Morningstar(US:MORN)2025-07-31 20:54PART 1 FINANCIAL INFORMATION Financial Statements 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 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 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 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 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 Facility24 - 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 goodwill303439 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 program101 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 and H1 2025 financial results, highlighting revenue growth, operating margin expansion, and a decrease in free cash flow Consolidated Results 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 2025122124 - 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 Credit118119 Segment Results 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 - Morningstar Sustainalytics revenue decreased 6.5% in Q2, primarily due to the streamlining of its licensed-ratings offering and lower revenues for ESG Risk Ratings160 Liquidity and Capital Resources 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 million171 - Approximately 83% of the company's cash, cash equivalents, and investments were held outside the U.S. as of June 30, 2025173 - The company repurchased 766,641 shares for $221.6 million in H1 2025, with $265.4 million remaining under the share repurchase program182 - Total outstanding debt under the Amended 2022 Credit Agreement was $489.8 million, with an additional borrowing availability of $510.0 million175 Quantitative and Qualitative Disclosures about Market Risk 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, 2025189 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 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 level192 - 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 reporting193 PART 2 OTHER INFORMATION Legal Proceedings 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 statements195 Risk Factors 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 filing196 Unregistered Sales of Equity Securities and Use of Proceeds 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 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 certifications202