Morningstar Margins Widen as Credit Revenue Climbs
Morningstar Credit revenue rose 23.4% to $104.9 million as issuance activity accelerated.
Morningstar (MORN), the investment-research and financial-data provider, increased second-quarter revenue 9.6% from a year earlier to $663.2 million, including 6.8% organic growth. Revenue rose 2.9% from the first quarter, though organic growth slowed from 7.6%.
Morningstar Credit led the advance as robust issuance supported U.S. structured-finance ratings and Canadian and U.S. corporate activity. Segment revenue rose 23.4% to $104.9 million, while adjusted operating income increased 26.2% and the adjusted margin widened 80 bps to 36.7%.
The broader margin picture remained favorable from a year earlier but softened sequentially on an adjusted basis. Morningstar’s GAAP operating margin expanded 350 bps to 24.2%, while its adjusted margin widened 280 bps to 26.5%. The GAAP margin was unchanged from the first quarter, and the adjusted margin narrowed 120 bps.
Operating expenses rose 5.9% to $509.4 million, accelerating from 4.7% growth in the first quarter. Higher compensation added $7.4 million, technology infrastructure costs increased by $6.7 million, and intangible amortization rose by $5.6 million. PitchBook’s revenue growth moderated to 4.9%, and its adjusted margin narrowed 140 bps to 30.3% as added headcount and artificial-intelligence technology spending offset the revenue increase.
Morningstar Wealth showed the clearest profitability shift. Revenue declined 6.2% to $60.3 million as Morningstar Office continued to wind down, but adjusted operating income rose 163.3% and the adjusted margin expanded 840 bps to 13.1%. Excluding the retiring product, organic revenue would have increased 5.3%. Wealth assets under management and advisement fell 4.5% to $63.8 billion after the loss of an Asset Allocation Services client, while combined Model Portfolio and International Wealth Platform assets grew 16.2% on market appreciation and positive non-U.S. flows.
Retirement revenue increased 17.0% to $37.9 million, with assets under management and advisement up 9.0% to $311.0 billion on market gains and positive flows. Its adjusted margin widened 370 bps to 51.2%. Direct Platform revenue rose 6.2%, though additional research and sales resources and cloud-migration costs narrowed its adjusted margin 80 bps from a year earlier to 45.2%; that margin recovered 290 bps from the first quarter.
Morningstar repurchased $100.0 million of shares during the quarter, down from $300.0 million in the first quarter, bringing first-half purchases to $400.0 million. The heavier capital return and CRSP acquisition lifted period-end debt to $1.7 billion from $1.1 billion at year-end, and net interest expense more than doubled to $17.1 million, raising the financing cost attached to Morningstar’s expanded portfolio.