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Margaret Kirch Cohenmargaret.cohen@morningstar.com
Morningstar, Inc. Reports Second-Quarter 2015 Financial Results

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CHICAGO, July 22, 2015—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its second-quarter 2015 financial results.

The company reported net income of $32.2 million, or 72 cents per diluted share, compared with net loss of $9.8 million, or 22 cents per diluted share, in the second quarter of 2014. The year-ago loss reflects 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.

Key Operating Metrics
• Revenue for the quarter was $202.1 million, an increase of 6.7% compared with the same period in 2014. Organic revenue, which excludes the effect of acquisitions, divestitures, and foreign currency translations, rose 10.3%, or $19.4 million.
• Operating income was $49.7 million, or 24.6% of revenue. Excluding the $61.0 million litigation settlement incurred in the prior-year period, adjusted operating income increased 37.3% and adjusted operating margin improved 5.5 percentage points compared with the second quarter of 2014.
• Free cash flow for the quarter was $62.7 million, reflecting cash provided by operating activities of $75.9 million and capital expenditures of $13.2 million, an increase of $17.9 million in free cash flow compared with the same period in 2014.

Joe Mansueto, chairman and chief executive officer of Morningstar, said, “Organic revenue rose more than 10% during the quarter, with most of our major products performing well. Revenue for Morningstar Credit Ratings was up more than 60%, reflecting both industry-wide issuance volume and market share gains. Morningstar Direct, Morningstar Data, and Morningstar Retirement Solutions were also solid contributors to organic revenue growth.”

Mansueto added, “Currency movements were a major factor in our results again this quarter, as continued strength in the U.S. dollar reduced revenue from our international operations when translated into U.S. dollars. While headcount was down slightly for the quarter, we continue to see opportunities to invest in our key growth initiatives.”

Balance Sheet and Capital Allocation
• As of June 30, 2015, cash, cash equivalents, and investments totaled $258.6 million, compared with $224.6 million as of Dec. 31, 2014. The company had $35.0 million of short-term debt as of June 30, 2015.
• The company expects to pay approximately $8.4 million for its regular quarterly dividend on July 31, 2015.
• In the second quarter of 2015, the company repurchased approximately 334,000 shares for $25.3 million. As of June 30, 2015, the company had $145.8 million remaining under the current authorization for future repurchases and 44.3 million shares of common stock outstanding.

Comparability of Year-Over-Year Results
Certain items affected the comparability of second-quarter 2015 results versus the same period in 2014:
• As previously mentioned, the company’s second-quarter 2014 results included a non-recurring expense of $61.0 million in connection with a litigation settlement.
• Foreign currency translations reduced operating income by $1.1 million during the quarter, including a negative effect on revenue of $7.6 million and a favorable effect on operating expense of $6.5 million.
• Effective Jan. 1, 2014, the company made changes to its sales commission plan that require a different accounting treatment, resulting in an additional $2.8 million and $0.9 million of amortized commission expense from the previous plan in the second quarters of 2014 and 2015, respectively.
• Second-quarter results also included $0.9 million in revenue and approximately $2.2 million of incremental operating expense from the June 2014 HelloWallet acquisition.

Use of Non-GAAP Financial Measures
The tables at the end of this press release include a reconciliation of organic revenue, adjusted operating income, adjusted operating margin, and free cash flow to comparable GAAP measures and an explanation of why the company uses these non-GAAP financial measures.

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 more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 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, with more than $180 billion in assets under advisement and management as of June 30, 2015. 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 maintain and protect our brand, independence, and reputation; 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; liability related to our storage of personal information related to individuals as well as portfolio and account-level information; compliance failures, regulatory action, or changes in laws applicable to our investment advisory or credit rating operations; downturns in the financial sector, global financial markets, and global economy; the effect of market volatility on revenue from asset-based fees; a prolonged outage of our database, technology-based products and services, or network facilities; challenges faced by our non-U.S. operations, including the concentration of data and development work at our offshore facilities in China and India; and trends in the mutual fund industry, including the increasing popularity of passively managed investment vehicles. 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, 2014. 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.

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.

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 the effect of 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 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 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.

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©2015 Morningstar, Inc. All Rights Reserved.

MORN-E

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