MSCI Inc (MSCI) Earnings & Analysis

Latest quarter

MSCI reported third-quarter revenue of $892.0 million, above the consensus of $880.6 million. Adjusted earnings per share were $5.11, also above the consensus of $4.98.

Revenue rose 12.4% from $793.4 million a year earlier. MSCI’s filing attributed the increase to higher asset-based fees and recurring subscription revenue, as well as higher non-recurring revenue. Index revenue grew 18.1%, driven by fees and subscriptions; the company said higher average assets in index-linked funds helped lift fee revenue, partly offset by lower average fee rates.

The filing reported revenue growth of 4.8% in Analytics, 4.0% in Sustainability and Climate, and 6.7% in Private Assets, with recurring subscriptions contributing across the businesses. Diluted earnings per share rose to $4.86 from $4.25 a year earlier.

MSCI’s operating margin was 56.3%, compared with 56.4% a year earlier, as operating expenses rose 12.8%. Free cash flow fell to $385.4 million from $423.2 million; CFO Andy Wiechmann attributed much of the quarterly decline to higher cash interest payments.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Henry Fernandez said demand came from both established and newer solutions, with recurring net new sales rising across Index, Analytics and Private Capital Solutions from a year earlier. He said MSCI’s largest deal of the quarter made it a portfolio analytics partner for an Asian sovereign wealth fund, and that the company also closed analytics and index deals with hedge funds.

CFO Andy Wiechmann said Analytics clients were seeking to modernize investment platforms and integrate risk and portfolio management. In Private Capital Solutions, he said subscription run-rate growth accelerated to 19%, with demand across existing offerings and newer data and diligence platforms. For Sustainability and Climate, he described elevated cancellations, including a client reducing sustainability spending.

Asked about new products, Wiechmann said their contribution to new sales increased more than 50.0% from a year earlier. He said product enhancements can improve retention, broaden client relationships and “help to support price increases.” Chief Product Officer Alvise Munari said clients continued to seek customized portfolio solutions, and that MSCI had launched a custom model service and new portfolio-management offerings.

On AI, Munari said building and calibrating a model had previously taken several weeks and could now be done in a couple of hours. Wiechmann said AI also helped MSCI develop index content and bring it to market faster; he added that client use of MSCI content to train models was at an early stage and its impact was small.

Wiechmann attributed elevated expenses to acquisitions, performance-based stock compensation and severance as MSCI accelerated efficiencies. Fernandez said the company’s strategy was to invest in growth rather than target an increase in margins. Looking ahead, Wiechmann said pressures on parts of Sustainability and Climate were expected to continue through the fourth quarter.

Guidance

Wiechmann said MSCI now expects to be at the top end of its 2026 expense-guidance ranges, citing acquisitions, performance stock compensation and severance. He also said MSCI increased its interest expense guidance because of higher revolving credit balances used to support share repurchases.

MSCI narrowed its full-year effective tax-rate outlook to 18.0% to 19.5%, from 18.0% to 20.0%, excluding the impact of its internal legal entity restructuring. For the fourth quarter, Wiechmann expects Sustainability and Climate recurring net new sales to be roughly flat to slightly positive.