Business context and reporting period
MSCI Inc. filed this Form 10-K for the fiscal year ended December 31, 2022; it is an annual report, not a standalone fourth-quarter report. MSCI provides indexes, investment analytics, ESG and climate data and tools, and private-asset data and analytics to the global investment industry. It served more than 6,600 clients in over 95 countries. BlackRock represented 10.3% of consolidated revenue, down from 12.7% in 2021.
Financial and operating performance
- Revenue: $2.249 billion, up 10.0% year over year (8.9% excluding acquisitions and foreign-exchange effects). Recurring subscriptions rose 16.4% to $1.660 billion; asset-based fees fell 4.7% to $528.1 million; non-recurring revenue declined 4.0% to $60.9 million.
- Segments: Index revenue was $1.303 billion (+4.1%); Analytics $576.1 million (+5.8%); ESG and Climate $228.3 million (+37.4%); and All Other—Private Assets $141.0 million (+73.4%). Private Assets’ growth included the RCA acquisition; excluding acquisition and FX effects, segment revenue increased 12.5%.
- Profit and margins: Operating income was $1.208 billion (+12.6%), with a 53.7% operating margin versus 52.5%. Net income was $870.6 million (+19.9%); diluted EPS was $10.72 versus $8.70. Adjusted EBITDA, a non-GAAP measure, was $1.330 billion (+11.1%) and its margin was 59.1% versus 58.6%.
- Expenses and taxes: Operating expenses increased 7.2% to $1.041 billion. The effective tax rate was 16.6%, compared with 15.4%; 2022 included $29.1 million of favorable discrete tax items, primarily share-based compensation tax benefits.
- Cash flow: Operating cash flow was $1.095 billion, compared with $936.1 million. Investing used $79.3 million, including $59.3 million of capitalized software development costs; financing used $1.425 billion, including $1.398 billion for share repurchases and $372.9 million of dividends paid. Cash declined to $993.6 million from $1.421 billion.
- Liquidity and debt: Debt principal totaled $4.548 billion, including $4.2 billion of senior notes and $347.8 million of variable-rate term loans; the $500 million revolving facility was undrawn. The term loan rate was 6.42% at year-end. Consolidated leverage and interest coverage ratios were 3.08x and 8.45x, respectively; required limits were no more than 4.25x and at least 4.00x. Shareholders’ deficit was $1.008 billion.
- Operating indicators: Year-end Run Rate was $2.320 billion (+5.3%), with subscription Run Rate up 11.9% and asset-based-fee Run Rate down 12.7%. Annual retention was 95.2%, versus 94.7% in 2021.
Material changes and unusual items
Subscription growth across segments more than offset lower asset-based fees, which reflected lower average ETF assets and fees, partly offset by higher futures and options volumes. Average AUM in ETFs linked to MSCI equity indexes fell 3.2% year over year. The RCA acquisition, completed in September 2021 for approximately $949 million, materially affects year-over-year Private Assets comparisons. Other expense, net, declined 23.7%, principally because 2022 had no comparable debt-extinguishment costs recorded in 2021. No goodwill impairment was recorded in 2022.
Outlook, risks and contingencies
The filing provides no specific numerical 2023 revenue or earnings guidance. Management stated that operating cash flows, cash balances, available credit and access to financing should fund operations and commitments for at least 12 months after filing and for the foreseeable future. The Board declared a quarterly dividend of $1.38 per share for the first quarter of 2023, a 10.4% increase from the prior-quarter dividend.
Key risks include market declines and volatility reducing index-linked fees; pricing pressure, client cancellations or client self-sourcing; reliance on third-party data and distribution; cyber incidents, system outages and technology migrations; reputational and regulatory scrutiny of indexes and ESG ratings; foreign-exchange exposure; and substantial indebtedness with variable-rate exposure. Pending ordinary-course lawsuits and claims could be substantial, but management believed currently pending matters would not have a material effect based on information available. Tax audits and uncertain tax positions could affect cash taxes or results in a particular period.
Important facts for investors to verify
- Whether recurring-subscription growth and retention remain strong, particularly given the fourth quarter’s 93.0% retention rate and concentration of 36.2% of 2022 cancellations in that quarter.
- How asset-based fees respond to market levels, ETF flows, fee negotiations and BlackRock’s continuing contribution to revenue.
- Private Assets’ underlying growth excluding RCA acquisition effects, and whether acquisition-related costs and expected benefits evolve as anticipated.
- Debt repayment capacity, variable interest costs, leverage covenant headroom, and the effect of continued buybacks and dividends on cash and the balance sheet.
- Developments in ESG and benchmark regulation, tax examinations, and any material litigation or data, cybersecurity or service interruptions.