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MSCI Q2 Earnings Beat, Recurring Subscriptions Jump Y/Y

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MSCI Inc. (MSCI - Free Report) reported second-quarter 2018 adjusted earnings of $1.30 per share, which beat the Zacks Consensus Estimate by couple of cents and surged 36.8% from the year-ago quarter.

Operating revenues increased 14.9% year over year to $363 million, much better than the consensus mark of $357 million. Strong growth was driven by 30.4% jump in asset-based fees and 35.2% increase in recurring subscriptions.

At the end of the quarter, assets under management (AUM) were $744.7 billion in ETFs linked to MSCI indexes. As of Jul 31, 2018, AUM was $763 billion in ETFs linked to MSCI indexes.

Total Retention Rate was 94.1% at the end of the quarter.

Higher recurring subscriptions were driven by strong growth across all the segments. Index products, Analytics and All Other recurring subscriptions grew 13.2%, 4.9%, and 19.6% on a year-over-year basis, respectively.

MSCI Inc Price, Consensus and EPS Surprise

MSCI Inc Price, Consensus and EPS Surprise | MSCI Inc Quote


Segment Details

In the second quarter, Index operating revenues (58.7% of operating revenues) surged 20.2% year over year to $212.9 million, primarily driven by strong growth in asset-based fees and non-recurring revenues.

The increase in asset-based fees was primarily driven by strong growth across all types of index-linked investment products. Revenues from ETFs linked to MSCI indexes jumped 28.4%, driven by a 30.5% increase in AUM.

Revenues from non-ETF passive products surged 39.3%, and was driven by higher AUM and an increased contribution from higher-fee products.

Further, revenues from exchange traded futures and options contracts based on MSCI indexes grew 9.1%, driven by a solid increase in total trading volumes.

Analytics operating revenues (32.8% of operating revenues) increased 5.1% year over year to $119.1 million, primarily driven by 4.9% growth in recurring subscriptions. Both Equity and Multi-Asset Class Analytics products witnessed growth in the quarter.

All other operating revenues (8.5% of operating revenues) surged 21.2% from the year-ago quarter to almost $31 million, primarily driven by 70.4% growth in non-recurring revenues.

Run Rate Details

Total Run Rate, as of Jun 30, 2018, grew 12% to $1.41 billion.

Organic subscription Run Rate growth was 10.2%, driven by strong growth in the Index and ESG segments, and Multi-Asset Class and Equity Analytics products.

Index Run Rate grew 15.4% to $805.7 million, primarily driven by 21.4% increase in asset-based fees Run Rate.

Analytics Run Rate grew 5.3% to almost $490 million. All Other Run Rate soared 19.5% to $116 million.

Operating Details

Adjusted EBITDA surged 20.5% year over year to $200.4 million in the reported quarter. Adjusted EBITDA margin also expanded 260 basis points (bps) on a year-over-year basis to 55.2%.

Total operating expenses increased 11.5% year over year to $189.5 million. Selling and Marketing (S&M), Research & Development (R&D) and General & Administrative (G&A) expenses increased 14.1%, 8.8% and 12.2%, respectively.

As a result, reported operating income soared 18.8% from the year-ago quarter to $173.5 million. Operating margin expanded 160 bps to 47.8%.

Balance Sheet & Cash Flow

Total cash and cash equivalents, as of Mar 31, 2018, was $1.37 billion.

Total outstanding debt was $2.57 billion. Total debt to adjusted EBITDA ratio (based on trailing twelve months adjusted EBITDA) was 3.0x, which is within management’s target range of 3.0x to 3.5x.

Net cash provided by operating activities was $207.2 million in second-quarter 2018 compared with $88.6 million in first-quarter 2018. Free cash flow was $199.9 million compared with $82.7 million in the previous quarter.


For 2018, MSCI expects total operating expenses between $725 million and $750 million. Adjusted EBITDA expenses are expected between $645 million and $665 million.

Capex is expected to be in the range of $40–$50 million. Moreover, net cash provided by operating activities and free cash flow are expected to be in the range of $490 – $540 million and $440 – $500 million, respectively.

MSCI also raised its dividend payout ratio target to a range of 40-50%, as percent of adjusted earnings, up from a previous range of 30-40%.

Zacks Rank & Other Stocks to Consider

Currently, MSCI has a Zacks Rank #4 (Sell).

Attunity (ATTU - Free Report) , Upland Software (UPLD - Free Report) and Microsoft (MSFT - Free Report) are stocks worth considering in the broader Computer & Technology sector. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long term growth rate for both Attunity and Upland is currently pegged at 20%, while for Microsoft it stands at 12.3%.


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