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MI

MSCI Inc. (MSCI)·Q3 2025 Earnings Summary

Executive Summary

  • MSCI delivered solid Q3: revenue $793.4M (+9.5% y/y) and adjusted EPS $4.47 (+15.8% y/y). EPS beat consensus ($4.47 vs $4.37*), while revenue was a slight miss ($793.4M vs $797.8M*) driven by softer non‑recurring revenue; operating margin expanded to 56.4% (+140 bps y/y) .
  • Asset-based fees (ABF) remained the growth engine (+17.1% y/y to $197.5M), supported by record ~$6.4T total AUM tracking MSCI indexes and $2.2T in equity ETF AUM at period-end; adjusted EBITDA margin ticked up to 62.3% .
  • Guidance: raised low-end of OpEx and adjusted EBITDA expense; increased capex, operating cash flow, and free cash flow ranges; lowered effective tax rate to 16–18% (from 17.5–20%) for FY25, reflecting tax items and business momentum .
  • Capital returns accelerated: ~$1.23B repurchases in Q3 (2.19M shares at ~$560) and a new $3.0B buyback authorization; $1.80/share Q4 dividend declared .
  • Strategic catalysts: record Q3 recurring sales in Index and Analytics, expanding “fast money” and wealth channels, and intensifying AI/automation across data and index manufacturing; management called AI “a godsend” for scale and costs .

What Went Well and What Went Wrong

  • What Went Well

    • Record Q3 recurring sales in Index and Analytics; ABF run-rate growth +17% on record AUM levels (~$6.4T combined ETF/non‑ETF) . CEO: “record Q3 recurring sales in our two largest product lines… record asset-based-fee run rate” .
    • Margin expansion and EPS beat: operating margin 56.4% (+100 bps q/q; +140 bps y/y); adjusted EPS $4.47 beat street; effective tax rate fell to 17.9% (from 21.3% y/y) aiding bottom line .
    • Product/innovation momentum: launch of AI-driven products and private markets standards (e.g., Private Credit Factor Model and Global Classification Standards for Private Assets), with management emphasizing AI as a scale/cost lever .

  • What Went Wrong

    • Top-line vs expectations: revenue ($793.4M) came in modestly below consensus ($797.8M*), largely amid lower non-recurring sales y/y (–13.4%) .
    • Sustainability & Climate sales softness: total net sales down y/y and lighter new recurring sales; management expects pressures to persist near term despite stable retention ~94% .
    • Higher interest expense and debt: other expense rose on higher debt levels; total debt $5.6B after issuing $1.25B 5.25% 2035 notes; leverage now at ~3.0x TTM adjusted EBITDA (within 3.0–3.5x target) .

Financial Results

  • Consolidated P&L vs prior year/quarter and estimates
MetricQ3 2024Q2 2025Q3 2025Q3 2025 Consensus
Operating Revenues ($M)724.7 772.7 793.4 797.8*
Adjusted EPS ($)3.86 4.17 4.47 4.37*
Operating Margin (%)55.4 55.0 56.4 —
Adjusted EBITDA ($M)450.7 474.4 494.4 —
Adjusted EBITDA Margin (%)62.2 61.4 62.3 —
  • Revenue mix and growth
Revenue Component ($M)Q3 2024Q2 2025Q3 2025y/yq/q
Recurring Subscriptions536.6 562.8 579.1 +7.9% +2.9%
Asset-Based Fees168.6 184.1 197.5 +17.1% +7.3%
Non-Recurring19.5 25.8 16.9 –13.4% –34.6%
  • Segment revenue
Segment ($M)Q3 2024Q3 2025y/y
Index404.9 451.2 +11.4%
Analytics172.4 182.2 +5.7%
Sustainability & Climate83.6 90.1 +7.7%
All Other – Private Assets63.8 70.0 +9.7%
  • KPIs and capital allocation
KPIQ3 2025Reference
Total Run Rate ($M)3,186.5 (+10.1% y/y)
Retention Rate94.7%
ABF Run Rate ($M)799.7 (+17.0% y/y)
ETF AUM Linked to MSCI (Period-End, $B)2,211.0
Free Cash Flow ($M)423.3
Net Cash from Ops ($M)449.4
Weighted Avg Diluted Shares (M)76.6
Share Repurchases$1,225.7M; 2,189,289 shares at $559.85 avg
Cash ($M)400.1
Total Debt ($B)5.6

Estimates note: Values marked with * are from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating ExpenseFY 2025$1,405–$1,445M $1,415–$1,445M Raised low end by $10M
Adjusted EBITDA ExpenseFY 2025$1,220–$1,250M $1,230–$1,250M Raised low end by $10M
Interest Expense (incl. fees)FY 2025$205–$209M (revised Sept 8) $205–$209M Maintained vs Sept update
Depreciation & AmortizationFY 2025$185–$195M $185–$195M Maintained
Effective Tax RateFY 202517.5%–20.0% 16.0%–18.0% Lowered
Capital ExpendituresFY 2025$115–$125M $120–$130M Raised
Net Cash from OpsFY 2025$1,525–$1,575M $1,540–$1,590M Raised
Free Cash FlowFY 2025$1,400–$1,460M $1,410–$1,470M Raised
DividendQ4 2025$1.80/share (Q3 precedent) $1.80/share declared Maintained
Share Repurchase AuthorizationN/A~$1.2B remaining (7/21) New $3.0B authorization Increased capacity

Management noted the higher expense ranges reflect strong AUM-linked activity, while the tax rate was reduced; free cash flow/OCF ranges were lifted on business growth and tax benefits .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2025)Trend
AI/technologyQ1–Q2: Limited explicit AI detail; focus on product and sales momentum “AI is a godsend”; pervasive use across data capture, custom index factory, geospatial; 25 AI-powered products sold (~$15–$20M); goal to cut op ex via AI agents without heavy capex Accelerating deployment and monetization
Private credit/private assetsQ2: Moody’s risk assessments “coming weeks”; launched Asset & Deal Metrics; private equity tracker index Launched private credit factor model; built credit assessments with Moody’s; 60–80 private credit indexes; PACS taxonomy; early revenue small but growing Rapid product build-out; early-stage monetization
Client segmentsQ2: Strong with banks, wealth, hedge funds; asset managers steady Record Q3 recurring sales in Index & Analytics; outsized strength in Americas; hedge funds +21% recurring sales; banks record Q3 Momentum building in “fast money” and wealth
ABF/ETF flowsQ2: $49B inflows; DM ex-U.S. strength $46B inflows; ETF run-rate near $800M; record AUM ~$6.4T combined Sustained strong ABF tailwinds
Sustainability & ClimateQ2: Growth but slower demand; headwinds to persist Retention ~94%; net sales softer; pressures to continue near term Resilient base, muted new sales
Regional dynamicsQ2: Some sluggishness with EMEA asset managers [71:?]EMEA still softer vs Americas; ETF ecosystem growth in Europe supports opportunities EMEA lagging; ecosystem improving
Active ETFsQ2: Increasing client dialogues; monetization across tools and AUM fees Active ETF AUM ~ $30B (+10% q/q); not cannibalizing; monetized via AUM fees and data/tools Growing revenue opportunity

Management Commentary

  • “In the third quarter, MSCI delivered strong financial and sales performance… record Q3 recurring sales in… Index and Analytics… record asset-based-fee run rate… record AUM levels of about $6.4 trillion” – Henry A. Fernandez, CEO .
  • “AI is a godsend to us… will dramatically increase our margins… we can build a lot more data… models… and distribute it… investments… are not very significant” – Henry A. Fernandez .
  • “Our third quarter operating metrics included total run rate growth of over 10%… asset-based fee run rate growth of 17%… driven by record AUM levels” – Henry A. Fernandez .
  • “We delivered our highest Q3 ever for new recurring sales to hedge funds… ongoing strong demand… equity factor and enterprise risk and performance solutions” – Baer Pettit, President/COO .
  • “Increase in the low end of our expense guidance range is… driven by the strong growth in AUM levels linked to our indexes… increase in free cash flow guidance reflects business growth and… tax benefits” – Andy Wiechmann, CFO .

Q&A Highlights

  • Private credit strategy: Building proprietary databases (80k loans; 14k borrowers), Moody’s-powered credit assessments, factor models, and evaluated pricing; early revenues small but expected to grow as transparency tools drive adoption .
  • AI ROI and cost profile: Applying third-party LLMs to proprietary data; AI agents to reduce operating costs without heavy infrastructure spend; target to recycle savings into growth investments; margins expected to benefit over time .
  • Non‑ETF and fixed income ABF: Non‑ETF passive can be lumpy due to true‑ups/fee tiers; fixed income ETF AUM ~$90B with a majority climate-related; focus on innovation, customization .
  • Active ETFs economics: Not cannibalizing; monetization via tools/data and AUM fees as strategies systematize; AUM ~ $30B, +10% q/q .
  • Regional color/pricing: EMEA asset managers remain sluggish; pricing contribution steady, aligned with delivered value and client health; retention strong with asset managers (~97% in Q3) .

Estimates Context

MetricQ1 2025 ConsensusQ1 2025 ActualQ2 2025 ConsensusQ2 2025 ActualQ3 2025 ConsensusQ3 2025 Actual
Revenue ($M)744.5*745.8 770.2*772.7 797.8*793.4
Primary EPS ($)3.90*4.00 4.15*4.17 4.37*4.47

Estimates note: Values marked with * are from S&P Global.

Implications: MSCI posted a clean EPS beat (benefiting from margin expansion and a lower effective tax rate) with a slight revenue shortfall vs consensus, suggesting modest top-line conservatism amid weaker non‑recurring sales while ABF and subscriptions remained robust .

Key Takeaways for Investors

  • Earnings quality: EPS beat with expanding operating margin (56.4%) and strong adjusted EBITDA margin (62.3%), aided by lower tax rate; sustainable ABF tailwinds support profitability .
  • ABF flywheel remains intact: +17% y/y ABF and record index-linked AUM (~$6.4T) point to durable high‑margin growth; ETF period-end AUM $2.2T continues to climb .
  • Guidance reset constructive: Higher OCF/FCF ranges and lower tax rate imply stronger cash generation; modest OpEx/EBITDA expense lifts reflect higher AUM activity .
  • Capital returns stepping up: New $3.0B buyback plus accelerated repurchases (~$1.23B in Q3) and steady $1.80 dividend underpin TSR while leverage remains within 3.0–3.5x target .
  • AI as a multi‑year catalyst: Management expects AI to scale data/model production and lower costs without heavy capex, potentially expanding margins and speeding product velocity .
  • Watch sustainability & climate demand: Retention is stable but new sales are softer; near‑term pressures likely persist even as climate monetization emerges via index products .
  • Trading lens: EPS beats versus slight revenue miss may keep focus on ABF sensitivity to flows/DM ex‑US rotation; buyback authorization and improving tax/FCF outlook are supportive near‑term catalysts .

Supporting references: Q3 2025 press release and 8‑K (financials, guidance, capital allocation) ; Q3 2025 earnings call transcript (themes, quotes, forward context) ; Q2 and Q1 releases for trend analysis . Estimates from S&P Global (marked with *).