MSCI Inc. Reports Record Revenues for Third Quarter 2008

Business Wire, Oct 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 third quarter and nine months ended August 31, 2008.

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

* Operating revenues increased 19.5% to a record $110.4 million in third quarter 2008 and 20.6% to $323.5 million for the first nine months of fiscal 2008 (year to date 2008).

* Adjusted EBITDA increased 26.9% to a record $51.3 million in third quarter 2008 for an adjusted EBITDA margin of 46.4% and increased 33.1% to $146.3 million for an adjusted EBITDA margin of 45.2% for year to date 2008. See Tables 9 and 14 each titled "Reconciliation of Adjusted EBITDA to Net Income."

* Net income decreased 11.7% to $18.9 million ($0.19 per diluted share) in third quarter 2008 for a net income margin of 17.1% and decreased 11.8% to $55.4 million for year to date 2008 for a net income margin of 17.1%. Please see "Factors Impacting Comparability of Our Financial Results" on page 2.

Henry A. Fernandez, Chairman and CEO, said "Our third quarter revenue growth of 19.5% compared to third quarter 2007 reflects the strong market position of our investment management tools coupled with our ability to add new clients globally, increase sales to existing clients, and maintain high client retention rates. We are particularly pleased to report an adjusted EBITDA margin of 46.4% despite incurring duplicative expenses to replace Morgan Stanley services. This high level of profitability highlights the significant operating leverage of our business. In addition, the strong financial position of the company is evidenced by our cash balance of approximately $246 million at the end of the quarter."

"While our equity index asset based fees and our equity portfolio analytics revenues were negatively impacted by the challenging financial market conditions, sales of our equity index data subscription and multi-asset class portfolio analytics products remained strong during the third quarter demonstrating the power of our diversified suite of products and diverse client base worldwide," added Mr. Fernandez.

Selected Financial Information

Table 1

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Factors Impacting Comparability of Our Financial Results

Net income and earnings per share (EPS) for third quarter 2008 are not comparable with third 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.

Summary of Results for Fiscal Third Quarter 2008

Operating Revenues

Total operating revenues for the three months ended August 31, 2008 (third quarter 2008) increased 19.5% to a record $110.4 million compared to $92.4 million for the three months ended August 31, 2007 (third 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 21.4% and 10.8%, respectively, in third quarter 2008. The revenue strength was broad based across all client types and geographic regions.

Our Aggregate Retention Rate (as defined below) was unchanged at 92% for third quarter 2008 compared to third quarter 2007.

In third quarter 2008, we added 65 net new clients. At August 31, 2008, we had a total of 3,097 clients, excluding clients that only pay us asset based fees.

Equity Indices: Revenues related to Equity Indices increased 24.1% to $62.0 million in third quarter 2008 compared to the same period in 2007. Revenues from equity index data subscriptions were up 30.7% to $43.7 million in third quarter 2008 reflecting growth in subscriptions across all of our MSCI Global Investable Market Indices products, including developed market, emerging market and small cap indices and sales of historical index data. The revenue growth was led by subscriptions to asset managers.

Revenues attributable to equity index asset based fees increased 10.8% to $18.3 million in third 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 $178.3 billion for third quarter 2008 compared to $155.7 billion for third quarter 2007. As of August 31, 2008, the value of assets in ETFs linked to MSCI equity indices was $166.3 billion, representing an increase of $9.8 billion, or 6.3%, from $156.5 billion as of August 31, 2007. The $9.8 billion year-over-year growth in value of assets in ETFs linked to MSCI equity indices was attributable to $35.1 billion of net asset inflows, offset by $25.3 billion of net asset depreciation.

Compared to second quarter 2008, equity index asset based fee revenues were flat as a decline in asset based revenues for ETFs was offset by an increase in asset based fees for institutional indexed funds.

Our ETF asset based revenues declined 1% in the third quarter 2008 compared to second quarter 2008. The average value of assets in ETFs linked to MSCI equity indices was $178.3 billion for third quarter 2008 compared to $184.4 billion for second quarter 2008. At August 31, 2008, the value of assets in ETFs linked to MSCI equity indices was $166.3 billion representing a decrease of 16.7%, or $33.3 billion, from $199.6 billion as of May 31, 2008. The $33.3 billion decrease from May 31, 2008 was attributable to asset outflows of $2.1 billion and asset depreciation of $31.2 billion. The $2.1 billion of asset outflows was comprised of $3.4 billion of asset outflows from established ETFs offset in part by $1.3 billion of asset inflows in ETFs launched over the last twelve months.