It has been about a month since the last earnings report for MSCI (MSCI). Shares have lost about 0.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.
MSCI Q1 Earnings Beat, Recurring Subscriptions Rise Y/Y
MSCI Inc.’s first-quarter 2023 adjusted earnings of $3.14 per share beat the Zacks Consensus Estimate by 7.90% and increased 5.4% from the year-ago quarter.
Operating revenues improved 5.8% year over year to $592.2 million but missed the consensus mark by 0.3%. Organic operating revenues increased 7.2% year over year.
Recurring subscriptions accounted for 75.2% of revenues and increased 11.4% year over year to $445.2 million.
Asset-based fees accounted for 22.5% of revenues and declined 8.2% year over year to $133.1 million.
Non-recurring revenues accounted for 2.3% of revenues and decreased 8.5% year over year to $13.8 million.
At the end of the reported quarter, average assets under management were $1.30 trillion in ETFs linked to MSCI indexes.
The total retention rate was 95.2% in the quarter under review.
In the first quarter, Index operating revenues increased 2.6% year over year to $339.4 million. The year-over-year growth was primarily due to higher recurring subscription revenues (up 12.7% year over year).
Growth in recurring subscription revenues was primarily driven by strong growth from market-cap weighted and factor, ESG and climate Index products.
Asset-based fees’ decline was primarily driven by a decrease in revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by a decrease in average AUM. The decline in Asset-based fees also reflected lower revenues from ETFs linked to MSCI equity indexes, primarily driven by a decrease in average AUM.
Analytics operating revenues improved 5.2% year over year to $147 million, driven by higher recurring subscription revenues from both Multi-Asset Class and Equity Analytics products.
ESG and Climate segment’s operating revenues increased 28.9% from the year-ago quarter to $65.7 million, primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products.
Other revenues, which primarily contain the Real Estate operating segment, were $38.7 million, up 3.6% year over year.
Adjusted EBITDA increased 8.2% year over year to $344.7 million in the reported quarter. Adjusted EBITDA margin expanded 130 basis points (bps) on a year-over-year basis to 58.2%.
Total operating expenses increased 2.5% on a year-over-year basis to $277.6 million. Adjusted EBITDA expenses were $247.5 million, up 2.5%, primarily reflecting higher non-compensation costs related to information technology and market data costs.
Operating income improved 8.9% from the year-ago quarter to $314.6 million. Moreover, the operating margin expanded 150 bps on a year-over-year basis to 53.1%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Mar 31, 2023, were $1.08 billion compared with $993.6 million as of Dec 31, 2022.
Total debt was $4.5 billion as of Mar 31 unchanged sequentially. The total debt-to-adjusted-EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 5.1 times, higher than the management’s target range of 3-3.5 times.
Free cash flow was $242.6 million, up 6% year over year.
Notably, MSCI had $1.3 billion outstanding under its share-repurchase authorization as of Apr 24. The company paid out dividends worth $110.5 million in the first quarter.
For 2023, MSCI expects total operating expenses in the range of $1.090-$1.130 million. Adjusted EBITDA expenses are expected between $965 million and $995 million.
Interest expenses are expected between $184 million and $187 million.
Capex is expected to be $75-$85 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
Currently, MSCI has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward 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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