Morningstar, Inc. (Nasdaq: MORN), a leading provider of
independent investment insights, posted double-digit second-quarter
revenue growth while expanding operating margins.
“Led by Morningstar Credit's strength across regions and asset
classes, we finished the first half of 2024 on a high note,” said
Kunal Kapoor, Morningstar's chief executive officer. “We remain
focused on durable growth in adjusted operating income. Our teams
are delivering product enhancements to customers, including the
addition of collateralized loan obligation data to PitchBook, and
the integration of our Intelligence Engine into Advisor
Workstation, which will allow advisors to further automate client
workflows."
The Company's quarterly shareholder letter provides more context
on its quarterly results and business and can be found at
shareholders.morningstar.com.
Second-Quarter 2024 Financial Highlights
- Reported revenue increased 13.3% to $571.9 million compared to
the prior-year period; organic revenue grew 13.6%.
- Reported operating income increased 160.2% to $108.5 million;
adjusted operating income increased 87.9%.
- Diluted net income per share increased 90.5% to $1.60; adjusted
diluted net income per share increased 54.6% to $2.01.
- Cash provided by operating activities increased to $152.7
million from $24.5 million in the prior-year period. Free cash flow
increased to $120.8 million compared to negative $5.8 million in
the prior-year period. Cash flows in the prior-year period were
negatively impacted by certain items totaling $63.1 million.
Excluding these items, cash provided by operating activities and
free cash flow would have increased by 74.3% and 110.8%,
respectively.
Year-To-Date Financial Highlights
- Reported revenue increased 13.2% to $1.1 billion compared to
the prior-year period; organic revenue grew 13.3%.
- Reported operating income increased 203.8% to $201.1 million;
adjusted operating income increased 99.0%.
- Diluted net income per share increased 361.2% to $3.09;
adjusted diluted net income per share increased 101.1% to
$3.74.
- Cash provided by operating activities increased 414.2% to
$246.3 million. Free cash flow increased to $180.3 million compared
to negative $11.9 million in the prior-year period. Cash flows in
the prior-year period were negatively impacted by certain items
totaling $74.5 million. Excluding these items, cash provided by
operating activities and free cash flow would have increased by
101.2% and 188.0%, respectively.
Second-Quarter 2024 Results
Revenue increased 13.3% to $571.9 million on a reported basis
and 13.6% on an organic basis versus the prior-year period, driven
by strength across most of the business. Morningstar Credit,
PitchBook, and Morningstar Data and Analytics were the biggest
contributors to reported revenue growth.
Operating expense was relatively flat at $463.4 million.
Excluding the impact of M&A-related expenses (related to
merger, acquisition, and divestiture activity including severance
and earn-outs), amortization, and costs related to the transition
of the Company's China activities in the prior-year period,
operating expense increased 1.4% in the quarter. Compensation and
benefits and certain infrastructure-related costs including those
related to SaaS-based software subscriptions, cloud computing, and
data purchases increased during the quarter. This growth was mostly
offset by decreases in facilities-related expenses, partially
driven by the consolidation of our real estate footprint, and
professional fees.
Second-quarter operating income increased 160.2% to $108.5
million. Adjusted operating income was $131.0 million, an increase
of 87.9%. Second-quarter operating margin was 19.0%, compared with
8.3% in the prior-year period. Adjusted operating margin was 22.9%
in the second quarter of 2024, versus 13.8% in the prior-year
period.
Net income in the second quarter of 2024 was $69.1 million, or
$1.60 per diluted share, compared with net income of $36.1 million,
or $0.84 per diluted share in the second quarter of 2023, an
increase of 90.5% on a per share basis. Adjusted diluted net income
per share increased 54.6% to $2.01 in the second quarter of 2024,
compared with $1.30 in the prior-year period. Foreign exchange
losses had a negative $0.10 impact on adjusted diluted net income
per share in the second quarter of 2024.
The Company's effective tax rate was 21.7% in the second quarter
of 2024. The Company's prior-year period effective tax rate was not
meaningful due to the low level of pretax income in the period.
Segment Highlights
Morningstar Data and Analytics
Morningstar Data and Analytics contributed $196.9 million to
consolidated revenue and $10.9 million to consolidated revenue
growth, with revenue increasing 5.9% in the second quarter versus
the prior-year period, or 6.2% on an organic basis. Higher revenues
were primarily driven by growth in Morningstar Direct and
Morningstar Data. Morningstar Direct benefited from growth across
geographies, with licenses increasing 0.7%. Increases in managed
investment (fund) data, especially in Europe, helped drive
Morningstar Data growth, partially offset by lower contributions to
growth from Morningstar Essentials and equity and exchange market
data.
Morningstar Data and Analytics adjusted operating income
increased 9.0% to $87.3 million, and adjusted operating margin
increased 1.2 percentage points to 44.3% compared to the prior-year
period.
PitchBook
PitchBook contributed $151.7 million to consolidated revenue and
$14.9 million to consolidated revenue growth, with revenue
increasing 10.9% on a reported and organic basis. Higher revenue
was primarily driven by the PitchBook platform with licensed users
growing 16.6%, including the impact of legacy Leveraged Commentary
& Data clients who have moved to PitchBook licenses. PitchBook
platform growth drivers were consistent with recent quarters and
reflected strength in PitchBook's core investor and advisor client
segments, including venture capital, private equity, and investment
banks. This was partially offset by continued softness in the
corporate client segment, especially with smaller firms with more
limited use cases.
PitchBook segment adjusted operating income increased 27.2% to
$47.3 million, and adjusted operating margin increased 4.0
percentage points to 31.2%. The increase in margin was partially
driven by the forfeiture of stock in the now-terminated PitchBook
management bonus plan, which was a compensation vehicle designed
primarily to incentivize former PitchBook CEO, John Gabbert.
Morningstar Wealth
Morningstar Wealth contributed $62.6 million to consolidated
revenue and $6.8 million to consolidated revenue growth, with
revenue increasing 12.2% in the second quarter versus the
prior-year period, or 12.4% on an organic basis. Growth was
primarily driven by Investment Management, supported by higher
revenue for strategist model portfolios offered on third-party
platforms and international wealth platform growth.
Reported assets under management and advisement (AUMA) increased
11.3% to $59.1 billion compared with the prior-year period, helped
by strong market performance which drove higher asset values.
Positive net flows to Morningstar Managed Portfolios over the
trailing 12 months primarily reflected strong net inflows outside
the United States.
Morningstar Wealth adjusted operating loss was $2.2 million
compared to a $12.3 million loss in the prior-year period, and
adjusted operating margin was negative 3.5% compared with negative
22.0%. In conjunction with the recent announcement of the expected
sale of assets from the Morningstar Wealth Turnkey Asset Management
Platform to AssetMark, the Company recorded $3.3 million in
severance expense in the quarter. These costs are excluded from
Morningstar Wealth adjusted operating income and consolidated
adjusted operating income.
Morningstar Credit
Morningstar Credit contributed $77.6 million to consolidated
revenue and $23.4 million to consolidated revenue growth, with
revenue increasing 43.2% in the second quarter versus the
prior-year period, or 44.2% on an organic basis. Ratings-related
revenue increased significantly across asset classes and
geographies, compared to a relatively soft prior-year period, with
particular strength in commercial mortgage-backed securities,
asset-backed securities, and corporate ratings. Increases in
residential mortgage-backed securities and financial institution
ratings also contributed to growth.
Morningstar Credit adjusted operating income was $27.9 million
compared with $5.0 million in the prior-year period, and adjusted
operating margin was 36.0% compared with 9.2% in the prior-year
period.
Morningstar Retirement
Morningstar Retirement contributed $33.3 million to consolidated
revenue and $5.9 million to consolidated revenue growth, with
revenue increasing 21.5% in the second quarter versus the
prior-year period on a reported and organic basis. AUMA increased
22.2% to $257.2 billion compared with the prior-year period,
reflecting market gains and significant positive net flows,
supported by rapid growth in Advisor Managed Accounts.
Morningstar Retirement adjusted operating income increased 29.1%
to $17.3 million, and adjusted operating margin increased 3.1
percentage points to 52.0%.
Corporate and All Other
Revenue attributable to Corporate and All Other contributed
$49.8 million to consolidated revenue and $5.3 million to
consolidated revenue growth, with revenue increasing 11.9% in the
second quarter versus the prior-year period, driven by growth in
Morningstar Indexes.
The increase in Morningstar Indexes revenue was primarily driven
by higher investable product revenue as market performance and net
inflows over the trailing 12 months increased asset value linked to
Morningstar Indexes by 22.3% to $207.6 billion. Morningstar Indexes
licensed data sales also increased.
Morningstar Sustainalytics revenues were relatively flat
compared to the prior-year period for both license- and
transaction-based products. In Europe, regulatory use cases and
demand from institutional clients were areas of strength. This
strength was largely offset by increased cancellations in investor
solutions due to vendor consolidation and softness in parts of the
asset management and wealth client segments. Revenue was also
negatively impacted by actions taken to streamline the corporate
solutions product lineup, specifically the licensed ratings
product.
The impact of Corporate and All Other on consolidated adjusted
operating income was negative $46.6 million compared with negative
$53.7 million in the prior-year period.
Balance Sheet and Capital Allocation
As of June 30, 2024, the Company had cash, cash equivalents, and
investments totaling $439.2 million and $899.6 million of debt,
compared with $389.0 million and $972.4 million, respectively, as
of Dec. 31, 2023.
Cash provided by operating activities increased to $152.7
million in the second quarter of 2024, compared to $24.5 million in
the prior-year period. Free cash flow increased to $120.8 million,
compared to negative $5.8 million in the prior-year period. The
increases in cash provided by operating activities and free cash
flow were driven by both higher cash earnings and improvements in
working capital. As previously disclosed, operating cash flows were
negatively impacted in the prior-year period by certain items
totaling $63.1 million. Excluding these items, cash provided by
operating activities and free cash flow would have increased by
74.3% and 110.8%, respectively. In addition, the Company paid $17.3
million in dividends in the quarter.
Use of Non-GAAP Financial Measures
The tables at the end of this press release include a
reconciliation of the non-GAAP financial measures used by the
Company to comparable GAAP measures and an explanation of why the
Company uses them.
Investor Communication
Morningstar encourages all interested parties — including
securities analysts, current shareholders, potential shareholders,
and others — to submit questions in writing. Investors and others
may send questions about Morningstar’s business to
investors@morningstar.com. Morningstar will make written responses
to selected inquiries available to all investors at the same time
in Form 8-Ks furnished to the SEC, periodically.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent
investment insights in North America, Europe, Australia, and Asia.
The Company offers an extensive line of products and solutions that
serve a wide range of market participants, including individual and
institutional investors in public and private capital markets,
financial advisors and wealth managers, asset managers, retirement
plan providers and sponsors, and issuers of fixed-income
securities. Morningstar provides data and research insights on a
wide range of investment offerings, including managed investment
products, publicly listed companies, private capital markets, debt
securities, and real-time global market data. Morningstar also
offers investment management services through its investment
advisory subsidiaries, with approximately $316 billion in AUMA as
of June 30, 2024. The Company operates through wholly-owned
subsidiaries in 32 countries. For more information, visit
www.morningstar.com/company. Follow Morningstar on X (formerly
known as Twitter) @MorningstarInc.
Caution Concerning Forward-Looking Statements
This press release contains forward-looking statements as that
term is used in the Private Securities Litigation Reform Act of
1995. These statements are based on our current expectations about
future events or future financial performance. Forward-looking
statements by their nature address matters that are, to different
degrees, uncertain, and often contain words such as “consider,”
“future,” “maintain,” “may,” “expect,” “potential,” “anticipate,”
“believe,” “continue,” “will,” or the negative thereof, and similar
expressions. These statements involve known and unknown risks and
uncertainties that may cause the events we discuss not to occur or
to differ significantly from what we expect. For us, these risks
and uncertainties include, among others, failing to maintain and
protect our brand, independence, and reputation; failure to prevent
and/or mitigate cybersecurity events and the failure to protect
confidential information, including personal information about
individuals; compliance failures, regulatory action, or changes in
laws applicable to our credit ratings operations, investment
advisory, environmental, social, and governance, and index
businesses; failing to innovate our product and service offerings,
or anticipate our clients’ changing needs; the impact of artificial
intelligence and related technologies on our business, legal, and
regulatory exposure profile and reputation; failing to detect
errors in our products or the failure of our products to perform
properly due to defects, malfunctions, or similar problems; failing
to recruit, develop, and retain qualified employees; prolonged
volatility or downturns affecting the financial sector, global
financial markets, and the global economy and its effect on our
revenue from asset-based fees and our credit ratings business;
failing to scale our operations and increase productivity in order
to implement our business plans and strategies; liability for any
losses that result from errors in our automated advisory tools or
errors in the use of the information and data we collect;
inadequacy of our operational risk management, business continuity
programs and insurance coverage in the event of a material
disruptive event; failing to close, or achieve the anticipated
economic or other benefits of, a strategic transaction on a timely
basis or at all; failing to efficiently integrate and leverage
acquisitions and other investments, which may not realize the
expected business or financial benefits, to produce the results we
anticipate; failing to maintain growth across our businesses in
today's fragmented geopolitical, regulatory, and cultural world;
liability relating to the information and data we collect, store,
use, create, and distribute or the reports that we publish or are
produced by our software products; the potential adverse effect of
our indebtedness on our cash flows and financial and operational
flexibility; challenges in accounting for tax complexities in the
global jurisdictions which we operate in and their effect on our
tax obligations and tax rates; and failing to protect our
intellectual property rights or claims of intellectual property
infringement against us. A more complete description of these risks
and uncertainties, among others, can be found in our filings with
the Securities and Exchange Commission (SEC), including our most
recent Reports on Forms 10-K and 10-Q. If any of these risks and
uncertainties materialize, our actual future results and other
future events may vary significantly from what we expect. We do not
undertake to update our forward-looking statements as a result of
new information, future events or otherwise, except as may be
required by law. You are, however, advised to review any further
disclosures we make on related subjects, and about new or
additional risks, uncertainties, and assumptions in our filings
with the SEC on Forms 10-K, 10-Q and 8-K.
©2024 Morningstar, Inc. All Rights Reserved.
MORN-E
Morningstar, Inc. and
Subsidiaries
Unaudited Condensed Consolidated
Statements of Income
Three months ended June
30,
Six months ended June
30,
(in millions, except per share
amounts)
2024
2023
Change
2024
2023
Change
Revenue
$
571.9
$
504.7
13.3
%
$
1,114.7
$
984.4
13.2
%
Operating expense:
Cost of revenue
222.7
216.4
2.9
%
440.8
435.2
1.3
%
Sales and marketing
111.3
109.5
1.6
%
215.9
217.1
(0.6
)%
General and administrative
80.3
90.1
(10.9
)%
160.6
174.1
(7.8
)%
Depreciation and amortization
49.1
47.0
4.5
%
96.3
91.8
4.9
%
Total operating expense
463.4
463.0
0.1
%
913.6
918.2
(0.5
)%
Operating income
108.5
41.7
160.2
%
201.1
66.2
203.8
%
Operating margin
19.0
%
8.3
%
10.7 pp
18.0
%
6.7
%
11.3 pp
Non-operating expense, net:
Interest expense, net
(10.3
)
(14.1
)
(27.0
)%
(21.8
)
(27.4
)
(20.4
)%
Expense from equity method transaction,
net
—
—
—
%
—
(11.8
)
NMF
Other income (expense), net
(8.7
)
4.1
NMF
(2.8
)
6.8
NMF
Non-operating expense, net
(19.0
)
(10.0
)
90.0
%
(24.6
)
(32.4
)
(24.1
)%
Income before income taxes and equity in
investments of unconsolidated entities
89.5
31.7
182.3
%
176.5
33.8
422.2
%
Equity in investments of unconsolidated
entities
(1.2
)
(1.8
)
(33.3
)%
(2.7
)
(3.1
)
(12.9
)%
Income tax expense (benefit)
19.2
(6.2
)
NMF
40.5
2.2
NMF
Consolidated net income
$
69.1
$
36.1
91.4
%
$
133.3
$
28.5
367.7
%
Net income per share:
Basic
$
1.61
$
0.85
89.4
%
$
3.11
$
0.67
364.2
%
Diluted
$
1.60
$
0.84
90.5
%
$
3.09
$
0.67
361.2
%
Weighted average shares outstanding:
Basic
42.8
42.6
42.8
42.6
Diluted
43.1
42.8
43.1
42.8
_________________________________________________________________
NMF - Not meaningful, pp - percentage
points
Morningstar, Inc. and
Subsidiaries
Unaudited Condensed Consolidated
Balance Sheets
(in millions)
As of June 30, 2024
As of December 31,
2023
Assets
Current assets:
Cash and cash equivalents
$
391.2
$
337.9
Investments
48.0
51.1
Accounts receivable, net
336.4
343.9
Income tax receivable, net
—
0.6
Other current assets
100.2
82.2
Total current assets
875.8
815.7
Goodwill
1,569.5
1,578.8
Intangible assets, net
443.1
484.4
Property, equipment, and capitalized
software, net
210.3
207.7
Operating lease assets
148.1
163.9
Investments in unconsolidated entities
97.3
100.2
Deferred tax assets, net
24.2
14.6
Other assets
35.2
38.1
Total assets
$
3,403.5
$
3,403.4
Liabilities and equity
Current liabilities:
Deferred revenue
$
548.2
$
517.7
Accrued compensation
166.2
214.4
Accounts payable and accrued
liabilities
77.1
78.4
Operating lease liabilities
32.0
36.4
Current portion of long-term debt
—
32.1
Other current liabilities
13.9
1.8
Total current liabilities
837.4
880.8
Operating lease liabilities
136.6
151.4
Accrued compensation
23.4
23.7
Deferred tax liabilities, net
30.4
35.6
Long-term debt
899.6
940.3
Other long-term liabilities
42.4
43.8
Total liabilities
1,969.8
2,075.6
Total equity
1,433.7
1,327.8
Total liabilities and equity
$
3,403.5
$
3,403.4
Morningstar, Inc. and
Subsidiaries
Unaudited Condensed Consolidated
Statements of Cash Flows
Three months ended June
30,
Six months ended June
30,
(in millions)
2024
2023
2024
2023
Operating activities
Consolidated net income
$
69.1
$
36.1
$
133.3
$
28.5
Adjustments to reconcile consolidated net
income to net cash flows from operating activities
73.7
52.4
116.7
61.4
Changes in operating assets and
liabilities, net
9.9
(64.0
)
(3.7
)
(42.0
)
Cash provided by operating activities
152.7
24.5
246.3
47.9
Investing activities
Capital expenditures
(31.9
)
(30.3
)
(66.0
)
(59.8
)
Purchases of investments in unconsolidated
entities
(0.8
)
(0.8
)
(3.6
)
(0.9
)
Other, net
(0.1
)
4.0
10.1
32.9
Cash used for investing activities
(32.8
)
(27.1
)
(59.5
)
(27.8
)
Financing activities
Common shares repurchased
—
(1.4
)
—
(1.4
)
Dividends paid
(17.3
)
(16.0
)
(34.6
)
(31.9
)
Repayments of debt
(50.0
)
(113.2
)
(163.1
)
(186.3
)
Proceeds from debt
—
135.0
90.0
230.0
Payment of acquisition-related
earn-outs
—
—
—
(45.5
)
Other, net
(14.3
)
(10.5
)
(17.4
)
(19.8
)
Cash used for financing activities
(81.6
)
(6.1
)
(125.1
)
(54.9
)
Effect of exchange rate changes on cash
and cash equivalents
(0.8
)
(0.2
)
(8.4
)
1.5
Net increase (decrease) in cash and cash
equivalents
37.5
(8.9
)
53.3
(33.3
)
Cash and cash equivalents-beginning of
period
353.7
352.2
337.9
376.6
Cash and cash equivalents-end of
period
$
391.2
$
343.3
$
391.2
$
343.3
Morningstar, Inc. and
Subsidiaries
Supplemental Data (Unaudited)
Three months ended June
30,
Six months ended June
30,
(in millions)
2024
2023
Change
Organic (1)
2024
2023
Change
Organic (1)
Morningstar Data and Analytics
Revenue
$
196.9
$
186.0
5.9
%
6.2
%
$
393.6
$
365.8
7.6
%
7.5
%
Adjusted Operating Income
87.3
80.1
9.0
%
178.5
161.0
10.9
%
Adjusted Operating Margin
44.3
%
43.1
%
1.2 pp
45.4
%
44.0
%
1.4 pp
PitchBook
Revenue
$
151.7
$
136.8
10.9
%
10.9
%
$
299.3
$
267.9
11.7
%
11.7
%
Adjusted Operating Income
47.3
37.2
27.2
%
87.3
67.6
29.1
%
Adjusted Operating Margin
31.2
%
27.2
%
4.0 pp
29.2
%
25.2
%
4.0 pp
Morningstar Wealth
Revenue
$
62.6
$
55.8
12.2
%
12.4
%
$
121.6
$
110.7
9.8
%
10.1
%
Adjusted Operating Income (Loss)
(2.2
)
(12.3
)
(82.1
)%
(7.8
)
(26.9
)
(71.0
)%
Adjusted Operating Margin
(3.5
)%
(22.0
)%
18.5 pp
(6.4
)%
(24.3
)%
17.9 pp
Morningstar Credit
Revenue
$
77.6
$
54.2
43.2
%
44.2
%
$
137.9
$
101.0
36.5
%
36.6
%
Adjusted Operating Income
27.9
5.0
458.0
%
40.2
1.0
NMF
Adjusted Operating Margin
36.0
%
9.2
%
26.8 pp
29.2
%
1.0
%
28.2 pp
Morningstar Retirement
Revenue
$
33.3
$
27.4
21.5
%
21.5
%
$
61.7
$
52.6
17.3
%
17.3
%
Adjusted Operating Income
17.3
13.4
29.1
%
31.5
24.6
28.0
%
Adjusted Operating Margin
52.0
%
48.9
%
3.1 pp
51.1
%
46.8
%
4.3 pp
Consolidated Revenue
Total Reportable Segments
$
522.1
$
460.2
13.5
%
$
1,014.1
$
898.0
12.9
%
Corporate and All Other (2)
49.8
44.5
11.9
%
100.6
86.4
16.4
%
Total Revenue
$
571.9
$
504.7
13.3
%
13.6
%
$
1,114.7
$
984.4
13.2
%
13.3
%
Consolidated Adjusted Operating
Income
Total Reportable Segments
$
177.6
$
123.4
43.9
%
$
329.7
$
227.3
45.1
%
Less: Corporate and All Other (3)
(46.6
)
(53.7
)
(13.2
)%
(87.9
)
(105.8
)
(16.9
)%
Adjusted Operating Income
$
131.0
$
69.7
87.9
%
$
241.8
$
121.5
99.0
%
Adjusted Operating Margin
22.9
%
13.8
%
9.1 pp
21.7
%
12.3
%
9.4 pp
____________________________________________________________________________________________
(1) Organic revenue is a non-GAAP measure
that excludes acquisitions, divestitures, the impacts of the
adoption of new accounting standards or revisions to accounting
practices, and the effect of foreign currency translations. In
addition, the calculation of organic revenue growth by product
revenue type compares the three and six months ended June 30, 2024
revenue to the prior periods on the basis of the updated
classifications.
(2) Corporate and All Other provides a
reconciliation between revenue from our Total Reportable Segments
and consolidated revenue amounts. Corporate and All Other includes
Morningstar Sustainalytics and Morningstar Indexes as sources of
revenues. Revenue from Morningstar Sustainalytics was $29.2 million
and $29.4 million for the three months ended June 30, 2024 and
2023, respectively and $60.0 million and $56.8 million for the six
months ended June 30, 2024 and 2023. Revenue from Morningstar
Indexes was $20.6 million and $15.1 million for the three months
ended June 30, 2024 and 2023, respectively and $40.6 million and
$29.6 million for the six months ended June 30, 2024 and 2023.
(3) Corporate and All Other includes
unallocated corporate expenses as well as adjusted operating income
(loss) from Morningstar Sustainalytics and Morningstar Indexes.
During the second quarter of 2024 and 2023, unallocated corporate
expenses were $46.1 million and $38.9 million, respectively. During
the first six months of 2024 and 2023, unallocated corporate
expenses were $87.0 million and $75.0 million, respectively.
Unallocated corporate expenses include finance, human resources,
legal, marketing, and other management-related costs that are not
considered when segment performance is evaluated.
Morningstar, Inc. and
Subsidiaries
Supplemental Data (Unaudited)
As of June 30,
AUMA (approximate) ($bil)
2024
2023
Change
Morningstar Retirement
Managed Accounts
$
149.9
$
118.1
26.9
%
Fiduciary Services
62.6
55.4
13.0
%
Custom Models/CIT
44.7
36.9
21.1
%
Morningstar Retirement (total)
$
257.2
$
210.4
22.2
%
Investment Management
Morningstar Managed Portfolios
$
41.8
$
35.1
19.1
%
Institutional Asset Management
7.3
10.2
(28.4
)%
Asset Allocation Services
10.0
7.8
28.2
%
Investment Management (total)
$
59.1
$
53.1
11.3
%
Asset value linked to Morningstar Indexes
($bil)
$
207.6
$
169.8
22.3
%
Three months ended June
30,
Six months ended June
30,
2024
2023
Change
2024
2023
Change
Average AUMA ($bil)
$
304.9
$
258.0
18.2
%
$
298.6
$
253.9
17.6
%
Morningstar, Inc. and Subsidiaries Reconciliations of
Non-GAAP Measures with the Nearest Comparable GAAP Measures
(Unaudited)
To supplement Morningstar’s condensed consolidated financial
statements presented in accordance with U.S. Generally Accepted
Accounting Principles (GAAP), Morningstar uses the following
measures considered as non-GAAP by the Securities and Exchange
Commission, including:
- consolidated revenue, excluding acquisitions, divestitures,
adoption of new accounting standards or revisions to accounting
practices (accounting changes), and the effect of foreign currency
translations (organic revenue);
- consolidated operating income, excluding intangible
amortization expense, all merger and acquisition (M&A)-related
expenses (related to merger, acquisition, and divestiture activity,
including severance and earn-outs), and expenses related to the
significant reduction and shift of the Company's operations in
China (adjusted operating income);
- consolidated operating margin, excluding intangible
amortization expense, all M&A-related expenses, and expenses
related to the significant reduction and shift of the Company's
operations in China (adjusted operating margin);
- consolidated diluted net income (loss) per share, excluding
intangible amortization expense, all M&A-related expenses,
items related to the significant reduction and shift of the
Company's operations in China, and certain non-operating
gains/losses (adjusted diluted net income per share); and
- cash provided by or used for operating activities less capital
expenditures (free cash flow).
These non-GAAP measures may not be comparable to similarly
titled measures reported by other companies and should not be
considered an alternative to any measure or performance as
promulgated under GAAP.
Morningstar presents organic revenue because the Company
believes this non-GAAP measure helps investors better compare
period-over-period results, and Morningstar’s management team uses
this measure to evaluate the performance of the business.
Morningstar excludes revenue from acquired businesses from its
organic revenue growth calculation for a period of 12 months after
it completes the acquisition. For divestitures, Morningstar
excludes revenue in the prior-year period for which there is no
comparable revenue in the current period.
Morningstar presents adjusted operating income, adjusted
operating margin, and adjusted diluted net income per share to show
the effect of significant acquisition and divestiture activity,
better compare period-over-period results, and improve overall
understanding of the underlying performance of the business absent
the impact of M&A and the shift of Morningstar's operations in
China.
In addition, Morningstar presents free cash flow solely as
supplemental disclosure to help investors better understand how
much cash is available after making capital expenditures.
Morningstar's management team uses free cash flow to evaluate the
health of its business. Free cash flow should not be considered an
alternative to any measure required to be reported under GAAP (such
as cash provided by (used for) operating, investing, and financing
activities).
Three months ended June
30,
Six months ended June
30,
(in millions)
2024
2023
Change
2024
2023
Change
Reconciliation from consolidated revenue
to organic revenue:
Consolidated revenue
$
571.9
$
504.7
13.3
%
$
1,114.7
$
984.4
13.2
%
Less: acquisitions
—
—
—
%
—
—
—
%
Less: accounting changes
—
—
—
%
—
—
—
%
Effect of foreign currency
translations
1.4
—
NMF
0.2
—
NMF
Organic revenue
$
573.3
$
504.7
13.6
%
$
1,114.9
$
984.4
13.3
%
Reconciliation from consolidated operating
income to adjusted operating income:
Consolidated operating income
$
108.5
$
41.7
160.2
%
$
201.1
$
66.2
203.8
%
Add: Intangible amortization expense
(1)
17.5
17.7
(1.1
)%
35.2
35.2
—
%
Add: M&A-related expenses (2)
5.0
3.0
66.7
%
5.5
7.2
(23.6
)%
Add: Severance and personnel expenses
(3)
—
2.9
NMF
—
4.1
NMF
Add: Transformation costs (3)
—
2.2
NMF
—
6.4
NMF
Add: Asset impairment costs (3)
—
2.2
NMF
—
2.4
NMF
Adjusted operating income
$
131.0
$
69.7
87.9
%
$
241.8
$
121.5
99.0
%
Reconciliation from consolidated operating
margin to adjusted operating margin:
Consolidated operating margin
19.0
%
8.3
%
10.7 pp
18.0
%
6.7
%
11.3 pp
Add: Intangible amortization expense
(1)
3.0
%
3.5
%
(0.5) pp
3.2
%
3.6
%
(0.4) pp
Add: M&A-related expenses (2)
0.9
%
0.6
%
0.3 pp
0.5
%
0.7
%
(0.2) pp
Add: Severance and personnel expenses
(3)
—
%
0.6
%
(0.6) pp
—
%
0.4
%
(0.4) pp
Add: Transformation costs (3)
—
%
0.4
%
(0.4) pp
—
%
0.7
%
(0.7) pp
Add: Asset impairment costs (3)
—
%
0.4
%
(0.4) pp
—
%
0.2
%
(0.2) pp
Adjusted operating margin
22.9
%
13.8
%
9.1 pp
21.7
%
12.3
%
9.4 pp
Reconciliation from consolidated diluted
net income per share to adjusted diluted net income per share:
Consolidated diluted net income per
share
$
1.60
$
0.84
90.5
%
$
3.09
$
0.67
361.2
%
Add: Intangible amortization expense
(1)
0.30
0.31
(3.2
)%
0.61
0.61
—
%
Add: M&A-related expenses (2)
0.09
0.05
80.0
%
0.09
0.12
(25.0
)%
Add: Severance and personnel expenses
(3)
—
0.05
NMF
—
0.07
NMF
Add: Transformation costs (3)
—
0.04
NMF
—
0.11
NMF
Add: Asset impairment costs (3)
—
0.04
NMF
—
0.04
NMF
Less: Non-operating (gains) losses (4)
0.02
(0.03
)
NMF
(0.05
)
0.24
NMF
Adjusted diluted net income per share
$
2.01
$
1.30
54.6
%
$
3.74
$
1.86
101.1
%
Reconciliation from cash provided by
operating activities to free cash flow:
Cash provided by operating activities
$
152.7
$
24.5
NMF
$
246.3
$
47.9
414.2
%
Capital expenditures
(31.9
)
(30.3
)
5.3
%
(66.0
)
(59.8
)
10.4
%
Free cash flow
$
120.8
$
(5.8
)
NMF
$
180.3
$
(11.9
)
NMF
______________________________________________________________________
NMF - Not meaningful, pp - percentage
points
(1) Excludes finance lease amortization
expense of $0.1 million and $0.4 million during the three months
ended June 30, 2024 and 2023, respectively, and $0.4 million and
$0.5 million during the six months ended June 30, 2024 and 2023,
respectively.
(2) Reflects non-recurring expenses
related to merger, acquisition, and divestiture activity including
pre-deal due diligence, transaction costs, severance, and
post-close integration costs.
(3) Reflects costs associated with the
significant reduction of the Company's operations in Shenzhen,
China, and the shift of work related to its global business
functions to other Morningstar locations.
Severance and personnel expenses include
severance charges, incentive payments related to early signing of
severance agreements, transition bonuses, and stock-based
compensation related to the accelerated vesting of restricted stock
unit and market stock unit awards. In addition, the reversal of
accrued sabbatical liabilities is included in this category.
Transformation costs include professional
fees and the temporary duplication of headcount. As the Company
hired replacement roles in other markets and shifted capabilities,
it employed certain Shenzhen-based staff through the transition
period, which resulted in elevated compensation costs on a
temporary basis.
Asset impairment costs include the
write-off or accelerated depreciation of fixed assets in the
Shenzhen, China office that were not redeployed, in addition to
lease abandonment costs as the Company downsized its office space
prior to the lease termination date.
(4) Non-operating (gains) losses in the
three and six months ended June 30, 2024 and June 30, 2023, related
to realized and unrealized gains and losses on investments. In
addition, non-operating (gains) losses for the six months ended
June 30, 2023 also include expense from an equity method
transaction, net.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240723546453/en/
Media Relations Contact: Stephanie Lerdall, +1 312-244-7805,
stephanie.lerdall@morningstar.com
Investor Relations Contact: Sarah Bush, +1 312-384-3754,
sarah.bush@morningstar.com
Morningstar (NASDAQ:MORN)
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Morningstar (NASDAQ:MORN)
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