2007, unless otherwise noted.)

* Operating revenues increased 21.9% to $108.2 million in second quarter 2008 and 21.2% to $213.1 million for first half 2008.

* Adjusted EBITDA increased 43.4% to $48.0 million in second quarter 2008 for an adjusted EBITDA margin of 44.3% and 36.1% to $95.1 million for an adjusted EBITDA margin of 44.6% for first half 2008. See Tables 9 and 14 each titled "Reconciliation of Adjusted EBITDA to Net Income."

* Net income decreased 6.1% to $18.6 million ($0.18 per diluted share) in second quarter 2008 for a net income margin of 17.2% and 11.9% to $36.6 million for first half 2008 for a net income margin of 17.2%.

Henry A. Fernandez, Chairman and CEO, said "We again delivered a very strong quarter with revenue growth of 21.9% and adjusted EBITDA growth of 43.4% for the second quarter. Importantly, our adjusted EBITDA margin was 44.3% despite incurring expenses associated with replacing services currently provided by Morgan Stanley. Demand for our investment decision support tools remained strong across our diversified client base, further proof of the strength of our franchise during a difficult market environment. This continued strength is also evident in the 21.4% growth in the run rate on a year-over-year basis and 4.1% on a sequential basis."

Factors Impacting Comparability of Our Financial Results

Net income and earnings per share (EPS) for second quarter 2008 are not comparable with second quarter 2007 primarily because of founders grant expense, changes in our capital structure and our initial public offering (IPO). See disclosures below for additional details.

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Summary of Results for Fiscal Second Quarter 2008

Operating Revenues

Total operating revenues for the three months ended May 31, 2008 (second quarter 2008) increased 21.9% to a record $108.2 million compared to $88.8 million for the three months ended May 31, 2007 (second quarter 2007). The growth was driven by an increase in our revenues related to index and analytics subscriptions and to equity index asset based fees, which were up 21.3% and 25.0%, respectively, in second quarter 2008. The growth was across all client types and geographic regions as it was for the three months ended February 29, 2008 (first quarter 2008). On a sequential basis, our revenue growth was 3.1%.

Our Aggregate Retention Rate (as defined below) decreased to 91% for second quarter 2008 from 94% for second quarter 2007. The Aggregate Retention Rate for second quarter 2008 was negatively impacted by the cancellation of a TotalRisk subscription. We are in the process of decommissioning TotalRisk and are providing clients the opportunity to transition to BarraOne. Excluding this cancellation, the Aggregate Retention Rate was 93%.

In second quarter 2008, we added 52 net new clients. At May 31, 2008, we had a total of 3,032 clients, excluding asset based fee only clients.

Equity Indices: Revenues related to Equity Indices increased 25.7% to $60.1 million in second quarter 2008 compared to the same period in 2007 and increased 2.9% compared to first quarter 2008. Revenues from equity index subscriptions were up 26.0% to $41.8 million in second quarter 2008 reflecting growth in subscriptions to our MSCI Global Investable Market Indices, with particular strength in subscriptions to our core and small cap developed market and emerging market indices as well as strong sales of historical index data. We experienced growth across all client types led by asset managers, typically our largest client category, and hedge funds, a small but growing client category for our equity indices subscription products.

Revenues attributable to equity index asset based fees increased 25.0% to $18.3 million in second quarter 2008 led by growth in our ETF asset based fee revenues. The average value of assets in ETFs linked to MSCI equity indices was $184.4 billion for second quarter 2008 compared to $140.8 billion for second quarter 2007. As of May 31, 2008, the value of assets in ETFs linked to MSCI equity indices was $199.6 billion, representing an increase of $49.4 billion, or 32.9%, from $150.2 billion as of May 31, 2007. Approximately 90% of the year-over-year growth in value of assets in ETFs linked to MSCI equity indices was attributable to net asset inflows and 10% was attributable to net asset appreciation.

Compared to first quarter 2008, equity index asset based fee revenues declined 6.5% as a result of declines in asset-based revenues for products other than ETFs. These asset-based non-ETF revenues include fees from passive mutual funds, futures, options and other structured products.

Our ETF asset based revenues were flat in second quarter 2008 compared to first quarter 2008. The average value of assets in ETFs linked to MSCI equity indices was $184.4 billion for second quarter 2008 compared to $183.2 billion for first quarter 2008. At May 31, 2008, the value of assets in ETFs linked to MSCI equity indices was $199.6 billion representing an increase of 11.4% or $20.4 billion from $179.2 billion as of February 29, 2008. The $20.4 billion increase from February 29, 2008 was attributable to asset inflows of $10.5 billion and asset appreciation of $9.9 billion. The majority of the $10.5 billion of asset inflows came from established ETFs; however, ETFs introduced over the last twelve months accounted for 27% of the inflows.