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Why Is MSCI (MSCI) Up 6.1% Since Last Earnings Report?
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It has been about a month since the last earnings report for MSCI (MSCI - Free Report) . Shares have added about 6.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is MSCI due for a pullback? 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 and Revenues Beat Estimates
MSCI’s second-quarter 2021 adjusted earnings of $2.45 per share beat the Zacks Consensus Estimate by 6.1% and increased 38.4% from the year-ago quarter.
Operating revenues improved 21.6% year over year to $498.2 million and beat the consensus mark by 2.5%. This year-over-year growth was driven by 12.3% and 54.6% rise in recurring subscriptions (69.9% of revenues) and asset-based fees (27.3% of revenues), respectively.
Non-recurring revenues (2.8% of revenues) increased 19.3% year over year to $13.9 million.
At the end of the quarter, average assets under management were $1.34 trillion in ETFs linked to MSCI indexes. Total retention rate was 94.4% in the quarter under review.
Quarter Details
In the second quarter, Index operating revenues improved 26% year over year to $306 million, primarily driven by growth in recurring subscriptions (10.1%) and asset-based fees (54.6%).
Analytics operating revenues improved 6.5% year over year to $135.9 million. While recurring subscription revenues increased 5.7%, non-recurring revenues surged 84.4%.
ESG and Climate segment’s operating revenues increased 49.4% from the year-ago quarter to $39.3 million, primarily driven by strong growth from Ratings products, including Climate products.
All Other revenues, which primarily comprise of the Real Estate operating segment, were $17 million, up 32.4% year over year.
Adjusted EBITDA increased 24.6% year over year to $294.9 million in the reported quarter. Moreover, adjusted EBITDA margin expanded 140 basis points (bps) on a year-over-year basis to 59.2%.
Total operating expenses increased 23.8% on a year-over-year basis to $240.6 million. Adjusted EBITDA expenses were $203.2 million, up 17.5%, primarily reflecting higher compensation and benefits costs.
Operating income improved 19.7% from the year-ago quarter to $257.5 million. However, operating margin contracted 80 bps to 51.7%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Jun 30, 2021, were $2 billion compared with $1.7 billion as of Mar 31, 2021.
Total debt was $4 billion as of Jun 30. Total-debt-to-adjusted-EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.7 times, higher than management’s target range of 3-3.5 times.
Net cash provided by operating activities was $225.1 million in the second quarter, down 14.3% year over year. Free cash flow was $214 million, down 14.8% year over year.
Notably, $1.6 billion is outstanding under MSCI’s share-repurchase authorization as of Jul 23, 2021. The company paid out dividends worth $64.3 million in the second quarter.
Guidance
For 2021, MSCI expects total operating expenses of $920-$940 million, up from the previous guidance range of $885-$920 million. Adjusted EBITDA expenses are expected between $885 million and $920 million, up from the previous guidance of $795-$825 million.
Capex is expected to be $50-$60 million.
Net cash provided by operating activities and free cash flow is expected to be $900-$940 million and $840-$890 million, respectively.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
Currently, MSCI has a nice Growth Score of B, a grade with the same score on the momentum front. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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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Why Is MSCI (MSCI) Up 6.1% Since Last Earnings Report?
It has been about a month since the last earnings report for MSCI (MSCI - Free Report) . Shares have added about 6.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is MSCI due for a pullback? 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 and Revenues Beat Estimates
MSCI’s second-quarter 2021 adjusted earnings of $2.45 per share beat the Zacks Consensus Estimate by 6.1% and increased 38.4% from the year-ago quarter.
Operating revenues improved 21.6% year over year to $498.2 million and beat the consensus mark by 2.5%. This year-over-year growth was driven by 12.3% and 54.6% rise in recurring subscriptions (69.9% of revenues) and asset-based fees (27.3% of revenues), respectively.
Non-recurring revenues (2.8% of revenues) increased 19.3% year over year to $13.9 million.
At the end of the quarter, average assets under management were $1.34 trillion in ETFs linked to MSCI indexes. Total retention rate was 94.4% in the quarter under review.
Quarter Details
In the second quarter, Index operating revenues improved 26% year over year to $306 million, primarily driven by growth in recurring subscriptions (10.1%) and asset-based fees (54.6%).
Analytics operating revenues improved 6.5% year over year to $135.9 million. While recurring subscription revenues increased 5.7%, non-recurring revenues surged 84.4%.
ESG and Climate segment’s operating revenues increased 49.4% from the year-ago quarter to $39.3 million, primarily driven by strong growth from Ratings products, including Climate products.
All Other revenues, which primarily comprise of the Real Estate operating segment, were $17 million, up 32.4% year over year.
Adjusted EBITDA increased 24.6% year over year to $294.9 million in the reported quarter. Moreover, adjusted EBITDA margin expanded 140 basis points (bps) on a year-over-year basis to 59.2%.
Total operating expenses increased 23.8% on a year-over-year basis to $240.6 million. Adjusted EBITDA expenses were $203.2 million, up 17.5%, primarily reflecting higher compensation and benefits costs.
Operating income improved 19.7% from the year-ago quarter to $257.5 million. However, operating margin contracted 80 bps to 51.7%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Jun 30, 2021, were $2 billion compared with $1.7 billion as of Mar 31, 2021.
Total debt was $4 billion as of Jun 30. Total-debt-to-adjusted-EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.7 times, higher than management’s target range of 3-3.5 times.
Net cash provided by operating activities was $225.1 million in the second quarter, down 14.3% year over year. Free cash flow was $214 million, down 14.8% year over year.
Notably, $1.6 billion is outstanding under MSCI’s share-repurchase authorization as of Jul 23, 2021. The company paid out dividends worth $64.3 million in the second quarter.
Guidance
For 2021, MSCI expects total operating expenses of $920-$940 million, up from the previous guidance range of $885-$920 million. Adjusted EBITDA expenses are expected between $885 million and $920 million, up from the previous guidance of $795-$825 million.
Capex is expected to be $50-$60 million.
Net cash provided by operating activities and free cash flow is expected to be $900-$940 million and $840-$890 million, respectively.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
Currently, MSCI has a nice Growth Score of B, a grade with the same score on the momentum front. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
MSCI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.