Business Context and Reporting Period
This Form 8-K Current Report was filed by Morningstar, Inc. on July 6, 2007. The filing serves as a Regulation FD disclosure containing responses to investor questions received through July 5, 2007. The company operates in three primary segments: Individual, Advisor, and Institutional, providing investment research, data, and software solutions.
Key Financial Metrics and Operational Data
The filing does not provide specific revenue, profit, cash flow, or margin figures for the current period. However, it discloses the following operational and financial data points:
- Capital Expenditures: Anticipated total capital expenditures for 2007 are approximately $8 million, primarily for computer hardware and non-U.S. office build-outs. An additional up to $6 million may be spent on the new corporate headquarters in Chicago.
- Market Penetration: As of year-end 2006, the company reached approximately 210,000 financial advisors out of an estimated global market of 840,000.
- Pricing: The Premium Membership service on Morningstar.com is priced at $145 per year.
- Settlement Revenue: Goldman Sachs has agreed to spend $50 million under the Global Analyst Research Settlement over a five-year period.
Material Changes and Management Commentary
Leadership Change: Scott Cooley was appointed Chief Financial Officer, effective August 10, 2007. He is not a CPA but has 11 years of tenure at Morningstar, including roles as CEO of Morningstar Australia and New Zealand and involvement in the Aspect Huntley acquisition. He replaces Martha Dustin Boudos.
Guidance Policy: Management reaffirmed its policy of not providing quarterly or annual earnings guidance, noting a trend among other companies to move away from such guidance.
Research Settlement: The company addressed the Global Analyst Research Settlement, which concludes in July 2009. Management stated that even in a "worst-case scenario" where no settlement banks continue providing research post-settlement, there would be no major impact on long-term growth plans, though short-term results for the Individual segment could suffer.
Accounts Receivable: The company clarified that while the Institutional segment generates significant receivables, the Individual and Advisor segments also contribute. Most products are billed in advance, with exceptions for assets under management (AUM) based services and certain institutional equity research agreements billed in arrears.
Risks, Contingencies, and Outlook
- Competition: The company faces competition from larger entities with greater financial resources, including Lipper (Reuters), Standard & Poor's (McGraw-Hill), and Thomson Financial Services. Smaller competitors exist in specific segments, such as personal finance websites (e.g., Yahoo! Finance, Google Finance) and print publications.
- Settlement Risk: Revenue from the Global Analyst Research Settlement is contingent on the continuation of agreements with six investment banks after July 2009.
- Forward-Looking Statements: The filing includes a Safe Harbor statement warning that actual results may differ materially from projections due to known and unknown risks.
Investor Verification Checklist
- Verify the exact timing and financial impact of the new CFO transition effective August 10, 2007.
- Monitor the status of the Global Analyst Research Settlement agreements with the six investment banks as the July 2009 expiration approaches.
- Review the 2006 Form 10-K (pages 7, 10, 12, and 17) for detailed competitor analysis as referenced by management.
- Track capital expenditure progress, specifically the $6 million potential spend on the Chicago headquarters.
- Confirm the company's continued adherence to its no-guidance policy in future filings.