Morningstar(MORN) - 2025 Q2 - Quarterly Results

Morningstar, Inc. Second-Quarter 2025 Financial Results Financial Highlights 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] - 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] 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 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] - 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] 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 Growth was led by PitchBook, Morningstar Credit, and Morningstar Direct Platform, while Morningstar Retirement saw a decline Morningstar Direct Platform 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] 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 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][12] 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 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] 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 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] 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 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] 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 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] - 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] - 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] Balance Sheet and Cash Flow 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] - 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] 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 This section provides detailed unaudited financial statements, segment data, AUMA figures, and non-GAAP reconciliations Unaudited Condensed Consolidated Statements of Income 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 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 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 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 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 |