* Q3 adj EPS $0.49 vs est $0.51
* Operating revenue up 5 pct, operating expense up 6 pct
* Subscription revenue up 8 pct
* Shares down 6 percent
Nov 6 Market index provider MSCI Inc's
third-quarter profit fell more than expected as fewer customers
renewed subscriptions and the company both hired more staff and
paid more in severance.
MSCI, which lost a big chunk of its business last month with
the defection of some Vanguard Group index funds, said new
recurring subscription sales fell 14 percent to $27.1 million.
"The company's business is challenged in the near term
because they mainly sell to asset managers and asset owners who
are facing a challenging environment and market," said
Christopher Shutler, an analyst with William Blair & Co.
Shares of MSCI, which has a market value of about $3.32
billion, were down about 6 percent at $25.59 in early afternoon
trading on the New York Stock Exchange.
Overall subscription revenue rose 8 percent to $197.6
million as the company sold more index and environmental, social
and governance (ESG) products.
Equity index asset-based fees fell 3 percent to $34 million.
"I am especially pleased that our index and ESG run rate
grew by 6 percent year-over-year, even after taking into account
the impact of the Vanguard announcement," Chief Executive Henry
Fernandez said in a statement.
Vanguard Group, the largest U.S. mutual fund manager, said
last month it would switch 22 of its biggest index funds away
from benchmarks provided by MSCI to cut costs.
MSCI, which also offers risk and investment analysis, has
said the switch is expected to be phased-in over several months
from January. The affected funds generate about $24 million in
annual revenue and operating income.
Assets under management in ETFs linked to MSCI's indexes
increased 25 percent to $363.7 billion, at the end of the third
quarter, from a year earlier.
MSCI has grown rapidly, thanks to licensing fees paid by ETF
fund managers such as Vanguard that pay it to track indexes at
rates calculated as a small percentage of each fund's assets.
The company's workforce increased by 6 percent to 2,416 at
the end of the quarter compared with a year earlier, MSCI said
in its quarterly results statement on Tuesday.
Headcount and severance costs reflect MSCI's shift to a
lower-cost model that involves moving more jobs offshore, said
David Togut, an analyst at Evercore Partners.
Net income fell to $48.3 million, or 39 cents per share, in
the third quarter, from $50 million, or 40 cents per share, a
On an adjusted basis, the company earned 49 cents per share.
Analysts on average had expected earnings of 51 cents per share,
according to Thomson Reuters I/B/E/S.
Operating revenue rose 5 percent to $235.4 million, missing
analysts' average forecast of $240 million.
MSCI said operating expenses increased 6 percent to $152
million on higher compensation costs and a lease exit charge.