MORN 10-Q

Morningstar, Inc. (MORN)

10-Q 2021-04-30 For: 2021-03-31

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Added on April 10, 2026

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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 March 31,
(in millions, except share and per share amounts)	2021		2020

Revenue	$	392.8	$	324.0

Operating expense:
Cost of revenue	157.3		137.0
Sales and marketing	61.9		50.9
General and administrative	69.8		57.4
Depreciation and amortization	36.6		34.2

Total operating expense	325.6		279.5

Operating income	67.2		44.5

Non-operating income (expense), net:
Interest expense, net	(2.8)		(3.2)
Realized gains (losses) on sale of investments, reclassified from other comprehensive income	1.3		(0.4)




Other income (expense), net	1.6		(7.7)
Non-operating income (expense), net	0.1		(11.3)

Income before income taxes and equity in net income (loss) of unconsolidated entities	67.3		33.2

Equity in net income (loss) of unconsolidated entities	1.7		(0.8)

Income tax expense	14.1		8.5





Consolidated net income	$	54.9	$	23.9

Net income per share:
Basic	$	1.28	$	0.56
Diluted	$	1.27	$	0.55

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

Weighted average shares outstanding:
Basic	42.9		42.9
Diluted	43.3		43.3


	Three months ended March 31,
(in millions)	2021		2020
Consolidated net income	$	54.9	$	23.9

Other comprehensive loss, net of tax:
Foreign currency translation adjustment	(3.0)		(40.4)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period	2.1		(4.1)
Reclassification of (gains) losses included in net income	(1.0)		0.3
Other comprehensive loss	(1.9)		(44.2)



Comprehensive income (loss)	$	53.0	$	(20.3)



(in millions, except share amounts)	As of March 31, 2021 (unaudited)		As of December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	383.6	$	422.5
Investments	50.1		41.7
Accounts receivable, less allowance for credit losses of $4.6 million and $4.2 million, respectively	229.1		205.1

Income tax receivable	—		2.2
Deferred commissions	22.5		21.1
Prepaid expenses	39.8		31.7
Other current assets	5.7		5.7
Total current assets	730.8		730.0
Goodwill	1,201.9		1,205.0
Intangible assets, net	364.8		380.1
Property, equipment, and capitalized software, less accumulated depreciation and amortization of $472.1 million and $452.3 million, respectively	156.7		155.1
Operating lease assets	138.9		147.7
Investments in unconsolidated entities	38.5		32.6
Deferred tax asset, net	12.4		12.6
Deferred commissions	19.9		18.5
Other assets	11.4		14.4
Total assets	$	2,675.3	$	2,696.0

Liabilities and equity
Current liabilities:
Deferred revenue	$	363.1	$	306.8
Accrued compensation	105.9		169.2

Accounts payable and accrued liabilities	57.6		64.5

Operating lease liabilities	37.7		39.9
Contingent consideration liability	33.5		35.0
Other current liabilities	12.8		11.1
Total current liabilities	610.6		626.5
Operating lease liabilities	128.5		137.7
Accrued compensation	34.4		35.1
Deferred tax liabilities, net	106.9		108.9
Long-term debt	404.2		449.1
Deferred revenue	35.8		33.5
Other long-term liabilities	33.5		33.8
Total liabilities	1,353.9		1,424.6

Equity:
Morningstar, Inc. shareholders’ equity:
Common stock, no par value, 200,000,000 shares authorized, of which 42,945,984 and 42,898,158 shares were outstanding as of March 31, 2021 and December 31, 2020, respectively	—		—
Treasury stock at cost, 11,135,446 and 11,135,446 shares as of March 31, 2021 and December 31, 2020, respectively	(767.3)		(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	681.8		671.3
Retained earnings	1,430.8		1,389.4
Accumulated other comprehensive loss:
Currency translation adjustment	(28.7)		(25.7)
Unrealized gain on available-for-sale investments	4.8		3.7
Total accumulated other comprehensive loss	(23.9)		(22.0)


Total equity	1,321.4		1,271.4
Total liabilities and equity	$	2,675.3	$	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 - restricted stock units		—		—		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



	Three months ended March 31
(in millions)	2021		2020
Operating activities
Consolidated net income	$	54.9	$	23.9
Adjustments to reconcile consolidated net income to net cash flows from operating activities:
Depreciation and amortization	36.6		34.2
Deferred income taxes	(2.5)		0.9
Stock-based compensation expense	8.1		7.3
Provision for bad debt	1.1		1.5
Equity in net (income) loss of unconsolidated entities	(1.7)		0.8





Acquisition earn-out	5.7		—
Other, net	(2.7)		9.0
Changes in operating assets and liabilities:
Accounts receivable	(26.3)		(2.3)
Accounts payable and accrued liabilities	(6.7)		(1.4)
Accrued compensation and deferred commissions	(61.7)		(60.0)
Income taxes, current	4.1		0.7
Deferred revenue	60.9		36.1

Other assets and liabilities	(5.6)		(2.0)
Cash provided by operating activities	64.2		48.7

Investing activities
Purchases of investment securities	(20.9)		(13.3)
Proceeds from maturities and sales of investment securities	15.3		14.0
Capital expenditures	(22.7)		(15.1)
Acquisitions, net of cash acquired	—		(4.5)



Purchases of equity- and cost-method investments	(5.2)		(0.5)
Other, net	0.1		(0.1)
Cash used for investing activities	(33.4)		(19.5)

Financing activities
Common shares repurchased	—		(20.0)
Dividends paid	(13.5)		(12.9)
Proceeds from revolving credit facility	—		55.0

Repayment of revolving credit facility	—		(35.0)

Repayment of term facility	(45.0)		(2.8)
Proceeds from stock-option exercises	—		0.1
Employee taxes withheld for restricted stock units	(6.3)		(10.7)

Other, net	(1.2)		(0.6)
Cash used for financing activities	(66.0)		(26.9)

Effect of exchange rate changes on cash and cash equivalents	(3.7)		(13.9)
Net decrease in cash and cash equivalents	(38.9)		(11.6)
Cash and cash equivalents—beginning of period	422.5		334.1
Cash and cash equivalents—end of period	$	383.6	$	322.5

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	12.5	$	6.8
Cash paid for interest	$	3.1	$	3.7
Supplemental information of non-cash investing and financing activities:
Unrealized gain (loss) on available-for-sale investments	$	1.5	$	(5.1)


(in millions)	As of March 31, 2021		As of December 31, 2020
Term Facility, net of unamortized debt issuance costs of $0.1 million and $0.1 million, respectively	$	55.9	$	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	$	404.2	$	449.1


	(in millions)
Remainder of 2021 (April 1 through December 31)	$	45.6
2022	53.2
2023	49.4
2024	43.2
2025	36.6
Thereafter	136.8
Total	$	364.8


(in millions)	As of March 31, 2021

Remainder of 2021 (from April 1 through December 31)	$	530.4
2022	206.6
2023	72.5
2024	20.2
2025	8.4
Thereafter	34.1
Total	$	872.2


Revenue by geographical area
	Three months ended March 31,
(in millions)	2021		2020
United States	$	269.5	$	234.6

Asia	10.0		7.6
Australia	13.5		10.6
Canada	27.4		20.7
Continental Europe	36.2		23.0
United Kingdom	34.1		26.0
Other	2.1		1.5
Total International	123.3		89.4

Consolidated revenue	$	392.8	$	324.0


Operating lease assets by geographical area

(in millions)	As of March 31, 2021		As of December 31, 2020
United States	$	86.0	$	89.2

Asia	9.8		12.6
Australia	5.0		5.2
Canada	7.1		7.4
Continental Europe	15.7		17.0
United Kingdom	14.7		15.6
Other	0.6		0.7
Total International	52.9		58.5

Consolidated operating lease assets	$	138.9	$	147.7


	As of March 31, 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	$	416.3	$	(171.1)	$	245.2	11	$	415.6	$	(163.7)	$	251.9	11
Technology-based assets	222.3		(141.2)		81.1		7	223.2		(135.2)		88.0		7
Intellectual property & other	83.8		(45.3)		38.5		8	83.6		(43.4)		40.2		8

Total intangible assets	$	722.4	$	(357.6)	$	364.8	10	$	722.4	$	(342.3)	$	380.1	10


Minimum Future Lease Commitments (in millions)	Operating Leases
Remainder of 2021 (April 1 through December 31)	$	34.9
2022	31.9
2023	27.7
2024	21.8
2025	19.7
Thereafter	56.1
Total minimum lease commitments	192.1
Adjustment for discount to present value	25.9
Total	$	166.2


	As of March 31, 2021
Weighted-average remaining lease term (in years)	6.5

Weighted-average discount rate	4.3	%


(in millions)	As of March 31, 2021		As of December 31, 2020
Gross unrecognized tax benefits	$	10.8	$	11.8
Gross unrecognized tax benefits that would affect income tax expense	$	10.8	$	11.8
Decrease in income tax expense upon recognition of gross unrecognized tax benefits	$	10.6	$	11.6


Leases (in millions)	Classification on the Balance Sheet	As of March 31, 2021		As of December 31, 2020
Assets
Operating	Operating lease assets	$	138.9	$	147.7

Liabilities
Operating	Operating lease liabilities, current	$	37.7	$	39.9
Operating	Operating lease liabilities, non-current	128.5		137.7
Total lease liabilities		$	166.2	$	177.6


Liabilities for Unrecognized Tax Benefits (in millions)	As of March 31, 2021		As of December 31, 2020
Current liability	$	6.3	$	7.6
Non-current liability	5.4		5.1
Total liability for unrecognized tax benefits	$	11.7	$	12.7


	Three months ended March 31,
Key Metrics (in millions)	2021			2020			Change
Consolidated revenue	$	392.8		$	324.0		21.2	%
Operating income	67.2			44.5			51.0	%
Operating margin	17.1		%	13.7		%	3.4		pp

Cash provided by operating activities	$	64.2		$	48.7		31.8	%
Capital expenditures	(22.7)			(15.1)			50.3	%
Free cash flow	$	41.5		$	33.6		23.5	%


Name and Position	Date of Plan	Plan Termination Date	Number of Shares to be Sold under the Plan		Timing of Sales under the Plan	Number of Shares Sold under the Plan through April 15, 2021	Projected Beneficial Ownership	(1)



Bevin Desmond Head of Talent and Culture	11/20/2020	6/30/2021	12,000		Shares to be sold under the plan if the stock reaches specified prices	6,000	39,245
Robin Diamonte Director	2/25/2021	11/2/2021	500		Shares to be sold under the plan if the stock reaches specified prices	—	6,712
Joe Mansueto Executive Chairman	11/5/2019	4/30/2021	1,600,000		Shares to be sold under the plan if the stock reaches specified prices	1,600,000	19,138,844
Joe Mansueto Executive Chairman	11/19/2020	4/30/2022	1,600,000		Shares to be sold under the plan if the stock reaches specified prices beginning May 1, 2021	—	17,538,844
Caroline Tsay Director	3/8/2021	5/31/2022	—	(2)	Shares to be sold under the plan on specified dates	—	—	(3)


	Three months ended March 31, 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 March 31, 2021	0.7608			1.3767			0.7942			1.1728			n/a

Percentage of revenue	3.4		%	8.7		%	7.0		%	6.3		%	6.0		%
Percentage of operating income (loss)	4.8		%	3.2		%	10.0		%	4.0		%	(18.5)		%

Estimated effect of a 10% adverse currency fluctuation on revenue	$	(1.3)		$	(3.4)		$	(2.7)		$	(2.4)		$	(2.3)
Estimated effect of a 10% adverse currency fluctuation on operating income (loss)	$	(0.3)		$	(0.2)		$	(0.7)		$	(0.3)		$	1.2


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
January 1, 2021 - January 31, 2021	—	$	—	—	$	400,000,000
February 1, 2021 - February 28, 2021	—	—		—	$	400,000,000
March 1, 2021 - March 31, 2021	—	—		—	$	400,000,000
Total	—	$	—	—


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 March 31, 2021, filed with the SEC on April 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: April 30, 2021	By:	/s/ Jason Dubinsky
		Jason Dubinsky
		Chief Financial Officer