Morningstar, Inc. (Nasdaq: MORN), a leading provider of
independent investment insights, posted double-digit fourth-quarter
revenue growth, with positive contributions from across the
business. For the full year, the Company reported positive revenue
growth, with particular strength in its license-based products.
"We finished 2023 on a strong note, crossing $2 billion in
revenue for the fiscal year and delivering meaningful increases in
organic revenue, margins, and cash flow for the quarter," said
Kunal Kapoor, Morningstar's chief executive officer. "During the
year, we made important progress across a number of initiatives,
with highlights including the substantial completion of the LCD
integration, the introduction of Direct Lens, the launch of Low
Carbon Transition Ratings and physical risk metrics, and the
ongoing enhancement of our index suite including the introduction
of the Morningstar PitchBook Global Unicorn Industry Vertical
Indexes."
The Company's quarterly shareholder letter provides more context
on its quarterly results and business and can be found at
shareholders.morningstar.com.
Fourth-Quarter 2023 Financial Highlights
- Reported revenue increased 13.4% to $538.7 million compared to
the prior-year period; organic revenue increased 12.6%.
- Reported operating income increased 165.9% to $94.4 million;
adjusted operating income increased 70.2%.
- Diluted net income per share increased to $1.71 versus $0.08 in
the prior-year period. Adjusted diluted net income per share
increased 239.7% to $1.97. The increase in diluted and adjusted
diluted net income per share included the impact of a lower
effective tax rate.
- Cash provided by operating activities increased 33.1% to $137.8
million, and free cash flow increased 59.9% to $107.8 million.
Full-Year 2023 Financial Highlights
- Reported revenue increased 9.0% to $2.0 billion; organic
revenue increased 7.5%.
- Operating income increased 37.4% to $230.6 million; adjusted
operating income increased 9.2%.
- Diluted net income per share increased 100.6% to $3.29 versus
$1.64 in the prior year. Adjusted diluted net income per share
increased by 32.3%.
- Cash provided by operating activities increased 6.2% to $316.4
million. Free cash flow increased 17.2% to $197.3 million. Cash
flows were impacted by items described in the Balance Sheet and
Capital Allocation section totaling $90.8 million. Excluding these
and comparable items in the prior year, operating cash and free
cash flow would have increased by 19.7% and 36.7%,
respectively.
Fourth-Quarter 2023 Results
Fourth-quarter revenue increased 13.4% to $538.7 million
compared to the prior-year period. Organic revenue, which excludes
foreign currency effects, grew 12.6%.
License-based revenue increased 12.4% versus the prior-year
period, or 10.3% on an organic basis. PitchBook, Morningstar Data,
Morningstar Direct, and Morningstar Sustainalytics' license-based
products all provided meaningful contributions to reported and
organic revenue growth in the quarter. Asset-based revenue
increased 14.4% versus the prior-year period, or 19.8% organically,
driven by growth in Investment Management, Morningstar Retirement,
and Morningstar Indexes' asset-based products. This growth was
supported by the rebound in global asset values and net inflows
across multiple products over the trailing 12 months.
Transaction-based revenue increased 18.4%, or 18.0% organically,
compared to a relatively weak prior-year period, reflecting growth
in credit ratings activities across multiple asset classes.
Operating expenses increased 1.1% to $444.3 million in the
fourth quarter of 2023. The primary contributor to the increase was
higher compensation costs, which increased $23.4 million over the
prior-year period. Excluding the impact of amortization,
M&A-related expenses, and costs related to the transition of
the Company's China activities, operating expense increased 4.2% in
the quarter.
Increases in compensation costs were partially offset by a $14.0
million decline in stock-based compensation, compared to the fourth
quarter of 2022 when higher stock-based compensation costs were
primarily due to the overachievement of targets under the PitchBook
management bonus plan.
Fourth-quarter operating income was $94.4 million, an increase
of 165.9% compared with the prior-year period. Adjusted operating
income was $113.0 million in the fourth quarter of 2023, an
increase of 70.2% compared with the prior-year period.
Fourth-quarter operating margin was 17.5%, compared with 7.5% in
the prior-year period. Adjusted operating margin was 21.0% in the
fourth quarter of 2023, versus 14.1% in the prior-year period.
Net income in the fourth quarter of 2023 was $73.5 million, or
$1.71 per diluted share, compared with $3.3 million, or $0.08 per
diluted share, in the fourth quarter of 2022. Adjusted diluted net
income per share increased 239.7% to $1.97 in the fourth quarter of
2023, compared with $0.58 in the prior-year period.
The Company's effective tax rate decreased to 16.1% versus 88.9%
in the prior-year period. In the prior-year period, certain
discrete items combined with lower earnings had an adverse and
outsized impact on the effective tax rate as discussed in the
fourth-quarter 2022 earnings release. Contributors to the full-year
tax rate are described in more detail below.
Full-Year 2023 Results
For the full year, revenue increased 9.0% to $2.0 billion
compared with the prior year. Organic revenue increased 7.5%.
License-based revenue increased 14.0%, or 11.8% on an organic
basis compared with the prior year. PitchBook, Morningstar Data,
Morningstar Sustainalytics' license-based products, and Morningstar
Direct were the top contributors to full-year organic revenue
growth. Asset-based revenue increased 3.8%, or 5.6% on an organic
basis primarily driven by second-half 2023 growth in Morningstar
Indexes' asset-based products, Morningstar Retirement, and
Investment Management, as asset values recovered supported by
strong global market performance. Within these areas, the Company
experienced stronger growth in the second half of the year as asset
values recovered and global market performance improved.
Transaction-based revenue decreased by 10.4%, or 11.5% on an
organic basis, as Morningstar DBRS revenue declined, primarily
reflecting sharply lower levels of credit ratings activity in U.S.
commercial mortgage-backed securities.
Full-year 2023 operating income was $230.6 million, an increase
of 37.4% compared with the prior year. Adjusted operating income
was $326.5 million, an increase of 9.2%. Full-year 2023 operating
margin was 11.3%, compared with 9.0% in the prior year. Adjusted
operating margin was 16.0%, consistent with the prior year.
Severance costs related to targeted reorganizations in certain
parts of the business negatively impacted operating margin and
adjusted operating margin in 2023 by 0.4% percentage points. In
addition, two Morningstar DBRS settlements with the Securities and
Exchange Commission (SEC) negatively impacted operating margin and
adjusted operating margin by 0.4% percentage points.
Full-year 2023 net income increased by 100.1% to $141.1 million,
or $3.29 per diluted share. Full-year 2022 net income was $70.5
million, or $1.64 per diluted share. Adjusted diluted net income
per share increased 32.3% to $5.12, compared with $3.87 in the
prior year.
The effective tax rate for the full year 2023 was 19.0% versus
44.5% in the prior year, a decrease of 25.5 percentage points. The
2023 effective tax rate was impacted by the one-time recognition of
$13.7 million of tax benefits with respect to the 2021 and 2022 tax
periods in the second quarter of 2023, which reduced the 2023
effective tax rate by approximately 7.9 percentage points and
impacted diluted net income per share by $0.32.
Product Revenue Contributions
PitchBook, Morningstar DBRS, and Morningstar Data were the top
three contributors to consolidated and organic revenue growth in
the fourth quarter of 2023. (For more detail on product key
metrics, refer to the Supplemental Data table contained in this
release and the Supplemental Presentation included on the Company's
Investor Relations website at shareholders.morningstar.com under
"Financials — Financial Summary".)
Key drivers of the quarterly consolidated revenue trend are
provided below. Organic revenue excludes all foreign currency
effects, which accounted for the entire difference between reported
and organic growth for all product areas.
- PitchBook contributed $132.0 million to consolidated
revenue and $21.2 million to revenue growth, with revenue
increasing 19.1% on a reported and organic basis, as licenses grew
14.0%. Growth was primarily driven by strength in its core investor
and advisor segments, which offset some continued softness in the
company (corporate) segment. During 2023, PitchBook substantially
completed the integration of Leveraged Commentary & Data's
(LCD) core data offering and news onto the PitchBook Platform. At
the same time, PitchBook introduced new capabilities to inform
investor strategies, including the VC Exit Predictor, a proprietary
tool and scoring methodology to predict exit outcomes for VC-backed
companies, and the Manager Scoring tool, a new methodology that
helps limited partners discover and evaluate top-performing private
fund managers. Results exclude stand-alone LCD revenues.
- Morningstar Data contributed $73.3 million to
consolidated revenue and $9.2 million to revenue growth, with
revenue increasing 14.4%, or 12.4% on an organic basis, supported
by growth across major geographies. At the product level, managed
investment data, including fund data, continued to be a key driver
of higher revenue, followed by growth in equity data and
Morningstar Essentials. In 2023, Morningstar Data's coverage
continued to evolve to meet client needs, with the addition of
structured products and notes data and the continued expansion of
coverage on other vehicle types.
- Morningstar DBRS contributed $61.5 million to
consolidated revenue and $10.8 million to revenue growth, with
revenue increasing 21.3%, or 20.0% on an organic basis, as revenue
increased across the U.S., Europe, and Canada compared to a
relatively weak prior-year period. The increase was primarily
driven by higher asset-backed securities ratings revenue, including
revenue related to ratings activity in nontraditional, niche
(esoteric) securities; higher corporate ratings revenue, with
particular strength in Europe; and higher revenue from U.S.
residential mortgage-backed securities. Revenue related to data
licensing products also increased but is currently a small portion
of overall revenue in the product area.
- Morningstar Direct contributed $52.0 million to
consolidated revenue and $4.5 million to revenue growth, with
revenue increasing 9.5% or 8.2% on an organic basis, supported by
growth across major geographies. In 2023, Morningstar Direct
introduced Direct Lens, which unifies the platform's portfolio
capabilities in a clear and intuitive interface; self-service data
feeds; and the Morningstar Data Python package, which gives data
scientists, data strategists, and quantitative analysts seamless
access to data in their favorite coding environments. Morningstar
Direct licenses increased 0.8%.
- Investment Management contributed $32.5 million to
consolidated revenue and $4.8 million to revenue growth, with
revenue increasing 17.3%, or 16.3% on an organic basis. Reported
assets under management and advisement (AUMA) increased 9.0% to
$55.5 billion compared with the prior year, supported by strong
market performance which drove higher asset values. Positive net
flows to Managed Portfolios over the trailing 12 months, reflecting
strong net inflows outside the U.S. and relatively flat net flows
in the U.S, contributed to growth in AUMA. Those offset lower AUM
for Institutional Asset Management which experienced significant
outflows from a large institutional client.
- Morningstar Sustainalytics contributed $30.4 million to
consolidated revenue and $4.2 million to revenue growth, with
revenue increasing 16.0% or 13.6% on an organic basis.
License-based revenue increased 15.3%, or 12.3% on an organic
basis, while transaction-based revenue increased 32.2%, or 29.3% on
an organic basis. While still growing at a double-digit rate,
license-based revenue continued to slow compared to recent
quarters, reflecting softer demand for ESG solutions. Demand for
regulatory and compliance solutions supported strong growth in
EMEA. Higher second-party opinion revenue across geographies was
supported by increased issuance of sustainable bonds, especially
green bonds, driving growth in transaction-based revenue. In 2023,
Morningstar Sustainalytics launched Low Carbon Transition Ratings,
which provide a forward-looking, science-based evaluation of a
company’s alignment with a net-zero pathway.
- Morningstar Retirement contributed $30.2 million to
consolidated revenue and $4.2 million to revenue growth, with
revenue increasing 16.2% on a reported and organic basis. AUMA
increased 18.4% to $230.4 billion compared with the prior year,
supported by strong market performance. Net inflows to Managed
Accounts over the trailing 12 months also contributed to higher
AUMA, supported by participant growth, including the impact of the
addition of large employer plans during 2023.
- Morningstar Advisor Workstation contributed $25.1
million to consolidated revenue and $0.7 million to revenue growth,
with revenue increasing 2.9% on a reported and organic basis,
supported by recent product enhancements. In 2023, these included
the launch of the Investment Planning Experience, a new workflow
which helps advisors meet demand for more personalized advice for
investors and has driven new business and upsells with both advisor
and enterprise clients, and Enterprise Analytics, which offers
firms deeper visibility and insights into firmwide advisor
activity.
- Morningstar Indexes contributed $18.2 million to
consolidated revenue and $5.5 million to revenue growth, with
revenue increasing 43.3%, on a reported and organic basis. The
increase in revenue was driven in part by higher investable product
revenue, as market performance and strong net flows over the
trailing 12 months increased asset value linked to Morningstar
Indexes by 19.6% to $176.7 billion over the prior year. Morningstar
Indexes licensed data sales also increased. In 2023, Morningstar
Indexes completed a multi-year global project to bring index
calculations in-house, while introducing a number of new product
innovations including the launch of global single factor indexes,
the Next Gen AI Index, the Global Unicorn Industry Vertical
Indexes, and the Sustainable Activities Involvement Indexes.
Balance Sheet and Capital Allocation
As of Dec. 31, 2023, the Company had cash, cash equivalents, and
investments totaling $389.0 million and $972.4 million of debt,
compared with cash, cash equivalents, and investments of $414.6
million and $1.1 billion of debt as of Dec. 31, 2022.
Cash provided by operating activities increased by 6.2% to
$316.4 million for the full year 2023, compared with $297.8 million
in 2022. Free cash flow increased by 17.2% to $197.3 million for
the full year 2023, compared with $168.3 million in the prior
year.
Operating cash flow and free cash flow in 2023 were impacted by
the termination of the Company's license agreement with Morningstar
Japan K.K. (renamed SBI Global Asset Management) and the $50.0
million contingent payment related to the acquisition of LCD, of
which $4.5 million is reflected in operating cash flows and $45.5
million is reflected in financing cash flows. Excluding the $4.5
million LCD contingent payment within operating cash flow, payments
related to the Termination Agreement of $59.9 million, and $26.4
million of severance and other costs paid for the reduction and
shift of the Company's China operations, which together totaled
$90.8 million, as well as comparable items in the prior year, cash
provided by operating activities and free cash flow would have
increased by 19.7% and 36.7%, respectively.
In 2023, the Company reduced its debt by $137.2 million, net,
paid $63.9 million in dividends, spent $3.7 million related to
other minority investments and repurchased $1.4 million of its
shares.
Segment Reporting
In response to feedback and comments from the SEC related to the
Company's segment reporting and segment aggregation analysis, the
Company will be updating its segment reporting presentation in its
Form 10-K for the year ended December 31, 2023.
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, generally every month.
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 services for
individual investors, financial advisors, asset managers and
owners, 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 $286 billion in assets under advisement and
management as of Dec. 31, 2023. The Company operates through
wholly- or majority-owned subsidiaries in 32 countries. For more
information, visit www.morningstar.com/company. Follow Morningstar
on X @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 “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, 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, ESG 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, 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
and business continuity programs and insurance coverage in the
event of a material disruptive event; 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 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 future
filings with the SEC on Forms 10-K, 10-Q and 8-K.
Morningstar, Inc. and
Subsidiaries
Unaudited Condensed Consolidated
Statements of Income
Three months ended December
31,
Year ended December
31,
(in millions, except per share
amounts)
2023
2022
Change
2023
2022
Change
Revenue
$
538.7
$
475.0
13.4
%
$
2,038.6
$
1,870.6
9.0
%
Operating expense:
Cost of revenue
205.4
195.0
5.3
%
843.5
779.3
8.2
%
Sales and marketing
100.4
93.6
7.3
%
423.8
356.5
18.9
%
General and administrative
92.0
106.1
(13.3
)%
355.8
400.4
(11.1
)%
Depreciation and amortization
46.5
44.8
3.8
%
184.9
166.6
11.0
%
Total operating expense
444.3
439.5
1.1
%
1,808.0
1,702.8
6.2
%
Operating income
94.4
35.5
165.9
%
230.6
167.8
37.4
%
Operating margin
17.5
%
7.5
%
10.0 pp
11.3
%
9.0
%
2.3 pp
Non-operating loss, net:
Interest expense, net
(11.5
)
(11.1
)
3.6
%
(51.7
)
(28.4
)
82.0
%
Expense from equity method transaction,
net
—
—
—
%
(11.8
)
—
NMF
Other income (loss), net
7.4
6.2
19.4
%
14.4
(8.8
)
NMF
Non-operating loss, net
(4.1
)
(4.9
)
(16.3
)%
(49.1
)
(37.2
)
32.0
%
Income before income taxes and equity in
net income (loss) of unconsolidated entities
90.3
30.6
195.1
%
181.5
130.6
39.0
%
Equity in net income (loss) of
unconsolidated entities
(2.7
)
(0.9
)
200.0
%
(7.4
)
(3.6
)
105.6
%
Income tax expense
14.1
26.4
(46.6
)%
33.0
56.5
(41.6
)%
Consolidated net income
$
73.5
$
3.3
NMF
$
141.1
$
70.5
100.1
%
Net income per share:
Basic
$
1.72
$
0.08
NMF
$
3.31
$
1.65
100.6
%
Diluted
$
1.71
$
0.08
NMF
$
3.29
$
1.64
100.6
%
Weighted average shares outstanding:
Basic
42.7
42.5
0.5
%
42.6
42.6
—
%
Diluted
43.0
42.7
0.7
%
42.9
42.9
—
%
_________________________________________________________________
NMF - Not meaningful, pp - percentage
points
Morningstar, Inc. and
Subsidiaries
Unaudited Condensed Consolidated
Balance Sheets
As of December 31,
As of December 31
(in millions)
2023
2022
Assets
Current assets:
Cash and cash equivalents
$
337.9
$
376.6
Investments
51.1
38.0
Accounts receivable, net
343.9
307.9
Income tax receivable, net
0.6
—
Other current assets
82.2
88.3
Total current assets
815.7
810.8
Goodwill
1,578.8
1,571.7
Intangible assets, net
484.4
548.6
Property, equipment, and capitalized
software, net
207.7
199.4
Operating lease assets
163.9
191.6
Investments in unconsolidated entities
100.2
96.0
Deferred tax asset, net
14.6
10.8
Other assets
38.1
45.9
Total assets
$
3,403.4
$
3,474.8
Liabilities and equity
Current liabilities:
Deferred revenue
$
517.7
$
455.6
Accrued compensation
214.4
220.1
Accounts payable and accrued
liabilities
78.4
76.2
Operating lease liabilities
36.4
37.3
Current portion of long-term debt
32.1
32.1
Contingent consideration liability
—
50.0
Other current liabilities
1.8
11.2
Total current liabilities
880.8
882.5
Operating lease liabilities
151.4
176.7
Accrued compensation
23.7
20.7
Deferred tax liability, net
35.6
62.9
Long-term debt
940.3
1,077.5
Other long-term liabilities
43.8
47.4
Total liabilities
2,075.6
2,267.7
Total equity
1,327.8
1,207.1
Total liabilities and equity
$
3,403.4
$
3,474.8
Morningstar, Inc. and
Subsidiaries
Unaudited Condensed Consolidated
Statements of Cash Flows
Three months ended December
31,
Year ended December
31,
(in millions)
2023
2022
2023
2022
Operating activities
Consolidated net income
$
73.5
$
3.3
$
141.1
$
70.5
Adjustments to reconcile consolidated net
income to net cash flows from operating activities
27.9
56.2
147.2
239.3
Changes in operating assets and
liabilities, net
36.4
44.0
28.1
(12.0
)
Cash provided by operating activities
137.8
103.5
316.4
297.8
Investing activities
Capital expenditures
(30.0
)
(36.1
)
(119.1
)
(129.5
)
Acquisitions, net of cash acquired
(0.8
)
0.1
(0.8
)
(646.7
)
Purchases of investments in unconsolidated
entities
(2.6
)
(1.1
)
(3.7
)
(29.4
)
Other, net
0.6
(1.2
)
41.7
6.3
Cash used for investing activities
(32.8
)
(38.3
)
(81.9
)
(799.3
)
Financing activities
Common shares repurchased
—
(8.3
)
(1.4
)
(226.0
)
Dividends paid
(16.0
)
(15.3
)
(63.9
)
(61.5
)
Repayments of debt
(83.1
)
(63.2
)
(397.5
)
(374.1
)
Proceeds from debt
—
15.0
260.0
1,125.0
Payment for acquisition-related
earn-outs
—
—
(45.5
)
(16.2
)
Other, net
(4.3
)
(4.9
)
(30.1
)
(32.1
)
Cash provided by (used for) financing
activities
(103.4
)
(76.7
)
(278.4
)
415.1
Effect of exchange rate changes on cash
and cash equivalents
11.3
15.4
5.2
(20.8
)
Net increase (decrease) in cash and cash
equivalents
12.9
3.9
(38.7
)
(107.2
)
Cash and cash equivalents-beginning of
period
325.0
372.7
376.6
483.8
Cash and cash equivalents-end of
period
$
337.9
$
376.6
$
337.9
$
376.6
Morningstar, Inc. and
Subsidiaries
Supplemental Data (Unaudited)
Three months ended December
31,
Year ended December
31,
(in millions)
2023
2022
Change
Organic (2)
2023
2022
Change
Organic (2)
Revenue by type (1)
License-based (3)
393.0
349.7
12.4
%
10.3
%
$
1,517.5
$
1,331.7
14.0
%
11.8
%
Asset-based (4)
75.5
66.0
14.4
%
19.8
%
279.6
269.4
3.8
%
5.6
%
Transaction-based (5)
70.2
59.3
18.4
%
18.0
%
241.5
269.5
(10.4
)%
(11.5
)%
Product revenue contributors
(6)
PitchBook
132.0
110.8
19.1
%
19.1
%
493.4
407.7
21.0
%
21.0
%
Morningstar Data
73.3
64.1
14.4
%
12.4
%
281.2
255.0
10.3
%
10.3
%
Morningstar DBRS (7)
61.5
50.7
21.3
%
20.0
%
215.4
236.9
(9.1
)%
(8.5
)%
Morningstar Direct
52.0
47.5
9.5
%
8.2
%
201.9
184.8
9.3
%
9.2
%
Investment Management
32.5
27.7
17.3
%
16.3
%
122.6
117.6
4.3
%
(0.1
)%
Morningstar Sustainalytics
30.4
26.2
16.0
%
13.6
%
117.8
103.0
14.4
%
13.9
%
Morningstar Retirement (8)
30.2
26.0
16.2
%
16.2
%
110.2
103.7
6.3
%
6.3
%
Morningstar Advisor Workstation
25.1
24.4
2.9
%
2.9
%
100.0
95.4
4.8
%
5.2
%
As of December 31,
AUMA (approximate) ($bil)
2023
2022
Change
Morningstar Retirement
Managed Accounts
$
134.8
$
109.3
23.3
%
Fiduciary Services
56.2
50.4
11.5
%
Custom Models/CIT
39.4
34.9
12.9
%
Morningstar Retirement (total)
$
230.4
$
194.6
18.4
%
Investment Management
Morningstar Managed Portfolios
$
38.7
$
32.6
18.7
%
Institutional Asset Management
7.7
9.8
(21.4
)%
Asset Allocation Services
9.1
8.5
7.1
%
Investment Management (total)
$
55.5
$
50.9
9.0
%
Asset value linked to Morningstar Indexes
($bil)
$
176.7
$
147.7
19.6
%
Three months ended December
31,
Year ended December
31,
2023
2022
Change
2023
2022
Change
Average AUMA ($bil)
$
274.8
$
242.5
13.3
%
$
261.4
$
253.6
3.1
%
____________________________________________________________________________
(1) Starting with the quarter ended March
31, 2023, the Company updated its revenue-type classifications to
account for product areas with more than one revenue type. Prior
periods have not been restated to reflect the updated
classifications. Revenue from Morningstar Sustainalytics'
second-party opinions product was reclassified from license-based
to transaction-based. Revenue from Morningstar Indexes data and
services products was reclassified from asset-based to
license-based. Revenue from Morningstar DBRS' data licensing
products was reclassified from transaction-based to
license-based.
(2) Organic revenue excludes acquisitions,
divestitures, the impacts of the adoption of new accounting
standard changes, and the effect of foreign currency
translations.
(3) License-based revenue includes
PitchBook, Morningstar Data, Morningstar Direct, Morningstar
Sustainalytics' license-based products, Morningstar Indexes data
and services products, Morningstar DBRS' data licensing products,
Morningstar Advisor Workstation, and other similar products.
(4) Asset-based revenue includes
Investment Management, the majority of Morningstar Retirement
(formerly Workplace Solutions), and Morningstar Indexes.
(5) Transaction-based revenue includes
Morningstar DBRS, Morningstar Sustainalytics' second-party opinions
product, internet advertising, and Morningstar-sponsored
conferences.
(6) The dollar contribution of each
product to consolidated revenue growth is provided in the Product
Revenue Contributions narrative.
(7) For the three and 12 months ended Dec
31, 2023, Morningstar DBRS recurring revenue derived primarily from
surveillance, research, and other transaction-related services was
45.0% and 50.2%, respectively. For the three and 12 months ended
Dec 31, 2022, recurring revenue was 50.1% and 42.4%,
respectively.
(8) Morningstar Retirement was formerly
branded Workplace Solutions.
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 SEC, including:
- consolidated revenue, excluding acquisitions, divestitures,
adoption of new accounting standard changes (accounting changes),
and the effect of foreign currency translations (organic
revenue),
- consolidated operating income, excluding intangible
amortization expense, all mergers and acquisitions
(M&A)-related expenses (including M&A-related earn-outs),
and items 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 (including
M&A-related earn-outs), and items related to the significant
reduction and shift of the Company's operations in China (adjusted
operating margin),
- consolidated diluted net income per share, excluding intangible
amortization expense, all M&A-related expenses (including
M&A-related earn-outs), items related to the significant
reduction and shift of the Company's operations in China, and
certain non-operating gains/losses (adjusted diluted net income per
share), and
- cash provided by or used for operating activities less capital
expenditures (free cash flow).
These non-GAAP measures may not be comparable to similarly
titled measures reported by other companies.
Morningstar presents organic revenue because the Company
believes this non-GAAP measure helps investors better compare
period-over-period results. 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 net income per share to show the
effect of significant acquisition activity, better compare
period-over-period results, and improve overall understanding of
the underlying performance of the business absent the impact of
acquisitions.
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 December
31,
Year ended December
31,
(in millions)
2023
2022
Change
2023
2022
Change
Reconciliation from consolidated revenue
to organic revenue:
Consolidated revenue
$
538.7
$
475.0
13.4
%
$
2,038.6
$
1,870.6
9.0
%
Less: acquisitions
—
—
—
%
(30.9
)
—
NMF
Less: accounting changes
—
—
—
%
—
—
—
%
Effect of foreign currency
translations
(3.7
)
—
NMF
3.2
—
NMF
Organic revenue
$
535.0
$
475.0
12.6
%
$
2,010.9
$
1,870.6
7.5
%
Reconciliation from consolidated operating
income to adjusted operating income:
Consolidated operating income
$
94.4
$
35.5
165.9
%
$
230.6
$
167.8
37.4
%
Add: intangible amortization expense
17.6
18.3
(3.8
)%
70.5
66.7
5.7
%
Add: M&A-related expenses (1)
0.9
3.4
(73.5
)%
9.8
17.1
(42.7
)%
Add: M&A-related earn-outs (2)
—
3.6
NMF
—
11.6
NMF
Add: Severance and personnel expenses
(3)
0.1
0.5
(80.0
)%
5.5
27.5
(80.0
)%
Add: Transformation costs (3)
—
5.1
NMF
7.0
8.2
(14.6
)%
Add: Asset impairment costs (3)
—
—
—
%
3.1
—
NMF
Adjusted operating income
$
113.0
$
66.4
70.2
%
$
326.5
$
298.9
9.2
%
Reconciliation from consolidated operating
margin to adjusted operating margin:
Consolidated operating margin
17.5
%
7.5
%
10.0 pp
11.3
%
9.0
%
2.3 pp
Add: intangible amortization expense
3.3
%
3.9
%
(0.6) pp
3.5
%
3.6
%
(0.1) pp
Add: M&A-related expenses (1)
0.2
%
0.7
%
(0.5) pp
0.4
%
0.9
%
(0.5) pp
Add: M&A-related earn-outs (2)
—
%
0.8
%
(0.8) pp
—
%
0.6
%
(0.6) pp
Add: Severance and personnel expenses
(3)
—
%
0.1
%
(0.1) pp
0.3
%
1.5
%
(1.2) pp
Add: Transformation costs (3)
—
%
1.1
%
(1.1) pp
0.3
%
0.4
%
(0.1) pp
Add: Asset impairment costs (3)
—
%
—
%
0.0 pp
0.2
%
—
%
0.2 pp
Adjusted operating margin
21.0
%
14.1
%
6.9 pp
16.0
%
16.0
%
0.0 pp
Reconciliation from consolidated diluted
net income per share to adjusted diluted net income per share:
Consolidated diluted net income per
share
$
1.71
$
0.08
NMF
$
3.29
$
1.64
100.6
%
Add: intangible amortization expense
0.30
0.32
(6.3
)%
1.22
1.15
6.1
%
Add: M&A-related expenses (1)
0.02
0.06
(66.7
)%
0.17
0.29
(41.4
)%
Add: M&A-related earn-outs (2)
—
0.06
NMF
—
0.24
NMF
Add: Severance and personnel expenses
(3)
—
0.01
NMF
0.09
0.47
(80.9
)%
Add: Transformation costs (3)
—
0.09
NMF
0.12
0.14
(14.3
)%
Add: Asset impairment costs (3)
—
—
—
%
0.05
—
NMF
Less: non-operating (gains) losses (4)
(0.06
)
(0.04
)
50.0
%
0.18
(0.06
)
NMF
Adjusted diluted net income per share
$
1.97
$
0.58
239.7
%
$
5.12
$
3.87
32.3
%
Reconciliation from cash provided by
operating activities to free cash flow:
Cash provided by operating activities
$
137.8
$
103.5
33.1
%
$
316.4
$
297.8
6.2
%
Capital expenditures
(30.0
)
(36.1
)
(16.9
)%
(119.1
)
(129.5
)
(8.0
)%
Free cash flow
$
107.8
$
67.4
59.9
%
$
197.3
$
168.3
17.2
%
_____________________________________________________________________
NMF - Not meaningful, pp - percentage
points
(1) Reflects non-recurring expenses
related to M&A activity including pre-deal due diligence,
transaction costs, and post-close integration costs.
(2) The three months and 12 months ended
Dec. 31, 2022 include M&A-related earn-outs included in
operating expense related to the Company's acquisition of LCD. The
12 months ended Dec. 31, 2022 also reflect the impact of
M&A-related earn-outs included in operating expense due to the
earn-out for Morningstar Sustainalytics.
(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 expense recognition from
the continued of vesting of restricted stock unit (RSU) and market
stock unit (MSU) 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
hires replacement roles in other markets and shifts capabilities,
it expects to continue to employ certain Shenzhen-based staff
through the transition period, which will result 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 are not redeployed, in addition to
lease abandonment costs as the Company plans to downsize office
space prior to the lease termination date.
(4) Non-operating (gains) losses in the
three and 12 months ended Dec. 31, 2023 related to pre-tax realized
and unrealized gains and losses on investments of $3.2 million and
$7.1 million, respectively, included in Other income (loss), net.
In addition, non-operating (gains) losses for the 12 months ended
Dec. 31, 2023 also includes $11.8 million of expense from an equity
method transaction, net. Non-operating gains in the three and 12
months ended Dec. 31, 2022 related to pre-tax realized and
unrealized gains and losses on investments of $2.2 million and $3.3
million, respectively, included in Other income (loss), net.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240221293130/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
©2024 Morningstar, Inc. All Rights Reserved.
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