Morningstar(MORN) - 2024 Q3 - Quarterly Report

Financial Performance - Consolidated revenue for Q3 2024 was $569.4 million, representing a 10.5% increase from $515.5 million in Q3 2023[107] - Operating income for Q3 2024 reached $115.5 million, up 65.0% from $70.0 million in Q3 2023[107] - Operating margin improved to 20.3% in Q3 2024, compared to 13.6% in Q3 2023, reflecting a 6.7 percentage point increase[107] - Total consolidated revenue for the nine months ended September 30, 2024, was $1,684.1 million, a 12.3% increase from $1,499.9 million in the same period of 2023[107] - Adjusted operating income for the nine months ended September 30, 2024, was $316.6 million, reflecting a 132.5% increase from $136.2 million in the same period of 2023[107] Cash Flow - Cash provided by operating activities was $191.9 million in Q3 2024, a 46.8% increase from $130.7 million in Q3 2023[107] - Free cash flow for Q3 2024 was $155.8 million, up 53.6% from $101.4 million in Q3 2023[107] - Cash provided by operating activities for the first nine months of 2024 was $438.2 million, compared to $178.6 million in the prior-year period, reflecting an increase of 145.4%[158] - Free cash flow for the first nine months of 2024 reached $336.1 million, a substantial increase of 275.5% compared to $89.5 million in the same period last year[170] Revenue Breakdown - License-based revenue grew by $24.3 million, or 6.3%, in Q3 2024, driven by strong demand for PitchBook and Morningstar Data and Analytics products[113] - Asset-based revenue increased by $12.3 million, or 17.2%, in Q3 2024, primarily due to growth in Morningstar Wealth, Morningstar Retirement, and Morningstar Indexes[113] - Transaction-based revenue rose by $17.3 million, or 29.1%, in Q3 2024, mainly driven by Morningstar Credit revenue[113] - License-based revenue for the first nine months grew by $86.2 million, or 7.7%, with organic growth of 7.9% attributed to PitchBook and Morningstar Data and Analytics[114] - Asset-based revenue for the first nine months increased by $41.4 million, or 20.3%, driven by Morningstar Wealth, Morningstar Retirement, and Morningstar Indexes[114] - Transaction-based revenue for the first nine months rose by $56.6 million, or 33.0%, with organic growth of 30.3% primarily from Morningstar Credit[114] Expenses and Margins - Total operating expenses increased by $8.4 million, or 1.9%, in Q3 2024, with cost of revenue being the largest category[117] - Compensation expense rose by $16.2 million in Q3 2024, primarily due to increased bonus accruals[118] - General and administrative expenses decreased by $12.1 million in Q3 2024, largely due to a decline in SEC-related settlement expenses[124] - Cost of revenue increased by $19.8 million in Q3 2024, driven by higher compensation and technology infrastructure costs[122] - Operating margin for the first nine months of 2024 was 18.8%, an increase of 9.7 percentage points compared to the same period in 2023[128] Tax and Income - Income before income taxes for the three months ended September 30, 2024, was $149.3 million, a significant increase from $55.8 million in the same period last year, representing a growth of 167.5%[157] - The effective tax rate decreased to 19.8% in Q3 2024, down from 29.9% in Q3 2023, primarily due to a book gain from the sale of the Commodity and Energy Data business[157] Capital Expenditures and Debt - Capital expenditures for Q3 2024 were $(36.1) million, a 23.2% increase from $(29.3) million in Q3 2023[107] - Capital expenditures for the first nine months of 2024 increased to $102.1 million, compared to $89.1 million in the prior-year period, reflecting a growth of 14.6%[170] - The company’s total outstanding debt under the Amended 2022 Credit Agreement was $515.9 million as of September 30, 2024, with borrowing availability of $650.0 million under the revolving credit facility[161] Shareholder Returns - A regular quarterly dividend of $0.405 per share was approved in September 2024, amounting to $17.4 million, payable on October 31, 2024[166] - The company did not repurchase any shares under the share repurchase program for the three and nine months ended September 30, 2024, leaving $498.6 million available for future repurchases[167] Foreign Currency Exposure - The company is subject to risks from fluctuations in foreign currencies from operations outside the United States, with no current positions in derivative instruments to hedge this risk[176] - The estimated effect of a 10% adverse currency fluctuation on revenue is $(4.8) million for Australian Dollars, $(12.9) million for British Pounds, $(10.4) million for Canadian Dollars, $(11.2) million for Euros, and $(9.4) million for other foreign currencies[176] - The estimated effect of a 10% adverse currency fluctuation on operating income is $(1.9) million for Australian Dollars, $2.0 million for British Pounds, $(1.5) million for Canadian Dollars, $(2.9) million for Euros, and $3.7 million for other foreign currencies[176] Corporate Governance - The company has no changes in internal control over financial reporting that materially affected its internal control during the three months ended September 30, 2024[181] - The company’s disclosure controls and procedures were deemed effective as of September 30, 2024, providing reasonable assurance for timely disclosure of required information[180]