Morningstar, Inc. Reports Second-Quarter 2022 Financial Results
Morningstar reported strong Q2 2022 results with a 13.2% revenue increase to $470.4 million and 15.8% organic growth. Operating income rose 14.2% to $53.9 million, though adjusted operating income fell 23.9%.
Diluted EPS decreased 7.9% to $0.70, while adjusted diluted EPS dropped 33.5% to $1.17. Cash from operations decreased 46.0% to $68.7 million. Morningstar executed significant acquisitions, enhancing its market position amidst ongoing investment in growth.
- Q2 revenue rose 13.2% to $470.4 million and organic revenue increased 15.8%.
- Operating income grew 14.2% to $53.9 million.
- Successful acquisitions of LCD and Praemium's UK business enhance strategic growth.
- Adjusted operating income declined 23.9%, reflecting higher expenses.
- Diluted net income per share decreased 7.9% to $0.70.
- Cash provided by operating activities fell 46.0% to $68.7 million.
CHICAGO, July 27, 2022 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, posted strong second-quarter revenue growth, highlighting continued momentum across the business.
"Our organic growth remains strong despite market headwinds," said Kunal Kapoor, Morningstar's chief executive officer. "That success is the fruit of ongoing strategic investments that we are making in key business areas, including in compensation and benefits for our teams globally. While these investments have contributed to higher operating expenses in the near term, they position Morningstar for continued growth and the increased scale that we expect will drive long-term profitability. We were also excited to close two important transactions in the quarter, welcoming both LCD and Praemium's UK and International business into the Morningstar family."
Second-Quarter 2022 Financial Highlights
- Revenue increased
13.2% to$470.4 million ; organic revenue grew15.8% . The difference was largely driven by foreign currency adjustments due to the strong dollar. - Operating income increased
14.2% to$53.9 million ; adjusted operating income declined23.9% , excluding intangible amortization expense and all other M&A-related expenses and earn-outs. Second-quarter results included an increase in stock-based compensation expense due in part to a scheduled step-up in the number of share units granted this year and expected overachievement of targets under the PitchBook management bonus plan, with PitchBook-related increases contributing 6.0 percentage points to the adjusted operating income decline. - Diluted net income per share decreased
7.9% to$0.70 versus$0.76 in the prior-year period. Adjusted diluted net income per share decreased33.5% to$1.17 , excluding certain non-operating losses, intangible amortization expense, and all other M&A-related expenses and earn-outs. - Cash provided by operating activities was
$68.7 million in the quarter, a decrease of46.0% . Free cash flow was$37.0 million compared to$108.5 million in the prior year. Excluding M&A-related earn-out payments, operating cash and free cash flow would have declined by24.4% and38.4% respectively. - Share repurchases totaled 371,756 shares for a total of
$91.9 million during the quarter.
Year-to-Date Financial Highlights
- Revenue increased
14.7% to$927.4 million ; organic revenue growth was16.9% . The difference was largely driven by foreign currency adjustments due to the strong dollar. - Operating income decreased
3.6% to$110.3 million ; adjusted operating income decreased by17.4% , excluding intangible amortization expense and all other M&A-related expenses and earn-outs. - Diluted net income per share decreased
12.8% to$1.77 versus$2.03 in the prior-year period. Adjusted diluted net income per share decreased by26.7% , excluding certain non-operating gains, intangible amortization expense, and all other M&A-related expenses and earn-outs. - Cash provided by operating activities decreased by
51.8% to$92.2 million . Free cash flow decreased by78.3% to$32.5 million . Excluding M&A-related earn-out payments, operating cash and free cash flow would have declined by36.4% and56.5% , respectively.
Overview of Financial Results
Second-Quarter 2022 Results
Revenue for the period increased
License-based revenue grew
Operating expense increased
- Compensation costs increased
$4.0 million in the quarter, or$30.6 million excluding the earn-out payment in the prior year. This reflects growth in headcount across key areas of the Company, in addition to a larger annual merit increase effective Jan. 1, 2022. The growth in headcount was highest for Morningstar Sustainalytics and PitchBook areas to support strategic growth initiatives. - Professional fees increased
$10.6 million primarily due to higher legal fees, the use of third-party resources for software development and technology improvements, and M&A-related expenses. The increase in legal fees was primarily associated with the completed independent investigation regarding certain Morningstar Sustainalytics' research practices. - Stock-based compensation increased
$10.4 million due to the PitchBook management bonus plan and the impact of higher bonus payout rates on grants made as part of the employee shared ownership program. - Advertising and marketing costs increased
$6.6 million in the quarter, due in part to spending on the Morningstar Investment Conference — U.S., which was held in May this year after being held in September 2021, and increased funding for demand generation activity. - Sales commission costs increased
$5.3 million in the quarter due to strong sales performance and higher amortization of capitalized commissions related to prior-period sales performance. - Travel and related expenses increased
$5.0 million in the quarter as travel began to rebound compared to the low levels earlier in the pandemic.
Second-quarter operating income was
Net income in the second quarter of 2022 was
The effective tax rate was
Product Area Highlights
On a consolidated basis, PitchBook, Morningstar Sustainalytics, Morningstar Data, and Morningstar Direct were the top four contributors of organic revenue growth in the second quarter of 2022. (For performance of the largest product areas and key metrics, refer to the Supplemental Data table contained in this release and the Supplemental Presentation included on our Investor Relations website at shareholders.morningstar.com under "Financials — Financial Summary".)
Highlights of these and other products include:
License-based
- PitchBook grew revenue by
46.7% on a reported and organic basis and licenses by37.5% in the second quarter, as it continued to improve the user experience with product releases that included enhancements to search capabilities, additional data and features, better collaboration tools, and an updated newsfeed for the PitchBook mobile app. Overall, PitchBook's focus on execution within core data operations and go-to-market activities from marketing and sales delivered strong growth in sales and revenue. - Morningstar Data grew revenue by
6.6% , or11.7% on an organic basis, in the second quarter with positive contributions across geographies. Strong renewal activity and existing customers adding new data and use cases helped drive revenue growth. - Morningstar Direct grew second-quarter revenue by
6.0% , or10.2% organically, on strong demand in both the U.S. and Europe. Direct licenses increased by6.4% in the quarter. Growth was supported by continued investment in functionality (including Analytics Lab and the new Sustainability Hub), new data sets, and access to research that enables users to extract more value from the platform. - Morningstar Sustainalytics revenue grew
36.3% , or47.4% on an organic basis, with regulatory tailwinds driving strong sales of compliance products, particularly in Europe in solutions that help clients meet EU Action Plan requirements. Demand for licensed ESG data at the security and fund levels also remained strong throughout the quarter. Additionally, the Morningstar Sustainalytics Corporate Solutions area experienced continued demand for ESG ratings licenses as companies increasingly look to leverage third-party validation of their ESG management practices with investors, financial intermediaries, customers and employees. - Advisor Workstation grew revenue
3.1% , or3.4% on an organic basis, benefiting from regulatory trends and investor demand for personalized financial advice that aligns with the client's best interest. Ongoing development of the Morningstar Risk Ecosystem, investment planning tools, and the "know your customer" due diligence solution helped capture market demand.
Asset-based
- Investment Management revenue decreased
3.2% , but grew4.4% on an organic basis, in the second quarter. Assets under management and advisement increased2.0% versus the prior year, due to approximately$4.0 billion of AUM acquired with the close of the Praemium acquisition. Excluding this acquisition, assets would have declined6.1% against the backdrop of broad market losses. Despite this decline, organic revenue increased due to the timing of client contract billings, which were based on assets as of March 31, 2022. - Workplace Solutions grew revenue by
2.7% on a reported and organic basis in the second quarter. Despite a challenging economic environment, Workplace Solutions continued to benefit from increased interest in personalized retirement strategies. Assets under management and advisement were relatively stable, increasing0.2% versus the prior year to$202.5 billion . Strong flows and an increase in the number of participants using managed account offerings helped to offset market-driven declines in portfolio balances. - Morningstar Indexes increased revenue by
37.1% , or31.1% on an organic basis, in the second quarter as strong flows into higher margin products and growth in licensed data revenue offset the impact of market declines. Investment flows were particularly strong across high dividend ETFs in the quarter.
Transaction-based
- DBRS Morningstar revenue was relatively stable in the second quarter and grew
3.1% on an organic basis due to softer issuance across most geographies and asset classes. In the U.S., strong growth in commercial mortgage-backed securities issuance was partially offset by declines in asset-backed securities and residential-backed securities issuance. In Canada, corporate and financial institution ratings volume was down after two years of record activity, and the issuance of asset-backed securities also slowed. In Europe, structured finance issuance slowed sharply due to the geopolitical environment and increased interest-rate volatility and liquidity premiums. This decline was partially mitigated by continued solid growth in European corporate ratings.
Strategic Transactions
On June 1, 2022, Morningstar completed its acquisition of Leveraged Commentary & Data (LCD) from S&P Global. The purchase price was up to
On June 30, 2022, Morningstar closed its acquisition of Praemium's UK and international business with
In the second quarter of 2022, Morningstar made the third and final cash payment of
Balance Sheet and Capital Allocation
As of June 30, 2022, the Company had cash, cash equivalents, and investments totaling
Cash provided by operating activities was
In the second quarter of 2022, the Company repurchased
On May 6, 2022, the Company entered into a new five-year multi-currency credit agreement comprised of a delayed draw term facility of up to
Comparability of Year-Over-Year Results
In addition to intangible amortization expense and other M&A-related expenses, certain other items, as detailed below, affected the comparability of second quarter of 2022 results versus the same period in 2021.
- Diluted and adjusted net income per share in the current quarter included
$0.13 of non-operating losses. - Second-quarter 2022 results include a
$5.7 million year-over-year increase in stock-based compensation related to a scheduled increase in the number of share units granted this year and expected overachievement of targets under the PitchBook management bonus plan. PitchBook-related increases reduced diluted net income per share by$0.13 . - Foreign currency translation decreased revenue by
$12.3 million , or3.0% , and operating expense by$13.5 million , or3.7% in the second quarter of 2022. This resulted in an increase of$1.2 million in second-quarter operating income.
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 Securities and Exchange Commission, generally every month.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research 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
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," 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; liability related to cybersecurity and the protection of confidential information, including personal information about individuals; liability for any losses that result from an actual or claimed breach of our fiduciary duties or failure to comply with applicable securities laws; compliance failures, regulatory action, or changes in laws applicable to our credit ratings operations, or our investment advisory, ESG, and index businesses; failing to respond to technological change, keep pace with new technology developments, or adopt a successful technology strategy; the failure to recruit, develop, and retain qualified employees and compensation expense associated with these activities in a period of inflation and rising wage scales in the markets where we operate; inadequacy of our operational risk management and business continuity programs in the event of a material disruptive event, including an outage of our database, technology-based products and services or network facilities; failing to differentiate our products and services and continuously create innovative, proprietary, and insightful financial technology solutions; prolonged volatility or downturns affecting the financial sector, global financial markets, and global economy and its effect on our revenue from asset-based fees and credit ratings business; 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 failure of acquisitions and other investments to be efficiently integrated and produce the results we anticipate; the impact of the current COVID-19 pandemic and government actions in response thereto on our business, financial condition, and results of operations; challenges faced by our non-U.S. operations, including the concentration of data and development work at our offshore facilities in China and India; our indebtedness could adversely affect our cash flows and financial flexibility; and the failure to protect our intellectual property rights or claims of intellectual property infringement against us. A more complete description of these risks and uncertainties can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. 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 or future events.
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
©2022 Morningstar, Inc. All Rights Reserved.
MORN-E
Morningstar, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Income | ||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||
(in millions, except per share amounts) | 2022 | 2021 | Change | 2022 | 2021 | change | ||||||
Revenue | $ 470.4 | $ 415.4 | 13.2 % | 14.7 % | ||||||||
Operating expense: | ||||||||||||
Cost of revenue | 197.6 | 168.4 | 17.3 % | 388.9 | 325.7 | 19.4 % | ||||||
Sales and marketing | 91.8 | 66.5 | 38.0 % | 173.2 | 128.4 | 34.9 % | ||||||
General and administrative | 87.1 | 95.7 | (9.0) % | 177.4 | 165.5 | 7.2 % | ||||||
Depreciation and amortization | 40.0 | 37.6 | 6.4 % | 77.6 | 74.2 | 4.6 % | ||||||
Total operating expense | 416.5 | 368.2 | 13.1 % | 817.1 | 693.8 | 17.8 % | ||||||
Operating income | 53.9 | 47.2 | 14.2 % | 110.3 | 114.4 | (3.6) % | ||||||
Operating margin | 11.5 % | 11.4 % | 0.1 pp | 11.9 % | 14.2 % | (2.3) pp | ||||||
Non-operating income (loss), net: | ||||||||||||
Interest expense, net | (4.4) | (2.2) | 100.0 % | (6.8) | (5.0) | 36.0 % | ||||||
Other income (loss), net | (10.2) | 0.8 | NMF | (1.2) | 3.7 | NMF | ||||||
Non-operating income (loss), net | (14.6) | (1.4) | NMF | (8.0) | (1.3) | NMF | ||||||
Income before income taxes and equity in net | 39.3 | 45.8 | (14.2) % | 102.3 | 113.1 | (9.5) % | ||||||
Equity in net income (loss) of unconsolidated | (1.8) | 1.0 | NMF | (1.4) | 2.7 | NMF | ||||||
Income tax expense | 7.4 | 13.9 | (46.8) % | 24.7 | 28.0 | (11.8) % | ||||||
Consolidated net income | $ 30.1 | $ 32.9 | (8.5) % | $ 76.2 | $ 87.8 | (13.2) % | ||||||
Net income per share: | ||||||||||||
Basic | $ 0.71 | $ 0.77 | (7.8) % | $ 1.78 | $ 2.04 | (12.7) % | ||||||
Diluted | $ 0.70 | $ 0.76 | (7.9) % | $ 1.77 | $ 2.03 | (12.8) % | ||||||
Weighted average shares outstanding: | ||||||||||||
Basic | 42.6 | 43.0 | (0.9) % | 42.8 | 43.0 | (0.5) % | ||||||
Diluted | 42.9 | 43.3 | (0.9) % | 43.1 | 43.3 | (0.5) % | ||||||
_________________________________________________________________ |
NMF - Not meaningful, pp - percentage points |
Morningstar, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Cash Flows | ||||||||
Three months ended June 30, | Six months ended June 30, | |||||||
(in millions) | 2022 | 2021 | 2022 | 2021 | ||||
Operating activities | ||||||||
Consolidated net income | $ 30.1 | $ 32.9 | $ 76.2 | $ 87.8 | ||||
Adjustments to reconcile consolidated net | 61.4 | 66.0 | 103.9 | 110.6 | ||||
Changes in operating assets and liabilities, net | (22.8) | 28.3 | (87.9) | (7.0) | ||||
Cash provided by operating activities | 68.7 | 127.2 | 92.2 | 191.4 | ||||
Investing activities | ||||||||
Capital expenditures | (31.7) | (18.7) | (59.7) | (41.4) | ||||
Acquisitions, net of cash acquired | (639.8) | — | (646.6) | — | ||||
Purchases of investments in unconsolidated entities | (25.6) | (9.3) | (26.6) | (14.5) | ||||
Other, net | 5.8 | (7.8) | 7.9 | (13.3) | ||||
Cash used for investing activities | (691.3) | (35.8) | (725.0) | (69.2) | ||||
Financing activities | ||||||||
Common shares repurchased | (91.9) | — | (202.5) | — | ||||
Dividends paid | (15.4) | (13.5) | (30.9) | (27.0) | ||||
Repayments of debt | (190.9) | (30.0) | (220.9) | (75.0) | ||||
Proceeds from debt | 865.0 | — | 1,040.0 | — | ||||
Payment for acquisition-related earn-outs | (16.2) | (34.4) | (16.2) | (34.4) | ||||
Other, net | (13.5) | (11.4) | (20.6) | (18.9) | ||||
Cash provided by (used for) financing | 537.1 | (89.3) | 548.9 | (155.3) | ||||
Effect of exchange rate changes on cash and | (17.8) | 1.9 | (19.7) | (1.8) | ||||
Net decrease in cash and cash equivalents | (103.3) | 4.0 | (103.6) | (34.9) | ||||
Cash and cash equivalents-beginning of period | 483.5 | 383.6 | 483.8 | 422.5 | ||||
Cash and cash equivalents-end of period | $ 380.2 | $ 387.6 | $ 380.2 | $ 387.6 | ||||
Morningstar, Inc. and Subsidiaries Unaudited Condensed Consolidated Balance Sheets | ||||
As of June 30, | As of December 31, | |||
(in millions) | 2022 | 2021 | ||
Assets | ||||
Current assets: | ||||
Cash and cash equivalents | $ 380.2 | $ 483.8 | ||
Investments | 36.6 | 62.3 | ||
Accounts receivable, net | 307.3 | 268.9 | ||
Income tax receivable, net | 12.5 | 8.9 | ||
Other current assets | 81.5 | 63.7 | ||
Total current assets | 818.1 | 887.6 | ||
Goodwill | 1,578.9 | 1,207.0 | ||
Intangible assets, net | 593.2 | 328.2 | ||
Property, equipment, and capitalized software, net | 182.7 | 171.8 | ||
Operating lease assets | 139.7 | 149.2 | ||
Investments in unconsolidated entities | 96.6 | 63.3 | ||
Deferred tax asset, net | 12.3 | 12.8 | ||
Other assets | 44.4 | 42.8 | ||
Total assets | $ 3,465.9 | $ 2,862.7 | ||
Liabilities and equity | ||||
Current liabilities: | ||||
Deferred revenue | $ 457.4 | $ 377.4 | ||
Accrued compensation | 149.8 | 273.7 | ||
Accounts payable and accrued liabilities | 80.1 | 76.5 | ||
Operating lease liabilities | 36.7 | 36.4 | ||
Current portion of long-term debt | 29.4 | — | ||
Contingent consideration liability | 45.5 | 17.3 | ||
Other current liabilities | 2.4 | 2.2 | ||
Total current liabilities | 801.3 | 783.5 | ||
Operating lease liabilities | 119.3 | 135.7 | ||
Accrued compensation | 18.8 | 16.3 | ||
Deferred tax liability, net | 86.7 | 101.7 | ||
Long-term debt | 1,147.0 | 359.4 | ||
Other long-term liabilities | 52.0 | 50.2 | ||
Total liabilities | 2,225.1 | 1,446.8 | ||
Total equity | 1,240.8 | 1,415.9 | ||
Total liabilities and equity | $ 3,465.9 | $ 2,862.7 | ||
Morningstar, Inc. and Subsidiaries Supplemental Data (Unaudited) | |||||||||||||||
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
(in millions) | 2022 | 2021 | Change | Organic (1) | 2022 | 2021 | Change | Organic (1) | |||||||
Revenue by type | |||||||||||||||
License-based (2) | $ 327.5 | $ 277.2 | 18.1 % | 20.3 % | $ 639.4 | $ 543.3 | 17.7 % | 19.6 % | |||||||
Asset-based (3) | 67.6 | 64.8 | 4.3 % | 7.5 % | 136.1 | 126.2 | 7.8 % | 11.1 % | |||||||
Transaction-based (4) | 75.3 | 73.4 | 2.6 % | 6.0 % | 151.9 | 138.7 | 9.5 % | 11.9 % | |||||||
Key product area revenue | |||||||||||||||
PitchBook | $ 100.2 | $ 68.3 | 46.7 % | 46.7 % | $ 192.2 | $ 129.9 | 48.0 % | 48.0 % | |||||||
DBRS Morningstar (5) | 65.2 | 65.4 | (0.3) % | 3.1 % | 134.4 | 124.7 | 7.8 % | 10.1 % | |||||||
Morningstar Data | 64.3 | 60.3 | 6.6 % | 11.7 % | 127.6 | 119.1 | 7.1 % | 10.7 % | |||||||
Morningstar Direct | 45.8 | 43.2 | 6.0 % | 10.2 % | 91.4 | 85.3 | 7.2 % | 10.2 % | |||||||
Investment Management | 30.0 | 31.0 | (3.2) % | 4.4 % | 60.8 | 60.4 | 0.7 % | 8.6 % | |||||||
Workplace Solutions | 26.2 | 25.5 | 2.7 % | 2.7 % | 52.8 | 50.7 | 4.1 % | 4.1 % | |||||||
Morningstar Sustainalytics | 25.9 | 19.0 | 36.3 % | 47.4 % | 50.6 | 36.4 | 39.0 % | 47.5 % | |||||||
Morningstar Advisor Workstation | 23.6 | 22.9 | 3.1 % | 3.4 % | 46.8 | 45.7 | 2.4 % | 2.7 % | |||||||
As of June 30, | |||||||||||||||
Assets under management and | 2022 | 2021 | Change | ||||||||||||
Workplace Solutions | |||||||||||||||
Managed Accounts | $ 116.2 | $ 105.1 | 10.6 % | ||||||||||||
Fiduciary Services | 49.8 | 58.1 | (14.3) % | ||||||||||||
Custom Models/CIT | 36.5 | 38.8 | (5.9) % | ||||||||||||
Workplace Solutions (total) | $ 202.5 | $ 202.0 | 0.2 % | ||||||||||||
Investment Management | |||||||||||||||
Morningstar Managed Portfolios | $ 33.0 | (6) | $ 30.2 | 9.3 % | |||||||||||
Institutional Asset Management | 9.9 | 12.0 | (17.5) % | ||||||||||||
Asset Allocation Services | 7.4 | 7.1 | 4.2 % | ||||||||||||
Investment Management (total) | $ 50.3 | $ 49.3 | 2.0 % | ||||||||||||
Asset value linked to Morningstar Indexes ($bil) | $ 133.9 | $ 136.2 | (1.7) % | ||||||||||||
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||
Average assets under management and | $ 258.9 | $ 247.4 | 4.6 % | $ 261.0 | $ 240.6 | 8.5 % | |||||||||
_____________________________________________________________________________ |
(1) Organic revenue excludes acquisitions, divestitures, the impacts of the adoption of new accounting standards or revision to accounting practices, and the effect of foreign currency translations. |
(2) License-based revenue includes PitchBook, Morningstar Data, Morningstar Direct, Morningstar Sustainalytics, Morningstar Advisor Workstation, and other similar products. |
(3) Asset-based revenue includes Investment Management, Workplace Solutions, and Morningstar Indexes. |
(4) Transaction-based revenue includes DBRS Morningstar, Internet advertising, and Morningstar-sponsored conferences. |
(5) For the three and six months ended June 30, 2022, DBRS Morningstar recurring revenue derived primarily from surveillance, research, and other transaction-related services was |
(6) Morningstar Managed Portfolios assets under management as of June 30, 2022 includes assets under management acquired with the close of the Praemium UK and international business acquisition. As we completed the acquisition on June 30, 2022, there is no corresponding revenue in the second quarter of 2022. |
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 Securities and Exchange Commission, including:
- consolidated revenue, excluding acquisitions, divestitures, adoption of new accounting standards or revision to accounting practices (accounting changes), and the effect of foreign currency translations (organic revenue),
- consolidated operating income, excluding intangible amortization expense and all mergers and acquisitions (M&A)-related expenses (including M&A-related earn-outs) (adjusted operating income),
- consolidated operating margin, excluding intangible amortization expense and all M&A-related expenses (including M&A-related earn-outs) (adjusted operating margin),
- consolidated diluted net income per share, excluding intangible amortization expense, all M&A-related expenses (including M&A-related earn-outs), 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. We exclude revenue from acquired businesses from our organic revenue growth calculation for a period of 12 months after we complete the acquisition. For divestitures, we exclude revenue in the prior-year period for which there is no comparable revenue in the current period.
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 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 June 30, | Six months ended June 30, | |||||||||||
(in millions) | 2022 | 2021 | Change | 2022 | 2021 | change | ||||||
Reconciliation from consolidated revenue to organic revenue: | ||||||||||||
Consolidated revenue | 13.2 % | $ 927.4 | $ 808.2 | 14.7 % | ||||||||
Less: acquisitions | (3.8) | — | NMF | (4.3) | — | NMF | ||||||
Less: accounting changes | — | (1.7) | NMF | — | (3.5) | NMF | ||||||
Effect of foreign currency translations | 12.3 | — | NMF | 17.4 | — | NMF | ||||||
Organic revenue | $ 478.9 | $ 413.7 | 15.8 % | $ 940.5 | $ 804.7 | 16.9 % | ||||||
Reconciliation from consolidated operating income to adjusted | ||||||||||||
Consolidated operating income | $ 53.9 | $ 47.2 | 14.2 % | $ 110.3 | (3.6) % | |||||||
Add: intangible amortization expense | 15.6 | 15.7 | (0.6) % | 29.7 | 31.3 | (5.1) % | ||||||
Add: M&A-related expenses | 3.9 | 3.4 | 14.7 % | 8.8 | 7.2 | 22.2 % | ||||||
Add: M&A-related earn-outs (1) | — | 30.1 | NMF | 7.1 | 35.8 | (80.2) % | ||||||
Adjusted operating income | $ 73.4 | $ 96.4 | (23.9) % | $ 155.9 | $ 188.7 | (17.4) % | ||||||
Reconciliation from consolidated operating margin to adjusted | ||||||||||||
Consolidated operating margin | 11.5 % | 11.4 % | 0.1 pp | 11.9 % | 14.2 % | (2.3) pp | ||||||
Add: intangible amortization expense | 3.3 % | 3.8 % | (0.5) pp | 3.2 % | 3.9 % | (0.7) pp | ||||||
Add: M&A-related expenses | 0.8 % | 0.8 % | 0.0 pp | 0.9 % | 0.9 % | 0.0 pp | ||||||
Add: M&A-related earn-outs (1) | — % | 7.2 % | NMF | 0.8 % | 4.4 % | (3.6) pp | ||||||
Adjusted operating margin | 15.6 % | 23.2 % | (7.6) pp | 16.8 % | 23.4 % | (6.6) pp | ||||||
Reconciliation from consolidated diluted net income per share | ||||||||||||
Consolidated diluted net income per share | $ 0.70 | $ 0.76 | (7.9) % | $ 1.77 | $ 2.03 | (12.8) % | ||||||
Add: intangible amortization expense | 0.27 | 0.27 | — % | 0.51 | 0.53 | (3.8) % | ||||||
Add: M&A-related expenses | 0.07 | 0.06 | 16.7 % | 0.15 | 0.12 | 25.0 % | ||||||
Add: M&A-related earn-outs (1) | — | 0.67 | NMF | 0.16 | 0.80 | (80.0) % | ||||||
Less: non-operating (gains) losses (2) | 0.13 | — | NMF | (0.04) | — | NMF | ||||||
Adjusted diluted net income per share | $ 1.17 | $ 1.76 | (33.5) % | $ 2.55 | $ 3.48 | (26.7) % | ||||||
Reconciliation from cash provided by operating activities to | ||||||||||||
Cash provided by operating activities | $ 68.7 | $ 127.2 | (46.0) % | $ 92.2 | $ 191.4 | (51.8) % | ||||||
Capital expenditures | (31.7) | (18.7) | 69.5 % | (59.7) | (41.4) | 44.2 % | ||||||
Free cash flow | $ 37.0 | $ 108.5 | (65.9) % | $ 32.5 | $ 150.0 | (78.3) % | ||||||
______________________________________________________________________ |
NMF - Not meaningful, pp - percentage points |
(1) Reflects the impact of M&A-related earn-outs included in operating expense (compensation expense), primarily due to the earn-out for Morningstar Sustainalytics. |
(2) Non-operating (gains) losses in the three and six months ended June 30, 2022, related to unrealized gains and losses on investments. |
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SOURCE Morningstar, Inc.
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