MORNINGSTAR, INC. The discussion included in this section, as well as other under sections of this Quarterly Report on Form 10-Q (this Quarterly Report), contains forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations about future events or future financial performance. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," or "continue." These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. For us, these risks and uncertainties include, among others: •failing to maintain and protect our brand, independence, and reputation; •liability related to cybersecurity and the protection of confidential information, including personal information about individuals; •liability for any losses that result from an actual or claimed breach of our fiduciary duties or failure to comply with applicable securities laws; •compliance failures, regulatory action, or changes in laws applicable to our credit ratings operations, or our investment advisory, ESG, and index businesses; •failing to respond to technological change, keep pace with new technology developments, or adopt a successful technology strategy; •the failure to recruit, develop, and retain qualified employees and compensation expense associated with these activities in a period of inflation and rising wage scales in the markets where we operate; •inadequacy of our operational risk management and business continuity programs in the event of a material disruptive event, including an outage of our database, technology-based products and services or network facilities; •failing to differentiate our products and services and continuously create innovative, proprietary, and insightful financial technology solutions; •prolonged volatility or downturns affecting the financial sector, global financial markets, and global economy and its effect on our revenue from asset-based fees and credit ratings business; •failing to maintain growth across our businesses in today's fragmented geopolitical, regulatory and cultural world; •liability relating to the information and data we collect, store, use, create, and distribute or the reports that we publish or are produced by our software products; •the failure of acquisitions and other investments to be efficiently integrated and produce the results we anticipate; •the impact of the current COVID-19 pandemic and government actions in response thereto on our business, financial condition, and results of operations; •challenges faced by our non-U.S. operations, including the concentration of data and development work at our offshore facilities inChina andIndia ; •our indebtedness could adversely affect our cash flows and financial flexibility; and •the failure to protect our intellectual property rights or claims of intellectual property infringement against us. A more complete description of these risks and uncertainties can be found in our other filings with theSecurities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year endedDecember 31, 2021 (our Annual Report). If any of these risks and uncertainties materialize, our actual future results and other future events may vary significantly from what we expect. We do not undertake to update our forward-looking statements as a result of new information or future events. All dollar and percentage comparisons, which are often accompanied by words such as "increase," "decrease," "grew," "declined," "was up," "was down," "was flat," or "was similar" refer to a comparison with the same period in the previous year unless otherwise stated. 26
--------------------------------------------------------------------------------
Table of Contents Understanding our Company Our Business Our mission is to empower investor success. Everything we do at Morningstar is in the service of the investor. The investing ecosystem is complex, and navigating it with confidence requires a trusted, independent voice. We deliver our perspective to institutions, advisors, and individuals with a single-minded purpose: to empower every investor with the conviction that they can make better-informed decisions and realize success on their own terms. Our strategy is to deliver insights and experiences essential to investing. Proprietary data sets, meaningful analytics, independent research, and effective investment strategies are at the core of the powerful digital solutions that investors across our client segments rely on. We have a keen focus on innovation across data, research, product, and delivery so that we can effectively cater to the evolving needs and expectations of investors globally. We generate revenue through products and services in three major categories:
•Subscriptions and license agreements, which typically generate recurring revenue; •Asset-based fees for our investment management business; and •Transaction-based revenue for products that involve primarily one-time, non-recurring revenue.
COVID-19 Update
We continue to closely monitor the impact of the ongoing COVID-19 pandemic on all aspects of our business and in the geographies in which we operate, including how it affects team members, customers, suppliers, and the global markets.
While the business environment in most of the jurisdictions in which we operate continues to move toward a state resembling pre-pandemic conditions, the long-term impact of the COVID-19 pandemic on our ongoing business, results of operations, and overall future financial performance continues to be difficult to reasonably estimate at this time. The threat of new variants of the virus and concerns over the adoption and efficacy of mitigants, such as vaccines and other treatments, continue to affect historical commercial and work patterns, although not with any significant impact on any of our sources of revenue during the three and six months endedJune 30, 2022 . Given the nature of our business, global supply chain disruptions have had little impact on the Company, but could impact the availability of certain IT infrastructure over time. The speed and extent to which governments and central banks withdraw fiscal and monetary stimulus related to the pandemic, and the effects of other national and global political conditions, may undermine or reverse any growth in financial markets. In addition, certain adverse long-term effects of the efforts of monetary authorities and governments to ameliorate the impacts of the pandemic have become evident, including both price and wage inflation as well as the competition for workers. We have noted these effects in our business related to the mobility of employees between jobs and the wage levels needed to hire or retain employees. Accordingly, the situation surrounding the COVID-19 pandemic remains fluid. We continue to actively manage our response and have assessed potential impacts to our financial position and operating results related to our consolidated financial statements during the first six months of 2022. 27 -------------------------------------------------------------------------------- Table of Contents Supplemental Operating Metrics (Unaudited)
The tables below summarize our key product metrics and other supplemental data.
Three months ended June 30, Six months ended June 30,
Organic Change Organic
(in millions) 2022 2021 Change (1) 2022 2021 Change Change (1)
Revenue by Type
License-based (2) $ 327.5 $ 277.2 18.1 % 20.3 % $ 639.4 $ 543.3 17.7 % 19.6 %
Asset-based (3) 67.6 64.8 4.3 % 7.5 % 136.1 126.2 7.8 % 11.1 %
Transaction-based (4) 75.3 73.4 2.6 % 6.0 % 151.9 138.7 9.5 % 11.9 %
Key product area revenue
PitchBook $ 100.2 $ 68.3 46.7 % 46.7 % $ 192.2 $ 129.9 48.0 % 48.0 %
DBRS Morningstar (5) 65.2 65.4 (0.3) % 3.1 % 134.4 124.7 7.8 % 10.1 %
Morningstar Data 64.3 60.3 6.6 % 11.7 % 127.6 119.1 7.1 % 10.7 %
Morningstar Direct 45.8 43.2 6.0 % 10.2 % 91.4 85.3 7.2 % 10.2 %
Investment Management 30.0 31.0 (3.2) % 4.4 % 60.8 60.4 0.7 % 8.6 %
Workplace Solutions 26.2 25.5 2.7 % 2.7 % 52.8 50.7 4.1 % 4.1 %
Morningstar Sustainalytics 25.9 19.0 36.3 % 47.4 % 50.6 36.4 39.0 % 47.5 %
Morningstar Advisor Workstation 23.6 22.9 3.1 % 3.4 % 46.8 45.7 2.4 % 2.7 %
As of June 30,
2022 2021 Change
Assets under management and
advisement (approximate) ($bil)
Workplace Solutions
Managed Accounts $ 116.2 $ 105.1 10.6 %
Fiduciary Services 49.8 58.1 (14.3) %
Custom Models/CIT 36.5 38.8 (5.9) %
Workplace Solutions (total) $ 202.5 $ 202.0 0.2 %
Investment Management
Morningstar Managed Portfolios $ 33.0 (6) $ 30.2 9.3 %
Institutional Asset Management 9.9 12.0 (17.5) %
Asset Allocation Services 7.4 7.1 4.2 %
Investment Management (total) $ 50.3 $ 49.3 2.0 %
Asset value linked to Morningstar
Indexes ($bil) $ 133.9 $ 136.2 (1.7) %
Three months ended June 30, Six months ended June 30,
2022 2021 Change 2022 2021 Change
Average assets under management
and advisement ($bil) $ 258.9 $ 247.4 4.6 % $ 261.0 $ 240.6 8.5 %
_________________________________________________________________________
(1) Organic revenue excludes acquisitions, divestitures, the adoption of new accounting standards or revisions to accounting practices, and the effect of foreign currency translations.
(2) License-based revenue includes PitchBook, Morningstar Data, Morningstar Direct, Morningstar Sustainalytics, Morningstar Advisor Workstation, and other similar products.
(3) Asset-based revenue includes Investment Management, Workplace Solutions, and Morningstar Indexes.
(4) Transaction-based revenue includes DBRS Morningstar, Internet advertising, and Morningstar-sponsored conferences.
28
--------------------------------------------------------------------------------Table of Contents
(5) For the three and six months endedJune 30, 2022 , DBRS Morningstar recurring revenue derived primarily from surveillance, research, and other transaction-related services was 38.4% and 37.2%, respectively. For the three and six months endedJune 30, 2021 , recurring revenue was 36.2% and 36.5%, respectively. (6) Morningstar Managed Portfolios assets under management as ofJune 30, 2022 includes assets under management acquired with the close of thePraemium UK and international business acquisition. As we completed the acquisition onJune 30, 2022 , there is no corresponding revenue in the second quarter of 2022. 29 --------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
