CHICAGO, Oct. 28, 2020 /PRNewswire/ --
Morningstar, Inc. (Nasdaq: MORN), a leading provider of
independent investment research, today reported third-quarter 2020
financial results.
"We are pleased with our 2020 performance thus far," said
Kunal Kapoor, Morningstar's chief
executive officer. "Full credit goes to my wonderful colleagues,
whose incredible levels of engagement and effort continue to make a
difference as we remain focused on fulfilling our mission and
keeping our business and employees healthy during this challenging
period. In addition, we were thrilled to welcome the Sustainalytics
team to our organization. We've made notable progress on our
integration and together continue to see ample opportunities for
meeting investor needs. As the current environment sheds light on
global risks such as climate change, population health, and
human capital concerns, investor interest in ESG factors is rising
across our business."
Third-Quarter Financial Highlights
- Revenue increased 13.8% to $357.2
million; organic revenue1 increased 8.0%.
- Operating income decreased 10.7% to $44.3 million; adjusted operating income
increased by 42.3%, excluding intangible amortization expense and
all mergers & acquisitions (M&A)-related expenses.
- Diluted net income per share increased 54.4% to $1.76 versus $1.14
in the prior period. The current period included a $1.18 cents per share holding gain related to
Morningstar's previously held equity interest in Sustainalytics.
The prior period included a $0.33
cents per share gain on a previously held equity interest.
Adjusted diluted net income per share increased by 46.2% to
$1.55, excluding the non-operating
gains, intangible amortization expense, and all other
M&A-related expenses.
- Cash provided by operating activities decreased 11.6% to
$93.4 million, primarily reflecting
the timing of working capital. Free cash flow decreased by 17.3% to
$70.8 million.
Year-to-Date Financial Highlights
- Revenue increased 19.2% to $1.0
billion; organic revenue increased 8.4%.
- Operating income remained relatively flat at $150.1 million; adjusted operating income
increased by 31.9%.
- Diluted net income per share increased 18.7% to $3.43 versus $2.89
in the prior period. Adjusted diluted net income per share
increased by 26.9%.
- Cash provided by operating activities increased by 7.1% to
$269.7 million. Free cash flow
increased by 10.4% to $215.0
million.
Overview of Third-Quarter 2020 Financial Results
Revenue for the third quarter of 2020 increased 13.8% to
$357.2 million. Organic revenue,
which excludes all M&A and foreign currency effects, grew by
8.0% compared with the prior-year period.
License-based revenue grew 18.7% year over year, or 10.0% on an
organic basis excluding revenue from Sustainalytics and other
recent M&A in the quarter. PitchBook, Morningstar Data, and
Morningstar Direct continued to be the main drivers of
license-based revenue growth. An increase in users at existing
clients and the addition of new clients supported PitchBook's
strong growth. Morningstar Data and Morningstar Direct also
reported positive and balanced revenue contribution across
geographies in the quarter.
Asset-based revenue increased 1.7% year over year, or 1.3% on an
organic basis. Investment Management revenue increased by 1.7%, or
1.0% on an organic basis, due primarily to the contribution of
Morningstar Funds Trust. Continued growth in managed retirement
account offerings led to 1.5% growth in Workplace revenues in the
quarter. Morningstar Indexes' licensed data products benefited from
rising demand for alternatives to higher-priced offerings from
incumbent competitors.
Transaction-based revenue increased by 7.7% year over year, or
6.8% on an organic basis, reflecting the contribution of DBRS
Morningstar. Strong Canadian corporate issuances along with a
rebound in U.S. structured finance markets in the latter half of
the third quarter primarily drove DBRS Morningstar's revenue
growth.
Operating expense increased 18.4% to $312.9 million in the third quarter of 2020,
primarily resulting from the inclusion of Sustainalytics' purchase
accounting adjustments and operating expense. For the remainder of
the business, operating expense remained relatively flat as
increases in compensation and benefits, production costs, and
professional fees were substantially offset by lower travel and
other corporate costs. Continuous focus on the development of our
major software platforms, in addition to bringing new products and
capabilities to market, resulted in higher capitalized software
development in the quarter.
Third-quarter operating income was $44.3
million, a decrease of 10.7% compared with the prior-year
period. Adjusted operating income, which excludes intangible
amortization expense and all M&A-related expenses, was
$91.2 million in the quarter, an
increase of 42.3% compared with the prior-year period.
Third-quarter operating margin was 12.4%, compared with 15.8% in
the prior-year period. Adjusted operating margin was 25.6% in the
third quarter of 2020, versus 20.4% in the prior-year period.
Net income in the third quarter of 2020 was $76.2 million, or $1.76 per diluted share, which included a
$1.18 per share holding gain related
to Morningstar's previously held equity interest in Sustainalytics.
Net income in the third quarter of 2019 was $49.1 million, or $1.14 per diluted share, which included a
$0.33 per share after-tax gain on the
sale of another previously held equity interest. Adjusted diluted
net income per share increased 46.2% to $1.55, compared with $1.06 in the prior-year period. The
effective tax rate for the third quarter of 2020 was 18.2% versus
21.3% in the prior-year period.
Update on Key Product Areas
Morningstar tracks the performance of key product areas expected
to provide a greater contribution to growth as part of its
long-term strategy, which include Morningstar Data, DBRS
Morningstar, PitchBook, Morningstar Direct, Workplace Solutions,
and Morningstar Managed Portfolios. In the third quarter of 2020,
organic revenue growth for these six key strategic areas was 8.3%,
compared with organic revenue growth of 8.0% for Morningstar as a
whole.
The highlights below summarize key operating metrics as of and
for the quarter ended Sept. 30,
2020.
- Morningstar Data revenue was up 10.4% to $54.0 million, or 8.6% on an organic basis.
- DBRS Morningstar revenue increased 7.5% to $53.3 million, or 6.7% on an organic basis.
Recurring annual fees from surveillance, research, and other
services represented 39.7% of revenue in the third quarter.
- PitchBook revenue grew 32.6% to $51.3
million. Licenses increased 48.3% to 48,331.
- Morningstar Direct revenue was up 6.7% to $39.9 million, or 5.5% on an organic basis.
Licenses increased 4.0% to 16,282.
- Assets under management and advisement for Workplace Solutions
increased 15.6% to $170.3 billion as
of Sept. 30, 2020.
- Assets under management and advisement in Morningstar Managed
Portfolios were $26.4 billion as of
Sept. 30, 2020. For the purposes of
this report, assets reported within Morningstar Managed Portfolios
only include contracts with variable fees. A client contract change
in January 2020 impacted the
year-over-year comparisons. Excluding the impact of this change,
assets in Morningstar Managed Portfolios would have grown by 0.4%
as of Sept. 30, 2020.
Balance Sheet and Capital Allocation
As of Sept. 30, 2020, the Company
had cash, cash equivalents, and investments totaling $377.8 million and $484.9
million of long-term debt, compared with cash, cash
equivalents, and investments of $367.5
million and $513.1 million of
long-term debt as of Dec. 31, 2019.
On Oct. 26, 2020, the Company
issued $350.0 million aggregate
principal amount of 2.32% senior notes due Oct. 26, 2030 in a private placement offering.
Interest will be paid semi-annually with the first interest payment
date occurring on April 30, 2021.
Proceeds were primarily used to pay off a portion of the Company's
credit agreement and for general corporate purposes.
Cash provided by operating activities was $93.4 million in the third quarter of 2020,
compared with $105.7 million in the
prior-year period. Free cash flow was $70.8
million in the third quarter of 2020, compared with
$85.6 million in the prior year. In
the third quarter of 2020, the Company repurchased $17.6 million of its shares, paid $12.9 million in dividends, and repaid
approximately $7.8 million of
debt.
Comparability of Year-Over-Year Results
Certain items affected the comparability of third-quarter 2020
results versus the same period in 2019.
Third-Quarter 2020 Results
- Third-quarter 2020 organic revenue includes DBRS Morningstar
for the first time, but excludes revenue from Sustainalytics and
other acquisitions.
- Third-quarter 2020 operating expense growth includes the impact
of purchase accounting for Sustainalytics, including a $27.8 million acquisition earn-out recorded in
compensation expense, and $1.8
million of amortization expense related to new intangibles.
These items did not have a cash impact in the quarter.
- Third-quarter 2020 operating expense also reflects a
$0.9 million decrease in stock-based
compensation, primarily driven by the renewal of the PitchBook
management bonus plan. The new three-year plan mirrors the
incentive structure of the original plan, featuring lower target
payouts in the first two years compared with the actual 2019
payout. This decreased operating income growth by 1.8 percentage
points and diluted net income per share by $0.02.
- Third-quarter 2020 results also reflect the contribution of the
Morningstar Funds Trust, which records revenue as well as
sub-advisory fees and waivers on a gross basis. This resulted in a
$1.3 million favorable contribution
to revenue and a corresponding increase in the cost of revenue,
with no impact on operating income.
- Foreign currency translation increased revenue by $2.6 million, or 0.8%, and operating expenses by
$1.9 million, or 0.7%, in the third
quarter of 2020. This resulted in an increase of $0.7 million in third-quarter operating
income.
- Diluted net income per share in the third quarter of 2020
includes $1.18 per share from a
holding gain related to Morningstar's previously-held equity
interest in Sustainalytics. In the third quarter of 2019, diluted
net income per share included a $0.33
per share after-tax gain on the sale of another previously held
equity interest.
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 Securities and Exchange
Commission, generally every month.
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
products and services for individual investors, financial advisors,
asset managers, retirement plan providers and sponsors, and
institutional investors in the debt and private capital markets.
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 $215 billion in
assets under advisement and management as of Sept. 30, 2020. The Company has operations
in 29 countries. For more information, visit
www.morningstar.com/company. Follow Morningstar on 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, including the
impacts of the current COVID-19 pandemic. 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," "prospects," 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, the expected impacts of the
COVID-19 pandemic on our business, financial condition, and results
of operations; liability for any losses that result
from an actual or claimed breach of our fiduciary duties; failing
to maintain and protect our brand, independence, and reputation;
liability related to cybersecurity and the protection of
confidential information, including personal information about
individuals; failing to differentiate our products and continuously
create innovative, proprietary research tools and financial advisor
software; inadequacy of our operational risk management and
business continuity programs in the event of a material disruptive
event; failing to respond to technological change, keep pace with
new technology developments, or adopt a successful technology
strategy; compliance failures, regulatory action, or changes in
laws applicable to our investment advisory or credit ratings
operations; volatility in the financial sector, global financial
markets, and global economy and its effect on our revenue from
asset-based fees and credit ratings business; trends in the asset
management industry, including the increasing adoption of
investment strategies and portfolios relying on passively managed
investment vehicles and increased industry consolidation; liability
relating to the collection or distribution of information and data
we collect and produce or errors included therein; an outage of our
database, technology-based products and services, or network
facilities or the movement of parts of our technology and data
infrastructure to the public cloud and other outsourced providers;
the failure of acquisitions and other investments to be efficiently
integrated and produce the results we anticipate; the failure to
recruit, develop, and retain qualified employees; challenges faced
by our non-U.S. operations, including the concentration of data and
development work at our offshore facilities in China and India; and the failure to protect our
intellectual property rights or claims of intellectual property
infringement against us. 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 Dec. 31, 2019 and our Quarterly Report on
Form 10-Q for the quarter ended June 30,
2020. 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.
|
|
|
1 This is the first quarter in which
DBRS Morningstar's results are included in the Company's organic
revenue calculation.
|
Investor Relations Contact:
Barbara Noverini, CFA +1 312-646-6164,
barbara.noverini@morningstar.com
Media Relations Contact:
Sarah
Wirth, +1 312-244-7358, sarah.wirth@morningstar.com
©2020 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)
|
|
2020
|
|
2019
|
|
change
|
|
2020
|
|
2019
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
357.2
|
|
|
$
|
313.8
|
|
|
13.8
|
%
|
|
$
|
1,009.1
|
|
|
$
|
846.6
|
|
|
19.2
|
%
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue
|
|
138.7
|
|
|
128.4
|
|
|
8.0
|
%
|
|
406.8
|
|
|
341.0
|
|
|
19.3
|
%
|
Sales and
marketing
|
|
52.6
|
|
|
44.0
|
|
|
19.5
|
%
|
|
150.7
|
|
|
129.7
|
|
|
16.2
|
%
|
General and
administrative
|
|
85.8
|
|
|
57.2
|
|
|
50.0
|
%
|
|
197.8
|
|
|
142.0
|
|
|
39.3
|
%
|
Depreciation and
amortization
|
|
35.8
|
|
|
34.6
|
|
|
3.5
|
%
|
|
103.7
|
|
|
84.0
|
|
|
23.5
|
%
|
Total operating
expense
|
|
312.9
|
|
|
264.2
|
|
|
18.4
|
%
|
|
859.0
|
|
|
696.7
|
|
|
23.3
|
%
|
Operating
income
|
|
44.3
|
|
|
49.6
|
|
|
(10.7)
|
%
|
|
150.1
|
|
|
149.9
|
|
|
0.1
|
%
|
Operating
margin
|
|
12.4
|
%
|
|
15.8
|
%
|
|
(3.4)pp
|
|
|
14.9
|
%
|
|
17.7
|
%
|
|
(2.8)pp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income
(loss), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
|
(1.4)
|
|
|
(4.8)
|
|
|
(70.8)
|
%
|
|
(6.5)
|
|
|
(4.8)
|
|
|
35.4
|
%
|
Realized gains on sale
of equity method
investments
|
|
—
|
|
|
19.5
|
|
|
NMF
|
|
|
—
|
|
|
19.5
|
|
|
NMF
|
|
Holding gain on
previously-held equity
interest
|
|
50.9
|
|
|
—
|
|
|
NMF
|
|
|
50.9
|
|
|
—
|
|
|
NMF
|
|
Other income
(expense), net
|
|
(1.3)
|
|
|
(0.8)
|
|
|
62.5
|
%
|
|
(4.9)
|
|
|
(1.8)
|
|
|
172.2
|
%
|
Non-operating income,
net
|
|
48.2
|
|
|
13.9
|
|
|
246.8
|
%
|
|
39.5
|
|
|
12.9
|
|
|
206.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes and equity in net
income (loss) of unconsolidated entities
|
|
92.5
|
|
|
63.5
|
|
|
45.7
|
%
|
|
189.6
|
|
|
162.8
|
|
|
16.5
|
%
|
Equity in net income
(loss) of unconsolidated
entities
|
|
0.6
|
|
|
(1.1)
|
|
|
NMF
|
|
|
(0.7)
|
|
|
(1.9)
|
|
|
(63.2)
|
%
|
Income tax
expense
|
|
16.9
|
|
|
13.3
|
|
|
27.1
|
%
|
|
40.6
|
|
|
36.5
|
|
|
11.2
|
%
|
Consolidated net
income
|
|
$
|
76.2
|
|
|
$
|
49.1
|
|
|
55.2
|
%
|
|
$
|
148.3
|
|
|
$
|
124.4
|
|
|
19.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.78
|
|
|
$
|
1.15
|
|
|
54.8
|
%
|
|
$
|
3.46
|
|
|
$
|
2.91
|
|
|
18.9
|
%
|
Diluted
|
|
$
|
1.76
|
|
|
$
|
1.14
|
|
|
54.4
|
%
|
|
$
|
3.43
|
|
|
$
|
2.89
|
|
|
18.7
|
%
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
42.9
|
|
|
42.8
|
|
|
0.2
|
%
|
|
42.9
|
|
|
42.7
|
|
|
0.5
|
%
|
Diluted
|
|
43.2
|
|
|
43.2
|
|
|
—
|
%
|
|
43.2
|
|
|
43.1
|
|
|
0.2
|
%
|
|
_________________________________________________________________
|
|
NMF - Not
meaningful, pp - percentage points
|
Morningstar, Inc.
and Subsidiaries
Unaudited
Condensed Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Operating
activities
|
|
|
|
|
|
|
|
|
Consolidated net
income
|
|
$
|
76.2
|
|
|
$
|
49.1
|
|
|
$
|
148.3
|
|
|
$
|
124.4
|
|
Adjustments to
reconcile consolidated net
income to net cash flows from operating
activities
|
|
19.6
|
|
|
26.8
|
|
|
113.2
|
|
|
98.9
|
|
Changes in operating
assets and liabilities, net
|
|
(2.4)
|
|
|
29.8
|
|
|
8.2
|
|
|
28.6
|
|
Cash provided by
operating activities
|
|
93.4
|
|
|
105.7
|
|
|
269.7
|
|
|
251.9
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
(22.6)
|
|
|
(20.1)
|
|
|
(54.7)
|
|
|
(57.1)
|
|
Acquisitions, net of
cash acquired
|
|
(52.3)
|
|
|
(673.9)
|
|
|
(67.8)
|
|
|
(673.9)
|
|
Purchases of equity
method investments
|
|
2.0
|
|
|
(0.2)
|
|
|
(4.5)
|
|
|
(1.4)
|
|
Other, net
|
|
5.4
|
|
|
15.9
|
|
|
2.3
|
|
|
16.1
|
|
Cash used for
investing activities
|
|
(67.5)
|
|
|
(678.3)
|
|
|
(124.7)
|
|
|
(716.3)
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Common shares
repurchased
|
|
(17.6)
|
|
|
—
|
|
|
(37.6)
|
|
|
(4.9)
|
|
Dividends
paid
|
|
(12.9)
|
|
|
(12.0)
|
|
|
(38.6)
|
|
|
(35.9)
|
|
Repayments of
long-term debt
|
|
(7.8)
|
|
|
(77.8)
|
|
|
(88.4)
|
|
|
(132.8)
|
|
Proceeds from
long-term debt
|
|
5.0
|
|
|
610.0
|
|
|
60.0
|
|
|
610.0
|
|
Other, net
|
|
(0.7)
|
|
|
(2.7)
|
|
|
(20.0)
|
|
|
(13.1)
|
|
Cash provided by (used
for) financing activities
|
|
(34.0)
|
|
|
517.5
|
|
|
(124.6)
|
|
|
423.3
|
|
Effect of exchange
rate changes on cash and
cash equivalents
|
|
5.5
|
|
|
(6.9)
|
|
|
(3.4)
|
|
|
(6.4)
|
|
Net increase
(decrease) in cash and cash
equivalents
|
|
(2.6)
|
|
|
(62.0)
|
|
|
17.0
|
|
|
(47.5)
|
|
Cash and cash
equivalents-beginning of period
|
|
353.7
|
|
|
383.8
|
|
|
334.1
|
|
|
369.3
|
|
Cash and cash
equivalents-end of period
|
|
$
|
351.1
|
|
|
$
|
321.8
|
|
|
$
|
351.1
|
|
|
$
|
321.8
|
|
Morningstar, Inc. and
Subsidiaries
Unaudited
Condensed Consolidated Balance Sheets
|
|
|
|
As of September
30,
|
|
As of
December 31,
|
(in millions)
|
|
2020
|
|
2019
|
|
|
|
|
|
Assets
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
351.1
|
|
|
$
|
334.1
|
|
Investments
|
|
26.7
|
|
|
33.4
|
|
Accounts receivable,
net
|
|
186.9
|
|
|
188.5
|
|
Income tax receivable,
net
|
|
7.2
|
|
|
6.3
|
|
Other current
assets
|
|
50.7
|
|
|
40.9
|
|
Total current
assets
|
|
622.6
|
|
|
603.2
|
|
|
|
|
|
|
Property, equipment,
and capitalized software, net
|
|
150.9
|
|
|
154.7
|
|
Operating lease
assets
|
|
152.4
|
|
|
144.8
|
|
Investments in
unconsolidated entities
|
|
36.9
|
|
|
59.6
|
|
Goodwill
|
|
1,178.1
|
|
|
1,039.1
|
|
Intangible assets,
net
|
|
382.8
|
|
|
333.4
|
|
Deferred tax asset,
net
|
|
10.8
|
|
|
10.7
|
|
Other
assets
|
|
28.5
|
|
|
25.4
|
|
Total
assets
|
|
$
|
2,563.0
|
|
|
$
|
2,370.9
|
|
|
|
|
|
|
Liabilities and
equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
53.7
|
|
|
$
|
58.9
|
|
Accrued
compensation
|
|
128.2
|
|
|
137.5
|
|
Deferred
revenue
|
|
293.2
|
|
|
250.1
|
|
Operating lease
liabilities
|
|
38.6
|
|
|
35.8
|
|
Current portion of
long-term debt
|
|
11.0
|
|
|
11.0
|
|
Contingent
consideration liabilities
|
|
33.5
|
|
|
—
|
|
Other current
liabilities
|
|
1.5
|
|
|
2.5
|
|
Total current
liabilities
|
|
559.7
|
|
|
495.8
|
|
|
|
|
|
|
Operating lease
liabilities
|
|
141.3
|
|
|
138.7
|
|
Accrued
compensation
|
|
33.5
|
|
|
12.1
|
|
Deferred tax
liability, net
|
|
109.3
|
|
|
95.0
|
|
Long-term
debt
|
|
473.9
|
|
|
502.1
|
|
Other long-term
liabilities
|
|
68.2
|
|
|
43.6
|
|
Total
liabilities
|
|
1,385.9
|
|
|
1,287.3
|
|
Total
equity
|
|
1,177.1
|
|
|
1,083.6
|
|
Total liabilities and
equity
|
|
$
|
2,563.0
|
|
|
$
|
2,370.9
|
|
Morningstar, Inc. and
Subsidiaries
Supplemental Data
(Unaudited)
|
|
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
(in
millions)
|
|
2020
|
|
2019
|
|
Change
|
Organic
(1)
|
|
|
2020
|
|
2019
|
|
Change
|
Organic
(1)
|
|
Revenue by
type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License-based
(2)
|
|
$
|
242.9
|
|
|
$
|
204.6
|
|
|
18.7
|
%
|
10.0
|
%
|
|
|
$
|
680.0
|
|
|
$
|
601.0
|
|
|
13.1
|
%
|
10.3
|
%
|
|
Asset-based
(3)
|
|
55.4
|
|
|
54.5
|
|
|
1.7
|
%
|
1.3
|
%
|
|
|
164.4
|
|
|
155.9
|
|
|
5.5
|
%
|
5.8
|
%
|
|
Transaction-based
(4)
|
|
58.9
|
|
|
54.7
|
|
|
7.7
|
%
|
6.8
|
%
|
|
|
164.7
|
|
|
89.7
|
|
|
83.6
|
%
|
(2.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key product area
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morningstar
Data
|
|
$
|
54.0
|
|
|
$
|
48.9
|
|
|
10.4
|
%
|
8.6
|
%
|
|
|
$
|
158.7
|
|
|
$
|
146.3
|
|
|
8.5
|
%
|
8.7
|
%
|
|
DBRS Morningstar
(5)
|
|
53.3
|
|
|
49.6
|
|
|
7.5
|
%
|
6.7
|
%
|
|
|
149.7
|
|
|
69.7
|
|
|
114.8
|
%
|
6.7
|
%
|
(6)
|
PitchBook
|
|
51.3
|
|
|
38.7
|
|
|
32.6
|
%
|
32.6
|
%
|
|
|
144.6
|
|
|
106.1
|
|
|
36.3
|
%
|
36.3
|
%
|
|
Morningstar
Direct
|
|
39.9
|
|
|
37.4
|
|
|
6.7
|
%
|
5.5
|
%
|
|
|
116.9
|
|
|
110.5
|
|
|
5.8
|
%
|
6.2
|
%
|
|
Investment
Management
|
|
30.3
|
|
|
29.8
|
|
|
1.7
|
%
|
1.0
|
%
|
|
|
88.1
|
|
|
85.3
|
|
|
3.3
|
%
|
3.8
|
%
|
|
Morningstar Advisor
Workstation
|
|
21.8
|
|
|
22.2
|
|
|
(1.8)
|
%
|
(1.7)
|
%
|
|
|
64.8
|
|
|
66.8
|
|
|
(3.0)
|
%
|
(2.8)
|
%
|
|
Workplace
Solutions
|
|
20.3
|
|
|
20.0
|
|
|
1.5
|
%
|
1.5
|
%
|
|
|
61.2
|
|
|
58.2
|
|
|
5.2
|
%
|
5.2
|
%
|
|
|
|
As of September
30,
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Select business
metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morningstar Direct
licenses
|
|
16,282
|
|
|
15,660
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
PitchBook Platform
licenses
|
|
48,331
|
|
|
32,587
|
|
|
48.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Advisor Workstation
clients (U.S.)
|
|
148
|
|
|
167
|
|
|
(11.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
Morningstar.com
Premium Membership
subscriptions (U.S.)
|
|
113,103
|
|
|
111,424
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under
management and
advisement (approximate) ($bil)
|
|
2020
|
|
2019
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Workplace
Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
Accounts
|
|
$
|
82.5
|
|
|
$
|
65.5
|
|
|
26.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Fiduciary
Services
|
|
52.4
|
|
|
47.5
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Custom
Models
|
|
35.4
|
|
|
34.3
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Workplace Solutions
(total)
|
|
$
|
170.3
|
|
|
$
|
147.3
|
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Investment Management
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morningstar Managed
Portfolios
|
|
$
|
26.4
|
|
|
$
|
45.9
|
|
|
(42.5)
|
%
|
(8)
|
|
|
|
|
|
|
|
|
|
|
Institutional Asset
Management
|
|
11.2
|
|
|
15.1
|
|
(9)
|
(25.8)
|
%
|
(10)
|
|
|
|
|
|
|
|
|
|
|
Asset Allocation
Services
|
|
6.6
|
|
|
7.7
|
|
|
(14.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Investment Management
(total)
|
|
$
|
44.2
|
|
|
$
|
68.7
|
|
|
(35.7)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset value linked to
Morningstar Indexes ($bil)
|
|
$
|
65.6
|
|
|
$
|
64.0
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
|
|
Nine months ended
September 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
Average assets under
management and advisement ($bil)
|
|
$
|
209.8
|
|
|
$
|
215.9
|
|
(9)
|
(2.8)
|
%
|
|
|
|
$
|
207.5
|
|
|
$
|
208.8
|
|
(9)
|
(0.6)
|
%
|
|
|
|
_____________________________________________________________________________
|
|
(1) Organic revenue
excludes acquisitions, divestitures, adoption of new accounting
standards, and the effect of foreign currency
translations.
|
|
(2) License-based
revenue includes Morningstar Data, Morningstar Direct, Morningstar
Advisor Workstation, PitchBook, Sustainalytics, and other similar
products.
|
|
(3) Asset-based
revenue includes Investment Management, Workplace Solutions, and
Morningstar Indexes.
|
|
(4) Transaction-based
revenue includes DBRS Morningstar, internet advertising, and
Morningstar-sponsored conferences.
|
|
(5) For the
three and nine months ended September 30, 2020, transaction-based
revenue derived primarily from one-time ratings fees was 60.3% and
59.4%, respectively, while recurring revenue from surveillance,
research, and other services comprised the remainder for the
period.
|
|
(6) Revenue from DBRS
Morningstar is excluded from the reporting of organic revenue
growth through the second quarter of 2020.
|
|
(7) Revenue for
Investment Management includes Morningstar Managed Portfolios,
Institutional Asset Management, and Asset Allocation
Services.
|
|
(8) The decline in
Morningstar Managed Portfolios assets was largely attributed to a
client contract change from a variable to fixed-fee arrangement.
Excluding the assets from this client contract in the prior-year
period, assets in Morningstar Managed Portfolios increased 0.4%.
The increase in revenue for Investment Management diverged from the
decline in assets under management and advisement due to the
aforementioned contract change, the impact of average asset
calculations on Morningstar Managed Portfolios billing, and
increased assets in the Morningstar Funds Trust.
|
|
(9) Revised to
reflect updated asset reporting.
|
|
(10) The decline in
Institutional Asset Management assets was attributed to the
non-renewal of a client contract in the third quarter of
2020.
|
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, and the effect of foreign
currency translations (organic revenue),
- consolidated operating income, excluding intangible
amortization expense and all mergers and acquisitions
(M&A)-related expenses (including acquisition earn-outs)
(adjusted operating income),
- consolidated operating margin, excluding intangible
amortization expense and all M&A-related expenses (including
acquisition earn-outs) (adjusted operating margin),
- consolidated diluted net income per share, excluding intangible
amortization expense, all M&A-related expenses (including
acquisition earn-outs), and 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.
Morningstar presents organic revenue because the Company
believes this non-GAAP measure helps investors better compare
period-over-period results. We exclude revenue from acquired
businesses from our organic revenue growth calculation for a period
of 12 months after we complete the acquisition. For divestitures,
we exclude revenue in the prior period for which there is no
comparable revenue in the current period. In the third quarter of
2019, Morningstar Credit Ratings combined with DBRS to form DBRS
Morningstar. The total contribution of DBRS Morningstar is excluded
from organic revenue growth for the first six months of 2020.
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 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)
|
|
2020
|
|
2019
|
|
change
|
|
2020
|
|
2019
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
consolidated revenue to organic revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
revenue
|
|
$
|
357.2
|
|
|
$
|
313.8
|
|
|
13.8
|
%
|
|
$
|
1,009.1
|
|
|
$
|
846.6
|
|
|
19.2
|
%
|
|
Less:
acquisitions
|
|
(15.8)
|
|
|
—
|
|
|
NMF
|
|
|
(115.2)
|
|
|
(20.1)
|
|
|
473.1
|
%
|
|
Effect of foreign
currency translations
|
|
(2.6)
|
|
|
—
|
|
|
NMF
|
|
|
1.9
|
|
|
—
|
|
|
NMF
|
|
|
Organic
revenue
|
|
$
|
338.8
|
|
|
$
|
313.8
|
|
|
8.0
|
%
|
|
$
|
895.8
|
|
|
$
|
826.5
|
|
|
8.4
|
%
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
consolidated operating income to adjusted
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
operating income
|
|
$
|
44.3
|
|
|
$
|
49.6
|
|
|
(10.7)
|
%
|
|
$
|
150.1
|
|
|
$
|
149.9
|
|
|
0.1
|
%
|
|
Add: intangible
amortization expense
|
|
15.6
|
|
|
13.4
|
|
|
16.4
|
%
|
|
43.3
|
|
|
23.1
|
|
|
87.4
|
%
|
|
Add: M&A-related
expenses
|
|
3.5
|
|
|
1.1
|
|
|
218.2
|
%
|
|
10.9
|
|
|
2.9
|
|
|
275.9
|
%
|
|
Add: acquisition
earn-out (2)
|
|
27.8
|
|
|
—
|
|
|
NMF
|
|
|
27.8
|
|
|
—
|
|
|
NMF
|
|
|
Adjusted operating
income
|
|
$
|
91.2
|
|
|
64.1
|
|
|
42.3
|
%
|
|
$
|
232.1
|
|
|
$
|
175.9
|
|
|
31.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
consolidated operating margin to adjusted
operating margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
operating margin
|
|
12.4
|
%
|
|
15.8
|
%
|
|
(3.4)pp
|
|
14.9
|
%
|
|
17.7
|
%
|
|
(2.8)pp
|
|
Add: intangible
amortization expense
|
|
4.4
|
%
|
|
4.3
|
%
|
|
0.1pp
|
|
4.3
|
%
|
|
2.7
|
%
|
|
1.6pp
|
|
Add: M&A-related
expenses
|
|
1.0
|
%
|
|
0.3
|
%
|
|
0.7pp
|
|
1.1
|
%
|
|
0.4
|
%
|
|
0.7pp
|
|
Add: acquisition
earn-out (2)
|
|
7.8
|
%
|
|
—
|
%
|
|
7.8pp
|
|
2.8
|
%
|
|
—
|
%
|
|
2.8pp
|
|
Adjusted operating
margin
|
|
25.6
|
%
|
|
20.4
|
%
|
|
5.2pp
|
|
23.1
|
%
|
|
20.8
|
%
|
|
2.3pp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
consolidated diluted net income per share to
adjusted diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated diluted
net income per share
|
|
$
|
1.76
|
|
|
$
|
1.14
|
|
|
54.4
|
%
|
|
$
|
3.43
|
|
|
$
|
2.89
|
|
|
18.7
|
%
|
|
Add: intangible
amortization expense
|
|
0.27
|
|
|
0.23
|
|
|
17.4
|
%
|
|
0.74
|
|
|
0.40
|
|
|
85.0
|
%
|
|
Add: M&A-related
expenses
|
|
0.06
|
|
|
0.02
|
|
|
200.0
|
%
|
|
0.19
|
|
|
0.05
|
|
|
280.0
|
%
|
|
Add: acquisition
earn-out (2)
|
|
0.64
|
|
|
—
|
|
|
NMF
|
|
|
0.64
|
|
|
—
|
|
|
NMF
|
|
|
Less: non-operating
gains (3)
|
|
(1.18)
|
|
|
(0.33)
|
|
|
257.6
|
%
|
|
(1.18)
|
|
|
(0.33)
|
|
|
257.6
|
%
|
|
Adjusted diluted net
income per share
|
|
$
|
1.55
|
|
|
$
|
1.06
|
|
|
46.2
|
%
|
|
$
|
3.82
|
|
|
$
|
3.01
|
|
|
26.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
cash provided by operating activities to free
cash flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
operating activities
|
|
$
|
93.4
|
|
|
$
|
105.7
|
|
|
(11.6)
|
%
|
|
$
|
269.7
|
|
|
$
|
251.9
|
|
|
7.1
|
%
|
|
Capital
expenditures
|
|
(22.6)
|
|
|
(20.1)
|
|
|
12.4
|
%
|
|
(54.7)
|
|
|
(57.1)
|
|
|
(4.2)
|
%
|
|
Free cash
flow
|
|
$
|
70.8
|
|
|
$
|
85.6
|
|
|
(17.3)
|
%
|
|
$
|
215.0
|
|
|
$
|
194.8
|
|
|
10.4
|
%
|
|
______________________________________________________________________
|
|
NMF - Not
meaningful, pp - percentage points
|
|
(1) Organic revenue
for the nine months ended September 30, 2020 excludes DBRS
Morningstar for the first six months of 2020.
|
|
(2) Acquisition
earn-out included in current period operating
expense.
|
|
(3) Non-operating
gains in the three and nine months ended September 30, 2020 relate
to the $50.9 million holding gain on our previously-held equity
interest in Sustainalytics. Non-operating gains in the three and
nine months ended September 30, 2019 relate to the sale of an
equity method investment.
|
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multimedia:http://www.prnewswire.com/news-releases/morningstar-inc-reports-third-quarter-2020-financial-results-301162214.html
SOURCE Morningstar, Inc.