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What changed in Morningstar, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Morningstar, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+726 added−621 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-24)

Top changes in Morningstar, Inc.'s 2023 10-K

726 paragraphs added · 621 removed · 447 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

187 edited+79 added−72 removed48 unchanged
Biggest changeWe have TAMPs available in the U.S. and India, and act as a fund and model provider in our other international markets. 16 Table of Contents Our TAMP is an end-to-end digital investing experience, in which advisors access our model portfolios through a proprietary wealth management platform that offers functionality, such as risk assessments, proposals, digital account opening and ongoing management, client reporting, customer support, marketing services, and back-office features, such as trading and billing services.
Biggest changeOur proprietary wealth platforms offer functionality such as risk assessments, proposals, digital account opening and ongoing management, client reporting, customer support, marketing services, and back-office features, such as trading and billing services. Using our wealth platform allows U.S.-based advisors share fiduciary responsibility with us.
Morningstar adheres to a globally consistent framework that integrates ESG risk into our equity research. Analysts identify valuation-relevant risks for each company using Sustainalytics' ESG Risk Ratings, which measure a company's exposure to material ESG risks, and then evaluate the probability that those risks materialize and the associated valuation impact.
Morningstar adheres to a globally consistent framework that integrates ESG risk into our equity research. Analysts identify valuation-relevant risks for each company using Morningstar Sustainalytics' ESG Risk Ratings, which measure a company's exposure to material ESG risks, and then evaluate the probability that those risks materialize and the associated valuation impact.
DBRS Morningstar generates its revenue from providing independent credit ratings on financial institutions, corporates, and sovereigns, as well as on securitizations and other structured finance instruments, such as asset-backed securities (ABS), residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and collateralized loan obligations (CLO).
Morningstar DBRS generates its revenue from providing independent credit ratings on financial institutions, corporates, and sovereigns, as well as on securitizations and other structured finance instruments, such as asset-backed securities (ABS), residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), and collateralized loan obligations (CLO).
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. A large portion of Morningstar Direct’s features and functionality are delivered using modern web components and frameworks delivered within the legacy application.
The Morningstar 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. A large portion of Morningstar Direct’s features and functionality are delivered using modern web components and frameworks delivered within the legacy application.
Pricing for Morningstar Advisor Workstation for our enterprise clients varies based on the number of users, the number of research databases licensed, and level of functionality deployed. We charge fixed annual fees per licensed user for a base configuration of Morningstar Advisor Workstation, but pricing varies significantly based on the scope of the license.
Pricing for Morningstar Advisor Workstation for our enterprise clients varies based on the number of users, the number of research databases licensed, and level of functionality deployed. We charge fixed annual fees per licensed user for a base configuration of Advisor Workstation, but pricing varies significantly based on the scope of the license.
Morningstar Indexes Morningstar offers a broad range of market indexes that can be used as performance benchmarks and as the basis for investment products and other portfolio strategies for a wide range of retail and institutional investor clients.
Morningstar Indexes offers a broad range of market indexes that can be used as performance benchmarks and as the basis for investment products and other portfolio strategies for a wide range of retail and institutional investor clients.
European Union DBRS Morningstar´s credit rating entity in the European Union (EU), DBRS Ratings GmbH (located in Frankfurt, Germany), which together with its branches, DBRS Ratings GmbH Sucursal en España (located in Madrid, Spain) and DBRS Ratings GmbH, Branch India (located in Mumbai, India) is registered with, and regulated by the European Securities and Markets Authority (ESMA) as a credit rating agency.
European Union Morningstar DBRS ´s credit rating entity in the European Union (EU), DBRS Ratings GmbH (located in Frankfurt, Germany), which together with its branches, DBRS Ratings GmbH Sucursal en España (located in Madrid, Spain) and DBRS Ratings GmbH, Branch India (located in Mumbai, India) is registered with, and regulated by the European Securities and Markets Authority (ESMA) as a credit rating agency.
DBRS Morningstar credit ratings are requested for corporate short and long-term fixed income obligations, sovereign debt, single project financings and structured finance programs, including securitization of receivables, such as auto loans, credit cards, residential real estate loans and commercial real estate loans. In addition, claims-paying-ability credit ratings are issued for life, covering property/casualty, financial guaranty, title, and mortgage insurance companies.
Morningstar DBRS credit ratings are requested for corporate short and long-term fixed income obligations, sovereign debt, single project financings and structured finance programs, including securitization of receivables, such as auto loans, credit cards, residential real estate loans and commercial real estate loans. In addition, claims-paying-ability credit ratings are issued for life, property/casualty, financial guaranty, title, and mortgage insurance companies.
In addition to Morningstar Managed Portfolios, other services we provide include institutional asset-management (e.g., act as a subadvisor) and asset-allocation services for asset managers, broker/dealers, and insurance providers. We offer these services through a variety of registered entities in Australia, Canada, the United Arab Emirates (UAE), France, India, Japan, South Africa, the U.K., and the U.S.
In addition to Morningstar Managed Portfolios, other services we provide include institutional asset-management (e.g., act as a subadvisor) and asset-allocation services for asset managers, broker/dealers, and insurance providers. We offer these services through a variety of registered entities in Australia, Canada, the United Arab Emirates (UAE), France, Japan, South Africa, the U.K., and the U.S.
Demand for Morningstar Data has increased as clients build digital solutions, prepare for regulatory requirements, and incorporate automation, artificial intelligence, machine learning, and other forms of data analytics into their workflows. We’re committed to covering our clients’ whole portfolios, and offering the data they need to make informed investment decisions.
Demand for Morningstar Data has increased as clients build digital solutions, prepare for regulatory requirements, and incorporate automation, artificial intelligence (AI), machine learning, and other forms of data analytics into their workflows. We’re committed to covering our clients’ whole portfolios and offering the data they need to make informed investment decisions.
Public and Private Company Research As part of our research efforts on individual stocks, we popularized the concepts of economic moat, a measure of competitive advantage originally developed by Warren Buffett, and margin of safety, which reflects the size of the discount in a stock's price relative to its estimated value.
Public company and private market research As part of our research efforts on individual stocks, we popularized the concepts of economic moat, a measure of competitive advantage originally developed by Warren Buffett, and margin of safety, which reflects the size of the discount in a stock's price relative to its estimated value.
We are focused on the following four strategic priorities: Deliver differentiated insights across asset classes to public and private market investors Shifting investor needs and expectations, innovative investment approaches and technologies, and a changing political and regulatory environment continue to drive the evolution of the financial services industry.
We are currently focused on the following four strategic priorities: Deliver differentiated insights across asset classes to public and private market investors Shifting investor needs and expectations, innovative investment approaches and technologies, and a changing political and regulatory environment continue to drive the evolution of the financial services industry.
Our main global competitors for mutual fund data include Refinitiv and FE fundinfo. We also compete against smaller players that focus on local or regional information. For market and equity data, we primarily compete with FactSet, S&P Global, ICE Data Services, Bloomberg, and Refinitiv.
Our main global competitors for mutual fund data include FE fundinfo and LSEG (Refinitiv). We also compete against smaller players that focus on local or regional information. For market and equity data, we primarily compete with Bloomberg, FactSet, ICE Data Services, LSEG (Refinitiv), and S&P Global.
In addition, the Morningstar Style Box visually depicts a strategy’s underlying investment style, making it easier to compare investments and build portfolios. The star rating and style box have become important tools that millions of investors and advisors use in making investment decisions.
In addition, the Morningstar Style Box visually depicts a strategy’s underlying investment style, making it easier to compare investments and build portfolios. The star rating and style box have become important tools that millions of investors and advisors use to make investment decisions.
Our People At Morningstar, our people are our most important asset. We are committed to fostering an environment where the people who power our mission know their ideas are welcome, their voices are heard, and their contributions are rewarded.
Our People and Culture At Morningstar, our people are our most important asset. We are committed to fostering an environment where the people who power our mission know their ideas are welcome, their voices are heard, and their contributions are rewarded.
The Morningstar Rating for stocks is based on the stock's current price relative to our analyst-generated fair value estimates, as well as the company's level of business risk and economic moat. Our analysts cover approximately 1,500 companies using a consistent, proprietary methodology that focuses on fundamental analysis, competitive advantage assessment, and intrinsic value estimation.
The Morningstar Rating for stocks is based on the stock's current price relative to our analyst-generated fair value estimates, as well as the company's level of business risk and economic moat. Our analysts cover approximately 1,600 companies using a consistent, proprietary methodology that focuses on fundamental analysis, competitive advantage assessment, and intrinsic value estimation.
Credit markets continue to evolve with companies using structured products as a key avenue for raising capital. Overall demand for structured products by institutional investors, including banks in the U.S. and Europe, remains high. As of December 31, 2022, we provided ratings for more than 4,000 issuers of debt.
Credit markets continue to evolve with companies using structured products as a key avenue for raising capital. Overall demand for structured products by institutional investors, including banks in the U.S. and Europe, remains high. As of December 31, 2023, we provided ratings for more than 4,000 issuers of debt.
Securities and Exchange Commission (SEC) as a Nationally Recognized Statistical Rating Organization (NRSRO) and is authorized to rate classes of credit ratings in structured finance instruments, corporate credit issuers, sovereign entities, insurance companies, and financial institutions. As an NRSRO, DBRS, Inc. is subject to certain requirements and regulations under the Exchange Act.
Securities and Exchange Commission (SEC) as a Nationally Recognized Statistical Rating Organization (NRSRO) and is authorized to rate classes of credit ratings in structured finance instruments, corporate credit issuers, sovereign entities, insurance companies, and financial institutions. As an NRSRO, DBRS, Inc. is subject to certain requirements and regulations under the Securities Exchange Act of 1934, as amended (Exchange Act).
As Registered Investment Advisors, these companies are subject to the requirements and regulations of the Advisers Act, including certain fiduciary duties to clients.
As registered investment advisers, these companies are subject to the requirements and regulations of the Advisers Act, including certain fiduciary duties to clients.
This includes: • Expanding our data, research, and analytics to deliver unique, personalized, and impactful insights to investors across asset classes. • Optimizing our advisor platform and service position by driving innovation and delivering exceptional investment solutions—including sustainable options—to advisors, facilitating great outcomes for the clients they serve around the world. • Providing regulatory and compliance solutions for the wealth, buy-side, and asset management segments. • Pursuing actionable information and developing workflow tools to serve core use cases of identifying private market investment opportunities, raising capital, valuing companies and investments, and buying/selling a company.
This includes: • Expanding our data, research, and analytics to deliver unique, personalized, and impactful insights to investors across asset classes. • Optimizing our advisor platform and service position by driving innovation and delivering exceptional investment solutions to advisors, facilitating great outcomes for the clients they serve around the world. • Providing regulatory and compliance solutions for our wealth, buy-side, and asset management clients. • Pursuing actionable information and developing workflow tools to serve core use cases of identifying private market investment opportunities, raising capital, valuing companies and investments, and buying/selling a company.
Currently, our focus is the U.S. market, because it continues to demonstrate healthy growth, and because many of our solutions are not easily adapted to foreign markets due to significant differences in regulatory frameworks that govern retirement saving and investing.
Currently, our focus is the U.S. market, because it continues to demonstrate healthy growth, and because many of our services are not easily adapted to foreign markets due to significant differences in regulatory frameworks that govern retirement saving and investing.
Regulatory bodies or agencies that regulate our credit rating and investment adviser and research subsidiaries often have broad administrative powers, including the power to prohibit or restrict the subsidiary or persons connected with the subsidiary from carrying out business if it or they fail to comply with such laws and regulations or to impose censures, fines, or remedial undertakings as a result of such noncompliance.
Regulatory bodies or agencies that regulate our credit rating and investment adviser and research subsidiaries often have broad administrative powers, including the power to prohibit or restrict the subsidiary or persons connected with the subsidiary from carrying out business if it fails or they fail to comply with those laws and regulations or to impose censures, fines, or remedial undertakings as a result of noncompliance.
First, we support asset managers, financial advisors, individuals, and institutions who make their own investment decisions.
First, we support individuals, financial advisors and wealth managers, asset managers, and institutions who make their own investment decisions.
Drive operational excellence and scalability to support growth targets Morningstar has grown significantly in the last few years, and as we have continued to focus on growth in 2022 and beyond, we are emphasizing execution and scalability in our operations, processes, and technology.
Drive operational excellence and scalability to support growth targets Morningstar has grown significantly in the last few years, and as we have continued to focus on growth in 2023 and beyond, we are emphasizing execution and scalability in our operations, processes, and technology.
These patents include those for coordinate-based document processing/data entry, portfolio management analysis, lifetime asset allocation, and asset allocation with annuities. License Agreements We license our products and related intellectual property to our customers, generally for a fee.
Our existing patents include those for coordinate-based document processing/data entry, portfolio management analysis, lifetime asset allocation, and asset allocation with annuities. License Agreements We license our products and related intellectual property to our customers, generally for a fee.
This analysis augments other quantitative ratings and analytics, such as the Morningstar Rating for funds (the “star rating”), which ranks managed investment strategies such as mutual funds based on their past risk-adjusted performance versus peers. We also publish qualitative research and ratings on state-sponsored college-savings plans, target-date funds, and health-savings accounts.
This augments other quantitative ratings and analytics, such as the Morningstar Rating for funds (the “star rating”), which ranks managed investment strategies such as mutual funds based on their past risk-adjusted performance versus their Morningstar category peers. We also publish research and ratings on state-sponsored college-savings plans, target-date funds, and health-savings accounts.
Clients license Morningstar Data to build transparent products and services that all investors, from those just starting out to sophisticated and high net worth individuals, can easily understand and use to reach their investing goals.
Clients license Morningstar Data to build transparent products and services that investors, from those just starting out to sophisticated and high net worth individuals, can understand and use to reach their investing goals.
We sell most of our products with subscription terms of at least one year and we recognize revenue ratably over the term of each subscription agreement. This tends to mitigate most of the seasonality in our business. 24 Table of Contents We believe market movements and general market conditions have more influence on our performance than seasonality.
We sell most of our products with subscription terms of at least one year and we recognize revenue ratably over the term of each subscription agreement. This tends to mitigate most of the seasonality in our business. We believe market movements and general market conditions have more influence on our performance than seasonality.
He has served as chairman of the board of directors from the company’s inception, and as chief executive officer from 1984 to 1996 and again from 2000 to 2016. 28 Table of Contents Under Mansueto’s leadership, Morningstar has been named twice to Fortune magazine’s “100 Best Companies to Work For” list, in 2011 and 2012.
He has served as chairman of the board of directors from the company’s inception, and as chief executive officer from 1984 to 1996 and again from 2000 to 2016. Under Mansueto’s leadership, Morningstar has been named twice to Fortune magazine’s “100 Best Companies to Work For” list, in 2011 and 2012.
Morningstar won the 2010 AIGA Chicago Chapter Corporate Design Leadership Award, which recognizes forward-thinking organizations that have advanced design by promoting it as a meaningful business policy. In December 2016, InvestmentNews named Mansueto to its list of 20 Icons & Innovators.
Morningstar won the 2010 AIGA Chicago Chapter Corporate Design Leadership Award, which recognizes forward-thinking organizations that have advanced design by promoting it as a meaningful business policy. 28 Table of Contents In December 2016, InvestmentNews named Mansueto to its list of 20 Icons & Innovators.
We provide access to Morningstar Data utilizing an application programming interface (API) format to download and process large data files. The Morningstar Data team applies emerging methods in artificial intelligence to regression, classification, deep learning, natural language processing, and optical character recognition to extract data from structured and unstructured content.
We provide access to Morningstar Data utilizing an application programming interface (API) format to download and process large data files. The Morningstar Data team applies emerging methods in AI to regression, classification, deep learning, natural language processing, and optical character recognition to extract data from structured and unstructured content.
Unlike other ESG ratings that are based on a relative, best-in-class approach, Sustainalytics’ ESG Risk Ratings provide a powerful signal of a company’s absolute ESG risk that is comparable across peers and sub-industries while allowing for aggregation at the portfolio level.
Unlike other ESG ratings that are based on a relative, best-in-class approach, Morningstar Sustainalytics’ ESG Risk Ratings are designed to provide a powerful signal of a company’s absolute ESG risk that is comparable across peers and sub-industries while allowing for aggregation at the portfolio level.
Financial Conduct Authority (FCA) as a credit rating agency. DBRS Ratings Limited provides independent credit rating services in sovereign and public finance, structured finance, and corporate finance, including financial institutions, corporate credit issuers, and insurance undertakings. As a registered credit rating agency, DBRS Ratings Limited is subject to certain requirements under the U.K. regulations governing credit rating agencies.
DBRS Ratings Limited provides independent credit rating services in sovereign and public finance, structured finance, and corporate finance, including financial institutions, corporate credit issuers, and insurance undertakings. As a registered credit rating agency, DBRS Ratings Limited is subject to certain requirements under the U.K. regulations governing credit rating agencies.
He is responsible for the firm’s global revenue and client-facing functions including global marketing, sales, client solutions, customer success, field operations, services and support. Before joining Morningstar in 2016, Dunn was vice president of IBM’s Midwest enterprise unit.
He is responsible for the firm’s global revenue and client-facing functions including global marketing, sales, client solutions, customer success, field operations, services and support. 29 Table of Contents Before joining Morningstar in 2016, Dunn was vice president of IBM’s Midwest enterprise unit.
As of December 31, 2022, the team provides coverage of the private equity, venture capital, real assets, leveraged loan, high-yield bond, and private credit asset classes.
As of December 31, 2023, the team provides coverage of the private equity, venture capital, real assets, leveraged loan, high-yield bond, and private credit asset classes.
Investment Management Investment Management’s flagship offering is Morningstar® Managed Portfolios SM , an advisor service consisting of model portfolios designed for fee-based independent financial advisors. Our core markets are the U.S., U.K., South Africa, Australia, and India.
Investment Management’s flagship offering is Morningstar® Managed Portfolios, an advisor service consisting of model portfolios designed for fee-based independent financial advisors. Our core markets are the U.S., U.K., South Africa, and Australia.
Morningstar Plan Advantage is an extension of our fiduciary services that includes a technology platform that enables advisors at broker/dealer firms to more easily offer fiduciary protection, provider pricing, and investment reporting services to their plan sponsor clients.
Morningstar Plan Advantage is an extension of our fiduciary services that includes a technology platform that is designed to help advisors at broker/dealer firms to more easily offer fiduciary protection, provider pricing, and investment reporting services to their plan sponsor clients.
Pricing is based on the number of investment vehicles, the amount of information provided for each security, the frequency of updates, the method of delivery, the size of the licensing firm, the level of distribution, and the intended use by the client, otherwise known as the “use-case.” In 2022, Morningstar Data’s largest markets were North America and EMEA.
Pricing is based on the number of investment vehicles, the amount of information provided for each security, the frequency of updates, the method of delivery, the size of the licensing firm, the level of distribution, and the intended use by the client, otherwise known as the “use-case.” In 2023, Morningstar Data’s largest markets were North America and Europe.
We are well-known for enriching managed investment raw data with research-driven intellectual property, resulting in proprietary statistics, such as the Morningstar Category, Morningstar Style Box, and Morningstar Rating, which we distribute through licensed data feeds.
We are well-known for enriching raw data on managed investments with research-driven intellectual property, resulting in proprietary statistics, such as the Morningstar Category, Morningstar Style Box, and Morningstar Rating, which we distribute through licensed data feeds.
These credit ratings are based on information that incorporates both global and local considerations and the use of approved methodologies and are determined in compliance with policies and procedures designed to avoid or manage conflicts of interest. DBRS Morningstar’s credit rating methodologies are publicly available and support the objectivity and integrity of the credit rating process.
These credit ratings are based on information that incorporates both global and local considerations and the use of approved methodologies and are determined in compliance with policies and procedures designed to avoid or manage conflicts of interest. Morningstar DBRS’s credit rating methodologies are publicly available and support the objectivity and integrity of the credit rating process.
Occasionally, broker/dealers also decide to build their own internal tools and attempt to bring their advisors’ practice management tools in-house. We estimate that our annual revenue renewal rate for Advisor Workstation for 2022 was approximately 89% versus 92% in 2021.
Occasionally, broker/dealers also decide to build their own internal tools and attempt to bring their advisors’ practice management tools in-house. We estimate that our annual revenue renewal rate for Advisor Workstation for 2023 was approximately 93% versus 89% in 2022.
Our core retirement products (managed retirement accounts, fiduciary services, and custom models) primarily reach individual investors through employers (plan sponsors) that offer DC plans for their employees.
Our core retirement products (managed retirement accounts, advisor managed accounts, Morningstar Plan Advantage, and fiduciary services, and custom models) primarily reach individual investors through employers (plan sponsors) that offer DC plans for their employees.
Credit ratings are forward-looking opinions on credit risk that reflect the creditworthiness of a company or fixed-income security. They are determined within the framework of a ratings committee that represents a collective assessment of DBRS Morningstar’s opinion rather than the opinion of an individual analyst.
Credit ratings are forward-looking opinions on credit risk that reflect the creditworthiness of a company or fixed-income security. They are determined within the framework of a ratings committee that represents a collective assessment of Morningstar DBRS’s opinion rather than the opinion of an individual analyst.
We charge a monthly or annual subscription fee for Morningstar Investor and Morningstar Premium and an annual subscription fee for Morningstar Newsletters. 21 Table of Contents Morningstar.com primarily competes with trading platforms that concurrently offer research and investing advice, such as Fidelity, Schwab, and TD Ameritrade.
We charge a monthly or annual subscription fee for Morningstar Investor and Morningstar Premium and an annual subscription fee for Morningstar Newsletters. Morningstar.com primarily competes with trading platforms that concurrently offer research and investing advice, such as Fidelity, Schwab, and TD Ameritrade.
Notably, we offer our employees annual educational stipends to spend on their choice of professional development activities, while also providing financial support for continuing education and the pursuit of professional certifications. 6 Table of Contents We also offer programs for employee learning and growth. The Morningstar Development Program is the primary entry point to Morningstar for recent college graduates.
Notably, we offer our employees annual educational stipends to spend on their choice of professional development resources, while also providing financial support for continuing education and the pursuit of professional certifications. We also offer programs for employee learning and growth. The Morningstar Development Program is the primary entry point to Morningstar for recent college graduates.
Our main competitors in fiduciary services are Mesirow and Wilshire Associates, but we are starting to see growing competition from smaller players, such as LeafHouse Financial and IRON Financial. Broker/dealers are also looking to introduce their own fiduciary services distributed through their advisors. 18 Table of Contents With our custom models, we offer two different services.
Our main competitors in fiduciary services are Mesirow and Wilshire Associates, but we are starting to see growing competition from smaller players, such as LeafHouse Financial. Broker/dealers are also looking to introduce their own fiduciary services distributed through their advisors. With our custom models, we offer two different services.
The SEC is responsible for enforcing the federal securities laws and oversees federally registered investment advisors and broker/dealers. Three of our subsidiaries, Morningstar Investment Management LLC (Morningstar Investment Management), Morningstar Investment Services LLC, and Morningstar Research Services LLC, are registered as investment advisors with the SEC under the Investment Advisers Act of 1940 (Advisers Act).
The SEC is responsible for enforcing the federal securities laws and oversees federally registered investment advisers and broker/dealers. 25 Table of Contents Three of our subsidiaries, Morningstar Investment Management LLC (Morningstar Investment Management), Morningstar Investment Services LLC, and Morningstar Research Services LLC, are registered as investment advisers with the SEC under the Investment Advisers Act of 1940 (Advisers Act).
We also provide a three-tiered pricing model for individual subscribers who are not affiliated with an active enterprise client. Morningstar Advisor Workstation is offered in the U.S. and Canada. Competitors for Morningstar Advisor Workstation include AdvisoryWorld (LPL Financial), YCharts, Riskalyze, Orion, Broadridge, and CapIntel outside of the U.S.
We also provide a three-tiered pricing model for individual subscribers who are not affiliated with an active enterprise client. Morningstar Advisor Workstation is offered in the U.S. and Canada. Competitors for Morningstar Advisor Workstation include Broadridge, CapIntel, Orion, Riskalyze, and YCharts.
In the ordinary course of our business, we obtain and use intellectual property from a variety of sources, including licensing it from third-party providers, developing it internally, and gathering it through publicly available sources (e.g., regulatory filings). Seasonality We believe our business has a minimal amount of seasonality.
In the ordinary course of our business, we obtain and use intellectual property from a variety of sources, including, without limitation, licensing it from third-party providers, developing it internally, and gathering it through publicly available sources (e.g., regulatory filings). 23 Table of Contents Seasonality We believe our business has a minimal amount of seasonality.
Workplace/retirement In the U.S., 401(k) and other types of defined-contribution (DC) retirement plans are the dominant retirement savings vehicle offered by employers.
Retirement market participants In the U.S., 401(k) and other types of defined-contribution (DC) retirement plans are the dominant retirement savings vehicle offered by employers.
We also offer the Morningstar Sustainability Rating, Low Carbon Risk Designation, Morningstar ESG Commitment Level, and Sustainability Summary to help investors evaluate funds based on ESG factors. As of December 31, 2022, we had more than 145 manager research analysts and other researchers globally, including teams in North America, Europe, Australia, and Asia.
We also offer the Morningstar Sustainability Rating, Low Carbon Risk Designation, and Sustainability Summary to help investors evaluate funds based on ESG factors. As of December 31, 2023, we had more than 130 manager research analysts and other researchers globally, including teams in North America, Europe, Australia, and Asia.
These laws and regulations are primarily designed to protect investors and are most pervasive across all or most markets in which we operate in our credit rating, investment management, and investment research businesses.
These laws and regulations are primarily designed to protect investors and are most pervasive across all or most markets in which we operate in our credit rating, investment management, investment research, ESG research, ratings and data, and indexes businesses.
We estimate that the global ratings market totaled roughly $7.7 billion as of year-end 2022 and the 10-year compound annual growth rate declined to 2.1%. As the macroeconomic environment stabilizes we expect a return to higher long-term growth rates, supported by various secular trends.
We estimate that the global ratings market totaled roughly $7.7 billion as of year-end 2022 and $8.2 billion as of year-end 2023 driving a decline in the 10-year compound annual growth rate to 2.1%. As the macroeconomic environment stabilizes, we expect a return to higher long-term growth rates, supported by various secular trends.
Our goal is to offer our clients data that’s available quickly and in the most appropriate format to meet their workflow. Our data feeds enable our clients to discover the data that they need, and to schedule delivery in S3, FTP, CSV, XML, JSON, Text, and TSV output formats.
Our goal is to offer clients data that is available quickly and in the format most appropriate for their workflows. Our data feeds enable our clients to discover the data that they need, and to schedule delivery in S3, FTP, CSV, XML, JSON, Text, and TSV output formats.
As of December 31, 2022, we served over 10,100 clients, including investment and research firms, venture capital and private equity firms, investment banks, limited partners, lenders, law firms, and accounting firms. We also served corporate development teams at firms across industry sectors.
As of December 31, 2023, PitchBook served over 10,600 clients, including investment and research firms, venture capital and private equity firms, investment banks, limited partners, lenders, law firms, and accounting firms. We also served corporate development teams at firms across industry sectors.
We target like-minded advisors that hire us to manage a substantial portion of their client’s assets the Morningstar way—putting investors first, keeping costs low, and investing for the long-term. We build our multi-asset strategies using mutual funds, ETFs, and individual securities, and tailor them to meet specific investment time horizons, risk levels, and projected outcomes.
We target like-minded advisors who hire us to manage a substantial portion of their client’s assets in alignment with our principles of putting investors first, keeping costs low, and investing for the long-term. We build our multi-asset strategies using mutual funds, ETFs, and individual securities, and tailor them to meet specific investment time horizons, risk levels, and projected outcomes.
Competitive Landscape The economic and financial information industry includes a few large firms, as well as numerous smaller companies, including startup firms. Some of our main competitors include Bloomberg, S&P Global, Refinitiv, Moody's, and Fitch. These companies have financial resources that are significantly greater than ours.
Competitive Landscape The economic and financial information industry includes a few large firms, as well as numerous smaller companies, including startup firms. Some of our main competitors include Bloomberg, Envestnet, FactSet, Fitch, LSEG (Refinitiv), Moody's, MSCI, S&P Global, and SEI Investments Company. Some of these companies have financial resources that are significantly greater than ours.
He also holds the Chartered Financial Analyst® designation, is a member of the CFA Society of Chicago, and served on the board of PitchBook, prior to its acquisition by Morningstar in late 2016. Kapoor is also a member of the board of trustees of The Nature Conservancy in Illinois.
He also holds the Chartered Financial Analyst® designation, is a member of the CFA Society of Chicago, and served on the board of PitchBook, prior to its acquisition by Morningstar in late 2016.
We deliver our perspective to institutions, advisors, and individuals with a single-minded purpose: to empower every investor with conviction that he or she can make better-informed decisions and realize success on his or her own terms. Our Business Morningstar, Inc. is a leading global provider of independent investment insights.
We deliver our perspective to institutions, advisors, and individuals with a single-minded purpose: to empower every investor with conviction that they can make better-informed decisions and realize success on their own terms. Our Business Morningstar, Inc. is a leading global provider of independent investment insights.
Generally, we use our standard agreement forms, and we do not provide our products and services to customers or other users without having an agreement in place.
As a rule, we use our standard agreement forms, and we do not provide our products and services to customers or other users without having an agreement in place.
We license Morningstar Indexes to numerous institutions that offer ETFs, exchange-traded notes, mutual funds and separately managed accounts based on the indexes. Firms license Morningstar Indexes for both product creation (where we typically receive the greater of a minimum fee or basis points tied to assets under management) and data licensing (where we typically receive annual licensing fees).
We license Morningstar Indexes to numerous institutions to use as the basis for ETFs, exchange-traded notes, mutual funds, derivatives and separately managed accounts. Firms license Morningstar Indexes for product creation (where we typically receive the greater of a minimum fee or basis points tied to assets under management) and data licensing (where we typically receive annual licensing fees).
The software is typically sold through an enterprise contract and is primarily for retail advisors due to its strong ties and integrations with home-office applications and processes and a library of Financial Industry Regulatory Authority (FINRA)-reviewed reports for compliance needs.
The software is typically sold through an enterprise contract and is primarily for retail advisors because of its strong ties and integration with home-office applications and processes and a library of Financial Industry Regulatory Authority (FINRA) reviewed reports that meet compliance needs.
Today, we offer a variety of products and solutions that serve market participants of all kinds, including individual and institutional investors in public and private capital markets, financial advisors, asset managers, retirement plan providers and sponsors, and issuers of securities.
Today, we offer a variety of products and solutions that serve a wide range of market participants, including individual and institutional investors in public and private capital markets, financial advisors and wealth managers, asset managers, retirement plan providers and sponsors, and issuers of fixed-income securities.
We also apply our investing philosophy to managing assets for clients who prefer to employ the expertise of professional portfolio management teams. Since our founding in 1984, we’ve expanded our presence in global markets where investors need an independent view they can trust. We help investors in two primary ways.
We also apply our investing expertise to managing assets for clients who prefer to employ the expertise of professional portfolio management teams. Since our founding in 1984, we’ve expanded our presence in global markets where investors need an independent view they can trust. We structure our business to help investors in three key areas.
We believe that focus on putting investors first, paired with the way we use design and technology to communicate complex financial information, sets us apart from our peers in the financial services industry. Our Data, Research, and Ratings Morningstar’s trusted data, research, and ratings underpin our products.
We believe that focus on putting investors first, paired with the way we use design and technology to communicate complex financial information, sets us apart from our peers in the financial services industry. 3 Table of Contents Our Data, Research, and Ratings Morningstar’s trusted data, research, and ratings underpin everything we do across our business.
Fixed income security issuers, arrangers, and investors DBRS Morningstar typically issues credit ratings in response to requests from issuers, intermediaries, or investors.
Fixed income security issuers, arrangers, and investors We serve fixed income security issuers, arrangers, and investors through our Morningstar Credit segment. Morningstar DBRS typically issues credit ratings in response to requests from issuers, intermediaries, or investors.
We also compete with a variety of other companies of varying sizes in specific areas of our business. We discuss some of the key competitors in each area in the Major Products and Services section of this report.
We also compete with a variety of other companies of varying sizes in specific areas of our business. We discuss some of the key competitors in each area in the "Our Segments and Products" section of Part I, Item 1. Business of this Report.
Other Morningstar Sustainalytics products including second party opinions on green and sustainability linked bonds, ESG indexes, and the provision of ESG ratings and data have been the subject of proposed legislation.
Other Morningstar Sustainalytics products including Second Party Opinions on green and sustainability linked bond, and the provision of ESG ratings and data have been the subject of proposed legislation or codes of conduct.
Additional legislation and regulations, including those not directly tied to regulated activities (e.g. , privacy and cybersecurity), or changes in the interpretation or enforcement of existing laws and rules may adversely affect our business and profitability. Credit Ratings United States DBRS Morningstar’s U.S. credit rating entity, DBRS, Inc., is registered with the U.S.
Additional legislation and regulations, including those not directly tied to currently-regulated activities (e.g. , ESG ratings and research), or changes in the interpretation or enforcement of existing laws and rules may adversely affect our business and profitability. 24 Table of Contents Morningstar Credit United States Morningstar DBRS ’s U.S. credit rating entity, DBRS, Inc., is registered with the U.S.
Our solutions are designed to help improve the DC retirement system by offering highly personalized savings and investment advice at the employee level, scalable investment and risk mitigation services at the plan and advisor level, and industry research at the policy and institutional level.
We serve this market through our Morningstar Retirement segment. Our services are designed to help improve the DC retirement system by offering highly personalized savings and investment advice at the employee level, scalable investment and risk mitigation services at the plan and advisor level, and industry research at the policy and institutional level.
In 2022, DBRS Morningstar's largest markets by revenue were the United States, followed by Canada and EMEA. DBRS Morningstar competes with several other firms, including Fitch, Kroll Bond Ratings, Moody’s, and S&P Global Ratings.
In 2023, Morningstar DBRS’s largest markets by revenue were the U.S., followed by Canada and EMEA. Morningstar DBRS competes with several other firms, including Fitch, Kroll Bond Ratings, Moody’s, and S&P Global Ratings.
Our goal is to provide an impactful and consistent set of development experiences for colleagues at all levels, in all relevant job fields, and in all locations across the company.
Our goal is to provide a meaningful set of development options and experiences for colleagues at all levels, in all relevant job fields, and in all locations across the company.
International Operations We conduct our business operations outside of the U.S. through wholly- or majority-owned subsidiaries located in each of the following 31 countries: Australia, Brazil, Canada, Cayman Islands, Chile, China, Cyprus, Denmark, France, Germany, Hong Kong, India, Italy, Japan, Jersey, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Romania, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, UAE, and the U.K.
For more information about our acquisitions, refer to Note 8 of the Notes to our Consolidated Financial Statements. 22 Table of Contents International Operations We conduct our business operations outside of the U.S. through wholly- or majority-owned subsidiaries located in each of the following 31 countries: Australia, Brazil, Canada, Cayman Islands, Chile, China, Cyprus, Denmark, France, Germany, Hong Kong, India, Italy, Japan, Jersey, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Romania, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, UAE, and the U.K.
As of December 31, 2022, we rated more than 20,000 companies worldwide, and offered more than 13,000 ESG Risk Ratings free to the public so that any investor can benefit from our research. As of December 31, 2022, we employed more than 885 ESG research professionals based in the U.S., Canada, Europe, and Asia.
As of December 31, 2023, we rated more than 19,000 companies worldwide, and offered more than 13,700 ESG Risk Ratings free to the public so that any investor can benefit from our research. As of December 31, 2023, we employed over 750 ESG research and data analysts based in the U.S., Canada, Europe, and Asia.
The table below includes some of the trademarks and service marks referenced in this report: Morningstar® Advisor Workstation SM Morningstar® Plan Advantage SM Morningstar Analyst Rating TM Morningstar® Portfolio X-Ray® Morningstar® ByAllAccounts® Morningstar Rating™ Morningstar® Data Morningstar® Retirement Manager SM Morningstar Direct SM Morningstar Style Box™ Morningstar® Enterprise Components Morningstar Sustainability Rating™ Morningstar® Indexes Morningstar.com® Morningstar® Managed Portfolios SM PitchBook® Morningstar Market Barometer SM DBRS® Morningstar Office Cloud SM Morningstar Sustainalytics® 23 Table of Contents In addition to trademark registrations, we hold several U.S. patents, either directly or through our wholly-owned subsidiary, Morningstar Investment Management LLC.
The table below includes some of the trademarks and service marks referenced in this Annual Report on Form 10-K (this Report): Morningstar® Advisor Workstation SM Morningstar® Plan Advantage SM Morningstar Analyst Rating TM Morningstar® Portfolio X-Ray® Morningstar® ByAllAccounts® Morningstar Rating™ Morningstar® Data Morningstar® Retirement Manager SM Morningstar Direct SM Morningstar Style Box™ Morningstar® Direct Web Services SM Morningstar Sustainability Rating™ Morningstar® Indexes Morningstar.com® Morningstar® Managed Portfolios SM PitchBook® Morningstar Market Barometer SM DBRS® Morningstar Office Cloud SM Sustainalytics® In addition to trademark registrations, we hold several U.S. patents, either directly or through our wholly-owned subsidiary, Morningstar Investment Management LLC, and are applying for several additional patents in various jurisdictions around the world, including the U.S.
We then manage the participant’s investment portfolio for them, assuming full discretionary control. We also offer Advisor Managed Accounts, a program that allows advisor firms to specify and assume fiduciary responsibility for the underlying portfolios that are used within MRA. We do not hold assets in custody for the MRA we provide.
We also offer advisor managed accounts, a program that allows advisor firms to specify and assume fiduciary responsibility for the underlying portfolios that are used within MRA. We do not hold assets in custody for the MRA we provide.
Our human capital management efforts are directly managed by our Talent and Culture department with oversight from our CEO and Board of Directors. The Compensation Committee of our Board of Directors approves incentive plan design and performance goals and reviews emerging compensation policies, practices, and potential risks. In addition, human capital management efforts are implemented by leaders across the company.
Our human capital management efforts are managed by the chief people officer and implemented with support from leaders across the company, with oversight from our chief executive officer (CEO) and board of directors. The compensation committee of our board of directors approves incentive plan design and performance goals and reviews emerging compensation policies, practices, and potential risks.
Morningstar Investment Management Australia Limited is additionally the Responsible Entity and the issuer of units in managed funds for superannuation funds, institutions, platform distributors, financial advisers, and individuals within the Australian market. United Kingdom Morningstar Investment Management Europe Limited is authorized and regulated by the FCA to provide financial services commensurate with the regulatory permissions afforded.
Morningstar Investment Management Australia Limited is additionally the Responsible Entity and the issuer of units in managed funds for superannuation funds, institutions, platform distributors, financial advisers, and individuals within the Australian market. 26 Table of Contents United Kingdom Both Morningstar Investment Management Europe Limited and Smart Investment Management Limited are authorized and regulated by the FCA to provide certain financial services.
For those further along in their career, Morningstar provides a focused learning journey for leaders and managers. Our Advancing Leaders Program curates learning modules designed around leadership competencies that we look to develop in existing and aspiring leaders throughout the organization. Our Strategy Our strategy is to deliver insights and experiences that make us essential to investor workflow.
For those further along in their career, Morningstar provides a learning journey for leaders and managers. Our Advancing Leaders Program curates learning modules designed around leadership competencies that we look to develop in existing and aspiring leaders throughout the organization.
In our latest adjusted pay gap analysis, we found that, overall, women are paid 98.8% of what men are paid, and U.S. underrepresented minorities are paid 99.1% of what the U.S. majority groups are paid.
In our latest adjusted pay gap analysis, we found that, overall, women are paid 98.3% of what men are paid, and U.S. underrepresented minorities are paid 98.7% of what the U.S. non-underrepresented minorities are paid.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found after this summary, and should be carefully considered. • Risks Related to Our Business and Industry ◦ Failing to maintain and protect our brand, independence, and reputation may harm our business ◦ Failing to innovate our product and service offerings or anticipate our clients’ changing needs may negatively affect our competitive position and business results ◦ Prolonged volatility or downturns affecting the financial sector, global financial markets, and the global economy may impact our results • Risks Related to Our Information Technology and Security ◦ We could face significant reputational and financial consequences relating to cybersecurity and the protection of confidential information, including personal information about individuals ◦ Our business, products and facilities are at risk of a number of material disruptive events, which our operational risk management and business continuity programs may not be adequate to address ◦ We could face liability for the information and data we collect, store, use, create, and distribute or the reports and other documents we publish or that are produced by our software products ◦ Failure to protect our intellectual property rights, or claims of intellectual property infringement against us, could harm our brand and ability to compete effectively • Risks Related to Legal and Regulatory Matters ◦ Compliance failures, regulatory action, or changes in laws applicable to our credit ratings operations, investment advisory, ESG and index businesses could adversely affect our business ◦ Errors in our automated advisory tools may subject us to fiduciary liability for any losses that result • Risks Related to Our Operations ◦ Our future success depends on our ability to recruit, develop, and retain qualified employees ◦ We may not realize the expected business or financial benefits of our acquisitions and investments ◦ Supporting our growing domestic and international operations, employee headcount and customer base could strain our resources and infrastructure, and if we are unable to scale our operations and increase productivity, we may not be able to successfully implement our business plan ◦ Today’s fragmented geopolitical, regulatory, and cultural world could adversely affect our ability to maintain growth across our businesses ◦ As a global taxpayer, we face challenges due to increasing complexities in accounting for taxes (e.g., base erosion, minimum taxes, and tax transparency), which are high priorities in jurisdictions in which we operate and could materially affect our tax obligations and effective tax rate • Risks Related to Ownership of Our Common Stock ◦ Our indebtedness could adversely affect our cash flows and financial flexibility.
Biggest changeAdditional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found after this summary, and should be carefully considered. • Risks Related to Our Business and Industry ◦ Failing to maintain and protect our brand, independence, and reputation may harm our business ◦ Failing to create innovative, proprietary and insightful product and service offerings or anticipate our clients’ changing needs may negatively affect our competitive position and business results ◦ Prolonged volatility or downturns affecting the financial sector, global financial markets, and the global economy may impact our results • Risks Related to Our Information Technology and Security ◦ We could face significant reputational and financial consequences relating to cybersecurity and the protection of confidential information, including personal information about individuals ◦ The AI technologies we are incorporating into certain of our products and processes may present business, legal and reputational risks ◦ Our business, products and facilities are at risk of a number of material disruptive events, which our operational risk management and business continuity programs and insurance coverage may not be adequate to address ◦ We could face liability for failing to adequately protect or properly use the information and data we collect, store, use, create, and distribute or the reports and other documents we publish or that are produced by our software products ◦ Failure to protect our intellectual property rights, or claims of intellectual property infringement against us, could harm our brand, our financial performance and our ability to compete effectively • Risks Related to Legal and Regulatory Matters ◦ Compliance failures, regulatory action, or changes in laws applicable to our credit ratings operations, investment advisory, ESG and index businesses could adversely affect our business ◦ Errors in our automated advisory tools may subject us to liability for any losses that result • Risks Related to Our Operations ◦ Our future success depends on our ability to recruit, develop, and retain qualified employees ◦ Our business is complex and has experienced significant growth in recent years which could strain our resources and infrastructure, and if we are unable to effectively scale our operations and increase productivity, we may not be able to successfully implement our business plan ◦ Our acquisitions and investments in companies or technologies may not realize the expected business or financial benefits and acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results and the market value of our common stock ◦ The goodwill of our business and other intangible assets from our acquisitions could be impaired as a result of business conditions in the future, requiring us to record substantial impairments that would impact our operating income ◦ Today’s fragmented geopolitical, regulatory, and cultural world could adversely affect our ability to expand our product and service offerings ◦ As a global taxpayer, we face challenges due to increasing complexities in accounting for taxes (e.g., base erosion, minimum taxes, and tax transparency), which are high priorities in jurisdictions in which we operate and could materially affect our tax obligations and effective tax rate ◦ Our revenues, expenses, assets and liabilities are subject to fluctuations in foreign currency exchange rate ◦ Our indebtedness could adversely affect our cash flow and financial flexibility.
DBRS Morningstar, our credit ratings business, operates in a highly regulated environment in Canada, the U.S., the U.K., and the EU.
Morningstar DBRS, our credit ratings business, operates in a highly regulated environment in Canada, the U.S., the U.K., and the EU.
The laws and regulations governing credit ratings impose substantial ongoing compliance obligations and costs and subject DBRS Morningstar to regular regulatory examinations and occasional investigations, relating to the company itself or sometimes to the credit ratings industry as a whole.
The laws and regulations governing credit ratings impose substantial ongoing compliance obligations and costs and subject Morningstar DBRS to regular regulatory examinations and occasional investigations, relating to the company itself or sometimes to the credit ratings industry as a whole.
Our ability to make payments on indebtedness and to fund planned capital expenditures depends on our ability to generate and access cash in the future, which, in turn, is subject to general economic, financial, competitive, regulatory, tax and other factors, many of which are beyond our control.
Our ability to make payments on our indebtedness and to fund planned capital expenditures depends on our ability to generate and access cash in the future, which, in turn, is subject to general economic, financial, competitive, regulatory, tax and other factors, many of which are beyond our control.
We are also subject to potential shortcomings in our own business resilience practices, such as failures to fully understand dependencies between different business processes across the locations in which they are performed, inadequate vendor risk assessment and management processes and critical vendor dependencies, concentration of certain critical activities in areas of geopolitical risk, concentration of certain skills and know-how with small groups of key employees, and possibly ineffective location recovery strategies in the event of a location disruption.
We are also subject to potential shortcomings in our own business resilience practices, such as failures to fully understand dependencies between different business processes across the locations in which they are performed, inadequate vendor risk assessment and management processes and critical vendor dependencies, concentration of certain critical activities in areas of geopolitical risk, concentration of certain skills and know-how with small groups of key employees, and possibly ineffective recovery strategies in the event of a disruption.
Accordingly, in addition to possible exposure for publishing incorrect information that results directly from our own errors, we could face liability based on inaccurate data provided to us by others. For example, our Morningstar Sustainalytics business is reliant on self-reported information for some of its issuer-focused ESG ratings and analysis.
Accordingly, in addition to possible exposure for publishing incorrect information that results directly from our own errors, we could face liability based on inaccurate data provided to us by others. For example, our Morningstar Sustainalytics business component is reliant on self-reported information for some of its issuer-focused ESG ratings and analysis.
They also have duties of loyalty and prudence, as well as duties to diversify investments and to follow plan documents to comply with the applicable portions of ERISA. We may face liabilities for actual or claimed breaches of our fiduciary duties, particularly in areas where we provide retirement advice and managed retirement accounts.
They also have duties of loyalty and prudence, as well as duties to diversify investments and to follow plan documents to comply with the applicable portions of ERISA. We may face liabilities for actual or claimed breaches of our fiduciary duties, particularly in areas where we provide retirement or investment advice and managed retirement accounts.
Additional customer support may be needed to ensure that clients implement the new, more complex, versions and updates properly and understand the implications for their plan participants, including issues concerning suitability of certain strategies. More resources may also be required to continue to support legacy versions of the Wealth Forecasting Engine that continue to be used by certain clients.
Additional customer support may be needed to ensure that clients implement the new versions and updates properly and understand the implications for their plan participants, including issues concerning suitability of certain strategies. More resources may also be required to continue to support legacy versions of the Wealth Forecasting Engine that continue to be used by certain clients.
However, recent changes in labor markets such as the willingness of some employers to offer fully remote work brought on, in part, by the COVID-19 pandemic may make it more difficult for us to retain existing employees or maintain traditional workplace arrangements.
However, changes in labor markets, such as the willingness of some employers to offer fully remote work brought on, in part, by the COVID-19 pandemic, may make it more difficult for us to retain existing employees or maintain traditional workplace arrangements.
Three of our subsidiaries, Morningstar Investment Management LLC (MIM), Morningstar Investment Services LLC, and Morningstar Research Services LLC, are registered as investment advisors with the SEC under the Advisers Act. In addition, in the case of MIM’s advisory relationship with the Morningstar Funds Trust, it is subject to the Investment Company Act of 1940 and the Commodity Exchange Act.
Three of our subsidiaries, Morningstar Investment Management LLC (MIM), Morningstar Investment Services LLC, and Morningstar Research Services LLC, are registered as investment advisers with the SEC under the Advisers Act. In addition, in the case of MIM’s advisory relationship with the Morningstar Funds Trust, it is subject to the Investment Company Act of 1940 and the Commodity Exchange Act.
We provide ratings, analyst research, and investment recommendations on mutual funds and other investment products offered by our institutional clients. While we don’t charge asset management firms for their products to be rated, we do charge licensing fees for the use of our ratings.
We provide ratings, analyst research, and investment recommendations on mutual funds, ETFs and other investment products offered by our institutional clients. While we don’t charge asset management firms for their products to be rated, we do charge licensing fees for the use of our ratings.
If the level of assets on which we provide investment advisory or investment management services goes down, we expect our fee-based revenue to show a corresponding decline. The industrywide trend toward lower asset-based fees may also impact our fee-based revenue.
If the level of assets on which we provide investment advisory or investment management services goes down, we would expect our fee-based revenue to show a corresponding decline. The industrywide trend toward lower asset-based fees may also impact our fee-based revenue.
Our position as an independent enabler of investor choice may cause proponents of certain causes to question the adequacy, completeness and objectivity of our methodologies and models and of the data underlying them; the timing and nature of changes in our ratings or assessments and in other products, such as indexes, built on these ratings and assessments; the independence of our ratings determinations and editorial decisions and the influence of third parties, including governments and large institutional investors or asset owners, on such determinations or decisions; and our role in and influence upon various investment processes.
Our position as an independent provider of investor choice may cause proponents of certain causes to question the adequacy, completeness and objectivity of our methodologies and models and of the data underlying them; the timing and nature of changes in our ratings or assessments and in other products, such as indexes, built on these ratings and assessments; the independence of our ratings determinations and editorial decisions and the influence of third parties, including governments and large institutional investors or asset owners, on such determinations or decisions; and our role in and influence upon various investment processes.
Such changes could include taking steps to improve performance (e. g. removing a portfolio manager, or enhancing research capabilities), merge or liquidate a fund, close a fund to new investors, adjust an advisory fee schedule, or terminate the investment management agreement with Morningstar Investment Management any of which could have an adverse effect on Morningstar Investment Management.
Such changes could include taking steps to improve performance (e. g. removing a portfolio manager, or enhancing research capabilities), merge or liquidate a fund, close a fund to new investors, adjust an advisory fee schedule, or terminate the investment management agreement with MIM any of which could have an adverse effect on MIM.
We also have, and intend to continue to make, various investments in companies where we do not have or obtain a controlling interest. Such investments are motivated both by their prospective financial return and the access they give us to certain new technologies, products, business ideas, and management teams.
We also have, and expect to continue to make, various investments in companies where we do not have or obtain a controlling interest. Such investments are motivated both by their prospective financial return and the access they give us to certain new technologies, products, business ideas, and management teams.
As registered investment advisors, these subsidiaries are subject to on-site examination by the SEC. In addition, in cases where these subsidiaries provide investment advisory services to retirement plans and their participants, they may be acting as fiduciaries under ERISA. As fiduciaries under ERISA, they have obligations to act in the best interest of their clients.
As registered investment advisers, these subsidiaries are subject to on-site examination by the SEC. In addition, in cases where these subsidiaries provide investment advisory services to retirement plans and their participants, they may be acting as fiduciaries under ERISA. As fiduciaries under ERISA, they have obligations to act in the best interest of their clients.
Any failure to safeguard confidential information or any material cybersecurity failures or incidents in our systems (or the systems of a customer, vendor, or service provider which stores or processes confidential information for which we are responsible) could cause us to experience reputational harm, loss of customers, regulatory actions, sanctions or other statutory penalties, litigation, or financial losses and increased expenses related to addressing or mitigating the risks associated with any such material failures or incidents.
Any failure to safeguard confidential information or any material cybersecurity failures or incidents in our systems (or the systems of a customer, vendor, or service provider which stores or processes confidential information for which we are responsible, including cloud providers) could cause us to experience reputational harm, loss of customers, regulatory actions, sanctions or other statutory penalties, litigation, or financial losses and increased expenses related to addressing or mitigating the risks associated with any such material failures or incidents.
Our ability to deliver information using the Internet and to operate in a remote working environment may be impaired because of infrastructure failures, service outages at third-party Internet providers, malicious attacks, or other factors.
Our ability to deliver information using the Internet and to operate in a hybrid working environment may be impaired because of infrastructure failures, service outages at third-party Internet providers, malicious attacks, or other factors.
Our variable rate indebtedness could subject us to interest rate risk, which could cause our debt service obligations to increase significantly ◦ The concentrated ownership position of Joe Mansueto could adversely affect our other shareholders ◦ Fluctuations in our operating results may negatively affect our stock price ◦ The future sale of shares of our common stock may negatively affect our stock price Risk Factors You should carefully consider the risks and uncertainties described below and all of the other information included in this report when deciding whether to invest in our common stock or otherwise evaluating our business.
Our variable rate indebtedness could subject us to interest rate risk, which could cause our debt service obligations to increase significantly • Risks Related to Ownership of Our Common Stock ◦ The concentrated ownership position of Joe Mansueto could adversely affect our other shareholders ◦ Fluctuations in our operating results may negatively affect our stock price ◦ The future sale of shares of our common stock may negatively affect our stock price 31 Table of Contents Risk Factors You should carefully consider the risks and uncertainties described below and all of the other information included in this Report when deciding whether to invest in our common stock or otherwise evaluating our business.
Such activities have been the subject of extensive class action litigation, including one such proceeding involving us that was dismissed. 40 Table of Contents Many of our asset management and financial advisor clients are similarly regulated. If our license products and services fail to satisfy the regulatory requirements applicable to these clients, we may lose their business.
Such activities have been the subject of extensive class action litigation, including one such proceeding involving us that was dismissed. Many of our asset management and financial advisor clients are similarly regulated. If our license products and services fail to satisfy the regulatory requirements applicable to these clients, we may lose their business.
In addition, any failures by us to continue to instill effectively in our employees the non-negotiable expectation of independence and integrity may devalue our reputation over time and negatively effect both hiring and retention efforts.
In addition, any failures by us to continue to instill effectively in our employees the non-negotiable expectation of independence and integrity may devalue our reputation over time and negatively affect both hiring and retention efforts.
Our information technology systems interact with those of customers, vendors, and service providers and collect an increasing amount of confidential data as we expand our product and service offerings. As a result, inadequacies of our customers’ security technologies and practices introduce additional risk and cost of monitoring and may only be detected after a security breach has occurred.
Our information technology systems interact with those of customers, vendors, and service providers and collect an increasing amount of confidential data as we expand our product and service offerings. As a result, inadequacies of third party security technologies and practices introduce additional monitoring risk and cost and may only be detected after a security breach has occurred.
The additional investments we are making will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. We may not be able to make these investments as quickly or effectively as necessary to successfully and competitively scale our operations.
Such additional investments will increase our cost base, making it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. We may not be able to make these investments as quickly or effectively as necessary to successfully and competitively scale our operations.
During these downturns, they often seek to reduce spending on third-party services, as well as the number of employees, which would directly affect the number of prospective users for the PitchBook platform.
During these downturns, they often seek to reduce spending on third-party services, as well as the number of employees, which would directly and adversely affect the number of prospective users for the PitchBook platform.
We evaluate the potential impact of ESG factors on other companies and risk a claim of hypocrisy if we take or fail to take corporate actions that are or seem inconsistent with our own sustainability and corporate responsibility policies and practices, including publicly disclosed ESG and climate-related targets and goals.
We evaluate the potential impact of ESG factors on other companies and risk a claim of hypocrisy if we take or fail to take actions at the company level that are or seem inconsistent with our own sustainability and corporate responsibility policies and practices, including publicly disclosed ESG and climate-related targets and goals.
Our business results are partly driven by factors outside of our control, including general economic and financial market trends which may be impacted by changes in interest rates, availability of credit, inflation rates, changes in laws, trade barriers, commodity prices, currency exchange rates and controls, and national and international political circumstances.
Our business results are partly driven by factors outside of our control, including general economic and financial market trends which may be impacted by changes in interest rates, availability of credit, inflation rates, changes in laws, trade barriers, commodity prices, currency exchange rates and controls, and national and international geopolitical circumstances and uncertainties.
In the recent past, the scope and pace of global regulatory change has both increased and involved shorter compliance time frames, which has increased both the risk that we will properly identify and respond to regulatory changes applicable to our operations and the risk that we will implement such changes on a timely and complete basis.
In the recent past, the scope and pace of global regulatory change has both increased and involved shorter compliance time frames, which has increased both the risk that we may fail to properly identify and respond to regulatory changes applicable to our operations and the risk that we may fail to implement such changes on a timely and complete basis.
Asset levels can also be affected if net inflows into the portfolios on which we provide investment advisory services drop or if these portfolios experience redemptions. A drop in net inflows or an increase in redemptions can result from a variety of factors, including overall market conditions or uncompetitive investment performance.
Asset levels can also be affected if inflows into the portfolios for which we provide investment advisory services drop or if these portfolios experience redemptions. A drop in inflows or an increase in redemptions can result from a variety of factors, including overall market conditions or uncompetitive investment performance.
In addition, in our credit ratings business, we have access to significant amounts of material nonpublic information on issuers of securities, the inadvertent disclosure of which, or the misappropriation by employees or others, could expose us to various liabilities under securities and other laws.
In addition, in our business component containing our credit ratings offerings, we have access to significant amounts of material nonpublic information on issuers of securities, the inadvertent disclosure of which, or the misappropriation by employees or others, could expose us to various liabilities under securities and other laws.
Failure to comply with our public statements or to adequately disclose our privacy or data protection practices could result in costly investigations by governmental authorities, litigation, and fines as well as reputational damage and customer loss. 36 Table of Contents We also from time to time acquire other companies that collect and process personal information.
Failure to comply with our public statements or to adequately disclose our privacy or data protection practices could result in costly investigations by governmental authorities, litigation, and fines as well as reputational damage and customer loss. We also from time to time acquire other companies that collect and process personal information.
To defend against these threats, we implement a series of controls focusing on both prevention and detection, including firewalls, intrusion detection systems, automated scanning and testing, server hardening, antivirus software, training, and patch management.
To defend against these threats, we have implemented a series of controls focusing on both prevention and detection, including firewalls, intrusion detection systems, automated scanning and testing, server hardening, antivirus software, training, and patch management.
The amount of asset-based revenue we earn primarily depends on the value of assets on which we provide advisory services, and the size of our asset base can increase or decrease based on market performance. Our revenue from asset-based fees has been adversely affected by market declines.
The amount of asset-based revenue we earn primarily depends on the value of assets on which we provide advisory services, and the size of our asset base can increase or decrease based on market performance. Our revenue from asset-based fees has been, and may in the future be, adversely affected by market declines.
Our operations could also be affected by other risks and uncertainties that are not presently known to us or that we currently consider to be immaterial to our operations. 31 Table of Contents Risks Related to Our Business and Industry Failing to maintain and protect our brand, independence, and reputation may harm our business.
Our operations could also be affected by other risks and uncertainties that are not presently known to us or that we currently consider to be immaterial to our operations. Risks Related to Our Business and Industry Failing to maintain and protect our brand, independence, and reputation may harm our business.
While we have dedicated resources responsible for maintaining appropriate levels of cybersecurity and have implemented systems and processes intended to help identify cyberattacks and protect and remediate security issues in our software and network infrastructure, these attacks have become increasingly frequent, sophisticated, and difficult to detect.
While we have dedicated resources responsible for cybersecurity and have implemented systems and processes intended to help identify cyberattacks and protect and remediate security issues in our software and network infrastructure, these attacks have become increasingly frequent, sophisticated, and difficult to detect.
Our measures may not be adequate for all eventualities, and we may be vulnerable to circumvention of security systems, denial of service attacks or other cyberattacks, hacking including “hacktivism”, “phishing” or other social engineering attacks, computer viruses, ransomware or malware, employee or insider error, employee or vendor malfeasance, physical breaches or other malicious actions.
Our measures may not be adequate or designed to prevent all eventualities or all types or sources of attacks, and we may be vulnerable to circumvention of security systems, denial of service attacks or other cyberattacks, hacking including “hacktivism”, “phishing” or other social engineering attacks, computer viruses, ransomware or malware, employee or insider error, employee or vendor malfeasance, physical breaches or other malicious actions.
Our largest transaction-based business, the credit ratings business, as well as Morningstar Sustainalytics’ second party opinion business, has been, and may continue to be, impacted by volatility in U.S. and international financial markets due to their dependence on the number and dollar volume of debt securities issued in the capital markets.
Our credit ratings business, as well as Morningstar Sustainalytics’ Second Party Opinion business, have been, and may continue to be, impacted by volatility in U.S. and international financial markets due to their dependence on the number and dollar volume of debt securities issued in the capital markets.
Morningstar’s strategy for growth involves, in part, continuous expansion into new and adjacent product lines to anticipate and meet our customers’ needs. Our ability to realize those opportunities in one of our businesses, however, may be hindered by regulatory requirements governing a different business within the Morningstar group.
Morningstar’s business plan involves, in part, expansion into new and adjacent product lines to anticipate and meet our customers’ needs. Our ability to realize those opportunities in one of our businesses, however, may be hindered by regulatory requirements governing a different business within the Morningstar group.
Failing to innovate our product and service offerings, create innovative, proprietary and insightful financial technology solutions, keep pace with new investor requirements and technology developments, or anticipate our clients’ changing needs may negatively affect our competitive position and business results.
Failing to create innovative, proprietary and insightful product and service offerings, keep pace with new investor requirements and technology developments, and trends, or anticipate our clients’ changing needs may negatively affect our competitive position and business results.
Our position as a leading source of ESG research and opinions may also cause proponents of various causes to demand that we publicly take stands on a variety of controversial topics perceived by them as relevant to investor success or the evolving expectations of businesses but which we may believe we are unsuited or unprepared to address.
Our position as a leading source of ESG research and opinions may also cause proponents of various causes to demand that we publicly take stands on a variety of controversial topics perceived by them as relevant to investor success or the evolving expectations of businesses; however, we may believe we are unsuited or unprepared to address some or all of these topics.
Morningstar Investment Services is also a broker/dealer registered under the Exchange Act and is subject to the rules of FINRA. As registered investment advisors, these entities are subject to the requirements and regulations of the Advisers Act. These requirements primarily relate to record-keeping, reporting, and standards of care, as well as general anti-fraud prohibitions.
Morningstar Investment Services is also a broker/dealer registered under the Exchange Act and is subject to the rules of FINRA. Advisers Act requirements primarily relate to record-keeping, reporting, and standards of care, as well as general anti-fraud prohibitions.
Our ability to effectively market certain products and/or services in those locations could be adversely affected by these pre-existing usages. 39 Table of Contents We have from time to time been subject to claims by third parties alleging infringement of their intellectual property rights.
Our ability to effectively market certain products and/or services or obtain adequate trademark protection in those locations could be adversely affected by these pre-existing usages. 40 Table of Contents We have from time to time been subject to claims by third parties alleging infringement of their intellectual property rights.
In addition, each acquisition presents potential challenges and risks, including the following: From a technology perspective, we may face potential identified or unknown security vulnerabilities in acquired products that expose us to additional security risks and penalties or delay our ability to integrate the product into our service offerings; difficulties in increasing or maintaining at an acceptable cost the security standards for acquired technology consistent with our other services; difficulty in transitioning the acquired technology onto our existing platforms and customer acceptance of multiple platforms on a temporary or permanent basis; and challenges augmenting the acquired technologies and platforms to the levels that are consistent with our brand and reputation.
In addition, although we conduct robust due diligence through cross-functional teams when making an acquisition, each acquisition presents potential challenges and risks, including the following: From a technology perspective, we may face potential identified or unknown security vulnerabilities in acquired products that expose us to additional security risks and penalties or delay our ability to integrate the product into our service offerings; difficulties in increasing or maintaining at an acceptable cost the security standards for acquired technology consistent with our other services; difficulty in transitioning the acquired technology onto our existing platforms and customer acceptance of multiple platforms on a temporary or permanent basis; and challenges augmenting the acquired technologies and platforms to the levels that are consistent with our brand and reputation.
The scope of the laws that may be applicable is often uncertain and required practices may be inconsistent with laws of other jurisdictions. Consequently, our business is subject to a variety of continuously evolving and possibly conflicting regulations and customer requirements.
The scope of applicable laws may be uncertain and required practices may be inconsistent with laws of other jurisdictions. 36 Table of Contents Consequently, our business is subject to a variety of continuously evolving and possibly conflicting regulations and customer requirements.
New research and ratings offerings face a challenge to create objective, understandable methodologies in a rapidly developing field without widely accepted standards. Our methodologies generally are susceptible to potential claims of imprecision, empirical or methodological error, bias and puffery.
New research and ratings offerings face a challenge to create objective, understandable methodologies in a rapidly developing field currently without widely accepted standards and for which regulatory oversight is emerging. Our methodologies generally are susceptible to potential claims of imprecision, empirical or methodological error, bias and puffery.
We believe our business has relatively large fixed costs, principally in relation to compensation, and low variable costs, which magnify the impact of revenue fluctuations on our operating results. As a result, a decline in our revenue may lead to a larger decline in operating income.
Fluctuations in our operating results may negatively affect our stock price. We believe our business has relatively large fixed costs, principally in relation to compensation, and low variable costs, which has historically magnified the impact of revenue fluctuations on our operating results. As a result, a decline in our revenue may lead to a larger decline in operating income.
This concentration of ownership may disincentivize other shareholders from proposing the election of other persons to our board of directors, delay or prevent a change in control, impede a merger, consolidation, takeover, or other business combination involving Morningstar, discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the company, or result in actions that may be opposed by other shareholders. 46 Table of Contents Fluctuations in our operating results may negatively affect our stock price.
This concentration of ownership may disincentivize other shareholders from proposing the election of other persons to our board of directors, delay or prevent a change in control, impede a merger, consolidation, takeover, or other business combination involving Morningstar, discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the company, or result in actions that may be opposed by other shareholders.
As we grow through acquisitions, the newly acquired businesses may not have invested in technological infrastructure and disaster recovery to the same extent as we have. As their systems are integrated into ours, a vulnerability could be introduced, which could impact our platforms across the company.
As we have grown in recent years through acquisitions and continue to do so in the future, the newly acquired businesses may not have invested in technological infrastructure and disaster recovery to the same extent as we have. As their systems are integrated into ours, a vulnerability could be introduced, which could impact our platforms across the company.
Our new office model and any adjustments made to our current and future office environments or work-from-home policies may not meet our productivity expectations, on the one hand, and the expectations of our workforce, on other hand, which could negatively impact our growth plans and our ability to attract and retain our employees.
Our hybrid office model and any adjustments made to our current and future office environments may not meet our productivity expectations, on the one hand, and the expectations of our workforce, on other hand, which could negatively impact our growth plans and our ability to attract and retain our employees.
Such limitations, which seem likely to proliferate as global consensus regarding regulatory principles wanes, may impact our ability to maintain growth across our businesses. The dynamics of today’s geopolitical discourse may also impact business growth across different markets.
Such limitations, which seem likely to proliferate as global consensus regarding regulatory principles wanes, may impact our ability to execute on our strategy. The dynamics of today’s geopolitical discourse may also impact business opportunities across different markets.
As a result, many of these firms have sought to reduce their operating costs by working with fewer service providers and/or negotiating lower fees for services they purchase. Our PitchBook business may also be subject to cyclical trends specific to the private capital markets.
Many companies in the financial services industry have also been subject to sustained pressure to reduce fees. As a result, many of these firms have sought to reduce their operating costs by working with fewer service providers and/or negotiating lower fees for services they purchase. Our PitchBook business is also subject to cyclical trends specific to the private capital markets.
We anticipate that significant additional investments, both in terms of management attention and one-time and annual costs, will be required to scale our operations and increase productivity across our organization, to address the needs of our customers, to further develop and enhance our products and services, to expand into new geographic areas, and to increase our operating margin over time.
Significant additional investments, both in terms of management attention and one-time and annual costs, have been and are expected to continue to be required to effectively scale our operations and increase productivity across our organization, to address the needs of our customers, to further develop and enhance our products and services, to expand into new geographic areas, and to increase our operating margin over time.
We are at risk of disruptions from numerous factors, including pandemic, violent incident, natural disaster, power loss, telecommunications and Internet failures, civil unrest, cybersecurity attacks and breaches, and other events beyond our reasonable control.
Further, our operations and those of our vendors and customers are at risk of disruptions from numerous factors, including pandemic, violent incident, natural disaster, power loss, terrorist attack, telecommunications and Internet failures, civil unrest, cybersecurity attacks and breaches, and other events beyond our reasonable control.
Our variable rate indebtedness could subject us to interest rate risk, which could cause our debt service obligations to increase significantly. For an overview of our current outstanding indebtedness, refer to Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources below.
Our variable rate indebtedness could subject us to interest rate risk, which could cause our debt service obligations to increase significantly. For an overview of our current outstanding indebtedness, refer to Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources below. Our long-term debt was $940.3 million at December 31, 2023.
We seek to constantly innovate and improve our retirement services offering, for example to add new capabilities in income generating products and strategies or ESG-related investment strategies, and in doing so, we regularly release new versions of the technology and update our methodology.
We seek to constantly innovate and improve our retirement services offering, for example to add new capabilities around modeling and advising on income generating products, and in doing so, we regularly release new versions of the technology and update our methodology.
In our credit ratings business and Morningstar Sustainalytics’ Sustainable Finance Solutions products we are participants in an issuer-pay business model under which we receive payments from issuers for our ratings rather than from the investors who consume such ratings. These payments may create the perception that our ratings and research in these areas are not independently determined.
In our credit ratings business and Morningstar Sustainalytics’ Sustainable Finance Solutions products we are participants in an issuer-pay business model under which we receive payments from issuers for our ratings rather than from the investors who consume such ratings.
As of December 31, 2022, Joe Mansueto, our Executive Chairman and Chairman of the Board, owned approximately 39.52% o f our outstanding common stock.
As of December 31, 2023, Joe Mansueto, our Executive Chairman and Chairman of the Board, owned approximately 37.4% o f our outstanding common stock.
If a pandemic, war, natural disaster, violent incident, or another dangerous emergency significantly impacted the safety or communication connectivity of people living in and around these locations, we might not be able to continue business operations at an acceptable level that would meet all our legal and contractual commitments.
If a pandemic, war, natural disaster, violent incident, or another dangerous emergency significantly impacted the safety or communication connectivity of people living in and around these locations and/or at our significant office locations including but not limited to our corporate headquarters in Chicago, Illinois and our data collection, technology, and operational center in Mumbai, India, we might not be able to continue business operations at an acceptable level that would meet all our legal and contractual commitments.
In addition, our reputation could be harmed if we are perceived as not moving quickly enough to meet the changing needs of investors or their financial advisors. These changing needs include a greater expectation that advice be delivered with a high degree of personalization and an increased focus on sustainability.
In addition, our reputation could be harmed if we are perceived as not moving quickly enough to meet the changing needs of investors or their financial advisors and may sacrifice new business opportunities or renewals from existing customers. These changing needs include a greater expectation that advice be delivered with a high degree of personalization.
We continue to experience significant growth in our diversity of products and services, operational scale and employee and customer bases, particularly through acquisitions, which has placed a strain on and in the future may stress the capabilities of our management, administrative, operational and financial infrastructure.
Our business has and continues to experience significant growth in our diversity of products and services and operational scale, which has placed a strain on and in the future may stress the capabilities of our management, administrative, operational and financial infrastructure.
Furthermore, as our Morningstar Sustainalytics business operates globally and we look to integrate ESG factors throughout our products, we may be subject to future regulation in multiple jurisdictions, which may be inconsistent. Our index business is subject to regulations relating to benchmark administration in the EU and the U.K.
Furthermore, as our Morningstar Sustainalytics business operates globally and we look to integrate ESG factors throughout our products, we may be subject to future regulation in multiple jurisdictions, which may be inconsistent.
Problems could arise if these programs do not work as intended, particularly if we failed to detect program errors over an extended period and are found to be a breach of our fiduciary duty or applicable law.
Problems could arise if these programs do not work as intended, particularly if we failed to detect program errors over an extended period and are found to be liable for such errors, which may include liability for breach of our fiduciary duty or applicable law. Such program errors may not be detected despite quality assurance practices.
In addition, as we offer our employees opportunities to work from remote environments more frequently, the daily activities and productivity of our work force is now closely tied to key vendors, such as video conferencing services, consistently delivering their services without material disruption.
In addition, the daily activities and productivity of our work force is now closely tied to key vendors, such as video conferencing services, to consistently deliver their services without material disruption.
However, the talents and experience of these individuals make them attractive candidates to many of our competitors, as well as to early-stage companies that can offer the potential for outsize financial rewards if they are successful.
However, the talents and experience of these individuals make them attractive candidates to many of our competitors, as well as to early-stage companies that can offer the potential for outsize financial rewards if they are successful. Thus, competition for these employees is intense and the loss of such business leaders could pose substantial challenges to our business.
Regulators and political leaders in various countries are increasingly interested in restricting cross-border data transfers that they perceive as problematic. We and our customers are often subject to federal, state, and foreign laws relating to privacy, cybersecurity, and data protection.
Our business also operates across national borders and routinely moves personal information from one jurisdiction to another. Regulators and political leaders in various countries are increasingly interested in restricting cross-border data transfers that they perceive as problematic. We and our customers are often subject to federal, state, and foreign laws relating to privacy, cybersecurity, and data protection.
These sources include securities exchanges, fund companies, hedge funds, transfer agents, issuers, and other data providers. We also incorporate data from a variety of third-party sources for many of our products.
We rely on a variety of outside parties as the original sources for the information we use in our published data and research. These sources include securities exchanges, fund companies, hedge funds, transfer agents, issuers, and other data providers. We also incorporate data from a variety of third-party sources for many of our products.
Shifting preferences regarding remote work flexibility and a backlog of immigration applications can further complicate employment offer negotiations with potential candidates and delay start dates. Our future success also depends on the continued service of our executive officers, including Joe Mansueto, our Executive Chairman and Chairman of the Board and largest shareholder, and Kunal Kapoor, our Chief Executive Officer.
Shifting preferences regarding remote work flexibility and a backlog of immigration applications may further complicate our talent acquisition efforts. Our future success also depends on the continued service of our executive officers, including Joe Mansueto, our executive chairman and largest shareholder, and Kunal Kapoor, our chief executive officer.
Our growth has recently been derived to a significant extent from acquisitions. As we acquire and invest in companies or technologies, we may not realize the expected business or financial benefits and the acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results and the market value of our common stock.
Our acquisitions and investments in companies or technologies may not realize the expected business or financial benefits and acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results and the market value of our common stock.
Morningstar deploys each of these to create unique intellectual property, products, and solutions that clearly convey complex investment information to investors of all kinds. Morningstar offers a suite of solutions that serve individuals, financial advisors, asset managers, retirement plan providers and sponsors, institutional investors in the private capital markets, and participants in the fixed income markets.
Our core competencies are around data and research, technology, and design. Morningstar deploys each of these to create unique intellectual property, products, and solutions that clearly convey complex investment information to various investors, including individuals, financial advisors, asset managers, retirement plan providers and sponsors, institutional investors in the private capital markets, and participants in the fixed income markets.
Morningstar is fortunate to have many opportunities for global growth in its strategic plan, however, we cannot be certain that further growth or profitability will be at the same or higher level given the headwinds of deglobalization and political, regulatory, and cultural fragmentation. 44 Table of Contents Our success will depend in part upon the ability of our senior management – including the senior management of businesses we acquire -- to manage our anticipated growth effectively.
Morningstar is fortunate to have many opportunities for global growth in its strategic plan, however, we cannot be certain that further growth or profitability will be at the same or higher level given the headwinds of deglobalization and political, regulatory, and cultural fragmentation.
If our significant shareholders sell substantial amounts of our common stock, the market price of our common stock could fall. A significant reduction in ownership by Joe Mansueto or any other large shareholder over a short period of time could cause the market price of our common stock to fall.
A significant reduction in ownership by Joe Mansueto or any other large shareholder over a short period of time could cause the market price of our common stock to fall. In addition, the average daily trading volume in our stock is relatively low.
As a result, our future success will continue to depend upon our ability to identify and develop new products and enhancements that address the future needs of our target markets and to deliver them in ways that support our customers’ investing needs and business models. Our core competencies are around data and research, technology, and design.
As a result, our future success will continue to depend upon our ability to identify and develop new products and enhancements that address the future needs of our current and target markets and to deliver them in ways that support our customers’ investing needs and business models and on our ability to keep pace with the competitive landscape for our products.
Each of these locations has experienced various types of geopolitical risks and changes in laws and regulations relating to data privacy, security, protection of intellectual property rights, and acceptable telecommunication infrastructure which create uncertainty regarding our long-term operations there. Any extended disruptions to our operations in these locations would make it difficult for us to meet our operating goals.
Each of these locations has experienced or may in the future experience various types of geopolitical risks and changes in laws and regulations relating to data privacy, security, protection of intellectual property rights, and acceptable telecommunication infrastructure which create uncertainty regarding our long-term operations there.
To manage the expected domestic and international growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls, our reporting systems and procedures, our uses of automation and artificial intelligence systems to increase productivity, and our utilization of real estate.
We will need to continue to improve our operational, financial and management controls, our reporting systems and procedures, our uses of automation and AI systems to increase productivity, and our utilization of real estate.
The fiduciary duties of a registered investment advisor to its clients include an obligation of good faith and full and fair disclosure of all facts material to the client’s engagement of the advisor, an obligation to provide investment advice suitable for the particular client, an obligation to have a reasonable, independent basis for investment recommendations, an obligation when directing client brokerage transactions to seek the best execution thereof, and an obligation to vote client proxies in the best interests of the client.
Registered investment advisers have several fiduciary obligations to their clients including obligations of good faith and full and fair disclosure of all facts material to the client’s engagement of the adviser, to provide investment advice suitable for the particular client, to have a reasonable, independent basis for investment recommendations, of best execution, and to vote client proxies in the best interests of the client.
Our Morningstar Sustainalytics business could be negatively affected by increased regulation of ESG research and data. The European Commission’s legislative proposal for registering and supervising companies that act as external reviewers for green bonds aligned with the European Green Bond Standards (EuGBS) framework would require significant investments to build and maintain appropriate internal control and compliance processes for these teams.
The EU regulation for registering and supervising companies that act as external reviewers for green bonds aligned with the European Green Bond Standards (EuGBS) framework, as well as the draft EU legislative proposal for registering and supervising companies that provide ESG ratings would require significant investments to build and maintain appropriate internal control and compliance processes for these teams.
In addition, the average daily trading volume in our stock is relatively low. The lack of trading activity in our stock may lead to greater fluctuations in our stock price. Low trading volume may also make it difficult for shareholders to make transactions in a timely fashion.
Low trading volume in our stock may lead to greater fluctuations in our stock price, and may also make it difficult for shareholders to effect transactions in a timely fashion.
Legislation aimed at protecting material nonpublic information or mitigating potential conflicts of interest further define how certain information can be accessed and retained which may result in less efficient or higher cost technological processes and infrastructure. Failure to protect our intellectual property rights, or claims of intellectual property infringement against us, could harm our brand and ability to compete effectively.
Legislation aimed at protecting material nonpublic information or mitigating potential conflicts of interest further define how certain information can be accessed and retained which may result in less efficient or higher cost technological processes and infrastructure.
If we fail to comply with any applicable law, rule, or regulation, we could be fined, sanctioned, or barred from providing certain products and services in the future, which could adversely affect our business. Errors in our automated advisory tools may subject us to fiduciary liability for any losses that result.
If we fail to comply with any applicable law, rule, or regulation, we could be fined, sanctioned, or barred from providing certain products and services in the future, which could adversely affect our reputation, business and financial results.
Failures by DBRS Morningstar could lead to negative publicity, fines, settlements, and/or temporary or permanent operating restrictions. Further, many aspects of credit ratings agency policies and practices and their compliance with applicable law, regulations, contracts and license arrangements are not the subject of definitive regulatory guidance or case law.
Further, many aspects of credit ratings agency policies and practices and their compliance with applicable law, regulations, contracts and license arrangements are not the subject of definitive regulatory guidance or case law.
If disruptions, failures, or slowdowns of these electronic delivery systems or the Internet occur, our ability to distribute our products and services effectively and to serve our customers may be impaired. We are shifting the storage of our data and delivery of several of our products and services to cloud-based delivery systems.
If disruptions, failures, or slowdowns of these electronic delivery systems or the Internet occur, our ability to distribute our products and services effectively and to serve our customers could be negatively impacted.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease another 670,000 square feet of office space in 26 other countries around the world, including approximately 220,000 square feet in Mumbai, India and 90,000 square feet in Toronto, Canada. We believe that our existing and planned office facilities are adequate for our needs and that additional or substitute sp ace is available to accommodate growth and expansion.
Biggest changeWe also lease approximately 710,000 square feet of office space in 26 other countries around the world, including approximately 272,000 square feet in Mumbai, India and approximately 90,000 square feet in Toronto, Canada.
Item 2. Properties As of December 31, 2022, we leased approximately 547,000 square feet of office space for our U.S. operations, with approximately half of the space for our corporate headquarters located in Chicago, Illinois.
Item 2. Properties As of December 31, 2023, we leased approximately 526,000 square feet of office space for our U.S. operations, with approximately half of the space for our corporate headquarters located in Chicago, Illinois.
Added
We believe that our existing and planned office facilities, which are used by all of our segments, are adequate for our needs and that additional or substitute sp ace is available to accommodate growth and expansion.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We incorporate by reference the information regarding legal proceedings set forth in Note 15 of the Notes to our Consolidated Financial Statements contained in Part II, Item 8 of this report. Item 4. Mine Safety Disclosures Not applicable. 47 Table of Contents Part II
Biggest changeItem 3. Legal Proceedings We incorporate by reference the information regarding legal proceedings set forth in Note 15 of the Notes to our Consolidated Financial Statements contained in Part II, Item 8 of this Report. Item 4. Mine Safety Disclosures Not applicable. 53 Table of Contents Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table presents information related to repurchases of common stock we made during the three months ended December 31, 2022: Period: Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced programs Approximate dollar value of shares that may yet be purchased under the programs October 1, 2022 - October 31, 2022 27,492 $ 211.7 27,492 $ 172,682,401 November 1, 2022 - November 30, 2022 — — — 172,682,401 December 1, 2022 - December 31, 2022 — — — 172,682,401 Total 27,492 $ 211.7 27,492 48 Table of Contents Rule 10b5-1 Sales Plans Our directors and executive officers may purchase or sell shares of our common stock in the market from time to time.
Biggest changeRefer to Note 16 of the Notes to our Consolidated Financial Statements for more information regarding our share repurchase program: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced programs Approximate dollar value of shares that may yet be purchased under the programs (a) October 1, 2023 - October 31, 2023 — $ — — $ 498,550,338 November 1, 2023 - November 30, 2023 — — — $ 498,550,338 December 1, 2023 - December 31, 2023 — — — $ 498,550,338 Total — $ — — ______________________________________ (a) Repurchases will only be effected pursuant to the $500.0 million share repurchase program authorized by our board of directors and announced publicly on December 6, 2022, which commenced on January 1, 2023 and which will expire on December 31, 2025. 54 Table of Contents Rule 10b5-1 Sales Plans Our directors and executive officers may exercise stock options or purchase or sell shares of our common stock in the market from time to time.
In the fourth quarter of 2022, we announced an increase of our quarterly cash dividend from 36 cents per share to 37.5 cents per share. While subsequent dividends will be subject to board approval, we expect to pay a regular quarterly dividend of 37.5 cents per share in 2023.
In the fourth quarter of 2023, we announced an increase of our quarterly cash dividend from 37.5 cents per share to 40.5 cents per share. While subsequent dividends will be subject to board approval, we expect to pay a regular quarterly dividend of 40.5 cents per share in 2024.
This information reflects the beneficial ownership of our common stock on December 31, 2022 and includes shares of our common stock subject to options that were then exercisable or that will have become exercisable by March 1, 2023 and restricted stock units that will vest by March 1, 2023.
This information reflects the beneficial ownership of our common stock on February 16, 2024 and includes shares of our common stock subject to options that were then exercisable or that will have become exercisable by April 16, 2024 and restricted stock units that will vest by April 16, 2024.
The estimates do not reflect any changes to beneficial ownership that may have occurred since December 31, 2022. Each director and executive officer identified in the table may amend or terminate his or her Rule 10b5-1 sales plan and may adopt additional Rule 10b5-1 plans in the future. 49 Table of Contents Item 6. [Reserved] 50 Table of Contents
The estimates do not reflect any changes to beneficial ownership that may have occurred since February 16, 2024. Each director and executive officer identified in the table may amend or terminate his or her Rule 10b5-1 sales plan and may adopt additional Rule 10b5-1 plans in the future.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the Nasdaq Global Select Market under the symbol "MORN." As of February 10, 2023, there wer e 648 shareholders of record of our common stock. We paid four quarterly dividends during 2022.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the Nasdaq Global Select Market under the symbol "MORN." As of February 16, 2024, there wer e 601 shareholders of record of our common stock.
The following table, which we are providing on a voluntary basis, shows the Rule 10b5-1 sales plans entered into by our directors and executive officers that were in effect as of February 1, 2023: Name and Position Date of Plan Plan Termination Date Number of Shares to be Sold under the Plan Timing of Sales under the Plan Number of Shares Sold under the Plan through February 1, 2023 Projected Beneficial Ownership (1) Gail Landis Director 8/10/2022 10/30/2024 975 Shares to be sold under the plan if the stock reaches specified prices — 2,846 Joe Mansueto Executive Chairman 8/31/2022 5/3/2023 400,000 Shares to be sold under the plan if the stock reaches specified prices 200,000 16,584,964 During the fourth quarter of 2022, the previously disclosed Rule 10b5-1 plan for Bevin Desmond completed in accordance with its terms. _______________________________ (1) This column reflects an estimate of the number of shares each identified director and executive officer will beneficially own following the sale of all shares under the Rule 10b5-1 sales plan.
The following table, which we are providing on a voluntary basis, shows the Rule 10b5-1 sales plans entered into by our directors and executive officers that were in effect as of February 16, 2024: Name and Position Date of Plan Plan Termination Date Plan Duration Number of Shares to be Sold under the Plan Timing of Sales under the Plan Number of Shares Sold under the Plan through February 16, 2024 Projected Beneficial Ownership (1) Joe Mansueto Executive Chairman 2/28/2023 4/30/2024 05/29/2023 to 04/30/2024 700,000 Shares to be sold under the plan if the stock reaches specified prices 575,425 15,804,659 Joe Mansueto Executive Chairman 11/17/2023 4/30/2025 05/01/2024 to 04/30/2025 500,000 Shares to be sold under the plan if the stock reaches specified prices — 15,304,659 Steven Kaplan Director 8/3/2023 11/11/2024 03/11/2024 to 11/11/2024 5,000 Shares to be sold under the plan at market price — 39,151 During the year ended December 31, 2023, the previously disclosed Rule 10b5-1 plan dated March 23, 2023 for Gail Landis and the Rule 10b5-1 plan dated August 31, 2022 for Joe Mansueto, completed in accordance with their respective terms. _______________________________ (1) This column reflects an estimate of the number of shares each identified director and executive officer will beneficially own following the sale of all shares under the Rule 10b5-1 sales plan.
Removed
Throughout much of 2022, we had an ongoing authorization, approved by the board of directors on December 4, 2020, to repurchase up to $400.0 million in shares of the company's outstanding common stock.
Added
The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. We paid four quarterly dividends during 2023.
Removed
On December 6, 2022, the board of directors approved a new share repurchase program that authorizes the company to repurchase up to $500.0 million in shares of the company's outstanding common stock, effective January 1, 2023. The new program will replace the existing program and the new authorization expires on December 31, 2025.
Added
The table below presents information related to repurchases of common stock we made during the three months ended December 31, 2023.
Removed
Under this new authorization, we may repurchase shares from time to time at prevailing market prices on the open market or in private transactions in amounts that we deem appropriate.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFor 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; • compliance failures, regulatory action, or changes in laws applicable to our credit ratings operations, investment advisory, ESG and index businesses; • failing to innovate our product and service offerings or anticipate our clients’ changing needs; • prolonged volatility or downturns affecting the financial sector, global financial markets, and the global economy and its effect on our revenue from asset-based fees and credit ratings business; • failing to recruit, develop, and retain qualified employees; • liability for any losses that result from errors in our automated advisory tools; • inadequacy of our operational risk management and business continuity programs in the event of a material disruptive event; • failing to efficiently integrate and leverage acquisitions and other investments to produce the results we anticipate; • failing to scale our operations and increase productivity and its effect on our ability to implement our business plan; • 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 potential adverse effect of our indebtedness on our cash flows and financial flexibility; • challenges in accounting for complexities in taxes in the global jurisdictions in which we operate could materially affect our tax obligations and tax rate; and • failing to protect our intellectual property rights or claims of intellectual property infringement against us.
Biggest changeFor us, these risks and uncertainties include, among others: • failing to maintain and protect our brand, independence, and reputation; • failure to prevent and/or mitigate cybersecurity events and the failure to protect confidential information, including personal information about individuals; • compliance failures, regulatory action, or changes in laws applicable to our credit ratings operations, investment advisory, environmental, social, and governance (ESG), and index businesses; • failing to innovate our product and service offerings or anticipate our clients’ changing needs; • the impact of artificial intelligence (AI) and related new technologies on our business, legal, and regulatory exposure profile and reputation; • failure to detect errors in our products or failure of our products to perform properly due to defects, malfunctions or similar problems; • failing to recruit, develop, and retain qualified employees; • prolonged volatility or downturns affecting the financial sector, global financial markets, and the global economy and its effect on our revenue from asset-based fees and credit ratings business; • failing to scale our operations and increase productivity in order to implement our business plans and strategies; • liability for any losses that result from errors in our automated advisory tools or errors in the use of the information and data we collect; • inadequacy of our operational risk management, business continuity programs and insurance coverage in the event of a material disruptive event; • failing to efficiently integrate and leverage acquisitions and other investments, which may not realize the expected business or financial benefits, to produce the results we anticipate; • 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 potential adverse effect of our indebtedness on our cash flows and financial and operational flexibility; • challenges in accounting for tax complexities in the global jurisdictions we operate in could materially affect our tax obligations and tax rates; and • failing to protect our intellectual property rights or claims of intellectual property infringement against us.
We recognize this revenue in equal amounts over the term of the subscription or license, which generally ranges from one to three years. Our license-based revenue represents subscription services available to customers and not a license under the accounting guidance. We also provide research, investment management, retirement advice, and other services.
We recognize this revenue in equal amounts over the noncancellable term of the subscription or license, which generally ranges from one to three years. Our license-based revenue represents subscription services available to customers and not a license under the accounting guidance. We also provide research, investment management, retirement advice, and other services.
Continuous focus on the development of our major software platforms for our key product areas, in addition to bringing new products and capabilities to market, resulted in an increase in capitalized software development over the prior year period, which in turn reduced operating expense.
Continuous focus on the development of our major software platforms for our key product areas, in addition to bringing new products and capabilities to market, resulted in an increase in capitalized software development over the prior year, which in turn reduced operating expense.
Our management team uses free cash flow to evaluate our business. Free cash flow is not a measure of performance. Also, the free cash flow definition we use may not be comparable to similarly titled measures used by other companies.
Our management team uses free cash flow to evaluate the health of our business. Free cash flow is not a measure of performance. Also, the free cash flow definition we use may not be comparable to similarly titled measures used by other companies.
Each of the Amended 2022 Credit Agreement and the 2030 Notes include customary representations, warranties, and covenants, including financial covenants, that require us to maintain specified ratios of consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) to consolidated interest charges and consolidated funded indebtedness to consolidated EBITDA, which are tested on a quarterly basis.
Compliance with Covenants Each of the Amended 2022 Credit Agreement and the 2030 Notes include customary representations, warranties, and covenants, including financial covenants, that require us to maintain specified ratios of consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) to consolidated interest charges and consolidated funded indebtedness to consolidated EBITDA, which are tested on a quarterly basis.
International Operations As of December 31, 2022, we had wholly- or majority-owned subsidiaries in 31 countries outside of the U.S. and included their results of operations and financial condition in our consolidated financial statements. We also have investments outside of the U.S., and where we have significant influence, we apply the equity method of accounting.
International Operations As of December 31, 2023, we had wholly- or majority-owned subsidiaries in 31 countries outside of the U.S. and included their results of operations and financial condition in our consolidated financial statements. We also have investments outside of the U.S., and where we have significant influence, we apply the equity method of accounting.
We also include variable-fee contracts in this calculation and use the actual revenue for the previous comparable fiscal period as the base rate for calculating the renewal percentage. The renewal rate excludes setup and customization fees and contract renewals that were pending as of January 31, 2023.
We also include variable-fee contracts in this calculation and use the actual revenue for the previous comparable fiscal period as the base rate for calculating the renewal percentage. The renewal rate excludes setup and customization fees and contract renewals that were pending as of January 31, 2024.
On October 26, 2020, we completed the issuance and sale of $350.0 million aggregate principal amount of 2.32% senior notes due October 26, 2030 (2030 Notes), in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended.
Private Placement Debt Offering On October 26, 2020, we completed the issuance and sale of $350.0 million aggregate principal amount of 2.32% senior notes due October 26, 2030 (the 2030 Notes), in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended.
As of December 31, 2022 , our total outstanding debt, net of issuance costs, under the 2030 Notes w as $348.5 million . S ee Note 3 of the Notes to our Consolidated Financial Statements for additional information on our 2030 Notes.
As of December 31, 2023 , our total outstanding debt, net of issuance costs, under the 2030 Notes w as $348.5 million . S ee Note 3 of the Notes to our Consolidated Financial Statements for additional information on our 2030 Notes.
Organic revenue, adjusted operating income, adjusted operating margin, and free cash flow are not measures of performance set forth under U.S. generally accepted accounting principles (GAAP). 53 Table of Contents We define organic revenue as consolidated revenue excluding acquisitions, divestitures, adoption of new accounting standard changes (accounting changes), and foreign currency translations.
Organic revenue, adjusted operating income, adjusted operating margin, and free cash flow are not measures of performance set forth under U.S. generally accepted accounting principles (GAAP). We define organic revenue as consolidated revenue excluding acquisitions, divestitures, adoption of new accounting standard changes (accounting changes), and foreign currency translations.
Even in its fragmented state, regulators globally have continued to focus on certain recurring themes, including access to financial services, the quality of advice and the value of the services provided, the protection of customer data and transparency around the uses of such data, the minimization of conflicts of interest, and improvements in corporate governance and risk management.
Even in its fragmented state, regulators globally continue to focus on certain recurring themes, including access to financial services, the quality of advice and the value of the services provided, the protection of customer data and transparency around the uses of such data, the minimization of conflicts of interest, and improvements in corporate governance and risk management.
Financial Conduct Authority (FCA) may begin to make inconsistent modifications to the laws and regulations of the credit rating agency regulatory regimes, which would increase the cost and complexity of regulatory compliance for our credit ratings business. 54 Table of Contents In the U.K. and Europe, with respect to our Investment Management business, Morningstar continues to navigate the equivalence regimes and domestic laws governing matters of access in financial services post-Brexit.
Financial Conduct Authority may begin to make inconsistent modifications to the laws and regulations of the credit rating agency regulatory regimes, which would increase the cost and complexity of regulatory compliance for our credit ratings business. 59 Table of Contents In the U.K. and Continental Europe, with respect to our Investment Management business, Morningstar continues to navigate the equivalence regimes and domestic laws governing matters of access in financial services post-Brexit.
These intangible assets generally consist of customer relationships, trademarks and trade names, technology-related intangibles (including internally developed software and databases), and in certain acquisitions, noncompete agreements. • Estimate the fair value of these intangible assets: We may consider various approaches to value the intangible assets.
These intangible assets generally consist of customer relationships, trademarks and trade names, technology-related intangibles (including internally developed software and databases), and in certain acquisitions, noncompete agreements. 81 Table of Contents • Estimate the fair value of these intangible assets: We may consider various approaches to value the intangible assets.
The 2022 Credit Agreement also provided for the issuance of up to $50.0 million of letters of credit and a $100.0 million sub-limit for a swingline.
The 2022 Credit Agreement also provided for the issuance of up to $50.0 million of letters of credit and a $100.0 million sub-limit for a swingline facility under the 2022 Revolving Credit Facility.
These and other potential regulations impact not only the scope and manner of the ESG related products and services we provide to customers, but also present an opportunity to guide and inform advisers and investors who are looking to understand the regulations and develop their own workflows to ensure their compliance with new requirements.
These and other potential regulations may impact not only the scope of our disclosure obligations and the ESG-related products and services we provide to customers, but also present an opportunity to guide and inform investors who are looking to understand the regulations and develop their own workflows to ensure their compliance with new requirements.
As of December 31, 2022, our total outstanding debt under the Amended 2022 Credit Agreement was $761.1 million, net of debt issuance costs, with borrowing availability of $530.0 million under the 2022 Revolving Credit Facility. Except for incremental borrowing capacity, there were no material changes to the existing terms and conditions of the 2022 Credit Agreement.
As of December 31, 2023, our total outstanding debt under the Amended 2022 Credit Agreement was $623.9 million, net of debt issuance costs, with borrowing availability of $635.0 million under the 2022 Revolving Credit Facility. Except for incremental borrowing capacity, there were no material changes to the existing terms and conditions of the 2022 Credit Agreement.
Consolidated Free Cash Flow As described in more detail above, we define free cash flow as cash provided by or used for operating activities less capital expenditures. We present free cash flow solely as supplemental disclosure to help investors better understand how much cash is available after we spend money to operate our business.
Consolidated Free Cash Flow As described in more detail above, we define free cash flow as cash provided by or used for operating activities less capital expenditures. We present free cash flow solely as a supplemental disclosure to help investors better understand how much cash is available after making capital expenditures.
We also include amortization related to identifiable intangible assets, which is mainly driven by acquisitions, in this category. We amortize intangible assets using the straight-line method over their estimated economic useful lives, which range from one to twenty years.
We amortize leasehold improvements over the lease term or their useful lives, whichever is shorter. We also include amortization related to identifiable intangible assets, which is mainly driven by acquisitions, in this category. We amortize intangible assets using the straight-line method over their estimated economic useful lives, which range from one to twenty years.
Asset impairment costs include the write-off or accelerated depreciation of fixed assets in the Shenzhen, China office that are not redeployed, in addition to lease abandonment costs as the company plans to downsize office space prior to the lease termination date.
Asset impairment costs include the write-off or accelerated depreciation of fixed assets in the Shenzhen, China office that were not redeployed, in addition to lease abandonment costs as the company downsized its office space prior to the lease termination date.
We record the estimated fair value of assets acquired and liabilities assumed as of the date of acquisition. 70 Table of Contents To account for each business combination, we utilize the acquisition method of accounting which requires the following steps (1) identifying the acquirer, (2) determining the acquisition date, (3) recognizing and measuring identifiable assets acquired and liabilities assumed, and (4) recognizing and measuring goodwill or a gain from a bargain purchase.
To account for each business combination, we utilize the acquisition method of accounting which requires the following steps (1) identifying the acquirer, (2) determining the acquisition date, (3) recognizing and measuring identifiable assets acquired and liabilities assumed, and (4) recognizing and measuring goodwill or a gain from a bargain purchase.
With respect to our credit ratings business, the European Securities Markets Authority (ESMA) or the U.K.
With respect to our credit ratings business, the European Securities Market Authority or the U.K.
If arrangements include an acceptance provision, which exists infrequently, we begin recognizing revenue upon the receipt of customer acceptance. We make judgments at the beginning of an arrangement regarding whether collection of the consideration to which we are entitled is probable.
If arrangements include an acceptance provision, which exists infrequently, we begin recognizing revenue upon the receipt of customer acceptance. We make judgments at the beginning of an arrangement regarding whether collection of the consideration to which we are entitled is probable and assess the likelihood of collection on a customer-by-customer basis.
Year-to-year comparisons of the 2021 financial information to the same information for 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Year-to-year comparisons of the 2022 financial information to the same information for 2021 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 24, 2023.
We also released the Sustainability and Portfolio Hubs, which act as a central repository of research and tools for related workflows, and broadened data coverage in fixed-income , exchange-traded funds (ETFs), ESG, model portfolios, and alternatives to better cover investor portfolios.
Performance was also positively impacted by the release of the Sustainability and Portfolio Hubs, which act as a central repository of research and tools for related workflows, and broadened data coverage in fixed-income , exchange-traded funds (ETFs), ESG, model portfolios, and alternatives to better cover investor portfolios.
The significance of this policy varies form period to period depending upon the volume of applicable acquisition transactions occurring. 71 Table of Contents Recently Issued Accounting Pronouncements Refer to Note 17 of the Notes to our Consolidated Financial Statements for recently adopted accounting pronouncements as of December 31, 2022. 72 Table of Contents
The significance of this policy varies from period to period depending upon the volume of applicable acquisition transactions occurring. Recently Adopted and Issued Accounting Pronouncements Refer to Note 17 of the Notes to our Consolidated Financial Statements for recently adopted and issued accounting pronouncements as of December 31, 2023. 82 Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operatio ns The discussion included in this section, as well as other under "Business--Our Strategy," "Business--Regulat ory Trends Affecting Our Business" and sections of this report, contains forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operatio ns The discussion included in this section, as well as under "I tem 1— Business" and other sections of this Report, contains forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995.
We describe these acquisitions in Note 8 of the Notes to our Consolidated Financial Statements. We paid a total of $65.9 million related to additional investments in unconsolidated entities over the past three years. We describe these investments in Note 9 of the Notes to our Consolidated Financial Statements.
Acquisitions We paid a total of $672.3 million, less cash acquired, related to acquisitions over the past three years. We describe these acquisitions in Note 8 of the Notes to our Consolidated Financial Statements. We paid a total of $62.9 million related to additional investments in unconsolidated entities over the past three years.
Morningstar is impacted by these trends on the corporate level, as a U.S. public company with international operations, and on a business level, as a provider of ESG data, ratings, insights and other services to help investors and advisors understand and inform their decisions.
Morningstar is impacted by these trends on the corporate level, as a United States (U.S.) public company with international operations, and on a business level, as a provider of ESG data, ratings and other services to help investors and companies identify, understand, and manage ESG-driven risks and opportunities and inform their decisions.
We typically sell to institutional customers with whom we have a history of successful collections and assess the likelihood of collection on a customer-by-customer basis. Deferred revenue is the amount collected in advance for subscriptions, licenses, or services that has not yet been recognized as revenue.
We typically sell to institutional customers with whom we have a history of successful collections. Deferred revenue is the amount billed or collected in advance for subscriptions or services that has not yet been recognized as revenue.
As Morningstar provides data and analysis with respect to ESG-related investments, Morningstar, along with other financial service providers, faces scrutiny in this political environment and expends resources in responding to inquiries. Morningstar continues to monitor the ESG and anti-ESG landscape closely. Data privacy regulation continues to proliferate, as numerous national and state jurisdictions are considering new data privacy regulations.
As Morningstar provides data and analysis with respect to ESG-related investments, Morningstar, along with other financial service providers, faces scrutiny in this political environment and expends resources in responding to inquiries. Morningstar continues to closely monitor the ESG and anti-ESG landscape.
We amortize capitalized software development costs over their estimated economic life, generally three years. We depreciate property and equipment using the straight-line method based on the useful lives of the assets, which range from three to seven years. We amortize leasehold improvements over the lease term or their useful lives, whichever is shorter.
Our capital expenditures mainly relate to capitalized software development costs, information technology equipment, and leasehold improvements. We amortize capitalized software development costs over their estimated economic life, generally three years. We depreciate property and equipment using the straight-line method based on the useful lives of the assets, which range from three to seven years.
Divestitures We had no divestitures in 2022, 2021, or 2020. 69 Table of Contents Application of Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with GAAP.
We describe these investments in Note 9 of the Notes to our Consolidated Financial Statements. Divestitures We had no divestitures in 2023, 2022, or 2021. Application of Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with GAAP.
Other expense, net includes foreign currency exchange losses and unrealized gains (losses) on investments. 65 Table of Contents Equity in Net Incom e (Loss) of Unc onsolidated Entities (in millions) 2022 2021 Equity in net income (loss) of unconsolidated entities $ (3.6) $ 5.4 Equity in net income (loss) of unconsolidated entities primarily reflects income and losses from certain of our unconsolidated entities.
Other income (expense), net includes foreign currency exchange gains (losses) and unrealized gains (losses) on investments. Equity in investments of unconsolidated entities (in millions) 2023 2022 Equity in investments of unconsolidated entities $ (7.4) $ (3.6) Equity in investments of unconsolidated entities primarily reflects losses from certain of our unconsolidated entities.
(SBI). 68 Table of Contents Pursuant to the Termination Agreement, MJKK will cease use of the Morningstar brand and Morningstar and MJKK agreed to terminate the License Agreement originally entered into in 1998.
Pursuant to the Termination Agreement, Wealth Advisors agreed to cease use of the Morningstar brand and Morningstar, and Wealth Advisors agreed to terminate the License Agreement originally entered into in 1998.
A more complete description of these risks and uncertainties can be found in Item 1A—Risk Factors of this 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.
A more complete description of these risks and uncertainties, among others, can be found in Item 1A—Risk Factors of this Report. If any of these risks and uncertainties materialize, our actual future results and other future events may vary significantly from what we expect.
In July 2022, the company began to significantly reduce its operations in Shenzhen, China and to shift the work related to its global business functions, including global product and software development, managed investment data collection and analysis, and equity data collection and analysis, to other Morningstar locations.
In July 2022, the company began to significantly reduce its operations in Shenzhen, China and to shift the work related to its global business functions to other Morningstar locations.
The change reflects a $152.1 million decrease in cash provided by operating activities as well as a $27.7 million increase in capital expen ditures.
The change reflects a $18.6 million increase in cash provided by operating activities as well as a $10.4 million decrease in capital expen ditures .
Deferred revenue totaled $489.1 million at the end of 2022 (of which $455.6 million was classified as a current liability with an additional $33.5 million included in other long-term liabilities). We expect to recognize this deferred revenue in future periods as we fulfill our performance obligations under our subscription and service agreements.
Deferred revenue totaled $544.0 million (of which $517.7 million was classified as a current liability with an additional $26.3 million included in long-term liabilities) at the end of 2023. We expect to recognize this deferred revenue in future periods as we fulfill the service obligations under our license and subscription agreements.
We are focused on maintaining a strong balance sheet and liquidity position. We hold our cash reserves in cash equivalents and investments and maintain a conservative investment policy. We invest most of our investment balance in stocks, bonds, options, mutual funds, money market funds, or exchange-traded products that replicate the model portfolios and strategies created by Morningstar.
We hold our cash reserves in cash equivalents and investments and maintain a conservative investment policy. We invest most of our investment balance in stocks, bonds, options, mutual funds, money market funds, or exchange-traded products that replicate the model portfolios and strategies created by Morningstar. These investment accounts may also include exchange-traded products where Morningstar is an index provider.
Morningstar Data revenue grew 4.7%, or 9.4% on an organic basis, driven by growth across geographies and strong demand for fund dat a.
Revenue grew 8.0% on an organic basis, driven primarily by demand for Morningstar Data and Morningstar Direct. Morningstar Data contributed $11.5 million to Morningstar Data and Analytics revenue growth, with revenue increasing 4.7% or 9.4%, on an organic basis, driven by growth across geographies and strong demand for fund dat a.
We believe the following critical accounting policies reflect the significant judgments and estimates used in the preparation of our Consolidated Financial Statements: Revenue Recognition Most of our revenue comes from the sale of subscriptions for data, software, and Internet-based products and services.
If actual amounts are different from previous estimates, we include revisions in our results of operations for the period in which the actual amounts become known. 80 Table of Contents We believe the following critical accounting policies reflect the significant judgments and estimates used in the preparation of our Consolidated Financial Statements: Revenue Recognition Most of our revenue comes from the sale of subscriptions for data, software, and Internet-based products and services.
Intangible amortization expense increased $4.7 million in 2022 , primarily from additional amortization related to intangibles from the acquisition of LCD and Praemium Portfolio Services Limited.
Intangible amortization expense increased $3.8 million in 2023 , primarily from additional amortization related to intangibles from the acquisitions of Leveraged Commentary & Data (LCD) and Praemium Portfolio Services Limited (Praemium) .
For divestitures, we exclude revenue in the prior period for which there is no comparable revenue in the current period. Excluding revenue from acquisitions, accounting changes, and the impact of foreign currency translations, organic revenue increased 10.8% in 2022. PitchBook, Morningstar Sustainalytics, Morningstar Data, and Morningstar Direct were the main drivers of the increase in organic revenue during 2022.
For divestitures, we exclude revenue in the prior period for which there is no comparable revenue in the current period. Excluding revenue from acquisitions, accounting changes, and the impact of foreign currency translations, organic revenue increased 7.5% in 2023.
Consolidated Operating Expense (in millions) 2022 2021 Change Cost of revenue $ 779.3 $ 698.4 11.6 % % of revenue 41.7 % 41.1 % 0.6 pp Sales and marketing 356.5 274.8 29.7 % % of revenue 19.1 % 16.2 % 2.9 pp General and administrative 400.4 318.4 25.8 % % of revenue 21.4 % 18.7 % 2.7 pp Depreciation and amortization 166.6 150.7 10.6 % % of revenue 8.9 % 8.9 % — pp Total operating expense $ 1,702.8 $ 1,442.3 18.1 % % of revenue 91.0 % 84.9 % 6.1 pp In 2022, operating expense increased $260.5 million, or 18.1%.
Consolidated Operating Expense (in millions) 2023 2022 Change Cost of revenue $ 843.5 $ 779.3 8.2 % % of revenue 41.4 % 41.7 % (0.3) pp Sales and marketing 423.8 356.5 18.9 % % of revenue 20.8 % 19.1 % 1.7 pp General and administrative 355.8 400.4 (11.1) % % of revenue 17.5 % 21.4 % (3.9) pp Depreciation and amortization 184.9 166.6 11.0 % % of revenue 9.1 % 8.9 % 0.2 pp Total operating expense $ 1,808.0 $ 1,702.8 6.2 % % of revenue 88.7 % 91.0 % (2.3) pp 65 Table of Contents In 2023, operating expense increased $105.2 million, or 6.2%.
Adjusted operating margin is a non-GAAP financial measure; the table below shows a reconciliation to the most directly comparable GAAP financial measure. 2022 2021 Change Operating margin 9.0 % 15.1 % (6.1) pp Add: intangible amortization expense 3.6 % 3.6 % — pp Add: M&A-related expenses 0.9 % 1.0 % (0.1) pp Add: M&A-related earn-outs 0.6 % 1.6 % (1.0) pp Add: Severance and personnel expenses (1) 1.5 % — % 1.5 pp Add: Transformation costs (1) 0.4 % — % 0.4 pp Add: Asset impairment costs (1) — % — % — pp Adjusted operating margin 16.0 % 21.3 % (5.3) pp ______________________________________________________________________________________________________ (1) Reflects costs associated with the significant reduction of the company's operations in Shenzhen, China and the shift of work related to its global business functions to other Morningstar locations.
Adjusted operating margin is a non-GAAP financial measure; the table below shows a reconciliation to the most directly comparable GAAP financial measure. 2023 2022 Change Operating margin 11.3 % 9.0 % 2.3 pp Add: intangible amortization expense (1) 3.5 % 3.6 % (0.1) pp Add: M&A-related expenses (2) 0.4 % 0.9 % (0.5) pp Add: M&A-related earn-outs (3) — % 0.6 % (0.6) pp Add: Severance and personnel expenses (4) 0.3 % 1.5 % (1.2) pp Add: Transformation costs (4) 0.3 % 0.4 % (0.1)pp Add: Asset impairment costs (4) 0.2 % — % 0.2 pp Adjusted operating margin 16.0 % 16.0 % 0.0 pp ______________________________________________________________________________________________________ (1) Excludes finance lease amortization expense of $1.2 million in 2023 and $2.1 million in 2022.
The figures for license-based products includes the effect of price changes; increasing client bases upon contract renewal; changes to the contract value upon renewal (such as increased users); and changes in the value of variable-fee contracts.
The figures for license-based products includes the effect of price changes; increasing client bases upon contract renewal; any loss of clients due to cancellations; changes to the contract value upon renewal (such as increased users); and changes in the value of variable-fee contracts. These factors, therefore, can result in renewal rate percentages greater or lower than 100%.
Our business relies heavily on human capital, and cost of revenue includes the compensation expense for employees who produce our products and services. We include compensation expense for approximately 80% of our employees in this category. Cost of revenue increased $80.9 million, or 11.6%, in 2022.
Cost of revenue Cost of revenue is our largest category of operating expense, representing about one-half of our total operating expense. Our business relies heavily on human capital, and cost of revenue includes the compensation expense for employees who produce our products and services. We include compensation expense for approximately 75% of our employees in this category.
Transformation costs include professional fees and the temporary duplication of headcount. As the company hires replacement roles in other markets and shifts capabilities, it expects to continue to employ certain Shenzhen-based staff through the transition period, which will result in elevated compensation costs on a temporary basis.
In addition, the reversal of accrued sabbatical liabilities is included in this category. Transformation costs include professional fees and the temporary duplication of headcount. As the company hired replacement roles in other markets and shifted capabilities, it employed certain Shenzhen-based staff through the transition period, which resulted in elevated compensation costs on a temporary basis.
This politicization has led to the rise of anti-ESG proponents and actions, including the submission of anti-ESG shareholder proposals to U.S.-based public companies and the filing of lawsuits against U.S. companies.
The politicization of ESG-related business activities and investments has increased in recent years, particularly in the U.S. This politicization has led to the rise of anti-ESG proponents and actions, including individual and multi-state inquiries into companies’ ESG activities, the submission of anti-ESG shareholder proposals to U.S.-based public companies, and the filing of shareholder derivative lawsuits against U.S. companies.
We present free cash flow as supplemental information to help investors better understand trends in our business results over time. Our management team uses free cash flow to evaluate our business. Free cash flow is not equivalent to any measure required under GAAP and should not be considered an indicator of liquidity.
Free cash flow is presented solely as a supplemental disclosure to help investors better understand how much cash is available after making capital expenditures. Our management team uses free cash flow to evaluate the health of our business. Free cash flow is not equivalent to any measure required under GAAP and should not be considered an indicator of liquidity.
Higher compensation expense (which primarily consists of salaries, bonuses, and other company-sponsored benefits), stock-based compensation costs, professional fees, severance expense, and sales commission expense were the key contributors to operating expense growth in 2022. Foreign currency translations had a favorable impact o f $48.2 million on operating expense in 2022.
Higher compensation expense (which primarily consists of salaries, bonuses, and other company-sponsored benefits ), depreciation expense, SaaS-based software subscriptions, facilities-related expenses, and commissions were the key contributors to operating expense growth in 2023. Foreign currency translations had a favorable impact o f $8.3 million on operating expense in 2023. Compensation expense increased $121.7 million in 2023.
PitchBook revenue increased 40.5% on a reported and organic basis during 2022, as the company continued to enhance core data sets and improve the user experien ce. Reported and organic results exclude contributions from the LCD acquisition.
Revenue grew 39.1% on an organic basis. The PitchBook product area contributed $117.5 million to PitchBook revenue growth, with revenue increasing 40.5% on a reported and organic basis, as PitchBook continued to enhance core data sets and improve the user experien ce. Reported and organic results for the product area exclude contributions from the LCD acquisition. Licenses grew 28.0%.
The tables below reconcile consolidated revenue with organic revenue: (in millions) 2022 2021 Change Consolidated revenue $ 1,870.6 $ 1,699.3 10.1 % Less: acquisitions (40.9) — NMF Less: accounting changes — (5.8) NMF Effect of foreign currency translations 45.9 — NMF Organic revenue $ 1,875.6 $ 1,693.5 10.8 % ____________________________________________________________________________________________ NMF — Not meaningful 60 Table of Contents Revenue by geographical area Year ended December 31 (in millions) 2022 2021 Change United States $ 1,353.9 $ 1,184.3 14.3 % Asia 44.8 41.1 9.0 % Australia 55.8 56.9 (1.9) % Canada 109.8 112.9 (2.7) % Continental Europe 162.9 159.1 2.4 % United Kingdom 133.6 135.7 (1.5) % Other 9.8 9.3 5.4 % Total International 516.7 515.0 0.3 % Consolidated revenue $ 1,870.6 $ 1,699.3 10.1 % International revenue comprised approximately 28% and 30% of our consolidated revenue in 2022 and 2021, respectively.
PitchBook and Morningstar Data and Analytics were the largest drivers of the increase in organic revenue during 2023. 63 Table of Contents The tables below reconcile consolidated revenue to organic revenue: (in millions) 2023 2022 Change Consolidated revenue $ 2,038.6 $ 1,870.6 9.0 % Less: acquisitions (30.9) — NMF Less: accounting changes — — — % Effect of foreign currency translations 3.2 — NMF Organic revenue $ 2,010.9 $ 1,870.6 7.5 % Revenue by geographical area (in millions) 2023 2022 Change United States $ 1,470.6 $ 1,353.9 8.6 % Asia 49.3 44.8 10.0 % Australia 58.4 55.8 4.7 % Canada 116.3 109.8 5.9 % Continental Europe 185.5 162.9 13.9 % United Kingdom 148.0 133.6 10.8 % Other 10.5 9.8 7.1 % Total International 568.0 516.7 9.9 % Consolidated revenue $ 2,038.6 $ 1,870.6 9.0 % International revenue comprised approximately 28% of our consolidated revenue in 2023 and 2022.
In 2022, cash provided by operating activities was $297.8 million, reflecting $309.8 million of net income, adjusted for non-cash items, and an additional $12.0 million i n negative changes from our net operating assets and liabilities. Cash provided by operating activities decreased $152.1 million, or 33.8%, in 2022.
In 2023, cash provided by operating activities was $316.4 million, reflecting $288.3 million of net income, adjusted for non-cash items, and an additional $28.1 million i n positive changes from our net operating assets and liabilities. Cash provided by operating activities increased $18.6 million, or 6.2%, in 2023.
Non-Operating Expense, Net, Equity in Net Income (Loss) of Unconsolidated Entities, and Effective Tax Rate and Income Tax Expense Non-Operating Expense, Net The following table presents the components of non-operating expense, net: (in millions) 2022 2021 Interest income $ 1.7 $ 1.7 Interest expense (30.1) (10.4) Realized gains (losses) on sale of investments, reclassified from other comprehensive income (2.1) 5.0 Realized gains on sale of equity method investments — 0.9 Other expense, net (6.7) (3.7) Non-operating expense, net $ (37.2) $ (6.5) Interest income reflects interest from our investment portfolio.
The increase was primarily due to the financial results of Morningstar Sustainalytics and Morningstar Indexes, as well as higher compensation costs and increases in stock-based compensation in corporate areas. 75 Table of Contents Non-operating expense, n et, Equity in investments of unconsolidated entities, and Effective tax rate and Income tax expense Non-operating expense, net The following table presents the components of non-operating expense, net: (in millions) 2023 2022 Interest income $ 9.0 $ 1.7 Interest expense (60.7) (30.1) Realized gains (losses) on sale of investments, reclassified from other comprehensive income 2.9 (2.1) Expense from equity method transaction, net (11.8) — Other income (expense), net 11.5 (6.7) Non-operating expense, net $ (49.1) $ (37.2) Interest income reflects interest from our investment portfolio.
We do not make public financial forecasts for our business because we want to avoid creating any incentives for our management team to make speculative statements about our financial results that could influence our stock price or take actions that help us meet short-term forecasts, but may not build long-term shareholder value.
We do not make public financial forecasts for our business because we want to avoid creating any incentives for our management team to make speculative statements about our financial results that could influence our stock price or take actions that help us meet short-term forecasts, but may not build long-term shareholder value. 58 Table of Contents We pro vide the following measures that can help investors generate their own assessment of how our intrinsic value has changed over time: • Revenue (including organic revenue); • Operating income (including adjusted operating income); • Operating margin (including adjusted operating margin); and • Free cash flow.
This category includes compensation expense for employees who produce the products and services we deliver to our customers. For example, this category covers production teams and analysts who write investment research reports. It also includes compensation expense for programmers, designers, and other employees who develop new products and enhance existing products.
For example, this category covers production teams and analysts who write investment research reports. It also includes compensation expense for programmers, designers, and other employees who develop new products and enhance existing products. In some cases, we capitalize the compensation costs associated with certain software development projects resulting in reduced expense that we would otherwise report in this category.
(in millions) 2022 2021 Change Operating income $ 167.8 $ 257.0 (34.7) % Add: intangible amortization expense 66.7 62.0 7.6 % Add: M&A-related expenses 17.1 17.4 (1.7) % Add: M&A-related earn-outs 11.6 27.0 (57.0) % Add: Severance and personnel expenses (1) 27.5 — NMF Add: Transformation costs (1) 8.2 — NMF Add: Asset impairment costs (1) — — — % Adjusted operating income $ 298.9 $ 363.4 (17.7) % 64 Table of Contents In 2022, we reported an adjusted operating margin of 16.0%, which excludes intangible amortization expense, M&A-related expenses (including M&A-related earn-outs), and expenses related to the significant reduction and shift of the company's operations in China .
(in millions) 2023 2022 Change Operating income $ 230.6 $ 167.8 37.4 % Add: intangible amortization expense (1) 70.5 66.7 5.7 % Add: M&A-related expenses (2) 9.8 17.1 (42.7) % Add: M&A-related earn-outs (3) — 11.6 NMF Add: Severance and personnel expenses (4) 5.5 27.5 (80.0) % Add: Transformation costs (4) 7.0 8.2 (14.6) % Add: Asset impairment costs (4) 3.1 — NMF Adjusted operating income $ 326.5 $ 298.9 9.2 % Morningstar Data and Analytics $ 339.8 $ 313.3 8.5 % PitchBook 148.1 71.5 107.1 % Morningstar Wealth (40.4) (14.3) 182.5 % Morningstar Credit 21.7 59.1 (63.3) % Morningstar Retirement 54.1 51.4 5.3 % Less: Corporate and All Other (5) (196.8) (182.1) 8.1 % Adjusted operating income $ 326.5 $ 298.9 9.2 % We reported adjusted operating margin of 16.0% in 2023 and 2022, which excludes intangible amortization expense, M&A-related expenses (including M&A-related earn-outs), and expenses related to the significant reduction and shift of the company's operations in China .
We expect to continue making capital expenditures in 2023, primarily for computer hardware and software provided by third parties, internally developed software, and leasehold improvements for new and existing office locations.
Refer to Note 9 of the Notes to our Consolidated Financial Statements for additional information on the Termination Agreement and the Tender Offer Agreement. Other We expect to continue making capital expenditures in 2024, primarily for computer hardware and software provided by third parties, internally developed software, and leasehold improvements for new and existing office locations.
Effective Tax Rate and Income Tax Expense The following table summarizes the components of our effective tax rate: (in millions) 2022 2021 Income before income taxes and equity in net income (loss) of unconsolidated entities $ 130.6 $ 250.5 Equity in net income (loss) of unconsolidated entities (3.6) 5.4 Total $ 127.0 $ 255.9 Income tax expense $ 56.5 $ 62.6 Effective tax rate 44.5 % 24.5 % Our effective tax rate in 2022 was 44.5%, an increase of 20.0 percentage points compared with 24.5% in 2021.
Effective tax rate and income tax expense The following table summarizes the components of our effective tax rate: (in millions) 2023 2022 Income before income taxes and equity in investments of unconsolidated entities $ 181.5 $ 130.6 Equity in investments of unconsolidated entities (7.4) (3.6) Income before income taxes $ 174.1 $ 127.0 Income tax expense $ 33.0 $ 56.5 Effective tax rate 19.0 % 44.5 % 76 Table of Contents Our effective tax rate in 2023 was 19.0%, a decrease of 25.5 percentage points, compared with 44.5% in the prior year.
Financial regulators have also increased scrutiny on the data protection practices of the entities, such as Morningstar, that they oversee. In the U.S., the SEC is focused on cybersecurity hygiene and preparedness, cyber incident reporting to the government, and in certain circumstances, disclosure to the public.
Financial regulators have also increased scrutiny on the data protection practices of the entities, such as Morningstar, that they oversee. In the U.S., the SEC recently adopted disclosure requirements regarding cybersecurity hygiene and preparedness and cyber incident reporting. Regulators in various global jurisdictions have adopted or are considering regulations governing AI technologies, including the EU’s AI Act.
Revenue Renewal Rates As discussed in How We Evaluate Our Business , we calculate revenue renewal rates to help measure how successful we've been in maintaining existing business for products and services that have renewable revenue.
Revenue from international operations increased $51.3 million, or 9.9%, in 2023 driven by strong demand for Morningstar Data and Analytics products. 64 Table of Contents Revenue Renewal Rates As discussed in How We Evaluate Our Business , we calculate revenue renewal rates to help measure how successful we've been in maintaining existing business for products and services that have renewable revenue.
Organic revenue is not equivalent to any measure required under GAAP and may not be comparable to similarly titled measures reported by other companies. We define adjusted operating income as operating income excluding all M&A-related expenses (including M&A-related earn-outs) and amortization, as well as all expenses related to the significant reduction and shift of the company's operations in China.
We define adjusted operating income as operating income excluding all mergers and acquisitions (M&A)-related expenses (including M&A-related earn-outs) and amortization, as well as all expenses related to the significant reduction and shift of the company's operations in China.
Notable product releases included Portfolio Forecasting, a tool that allows Limited Partners to efficiently manage cash flow, pace commitments, and hit allocation targets directly within the PitchBook Platform.
Notable product releases included Portfolio Forecasting, a tool that allows Limited Partners to efficiently manage cash flow, pace commitments, and hit allocation targets directly within the PitchBook Platform. PitchBook adjusted operating income increased $16.1 million, or 29.1% , and adjusted operating margin decreased 2.5 percentage points in 2022, as expense growth outpaced revenue growth.
We also expect to use a portion of our cash and investments balances in the first quarter of 2023 to make annual bonus payments of approxima tely $99.2 million rela ted to the 2022 bonus program compared with $139.9 million paid in the first quarter of 2022 for the 2021 bonus program.
These actions will continue to have some transitional effects on our level of capital expenditures and operating expenses. 79 Table of Contents We also expect to use a portion of our cash and investments balances in the first quarter of 2024 to make annual bonus payments of approxima tely $124.3 million rela ted to the 2023 bonus program compared with $98.3 million paid in the first quarter of 2023 for the 2022 bonus program.
Consolidated Operating Income and Operating Margin (in millions) 2022 2021 Change Operating income $ 167.8 $ 257.0 (34.7) % Operating margin 9.0 % 15.1 % (6.1) pp Consolidated operating income decreased $89.2 million in 2022, reflecting an increase in operating expense of $260.5 million , which was partially offset by an increase in revenue of $171.3 million.
Consolidated Operating Income and Operating Margin (in millions) 2023 2022 Change Operating income $ 230.6 $ 167.8 37.4 % Operating margin 11.3 % 9.0 % 2.3 pp Consolidated operating income increased $62.8 million in 2023, or a 37.4% increase from 2022, reflecting an increase in revenue of $168.0 million, which was partially offset by an increase in operating expense of $105.2 million.
In some cases, we capitalize the compensation costs associated with certain software development projects. This reduces the expense that we would otherwise report in this category. Cost of revenue also includes other expenses, such as third-party data purchases and data lines as well as professional fees for third-party development activities. • Sales and marketing.
Cost of revenue also includes other expenses, such as third-party data purchases and data lines as well as professional fees for third-party development activities. • Sales and marketing. This category includes compensation expense for our sales teams, product managers, and marketing professionals.
In 2022, we reported adjusted operating income of $298.9 million, which excludes intangible amortization expense, M&A-related expenses (including M&A-related earn-outs), and expenses related to the significant reduction and shift of the company's operations in China . Adjusted operating income is a non-GAAP financial measure; the table below shows a reconciliation to the most directly comparable GAAP financial measure.
In addition, the DBRS SEC settlements negatively impacted operating margin and adjusted operating margin by an additional 0.4 percentage points. 68 Table of Contents Non-GAAP Financial Measures We reported adjusted operating income of $326.5 million in 2023 compared with $298.9 million in 2022, which excludes intangible amortization expense, M&A-related expenses (including M&A-related earn-outs), and expenses related to the significant reduction and shift of the company's operations in China .
(in millions) 2022 2021 Change Cash provided by operating activities $ 297.8 $ 449.9 (33.8) % Capital expenditures (129.5) (101.8) 27.2 % Free cash flow $ 168.3 $ 348.1 (51.7) % We generated free cash flow of $168.3 million in 2022, a decrease of $179.8 million compared with 2021.
(in millions) 2023 2022 Change Cash provided by operating activities $ 316.4 $ 297.8 6.2 % Capital expenditures (119.1) (129.5) (8.0) % Free cash flow $ 197.3 $ 168.3 17.2 % We generated free cash flow of $197.3 million in 2023, an increase of $29.0 million compared with 2022.
As consideration for the transaction, Morningstar agr eed to pay MJKK 8 billion Japanese yen, comprised of 6 billion Japanese yen (approximately $45.0 million), paid upon termination of the License Agreement on March 30, 2023, and a contingent payment of 2 billion Japanese yen (approximately $15.0 million), paid upon the achievement of certain conditions related primarily to the termination of the use of the Morningstar brand by MJKK’s customers.
As consideration for the transaction, Morningstar agreed to pay Wealth Advisors 8 billion Japanese yen upon the termination of the license agreement and the achievement of certain conditions related primarily to the termination of the use of the Morningstar brand by Wealth Advisors’ customers.
This category includes compensation expense for our management team and other corporate functions, including employees in our compliance, finance, human resources, and legal departments. It also includes costs for corporate systems and facilities. • Depreciation and amortization. Our capital expenditures mainly relate to capitalized software development costs, information technology equipment, and leasehold improvements.
We also include the cost of advertising, digital marketing campaigns, and other marketing and promotion efforts in this category. • General and administrative. This category includes compensation expense for our management team and other corporate functions, including employees in our compliance, finance, human resources, and legal departments. It also includes costs for corporate systems and facilities. • Depreciation and amortization.
Reported assets under management and advisement fell 2.5% versus the prior year period, reflecting the declines in global markets and softer net flows. Excluding $4.4 billion of assets related to the acquisition of Praemium's U.K. and international offerings in the second quarter of 2022, assets would have declined 10.9% compared with the prior-year period.
Excluding $4.4 billion of assets related to the acquisition of Praemium's U.K. and international offerings in the second quarter of 2022, assets would have declined 10.9% compared with the prior year. In 2022, the company successfully closed the Praemium acquisition, which expanded its wealth management capabilities outside the U.S.
Central banks’ increases in interest rates to combat inflationary pressures increases our interest expense on our variable rate indebtedness, while the volatile rate environment reduces credit issuance putting negative pressure on our credit rating business. Our compensation expense reflects rising wage scales in many of the markets where we operate as unemployment rates remain low.
Finally, our company is impacted by government regulation and policies focused on macroeconomic trends such as inflation and unemployment. Central banks’ increases in interest rates to combat inflationary pressures increases our interest expense on our variable rate indebtedness, while the volatile rate environment reduces credit issuance putting negative pressure on our credit rating business.
Asset-based revenue increased 1.7%, or 1.5% on an organic basis, during 2022, as growth in Morningstar Indexes revenue was largely offset by market-driven declines in Investment Management revenue. Morningstar Indexes revenue increased 35.5%, or 26.2% on an organic basis, due primarily to strength in investable and licensed data products. Or ganic revenue excludes LCD index-related revenue.
Morningstar Indexes contributed $13.2 million to Corporate and All Other revenue growth with revenue increasing 35.7%, or 26.4%, on an organic basis. The growth in revenue was due primarily to strength in investable and licensed data products. Organic revenue excludes LCD index-related revenue. Corporate and All Other increased $47.3 million in 2022.
These factors, therefore, can result in a renewal rate percentage greater than 100%. 61 Table of Contents Our revenue renewal rate calculation includes only those products that we consider to be license-based. These are primarily weighted toward PitchBook, Morningstar Data, Morningstar Direct, and Morningstar Advisor Workstation, but also includes other license-based products and services across Morningstar.
Our revenue renewal rate calculation includes only those products that we consider to be license-based. These are primarily weighted toward Morningstar Data and Analytics and PitchBook products, but also includes other license-based products and services. For these license-based products and services, we estimate that our annual renewal rate was approximat ely 103% in 2023 versus 105% in 2022.
As of December 31, 2022 , w e repurchased a total of 887,774 shares for $227.3 million under this authorization. On December 6, 2022, the board of directors approved a new share repurchase program that authorizes the company to repurchase up to $500.0 million in shares of the company's outstanding common stock, effective January 1, 2023.
We were in compliance with these financial covenants as of December 31, 2023, with consolidated funded indebtedness to consolidated EBITDA calculated at approximately 1.7x. 78 Table of Contents Share repurchases On December 6, 2022, the board of directors approved a share repurchase program that authorizes the company to repurchase up to $500.0 million in shares of the company's outstanding common stock, effective January 1, 2023.
These laws may provide obligations inconsistent with other state or global privacy regulations and impose additional compliance costs. 55 Table of Contents As a related matter, issues of cybersecurity as they relate to the identification and mitigation of system vulnerabilities also continue to grow in prominence and laws governing data breaches continue to proliferate globally.
Data privacy regulation continues to proliferate, as numerous national and state jurisdictions have adopted or are considering new data privacy regulations. As a related matter, issues of cybersecurity as they relate to the identification and mitigation of cyber threats also continue to grow in prominence and laws governing data breaches continue to proliferate globally.
Professional fees also reflected the impact of higher legal fees primarily associated with a completed independent investigation regarding certain research practices of Morningstar Sustainalytics. 62 Table of Contents Severance expense increased $27.1 million in 2022, primarily caused by severance packages offered to the employees impacted by the company's initiation of the significant reduction of its China operations.
In addition, professional fees in 2022 reflected the impact of higher legal fees primarily associated with a completed independent investigation regarding certain research practices of Morningstar Sustainalytics. 66 Table of Contents Severance expense decreased $12.7 million in 2023, compared to the prior year when severance related to the transition and shift of the company's China operations totaled $25.9 million.
The number of PitchBook Platform licenses increased to 94,628 at the end of 2022, compared with 73,940 at the end of 2021. 58 Table of Contents Morningstar Sustainalytics revenue grew 30.5%, or 41.0% on an organic basis, driven by strength in its licensing business, including demand for compliance and reporting-related solutions related to the EU Action Plan, as asset m anagers continued to look to Morningstar Sustainalytics to help them meet the various EU regulatory requirements.
The increase in revenue was driven by strength in its licensing business, including demand for compliance and reporting-related solutions related to the EU Action Plan, as asset managers continued to look to Morningstar Sustainalytics to help them meet the various EU regulatory requirements.
Foreign currency movements decreased revenue by $45.9 million in 2022. License-based revenue, which represents subscription services available to customers, increased 17.7% , or 18.0% on an organic basis, during 2022, driven by demand for license-based products, such as PitchBook, Morningstar Sustainalytics, and Morningstar Direct. Licensed-based organic revenue grew 18.0% .
Corporate and All Other includes Morningstar Sustainalytics and Morningstar Indexes as sources of revenues. 2023 versus 2022 In 2023, our consolidated revenue rose $168.0 million, or 9.0%. Foreign currency movements decreased revenue by $3.2 million in 2023. License-based revenue, which represents subscription services available to customers, increased 14.0%, or 11.8% on an organic basis, during 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe table below shows our exposure to foreign currency denominated revenue and operating income for the year ended December 31, 2022: (in millions, except foreign currency rates) Australian Dollar British Pound Canadian Dollar Euro Other Foreign Currencies Foreign currency rate in U.S. dollars as of December 31, 2022 0.6820 1.2105 0.7385 1.0709 n/a Foreign denominated percentage of revenue 2.9 % 7.1 % 5.9 % 6.3 % 5.4 % Foreign denominated percentage of operating income (loss) 7.3 % (17.3) % (3.7) % 10.9 % (77.6) % Estimated effect of a 10% adverse currency fluctuation on revenue $ (5.4) $ (13.1) $ (10.5) $ (11.9) $ (10.1) Estimated effect of a 10% adverse currency fluctuation on operating income (loss) $ (1.2) $ 2.9 $ 0.7 $ (1.9) $ 12.5 The table below shows our net investment exposure in foreign currencies as of December 31, 2022: (in millions) Australian Dollar British Pound Canadian Dollar Euro Other Foreign Currencies Assets, net of unconsolidated entities $ 71.0 $ 355.0 $ 384.8 $ 231.7 $ 212.7 Less: liabilities 32.2 88.0 166.6 161.2 7.0 Net currency position $ 38.8 $ 267.0 $ 218.2 $ 70.5 $ 205.7 Estimated effect of a 10% adverse currency fluctuation on equity $ (3.9) $ (26.7) $ (21.8) $ (7.1) $ (20.6) 73 Table of Contents
Biggest changeThe table below shows our exposure to foreign currency denominated revenue and operating income for the year ended December 31, 2023: (in millions, except foreign currency rates) Australian Dollar British Pound Canadian Dollar Euro Other Foreign Currencies Foreign currency rate in U.S. dollars as of December 31, 2023 0.6818 1.2732 0.7549 1.1038 n/a Foreign denominated percentage of revenue 2.8 % 7.3 % 5.7 % 6.6 % 5.5 % Foreign denominated percentage of operating income (loss) 6.4 % (21.3) % (10.4) % 8.5 % (41.0) % Estimated effect of a 10% adverse currency fluctuation on revenue $ (5.8) $ (15.1) $ (11.9) $ (13.8) $ (11.4) Estimated effect of a 10% adverse currency fluctuation on operating income (loss) $ (1.5) $ 5.0 $ 2.4 $ (2.0) $ 9.3 The table below shows our net investment exposure in foreign currencies as of December 31, 2023: (in millions) Australian Dollar British Pound Canadian Dollar Euro Other Foreign Currencies Assets, net of unconsolidated entities $ 61.9 $ 271.8 $ 238.4 $ 231.6 $ 178.2 Less: liabilities (32.9) (79.4) (135.1) (155.7) 24.8 Net currency position $ 29.0 $ 192.4 $ 103.3 $ 75.9 $ 203.0 Estimated effect of a 10% adverse currency fluctuation on equity $ (2.9) $ (19.2) $ (10.3) $ (7.6) $ (20.3) 83 Table of Contents
We are subject to risk from fluctuations in the interest rates related to our long-term debt. The interest rates are based upon the applicable Secured Overnight Financing Rate (SOFR) rate plus an applicable margin for such loans or the lender's base rate plus an applicable margin for such loans.
We are subject to risk from fluctuations in the interest rates related to a portion of our long-term debt. The interest rates are based upon the applicable Secured Overnight Financing Rate (SOFR) rate plus an applicable margin for such loans or the lender's base rate plus an applicable margin for such loans.
On an annualized basis, we estimate a 100 basis-point change in the SOFR rate would have a $7.6 million impact on our interest expense based on our outstanding principal balance and SOFR rates around December 31, 2022. We are subject to risk from fluctuations in foreign currencies from our operations outside of the U.S.
On an annualized basis, we estimate a 100 basis-point change in the SOFR rate would have a $6.2 million impact on our interest expense based on our outstanding principal balance and SOFR rates around December 31, 2023. We are subject to risk from fluctuations in foreign currencies from our operations outside of the U.S.
These investment accounts may also include exchange-traded products where Morningstar is an index provider. As of December 31, 2022, our cash, cash equivalents, and investments balance was $414.6 million. Based on our estimates, a 100 basis-point change in interest rates would not have a material effect on the fair value of our investment portfolio.
These investment accounts may also include exchange-traded products where Morningstar is an index provider. As of December 31, 2023, our cash, cash equivalents, and investments balance w as $389.0 m illion. Based on our estimates, a 100 basis-point change in interest rates would not have a material effect on the fair value of our investment portfolio.

Other MORN 10-K year-over-year comparisons