Core Viewpoint - The article presents a comparative analysis of the performance of active and passive funds in China's A-share market, indicating that while over half of active equity funds outperformed passive funds in the long term, this trend has reversed in the short term, with less than 20% of active funds beating passive counterparts in the last year [1][9]. Methodology Changes - The report introduces two key adjustments in measuring the performance of active funds against passive benchmarks: switching from equal-weighted to asset-weighted calculations and adopting a buy-and-hold method to reflect the actual returns for investors [6][8]. Performance Analysis - As of the end of 2024, only 13.4% of active equity funds outperformed the asset-weighted average return of passive funds, a significant drop of 52 percentage points from 2023 [9]. - The performance of active large-cap balanced equity funds has notably declined, with only 19.2% surpassing the asset-weighted average return of passive funds in the last year, down from 50% in 2023 [11]. - Active large-cap growth equity funds saw a dramatic decrease in their victory rate to 9.7% in 2024 from 70.4% in 2023, primarily due to underperformance in sectors like technology [12]. - Active small-cap equity funds had a victory rate of 38.2% in 2024, which, while lower than 49.6% in 2023, remains the highest among the three fund categories analyzed [13]. Long-term Survival Rates - Active funds consistently demonstrate higher long-term survival rates compared to passive funds, with ten-year survival rates for active large-cap balanced and small-cap equity funds remaining below 5%, while passive funds range from 12% to 38% [14][15]. Excess Return Distribution - The distribution of ten-year excess returns shows that most surviving active funds achieved positive and significant excess returns, indicating a higher probability for investors to select successful active funds [16]. Market Characteristics - The A-share market in 2024 exhibited significant structural characteristics, with value stocks outperforming growth stocks, as evidenced by the 23.1% increase in the value index compared to a mere 6.0% rise in the growth index [9][10].

Core Viewpoint - The main challenge for AI applications in the financial industry is not the technology itself, but the internal digital transformation readiness of institutions, particularly in data governance and the deep integration of business processes [1][10]. Group 1: Current State of AI Applications and Industry Opportunities - AI is penetrating the entire process of wealth management, from customer acquisition to post-investment services, with many institutions focusing on internal efficiency improvements [9]. - AI technologies are enhancing content creation and user experience in the financial sector, with tools like digital humans and large models optimizing content consumption [9]. - The transformation driven by AI is evident in the creation of personalized recommendations based on deep analysis of customer behavior data [9][10]. Group 2: Overcoming Native Barriers in AI Applications in Finance - The low tolerance for error in the financial industry necessitates a human-in-the-loop approach, where AI serves as a tool to enhance efficiency but human oversight remains essential [13]. - Key challenges include ensuring data security, achieving high accuracy in wealth management queries, and leveraging the data-intensive nature of the financial sector for AI applications [13]. Group 3: Enhancing Investor Experience through AI - AI can effectively correct irrational investment behaviors and provide continuous support to clients, enhancing trust and emotional reassurance [15]. - As AI models evolve, they are expected to take on more tasks traditionally performed by humans, although the journey towards full automation remains lengthy [15].

Global Fund Trends - In the first half of 2025, there was a significant turnover in the number of actively managed funds, with 3,958 new open-end funds launched, but only a net increase of 278 actively managed open-end funds. Conversely, ETFs saw a strong net growth of 1,051, with 1,264 new ETFs issued [4]. - Over $410 billion in net inflows were directed towards bond funds, which is double the amount flowing into equity funds. Meanwhile, allocation funds experienced a net outflow of approximately $20 billion [7]. Passive Investment Growth - The market share of passive investment products has steadily increased over the past decade, with the total size of global public funds growing by over 130%. As of June 30, 2025, the total management scale of passive products accounted for 43%, up from 23% ten years ago, while active products' share decreased from 77% to 57% [13]. Overseas Fund Allocation to China - There has been a noticeable recovery in the allocation ratio of overseas funds to Chinese stocks, which dropped from a peak of 11.07% in 2020 to a low of 4.79% in 2024. However, this ratio began to rise again in the second half of 2024, reaching 6.26% by the end of March 2025 [19]. - In the overseas Chinese-themed funds, passive products have surpassed active funds in scale, with passive Chinese-themed funds exceeding active funds by approximately $16 billion as of June 30, 2025 [21]. - Despite a period of net inflows from 2020 to 2022, overseas Chinese-themed funds experienced net outflows from 2023 to 2024, with total fund size decreasing from nearly $250 billion in 2021 to $175.2 billion by the end of 2024. In the first half of 2025, these funds saw a net outflow of about $2 billion, although their total size grew to $196.7 billion [23][24].

Core Viewpoint - The article emphasizes the need for a fundamental transformation in investment advisory services from a "short-term return orientation" to a "lifecycle goal orientation" to better meet clients' personalized needs and enhance their long-term investment experience [2][3]. Group 1: Service Model Transformation - The key to breaking the current dilemma faced by investment advisors lies in shifting the service model to focus on long-term goals rather than short-term gains [2]. - Effective "goal planning" is identified as the foundation for this transformation, serving as a prerequisite for subsequent asset allocation and post-investment services [2]. Group 2: Practical Implementation - The upcoming online seminar aims to systematically break down practical methods for goal planning, assisting investment advisors in creating personalized solutions for clients and building long-term trust [3]. - Topics to be covered include how to establish quantifiable and prioritized financial goals for clients, core principles for fund allocation under multiple goals, and balancing clients' risk tolerance with goal achievement [6]. Group 3: Company Background - Morningstar, Inc. is recognized as one of the leading investment research institutions globally, providing financial information, analysis, and ratings for various investment products [8]. - As of December 31, 2024, Morningstar manages and advises on assets totaling approximately $338 billion across 33 global markets [8].

Core Viewpoint - The article emphasizes the need for a fundamental transformation in investment advisory services from a "short-term return orientation" to a "lifecycle goal orientation" to better meet clients' personalized needs and enhance their long-term investment experience [2][3]. Group 1: Service Model Transformation - The key to breaking the current dilemma faced by investment advisors lies in shifting the service model to focus on long-term goals rather than short-term gains [2]. - Effective "goal planning" is identified as the foundation for this transformation, serving as a prerequisite for subsequent asset allocation and post-investment services [2]. Group 2: Practical Implementation - The upcoming online seminar aims to systematically break down practical methods for goal planning, assisting investment advisors in constructing personalized solutions for clients and establishing long-term trust [3]. - The seminar will cover essential topics such as how to set quantifiable and prioritized financial goals for clients, core principles for fund allocation under multiple goals, and balancing clients' risk tolerance with goal achievement [6]. Group 3: Company Background - Morningstar, Inc. is recognized as one of the leading investment research institutions globally, providing financial information, analysis, and ratings for various investment products [8]. - As of December 31, 2024, Morningstar manages and advises on assets totaling approximately $338 billion across 33 global markets [8].

Core Insights - The article discusses the significant trends in the global public fund market, highlighting a total scale of $57.6 trillion, with the top ten management firms holding 60% of the market share [2] - It emphasizes the increasing share of passive investments, while noting that in newly issued ETFs, the number of active funds has surpassed passive ones, indicating a shift in investment strategies [2] - The article also points out the inflow of funds into stock funds, particularly in European large-cap stocks, Indian stocks, and Chinese stocks, as well as the attraction of $18.3 billion into emerging digital asset ETFs [2] Global Asset Management Trends - The upcoming event will focus on the dynamics of the global asset management industry and the strategies of overseas funds in allocating resources to the Chinese market [3][4] - The event aims to empower investment research decisions by analyzing global public fund dynamics and the latest trends in overseas fund allocations to China [4] Key Highlights - The session will cover exclusive data on global public fund issuance strategies and fund flows [8] - It will provide insights into the evolution of active and passive management funds and the dominance of ETFs [8] - The discussion will reveal new asset allocation trends based on fund flows and highlight strategic hotspots in key markets like China and the US [8]

Core Insights - Morningstar reported strong quarterly earnings with adjusted EPS of $2.40, surpassing the $2.11 estimate, and GAAP revenue of $605.1 million, slightly above the consensus of $604.57 million [1][2] - The company experienced year-over-year profitability improvements, with operating margin increasing to 20.7% despite a significant drop in free cash flow, which fell by 48.3% to $62.4 million due to higher tax payments [1][2][9] Financial Performance - Non-GAAP EPS increased by 19.4% year-over-year from $2.01 to $2.40, while GAAP EPS rose by 30.6% from $1.60 to $2.09 [2] - GAAP revenue grew by 5.8% from $571.9 million in Q2 2024 to $605.1 million in Q2 2025 [2] - Operating income improved by 15.3% year-over-year, reaching $125.1 million [2] Business Segments - The Direct Platform generated $209.2 million in revenue, up 6.2%, while the PitchBook platform saw a 9.8% increase in sales to $166.5 million [5] - The Morningstar Credit segment reported a 9.5% revenue increase to $85.0 million, driven by strong demand for credit ratings [5] - The Morningstar Wealth segment's revenue grew by 2.7%, with assets under management increasing by 13.0% to $66.8 billion [6] Strategic Focus - Morningstar is concentrating on expanding its core data and analytics offerings, scaling investment management services, and enhancing credit ratings coverage [4] - The company aims to maintain high-quality data, innovate platforms, and respond to regulatory changes to sustain growth [4] Challenges and Developments - The ESG segment, Morningstar Sustainalytics, faced a revenue decline to $27.3 million due to reduced demand and a reorganization effort [7] - Operating expenses rose by 3.8%, primarily due to increased salaries and costs associated with the ESG reorganization [8] - The company continued share repurchases and dividends, spending $112.0 million on buybacks and $19.3 million on dividends [9] Future Outlook - Management did not provide specific financial guidance but emphasized ongoing investments in platform enhancements and new data capabilities [10] - Key areas for future progress include technology innovation and expanding analytics coverage [10]

PART 1 FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Morningstar, Inc. as of and for the three and six months ended June 30, 2025 [Unaudited Consolidated Statements of Income](index=4&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Income) Revenue for Q2 2025 increased to $605.1 million, driving consolidated net income up to $89.0 million and diluted EPS to $2.09 Consolidated Statements of Income Highlights (Q2 & H1 2025 vs 2024) | Metric (in millions, except per share) | Q2 2025 | Q2 2024 | YoY Change | H1 2025 | H1 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $605.1 | $571.9 | +5.8% | $1,187.0 | $1,114.7 | +6.5% | | **Operating Income** | $125.1 | $108.5 | +15.3% | $239.2 | $201.1 | +18.9% | | **Consolidated Net Income** | $89.0 | $69.1 | +28.8% | $167.5 | $133.3 | +25.7% | | **Diluted EPS** | $2.09 | $1.60 | +30.6% | $3.91 | $3.09 | +26.5% | | **Dividends Declared per Share** | $0.46 | $0.41 | +12.2% | $0.91 | $0.81 | +12.3% | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $3,630.5 million as of June 30, 2025, primarily due to goodwill, while total liabilities rose to $2,016.0 million Consolidated Balance Sheet Summary | Metric (in millions) | June 30, 2025 (unaudited) | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $1,042.3 | $1,014.1 | | Cash and cash equivalents | $503.5 | $502.7 | | **Goodwill** | $1,618.2 | $1,562.0 | | **Total Assets** | $3,630.5 | $3,548.9 | | **Total Current Liabilities** | $921.0 | $967.3 | | **Long-term debt** | $838.8 | $698.6 | | **Total Liabilities** | $2,016.0 | $1,930.3 | | **Total Equity** | $1,614.5 | $1,618.6 | [Unaudited Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Cash provided by operating activities decreased to $190.0 million for H1 2025, with increased cash used for investing and financing activities Cash Flow Summary (Six Months Ended June 30) | Activity (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | **Cash provided by operating activities** | $190.0 | $246.3 | | **Cash used for investing activities** | $(94.6) | $(59.5) | | **Cash used for financing activities** | $(132.6) | $(125.1) | | **Effect of exchange rate changes** | $38.0 | $(8.4) | | **Net increase in cash** | $0.8 | $53.3 | | **Cash and cash equivalents—end of period** | $503.5 | $391.2 | [Notes to Unaudited Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes detail accounting policies, credit arrangements, acquisitions, revenue recognition, segment performance, and contingencies, noting increased total debt - Total debt increased to **$838.8 million** as of June 30, 2025, from **$698.6 million** at year-end 2024, primarily due to drawings on the Amended 2022 Revolving Credit Facility[24](index=24&type=chunk) - In Q1 2025, the company completed two acquisitions: the remaining 65% of Morningstar Credit Analytics (DealX) and Lumonic Inc., adding a combined **$32.1 million** to goodwill[30](index=30&type=chunk)[34](index=34&type=chunk)[39](index=39&type=chunk) Revenue by Type (Six Months Ended June 30) | Revenue Type (in millions) | 2025 | 2024 | YoY Change | | :--- | :--- | :--- | :--- | | License-based | $846.4 | $801.9 | +5.5% | | Asset-based | $168.1 | $161.7 | +4.0% | | Transaction-based | $172.5 | $151.1 | +14.2% | | **Consolidated revenue** | **$1,187.0** | **$1,114.7** | **+6.5%** | - The company repurchased **766,641 shares** for **$221.6 million** in the first six months of 2025, with **$265.4 million** remaining available under the current share repurchase program[101](index=101&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 and H1 2025 financial results, highlighting revenue growth, operating margin expansion, and a decrease in free cash flow [Consolidated Results](index=30&type=section&id=Consolidated%20Results) Consolidated revenue increased 5.8% to $605.1 million in Q2 2025, with operating income up 15.3%, but free cash flow declined significantly Key Financial Metrics (Q2 2025 vs Q2 2024) | Metric (in millions) | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | **Consolidated revenue** | $605.1 | $571.9 | 5.8% | | **Operating income** | $125.1 | $108.5 | 15.3% | | **Operating margin** | 20.7% | 19.0% | 1.7 pp | | **Free cash flow** | $62.4 | $120.8 | (48.3)% | - Organic revenue, which excludes acquisitions, divestitures, and currency effects, grew **5.9%** in Q2 2025 and **7.5%** in H1 2025[122](index=122&type=chunk)[124](index=124&type=chunk) - License-based revenue, the largest component, grew **6.6%** in Q2, driven by PitchBook and Morningstar Direct Platform. Transaction-based revenue increased **10.3%**, led by Morningstar Credit[118](index=118&type=chunk)[119](index=119&type=chunk) [Segment Results](index=37&type=section&id=Segment%20Results) PitchBook, Morningstar Direct Platform, and Morningstar Credit showed strong revenue growth in Q2 2025, while Morningstar Retirement and Sustainalytics declined Segment Revenue and Adjusted Operating Income (Q2 2025) | Segment (in millions) | Revenue | YoY Change | Adj. Operating Income | YoY Change | | :--- | :--- | :--- | :--- | :--- | | **Morningstar Direct Platform** | $209.2 | +6.2% | $96.3 | +10.3% | | **PitchBook** | $166.5 | +9.8% | $52.8 | +11.6% | | **Morningstar Credit** | $85.0 | +9.5% | $30.5 | +9.3% | | **Morningstar Wealth** | $64.3 | +2.7% | $3.0 | NMF | | **Morningstar Retirement** | $32.4 | -2.7% | $15.4 | -11.0% | - PitchBook's growth was driven by its core investor and advisor client segments, with licensed users growing **7.6%**[145](index=145&type=chunk) - Morningstar Sustainalytics revenue decreased **6.5%** in Q2, primarily due to the streamlining of its licensed-ratings offering and lower revenues for ESG Risk Ratings[160](index=160&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) Cash, cash equivalents, and investments totaled $541.6 million, but free cash flow for H1 2025 decreased due to higher bonus and tax payments - Cash provided by operating activities for H1 2025 decreased **22.9%** to **$190.0 million**, and free cash flow decreased **32.8%** to **$121.2 million**[171](index=171&type=chunk) - Approximately **83%** of the company's cash, cash equivalents, and investments were held outside the U.S. as of June 30, 2025[173](index=173&type=chunk) - The company repurchased **766,641 shares** for **$221.6 million** in H1 2025, with **$265.4 million** remaining under the share repurchase program[182](index=182&type=chunk) - Total outstanding debt under the Amended 2022 Credit Agreement was **$489.8 million**, with an additional borrowing availability of **$510.0 million**[175](index=175&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risk from interest rate fluctuations on variable-rate debt and foreign currency exposure from international operations - A **100 basis-point** change in the SOFR is estimated to have a **$4.9 million** impact on annualized interest expense based on the outstanding debt balance as of June 30, 2025[189](index=189&type=chunk) Foreign Currency Revenue Exposure (Six Months Ended June 30, 2025) | Currency | % of Revenue | Estimated Revenue Impact of 10% Adverse Fluctuation (in millions) | | :--- | :--- | :--- | | **British Pound** | 7.7% | $(9.7) | | **Euro** | 6.3% | $(8.1) | | **Canadian Dollar** | 6.0% | $(7.4) | | **Australian Dollar** | 2.6% | $(3.1) | | **Other** | 5.2% | $(6.5) | [Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - Based on an evaluation as of June 30, 2025, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[192](index=192&type=chunk) - No changes occurred during the three months ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[193](index=193&type=chunk) PART 2 OTHER INFORMATION [Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 13, indicating no material adverse effect on financial position - Information regarding legal proceedings is detailed in Note 13 of the financial statements[195](index=195&type=chunk) [Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) No new risk factors are disclosed in this report, referring to previously stated risks in the Annual Report and prior quarterly filings - The company directs investors to review the risk factors disclosed in its Annual Report and previous quarterly reports, as no new material risks have been added in this filing[196](index=196&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 398,442 common shares for approximately $112.0 million during Q2 2025, primarily in April Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | April 2025 | 309,232 | $276.87 | $291.8M | | May 2025 | 89,210 | $295.83 | $265.4M | | June 2025 | 0 | - | $265.4M | | **Total Q2** | **398,442** | **$281.11** | **$265.4M** | [Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including various stock incentive plan agreements, the executive severance policy, and certifications by the CEO and CFO - Exhibits filed include updated forms for stock unit award agreements, a new executive severance policy effective May 9, 2025, and required CEO/CFO certifications[202](index=202&type=chunk)

Morningstar, Inc. Second-Quarter 2025 Financial Results [Financial Highlights](index=1&type=section&id=Financial%20Highlights) The company reported solid Q2 2025 growth in revenue and operating income, though cash flow declined due to higher taxes - CEO Kunal Kapoor highlighted that PitchBook, Morningstar Direct Platform, and Morningstar Credit were the primary contributors to the solid growth in the second quarter[2](index=2&type=chunk) - The company repurchased **398,442 shares for $112.0 million** in Q2 2025, and a total of 766,641 shares for $221.6 million year-to-date[4](index=4&type=chunk) Second-Quarter 2025 Financial Highlights (vs. Q2 2024) | Metric | Q2 2025 Value | Change vs. Q2 2024 | | :--- | :--- | :--- | | Reported Revenue | $605.1 million | +5.8% | | Organic Revenue | - | +5.9% | | Reported Operating Income | $125.1 million | +15.3% | | Adjusted Operating Income | - | +9.5% | | Diluted Net Income per Share | $2.09 | +30.6% | | Adjusted Diluted Net Income per Share | $2.40 | +19.4% | | Cash from Operating Activities | $99.0 million | -35.2% | | Free Cash Flow | $62.4 million | -48.3% | Year-To-Date 2025 Financial Highlights (vs. YTD 2024) | Metric | YTD 2025 Value | Change vs. YTD 2024 | | :--- | :--- | :--- | | Reported Revenue | $1.2 billion | +6.5% | | Organic Revenue | - | +7.5% | | Reported Operating Income | $239.2 million | +18.9% | | Adjusted Operating Income | - | +15.3% | | Diluted Net Income per Share | $3.91 | +26.5% | | Adjusted Diluted Net Income per Share | $4.63 | +23.8% | | Cash from Operating Activities | $190.0 million | -22.9% | | Free Cash Flow | $121.2 million | -32.8% | [Consolidated Financial Performance](index=2&type=section&id=Consolidated%20Financial%20Performance) Consolidated revenue grew 5.8% in Q2 2025, driving a 15.3% increase in operating income and margin expansion - The primary driver of the 3.8% increase in operating expenses was a **$16.7 million rise in compensation costs**, stemming from annual merit increases and higher stock-based compensation[6](index=6&type=chunk) - Adjusted operating income, which excludes certain items like intangible amortization, **increased by 9.5% to $143.4 million**, with the adjusted operating margin expanding to 23.7%[7](index=7&type=chunk) Q2 2025 Consolidated Financial Results | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $605.1M | $571.9M | +5.8% | | Operating Expense | $480.8M | $463.4M | +3.8% | | Operating Income | $125.1M | $108.5M | +15.3% | | Operating Margin | 20.7% | 19.0% | +1.7 pp | | Net Income | $89.0M | $69.1M | +28.8% | | Diluted EPS | $2.09 | $1.60 | +30.6% | [Segment Performance Analysis](index=2&type=section&id=Segment%20Performance%20Analysis) Growth was led by PitchBook, Morningstar Credit, and Morningstar Direct Platform, while Morningstar Retirement saw a decline [Morningstar Direct Platform](index=2&type=section&id=Morningstar%20Direct%20Platform) The segment's revenue grew 6.2%, driven by Morningstar Data and a slight increase in Direct licenses - Revenue growth was primarily driven by Morningstar Data, supported by higher managed investment (fund) data revenue, with Morningstar Direct licenses also contributing, **increasing by 0.6%**[9](index=9&type=chunk) Morningstar Direct Platform Q2 2025 Performance | Metric | Q2 2025 | % Change (YoY) | Organic % Change (YoY) | | :--- | :--- | :--- | :--- | | Revenue | $209.2M | +6.2% | +6.3% | | Adjusted Operating Income | $96.3M | +10.3% | - | | Adjusted Operating Margin | 46.0% | +1.7 pp | - | [PitchBook](index=2&type=section&id=PitchBook) PitchBook revenue increased 9.8% due to a 7.6% rise in licensed users, particularly in investor and advisor segments - Growth was driven by a **7.6% increase in licensed users** of the PitchBook platform, with strength in core investor and advisor client segments, partially offset by softness in the corporate client segment[11](index=11&type=chunk)[12](index=12&type=chunk) PitchBook Q2 2025 Performance | Metric | Q2 2025 | % Change (YoY) | Organic % Change (YoY) | | :--- | :--- | :--- | :--- | | Revenue | $166.5M | +9.8% | +9.6% | | Adjusted Operating Income | $52.8M | +11.6% | - | | Adjusted Operating Margin | 31.7% | +0.5 pp | - | [Morningstar Credit](index=3&type=section&id=Morningstar%20Credit) Revenue grew 9.5%, fueled by higher demand for securities ratings and licensed data - The primary drivers of growth were higher revenue from asset-backed, residential mortgage-backed, and commercial mortgage-backed securities ratings, along with an increase in licensed data revenue[14](index=14&type=chunk) Morningstar Credit Q2 2025 Performance | Metric | Q2 2025 | % Change (YoY) | Organic % Change (YoY) | | :--- | :--- | :--- | :--- | | Revenue | $85.0M | +9.5% | +8.4% | | Adjusted Operating Income | $30.5M | +9.3% | - | | Adjusted Operating Margin | 35.9% | -0.1 pp | - | [Morningstar Wealth](index=3&type=section&id=Morningstar%20Wealth) The segment returned to profitability with 7.2% organic growth and a 13.0% increase in AUMA - Assets under management and advisement (AUMA) **increased 13.0% year-over-year to $66.8 billion**, driven by market performance and positive net flows to Morningstar Model Portfolios[17](index=17&type=chunk) Morningstar Wealth Q2 2025 Performance | Metric | Q2 2025 | % Change (YoY) | Organic % Change (YoY) | | :--- | :--- | :--- | :--- | | Revenue | $64.3M | +2.7% | +7.2% | | Adjusted Operating Income | $3.0M | NMF | - | | Adjusted Operating Margin | 4.7% | +8.2 pp | - | [Morningstar Retirement](index=3&type=section&id=Morningstar%20Retirement) Revenue declined 2.7% due to a prior-year item, though AUMA grew 11.0% from market gains and net flows - The revenue decrease was primarily due to an isolated item in the prior-year period, while **AUMA increased 11.0% to $285.4 billion**, driven by positive net flows and market gains[19](index=19&type=chunk) Morningstar Retirement Q2 2025 Performance | Metric | Q2 2025 | % Change (YoY) | Organic % Change (YoY) | | :--- | :--- | :--- | :--- | | Revenue | $32.4M | -2.7% | -2.7% | | Adjusted Operating Income | $15.4M | -11.0% | - | | Adjusted Operating Margin | 47.5% | -4.5 pp | - | [Corporate and All Other](index=4&type=section&id=Corporate%20and%20All%20Other) Segment revenue decreased 4.2%, primarily driven by softness in the Morningstar Sustainalytics business - Revenue for this segment **decreased 4.2% to $47.7 million**, primarily due to softness in Morningstar Sustainalytics[22](index=22&type=chunk) - The decline in Morningstar Sustainalytics revenue was driven by the streamlining of its licensed-ratings offering and lower revenues for ESG Risk Ratings, partly due to vendor consolidation[22](index=22&type=chunk) - The segment's impact on consolidated adjusted operating income was a **loss of $54.6 million**, compared to a loss of $46.6 million in the prior-year period[23](index=23&type=chunk) [Balance Sheet and Cash Flow](index=4&type=section&id=Balance%20Sheet%20and%20Cash%20Flow) The company maintained a solid balance sheet, but operating and free cash flow declined significantly due to higher tax payments - The decline in cash flow was primarily driven by an **increase in income tax payments**, which were $79.5 million in Q2 2025 compared to $31.6 million in Q2 2024[25](index=25&type=chunk) - Key capital allocation activities in Q2 2025 included a **net debt increase of $35.0 million**, share repurchases of $112.0 million, and dividend payments of $19.3 million[26](index=26&type=chunk) Key Balance Sheet Items | Item | June 30, 2025 | Dec. 31, 2024 | | :--- | :--- | :--- | | Cash, cash equivalents, and investments | $541.6M | $551.0M | | Total Debt | $838.8M | $698.6M | Q2 Cash Flow Summary (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Cash from Operating Activities | $99.0M | $152.7M | -35.2% | | Free Cash Flow | $62.4M | $120.8M | -48.3% | [Financial Statements and Supplemental Data](index=7&type=section&id=Financial%20Statements%20and%20Supplemental%20Data) This section provides detailed unaudited financial statements, segment data, AUMA figures, and non-GAAP reconciliations [Unaudited Condensed Consolidated Statements of Income](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Income) The statement details revenue, expenses, and net income for the three and six months ended June 30, 2025 Unaudited Condensed Consolidated Statements of Income (in millions, except per share) | | Three months ended June 30, | Six months ended June 30, | | :--- | :--- | :--- | | | **2025** | **2024** | **2025** | **2024** | | **Revenue** | **$605.1** | **$571.9** | **$1,187.0** | **$1,114.7** | | Total operating expense | $480.8 | $463.4 | $948.6 | $913.6 | | **Operating income** | **$125.1** | **$108.5** | **$239.2** | **$201.1** | | Income before income taxes | $116.5 | $89.5 | $225.0 | $176.5 | | Income tax expense | $26.3 | $19.2 | $53.7 | $40.5 | | **Consolidated net income** | **$89.0** | **$69.1** | **$167.5** | **$133.3** | | **Diluted net income per share** | **$2.09** | **$1.60** | **$3.91** | **$3.09** | | Diluted weighted average shares | 42.5 | 43.1 | 42.8 | 43.1 | [Unaudited Condensed Consolidated Balance Sheets](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) The balance sheet presents the company's assets, liabilities, and equity as of June 30, 2025 Unaudited Condensed Consolidated Balance Sheets (in millions) | | As of June 30, 2025 | As of Dec 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $503.5 | $502.7 | | Total current assets | $1,042.3 | $1,014.1 | | Goodwill | $1,618.2 | $1,562.0 | | **Total assets** | **$3,630.5** | **$3,548.9** | | **Liabilities and equity** | | | | Deferred revenue | $594.2 | $540.8 | | Total current liabilities | $921.0 | $967.3 | | Long-term debt | $838.8 | $698.6 | | **Total liabilities** | **$2,016.0** | **$1,930.3** | | **Total equity** | **$1,614.5** | **$1,618.6** | | **Total liabilities and equity** | **$3,630.5** | **$3,548.9** | [Unaudited Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement outlines cash flows from operating, investing, and financing activities for the recent periods Unaudited Condensed Consolidated Statements of Cash Flows (in millions) | | Three months ended June 30, | Six months ended June 30, | | :--- | :--- | :--- | | | **2025** | **2024** | **2025** | **2024** | | **Cash provided by operating activities** | **$99.0** | **$152.7** | **$190.0** | **$246.3** | | Cash used for investing activities | ($23.9) | ($32.8) | ($94.6) | ($59.5) | | Cash used for financing activities | ($108.5) | ($81.6) | ($132.6) | ($125.1) | | Net (decrease) increase in cash | ($8.0) | $37.5 | $0.8 | $53.3 | | **Cash and cash equivalents-end of period** | **$503.5** | **$391.2** | **$503.5** | **$391.2** | [Supplemental Data](index=10&type=section&id=Supplemental%20Data) This section provides a breakdown of revenue by segment and details on assets under management and advisement Q2 2025 Revenue by Segment (in millions) | Segment | Q2 2025 Revenue | % Change (YoY) | Organic % Change | | :--- | :--- | :--- | :--- | | Morningstar Direct Platform | $209.2 | 6.2% | 6.3% | | PitchBook | $166.5 | 9.8% | 9.6% | | Morningstar Credit | $85.0 | 9.5% | 8.4% | | Morningstar Wealth | $64.3 | 2.7% | 7.2% | | Morningstar Retirement | $32.4 | (2.7)% | (2.7)% | | Corporate and All Other | $47.7 | (4.2)% | - | Assets Under Management and Advisement (AUMA) as of June 30 (in billions) | Category | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Morningstar Retirement (total) | $285.4 | $257.2 | 11.0% | | Investment Management (total) | $66.8 | $59.1 | 13.0% | | Asset value linked to Morningstar Indexes | $221.0 | $207.6 | 6.5% | [Reconciliations of Non-GAAP Measures](index=12&type=section&id=Reconciliations%20of%20Non-GAAP%20Measures) This section reconciles GAAP figures to non-GAAP measures like organic revenue, adjusted operating income, and free cash flow Reconciliation to Organic Revenue (Q2 2025, in millions) | | Amount | | :--- | :--- | | Consolidated revenue | $605.1 | | Less: Acquisitions | ($1.0) | | Less: Divestitures | ($3.0) | | Less: Effect of foreign currency | ($5.1) | | **Organic revenue** | **$596.0** | Reconciliation to Adjusted Operating Income (Q2 2025, in millions) | | Amount | | :--- | :--- | | Consolidated operating income | $125.1 | | Add: Intangible amortization expense | $15.3 | | Add: M&A-related expenses | $3.8 | | Less: Other non-recurring items | ($0.8) | | **Adjusted operating income** | **$143.4** | Reconciliation to Free Cash Flow (Q2 2025, in millions) | | Amount | | :--- | :--- | | Cash provided by operating activities | $99.0 | | Less: Capital expenditures | ($36.6) | | **Free cash flow** | **$62.4** |

Second-Quarter 2025 Supplemental Presentation July 30, 2025 This presentation contains forward-looking statements within the meaning of 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," "estima ...