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MSCI Q2 Earnings Beat Estimates, Recurring Subscriptions Up

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MSCI Inc.'s (MSCI - Free Report) second-quarter 2022 adjusted earnings of $2.78 per share beat the Zacks Consensus Estimate by 2.96% and increased 13.5% from the year-ago quarter.

Following the announcement, shares were down 0.23% in pre-market trading.

Operating revenues improved 10.8% year over year to $551.8 million but lagged the consensus mark by 1.6%.

Recurring subscriptions accounted for 73.8% of revenues and increased 16.9% year over year to $407 million.

Asset-based fees accounted for 24% of revenues but declined 2.9% year over year to $132.2 million. Non-recurring revenues accounted for 2.3% of revenues but decreased 9.8% year over year to $12.5 million.

MSCI Inc Price and EPS Surprise

MSCI Inc Price and EPS Surprise

MSCI Inc price-eps-surprise | MSCI Inc Quote

At the end of the reported quarter, average assets under management were $1.29 trillion in ETFs linked to MSCI indexes. Total retention rate was 95.5% in the quarter under review.

Quarter Details

In the second quarter, Index operating revenues improved 4.9% year over year to $321 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 4.3% year over year to $141.7 million, driven by higher recurring subscription revenues from both Multi-Asset Class and Equity Analytics products.

ESG and Climate segment’s operating revenues surged 40.2% from the year-ago quarter to $55.1 million, primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products.

All Other revenues, which primarily contain the Real Estate operating segment, were $34 million, up 100.2% year over year.

Adjusted EBITDA increased 12.3% year over year to $331.1 million in the reported quarter. Adjusted EBITDA margin expanded 80 basis points (bps) on a year-over-year basis to 60%.

Total operating expenses increased 4.5% on a year-over-year basis to $251.4 million. Adjusted EBITDA expenses were $220.7 million, up 8.6%, primarily reflecting higher compensation and benefits costs related to continued investments to support growth, including increased headcount in technology, research and client coverage.

Operating income improved 16.6% from the year-ago quarter to $300.4 million. Moreover, the operating margin expanded 270 bps on a year-over-year basis to 54.4%.

Balance Sheet & Cash Flow

Total cash and cash equivalents, as of Jun 30, 2022, were $842.3 million compared with $679.3 million as of Mar 31, 2022.

Total debt was $4.6 billion as of Jun 30 compared with $4.2 billion as of Mar 31. Total-debt-to-adjusted-EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 5.6 times, much higher than management’s target range of 3-3.5 times.

Free cash flow was $193.6 million, down 9.5% year over year.

MSCI bought shares worth $277 million during the reported quarter. Notably, $539.1 million is outstanding under MSCI’s share-repurchase authorization as of Jul 25, 2022. The company paid out dividends worth $84 million in the second quarter.

Guidance

For 2022, MSCI expects total operating expenses of $1.045-$1.085 million. Adjusted EBITDA expenses are expected between $940 million and $970 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 are expected to be in the range of $1.080-$1.120 billion and $1.005-$1.055 billion, respectively.

Zacks Rank & Stocks to Consider

Currently, MSCI has a Zacks Rank #3 (Hold).

MSCI shares have underperformed the Zacks Computer & Technology sector year to date. While MSCI shares have decreased 28.4%, the Computer & Technology sector has dropped 27.8%.

Aspen Technology (AZPN - Free Report) , Fastly (FSLY - Free Report) and DigitalOcean (DOCN - Free Report) are some better-ranked stocks that investors can consider in the broader sector. All three stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Aspen shares are up 18.7% year to date. AZPN is set to report fourth-quarter fiscal 2022 results on Aug 8.

Fastly shares are down 69.4% year to date. FSLY is set to report second-quarter 2022 results on Aug 3.

DigitalOcean shares are down 53.4% year to date. DOCN is set to report second-quarter fiscal 2022 results on Aug 8.