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MSCI Q3 Earnings Beat Estimates, Recurring Subscriptions Up
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MSCI Inc.’s (MSCI - Free Report) third-quarter 2022 adjusted earnings of $2.85 per share beat the Zacks Consensus Estimate by 3.26% and increased 12.6% from the year-ago quarter.
Following the announcement, shares were down 1.01% in pre-market trading.
Operating revenues improved 8.4% year over year to $560.6 million but lagged the consensus mark by 0.77%.
Recurring subscriptions accounted for 75% of revenues and increased 17.5% year over year to $420.2 million.
Asset-based fees accounted for 22.4% of revenues but declined 11.4% year over year to $125.6 million. Non-recurring revenues accounted for 2.6% of revenues but decreased 16.4% year over year to $14.8 million.
At the end of the reported quarter, average assets under management were $1.295 trillion in ETFs linked to MSCI indexes. The total retention rate was 96.4% in the quarter under review.
Quarter Details
In the third quarter, Index operating revenues improved 0.2% year over year to $322.2 million, driven by higher recurring subscription revenues.
Growth in higher recurring subscription revenues was driven by growth from market-cap-weighted index products and strong growth from factor, ESG and climate index products.
Asset-based fees’ decline was primarily driven by a decrease in revenues from ETFs linked to MSCI equity indexes as a result of declining average AUM and average basis point fees.
Analytics operating revenues improved 6.3% year over year to $144.9 million, driven by higher recurring subscription revenues from both Multi-Asset Class and Equity Analytics products.
ESG and Climate segment’s operating revenues surged 31.8% from the year-ago quarter to $57.6 million, primarily driven by strong growth from recurring subscriptions related to Ratings and Climate products.
Other revenues, which primarily contain the Real Estate operating segment, were $36 million, up 130% year over year.
Adjusted EBITDA increased 11.2% year over year to $341 million in the reported quarter. Adjusted EBITDA margin expanded 150 basis points (bps) on a year-over-year basis to 60.8%.
Total operating expenses increased 6% on a year-over-year basis to $251.1 million. Adjusted EBITDA expenses were $219.7 million, up 4.4%, primarily reflecting higher non-compensation costs related to information technology costs and professional fees.
Operating income improved 10.5% from the year-ago quarter to $309.5 million. Moreover, the operating margin expanded 100 bps on a year-over-year basis to 55.2%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Sep 30, 2022, were $867.1 million compared with $842.3 million as of Jun 30, 2022.
Total debt was $4.51 billion as of Sep 30 compared with $4.6 billion as of Jun 30. The total debt-to-adjusted-EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.4 times, within the management’s target range of 3-3.5 times.
Free cash flow was $305.1 million, up 51.7% year over year.
MSCI bought shares worth $165 million during the reported quarter. Notably, $1.3 billion is outstanding under MSCI’s share-repurchase authorization as of Oct 24, 2022. The company paid out dividends worth $100.7 million in the second quarter.
Guidance
For 2022, MSCI expects total operating expenses of $1.030-$1.060 million. Adjusted EBITDA expenses are expected between $910 million and $940 million.
Interest expenses are expected to be roughly $172 million.
Capex is expected to be $65-$75 million.
Net cash provided by operating activities and free cash flow is expected to be $1.100-$1.140 billion and $1.025-$1.075 billion, respectively.
Zacks Rank & Stocks to Consider
Currently, MSCI has a Zacks Rank #3 (Hold).
MSCI shares have outperformed the Zacks Computer & Technology sector year to date. While MSCI shares have declined 32.7%, the Computer & Technology sector dropped 34%.
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MSCI Q3 Earnings Beat Estimates, Recurring Subscriptions Up
MSCI Inc.’s (MSCI - Free Report) third-quarter 2022 adjusted earnings of $2.85 per share beat the Zacks Consensus Estimate by 3.26% and increased 12.6% from the year-ago quarter.
Following the announcement, shares were down 1.01% in pre-market trading.
Operating revenues improved 8.4% year over year to $560.6 million but lagged the consensus mark by 0.77%.
Recurring subscriptions accounted for 75% of revenues and increased 17.5% year over year to $420.2 million.
Asset-based fees accounted for 22.4% of revenues but declined 11.4% year over year to $125.6 million. Non-recurring revenues accounted for 2.6% of revenues but decreased 16.4% year over year to $14.8 million.
MSCI Inc Price, Consensus and EPS Surprise
MSCI Inc price-consensus-eps-surprise-chart | MSCI Inc Quote
At the end of the reported quarter, average assets under management were $1.295 trillion in ETFs linked to MSCI indexes. The total retention rate was 96.4% in the quarter under review.
Quarter Details
In the third quarter, Index operating revenues improved 0.2% year over year to $322.2 million, driven by higher recurring subscription revenues.
Growth in higher recurring subscription revenues was driven by growth from market-cap-weighted index products and strong growth from factor, ESG and climate index products.
Asset-based fees’ decline was primarily driven by a decrease in revenues from ETFs linked to MSCI equity indexes as a result of declining average AUM and average basis point fees.
Analytics operating revenues improved 6.3% year over year to $144.9 million, driven by higher recurring subscription revenues from both Multi-Asset Class and Equity Analytics products.
ESG and Climate segment’s operating revenues surged 31.8% from the year-ago quarter to $57.6 million, primarily driven by strong growth from recurring subscriptions related to Ratings and Climate products.
Other revenues, which primarily contain the Real Estate operating segment, were $36 million, up 130% year over year.
Adjusted EBITDA increased 11.2% year over year to $341 million in the reported quarter. Adjusted EBITDA margin expanded 150 basis points (bps) on a year-over-year basis to 60.8%.
Total operating expenses increased 6% on a year-over-year basis to $251.1 million. Adjusted EBITDA expenses were $219.7 million, up 4.4%, primarily reflecting higher non-compensation costs related to information technology costs and professional fees.
Operating income improved 10.5% from the year-ago quarter to $309.5 million. Moreover, the operating margin expanded 100 bps on a year-over-year basis to 55.2%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Sep 30, 2022, were $867.1 million compared with $842.3 million as of Jun 30, 2022.
Total debt was $4.51 billion as of Sep 30 compared with $4.6 billion as of Jun 30. The total debt-to-adjusted-EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.4 times, within the management’s target range of 3-3.5 times.
Free cash flow was $305.1 million, up 51.7% year over year.
MSCI bought shares worth $165 million during the reported quarter. Notably, $1.3 billion is outstanding under MSCI’s share-repurchase authorization as of Oct 24, 2022. The company paid out dividends worth $100.7 million in the second quarter.
Guidance
For 2022, MSCI expects total operating expenses of $1.030-$1.060 million. Adjusted EBITDA expenses are expected between $910 million and $940 million.
Interest expenses are expected to be roughly $172 million.
Capex is expected to be $65-$75 million.
Net cash provided by operating activities and free cash flow is expected to be $1.100-$1.140 billion and $1.025-$1.075 billion, respectively.
Zacks Rank & Stocks to Consider
Currently, MSCI has a Zacks Rank #3 (Hold).
MSCI shares have outperformed the Zacks Computer & Technology sector year to date. While MSCI shares have declined 32.7%, the Computer & Technology sector dropped 34%.
Airbnb (ABNB - Free Report) , Wolfspeed (WOLF - Free Report) and Blackbaud (BLKB - Free Report) are some better-ranked stocks that investors can consider in the broader sector. All three stocks have a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Airbnb shares are down 30.1% year to date. ABNB is set to report its third-quarter 2022 results on Nov 1.
Wolfspeed shares are down 7.8% year to date. WOLF is set to report first-quarter fiscal 2023 results on Oct 26.
Blackbaud shares are down 34.5% year to date. BLKB is set to report third-quarter 2022 results on Nov 1.