Attached files
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8-K - 8-K - Morningstar, Inc. | a11-22995_18k.htm |
Exhibit 99.1
News Release | |||
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22 West Washington Street |
Telephone: |
+1 312 696-6000 | |
Chicago |
Facsimile: |
+1 312 696-6009 | |
Illinois 60602 |
|
|
Contacts:
Media: Margaret Kirch Cohen, 312-696-6383 or margaret.cohen@morningstar.com
Nadine Youssef, 312-696-6601 or nadine.youssef@morningstar.com
Investors may submit questions to investors@morningstar.com or by fax to 312-696-6009.
FOR IMMEDIATE RELEASE
Morningstar, Inc. Reports Second-Quarter 2011 Financial Results
CHICAGO, July 27, 2011Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its second-quarter 2011 financial results. The company reported consolidated revenue of $161.0 million in the second quarter of 2011, an increase of 18.3% from $136.1 million in the second quarter of 2010. Consolidated operating income was $38.6 million in the second quarter of 2011, an increase of 39.5% compared with $27.7 million in the same period a year ago. Net income was $26.5 million, or 52 cents per diluted share, compared with $18.0 million, or 36 cents per diluted share, in the second quarter of 2010.
Excluding acquisitions and the effect of foreign currency translations, revenue increased 11.2%. Second-quarter results included $5.1 million in revenue from acquisitions. Foreign currency translations had a favorable effect of $4.6 million. Revenue excluding acquisitions and foreign currency translations (organic revenue) is a non-GAAP measure; the accompanying financial tables contain a reconciliation to consolidated revenue.
In the first six months of 2011, revenue was $312.8 million, an increase of 18.3% compared with $264.4 million in the same period in 2010. Revenue for the first half of the year included $14.1 million from acquisitions and a $6.3 million benefit from foreign currency translations.
Consolidated operating income rose 20.1% to $70.4 million in the first six months of 2011, compared with $58.6 million in the first half of 2010. Net income was $49.0 million, or 96 cents per diluted share, in the first half of 2011, compared with $38.2 million, or 76 cents per diluted share, in the same period in 2010.
Joe Mansueto, chairman and chief executive officer of Morningstar, said, Organic revenue rose about 11%, reflecting growth across all of our major product lines. Leading the growth were Morningstar Directour institutional research platformand Investment Consulting. Its also worth noting that within our credit ratings business, we had strong revenue growth from new issue rating assignments in the commercial mortgage-backed securities market.
He added, In June we held our annual investment conference in Chicago, with record attendance. We also announced our plans to launch forward-looking analyst-driven global fund ratings and a uniform approach for global fund research reports later this year. During the quarter, we also expanded our Wealth Forecasting Engine to clients in the United Kingdom and launched a website for fund investors in Chile.
Key Business Drivers
Morningstar has two operating segments: Investment Information and Investment Management. The Investment Information segment includes all of the companys data, software, and research products and services. These products and services are typically sold through subscriptions or license agreements. The Investment Management segment includes all of the companys asset management operations, which earn more than half of their revenue from asset-based fees.
Revenue: In the second quarter of 2011, revenue in the Investment Information segment was $128.1 million, an increase of $19.1 million, or 17.5%, compared with the second quarter of 2010 including $4.5 million from acquisitions. Revenue in the Investment Management segment rose 21.5% to $32.9 million, an increase of $5.8 million, including $0.6 million from acquisitions.
Revenue from international operations was $47.6 million in the second quarter of 2011, an increase of 28.2% from the same period a year ago. International revenue included $2.1 million from acquisitions. Foreign currency translations contributed $4.6 million to international revenue. Excluding acquisitions and foreign currency translations, international revenue increased 10.3%.
For the first six months of 2011, international revenue increased $18.4 million, or 25.3%, including $5.6 million in revenue from acquisitions. Foreign currency translations had a favorable impact of $6.3 million. International revenue excluding acquisitions and foreign currency translations is a non-GAAP measure; the accompanying financial tables contain a reconciliation to international revenue.
Operating Income: Consolidated operating income was $38.6 million in the second quarter of 2011, a 39.5% increase from the same period in 2010. Operating expense rose $14.0 million, or 12.9%. Incremental operating expense from businesses acquired since the first quarter of 2010 represented approximately $3.6 million, or 25%, of the operating expense increase. The company completed seven acquisitions in 2010. Because of the timing of these acquisitions, the second-quarter and year-to-date results in 2011 include operating expense that did not exist in the comparable periods in 2010.
Approximately 60% of the growth in total operating expense was due to higher salaries, reflecting additional headcount from acquisitions and filling open positions, as well as salary increases made in the third quarter of 2010.
Incentive compensation and employee benefit costs represented approximately 11% of the overall operating expense increase. Bonus expense rose $2.0 million compared with the prior-year period, a portion of which relates to acquisitions. Higher matching contributions to the companys 401(k) plan in the United States represented approximately $0.6 million of the increase. Lower healthcare benefit costs and sales commissions partially offset these increases. In the second quarter of 2010, the company had some unusually high medical claims that did not recur in the second quarter of 2011. Sales commission expense also declined because changes to the companys U.S. sales commission structure made in 2010 had a greater effect on prior-year period results.
Higher depreciation and amortization contributed $1.3 million to the operating expense increase in the second quarter of 2011, primarily from recent acquisitions.
Morningstar had approximately 3,300 employees worldwide as of June 30, 2011, compared with 2,965 as of June 30, 2010. Headcount rose year over year mainly because of continued hiring in the companys development centers in China and India. Morningstar hired about 30 employees in the United States in July 2011 as part of the Morningstar Development Program, a two-year rotational training program for entry-level college graduates, and expects to continue hiring in the second half of the year. In addition, the company expects to make salary increases in the third quarter of 2011.
The companys operating margin was 24.0% in the second quarter of 2011, up from 20.3% in the same period in 2010. Approximately half of the margin improvement reflects lower healthcare benefits and commission expense as a percentage of revenue. In the first six months of 2011, operating margin was 22.5%, compared with 22.2% in the first six months of 2010.
Effective Tax Rate: Morningstars effective tax rate in the second quarter of 2011 was 32.5%, a decrease of 3.7 percentage points compared with the prior-year period. Year to date, the companys effective tax rate was 32.2% compared with 35.7% in the first half of 2010. In the second quarter of 2011, the company increased its estimate of U.S. cash tax benefits by $1.1 million related to prior years. This adjustment represents 2.8 percentage points of the decline in the effective tax rate in the quarter and 1.5 percentage points in the year-to-date period. This higher-than-expected income tax benefit contributed approximately 2 cents to earnings per share in the second-quarter and first-half periods. The year-to-date effective tax rate also reflects the positive effect of certain deferred income tax benefits recorded in the first quarter of 2011.
Free Cash Flow: Morningstar generated free cash flow of $43.4 million in the second quarter of 2011, reflecting cash provided by operating activities of $46.8 million and $3.4 million of capital expenditures.
Cash provided by operating activities increased $16.2 million, reflecting higher net income (adjusted for non-cash items), a positive cash flow effect generated from accounts receivable, and the timing of income tax payments. Capital expenditures rose $1.2 million in the quarter.
In the first six months of 2011, Morningstar generated free cash flow of $52.7 million, reflecting cash provided by operating activities of $61.1 million and capital expenditures of $8.4 million. Cash provided by operating activities in the first six months of 2011 increased $16.1 million, reflecting higher net income (adjusted for non-cash items), partially offset by a $16.1 million increase in bonuses paid in the first quarter of 2011. Capital expenditures rose $4.6 million, primarily reflecting payments for the companys new development center in China.
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, 2011, Morningstar had cash, cash equivalents, and investments of $430.2 million, compared with $320.4 million as of June 30, 2010. On July 29, 2011, the company expects to pay approximately $2.5 million for its regular quarterly dividend. It expects to make capital expenditures of approximately $8.0 million to $11.0 million in the second half of 2011, primarily for leasehold improvements and computer equipment.
Business Segment Performance
Investment Information Segment: The largest products and services in this segment based on revenue are Morningstar® Licensed Data; Morningstar® Advisor WorkstationSM (including Morningstar Office); Morningstar.com®, including Premium Memberships and Internet advertising sales; and Morningstar DirectSM.
· Revenue was $128.1 million in the second quarter of 2011, a 17.5% increase from $109.0 million in the second quarter of 2010.
· Acquisitions contributed revenue of $4.5 million.
· Morningstar Direct was the largest contributor to the increase in segment revenue; Licensed Data, Internet advertising sales on Morningstar.com, Morningstar Advisor Workstation (primarily Morningstar Office), and credit ratings were also positive contributors. Licenses for Morningstar Direct rose 32.4% to 5,442. Premium Membership subscriptions for Morningstar.com fell 5.1% because of continued weakness in new trials. Principia subscriptions fell 6.9% to 32,335, and Advisor Workstation (including Morningstar Office) licenses rose slightly to 156,258.
· Operating income was $37.1 million in the second quarter of 2011, compared with $30.5 million in the same period in 2010. Operating expense in this segment rose $12.5 million, or 16.0%, partly because of acquisitions. Higher salaries and bonus expense also contributed to the increase.
· Operating margin was 29.0% in the second quarter of 2011 versus 28.0% in the prior-year period. The increase mainly reflects the favorable effect of recent acquisitions. Lower healthcare benefits and commission expense as a percentage of revenue also contributed to the margin improvement, but to a lesser extent.
Investment Management Segment: The largest products in this segment based on revenue are Investment Consulting; Retirement Solutions, including Advice by Ibbotson® and Morningstar® Retirement ManagerSM; and Morningstar® Managed PortfoliosSM.
· Revenue was $32.9 million in the second quarter of 2011, a 21.5% increase from $27.1 million in the same period in 2010.
· Acquisitions contributed revenue of $0.6 million.
· Investment Consulting was the primary driver of the segment revenue growth. Retirement Solutions (formerly Retirement Advice) and Morningstar Managed Portfolios also made positive contributions, but to a lesser extent.
· Assets under advisement and management for Investment Consulting were $141.5 billion as of June 30, 2011, compared with $98.7 billion as of June 30, 2010. Assets under advisement and management rose about 43% year over year, mainly reflecting positive market performance during the past 12 months. Assets under advisement and management for Retirement Solutions rose to $38.4 billion as of June 30, 2011, versus $28.3 billion as of June 30, 2010. Assets under management for Morningstar Managed Portfolios increased to $3.0 billion as of June 30, 2011, compared with $2.2 billion as of June 30, 2010.
· Operating income was $18.5 million in the second quarter of 2011, an increase of 29.1% compared with the second quarter of 2010. Operating expense in the segment was $14.4 million, an increase of $1.7 million, or 13.0%, reflecting higher salaries and bonus expense. Acquisitions also contributed to the higher operating expense, but to a lesser extent.
· Operating margin was 56.2% in the second quarter of 2011 versus 52.9% in the prior-year period. The higher margin reflects lower commission, salary, and healthcare benefits expense as a percentage of revenue, partially offset by the impact of recent acquisitions.
Intangible Amortization and Corporate Depreciation Expense: Morningstar does not allocate expense for intangible amortization or corporate depreciation to its operating segments. Intangible amortization, which represents the majority of the expense in this category, was $6.6 million in the second quarter of 2011 and $13.1 million in the first half of 2011, an increase of $0.8 million and $1.8 million, respectively, compared with the same periods in 2010. Corporate depreciation expense was $1.9 million in the second quarter and $3.7 million in the first half of the year, essentially unchanged from the prior-year periods.
Corporate Unallocated: This category includes costs related to corporate functions, including general management, information technology used to support corporate systems, legal, finance, human resources, marketing, and corporate communications. Costs in this category were $8.5 million, a decrease of $1.1 million, or 11.2%. The company capitalized $0.4 million of operating expense in the quarter for software development. In the second quarter of 2010, the company expensed $0.5 million to increase a liability for vacant office space. This expense did not recur in the second quarter of 2011.
Investor Communication
Morningstar encourages all interested partiesincluding securities analysts, current shareholders, potential shareholders, and othersto submit questions in writing. Investors and others may send an e-mail to investors@morningstar.com, contact the company via fax at 312-696-6009, or write to Morningstar at the following address:
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 individuals, financial advisors, and institutions. Morningstar provides data on approximately 400,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on
more than 5 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 registered investment advisor subsidiaries and has more than $180 billion in assets under advisement and management as of June 30, 2011. The company has operations in 26 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, general industry conditions and competition, including ongoing economic weakness and uncertainty; the effect of market volatility on revenue from asset-based fees; damage to our reputation resulting from claims made about possible conflicts of interest; liability for any losses that result from an actual or claimed breach of our fiduciary duties; the increasing concentration of data and development work carried out at our offshore facilities in China and India; failing to differentiate our products and continuously create innovative, proprietary research tools; failing to successfully integrate acquisitions; challenges faced by our non-U.S. operations; and a prolonged outage of our database and network facilities. A more complete description of these risks and uncertainties can be found in our other filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2010. If any of these risks and uncertainties materialize, our actual future results 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.
Non-GAAP Financial Measures
To supplement Morningstars 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: free cash flow, consolidated revenue excluding acquisitions and foreign currency translations (organic revenue), and international revenue excluding acquisitions and foreign currency translations. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.
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 on free cash flow, please see the reconciliation from cash provided by operating activities to free cash flow included in the accompanying financial tables. Morningstar presents consolidated revenue excluding acquisitions and foreign currency translations (organic revenue) and international revenue excluding acquisitions and foreign currency translations because the company believes these non-GAAP measures help investors better compare period-to-period results. For more information, please see the reconciliation 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.
###
©2011 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 thousands, except per share amounts) |
|
2011 |
|
2010 |
|
change |
|
2011 |
|
2010 |
|
change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
|
$ |
161,011 |
|
$ |
136,091 |
|
18.3% |
|
$ |
312,778 |
|
$ |
264,381 |
|
18.3% |
|
Operating expense(1): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of goods sold |
|
45,186 |
|
39,738 |
|
13.7% |
|
85,855 |
|
74,054 |
|
15.9% |
| ||||
Development |
|
13,681 |
|
11,899 |
|
15.0% |
|
25,669 |
|
22,788 |
|
12.6% |
| ||||
Sales and marketing |
|
26,767 |
|
24,435 |
|
9.5% |
|
53,249 |
|
46,996 |
|
13.3% |
| ||||
General and administrative |
|
26,207 |
|
23,106 |
|
13.4% |
|
56,824 |
|
43,749 |
|
29.9% |
| ||||
Depreciation and amortization |
|
10,563 |
|
9,246 |
|
14.2% |
|
20,765 |
|
18,185 |
|
14.2% |
| ||||
Total operating expense |
|
122,404 |
|
108,424 |
|
12.9% |
|
242,362 |
|
205,772 |
|
17.8% |
| ||||
Operating income |
|
38,607 |
|
27,667 |
|
39.5% |
|
70,416 |
|
58,609 |
|
20.1% |
| ||||
Operating margin |
|
24.0% |
|
20.3% |
|
3.7pp |
|
22.5% |
|
22.2% |
|
0.3pp |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-operating income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income (expense), net |
|
(179 |
) |
593 |
|
NMF |
|
345 |
|
1,180 |
|
(70.8% |
) | ||||
Other income (expense), net |
|
188 |
|
(572 |
) |
NMF |
|
438 |
|
(1,338 |
) |
NMF |
| ||||
Non-operating income (expense), net |
|
9 |
|
21 |
|
(57.1% |
) |
783 |
|
(158 |
) |
NMF |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes and equity in net income of unconsolidated entities |
|
38,616 |
|
27,688 |
|
39.5% |
|
71,199 |
|
58,451 |
|
21.8% |
| ||||
Income tax expense |
|
12,724 |
|
10,225 |
|
24.4% |
|
23,242 |
|
21,220 |
|
9.5% |
| ||||
Equity in net income of unconsolidated entities |
|
595 |
|
454 |
|
31.1% |
|
969 |
|
843 |
|
14.9% |
| ||||
Consolidated net income |
|
26,487 |
|
17,917 |
|
47.8% |
|
48,926 |
|
38,074 |
|
28.5% |
| ||||
Net (income) loss attributable to noncontrolling interests |
|
(2 |
) |
85 |
|
NMF |
|
96 |
|
116 |
|
(17.2% |
) | ||||
Net income attributable to Morningstar, Inc. |
|
$ |
26,485 |
|
$ |
18,002 |
|
47.1% |
|
$ |
49,022 |
|
$ |
38,190 |
|
28.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income per share attributable to Morningstar, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.53 |
|
$ |
0.37 |
|
43.2% |
|
$ |
0.98 |
|
$ |
0.78 |
|
25.6% |
|
Diluted |
|
$ |
0.52 |
|
$ |
0.36 |
|
44.4% |
|
$ |
0.96 |
|
$ |
0.76 |
|
26.3% |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
50,165 |
|
49,234 |
|
|
|
49,983 |
|
49,032 |
|
|
| ||||
Diluted |
|
51,142 |
|
50,533 |
|
|
|
51,041 |
|
50,426 |
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| ||||||||||||
|
|
2011 |
|
2010 |
|
|
|
2011 |
|
2010 |
|
|
| ||||
(1) Includes stock-based compensation expense of: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of goods sold |
|
$ |
1,072 |
|
$ |
907 |
|
|
|
$ |
1,951 |
|
$ |
1,622 |
|
|
|
Development |
|
572 |
|
449 |
|
|
|
1,043 |
|
842 |
|
|
| ||||
Sales and marketing |
|
481 |
|
486 |
|
|
|
903 |
|
889 |
|
|
| ||||
General and administrative |
|
1,718 |
|
1,813 |
|
|
|
3,595 |
|
3,239 |
|
|
| ||||
Total stock-based compensation expense |
|
$ |
3,843 |
|
$ |
3,655 |
|
|
|
$ |
7,492 |
|
$ |
6,592 |
|
|
|
NMF Not meaningful, pp percentage points
Morningstar, Inc. and Subsidiaries
Operating Expense as a Percentage of Revenue
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| ||||||||
|
|
2011 |
|
2010 |
|
change |
|
2011 |
|
2010 |
|
change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
100.0% |
|
100.0% |
|
|
|
100.0% |
|
100.0% |
|
|
|
Operating expense(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
28.1% |
|
29.2% |
|
(1.1)pp |
|
27.4% |
|
28.0% |
|
(0.6)pp |
|
Development |
|
8.5% |
|
8.7% |
|
(0.2)pp |
|
8.2% |
|
8.6% |
|
(0.4)pp |
|
Sales and marketing |
|
16.6% |
|
18.0% |
|
(1.4)pp |
|
17.0% |
|
17.8% |
|
(0.8)pp |
|
General and administrative |
|
16.3% |
|
17.0% |
|
(0.7)pp |
|
18.2% |
|
16.5% |
|
1.7pp |
|
Depreciation and amortization |
|
6.6% |
|
6.8% |
|
(0.2)pp |
|
6.6% |
|
6.9% |
|
(0.3)pp |
|
Total operating expense(2) |
|
76.0% |
|
79.7% |
|
(3.7)pp |
|
77.5% |
|
77.8% |
|
(0.3)pp |
|
Operating margin |
|
24.0% |
|
20.3% |
|
3.7pp |
|
22.5% |
|
22.2% |
|
0.3pp |
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| ||||||||
|
|
2011 |
|
2010 |
|
change |
|
2011 |
|
2010 |
|
change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation expense of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
0.7% |
|
0.7% |
|
|
|
0.6% |
|
0.6% |
|
|
|
Development |
|
0.4% |
|
0.3% |
|
0.1pp |
|
0.3% |
|
0.3% |
|
|
|
Sales and marketing |
|
0.3% |
|
0.4% |
|
(0.1)pp |
|
0.3% |
|
0.3% |
|
|
|
General and administrative |
|
1.1% |
|
1.3% |
|
(0.2)pp |
|
1.1% |
|
1.2% |
|
(0.1)pp |
|
Total stock-based compensation expense (2) |
2.4% |
|
2.7% |
|
(0.3)pp |
|
2.4% |
|
2.5% |
|
(0.1)pp |
|
(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) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating activities |
|
|
|
|
|
|
|
|
| ||||
Consolidated net income |
|
$ |
26,487 |
|
$ |
17,917 |
|
$ |
48,926 |
|
$ |
38,074 |
|
Adjustments to reconcile consolidated net income to net cash flows from operating activities: |
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
|
10,563 |
|
9,246 |
|
20,765 |
|
18,185 |
| ||||
Deferred income tax (benefit) expense |
|
1,131 |
|
275 |
|
454 |
|
(1,012 |
) | ||||
Stock-based compensation expense |
|
3,843 |
|
3,655 |
|
7,492 |
|
6,592 |
| ||||
Equity in net income of unconsolidated entities |
|
(595 |
) |
(454 |
) |
(969 |
) |
(843 |
) | ||||
Excess tax benefits from stock-option exercises and vesting of restricted stock units |
|
(2,049 |
) |
(1,157 |
) |
(6,171 |
) |
(4,205 |
) | ||||
Other, net |
|
210 |
|
788 |
|
(17 |
) |
1,742 |
| ||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
|
|
|
| ||||
Accounts receivable |
|
3,974 |
|
(1,748 |
) |
617 |
|
(6,615 |
) | ||||
Other assets |
|
(845 |
) |
(31 |
) |
608 |
|
(511 |
) | ||||
Accounts payable and accrued liabilities |
|
(2,660 |
) |
1,685 |
|
(5,260 |
) |
2,859 |
| ||||
Accrued compensation |
|
12,348 |
|
11,362 |
|
(14,528 |
) |
(11,154 |
) | ||||
Deferred revenue |
|
(1,650 |
) |
(3,253 |
) |
8,197 |
|
7,177 |
| ||||
Income taxes - current |
|
(2,555 |
) |
(7,936 |
) |
2,742 |
|
(4,255 |
) | ||||
Deferred rent |
|
(258 |
) |
312 |
|
(657 |
) |
(80 |
) | ||||
Other liabilities |
|
(1,134 |
) |
(81 |
) |
(1,043 |
) |
(924 |
) | ||||
Cash provided by operating activities |
|
46,810 |
|
30,580 |
|
61,156 |
|
45,030 |
| ||||
Investing activities |
|
|
|
|
|
|
|
|
| ||||
Purchases of investments |
|
(131,295 |
) |
(34,564 |
) |
(198,647 |
) |
(85,528 |
) | ||||
Proceeds from maturities and sales of investments |
|
88,001 |
|
42,447 |
|
150,360 |
|
130,381 |
| ||||
Capital expenditures |
|
(3,381 |
) |
(2,189 |
) |
(8,418 |
) |
(3,839 |
) | ||||
Acquisitions, net of cash acquired |
|
569 |
|
(66,717 |
) |
569 |
|
(67,455 |
) | ||||
Other, net |
|
799 |
|
889 |
|
785 |
|
889 |
| ||||
Cash used for investing activities |
|
(45,307 |
) |
(60,134 |
) |
(55,351 |
) |
(25,552 |
) | ||||
Financing activities |
|
|
|
|
|
|
|
|
| ||||
Proceeds from stock-option exercises, net |
|
(269 |
) |
156 |
|
4,652 |
|
3,650 |
| ||||
Excess tax benefits from stock-option exercises and vesting of restricted stock units |
|
2,049 |
|
1,157 |
|
6,171 |
|
4,205 |
| ||||
Common shares repurchased |
|
(109 |
) |
|
|
(109 |
) |
|
| ||||
Dividends paid |
|
(2,517 |
) |
|
|
(5,011 |
) |
|
| ||||
Other, net |
|
|
|
(110 |
) |
(214 |
) |
205 |
| ||||
Cash provided by (used for) financing activities |
|
(846 |
) |
1,203 |
|
5,489 |
|
8,060 |
| ||||
Effect of exchange rate changes on cash and cash equivalents |
|
992 |
|
(2,625 |
) |
3,553 |
|
(3,657 |
) | ||||
Net increase (decrease) in cash and cash equivalents |
|
1,649 |
|
(30,976 |
) |
14,847 |
|
23,881 |
| ||||
Cash and cash equivalentsBeginning of period |
|
193,374 |
|
185,353 |
|
180,176 |
|
130,496 |
| ||||
Cash and cash equivalentsEnd of period |
|
$ |
195,023 |
|
$ |
154,377 |
|
$ |
195,023 |
|
$ |
154,377 |
|
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) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash provided by operating activities |
|
$ |
46,810 |
|
$ |
30,580 |
|
$ |
61,156 |
|
$ |
45,030 |
|
Less: Capital expenditures |
|
(3,381 |
) |
(2,189 |
) |
(8,418 |
) |
(3,839 |
) | ||||
Free cash flow |
|
$ |
43,429 |
|
$ |
28,391 |
|
$ |
52,738 |
|
$ |
41,191 |
|
Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
|
|
June 30 |
|
December 31 |
| ||
($000) |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
195,023 |
|
$ |
180,176 |
|
Investments |
|
235,216 |
|
185,240 |
| ||
Accounts receivable, net |
|
111,518 |
|
110,891 |
| ||
Deferred tax asset, net |
|
2,787 |
|
2,860 |
| ||
Income tax receivable, net |
|
14,381 |
|
10,459 |
| ||
Other |
|
16,497 |
|
17,654 |
| ||
Total current assets |
|
575,422 |
|
507,280 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
|
62,062 |
|
62,105 |
| ||
Investments in unconsolidated entities |
|
24,424 |
|
24,262 |
| ||
Goodwill |
|
326,543 |
|
317,661 |
| ||
Intangible assets, net |
|
156,940 |
|
169,023 |
| ||
Other assets |
|
7,675 |
|
5,971 |
| ||
Total assets |
|
$ |
1,153,066 |
|
$ |
1,086,302 |
|
|
|
|
|
|
| ||
Liabilities and equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable and accrued liabilities |
|
$ |
38,646 |
|
$ |
42,680 |
|
Accrued compensation |
|
50,089 |
|
62,404 |
| ||
Deferred revenue |
|
156,760 |
|
146,267 |
| ||
Other |
|
761 |
|
1,373 |
| ||
Total current liabilities |
|
246,256 |
|
252,724 |
| ||
|
|
|
|
|
| ||
Accrued compensation |
|
4,855 |
|
4,965 |
| ||
Deferred tax liability, net |
|
19,477 |
|
19,975 |
| ||
Other long-term liabilities |
|
26,256 |
|
27,213 |
| ||
Total liabilities |
|
296,844 |
|
304,877 |
| ||
Total equity |
|
856,222 |
|
781,425 |
| ||
Total liabilities and equity |
|
$ |
1,153,066 |
|
$ |
1,086,302 |
|
Morningstar, Inc. and Subsidiaries
Segment Information
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| ||||||||||||
($000) |
|
2011 |
|
2010 |
|
change |
|
2011 |
|
2010 |
|
change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment Information |
|
$ |
128,116 |
|
$ |
109,021 |
|
17.5% |
|
$ |
248,515 |
|
$ |
212,545 |
|
16.9% |
|
Investment Management |
|
32,895 |
|
27,070 |
|
21.5% |
|
64,263 |
|
51,836 |
|
24.0% |
| ||||
Consolidated revenue |
|
$ |
161,011 |
|
$ |
136,091 |
|
18.3% |
|
$ |
312,778 |
|
$ |
264,381 |
|
18.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
RevenueU.S. |
|
$ |
113,424 |
|
$ |
98,986 |
|
14.6% |
|
$ |
221,605 |
|
$ |
191,596 |
|
15.7% |
|
RevenueInternational |
|
$ |
47,587 |
|
$ |
37,105 |
|
28.2% |
|
$ |
91,173 |
|
$ |
72,785 |
|
25.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
RevenueU.S. (percentage of consolidated revenue) |
|
70.4% |
|
72.7% |
|
(2.3)pp |
|
70.9% |
|
72.5% |
|
(1.6)pp |
| ||||
RevenueInternational (percentage of consolidated revenue) |
|
29.6% |
|
27.3% |
|
2.3pp |
|
29.1% |
|
27.5% |
|
1.6pp |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income (loss)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment Information |
|
$ |
37,097 |
|
$ |
30,542 |
|
21.5% |
|
$ |
69,404 |
|
$ |
63,288 |
|
9.7% |
|
Investment Management |
|
18,491 |
|
14,321 |
|
29.1% |
|
35,537 |
|
27,614 |
|
28.7% |
| ||||
Intangible amortization and corporate depreciation expense |
|
(8,476 |
) |
(7,620 |
) |
11.2% |
|
(16,777 |
) |
(14,866 |
) |
12.9% |
| ||||
Corporate unallocated |
|
(8,505 |
) |
(9,576 |
) |
(11.2% |
) |
(17,748 |
) |
(17,427 |
) |
1.8% |
| ||||
Consolidated operating income |
|
$ |
38,607 |
|
$ |
27,667 |
|
39.5% |
|
$ |
70,416 |
|
$ |
58,609 |
|
20.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating margin(1) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment Information |
|
29.0% |
|
28.0% |
|
1.0pp |
|
27.9% |
|
29.8% |
|
(1.9)pp |
| ||||
Investment Management |
|
56.2% |
|
52.9% |
|
3.3pp |
|
55.3% |
|
53.3% |
|
2.0pp |
| ||||
Consolidated operating margin |
|
24.0% |
|
20.3% |
|
3.7pp |
|
22.5% |
|
22.2% |
|
0.3pp |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(1) Includes stock-based compensation expense allocated to each segment. |
|
|
|
|
|
|
|
Morningstar, Inc. and Subsidiaries
Supplemental Data
|
|
As of June 30 |
| ||||
|
|
2011 |
|
2010 |
|
% change |
|
Our employees |
|
|
|
|
|
|
|
Worldwide headcount (approximate) |
|
3,300 |
|
2,965 |
|
11.3% |
|
Number of worldwide equity and credit analysts |
|
161 |
|
151 |
(1) |
6.6% |
|
Number of worldwide fund analysts |
|
118 |
|
104 |
(2) |
13.5% |
|
|
|
|
|
|
|
|
|
Our business |
|
|
|
|
|
|
|
Investment Information |
|
|
|
|
|
|
|
Morningstar.com Premium subscriptions (U.S.) |
|
136,008 |
|
143,392 |
|
(5.1% |
) |
Registered users for Morningstar.com (U.S.) |
|
6,810,581 |
|
6,175,874 |
|
10.3% |
|
U.S. Advisor Workstation and Morningstar Office licenses |
|
156,258 |
|
154,226 |
|
1.3% |
|
Principia subscriptions |
|
32,335 |
|
34,715 |
|
(6.9% |
) |
Morningstar Direct licenses |
|
5,442 |
|
4,109 |
|
32.4% |
|
|
|
|
|
|
|
|
|
Investment Management |
|
|
|
|
|
|
|
Assets under advisement and management |
|
|
|
|
|
|
|
Investment Consulting |
|
$141.5 bil |
|
$98.7 bil |
(3) |
43.4% |
|
Retirement Solutions(4) |
|
$38.4 bil |
|
$28.3 bil |
|
35.7% |
|
Morningstar Managed Portfolios |
|
$3.0 bil |
|
$2.2 bil |
|
36.4% |
|
(1) Revised to include structured credit analysts.
(2) Revised.
(3) Revised; in addition, Ibbotson Australia is now included in the total.
(4) Revised to include Plan Sponsor Advice.
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| ||||||||
($000) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Effective tax rate |
|
|
|
|
|
|
|
|
| ||||
Income before income taxes and equity in net income of unconsolidated entities |
|
$ |
38,616 |
|
$ |
27,688 |
|
$ |
71,199 |
|
$ |
58,451 |
|
Equity in net income of unconsolidated entities |
|
595 |
|
454 |
|
969 |
|
843 |
| ||||
Net (income) loss attributable to noncontrolling interests |
|
(2 |
) |
85 |
|
96 |
|
116 |
| ||||
Total |
|
$ |
39,209 |
|
$ |
28,227 |
|
$ |
72,264 |
|
$ |
59,410 |
|
Income tax expense |
|
$ |
12,724 |
|
$ |
10,225 |
|
$ |
23,242 |
|
$ |
21,220 |
|
Effective tax rate |
|
32.5% |
|
36.2% |
|
32.2% |
|
35.7% |
|
Morningstar, Inc. and Subsidiaries
Reconciliations of Non-GAAP Measures with the Nearest Comparable GAAP Measures
Morningstar includes an acquired operation as part of revenue and expense from acquisitions for 12 months after we complete the acquisition. Operating expense related to acquisitions also includes amortization of intangible assets, professional fees, and expense related to vacant office space incurred as part of the acquisition process. Its important to note that its difficult to precisely quantify the amount of operating expense from acquisitions. We dont always maintain acquired operations as stand-alone businesses, and we often integrate administrative or other functions with existing operations.
Reconciliation from consolidated revenue to revenue excluding acquisitions and foreign currency translations (organic revenue):
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| ||||||||||||
($000) |
|
2011 |
|
2010 |
|
% change |
|
2011 |
|
2010 |
|
% change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consolidated revenue |
|
$ |
161,011 |
|
$ |
136,091 |
|
18.3% |
|
$ |
312,778 |
|
$ |
264,381 |
|
18.3% |
|
Less: acquisitions |
|
(5,097 |
) |
|
|
NMF |
|
(14,112 |
) |
|
|
NMF |
| ||||
Favorable impact of foreign currency translations |
|
(4,573 |
) |
|
|
NMF |
|
(6,253 |
) |
|
|
NMF |
| ||||
Revenue excluding acquisitions and foreign currency translations |
|
$ |
151,341 |
|
$ |
136,091 |
|
11.2% |
|
$ |
292,413 |
|
$ |
264,381 |
|
10.6% |
|
Reconciliation from international revenue to international revenue excluding acquisitions and foreign currency translations:
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| ||||||||||||
($000) |
|
2011 |
|
2010 |
|
% change |
|
2011 |
|
2010 |
|
% change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
International revenue |
|
$ |
47,587 |
|
$ |
37,105 |
|
28.2% |
|
$ |
91,173 |
|
$ |
72,785 |
|
25.3% |
|
Less: acquisitions |
|
(2,076 |
) |
|
|
NMF |
|
(5,561 |
) |
|
|
NMF |
| ||||
Favorable impact of foreign currency translations |
|
(4,573 |
) |
|
|
NMF |
|
(6,253 |
) |
|
|
NMF |
| ||||
International revenue excluding acquisitions and foreign currency translations |
|
$ |
40,938 |
|
$ |
37,105 |
|
10.3% |
|
$ |
79,359 |
|
$ |
72,785 |
|
9.0% |
|
The following table summarizes the change in operating expense:
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| ||||||||||||||
($000) |
|
2011 |
|
2010 |
|
$ change |
|
2011 |
|
2010 |
|
$ change |
| ||||||
Total operating expense |
|
$ |
122,404 |
|
$ |
108,424 |
|
$ |
13,980 |
|
$ |
242,362 |
|
$ |
205,772 |
|
$ |
36,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Acquisitions |
|
|
|
|
|
$ |
3,552 |
|
|
|
|
|
$ |
12,798 |
| ||||
Unfavorable impact of foreign currency translations |
|
|
|
|
|
4,328 |
|
|
|
|
|
5,774 |
| ||||||
All other changes in operating expense |
|
|
|
|
|
6,100 |
|
|
|
|
|
18,018 |
| ||||||
Total |
|
|
|
|
|
$ |
13,980 |
|
|
|
|
|
$ |
36,590 |
| ||||
The table below shows the period in which we included each acquired operation in revenue and expense from acquisitions:
Acquisition |
|
Date of acquisition |
|
2011 revenue and expense from acquisitions |
Footnoted business of Financial Fineprint Inc. |
|
February 1, 2010 |
|
January 1 through January 31, 2011 |
Aegis Equities Research |
|
April 1, 2010 |
|
January 1 through March 31, 2011 |
Old Broad Street Research Ltd. |
|
April 12, 2010 |
|
January 1 through April 11, 2011 |
Realpoint, LLC |
|
May 3, 2010 |
|
January 1 through May 2, 2011 |
Morningstar Danmark A/S |
|
July 1, 2010 |
|
January 1 through June 30, 2011 |
Seeds Group |
|
July 1, 2010 |
|
January 1 through June 30, 2011 |
Annuity intelligence business of Advanced Sales and Marketing Corporation |
|
November 1, 2010 |
|
January 1 through June 30, 2011 |