CHICAGO, April 27, 2011 /PRNewswire/ -- Morningstar, Inc.
(NASDAQ: MORN), a leading provider of independent investment
research, today announced its first-quarter 2011 financial results.
The company reported consolidated revenue of $151.8 million in the first quarter of 2011, an
increase of 18.3% from $128.3 million
in the first quarter of 2010. Consolidated operating income was
$31.8 million in the first quarter of
2011, an increase of 2.8% compared with $30.9 million in the same period a year ago. Net
income was $22.5 million, or
44 cents per diluted share, compared
with $20.2 million, or 40 cents per diluted share, in the first quarter
of 2010.
Excluding acquisitions and the effect of foreign currency
translations, revenue rose 10%. First-quarter results included
$9.0 million in revenue from
acquisitions. Foreign currency translations had a favorable effect
of $1.7 million. Revenue excluding
acquisitions and foreign currency translations (organic revenue) is
a non-GAAP measure; the accompanying financial tables contain a
reconciliation to consolidated revenue.
Joe Mansueto, chairman and chief
executive officer of Morningstar, said, "Organic revenue rose 10%
in the first quarter, with increases across all major product
lines. Morningstar Direct and Investment Consulting led the growth.
Although operating margin declined by 3.1 percentage points, the
majority of the decline was related to a $3.2 million expense for the previously announced
separation agreement with our former chief operating officer. We
generated free cash flow of $9.3
million, after paying $37.5
million in bonuses, and ended the quarter with $385 million in cash and investments."
Mansueto added, "During the quarter we launched several new
research initiatives. We added important data points to help ETF
investors analyze total costs. We began offering qualitative
reports and ratings for closed-end funds and new portfolio
management tools on Morningstar.com. We also held our first
institutional investor conference in Europe and published our second Global Fund
Investor Experience study, which compares how fund investors are
treated in 22 different countries. All of these efforts support our
growth strategy to continue building thought leadership in
independent investment research."
Key Business Drivers
Morningstar has two operating segments: Investment Information
and Investment Management. The Investment Information segment
includes all of the company's data, software, and research products
and services. These products and services are typically sold
through subscriptions or license agreements. The Investment
Management segment includes all of the company's asset management
operations, which earn more than half of their revenue from
asset-based fees.
Revenue: In the first quarter of 2011, revenue in the
Investment Information segment was $120.4
million, an increase of $16.9
million, or 16.3%, compared with the first quarter of 2010,
including $7.7 million from
acquisitions. Excluding acquisitions, revenue in this segment rose
year over year, with particular strength in institutional and
advisor software. Revenue in the Investment Management segment rose
26.7% to $31.4 million, including
$1.3 million from acquisitions.
Excluding acquisitions, revenue in this segment increased year over
year across all product lines.
Revenue from international operations was $43.6 million in the first quarter of 2011, an
increase of 22.2% from the same period a year ago. International
revenue included $3.5 million from
acquisitions. Foreign currency translations had a favorable effect
of $1.7 million on international
revenue. Excluding acquisitions and foreign currency translations,
international revenue rose 7.7% in the first quarter. International
revenue excluding acquisitions and foreign currency translations is
a non-GAAP measure; the accompanying financial tables contain a
reconciliation to international revenue.
Operating Income: Consolidated operating income was
$31.8 million in the first quarter of
2011, a 2.8% increase from the same period in 2010. Operating
expense rose $22.6 million, or
23.2%.
Incremental operating expense related to businesses acquired in
2010 represented approximately 40% of the operating expense
increase. The company completed seven acquisitions in 2010. Because
of the timing of these acquisitions, first-quarter 2011 results
include operating expense that did not exist in the same period in
2010.
Approximately 40% of the growth in total operating expense was
due to higher salaries, reflecting additional headcount from
acquisitions and filling open positions, as well as salary
increases made in July 2010.
Incentive compensation and employee benefit costs represented
another 18% of the overall operating expense increase. Bonus
expense rose $2.4 million compared
with the prior-year period, primarily in general and administrative
expense. Sales commissions were $0.9
million higher, reflecting improved sales activity. In 2011,
Morningstar reinstated some of the benefits it suspended in
previous years. This included increasing the matching contributions
to its 401(k) plan in the United
States, representing approximately $0.8 million of expense in the quarter.
General and administrative expense in the first quarter of 2011
includes $3.2 million for a
previously announced separation agreement with Morningstar's former
chief operating officer.
Morningstar had approximately 3,235 employees worldwide as of
March 31, 2011, compared with 2,760
as of March 31, 2010. Headcount rose
year over year because of continued hiring in the company's
development centers in China and
India as well as acquisitions.
The company's operating margin was 21.0% in the first quarter of
2011, down from 24.1% in the same period in 2010. The $3.2 million expense related to the separation
agreement contributed 2.1 percentage points to the margin decline.
Acquisitions also contributed to the lower margin, but to a lesser
extent.
As a percentage of revenue, most operating expense categories
did not significantly change in the first quarter of 2011. General
and administrative (G&A) expense, however, rose more in
percentage terms mainly because of the separation agreement
expense. Separately, bonus expense included in G&A increased
$3.2 million because the company paid
a greater portion of the 2010 bonus to employees in this category
compared with its initial estimate.
Effective Tax Rate: Morningstar's effective tax rate in
the first quarter of 2011 was 31.8%, reflecting the positive effect
of certain income tax benefits, the difference between U.S. federal
and foreign tax rates, and tax credits related to Morningstar's
research and development activities. The effective tax rate
declined 3.5 percentage points, primarily reflecting the positive
effect of certain deferred income tax benefits recorded in the
first quarter of 2011.
Free Cash Flow: Morningstar generated free cash flow of
$9.3 million in the first quarter of
2011, reflecting cash provided by operating activities of
$14.3 million and $5.0 million of capital expenditures.
Cash flow from operating activities was flat compared with the
prior-year period despite a $16.1
million increase in bonus payments this quarter. The company
made bonus payments of $37.5 million
in the first quarter of 2011, compared with $21.4 million in the first quarter of 2010.
Morningstar typically pays annual bonuses in the first quarter. As
a result, first-quarter operating cash flow tends to be lower
compared with subsequent quarters.
Capital expenditures increased $3.4
million in the quarter, primarily reflecting payments for
the company's new development center in China.
Free cash flow is a non-GAAP measure; the accompanying financial
tables contain a reconciliation to cash provided by operating
activities. Morningstar defines free cash flow as cash provided by
or used for operating activities less capital expenditures.
As of March 31, 2011, Morningstar
had cash, cash equivalents, and investments of $385.3 million, compared with $365.4 million as of Dec.
31, 2010. On April 29, 2011,
the company expects to pay approximately $2.5 million for its regular quarterly
dividend.
Business Segment Performance
Investment Information Segment: The largest products and
services in this segment based on revenue are Morningstar® Licensed
Data; Morningstar® Advisor Workstation(SM) (including Morningstar Office); Morningstar.com®, including
Premium Memberships and advertising sales; and Morningstar
Direct(SM).
- Revenue was $120.4 million in the
first quarter of 2011, a 16.3% increase from $103.5 million in the first quarter of 2010.
- Acquisitions contributed revenue of $7.7
million.
- Morningstar Direct was the largest contributor to the increase
in segment revenue; Morningstar Advisor Workstation (including
Morningstar Office), Licensed Data,
Site Builder and Licensed Tools, and Internet advertising sales on
Morningstar.com were also positive contributors. Licenses for
Morningstar Direct rose 35% to 5,092. Premium Membership
subscriptions for Morningstar.com fell about 6% because of ongoing
weakness in new trials. Morningstar Advisor Workstation licenses
rose slightly to 155,519, and Principia subscriptions declined 6%
to 32,884.
- Operating income was $32.3
million in the first quarter of 2011, compared with
$32.7 million in the same period in
2010. Operating expense in this segment increased $17.3 million, or 24.5%, with approximately 40%
of the increase from acquisitions. Higher compensation, bonus,
commission, and benefits expense also contributed to the
increase.
- Operating margin was 26.8% in the first quarter of 2011 versus
31.6% in the prior-year period. The decrease mainly reflects higher
compensation-related expense as a percentage of revenue.
Acquisitions reduced the segment's margin by about 1 percentage
point.
Investment Management Segment: The largest products in
this segment based on revenue are Investment Consulting; Retirement
Advice, including Advice by Ibbotson® and Morningstar® Retirement
Manager(SM); and Morningstar® Managed Portfolios(SM).
- Revenue was $31.4 million in the
first quarter of 2011, an increase of 26.7% from $24.8 million in the same period in 2010.
- Acquisitions contributed revenue of $1.3
million.
- Investment Consulting and Retirement Advice were the primary
drivers behind the revenue growth. Morningstar Managed Portfolios
also contributed to the increase, but to a lesser extent.
- Assets under advisement for Investment Consulting were
$111.7 billion as of March 31, 2011, compared with $62.6 billion as of March
31, 2010. Approximately $41.1
billion of the assets reflects a new fund-of-funds program
that began in May 2010 for an
existing Morningstar Associates client. Excluding assets from this
program, assets under advisement increased about 13% year over
year, mainly reflecting positive market performance. Assets under
management for Retirement Advice rose to $20.6 billion as of March
31, 2011, versus $16.1 billion
as of March 31, 2010. Assets under
management for Morningstar Managed Portfolios increased to
$2.9 billion as of March 31, 2011, compared with $2.3 billion as of March
31, 2010.
- Operating income in the Investment Management segment was
$17.0 million in the first quarter of
2011, an increase of 28.2% compared with the first quarter of 2010.
Operating expense in the segment rose $2.8
million, or 24.8%, partly reflecting incremental operating
expense from acquisitions. Higher compensation-related expense also
contributed to the growth in operating expense.
- Operating margin improved to 54.3% in the first quarter of 2011
versus 53.7% in the prior-year period, because revenue growth
exceeded operating expense growth.
Intangible Amortization and Corporate Depreciation Expense:
Morningstar does not allocate expense for intangible
amortization or corporate depreciation to its operating segments.
Intangible amortization, which represents the majority of the
expense in this category, was $6.5
million in the first quarter of 2011, an increase of
$1.0 million, reflecting additional
amortization expense from acquisitions. Corporate depreciation
expense was $1.8 million in the first
quarter.
Corporate Unallocated: This category includes costs
related to corporate functions, including general management,
information technology used to support corporate systems, legal,
finance, human resources, marketing, and corporate communications.
Costs in this category were $9.2
million, an increase of $1.4
million, or 17.7%. This change includes $3.2 million related to the separation agreement
with the company's former chief operating officer. The company
capitalized $0.6 million of operating
expense in the quarter for software development, partially
offsetting the increase in operating expense. In addition, in the
first quarter of 2010, the company expensed $0.8 million to increase a liability for vacant
office space. This expense did not recur in the first quarter of
2011.
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 an e-mail to investors@morningstar.com, contact the company
via fax at 312-696-6009, or write to Morningstar at the following
address:
Morningstar, Inc.
Investor Relations
22 W. Washington Street
Chicago, IL 60602
Morningstar will make written responses to selected inquiries
available to all investors at the same time in Form 8-Ks furnished
to the Securities and Exchange Commission, generally on the first
Friday of every month.
Annual Shareholders' Meeting
Investors are invited to attend Morningstar's annual meeting at
9 a.m. on Tuesday, May 17, 2011, at its corporate
headquarters at 22 W. Washington Street in Chicago. If you are interested in attending,
please register at
http://corporate.morningstar.com/US/asp/meetingregistration.aspx.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent
investment research in North
America, Europe,
Australia, and Asia. The company offers an extensive line of
Internet, software, and print-based products and services for
individuals, financial advisors, and institutions. Morningstar
provides data on approximately 390,000 investment offerings,
including stocks, mutual funds, and similar vehicles, along with
real-time global market data on more than 5 million equities,
indexes, futures, options, commodities, and precious metals, in
addition to foreign exchange and Treasury markets. Morningstar also
offers investment management services and has nearly $140 billion in assets under advisement and
management as of March 31, 2011. The
company has operations in 26 countries.
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 "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 discussed not to occur or to differ significantly
from what we expected. For us, these risks and uncertainties
include, among others, general industry conditions and competition,
including current global financial uncertainty; 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 filings with the Securities and Exchange Commission,
including our Annual Report on Form 10-K for the year ended
December 31, 2010. 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.
Non-GAAP Financial Measures
To supplement Morningstar's 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:
free cash flow, consolidated revenue excluding acquisitions
and foreign currency translations (organic revenue), and
international revenue excluding acquisitions and foreign currency
translations. These non-GAAP measures may not be comparable to
similarly titled measures reported by other companies.
Morningstar presents free cash flow solely as supplemental
disclosure to help investors better understand how much cash is
available after Morningstar spends money to operate its business.
Morningstar uses free cash flow to evaluate 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). For more
information on free cash flow, please see the reconciliation from
cash provided by operating activities to free cash flow included in
the accompanying financial tables. Morningstar presents
consolidated revenue excluding acquisitions and foreign currency
translations (organic revenue) and international revenue excluding
acquisitions and foreign currency translations because the company
believes these non-GAAP measures help investors better compare
period-to-period results. For more information, please see the
reconciliation provided in the accompanying financial tables.
All dollar and percentage comparisons, which are often
accompanied by words such as "increase," "decrease," "grew,"
"declined, "or "was similar" refer to a comparison with the same
period in the previous year unless otherwise stated.
©2011 Morningstar, Inc. All rights reserved.
MORN-E
Contacts:
Media: Margaret Kirch Cohen,
312-696-6383 or margaret.cohen@morningstar.com
Investors may submit questions to investors@morningstar.com or by
fax to 312-696-6009.
Morningstar, Inc. and
Subsidiaries
|
|
Unaudited Condensed Consolidated
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31
|
|
|
|
(in thousands, except per share
amounts)
|
|
2011
|
|
2010
|
|
change
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ 151,767
|
|
$ 128,290
|
|
18.3%
|
|
Operating expense(1):
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
40,669
|
|
34,316
|
|
18.5%
|
|
|
Development
|
|
11,988
|
|
10,889
|
|
10.1%
|
|
|
Sales and marketing
|
|
26,482
|
|
22,561
|
|
17.4%
|
|
|
General and
administrative
|
|
30,617
|
|
20,643
|
|
48.3%
|
|
|
Depreciation and
amortization
|
|
10,202
|
|
8,939
|
|
14.1%
|
|
|
Total operating
expense
|
|
119,958
|
|
97,348
|
|
23.2%
|
|
Operating income
|
|
31,809
|
|
30,942
|
|
2.8%
|
|
Operating margin
|
|
21.0%
|
|
24.1%
|
|
(3.1)pp
|
|
|
|
|
|
|
|
|
|
|
Non-operating income (expense),
net:
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
524
|
|
587
|
|
(10.7%)
|
|
|
Other income (expense),
net
|
|
250
|
|
(766)
|
|
NMF
|
|
|
Non-operating
income (expense), net
|
|
774
|
|
(179)
|
|
NMF
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and
equity in net income
|
|
|
|
|
|
|
|
|
of unconsolidated
entities
|
|
32,583
|
|
30,763
|
|
5.9%
|
|
Income tax expense
|
|
10,518
|
|
10,995
|
|
(4.3%)
|
|
Equity in net income of
unconsolidated entities
|
|
374
|
|
389
|
|
(3.9%)
|
|
Consolidated net
income
|
|
22,439
|
|
20,157
|
|
11.3%
|
|
Net loss attributable to
noncontrolling interests
|
|
98
|
|
31
|
|
216.1%
|
|
Net income attributable to
Morningstar, Inc.
|
|
$ 22,537
|
|
$ 20,188
|
|
11.6%
|
|
|
|
|
|
|
|
|
|
|
Net income per share
attributable to Morningstar, Inc.:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
0.45
|
|
$
0.41
|
|
9.8%
|
|
|
Diluted
|
|
$
0.44
|
|
$
0.40
|
|
10.0%
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
49,800
|
|
48,828
|
|
|
|
|
Diluted
|
|
50,953
|
|
50,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
(1) Includes stock-based
compensation expense of:
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
$
879
|
|
$
715
|
|
|
|
|
Development
|
|
471
|
|
393
|
|
|
|
|
Sales and marketing
|
|
422
|
|
403
|
|
|
|
|
General and
administrative
|
|
1,877
|
|
1,426
|
|
|
|
|
Total stock-based
compensation expense
|
|
$ 3,649
|
|
$ 2,937
|
|
|
|
|
|
|
|
|
|
|
|
|
NMF — Not meaningful, pp —
percentage points
|
|
|
|
|
|
|
|
|
|
Morningstar, Inc. and
Subsidiaries
|
|
Operating Expense as a
Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31
|
|
|
|
|
2011
|
|
2010
|
|
change
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
100.0%
|
|
100.0%
|
|
-
|
|
Operating expense(1):
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
26.8%
|
|
26.7%
|
|
0.1pp
|
|
|
Development
|
|
7.9%
|
|
8.5%
|
|
(0.6)pp
|
|
|
Sales and marketing
|
|
17.4%
|
|
17.6%
|
|
(0.2)pp
|
|
|
General and
administrative
|
|
20.2%
|
|
16.1%
|
|
4.1pp
|
|
|
Depreciation and
amortization
|
|
6.7%
|
|
7.0%
|
|
(0.3)pp
|
|
|
Total operating
expense(2)
|
|
79.0%
|
|
75.9%
|
|
3.1pp
|
|
Operating margin
|
|
21.0%
|
|
24.1%
|
|
(3.1)pp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31
|
|
|
|
|
2011
|
|
2010
|
|
change
|
|
(1) Includes stock-based
compensation expense of:
|
|
|
|
Cost of goods sold
|
|
0.6%
|
|
0.6%
|
|
-
|
|
|
Development
|
|
0.3%
|
|
0.3%
|
|
-
|
|
|
Sales and marketing
|
|
0.3%
|
|
0.3%
|
|
-
|
|
|
General and
administrative
|
|
1.2%
|
|
1.1%
|
|
0.1pp
|
|
|
Total stock-based
compensation expense(2)
|
|
2.4%
|
|
2.3%
|
|
0.1pp
|
|
|
|
|
|
|
|
|
|
|
(2) Sum of percentages may
not equal total because of
rounding.
|
|
|
|
|
|
|
|
|
|
Morningstar, Inc. and
Subsidiaries
|
|
Unaudited Condensed Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31
|
|
($000)
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Consolidated net
income
|
|
$ 22,439
|
|
$ 20,157
|
|
Adjustments to reconcile
consolidated net income to net cash
|
|
|
|
|
|
flows from operating
activities:
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
10,202
|
|
8,939
|
|
|
Deferred income tax
benefit
|
|
(677)
|
|
(1,287)
|
|
|
Stock-based compensation
expense
|
|
3,649
|
|
2,937
|
|
|
Equity in net income of
unconsolidated entities
|
|
(374)
|
|
(389)
|
|
|
Excess tax benefits from stock
option exercises
|
|
|
|
|
|
|
and vesting of restricted
stock units
|
|
(4,122)
|
|
(3,048)
|
|
|
Other, net
|
|
(227)
|
|
954
|
|
Changes in operating assets and
liabilities, net of
|
|
|
|
|
|
effects of
acquisitions:
|
|
|
|
|
|
|
Accounts receivable
|
|
(3,357)
|
|
(4,867)
|
|
|
Other assets
|
|
1,453
|
|
(480)
|
|
|
Accounts payable and accrued
liabilities
|
|
(2,600)
|
|
1,174
|
|
|
Accrued compensation
|
|
(26,876)
|
|
(22,516)
|
|
|
Deferred revenue
|
|
9,847
|
|
10,430
|
|
|
Income taxes -
current
|
|
5,297
|
|
3,681
|
|
|
Deferred rent
|
|
(399)
|
|
(392)
|
|
|
Other liabilities
|
|
91
|
|
(843)
|
|
|
Cash provided by operating activities
|
|
14,346
|
|
14,450
|
|
Investing
activities
|
|
|
|
|
|
Purchases of
investments
|
|
(67,352)
|
|
(50,964)
|
|
Proceeds from maturities and
sales of investments
|
|
62,359
|
|
87,934
|
|
Capital expenditures
|
|
(5,037)
|
|
(1,650)
|
|
Acquisitions, net of cash
acquired
|
|
-
|
|
(738)
|
|
Other, net
|
|
(14)
|
|
-
|
|
|
Cash
provided by (used for) investing activities
|
|
(10,044)
|
|
34,582
|
|
Financing
activities
|
|
|
|
|
|
Proceeds from stock option
exercises
|
|
4,921
|
|
3,494
|
|
Excess tax benefits from stock
option exercises
|
|
|
|
|
|
and vesting of restricted
stock units
|
|
4,122
|
|
3,048
|
|
Dividends paid
|
|
(2,494)
|
|
-
|
|
Other, net
|
|
(214)
|
|
315
|
|
|
Cash
provided by financing activities
|
|
6,335
|
|
6,857
|
|
Effect of exchange rate changes
on cash and cash equivalents
|
|
2,561
|
|
(1,032)
|
|
Net increase in cash and cash
equivalents
|
|
13,198
|
|
54,857
|
|
Cash and cash
equivalents—Beginning of period
|
|
180,176
|
|
130,496
|
|
Cash and cash equivalents—End of
period
|
|
$ 193,374
|
|
$ 185,353
|
|
|
|
|
|
|
|
|
Reconciliation from cash
provided by operating activities to free cash flow (a non-GAAP
measure):
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31
|
|
($000)
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
Cash provided by operating
activities
|
|
$ 14,346
|
|
$ 14,450
|
|
Less: Capital
expenditures
|
|
(5,037)
|
|
(1,650)
|
|
Free cash flow
|
|
$ 9,309
|
|
$ 12,800
|
|
|
|
|
|
|
|
Morningstar, Inc. and
Subsidiaries
|
|
Unaudited Condensed Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
March
31
|
|
December
31
|
|
($000)
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
193,374
|
|
$
180,176
|
|
|
Investments
|
|
191,886
|
|
185,240
|
|
|
Accounts receivable,
net
|
|
115,259
|
|
110,891
|
|
|
Deferred tax asset,
net
|
|
2,648
|
|
2,860
|
|
|
Income tax receivable,
net
|
|
9,361
|
|
10,459
|
|
|
Other
|
|
15,450
|
|
17,654
|
|
|
Total current assets
|
|
527,978
|
|
507,280
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
62,364
|
|
62,105
|
|
Investments in unconsolidated
entities
|
|
24,664
|
|
24,262
|
|
Goodwill
|
|
325,318
|
|
317,661
|
|
Intangible assets,
net
|
|
162,569
|
|
169,023
|
|
Other assets
|
|
7,335
|
|
5,971
|
|
|
Total assets
|
|
$
1,110,228
|
|
$
1,086,302
|
|
|
|
|
|
|
|
|
Liabilities and
equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
40,528
|
|
$
42,680
|
|
|
Accrued compensation
|
|
36,799
|
|
62,404
|
|
|
Deferred revenue
|
|
157,660
|
|
146,267
|
|
|
Other
|
|
1,446
|
|
1,373
|
|
|
Total current liabilities
|
|
236,433
|
|
252,724
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
5,071
|
|
4,965
|
|
Deferred tax liability,
net
|
|
18,503
|
|
19,975
|
|
Other long-term
liabilities
|
|
26,468
|
|
27,213
|
|
|
Total liabilities
|
|
286,475
|
|
304,877
|
|
|
Total equity
|
|
823,753
|
|
781,425
|
|
|
Total liabilities and
equity
|
|
$
1,110,228
|
|
$
1,086,302
|
|
|
|
|
|
|
|
Morningstar, Inc. and
Subsidiaries
|
|
Segment
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March
31
|
|
($000)
|
|
2011
|
|
2010
|
|
change
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Investment
Information
|
|
$ 120,399
|
|
$ 103,524
|
|
16.3%
|
|
|
Investment Management
|
|
31,368
|
|
24,766
|
|
26.7%
|
|
|
Consolidated revenue
|
|
$ 151,767
|
|
$ 128,290
|
|
18.3%
|
|
|
|
|
|
|
|
|
|
|
|
Revenue—U.S.
|
|
$ 108,181
|
|
$ 92,610
|
|
16.8%
|
|
|
Revenue—International
|
|
$ 43,586
|
|
$ 35,680
|
|
22.2%
|
|
|
|
|
|
|
|
|
|
|
|
Revenue—U.S. (percentage of
consolidated revenue)
|
71.3%
|
|
72.2%
|
|
(0.9)pp
|
|
|
Revenue—International
(percentage of consolidated revenue)
|
28.7%
|
|
27.8%
|
|
0.9pp
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)(1)
|
|
|
|
|
|
|
|
|
Investment
Information
|
|
$ 32,307
|
|
$ 32,746
|
|
(1.3%)
|
|
|
Investment Management
|
|
17,046
|
|
13,293
|
|
28.2%
|
|
|
Intangible amortization and
corporate depreciation expense
|
(8,301)
|
|
(7,246)
|
|
14.6%
|
|
|
Corporate unallocated
|
|
(9,243)
|
|
(7,851)
|
|
17.7%
|
|
|
Consolidated operating
income
|
|
$ 31,809
|
|
$ 30,942
|
|
2.8%
|
|
|
|
|
|
|
|
|
|
|
Operating
margin(1)
|
|
|
|
|
|
|
|
|
Investment
Information
|
|
26.8%
|
|
31.6%
|
|
(4.8)pp
|
|
|
Investment Management
|
|
54.3%
|
|
53.7%
|
|
0.6pp
|
|
|
Consolidated operating
margin
|
|
21.0%
|
|
24.1%
|
|
(3.1)pp
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based
compensation expense allocated to each
segment.
|
|
|
|
|
|
|
|
|
|
Morningstar, Inc. and
Subsidiaries
|
|
Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
%
change
|
|
Our employees
|
|
|
|
|
|
|
|
Worldwide headcount
(approximate)
|
|
3,235
|
|
2,760
|
|
17.2%
|
|
Number of worldwide equity and
credit analysts
|
|
117
|
|
104
|
|
12.5%
|
|
Number of worldwide fund
analysts
|
|
91
|
|
90
|
(1)
|
1.1%
|
|
|
|
|
|
|
|
|
|
|
Our business
|
|
|
|
|
|
|
|
Investment
Information
|
|
|
|
|
|
|
|
Morningstar.com Premium
subscriptions (U.S.)
|
|
138,607
|
|
146,726
|
|
(5.5%)
|
|
Registered users for
Morningstar.com (U.S.)
|
|
6,396,188
|
|
6,114,706
|
|
4.6%
|
|
U.S. Advisor Workstation and
Morningstar Office licenses
|
|
155,519
|
|
154,474
|
|
0.7%
|
|
Principia
subscriptions
|
|
32,884
|
|
35,033
|
|
(6.1%)
|
|
Morningstar Direct
licenses
|
|
5,092
|
|
3,771
|
|
35.0%
|
|
|
|
|
|
|
|
|
|
|
Investment Management
|
|
|
|
|
|
|
|
Assets under advisement for
Investment Consulting
|
|
$111.7 bil
|
|
$62.6 bil
|
|
78.4%
|
|
Assets under management for
managed retirement accounts
|
|
$20.6 bil
|
|
$16.1 bil
|
|
28.0%
|
|
Assets under management for
Morningstar Managed Portfolios
|
|
$2.9 bil
|
|
$2.3 bil
|
|
26.1%
|
|
Assets under management for
Ibbotson Australia
|
|
$3.5 bil
|
|
$3.6 bil
|
|
(2.8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Morningstar has revised the
fund analysts total to only include employees responsible for
writing analyst research reports.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31
|
|
($000)
|
|
|
|
2011
|
|
2010
|
|
Effective tax
rate
|
|
|
|
|
|
|
|
Income before income taxes and
equity in net income of
|
|
|
|
|
|
|
|
|
unconsolidated
entities
|
|
|
|
$ 32,583
|
|
$ 30,763
|
|
Equity in net income of
unconsolidated entities
|
|
|
|
374
|
|
389
|
|
Net loss attributable to
noncontrolling interests
|
|
|
|
98
|
|
31
|
|
|
Total
|
|
|
|
$ 33,055
|
|
$ 31,183
|
|
Income tax expense
|
|
|
|
$ 10,518
|
|
$ 10,995
|
|
Effective tax rate
|
|
|
|
31.8%
|
|
35.3%
|
|
|
|
|
|
|
|
|
|
Morningstar, Inc. and
Subsidiaries
|
|
Reconciliations of Non-GAAP
Measures with the Nearest Comparable GAAP Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morningstar includes an acquired
operation as part of revenue and expense from acquisitions for 12
months after we complete the acquisition. Operating
|
|
expense related to acquisitions
also includes amortization of intangible assets, professional fees,
and expense related to vacant office space incurred as
part
|
|
of the acquisition process. It's
important to note that it's difficult to precisely quantify the
amount of operating expense from acquisitions. We don't
always
|
|
maintain acquired operations as
stand-alone businesses, and we often integrate administrative or
other functions with existing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from consolidated
revenue to revenue excluding acquisitions and foreign currency
translations (organic revenue):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March
31
|
|
($000)
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
%
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue
|
|
|
|
|
|
|
|
$ 151,767
|
|
$ 128,290
|
|
18.3%
|
|
Less: acquisitions
|
|
|
|
|
|
|
|
(9,015)
|
|
-
|
|
NMF
|
|
Favorable impact of foreign
currency translations
|
|
|
|
|
|
(1,680)
|
|
-
|
|
NMF
|
|
Revenue excluding acquisitions
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
foreign currency
translations
|
|
|
|
|
|
|
|
$ 141,072
|
|
$ 128,290
|
|
10.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
international revenue to international revenue excluding
acquisitions and foreign currency translations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March
31
|
|
($000)
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
%
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International revenue
|
|
|
|
|
|
|
|
$ 43,586
|
|
$ 35,680
|
|
22.2%
|
|
Less: acquisitions
|
|
|
|
|
|
|
|
(3,485)
|
|
-
|
|
NMF
|
|
Favorable impact of foreign
currency translations
|
|
|
|
|
|
(1,680)
|
|
-
|
|
NMF
|
|
International revenue excluding
acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and foreign currency
translations
|
|
|
|
|
|
|
|
$ 38,421
|
|
$ 35,680
|
|
7.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes
the change in operating expense in the first quarter of 2011
compared with the first quarter of 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March
31
|
|
($000)
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
$
change
|
|
Total operating
expense
|
|
|
|
|
|
|
|
$ 119,958
|
|
$ 97,348
|
|
$ 22,610
|
|
Explanation of year over year
change in operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
$ 9,246
|
|
|
Unfavorable impact of foreign
currency translations
|
|
|
|
|
|
|
|
|
|
1,446
|
|
|
All other changes in operating
expense
|
|
|
|
|
|
|
|
|
|
|
|
11,918
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$ 22,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below shows the period
in which we included each acquired operation in revenue and expense
from acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
|
Date of acquisition
|
|
2011 revenue from
acquisitions
|
|
Footnoted business of Financial
Fineprint Inc.
|
|
|
|
February 1, 2010
|
|
January 1 through January 31,
2011
|
|
Aegis Equities
Research
|
|
|
|
April 1, 2010
|
|
January 1 through March 31,
2011
|
|
Old Broad Street Research
Ltd.
|
|
|
|
April 12, 2010
|
|
January 1 through March 31,
2011
|
|
Realpoint, LLC
|
|
|
|
May 3, 2010
|
|
January 1 through March 31,
2011
|
|
Morningstar Danmark
A/S
|
|
|
|
July 1, 2010
|
|
January 1 through March 31,
2011
|
|
Seeds Group
|
|
|
|
July 1, 2010
|
|
January 1 through March 31,
2011
|
|
Annuity intelligence business of
Advanced Sales and Marketing Corporation
|
|
November 1, 2010
|
|
January 1 through March 31,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOURCE Morningstar, Inc.