Morningstar, Inc. [MORN] Filings

10-Q 1 morn-20240630.htm 10-Q morn-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-51280

MORNINGSTAR, INC.

(Exact Name of Registrant as Specified in its Charter)


Illinois		36-3297908
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

22 West Washington Street
Chicago,	Illinois	60602
(Address of Principal Executive Offices)		(Zip Code)

(312) 696-6000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common stock, no par value	MORN	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of July 19, 2024, there were 42,838,731 shares of the company’s common stock, no par value, outstanding.

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MORNINGSTAR, INC. AND SUBSIDIARIES

INDEX

PART 1

FINANCIAL INFORMATION

Item 1.

Financial Statements

Unaudited Consolidated Statements of Income for the three and six months ended June 30, 2024 and 2023

Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2024 and 2023

Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023

Unaudited Consolidated Statements of Equity for the three and six months ended June 30, 2024 and 2023

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023

Notes to Unaudited Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

PART 1.FINANCIAL INFORMATION

Item 1.Financial Statements

Morningstar, Inc. and Subsidiaries

Unaudited Consolidated Statements of Income


	Three months ended June 30,				Six months ended June 30,
(in millions, except per share amounts)	2024		2023		2024		2023

Revenue	$	571.9	$	504.7	$	1,114.7	$	984.4

Operating expense:
Cost of revenue	222.7		216.4		440.8		435.2
Sales and marketing	111.3		109.5		215.9		217.1
General and administrative	80.3		90.1		160.6		174.1
Depreciation and amortization	49.1		47.0		96.3		91.8

Total operating expense	463.4		463.0		913.6		918.2

Operating income	108.5		41.7		201.1		66.2

Non-operating expense, net:
Interest expense, net	(10.3)		(14.1)		(21.8)		(27.4)
Realized gain on sale of investments, reclassified from other comprehensive income	0.2		0.3		2.8		0.5



Expense from equity method transaction, net	—		—		—		(11.8)
Other income (expense), net	(8.9)		3.8		(5.6)		6.3
Non-operating expense, net	(19.0)		(10.0)		(24.6)		(32.4)

Income before income taxes and equity in investments of unconsolidated entities	89.5		31.7		176.5		33.8

Equity in investments of unconsolidated entities	(1.2)		(1.8)		(2.7)		(3.1)

Income tax expense (benefit)	19.2		(6.2)		40.5		2.2





Consolidated net income	$	69.1	$	36.1	$	133.3	$	28.5

Net income per share:
Basic	$	1.61	$	0.85	$	3.11	$	0.67
Diluted	$	1.60	$	0.84	$	3.09	$	0.67

Dividends per common share:
Dividends declared per common share	$	0.41	$	0.38	$	0.81	$	0.75
Dividends paid per common share	$	0.41	$	0.38	$	0.81	$	0.75

Weighted average shares outstanding:
Basic	42.8		42.6		42.8		42.6
Diluted	43.1		42.8		43.1		42.8

See notes to unaudited consolidated financial statements.

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Morningstar, Inc. and Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income


	Three months ended June 30,				Six months ended June 30,
(in millions)	2024		2023		2024		2023
Consolidated net income	$	69.1	$	36.1	$	133.3	$	28.5

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(1.4)		7.9		(12.0)		15.0
Unrealized gains on securities:
Unrealized holding gains arising during period	0.2		0.1		2.1		0.2
Reclassification of realized gains on investments included in net income	(0.2)		(0.1)		(2.1)		(0.3)
Other comprehensive income (loss), net	(1.4)		7.9		(12.0)		14.9



Comprehensive income	$	67.7	$	44.0	$	121.3	$	43.4

See notes to unaudited consolidated financial statements.

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Morningstar, Inc. and Subsidiaries

Consolidated Balance Sheets



(in millions, except share amounts)	As of June 30, 2024 (unaudited)		As of December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	391.2	$	337.9
Investments	48.0		51.1
Accounts receivable, less allowance for credit losses of $7.5 million and $5.6 million, respectively	336.4		343.9

Income tax receivable, net	—		0.6
Deferred commissions	40.5		41.9
Prepaid expenses	45.3		34.9
Other current assets	14.4		5.4
Total current assets	875.8		815.7
Goodwill	1,569.5		1,578.8
Intangible assets, net	443.1		484.4
Property, equipment, and capitalized software, less accumulated depreciation and amortization of $758.7 million and $714.0 million, respectively	210.3		207.7
Operating lease assets	148.1		163.9
Investments in unconsolidated entities	97.3		100.2
Deferred tax assets, net	24.2		14.6
Deferred commissions	27.8		29.3
Other assets	7.4		8.8
Total assets	$	3,403.5	$	3,403.4

Liabilities and equity
Current liabilities:
Deferred revenue	$	548.2	$	517.7
Accrued compensation	166.2		214.4

Accounts payable and accrued liabilities	77.1		78.4
Current portion of long-term debt	—		32.1
Operating lease liabilities	32.0		36.4

Other current liabilities	13.9		1.8
Total current liabilities	837.4		880.8
Operating lease liabilities	136.6		151.4
Accrued compensation	23.4		23.7
Deferred tax liabilities, net	30.4		35.6
Long-term debt	899.6		940.3
Deferred revenue	23.8		26.3
Other long-term liabilities	18.6		17.5
Total liabilities	$	1,969.8	$	2,075.6

Equity:
Morningstar, Inc. shareholders’ equity:
Common stock, no par value, 200,000,000 shares authorized, of which 42,838,572 and 42,728,182 shares were outstanding as of June 30, 2024 and December 31, 2023, respectively	—		—

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Treasury stock at cost, 11,982,156 and 11,987,495 shares as of June 30, 2024 and December 31, 2023, respectively	(983.9)		(985.5)
Additional paid-in capital	806.7		789.0
Retained earnings	1,709.4		1,610.8
Accumulated other comprehensive loss:
Currency translation adjustment	(98.4)		(86.4)
Unrealized loss on available-for-sale investments	(0.1)		(0.1)
Total accumulated other comprehensive loss	(98.5)		(86.5)


Total equity	1,433.7		1,327.8
Total liabilities and equity	$	3,403.5	$	3,403.4

See notes to unaudited consolidated financial statements.

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Morningstar, Inc. and Subsidiaries

Unaudited Consolidated Statements of Equity

For the three and six months ended June 30, 2024 and 2023


	Morningstar, Inc. Shareholders’ Equity
										Accumulated Other Comprehensive Loss
	Common Stock					Additional Paid-in Capital
(in millions, except share and per share amounts)	Shares Outstanding	Par Value		Treasury Stock				Retained Earnings				Total Equity

Balance as of December 31, 2023	42,728,182	$	—	$	(985.5)	$	789.0	$	1,610.8	$	(86.5)		$	1,327.8

Net income		—		—		—		64.2		—			64.2
Other comprehensive income (loss):
Unrealized gain on available-for-sale investments, net of tax		—		—		—		—		1.9			1.9
Reclassification of realized gain on investments included in net income, net of tax		—		—		—		—		(1.9)			(1.9)
Foreign currency translation adjustment, net		—		—		—		—		(10.6)			(10.6)
Other comprehensive loss, net		—		—		—		—		(10.6)			(10.6)
Issuance of common stock related to vesting of stock awards, net of shares withheld for taxes on settlements of stock awards	17,388	—		—		(3.2)		—		—			(3.2)
Reclassification of awards previously liability-classified that were converted to equity		—		—		10.8		—		—			10.8
Stock-based compensation		—		—		11.4		—		—			11.4


Dividends declared ($0.41 per share)		—		—		—		(17.3)		—			(17.3)


Balance as of March 31, 2024	42,745,570	$	—	$	(985.5)	$	808.0	$	1,657.7	$	(97.1)		$	1,383.1

Net income		—		—		—		69.1		—			69.1
Other comprehensive income (loss):
Unrealized gain on available-for-sale investments, net of tax		—		—		—		—		0.2			0.2
Reclassification of realized gain on investments included in net income, net of tax		—		—		—		—		(0.2)			(0.2)
Foreign currency translation adjustment, net		—		—		—		—		(1.4)			(1.4)
Other comprehensive loss, net		—		—		—		—		(1.4)			(1.4)
Issuance of common stock related to vesting of stock awards, net of shares withheld for taxes on settlements of stock awards	93,002	—		1.6		(15.9)		—		—			(14.3)
Reclassification of awards previously liability-classified that were converted to equity		—		—		0.4		—		—			0.4
Stock-based compensation		—		—		14.2		—		—			14.2


Dividends declared ($0.41 per share)		—		—		—		(17.4)		—			(17.4)


Balance as of June 30, 2024	42,838,572	$	—	$	(983.9)	$	806.7	$	1,709.4	$	(98.5)		$	1,433.7

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	Morningstar, Inc. Shareholders’ Equity
										Accumulated Other Comprehensive Loss
	Common Stock					Additional Paid-in Capital
(in millions, except share and per share amounts)	Shares Outstanding	Par Value		Treasury Stock				Retained Earnings				Total Equity

Balance as of December 31, 2022	42,480,051	$	—	$	(986.7)	$	757.8	$	1,535.0	$	(99.0)		$	1,207.1
Net loss		—		—		—		(7.6)		—			(7.6)
Other comprehensive income (loss):
Unrealized gain on available-for-sale investments, net of tax		—		—		—		—		0.1			0.1
Reclassification of realized gain on investments included in net income, net of tax		—		—		—		—		(0.2)			(0.2)
Foreign currency translation adjustment, net		—		—		—		—		7.1			7.1
Other comprehensive income, net		—		—		—		—		7.0			7.0
Issuance of common stock related to vesting of stock awards, net of shares withheld for taxes on settlements of stock awards	70,892	—		—		(9.4)		—		—			(9.4)
Reclassification of awards previously liability-classified that were converted to equity		—		—		11.4		—		—			11.4
Stock-based compensation		—		—		12.2		—		—			12.2

Dividends declared ($0.38 per share)		—		—		—		(16.0)		—			(16.0)


Balance as of March 31, 2023	42,550,943	$	—	$	(986.7)	$	772.0	$	1,511.4	$	(92.0)		$	1,204.7

Net income		—		—		—		36.1		—			36.1
Other comprehensive income (loss):	`
Unrealized gain on available-for-sale investments, net of tax		—		—		—		—		0.1			0.1
Reclassification of realized gain on investments included in net income, net of tax		—		—		—		—		(0.1)			(0.1)
Foreign currency translation adjustment, net		—		—		—		—		7.9			7.9
Other comprehensive income, net		—		—		—		—		7.9			7.9
Issuance of common stock related to vesting of stock awards, net of shares withheld for taxes on settlements of stock awards	111,102	—		1.3		(11.7)		—		—			(10.4)
Reclassification of awards previously liability-classified that were converted to equity		—		—		(0.1)		—		—			(0.1)
Stock-based compensation		—		—		14.8		—		—			14.8
Common shares repurchased	(8,484)	—		(1.4)		—		—		—			(1.4)
Dividends declared ($0.38 per share)		—		—		—		(16.0)		—			(16.0)


Balance as of June 30, 2023	42,653,561	$	—	$	(986.8)	$	775.0	$	1,531.5	$	(84.1)		$	1,235.6

See notes to unaudited consolidated financial statements.

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Morningstar, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows



	Six months ended June 30,
(in millions)	2024		2023
Operating activities
Consolidated net income	$	133.3	$	28.5
Adjustments to reconcile consolidated net income to net cash flows from operating activities:
Depreciation and amortization	96.3		91.8
Deferred income taxes	(13.9)		(6.8)
Stock-based compensation expense	25.6		27.0
Provision for bad debt	4.5		2.5
Equity in investments of unconsolidated entities	2.7		3.1

Gain on equity method transaction	—		(49.6)




Other, net	1.5		(6.6)
Changes in operating assets and liabilities:
Accounts receivable	0.1		(14.9)
Accounts payable and accrued liabilities	1.0		(9.0)
Accrued compensation and deferred commissions	(31.6)		(34.2)
Income taxes, current	10.4		(24.2)
Deferred revenue	32.6		44.7

Other assets and liabilities	(16.2)		(4.4)
Cash provided by operating activities	246.3		47.9

Investing activities
Purchases of investment securities	(9.6)		(5.2)
Proceeds from maturities and sales of investment securities	19.7		11.9
Capital expenditures	(66.0)		(59.8)



Proceeds from sale of equity method investments, net	—		26.2
Purchases of investments in unconsolidated entities	(3.6)		(0.9)

Cash used for investing activities	(59.5)		(27.8)

Financing activities
Common shares repurchased	—		(1.4)
Dividends paid	(34.6)		(31.9)
Proceeds from revolving credit facility	90.0		230.0

Repayment of revolving credit facility	(105.0)		(170.0)

Repayment of term facility	(58.1)		(16.3)

Employee taxes withheld for stock awards	(17.5)		(19.9)

Payment of acquisition-related earn-outs	—		(45.5)
Other, net	0.1		0.1
Cash used for financing activities	(125.1)		(54.9)

Effect of exchange rate changes on cash and cash equivalents	(8.4)		1.5
Net increase (decrease) in cash and cash equivalents	53.3		(33.3)
Cash and cash equivalents—beginning of period	337.9		376.6
Cash and cash equivalents—end of period	$	391.2	$	343.3

Supplemental disclosure of cash flow information
Cash paid for income taxes	$	44.1	$	33.1
Cash paid for interest	$	25.2	$	28.2

See notes to unaudited consolidated financial statements.

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MORNINGSTAR, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation of Interim Financial Information

The accompanying unaudited consolidated financial statements of Morningstar, Inc. and subsidiaries (Morningstar, we, our, the company) have been prepared to conform to the rules and regulations of the Securities and Exchange Commission (SEC). The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. In the opinion of management, the statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly our financial position, results of operations, equity, and cash flows. These financial statements and notes are unaudited and should be read in conjunction with our Audited Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024 (our Annual Report).

The acronyms that appear in the Notes to our Unaudited Consolidated Financial Statements refer to the following:

ASC: Accounting Standards Codification

ASU: Accounting Standards Update

FASB: Financial Accounting Standards Board

2. Summary of Significant Accounting Policies

Our significant accounting policies are included in Note 2 of the Notes to our Audited Consolidated Financial Statements included in our Annual Report.

Divestitures: We may sell certain portions of our business from time to time for various reasons. In accordance with FASB ASC 360, Property, Plant, and Equipment (FASB ASC 360), we classify a disposal group to be sold as held for sale in the period in which all of the following criteria are met: management commits to a plan to sell the disposal group; the disposal group is available for immediate sale; the sale and transfer of the disposal group is expected within one year; the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. A disposal group that is classified as held for sale is initially measured at the lower of its carrying value or fair value less any costs to sell and the assets are not depreciated or amortized.

If the disposal group meets the definition of a business, the goodwill within the reporting unit is allocated to the disposal group based on its relative fair value. When the disposal group is a component of a reporting unit, the remaining unallocated goodwill is assessed to determine if any triggering events have occurred in accordance with FASB ASC 350, Intangibles – Goodwill and Other (FASB ASC 350). We assess the fair value of a disposal group, less any costs to sell, each reporting period the disposal group remains classified as held for sale and report any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the initial carrying value of the disposal group.

We recognize a gain or loss on divestiture activity when we transfer control of the disposal group and when it is probable that we will collect substantially all of the related consideration.

Recently Issued Accounting Pronouncements Not Yet Adopted

Segment reporting: In November 2023, the FASB issued ASU No. 2023-07: Improvements to Reportable Segment Disclosures (Topic 280) (ASU No. 2023-07), which requires improved reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. The new standard is effective for our fiscal year beginning on January 1, 2024 and interim periods beginning on January 1, 2025. Entities should apply the new guidance retrospectively to all prior periods presented in the financial statements. We will adopt ASU No. 2023-07 and are evaluating the effect of adoption on our consolidated financial statements and related disclosures.

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Income Taxes: In December 2023, the FASB issued ASU No 2023-09: Improvements to Income Tax Disclosures (Topic 740) (ASU No. 2023-09), which requires additional disclosures primarily related to the income tax rate reconciliation and income taxes paid. This new standard is effective for our fiscal year beginning on January 1, 2025. Entities should apply the guidance prospectively. We are evaluating the effect that ASU No. 2023-09 will have on our consolidated financial statements and related disclosures.

3. Credit Arrangements

Debt

The following table summarizes our debt as of June 30, 2024 and December 31, 2023:


(in millions)	As of June 30, 2024		As of December 31, 2023
Amended 2022 Term Facility, net of unamortized debt issuance costs of $0.5 million and $0.5 million, respectively	$	550.8	$	608.9
Amended 2022 Revolving Credit Facility	—		15.0
2.32% Senior Notes due October 26, 2030, net of unamortized debt issuance costs of $1.2 million and $1.5 million, respectively	348.8		348.5
Total debt	$	899.6	$	972.4

Credit Agreement

On May 6, 2022, the company entered into a senior credit agreement (the 2022 Credit Agreement), providing the company with a five-year multi-currency credit facility with an initial borrowing capacity of up to $1.1 billion, including a $650.0 million term loan and a $450.0 million revolving credit facility. The 2022 Credit Agreement also provided for the issuance of letters of credit and a swingline facility. The 2022 Credit Agreement was amended twice in September 2022 and again most recently in June 2024 (Amended 2022 Credit Agreement) to, among other items, eliminate the options for a second term loan draw and increase both the term loan and revolving credit facility to $650.0 million each, raising the total borrowing capacity to $1.3 billion (Amended 2022 Term Facility and Amended 2022 Revolving Credit Facility, respectively), and, most recently in June 2024, to update the reference rate for credit extensions in Canadian dollars. Aside from the increased borrowing capacity, the Amended 2022 Credit Agreement left the 2022 Credit Agreement terms largely unchanged. As of June 30, 2024, our total outstanding debt under the Amended 2022 Credit Agreement was $550.8 million, net of debt issuance costs, with borrowing availability of $650.0 million under the Amended 2022 Revolving Credit Facility.

The interest rate applicable to any loan under the Amended 2022 Credit Agreement is, at the company's option, either: (i) the applicable Secured Overnight Financing Rate plus an applicable margin for such loans, which ranges between 1.00% and 1.48%, based on the company's consolidated leverage ratio or (ii) the lender's base rate plus the applicable margin for such loans, which ranges between 0.00% and 0.38%, based on the company's consolidated leverage ratio.

The portions of deferred debt issuance costs related to the Amended 2022 Revolving Credit Facility are included in other current and non-current assets, and the portion of deferred debt issuance costs related to the Amended 2022 Term Facility is reported as a reduction to the carrying amount of the Amended 2022 Term Facility. Debt issuance costs related to the Amended 2022 Revolving Credit Facility are amortized on a straight-line basis to interest expense over the term of the Amended 2022 Credit Agreement. Debt issuance costs related to the Amended 2022 Term Facility are amortized to interest expense using the effective interest method over the term of the Amended 2022 Credit Agreement.

Private Placement Debt Offering

On October 26, 2020, we completed the issuance and sale of $350.0 million aggregate principal amount of 2.32% senior notes due October 26, 2030 (the 2030 Notes), in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. Proceeds were primarily used to repay a portion of the company's outstanding debt under the company's prior credit facility. Interest on the 2030 Notes is paid semi-annually on each October 30 and April 30 during the term of the 2030 Notes and at maturity, with the first interest payment date having occurred on April 30, 2021. As of June 30, 2024, our total outstanding debt, net of issuance costs, under the 2030 Notes was $348.8 million.

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Compliance with Covenants

Each of the Amended 2022 Credit Agreement and the 2030 Notes include customary representations, warranties, and covenants, including financial covenants, that require us to maintain specified ratios of consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) to consolidated interest charges and consolidated funded indebtedness to consolidated EBITDA, which are evaluated on a quarterly basis. We were in compliance with these financial covenants as of June 30, 2024.

4. Acquisitions, Goodwill, and Other Intangible Assets

2024 Acquisitions

We did not make any acquisitions during in the first six months of 2024.

Goodwill

The company has seven operating segments, which are presented as the following five reportable segments: Morningstar Data and Analytics, PitchBook, Morningstar Wealth, Morningstar Credit, and Morningstar Retirement. The company's operating segments also represent the company's reporting units to which goodwill is assigned. The company allocated goodwill by reporting unit in accordance with FASB ASC 350 Intangibles—Goodwill and Other (FASB ASC 350). Under this reporting unit structure, the consolidated goodwill balance was allocated based on each reporting unit's relative fair value at January 1, 2021. The company used a market approach and assigned goodwill to the reporting units. The following table shows the changes in our goodwill balances from December 31, 2023 to June 30, 2024:


(in millions)	Morningstar Data and Analytics		PitchBook		Morningstar Wealth		Morningstar Credit		Morningstar Retirement		Total Reportable Segments		Corporate and All Other		Total
Balance as of December 31, 2023	$	605.5	$	607.4	$	94.2	$	108.6	$	93.5	$	1,509.2	$	69.6	$	1,578.8


Foreign currency translation and other	(7.2)		—		(0.4)		(1.5)		—		(9.1)		(0.2)		(9.3)
Balance as of June 30, 2024	$	598.3	$	607.4	$	93.8	$	107.1	$	93.5	$	1,500.1	$	69.4	$	1,569.5

Changes in the carrying amount of the company’s recorded goodwill are mainly the result of business acquisitions, divestitures, and the effect of foreign currency translations. In accordance with FASB ASC 350, the company does not amortize goodwill; instead, goodwill is subject to an impairment test annually, or whenever indicators of impairment exist. When reviewing goodwill for impairment, we assess a number of qualitative factors to determine whether it is more likely than not that the fair value of our reporting units is less than their respective carrying values. Examples of qualitative factors that we assess include macroeconomic conditions affecting our reporting units, financial performance of our reporting units, market and competitive factors related to our reporting units, and other events specific to our reporting units. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative impairment test. The quantitative impairment test compares the estimated fair value of the reporting unit to its carrying value, and recognizes an impairment loss for the amount by which a reporting unit’s carrying amount exceeds its fair value, without exceeding the total amount of goodwill allocated to that reporting unit. We determine the fair value of a reporting unit using a market approach. Determining the fair value of a reporting unit involves judgment and the use of significant estimates and assumptions, which include assumptions regarding the revenue growth rates and operating margins used to calculate estimated future cash flows, as well as revenue and earnings multiples of publicly traded companies whose services and markets are comparable.

We perform our annual impairment reviews in the fourth quarter or when impairment indicators and triggering events are identified. The company did not record any goodwill impairment in the first six months of 2024. Refer to Note 7 for detailed segment information.

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Intangible Assets

The following table summarizes our intangible assets:


	As of June 30, 2024							As of December 31, 2023
(in millions)	Gross		Accumulated Amortization		Net		Weighted Average Useful Life (years)	Gross		Accumulated Amortization		Net		Weighted Average Useful Life (years)
Customer-related assets	$	581.5	$	(268.1)	$	313.4	14	$	601.7	$	(263.8)	$	337.9	14
Technology-based assets	304.9		(199.0)		105.9		8	315.3		(197.0)		118.3		8
Intellectual property & other	90.8		(67.0)		23.8		8	93.2		(65.0)		28.2		8

Total intangible assets	$	977.2	$	(534.1)	$	443.1	12	$	1,010.2	$	(525.8)	$	484.4	12

The following table summarizes our amortization expense related to intangible assets:


	Three months ended June 30,				Six months ended June 30,
(in millions)	2024		2023		2024		2023
Amortization expense	$	17.5	$	17.7	$	35.2	$	35.2

We amortize intangible assets using the straight-line method over their estimated useful lives.

As of June 30, 2024, we expect intangible amortization expense for the remainder of 2024 and subsequent years to be as follows:


(in millions)
Remainder of 2024 (July 1 through December 31)	$	29.1
2025	55.9
2026	52.1
2027	45.5
2028	41.6
Thereafter	218.9
Total	$	443.1

Our estimates of future amortization expense for intangible assets may be affected by future acquisitions, divestitures, changes in the estimated useful lives, impairments, and foreign currency translation.

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5. Income Per Share

The following table shows how we reconcile our net income and the number of shares used in computing basic and diluted net income per share:


	Three months ended June 30,				Six months ended June 30,
(in millions, except per share amounts)	2024		2023		2024		2023
Basic net income per share:
Consolidated net income	$	69.1	$	36.1	$	133.3	$	28.5




Weighted average common shares outstanding	42.8		42.6		42.8		42.6

Basic net income per share	$	1.61	$	0.85	$	3.11	$	0.67

Diluted net income per share:
Consolidated net income	$	69.1	$	36.1	$	133.3	$	28.5




Weighted average common shares outstanding	42.8		42.6		42.8		42.6
Net effect of dilutive stock awards	0.3		0.2		0.3		0.2
Weighted average common shares outstanding for computing diluted income per share	43.1		42.8		43.1		42.8

Diluted net income per share	$	1.60	$	0.84	$	3.09	$	0.67

During the periods presented, we have restricted stock units (RSUs), performance share awards, and market stock units (MSUs) that are excluded from our calculation of diluted earnings per share as their effect is antidilutive. The amount of these potential antidilutive shares was immaterial.

6. Revenue

Disaggregation of Revenue

The following table presents our revenue disaggregated by revenue type. Sales and usage-based taxes are excluded from revenue.


	Three months ended June 30,				Six months ended June 30,
(in millions)	2024		2023		2024		2023
Revenue by Type: (1)
License-based	$	401.7	$	376.0	$	801.9	$	740.0
Asset-based	84.7		67.3		161.7		132.6
Transaction-based	85.5		61.4		151.1		111.8
Consolidated revenue	$	571.9	$	504.7	$	1,114.7	$	984.4

____________________________________________________________________________________________

(1) Starting with the quarter ended March 31, 2024, revenue from PitchBook media sales product was reclassified from license-based to transaction-based. Prior periods have not been restated to reflect the updated classifications.

License-based performance obligations are generally satisfied over time as the customer has access to the product or service during the term of the subscription license and the level of service is consistent during the contract period. License-based agreements typically have a term of 1 to 3 years and are accounted for as subscription services available to customers and not as a license under the accounting guidance.

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Asset-based performance obligations are satisfied over time as the customer receives continuous access to a service for the term of the agreement. Asset-based arrangements typically have a term of 1 to 3 years. Asset-based fees represent variable consideration, and the customer does not make separate purchasing decisions that result in additional performance obligations. Significant changes in the underlying fund assets and significant disruptions in the market are evaluated to determine whether estimates of earned asset-based fees need to be revised for the current quarter. The timing of client asset reporting and the structure of certain contracts can result in a lag between market movements and the impact on earned revenue. An estimate of variable consideration is included in the initial transaction price only to the extent it is probable that a significant reversal in the amount of the revenue recognized will not occur. Estimates of asset-based fees are based on the most recently completed quarter and, as a result, it is unlikely a significant reversal of revenue would occur.

Transaction-based performance obligations are satisfied when the product or service is completed or delivered. Some transaction-based revenue includes revenue from surveillance services, which is recognized over time, as the customer has access to the service during the surveillance period.

Contract Liabilities

Our contract liabilities represent deferred revenue. We record contract liabilities when cash payments are received or due in advance of our performance, including amounts which may be refundable. The contract liabilities balance as of June 30, 2024 had a net increase of $28.0 million, primarily driven by cash payments received or payable in advance of satisfying our performance obligations. We recognized $375.1 million of revenue in the six months ended June 30, 2024 that was included in the contract liabilities balance as of December 31, 2023.

We expect to recognize revenue related to our contract liabilities, including future billings, for the remainder of 2024 and subsequent years as follows:


(in millions)	As of June 30, 2024

Remainder of 2024 (July 1 through December 31)	$	653.0
2025	520.2
2026	153.7
2027	26.0
2028	8.4
Thereafter	23.0
Total	$	1,384.3

The aggregate amount of revenue we expect to recognize for the remainder of 2024 and subsequent years is higher than our contract liability balance of $572.0 million as of June 30, 2024. The difference represents the value of future obligations for signed contracts that have yet to be billed.

The table above does not include variable consideration for unsatisfied performance obligations related to certain of our license-based, asset-based, and transaction-based contracts as of June 30, 2024. We are applying the optional exemption available under ASC Topic 606, as the variable consideration relates to these unsatisfied performance obligations being fulfilled as a series. The performance obligations related to these contracts are expected to be satisfied over the next 1 to 3 years as services are provided to the client. For license-based contracts, the consideration received for services performed is based on the number of future users, which is not known until the services are performed. The variable consideration for this revenue can be affected by the number of user licenses, which cannot be reasonably estimated. For asset-based contracts, the consideration received for services performed is based on future asset values, which are not known until the services are performed. The variable consideration for this revenue can be affected by changes in the underlying value of fund assets due to client redemptions, additional investments, or movements in the market. For transaction-based contracts, the consideration received for most Internet advertising services performed is based on the number of impressions, which is not known until the impressions are created. The variable consideration for this revenue can be affected by the timing and quantity of impressions in any given period and cannot be reasonably estimated.

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As of June 30, 2024, the table above also does not include revenue for unsatisfied performance obligations related to certain of our license-based and transaction-based contracts with durations of one year or less since we are applying the optional exemption under ASC Topic 606. For certain license-based contracts, the remaining performance obligation is expected to be less than one year based on the corresponding subscription terms or the existence of cancellation terms that may be exercised causing the contract term to be less than one year from June 30, 2024. For transaction-based contracts, such as new credit rating issuances and Morningstar-sponsored conferences, the related performance obligations are expected to be satisfied within the next 12 months.

Contract Assets

Our contract assets represent accounts receivable, less allowance for credit losses, and deferred commissions.

The following table summarizes our contract assets balance:


(in millions)	As of June 30, 2024		As of December 31, 2023
Accounts receivable, less allowance for credit losses	$	336.4	$	343.9
Deferred commissions	68.3		71.2
Total contract assets	$	404.7	$	415.1

7. Segment and Geographical Area Information

Segment Information

Our segments are generally organized around the company's products offerings. The company concluded that it has seven operating segments which are presented as the following five reportable segments:

•Morningstar Data and Analytics

•PitchBook

•Morningstar Wealth

•Morningstar Credit

•Morningstar Retirement

The operating segments of Morningstar Sustainalytics and Morningstar Indexes do not individually meet the quantitative segment reporting thresholds and have been combined and presented as part of Corporate and All Other, which is not a reportable segment. Corporate and All Other provides a reconciliation between revenue from our total reportable segments and consolidated revenue amounts.

Morningstar Data and Analytics provides investors comprehensive data, research and insights, and investment analysis to empower investment decision-making. Morningstar Data and Analytics includes product areas such as Morningstar Data, Morningstar Direct, and Morningstar Advisor Workstation.

PitchBook provides investors with access to a broad collection of data and research covering the private capital markets, including venture capital, private equity, private credit and bank loans, and merger and acquisition (M&A) activities. Investors can also access Morningstar's data and research on public equities.

Morningstar Wealth brings together our model portfolios and wealth platform; practice and portfolio management software for registered investment advisers; data aggregation and enrichment capabilities; and our individual investor platform. Morningstar Wealth includes the Investment Management product area.

Morningstar Credit provides investors with credit ratings, research, data, and credit analytics solutions that contribute to the transparency of international and domestic credit markets. Morningstar Credit includes the Morningstar DBRS product area and the Morningstar Credit data and credit analytics product areas.

Morningstar Retirement offers products designed to help individuals reach their retirement goals. Its offerings include managed retirement accounts, fiduciary services, Morningstar Lifetime Allocation funds, and custom models.

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FASB ASC 280 establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (CODM), in deciding how to allocate resources and assess performance. The company's chief executive officer, who is considered to be its CODM, reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance.

The CODM allocates resources and assesses performance of segments based on segment revenue as well as Adjusted Operating Income. Segment Adjusted Operating Income excludes intangible amortization, M&A-related expenses (related to merger, acquisition, and divestiture activity including severance and earn-outs), and items related to the significant reduction and shift of the company's operations in China, such as severance and personnel expenses, transformation costs, and asset impairment costs. The CODM does not consider these items for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although the amounts are excluded from segment Adjusted Operating Income, they are included in reported consolidated operating income and are included in the reconciliation to consolidated results. Expenses presented as part of the company's segments include both direct costs and allocations of shared costs. Shared costs include technology, investment research, sales, facilities, and marketing. These allocations are based on estimated utilization of shared resources and other factors. Adjusted Operating Income is the reported measure that the company believes is most consistent with those used in measuring the corresponding amount in the consolidated financial statements.

The CODM does not review any information regarding total assets on a segment basis. Operating segments do not record intersegment revenues; therefore, there is none to be reported.

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The following tables present information about the company’s reportable segments for the three and six months ended June 30, 2024 and 2023, along with the items necessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements. Prior period segment information is presented on a comparable basis to the basis on which current period segment information is presented and reviewed by the CODM.


	Three months ended June 30,				Six months ended June 30,
(in millions)	2024		2023		2024		2023
Revenue:
Morningstar Data and Analytics	$	196.9	$	186.0	$	393.6	$	365.8
PitchBook	151.7		136.8		299.3		267.9
Morningstar Wealth	62.6		55.8		121.6		110.7
Morningstar Credit	77.6		54.2		137.9		101.0
Morningstar Retirement	33.3		27.4		61.7		52.6
Total Reportable Segments	$	522.1	$	460.2	$	1,014.1	$	898.0
Corporate and All Other (1)	49.8		44.5		100.6		86.4
Total Revenue	$	571.9	$	504.7	$	1,114.7	$	984.4

Adjusted Operating Income (Loss):
Morningstar Data and Analytics	$	87.3	$	80.1	$	178.5	$	161.0
PitchBook	47.3		37.2		87.3		67.6
Morningstar Wealth	(2.2)		(12.3)		(7.8)		(26.9)
Morningstar Credit	27.9		5.0		40.2		1.0
Morningstar Retirement	17.3		13.4		31.5		24.6
Total Reportable Segments	$	177.6	$	123.4	$	329.7	$	227.3

Less reconciling items to Operating Income:
Corporate and All Other (2)	$	(46.6)	$	(53.7)	$	(87.9)	$	(105.8)
Intangible amortization expense (3)	(17.5)		(17.7)		(35.2)		(35.2)
M&A-related expenses (4)	(5.0)		(3.0)		(5.5)		(7.2)

Severance and personnel expenses (5)	—		(2.9)		—		(4.1)
Transformation costs (5)	—		(2.2)		—		(6.4)
Asset impairment costs (5)	—		(2.2)		—		(2.4)
Operating Income	108.5		41.7		201.1		66.2
Non-operating expense, net	(19.0)		(10.0)		(24.6)		(32.4)
Equity in investments of unconsolidated entities	(1.2)		(1.8)		(2.7)		(3.1)
Income before income taxes	$	88.3	$	29.9	$	173.8	$	30.7

____________________________________________________________________________________________

(1) Corporate and All Other provides a reconciliation between revenue from our Total Reportable Segments and consolidated revenue amounts. Corporate and All Other includes Morningstar Sustainalytics and Morningstar Indexes as sources of revenues. Revenue from Morningstar Sustainalytics was $29.2 million and $29.4 million for the three months ended June 30, 2024 and 2023, respectively, and $60.0 million and $56.8 million for the six months ended June 30, 2024 and 2023, respectively. Revenue from Morningstar Indexes was $20.6 million and $15.1 million for the three months ended June 30, 2024 and 2023, respectively, and $40.6 million and $29.6 million for the six months ended June 30, 2024 and 2023, respectively.

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(2) Corporate and All Other includes unallocated corporate expenses as well as adjusted operating income (loss) from Morningstar Sustainalytics and Morningstar Indexes. During the second quarter of 2024 and 2023, unallocated corporate expenses were $46.1 million and $38.9 million, respectively. During first six months of 2024 and 2023, unallocated corporate expenses were $87.0 million and $75.0 million, respectively. Unallocated corporate expenses include finance, human resources, legal, marketing, and other management-related costs that are not considered when segment performance is evaluated.

(3) Excludes finance lease amortization expense of $0.1 million and $0.4 million during the three months ended June 30, 2024 and 2023, respectively, and $0.4 million and $0.5 million during the six months ended June 30, 2024 and 2023, respectively.

(4) Reflects non-recurring expenses related to merger, acquisition, and divestiture activity including pre-deal due diligence, transaction costs, severance, and post-close integration costs.

(5) Reflects costs associated with the significant reduction of the company's operations in Shenzhen, China and the shift of work related to its global business functions to other Morningstar locations.

Severance and personnel expenses include severance charges, incentive payments related to early signing of severance agreements, transition bonuses, and stock-based compensation related to the accelerated vesting of RSU and MSU awards. In addition, the reversal of accrued sabbatical liabilities is included in this category.

Transformation costs include professional fees and the temporary duplication of headcount. As the company hired replacement roles in other markets and shifted capabilities, it employed certain Shenzhen-based staff through the transition period, which resulted in elevated compensation costs on a temporary basis.

Asset impairment costs include the write-off or accelerated depreciation of fixed assets in the Shenzhen, China office that were not redeployed, in addition to lease abandonment costs as the company downsized its office space prior to the lease termination date.

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The following tables present segment revenue disaggregated by revenue type:


	Three months ended June 30, 2024
(in millions)	Morningstar Data and Analytics		PitchBook		Morningstar Wealth		Morningstar Credit		Morningstar Retirement		Total Reportable Segments		Corporate and All Other (7)		Total
Revenue by Type: (8)
License-based	$	195.7	$	150.1	$	19.9	$	3.7	$	0.5	$	369.9	$	31.8	$	401.7
Asset-based	—		—		35.8		—		32.8		68.6		16.1		84.7
Transaction-based	1.2		1.6		6.9		73.9		—		83.6		1.9		85.5
Total	$	196.9	$	151.7	$	62.6	$	77.6	$	33.3	$	522.1	$	49.8	$	571.9

	Six months ended June 30, 2024
(in millions)	Morningstar Data and Analytics		PitchBook		Morningstar Wealth		Morningstar Credit		Morningstar Retirement		Total Reportable Segments		Corporate and All Other (7)		Total
Revenue by Type: (8)
License-based	$	392.4	$	295.7	$	40.4	$	7.9	$	1.0	$	737.4	$	64.5	$	801.9
Asset-based	—		—		69.4