In recent investor Q&A, Morningstar Inc. addressed key changes and updates across various segments. Notably, the company announced Michael Holt as the new Chief Financial Officer effective January 1, 2025. Holt brings expertise in strategy and analysis, complementing the finance senior leadership team's wide-ranging experience in key finance functions.
The historical adjusted operating margins for PitchBook have seen strong expansion over time, particularly in license-based products. Morningstar also aims to return to or exceed recent historical peaks in annual adjusted operating margin, targeting low 20 percent range margins.
With leverage significantly decreasing, Morningstar is evaluating the best use of cash, focusing on funding organic growth, potential acquisitions, and maintaining dividends while also considering share repurchases. The company's leverage ratio stood at approximately 1.2x as of September 30, 2024, down from about 2.5x as of March 31, 2023.
Morningstar has divested its Commodity and Energy data business and closed the disposition to AssetMark of approximately $12 billion in assets administered on its Turnkey Asset Management Platform. The company continues to assess its product portfolio for opportunities to drive long-term value creation.
Regarding cash flows, Morningstar has been focused on improving working capital and cash collections, which has contributed to a decrease in days sales outstanding. The average employee tenure at Morningstar was reported as 4.4 years as of December 31, 2023, and efforts to improve DSOs continue.
Morningstar addressed the slower topline growth in Investment Management and Retirement segments compared to AUM/AUA growth, citing factors such as revenue lag, fee structures, and asset growth in certain accounts with lower fee structures.
In the Morningstar Credit segment, the company has reported revenue growth and opportunities to grow further in structured credit, particularly in residential mortgage-backed securities and asset-backed securities.
Lastly, Morningstar addressed the sequential decrease in Credit revenues and operating profit in Q3 24, indicating a temporary change driven by quarterly variability in issuances. The company aims to continue evaluating mid-term operating margins in the Credit business while maintaining a focus on opportunities for growth.
The market has reacted to these announcements by moving the company's shares -1.6% to a price of $352.91. Check out the company's full 8-K submission here.
