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Morningstar | MSCI's Winters to Depart as CFO

Wide-moat MSCI announced on March 6 the resignation of CFO Kathleen Winters and the appointment of Andrew Wiechmann, who had previously led investor relations, as interim CFO. Winters was CFO just short of three years. Though we will not be changing our fair value estimate of $119 per share, we are surprised by the departure, which MSCI described as “amicable and not a result of any disagreement or dispute with the Company or its management on matters relating to the Company’s strategy, operations, financial reporting, or other policies or practices.” We don’t want to draw too many conclusions here, but MSCI has seen a tremendously large rise in days sales outstanding for several quarters. By our math, during Winters’ tenure, days sales outstanding climbed from 79.7 days to 107, a 34% increase. This is an astounding jump and suggests to us that MSCI is booking accounting revenue but not collecting cash from customers. We struggled with how relevant this is because in spite of slower collections, MSCI has simultaneously seen a big improvement in cash generation, with operating cash flow margins improving from 37% to nearly 42.7%. However, this is only a little more than half the improvement MSCI has seen over the same time period in EBITDA margins, which climbed from 50.8% to 59.2%.

Previously, we had hypothesized that MSCI’s struggling asset manager clients were dragging their feet in paying their bills, potentially objecting to price increases. Regardless of the reason for Winters’ departure, we still think highly of MSCI as a business but view shares as significantly overvalued, trading at a 56% premium to our fair value estimate. Furthermore, our Exemplary stewardship rating is mostly based on our respect for Henry Fernandez, whom we view as a pioneer in indexes.