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MSCI Q2 Earnings Beat, Recurring Subscription Revenues Rise

Zacks Equity Research
·5 mins read

MSCI Inc.’s MSCI second-quarter 2020 adjusted earnings of $1.77 per share beat the Zacks Consensus Estimate by 4.1% and also increased 14.9% from the year-ago quarter.

Operating revenues improved 6.2% year over year to $409.6 million but lagged the consensus mark by 0.6%. This year-over-year growth was driven by a 7.2% and 0.4% rise in recurring subscriptions (75.7% of revenues) and asset-based fees (21.5% of revenues), respectively.

Non-recurring revenues (2.8% of revenues) surged 34.4% year over year to $11.7 million.

At the end of the quarter, average assets under management were $825.4 billion in ETFs linked to MSCI indexes. Total retention rate was 93.5% in the quarter under review.

MSCI Inc Price, Consensus and EPS Surprise

 

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

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

Index Revenue Details

In the second quarter, Index operating revenues (59.3% of operating revenues) improved 7.7% year over year to $242.9 million, primarily driven by growth in recurring subscriptions (up 10%) and asset-based fees (up 0.4%).

Higher recurring subscriptions were driven by growth in core products as well as factor and ESG/Climate index products.

Index net new recurring subscription sales decreased 19.3%.

Analytics Revenue Details

Analytics operating revenues (31.1% of operating revenues) improved 3.1% year over year to $127.6 million. While recurring subscription revenues increased 3.7%, non-recurring revenues were down 30.7%.

Analytics net new recurring subscription sales plunged 32.6%.

All Other Segment Revenue Details

All Other operating revenues (9.6% of operating revenues) rose 7.8% from the year-ago quarter to $39.1 million, primarily driven by recurring subscriptions (up 8.5%).

All Other organic operating revenue growth was 9.2% with ESG organic operating revenues increasing 23%. However, Real Estate organic operating revenues declined 10.7% in the reported quarter.

All Other net new recurring subscription sales surged 65.3% year over year.

Operating Details

Adjusted EBITDA grew 11.8% year over year to $236.7 million in the reported quarter. Moreover, adjusted EBITDA margin expanded 290 basis points (bps) on a year-over-year basis to 57.8%.

Total operating expenses increased 0.7% on a year-over-year basis at $194.4 million, primarily due to higher compensation and benefit costs.

Research & development and selling & marketing expenses fell 5.1% and 0.1% respectively. However, general & administrative expenses rose 7.3% year over year.

Operating income improved 11.9% from the year-ago quarter to $215.2 million. Operating margin expanded 260 bps to 52.5%.

Balance Sheet & Cash Flow

Total cash and cash equivalents as of Jun 30, 2020 were $1.38 billion compared with $1.07billion as of Mar 31, 2020.

Total debt was $3.4 billion as of Jun 30 compared with $3.2 billion as of Mar 31. Total debt to adjusted EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.7, higher than management’s target range of 3-3.5.

Net cash provided by operating activities was $262.6 million in the second quarter, up 38.6% year over year. Free cash flow was $251.1 million, up 41.8% year over year.

In second quarter, MSCI repurchased 0.1 million shares for a total value of $31.1 million. Notably, $1.1 billion is outstanding under the share repurchase authorization as of Jul 28, 2020.

MSCI also paid out dividends worth $56.9 million in the second quarter.

Guidance

For 2020, MSCI still expects total operating expenses of $790-$840 million. Adjusted EBITDA expenses are expected between $700 million and $750 million.

Capex is expected to be $50-$60 million.

Moreover, net cash provided by operating activities and free cash flow are expected to be in the upper end of the previously provided guidance ranges of $600-$650 million and $540-$600 million, respectively.

Zacks Rank & Other Stocks to Consider

Currently, MSCI has a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader technology sector are A10 Networks ATEN, Dropbox DBX and Everbridge EVBG. 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.
   
A10 Networks is set to release quarterly results on Jul 28. Both Dropbox and Everbridge are scheduled to report earnings on Aug 6.

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