Morningstar, Inc. Reports Fourth-Quarter, Full-Year 2013 Financial Results

CHICAGO, Feb. 12, 2014 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its fourth-quarter and full-year 2013 financial results. The company reported consolidated revenue of $180.5 million in the fourth quarter of 2013, a 5.8% increase from $170.6 million in the fourth quarter of 2012. Consolidated operating income was $41.9 million in the fourth quarter of 2013, an increase of 6.7% compared with $39.3 million in the same period a year ago. Net income from continuing operations was $31.3 million, or 68 cents per diluted share, in the fourth quarter of 2013, compared with $27.8 million, or 58 cents per diluted share, in the fourth quarter of 2012.

Excluding acquisitions, divestitures, and foreign currency translations, revenue rose 5.5% in the fourth quarter of 2013. Revenue excluding acquisitions, divestitures, and foreign currency translations (organic revenue) is a non-GAAP measure; the accompanying financial tables contain a reconciliation to consolidated revenue.

For the year ended Dec. 31, 2013, consolidated revenue was $698.3 million, an increase of 6.1% compared with $658.3 million in 2012. Consolidated operating income was $170.7 million in 2013, an increase of 13.3% compared with $150.7 million in 2012. Net income from continuing operations was $123.5 million, or $2.66 per diluted share, in 2013, compared with $102.9 million, or $2.10 per diluted share, in 2012.

Joe Mansueto, chairman and chief executive officer of Morningstar, said, "Despite a few headwinds, we had decent growth for the year, driven by strong results for Morningstar Direct, Morningstar Data, Morningstar Managed Portfolios, and Retirement Solutions. We had higher operating expense in the fourth quarter because of a step up in hiring as well as additional legal and professional fees. Overall, though, we're pleased with organic revenue growth for the year and our prospects as we continue to focus on widening Morningstar's economic moat."  

Mansueto outlined some of the company's 2013 key accomplishments and challenges:

Accomplishments:

  • Morningstar Managed Portfolios and Retirement Solutions showed year-over-year asset growth of approximately 55% and 40%, respectively. Assets under management for Morningstar Managed Portfolios were approximately $7.3 billion as of Dec. 31, 2013, up from $4.7 billion as of Dec. 31, 2012. Assets under management and advisement for Retirement Solutions were approximately $65.6 billion as of Dec. 31, 2013 versus $47.2 billion as of Dec. 31, 2012.
  • Although growth was slightly lower versus previous years, licenses for Morningstar Direct rose 15.2% to 8,514 globally.
  • We launched Morningstar® for iPad®, a comprehensive mobile offering that helps investors monitor the markets, track their portfolios, and research investments using Morningstar data and analysis.
  • We're seeing signs of increased engagement among individual investors. After five years of declines, we saw a slight increase in U.S. Premium Membership subscriptions.
  • Our research innovations continue to gain traction. We topped all firms in The Wall Street Journal's 21st annual "Best on the Street" analysts survey with 13 winners—eight of whom ranked number one in their respective industries. We also rolled out quantitative ratings and reports for approximately 28,000 equities globally, and we introduced the Morningstar® Analyst Rating™ for target-date funds.
  • We increased our quarterly dividend by 36% from 12.5 cents to 17 cents per share. We returned $17.4 million to shareholders through dividends and $153.5 million through stock buybacks, while maintaining our strong balance sheet.

Challenges:

  • We're still developing the next-generation software for our investment research platforms, and the initiative has taken longer than expected.
  • We moved to a more centralized organizational structure and made other changes to better serve our core customer groups. Adjusting to our new structure took time and focus throughout the company during the year.
  • Companies that offer variable annuities have continued to face difficult market conditions, which has prompted some of our clients to begin managing their fund-of-funds portfolios in-house instead of using outside subadvisors. Because of this trend, our Investment Advisory revenue was about $7.2 million lower in 2013 versus 2012, and assets under advisement for these services were down $10.8 billion over the same period.
  • Despite margin improvement for the year, operating expense rose during the fourth quarter.
  • Even though equity markets were significantly stronger in 2013, many of our clients remained cautious about spending.

Financial Highlights

  • Investment information revenue was $143.3 million in the fourth quarter of 2013, an increase of 4.1% from $137.7 million in the fourth quarter of 2012. Morningstar DirectSM and Morningstar® Data were the largest contributors to revenue growth. Morningstar® Advisor WorkstationSM (including Morningstar OfficeSM) also contributed to the revenue increase, which was partially offset by lower revenue for Morningstar® Principia®.
  • Investment management revenue was $37.2 million in the fourth quarter of 2013, an increase of 12.9% from $32.9 million in the fourth quarter of 2012. The main contributors to revenue growth were Morningstar® Managed PortfoliosSM and Retirement Solutions, reflecting strong market performance and asset inflows.
  • Operating margin was 23.2% in the fourth quarter of 2013, up from 23.0% in the same period in 2012. Salary expense rose $3.7 million in the fourth quarter compared with the prior-year period. A $3.1 million increase in professional fees (including legal expense) also contributed to the growth in operating expense for the quarter. Morningstar's fourth-quarter 2012 results included $3.2 million of additional stock-based compensation expense for accelerated vesting of restricted stock issued to a former executive. For the full year, operating margin was 24.4%, compared with 22.9% in 2012.
  • In the fourth quarter of 2013, the company increased its share repurchase authorization by $200 million. Morningstar ended the year with 45.0 million shares outstanding and $250.2 million remaining for share repurchases under its buyback program.
  • The company generated positive free cash flow of $48.8 million in the fourth quarter of 2013 and $153.1 million for the full year. 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 Dec. 31, 2013, Morningstar had cash, cash equivalents, and investments of $298.6 million. The company expects to make annual bonus payments of approximately $40 million in the first quarter of 2014, compared with $36 million in the first quarter of 2013.

Annual Meeting
Investors are invited to attend Morningstar's annual meeting at 9 a.m. Central Time on Tuesday, May 13, 2014, at its corporate headquarters at 22 W. Washington Street in Chicago. If you are interested in attending, please send an email to investors@morningstar.com.  

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 446,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 10 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 had approximately $159 billion in assets under advisement and management as of Dec. 31, 2013. 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, general industry conditions and competition, including current global financial uncertainty; the impact 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; financial services industry consolidation; liability related to the storage of personal information about our users; a prolonged outage of our database and network facilities; challenges faced by our non-U.S. operations; the availability of free or low-cost investment information; and liability and/or damage to our reputation as a result of some of our currently pending litigation. 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, 2012. 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: 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.

©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 Income


















Three months ended December 31




Year ended December 31



(in thousands, except per share amounts)


2013


2012


change


2013


2012


change





























Revenue


$       180,500


$       170,609


5.8%


$            698,266


$                658,288


6.1%

Operating expense1:














Cost of revenue


72,938


60,640


20.3%


271,437


246,783


10.0%


Sales and marketing


24,825


27,453


(9.6%)


103,614


108,884


(4.8%)


General and administrative


29,005


31,767


(8.7%)


106,868


108,857


(1.8%)


Depreciation and amortization


11,835


11,480


3.1%


45,693


43,096


6.0%


   Total operating expense


138,603


131,340


5.5%


527,612


507,620


3.9%

Operating income 


41,897


39,269


6.7%


170,654


150,668


13.3%

Operating margin


23.2%


23.0%


0.2pp


24.4%


22.9%


1.5pp















Non-operating income (expense):














Interest income, net


677


1,305


(48.1%)


2,712


5,153


(47.4%)


Other income (expense), net


1,852


(1,882)


NMF


4,644


(2,196)


NMF


     Non-operating income (expense), net


2,529


(577)


NMF


7,356


2,957


148.8%















Income before income taxes and equity in net income of unconsolidated entities














44,426


38,692


14.8%


178,010


153,625


15.9%

Equity in net income of unconsolidated entities


256


486


(47.3%)


1,428


2,027


(29.6%)

Income tax expense


13,384


11,437


17.0%


56,031


52,878


6.0%

Consolidated net income from continuing operations


31,298


27,741


12.8%


123,407


102,774


20.1%

Gain on sale of discontinued operations, net of tax


-


5,188


(100.0%)


-


5,188


(100.0%)

Consolidated net income   


31,298


32,929


(5.0%)


123,407


107,962


14.3%

Net loss attributable to noncontrolling interests


29


55


(47.3%)


122


117


4.3%

Net income attributable to Morningstar, Inc.


$         31,327


$         32,984


(5.0%)


$            123,529


$                108,079


14.3%















Net income per share attributable to Morningstar, Inc.:














Basic














  Continuing operations


$             0.68


$             0.59


15.3%


$                  2.68


$                      2.12


26.4%


  Discontinued operations


$                    -


$             0.11


(100.0%)


$                        -


$                      0.11


(100.0%)


Diluted












-


  Continuing operations


$             0.68


$             0.58


17.2%


$                 2.66


$                      2.10


26.7%


  Discontinued operations


$                    -


$             0.11


(100.0%)


$                       -


$                      0.10


(100.0%)

Weighted average shares outstanding:














Basic


45,756


46,913


(2.5%)


46,158


48,497


(4.8%)


Diluted


46,211


47,511


(2.7%)


46,491


49,148


(5.4%)


















Three months ended December 31




Year ended December 31






2013


2012




2013


2012



(1) Includes stock-based compensation expense of:














Cost of revenue


$           2,007


$           1,677




$                6,870


$                    6,416




Sales and marketing


485


504




1,975


1,937




General and administrative


1,398


5,130




6,198


10,552




   Total stock-based compensation expense


$           3,890


$           7,311




$              15,043


$                  18,905

















NMF — Not meaningful, pp — percentage points

 

 

Morningstar, Inc. and Subsidiaries

Operating Expense as a Percentage of Revenue (Unaudited)


























Three months ended December 31




Year ended December 31






2013


2012


change


2013


2012


change















Revenue


100.0%


100.0%


-


100.0%


100.0%


-

Operating expense1:














Cost of revenue


40.4%


35.5%


4.9pp


38.9%


37.5%


1.4pp


Sales and marketing


13.8%


16.1%


(2.3)pp


14.8%


16.5%


(1.7)pp


General and administrative


16.1%


18.6%


(2.5)pp


15.3%


16.5%


(1.2)pp


Depreciation and amortization


6.6%


6.7%


(0.1)pp


6.5%


6.5%


-


   Total operating expense2


76.8%


77.0%


(0.2)pp


75.6%


77.1%


(1.5)pp

Operating margin


23.2%


23.0%


0.2pp


24.4%


22.9%


1.5pp


















Three months ended December 31




Year ended December 31






2013


2012


change


2013


2012


change

(1) Includes stock-based compensation expense of:












Cost of revenue


1.1%


1.0%


0.1pp


1.0%


1.0%


-


Sales and marketing


0.3%


0.3%


-


0.3%


0.3%


-


General and administrative


0.8%


3.0%


(2.2)pp


0.9%


1.6%


(0.7)pp


   Total stock-based compensation expense2


2.2%


4.3%


(2.1)pp


2.2%


2.9%


(0.7)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 December 31


Year ended December 31

($000)


2013


2012


2013


2012











Operating activities









Consolidated net income


$       31,298


$      32,929


$     123,407


$     107,962

Adjustments to reconcile consolidated net income to net cash







flows from operating activities:










Depreciation and amortization


11,835


11,480


45,693


43,096


Stock-based compensation expense


3,890


7,311


15,043


18,905


Other, net


(2,626)


(193)


(13,099)


(4,917)

Changes in operating assets and liabilities, net of 









effects of acquisitions and dispositions


10,048


2,153


15,614


(19,050)


          Cash provided by operating activities


54,445


53,680


186,658


145,996

Investing activities









Purchases of investments


(26,227)


(10,562)


(140,051)


(145,491)

Proceeds from maturities and sales of investments 


62,644


43,967


171,243


260,317

Capital expenditures


(5,633)


(7,163)


(33,583)


(30,039)

Acquisitions, net of cash acquired


-


-


(11,079)


-

Proceeds from sale of a business, net


-


5,734


957


5,734

Purchase of equity and cost method investments


-


-


(2,751)


(10,304)

Other, net


(29)


(21)


403


(25)


        Cash provided by (used for) investing activities


30,755


31,955


(14,861)


80,192

Financing activities









Proceeds from stock-option exercises


1,360


2,349


4,532


9,101

Employee taxes withheld for restricted stock units


(531)


(300)


(5,807)


(4,292)

Excess tax benefits from stock-option exercises









  and vesting of restricted stock units


1,805


2,203


5,898


7,210

Common shares repurchased


(90,720)


(68,115)


(153,514)


(251,813)

Dividends paid


(5,768)


(10,620)


(17,425)


(25,487)

Other, net


(2)


123


(56)


105


       Cash used for financing activities


(93,856)


(74,360)


(166,372)


(265,176)

Effect of exchange rate changes on cash and cash equivalents

(143)


433


(1,154)


2,440

Net increase (decrease) in cash and cash equivalents


(8,799)


11,708


4,271


(36,548)

Cash and cash equivalents—Beginning of period


176,959


152,181


163,889


200,437

Cash and cash equivalents—End of period


$     168,160


$    163,889


$     168,160


$     163,889

 

 

Morningstar, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets










December 31


December 31

($000)


2013


2012







Assets





Current assets:






Cash and cash equivalents


$        168,160


$        163,889


Investments


130,407


157,529


Accounts receivable, net


114,131


114,361


Deferred tax asset, net


3,892


3,741


Income tax receivable, net


3,942


14,267


Other


26,361


20,823


          Total current assets


446,893


474,610







Property, equipment, and capitalized software, net


104,986


84,022

Investments in unconsolidated entities


38,714


35,305

Goodwill


326,450


320,845

Intangible assets, net


103,909


116,732

Other assets


9,716


10,438


Total assets


$     1,030,668


$     1,041,952







Liabilities and equity





Current liabilities:






Accounts payable and accrued liabilities


$          52,877


$          43,777


Accrued compensation


71,403


67,317


Deferred revenue


149,225


146,015


Other


6,786


256


          Total current liabilities


280,291


257,365







Accrued compensation


8,193


8,281

Deferred tax liability, net


23,755


21,583

Other long-term liabilities


27,139


27,828


Total liabilities


339,378


315,057


Total equity


691,290


726,895


Total liabilities and equity


$     1,030,668


$     1,041,952

 

 



Morningstar, Inc. and Subsidiaries

Supplemental Data (Unaudited)










As of December 31





2013


2012


% change








Our business







Morningstar.com Premium Membership subscriptions (U.S.)


124,027


123,899


0.1%

Registered users for Morningstar.com (U.S.)


7,848,057


7,521,043


4.3%

U.S. Advisor Workstation and Morningstar Office licenses 


169,592


162,904


4.1%

Principia subscriptions 


19,206


26,807


(28.4%)

Morningstar Direct licenses


8,514


7,3881


15.2%

Assets under advisement and management (approximate)








Investment Advisory Services


$83.5 bil


$94.3 bil


(11.5%)


Retirement Solutions


$65.6 bil


$47.2 bil


39.0%


Morningstar Managed Portfolios


$7.3 bil


$4.7 bil


55.3%


Ibbotson Australia


$3.0 bil


$3.3 bil


(9.1%)








Our employees







Worldwide headcount (approximate)


3,565


3,495


2.0%

Number of worldwide equity and credit analysts (approximate)


165


155


6.5%

Number of worldwide fund analysts (approximate)


105


110


(4.5%)










Year ended December 31



($000)


2013


2012


% change

Key product revenue2







Morningstar Data


129,262


115,273


12.1%

Morningstar Advisor Workstation


93,059


86,048


8.1%

Morningstar Direct


79,358


65,279


21.6%

Investment Advisory


59,187


66,369


(10.8%)

Morningstar.com


55,637


53,671


3.7%















(1) Revised to reflect a minor calculation change.


(2) Beginning with the third quarter of 2013, we revised our segment structure to reflect our shift to a more centralized organizational structure. In addition, we took this opportunity to revise our revenue by product structure to better represent how management internally reviews and evaluates product revenue and performance. The most significant revision is that Morningstar Data now excludes Morningstar Commodity Data. We have reclassified the prior-year information to reflect these changes.












Three months ended December 31


Year ended December 31

($000)


2013


2012


2013


2012

Revenue










Investment information


$     143,310


$    137,679


$    555,642


$    526,147


Investment management


37,190


32,930


142,624


132,141


Consolidated revenue


$     180,500


$    170,609


$    698,266


$    658,288











Revenue—U.S.


$     127,984


$    120,505


$    500,730


$    466,947


Revenue—International


$       52,516


$      50,104


$    197,536


$    191,341






























Three months ended December 31


Year ended December 31

($000)


2013


2012


2013


2012

Effective tax rate









Income before income taxes and equity in net income of 

unconsolidated entities










$       44,426


$      38,692


$    178,010


$    153,625

Equity in net income of unconsolidated entities


256


486


1,428


2,027

Net loss attributable to noncontrolling interests


29


55


122


117


Total


$       44,711


$      39,233


$    179,560


$    155,769

Income tax expense


$       13,384


$      11,437


$      56,031


$      52,878

Effective tax rate


29.9%


29.2%


31.2%


33.9%

 

 

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 December 31




Year ended December 31



($000)


2013


2012


% change


2013


2012


% change















Consolidated revenue 


$      180,500


$             170,609


5.8%


$           698,266


$              658,288


6.1%

Less: divestitures


-


-


NMF


-


(4,144)


NMF

Less: acquisitions


(1,481)


-


NMF


(3,746)


-


NMF

Unfavorable effect of foreign currency translations


967


-


NMF


3,575


-


NMF

Revenue excluding acquisitions, divestitures, and 














foreign currency translations


$      179,986


$             170,609


5.5%


$           698,095


$              654,144


6.7%





























Reconciliation from international revenue to international revenue excluding divestitures, acquisitions, and foreign currency translations (international organic revenue):


















Three months ended December 31




Year ended December 31



($000)


2013


2012


% change


2013


2012


% change















International revenue 


$        52,516


$               50,104


4.8%


$           197,536


$              191,341


3.2%

Less: divestitures


-


-


NMF


-


(3,814)


NMF

Less: acquisitions


(1,481)


-


NMF


(3,746)


-


NMF

Unfavorable effect of foreign currency translations


967


-


NMF


3,575


-


NMF

International revenue excluding acquisitions, divestitures, and foreign currency translations












$        52,002


$               50,104


3.8%


$           197,365


$              187,527


5.2%





























Reconciliation from cash provided by operating activities to free cash flow (a non-GAAP measure):





















Three months ended December 31




Year ended December 31



($000)


2013


2012


% change


2013


2012


% change















Cash provided by operating activities


$        54,445


$               53,680


1.4%


$           186,658


$              145,996


27.9%

Less: Capital expenditures


(5,633)


(7,163)


(21.4%)


(33,583)


(30,039)


11.8%

Free cash flow


$        48,812


$               46,517


4.9%


$           153,075


$              115,957


32.0%

 

SOURCE Morningstar, Inc.



RELATED LINKS
http://www.morningstar.com

Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.