MSCI Q3 Earnings Beat, Recurring Subscription Revenues Rise

MSCI Inc. MSCI reported third-quarter 2019 adjusted earnings of $1.68 per share, which beat the Zacks Consensus Estimate by 9 cents and increased 24.4% from the year-ago quarter.

Operating revenues increased 10.1% year over year to $394.3 million, better than the consensus mark of $388 million. The year-over-year growth was driven by an increase of 7.8% and 17.1% in recurring subscriptions (73.1% of revenues) and asset-based fees (24.4% of revenues), respectively. Non-recurring revenues (2.6% of revenues) increased 18.5% year over year.

Organic operating revenues (excluding the impact of acquisitions, divestitures and foreign-currency exchange rate fluctuations) rose 11.8% year over year. Organic recurring subscription revenues grew 9.8% from the year-ago quarter.

At the end of the quarter, average assets under management (AUM) were $815 billion in ETFs linked to MSCI indexes. Total retention rate was 95% in the quarter.

Index Revenue Details

In the third quarter, Index operating revenues (60.2% of operating revenues) improved 13% year over year to $237.4 million, primarily driven by strong growth in recurring subscriptions (up 10.5%) and asset-based fees (up 13%).

MSCI Inc Price, Consensus and EPS Surprise

MSCI Inc Price, Consensus and EPS Surprise

MSCI Inc price-consensus-eps-surprise-chart | MSCI Inc Quote

 

The increase in recurring subscriptions was driven by growth in factor and ESG index products, core developed market modules and index level products.

Index new recurring subscription sales increased 12.9%. Subscription cancellation also grew 14.4%.

On Oct 30, MSCI and BlackRock executed an “amendment” to the two license agreements that cover all existing BlackRock ETFs based on MSCI equity indexes, extending the terms of these agreements by 10 years through Mar 17, 2030.

Analytics Revenue Details

Analytics operating revenues (31.4% of operating revenues) improved 3.1% year over year to $123.6 million, primarily driven by non-recurring revenues (up 42.5%). Both Equity and Multi-Asset Class Analytics products witnessed growth in the quarter.

Analytics new recurring subscription sales decreased 9%. Subscription cancellation increased 10.4%.

All Other Segment Revenue Details

All Other operating revenues (8.4% of operating revenues) rose 19.3% from the year-ago quarter to $33.2 million, primarily driven by recurring subscriptions (up 19.6%).

All Other organic operating revenue growth was 23%, with ESG organic operating revenues increasing 26.1% and Real Estate organic operating revenues 17.8%.

All Other new recurring subscription sales grew 16%. Subscription cancellation decreased 35.4%.

Operating Details

Adjusted EBITDA grew 12.9% year over year to $220.8 million in the reported quarter. Moreover, adjusted EBITDA margin expanded 140 basis points (bps) on a year-over-year basis to 56%.

Total operating expenses increased 6.3% year over year to $193 million.

Selling & Marketing (S&M) and General & Administrative (G&A) expenses rose 12.9% and 7.3%, respectively. Research & Development (R&D) expenses were up 18.1%.

MSCI’s compensation and benefit costs increased 4.9%, primarily due to higher incentive compensation, wages and salaries. Non-compensation costs grew 11.6%, primarily driven by higher professional fees, marketing costs, recruiting costs and occupancy costs.

Operating income improved 14.1% from the year-ago quarter to $201.2 million. Operating margin expanded 180 bps to 51%.

Balance Sheet & Cash Flow

Total cash and cash equivalents as of Sep 30, 2019, were $881.2 million compared with $771.1 million as of Jun 30, 2019.

Long-term debt was $2.58 billion as of Sep 30. Total debt to adjusted EBITDA ratio (based on trailing twelve months adjusted EBITDA) was 3.2x, which was within management’s target range of 3.0x-3.5x.

Net cash provided by operating activities was $188.5 million in third-quarter 2019 compared with $189.5 million in the previous quarter. Free cash flow was $173.8 million compared with $177.1 million in the prior quarter.

On Oct 29,  MSCI’s board declared a cash dividend of 68 cents per share for fourth-quarter 2019 payable on Nov 27, 2019, to shareholders of record as of Nov 15.

Guidance

For 2019, MSCI expects total operating expenses toward the high end of the $775-$800 million guidance range. Adjusted EBITDA expenses are also expected toward the high end of the $685-$705 million guidance range.

Capex is expected to be at the high end of the $45-$55 million guidance range. Moreover, net cash provided by operating activities and free cash flow are expected to be at or slightly above the high end of $600-$630 million and $545-$585 million, respectively.

Zacks Rank & Stocks to Consider

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

Itron ITRI, Digital Turbine APPS and Dropbox DBX are some better-ranked stocks in the broader computer and technology sector. While Itron sports a Zacks Rank #1 (Strong Buy), both Digital Turbine and Dropbox carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While both Itron and Digital Turbine are set to report quarterly results on Nov 4, Dropbox is scheduled to report on Nov 7.

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