UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-33812

MSCI INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	13-4038723
(State or other jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
7 World Trade Center 250 Greenwich Street, 49th Floor New York, New York	10007
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (212) 804-3900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	MSCI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of October 20, 2020, there were 82,895,040 shares of the registrant’s common stock, par value $0.01, outstanding.

FOR THE QUARTER ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

		Page
	Part I – Financial Information
Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	44
	Part II – Other Information
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46

2

AVAILABLE INFORMATION

MSCI Inc.’s website is www.msci.com. You can access MSCI Inc.’s Investor Relations homepage at http://ir.msci.com. MSCI Inc. makes available free of charge, on or through its Investor Relations homepage, its proxy statements, Annual Reports on Form 10‑K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. MSCI Inc. also makes available, through its Investor Relations homepage, via a link to the SEC’s website, statements of beneficial ownership of MSCI Inc.’s equity securities filed by its directors, officers, 5% or greater shareholders and others under Section 16 of the Exchange Act.

You can access information about MSCI Inc.’s corporate governance at http://ir.msci.com/corporate-governance, including copies of the following:

• Charters for MSCI Inc.’s Audit Committee, Compensation & Talent Management Committee, Nominating and Corporate Governance Committee and Strategy and Finance Committee;

• Corporate Governance Policies;

• Procedures for Submission of Ethical or Accounting Related Complaints; and

• Code of Ethics and Business Conduct.

MSCI Inc.’s Code of Ethics and Business Conduct applies to all directors, officers and employees, including its Chief Executive Officer and its Chief Financial Officer. MSCI Inc. will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC on its website. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, MSCI Inc., 7 World Trade Center, 250 Greenwich Street, 49th Floor, New York, NY 10007; (212) 804-5306. The information on MSCI Inc.’s website is not incorporated by reference into this report or any other report filed or furnished by us with the SEC.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond MSCI’s control and that could materially affect actual results, levels of activity, performance or achievements.

Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in the 2019 Annual Report on Form 10-K filed with the SEC on February 18, 2020 and in quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished with the SEC. If any of these risks or uncertainties materialize, or if MSCI’s underlying assumptions prove to be incorrect, actual results may vary significantly from what MSCI projected. Any forward-looking statement in this report reflects MSCI’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to MSCI’s operations, results of operations, growth strategy and liquidity. MSCI assumes no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise, except as required by law.

3

WEBSITE AND SOCIAL MEDIA DISCLOSURE

MSCI Inc. uses its website, including its quarterly updates, blog, podcasts and social media channels, including its corporate Twitter account (@MSCI_Inc) as channels of distribution of company information. The information MSCI Inc. posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following MSCI Inc.’s press releases, quarterly SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about MSCI Inc. when you enroll your email address by visiting the “Email Alerts Subscription” section of its Investor Relations homepage at http://ir.msci.com/email-alerts. The contents of MSCI Inc.’s website, including its quarterly updates, blog, podcasts and social media channels are not, however, incorporated by reference into this report or any other report filed or furnished by us with the SEC.

4

PART I – FINANCIAL INFORMATION

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,
	2020			2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,302,858		$	1,506,567
Accounts receivable, net of allowances		429,804			499,268
Prepaid income taxes		63,460			31,590
Prepaid and other assets		46,970			44,352
Total current assets		1,843,092			2,081,777
Property, equipment and leasehold improvements, net		78,965			90,708
Right of use assets		153,727			166,406
Goodwill		1,562,377			1,562,868
Intangible assets, net		240,858			261,487
Equity method investment		190,206			—
Deferred tax assets		23,773			20,911
Other non-current assets		18,721			20,282
Total assets	$	4,111,719		$	4,204,439
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	4,718		$	6,498
Income taxes payable		22,039			14,210
Accrued compensation and related benefits		127,605			166,273
Other accrued liabilities		149,005			139,149
Deferred revenue		531,487			574,656
Total current liabilities		834,854			900,786
Long-term debt		3,365,783			3,071,926
Long-term operating lease liabilities		152,812			164,144
Deferred tax liabilities		63,845			66,639
Other non-current liabilities		81,011			77,658
Total liabilities		4,498,305			4,281,153
Commitments and Contingencies (see Note 7)
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; 132,823,285    and 132,419,412 common shares issued and 83,041,856 and 84,794,930 common    shares outstanding at September 30, 2020 and December 31, 2019, respectively)		1,328			1,324
Treasury shares, at cost (49,781,429 and 47,624,482 common shares held at September 30, 2020    and December 31, 2019, respectively)		(4,177,563	)		(3,565,784	)
Additional paid in capital		1,391,837			1,351,031
Retained earnings		2,463,108			2,199,294
Accumulated other comprehensive loss		(65,296	)		(62,579	)
Total shareholders' equity (deficit)		(386,586	)		(76,714	)
Total liabilities and shareholders' equity (deficit)	$	4,111,719		$	4,204,439

See Notes to Condensed Consolidated Financial Statements (Unaudited)

5

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
	(unaudited)
Operating revenues	$	425,333		$	394,251		$	1,251,729		$	1,151,190
Operating expenses:
Cost of revenues		70,704			70,486			215,769			224,807
Selling and marketing		52,668			52,107			159,834			159,812
Research and development		24,901			24,310			73,997			71,234
General and administrative		27,613			26,559			86,755			80,434
Amortization of intangible assets		14,333			12,361			42,171			36,167
Depreciation and amortization of property, equipment and    leasehold improvements		7,494			7,209			22,524			22,464
Total operating expenses		197,713			193,032			601,050			594,918
Operating income		227,620			201,219			650,679			556,272
Interest income		(475	)		(3,673	)		(4,729	)		(11,104	)
Interest expense		37,536			35,922			118,994			107,752
Other expense (income)		1,516			222			45,355			2,839
Other expense (income), net		38,577			32,471			159,620			99,487
Income before provision for income taxes		189,043			168,748			491,059			456,785
Provision for income taxes		6,685			31,765			45,453			15,920
Net income	$	182,358		$	136,983		$	445,606		$	440,865
Earnings per basic common share	$	2.18		$	1.62		$	5.30		$	5.21
Earnings per diluted common share	$	2.16		$	1.60		$	5.26		$	5.15
Weighted average shares outstanding used in computing    earnings per share
Basic		83,602			84,765			84,044			84,591
Diluted		84,479			85,550			84,789			85,533

See Notes to Condensed Consolidated Financial Statements (Unaudited)

6

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
	(unaudited)
Net income	$	182,358		$	136,983		$	445,606		$	440,865
Other comprehensive (loss) income:
Foreign currency translation adjustments		7,058			(5,533	)		(3,743	)		(4,853	)
Income tax effect		(1,124	)		1,124			965			1,085
Foreign currency translation adjustments, net		5,934			(4,409	)		(2,778	)		(3,768	)
Pension and other post-retirement adjustments		(245	)		134			(27	)		103
Income tax effect		83			(64	)		88			(34	)
Pension and other post-retirement adjustments, net		(162	)		70			61			69
Other comprehensive (loss) income, net of tax		5,772			(4,339	)		(2,717	)		(3,699	)
Comprehensive income	$	188,130		$	132,644		$	442,889		$	437,166

See Notes to Condensed Consolidated Financial Statements (Unaudited)

7

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(in thousands)

											Accumulated
						Additional					Other
	Common		Treasury			Paid in		Retained			Comprehensive
	Stock		Stock			Capital		Earnings			Income (Loss)			Total
	(unaudited)
Balance at December 31, 2019	$	1,324	$	(3,565,784	)	$	1,351,031	$	2,199,294		$	(62,579	)	$	(76,714	)
Net income									148,125						148,125
Cumulative-effect adjustment									631						631
Dividends declared ($0.68 per common share)									(59,233	)					(59,233	)
Dividends paid in shares							78								78
Other comprehensive income (loss), net of tax												(9,625	)		(9,625	)
Common stock issued		4													4
Shares withheld for tax withholding				(47,195	)										(47,195	)
Compensation payable in common stock							15,333								15,333
Common stock repurchased and held in treasury				(325,699	)										(325,699	)
Common stock issued to Directors and (held in)/released from treasury				(36	)										(36	)
Balance at March 31, 2020		1,328		(3,938,714	)		1,366,442		2,288,817			(72,204	)		(354,331	)
Net income									115,123						115,123
Dividends declared ($0.68 per common share)									(57,360	)					(57,360	)
Dividends paid in shares							36								36
Other comprehensive income (loss), net of tax												1,136			1,136
Shares withheld for tax withholding and exercises				(603	)										(603	)
Compensation payable in common stock							14,294								14,294
Common stock repurchased and held in treasury				(31,071	)										(31,071	)
Common stock issued to Directors and (held in)/released from treasury				1,844											1,844
Balance at June 30, 2020		1,328		(3,968,544	)		1,380,772		2,346,580			(71,068	)		(310,932	)
Net income									182,358						182,358
Dividends declared ($0.78 per common share)									(65,830	)					(65,830	)
Dividends paid in shares							20								20
Other comprehensive income (loss), net of tax												5,772			5,772
Shares withheld for tax withholding and exercises				(2,433	)										(2,433	)
Compensation payable in common stock							11,045								11,045
Common stock repurchased and held in treasury				(206,566	)										(206,566	)
Common stock issued to Directors and (held in)/released from treasury				(20	)										(20	)
Balance at September 30, 2020	$	1,328	$	(4,177,563	)	$	1,391,837	$	2,463,108		$	(65,296	)	$	(386,586	)

See Notes to Condensed Consolidated Financial Statements (Unaudited)

8

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT), CONT’D

(in thousands)

											Accumulated
						Additional					Other
	Common		Treasury			Paid in		Retained			Comprehensive
	Stock		Stock			Capital		Earnings			Income (Loss)			Total
	(unaudited)
Balance at December 31, 2018	$	1,300	$	(3,272,774	)	$	1,306,428	$	1,856,951		$	(58,399	)	$	(166,494	)
Net income									178,192						178,192
Dividends declared ($0.58 per common share)									(55,339	)					(55,339	)
Dividends paid in shares							93								93
Other comprehensive income (loss), net of tax												1,197			1,197
Common stock issued		23													23
Shares withheld for tax withholding and exercises				(182,385	)										(182,385	)
Compensation payable in common stock and options							9,590								9,590
Common stock repurchased and held in treasury				(102,081	)										(102,081	)
Common stock issued to Directors and (held in)/released from treasury				(30	)										(30	)
Exercise of stock options							726								726
Balance at March 31, 2019		1,323		(3,557,270	)		1,316,837		1,979,804			(57,202	)		(316,508	)
Net income									125,690						125,690
Dividends declared ($0.58 per common share)									(49,613	)					(49,613	)
Dividends paid in shares							30								30
Other comprehensive income (loss), net of tax												(557	)		(557	)
Shares withheld for tax withholding and exercises				(742	)										(742	)
Compensation payable in common stock and options							10,566								10,566
Common stock issued to Directors and (held in)/released from treasury				(833	)										(833	)
Exercise of stock options							165								165
Balance at June 30, 2019		1,323		(3,558,845	)		1,327,598		2,055,881			(57,759	)		(231,802	)
Net income									136,983						136,983
Dividends declared ($0.68 per common share)									(58,176	)					(58,176	)
Dividends paid in shares							36								36
Other comprehensive income (loss), net of tax												(4,339	)		(4,339	)
Shares withheld for tax withholding and exercises				(1,082	)										(1,082	)
Compensation payable in common stock and options							10,398								10,398
Common stock issued to Directors and (held in)/released from treasury				(36	)										(36	)
Exercise of stock options							162								162
Balance at September 30, 2019	$	1,323	$	(3,559,963	)	$	1,338,194	$	2,134,688		$	(62,098	)	$	(147,856	)

See Notes to Condensed Consolidated Financial Statements (Unaudited)

9

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended
	September 30,
	2020			2019
	(unaudited)
Cash flows from operating activities
Net income	$	445,606		$	440,865
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		42,171			36,167
Stock-based compensation expense		40,381			30,485
Depreciation and amortization of property, equipment and leasehold improvements		22,524			22,464
Amortization of right of use assets		18,061			16,778
Amortization of debt origination fees		3,338			2,956
Loss on extinguishment of debt		44,930			—
Deferred taxes		(4,622	)		(9,844	)
Other adjustments		1,680			708
Changes in assets and liabilities:
Accounts receivable		69,848			62,331
Prepaid income taxes		(31,923	)		(37,199	)
Prepaid and other assets		(2,854	)		(3,965	)
Accounts payable		(1,882	)		(1,482	)
Accrued compensation and related benefits		(33,532	)		(14,107	)
Income taxes payable		6,607			(4,251	)
Other accrued liabilities		9,801			(6,795	)
Deferred revenue		(43,186	)		(57,804	)
Long-term operating lease liabilities		(17,017	)		(14,774	)
Other		5,250			3,347
Net cash provided by operating activities		575,181			465,880
Cash flows from investing activities
Acquisition of equity method investment		(190,816	)		—
Capitalized software development costs		(21,931	)		(18,086	)
Capital expenditures		(12,152	)		(17,216	)
Proceeds from the sale of capital equipment		—			10
Net cash used in investing activities		(224,899	)		(35,292	)
Cash flows from financing activities
Proceeds from borrowings		1,405,000			—
Repayment of borrowings		(1,142,382	)		—
Proceeds from exercise of stock options		—			1,052
Repurchase of common stock held in treasury		(613,566	)		(286,290	)
Payment of debt issuance costs in connection with debt		(16,693	)		—
Payment of dividends		(181,843	)		(165,077	)
Net cash used in financing activities		(549,484	)		(450,315	)
Effect of exchange rate changes		(4,507	)		(3,299	)
Net decrease in cash		(203,709	)		(23,026	)
Cash and cash equivalent, beginning of period		1,506,567			904,176
Cash and cash equivalent, end of period	$	1,302,858		$	881,150
Supplemental disclosure of cash flow information:
Cash paid for interest	$	109,834		$	105,015
Cash paid for income taxes	$	73,311		$	65,364
Supplemental disclosure of non-cash investing activities
Property, equipment and leasehold improvements accrued, but not yet paid	$	3,281		$	4,189
Supplemental disclosure of non-cash financing activities
Cash dividends declared, but not yet paid	$	1,505		$	778

See Notes to Condensed Consolidated Financial Statements (Unaudited)

10

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”) provides critical decision support tools and services that bring greater transparency to the global financial markets. MSCI’s tools and services include indexes; portfolio construction tools and risk-management services; environmental, social and governance (“ESG”) research and ratings; and real estate benchmarks, return analytics services and market insights; much of which can be accessed by clients through multiple channels and platforms.

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, 2020 and December 31, 2019, the results of operations, comprehensive income and shareholders’ equity (deficit) for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019. The unaudited condensed consolidated statement of financial condition and related financial statement information as of December 31, 2019 have been derived from the 2019 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, 2019.  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. These accounting principles require the Company to make 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 revenue and expenses during the periods presented. Significant estimates and assumptions made by management include the deferral and recognition of revenue, research and development and software capitalization, assessment of impairment of long-lived assets, accrued compensation, income taxes, incremental borrowing rates and other matters that affect the unaudited condensed consolidated financial statements and related disclosures. 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. Intercompany balances and transactions are eliminated in consolidation.  

Concentrations

For the nine months ended September 30, 2020 and 2019, BlackRock, Inc. accounted for 10.9% and 11.5% of the Company’s consolidated operating revenues, respectively. For the nine months ended September 30, 2020 and 2019, BlackRock, Inc. accounted for 17.8% and 18.9% of the Index segment operating revenues, respectively. No single customer represented 10.0% or more of operating revenues within the Analytics and All Other segments for the nine months ended September 30, 2020 and 2019.

Allowance for Credit Losses on Accounts Receivable

Following the adoption of Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” effective beginning January 1, 2020, the Company records an allowance on customer accounts at the time of billing based on the estimated amount of the billing that will not be collected.  

Changes in the allowance for credit losses on doubtful accounts receivable from December 31, 2018 to September 30, 2020 were as follows:

	Amount
	(in thousands)
Balance as of December 31, 2018	$	1,027
Addition (reduction) to credit loss expense		1,024
Write-offs, net of recoveries		(336	)
Balance as of December 31, 2019	$	1,715
Addition (reduction) to credit loss expense		1,042
Adjustments and write-offs, net of recoveries		(1,434	)
Balance as of September 30, 2020	$	1,323

11

2. RECENT ACCOUNTING STANDARDS UPDATES

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. The amendments in ASU 2016-13 introduce an approach based on expected losses to estimated credit losses on certain types of financial instruments, modify the impairment model for available-for-sale debt securities and provide for a simplified accounting model for purchased financial assets with credit deterioration since their origination.

The FASB issued Accounting Standards Update No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2018-19, Accounting Standards Update No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2019-04, Accounting Standards Update No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief,” or ASU 2019-05, Accounting Standards Update No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective Dates,” or ASU 2019-10 and Accounting Standards Update No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2019-11. The amendments in these ASUs provide clarifications to ASU 2016-13.

The Company adopted ASU 2016-13 and the related clarifications effective January 1, 2020. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” or ASU 2017-04. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity performed procedures to determine the fair value at the impairment testing date of its assets and liabilities. When applying the amendments in ASU 2017-04, an entity performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but not more than the total amount of goodwill allocated to the reporting unit. The Company adopted ASU 2017-04 effective January 1, 2020.

3. REVENUE RECOGNITION

MSCI’s revenues are characterized by product type, which broadly reflects the nature of how they are recognized. The Company’s revenue types are recurring subscription, asset-based fees and non-recurring revenues. The Company also reports revenues by segment.

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

	For the Three Months ended September 30, 2020
	Segments
(in thousands)	Index		Analytics		All Other		Total
Revenue Types
Recurring subscriptions	$	146,387	$	126,251	$	40,552	$	313,190
Asset-based fees		100,371		—		—		100,371
Non-recurring		8,933		2,086		753		11,772
Total	$	255,691	$	128,337	$	41,305	$	425,333

	For the Nine Months ended September 30, 2020
	Segments
(in thousands)	Index		Analytics		All Other		Total
Revenue Types
Recurring subscriptions	$	431,631	$	376,505	$	119,363	$	927,499
Asset-based fees		288,642		—		—		288,642
Non-recurring		27,582		4,903		3,103		35,588
Total	$	747,855	$	381,408	$	122,466	$	1,251,729

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	For the Three Months ended September 30, 2019
	Segments
(in thousands)	Index		Analytics		All Other		Total
Revenue Types
Recurring subscriptions	$	133,403	$	122,120	$	32,585	$	288,108
Asset-based fees		96,013		—		—		96,013
Non-recurring		8,011		1,483		636		10,130
Total	$	237,427	$	123,603	$	33,221	$	394,251

	For the Nine Months ended September 30, 2019
	Segments
(in thousands)	Index		Analytics		All Other		Total
Revenue Types
Recurring subscriptions	$	393,222	$	363,929	$	102,470	$	859,621
Asset-based fees		265,554		—		—		265,554
Non-recurring		18,974		4,790		2,251		26,015
Total	$	677,750	$	368,719	$	104,721	$	1,151,190

The tables that follow present the change in accounts receivable and in deferred revenue between the dates indicated:

	Accounts receivable			Deferred revenue
	(in thousands)
Opening (12/31/2019)	$	499,268		$	574,656
Closing (09/30/2020)		429,804			531,487
Increase/(decrease)	$	(69,464	)	$	(43,169	)

	Accounts receivable			Deferred revenue
	(in thousands)
Opening (12/31/2018)	$	473,433		$	537,977
Closing (09/30/2019)		409,519			479,371
Increase/(decrease)	$	(63,914	)	$	(58,606	)

The amounts of revenue recognized in the periods that were included in the opening current deferred revenue, which reflects contract liability amounts, were $494.4 million and $464.3 million for the nine months ended September 30, 2020 and 2019, respectively. The difference between the opening and closing balances of the Company’s deferred revenue was primarily driven by an increase in the amortization of deferred revenue to operating revenues, partially offset by an increase in billings. MSCI had an insignificant long-term deferred revenue balance as of September 30, 2020, reflected as a part of “Other non-current liabilities” on its 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,
	2020
	(in thousands)
First 12-month period	$	321,008
Second 12-month period		174,710
Third 12-month period		61,190
Periods thereafter		14,596
Total	$	571,504

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. Common shares outstanding include common stock and vested restricted stock unit awards where recipients have satisfied either the explicit vesting terms or retirement-eligible requirements. Diluted EPS reflects the assumed conversion of all dilutive securities. 

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
(in thousands, except per share data)
Net income	$	182,358	$	136,983	$	445,606	$	440,865
Basic weighted average common shares outstanding		83,602		84,765		84,044		84,591
Effect of dilutive securities:
Stock options and restricted stock units		877		785		745		942
Diluted weighted average common shares outstanding		84,479		85,550		84,789		85,533
Earnings per basic common share	$	2.18	$	1.62	$	5.30	$	5.21
Earnings per diluted common share	$	2.16	$	1.60	$	5.26	$	5.15

5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

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

	As of
	September 30,			December 31,
	2020			2019
	(in thousands)
Computer & related equipment	$	184,237		$	185,794
Furniture & fixtures		14,961			12,478
Leasehold improvements		57,438			52,339
Work-in-process		2,011			8,667
Subtotal		258,647			259,278
Accumulated depreciation and amortization		(179,682	)		(168,570	)
Property, equipment and leasehold improvements, net	$	78,965		$	90,708

Depreciation and amortization expense of property, equipment and leasehold improvements was $7.5 million and $7.2 million for the three months ended September 30, 2020 and 2019, respectively. Depreciation and amortization expense of property, equipment and leasehold improvements was $22.5 million for both the nine months ended September 30, 2020 and 2019.

6. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The following table presents goodwill by reportable segment:

(in thousands)	Index			Analytics		All Other		Total
Goodwill at December 31, 2019	$	1,204,694		$	290,976	$	67,198	$	1,562,868
Foreign exchange translation adjustment		(805	)		—		314		(491	)
Goodwill at September 30, 2020	$	1,203,889		$	290,976	$	67,512	$	1,562,377

The Company completed its annual goodwill impairment test as of July 1, 2020 on its Index, Analytics, ESG and Real Estate operating segments, and no impairments were noted. The Company performed a step zero, qualitative impairment test on these four operating segments and determined that it was more likely than not that the fair value for each was not less than the carrying value. See Note 11, “Segment Information,” for further descriptions of the operating segments.

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Intangible Assets, Net

Amortization expense related to intangible assets for the three months ended September 30, 2020 and 2019 was $14.3 million and $12.4 million, respectively. The amortization expense of acquired intangible assets for the three months ended September 30, 2020 and 2019 was $8.3 million and $8.6 million, respectively. The amortization expense of internally developed capitalized software for the three months ended September 30, 2020 and 2019 was $6.0 million and $3.8 million, respectively.

Amortization expense related to intangible assets for the nine months ended September 30, 2020 and 2019 was $42.2 million and $36.2 million, respectively. The amortization expense of acquired intangible assets for the nine months ended September 30, 2020 and 2019 was $25.7 million and $26.0 million, respectively. The amortization expense of internally developed capitalized software for the nine months ended September 30, 2020 and 2019 was $16.5 million and $10.2 million, respectively.

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

	As of
	September 30,			December 31,
	2020			2019
	(in thousands)
Gross intangible assets:
Customer relationships	$	356,700		$	356,700
Trademarks/trade names		207,300			207,300
Technology/software		283,684			263,719
Proprietary data		28,627			28,627
Subtotal		876,311			856,346
Foreign exchange translation adjustment		(8,154	)		(7,615	)
Total gross intangible assets	$	868,157		$	848,731
Accumulated amortization:
Customer relationships	$	(248,011	)	$	(231,665	)
Trademarks/trade names		(140,924	)		(133,305	)
Technology/software		(224,928	)		(209,878	)
Proprietary data		(15,278	)		(13,963	)
Subtotal		(629,141	)		(588,811	)
Foreign exchange translation adjustment		1,842			1,567
Total accumulated amortization	$	(627,299	)	$	(587,244	)
Net intangible assets:
Customer relationships	$	108,689		$	125,035
Trademarks/trade names		66,376			73,995
Technology/software		58,756			53,841
Proprietary data		13,349			14,664
Subtotal		247,170			267,535
Foreign exchange translation adjustment		(6,312	)		(6,048	)
Total net intangible assets	$	240,858		$	261,487

The following table presents the estimated amortization expense for the remainder of the year ending December 31, 2020 and succeeding years:

Years Ending December 31,	Amortization Expense
	(in thousands)
Remainder of 2020	$	14,995
2021		57,163
2022		49,862
2023		38,955
2024		34,202
Thereafter		45,681
Total	$	240,858

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7. COMMITMENTS AND CONTINGENCIES

Legal matters. From time to time, the Company is party to various litigation matters incidental to the conduct of its business. The Company is not presently party to any legal proceedings the resolution of which the Company believes would have a material effect on its business, operating results, financial condition or cash flows.

Senior Unsecured Notes. The Company had an aggregate of $3,400.0 million in senior unsecured notes (collectively, the “Senior Notes”) outstanding at September 30, 2020, consisting of five discrete private offerings 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, 2020		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(in thousands)
Long-term debt
5.25% senior unsecured notes due 2024	November 15, 2024	$	-	$	-	$	297,835	$	-	$	309,225
5.75% senior unsecured notes due 2025	August 15, 2025		-		-		794,063		-		840,872
4.75% senior unsecured notes due 2026	August 1, 2026		500,000		496,090		495,587		518,330		525,800
5.375% senior unsecured notes due 2027	May 15, 2027		500,000		495,656		495,168		533,490		541,300
4.000% senior unsecured notes due 2029	November 15, 2029		1,000,000		990,091		989,273		1,051,560		1,018,820
3.625% senior unsecured notes due 2030	September 1, 2030		400,000		395,340		-		413,764		-
3.875% senior unsecured notes due 2031	February 15, 2031		1,000,000		988,606		-		1,042,670		-
Total long-term debt		$	3,400,000	$	3,365,783	$	3,071,926	$	3,559,814	$	3,236,017

Interest payments attributable to the Senior Notes are due as presented in the following table:

	First semi-annual interest payment date	Second semi- annual interest payment date
Senior Notes
4.75% senior unsecured notes due 2026	February 1	August 1
5.375% senior unsecured notes due 2027	May 15	November 15
4.000% senior unsecured notes due 2029	May 15	November 15
3.625% senior unsecured notes due 2030(1)	March 1	September 1
3.875% senior unsecured notes due 2031(2)	June 1	December 1

⁽¹⁾ The first payment occurred on September 1, 2020.

⁽²⁾ The first payment occurring on December 1, 2020.

The fair market value of the Company’s debt obligations is determined in accordance with accounting standards related to the determination of fair value and represents Level 2 valuations, which are based on one or more quoted prices in markets that are not considered to be active or for which all significant inputs are observable, either directly or indirectly. 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.

The $500.0 million aggregate principal amount of 4.75% senior unsecured notes due 2026 (the “2026 Senior Notes”) are scheduled to mature and be paid in full on August 1, 2026. At any time prior to August 1, 2021, the Company may redeem all or part of the 2026 Senior Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2026 Senior Notes, together with accrued and unpaid interest, on or after August 1, 2021, at redemption prices set forth in the indenture governing the 2026 Senior Notes.  

The $500.0 million aggregate principal amount of 5.375% senior unsecured notes due 2027 (the “2027 Senior Notes”) are scheduled to mature and be paid in full on May 15, 2027. At any time prior to May 15, 2022, the Company may redeem all or part of the 2027 Senior Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2027 Senior Notes, together with accrued and unpaid interest, on or after May 15, 2022, at redemption prices set forth in the indenture governing

16

the 2027 Senior Notes. At any time prior to May 15, 2021, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2027 Senior Notes, including any permitted additional notes, at a redemption price equal to 105.375% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.

The $1,000.0 million aggregate principal amount of 4.000% senior unsecured notes due 2029 (the “2029 Senior Notes”) are scheduled to mature and be paid in full on November 15, 2029. At any time prior to November 15, 2024, the Company may redeem all or part of the 2029 Senior Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2029 Senior Notes, together with accrued and unpaid interest, on or after November 15, 2024, at redemption prices set forth in the indenture governing the 2029 Senior Notes. At any time prior to November 15, 2022, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2029 Senior Notes, including any permitted additional notes, at a redemption price equal to 104.000% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.

On March 4, 2020, the Company issued $400.0 million aggregate principal amount of 3.625% senior unsecured notes due 2030 (the “2030 Senior Notes”) in a private offering that was exempt from the registration requirements of the Securities Act of 1933, as amended. The Company used a portion of the net proceeds from the 2030 Senior Notes to redeem the $300.0 million aggregate principal amount that remained outstanding on its 5.250% senior unsecured notes due 2024 (the “2024 Senior Notes”). The early redemption of the 2024 Senior Notes resulted in a $10.0 million loss on debt extinguishment recorded in other expense (income), which included a redemption price of approximately $7.9 million (as set forth in the indenture governing the terms of the 2024 Senior Notes) and the write-off of approximately $2.1 million of unamortized debt issuance costs associated with the 2024 Senior Notes.  

The 2030 Senior Notes are scheduled to mature and be paid in full on September 1, 2030. At any time prior to March 1, 2025, the Company may redeem all or part of the 2030 Senior Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2030 Senior Notes, together with accrued and unpaid interest, on or after March 1, 2025, at redemption prices set forth in the indenture governing the 2030 Senior Notes. At any time prior to March 1, 2023, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2030 Senior Notes, including any permitted additional notes, at a redemption price equal to 103.625% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.

On May 26, 2020, the Company issued $1,000.0 million aggregate principal amount of 3.875% senior unsecured notes due 2031 (the “2031 Senior Notes”) in a private offering that was exempt from the registration requirements of the Securities Act of 1933, as amended. The Company used a portion of the net proceeds from the 2031 Senior Notes for the early redemption of all of the outstanding $800.0 million aggregate principal amount of 5.75% senior unsecured notes due 2025 (the "2025 Senior Notes"). The early redemption of the 2025 Senior Notes resulted in an approximately $35.0 million loss on extinguishment recorded in other expense (income). The loss on extinguishment included an applicable premium of approximately $29.5 million (as defined in the indenture governing the terms of the 2025 Senior Notes) and the write-off of approximately $5.5 million unamortized debt issuance costs associated with the 2025 Senior Notes.

The 2031 Senior Notes are scheduled to mature and be paid in full on February 15, 2031. At any time prior to June 1, 2025, the Company may redeem all or part of the 2031 Senior Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, the Company may redeem all or part of the 2031 Senior Notes, together with accrued and unpaid interest, on or after June 1, 2025, at redemption prices set forth in the indenture governing the 2031 Senior Notes. At any time prior to June 1, 2023, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2031 Senior Notes, including any permitted additional notes, at a redemption price equal to 103.875% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the redemption date, so long as at least 50% of the aggregate principal amount of all notes (excluding any additional notes, if any) issued under the indenture governing the 2031 Senior Notes remain outstanding after each such redemption occurs.

Revolver. On November 20, 2014, the Company entered into a $200.0 million senior unsecured revolving credit agreement (as amended, the “Revolving Credit Agreement”) with a syndicate of banks. The Revolving Credit Agreement had an initial term of five years with an option to extend for two additional one-year terms. On August 4, 2016, the Company entered into Amendment No. 1 (the “First Amendment”) to the Revolving Credit Agreement. The First Amendment, among other things, (i) increased aggregate commitments available to be borrowed to $220.0 million, (ii) increased the maximum consolidated leverage ratio and (iii) extended the initial term to August 2021 with an option to extend for an additional one-year term. On May 15, 2018, the Company entered into Amendment No. 2 (the “Second Amendment”) to the Revolving Credit Agreement. The Second Amendment, among other things, (i) increased aggregate commitments available to be borrowed to $250.0 million, (ii) extended the term to May 2023 with an option to extend for an additional one-year term and (iii) decreased the applicable rate and applicable fee rate for loans and commitments. On November 15, 2019, the Company entered into Amendment No. 3 (the “Third Amendment”) to the Revolving Credit Agreement. The

17

Third Amendment, among other things, (i) increased aggregate commitments available to be borrowed to $400.0 million, (ii) extended the term to November 2024 with an option to extend for an additional one-year term, (iii) decreased the applicable rate and applicable fee rate for loans and commitments and (iv) amended certain restrictive covenants that limit, among other things, the Company’s financial flexibility. At September 30, 2020, the Revolving Credit Agreement was undrawn.

In connection with the closings of the Senior Notes offerings and entry into the Revolving Credit Agreement and the First, Second and Third Amendments, 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, 2020, $36.1 million of the deferred financing fees remain unamortized, $0.5 million of which is included in “Prepaid and other assets,” $1.4 million of which is included in “Other non-current assets” and $34.2 million of which is grouped and presented as part of “Long-term debt” on the Unaudited Condensed Consolidated Statement of Financial Condition.

8. LEASES

The Company recognized a total of $7.5 million and $7.2 million of operating lease expenses for the three months ended September 30, 2020 and 2019, respectively. The Company recognized a total of $25.4 million and $21.7 million of operating lease expenses for the nine months ended September 30, 2020 and 2019, 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, 2020 and 2019.

Future minimum commitments for the Company’s operating leases in place as of September 30, 2020, the interest and other relevant line items in the Unaudited Condensed Consolidated Statement of Financial Condition are as follows:

Maturity of Lease Liabilities	Operating
(in thousands)	Leases
Remainder of 2020	$	5,544
2021		28,598
2022		25,025
2023		23,955
2024		18,651
Thereafter		103,126
Total lease payments	$	204,899
Less: Interest		(30,596	)
Present value of lease liabilities	$	174,303
Other accrued liabilities	$	21,491
Long-term operating lease liabilities	$	152,812

Lease term and discount rate for the Company’s operating leases in place as of September 30, 2020 are as follows:

	As of
	September 30,
Lease Term and Discount Rate	2020
Weighted-average remaining lease term (years)		9.18
Weighted-average discount rate		3.41	%

Other information for the Company’s operating leases in place for the nine months ended September 30, 2020 are as follows:

	Nine Months Ended
Other Information	September 30,
(in thousands)	2020
Operating cash flows used for operating leases	$	22,735
Leased assets obtained in exchange for new operating lease liabilities	$	7,491

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9. SHAREHOLDERS’ EQUITY (DEFICIT)

Return of capital.

On October 26, 2016, the Board of Directors approved a stock repurchase program for the purchase of up to $750.0 million worth of shares of the Company’s common stock (together with the amount then remaining under a previously existing share repurchase program, the “2016 Repurchase Program”).

On May 1, 2018, the Board of Directors authorized an additional stock repurchase program for the purchase of up to $1,000.0 million worth of shares of the Company’s common stock in addition to the $523.1 million of authorization then remaining under the 2016 Repurchase Program (the “2018 Repurchase Program”).  

On October 29, 2019, the Board of Directors authorized an additional stock repurchase program for the purchase of up to $750.0 million worth of shares of MSCI’s common stock in addition to the $706.1 million of authorization remaining under the 2018 Repurchase Program (the “2019 Repurchase Program”) for a total of $1,456.1 million of stock repurchase authorization. Share repurchases made pursuant to the 2019 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, 2020, there was $892.8 million of available authorization remaining under the 2019 Repurchase Program.

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, 2020	$	278.69		2,021	$	563,336
September 30, 2019	$	147.97		690	$	102,081

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
2020
Three Months Ended March 31,	$	0.68	$	59,233	$	59,455	$	(222	)
Three Months Ended June 30,	0.68			57,360		57,068		292
Three Months Ended September 30,		0.78		65,830		65,454		376
Total	$	2.14	$	182,423	$	181,977	$	446
2019
Three Months Ended March 31,	$	0.58	$	55,339	$	57,988	$	(2,649	)
Three Months Ended June 30,	0.58			49,613		49,365	248
Three Months Ended September 30,	0.68			58,176		57,882		294
Total	$	1.84	$	163,128	$	165,235	$	(2,107	)

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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, 2020:

	Common Stock		Treasury			Common Stock
	Issued		Stock			Outstanding
Balance at December 31, 2019		132,419,412		(47,624,482	)		84,794,930
Dividend payable/paid		259		(120	)		139
Common stock issued		377,843		—			377,843
Shares withheld for tax withholding		—		(153,923	)		(153,923	)
Shares repurchased under stock repurchase programs		—		(1,309,878	)		(1,309,878	)
Shares issued to directors		21		—			21
Balance at March 31, 2020		132,797,535		(49,088,403	)		83,709,132
Dividend payable/paid		114		(114	)		—
Common stock issued		10,101		—			10,101
Shares withheld for tax withholding		—		(1,838	)		(1,838	)
Shares repurchased under stock repurchase programs		—		(113,494	)		(113,494	)
Shares issued to directors		2,229		27,284			29,513
Balance at June 30, 2020		132,809,979		(49,176,565	)		83,633,414
Dividend payable/paid		54		(54	)		—
Common stock issued		13,252		—			13,252
Shares withheld for tax withholding		—		(6,779	)		(6,779	)
Shares repurchased under stock repurchase programs		—		(598,031	)		(598,031	)
Shares issued to directors		—		—			—
Balance at September 30, 2020		132,823,285		(49,781,429	)		83,041,856

10. INCOME TAXES

The Company’s provision for income taxes was $45.5 million and $15.9 million for the nine months ended September 30, 2020 and 2019, respectively. These amounts reflect effective tax rates of 9.3% and 3.5% for the nine months ended September 30, 2020 and 2019, respectively.

The effective tax rate of 9.3% for the nine months ended September 30, 2020 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $61.7 million. For the nine months ended September 30, 2020, these discrete items primarily related to $21.9 million of excess tax benefits recognized on the conversion of equity awards during the period, $20.8 million related to the favorable impact on prior years of final regulations released during the three months ended September 30, 2020 clarifying certain provisions established in the Tax Cuts and Jobs Act that was enacted on December 22, 2017 (“2017 Tax Act”) and $11.5 million related to the tax impact of loss on debt extinguishment recognized during the period on the redemption of the 2024 Senior Notes and 2025 Senior Notes. Also included in the discrete items is a $6.3 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings.

The effective tax rate of 3.5% for the nine months ended September 30, 2019 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $82.7 million. For the nine months ended September 30, 2019, these discrete items primarily related to $66.6 million of excess tax benefits recognized on the conversion during the period of certain multi-year restricted stock units that were subject to the achievement of multi-year total shareholder return targets (performance targets subject to market conditions) granted in 2016 (“2016 multi-year PSUs”) and $10.8 million of excess tax benefits related to the conversion of other equity awards recognized during the period. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings.

During the nine months ended September 30, 2020, a number of countries enacted economic stimulus laws including the CARES Act in the U.S. The Company has evaluated the laws that were passed during the nine months ended September 30, 2020 and does not believe the laws have a material impact on the Company’s effective tax rate or cash flows. A number of the laws, however, have enabled the Company to defer certain eligible tax payments that would have fallen due in earlier quarters.

The Company is under 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 which the Company has significant operations, such as New York. The tax years currently under examination vary by jurisdiction but include years ranging from 2007 through 2019.

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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. As part of the Company’s periodic review of unrecognized tax benefits and based on new information regarding the status of federal and state examinations, the Company’s unrecognized tax benefits were remeasured. Based on the current status of income tax audits, the total amount of unrecognized benefits may decrease by approximately $9.6 million in the next twelve months as a result of the resolution of tax examinations.

11. SEGMENT INFORMATION

ASC Subtopic 280-10, “Segment Reporting,” establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or CODM, in deciding how to allocate resources and assess performance. MSCI’s Chief Executive Officer and its President and Chief Operating Officer, who are together considered to be its CODM, review financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance.

The 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 the impact related to the vesting of the 2016 Multi-Year PSUs, 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 Company’s computation of segment Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies because all companies do not calculate segment Adjusted EBITDA in the same fashion.

Operating revenues and expenses directly associated with each segment are included in determining its operating results. Other expenses that are not directly attributable to a particular segment are based upon allocation methodologies, including time estimates, revenue, headcount, sales targets, data center consumption and other relevant usage measures. Due to the integrated structure of MSCI’s business, certain costs incurred by one segment may benefit other segments. A segment may use the content and data produced by another segment without incurring an arm’s-length intersegment charge.

The CODM does not review any information regarding total assets on an operating segment basis. Operating segments do not record intersegment revenues, and, accordingly, there is none to be reported. The accounting policies for segment reporting are the same as for MSCI as a whole.

The Company has five operating segments: Index, Analytics, ESG, Real Estate and The Burgiss Group, LLC (“Burgiss”).

The Index operating segment is a provider of primarily equity indexes. The indexes are used in many areas of the investment process, including index-linked product creation (e.g., Exchange Traded Funds (“ETFs”) and futures and options), performance benchmarking, portfolio construction and rebalancing, broker-dealer structured products 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 an analysis of market, credit, liquidity and counterparty risk across all major asset classes, spanning short-, medium- and long-term time horizons. Clients access Analytics content through MSCI’s own 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 operating segment offers products and services that help institutional investors understand how ESG considerations can impact the long-term risk and return of their portfolio and individual security-level investments. In addition, MSCI ESG Research data and ratings are used in the construction of equity and fixed income indexes to help institutional investors more effectively benchmark ESG investment performance, issue index-based investment products, as well as manage, measure and report on ESG mandates.

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The Real Estate operating segment offers research, reporting, market data and benchmarking offerings that provide real estate performance analysis for funds, investors and managers. Real Estate performance and risk analytics range from enterprise-wide to property-specific analysis. The Real Estate operating segment also provides business intelligence 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. See Note 12, “Equity Method Investments,” for further information.

The operating segments of ESG, Real Estate and Burgiss do not individually meet the segment reporting thresholds and have been combined and presented as part of All Other for disclosure purposes. Burgiss is an equity-method investment, therefore, the All Other segment does not include the Company’s proportionate share of operating revenues and Adjusted EBITDA related to Burgiss. The Company’s proportionate share of Burgiss’s equity earnings is not a component of Adjusted EBITDA as it is reported as a component of other (expense) income, net.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(in thousands)
Operating revenues
Index	$	255,691	$	237,427	$	747,855	$	677,750
Analytics		128,337		123,603		381,408		368,719
All Other		41,305		33,221		122,466		104,721
Total	$	425,333	$	394,251	$	1,251,729	$	1,151,190

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(in thousands)
Index Adjusted EBITDA	$	194,720	$	177,680	$	561,563	$	493,806
Analytics Adjusted EBITDA		45,056		37,797		127,540		113,266
All Other Adjusted EBITDA		9,671		5,312		26,271		23,220
Total operating segment profitability		249,447		220,789		715,374		630,292
2016 Multi-Year PSUs grant payroll tax expense		—		—		—		15,389
Amortization of intangible assets		14,333		12,361		42,171		36,167
Depreciation and amortization of property,    equipment and leasehold improvements		7,494		7,209		22,524		22,464
Operating income		227,620		201,219		650,679		556,272
Other expense (income), net		38,577		32,471		159,620		99,487
Provision for income taxes		6,685		31,765		45,453		15,920
Net income	$	182,358	$	136,983	$	445,606	$	440,865

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Revenue by geography is based on the shipping address of the ultimate customer utilizing the product. The following table presents revenue by geographic area for the periods indicated:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2020		2019	2020		2019
	(in thousands)
Operating revenues
Americas:
United States	$	180,206	$	177,154	$	537,071	$	516,568
Other		18,039		15,878		52,686		48,669
Total Americas		198,245		193,032		589,757		565,237
Europe, the Middle East and Africa ("EMEA"):
United Kingdom		65,155		60,856		193,042		174,984
Other		90,539		80,022		268,677		237,745
Total EMEA		155,694		140,878		461,719		412,729
Asia & Australia:
Japan		19,885		18,171		59,002		52,838
Other		51,509		42,170		141,251		120,386
Total Asia & Australia		71,394		60,341		200,253		173,224
Total	$	425,333	$	394,251	$	1,251,729	$	1,151,190

Long-lived assets consist of property, equipment, leasehold improvements, goodwill and intangible assets, 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,
	2020		2019
	(in thousands)
Long-lived assets
Americas:
United States	$	1,754,130	$	1,781,667
Other		5,026		6,398
Total Americas		1,759,156		1,788,065
EMEA:
United Kingdom		77,802		81,338
Other		36,510		36,433
Total EMEA		114,312		117,771
Asia & Australia:
Japan		378		398
Other		8,354		8,829
Total Asia & Australia		8,732		9,227
Total	$	1,882,200	$	1,915,063

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12. EQUITY METHOD INVESTMENT

In January 2020, MSCI entered into a strategic relationship with Burgiss, a global provider of investment decision support tools for private capital. The Company acquired a 40% non-controlling interest for $190.8 million, including capitalized costs, which is accounted for as an equity method investment with the Company’s share of Burgiss’ earnings being recognized in “Other expense (income), net” in the Condensed Consolidated Statements of Income. The Company is applying a policy election to recognize its share of Burgiss’ earnings on a three-month lag. Accordingly, the Company has recognized in its results of operations an immaterial amount in earnings related to its investment in Burgiss in both the three months and nine months ended September 30, 2020. MSCI has also elected to apply the nature of the distribution approach to determine the classification of the distributions it receives from its equity method investee. In the three months ended September 30, 2020, MSCI received an immaterial amount in distributions from its equity method investee.

The Company’s investment substantially exceeds the Company’s share of the underlying equity of Burgiss. A portion of this excess, representing the excess of the fair value of Burgiss’ intangible assets over their book value, is amortized into “Other expense (income), net” over the useful lives of the respective intangible assets.

13. SUBSEQUENT EVENTS

On October 26, 2020, the Board of Directors declared a quarterly cash dividend of $0.78 per share for the three months ending December 31, 2020 (“fourth quarter 2020”). The fourth quarter 2020 dividend is payable on November 30, 2020 to shareholders of record as of the close of trading on November 13, 2020.

Subsequent to the nine months ended September 30, 2020 and through October 23, 2020, the Company repurchased an additional 0.1 million shares of common stock at an average price of $347.26 per share for a total value of $51.0 million.

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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, 2019 (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 services for the global investment community. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, our actionable solutions¹ power better investment decisions by enabling our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios.

Investors all over the world use our tools and services to gain insight and improve transparency throughout their investment processes, including to help define their investment universe, inform and analyze their asset allocation and portfolio construction decisions, measure and manage portfolio performance and risk, conduct performance attribution, implement sustainable and other investment strategies, design and issue ETFs and other index-enabled financial products, and facilitate reporting to stakeholders.  

Our industry-leading, research-enhanced products and services include indexes; portfolio construction and risk management analytics; ESG research and ratings; and real estate benchmarks, return-analytics and market insights. Through our integrated franchise we provide solutions across our products and services to support our clients’ dynamic and complex needs. We are flexible in the delivery of our content and capabilities, much of which can be accessed by our clients through multiple channels and platforms.  

We are focused on staying at the forefront of investment trends to address the evolving needs of our clients in a changing industry. In order to most effectively serve our clients, we are committed to driving an integrated solutions-based approach, achieving service excellence, enhancing our differentiated research and content, and delivering flexible, cutting-edge technology and platforms.      

Our clients comprise a wide spectrum of the global investment industry and include the following key client types:

• Asset owners (pension funds, endowments, foundations, central banks, sovereign wealth funds, family offices and insurance companies)

• Asset managers (institutional funds and accounts, mutual funds, hedge funds, ETFs, insurance products, private banks and real estate investment trusts)

• Financial intermediaries (banks, broker-dealers, exchanges, custodians, trust companies and investment consultants)

• Wealth managers (including an increasing number of “robo-advisors”)

As of September 30, 2020, we served over 7,900 clients in more than 90 countries. To calculate the number of clients, we use the shipping address of the ultimate customer utilizing the product, which counts affiliates, user locations or business units within a single organization as separate clients. If we aggregate all related clients under their respective parent entity, the number of clients would be over 4,300, as of September 30, 2020. As of September 30, 2020, we had offices in more than 30 cities across more than 20 countries to help serve our diverse client base, with 47.1% of our revenues coming from clients in the Americas, 36.9% in EMEA and 16.0% in Asia and Australia.

Our principal business model is generally to license annual, recurring subscriptions for the majority of our Index, Analytics and ESG products and services for a fee due in advance of the service period. We also license annual recurring subscriptions for the majority of our Real Estate products for a fee which is primarily paid in arrears after the product is delivered, with the exception of the Market Information product for which the fees are generally paid in advance. 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. 

¹  The term “solutions” as used throughout this Quarterly Report on Form 10-Q refers to the use of our products or services by our clients to help them achieve their objectives.

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In evaluating our financial performance, we focus on revenue and profit growth, including results accounted for under accounting principles generally accepted in the United States (“GAAP”) as well as non-GAAP measures, for the Company as a whole and by operating segment. In addition, we focus on operating metrics, including Run Rate, subscription sales and Retention Rate, to manage the business. Our business is not highly capital intensive and, as such, we expect to continue to convert a high percentage of our profits into excess cash in the future. Our growth strategy includes: (a) expanding leadership in research-enhanced content, (b) strengthening existing and new client relationships by providing solutions, (c) improving access to our solutions through cutting-edge technology and platforms, (d) expanding value-added service offerings and (e) executing strategic relationships and acquisitions with complementary content and technology companies.

In the discussion that follows, we provide certain variances excluding the impact of foreign currency exchange rate fluctuations. 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 two-thirds of the AUM are 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.

The discussion of our results of operations for the three and nine months ended September 30, 2020 and 2019 are presented below. The results of operations for interim periods may not be indicative of future results.

Results of Operations

The following table presents the results of operations for the periods indicated:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2020			2019					2020			2019			% Change
	(in thousands, except per share data)
Operating revenues	$	425,333		$	394,251		7.9	%	$	1,251,729		$	1,151,190			8.7	%
Operating expenses:
Cost of revenues		70,704			70,486		0.3	%		215,769			224,807			(4.0	%)
Selling and marketing		52,668			52,107		1.1	%		159,834			159,812			0.0	%
Research and development		24,901			24,310		2.4	%		73,997			71,234			3.9	%
General and administrative		27,613			26,559		4.0	%		86,755			80,434			7.9	%
Amortization of intangible assets		14,333			12,361		16.0	%		42,171			36,167			16.6	%
Depreciation and amortization of property,    equipment and leasehold improvements		7,494			7,209		4.0	%		22,524			22,464			0.3	%
Total operating expenses		197,713			193,032		2.4	%		601,050			594,918			1.0	%
Operating income		227,620			201,219		13.1	%		650,679			556,272			17.0	%
Other expense (income), net		38,577			32,471		18.8	%		159,620			99,487			60.4	%
Income before provision for income taxes		189,043			168,748		12.0	%		491,059			456,785			7.5	%
Provision for income taxes		6,685			31,765		(79.0	%)		45,453			15,920			185.5	%
Net income	$	182,358		$	136,983		33.1	%	$	445,606		$	440,865			1.1	%
Earnings per basic common share	$	2.18		$	1.62		34.6	%	$	5.30		$	5.21			1.7	%
Earnings per diluted common share	$	2.16		$	1.60		35.0	%	$	5.26		$	5.15			2.1	%
Operating margin		53.5	%		51.0	%				52.0	%		48.3	%

Operating Revenues

Our revenues are grouped by the following types: recurring subscriptions, asset-based fees and non-recurring. We also group revenues by major product or reportable segment as follows: Index, Analytics and All Other, which includes the ESG and Real Estate product lines.

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

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2020		2019		% Change			2020		2019		% Change
	(in thousands)
Recurring subscriptions	$	313,190	$	288,108		8.7	%	$	927,499	$	859,621		7.9	%
Asset-based fees		100,371		96,013		4.5	%		288,642		265,554		8.7	%
Non-recurring		11,772		10,130		16.2	%		35,588		26,015		36.8	%
Total operating revenues	$	425,333	$	394,251		7.9	%	$	1,251,729	$	1,151,190		8.7	%

Total operating revenues for the three months ended September 30, 2020 increased 7.9% to $425.3 million compared to $394.3 million for the three months ended September 30, 2019. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 7.5% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

For the nine months ended September 30, 2020, the increase was 8.7%, growing to $1,251.7 million compared to $1,151.2 million for the nine months ended September 30, 2019. The impact of foreign currency exchange rate fluctuations on total operating revenues was negligible.

As a result of the impact of the COVID-19 pandemic, growth in operating revenues from recurring subscriptions may moderate in the near term. In addition, the volatility in the global equity markets may adversely impact AUM levels which in turn may impact future operating revenues from asset-based fees.

Operating revenues from recurring subscriptions for the three months ended September 30, 2020 increased 8.7% to $313.2 million compared to $288.1 million for the three months ended September 30, 2019, primarily driven by growth in Index products, which increased $13.0 million, or 9.7%, growth in ESG products, which increased $5.6 million, or 24.8%, and growth in Analytics products, which increased $4.1 million, or 3.4%. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 8.2% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.  

For the nine months ended September 30, 2020, the increase was 7.9%, growing to $927.5 million compared to $859.6 million for the nine months ended September 30, 2019, primarily driven by growth in Index products, which increased $38.4 million, or 9.8%, growth in ESG products, which increased $13.9 million, or 21.4%, and growth in Analytics products, which increased $12.6 million, or 3.5%. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.

Operating revenues from asset-based fees for the three months ended September 30, 2020 increased 4.5% to $100.4 million compared to $96.0 million for the three months ended September 30, 2019. The increase in asset-based fees was primarily driven by an increase in revenues from ETFs linked to MSCI indexes and non-ETF indexed funds linked to MSCI indexes. The increase in revenues from ETFs linked to MSCI indexes was driven by a 10.2% increase in average AUM in equity ETFs, partially offset by the impact of a change in product mix. Revenue growth from non-ETF indexed funds linked to MSCI indexes was primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.

For the nine months ended September 30, 2020, revenues from asset-based fees increased 8.7% to $288.6 million compared to $265.6 million for the nine months ended September 30, 2019. The increase in asset-based fees was primarily driven by a strong increase in revenues from exchange traded futures and options contracts linked to MSCI indexes, primarily driven by price and volume increases. The increase was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.

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The following table presents the value of AUM in equity ETFs linked to MSCI indexes and the sequential change of such assets as of the end of each of the periods indicated:

	Period Ended
	2019									2020
(in billions)	March 31,		June 30,		September 30,			December 31,		March 31,			June 30,			September 30,
AUM in equity ETFs linked to MSCI indexes(1), (2), (3)	$	802.2	$	819.3	$	815.0		$	934.4	$	709.5		$	825.4		$	908.9
Sequential Change in Value
Market Appreciation/(Depreciation)	$	78.3	$	14.9	$	(9.2	)	$	63.5	$	(216.5	)	$	117.4		$	57.0
Cash Inflows		28.3		2.2		4.9			55.9		(8.4	)		(1.5	)		26.5
Total Change	$	106.6	$	17.1	$	(4.3	)	$	119.4	$	(224.9	)	$	115.9		$	83.5

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

	2019								2020
(in billions)	March		June		September		December		March		June		September
AUM in equity ETFs linked to MSCI indexes(1), (2), (3)
Quarterly average	$	766.0	$	811.4	$	810.9	$	869.1	$	877.1	$	776.9	$	893.4
Year-to-date average	$	766.0	$	788.7	$	796.1	$	814.4	$	877.1	$	827.0	$	849.1

⁽¹⁾ The historical values of the AUM in equity ETFs linked to our indexes as of the last day of the month and the monthly average balance can be found under the link “AUM in equity ETFs Linked to MSCI Indexes” on our Investor Relations homepage at http://ir.msci.com. This information is updated mid-month each month. Information contained on our website is not incorporated by reference into this Quarterly Report on Form 10-Q or any other report filed with the SEC. The AUM in equity ETFs also includes AUM in Exchange Traded Notes, the value of which is less than 1.0% of the AUM amounts presented.

⁽²⁾ The values for periods prior to April 26, 2019 were based on data from Bloomberg and MSCI, while the values for periods on or after April 26, 2019 were based on data from Refinitiv and MSCI. De minimis amounts of data are reported on a delayed basis.

⁽³⁾ The value of AUM in equity ETFs linked to MSCI indexes is calculated by multiplying the equity ETF net asset value by the number of shares outstanding.

The average value of AUM in equity ETFs linked to MSCI equity indexes for the three months ended September 30, 2020 was $893.4 billion, up $82.5 billion, or 10.2%, from $810.9 billion for the three months ended September 30, 2019. For the nine months ended September 30, 2020, it was $849.1 billion, up $53.0 billion, or 6.7%, from $796.1 billion for the nine months ended September 30, 2019.

Non-recurring revenues for the three months ended September 30, 2020 increased 16.2% to $11.8 million compared to $10.1 million for the three months ended September 30, 2019, primarily driven by growth in Index products, which increased $0.9 million, or 11.5%.

For the nine months ended September 30, 2020, the increase was 36.8%, growing to $35.6 million compared to $26.0 million for the nine months ended September 30, 2019, primarily driven by growth in Index products, which increased $8.6 million, or 45.4%.

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

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2020		2019		% Change			2020		2019		% Change
	(in thousands)
Operating revenues:
Index
Recurring subscriptions	$	146,387	$	133,403		9.7	%	$	431,631	$	393,222		9.8	%
Asset-based fees		100,371		96,013		4.5	%		288,642		265,554		8.7	%
Non-recurring		8,933		8,011		11.5	%		27,582		18,974		45.4	%
Index total		255,691		237,427		7.7	%		747,855		677,750		10.3	%
Analytics
Recurring subscriptions		126,251		122,120		3.4	%		376,505		363,929		3.5	%
Non-recurring		2,086		1,483		40.7	%		4,903		4,790		2.4	%
Analytics total		128,337		123,603		3.8	%		381,408		368,719		3.4	%
All Other
Recurring subscriptions		40,552		32,585		24.4	%		119,363		102,470		16.5	%
Non-recurring		753		636		18.4	%		3,103		2,251		37.8	%
All Other total		41,305		33,221		24.3	%		122,466		104,721		16.9	%
Total operating revenues	$	425,333	$	394,251		7.9	%	$	1,251,729	$	1,151,190		8.7	%

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.

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

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2020		2019		% Change			2020		2019		% Change
	(in thousands)
Operating expenses:
Cost of revenues	$	70,704	$	70,486		0.3	%	$	215,769	$	224,807		(4.0	%)
Selling and marketing		52,668		52,107		1.1	%		159,834		159,812		0.0	%
Research and development		24,901		24,310		2.4	%		73,997		71,234		3.9	%
General and administrative		27,613		26,559		4.0	%		86,755		80,434		7.9	%
Amortization of intangible assets		14,333		12,361		16.0	%		42,171		36,167		16.6	%
Depreciation and amortization of property,    equipment and leasehold improvements		7,494		7,209		4.0	%		22,524		22,464		0.3	%
Total operating expenses	$	197,713	$	193,032		2.4	%	$	601,050	$	594,918		1.0	%

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Total operating expenses for the three months ended September 30, 2020 increased 2.4% to $197.7 million compared to $193.0 million for the three months ended September 30, 2019. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 2.2% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

For the nine months ended September 30, 2020, the increase was 1.0%, growing to $601.1 million compared to $594.9 million for the nine months ended September 30, 2019. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 2.0% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

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, 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 for the three months ended September 30, 2020 was relatively flat at $70.7 million compared to $70.5 million for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, the decrease was 4.0% to $215.8 million compared to $224.8 million for the nine months ended September 30, 2019, reflecting decreases across the Analytics and Index reportable segments, partially offset by an increase in the All Other reportable segment. The change was driven by the absence of $7.0 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019, and decreases in other compensation and benefits costs, primarily relating to lower incentive compensation, as well as lower non-compensation costs, reflecting lower travel and entertainment costs, partially offset by higher information technology 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 groups associated with acquiring new business, including product management, research, technology and sales operations.

Selling and marketing expenses for the three months ended September 30, 2020 increased 1.1% to $52.7 million compared to $52.1 million for the three months ended September 30, 2019, driven by higher costs in the All Other reportable segment, partially offset by lower costs in the Index and Analytics reportable segments. The change was driven by increases in compensation and benefits costs, including wages and salaries and severance costs, partially offset by decreases in non-compensation costs, primarily relating to lower travel and entertainment costs.

For the nine months ended September 30, 2020, it was flat at $159.8 million compared to the nine months ended September 30, 2019, with higher costs in the All Other and Analytics reportable segments, offset by lower costs in the Index reportable segment. The higher costs reflect increases in compensation and benefits costs, primarily relating to higher wages and salaries and benefits costs, offset by the absence of $4.5 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019 and lower non-compensation costs, including travel and entertainment costs and marketing costs.

Research and Development

R&D expenses consist of the costs to develop new or enhance existing products and the costs to develop new or improved technology 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 associated with these efforts.

R&D expenses for the three months ended September 30, 2020 increased 2.4% to $24.9 million compared to $24.3 million for the three months ended September 30, 2019, reflecting higher investments in the Index and All Other reportable segments, partially offset by lower investment in the Analytics reportable segment. The change was driven by increases in compensation and benefits costs, including wages and salaries and severance costs, partially offset by decreases in non-compensation costs, primarily relating to lower travel and entertainment costs.

For the nine months ended September 30, 2020, the increase was 3.9%, growing to $74.0 million compared to $71.2 million for the nine months ended September 30, 2019, reflecting higher investments in the All Other and Index reportable segments, partially offset by lower investment in the Analytics reportable segment. The change was driven by increases in compensation and benefits costs, including wages and salaries and severance costs.

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General and Administrative

G&A expenses consist of costs primarily related to finance operations, human resources, office of the CEO, legal, corporate technology, corporate development and certain other administrative costs that are not directly attributed, but are instead allocated, to a product or service.

G&A expenses for the three months ended September 30, 2020 increased 4.0% to $27.6 million compared to $26.6 million for the three months ended September 30, 2019, reflecting increases across all three reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher severance costs, partially offset by decreases in non-compensation costs.

For the nine months ended September 30, 2020, the increase was 7.9%, growing to $86.8 million compared to $80.4 million for the nine months ended September 30, 2019, reflecting increases across all three reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation, wages and salaries and severance costs, partially offset by the absence of $3.5 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019 and lower non-compensation costs.

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

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2020		2019		% Change			2020		2019		% Change
	(in thousands)
Compensation and benefits	$	129,920	$	122,009		6.5	%	$	395,985	$	388,496		1.9	%
Non-compensation expenses		45,966		51,453		(10.7	%)		140,370		147,791		(5.0	%)
Amortization of intangible assets		14,333		12,361		16.0	%		42,171		36,167		16.6	%
Depreciation and amortization of property,    equipment and leasehold improvements		7,494		7,209		4.0	%		22,524		22,464		0.3	%
Total operating expenses	$	197,713	$	193,032		2.4	%	$	601,050	$	594,918		1.0	%

Compensation and Benefits

Compensation and benefits costs are our most significant expense and typically represent approximately 65% of operating expenses or more than 70% of Adjusted EBITDA expenses. We had 3,545 and 3,358 employees as of September 30, 2020 and 2019, respectively, reflecting a 5.6% growth in the number of employees. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefit expenses. As of September 30, 2020, 64.2% of our employees were located in emerging market centers compared to 63.3% as of September 30, 2019.

Compensation and benefits costs for the three months ended September 30, 2020 increased 6.5% to $129.9 million compared to $122.0 million for the three months ended September 30, 2019, driven by higher severance costs, wages and salaries and benefits costs, partially offset by lower incentive compensation costs.

For the nine months ended September 30, 2020, the increase was 1.9%, growing to $396.0 million compared to $388.5 million for the nine months ended September 30, 2019, primarily driven by higher wages and salaries, benefits costs and severance costs, partially offset by the absence of $15.4 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019.

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 as a result of the impact of the COVID-19 pandemic, incentive compensation is expected to decrease accordingly.

Non-Compensation Expenses

Non-compensation expenses for the three months ended September 30, 2020 decreased 10.7% to $46.0 million compared to $51.5 million for the three months ended September 30, 2019, primarily driven by lower travel and entertainment costs and professional fees.

For the nine months ended September 30, 2020, the decrease was 5.0%, declining to $140.4 million compared to $147.8 million for the nine months ended September 30, 2019, primarily driven by lower travel and entertainment and marketing costs, partially offset by higher information technology costs.

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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 as a result of the COVID-19 pandemic.

Amortization of Intangible Assets

Amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and internal capitalized software projects recognized over their estimated useful lives. Amortization of intangible assets expense for the three months ended September 30, 2020 increased 16.0% to $14.3 million compared to $12.4 million for the three months ended September 30, 2019, primarily driven by higher amortization of internally developed capitalized software.

For the nine months ended September 30, 2020, it increased 16.6% to $42.2 million compared to $36.2 million for the nine months ended September 30, 2019, primarily driven by higher amortization of internally developed capitalized 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 furniture and fixtures, computer and related equipment and leasehold improvements over the estimated useful life of the assets. Depreciation and amortization of property, equipment and leasehold improvements for the three months ended September 30, 2020 increased 4.0% to $7.5 million compared to $7.2 million for the three months ended September 30, 2019. The increase was primarily the result of higher depreciation on computer and related equipment and furniture.

For the nine months ended September 30, 2020, it remained consistent at $22.5 million compared to the nine months ended September 30, 2019.

Other Expense (Income), Net

Other expense (income), net for the three months ended September 30, 2020 increased 18.8% to $38.6 million compared to $32.5 million for the three months ended September 30, 2019. The increase in net expenses was primarily driven by lower interest income due to lower rates earned on cash balances and higher interest expense associated with the higher outstanding debt during the three months ended September 30, 2020.

For the nine months ended September 30, 2020, it increased 60.4% to $159.6 million compared to $99.5 million for the nine months ended September 30, 2019. The increase in net expenses was primarily driven by the $35.0 million and $10.0 million loss on debt extinguishment associated with the redemption of all of the outstanding $800.0 million aggregate principal amount of the 2025 Senior Notes (“2025 Senior Notes Redemption”) and the redemption of all of the remaining $300.0 million of the 5.250% Senior Notes due 2024 (“2024 Senior Notes Redemption”), respectively. The loss on debt extinguishment associated with the 2025 Senior Notes included an applicable premium of approximately $29.5 million (as defined in the indenture governing the terms of the 2025 Senior Notes) and the write-off of approximately $5.5 million of unamortized debt issuance costs. The loss on debt extinguishment associated with the 2024 Senior Notes Redemption included a redemption price of approximately $7.9 million (as set forth in the indenture governing the terms of the 2024 Senior Notes) and the write-off of approximately $2.1 million of unamortized debt issuance costs. In addition, the increase reflects higher interest expense associated with the higher outstanding debt during the nine months ended September 30, 2020 and lower interest income due to lower rates earned on cash balances.    

Income Taxes

The Company’s provision for income taxes for the three months ended September 30, 2020 and 2019 was $6.7 million and $31.8 million, respectively. These amounts reflect effective tax rates of 3.5% and 18.8% for the three months ended September 30, 2020 and 2019, respectively.

For the three months ended September 30, 2020, the effective tax rate of 3.5% reflects the Company’s estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling $27.7 million. These discrete items primarily related to the $20.8 million tax impact from the favorable impact on prior years of final regulations released during the three months ended September 30, 2020 clarifying certain provisions established in the 2017 Tax Act. Also included in the discrete items is a $5.5 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings.  

For the three months ended September 30, 2019, the effective tax rate of 18.8% reflected the Company’s estimate of the effective tax rate for the period which was impacted by $4.1 million of discrete tax benefits related to the resolution of certain prior years’ items. In addition, the effective tax rate was also impacted by a beneficial geographic mix of earnings and lower anticipated taxes on the repatriation of foreign earnings.

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The Company’s provision for income taxes for the nine months ended September 30, 2020 and 2019 was $45.5 million and $15.9 million, respectively. These amounts reflect effective tax rates of 9.3% and 3.5% for the nine months ended September 30, 2020 and 2019, respectively.

For the nine months ended September 30, 2020, the effective tax rate of 9.3% reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $61.7 million. These discrete items primarily related to $21.9 million of excess tax benefits recognized on the conversion of equity awards during the period, $20.8 million tax impact from the favorable impact on prior years of final regulations released during the three months ended September 30, 2020 clarifying certain provisions established in the 2017 Tax Act and $11.5 million related to the tax impact of loss on debt extinguishment recognized during the period on the 2024 Senior Notes Redemption and 2025 Senior Notes Redemption. Also included in the discrete items is a $6.3 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings.

For the nine months ended September 30, 2019, the effective tax rate of 3.5% reflected the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $82.7 million. These discrete items primarily related to $66.6 million of excess tax benefits recognized on the conversion of the 2016 Multi-Year PSUs and $10.8 million of excess tax benefits related to the conversion of other equity awards recognized during the period. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings.

Net Income

As a result of the factors described above, net income for the three months ended September 30, 2020 increased 33.1% to $182.4 million compared to $137.0 million for the three months ended September 30, 2019 and for the nine months ended September 30, 2020, it increased 1.1% to $445.6 million compared to $440.9 million for the nine months ended September 30, 2019.

Weighted Average Shares

The weighted average shares outstanding used to calculate basic and diluted earnings per share for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 decreased by 1.4% and 1.3%, respectively. The decreases primarily reflect the impact of share repurchases made prior to September 30, 2020 pursuant to the 2019 Repurchase Program and the vesting of the restricted stock units that were included in the dilutive share count in the prior year.

For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, the weighted average shares outstanding remained flat.

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 the impact related to the vesting of the 2016 Multi-Year PSUs.

“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 the impact related to the vesting of the 2016 Multi-Year PSUs.

Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures of the operating performance of the Company because they adjust for significant one-time, unusual or non-recurring items as well as eliminate the accounting effects of certain capital spending and acquisitions that do not directly affect what management considers to be the Company’s ongoing operating performance in the period. All companies do not calculate adjusted EBITDA and adjusted EBITDA expenses in the same way. These measures can differ significantly from company to company depending on, among other things, long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. Accordingly, the Company’s computation of the Adjusted EBITDA and Adjusted EBITDA expenses measures may not be comparable to similarly titled measures computed by other companies.

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The following table presents the calculation of Adjusted EBITDA for the periods indicated:

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2020			2019			% Change			2020			2019			% Change
	(in thousands)
Operating revenues	$	425,333		$	394,251			7.9	%	$	1,251,729		$	1,151,190			8.7	%
Adjusted EBITDA expenses		175,886			173,462			1.4	%		536,355			520,898			3.0	%
Adjusted EBITDA	$	249,447		$	220,789			13.0	%	$	715,374		$	630,292			13.5	%
Adjusted EBITDA margin %		58.6	%		56.0	%					57.2	%		54.8	%
Operating margin %		53.5	%		51.0	%					52.0	%		48.3	%

Adjusted EBITDA for the three months ended September 30, 2020 increased 13.0% to $249.4 million compared to $220.8 million for the three months ended September 30, 2019. Adjusted EBITDA margin for the three months ended September 30, 2020 increased to 58.6% compared to 56.0% for the three months ended September 30, 2019. The increase in Adjusted EBITDA margin reflects a higher rate of growth in operating revenues as compared to the rate of growth of Adjusted EBITDA expenses.

For the nine months ended September 30, 2020, Adjusted EBITDA increased 13.5% to $715.4 million compared to $630.3 million for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, Adjusted EBITDA margin increased to 57.2% compared to 54.8% for the nine months ended September 30, 2019. The increase in Adjusted EBITDA margin reflects a higher rate of growth in operating revenues as compared to the rate of growth of Adjusted EBITDA expenses.

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

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(in thousands)
Index Adjusted EBITDA	$	194,720	$	177,680	$	561,563	$	493,806
Analytics Adjusted EBITDA		45,056		37,797		127,540		113,266
All Other Adjusted EBITDA		9,671		5,312		26,271		23,220
Consolidated Adjusted EBITDA		249,447		220,789		715,374		630,292
2016 Multi-Year PSUs grant payroll tax expense		—		—		—		15,389
Amortization of intangible assets		14,333		12,361		42,171		36,167
Depreciation and amortization of property,    equipment and leasehold improvements		7,494		7,209		22,524		22,464
Operating income		227,620		201,219		650,679		556,272
Other expense (income), net		38,577		32,471		159,620		99,487
Provision for income taxes		6,685		31,765		45,453		15,920
Net income	$	182,358	$	136,983	$	445,606	$	440,865

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(in thousands)
Index Adjusted EBITDA expenses	$	60,971	$	59,747	$	186,292	$	183,944
Analytics Adjusted EBITDA expenses		83,281		85,806		253,868		255,453
All Other Adjusted EBITDA expenses		31,634		27,909		96,195		81,501
Consolidated Adjusted EBITDA expenses		175,886		173,462		536,355		520,898
2016 Multi-Year PSUs grant payroll tax expense		—		—		—		15,389
Amortization of intangible assets		14,333		12,361		42,171		36,167
Depreciation and amortization of property,    equipment and leasehold improvements		7,494		7,209		22,524		22,464
Total operating expenses	$	197,713	$	193,032	$	601,050	$	594,918

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The discussion of the segment results is presented below.

Segment Results

Index Segment

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

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2020			2019			% Change			2020			2019			% Change
	(in thousands)
Operating revenues:
Recurring subscriptions	$	146,387		$	133,403			9.7	%	$	431,631		$	393,222			9.8	%
Asset-based fees		100,371			96,013			4.5	%		288,642			265,554			8.7	%
Non-recurring		8,933			8,011			11.5	%		27,582			18,974			45.4	%
Operating revenues total		255,691			237,427			7.7	%		747,855			677,750			10.3	%
Adjusted EBITDA expenses		60,971			59,747			2.0	%		186,292			183,944			1.3	%
Adjusted EBITDA	$	194,720		$	177,680			9.6	%	$	561,563		$	493,806			13.7	%
Adjusted EBITDA margin %		76.2	%		74.8	%					75.1	%		72.9	%

Revenues related to Index products for the three months ended September 30, 2020 increased 7.7% to $255.7 million compared to $237.4 million for the three months ended September 30, 2019 and for the nine months ended September 30, 2020, the increase was 10.3%, growing to $747.9 million compared to $677.8 million for the nine months ended September 30, 2019.

Recurring subscriptions for the three months ended September 30, 2020 increased 9.7% to $146.4 million compared to $133.4 million for the three months ended September 30, 2019. The increase was primarily driven by growth in core products, strong growth in factor and ESG/Climate index products and growth in custom index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.

For the nine months ended September 30, 2020, the increase was 9.8%, growing to $431.6 million compared to $393.2 million for the nine months ended September 30, 2019. The increase was driven by strong growth in core products, factor and ESG/Climate index products and custom index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.

Revenues from asset-based fees for the three months ended September 30, 2020 increased 4.5% to $100.4 million compared to $96.0 million for the three months ended September 30, 2019. The increase in asset-based fees was primarily driven by an increase in revenues from ETFs linked to MSCI indexes and non-ETF indexed funds linked to MSCI indexes. The increase in revenues from ETFs linked to MSCI indexes was driven by a 10.2% increase in average AUM in equity ETFs, partially offset by the impact of a change in product mix. Revenue growth from non-ETF indexed funds linked to MSCI indexes was primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.

For the nine months ended September 30, 2020, the increase was 8.7%, growing to $288.6 million compared to $265.6 million for the nine months ended September 30, 2019. The increase in asset-based fees was primarily driven by a strong increase in revenues from exchange traded futures and options contracts linked to MSCI indexes, primarily driven by higher volumes from new and existing agreements. The increase was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.

Non-recurring revenues for the three months ended September 30, 2020 increased 11.5% to $8.9 million compared to $8.0 million for the three months ended September 30, 2019. The increase was driven by higher contributions from licenses of historical data.

For the nine months ended September 30, 2020 the increase was 45.4%, growing to $27.6 million compared to $19.0 million for the nine months ended September 30, 2019. The increase was primarily driven by the recognition of higher fees resulting from the finalization of fees with clients.

Index segment Adjusted EBITDA expenses for the three months ended September 30, 2020 increased 2.0% to $61.0 million compared to $59.7 million for the three months ended September 30, 2019, reflecting higher expenses across the cost of revenues, R&D and G&A expense activity categories, partially offset by lower expenses across the selling and marketing expense activity

35

category. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 1.8% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

For the nine months ended September 30, 2020, the increase was 1.3%, growing to $186.3 million compared to $183.9 million for the nine months ended September 30, 2019, reflecting higher expenses across the G&A, R&D and cost of revenues expense activity categories, partially offset by lower expenses across the selling and marketing expense activity category. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 2.2% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Analytics Segment

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

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2020			2019			% Change			2020			2019			% Change
	(in thousands)
Operating revenues:
Recurring subscriptions	$	126,251		$	122,120			3.4	%	$	376,505		$	363,929			3.5	%
Non-recurring		2,086			1,483			40.7	%		4,903			4,790			2.4	%
Operating revenues total		128,337			123,603			3.8	%		381,408			368,719			3.4	%
Adjusted EBITDA expenses		83,281			85,806			(2.9	%)		253,868			255,453			(0.6	%)
Adjusted EBITDA	$	45,056		$	37,797			19.2	%	$	127,540		$	113,266			12.6	%
Adjusted EBITDA margin %		35.1	%		30.6	%					33.4	%		30.7	%

Analytics segment revenues for the three months ended September 30, 2020 increased 3.8% to $128.3 million compared to $123.6 million for the three months ended September 30, 2019, primarily driven by growth in Multi-Asset Class Analytics products. The impact of foreign currency exchange rate fluctuations on Analytics segment revenues was negligible.

For the nine months ended September 30, 2020, the increase was 3.4%, growing to $381.4 million compared to $368.7 million for the nine months ended September 30, 2019, primarily driven by growth in Multi-Asset Class Analytics products. The impact of foreign currency exchange rate fluctuations on Analytics segment revenues was negligible.

Analytics segment Adjusted EBITDA expenses for the three months ended September 30, 2020 decreased 2.9% to $83.3 million compared to $85.8 million for the three months ended September 30, 2019, primarily driven by lower expenses across the cost of revenues, R&D and selling and marketing expense activity categories, partially offset by higher expenses across the G&A expense activity category. The impact of foreign currency exchange rate fluctuations on Analytics segment Adjusted EBITDA expenses was negligible.

For the nine months ended September 30, 2020, the decrease was 0.6%, declining to $253.9 million compared to $255.5 million for the nine months ended September 30, 2019, primarily driven by lower expenses across the cost of revenues and R&D expense activity categories, partially offset by higher expenses across the selling and marketing and G&A expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have increased 0.5% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

All Other Segment

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

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2020			2019			% Change			2020			2019			% Change
	(in thousands)
Operating revenues:
Recurring subscriptions	$	40,552		$	32,585			24.4	%	$	119,363		$	102,470			16.5	%
Non-recurring		753			636			18.4	%		3,103			2,251			37.8	%
Operating revenues total		41,305			33,221			24.3	%		122,466			104,721			16.9	%
Adjusted EBITDA expenses		31,634			27,909			13.3	%		96,195			81,501			18.0	%
Adjusted EBITDA	$	9,671		$	5,312			82.1	%	$	26,271		$	23,220			13.1	%
Adjusted EBITDA margin %		23.4	%		16.0	%					21.5	%		22.2	%

All Other segment revenues for the three months ended September 30, 2020 increased 24.3% to $41.3 million compared to $33.2 million for the three months ended September 30, 2019. The increase in All Other revenues was driven by a $5.8 million, or

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25.6%, increase in ESG revenues to $28.5 million and a $2.3 million, or 21.6%, increase in Real Estate revenues to $12.8 million. The increase in ESG revenues was primarily driven by strong growth from Ratings, Climate and Screening products. The increase in Real Estate revenues was primarily driven by strong growth in Enterprise Analytics and Global Intel products. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other operating revenues would have increased 20.6%, ESG revenues would have increased 22.3% and Real Estate revenues would have increased 16.7% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.  

For the nine months ended September 30, 2020, All Other segment revenues increased 16.9% to $122.5 million compared to $104.7 million for the nine months ended September 30, 2019. The increase in All Other revenues was driven by a $14.3 million, or 21.9%, increase in ESG revenues to $80.1 million and by a $3.4 million, or 8.7%, increase in Real Estate revenues to $42.4 million. The increase in ESG revenues was primarily driven by strong growth in Ratings, Climate and Screening products. The increase in Real Estate revenues was primarily driven by strong growth from our Global Intel products and growth from our Enterprise Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other operating revenues would have increased 17.3%, ESG revenues would have increased 21.8% and Real Estate revenues would have increased 9.5% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

All Other segment Adjusted EBITDA expenses for the three months ended September 30, 2020 increased 13.3% to $31.6 million compared to $27.9 million for the three months ended September 30, 2019, driven by higher expenses attributable primarily to ESG operations. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 12.4% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

For the nine months ended September 30, 2020, the increase was 18.0%, growing to $96.2 million compared to $81.5 million for the nine months ended September 30, 2019, driven by higher expenses attributable primarily to ESG operations. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 19.0% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

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 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 or non-renewal 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;

• fluctuations in asset-based fees, which may result from changes in certain investment products’ total expense ratios, market movements, including foreign currency exchange rates, or from investment inflows into and outflows from investment products linked to our indexes;

• fluctuations in fees based on trading volumes of futures and options contracts linked to our indexes;

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

• price changes or discounts;

• revenue recognition differences under U.S. GAAP, including those related to the timing of implementation and report deliveries for certain of our products and services;

• fluctuations in foreign currency exchange rates; and

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• the impact of acquisitions and divestitures.

The following table presents the Run Rates as of the dates indicated and the growth percentages over the periods indicated:

	As of
	September 30,		September 30,		%
		2020		2019	Change
	(in thousands)
Index:
Recurring subscriptions	$	598,799	$	544,059		10.1	%
Asset-based fees		401,196		356,013		12.7	%
Index total		999,995		900,072		11.1	%
Analytics		544,315		509,261		6.9	%
All Other		175,243		141,283		24.0	%
Total Run Rate	$	1,719,553	$	1,550,616		10.9	%
Recurring subscriptions total	$	1,318,357	$	1,194,603		10.4	%
Asset-based fees		401,196		356,013		12.7	%
Total Run Rate	$	1,719,553	$	1,550,616		10.9	%

Total Run Rate grew 10.9% to $1,719.6 million as of September 30, 2020 compared to $1,550.6 million as of September 30, 2019. Recurring subscriptions Run Rate grew 10.4% to $1,318.4 million as of September 30, 2020 compared to $1,194.6 million as of September 30, 2019. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptions Run Rate would have increased 9.6% as of September 30, 2020 compared to September 30, 2019.

Run Rate from asset-based fees increased 12.7% to $401.2 million as of September 30, 2020 from $356.0 million as of September 30, 2019, primarily driven by higher volume in futures and options, higher AUM in equity ETFs linked to MSCI indexes and higher AUM non-ETF indexed funds linked to MSCI indexes. Offsetting the impact of the increase in AUM in equity ETFs linked to MSCI indexes was a change in product mix, which was the primary driver of a decline in period-end basis point fees to 2.67 as of September 30, 2020 from 2.81 as of September 30, 2019. As of September 30, 2020, the value of AUM in equity ETFs linked to MSCI indexes was $908.9 billion, up $93.9 billion, or 11.5%, from $815.0 billion as of September 30, 2019. The increase of $93.9 billion consisted of net inflows of $72.5 billion and market appreciation of $21.4 billion.

Index recurring subscriptions Run Rate grew 10.1% to $598.8 million as of September 30, 2020 compared to $544.1 million as of September 30, 2019, primarily driven by strong growth in core products, custom and specialized index products and factor and ESG/Climate index products, with growth across all our regions and client segments.

Run Rate from Analytics products increased 6.9% to $544.3 million as of September 30, 2020 compared to $509.3 million as of September 30, 2019, primarily driven by growth in Multi-Asset Class Analytics products with increases across all regions. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics Run Rate would have increased 5.9% as of September 30, 2020.

Run Rate from All Other products increased 24.0% to $175.2 million as of September 30, 2020 compared to $141.3 million as of September 30, 2019. The $34.0 million increase was driven by a $29.1 million, or 31.2%, increase in ESG Run Rate to $122.3 million, and a $4.9 million, or 10.2%, increase in Real Estate Run Rate to $52.9 million. The increase in ESG Run Rate was primarily driven by strong growth in Ratings and Climate products. The increase in Real Estate Run Rate was primarily driven by growth in Global Intel and Enterprise Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG Run Rate would have increased 28.6%, All Other Run Rate would have increased 21.1% and Real Estate Run Rate would have increased 6.5% as of September 30, 2020 compared to September 30, 2019.

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.  

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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									Nine Months Ended
	September 30,			September 30,			%			September 30,			September 30,			%
	2020			2019			Change			2020			2019			Change
	(in thousands)
New recurring subscription sales
Index	$	18,743		$	17,553			6.8	%	$	58,073		$	54,408			6.7	%
Analytics		15,229			15,285			(0.4	%)		41,426			41,705			(0.7	%)
All Other		9,344			7,495			24.7	%		29,861			22,724			31.4	%
New recurring subscription sales total		43,316			40,333			7.4	%		129,360			118,837			8.9	%
Subscription cancellations
Index		(7,050	)		(5,066	)		39.2	%		(19,589	)		(13,033	)		50.3	%
Analytics		(8,211	)		(7,854	)		4.5	%		(27,008	)		(22,720	)		18.9	%
All Other		(1,871	)		(1,002	)		86.7	%		(6,167	)		(4,179	)		47.6	%
Subscription cancellations total		(17,132	)		(13,922	)		23.1	%		(52,764	)		(39,932	)		32.1	%
Net new recurring subscription sales
Index		11,693			12,487			(6.4	%)		38,484			41,375			(7.0	%)
Analytics		7,018			7,431			(5.6	%)		14,418			18,985			(24.1	%)
All Other		7,473			6,493			15.1	%		23,694			18,545			27.8	%
Net new recurring subscription sales total		26,184			26,411			(0.9	%)		76,596			78,905			(2.9	%)
Non-recurring sales
Index		10,001			9,029			10.8	%		30,734			20,092			53.0	%
Analytics		2,562			4,876			(47.5	%)		7,486			10,084			(25.8	%)
All Other		247			487			(49.3	%)		1,852			1,571			17.9	%
Non-recurring sales total		12,810			14,392			(11.0	%)		40,072			31,747			26.2	%
Gross sales
Index	$	28,744		$	26,582			8.1	%	$	88,807		$	74,500			19.2	%
Analytics		17,791			20,161			(11.8	%)		48,912			51,789			(5.6	%)
All Other		9,591			7,982			20.2	%		31,713			24,295			30.5	%
Total gross sales	$	56,126		$	54,725			2.6	%	$	169,432		$	150,584			12.5	%
Net sales
Index	$	21,694		$	21,516			0.8	%	$	69,218		$	61,467			12.6	%
Analytics		9,580			12,307			(22.2	%)		21,904			29,069			(24.6	%)
All Other		7,720			6,980			10.6	%		25,546			20,116			27.0	%
Total net sales	$	38,994		$	40,803			(4.4	%)	$	116,668		$	110,652			5.4	%

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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. As of September 30, 2020, cancellations have not deviated significantly from historical levels as a result of the COVID-19 pandemic. However, new sales could moderate and cancellations could increase in the near term as a result of the COVID-19 pandemic.

Retention Rate

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2020		2019		2020		2019
Index	95.0%		96.0%		95.3%		96.5%
Analytics	93.8%		93.6%		93.2%		93.8%
All Other	95.1%		96.8%		94.6%		95.5%
Total	94.5%		95.0%		94.3%		95.2%

Retention Rate is an important metric because subscription cancellations decrease our Run Rate and ultimately our 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 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 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 Estate 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-sale 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.

In our product lines, 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 and also in Note 2, “Recent Accounting Standards Updates,” in the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein. There have been no significant changes in our accounting policies or critical accounting estimates since the end of the fiscal year ended December 31, 2019 other than those described in Note 2, “Recent Accounting Standards Updates” in the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein.

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 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.

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Senior Notes and Credit Agreement

We have an aggregate of $3,400.0 million in Senior Notes outstanding and a $400.0 million undrawn Revolving Credit Agreement with a syndicate of banks. See Note 7, “Commitments and Contingencies,” of the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein for additional information on our Senior Notes and Revolving Credit Agreement.

The Senior Notes and the Revolving Credit Agreement are fully and unconditionally, and jointly and severally, guaranteed by our direct or indirect wholly owned domestic subsidiaries that account for more than 5% of our and our subsidiaries’ consolidated assets, other than certain excluded subsidiaries (the “subsidiary guarantors”). Amounts due under the Revolving Credit Agreement are our and the subsidiary guarantors’ senior unsecured obligations and rank equally with the Senior Notes and any of our other unsecured, unsubordinated debt, senior to any of our subordinated debt and effectively subordinated to our secured debt to the extent of the assets securing such debt.

The indentures governing our Senior Notes (the “Indentures”) among us, each of the subsidiary guarantors, and Wells Fargo Bank, National Association, as trustee, contain covenants that limit our and certain of our subsidiaries’ ability to, among other things, incur liens, enter into sale/leaseback transactions and consolidate, merge or sell all or substantially all of our assets. In addition, the Indentures restrict our non-guarantor subsidiaries’ ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiaries guaranteeing the Senior Notes on a pari passu basis.

The Revolving Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and the ability of our existing or future subsidiaries to:

• incur liens and further negative pledges;

• incur additional indebtedness or prepay, redeem or repurchase indebtedness;

• make loans or hold investments;

• merge, dissolve, liquidate, consolidate with or into another person;

• enter into acquisition transactions;

• enter into sale/leaseback transactions;

• issue disqualified capital stock;

• sell, transfer or dispose of assets;

• pay dividends or make other distributions in respect of our capital stock or engage in stock repurchases, redemptions and other restricted payments;

• create new subsidiaries;

• permit certain restrictions affecting our subsidiaries;

• change the nature of our business, accounting policies or fiscal periods;

• enter into any transactions with affiliates other than on an arm’s-length basis; and

• amend our organizational documents or amend, modify or change the terms of certain agreements relating to our indebtedness.

The Revolving 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, bankruptcy and insolvency events, invalidity or impairment of loan documentation or collateral, change of control and customary ERISA defaults. None of the restrictions above are expected to impact our ability to effectively operate the business.

The Revolving 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 Revolving Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall not exceed 4.25:1.00 and (2) the minimum Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall be at least 4.00:1.00. As of September 30, 2020, our Consolidated Leverage Ratio was 3.31:1.00 and our Consolidated Interest Coverage Ratio was 6.81:1.00. As of September 30, 2020, there were no amounts drawn and outstanding under the Revolving Credit Agreement.

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Our non-guarantor subsidiaries under the Senior Notes consist of: (i) domestic subsidiaries of the Company that account for 5% or less of consolidated assets of the Company and its subsidiaries and (ii) any foreign or domestic subsidiary of the Company that is deemed to be a controlled foreign corporation within the meaning of Section 957 of the Internal Revenue Code of 1986, as amended. Our non-guarantor subsidiaries accounted for approximately $956.6 million, or 57.7%, of our total revenue for the trailing 12 months ended September 30, 2020, approximately $341.0 million, or 40.1%, of our consolidated operating income for the trailing 12 months ended September 30, 2020, and approximately $947.0 million, or 23.0%, of our consolidated total assets (excluding intercompany assets) and $605.0 million, or 13.5%, of our consolidated total liabilities, in each case as of September 30, 2020.

Share Repurchases

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

Nine Months Ended	Average Price Paid Per Share		Total Number of Shares Repurchased		Dollar Value of Shares Repurchased
			(in thousands)
September 30, 2020	$	278.69		2,021	$	563,336
September 30, 2019	$	147.97		690	$	102,081

As of September 30, 2020, there was $892.8 million of available authorization remaining under the 2019 Repurchase Program.

Subsequent to the nine months ended September 30, 2020 and through October 23, 2020, the Company repurchased an additional 0.1 million shares of common stock at an average price of $347.26 per share for a total value of $51.0 million.

Cash Dividend

On October 26, 2020, the Board of Directors declared a quarterly cash dividend of $0.78 per share for the three months ending September 30, 2020. The fourth quarter 2020 dividend is payable on November 30, 2020 to shareholders of record as of the close of trading on November 13, 2020.

Cash Flows

	As of
	September 30,		December 31,
		2020		2019
	(in thousands)
Cash and cash equivalents	$	1,302,858	$	1,506,567

Cash and cash equivalents were $1,302.9 million and $1,506.6 million as of September 30, 2020 and December 31, 2019, respectively. We typically seek to maintain minimum cash balances globally of approximately $200.0 million to $250.0 million for general operating purposes but may maintain higher minimum cash balances while the COVID-19 pandemic continues to impact global economic markets. As of September 30, 2020 and December 31, 2019, $411.0 million and $321.2 million, respectively, of the cash and cash equivalents were held by foreign subsidiaries. As a result of the 2017 Tax Act, we can now more efficiently access a significant portion of our cash held outside of the U.S. in the short-term without being subject to U.S. income taxes. Repatriation of some foreign cash may still be subject to certain withholding taxes in local jurisdictions and other distribution restrictions. 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 credit facility and our ability to access the debt and capital markets for additional funds, will continue to be sufficient to fund our global operating activities and cash commitments for investing and financing activities, such as material capital expenditures and share repurchases, for at least the next 12 months and for the foreseeable future thereafter. In addition, we expect that foreign cash flows from operations, together with existing cash and cash equivalents will continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and for the foreseeable future thereafter.

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Net Cash Provided by (Used In) Operating, Investing and Financing Activities

	Nine Months Ended
	September 30,
		2020		2019
	(in thousands)
Net cash provided by operating activities	$	575,181		$	465,880
Net cash used in investing activities		(224,899	)		(35,292	)
Net cash used in financing activities		(549,484	)		(450,315	)
Effect of exchange rate changes		(4,507	)		(3,299	)
Net decrease in cash	$	(203,709	)	$	(23,026	)

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. Cash provided by operating activities was $575.2 million and $465.9 million for the nine months ended September 30, 2020 and 2019, respectively. The year-over-year increase was primarily driven by higher cash collections from customers, partially offset by higher payments for income taxes and higher interest payments. As a result of a provision within the Cares Act, we elected to defer estimated payments for income taxes for the year ending December 31, 2020 that historically would have been paid in the six months ended June 30, 2020 into the month of July 2020.

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

Cash used in investing activities was $224.9 million for the nine months ended September 30, 2020 compared to $35.3 million for the nine months ended September 30, 2019. The year-over-year change was primarily driven by the $190.8 million investment in Burgiss.

Cash Flows From Financing Activities

Cash used in financing activities was $549.5 million for the nine months ended September 30, 2020 compared to $450.3 million for the nine months ended September 30, 2019. The year-over-year change was primarily driven by the early redemptions of the 2025 Senior Notes and 2024 Senior Notes, as well as the impact of higher share repurchases. This was partially offset by the impact of the 2031 Senior Notes and 2030 Senior Notes offerings in May 2020 and February 2020, respectively.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

We are subject to foreign currency exchange fluctuation risk. Exchange rate movements can impact the U.S. dollar-reported value of our revenues, expenses, assets and liabilities denominated in non-U.S. dollar currencies or where the currency of such items is different than the functional currency of the entity where these items were recorded.

We generally invoice our clients in U.S. dollars; however, we invoice a portion of our clients in Euros, British pounds sterling, Japanese yen and a limited number of other non-U.S. dollar currencies. For the nine months ended September 30, 2020 and 2019, 14.0% and 13.6%, respectively, of our revenues are subject to foreign currency exchange rate risk and primarily includes clients billed in foreign currency as well as U.S. dollar exposures on non-U.S. dollar foreign operating entities. Of the 14.0% of non-U.S. dollar exposure for the nine months ended September 30, 2020, 40.4% was in Euros, 27.2% was in Japanese yen and 24.2% was in British pounds sterling. Of the 13.6% of non-U.S. dollar exposure for the nine months ended September 30, 2019, 41.0% was in Euros, 26.4% was in Japanese yen and 23.0% was in British pounds sterling.

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Revenues from index-linked investment products represented 23.1% of operating revenues for both the nine months ended September 30, 2020 and 2019. While a substantial portion of our fees for index-linked investment products are invoiced in U.S. dollars, the fees are based on the investment product’s assets, of which more than three-fifths are invested in securities denominated in currencies other than the U.S. dollar. Accordingly, declines in such other currencies against the U.S. dollar will decrease the fees payable to us under such licenses. In addition, declines in such currencies against the U.S. dollar could impact the attractiveness of such investment products resulting in net fund outflows, which would further reduce the fees payable under such licenses.

We are exposed to additional foreign currency risk in certain of our operating costs. Approximately 40.7% and 40.6% of our operating expenses for the nine months ended September 30, 2020 and 2019, respectively, were denominated in foreign currencies, the significant majority of which were denominated in British pounds sterling, Indian rupees, Hungarian forints, Euros, Hong Kong dollars, Swiss francs, and Mexican pesos. Expenses incurred in foreign currency may increase as we expand our business outside the U.S.

We have certain monetary assets and liabilities denominated in currencies other than local functional amounts and when these balances are remeasured into their local functional currency, either a gain or a loss results from the change of the value of the functional currency as compared to the originating currencies. We manage foreign currency exchange rate risk, in part, through the use of derivative financial instruments comprised principally of forward contracts on foreign currency which are not designated as hedging instruments for accounting purposes. The objective of the derivative instruments is to minimize the impact on the income statement of the volatility of amounts denominated in certain foreign currencies. We recognized total foreign currency exchange losses of $1.0 million and $3.2 million for the nine months ended September 30, 2020 and 2019, respectively.

Item 4. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures, as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as of September 30, 2020, and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item  1. Legal Proceedings

Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company in the ordinary course of business. While the amounts claimed could be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that MSCI’s business, operating results, financial condition or cash flows in a particular period could be materially affected by certain contingencies. However, based on facts currently available, management believes that the disposition of matters that are currently pending or asserted will not, individually or in the aggregate, have a material effect on MSCI’s business, operating results, financial condition or cash flows.

Item  1A. Risk Factors

There have been no material changes to the significant risk factors and uncertainties known to the Company and disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2019 and Form 10-Q for the period ended March 31, 2020 that, if they were to materialize or occur, would, individually or in the aggregate, have a material effect on MSCI’s business, operating results, financial condition or cash flows.

For a discussion of the risk factors affecting the Company, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for fiscal year 2019 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There have been no unregistered sales of equity securities.

The table below presents information with respect to purchases made by or on behalf of the Company of its common shares during the three months ended September 30, 2020.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased(1)		Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
July 1, 2020-July 31, 2020		4,069	$	371.49		—	$	1,099,316,000
August 1, 2020-August 31, 2020		6,635	$	348.20		6,623	$	1,097,011,000
September 1, 2020-September 30, 2020		594,106	$	345.35		591,408	$	892,756,000
Total		604,810	$	345.56		598,031	$	892,756,000

⁽¹⁾ Includes (i) shares purchased by the Company on the open market under the 2019 Repurchase Program; (ii) shares withheld to satisfy tax withholding obligations on behalf of employees that occur upon vesting and delivery of outstanding shares underlying restricted stock units; (iii) shares withheld to satisfy tax withholding obligations and exercise price on behalf of employees that occur upon exercise and delivery of outstanding shares underlying stock options; and (iv) shares held in treasury under the MSCI Inc. Non-Employee Directors Deferral Plan. The value of shares withheld to satisfy tax withholding obligations was determined using the fair market value of the Company’s common stock on the date of withholding, using a valuation methodology established by the Company.

⁽²⁾ See Note 9, “Shareholders’ Equity (Deficit)” of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding our stock repurchase programs.

Item  3. Defaults Upon Senior Securities

None.

Item  4. Mine Safety Disclosures

Not applicable.

Item  5. Other Information

None.

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Item  6. Exhibits 

EXHIBIT INDEX

	Exhibit Number	Description
	3.1	Third Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Form 10-Q (File No. 001-33812), filed with the SEC on May 4, 2012 and incorporated by reference herein)
	3.2	Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Form 10-Q (File No. 001-33812), filed with the SEC on May 4, 2012 and incorporated by reference herein)
	10.1†	Offer Letter, executed September 24, 2020, between MSCI Inc. and Andrew C. Wiechmann (filed as Exhibit 10.1 to the Company’s Form 8-K (File No. 001-33812), filed with the SEC on September 25, 2020 and incorporated by reference herein)
	10.2†	Change of Employment Status and Release Agreement, entered into on October 5, 2020, between MSCI Inc. and Linda S. Huber (filed as Exhibit 10.1 to the Company’s Form 8-K/A (File No. 001-33812), filed with the SEC on October 7, 2020 and incorporated by reference herein)
	11	Statement Re: Computation of Earnings Per Common Share (The calculation of per share earnings is in Part I, Item 1, Note 4 to the Condensed Consolidated Financial Statements (Earnings Per Common Share) and is omitted in accordance with Section (b)(11) of Item 601 of Regulation S-K)
*	31.1	Rule 13a-14(a) Certification of the Chief Executive Officer
*	31.2	Rule 13a-14(a) Certification of the Chief Financial Officer
**	32.1	Section 1350 Certification of the Chief Executive Officer and the Chief Financial Officer
*	101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*	101.SCH	Inline XBRL Taxonomy Extension Schema Document
*	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
*	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
*	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
*	101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
*	104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*	Filed herewith.
**	Furnished herewith.
†	Indicates a management compensation plan, contract or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: October 28, 2020

MSCI INC. (Registrant)
By:	/s/ Andrew C. Wiechmann
	Andrew C. Wiechmann Chief Financial Officer and Chief Strategy Officer (Principal Financial Officer)

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