MORNINGSTAR, INC. Item 7.01. Regulation FD Disclosure.
The following information is included in this Current Report on Form 8-K as a
result of
Caution Concerning Forward-Looking Statements
This current report on Form 8-K 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," "prospects," 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-
data and development work at our offshore facilities in
· 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.
Investor Questions and Answers:
We encourage current shareholders, potential shareholders, and other interested
parties to send questions to us in writing and we make written responses
available on a regular basis. The following answers respond to selected
questions received through
If you would like to submit a question, please send an e-mail to investors@morningstar.com or write to us at the following address:
Morningstar, Inc. Investor Relations22 W. Washington St. Chicago, IL 60602 License-Based Products
1. How are Data, Direct, and Advisor Workstation delivered to clients? Are they
delivered via a web-based interface or on-premise?
We primarily deliver data to clients via data feeds (FTP) and APIs. We provide several client-facing applications that allow clients to create and customize their feeds. These are web-based and hosted in the cloud.
Direct is a Windows desktop application that is installed locally on users'
computers. The Direct desktop application connects over the internet to
databases and application servers hosted primarily in Morningstar data centers,
with some use of cloud (AWS) infrastructure. Over time, we expect the balance of
back-end services to shift to the cloud. A large portion of Direct's features
and functionality, as well as, we expect, most future enhancements, will be
delivered using modern web components and frameworks delivered within the legacy
application. Direct's
Advisor Workstation is an entirely web-based product that provides clients access to research, portfolio analytics, investment planning, and proposal generation workflows.
Sales Process
2. How does the sales process work for finding new customers and ensuring
existing customers renew for the license-based products?
Our sales and marketing teams follow a structured and well-defined approach to identify new sales opportunities. Our marketing team generates potential leads via digital demand generation activities, including research, email campaigns, and webinars, as well as field demand generation activities, which are in-person events such as the Morningstar Investment Conferences. In addition, our sales team engages with existing clients and prospects to showcase our strategy, innovations, products and solutions, and identify sales opportunities (driven, for example, by product enhancements or a regulatory change). They also field inbound requests and RFIs for additional products/services.
Once a sales lead is identified by our marketing team, a sales development representative contacts the potential client to obtain a better understanding of the client's potential need, budget, and timeline. Sales leads identified by the sales team or qualified by a sales development representative, enter a multi-stage process that starts with determining client interest in a Morningstar solution and runs through final contract negotiation and closing.
The vast majority of the contracts for our license-based products include auto-renew provisions. Throughout the term of the agreement, the sales and marketing teams will attempt to sell additional products and services to the client. When it comes to the renewal, there is a dedicated renewal team that works with the client to renew the agreement. For Morningstar's largest clients, the sales team is more heavily involved as they look to increase the size of the relationship.
Leveraged Commentary & Data
3. What was the contribution from LCD to license-based revenues in Q322? As of Q3
2022, what is the AUM benchmarked to LCD indexes? What are the top three funds
benchmarked to LCD indexes (by AUM)?
Total Leveraged Commentary & Data (LCD) revenue was
There is one investable product that directly tracks a Morningstar (formerly
S&P) loan index, Invesco Senior Loan ETF BKLN, which had total assets of
Capital Allocation
4. Is there any minimum level of cash you must retain on the balance sheet for
operational/day-to-day purposes?
While there is no minimum level of cash needed for operational purposes, we do maintain an appropriate cushion throughout the year to manage working capital needs. This ensures we are not frequently drawing on our revolving credit facility.
Certain of our regulated subsidiaries are required to hold cash balances to meet
minimum capital requirements for our investment management products. As of
9/30/22, cash held to meet these requirements was less than
Regulation
5. With the
analytics offerings, what would be the main implications for Morningstar
Sustainalytics in a scenario where regulatory scrutiny increases around ESG
pricing structures?
The
6. In a scenario where index providers could be regulated as investment advisory
companies by the
an operational and strategic perspective?
In a scenario where the
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