UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13
or 15(d) of
the Securities
Exchange Act of 1934
Date
of Report (Date of earliest event reported):
June 5,
2009
MORNINGSTAR,
INC.
(Exact
name of registrant as specified in its charter)
Illinois
|
|
000-51280
|
|
36-3297908
|
(State or other jurisdiction
of incorporation)
|
|
(Commission
File Number)
|
|
(I.R.S. Employer
Identification No.)
|
22 West Washington Street
Chicago, Illinois 60602
(Address
of principal executive offices)
(312) 696-6000
(Registrants
telephone number, including area code)
N/A
(Former
name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K
filing is intended to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions:
o
Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o
Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
7.01. Regulation FD Disclosure.
The following information is included
in this Current Report on Form 8-K as a result of Morningstar, Inc.s
policy regarding public disclosure of corporate information. Answers to
additional inquiries, if any, that comply with this policy are scheduled to
become available on July 6, 2009.
Caution Concerning
Forward-Looking Statements
This current report on Form 8-K
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 may, could, expect,
intend, plan, seek, anticipate, believe, estimate, predict, potential,
or continue. 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, general industry conditions and competition, including
the current global financial crisis that began in 2007; the impact of market
volatility on revenue from asset-based fees; damage to our reputation resulting
from claims made about possible conflicts of interest; liability for any losses
that result from an actual or claimed breach of our fiduciary duties; financial
services industry consolidation; a prolonged outage of our database and network
facilities; challenges faced by our non-U.S. operations; and the availability
of free or low-cost investment information.
A more complete description of these
risks and uncertainties can be found in our Annual Report on Form 10-K for
the year ended December 31, 2008. If any of these risks and uncertainties
materialize, our actual future results may vary significantly from what we
expected. We do not undertake to update our forward-looking statements as a
result of new information or future events.
Investor Questions and
Answers: June 2009
We plan to make written responses
available addressing investor questions about our business on the first Friday
of every month. The following answers respond to selected questions received
through June 2, 2009. We intend to answer as many questions as time
allows, although we will not answer product support questions through this
channel. We may wait to respond to a given question until the following month
if we need more time to research the answer.
If you would like to submit a question,
please send an e-mail to investors@morningstar.com, contact us via fax at
312-696-6009, or write to us at the following address:
Morningstar, Inc.
Investor Relations
22 W. Washington
Chicago, IL 60602
Business and Revenue Growth Trends
1.
Will MORN need to see a rebound in subscriber growth in retail and/or
institutional before revenue growth returns (most importantly for
Morningstar.com)? If so, how many quarters will net subscriber growth need to
return before you see a return to revenue growth? Please comment about both
institutional workstations [Morningstar Direct and Morningstar Advisor
Workstation] and Morningstar.com.
2
Revenue
growth and subscriber growth generally follow similar patterns, but dont always
move in lockstep. With Morningstar.com, for example, revenue continued to increase
in the first quarter of 2009 despite lower Premium Membership levels because of
the price increases we implemented in January. Morningstar Direct and
Morningstar Advisor Workstation both had continued growth in licenses and revenue
in the first quarter, though at lower levels than in the past.
Its also
worth noting that foreign currency movements had a significant impact on our
results in the first quarter of 2009, reducing revenue growth by about 5
percentage points.
2.
Can you please comment whether business got any better in any of your
businesses in April and/or March vs. Jan/Feb.? Has business in April and
early May been showing any better trends vs. Q1?
Regarding
business trends in March, we saw the rate of revenue decline level off to some
extent within the first quarter and more stabilization in some products, but
other areas varied during the quarter.
Regarding April and
May, its our policy not to comment on intra-quarter business trends. Well be
discussing our second-quarter results when we issue our next earnings release,
which is scheduled for July 30, 2009.
10-K Wizard and XBRL
3.
What are your thoughts regarding the XBRL language that is being
readied? What impact will this launch
have on the business of 10-K Wizard?
Beginning with
filings made in mid-June, the largest U.S. public companies will be required to
provide eXtensible Business Reporting Language (XBRL) versions of their SEC filings
and financial statements, with other companies phased in over the next two
years. We believe that while XBRL may make it easier for investors to extract
and analyze information from company filings, there will still be a market need
for outside sources that collect, analyze, and compile data.
Morningstar
has many years of experience with electronic data collection, and were already
using XBRL to collect data from companies that have been filing in XBRL in the
voluntary pilot program. Were excited about the advent of XBRL because it will
enable us to collect more data with the resources we have.
XBRL only
covers limited portions of the data for companies (financial statements) and
funds (the risk and returns section of a prospectus). We look forward to XBRLs
expansion to more of the data we collect. Because XBRL only covers certain portions
of the filings and 10-K Wizard covers the complete filing, we dont expect this
to have an adverse impact on 10-K Wizards business. In addition, 10-K Wizard
collects other filings that have not been mandated to be filed in XBRL.
10-K
Wizard has been working on developing technology to transform the XBRL code
into readable, usable, and exportable financial information for several years.
10-K Wizards research clients can receive the benefits of real-time conversion
of coded financials into HTML, Excel, or data feeds for their applications. In
addition, 10-K Wizards Investor Relations solution uses this technology to
provide an XBRL viewer that can be used by visitors to corporate client Web
sites.
Retention Rate Calculation
4.
Im a shareholder of Morningstar and I was looking at your annual
report recently, trying to dig into the details. I noticed the following
section in your last 10-K:
We use two different methods for
calculating retention. For subscription-based products (including our print
newsletters, Morningstar.com Premium Membership
3
service, and Principia software), we track
the number of subscriptions retained during the year. For products sold through
contracts and licenses, we use the contract value method, which is based on
tracking the dollar value of renewals compared with the total dollar value of
contracts up for renewal during the period.
I was wondering specifically how you calculate out
your retention rates for your subscription products. I think wed all agree
that these figures are tremendously important, so Id like to know specifically
how you go about calculating this metric. Youve already given the specific
numbers, as shown here:
In 2008, we estimate that our retention
rate for subscription-based products, such as Principia, Morningstar.com
Premium Membership service, and print and online newsletters, averaged between
60% and 65%, down from 65% to 70% in 2007.
Id just like to know how you got there.
For
subscription-based products (including print publications, Morningstar.com Premium
Membership service, and products such as Principia) we derive the retention
rate by starting with a churn rate. To determine churn, we total the number of
cancellations and nonrenewals during the period and divide this amount by the
average circulation during the previous 12-month period. We define the
retention rate as 100% minus the churn rate, so a product with a 20% churn rate
would have an 80% retention rate.
Investment Consulting
5.
During the Annual Meeting in May, I believe [you mentioned] the two
Investment Consulting (IC) clients that have been lost were both variable
annuity customers. Can you indicate how many other variable annuity customers
you have that are using your IC services?
If not, can you give some broad direction as to what areas your IC
customers generally fall?
Insurance
companies (including variable annuity providers) make up a large portion of our
client base in Investment Consulting. We estimate that roughly one-half of our Investment
Consulting revenue was from variable annuity customers in 2008. We also provide
consulting services to other investment management companies, mutual fund
companies, and broker-dealers, as well as retirement plan sponsors and
providers.
6.
Has the client loss situation in the consulting business stabilized?
We always
have client wins and losses in the normal course of business, but we havent
lost any major Investment Consulting contracts after the two client nonrenewals
we previously disclosed.
Morningstar Equity Research
7.
Can you please review the annual dollar amount from the analyst
settlement and the operating profitability of that business?
In 2008,
revenue related to the Global Analyst Research Settlement totaled about $22
million, or approximately 4% of our consolidated revenue.
We dont
report operating income at the product level, so were not going to comment
about the operating profitability of this business.
8.
Is it safe to assume that operating profit in the investment
information will drop nearly inline, more or less than the drop from the
settlement revenue loss?
4
The
operating profit in our Investment Information segment depends on many
different factors, including revenue for other key products and our cost
structure in the segment. As weve said in the past, though, the operating
leverage of our business can reduce profitability when revenue decreases. In
general, our businesses have high fixed costs, meaning that changes in revenue
tend to flow through to operating income.
9.
When you say you expect to lose most of the analyst settlement
revenues, can I interpret that as 75%+?
80%+? 90%+? Nearly all?
The Global
Analyst Research Settlement period expires in July 2009, so all of the
revenue directly related to the settlement will cease at that point. We hope
some of the companies involved in the settlement will enter into new agreements
with us to provide independent research to their financial advisors and clients,
but we dont know exactly how much business well retain from these clients.
10.
Will the
analysts you hired for the research produced for the analyst settlement be
retained in light of the revenue loss? Are there other costs that can or will
be cut as you lose this revenue?
Our cost
structure for Morningstar Equity Research largely consists of compensation
costs for our staff of more than 100 analysts. We plan to maintain broad equity
coverage following the end of the settlement period, although we may need to
adjust coverage and staffing levels based on client demand.
Aside from
compensation expense, other costs for Equity Research include travel, sales,
and marketing. We have made some reductions in these areas as part of the
broader cost-savings initiative we implemented across the company earlier this
year.
5
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly authorized.
|
MORNINGSTAR, INC.
|
|
|
|
|
Date: June 5, 2009
|
By:
|
/s/ Scott Cooley
|
|
Name:
|
Scott Cooley
|
|
Title:
|
Chief Financial Officer
|
6
Morningstar (NASDAQ:MORN)
Historical Stock Chart
From Jun 2024 to Jul 2024
Morningstar (NASDAQ:MORN)
Historical Stock Chart
From Jul 2023 to Jul 2024