Morningstar, Inc 10-Q for FY2023 Q2

Morningstar, Inc. (MORN)

10-Q 2023-07-28 For: 2023-06-30

Added on April 10, 2026

About this 10-Q

Morningstar, Inc filed this 10-Q on July 28, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).

Headline figures

Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $504.7M; up 7.3% from $470.4M a year earlier
Net income: $36.1M; up 19.9% from net income of $30.1M a year earlier
Diluted EPS: $0.84; up 20.0% from $0.70 a year earlier

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Illinois		36-3297908
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

22 West Washington Street
Chicago	Illinois	60602
(Address of Principal Executive Offices)		(Zip Code)


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)	2023		2022		2023		2022

Revenue	$	504.7	$	470.4	$	984.4	$	927.4

Operating expense:
Cost of revenue	216.4		197.6		435.2		388.9
Sales and marketing	109.5		91.8		217.1		173.2
General and administrative	90.1		87.1		174.1		177.4
Depreciation and amortization	47.0		40.0		91.8		77.6

Total operating expense	463.0		416.5		918.2		817.1

Operating income	41.7		53.9		66.2		110.3

Non-operating income (loss), net:
Interest expense, net	(14.1)		(4.4)		(27.4)		(6.8)
Realized gain (loss) on sale of investments, reclassified from other comprehensive income	0.3		(3.1)		0.5		(2.1)



Expense from equity method transaction, net	—		—		(11.8)		—
Other income (loss), net	3.8		(7.1)		6.3		0.9
Non-operating income (loss), net	(10.0)		(14.6)		(32.4)		(8.0)

Income before income taxes and equity in investments of unconsolidated entities	31.7		39.3		33.8		102.3

Equity in investments of unconsolidated entities	(1.8)		(1.8)		(3.1)		(1.4)

Income tax expense (benefit)	(6.2)		7.4		2.2		24.7





Consolidated net income	$	36.1	$	30.1	$	28.5	$	76.2

Net income per share:
Basic	$	0.85	$	0.71	$	0.67	$	1.78
Diluted	$	0.84	$	0.70	$	0.67	$	1.77

Dividends per common share:
Dividends declared per common share	$	0.38	$	0.36	$	0.75	$	0.72
Dividends paid per common share	$	0.38	$	0.36	$	0.75	$	0.72

Weighted average shares outstanding:
Basic	42.6		42.6		42.6		42.8
Diluted	42.8		42.9		42.8		43.1


	Three months ended June 30,				Six months ended June 30,
(in millions)	2023		2022		2023		2022
Consolidated net income	$	36.1	$	30.1	$	28.5	$	76.2

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	7.9		(43.7)		15.0		(48.7)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period	0.1		(3.0)		0.2		(7.8)
Reclassification of realized gains (losses) on investments included in net income	(0.1)		2.8		(0.3)		2.1
Other comprehensive income (loss), net	7.9		(43.9)		14.9		(54.4)



Comprehensive income (loss)	$	44.0	$	(13.8)	$	43.4	$	21.8



(in millions, except share amounts)	As of June 30, 2023 (unaudited)		As of December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	343.3	$	376.6
Investments	34.9		38.0
Accounts receivable, less allowance for credit losses of $5.7 million and $6.6 million, respectively	321.8		307.9

Income tax receivable	15.1		—
Deferred commissions	42.7		40.7
Prepaid expenses	45.8		36.7
Other current assets	3.7		10.9
Total current assets	807.3		810.8
Goodwill	1,584.7		1,571.7
Intangible assets, net	518.5		548.6
Property, equipment, and capitalized software, less accumulated depreciation and amortization of $666.7 million and $610.7 million, respectively	205.6		199.4
Operating lease assets	173.6		191.6
Investments in unconsolidated entities	114.8		96.0
Deferred tax asset, net	11.5		10.8
Deferred commissions	32.4		35.4
Other assets	9.5		10.5
Total assets	$	3,457.9	$	3,474.8

Liabilities and equity
Current liabilities:
Deferred revenue	$	506.3	$	455.6
Accrued compensation	169.4		220.1

Accounts payable and accrued liabilities	69.0		76.2
Current portion of long-term debt	32.1		32.1
Operating lease liabilities	36.3		37.3
Contingent consideration liability	—		50.0
Other current liabilities	1.8		11.2
Total current liabilities	814.9		882.5
Operating lease liabilities	160.3		176.7
Accrued compensation	23.2		20.7
Deferred tax liabilities, net	58.2		62.9
Long-term debt	1,121.4		1,077.5
Deferred revenue	29.5		33.5
Other long-term liabilities	14.8		13.9
Total liabilities	2,222.3		2,267.7

Equity:
Morningstar, Inc. shareholders’ equity:
Common stock, no par value, 200,000,000 shares authorized, of which 42,653,561 and 42,480,051 shares were outstanding as of June 30, 2023 and December 31, 2022, respectively	—		—


☑			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


Treasury stock at cost, 11,993,210 and 11,991,517 shares as of June 30, 2023 and December 31, 2022, respectively	(986.8)		(986.7)
Additional paid-in capital	775.0		757.8
Retained earnings	1,531.5		1,535.0
Accumulated other comprehensive loss:
Currency translation adjustment	(84.0)		(99.0)
Unrealized gain on available-for-sale investments	(0.1)		—
Total accumulated other comprehensive loss	(84.1)		(99.0)


Total equity	1,235.6		1,207.1
Total liabilities and equity	$	3,457.9	$	3,474.8


	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, 2022	42,480,051	$	—	$	(986.7)	$	757.8	$	1,535.0	$	(99.0)		$	1,207.1

Net loss		—		—		—		(7.6)		—			(7.6)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale investments, net of tax		—		—		—		—		0.1			0.1
Reclassification of realized gain on investments included in net income, net of tax		—		—		—		—		(0.2)			(0.2)
Foreign currency translation adjustment, net		—		—		—		—		7.1			7.1
Other comprehensive income (loss), net		—		—		—		—		7.0			7.0
Issuance of common stock related to vesting of stock awards, net of shares withheld for taxes on settlements of stock awards	70,892	—		—		(9.4)		—		—			(9.4)
Reclassification of awards previously liability-classified that were converted to equity		—		—		11.4		—		—			11.4
Stock-based compensation		—		—		12.2		—		—			12.2


Dividends declared ($0.38 per share)		—		—		—		(16.0)		—			(16.0)


Balance as of March 31, 2023	42,550,943	$	—	$	(986.7)	$	772.0	$	1,511.4	$	(92.0)		$	1,204.7

Net income		—		—		—		36.1		—			36.1
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale investments, net of tax		—		—		—		—		0.1			0.1
Reclassification of realized gain on investments included in net income, net of tax		—		—		—		—		(0.1)			(0.1)
Foreign currency translation adjustment, net		—		—		—		—		7.9			7.9
Other comprehensive income (loss), net		—		—		—		—		7.9			7.9
Issuance of common stock related to vesting of stock awards, net of shares withheld for taxes on settlements of stock awards	111,102	—		1.3		(11.7)		—		—			(10.4)
Reclassification of awards previously liability-classified that were converted to equity		—		—		(0.1)		—		—			(0.1)
Stock-based compensation		—		—		14.8		—		—			14.8

Common shares repurchased	(8,484)	—		(1.4)		—		—		—			(1.4)
Dividends declared ($0.38 per share)		—		—		—		(16.0)		—			(16.0)


Balance as of June 30, 2023	42,653,561	$	—	$	(986.8)	$	775.0	$	1,531.5	$	(84.1)		$	1,235.6


(in millions)	As of June 30, 2023		As of December 31, 2022
Term Facility, net of unamortized debt issuance costs of $0.7 million and $0.7 million, respectively	$	625.0	$	641.1
Revolving Credit Facility	180.0		120.0
2.32% Senior Notes due October 26, 2030, net of unamortized debt issuance costs of $1.5 million and $1.5 million, respectively	348.5		348.5
Total debt	$	1,153.5	$	1,109.6


	(in millions)
Remainder of 2023 (July 1 through December 31)	$	36.0
2024	65.2
2025	56.8
2026	53.0
2027	45.9
Thereafter	261.6
Total	$	518.5



Revenue by geographical area	Three months ended June 30,				Six months ended June 30,
(in millions)	2023		2022		2023		2022
United States	$	365.5	$	338.1	$	712.8	$	666.3

Asia	11.6		11.5		23.7		22.3
Australia	14.6		14.7		29.0		28.7
Canada	30.1		29.5		57.4		56.6
Continental Europe	45.6		41.2		88.7		82.5
United Kingdom	34.7		32.9		67.8		66.0
Other	2.6		2.5		5.0		5.0
Total International	139.2		132.3		271.6		261.1

Consolidated revenue	$	504.7	$	470.4	$	984.4	$	927.4


Operating lease assets by geographical area
(in millions)	As of June 30, 2023		As of December 31, 2022
United States	$	111.3	$	120.0

Asia	19.3		22.6
Australia	3.5		3.9
Canada	3.8		5.5
Continental Europe	16.2		18.5
United Kingdom	19.2		20.6
Other	0.3		0.5
Total International	62.3		71.6

Consolidated operating lease assets	$	173.6	$	191.6


Minimum Future Lease Commitments (in millions)	Operating Leases
Remainder of 2023 (July 1 through December 31)	$	20.9
2024	43.6
2025	34.0
2026	37.7
2027	29.2
Thereafter	53.3
Total minimum lease commitments	218.7
Adjustment for discount to present value	22.1
Present value of lease liabilities	$	196.6


	As of June 30, 2023
Weighted-average remaining lease term (in years)	5.9

Weighted-average discount rate	3.5	%


	As of June 30, 2023							As of December 31, 2022
(in millions)	Gross		Accumulated Amortization		Net		Weighted Average Useful Life (years)	Gross		Accumulated Amortization		Net		Weighted Average Useful Life (years)
Customer-related assets	$	600.5	$	(243.2)	$	357.3	14	$	595.1	$	(221.3)	$	373.8	14
Technology-based assets	315.4		(186.4)		129.0		8	312.8		(173.8)		139.0		8
Intellectual property & other	93.0		(60.8)		32.2		8	92.1		(56.3)		35.8		8

Total intangible assets	$	1,008.9	$	(490.4)	$	518.5	12	$	1,000.0	$	(451.4)	$	548.6	12


(in millions)	As of June 30, 2023		As of December 31, 2022
Gross unrecognized tax benefits	$	13.0	$	26.5
Gross unrecognized tax benefits that would affect income tax expense	$	13.0	$	26.5
Decrease in income tax expense upon recognition of gross unrecognized tax benefits	$	12.6	$	26.1


	Three months ended June 30,								Six months ended June 30,
(in millions)	2023		2022		Change		Organic Change (2)		2023		2022		Change		Organic Change (2)
Revenue by Type (1)
License-based (3)	$	376.0	$	327.5	14.8	%	12.2	%	$	740.0	$	639.4	15.7	%	13.2	%
Asset-based (4)	67.3		67.6		(0.4)	%	(1.4)	%	132.6		136.1		(2.6)	%	(3.7)	%
Transaction-based (5)	61.4		75.3		(18.5)	%	(19.5)	%	111.8		151.9		(26.4)	%	(27.3)	%

Key product area revenue
PitchBook	$	121.2	$	100.2	21.0	%	21.0	%	$	236.0	$	192.2	22.8	%	22.8	%
Morningstar Data	69.4		64.3		7.9	%	8.3	%	136.7		127.6		7.1	%	9.1	%
DBRS Morningstar (6)	54.2		65.2		(16.9)	%	(15.9)	%	101.0		134.4		(24.9)	%	(23.5)	%
Morningstar Direct	49.9		45.8		9.0	%	9.3	%	98.7		91.4		8.0	%	9.5	%
Investment Management	29.4		30.0		(2.0)	%	(10.7)	%	59.0		60.8		(3.0)	%	(11.3)	%
Morningstar Sustainalytics	29.2		25.9		12.7	%	12.7	%	56.5		50.6		11.7	%	14.2	%
Workplace Solutions	27.2		26.2		3.8	%	3.8	%	52.4		52.8		(0.8)	%	(0.8)	%
Morningstar Advisor Workstation	25.2		23.6		6.8	%	7.3	%	49.7		46.8		6.2	%	6.8	%

	As of June 30,
	2023		2022		Change






Assets under management and advisement (approximate) ($bil)
Workplace Solutions
Managed Accounts	$	118.1	$	116.2	1.6	%
Fiduciary Services	55.4		49.8		11.2	%
Custom Models/CIT	36.9		36.5		1.1	%
Workplace Solutions (total)	$	210.4	$	202.5	3.9	%
Investment Management
Morningstar Managed Portfolios	$	35.1	$	33.0	6.4	%
Institutional Asset Management	10.2		9.9		3.0	%
Asset Allocation Services	7.8		7.4		5.4	%
Investment Management (total)	$	53.1	$	50.3	5.6	%

Asset value linked to Morningstar Indexes ($bil)	$	169.8	$	133.9	26.8	%


	Three months ended June 30,									Six months ended June 30,
Key Metrics (in millions)	2023			2022			Change			2023			2022			Change
Consolidated revenue	$	504.7		$	470.4		7.3	%		$	984.4		$	927.4		6.1	%
Operating income	41.7			53.9			(22.6)	%		66.2			110.3			(40.0)	%
Operating margin	8.3		%	11.5		%	(3.2)		pp	6.7		%	11.9		%	(5.2)		pp

Cash provided by operating activities	$	24.5		$	68.7		(64.3)	%		$	47.9		$	92.2		(48.0)	%
Capital expenditures	(30.3)			(31.7)			(4.4)	%		(59.8)			(59.7)			0.2	%
Free cash flow	$	(5.8)		$	37.0		NMF			$	(11.9)		$	32.5		NMF

Cash used for investing activities	$	(27.1)		$	(691.3)		(96.1)	%		$	(27.8)		$	(725.0)		(96.2)	%
Cash provided by (used for) financing activities	$	(6.1)		$	537.1		NMF			$	(54.9)		$	548.9		NMF


Liabilities for Unrecognized Tax Benefits (in millions)	As of June 30, 2023		As of December 31, 2022
Current liability	$	7.9	$	18.3
Non-current liability	6.4		6.0
Total liability for unrecognized tax benefits	$	14.3	$	24.3


	Six months ended June 30, 2023
(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, 2023	0.6642			1.2664			0.7548			1.0886			n/a

Percentage of revenue	2.9		%	6.9		%	5.8		%	6.6		%	5.4		%
Percentage of operating income (loss)	12.4		%	(41.8)		%	(11.4)		%	17.7		%	(75.5)		%

Estimated effect of a 10% adverse currency fluctuation on revenue	$	(2.8)		$	(7.0)		$	(5.8)		$	(6.5)		$	(5.3)
Estimated effect of a 10% adverse currency fluctuation on operating income (loss)	$	(0.8)		$	2.8		$	0.8		$	(1.2)		$	4.9


Period:	Total number of shares purchased (a)	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, 2023 - April 30, 2023	8,484	$	170.85	8,484	$	498,550,338
May 1, 2023 - May 31, 2023	—	—		—	$	498,550,338
June 1, 2023 - June 30, 2023	—	—		—	$	498,550,338
Total	8,484	$	170.85	8,484


Exhibit No						Description of Exhibit
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, 2023, filed with the SEC on July 28, 2023 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 28, 2023	By:	/s/ Jason Dubinsky
		Jason Dubinsky
		Chief Financial Officer


Date: July 28, 2023						/s/ Kunal Kapoor
						Kunal Kapoor
						Chief Executive Officer