Morningstar, Inc. · NASDAQ:MORN
Morningstar — Q3 2023 Earnings Presentation
47 slides from Morningstar's earnings presentation, Nov 13, 2023
Slide 1: Third Quarter 2023 Supplemental Presentation Update
Third Quarter 2023 Supplemental Presentation Update November 9, 2023
Slide 2: Forward-looking statements and non-GAAP measures
This presentation dated November 9, 2023 includes an update (the “Update”) to the Morningstar Third Quarter 2023 Supplemental Presentation dated October 25, 2023 (the “Original Supplemental Materials”) to provide detail on the reporting segments reflected in Morningstar’s Quarterly Report on Form 10
Slide 3: Morningstar Segments
Morningstar Segments* The Company also reports a Corporate and Other category that reflects unallocated corporate expenses, such as finance, human resources, legal, and other management-related costs that are not considered when segment performance is evaluated. 3 3 Data and Analytics Provides inves
Slide 4: Data and Analytics Q3 Revenue
Data and Analytics Q3 22 Q3 23 Data and Analytics Q3 23 Organic Revenue Drivers PitchBook (+19.8%), Morningstar Data (+10.2%), Morningstar Direct (+9.8%) and Morningstar Sustainalytics (+13.7%) were the primary contributors. Strength in PitchBook’s core investor and advisor clients offset some conti
Slide 5: Data and Analytics Adjusted Operating Income
Data and Analytics Data and Analytics Q3 23 Adjusted Operating Income Drivers Revenue growth outpaced expense growth, driving increases in adjusted operating income and adjusted operating margin. Expense growth was primarily driven by higher compensation and technology costs, partially offset by a d
Slide 6: Asset and Index Solutions Q3 Revenue
Asset and Index Solutions Q3 22 Q3 23 Asset and Index Solutions Q3 23 Organic Revenue Drivers Morningstar Indexes (+27.3%), Morningstar Retirement (+10.8%) and Morningstar Wealth, including Investment Management (+6.9%), all contributed, supported by higher AUM due to market gains and net inflows ac
Slide 7: Asset and Index Solutions Adjusted Operating Income
Asset and Index Solutions Q3 22 Q3 23 Asset and Index Solutions Q3 23 Adjusted Operating Income Drivers Revenue growth outpaced expense growth, driving increases in adjusted operating income and adjusted operating margins. Expense growth was primarily driven by higher compensation costs which includ
Slide 8: Credit Ratings and Solutions Q3 Revenue
Credit Ratings and Solutions Q3 22 Q3 23 Credit Ratings and Solutions Q3 23 Organic Revenue Drivers DBRS Morningstar revenue increased 1.4% on an organic basis, driven by higher asset-backed securities ratings revenue and modest gains in corporate ratings revenues. These increases were largely offse
Slide 9: Credit Ratings and Solutions Adjusted Operating Income
Credit Ratings and Solutions Q3 22 Q3 23 Credit Ratings and Solutions Q3 23 Adjusted Operating Income Drivers Expense growth outpaced revenue growth, reflecting continued softness in credit ratings activity. Expenses included $6 million related to the DBRS SEC settlements and $1.1 million in severan
Slide 10: Appendix
Appendix
Slide 11: Reconciliation from Reported to Organic Revenue Change by Segment
Reconciliation from Reported to Organic Revenue Change by Segment Organic revenue is a non-GAAP measure. 11 11
Slide 12: Reconciliation from Reported to Organic Revenue Change by Segment
Reconciliation from Reported to Organic Revenue Change by Segment Organic revenue is a non-GAAP measure. 12 12
Slide 13: Reconciliation from Consolidated Operating Income to Adjusted Operating Income
Reconciliation from Consolidated Operating Income to Consolidated Adjusted Operating Income ($mil) Consolidated adjusted operating income is a non-GAAP measure. Segment adjusted operating income reflects the impact of direct segment expenses as well as certain allocated centralized costs such as inf
Slide 14: Third Quarter 2023 Supplemental Presentation
Third Quarter 2023 Supplemental Presentation October 25, 2023
Slide 15: Forward-looking statements and non-GAAP measures
This presentation contains forward-looking statements within the meaning of 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 tha
Slide 16: Q3 2023 Financial Performance
Q3 2023 Financial Performance ($mil) $22.0 $70.0 22 23 $92.0 ＋10.1% ＋20.1% 22 23 $468.2 $515.5 22 23 $76.6 $101.4 22 23 $68.4 Revenue Operating Income Adjusted Free Cash Flow** Operating Income* * 16 16 Adjusted operating income is a non-GAAP measure and excludes intangible amortization expense, oth
Slide 17: Q3 2023 Revenue Walk
Q3 2023 Revenue Walk Organic revenue, a non-GAAP measure, excludes revenue from acquisitions for a period of 12 months upon completion of the acquisition, accounting changes, and the effect of foreign currency translations. See reconciliation tables in the appendix to this presentation. **Starting w
Slide 18: Quarterly Revenue Trend
Quarterly Revenue Trend ($mil) Bars represent reported revenue. Percentages represent YOY organic revenue growth (decline). Organic revenue is a non-GAAP measure. *Starting with the quarter ended March 31, 2023, the Company updated its revenue-type classifications to account for product areas with m
Slide 19: YTD 2023 Organic Revenue Walk
YTD 2023 Organic Revenue Walk* ($ mil) 19 19 YTD Q3 2022 Revenue M&A and foreign currency adjustments PitchBook Morningstar Data Morningstar Direct Morningstar Sustainalytics Morningstar Indexes Morningstar Advisor Workstation Investment Management DBRS Morningstar Morningstar Retirement** Other pro
Slide 20: Q3 2023 Revenue Drivers: License-Based
Q3 2023 Revenue Drivers: License-Based Revenue Trend* ($mil) +12.2% Reported + 10.6% Organic 22 23 License-Based Q3 23 Organic Revenue Drivers: PitchBook (+19.8%), Morningstar Data (+10.2%), Morningstar Direct (+9.8%), and Morningstar Sustainalytics’ license-based products (+17.4% ) were the primary
Slide 21: Q3 2023 Revenue Drivers: Asset-Based
Q3 2023 Revenue Drivers: Asset-Based Revenue Trend* ($mil) Asset-Based Q3 23 Organic Revenue Drivers: Morningstar Retirement** (+10.8%), Morningstar Indexes’ asset-based products (+17.6%), and Investment Management (+6.9%) all contributed to organic revenue growth supported by higher AUM due to mark
Slide 22: Q3 2023 Revenue Drivers: Transaction-Based
Q3 2023 Revenue Drivers: Transaction-Based Revenue Trend* ($mil) Transaction-Based Q3 23 Organic Revenue Drivers: DBRS Morningstar revenue increased 1.4% on an organic basis while its transaction-based revenue was nearly flat, as increases in asset-backed securities and corporate ratings revenue wer
Slide 23: Quarterly Product Trends: PitchBook and Morningstar Data
Quarterly Product Trends PitchBook* ($mil) 23 23 Morningstar Data ($mil) Organic revenue is a non-GAAP measure. *PitchBook licenses totaled 104,792 as of the end of the third quarter of 2023, compared to 94,254 in the prior-year quarter. License counts reflect active users, including Morningstar act
Slide 24: Quarterly Product Trends: Morningstar Direct and Sustainalytics
Quarterly Product Trends Morningstar Direct* ($mil) 24 24 Organic revenue is a non-GAAP measure. *Morningstar Direct licenses totaled 18,511 as of the end of the third quarter of 2023, compared to 18,126 in the prior-year quarter. **Revenue for Morningstar Sustainalytics’ license-based products incr
Slide 25: Quarterly Product Trends: Morningstar Advisor Workstation
Quarterly Product Trends Morningstar Advisor Workstation ($mil) 25 25 Organic revenue is a non-GAAP measure.
Slide 26: DBRS Morningstar Revenue by Asset Class
Quarterly Product Trends: DBRS Morningstar Revenue by Asset Class ($mil) DBRS Morningstar Q3 2023 Organic Revenue Drivers: Category mix in Q3 2023 was 58% Structured Finance* v. 42% Fundamental Ratings.** Recurring revenue, which is derived primarily from surveillance, research, and other transactio
Slide 27: DBRS Morningstar Revenue Trend by Geography
Quarterly Product Trends: DBRS Morningstar Revenue Trend by Geography ($mil) DBRS Morningstar Q3 2023 Organic Revenue Drivers: Organic revenue declined 2.2% in the U.S. primarily due to a decline in residential mortgage-backed securities ratings revenue, which was partially offset by increases in as
Slide 28: Quarterly Product Trends: Investment Management
Quarterly Product Trends: Investment Management ($bil) Investment Management Q3 2023 AUM/A: Investment Management’s assets under management and advisement grew 7.4%, due to market gains and positive flows to its direct-to-advisor sold Managed Portfolios product over the prior year. Flows were driven
Slide 29: Quarterly Product Trends: Morningstar Retirement
Morningstar Retirement Q3 2023 AUM/A: Morningstar Retirement (previously branded Workplace Solutions) assets under management and advisement increased 10.8% versus the prior-year period, reflecting market gains and net positive flows. Quarterly Product Trends: Morningstar Retirement ($bil) Organic r
Slide 30: Q3 2023 Operating Margins
Q3 2023 Operating Margins Operating Margin Drivers Key positive and negative drivers included: Severance costs declined by $20.4 million, compared to the prior-year period when severance related to the transition and shift of the Company’s China operations totaled $26.3 million. This was partially o
Slide 31: Adjusted Operating Income Walk Q3 2022 to Q3 2023
Adjusted Operating Income (1) Walk Q3 2022 to Q3 2023 ($ mil) (1) Adjusted operating income, a non-GAAP measure, excludes intangible amortization expenses, all M&A related expenses (including M&A earn-outs), and items related to the significant reduction and shift of the Company's operations in Chin
Slide 32: YTD Adjusted Operating Income Walk
YTD Adjusted Operating Income (1) Walk Q3 2022 to Q3 2023 ($ mil) (1) Adjusted operating income, a non-GAAP measure, excludes intangible amortization expenses, all M&A related expenses (including M&A earn-outs), and items related to the significant reduction and shift of the Company's operations in
Slide 33: Quarterly Operating Margin Trends
Quarterly Operating Margin Trends Adjusted operating margin is a non-GAAP measure. Severance costs related to certain reorganizations, and excluding expenses related to the shift of the Company's China activities, negatively impacted operating margin and adjusted operating margin by 1.0 percentage p
Slide 34: Revenue vs. Adjusted Operating Expense Growth
Revenue vs. Adjusted Operating Expense Growth 34 34 Adjusted operating expense is a non-GAAP measure. In the third quarter 2023, the $5.0 million in severance costs for targeted reorganizations not related to the shift of the Company’s China operations and $6.0 million in expense related to the DBRS
Slide 35: Headcount Trends
Headcount Trends 35 35 Headcount represents permanent, full-time employees.
Slide 36: Q3 2023 Cash Flow and Capital Allocation
Q3 2023 Cash Flow and Capital Allocation ($mil) 2 $130.7 $101.4 Operating Cash Flow Free Cash Flow* Capital Allocation 36 36 * ($mil) Capital Expenditures 29.3 Debt Reduction 98.1 Dividends Paid 16.0 Investments in Unconsolidated Entities Free cash flow is a non-GAAP measure. Excluding $16.1 million
Slide 37: Appendix
Appendix
Slide 38: Q3 2023 Operating and Free Cash Flow Excluding Certain Items
Q3 2023 Operating and Free Cash Flow Excluding Certain Items Free cash flow is a non-GAAP measure. *The termination of the Company’s license agreement with Morningstar Japan K.K. (renamed SBI Global Asset Management). Q3 2023 Q3 2022 % Change Cash provided by operating activities $130.7 $102.1 28.0%
Slide 39: YTD 2023 Operating and Free Cash Flow Excluding Certain Items
YTD 2023 Operating and Free Cash Flow Excluding Certain Items Free cash flow is a non-GAAP measure and is defined as cash provided by or used for operating activities less capital expenditures. (1) The termination of the Company’s license agreement with Morningstar Japan K.K. (renamed SBI Global Ass
Slide 40: Reconciliation from Reported to Organic Revenue Change by Revenue Type
Reconciliation from Reported to Organic Revenue Change by Revenue Type 40 40 Organic revenue is a non-GAAP measure. Starting with the quarter ended March 31, 2023, the Company updated its revenue-type classifications to account for product areas with more than one revenue type, impacting Morningstar
Slide 41: Reconciliation from Reported to Organic Revenue Change by Revenue Type
Reconciliation from Reported to Organic Revenue Change by Revenue Type 41 41 Organic revenue is a non-GAAP measure. Starting with the quarter ended March 31, 2023, the Company updated its revenue-type classifications to account for product areas with more than one revenue type, impacting Morningstar
Slide 42: Reconciliation from Reported to Organic Revenue Change by Product Area
Reconciliation from Reported to Organic Revenue Change by Product Area 42 42 Organic revenue is a non-GAAP measure.
Slide 43: Reconciliation from Reported to Organic Revenue Change by Product Area
Reconciliation from Reported to Organic Revenue Change by Product Area 43 43 Organic revenue is a non-GAAP measure.
Slide 44: Reconciliation from Reported to Organic Revenue Change by Product Area
Reconciliation from Reported to Organic Revenue Change by Product Area 44 44 Organic revenue is a non-GAAP measure.
Slide 45: Reconciliation from Operating Margin to Adjusted Operating Margin
Reconciliation from Operating Margin to Adjusted Operating Margin 45 45 Adjusted operating margin is a non-GAAP measure.
Slide 46: Reconciliation from Total Operating Expenses to Adjusted Operating Expenses
Reconciliation from Total Operating Expenses to Adjusted Operating Expenses 46 45 Adjusted operating expense is a non-GAAP measure.
Slide 47: Morningstar
MORNINGSTAR