Morningstar, Inc 10-Q for FY2020 Q2

Morningstar, Inc. (MORN)

10-Q 2020-07-31 For: 2020-06-30

Added on April 10, 2026

About this 10-Q

Morningstar, Inc filed this 10-Q on July 31, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $327.9M; up 19.7% from $273.9M a year earlier
Net income: $48.2M; up 14.5% from net income of $42.1M a year earlier
Diluted EPS: $1.12; up 14.3% from $0.98 a year earlier

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Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common stock, no par value	MORN	NASDAQ


	Three months ended June 30,						Six months ended June 30,
(in millions, except share and per share amounts)	2020		2019		2020		2019

Revenue	$	327.9	$	273.9	$	651.9	$	532.8

Operating expense:
Cost of revenue	131.1		107.5		268.1		212.6
Sales and marketing	47.2		45.7		98.1		85.7
General and administrative	54.6		44.0		112.0		84.8
Depreciation and amortization	33.7		25.9		67.9		49.4

Total operating expense	266.6		223.1		546.1		432.5

Operating income	61.3		50.8		105.8		100.3

Non-operating income (expense), net:
Interest income (expense), net	(1.9)		0.7		(5.1)		—
Gain (loss) on sale of investments, reclassified from other comprehensive income	0.9		(0.2)		0.5		0.4




Other income (expense), net	3.6		1.8		(4.1)		(1.4)
Non-operating income (expense), net	2.6		2.3		(8.7)		(1.0)

Income before income taxes and equity in net income (loss) of unconsolidated entities	63.9		53.1		97.1		99.3

Equity in net income (loss) of unconsolidated entities	(0.5)		0.7		(1.3)		(0.8)

Income tax expense	15.2		11.7		23.7		23.2





Consolidated net income	$	48.2	$	42.1	$	72.1	$	75.3

Net income per share:
Basic	$	1.13	$	0.99	$	1.68	$	1.77
Diluted	$	1.12	$	0.98	$	1.67	$	1.75

Dividends per common share:
Dividends declared per common share	$	0.30	$	0.28	$	0.60	$	0.56
Dividends paid per common share	$	0.30	$	0.28	$	0.60	$	0.56

Weighted average shares outstanding:
Basic	42.9		42.7		42.9		42.7
Diluted	43.2		43.1		43.2		43.1


	Three months ended June 30,						Six months ended June 30,
(in millions)	2020		2019		2020		2019
Consolidated net income	$	48.2	$	42.1	$	72.1	$	75.3

Other comprehensive income (loss):
Foreign currency translation adjustment	12.8		(2.8)		(27.6)		0.6
Unrealized gains (losses) on securities, net of tax:
Unrealized holding gains (losses) arising during period	2.8		0.3		(1.3)		2.2
Reclassification losses (gains) included in net income	(0.7)		0.2		(0.4)		(0.3)
Other comprehensive income (loss)	14.9		(2.3)		(29.3)		2.5



Comprehensive income	$	63.1	$	39.8	$	42.8	$	77.8



(in millions, except share amounts)	As of June 30, 2020 (unaudited)		As of December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	353.7	$	334.1
Investments	29.5		33.4
Accounts receivable, less allowance for credit losses of $5.2 and $4.1, respectively	181.4		188.5

Income tax receivable	—		6.3
Deferred commissions	17.6		16.9
Other current assets	31.3		24.0
Total current assets	613.5		603.2
Goodwill	1,025.3		1,039.1
Intangible assets, net	310.5		333.4
Property, equipment, and capitalized software, less accumulated depreciation and amortization of $415.2 and $377.3, respectively	147.0		154.7
Operating lease assets	153.4		144.8
Investments in unconsolidated entities	62.8		59.6
Deferred tax assets, net	10.5		10.7
Deferred commissions	14.0		13.5
Other assets	13.9		11.9
Total assets	$	2,350.9	$	2,370.9

Liabilities and equity
Current liabilities:
Deferred revenue	$	287.3	$	250.1
Accrued compensation	91.3		137.5

Accounts payable and accrued liabilities	59.0		58.9
Current portion of long-term debt	11.0		11.0
Operating lease liabilities	37.1		35.8
Other current liabilities	4.5		2.5
Total current liabilities	490.2		495.8
Operating lease liabilities	142.3		138.7
Accrued compensation	13.3		12.1
Deferred tax liabilities, net	93.1		95.0
Long-term debt	476.7		502.1
Deferred revenue	33.0		32.2
Other long-term liabilities	15.4		11.4
Total liabilities	1,264.0		1,287.3

Equity:
Morningstar, Inc. shareholders’ equity:
Common stock, no par value, 200,000,000 shares authorized, of which 42,921,183 and 42,848,359 shares were outstanding as of June 30, 2020 and December 31, 2019, respectively	—		—
Treasury stock at cost, 11,008,317 and 10,840,173 shares as of June 30, 2020 and December 31, 2019, respectively	(747.4)		(728.7)
Additional paid-in capital	659.9		655.0
Retained earnings	1,264.3		1,217.9


Accumulated other comprehensive loss:
Currency translation adjustment	(90.6)		(63.0)
Unrealized gain (loss) on available-for-sale investments	0.7		2.4
Total accumulated other comprehensive loss	(89.9)		(60.6)


Total equity	1,086.9		1,083.6
Total liabilities and equity	$	2,350.9	$	2,370.9


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Morningstar, Inc. Shareholders’ Equity
													Accumulated Other Comprehensive Loss
	Common Stock							Additional Paid-in Capital
(in millions, except share and per share amounts)	Shares Outstanding	Par Value		Treasury Stock						Retained Earnings						Total Equity

Balance as of December 31, 2019	42,848,359	$	—	$	(728.7)	$	655.0	$	1,217.9		$	(60.6)		$	1,083.6


Net income		—		—		—		23.9			—			23.9
Other comprehensive loss:
Unrealized loss on available-for-sale investments, net of income tax of $1.4		—		—		—		—			(4.1)			(4.1)
Reclassification of adjustments for loss included in net income, net of income tax of $0.1		—		—		—		—			0.3			0.3
Foreign currency translation adjustment, net		—		—		—		—			(40.4)			(40.4)
Other comprehensive loss, net		—		—		—		—			(44.2)			(44.2)
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net of shares withheld for taxes on settlements of restricted stock units	121,689	—		—		(10.6)		—			—			(10.6)
Reclassification of awards previously liability-classified that were converted to equity		—		—		5.5		—			—			5.5
Stock-based compensation		—		—		7.3		—			—			7.3

Common shares repurchased	(176,925)	—		(20.0)		—		—			—			(20.0)
Dividends declared ($0.30 per share)		—		—		—		(12.8)			—			(12.8)


Balance as of March 31, 2020	42,793,123	$	—	$	(748.7)	$	657.2	$	1,229.0		$	(104.8)		$	1,032.7

Net income		—		—		—		48.2			—			48.2
Other comprehensive income:
Unrealized gain on available-for-sale investments, net of income tax of $0.9		—		—		—		—			2.8			2.8
Reclassification of adjustments for gain included in net income, net of income tax of $0.2		—		—		—		—			(0.7)			(0.7)
Foreign currency translation adjustment, net		—		—		—		—			12.8			12.8
Other comprehensive income, net		—		—		—		—			14.9			14.9
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net of shares withheld for taxes on settlements of restricted stock units	128,060	—		1.3		(7.9)		—			—			(6.6)
Reclassification of awards previously liability-classified that were converted to equity		—		—		0.3		—			—			0.3
Stock-based compensation		—		—		10.3		—			—			10.3

Common shares repurchased	—	—		—		—		—			—			—
Dividends declared ($0.30 per share)		—		—		—		(12.9)			—			(12.9)


Balance as of June 30, 2020	42,921,183	$	—	$	(747.4)	$	659.9	$	1,264.3		$	(89.9)		$	1,086.9


(in millions)	As of June 30, 2020		As of December 31, 2019
Term Facility, net of unamortized debt issuance costs of $1.1 million and $1.3 million	$	437.7	$	443.1
Revolving Credit Facility	50.0		70.0

Total debt	$	487.7	$	513.1
Less: Current portion of long-term debt, net of unamortized debt issuance costs of $0.3 million and $0.3 million	11.0		11.0

Long-term debt	$	476.7	$	502.1


Unaudited Pro Forma Financial Information	Six months ended
(in millions, except for per share amounts)	June 30, 2019
Revenue	$	613.0
Operating income	101.0
Net income	71.5

Basic net income per share	$	1.67
Diluted net income per share	$	1.66


	(in millions)
Remainder of 2020 (from July 1 through December 31)	$	27.1
2021	51.7
2022	43.7
2023	39.9
2024	34.1
Thereafter	114.0
Total	$	310.5


Revenue by geographical area
	Three months ended June 30,						Six months ended June 30,
(in millions)	2020		2019		2020		2019
United States	$	228.3	$	208.0	$	462.9	$	403.1

Asia	8.3		6.8		15.9		13.1
Australia	10.4		10.0		21.0		19.5
Canada	28.3		7.8		49.0		15.7
Continental Europe	23.9		20.9		46.9		41.3
United Kingdom	27.0		18.8		53.0		36.9
Other	1.7		1.6		3.2		3.2
Total International	99.6		65.9		189.0		129.7

Consolidated revenue	$	327.9	$	273.9	$	651.9	$	532.8


Operating lease assets by geographical area

(in millions)	As of June 30, 2020		As of December 31, 2019
United States	$	93.5	$	86.4

Asia	16.1		20.2
Australia	5.5		5.8
Canada	7.2		7.5
Continental Europe	15.2		6.3
United Kingdom	15.2		17.9
Other	0.7		0.7
Total International	59.9		58.4

Consolidated operating lease assets	$	153.4	$	144.8


Leases (in millions)	Classification on the Balance Sheet	As of June 30, 2020		As of December 31, 2019
Assets
Operating	Operating Lease Assets	$	153.4	$	144.8

Liabilities
Operating	Operating lease liabilities, current	$	37.1	$	35.8
Operating	Operating lease liabilities, non-current	142.3		138.7
Total lease liabilities		$	179.4	$	174.5


Minimum Future Lease Commitments (in millions)	Operating Leases
Remainder of 2020 (July 1 through December 31)	$	21.6
2021	41.4
2022	28.4
2023	25.8
2024	20.3
Thereafter	71.3
Total minimum lease commitments	208.8
Adjustment for discount to present value	29.4
Total	$	179.4


	As of June 30, 2020													As of December 31, 2019
(in millions)	Gross		Accumulated Amortization		Net		Weighted Average Useful Life (years)	Gross		Accumulated Amortization		Net		Weighted Average Useful Life (years)
Customer-related assets	$	373.1	$	(142.8)	$	230.3	11	$	377.9	$	(130.3)	$	247.6	11
Technology-based assets	169.7		(121.0)		48.7		7	163.7		(112.0)		51.7		7
Intellectual property & other	69.9		(38.4)		31.5		8	69.3		(35.2)		34.1		8

Total intangible assets	$	612.7	$	(302.2)	$	310.5	9	$	610.9	$	(277.5)	$	333.4	10


	As of June 30, 2020
Weighted-average remaining lease term (in years)	6.8

Weighted-average discount rate	4.24	%


Liabilities for Unrecognized Tax Benefits (in millions)	As of June 30, 2020		As of December 31, 2019
Current liability	$	7.9	$	10.8
Non-current liability	4.4		3.0
Total liability for unrecognized tax benefits	$	12.3	$	13.8


		Three months ended June 30,																					Six months ended June 30,
				2020				2019				Change		Organic Change ⁽¹⁾			2020		2019		Change			Organic Change ⁽¹⁾
Revenue by Type
License-based ⁽²⁾				$	221.1			$	200.9			10.1	%	10.1	%		$	437.1	$	396.4	10.3	%		10.4	%
Asset-based ⁽³⁾				51.8				52.6				(1.5)	%	(0.9)	%		109.0		101.5		7.4	%		8.2	%
Transaction-based ⁽⁴⁾				55.0				20.4				169.6	%	(46.3)	%		105.8		34.9		203.2	%		(36.4)	%

Key product area revenue
Morningstar Data				$	53.3			$	49.7			7.2	%	8.7	%		$	104.7	$	97.4	7.5	%		8.8	%
DBRS Morningstar ⁽⁵⁾				49.7				10.6				368.9	%	—	%	(6)	96.4		20.1		379.6	%		—	%	(6)
PitchBook				48.0				35.1				36.8	%	36.8	%		93.3		67.4		38.4	%		38.4	%
Morningstar Direct				38.7				36.8				5.2	%	6.5	%		77.0		73.1		5.3	%		6.5	%
Investment Management				27.3				28.9				(5.5)	%	(4.5)	%		57.8		55.5		4.1	%		5.3	%
Morningstar Advisor Workstation				21.2				22.2				(4.5)	%	(4.3)	%		43.0		44.5		(3.4)	%		(3.3)	%
Workplace Solutions				19.7				19.7				—	%	—	%		40.9		38.2		7.1	%		7.1	%

				As of June 30,
				2020				2019				Change
Select business metrics
Morningstar Direct licenses				16,148				15,521				4.0	%
PitchBook Platform licenses				45,039				29,398				53.2	%
Advisor Workstation clients (U.S.)				152				171				(11.1)	%
Morningstar.com Premium Membership subscriptions (U.S.)				113,683				111,428				2.0	%

Assets under management and advisement (approximate) ($bil)
	Workplace Solutions
	Managed Accounts	$	76.9			$	66.7			15.3	%
	Fiduciary Services	48.8				48.2				1.2	%
	Custom Models	32.6				32.7				(0.3)	%
	Workplace Solutions (total)	$	158.3			$	147.6			7.2	%
	Investment Management ⁽⁷⁾
	Morningstar Managed Portfolios	$	25.5			$	46.2			(44.8)	%	(8)
	Institutional Asset Management	15.5				15.0		(9)		3.3	%
	Asset Allocation Services	5.8				7.1				(18.3)	%
	Investment Management (total)	$	46.8			$	68.3			(31.5)	%

Asset value linked to Morningstar Indexes ($bil)				$	62.0			$	60.5			2.5	%

				Three months ended June 30,																	Six months ended June 30,


	Three months ended June 30,															Six months ended June 30,
Key Metrics (in millions)	2020			2019			Change			2020			2019			Change
Consolidated revenue	$	327.9		$	273.9		19.7	%		$	651.9		$	532.8		22.4	%
Operating income	61.3			50.8			20.7	%		105.8			100.3			5.5	%
Operating margin	18.7		%	18.5		%	0.2		pp	16.2		%	18.8		%	(2.6)		pp

Cash provided by operating activities	$	127.6		$	87.2		46.3	%		176.3			$	146.2		20.6	%
Capital expenditures	(17.0)			(18.3)			(7.1)	%		(32.1)			(37.0)			(13.2)	%
Free cash flow	$	110.6		$	68.9		60.5	%		$	144.2		$	109.2		32.1	%


	Six months ended June 30, 2020
(in millions, except foreign currency rates)	Australian Dollar			British Pound			Canadian Dollar			Euro			Other Foreign Currencies
Currency rate in U.S. dollars as of June 30, 2020	0.6878			1.2328			0.7331			1.1230			n/a

Percentage of revenue	3.2		%	8.1		%	7.5		%	4.7		%	5.5		%
Percentage of operating income (loss)	4.0		%	0.3		%	16.4		%	11.2		%	(19.2)		%

Estimated effect of a 10% adverse currency fluctuation on revenue	$	(1.2)		$	(6.4)		$	(4.8)		$	(2.6)		$	(3.4)
Estimated effect of a 10% adverse currency fluctuation on operating income (loss)	$	(0.3)		$	—		$	(1.6)		$	(1.0)		$	2.5


Period:	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced programs	Approximate dollar value of shares that may yet be purchased under the programs
April 1, 2020 - April 30, 2020	—	$	—	—	$	454,436,031
May 1, 2020 - May 31, 2020	—	—		—	$	454,436,031
June 1, 2020 - June 30, 2020	—	—		—	$	454,436,031
Total	—	$	—	—


Exhibit No						Description of Exhibit
10.1						Form of Morningstar 2011 Stock Incentive Plan Market Stock Unit Award Agreement

10.2						Form of Morningstar 2011 Stock Incentive Plan Market Stock Unit with Performance Kicker Award Agreement

10.3						Credit Agreement dated as June 30, 2020 among Morningstar, Inc., certain subsidiaries of Morningstar, Inc., and lenders Bank of America, N.A. and JPMorgan Chase Bank, N.A. (incorporated by reference to Morningstar, Inc.'s Current Report on Form 8-K filed with the SEC on July 6, 2020)

31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101						The following financial information from Morningstar, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, filed with the SEC on July 31, 2020 formatted in Inline XBRL: (i) Cover Page, (ii) Unaudited Condensed Consolidated Statements of Income, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (iv) Unaudited Condensed Consolidated Balance Sheets, (v) Unaudited Condensed Consolidated Statement of Equity, (vi) Unaudited Condensed Consolidated Statements of Cash Flows and (vii) the Notes to Unaudited Condensed Consolidated Financial Statements

104						Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document)


		MORNINGSTAR, INC.

Date: July 31, 2020	By:	/s/ Jason Dubinsky
		Jason Dubinsky
		Chief Financial Officer