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MSCI (MSCI) Down 3.8% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for MSCI (MSCI - Free Report) . Shares have lost about 3.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MSCI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
MSCI’s second-quarter 2023 adjusted earnings of $3.26 per share beat the Zacks Consensus Estimate by 4.49% and increased 17.3% year over year.
Operating revenues increased 12.6% year over year to $621.2 million and beat the consensus mark by 2.72%. Organic operating revenues increased 12.8% year over year.
Recurring subscriptions of $455.7 million beat the Zacks Consensus Estimate by 0.22% and increased 12% year over year. Recurring subscriptions accounted for 73.4% of revenues.
Asset-based fees of $138.2 million beat the consensus mark by 4.37% and increased 4.5% year over year. Asset-based fees contributed 22.2% to revenues.
Non-recurring revenues of $16.91 million beat the consensus mark by 61.46% and increased 117.7% year over year. Non-recurring revenues contributed 4.4% to revenues.
At the end of the reported quarter, average assets under management were $1.37 trillion in ETFs linked to MSCI indexes. The figure beat the consensus mark by 2.19%
The total retention rate was 95.5% in the quarter under review, beating the consensus estimate by 0.36%.
Quarter Details
In the second quarter, Index operating revenues of $362.3 million beat the Zacks Consensus Estimate by 4.96% and increased 12.9% year over year. The year-over-year growth was primarily due to higher recurring subscription revenues (up 11.7% year over year).
Growth in recurring subscription revenues was primarily driven by strong growth from market-cap weighted and factor, ESG and climate Index products.
Growth in non-recurring revenues was primarily driven by one-time license fees related to prior periods and non-recurring licensed data products. The increase in asset-based fees primarily reflected an increase in revenues from ETFs linked to MSCI equity indexes, mainly driven by an increase in average AUM.
Analytics operating revenues of $149.9 million missed the consensus mark by 0.94%, but increased 5.8% year over year. The increase was driven by higher recurring subscription revenues from Multi-Asset Class and Equity Analytics products.
ESG and Climate segment’s operating revenues of $71.2 million beat the consensus mark by 1.06% and increased 29.2% from the year-ago quarter’s levels, primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products.
Other revenues, which primarily comprise the Real Estate operating segment, were $37.7 million, up 10.9% year over year. The metric beat the consensus mark by 0.83%.
Adjusted EBITDA increased 13.9% year over year to $377.3 million in the reported quarter. Adjusted EBITDA margin expanded 70 basis points (bps) on a year-over-year basis to 60.7%.
Total operating expenses increased 9.5% on a year-over-year basis to $275.2 million. Adjusted EBITDA expenses were $243.9 million, up 10.5%, primarily reflecting higher compensation, incentive compensation and benefit costs related to continued investments to support growth.
Operating income improved 15.2% from the year-ago quarter’s levels to $346 million. Moreover, the operating margin expanded 130 bps on a year-over-year basis to 55.7%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Jun 30, 2023, were $792.3 million compared with $1.08 billion as of Mar 31, 2023.
Total debt was $4.5 billion as of Jun 30 unchanged sequentially. The total debt-to-adjusted-EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.2 times, within the management’s target range of 3-3.5 times.
Free cash flow was $265.3 million, up 37.1% year over year.
MSCI had $0.8 billion outstanding under its share-repurchase authorization as of Jul 24. The company paid out dividends worth $109.6 million in the second quarter.
Guidance
For 2023, MSCI expects total operating expenses in the range of $1.090-$1.130 billion. Adjusted EBITDA expenses are expected between $965 million and $995 million.
Interest expenses are expected between $185 million and $187 million.
Capex is expected to be $80-$90 million.
Net cash provided by operating activities and free cash flow is expected to be $1.145-$1.195 billion and $1.060-$1.120 billion, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
At this time, MSCI has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, MSCI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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MSCI (MSCI) Down 3.8% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for MSCI (MSCI - Free Report) . Shares have lost about 3.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MSCI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
MSCI Q2 Earnings Beat, Recurring Subscriptions Rise Y/Y
MSCI’s second-quarter 2023 adjusted earnings of $3.26 per share beat the Zacks Consensus Estimate by 4.49% and increased 17.3% year over year.
Operating revenues increased 12.6% year over year to $621.2 million and beat the consensus mark by 2.72%. Organic operating revenues increased 12.8% year over year.
Recurring subscriptions of $455.7 million beat the Zacks Consensus Estimate by 0.22% and increased 12% year over year. Recurring subscriptions accounted for 73.4% of revenues.
Asset-based fees of $138.2 million beat the consensus mark by 4.37% and increased 4.5% year over year. Asset-based fees contributed 22.2% to revenues.
Non-recurring revenues of $16.91 million beat the consensus mark by 61.46% and increased 117.7% year over year. Non-recurring revenues contributed 4.4% to revenues.
At the end of the reported quarter, average assets under management were $1.37 trillion in ETFs linked to MSCI indexes. The figure beat the consensus mark by 2.19%
The total retention rate was 95.5% in the quarter under review, beating the consensus estimate by 0.36%.
Quarter Details
In the second quarter, Index operating revenues of $362.3 million beat the Zacks Consensus Estimate by 4.96% and increased 12.9% year over year. The year-over-year growth was primarily due to higher recurring subscription revenues (up 11.7% year over year).
Growth in recurring subscription revenues was primarily driven by strong growth from market-cap weighted and factor, ESG and climate Index products.
Growth in non-recurring revenues was primarily driven by one-time license fees related to prior periods and non-recurring licensed data products. The increase in asset-based fees primarily reflected an increase in revenues from ETFs linked to MSCI equity indexes, mainly driven by an increase in average AUM.
Analytics operating revenues of $149.9 million missed the consensus mark by 0.94%, but increased 5.8% year over year. The increase was driven by higher recurring subscription revenues from Multi-Asset Class and Equity Analytics products.
ESG and Climate segment’s operating revenues of $71.2 million beat the consensus mark by 1.06% and increased 29.2% from the year-ago quarter’s levels, primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products.
Other revenues, which primarily comprise the Real Estate operating segment, were $37.7 million, up 10.9% year over year. The metric beat the consensus mark by 0.83%.
Adjusted EBITDA increased 13.9% year over year to $377.3 million in the reported quarter. Adjusted EBITDA margin expanded 70 basis points (bps) on a year-over-year basis to 60.7%.
Total operating expenses increased 9.5% on a year-over-year basis to $275.2 million. Adjusted EBITDA expenses were $243.9 million, up 10.5%, primarily reflecting higher compensation, incentive compensation and benefit costs related to continued investments to support growth.
Operating income improved 15.2% from the year-ago quarter’s levels to $346 million. Moreover, the operating margin expanded 130 bps on a year-over-year basis to 55.7%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Jun 30, 2023, were $792.3 million compared with $1.08 billion as of Mar 31, 2023.
Total debt was $4.5 billion as of Jun 30 unchanged sequentially. The total debt-to-adjusted-EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.2 times, within the management’s target range of 3-3.5 times.
Free cash flow was $265.3 million, up 37.1% year over year.
MSCI had $0.8 billion outstanding under its share-repurchase authorization as of Jul 24. The company paid out dividends worth $109.6 million in the second quarter.
Guidance
For 2023, MSCI expects total operating expenses in the range of $1.090-$1.130 billion. Adjusted EBITDA expenses are expected between $965 million and $995 million.
Interest expenses are expected between $185 million and $187 million.
Capex is expected to be $80-$90 million.
Net cash provided by operating activities and free cash flow is expected to be $1.145-$1.195 billion and $1.060-$1.120 billion, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
At this time, MSCI has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, MSCI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.