Morningstar, Inc. · NASDAQ:MORN
Morningstar — Shareholder Meeting (2020)
80 slides from Morningstar's shareholder meeting presentation, 2020
Slide 1: Morningstar 2020 Shareholders' Meeting
Morningstar 2020 Shareholders’ Meeting
Slide 2: Safe Harbor Statement
Safe Harbor Statement Today’s presentations contain forward-looking statements. All statements made that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. Please refer to our most recent earnings release and our most recent Form 10-
Slide 3: Morningstar: Mission and Strategy
Morningstar: Mission and Strategy Kunal Kapoor Chief Executive Officer
Slide 4: Empowering investor success
OUR MISSION Empowering investor success
Slide 5: Independent, transparent, long-term investing
Our opinions are independent Our actions are transparent We invest for the long term
Slide 6: COVID Response, Enabled By Our People
COVID Response, Enabled By Our People
Slide 7: Morningstar's Market Fair Value vs. the Broader Market
Morningstar’s Market Fair Value vs. the Broader Market Morningstar’s aggregate price to fair value ratio reached a low of .70 for the year to date period, on the same day as the broader U.S. market hit its first-quarter low point. Morningstar U.S. Market Index Morningstar Market Fair Value
Slide 8: Morningstar Today
Morningstar Today
Slide 9: Our People
Our People 2,935 760 3,255 2 2 2 84% 84% People understand how Acting ethically and with 868 Research Analysts their work is connected to integrity on my team takes the company’s strategy priority over achieving 2,122 Technologists business results 135 Designers 2020 Morningstar Pulse Survey. Data a
Slide 10: 2019 Reported Performance
2019 Reported Performance ($mil) Revenue Operating Income Adjusted Free Cash Flow* Operating Income* ＋15.6% –1.4% ＋6.6% –12.1% 18 19 18 19 18 19 18 19 $1,019.9 $1,179.0 $215.8 $189.6 $236.5 $233.3 $238.7 $254.4 *Adjusted operating income and free cash flow are considered non-GAAP financial measures.
Slide 11: Recent Highlights
Recent Highlights Menu Financial Planning Back to Plan Overview Gather Information Create and Analyze Goals Review Summary and Report Select Goals Fund Goals Explore Plans Doe’s Goal Plan Now that you’ve created an initial plan, you can generate a Menu Financial Planning proposed plan with your prop
Slide 12: Integrated ESG Data and Research for All Investors
Integrated ESG Data and Research for All Investors Professional & Individual Investor Solutions License-based Morningstar Data Morningstar.com PitchBook Morningstar Direct Research Asset Management Solutions Asset-based Workplace Indexes Managed Portfolios Solutions for Issuers Transaction-based Cre
Slide 13: The Future of Morningstar
The Future of Morningstar
Slide 14: We Participate in Large and Growing Markets
We Participate in Large and Growing Markets $32 Bil $2.3 Bil $9.3 Tril $8.1 Bil Global Spend on Total Addressable Market for Total Addressable Market Global Credit Ratings Industry Financial Data/Analysis Private Capital Markets Data AUM in Managed Accounts 5.6% Growth YOY 5.6% Growth YOY 27.8% Grow
Slide 15: We Participate in Large and Growing Markets
We Participate in Large and Growing Markets $32 Bil Global Spend on $2.3 Bil$9.3 Tril Total Addressable Market for Total Addressable Market AUM in Managed Accounts $8.1 Bil Global Credit Ratings Industry 5.6% Growth YOY 20.6% Growth YOY Financial Data/Analysis Private Capital Markets Data 5.6% Growt
Slide 16: We Participate in Large and Growing Markets
We Participate in Large and Growing Markets $32 Bil Global Spend on Financial Data/Analysis $2.3 Bil Total Addressable Market for Private Capital Markets Data $9.3 Tril Total Addressable Market $8.1 Bil Global Credit Ratings Industry 5.6% Growth YOY 5.6% Growth YOY 27.8% Growth YOY AUM in Managed Ac
Slide 17: We Participate in Large and Growing Markets
We Participate in Large and Growing Markets $32 Bil Global Spend on Financial Data/Analysis $2.3 Bil Total Addressable Market for Private Capital Markets Data $9.3 Tril Total Addressable Market AUM in Managed Accounts $8.1 Bil Global Credit Ratings Industry 5.6% Growth YOY 27.8% Growth YOY 20.6% Gro
Slide 18: We Participate in Large and Growing Markets
We Participate in Large and Growing Markets $32 Bil Global Spend on $2.3 Bil Total Addressable Market for $9.3 Tril Total Addressable Market $8.1 Bil Global Credit Ratings Industry Financial Data/Analysis Private Capital Markets Data AUM in Managed Accounts 5.6% Growth YOY 5.6% Growth YOY 27.8% Grow
Slide 19: We Participate in Large and Growing Markets
We Participate in Large and Growing Markets $32 Bil Global Spend on $2.3 Bil Total Addressable Market for $9.3 Tril Total Addressable Market $8.1 Bil Global Credit Ratings Industry Financial Data/Analysis Private Capital Markets Data AUM in Managed Accounts 5.6% Growth YOY 5.6% Growth YOY 27.8% Grow
Slide 20: We Participate in Large and Growing Markets
We Participate in Large and Growing Markets $32 Bil $2.3 Bil $9.3 Tril $8.1 Bil Global Spend on Total Addressable Market for Total Addressable Market Global Credit Ratings Industry Financial Data/Analysis Private Capital Markets Data AUM in Managed Accounts 5.6% Growth YOY 5.6% Growth YOY 27.8% Grow
Slide 21: Investor Trends
Investor Trends Trend 1: Trend 2: Trend 3: The modern investor is empowered Investors demand more value Convergence of public and with new data, research, and analytics from advice private markets
Slide 22: Investor Trend One
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Slide 23: Investor Trend One: Morningstar Data
Investor Trend One Morningstar Data 6.3% Reported Revenue 8.4% Organic Revenue ESG Reports 2019 YOY Growth Factor Profile Organic revenue is considered a non-GAAP financial measure. We calculate this measure by excluding the impact of currency, M&A, and adoption of accounting changes. Please refer t
Slide 24: Investor Trend One: Morningstar Direct
Investor Trend One Morningstar Direct 7.8% Reported Revenue 9.5% Organic Revenue 5.8% Licenses Macro Scenario Analysis 2019 YOY Growth Market Scenario Analysis Risk Attribution Analysis Organic revenue growth is a non-GAAP financial measure.
Slide 25: Investor Trend One: DBRS Morningstar
Investor Trend One DBRS Morningstar 251.5% Reported Revenue* 37% Recurring DBRS Morningstar Viewpoint *Revenue for the first six months of 2019 includes revenue from Morningstar Credit Ratings while revenue for the third and fourth quarters of 2019 includes revenue from DBRS Morningstar, the newly c
Slide 26: Investor Trend Two: Investment Management
Investor Trend Two Morningstar Investment Management 4.2% Reported Revenue 5.7% Organic Revenue 13.1% AUM/A 2019 YOY Growth Morningstar Managed Portfolios Organic revenue growth is a non-GAAP financial measure.
Slide 27: Investor Trend Two: Workplace Solutions
Investor Trend Two Morningstar Workplace Solutions 4.1% Revenue 24.3% AUM/A 2019 YOY Growth Morningstar Managed Accounts Morningstar Plan Advantage
Slide 28: Investor Trend Two: Indexes
Investor Trend Two Indexes 44.7% Asset-value Linked to Morningstar Indexes 2019 YOY Growth Morningstar Indexes
Slide 29: Investor Trend Three: PitchBook
Investor Trend Three PitchBook 49.0% Revenue 59.7% Licenses 2019 YOY Growth
Slide 30: Empowering investor success
OUR MISSION Empowering investor success
Slide 31: Financial Highlights
Financial Highlights Jason Dubinsky Chief Financial Officer
Slide 32: Financial Success in 2019
Financial Success in 2019 Completed largest Continued to invest Drove solid top line Achieved record acquisition in in organic growth performance free cash flow Morningstar history
Slide 33: 2019 Reported Performance
2019 Reported Performance ($mil) Revenue Operating Income Adjusted Free Cash Flow* Operating Income* ＋15.6% –1.4% ＋6.6% –12.1% 18 19 18 19 18 19 18 19 $1,019.9 $1,179.0 $215.8 $189.6 $236.5 $233.3 $238.7 $254.4 *Adjusted operating income and free cash flow are non-GAAP financial measures.
Slide 34: 2019 Revenue Growth
2019 Revenue Growth Reported Organic Organic Revenue Revenue Revenue* Excluding 2018 Amended License Agreement** 15.6% 9.5% 8.4% *Organic revenue is considered a non-GAAP financial measure. **Excludes the impact of a $10.5 million amended license agreement in the third quarter of 2018. Please refer
Slide 35: Operating Margin
Operating Margin Operating Adjusted Operating Margin Margin* Margin Drivers: Non-comparable items 23.2% Amended license agreement 21.2% 19.8% Stock-based compensation 16.1% Business mix Cash compensation Production / Cloud-computing Facilities 18 19 18 19 *Adjusted operating margin is a non-GAAP fin
Slide 36: Business Mix
Business Mix 2019 ($1.179 mil) Revenue Category Margin vs Company Margin 2 Licensed-based 13.1% Morningstar Data Morningstar Direct PitchBook 18.0% 68.9% Other Asset-based Investment Management Workplace Solutions Morningstar Indexes Transaction-based Credit Ratings Morningstar.com Ad Sales Conferen
Slide 37: Comparisons to Peers
Comparisons to Peers 13.9% 3 YR Revenue CAGR 1 5.6% 15.9% 8.4% 9.5% 1 YR Organic Growth 2 2.0% 10.3% 26.1% 2019 EBITDA Margin 3 9.5% 53.6% 82.8% 2019 Free Cash Flow Conversion 64.3% 4 86.5% Morningstar Morningstar organic growth excluding one-time license amendment in 2018 Includes following peers t
Slide 38: Cash Flow Generation
Cash Flow Generation Free Cash Flow* ($mil) $238.7 $254.4 $184.2 $183.5 $150.9 15 16 17 18 19 *Free cash flow is a non-GAAP financial measure.
Slide 39: Q1 2020 Reported Performance
Q1 2020 Reported Performance ($mil) Revenue Operating Income Adjusted Free Cash Flow* Operating Income* ＋25.1% –10.1% ＋12.2% –16.6% 19 20 19 20 19 20 19 20 $258.9 $324.0 $49.5 $44.5 $54.7 $61.4 $40.3 $33.6 *Adjusted operating income and free cash flow are non-GAAP financial measures.
Slide 40: Key Products and Investment Area Growth: Q1 2020 vs Q1 2019
Key Products and Investment Area Growth: Q1 2020 vs Q1 2019 Reported Growth ($mil) Organic Growth* PitchBook $13.0 40.2% Investment Management $3.8 16.0% Data $3.7 8.9% Workplace $2.7 14.6% Direct $2.0 6.5% Advisor Workstation –$0.6 –2.4% DBRS Morningstar $37.2 — *Organic revenue growth is a non-GAA
Slide 41: Business Impacts in Current Environment
Business Impacts in Current Environment Revenue Type Characteristics Q1 Observations Licensed-based Subscription-based contracts Limited impact in the quarter Generally more recurring Closely monitoring sales pipeline and client activity Asset-based Linked to AUM levels and basis point fees Timing l
Slide 42: Looking Back at Last Downturn: Revenue Composition
Looking Back at Last Downturn: Revenue Composition 2008 ($503 mil) 2019 ($1,179 mil) Q1 2020 ($324 mil) 3.8% 2 2.3% 2 1.3% 2 10.8% 14.4% 22.2% 74.0% 18.0% 68.9% 17.7% 66.7% Licensed-based Asset-based DBRS Morningstar Other Transaction-based
Slide 43: Looking Back at Last Downturn: Business Performance
Looking Back at Last Downturn: Business Performance Revenue ($mil) and Reported | Organic Growth Rates $631.4 $658.3 $502.5 $555.4 4.3% | 5.2% $435.1 $479.0 13.7% | 9.1% 15.5% | 8.8% 15.9% | 5.0% $315.2 38.1% | 22.8% –4.7% | –8.8% 38.8% | 22.4% Operating Income ($mil) and Operating Margin $138.9 $13
Slide 44: Looking Back at Last Downturn: Business Performance
Looking Back at Last Downturn: Business Performance Revenue ($mil) and Reported | Organic Growth Rates $631.4 $658.3 $502.5 $555.4 4.3% | 5.2% $435.1 $479.0 13.7% | 9.1% 15.5% | 8.8% 15.9% | 5.0% $315.2 38.1% | 22.8% –4.7% | –8.8% 38.8% | 22.4% Operating Income ($mil) and Operating Margin $138.9 $13
Slide 45: Looking Back at Last Downturn: Capital Deployment
Looking Back at Last Downturn: Capital Deployment ($mil) Free Cash Flow Acquisitions and Share Repurchase $108.6 $105.4 $106.1 $100.8 Share Repurchase $88.9 $74.2 08 09 10 08 09 10 Free cash flow is a non-GAAP financial measure.
Slide 46: Actions in Current Environment
Actions in Current Environment Near-term Actions Longer-term Focus Supporting business continuity Maintaining organic growth priorities with technology and infrastructure Real estate and workforce strategy Hiring slow down with centralized Mergers and acquisitions governance Reduction in discretiona
Slide 47: Balance Sheet and Liquidity as of March 31, 2020
Balance Sheet and Liquidity as of March 31, 2020 Leverage* Cash and Credit Capacity ($mil) 2 ~1.4x $83.9 $210.0 ~0.6x $238.6 Gross Net Revolver Capacity Leverage Leverage Non-U.S. Cash / Cash Equivalents *Consistent with credit facility definition. U.S. Cash / Cash Equivalents
Slide 48: ROIC: Return On Invested Capital
ROIC: Return On Invested Capital* 19.4% 19.8% 18.5% 14.5% 12.2% 15 16 17 18 19 *Return on invested capital is considered a non-GAAP measure. We calculate this measure based on return divided by invested capital. Please refer to the reconciliation at the end of the section.
Slide 49: MORN Total Return
MORN Total Return Annualized Morningstar US Market MORN Total Return ** Since IPO (05/03/2005)* 15.3% 8.7% 10-year 12.7% 11.5% 5-year 15.5% 8.5% 3-year 28.7% 8.3% 1-year 8.7% (0.6%) **Calculated based on the offer price of $18.50. **Source: Morningstar Indexes. Peer group includes: ENV, FDS, MCO, MSC
Slide 50: Appendix: Reconciliation of Non-GAAP Measures
Appendix: Reconciliation of Non-GAAP Measure with the Nearest Comparable GAAP Measure
Slide 51: Consolidated Operating Income to Adjusted Operating Income
Consolidated Operating Income to Adjusted Operating Income Year Ended December 31 Three Months Ended March 31 ($mil) 2018 2019 Change 2019 2020 Change Consolidated operating $215.8 $189.6 (12.1%) $49.5 $44.5 (10.1%) income Add: intangible amortization $20.7 $36.5 76.3% $4.9 $14.0 185.7% expense Add:
Slide 52: Free Cash Flow
Free Cash Flow Twelve Months Ended December 31 Three Months Ended March 31 ($mil) 2015 2016 2017 2018 2019 Q1 2019 Q1 2020 Cash provided by operating $241.5 $213.7 $250.1 $314.8 $334.4 $59.0 $48.7 activities Capital expenditures ($57.3) ($62.8) ($66.6) ($76.1) ($80.0) ($18.7) ($15.1) Free cash flow
Slide 53: Consolidated Revenue to Organic Revenue
Consolidated Revenue to Organic Revenue Year Ended December 31 Three Months Ended March 31 ($mil) 2018 2019 Change 2019 2020 Change Revenue $1,019.9 $1,179.0 15.6% $258.9 $324.0 25.1% Less: acquisitions ($20.2) ($107.8) 433.7% ($9.5) ($47.7) 402.1% Effect of foreign currency — $12.3 NMF — $2.0 NMF tr
Slide 54: Key Product and Investment Area Revenue
Key Product and Investment Area Revenue Three Months Ended March 31 ($mil) 2019 2020 $ Reported Organic 2 Morningstar Data $47.7 $51.4 $3.7 7.8% 8.9% Morningstar Direct $36.3 $38.3 $2.0 5.5% 6.5% PitchBook Data $32.3 $45.3 $13.0 40.2% 40.2% Investment Management $26.7 $30.5 $3.8 14.2% 16.0% DBRS Mor
Slide 55: Key Product and Investment Area Revenue
Key Product and Investment Area Revenue Twelve Months Ended December 31 ($mil) 2018 2019 $ Reported Organic 2 Morningstar Data $185.2 $196.8 $11.6 6.3% 8.4% Morningstar Direct $137.9 $148.6 $10.7 7.8% 9.5% PitchBook Data $99.6 $148.4 $48.8 49.0% —% Investment Management $111.2 $115.9 $4.7 4.2% 5.7%
Slide 56: Consolidated Operating Margin to Adjusted Operating Margin
Consolidated Operating Margin to Adjusted Operating Margin Year Ended December 31 Three Months Ended March 31 ($mil) 2018 2019 Change 2019 2020 Change Consolidated operating margin 21.2% 16.1% (5.1 pp) 19.1% 13.7% (5.4 pp) Add: intangible amortization 2.0% 3.1% 1.1 1.9% 4.3% 2.4 expense Add: acquisi
Slide 57: EBITDA
EBITDA Twelve Months Ended December 31 ($mil) 2019 Revenue 1,179 Operating Income 190 Operating Margin 16.1% Adjusted: Operating Income 190 Add: Depreciation and amortization 118 EBITDA 307 EBITDA Margin 26.1%
Slide 58: ROIC
ROIC Twelve Months Ended December 31 ($mil) 2015 2016 2017 2018 2019 Net income $132.6 $161.0 1 $136.9 2 $183.0 3 $152.0 Net interest expense (after tax) –$0.9 –$0.2 $2.7 $1.4 $6.7 Return $131.7 $160.8 $139.6 $184.4 $158.7 Shareholders’ equity $640.6 $696.8 $804.9 $934.7 $1,083.6 Long-term debt $0.0
Slide 59: DBRS Morningstar Credit Ratings
DBRS Morningstar Credit Ratings Detlef Scholz President, DBRS Morningstar
Slide 60: Credit Ratings Business Model
Credit Ratings Business Model AAA BB CC D B CCC A AA C BBB
Slide 61: Credit Ratings Business Model
Credit Ratings Business Model Significant barriers to global operations AAA AA A Long-term track record essential for credibility Issuer-pay business model BBB BB B CCC CC C D
Slide 62: History of Credit Ratings at Morningstar
History of Credit Ratings at Morningstar Commercial mortgage- Residential mortgage- Single-family Asset-backed backed securities backed securities rental securities securities Financial institution Corporate credit Operational risk ratings ratings assessments
Slide 63: History of Credit Ratings at Morningstar
History of Credit Ratings at Morningstar Single-family rental securities Residential mortgage- Asset-backed backed securities securities 09 10 11 14 16 19 Morningstar begins publishing Realpoint rebranded as SEC approves expansion of credit ratings and research on Morningstar Credit Ratings, NRSRO l
Slide 64: DBRS History
DBRS History Toronto 76 00 06 11 14 18 Canada
Slide 65: DBRS History
DBRS History Toronto New York 76 00 06 11 14 18 Canada US
Slide 66: DBRS History
DBRS History Toronto New York 76 00 06 11 14 18 #6 Canada US
Slide 67: DBRS History
DBRS History London Toronto New York 76 00 06 11 14 18 #6 Canada US Europe
Slide 68: DBRS History
DBRS History London Toronto New York Chicago 76 00 06 11 14 18 #6 #4 Canada US Europe
Slide 69: DBRS History
DBRS History $169.5 (US $mil) London Frankfurt Toronto Madrid New York Chicago 76 00 06 11 14 18 #6 #4 Canada US Europe
Slide 70: 2018 DBRS and Morningstar
2018 DBRS and Morningstar (US $mil) 2 $36.3 2 $169.5 2 $200.8 Morningstar Credit Ratings DBRS DBRS Morningstar US Canada Europe
Slide 71: Diversification in Asset Classes
Diversification in Asset Classes Morningstar Credit Ratings DBRS DBRS Morningstar Note: charts represent active issuer relationships per segment.
Slide 72: Empowering investor success
OUR MISSION Empowering investor success
Slide 73: Competitive Landscape
Competitive Landscape Global Capabilities S&P Global Moody’s FitchRatings Ratings KBRA AM Best Scope Others Local / Single HR Ratings Geography Limited / Narrow Broad Ratings Ratings Capabilities Coverage
Slide 74: Moat, Strategy, Opportunity
Moat, Strategy, Opportunity Corporate Ratings Financial Institutions Sovereign ABS Structured Finance RMBS CMBS Structured Credit Data Products Leading Established Developing
Slide 75: Target Market and Our Opportunities
Target Market and Our Opportunities Addressable Market Volatility/ Tech Market Opportunity Differentiation
Slide 76: Total Addressable Market Opportunity
Total Addressable Market Opportunity Global Ratings Revenue (US $bil) $7.8 $7.7 $8.1 $6.3 $6.4 $6.8 14 15 16 17 18 19 Source: DBRS Morningstar Estimates
Slide 77: Periods of Market Volatility Highlight Opportunities
Periods of Market Volatility Highlight Opportunities Credit market COVID-19 emergency DBRS Morningstar DBRS stronger volatility government response tech stack/operations post-2008 crisis
Slide 78: Search or Add Fitters tr XX rserunkuma@dbrecom ~
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Slide 79: The Next Generation of Credit Ratings
The Next Generation of Credit Ratings DBRS Morningstar brings more analytical transparency, much-needed diversity of opinion, and customer-service responsiveness to the marketplace.
Slide 80: Slide 80