Morningstar, Inc. (Nasdaq: MORN), a leading provider of
independent investment insights, posted double-digit third-quarter
revenue growth while expanding operating margins.
“Morningstar Credit led the way in the quarter with additional
contributions from across the business supporting revenue and
profit growth," said Kunal Kapoor, Morningstar's chief executive
officer. "Our diverse portfolio continues to present opportunities
for innovation and durable growth, including those arising from the
accelerated convergence of public and private markets.”
The Company's quarterly shareholder letter provides more context
on its quarterly results and business performance and can be found
at shareholders.morningstar.com.
Third-Quarter 2024 Financial Highlights
- Reported revenue increased 10.5% to $569.4 million compared to
the prior-year period; organic revenue grew 10.1%.
- Reported operating income increased 65.0% to $115.5 million;
adjusted operating income increased 41.6%.
- Diluted net income per share increased 204.4% to $2.77;
adjusted diluted net income per share increased 56.3% to $2.00. The
gain related to the Company's sale of its Commodity and Energy Data
business in the quarter had a $1.05 impact on diluted net income
per share.
- Cash provided by operating activities increased 46.8% to $191.9
million. Free cash flow increased 53.6% to $155.8 million. Cash
flows were negatively impacted by certain items totaling $0.9
million in the third quarter of 2024 and $16.1 million in the
prior-year period. Excluding these items, cash provided by
operating activities and free cash flow would have increased by
31.3% and 33.4%, respectively.
Year-To-Date Financial Highlights
- Reported revenue increased 12.3% to $1.7 billion compared to
the prior-year period; organic revenue grew 12.2%.
- Reported operating income increased 132.5% to $316.6 million;
adjusted operating income increased 74.3%.
- Diluted net income per share increased 271.5% to $5.87;
adjusted diluted net income per share increased 83.4% to $5.76. The
gain related to the Company's sale of its Commodity and Energy Data
business in the quarter had a $1.05 impact on diluted net income
per share.
- Cash provided by operating activities increased 145.4% to
$438.2 million. Free cash flow increased 275.5% to $336.1 million.
Cash flows were negatively impacted by certain items totaling $0.9
million for the year-to-date, compared with $90.6 million in the
prior-year period. Excluding these items, cash provided by
operating activities and free cash flow would have increased by
63.1% and 87.1%, respectively.
Third-Quarter 2024 Results
Revenue increased 10.5% to $569.4 million on a reported basis
and 10.1% on an organic basis versus the prior-year period, driven
by strength across most of the business. Organic revenue growth
excludes all foreign currency effects, which accounted for the
entire difference between reported and organic revenue. Morningstar
Credit, PitchBook, and Morningstar Data and Analytics were the
biggest contributors to reported revenue growth.
Operating expense increased 1.9% to $453.9 million versus the
prior-year period. 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 3.7%. Prior-year period
operating expense included $6.0 million in SEC settlement-related
expenses for DBRS, Inc. and $5.0 million in severance costs related
to targeted reorganizations in certain parts of the business.
The largest contributors to the increase in reported operating
expense were compensation costs and technology infrastructure
costs.
- Compensation costs increased $16.2 million, due primarily to
higher bonus costs, which reflected increased accruals due to
favorable performance compared to targets in certain parts of the
business.
- Technology infrastructure costs consisting of expenses related
to SaaS-based software subscriptions and cloud computing increased
$4.0 million.
Third-quarter operating income increased 65.0% to $115.5
million. Adjusted operating income was $130.3 million, an increase
of 41.6%. Third-quarter operating margin was 20.3%, compared with
13.6% in the prior-year period. Adjusted operating margin was 22.9%
in the third quarter of 2024, versus 17.8% in the prior-year
period.
Net income in the third quarter of 2024 was $119.7 million, or
$2.77 per diluted share, compared with net income of $39.1 million,
or $0.91 per diluted share, in the third quarter of 2023, an
increase of 204.4% on a per share basis. Adjusted diluted net
income per share increased 56.3% to $2.00 in the third quarter of
2024, compared with $1.28 in the prior-year period. Net income
included a $45.3 million gain related to the sale of the Company's
Commodity and Energy Data business which had a $1.05 impact on
diluted net income per share.
The Company's effective tax rate was 19.8% in the third quarter
of 2024 compared to 29.9% in the prior-year period. The decrease is
primarily due to the book gain in excess of taxable gain on the
sale of its Commodity and Energy Data business in the third quarter
of 2024.
Segment Highlights
Morningstar Data and Analytics
Morningstar Data and Analytics contributed $198.5 million to
consolidated revenue and $9.8 million to consolidated revenue
growth, with revenue increasing 5.2% compared to the prior-year
period, or 4.7% on an organic basis. Higher revenues were primarily
driven by growth in Morningstar Direct and Morningstar Data. This
growth was partially offset by softness in research distribution,
reflecting the loss of a large client who brought coverage
in-house, and revenue declines related to an evolving product
strategy in Morningstar Advisor Workstation. Morningstar Direct
benefited from growth across geographies, with licenses increasing
1.4%. Increases in managed investment (fund) data and Morningstar
Essentials helped drive Morningstar Data growth, partially offset
by softness in exchange market data.
Morningstar Data and Analytics adjusted operating income
increased 3.4% to $91.4 million, and adjusted operating margin
decreased 0.8 percentage points to 46.0% compared to the prior-year
period, due in part to higher stock-based compensation.
PitchBook
PitchBook contributed $156.6 million to consolidated revenue and
$17.0 million to consolidated revenue growth, with revenue
increasing 12.2% on a reported and organic basis compared to the
prior-year period. Higher revenue was primarily driven by the
PitchBook platform, with licensed users growing 19.0%. PitchBook
clients who were not previously Leveraged Commentary & Data
(LCD) clients drove the majority of the increase in licensed users,
although growth continued to reflect the impact of legacy LCD
clients who have moved to the PitchBook platform and are now
reflected in licensed user counts. 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 28.9% to
$50.4 million, and adjusted operating margin increased 4.2
percentage points to 32.2%.
Morningstar Credit
Morningstar Credit contributed $70.9 million to consolidated
revenue and $18.0 million to consolidated revenue growth, with
revenue increasing 34.0% on a reported and organic basis compared
to the prior-year period. Ratings-related revenue increased across
asset classes and geographies, compared to a relatively soft
prior-year period, with particular strength in commercial
mortgage-backed securities, residential mortgage-backed securities,
and asset-based securities. Higher corporate ratings revenue also
contributed to growth.
Morningstar Credit adjusted operating income was $15.2 million
compared with $2.8 million in the prior-year period, and adjusted
operating margin was 21.4% compared with 5.3% in the prior-year
period. Prior-year period operating expense included $6.0 million
in costs related to the DBRS, Inc. SEC settlement and $1.1 million
in severance related to targeted reorganizations.
Morningstar Wealth
Morningstar Wealth contributed $61.8 million to consolidated
revenue and $3.8 million to consolidated revenue growth, with
revenue increasing 6.6% compared to the prior-year period, or 6.1%
on an organic basis. Growth was primarily driven by Investment
Management, supported by higher revenue for strategist model
portfolios offered on third-party platforms, which was partially
offset by softness in advertising sales for Morningstar.com.
Reported assets under management and advisement (AUMA) increased
25.6% to $63.7 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 net inflows outside the
United States and to strategist portfolios in the United
States.
Morningstar Wealth adjusted operating loss was $0.7 million
compared to an $8.2 million loss in the prior-year period, and
adjusted operating margin was negative 1.1% compared with negative
14.1%. Prior-year period operating expense included $1.4 million in
severance related to targeted reorganizations.
Morningstar Retirement
Morningstar Retirement contributed $31.8 million to consolidated
revenue and $4.1 million to consolidated revenue growth, with
revenue increasing 14.8% on a reported and organic basis compared
to the prior-year period. AUMA increased 24.2% to $264.4 billion
compared with the prior-year period, reflecting market gains and
positive net flows, supported by strong growth in Advisor Managed
Accounts.
Morningstar Retirement adjusted operating income increased 15.0%
to $16.9 million, and adjusted operating margin was 53.1%,
consistent with the prior-year period.
Corporate and All Other
Revenue attributable to Corporate and All Other contributed
$49.8 million to consolidated revenue and $1.2 million to
consolidated revenue growth, with revenue increasing 2.5% compared
to the prior-year period, driven by growth in Morningstar
Indexes.
The increase in Morningstar Indexes revenue was primarily due to
higher investable product revenue as market performance and net
inflows over the trailing 12 months increased asset value linked to
Morningstar Indexes by 37.5% to $228.2 billion.
Morningstar Sustainalytics revenues declined compared to the
prior-year period. The decline was largely driven by lower revenues
for ESG Risk Ratings, reflecting increased cancellations due to
vendor consolidation and softness in parts of the retail asset
management and wealth client segments. Revenue was also negatively
impacted by further streamlining of licensed-ratings offerings.
The impact of Corporate and All Other on consolidated adjusted
operating income was negative $42.9 million compared with negative
$44.8 million in the prior-year period. Prior-year period operating
expense included $2.5 million in severance related to targeted
reorganizations in Morningstar Sustainalytics.
Balance Sheet and Capital Allocation
As of Sept. 30, 2024, the Company had cash, cash equivalents,
and investments totaling $601.7 million and $864.7 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 $191.9
million in the third quarter of 2024, compared to $130.7 million in
the prior-year period. Free cash flow increased to $155.8 million,
compared to $101.4 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. Operating cash flows were negatively impacted by $0.9
million in severance related to the expected sale of assets from
the Morningstar Wealth Turnkey Asset Management Platform to
AssetMark. As previously disclosed, operating cash flows were
negatively impacted in the prior-year period by certain items
totaling $16.1 million. Excluding these items, cash provided by
operating activities and free cash flow would have increased by
31.3% and 33.4%, respectively. In addition, the Company paid $17.4
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 $328 billion in AUMA as
of Sept. 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 September
30,
Nine months ended September
30,
(in millions, except per share
amounts)
2024
2023
Change
2024
2023
Change
Revenue
$
569.4
$
515.5
10.5
%
$
1,684.1
$
1,499.9
12.3
%
Operating expense:
Cost of revenue
222.7
202.9
9.8
%
663.5
638.1
4.0
%
Sales and marketing
107.9
106.3
1.5
%
323.8
323.4
0.1
%
General and administrative
77.6
89.7
(13.5
)%
238.2
263.8
(9.7
)%
Depreciation and amortization
45.7
46.6
(1.9
)%
142.0
138.4
2.6
%
Total operating expense
453.9
445.5
1.9
%
1,367.5
1,363.7
0.3
%
Operating income
115.5
70.0
65.0
%
316.6
136.2
132.5
%
Operating margin
20.3
%
13.6
%
6.7 pp
18.8
%
9.1
%
9.7 pp
Non-operating income (expense), net:
Interest expense, net
(8.9
)
(12.8
)
(30.5
)%
(30.7
)
(40.2
)
(23.6
)%
Gain on sale of business
45.3
—
NMF
45.3
—
NMF
Expense from equity method transaction,
net
—
—
—
%
—
(11.8
)
NMF
Other income (expense), net
—
0.2
NMF
(2.8
)
7.0
NMF
Non-operating income (expense), net
36.4
(12.6
)
NMF
11.8
(45.0
)
NMF
Income before income taxes and equity in
investments of unconsolidated entities
151.9
57.4
164.6
%
328.4
91.2
260.1
%
Equity in investments of unconsolidated
entities
(2.6
)
(1.6
)
62.5
%
(5.3
)
(4.7
)
12.8
%
Income tax expense
29.6
16.7
77.2
%
70.1
18.9
270.9
%
Consolidated net income
$
119.7
$
39.1
206.1
%
$
253.0
$
67.6
274.3
%
Net income per share:
Basic
$
2.79
$
0.92
203.3
%
$
5.91
$
1.59
271.7
%
Diluted
$
2.77
$
0.91
204.4
%
$
5.87
$
1.58
271.5
%
Weighted average shares outstanding:
Basic
42.9
42.7
42.8
42.6
Diluted
43.2
42.9
43.1
42.8
NMF - Not meaningful, pp - percentage
points
Morningstar, Inc. and
Subsidiaries
Unaudited Condensed Consolidated
Balance Sheets
(in millions)
As of September 30,
2024
As of December 31,
2023
Assets
Current assets:
Cash and cash equivalents
$
552.9
$
337.9
Investments
48.8
51.1
Accounts receivable, net
328.4
343.9
Income tax receivable, net
—
0.6
Other current assets
92.7
82.2
Total current assets
1,022.8
815.7
Goodwill
1,579.6
1,578.8
Intangible assets, net
432.5
484.4
Property, equipment, and capitalized
software, net
212.4
207.7
Operating lease assets
157.5
163.9
Investments in unconsolidated entities
96.0
100.2
Deferred tax assets, net
30.9
14.6
Other assets
34.6
38.1
Total assets
$
3,566.3
$
3,403.4
Liabilities and equity
Current liabilities:
Deferred revenue
$
539.5
$
517.7
Accrued compensation
216.0
214.4
Accounts payable and accrued
liabilities
80.4
78.4
Operating lease liabilities
32.2
36.4
Current portion of long-term debt
—
32.1
Other current liabilities
27.8
1.8
Total current liabilities
895.9
880.8
Operating lease liabilities
145.7
151.4
Accrued compensation
21.2
23.7
Deferred tax liabilities, net
29.9
35.6
Long-term debt
864.7
940.3
Other long-term liabilities
43.2
43.8
Total liabilities
2,000.6
2,075.6
Total equity
1,565.7
1,327.8
Total liabilities and equity
$
3,566.3
$
3,403.4
Morningstar, Inc. and
Subsidiaries
Unaudited Condensed Consolidated
Statements of Cash Flows
Three months ended September
30,
Nine months ended September
30,
(in millions)
2024
2023
2024
2023
Operating activities
Consolidated net income
$
119.7
$
39.1
$
253.0
$
67.6
Adjustments to reconcile consolidated net
income to net cash flows from operating activities
12.2
57.9
128.9
119.3
Changes in operating assets and
liabilities, net
60.0
33.7
56.3
(8.3
)
Cash provided by operating activities
191.9
130.7
438.2
178.6
Investing activities
Capital expenditures
(36.1
)
(29.3
)
(102.1
)
(89.1
)
Proceeds from sale of business
52.2
—
52.2
—
Purchases of investments in unconsolidated
entities
(3.2
)
(0.2
)
(6.8
)
(1.1
)
Other, net
1.2
8.2
11.3
41.1
Cash provided by (used for) investing
activities
14.1
(21.3
)
(45.4
)
(49.1
)
Financing activities
Common shares repurchased
—
—
—
(1.4
)
Dividends paid
(17.4
)
(16.0
)
(52.0
)
(47.9
)
Repayments of debt
(35.0
)
(128.1
)
(198.1
)
(314.4
)
Proceeds from debt
—
30.0
90.0
260.0
Payment of acquisition-related
earn-outs
—
—
—
(45.5
)
Other, net
(7.8
)
(6.0
)
(25.2
)
(25.8
)
Cash used for financing activities
(60.2
)
(120.1
)
(185.3
)
(175.0
)
Effect of exchange rate changes on cash
and cash equivalents
15.9
(7.6
)
7.5
(6.1
)
Net increase (decrease) in cash and cash
equivalents
161.7
(18.3
)
215.0
(51.6
)
Cash and cash equivalents-beginning of
period
391.2
343.3
337.9
376.6
Cash and cash equivalents-end of
period
$
552.9
$
325.0
$
552.9
$
325.0
Morningstar, Inc. and
Subsidiaries
Supplemental Data (Unaudited)
Three months ended September
30,
Nine months ended September
30,
(in millions)
2024
2023
Change
Organic (1)
2024
2023
Change
Organic (1)
Morningstar Data and Analytics
Revenue
$
198.5
$
188.7
5.2
%
4.7
%
$
592.1
$
554.5
6.8
%
6.6
%
Adjusted Operating Income
91.4
88.4
3.4
%
269.9
249.4
8.2
%
Adjusted Operating Margin
46.0
%
46.8
%
(0.8) pp
45.6
%
45.0
%
0.6 pp
PitchBook
Revenue
$
156.6
$
139.6
12.2
%
12.2
%
$
455.9
$
407.5
11.9
%
11.9
%
Adjusted Operating Income
50.4
39.1
28.9
%
137.7
106.7
29.1
%
Adjusted Operating Margin
32.2
%
28.0
%
4.2 pp
30.2
%
26.2
%
4.0 pp
Morningstar Credit
Revenue
$
70.9
$
52.9
34.0
%
34.0
%
$
208.8
$
153.9
35.7
%
35.7
%
Adjusted Operating Income
15.2
2.8
442.9
%
55.4
3.8
NMF
Adjusted Operating Margin
21.4
%
5.3
%
16.1 pp
26.5
%
2.5
%
24.0 pp
Morningstar Wealth
Revenue
$
61.8
$
58.0
6.6
%
6.1
%
$
183.4
$
168.7
8.7
%
8.7
%
Adjusted Operating Income (Loss)
(0.7
)
(8.2
)
NMF
(8.5
)
(35.1
)
NMF
Adjusted Operating Margin
(1.1
)%
(14.1
)%
13.0 pp
(4.6
)%
(20.8
)%
16.2 pp
Morningstar Retirement
Revenue
$
31.8
$
27.7
14.8
%
14.8
%
$
93.5
$
80.3
16.4
%
16.4
%
Adjusted Operating Income
16.9
14.7
15.0
%
48.4
39.3
23.2
%
Adjusted Operating Margin
53.1
%
53.1
%
0.0 pp
51.8
%
48.9
%
2.9 pp
Consolidated Revenue
Total Reportable Segments
$
519.6
$
466.9
11.3
%
$
1,533.7
$
1,364.9
12.4
%
Corporate and All Other (2)
49.8
48.6
2.5
%
150.4
135.0
11.4
%
Total Revenue
$
569.4
$
515.5
10.5
%
10.1
%
$
1,684.1
$
1,499.9
12.3
%
12.2
%
Consolidated Adjusted Operating
Income
Total Reportable Segments
$
173.2
$
136.8
26.6
%
$
502.9
$
364.1
38.1
%
Less: Corporate and All Other (3)
(42.9
)
(44.8
)
(4.2
)%
(130.8
)
(150.6
)
(13.1
)%
Adjusted Operating Income
$
130.3
$
92.0
41.6
%
$
372.1
$
213.5
74.3
%
Adjusted Operating Margin
22.9
%
17.8
%
5.1 pp
22.1
%
14.3
%
7.8 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.
(2) Corporate and All Other provides a
reconciliation between revenue from the Company's 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
$27.9 million and $31.0 million for the three months ended Sept.
30, 2024 and 2023, respectively and $87.9 million and $87.8 million
for the nine months ended Sept. 30, 2024 and 2023, respectively.
Revenue from Morningstar Indexes was $21.9 million and $17.6
million for the three months ended Sept. 30, 2024 and 2023,
respectively and $62.5 million and $47.2 million for the nine
months ended Sept. 30, 2024 and 2023, respectively.
(3) Corporate and All Other includes
unallocated corporate expenses as well as adjusted operating income
(loss) from Morningstar Sustainalytics and Morningstar Indexes.
During the third quarter of 2024 and 2023, unallocated corporate
expenses were $43.5 million and $36.3 million, respectively. During
the first nine months of 2024 and 2023, unallocated corporate
expenses were $130.4 million and $111.4 million, respectively.
Unallocated corporate expenses include finance, human resources,
legal, marketing, and other management-related costs that are not
considered when segment performance is evaluated.
Morningstar, Inc. and
Subsidiaries
Supplemental Data (Unaudited)
As of September 30,
AUMA (approximate) ($bil)
2024
2023
Change
Morningstar Retirement
Managed Accounts
$
155.1
$
121.1
28.1
%
Fiduciary Services
63.0
54.9
14.8
%
Custom Models/CIT
46.3
36.9
25.5
%
Morningstar Retirement (total)
$
264.4
$
212.9
24.2
%
Investment Management
Morningstar Managed Portfolios
$
44.6
$
35.4
26.0
%
Institutional Asset Management
7.3
7.3
—
%
Asset Allocation Services
11.8
8.0
47.5
%
Investment Management (total)
$
63.7
$
50.7
25.6
%
Asset value linked to Morningstar Indexes
($bil)
$
228.2
$
166.0
37.5
%
Three months ended September
30,
Nine months ended September
30,
2024
2023
Change
2024
2023
Change
Average AUMA ($bil)
$
322.2
$
263.5
22.3
%
$
306.0
$
255.3
19.9
%
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-related expenses
(related to merger, acquisition, and divestiture activity including
severance and earn-outs (M&A-related expenses)), 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 and other (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 of 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 September
30,
Nine months ended September
30,
(in millions)
2024
2023
Change
2024
2023
Change
Reconciliation from consolidated revenue
to organic revenue:
Consolidated revenue
$
569.4
$
515.5
10.5
%
$
1,684.1
$
1,499.9
12.3
%
Less: acquisitions
—
—
—
%
—
—
—
%
Less: accounting changes
—
—
—
%
—
—
—
%
Effect of foreign currency
translations
(1.6
)
—
NMF
(1.4
)
—
NMF
Organic revenue
$
567.8
$
515.5
10.1
%
$
1,682.7
$
1,499.9
12.2
%
Reconciliation from consolidated operating
income to adjusted operating income:
Consolidated operating income
$
115.5
$
70.0
65.0
%
$
316.6
$
136.2
132.5
%
Add: Intangible amortization expense
(1)
14.7
17.7
(16.9
)%
49.9
52.9
(5.7
)%
Add: M&A-related expenses (2)
0.1
1.7
(94.1
)%
5.6
8.9
(37.1
)%
Add: Severance and personnel expenses
(3)
—
1.3
NMF
—
5.4
NMF
Add: Transformation costs (3)
—
0.6
NMF
—
7.0
NMF
Add: Asset impairment costs (3)
—
0.7
NMF
—
3.1
NMF
Adjusted operating income
$
130.3
$
92.0
41.6
%
$
372.1
$
213.5
74.3
%
Reconciliation from consolidated operating
margin to adjusted operating margin:
Consolidated operating margin
20.3
%
13.6
%
6.7 pp
18.8
%
9.1
%
9.7 pp
Add: Intangible amortization expense
(1)
2.6
%
3.4
%
(0.8) pp
3.0
%
3.5
%
(0.5) pp
Add: M&A-related expenses (2)
—
%
0.3
%
(0.3) pp
0.3
%
0.6
%
(0.3) pp
Add: Severance and personnel expenses
(3)
—
%
0.3
%
(0.3) pp
—
%
0.4
%
(0.4) pp
Add: Transformation costs (3)
—
%
0.1
%
(0.1) pp
—
%
0.5
%
(0.5) pp
Add: Asset impairment costs (3)
—
%
0.1
%
(0.1) pp
—
%
0.2
%
(0.2) pp
Adjusted operating margin
22.9
%
17.8
%
5.1 pp
22.1
%
14.3
%
7.8 pp
Reconciliation from consolidated diluted
net income per share to adjusted diluted net income per share:
Consolidated diluted net income per
share
$
2.77
$
0.91
204.4
%
$
5.87
$
1.58
271.5
%
Add: Intangible amortization expense
(1)
0.25
0.31
(19.4
)%
0.86
0.91
(5.5
)%
Add: M&A-related expenses (2)
—
0.03
NMF
0.10
0.15
(33.3
)%
Add: Severance and personnel expenses
(3)
—
0.02
NMF
—
0.09
NMF
Add: Transformation costs (3)
—
0.01
NMF
—
0.12
NMF
Add: Asset impairment costs (3)
—
0.01
NMF
—
0.05
NMF
Less: Non-operating (gains) losses and
other (4)
(1.02
)
(0.01
)
NMF
(1.07
)
0.24
NMF
Adjusted diluted net income per share
$
2.00
$
1.28
56.3
%
$
5.76
$
3.14
83.4
%
Reconciliation from cash provided by
operating activities to free cash flow:
Cash provided by operating activities
$
191.9
$
130.7
46.8
%
$
438.2
$
178.6
145.4
%
Capital expenditures
(36.1
)
(29.3
)
23.2
%
(102.1
)
(89.1
)
14.6
%
Free cash flow
$
155.8
$
101.4
53.6
%
$
336.1
$
89.5
275.5
%
NMF - Not meaningful, pp - percentage
points
(1) Excludes finance lease amortization
expense of $0.1 million and $0.5 million during the three months
ended Sept. 30, 2024 and 2023, respectively, and $0.5 million and
$1.0 million during the nine months ended Sept. 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) Reflects realized and unrealized gains
and losses on investments in the three and nine months ended Sept.
30, 2024 and Sept. 30, 2023. In addition, for the three and nine
months ended Sept. 30, 2024, includes gain on the sale of the
Company's Commodity and Energy Data business and an impairment loss
on an investment of unconsolidated entities. For the nine months
ended Sept. 30, 2023, includes expense from equity method
transaction, net.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241022964051/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
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