MSCI Q1 Earnings Beat, Recurring Subscription Revenues Rise

MSCI Inc.’s MSCI first-quarter 2020 adjusted earnings of $1.90 per share beat the Zacks Consensus Estimate by 13.1% and also increased 22.6% from the year-ago quarter.

Operating revenues improved 12.2% year over year to $416.8 million but lagged the consensus mark by 1%. This year-over-year growth was driven by a 7.8% and 22.5% rise in recurring subscriptions (73% of revenues) and asset-based fees (24% of revenues), respectively.

Non-recurring revenues (2.9% of revenues) surged 68.7% year over year to $12.2 million.

Organic operating revenues (excluding the impact of acquisitions, divestitures and foreign currency exchange rate fluctuations) rose 12.3% year over year.

Organic recurring subscription, asset-based fee and non-recurring revenues grew 8%, 22.5% and 67.8% each.

MSCI Inc Price, Consensus and EPS Surprise

MSCI Inc Price, Consensus and EPS Surprise

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

 

At the end of the quarter, average assets under management (AUM) were $709.5 billion in ETFs linked to MSCI indexes. Total retention rate was 95% in the quarter under review.

Index Revenue Details

In the first quarter, Index operating revenues (59.8% of operating revenues) improved 16.1% year over year to $249.3 million, primarily driven by strong growth in recurring subscriptions (up 9.5%) and asset-based fees (up 22.5%).

Higher recurring subscriptions were driven by growth in custom and specialized index products, core products and factor and ESG index products.

Index net new recurring subscription sales increased 7.5%.

Analytics Revenue Details

Analytics operating revenues (30.1% of operating revenues) improved 3.4% year over year to $125.5 million. While recurring subscription revenues increased 3.3%, non-recurring revenues were up 8.9%. Multi-Asset Class and Equity Analytics products also witnessed growth in the quarter.

Analytics net new recurring subscription sales plunged 40.4%.

All Other Segment Revenue Details

All Other operating revenues (10.1% of operating revenues) rose 19.5% from the year-ago quarter to $42 million, primarily driven by recurring subscriptions (up 17.2%).

All Other organic operating revenue growth was 20.7% with ESG organic operating revenues increasing 17.2% and Real Estate organic operating revenues rising 26.2%.

All Other net new recurring subscription sales grew 3%.

Operating Details

Adjusted EBITDA grew 15.9% year over year to $229.2 million in the reported quarter. Moreover, adjusted EBITDA margin expanded 180 basis points (bps) on a year-over-year basis to 55%.

Total operating expenses were flat on a year-over-year basis at $209 million, primarily due to higher compensation and benefit costs.

Research & Development (R&D) and general & Administrative (G&A) expenses rose 14.6% and 12.1%, respectively. Selling & Marketing (S&M) expenses slid 0.9%.

Operating income improved 27.8% from the year-ago quarter to $207.9 million. Operating margin expanded 610 bps to 49.9%.

Balance Sheet & Cash Flow

Total cash and cash equivalents as of Mar 31, 2020 were $1.07 billion compared with $1.51 billion as of Dec 31, 2019.

Total debt was $3.2 billion as of Mar 31. Total debt to adjusted EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.6X, higher than management’s target range of 3-3.5x.

Net cash provided by operating activities was $112.8 million in the first quarter compared with $243.6 million in the sequential quarter. Free cash flow was $102 million compared with $225.2 million in the prior-reported quarter.

In first quarter and through Apr 24, 2020, MSCI repurchased 1.4 million shares for a total value of $356.8 million. Notably, $1.1 billion is outstanding under the share repurchase authorization as of Apr 24, 2020.

MSCI also paid out dividend worth $57.8 million in the first quarter.

Guidance

For 2020, MSCI expects total operating expenses of $790-$840 million, down from the previous guided range of $840-$860 million. Adjusted EBITDA expenses are expected between $700 million and $750 million, down from the past projection of $750-$770 million.

Capex is expected to be $50-$60 million, down from the earlier forecast of $60-$70 million.

Moreover, net cash provided by operating activities and free cash flow are expected to be $600-$650 million (down from $650-$700 million) and $540-$600 million (down from $580-$640 million), respectively.

Zacks Rank & Stocks to Consider

Currently, MSCI has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector are Pixelworks PXLW, Fortive FTV and Shopify SHOP. While both Pixelworks and Fortive sport a Zacks Rank #1 (Strong Buy), Shopify has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Both Pixelworks and Fortive are scheduled to report earnings on Apr 30. Shopify is set to release quarterly results on May 6.

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