Morningstar Inc. Focuses on Margin Expansion

By Bobby Samwell • Friday, July 19 08:06 • Permanent Link

Morningstar Inc. has recently responded to investor questions, shedding light on various aspects of their financial performance and strategic initiatives. The company emphasizes that its incremental margin is influenced by product mix, ongoing investment levels, and the scaling of underlying businesses. They have seen stronger incremental margins in license-based products, such as Morningstar Direct and PitchBook, and have witnessed segment margin expansion in both Data and Analytics and PitchBook over the last three years.

Regarding the company's goal of increasing adjusted operating margins to recent historical peaks and higher, Morningstar Inc. aims to focus on increasing revenues at a faster rate than adjusted operating expense growth, leading to margin expansion and increasing free cash flow over time.

In terms of overall cost breakdown and cost savings, Morningstar Inc. indicated that compensation and benefits related expenses accounted for over two-thirds of operating expenses in 2023. The company is focused on controlling costs across multiple expense categories, including professional fees and real estate expenses.

PitchBook, a significant product for Morningstar Inc., has a pricing philosophy focused on simple, all-inclusive pricing that reflects the value offered to clients while supporting the expansion of client relationships over time. The company also shared details about the renewal rates for PitchBook, mentioning that annual revenue renewal rates fell from 127% in 2021 to 112% in 2023.

The company also provided insights into the performance of PitchBook Platform, including LCD, indicating that the growth rate was slower in Q4’23 compared to Q1’24. Morningstar Inc. attributed the slower growth rate to certain areas of softness in the market, particularly in corporates.

Overall, Morningstar Inc. continues to invest in data, research, and product enhancements for PitchBook, aiming to drive growth and expand client relationships over time.

As a result of these announcements, the company's shares have moved -1.2% on the market, and are now trading at a price of $308.78. For more information, read the company's full 8-K submission here.

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