MSCI Inc.’s (MSCI Quick QuoteMSCI - Free Report) second-quarter 2024 adjusted earnings of $3.64 per share beat the Zacks Consensus Estimate by 2.25% and increased 11.7% year over year.

Revenues increased 14% year over year to $708 million, beating the consensus mark by 1.48%. Organic revenues increased 9.7% year over year.

Recurring subscriptions of $521.5 million increased 14.4% year over year and contributed 73.7% to revenues. 

Asset-based fees of $163.3 million increased 18.2% year over year and contributed 23.1% to revenues. 

Non-recurring revenues of $23.2 million fell 15% year over year and contributed 3.3% to revenues. 

At the end of the reported quarter, average assets under management (AUM) were $1.631 trillion in ETFs linked to MSCI indexes. 

The total retention rate was 94.8% in the quarter under review.

Top-Line Details

In the second quarter, Index revenues of $397.2 million surpassed the Zacks Consensus Estimate by 7.21% and increased 9.6% year over year. Recurring subscriptions and asset-based fees increased 8.1% and 18.2% on a year-over-year basis, respectively. Non-recurring revenues declined 28% year over year. Organically, Index operating revenue growth was 9.8%.

Growth in Index revenues included $0.18 million from the acquisition of Foxberry.

The uptick in recurring subscription revenues was primarily driven by strong growth from market-cap-weighted Index products and ETFs linked to MSCI equity indexes.

Analytics operating revenues of $166 million beat the consensus mark by 2.24% and increased 10.8% year over year. Organically, Analytics’ operating revenue growth was 11.2%.

Recurring subscriptions and non-recurring revenues increased 9.9% and 62.7% on a year-over-year basis, respectively.

ESG and Climate segment’s operating revenues of $80 million lagged the consensus mark by 1.96% but increased 12.1% year over year. Organically, ESG and Climate operating revenue growth was 10%. 

Recurring subscriptions and non-recurring revenues increased 11.4% and 58.3% on a year-over-year basis, respectively.

All Other – Private Assets operating revenues, which primarily comprise the Real Assets operating segment and the Private Capital Solutions (formerly known as Burgiss), were $65 million, up 72% year over year. The figure beat the consensus mark by 0.40%. Organic operating revenue growth for All Other – Private Assets was 1.3%.

Operating Details

Adjusted EBITDA increased 14% year over year to $430 million in the reported quarter. Adjusted EBITDA margin was flat at 60.7% on a year-over-year basis.

Total operating expenses increased 18.2% on a year-over-year basis to $325.3 million. 

Adjusted EBITDA expenses were $278 million, up 14%, primarily reflecting higher compensation and incentive compensation expenses related to higher headcount.

Operating income improved 10.6% year over year to $382.6 million. The operating margin contracted 170 bps on a year-over-year basis to 54%.

Balance Sheet & Cash Flow

Total cash and cash equivalents, as of Jun 30, 2024, were $451.4 million compared with $519.3 million as of Mar 31, 2024.

Total debt was $4.5 billion as of Jun 30, unchanged sequentially. The total debt-to-adjusted EBITDA ratio (based on trailing 12-month-adjusted EBITDA) was 2.8 times, higher than management’s target range of 3-3.5 times.

As of Jun 30, 2024, free cash flow was $321.9 million, up 21.3% year over year compared with $275.9 million as of Mar 31, 2024.

MSCI had $0.6 billion outstanding under its share-repurchase authorization as of Jul 19, 2024. 

It paid out dividends worth $126.6 million in the second quarter.

Guidance

For 2024, MSCI expects total operating expenses in the range of $1.305-$1.345 billion. 

Adjusted EBITDA expenses are expected to be between $1.130 billion and $1.160 billion.

Interest expenses are expected to be between $185 million and $189 million.

Net cash provided by operating activities and free cash flow is expected to be $1.33-$1.38 billion and $1.225-$1.285 billion, respectively.

Zacks Rank & Other Stocks to Consider

Currently, MSCI carries a Zacks Rank #2 (Buy).

MSCI shares have underperformed the Zacks Computer & Technology sector year to date. While MSCI shares have declined 10.6%, the Computer & Technology sector has increased 23.8%.

Arista Networks (ANET Quick QuoteANET - Free Report) , Apple (AAPL Quick QuoteAAPL - Free Report) and Cognizant Technology Solutions (CTSH Quick QuoteCTSH - Free Report) are some top-ranked stocks that investors can consider in the broader sector. Arista Network sports a Zacks Rank #1 (Strong Buy) at present, whereas Apple and Cognizant Technology Solutions carry Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arista Networks’ shares have gained 45.4% year to date. ANET is set to report its second-quarter 2024 results on Jul 30.

Apple shares have gained 16.3% year to date. AAPL is set to report its third-quarter fiscal 2024 results on Aug 1.

Cognizant Technology Solutions’ shares have dropped 0.5% year to date. CTSH is set to report its second-quarter 2024 results on Jul 31.