Morningstar, Inc. · NASDAQ:MORN
Morningstar — Shareholder Meeting (2016)
78 slides from Morningstar's shareholder meeting presentation, 2016
Slide 1: Morningstar 2016 Shareholders' Meeting
Morningstar 2016 Shareholders’ Meeting 20 30 40 50 60
Slide 2: Business of Annual Meeting
Business of Annual Meeting Management Presentations Break Questions and Answers
Slide 3: Submit a question for the Q&A session
To send in a question for the Q&A session, please visit: http://morningstar.socialqa.com
Slide 4: Forward-looking statements
Today’s presentations contain forward-looking statements. All statements made that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. Please refer to our most recent earnings release and our most recent Form 10-Q or 10-K for more inf
Slide 5: Morningstar Update
Morningstar Update Joe Mansueto Chairman and Chief Executive Officer
Slide 6: Mission & Strategy, 2015 Highlights, Investing in the Core
Mission & Strategy 2015 Highlights Investing in the Core
Slide 7: Mission & Strategy
Mission & Strategy
Slide 8: Mission
Mission Our mission is to create great products that help investors reach their financial goals.
Slide 9: Strategy
Strategy ... ..... . ... .... .... Develop Morningstar Direct Produce the most Build world-class as our flagship effective investment investment management decision support platform data, research, and ratings solutions based on our proprietary research Advisor Asset Workplace/ Individual Management
Slide 10: Strategy: Two Big Market Needs
Strategy: Two Big Market Needs Morningstar Capabilities Proprietary Research + Frameworks Trusted Brand Outsourced Decision Support + Investment Management
Slide 11: Strategy: Two Big Market Needs
Strategy: Two Big Market Needs Outsourced Decision Support + Investment Management $27 bil $4.1 tril AUM (approx.) Morningstar Data Workplace Solutions / Retirement Morningstar Advisor Workstation Morningstar Investment Management Morningstar Direct (includes Morningstar Managed Portfolios Morningst
Slide 12: Strategy: Two Big Market Needs
Strategy: Two Big Market Needs Outsourced Decision Support Investment Management
Slide 13: 2015 Highlights
2015 Highlights
Slide 14: Accomplishments: Revenue Growth in Five Key Investment Areas
Accomplishments: Revenue Growth in Five Key Investment Areas 1 2 Workplace Solutions/ Morningstar Direct Retirement (including Total Advisor Workflow) 3 4 5 Morningstar Managed Portfolios Morningstar Credit Ratings Morningstar Indexes
Slide 15: Accomplishments: Revenue Growth in Five Key Investment Areas
Accomplishments: Revenue Growth in Five Key Investment Areas * Combined revenue growth for Workplace Solutions/Retirement, Morningstar Direct, Morningstar Managed Portfolios, Morningstar Credit Ratings, and Morningstar Indexes in 2015
Slide 16: Accomplishments: Next-Generation Software Platforms
Accomplishments: Next-Generation Software Platforms Retirement Manager Menu Login Today Search for Stock Fund Quotes, Ratings, Picks, Topics Our Picks Your Portfolio Need a plan for your plan? We’ll help you focus. SNAPSHOT NORTH AMERICA Give us 2 minutes, and we’ll walk you through how much to save
Slide 17: Accomplishments: Advisor Workflow Capabilities
Accomplishments: Advisor Workflow Capabilities Custodial Platforms HelloWallet Portfolio accounting and Financial Performance Wellness Reporting ByAllAccounts Wealth View Total Rebalance Expert Rebalancing Data and Trading Aggregation Client Profiling, Redtail Monitoring, Planning Alerting and and P
Slide 18: Accomplishments: Advisor Workflow Capabilities
Accomplishments: Advisor Workflow Capabilities Custodial Platforms HelloWallet Portfolio accounting and Financial Performance Wellness Reporting ByAllAccounts Wealth View Total Rebalance Expert Rebalancing Data and Trading Aggregation Client Profiling, Redtail Monitoring, Planning Alerting and and P
Slide 19: Challenges: Market Volatility
Challenges: Market Volatility 30 CBOE Volatility Index (VIX) 25 20 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16
Slide 20: Challenges: Ongoing Shift to Passive Investment Management
Challenges: Ongoing Shift to Passive Investment Management Estimated Net Flows ($bil) Open-End Funds and ETFs 06 07 08 09 10 11 12 13 14 15 Active 339.6 232.8 –45.4 337.9 232.9 50.3 219.2 184.4 90.5 –194.2 Passive 109.4 190.1 209.8 195.0 192.6 180.6 270.0 319.9 474.6 420.7 Passive Share* 16.9% 18.2%
Slide 21: Challenges: Lower Issuance Volume in CMBS
Challenges: Lower Issuance Volume in Commercial Mortgage-Backed Securities ($bil) $230.5 $202.7 $80.3 $89.9 $95.1 $30.0 $44.4 $12.1 $2.8 $11.0 $18.2 06 07 08 09 10 11 12 13 14 15 Q1 16 Source: Morningstar Credit Ratings, LLC / CRE Finance Council
Slide 22: Challenges: Lower Issuance Volume in CMBS
Challenges: Lower Issuance Volume in Commercial Mortgage-Backed Securities ($bil) $26.1 $18.2 Q1 15 Q1 16 Source: Morningstar Credit Ratings, LLC / CRE Finance Council
Slide 23: Investing in the Core
Investing in the Core
Slide 24: Investing in the Core: New Sustainability Rating
Investing in the Core: New Sustainability Rating Environmental Social Governance
Slide 25: Investing in the Core: New Sustainability Rating
Investing in the Core: New Sustainability Rating 35% 22.5% 22.5% 10% 10% High Above Average Average Below Average Low
Slide 26: Global Sustainable Investment Assets
Investing in the Core: New Sustainability Rating Global Sustainable Investment Assets ($bil) $945 +60% $13,608 +55% $53 $6,572 +32% +76% $180 +34%
Slide 27: Investing in the Core: Data APIs
Investing in the Core: Data APIs “ Well-done platform APIs are the key to everything.” Eric Schmidt, Google Chairman
Slide 28: Responding to Regulatory Change
Investing in the Core: Responding to Regulatory Change Department of Labor Fiduciary Rule Markets in Financial Instruments Directive II
Slide 29: Data and Research Expansion: Equity Data Coverage
Investing in the Core: Data and Research Expansion Equity Data Coverage: 42,520 2,066 8,546 2,817 3,173 UK/Ireland 5,973 SE Asia China 7,815 Canada United States Europe 3,582 Japan 5,042 India/ Middle East 907 602 Latin America Africa 1,997 Australia/New Zealand Date as of 12/31/15
Slide 30: Data and Research Expansion: Managed Products Data Coverage
Investing in the Core: Data and Research Expansion Managed Products Data Coverage: 478,655 151,789 Europe 49,705 244,182 Asia North America 374 Middle East 17,944 3,723 10,938 Latin America Africa Australia/New Zealand Date as of 12/31/15
Slide 31: Data and Research Expansion: Worldwide Analysts
Investing in the Core: Data and Research Expansion Worldwide Analysts: 307 108 Equity Analysts 86 Credit Analysts 113 Manager Research Analysts
Slide 32: Five Key Investment Areas
Five Key Investment Areas Kunal Kapoor President
Slide 33: Five Key Investment Areas
Five Key Investment Areas 1 2 Workplace Solutions/ Morningstar Direct Retirement (including Total Advisor Workflow) 3 4 5 Morningstar Managed Portfolios Morningstar Credit Ratings Morningstar Indexes
Slide 34: #1: Workplace Solutions/Retirement
#1: Workplace Solutions/Retirement Assets under management/advisement ($bil) 89.7 76.8 65.6 47.2 37.4 11 12 13 14 15 Managed retirement accounts 19.9 25.1 31.7 36.8 40.3 Custom models 2.5 4.4 11.0 13.3 18.7 Plan sponsor advice 15.0 17.7 22.9 26.7 30.7
Slide 35: #1: Workplace Solutions/Retirement
#1: Workplace Solutions/Retirement
Slide 36: #1: Adoption rate for managed retirement accounts
#1: Workplace Solutions/Retirement Adoption rate for managed retirement accounts 7.7% 7.8% 7.0% 5.6% 5.7% 11 12 13 14 15
Slide 37: #1: Cumulative account creation
#1: Workplace Solutions/Retirement Cumulative account creation through 12/31/15
Slide 38: #1: Morningstar's Total Wealth Approach
#1: Workplace Solutions/Retirement Morningstar’s Total Wealth Approach Morningstar’s Asset- Allocation Expertise Morningstar Lifetime UBS Index UBS Fund Morningstar Lifetime Allocation Indexes Replication Construction Index Funds Morningstar Indexes
Slide 39: #2: Morningstar Direct
#2: Morningstar Direct MORNINGSTAR Dir Create Screen flotes lett Excel Add-In Indexes (5 | Utilities
Slide 40: #2: Morningstar Direct
#2: Morningstar Direct Fesured Highlighted Topics Spotight Videos
Slide 41: #2: Morningstar Direct licenses
#2: Morningstar Direct Morningstar Direct licenses 11,428 10,055 8,514 7,388 6,134 11 12 13 14 15 Non-U.S. 2,611 3,181 3,684 4,273 4,901 U.S. 3,523 4,207 4,830 5,782 6,527
Slide 42: #3: Morningstar Managed Portfolios
#3: Morningstar Managed Portfolios Managed Portfolios SM Log in Portfolios designed to put investors first. Morningstar® Managed PortfoliosSM offers the professional guidance and access to strategies that can help investors reach their financial goals. The broad line-up of mutual fund, stock, and ETF m
Slide 43: #3: Morningstar Managed Portfolios
#3: Morningstar Managed Portfolios Managed Portfolios SM Log in Investment choices for fee-based, independent advisors. A Unique Approach to Investing Through Morningstar® Managed Portfolios , investors have access to a global investment group guided by a SM unique set of investment principles focus
Slide 44: #3: Managed Portfolios assets
#3: Morningstar Managed Portfolios Morningstar Managed Portfolios assets ($bil) 27.8 25.9 22.3 16.8 11.6 11 12 13 14 15 United States* 8.8 13.5 19.3 22.9 24.4 United Kingdom — — — — 0.2 Australia 2.8 3.3 3.0 3.0 3.2 *includes TAMP and Strategist assets
Slide 45: #4: Morningstar Credit Ratings
#4: Morningstar Credit Ratings CMBS RMBS RMBS SFR SFR ABS ABS C+FI C+FI Commercial mortgage- + Residential mortgage-backed securities backed securities + Single family rental + Asset-backed securities + U.S. corporates and financial institutions
Slide 46: #4: 2015 U.S. Bond Market Issuance
#4: Morningstar Credit Ratings 2015 U.S. Bond Market Issuance (%) Mortgage-related 26.6% Current Focus Asset-backed securities 3.0% Corporate 23.2% Planned Expansion Other 47.2% Source: Securities Industry and Financial Markets Association
Slide 47: #5: Morningstar Indexes
#5: Morningstar Indexes Fixed-Income Real Asset Global Equity Indexes Lifetime Allocation Indexes Indexes Indexes Morningstar Market Dividend Indexes Analyst Advantage Factor-Based 529 College Barometer Indexes Indexes Savings Style Indexes Commodity Indexes Hedge Fund Global Multi-Asset Indexes Inf
Slide 48: #5: Morningstar Open Indexes Project
#5: Morningstar Indexes Join the MorirgstarQpen Indexes Project
Slide 49: #5: Morningstar Indexes
#5: Morningstar Indexes Rules-Based Bet Against (Passive) Strategic Market Portfolio Beta (Active) Market Cap Actively Weighted Managed
Slide 50: Strategy
Strategy .... . ........ .... .. Develop Morningstar Direct Build world-class as our flagship investment management decision support platform solutions based on Produce the most our proprietary research effective investment data, research, and ratings
Slide 51: Financial Highlights
Financial Highlights Stéphane Biehler Chief Financial Officer
Slide 52: Financial Results, Capital Allocation
Financial Results Capital Allocation
Slide 53: Financial Results
Financial Results
Slide 54: Industry Landscape
Industry Landscape Global spend on market data/analysis in 2015 Source: Burton-Taylor International Consulting LLC
Slide 55: 2015 Key Metrics
2015 Key Metrics ($mil) 1 1&2 Revenue Operating Income Free Cash Flow ＋3.8% ＋80.5% ＋145.7% 14 15 14 15 14 15 $760.1 $788.8 $105.6 $190.6 $73.9 $181.6 1. Operating income and free cash flow for 2014 include a $61 million litigation settlement expense and corresponding cash outflow. 2. Free cash flow
Slide 56: Quarterly Revenue
Quarterly Revenue ($mil) $189.8 $202.1 $195.3 $201.6 $192.1 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16
Slide 57: Contributors to Revenue Growth
Contributors to Revenue Growth 13.7% 8.9% 6.1% 3.8% 4.3% 11 12 13 14 15 Acquisitions/divestitures 2.8% –0.2% –0.1% 1.6% 0.5% Foreign currency translations 1.8% –0.7% –0.5% –0.3% –3.5% Organic growth 9.1% 5.2% 6.7% 7.6% 6.8%
Slide 58: Major Product Drivers — 2015
Major Product Drivers — 2015 Change in organic revenue ($mil) % change License-based Data 12.2 8.7 Direct 15.1 16.4 Research 4.5 12.2 Investment Profiles 2.0 10.0 Advisor Workstation 5.6 5.5 Asset-based fees Workplace/Retirement 7.4 12.9 Managed Portfolios 5.1 12.5 Investment Advisory Services 1.5 2
Slide 59: Major Product Drivers — Q1 2016
Major Product Drivers — Q1 2016 Change in organic revenue ($mil) % change License-based Data 3.4 10.1 Direct 3.2 13.0 Investment Profiles 0.9 18.6 Advisor Workstation 0.8 4.1 Asset-based fees Workplace/Retirement 0.8 5.4 Investment Management 0.1 0.5 Transaction-based Credit Ratings –3.7 –41.9 Morni
Slide 60: Quarterly Operating Income
Quarterly Operating Income ($mil) $49.7 $50.1 $44.5 $46.2 $42.3 24.6% 24.9% Margin 23.5% 23.7% 22.0% Q1 15 Q2 15 Q3 15 Q4 15 Q1 16
Slide 61: Balance Sheet
Balance Sheet March 31 December 31 ($mil) 2016 2015 Cash, cash equivalents, and investments $ 226.7 $ 248.6 Working capital $ 76.6 $ 105.5 Total assets $ 1,032.7 $ 1,029.0 Deferred revenue $ 161.0 $ 140.7 Short-term debt $ 75.0 $ 35.0 Long-term liabilities $ 78.4 $ 84.0 Total equity $ 630.5 $ 640.6
Slide 62: ROIC: Return on Invested Capital
ROIC: Return on Invested Capital* 19.4% 17.2% 13.2% 11.8% 11.2% 11 12 13 14 15 *Return on invested capital is considered a non-GAAP measure. We calculate this measure based on return divided by invested capital. Please refer to slide 69 for a reconciliation to net income.
Slide 63: Capital Allocation
Capital Allocation
Slide 64: Potential Uses of Cash
Potential Uses of Cash ＋ Balance sheet strength organic expansion acquisitions stock buyback dividend
Slide 65: Dividends and Share Repurchases
Dividends and Share Repurchases ($mil) $277.3 $170.9 $107.2 $130.7 $50.7 $48.3 11 12 13 14 15 Q1 16 Dividends paid $10.0 $25.5 $17.4 $30.5 $33.7 $9.5 Share repurchases $40.7 $251.8 $153.5 $76.7 $97.0 $38.8
Slide 66: Shares Outstanding
Shares Outstanding (mil) 0.4% –7.1% –3.4% –1.4% –2.1% –1.1% 11 12 13 14 15 Q1 16 50.1 46.5 45.0 44.3 43.4 42.9
Slide 67: Morningstar Performance
Morningstar Performance Annual per-share growth rates through December 31, 2015 1 Year 3 Years 5 Years 10 Years Revenue 5.2% 10.0% 10.1% 13.3% Operating Income 16.0%* 12.0% 12.4% 15.2% Free Cash Flow 36.4%* 20.2% 13.8% 16.1% Total Return 25.6% 9.5% 9.4% 9.2% *Adjusted to exclude $61.0 million litiga
Slide 68: Reconciliation of Non-GAAP Measure: Free Cash Flow
Reconciliation of Non-GAAP Measure with the Nearest Comparable GAAP Measure ($mil) 2015 2014 Cash provided by operating activities $ 238.9 $ 132.2 Less: capital expenditures $ (57.3) $ (58.3) Free cash flow* $ 181.6 $ 73.9 *Free Cash Flow is considered a non-GAAP financial measure under SEC regulati
Slide 69: Reconciliation of Non-GAAP Measure: ROIC
Reconciliation of Non-GAAP Measure with the Nearest Comparable GAAP Measure $mil) 2011 2012 2013 2014 2015 Net income $98.4 $108.1 $123.5 $78.3! $132.6 Net interest expense (after tax) _ ($1.6) ($3.4) ($1.9) ($1.4) ($0.9) Return $96.7 $104.7 $121.6 $76.9 $131.7 Shareholders’ equity $817.8 $790.4 $70
Slide 70: Summary
Summary
Slide 71: Summary
Summary Focused, mission-led company
Slide 72: Summary
Summary Focused, mission-led company Strong brand and reputation
Slide 73: Summary
Summary Focused, mission-led company Strong brand and reputation Extensive, proprietary investment databases and analytics
Slide 74: Summary
Summary Focused, mission-led company Strong brand and reputation Extensive, proprietary investment databases and analytics Unique reach with individuals, advisors, and institutions globally
Slide 75: Summary
Summary Focused, mission-led company Strong brand and reputation Extensive, proprietary investment databases and analytics Unique reach with individuals, advisors, and institutions globally Strategy focused on large growth opportunities
Slide 76: Summary
Summary Focused, mission-led company Strong brand and reputation Extensive, proprietary investment databases and analytics Unique reach with individuals, advisors, and institutions globally Strategy focused on large growth opportunities Solid balance sheet and profitability
Slide 77: Submit a question for the Q&A session
To send in a question for the Q&A session, please visit: http://morningstar.socialqa.com
Slide 78: Morningstar
MORNINGSTAR