MSCI Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 9, 2024. This is an annual report, not a standalone fourth-quarter earnings report. Unless otherwise noted, financial amounts below are U.S. dollars.
Business context
MSCI provides indexes, investment risk and analytics tools, ESG and climate data, and private-asset data and analytics to the global investment industry. It served approximately 7,000 clients in more than 95 countries. Its business is predominantly subscription-based, supplemented by variable fees tied to assets under management (AUM) and trading volumes. BlackRock accounted for 9.8% of consolidated revenue, down from 10.3% in 2022.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $2.529 billion | $2.249 billion | +12.5% |
| Operating income | $1.385 billion | $1.208 billion | +14.7% |
| Net income | $1.149 billion | $871 million | +31.9% |
| Diluted EPS | $14.39 | $10.72 | +34.2% |
| Adjusted EBITDA | $1.523 billion | $1.330 billion | +14.5% |
| Adjusted EBITDA margin | 60.2% | 59.1% | +1.1 percentage points |
| Operating margin | 54.8% | 53.7% | +1.1 percentage points |
| Cash from operating activities | $1.236 billion | $1.095 billion | +12.8% |
- Recurring subscription revenue rose 12.8% to $1.871 billion; asset-based fees increased 5.6% to $558 million; non-recurring revenue rose 64.3% to $100 million.
- Revenue growth excluding the effects of acquisitions and foreign currency was 11.4%. Average AUM in ETFs linked to MSCI equity indexes increased 5.8% year over year.
- Segment revenue growth: Index +11.4%; Analytics +6.9%; ESG and Climate +26.0%; All Other—Private Assets +23.1%. Private-assets growth included Burgiss; excluding Burgiss and currency effects, segment revenue increased 5.7%.
- Operating expenses increased 9.9% to $1.144 billion, with research and development up 23.2% and intangible-asset amortization up 25.6%.
- Net income benefited from a $143 million non-taxable gain on remeasurement of MSCI’s prior Burgiss investment and favorable tax items. The reported effective tax rate was 16.1%, versus 16.6% in 2022.
Liquidity, debt and capital allocation
- Cash and cash equivalents, including restricted cash, were $462 million at year-end, compared with $994 million a year earlier. Cash declined largely alongside acquisition spending and financing activity.
- Net cash used in investing was $819 million, primarily reflecting the Burgiss and Trove acquisitions. Financing used $954 million, including $504 million of share repurchases and $441 million of dividends.
- Year-end debt principal was $4.539 billion: $4.2 billion of senior notes and $339 million of term loans. The term loans were repaid in January 2024 using proceeds from a new $1.25 billion revolving facility, available through January 2029. The filing does not state the post-transaction revolver balance.
- At December 31, 2023, the reported consolidated leverage ratio was 2.64x and interest coverage was 8.92x, compared with facility limits of 4.25x maximum leverage and 4.00x minimum interest coverage.
- MSCI declared $5.52 per share in dividends for 2023. In January 2024, the Board declared a quarterly dividend of $1.60 per share, a 15.9% increase from the prior-quarter dividend. Share-repurchase authorization remaining was $845.7 million as of February 8, 2024.
Material changes and operating indicators
- MSCI acquired the remaining 66.4% of Burgiss on October 2, 2023, for $696.8 million in cash, consolidating its results thereafter. Burgiss contributed $25.4 million of revenue after acquisition during 2023. MSCI also acquired carbon-markets intelligence provider Trove for approximately $37.9 million in November.
- Total Run Rate increased 15.8% to $2.686 billion, including acquisition contributions. Recurring-subscription Run Rate growth excluding acquisitions and currency effects was 9.9%.
- Net new recurring subscription sales fell 12.8% to $183 million; total subscription cancellations increased 20.4% to $93 million. Annual retention was 94.7%, down from 95.2% in 2022. Fourth-quarter retention was 93.6%; the filing notes that fourth-quarter renewals are typically the largest and retention tends to be lower.
- Weighted-average diluted shares declined 1.7%, reflecting repurchases. 2023 share repurchases were $459 million on the open market, excluding the related excise tax.
Outlook, commentary and risks
- The filing provides no specific full-year 2024 financial guidance. Management says operating cash flows, existing cash and available financing are expected to fund operating needs and commitments for at least 12 months after filing and for the foreseeable future.
- Management’s stated priorities include expanding research-enhanced content across asset classes, ESG and climate integration, technology-enabled distribution, client customization, strategic partnerships and selective acquisitions. The company is also developing AI-enabled capabilities; it cautions that AI introduces competitive, accuracy, intellectual-property, privacy and security risks.
- Key exposures include market declines or shifts in investment trends affecting index-linked fees; client concentration and fee pressure; reliance on third-party data and distribution; competition and client self-sourcing; cybersecurity and technology outages; and regulatory scrutiny of benchmarks and ESG ratings. ESG-related political and reputational controversy is specifically identified as a risk.
- Variable-rate borrowing creates interest-rate exposure; MSCI reported the former term-loan rate at 7.46% at year-end. Foreign currency movements affect revenue and expenses. The company also cites tax uncertainty and potential compliance costs from changing regulation.
- MSCI reported ordinary-course lawsuits and claims; management said pending matters were not expected, based on currently available facts, to have a material aggregate effect, while noting outcomes remain uncertain. No material cybersecurity incidents were identified in the prior three fiscal years.
- The Burgiss purchase-price allocation includes substantial acquired goodwill and intangible assets based on estimated future cash flows and discount rates. The annual goodwill assessment found no impairment. The auditor identified revenue recognition and valuation of Burgiss customer relationships and proprietary data as critical audit matters.
Important facts for investors to verify
- How much reported profit growth reflects recurring operations versus the $143 million Burgiss remeasurement gain and favorable tax items.
- Whether recurring sales, cancellations and retention stabilize after the weaker 2023 net new sales and lower annual retention rate.
- Organic growth and profitability of Burgiss and Trove, separately from acquisition-driven segment growth and Run Rate.
- Current borrowing, interest expense and covenant headroom after the January 2024 refinancing; the year-end cash balance and debt figures predate that transaction.
- Future asset-based fee trends, including AUM, product fee rates, client mix and BlackRock concentration, alongside the sensitivity to market movements.
- Whether evolving benchmark, ESG-rating and data-privacy regulation, litigation, or technology and cybersecurity events create material costs or affect demand.