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MSCI Inc.’s MSCI 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.
MSCI Inc Price, Consensus and EPS Surprise
MSCI Inc price-consensus-eps-surprise-chart | MSCI Inc Quote
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.
Quarter Details
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.
Guidance
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.
Zacks Rank & Stocks to Consider
Currently, MSCI has a Zacks Rank #3 (Hold).
MSCI shares have outperformed the Zacks Computer & Technology sector year to date. While MSCI shares have gained 17.1%, the Computer & Technology sector increased 7.7%.
Arista Networks ANET, DoorDash DASH and Shopify SHOP are some better-ranked stocks that investors can consider in the broader sector. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arista Networks shares have gained 29% year to date. ANET is set to report its first-quarter 2023 results on May 1.
DoorDash shares have gained 22.6% year to date. DASH is set to report its first-quarter 2023 results on May 4.
Shopify shares have gained 38.3% year to date. SHOP is set to report its first-quarter 2023 results on May 4.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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