MSCI Inc (MSCI)

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MSCI (MSCI)

Q1 2013 Earnings Call

May 01, 2013 11:00 am ET

Executives

Edings Thibault

Robert Qutub - Chief Financial Officer and Principal Accounting Officer

Henry A. Fernandez - Chairman, Chief Executive Officer and President

Analysts

Georgios Mihalos - Crédit Suisse AG, Research Division

Rayna Kumar - Evercore Partners Inc., Research Division

Toni Kaplan - Morgan Stanley, Research Division

Christopher Shutler - William Blair & Company L.L.C., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the MSCI First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Edings Thibault, Head of Investor Relations. Sir, you may begin.

Edings Thibault

Thank you, Sam. Good morning, everyone, and thank you for joining our first quarter 2013 earnings call. Please note that earlier this morning, we issued a press release describing our results for the first quarter 2013, and a copy of that release may be viewed on our website at msci.com under the Investor Relations tab. You'll also find there, a slide presentation that we have prepared for this call.

This call may contain forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management's current estimates, projections, expectations or beliefs, and which are subject to risks and uncertainties that may cause actual results to differ materially.

For a discussion of additional risks and uncertainties that may affect MSCI's future results, please see the description of risk factors and forward-looking statements in our Form 10-K for our fiscal year ending December 31, 2012.

Today's earnings call may also include discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EPS. Adjusted EBITDA and adjusted EPS exclude the following: restructuring costs; and non-recurring stock-based expense. Adjusted EPS also excludes the amortization of intangibles resulting from acquisitions and debt repayment and refinancing expenses.

Please refer to today's earnings release and pages 14 through 17 of the investor presentation for the required reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures and other related disclosures.

We will be referring to run rate frequently in our discussion this morning, so let me remind you that a run rate is an approximation at a given point in time of the forward-looking revenues for subscriptions and product licenses that we will record over the next 12 months, assuming no cancellations, new sales, changes in the assets and ETFs license to our indices or changes in foreign currency rates. Please refer to Table 7 in our press release for a detailed explanation.

I will now turn the call over to our Chief Financial Officer, Bob Qutub.

Robert Qutub

Good morning. Thank you for joining us. Let me share some highlights from the first quarter before we dive into the numbers. Earlier this morning, MSCI reported its financial results for the first quarter of 2013. Our operating results were highlighted by 10% growth in our total revenues aided by recent acquisitions, continued growth in our subscription run rate and a strong growth in our adjusted earnings per share. Our index and ESG subscription run rate continue to be a strong driver of our growth rising 9.5% organically, and the recovery of our governance business also continues.

Our asset-based fee revenues also grew, rising 6% year-over-year, as we continue to benefit from strong inflows into MSCI's ETFs despite the impact of the loss of much of the revenue related to the 22 Vanguard ETFs, which started to transition away from MSCI indices this quarter. After adjusting for the loss of Vanguard in both periods, this business would've grown by 15%.

Our portfolio management analytics unit continues to struggle as we expected in the first quarter, down -- fell and, to a lesser extent, the impact for the weakening end continued to put pressure on run rate growth.

Our IPD acquisition accounted for $8 million of index and ESG revenues in the first quarter. First quarter, though, is the seasonally lowest revenue quarter for that product line, and we expect second quarter revenues to be significantly higher. I'll touch more on that later.

Finally, we continued our policy of a balanced capital deployment. We acquired InvestorForce, divested CFRA and repaid a modest amount of debt in order to lower our overall interest expense. Now let's get into the numbers.

MSCI reported first quarter revenues of $252 million, up 10% from first quarter 2012. Adjusted EBITDA was $110 million, up 8% year-over-year, and adjusted EPS rose 30% to $0.57 per share. Net income was $59 million, representing an increase of 34% over first quarter of 2012.

Our first quarter revenue growth was led by the performance in the risk segment, which reported revenue growth of $21 million or 11% driven by a higher growth in index and ESG, energy and commodity analytics and risk revenues, partially offset by a decline in CMA. On an organic basis, which for purposes of analyzing revenues, excludes the impact of acquisitions of IPD and InvestorForce, Performance and Risk revenues rose by 6%.

In addition, you should note, the first quarter of 2012 was negatively impacted by a $5 million revenue correction in our energy and commodity analytics product line. Our governance revenues segments rose $1.5 million or 5%.

When you take a look at our revenue growth by type, quarterly subscription revenues grew the most with $22 million or 12% over the first quarter of 2012, or 7% organically, and asset-based fees rose 6%.

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