CHICAGO, July 23, 2014 /PRNewswire/ -- Morningstar, Inc.
(NASDAQ: MORN), a leading provider of independent investment
research, today announced its second-quarter 2014 financial
results.
The company reported consolidated revenue of $189.4 million in the second quarter, an 8.0%
increase from $175.4 million in the
second quarter of 2013. Excluding acquisitions, divestitures, and
foreign currency translations, revenue rose 6.7% in the second
quarter of 2014. Revenue excluding acquisitions, divestitures, and
foreign currency translations (organic revenue) is a non-GAAP
measure. The accompanying financial tables contain a reconciliation
to comparable GAAP measures.
During the second quarter, the company recorded a non-recurring
expense of $61.0
million—approximately $38.2 million
after taxes, or 85 cents per
share—related to a previously announced litigation settlement with
Business Logic Holding Corp. As a result, Morningstar reported a
consolidated operating loss of $24.8
million in the second quarter of 2014, compared with
operating income of $43.6 million in
the same period a year ago. Net loss was $9.8 million, or 22
cents per diluted share, in the second quarter of 2014,
compared with net income of $31.1
million, or 66 cents per
diluted share, in the second quarter of 2013.
Excluding the litigation settlement, Morningstar reported
adjusted operating income of $36.2
million in the second quarter of 2014, a decrease of 16.9%
compared with the second quarter of 2013. Adjusted operating income
declined mainly because of higher compensation expense from
additional headcount, reflecting new hires as well as acquisitions.
Adjusted operating income is also a non-GAAP measure. The
accompanying financial tables contain a reconciliation to
comparable GAAP measures.
In June, Morningstar acquired HelloWallet Holdings, Inc., a
provider of personalized financial guidance. Because Morningstar
previously had a minority stake in HelloWallet, the company
recorded a non-cash and non-operating gain of $5.2 million, which had a positive effect of
11 cents per share.
Joe Mansueto, chairman and chief
executive officer of Morningstar, said, "We're glad to put the
dispute with Business Logic behind us. While the settlement amount
is meaningful, we want to move forward and focus on the continued
growth and success of our retirement business without the risk,
distraction, and uncertainty posed by the lawsuit."
He added, "Organic revenue growth for the second quarter was
solid, and we're seeing momentum as we continue to invest in our
existing business as well as in new initiatives. During the
quarter, we acquired ByAllAccounts, Inc., a provider of data
aggregation technology, in addition to HelloWallet. Client response
to both acquisitions has been very positive. We also held
successful investment conferences around the world—in Chicago, London, Madrid, and Sydney, along with our first pan-Asian
Investment Conference in Hong
Kong."
Financial Highlights
Revenue and Key Operating Metrics
- Investment information revenue was $149.5 million, a 6.8% increase from $140.0 million in the second quarter of 2013.
Morningstar DirectSM, Morningstar®
Advisor WorkstationSM (primarily
Morningstar OfficeSM), and Morningstar® Data were the main contributors to
revenue growth, which was partially offset by lower revenue for
Morningstar® Principia®. The company is in the process of migrating
clients from Principia to Morningstar Advisor Workstation and other
Morningstar products.
- Investment management revenue was $39.9
million, a 12.6% increase from $35.4
million in the second quarter of 2013, driven by strong
results for Morningstar® Managed PortfoliosSM and Retirement Solutions. Lower revenue for
Investment Advisory services partially offset the increase.
- Operating margin was negative 13.1% in the second quarter of
2014, down from 24.8% in the same period in 2013. Excluding the
litigation settlement, adjusted operating margin was 19.1% in the
second quarter of 2014. Higher compensation expense, reflecting new
hires as well as acquisitions, was the primary reason for the
decline. Adjusted operating margin is a non-GAAP measure; the
accompanying financial tables contain a reconciliation to
comparable GAAP measures.
Cash Flow and Balance Sheet
- Morningstar generated consolidated free cash flow of
$44.8 million in the second quarter
of 2014, reflecting cash provided by operating activities of
$54.8 million less $10.0 million of cash used for capital
expenditures. Free cash flow was down 8.0% from $48.7 million in the second quarter of 2013. Free
cash flow is a non-GAAP measure; the accompanying financial tables
contain a reconciliation to cash provided by operating activities.
Morningstar defines free cash flow as cash provided by or used for
operating activities less capital expenditures.
- As of June 30, 2014, cash, cash
equivalents, and investments totaled $221.0
million, compared with $298.6
million as of Dec. 31, 2013.
Of the $700 million authorized under
its share repurchase program, Morningstar had purchased a total of
7.6 million shares for $486.5 million
as of June 30, 2014. In the second
quarter of 2014, Morningstar repurchased approximately 200,000
shares for $15.0 million.
- During the second quarter, the company used approximately
$64.4 million in cash for the
acquisitions of ByAllAccounts and HelloWallet.
- In the third quarter of 2014, Morningstar will pay Business
Logic $61.0 million as part of the
litigation settlement agreement.
- The company expects to pay approximately $7.6 million for its regular quarterly dividend
on July 31, 2014.
Comparability of Year-Over-Year Results
Several items affected the comparability of second-quarter 2014
results versus the same period in 2013.
- The litigation settlement contributed the majority of the
$82.3 million increase in operating
expense in the second quarter of 2014.
- The company's second-quarter results included $1.2 million in revenue and $4.9 million of incremental operating expense
from acquisitions.
- During the second quarter of 2014, commission expense rose
$2.1 million compared with the
prior-year period, mainly because of a change to the company's
sales commission structure that requires a different accounting
treatment. Morningstar now expenses sales commissions as incurred
instead of amortizing them over the term of the underlying
contracts.
- As previously disclosed, about 180 net positions shifted from
the general and administrative and sales and marketing categories
to cost of revenue as a result of the company's change to a
centralized organizational structure in 2013. This shift did not
affect total operating expense.
Operating Highlights
- Licenses for Morningstar Direct rose 15.9% to 9,222.
- Assets under management and advisement for Retirement Solutions
were approximately $74.4 billion as
of June 30, 2014, versus $55.9 billion as of June
30, 2013. Assets under management and advisement for
Morningstar Managed Portfolios were approximately $8.6 billion as of June
30, 2014, compared with $5.9
billion as of June 30, 2013.
Both product lines benefited from strong market performance and
asset inflows.
- Investment Advisory assets under advisement as of June 30, 2014 were $18.7
billion lower versus the same date in 2013 because companies
that offer variable annuities have continued to face difficult
market conditions. As a result, some of Morningstar's clients have
been managing their fund-of-funds portfolios in-house instead of
using outside subadvisors.
- Morningstar had approximately 3,800 employees worldwide as of
June 30, 2014, compared with 3,425 as
of June 30, 2013, reflecting the
addition of product and technology roles in the United States, data analysts in
India, and the ByAllAccounts and
HelloWallet acquisitions.
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 or write to the
company at:
Morningstar, Inc.
Investor Relations
22 W. Washington Street
Chicago, IL 60602
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 on the first
Friday of 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 retirement plan providers and sponsors.
Morningstar provides data on approximately 473,000 investment
offerings, including stocks, mutual funds, and similar vehicles,
along with real-time global market data on more than 12 million
equities, indexes, futures, options, commodities, and precious
metals, in addition to foreign exchange and Treasury markets.
Morningstar also offers investment management services through its
investment advisory subsidiaries and had approximately $169 billion in assets under advisement and
management as of June 30, 2014. The
company has operations in 27 countries.
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, liability for any losses that result from an actual
or claimed breach of our fiduciary duties; failing to differentiate
our products and continuously create innovative, proprietary
research tools; failing to respond to technological change, keep
pace with new technology developments, or adopt a successful
technology strategy; a prolonged outage of our database and network
facilities; any failures or disruptions in our electronic delivery
systems and the Internet; liability and/or damage to our reputation
as a result of some of our pending litigation; liability related to
the storage of personal information about our users; general
industry conditions and competition, including current global
financial uncertainty, trends in the mutual fund industry, and
continued growth in passively managed investment vehicles; the
impact of market volatility on revenue from asset-based fees;
failing to maintain and protect our brand, independence, and
reputation; changes in laws applicable to our investment advisory
or credit rating operations, compliance failures, or regulatory
action; and challenges faced by our non-U.S. operations, including
the concentration of development work at our offshore facilities in
China and India. A more complete description of these
risks and uncertainties can be found in our filings with the
Securities and Exchange Commission, including our Annual Report on
Form 10-K for the year ended December 31,
2013. If any of these risks and uncertainties materialize,
our actual future results may vary significantly from what we
expected. We do not undertake to update our forward-looking
statements as a result of new information or future events.
Non-GAAP Financial Measures
To supplement
Morningstar's 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 U.S. Securities and Exchange Commission:
consolidated revenue excluding acquisitions, divestitures, and
foreign currency translations (organic revenue), consolidated
operating income excluding the litigation settlement (adjusted
operating income), consolidated operating margin excluding the
litigation settlement (adjusted operating margin), and free cash
flow. These non-GAAP measures may not be comparable to similarly
titled measures reported by other companies.
Morningstar presents consolidated revenue excluding acquisitions,
divestitures, and foreign currency translations (organic
revenue) because the company believes this non-GAAP measure helps
investors better compare period-over-period results.
Morningstar presents operating income and operating margin
excluding the litigation settlement (adjusted operating income and
adjusted operating margin) to show the effect of this non-recurring
charge, better reflect period-over-period comparisons, and improve
overall understanding of Morningstar's current and future financial
performance.
In addition, Morningstar presents free cash flow solely as
supplemental disclosure to help investors better understand how
much cash is available after Morningstar spends money to operate
its business. Morningstar 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). For more information about free cash flow, please see
the reconciliation from cash provided by operating activities to
free cash flow included in the accompanying financial tables.
For more information about these non-GAAP measures, please see the
reconciliations provided in the accompanying financial tables.
All dollar and percentage comparisons, which are often
accompanied by words such as "increase," "decrease," "grew,"
"declined, " or "was similar," refer to a comparison with the same
period in the previous year unless otherwise stated.
©2014 Morningstar, Inc. All Rights Reserved.
MORN-E
Contacts:
Media: Margaret
Kirch Cohen, +1 312-696-6383 or
margaret.cohen@morningstar.com
Investors may submit questions to investors@morningstar.com.
Morningstar, Inc.
and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
Condensed Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
(in thousands,
except per share amounts)
|
|
2014
|
|
2013
|
|
change
|
|
2014
|
|
2013
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ 189,385
|
|
$ 175,428
|
|
8.0%
|
|
$ 370,550
|
|
$ 344,284
|
|
7.6%
|
Operating
expense(1)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue
|
|
81,387
|
|
64,427
|
|
26.3%
|
|
157,101
|
|
126,077
|
|
24.6%
|
|
Sales and
marketing
|
|
27,949
|
|
28,035
|
|
(0.3%)
|
|
56,377
|
|
56,015
|
|
0.6%
|
|
General and
administrative
|
|
30,438
|
|
28,120
|
|
8.2%
|
|
56,542
|
|
55,447
|
|
2.0%
|
|
Depreciation and
amortization
|
|
13,391
|
|
11,262
|
|
18.9%
|
|
25,778
|
|
22,601
|
|
14.1%
|
|
Litigation
settlement
|
|
61,000
|
|
-
|
|
-
|
|
61,000
|
|
-
|
|
-
|
|
Total
operating expense
|
|
214,165
|
|
131,844
|
|
62.4%
|
|
356,798
|
|
260,140
|
|
37.2%
|
Operating income
(loss)
|
|
(24,780)
|
|
43,584
|
|
NMF
|
|
13,752
|
|
84,144
|
|
(83.7%)
|
Operating
margin
|
|
(13.1%)
|
|
24.8%
|
|
(37.9)pp
|
|
3.7%
|
|
24.4%
|
|
(20.7)pp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income,
net
|
|
634
|
|
664
|
|
(4.5%)
|
|
1,219
|
|
1,405
|
|
(13.2%)
|
|
Other income,
net
|
|
5,264
|
|
2,447
|
|
115.1%
|
|
5,544
|
|
2,651
|
|
109.1%
|
|
Non-operating income,
net
|
|
5,898
|
|
3,111
|
|
89.6%
|
|
6,763
|
|
4,056
|
|
66.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes and equity in net income
of unconsolidated
entities
|
|
(18,882)
|
|
46,695
|
|
NMF
|
|
20,515
|
|
88,200
|
|
(76.7%)
|
Equity in net income
of unconsolidated entities
|
|
497
|
|
360
|
|
38.1%
|
|
1,096
|
|
857
|
|
27.9%
|
Income tax expense
(benefit)
|
|
(8,611)
|
|
15,955
|
|
NMF
|
|
5,039
|
|
28,382
|
|
(82.2%)
|
Consolidated net
income (loss)
|
|
(9,774)
|
|
31,100
|
|
NMF
|
|
16,572
|
|
60,675
|
|
(72.7%)
|
Net loss attributable
to noncontrolling interests
|
|
5
|
|
21
|
|
(76.2%)
|
|
35
|
|
64
|
|
(45.3%)
|
Net income (loss)
attributable to Morningstar, Inc.
|
|
$ (9,769)
|
|
$ 31,121
|
|
NMF
|
|
$ 16,607
|
|
$ 60,739
|
|
(72.7%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share attributable to Morningstar, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ (0.22)
|
|
$ 0.67
|
|
NMF
|
|
$ 0.37
|
|
$ 1.31
|
|
(71.8%)
|
|
Diluted
|
|
$ (0.22)
|
|
$ 0.66
|
|
NMF
|
|
$ 0.37
|
|
$ 1.30
|
|
(71.5%)
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
44,777
|
|
46,400
|
|
(3.5%)
|
|
44,778
|
|
46,403
|
|
(3.5%)
|
|
Diluted
|
|
44,777
|
|
46,853
|
|
(4.4%)
|
|
45,039
|
|
46,756
|
|
(3.7%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
|
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
|
change
|
(1) Includes
stock-based compensation expense of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue
|
|
$ 1,890
|
|
$ 1,691
|
|
11.8%
|
|
$ 3,652
|
|
$ 3,392
|
|
7.7%
|
|
Sales and
marketing
|
|
530
|
|
522
|
|
1.5%
|
|
1,027
|
|
1,034
|
|
(0.7%)
|
|
General and
administrative
|
|
1,943
|
|
1,741
|
|
11.6%
|
|
3,623
|
|
3,311
|
|
9.4%
|
|
Total
stock-based compensation expense
|
|
$ 4,363
|
|
$ 3,954
|
|
10.3%
|
|
$ 8,302
|
|
$ 7,737
|
|
7.3%
|
|
(2) Morningstar moved
to a more centralized organizational structure in 2013. As a
result, approximately 180 net positions shifted from the general
and administrative and sales and marketing categories to cost of
revenue. For the second quarter of 2014 as compared with the same
period in 2013, changes related to our more centralized
organizational structure added approximately $7 million of
compensation expense to cost of revenue and reduced the
compensation expense in our sales and marketing and general and
administrative expense categories by approximately $4 million and
$3 million, respectively.
|
|
NMF — Not
meaningful, pp — percentage points
|
Morningstar, Inc.
and Subsidiaries
|
|
|
|
|
|
|
|
|
Operating Expense
as a Percentage of Revenue (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
|
|
2014
|
|
2013
|
|
change
|
|
2014
|
|
2013
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
100.0%
|
|
100.0%
|
|
-
|
|
100.0%
|
|
100.0%
|
|
-
|
Operating
expense1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue
|
|
43.0%
|
|
36.7%
|
|
6.3pp
|
|
42.4%
|
|
36.6%
|
|
5.8pp
|
|
Sales and
marketing
|
|
14.8%
|
|
16.0%
|
|
(1.2)pp
|
|
15.2%
|
|
16.3%
|
|
(1.1)pp
|
|
General and
administrative
|
|
16.1%
|
|
16.0%
|
|
0.1pp
|
|
15.3%
|
|
16.1%
|
|
(0.8)pp
|
|
Depreciation and
amortization
|
|
7.1%
|
|
6.4%
|
|
0.7pp
|
|
7.0%
|
|
6.6%
|
|
0.4pp
|
|
Litigation
settlement
|
|
32.2%
|
|
0.0%
|
|
32.2pp
|
|
16.5%
|
|
0.0%
|
|
16.5pp
|
|
Total
operating expense2
|
|
113.1%
|
|
75.2%
|
|
37.9pp
|
|
96.3%
|
|
75.6%
|
|
20.7pp
|
Operating
margin
|
|
-13.1%
|
|
24.8%
|
|
(37.9)pp
|
|
3.7%
|
|
24.4%
|
|
(20.7)pp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
|
|
2014
|
|
2013
|
|
change
|
|
2014
|
|
2013
|
|
change
|
(1) Includes
stock-based compensation expense of:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue
|
|
1.0%
|
|
1.0%
|
|
-
|
|
1.0%
|
|
1.0%
|
|
-
|
|
Sales and
marketing
|
|
0.3%
|
|
0.3%
|
|
-
|
|
0.3%
|
|
0.3%
|
|
-
|
|
General and
administrative
|
|
1.0%
|
|
1.0%
|
|
-
|
|
1.0%
|
|
1.0%
|
|
-
|
|
Total
stock-based compensation expense2
|
|
2.3%
|
|
2.3%
|
|
-
|
|
2.2%
|
|
2.2%
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Sum of
percentages may not equal total because of rounding.
|
|
|
|
|
Morningstar, Inc.
and Subsidiaries
|
|
|
|
|
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
($000)
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Consolidated net
income (loss)
|
|
$ (9,774)
|
|
$ 31,100
|
|
$ 16,572
|
|
$ 60,675
|
Adjustments to
reconcile consolidated net income (loss) to net cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
13,391
|
|
11,262
|
|
25,778
|
|
22,601
|
|
Stock-based
compensation expense
|
|
4,363
|
|
3,954
|
|
8,302
|
|
7,737
|
|
Other, net
|
|
(7,795)
|
|
(1,826)
|
|
(11,843)
|
|
(7,301)
|
Changes in operating
assets and liabilities, net of effects of acquisitions and
dispositions
|
|
54,619
|
|
13,972
|
|
27,879
|
|
1,423
|
|
Cash provided by operating activities
|
|
54,804
|
|
58,462
|
|
66,688
|
|
85,135
|
Investing
activities
|
|
|
|
|
|
|
|
|
Purchases of
investments
|
|
(6,018)
|
|
(78,605)
|
|
(7,715)
|
|
(82,299)
|
Proceeds from
maturities and sales of investments
|
|
21,787
|
|
34,976
|
|
95,499
|
|
96,128
|
Capital
expenditures
|
|
(10,006)
|
|
(9,763)
|
|
(30,799)
|
|
(18,881)
|
Acquisitions, net of
cash acquired
|
|
(64,447)
|
|
(11,125)
|
|
(64,447)
|
|
(11,125)
|
Proceeds from sale of
a business, net
|
|
-
|
|
957
|
|
-
|
|
957
|
Purchase of equity
and cost method investments
|
|
-
|
|
(909)
|
|
-
|
|
(909)
|
Other, net
|
|
(1)
|
|
(456)
|
|
259
|
|
436
|
|
Cash used
for investing activities
|
|
(58,685)
|
|
(64,925)
|
|
(7,203)
|
|
(15,693)
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds from
stock-option exercises
|
|
794
|
|
722
|
|
2,072
|
|
2,810
|
Employee taxes
withheld for restricted stock units
|
|
(4,996)
|
|
(5,075)
|
|
(5,003)
|
|
(5,157)
|
Excess tax benefits
from stock-option exercises and vesting
of restricted stock units
|
|
1,340
|
|
2,255
|
|
1,913
|
|
3,842
|
Common shares
repurchased
|
|
(15,023)
|
|
(38,697)
|
|
(36,720)
|
|
(53,937)
|
Dividends
paid
|
|
(7,665)
|
|
(5,889)
|
|
(15,309)
|
|
(5,889)
|
Other, net
|
|
19
|
|
(47)
|
|
14
|
|
(50)
|
|
Cash used for
financing activities
|
|
(25,531)
|
|
(46,731)
|
|
(53,033)
|
|
(58,381)
|
Effect of exchange
rate changes on cash and cash equivalents
|
|
1,033
|
|
(1,888)
|
|
1,642
|
|
(5,140)
|
Net increase
(decrease) in cash and cash equivalents
|
|
(28,379)
|
|
(55,082)
|
|
8,094
|
|
5,921
|
Cash and cash
equivalents—Beginning of period
|
|
204,633
|
|
224,892
|
|
168,160
|
|
163,889
|
Cash and cash
equivalents—End of period
|
|
$ 176,254
|
|
$ 169,810
|
|
$ 176,254
|
|
$ 169,810
|
Morningstar, Inc.
and Subsidiaries
|
|
|
|
|
Unaudited
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
June
30
|
|
December
31
|
($000)
|
|
2014
|
|
2013
|
|
|
|
|
|
|
Assets
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ 176,254
|
|
$ 168,160
|
|
Investments
|
|
44,696
|
|
130,407
|
|
Accounts receivable,
net
|
|
135,017
|
|
114,131
|
|
Deferred tax asset,
net
|
|
6,437
|
|
3,892
|
|
Income tax
receivable, net
|
|
18,616
|
|
3,942
|
|
Other
|
|
21,565
|
|
26,361
|
|
Total current assets
|
|
402,585
|
|
446,893
|
|
|
|
|
|
|
Property, equipment,
and capitalized software, net
|
|
109,900
|
|
104,986
|
Investments in
unconsolidated entities
|
|
30,287
|
|
38,714
|
Goodwill
|
|
390,367
|
|
326,450
|
Intangible assets,
net
|
|
109,311
|
|
103,909
|
Other
assets
|
|
7,835
|
|
9,716
|
|
Total
assets
|
|
$ 1,050,285
|
|
$ 1,030,668
|
|
|
|
|
|
|
Liabilities and
equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$ 97,251
|
|
$ 42,131
|
|
Accrued
compensation
|
|
58,409
|
|
71,403
|
|
Deferred
revenue
|
|
161,921
|
|
149,225
|
|
Other
|
|
4,607
|
|
6,786
|
|
Total current liabilities
|
|
322,188
|
|
269,545
|
|
|
|
|
|
|
Accrued
compensation
|
|
7,512
|
|
8,193
|
Deferred tax
liability, net
|
|
18,245
|
|
23,755
|
Other long-term
liabilities
|
|
33,678
|
|
37,885
|
|
Total
liabilities
|
|
381,623
|
|
339,378
|
|
Total
equity
|
|
668,662
|
|
691,290
|
|
Total liabilities and
equity
|
|
$ 1,050,285
|
|
$ 1,030,668
|
Morningstar, Inc.
and Subsidiaries
|
|
|
|
|
|
Supplemental Data
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June
30
|
|
|
|
|
|
2014
|
|
2013
|
|
%
change
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
business
|
|
|
|
|
|
|
|
|
Morningstar.com
Premium Membership subscriptions (U.S.)
|
|
122,736
|
|
123,881
|
|
(0.9%)
|
|
|
Registered users for
Morningstar.com (U.S.)
|
|
8,021,734
|
|
7,690,300
|
|
4.3%
|
|
|
U.S. Advisor
Workstation clients
|
|
170
|
|
151
|
2
|
12.6%
|
|
|
U.S. Morningstar
Office licenses
|
|
4,201
|
|
3,985
|
2
|
5.4%
|
|
|
Principia
subscriptions
|
|
14,805
|
|
22,464
|
|
(34.1%)
|
|
|
Morningstar Direct
licenses
|
|
9,222
|
|
7,960
|
1
|
15.9%
|
|
|
Assets under
advisement and management (approximate)
|
|
|
|
|
|
|
|
|
|
Investment Advisory
services
|
|
$82.7 bil
|
|
$101.4 bil
|
|
(18.4%)
|
|
|
|
Retirement
Solutions
|
|
$74.4 bil
|
|
$55.9 bil
|
|
33.1%
|
|
|
|
Morningstar Managed
Portfolios
|
|
$8.6 bil
|
|
$5.9 bil
|
|
45.8%
|
|
|
|
Ibbotson
Australia
|
|
$3.3 bil
|
|
$2.9 bil
|
|
13.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
Our employees
(approximate)
|
|
|
|
|
|
|
|
|
Worldwide
headcount
|
|
3,800
|
|
3,425
|
|
10.9%
|
|
|
Number of worldwide
equity and credit analysts
|
|
175
|
|
150
|
|
16.7%
|
|
|
Number of worldwide
fund analysts
|
|
100
|
|
105
|
|
(4.8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Revised to
reflect a minor calculation change.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Beginning in the
second quarter of 2014, we changed our reporting to show the number
of enterprise clients for Morningstar Advisor Workstation instead of the number of individual
licenses. We believe this is a more meaningful indicator of
underlying business trends because
per-user pricing varies significantly depending on the scope of the
license. We also began disclosing the number of licenses for
Morningstar Office as a separate line
item.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
Six months ended
June 30
|
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Average assets under
management and advisement
|
|
$166.3 bil
|
|
$161.6 bil
|
|
$164.0 bil
|
|
$157.6 bil
|
Number of new
commerical mortgage-based securities (CMBS) new-issue ratings
completed
|
|
9
|
|
8
|
|
18
|
|
18
|
Rated balance for
CMBS new-issue ratings
|
|
$4.7 bil
|
|
$6.8 bil
|
|
$10.3 bil
|
|
$12.2 bil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
($000)
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Revenue
|
|
|
|
|
|
|
|
|
|
Investment
information
|
|
$ 149,527
|
|
$ 140,031
|
|
$ 290,797
|
|
$ 275,116
|
|
Investment
management
|
|
39,858
|
|
$ 35,397
|
|
79,753
|
|
$ 69,168
|
|
Consolidated
revenue
|
|
$ 189,385
|
|
$ 175,428
|
|
$ 370,550
|
|
$ 344,284
|
|
|
|
|
|
|
|
|
|
|
|
Revenue—U.S.
|
|
$ 136,453
|
|
$ 126,335
|
|
$ 266,405
|
|
$ 247,748
|
|
Revenue—International
|
|
$ 52,932
|
|
$ 49,093
|
|
$ 104,145
|
|
$ 96,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
Six months ended
June 30
|
($000)
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Effective tax
rate
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes and equity in net income of unconsolidated entities
|
|
$ (18,882)
|
|
$ 46,695
|
|
$ 20,515
|
|
$ 88,200
|
Equity in net income
of unconsolidated entities
|
|
497
|
|
360
|
|
1,096
|
|
857
|
Net loss attributable
to noncontrolling interests
|
|
5
|
|
21
|
|
35
|
|
64
|
|
Total
|
|
$ (18,380)
|
|
$ 47,076
|
|
$ 21,646
|
|
$ 89,121
|
Income tax expense
(benefit)
|
|
$ (8,611)
|
|
$ 15,955
|
|
$ 5,039
|
|
$ 28,382
|
Effective tax
rate
|
|
46.8%
|
|
33.9%
|
|
23.3%
|
|
31.8%
|
Morningstar, Inc.
and Subsidiaries
|
|
|
|
|
|
|
|
|
|
Reconciliations of
Non-GAAP Measures with the Nearest Comparable GAAP
Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
consolidated revenue to revenue excluding divestitures,
acquisitions, and foreign currency translations (organic
revenue):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
|
($000)
|
|
2014
|
|
2013
|
|
%
change
|
|
2014
|
|
2013
|
|
%
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
revenue
|
|
$ 189,385
|
|
$ 175,428
|
|
8.0%
|
|
$ 370,550
|
|
$344,284
|
|
7.6%
|
Less:
divestitures
|
|
-
|
|
-
|
|
NMF
|
|
-
|
|
-
|
|
NMF
|
Less:
acquisitions
|
|
(1,236)
|
|
-
|
|
NMF
|
|
(2,713)
|
|
-
|
|
NMF
|
Favorable effect of
foreign currency translations
|
|
(885)
|
|
-
|
|
NMF
|
|
(79)
|
|
-
|
|
NMF
|
Revenue excluding
acquisitions, divestitures, and
foreign currency
translations
|
|
$ 187,264
|
|
$ 175,428
|
|
6.7%
|
|
$ 367,758
|
|
$344,284
|
|
6.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
operating income to operating income, excluding the litigation
settlement (adjusted operating income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
($000)
|
|
2014
|
|
2013
|
|
%
change
|
|
2014
|
|
2013
|
|
%
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ (24,780)
|
|
$ 43,584
|
|
(156.9%)
|
|
$ 13,752
|
|
$ 84,144
|
|
(83.7%)
|
Less: litigation
settlement
|
|
61,000
|
|
-
|
|
-
|
|
61,000
|
|
-
|
|
-
|
Operating income,
excluding litigation settlement
|
|
$ 36,220
|
|
$ 43,584
|
|
(16.9%)
|
|
$ 74,752
|
|
$ 84,144
|
|
(11.2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
operating margin to operating margin, excluding the litigation
settlement (adjusted operating margin):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
($000)
|
|
2014
|
|
2013
|
|
%
change
|
|
2014
|
|
2013
|
|
%
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
(13.1%)
|
|
24.8%
|
|
(37.9)pp
|
|
3.7%
|
|
24.4%
|
|
(20.7)pp
|
Less: litigation
settlement
|
|
32.2%
|
|
-
|
|
32.2pp
|
|
16.5%
|
|
-
|
|
16.5pp
|
Operating margin,
excluding litigation settlement
|
|
19.1%
|
|
24.8%
|
|
(5.7)pp
|
|
20.2%
|
|
24.4%
|
|
(4.2)pp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
cash provided by operating activities to free cash flow (a non-GAAP
measure):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
|
|
Six months ended
June 30
|
($000)
|
|
2014
|
|
2013
|
|
%
change
|
|
2014
|
|
2013
|
|
%
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
operating activities
|
|
$ 54,804
|
|
$ 58,462
|
|
(6.3%)
|
|
$ 66,688
|
|
$ 85,135
|
|
(21.7%)
|
Less: Capital
expenditures
|
|
(10,006)
|
|
(9,763)
|
|
2.5%
|
|
(30,799)
|
|
(18,881)
|
|
63.1%
|
Free cash
flow
|
|
$ 44,798
|
|
$ 48,699
|
|
(8.0%)
|
|
$ 35,889
|
|
$ 66,254
|
|
(45.8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table
summarizes the change in operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
($000)
|
|
2014
|
|
2013
|
|
$
change
|
|
2014
|
|
2013
|
|
$
change
|
Total operating
expense
|
|
$ 214,165
|
|
$ 131,844
|
|
$ 82,321
|
|
$ 356,798
|
|
$260,140
|
|
$ 96,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
4,890
|
|
|
|
|
|
4,890
|
|
Unfavorable impact of
currency
|
|
|
|
|
|
64
|
|
|
|
|
|
556
|
|
Litigation
settlement
|
|
|
|
|
|
61,000
|
|
|
|
|
|
61,000
|
|
All other changes in
operating expense
|
|
|
|
|
|
16,367
|
|
|
|
|
|
30,212
|
|
Total
|
|
|
|
|
|
$ 82,321
|
|
|
|
|
|
$ 96,658
|
SOURCE Morningstar, Inc.