MSCI Inc. reported first-quarter results that showed that the demand environment for its subscription-based businesses continues to remain stable. However, the company’s performance was pulled down by its asset-based fee business, which reported weak growth owing to the loss of Vanguard ETFs. The firm also reported decline in its nonrecurring revenue.
MSCI’s first-quarter revenue totaled $251.9 million, representing a year-over-year increase of 10%. Organically, the company’s revenue grew 5.8%. During the quarter, MSCI’s subscription-based businesses witnessed 11.8% (6.9% organic growth) jump in revenue to $208.6 million. Within the subscription business, the demand for the company’s Index- and ESG-based products remained strong, while the company had to work with headwinds in its Portfolio Management Analytics. This trend has been playing out for a while now and all the key forward indicators point to a continuation of this trend in the near term. MSCI’s asset-based fee business had a relatively soft quarter ($36.5 million and 5.5% growth) owing to the loss of Vanguard ETFs.
Vanguard moved most of its ETFs from MSCI’s indexes in the first quarter (~70% of total) and the rest is expected to be completed in the second quarter. We expect to see a significant decline in revenue from this business in the remaining three quarters. MSCI did report strong asset inflows during the quarter (~$22 billion) but not strong enough to offset the loss of Vanguard ETFs. MSCI’s operating margins remained largely in line with its recent mid-30s range. The company generated operating income of $90 million, translating to 35.9% margins.
During the quarter, MSCI reported mixed results in its key forward growth indicators. The company reported 6.9% increase in its subscription run rate but registered a drop in its client retention rate and new subscription sales.
Aggregate retention rates dropped 90 basis points to 92.1% while net new recurring subscription sales during the quarter totaled $14.2 million, down 28.8% compared with last year. Given the continued uncertainty in the global financial markets, we are not surprised to see this mixed set of numbers.
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