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MSCI Inc.’s (MSCI - Free Report) third-quarter 2020 adjusted earnings of $2.20 per share beat the Zacks Consensus Estimate by 20.2% and also increased 31% from the year-ago quarter.
Operating revenues improved 7.9% year over year to $425.3 million and beat the consensus mark by 0.8%. This year-over-year growth was driven by 8.7% and 4.5% rise in recurring subscriptions (73.6% of revenues) and asset-based fees (23.6% of revenues), respectively.
Non-recurring revenues (2.8% of revenues) surged 16.2% year over year to $11.8 million.
At the end of the quarter, average assets under management were $908.9 billion in ETFs linked to MSCI indexes. Total retention rate was 94.5% in the quarter under review.
Index Revenue Details
In the third quarter, Index operating revenues (60.1% of operating revenues) improved 7.7% year over year to $255.7 million, primarily driven by growth in recurring subscriptions (up 9.7%) and asset-based fees (up 4.5%).
Higher recurring subscriptions were driven by growth in core products, factor and ESG/Climate index products, and custom index products.
Index net new recurring subscription sales decreased 6.4% year over year.
Analytics Revenue Details
Analytics operating revenues (30.2% of operating revenues) improved 3.8% year over year to $128.3 million. While recurring subscription revenues increased 3.4%, non-recurring revenues jumped 40.7%.
Analytics net new recurring subscription sales fell 5.6%.
All Other Segment Revenue Details
All Other operating revenues (9.7% of operating revenues) increased 24.3% from the year-ago quarter to $41.3 million, primarily driven by recurring subscriptions (up 24.4%).
All Other organic operating revenue growth was 18.6% with ESG organic operating revenues increasing 19.4%. Moreover, Real Estate organic operating revenues grew 16.7% in the reported quarter.
All Other net new recurring subscription sales increased 15.1% year over year.
Operating Details
Adjusted EBITDA increased 13% year over year to $249.4 million in the reported quarter. Moreover, adjusted EBITDA margin expanded 260 basis points (bps) on a year-over-year basis to 58.6%.
Total operating expenses increased 2.4% on a year-over-year basis at $197.7 million, primarily due to higher compensation costs.
Research & development, and selling & marketing expenses increased 2.4% and 4% respectively. Moreover, general & administrative expenses rose 4% year over year.
Operating income improved 13.1% from the year-ago quarter to $227.6 million. Operating margin expanded 250 bps to 53.5%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Sep 30, 2020, were $1.3 billion compared with $1.38 billion as of Jun 30, 2020.
Total debt was $3.4 billion as of Sep 30, unchanged sequentially. Total debt to adjusted EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.6 times, higher than management’s target range of 3-3.5 times.
Net cash provided by operating activities was $199.8 million in the third quarter, up 6% year over year. Free cash flow was $251.1 million, up 41.8% year over year.
In the third quarter, MSCI repurchased 598,031 million shares for a total value of $206.6 million. Notably, $0.8 billion is outstanding under the share-repurchase authorization as of Oct 23, 2020.
MSCI also paid out dividends worth $65.3 million in the third quarter.
Guidance
For 2020, MSCI expects total operating expenses of $800-$820 million (up from previous guidance range of$790-$840 million). Adjusted EBITDA expenses are expected between $710 million and $730 million (up from previous guidance range of $700 - $750 million.)
Capex is expected to be $50-$55 million.
Moreover, net cash provided by operating activities and free cash flow are expected to be $705-$750 million and $650-$700 million, respectively.
Avnet is set to release quarterly results on Oct 28. Both Alphabet and Arrow Electronics are scheduled to report earnings on Oct 29.
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MSCI Q3 Earnings Beat, Recurring Subscription Revenues Rise
MSCI Inc.’s (MSCI - Free Report) third-quarter 2020 adjusted earnings of $2.20 per share beat the Zacks Consensus Estimate by 20.2% and also increased 31% from the year-ago quarter.
Operating revenues improved 7.9% year over year to $425.3 million and beat the consensus mark by 0.8%. This year-over-year growth was driven by 8.7% and 4.5% rise in recurring subscriptions (73.6% of revenues) and asset-based fees (23.6% of revenues), respectively.
Non-recurring revenues (2.8% of revenues) surged 16.2% year over year to $11.8 million.
At the end of the quarter, average assets under management were $908.9 billion in ETFs linked to MSCI indexes. Total retention rate was 94.5% in the quarter under review.
Index Revenue Details
In the third quarter, Index operating revenues (60.1% of operating revenues) improved 7.7% year over year to $255.7 million, primarily driven by growth in recurring subscriptions (up 9.7%) and asset-based fees (up 4.5%).
MSCI Inc Price, Consensus and EPS Surprise
MSCI Inc price-consensus-eps-surprise-chart | MSCI Inc Quote
Higher recurring subscriptions were driven by growth in core products, factor and ESG/Climate index products, and custom index products.
Index net new recurring subscription sales decreased 6.4% year over year.
Analytics Revenue Details
Analytics operating revenues (30.2% of operating revenues) improved 3.8% year over year to $128.3 million. While recurring subscription revenues increased 3.4%, non-recurring revenues jumped 40.7%.
Analytics net new recurring subscription sales fell 5.6%.
All Other Segment Revenue Details
All Other operating revenues (9.7% of operating revenues) increased 24.3% from the year-ago quarter to $41.3 million, primarily driven by recurring subscriptions (up 24.4%).
All Other organic operating revenue growth was 18.6% with ESG organic operating revenues increasing 19.4%. Moreover, Real Estate organic operating revenues grew 16.7% in the reported quarter.
All Other net new recurring subscription sales increased 15.1% year over year.
Operating Details
Adjusted EBITDA increased 13% year over year to $249.4 million in the reported quarter. Moreover, adjusted EBITDA margin expanded 260 basis points (bps) on a year-over-year basis to 58.6%.
Total operating expenses increased 2.4% on a year-over-year basis at $197.7 million, primarily due to higher compensation costs.
Research & development, and selling & marketing expenses increased 2.4% and 4% respectively. Moreover, general & administrative expenses rose 4% year over year.
Operating income improved 13.1% from the year-ago quarter to $227.6 million. Operating margin expanded 250 bps to 53.5%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Sep 30, 2020, were $1.3 billion compared with $1.38 billion as of Jun 30, 2020.
Total debt was $3.4 billion as of Sep 30, unchanged sequentially. Total debt to adjusted EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.6 times, higher than management’s target range of 3-3.5 times.
Net cash provided by operating activities was $199.8 million in the third quarter, up 6% year over year. Free cash flow was $251.1 million, up 41.8% year over year.
In the third quarter, MSCI repurchased 598,031 million shares for a total value of $206.6 million. Notably, $0.8 billion is outstanding under the share-repurchase authorization as of Oct 23, 2020.
MSCI also paid out dividends worth $65.3 million in the third quarter.
Guidance
For 2020, MSCI expects total operating expenses of $800-$820 million (up from previous guidance range of$790-$840 million). Adjusted EBITDA expenses are expected between $710 million and $730 million (up from previous guidance range of $700 - $750 million.)
Capex is expected to be $50-$55 million.
Moreover, net cash provided by operating activities and free cash flow are expected to be $705-$750 million and $650-$700 million, respectively.
Zacks Rank & Stocks to Consider
Currently, MSCI has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Avnet (AVT - Free Report) , Alphabet (GOOGL - Free Report) and Arrow Electronics (ARW - Free Report) . While Avnet sports a Zacks Rank #1 (Strong Buy), both Alphabet and Arrow Electronics carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Avnet is set to release quarterly results on Oct 28. Both Alphabet and Arrow Electronics are scheduled to report earnings on Oct 29.
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