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MSCI Inc.’s (MSCI - Free Report) third-quarter 2023 adjusted earnings of $3.45 per share beat the Zacks Consensus Estimate by 3.6% and increased 21.1% year over year.
Revenues increased 11.6% year over year to $625.4 million but lagged the consensus mark by 0.55%. Organic revenues increased 10.9% year over year.
Recurring subscriptions of $465 million increased 10.7% year over year and accounted for 74.3% of revenues. Our model estimate for recurring subscriptions was pegged at $476.8 million.
Asset-based fees of $141.1 million increased 12.3% year over year and contributed 22.6% of revenues. Our model estimate for asset-based fees was pegged at $128.4 million.
Non-recurring revenues of $19.4 million increased 30.9% year over year and contributed 3.1% of revenues. Our model estimate for non-recurring revenues was pegged at $19.3 million.
At the end of the reported quarter, average assets under management were $1.32 trillion in ETFs linked to MSCI indexes.
The total retention rate was 95.4% in the quarter under review, down from 96.4% reported in the year-ago quarter.
MSCI shares have underperformed the Zacks Computer & Technology sector year to date. While MSCI shares have gained 3.6%, the Computer & Technology sector increased by 29.8%.
Quarter Details
In the third quarter, Index revenues of $362.1 million beat the Zacks Consensus Estimate by 0.74% and increased 12.4% year over year. The upside can be attributed to higher recurring subscription revenues (up 11.3% year over year).
Growth in recurring subscription revenues was primarily driven by strong growth from market-cap-weighted Index products.
Analytics operating revenues of $154.3 million lagged the consensus mark by 0.59% but increased 6.5% year over year. The year-over-year growth was driven by higher recurring subscription revenues from Multi-Asset Class and Equity Analytics products.
ESG and Climate segment’s operating revenues of $73 million lagged the consensus mark by 1.71% but increased 26.8% year over year, 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 $36 million, up 0.3% year over year. The figure lagged the consensus mark by 7.08%.
Adjusted EBITDA increased 13.3% year over year to $386.2 million in the reported quarter. Adjusted EBITDA margin expanded 100 basis points (bps) on a year-over-year basis to 61.8%.
Total operating expenses increased 8.4% on a year-over-year basis to $272.1 million.
Adjusted EBITDA expenses were $239.2 million, up 8.9%, primarily reflecting higher compensation and incentive compensation expenses related to higher headcount.
Operating income improved 14.1% year over year to $353.3 million. The operating margin expanded 130 bps on a year-over-year basis to 56.5%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Sep 30, 2023, were $928.6 million compared with $792.3 million as of Jun 30, 2023.
Total debt was $4.5 billion as of Sep 30, unchanged sequentially. The total debt-to-adjusted-EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.1 times, within the management’s target range of 3-3.5 times.
Free cash flow was $270.2 million, down 11.4% year over year.
The company repurchased 38,263 shares for $17.9 million in the reported quarter. MSCI had $0.8 billion outstanding under its share-repurchase authorization as of Oct 30.
It paid out dividends worth $109.2 million in the third quarter.
Guidance
For 2023, MSCI expects total operating expenses in the range of $1.135-$1.165 billion.
Adjusted EBITDA expenses are expected between $ 1 billion and $1.020 billion.
Interest expenses are expected to be $187 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.
Zacks Rank & Stocks to Consider
Currently, MSCI has a Zacks Rank #4 (Sell).
Here are some better-ranked stocks worth considering in the broader sector.
Image: Bigstock
MSCI Q3 Earnings Beat, Recurring Subscriptions Rise Y/Y
MSCI Inc.’s (MSCI - Free Report) third-quarter 2023 adjusted earnings of $3.45 per share beat the Zacks Consensus Estimate by 3.6% and increased 21.1% year over year.
Revenues increased 11.6% year over year to $625.4 million but lagged the consensus mark by 0.55%. Organic revenues increased 10.9% year over year.
Recurring subscriptions of $465 million increased 10.7% year over year and accounted for 74.3% of revenues. Our model estimate for recurring subscriptions was pegged at $476.8 million.
Asset-based fees of $141.1 million increased 12.3% year over year and contributed 22.6% of revenues. Our model estimate for asset-based fees was pegged at $128.4 million.
MSCI Inc Price, Consensus and EPS Surprise
MSCI Inc price-consensus-eps-surprise-chart | MSCI Inc Quote
Non-recurring revenues of $19.4 million increased 30.9% year over year and contributed 3.1% of revenues. Our model estimate for non-recurring revenues was pegged at $19.3 million.
At the end of the reported quarter, average assets under management were $1.32 trillion in ETFs linked to MSCI indexes.
The total retention rate was 95.4% in the quarter under review, down from 96.4% reported in the year-ago quarter.
MSCI shares have underperformed the Zacks Computer & Technology sector year to date. While MSCI shares have gained 3.6%, the Computer & Technology sector increased by 29.8%.
Quarter Details
In the third quarter, Index revenues of $362.1 million beat the Zacks Consensus Estimate by 0.74% and increased 12.4% year over year. The upside can be attributed to higher recurring subscription revenues (up 11.3% year over year).
Growth in recurring subscription revenues was primarily driven by strong growth from market-cap-weighted Index products.
Analytics operating revenues of $154.3 million lagged the consensus mark by 0.59% but increased 6.5% year over year. The year-over-year growth was driven by higher recurring subscription revenues from Multi-Asset Class and Equity Analytics products.
ESG and Climate segment’s operating revenues of $73 million lagged the consensus mark by 1.71% but increased 26.8% year over year, 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 $36 million, up 0.3% year over year. The figure lagged the consensus mark by 7.08%.
Adjusted EBITDA increased 13.3% year over year to $386.2 million in the reported quarter. Adjusted EBITDA margin expanded 100 basis points (bps) on a year-over-year basis to 61.8%.
Total operating expenses increased 8.4% on a year-over-year basis to $272.1 million.
Adjusted EBITDA expenses were $239.2 million, up 8.9%, primarily reflecting higher compensation and incentive compensation expenses related to higher headcount.
Operating income improved 14.1% year over year to $353.3 million. The operating margin expanded 130 bps on a year-over-year basis to 56.5%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Sep 30, 2023, were $928.6 million compared with $792.3 million as of Jun 30, 2023.
Total debt was $4.5 billion as of Sep 30, unchanged sequentially. The total debt-to-adjusted-EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.1 times, within the management’s target range of 3-3.5 times.
Free cash flow was $270.2 million, down 11.4% year over year.
The company repurchased 38,263 shares for $17.9 million in the reported quarter. MSCI had $0.8 billion outstanding under its share-repurchase authorization as of Oct 30.
It paid out dividends worth $109.2 million in the third quarter.
Guidance
For 2023, MSCI expects total operating expenses in the range of $1.135-$1.165 billion.
Adjusted EBITDA expenses are expected between $ 1 billion and $1.020 billion.
Interest expenses are expected to be $187 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.
Zacks Rank & Stocks to Consider
Currently, MSCI has a Zacks Rank #4 (Sell).
Here are some better-ranked stocks worth considering in the broader sector.
GoDaddy (GDDY - Free Report) , Ballard Power System (BLDP - Free Report) and Fastly (FSLY - Free Report) are some better-ranked stocks that investors can consider in the broader sector. While GDDY and BLDP carries a Zacks Rank #1 (Strong Buy), FSLY carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
GoDaddy shares have declined 3.3% year to date. GoDaddy is scheduled to release third-quarter 2023 results on Nov 2.
Ballard Power System shares have declined 33.4% year to date. BLDP is set to report its third-quarter 2023 results on Nov 7.
Fastly shares have gained 74% year to date. FSLY is set to report its third-quarter 2023 results on Nov 1.