Morningstar, Inc 10-Q for FY2021 Q2

Morningstar, Inc. (MORN)

10-Q 2021-07-30 For: 2021-06-30

Added on April 10, 2026

About this 10-Q

Morningstar, Inc filed this 10-Q on July 30, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).

Headline figures

Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $415.4M; up 26.7% from $327.9M a year earlier
Net income: $32.9M; down 31.7% from net income of $48.2M a year earlier
Diluted EPS: $0.76; down 32.1% from $1.12 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)	2021		2020		2021		2020

Revenue	$	415.4	$	327.9	$	808.2	$	651.9

Operating expense:
Cost of revenue	168.4		131.1		325.7		268.1
Sales and marketing	66.5		47.2		128.4		98.1
General and administrative	95.7		54.6		165.5		112.0
Depreciation and amortization	37.6		33.7		74.2		67.9

Total operating expense	368.2		266.6		693.8		546.1

Operating income	47.2		61.3		114.4		105.8

Non-operating income (expense), net:
Interest expense, net	(2.2)		(1.9)		(5.0)		(5.1)
Realized gains (losses) on sale of investments, reclassified from other comprehensive income	1.6		0.9		2.9		0.5




Other income (expense), net	(0.8)		3.6		0.8		(4.1)
Non-operating income (expense), net	(1.4)		2.6		(1.3)		(8.7)

Income before income taxes and equity in net income (loss) of unconsolidated entities	45.8		63.9		113.1		97.1

Equity in net income (loss) of unconsolidated entities	1.0		(0.5)		2.7		(1.3)

Income tax expense	13.9		15.2		28.0		23.7





Consolidated net income	$	32.9	$	48.2	$	87.8	$	72.1

Net income per share:
Basic	$	0.77	$	1.13	$	2.04	$	1.68
Diluted	$	0.76	$	1.12	$	2.03	$	1.67

Dividends per common share:
Dividends declared per common share	$	0.32	$	0.30	$	0.63	$	0.60
Dividends paid per common share	$	0.32	$	0.30	$	0.63	$	0.60

Weighted average shares outstanding:
Basic	43.0		42.9		43.0		42.9
Diluted	43.3		43.2		43.3		43.2


	Three months ended June 30,				Six months ended June 30,
(in millions)	2021		2020		2021		2020
Consolidated net income	$	32.9	$	48.2	$	87.8	$	72.1

Other comprehensive loss, net of tax:
Foreign currency translation adjustment	7.6		12.8		4.6		(27.6)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period	2.8		2.8		4.9		(1.3)
Reclassification of (gains) losses included in net income	(1.2)		(0.7)		(2.2)		(0.4)
Other comprehensive income (loss)	9.2		14.9		7.3		(29.3)



Comprehensive income	$	42.1	$	63.1	$	95.1	$	42.8



(in millions, except share amounts)	As of June 30, 2021 (unaudited)		As of December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	387.6	$	422.5
Investments	61.4		41.7
Accounts receivable, less allowance for credit losses of $4.2 million and $4.2 million, respectively	231.0		205.1

Income tax receivable	14.4		2.2
Deferred commissions	25.0		21.1
Prepaid expenses	38.2		31.7
Other current assets	1.6		5.7
Total current assets	759.2		730.0
Goodwill	1,208.7		1,205.0
Intangible assets, net	353.0		380.1
Property, equipment, and capitalized software, less accumulated depreciation and amortization of $493.6 million and $452.3 million, respectively	157.8		155.1
Operating lease assets	136.9		147.7
Investments in unconsolidated entities	47.4		32.6
Deferred tax asset, net	12.4		12.6
Deferred commissions	22.7		18.5
Other assets	13.9		14.4
Total assets	$	2,712.0	$	2,696.0

Liabilities and equity
Current liabilities:
Deferred revenue	$	378.8	$	306.8
Accrued compensation	185.1		169.2

Accounts payable and accrued liabilities	55.8		64.5

Operating lease liabilities	35.0		39.9
Contingent consideration liability	18.2		35.0
Other current liabilities	12.2		11.1
Total current liabilities	685.1		626.5
Operating lease liabilities	128.2		137.7
Accrued compensation	14.6		35.1
Deferred tax liabilities, net	107.4		108.9
Long-term debt	374.3		449.1
Deferred revenue	36.0		33.5
Other long-term liabilities	16.6		33.8
Total liabilities	1,362.2		1,424.6

Equity:
Morningstar, Inc. shareholders’ equity:
Common stock, no par value, 200,000,000 shares authorized, of which 43,066,571 and 42,898,158 shares were outstanding as of June 30, 2021 and December 31, 2020, respectively	—		—
Treasury stock at cost, 11,126,280 and 11,135,446 shares as of June 30, 2021 and December 31, 2020, respectively	(765.1)		(767.3)


☑			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


Additional paid-in capital	679.5		671.3
Retained earnings	1,450.1		1,389.4
Accumulated other comprehensive loss:
Currency translation adjustment	(21.1)		(25.7)
Unrealized gain on available-for-sale investments	6.4		3.7
Total accumulated other comprehensive loss	(14.7)		(22.0)


Total equity	1,349.8		1,271.4
Total liabilities and equity	$	2,712.0	$	2,696.0


	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, 2020	42,898,158	$	—	$	(767.3)	$	671.3	$	1,389.4	$	(22.0)		$	1,271.4

Net income		—		—		—		54.9		—			54.9
Other comprehensive loss:
Unrealized gain on available-for-sale investments, net of income tax of $0.7 million		—		—		—		—		2.1			2.1
Reclassification of adjustments for gain included in net income, net of income tax of $0.3 million		—		—		—		—		(1.0)			(1.0)
Foreign currency translation adjustment, net		—		—		—		—		(3.0)			(3.0)
Other comprehensive loss, net		—		—		—		—		(1.9)			(1.9)
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	47,826	—		—		(6.3)		—		—			(6.3)
Reclassification of awards previously liability-classified that were converted to equity		—		—		8.7		—		—			8.7
Stock-based compensation		—		—		8.1		—		—			8.1

Common shares repurchased	—	—		—		—		—		—			—
Dividends declared ($0.32 per share)		—		—		—		(13.5)		—			(13.5)


Balance as of March 31, 2021	42,945,984	$	—	$	(767.3)	$	681.8	$	1,430.8	$	(23.9)		$	1,321.4

Net income		—		—		—		32.9		—			32.9
Other comprehensive income:
Unrealized gain on available-for-sale investments, net of income tax of $0.9 million		—		—		—		—		2.8			2.8
Reclassification of adjustments for gain included in net income, net of income tax of $0.4 million		—		—		—		—		(1.2)			(1.2)
Foreign currency translation adjustment, net		—		—		—		—		7.6			7.6
Other comprehensive income, net		—		—		—		—		9.2			9.2
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	120,587	—		2.2		(14.2)		—		—			(12.0)
Reclassification of awards previously liability-classified that were converted to equity		—		—		0.1		—		—			0.1
Stock-based compensation		—		—		11.8		—		—			11.8

Common shares repurchased	—	—		—		—		—		—			—
Dividends declared ($0.32 per share)		—		—		—		(13.6)		—			(13.6)


Balance as of June 30, 2021	43,066,571	$	—	$	(765.1)	$	679.5	$	1,450.1	$	(14.7)		$	1,349.8



	Six months ended June 30
(in millions)	2021		2020
Operating activities
Consolidated net income	$	87.8	$	72.1
Adjustments to reconcile consolidated net income to net cash flows from operating activities:
Depreciation and amortization	74.2		67.9
Deferred income taxes	(4.8)		0.7
Stock-based compensation expense	19.9		17.6
Provision for bad debt	1.0		2.3
Equity in net (income) loss of unconsolidated entities	(2.7)		1.3





Acquisition earn-out accrual	26.6		—
Other, net	(3.6)		3.8
Changes in operating assets and liabilities:
Accounts receivable	(27.2)		2.1
Accounts payable and accrued liabilities	(8.7)		(0.7)
Accrued compensation and deferred commissions	(28.2)		(39.1)
Income taxes, current	(11.4)		12.2
Deferred revenue	75.2		40.7

Other assets and liabilities	(6.7)		(4.6)
Cash provided by operating activities	191.4		176.3

Investing activities
Purchases of investment securities	(42.7)		(31.2)
Proceeds from maturities and sales of investment securities	29.0		28.0
Capital expenditures	(41.4)		(32.1)
Acquisitions, net of cash acquired	—		(15.5)



Purchases of equity- and cost-method investments	(14.5)		(6.5)
Other, net	0.4		0.1
Cash used for investing activities	(69.2)		(57.2)

Financing activities
Common shares repurchased	—		(20.0)
Dividends paid	(27.0)		(25.7)
Proceeds from revolving credit facility	—		55.0

Repayment of revolving credit facility	—		(80.6)

Repayment of term facility	(75.0)		—
Proceeds from stock-option exercises	0.2		0.4
Employee taxes withheld for restricted stock units	(18.5)		(17.7)

Payment of acquisition-related earn-outs	(34.4)		—
Other, net	(0.6)		(2.0)
Cash used for financing activities	(155.3)		(90.6)

Effect of exchange rate changes on cash and cash equivalents	(1.8)		(8.9)
Net decrease in cash and cash equivalents	(34.9)		19.6
Cash and cash equivalents—beginning of period	422.5		334.1
Cash and cash equivalents—end of period	$	387.6	$	353.7

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	44.2	$	10.6
Cash paid for interest	$	5.6	$	5.8
Supplemental information of non-cash investing and financing activities:
Unrealized gain (loss) on available-for-sale investments	$	3.3	$	(2.2)


(in millions)	As of June 30, 2021		As of December 31, 2020
Term Facility, net of unamortized debt issuance costs of $0.0 million and $0.1 million, respectively	$	26.0	$	100.8


2.32% Senior Notes due October 26, 2030, net of unamortized debt issuance costs of $1.7 million and $1.7 million, respectively	348.3		348.3
Long-term debt	$	374.3	$	449.1


	(in millions)
Remainder of 2021 (July 1 through December 31)	$	30.4
2022	53.7
2023	49.9
2024	43.6
2025	36.9
Thereafter	138.5
Total	$	353.0


(in millions)	As of June 30, 2021

Remainder of 2021 (from July 1 through December 31)	$	414.0
2022	298.4
2023	90.4
2024	24.0
2025	8.8
Thereafter	34.8
Total	$	870.4


Revenue by geographical area
	Three months ended June 30,				Six months ended June 30,
(in millions)	2021		2020		2021		2020
United States	$	284.6	$	228.3	$	554.1	$	462.9

Asia	9.7		8.3		19.7		15.9
Australia	14.7		10.4		28.2		21.0
Canada	30.8		28.3		58.2		49.0
Continental Europe	38.9		23.9		75.1		46.9
United Kingdom	34.4		27.0		68.5		53.0
Other	2.3		1.7		4.4		3.2
Total International	130.8		99.6		254.1		189.0

Consolidated revenue	$	415.4	$	327.9	$	808.2	$	651.9


Operating lease assets by geographical area

(in millions)	As of June 30, 2021		As of December 31, 2020
United States	$	87.9	$	89.2

Asia	7.0		12.6
Australia	4.9		5.2
Canada	6.8		7.4
Continental Europe	16.2		17.0
United Kingdom	13.5		15.6
Other	0.6		0.7
Total International	49.0		58.5

Consolidated operating lease assets	$	136.9	$	147.7


	As of June 30, 2021							As of December 31, 2020
(in millions)	Gross		Accumulated Amortization		Net		Weighted Average Useful Life (years)	Gross		Accumulated Amortization		Net		Weighted Average Useful Life (years)
Customer-related assets	$	419.5	$	(179.7)	$	239.8	11	$	415.6	$	(163.7)	$	251.9	11
Technology-based assets	223.2		(147.2)		76.0		7	223.2		(135.2)		88.0		7
Intellectual property & other	84.4		(47.2)		37.2		8	83.6		(43.4)		40.2		8

Total intangible assets	$	727.1	$	(374.1)	$	353.0	10	$	722.4	$	(342.3)	$	380.1	10


		Three months ended June 30,									Six months ended June 30,
(in millions)		2021		2020			Change		Organic Change (1)		2021		2020		Change		Organic Change (1)
Revenue by Type
License-based (2)		$	277.2	$	221.1		25.4	%	13.3	%	$	543.3	$	437.1	24.3	%	12.7	%
Asset-based (3)		64.8		51.8			25.1	%	23.0	%	126.2		109.0		15.8	%	14.0	%
Transaction-based (4)		73.4		55.0			33.5	%	24.6	%	138.7		105.8		31.1	%	24.7	%

Key product area revenue
PitchBook		$	68.3	$	48.0		42.3	%	42.3	%	$	129.9	$	93.3	39.2	%	39.2	%
DBRS Morningstar (5)		65.4		49.7			31.6	%	22.3	%	124.7		96.4		29.4	%	22.9	%
Morningstar Data		60.3		53.3			13.1	%	7.6	%	119.1		104.7		13.8	%	8.9	%
Morningstar Direct		43.2		38.7			11.6	%	7.2	%	85.3		77.0		10.8	%	7.0	%
Investment Management (6)		31.0		27.3			13.6	%	10.6	%	60.4		57.8		4.5	%	1.8	%
Workplace Solutions		25.5		19.7			29.4	%	29.4	%	50.7		40.9		24.0	%	24.0	%
Morningstar Advisor Workstation		22.9		21.2			8.0	%	7.2	%	45.7		43.0		6.3	%	5.5	%

		As of June 30,
		2021		2020			Change
Select business metrics
Morningstar Direct licenses		16,919		16,148			4.8	%
PitchBook Platform licenses		64,183		45,039			42.5	%
Advisor Workstation clients (U.S. and Canada)		233		249		(7)	(6.4)	%
Morningstar.com Premium Membership subscriptions (U.S.)		117,111		113,683			3.0	%

Assets under management and advisement (approximate) ($bil)
	Workplace Solutions
	Managed Accounts	$	105.1	$	76.9		36.7	%
	Fiduciary Services	58.1		48.8			19.1	%
	Custom Models/CIT	38.8		33.1		(8)	17.2	%
	Workplace Solutions (total)	$	202.0	$	158.8		27.2	%
	Investment Management
	Morningstar Managed Portfolios	$	30.2	$	25.5		18.4	%
	Institutional Asset Management	12.0		15.5			(22.6)	%	(9)
	Asset Allocation Services	7.1		5.8			22.4	%
	Investment Management (total)	$	49.3	$	46.8		5.3	%

Asset value linked to Morningstar Indexes ($bil)		$	136.2	$	62.0		119.7	%

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


Leases (in millions)	Classification on the Balance Sheet	As of June 30, 2021		As of December 31, 2020
Assets
Operating	Operating lease assets	$	136.9	$	147.7

Liabilities
Operating	Operating lease liabilities, current	$	35.0	$	39.9
Operating	Operating lease liabilities, non-current	128.2		137.7
Total lease liabilities		$	163.2	$	177.6


Minimum Future Lease Commitments (in millions)	Operating Leases
Remainder of 2021 (July 1 through December 31)	$	23.2
2022	32.8
2023	31.5
2024	22.4
2025	19.9
Thereafter	56.2
Total minimum lease commitments	186.0
Adjustment for discount to present value	22.8
Total	$	163.2


	As of June 30, 2021
Weighted-average remaining lease term (in years)	6.4

Weighted-average discount rate	3.9	%


Liabilities for Unrecognized Tax Benefits (in millions)	As of June 30, 2021		As of December 31, 2020
Current liability	$	6.3	$	7.6
Non-current liability	5.7		5.1
Total liability for unrecognized tax benefits	$	12.0	$	12.7


	Three months ended June 30,									Six months ended June 30,
Key Metrics (in millions)	2021			2020			Change			2021			2020			Change
Consolidated revenue	$	415.4		$	327.9		26.7	%		$	808.2		$	651.9		24.0	%
Operating income	47.2			61.3			(23.0)	%		114.4			105.8			8.1	%
Operating margin	11.4		%	18.7		%	(7.3)		pp	14.2		%	16.2		%	(2.0)		pp

Cash provided by operating activities	$	127.2		$	127.6		(0.3)	%		$	191.4		$	176.3		8.6	%
Capital expenditures	(18.7)			(17.0)			10.0	%		(41.4)			(32.1)			29.0	%
Free cash flow	$	108.5		$	110.6		(1.9)	%		$	150.0		$	144.2		4.0	%


	Six months ended June 30, 2021
(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, 2021	0.7508			1.3837			0.8068			1.1879			n/a

Percentage of revenue	3.4		%	8.5		%	7.2		%	6.5		%	5.9		%
Percentage of operating income (loss)	3.3		%	5.1		%	14.2		%	(10.3)		%	(22.7)		%

Estimated effect of a 10% adverse currency fluctuation on revenue	$	(2.7)		$	(6.8)		$	(5.8)		$	(5.2)		$	(4.7)
Estimated effect of a 10% adverse currency fluctuation on operating income (loss)	$	(0.4)		$	(0.6)		$	(1.6)		$	1.2		$	2.6


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, 2021 - April 30, 2021	—	$	—	—	$	400,000,000
May 1, 2021 - May 31, 2021	—	—		—	$	400,000,000
June 1, 2021 - June 30, 2021	—	—		—	$	400,000,000
Total	—	$	—	—


Exhibit No						Description of Exhibit
10.1*						Morningstar Amended and Restated 2011 Stock Incentive Plan is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K that we filed with the SEC on May 20, 2021.

10.2*†						Form of Morningstar Amended and Restated 2011 Stock Incentive Plan Restricted Stock Unit Award Agreement

10.3*†						Form of Morningstar Amended and Restated 2011 Stock Incentive Plan Director Restricted Stock Unit Award Agreement

10.4*†						Form of Morningstar Amended and Restated 2011 Stock Incentive Plan Market Stock Unit Award Agreement

10.5*†						Form of Morningstar Amended and Restated 2011 Stock Incentive Plan Market Stock Unit with Performance Kicker Award Agreement

10.6*†						Form of Morningstar Amended and Restated 2011 Stock Incentive Plan CEO Restricted Stock Unit Award Agreement

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, 2021, filed with the SEC on July 30, 2021 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 30, 2021	By:	/s/ Jason Dubinsky
		Jason Dubinsky
		Chief Financial Officer


Percentage of Restricted Stock Units			Vesting Date
25%			First anniversary of Grant Date
25%			Second Anniversary of Grant Date
25%			Third Anniversary of Grant Date
25%			Fourth Anniversary of Grant Date


Percentage of Restricted Stock Units			Vesting Date
33.3%			First anniversary of Grant Date
33.3%			Second Anniversary of Grant Date
33.3%			Third Anniversary of Grant Date


	Company Cumulative TSR	MSUs Earned as a Percentage of Target MSUs
Threshold TSR	[ ]%	[ ]%
Target TSR	[ ]%	[ ]%
Maximum TSR	[ ]%	[ ]%


Company TSR Attainment Performance
	Company Cumulative TSR	MSUs Earned as a Percentage of Target MSUs (B)
Threshold TSR	[ ]%	[ ]%
Target TSR	[ ]%	[ ]%
Maximum TSR	[ ]%	[ ]%


Performance Kicker
Performance			Performance Kicker (C)
To Be Determined by the Committee			[ ]% -- [ ]%


Percentage of Restricted Stock Units			Vesting Date
100%			First anniversary of Grant Date


Date: July 30, 2021						/s/ Kunal Kapoor
						Kunal Kapoor
						Chief Executive Officer