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MSCI (MSCI) Down 5.1% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for MSCI (MSCI - Free Report) . Shares have lost about 5.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MSCI due for a breakout? 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 catalysts.
MSCI’s fourth-quarter 2023 adjusted earnings of $3.68 per share beat the Zacks Consensus Estimate by 11.85% and jumped 29.6% year over year.
Revenues increased 19.8% year over year to $690.1 million and beat the consensus mark by 5.04%. Organic revenues increased 14.7% year over year.
Recurring subscriptions of $505.4 million increased 16.8% year over year and accounted for 73.2% of revenues.
Asset-based fees of $145.1 million increased 15.9% year over year and contributed 21% of revenues.
Non-recurring revenues of $39.6 million surged 114.4% year over year and contributed 5.7% of revenues.
At the end of the reported quarter, average assets under management (AUM) were $1.468 trillion in ETFs linked to MSCI indexes.
The total retention rate was 93.6% in the quarter under review.
Top-Line Details
In the fourth quarter, Index revenues of $388 million beat the Zacks Consensus Estimate by 6.43% and increased 17.8% year over year. Recurring subscriptions, asset-based fees and non-recurring revenues increased 10.9%, 15.9% and 128.5% on a year-over-year basis, respectively.
Growth in recurring subscription revenues was primarily driven by strong growth from market-cap-weighted Index products.
Revenues from ETFs linked to MSCI equity indexes, mainly driven by an increase in average AUM, drove more than half of the increase in revenues attributable to asset-based fees. The balance of the increase was contributed by non-ETF indexed funds linked to MSCI indexes, driven by an increase in average AUM, as well as an increase in average basis point fees.
Analytics operating revenues of $164.7 million beat the consensus mark by 3.71%, and increased 10% year over year. Excluding the impact of foreign currency exchange rate fluctuations, Analytics’ operating revenue growth was 10.2%.
Recurring subscriptions and non-recurring revenues increased 8.9% and 71.5% on a year-over-year basis, respectively.
The increase in Analytics revenues was primarily driven by growth from recurring subscriptions related to both Equity Analytics and Multi-Asset Class products.
More than half of the growth in non-recurring revenues was driven by a large number of implementations that were completed in the quarter, and the remainder was driven by one-time deals related to Multi-Asset Class products.
ESG and Climate segment’s operating revenues of $76.3 million lagged the consensus mark by 1.16% but increased 20% year over year. Excluding the impact of foreign currency exchange rate fluctuations and the Trove acquisition, ESG and Climate operating revenue growth was 14.5%. Trove contributed $0.8 million of revenues in the reported quarter.
Recurring subscriptions and non-recurring revenues increased 20.3% and 4.7% on a year-over-year basis, respectively.
The increase was primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products.
All Other – Private Assets operating revenues, which primarily comprise the Real Assets operating segment and the Private Capital Solutions (formerly known as Burgiss), were $61.1 million, up 81.5% year over year. The figure beat the consensus mark by 9.02%.
Operating Details
Adjusted EBITDA increased 22.3% year over year to $414.6 million in the reported quarter. Adjusted EBITDA margin expanded 130 basis points (bps) on a year-over-year basis to 60.1%.
Total operating expenses increased 19.4% on a year-over-year basis to $319.4 million.
Adjusted EBITDA expenses were $75.5 million, up 16.1%, primarily reflecting higher compensation and incentive compensation expenses related to higher headcount.
Operating income improved 20.1% year over year to $370.7 million. The operating margin expanded 10 bps on a year-over-year basis to 53.7%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Dec 31, 2023, were $461.7 million compared with $928.6 million as of Sep 30, 2023.
Total debt was $4.5 billion as of Dec 31, unchanged sequentially. The total debt-to-adjusted EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3 times, within the management’s target range of 3-3.5 times.
Free cash flow was $367.1 million, up 24.5% year over year.
MSCI had $0.8 billion outstanding under its share-repurchase authorization as of Jan 29, 2024.
It paid out dividends worth $109.2 million in the fourth quarter. MSCI increased dividend payout by 15.9% to $1.60 per share for the first quarter of 2024.
Guidance
For 2024, MSCI expects total operating expenses in the range of $1.300-$1.340 billion.
Adjusted EBITDA expenses are expected between $1.130 billion and $1.160 billion.
Interest expenses are expected 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, MSCI has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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MSCI (MSCI) Down 5.1% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for MSCI (MSCI - Free Report) . Shares have lost about 5.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MSCI due for a breakout? 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 catalysts.
MSCI Q4 Earnings Beat, Recurring Subscriptions Rise Y/Y
MSCI’s fourth-quarter 2023 adjusted earnings of $3.68 per share beat the Zacks Consensus Estimate by 11.85% and jumped 29.6% year over year.
Revenues increased 19.8% year over year to $690.1 million and beat the consensus mark by 5.04%. Organic revenues increased 14.7% year over year.
Recurring subscriptions of $505.4 million increased 16.8% year over year and accounted for 73.2% of revenues.
Asset-based fees of $145.1 million increased 15.9% year over year and contributed 21% of revenues.
Non-recurring revenues of $39.6 million surged 114.4% year over year and contributed 5.7% of revenues.
At the end of the reported quarter, average assets under management (AUM) were $1.468 trillion in ETFs linked to MSCI indexes.
The total retention rate was 93.6% in the quarter under review.
Top-Line Details
In the fourth quarter, Index revenues of $388 million beat the Zacks Consensus Estimate by 6.43% and increased 17.8% year over year. Recurring subscriptions, asset-based fees and non-recurring revenues increased 10.9%, 15.9% and 128.5% on a year-over-year basis, respectively.
Growth in recurring subscription revenues was primarily driven by strong growth from market-cap-weighted Index products.
Revenues from ETFs linked to MSCI equity indexes, mainly driven by an increase in average AUM, drove more than half of the increase in revenues attributable to asset-based fees. The balance of the increase was contributed by non-ETF indexed funds linked to MSCI indexes, driven by an increase in average AUM, as well as an increase in average basis point fees.
Analytics operating revenues of $164.7 million beat the consensus mark by 3.71%, and increased 10% year over year. Excluding the impact of foreign currency exchange rate fluctuations, Analytics’ operating revenue growth was 10.2%.
Recurring subscriptions and non-recurring revenues increased 8.9% and 71.5% on a year-over-year basis, respectively.
The increase in Analytics revenues was primarily driven by growth from recurring subscriptions related to both Equity Analytics and Multi-Asset Class products.
More than half of the growth in non-recurring revenues was driven by a large number of implementations that were completed in the quarter, and the remainder was driven by one-time deals related to Multi-Asset Class products.
ESG and Climate segment’s operating revenues of $76.3 million lagged the consensus mark by 1.16% but increased 20% year over year. Excluding the impact of foreign currency exchange rate fluctuations and the Trove acquisition, ESG and Climate operating revenue growth was 14.5%. Trove contributed $0.8 million of revenues in the reported quarter.
Recurring subscriptions and non-recurring revenues increased 20.3% and 4.7% on a year-over-year basis, respectively.
The increase was primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products.
All Other – Private Assets operating revenues, which primarily comprise the Real Assets operating segment and the Private Capital Solutions (formerly known as Burgiss), were $61.1 million, up 81.5% year over year. The figure beat the consensus mark by 9.02%.
Operating Details
Adjusted EBITDA increased 22.3% year over year to $414.6 million in the reported quarter. Adjusted EBITDA margin expanded 130 basis points (bps) on a year-over-year basis to 60.1%.
Total operating expenses increased 19.4% on a year-over-year basis to $319.4 million.
Adjusted EBITDA expenses were $75.5 million, up 16.1%, primarily reflecting higher compensation and incentive compensation expenses related to higher headcount.
Operating income improved 20.1% year over year to $370.7 million. The operating margin expanded 10 bps on a year-over-year basis to 53.7%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Dec 31, 2023, were $461.7 million compared with $928.6 million as of Sep 30, 2023.
Total debt was $4.5 billion as of Dec 31, unchanged sequentially. The total debt-to-adjusted EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3 times, within the management’s target range of 3-3.5 times.
Free cash flow was $367.1 million, up 24.5% year over year.
MSCI had $0.8 billion outstanding under its share-repurchase authorization as of Jan 29, 2024.
It paid out dividends worth $109.2 million in the fourth quarter. MSCI increased dividend payout by 15.9% to $1.60 per share for the first quarter of 2024.
Guidance
For 2024, MSCI expects total operating expenses in the range of $1.300-$1.340 billion.
Adjusted EBITDA expenses are expected between $1.130 billion and $1.160 billion.
Interest expenses are expected 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, MSCI has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MSCI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.