MORN US Equity☆

morn-20201231

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

For the fiscal year ended December 31, 2020

OR

For the transition period from to

Commission File Number: 000-51280

MORNINGSTAR, INC.

(Exact Name of Registrant as Specified in its Charter)

(State or Other Jurisdiction of (I.R.S. Employer

Incorporation or Organization) Identification Number)

22 West Washington Street

Chicago, Illinois

60602

(Address of Principal Executive Offices) (Zip Code)

(312) 696-6000

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered

Common stock, no par value MORN The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of shares of common stock held by non-affiliates of the registrant as of June 30, 2020 was $3.1 billion. As of February 12, 2021, there were 42,903,180 shares of the registrant's common stock, no par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain parts of the registrant's Definitive Proxy Statement for the 2020 Annual Meeting of Shareholders are incorporated into Part III of this Form 10-K.

Table of Contents

Table of Contents

Part I 3

Item 1. Business 3

Item 1A. Risk Factors 30

Item 1B. Unresolved Staff Comments 45

Item 2. Properties 45

Item 3. Legal Proceedings 45

Item 4. Mine Safety Disclosures 45

Item 6. Selected Financial Data 48

Item 7A. Quantitative and Qualitative Disclosures about Market Risk 76

Item 8. Financial Statements and Supplementary Data 77

Item 9A. Controls and Procedures 121

Item 9B. Other Information 122

Item 10. Directors, Executive Officers, and Corporate Governance 123

Item 11. Executive Compensation 123

Item 14. Principal Accountant Fees and Services 123

Item 15. Exhibits and Financial Statement Schedules 124

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Part I

Item 1. Business

Our Business

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Our core competencies are data, research, and design, and we employ each of these to create products that clearly convey complex investment information. We started with affordable publications for individuals, then moved to creating technology solutions for professionals to help them research and select investments for clients. Today, we offer a wide 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. We also apply our investing philosophy to managing assets for clients who prefer not to make investment decisions themselves. 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. First, we support asset managers, individual and institutional investors, and financial advisors who make their own investment decisions with an extensive product line of web-based tools, investment data, ratings, and research that helps investors make the most suitable choices and recommendations. Our customers have access to a wide selection of investment data, fundamental equity research, manager research, private capital markets research, credit ratings, environmental, social and governance (ESG) ratings, fund ratings, and indexes directly on our proprietary desktop or web-based software platforms, or through subscriptions, data feeds, and third-party distributors.

Second, we provide investment management services, investment analysis platforms, and portfolio management and accounting software tools to advisors and financial institutions. Our managed portfolio offerings help financial institutions deliver investor-friendly products based on our valuation-driven, fundamentals-based approach to investing. Applying our expertise in asset allocation, investment selection, and portfolio construction, our global investment team creates long-term investment strategies built on Morningstar’s data and ratings. We help retirement plan sponsors build high-quality savings programs for employees. Our financial technology solutions allow advisors to continually demonstrate their value to clients, from creating an initial investment proposal to reporting portfolio performance and providing automated rebalancing tools. Investors also use our indexes to use as benchmarks or to create investable products based off our proprietary research.

Through DBRS Morningstar, we also provide independent credit ratings services for financial institutions, corporate and sovereign entities, and structured finance products and instruments. Issuers of green bonds can also obtain Second-Party Opinions through Sustainalytics, which ensure alignment with industry standards for sustainable finance.

While other companies may offer research, ratings, data, software products, indexes, or investment management services, we are one of the few companies that can deliver all of these with the best interest of the investor in mind. We believe 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.

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Our Research

Our independence and our history of innovation make us a trusted resource for investors. Morningstar’s research covers a wide range of investment offerings, including managed investment products, publicly listed companies, private companies, fixed-income securities, and real-time global market data. We focus our data and research efforts on several areas:

Manager research (including mutual funds, exchange-traded funds, separately-managed accounts, and other vehicles)

We’ve been providing independent analyst research on managed investment strategies since the mid-1980s. We use this analysis to provide research reports and qualitative, forward-looking Morningstar Analyst Ratings for approximately 4,200 mutual funds, ETFs, separately managed accounts, and collective investment trusts (CITs) globally spanning more than 25,000 share classes. We also offer the Morningstar Quantitative Rating, which is a forward-looking rating that uses algorithmic techniques to evaluate mutual funds that significantly expands the breadth of our forward-looking ratings to an additional 30,000 funds and over 300,000 share classes worldwide. The Morningstar Quantitative Rating employs machine learning to infer patterns from the way Morningstar’s manager research analysts assign ratings to funds and then applies those learnings to rate funds that the analysts don’t cover. 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.

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.

We also offer the Morningstar Sustainability Rating and Low Carbon Risk Designation to help investors evaluate funds based on ESG factors.

As of December 31, 2020, we had more than 120 manager research analysts globally, including teams in North America, Europe, Australia, and Asia.

Equity 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. 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. Morningstar’s data and research on publicly traded companies is used extensively in our products and solutions, such as institutional equity research, Morningstar Indexes such as the Morningstar Wide Moat Focus Index, our Global Market Barometer, and as a basis for equity portfolio strategies used in our managed portfolios.

In November 2020, we announced a globally consistent framework to integrate ESG risk into our equity research. Analysts will identify valuation-relevant risks for each company using Sustainalytics' ESG Risk Ratings, which measure a company's exposure to material ESG risks, then evaluate the probability those risks materialize and the associated valuation impact. Results from this research will inform Morningstar's assessment of a stock's intrinsic value and the margin of safety required before assigning a Morningstar Rating for stocks.

PitchBook’s Institutional Research Group is a provider of investment strategy, fund performance and industry research. The group leverages PitchBook’s proprietary data, such as valuations, deal multiples, and fund returns, to deliver analysis that allows clients to quickly gauge trends, map industries, and identify notable company sets in the private capital markets. As of December 31, 2020, the team provides coverage of the private equity, venture capital, real assets and private credit asset classes. PitchBook also provides full-time analyst coverage of emerging technology industries, delivering comprehensive assessments of disruptive sectors to help clients better segment and size markets, understand company and investor landscapes, evaluate opportunities and develop conviction around the growth trajectories of emerging industries.

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As of December 31, 2020 we had over 120 public equity analysts and 30 private markets analysts globally, making us one of the largest providers of independent equity research. In addition to our analyst-driven coverage, we provide quantitative ratings and reports for approximately 55,000 publicly traded companies across Morningstar's solutions and cover 2.6 million privately-held companies through the PitchBook Platform.

Credit ratings

DBRS Morningstar provides global credit ratings as the world’s fourth largest credit rating agency. We rate more than 3,000 issuers and 60,000 securities worldwide, providing independent credit ratings for financial institutions, corporate and sovereign entities, and structured finance products and instruments. We are driven to bring more clarity, diversity, and responsiveness to the ratings process. Our approach and size provide the agility to respond to customers’ needs with the necessary expertise and resources.

In addition to ratings and research opinions, DBRS Morningstar also offers data derived from its ratings activities and analytical tools. These include ratings data feeds that can be integrated into companies’ internal databases, web-based research, and analytical tools. We also offer DBRS Viewpoint, which is an interactive platform that provides access to commercial mortgage-backed securities (CMBS) transaction information and research reports, as well as commentary and work-product for DBRS Morningstar rated deals.

As of December 31, 2020, we had over 400 credit rating analysts and analytical support staff based in the U.S., Canada, the United Kingdom, Europe, and India.

ESG ratings

Sustainalytics’ ESG Risk Ratings empower investors with a consistent approach to assessing financially material ESG risks that could affect the long-term performance of their investments at both the security and portfolio levels. Built on a transparent rules-based methodology, the ratings introduce a single measurement unit to assess ESG risks. Unlike other ESG ratings that are based on a relative, best-in-class approach, Sustainalytics’ ESG Risk Ratings consist of ESG data that provides a powerful signal of a company’s absolute ESG risk that is comparable across peers and subindustries while allowing for aggregation at the portfolio level. We rate more than 13,000 companies worldwide, and made more than 4,000 ESG Risk Ratings publicly available in 2020 so that any investor can benefit from our research.

As of December 31, 2020, we had more than 350 ESG ratings analysts based in the U.S., Canada, Europe, and Asia.

Behavioral and decision science research

Morningstar’s Behavioral Science and Decision Science teams conduct original research on the obstacles that investors face to success on their financial goals, above and beyond market performance. The team looks at behavioral challenges from panicking during downturns to helping advisors identify their clients’ durable, deeply meaningful goals. The teams publish this research on Morningstar.com, alongside practical tools to put it into practice, to better engage advisors and individual investors.

Behavioral researchers work closely with product designers and developers to develop and test product experiences that engage and educate while also nudging long-term thinking and goal-oriented investment behavior. Behavioral interventions are embedded in several financial planning and personal financial management product user flows across Morningstar. For example, Goal Bridge utilizes a master list intervention as an integral part of the workflow. In addition, the behavioral science team, in partnership with Morningstar Data, launched a new set of freely available data points called Crowd Sense on aggregate investor usage of Morningstar.com. Crowd Sense helps counter known behavioral biases with investment selection, by putting excitement or hype around an investment in context of its fundamental appeal.

As of December 31, 2020, we had 13 behavioral scientists based in the U.S. and India, spread across various product groups.

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Portfolio advice methodologies

Since the beginning, Morningstar has provided individual investors with tools to monitor their own investments, such as the Ownership Zone, Sector Delta, and Portfolio X-Ray. These do-it-yourself applications allow investors to see how different investments work together to form a portfolio and to track its progress. We also continue to improve our total wealth approach to investing and asset allocation capabilities, which are mainly used in the investment management products we offer to professional investors. We also look for ways to infuse these capabilities into decision support tools. Whereas traditional asset allocation methodologies focus solely on financial assets (such as stocks and bonds), our investment management group has developed methodologies that provide a more holistic view of all sources of wealth, including financial capital, human capital, housing assets, and retirement and pension benefits. Our investment management group offers in-depth advice on asset allocation, portfolio construction, and security selection to meet the needs of investors and professionals looking for integrated portfolio solutions. We’ve also published research on "gamma," an innovative measure that quantifies how much additional retirement income investors can generate by making better financial planning decisions.

Our People

Our people are one of Morningstar’s most important assets, so we’re committed to fostering an inclusive community where our employees thrive. Our success depends on the values and performance of our people and we support them through a range of initiatives in the areas of diversity, equity, and inclusion (DEI), engagement, and professional growth.

As of December 31, 2020, we had 7,979 permanent, full-time employees around the world. Approximately 34% of our employees work in the United States (U.S.), 28% in India, 17% in the U.K. and Continental Europe, 13% in China, 6% in Canada, and the remainder in Australia, Asia, and other regions. Our U.S.-based employees are not represented by any unions or other collective bargaining agreements, and we have never experienced a walkout or strike.

Diversity, Equity, and Inclusion

We embrace the research that tells us that diverse teams make better decisions, and we believe the collective mixture of our different backgrounds, beliefs, and experiences make Morningstar a stronger firm. Our goal is to create a more transparent and inclusive financial system. As a global employer, our aim is to build an inclusive environment that encourages open deliberation and unique perspectives, driving creativity, innovation, and better business outcomes. We intend to do this with clear objectives, education, and data-driven recruiting, hiring, retention, and employee experience programs.

As of December 31, 2020, approximately 42% of our employees are female. As of the same date, 40% of our board of directors are female. In the U.S., where we are currently able to collect information on racial identity, our employee population identifies as approximately 68% White, 21% Asian, 4% Hispanic, 3% Black, and 3% Mixed Race.

Employee Engagement

We recognize the importance of data in assessing our workplace culture and employee engagement. As of our most recent quarterly measure in December 2020, employee survey data returned an engagement score of 80%, reflecting favorable responses to questions on topics such as motivation, intent to stay, and overall satisfaction. This is an increase from an engagement score of 73% in 2019. We also track the Company's attrition or “turnover” rate as an indication of employee commitment and longevity. As of December 31, 2020, the trailing twelve-month average turnover rate for our permanent, full-time employees globally (excluding Sustainalytics) was 12%.

Morningstar believes that an attractive benefits and total rewards package, which includes a voluntary equity ownership program, promotes employee engagement by supporting the financial, emotional, and physical well-being of our employees. We're also proud of our sabbatical program, which is available globally to all employees once every four years of service, and varies between two and six weeks in duration depending on office location and local legal parameters. We have also recently expanded our Family Leave program globally for all employees to a minimum standard of at least six weeks paid time off to care for a sick family member or to bond with a new member of the family.

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Professional Growth

Continuous learning is crucial to maintain Morningstar’s competitive advantage, engage employees, and pursue our mission. Our learning and development programs provide our people with access to a diverse set of training and educational opportunities, designed to help them reach their potential in ways that fits their interests and builds on their strengths. 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. We also make available a variety of internal opportunities for growth, including programs designed for employees just starting their careers and those at manager and executive levels looking for coaching and training.

Supporting employees through COVID-19

The COVID-19 pandemic created unique challenges related to maintaining employee physical health, emotional well-being, and engagement amidst a mostly remote working model. As an employer, we have focused on maintaining strong connections and keeping our culture and mission at the center of our efforts.

To safely respond to the COVID-19 pandemic, Morningstar instituted and coordinated incident management teams at the corporate, regional, and local levels. Their mandate was to determine principles, protocols, and strategies for safely closing offices, working remotely, and transitioning back to the office, all in compliance with public health guidance, local government regulation, and best practice recommendations. We emphasized employee health through weekly surveys to track stress levels, health statuses, working locations, self-reported productivity, and a rapid-assistance program that proactively connected HR business partners to those who requested additional assistance. To ensure a regular cadence of communication, we held bi-weekly virtual town halls for all employees and also maintained a COVID-19 hub on our corporate intranet with information updated regularly. We also expanded benefits, such as paid family leave options to address health and family concerns unique to the COVID-19 pandemic.

Some of the new initiatives created during this time are here to stay; they will continue to shape our future approach to our work environment. The efforts we plan to sustain include more flexible work arrangements, increased sick leave to take care of oneself and loved ones, greater frequency of direct communications from our CEO and other company leaders, increased community engagement, and dedicated, compensated time for our global employees to volunteer in their communities.

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Our Mission

Our mission is to empower investor success. Everything we do at Morningstar is in the service of the investor. The investing ecosystem is complex, and navigating it with confidence requires a trusted, independent voice. We deliver our perspective to institutions, advisors, and individuals with a single-minded purpose: to empower every investor with conviction that he or she can make better-informed decisions and realize success on his or her own terms.

Our Strategy

Our strategy is to deliver insights and experiences essential to investing. Proprietary data sets, meaningful analytics, independent research, and effective investment strategies are at the core of the powerful digital solutions that investors across our client segments rely on. We have a keen focus on innovation across data, research, product, and delivery so that we can effectively cater to the evolving needs and expectations of investors globally.

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We execute our strategy through four connected elements: our values, our work, our clients, and our brand. The interaction between these four elements has enabled Morningstar to establish a position in the industry that is differentiated from our competition. We believe that our intangible assets, including the strength of our brand and our unique intellectual property, are difficult for competitors to replicate. Additionally, we strive to ensure our customers receive demonstrable value from our solutions causing them to be reluctant to undertake the cost of switching to other providers.

We are focused on these 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 remain committed to ensuring that the modern investor is empowered with new data, research, and analytics. This includes:

•Expanding our data content to deliver unique, impactful insights to investors across their portfolios.

•Optimizing our advisor platform and service position by driving innovation and adding meaningful value for advisors and their support staff.

•Providing regulatory and compliance solutions for the wealth, buy-side and asset management segments.

•Pursuing the right information and developing workflow tools to serve core use cases of identifying private market investment opportunities, raising capital, valuing, and buying/selling a company.

Establish leading ESG position across each business

Driving ESG across the investing landscape is a pivotal part of our strategy, and our recent acquisition of Sustainalytics reinforces that commitment. We remain focused on the growth of Sustainalytics and its ESG ratings, while prioritizing ESG integration across all areas of our business to empower investors with ESG research, solutions, and tools to inform their investment choices. This includes:

•Developing ESG solutions for wealth managers, advisors, and individual investors.

•Continuing to expand the use of ESG in credit rating workflows, research, and analyses.

•Making relevant ESG data points available across our software platforms through major workflows and modules.

•Launching ESG variants for key equity, fixed-income and multi-asset indexes.

Drive operational excellence and scalability to support growth targets

We have grown significantly in the last few years, and as we continue to focus on growth in 2021 and beyond across our businesses, we will emphasize execution and scalability in our operations, processes, and technology. This includes:

•Leveraging advanced technology in our data collection and quality efforts.

•Scaling the demand generation function across Morningstar and driving transformation in global sales. customer success, and customer support functions to improve sales effectiveness.

•Scaling corporate systems to create more integrated platforms that enables growth of business areas while reducing legacy system fragmentation.

Build an inclusive culture that drives exceptional talent engagement and development

Morningstar is committed to investing in talent and building a culture that relies on an equity infrastructure. We are successful because of our team, and building an inclusive culture is of one of our top priorities. We are committed to cultivating a diverse culture that maximizes talent and drives innovation. Our diversity, equity, and inclusion (DEI) initiatives are embedded in all areas of our business. This includes:

•Emphasizing employee activation and education by providing inclusive leadership training to all managers and hosting conferences and speaker series to generate DEI awareness among all employees.

•Improving talent acquisition processes by forming strategic partnerships, focused campus recruiting and enhanced interview processes.

•Creating company-wide transparency on DEI metrics with employee dashboards and ongoing reviews with leadership.

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Major Customer Groups

Given our strategy and core capabilities discussed above, we focus on six primary customer groups:

•Advisors (including independent financial advisors and those affiliated with Registered Investment Advisors (RIAs), broker/dealers or other intermediaries)

•Asset management (including fund companies, insurance companies, and other companies that build and manage portfolios of securities for their clients)

•Fixed-income security issuers and arrangers

•Private market/venture capital investors

•Workplace/retirement (including retirement plan providers, advisors, and sponsors)

•Individual investors

Advisors

Financial advisors work with individual investors to help them reach their financial goals. This customer group includes independent advisors at RIA firms, advisors affiliated with independent broker/dealers, dually registered advisors, and “captive” advisors who are employees of a broker/dealer. These broker/dealers include wirehouses, regional broker/dealers, and banks. The advisor landscape is broad in both the U.S. and in other parts of the world where we focus. Our largest market is the U.S., where Cerulli Associates estimates there were about 293,000 financial advisors as of the end of 2020.

We believe our deep understanding of individual investors’ needs allows us to work with advisors to help them make more efficient use of their time and deliver better investment outcomes for their clients. Our advisor solutions also draw on Morningstar’s proprietary investment research methodologies and research insights.

We sell our advisor-related solutions both directly to independent financial advisors and through enterprise licenses, which allow financial advisors associated with the licensing firm to use our products.

We are expanding the range of services we offer to help financial advisors with all aspects of their daily workflow needs, including investment decision-making, portfolio construction, client monitoring and reporting, practice management, portfolio rebalancing that connects with custodial and trading interfaces, and financial planning. Because advisors are increasingly outsourcing investment management, we're continuing to enhance Morningstar Managed Portfoliosto help advisors save time and reduce compliance risk.

Our main products for financial advisors are Morningstar Advisor Workstation, Morningstar Office, and Morningstar Managed Portfolios.

Asset management

Asset management firms manufacture financial products and manage and distribute investment portfolios. This customer group includes individuals involved in sales, marketing, product development, business intelligence, and distribution, as well as investment management (often referred to as the “buy side”), which includes portfolio management and research.

Our asset management offerings help companies connect with their clients because of Morningstar’s strong brand presence with both financial advisors and individual investors. We offer a global reach and have earned investors’ trust in our unbiased approach, investor-centric mission, and thought leadership.

The key products we offer for asset management firms include Morningstar Direct, Morningstar Data, and Morningstar Indexes. For the buy side, key products include Morningstar Research, DBRS Morningstar, Morningstar Data, and Morningstar Direct.

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Fixed income security issuers, arrangers, and investors

DBRS Morningstar typically issues credit ratings in response to requests from issuers, intermediaries, or investors. DBRS Morningstar credit ratings are requested, among others, for corporate short and long-term fixed income obligations, sovereign debt, single project financings and structured finance programs, including securitizations 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. DBRS Morningstar's staff analyzes the factors to assess the credit worthiness of an issuer or a security and summarizes the rationale for the credit ratings. DBRS Morningstar credit ratings are assigned and reviewed by a credit rating committee composed of senior credit rating analysts and analytical managers. DBRS Morningstar typically monitors its credit ratings at appropriate intervals depending on the type of the credit rating.

We estimate that the $9.0 billion global ratings market has grown at a 6.7% compound annual growth rate over the past decade, supported by various secular trends. A continuing low-interest-rate environment supports corporate borrowings, and favorable spreads support high-yield and structured finance bond issuance.

Credit markets continue to evolve and use structured products as a key avenue for capital. Overall demand for structured products by institutional investors, including banks in the U.S. and Europe, remains high.

As of December 31, 2020, we served approximately 3,000 issuers of debt.

Private market/venture capital investors

PitchBook covers the full lifecycle of venture capital, private equity, and mergers and acquisitions (M&A), including the limited partners, investment funds, and service providers involved. Our main product for this customer group is the PitchBook Platform, an all-in-one research and analysis workstation that gives clients the ability to access data, discover new connections, and conduct research on potential investment opportunities. An Excel plug-in and mobile capabilities are included with the platform license, and Morningstar public equity research can also be delivered through the platform.

As of December 31, 2020, we served over 6,600 firms, 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.

Workplace/retirement

In the U.S., 401(k) retirement plans and other types of defined-contribution (DC) plans, such as 403(b)s and the Thrift Savings Plan, are the dominant retirement plan offered by employers. According to the Investment Company Institute, there were $9.3 trillion in assets in DC plans at end of the third quarter of 2020, compared to $3.4 trillion in private-sector defined benefit (DB) plans and $6.7 trillion in government DB plans.

Although DC plans help millions of workers in the U.S. save for retirement, the industry continues to struggle to boost employee savings rates, to make it easier for companies to offer retirement plans, and to increase access to high-quality investment lineups. We believe that a significant market exists for solutions, such as our managed retirement accounts offering, that are designed to address these shortcomings by providing personalized advice that helps individuals build assets for retirement and beyond. Currently, our focus is the U.S. market, because it continues to demonstrate healthy growth. In addition, many of our solutions are not easily adapted to foreign markets due to significant differences in regulatory frameworks that govern retirement saving and investing.

Our main 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. As of December 31, 2020, we served 52 retirement service providers and registered investment advisors (RIAs), representing about 256,000 retirement plans. We can work directly with plan sponsors to help them design a suitable retirement program, but more typically, we distribute our retirement services through retirement plan providers that package our advice and investment lineups with administrative and recordkeeping services.

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We recently expanded our distribution network to include retirement plan advisors, offering two new services. The first, Morningstar Plan Advantage, is a practice-management platform that helps advisors to build and manage their retirement plans. That service is currently used by two large broker dealers and has data integrations with 26 recordkeepers. The second service, advisor managed accounts, enables advisors to offer a version of managed accounts that incorporates their RIA firm’s investment allocation philosophies and branding. We currently have 11 recordkeepers signed onto the platform and 12 RIA firms offering it.

Individual investors

We offer tools and content for individual investors who invest to build wealth and save for other goals, such as retirement or college tuition. A Gallup survey released in April 2020 found that approximately 55% of individuals in the U.S. invest in the stock market either directly, through mutual funds, or self-directed retirement plans. We design products for individual investors who are actively involved in the investing process and want to take charge of their own investment decisions. We also reach individuals who want to learn more about investing or want to validate the advice they receive from brokers or financial advisors.

Our main product for individual investors is Morningstar.com, which can be accessed via desktop, tablet, or mobile phone applications, and includes both paid Premium Memberships and free content available to registered users and visitors. We also reach individual investors through licensing our content to other websites, such as Yahoo Finance, MSN Money, and Google Finance.

Business Model

We sell products and services that generate revenue in three major categories:

Licensed-based: The majority of our research, data, and proprietary platforms are accessed via subscription services that grant access on either a per user or enterprise-basis for a specified period of time. Licensed-based revenue includes Morningstar Data, Morningstar Direct, Morningstar Advisor Workstation, PitchBook, Sustainalytics, and other similar products. Licensed-based revenue represented 67.3% of our 2020 consolidated revenue compared to 68.9% in 2019 and 73.7% in 2018.

Asset-based: We charge basis points and other fees for assets under management or advisement. Our Morningstar Investment Management, Workplace Solutions, and Morningstar Indexes products all fall under asset-based revenue. Asset-based revenue represented 16.1% of our 2020 consolidated revenue compared to 17.9% in 2019 and 19.6% in 2018.

Transaction-based: Credit ratings and ad sales on Morningstar.com comprise the majority of the products that are transactional, or one-time, in nature, versus the recurring revenue streams represented by our licensed and asset-based products. Transaction-based revenue represented 16.6% of our 2020 consolidated revenue compared to 13.1% in 2019 and 6.7% in 2018.

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Major Products and Services

The section below describes our top five products by 2020 revenue and some of our other key products and services.

Morningstar Data

Morningstar Data gives institutions access to a full range of investment data spanning numerous databases, including equity fundamentals, managed investments, ESG factors, and market data which includes end of day and intra-day pricing as well as historical tick data. We aim to match what investors hold in their portfolios with data and insights. We’ve become 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 also offer a wide range of other data, including information on investment performance, risk, portfolios, operations data, fees and expenses, cash flows, financial statement data, consolidated industry statistics, and investment ownership. Our breadth of global coverage between proprietary and fundamental datasets allows us to combine our datasets and analytical capabilities as a holistic offering. Our clients are typically serving retail investors and their intermediaries, and they use Morningstar Data for a variety of investor communications, including websites, print publications, and marketing fact sheets, as well as for internal research and product development. Demand for Morningstar Data increases 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.

The Morningstar Data team uses emerging technologies including robotics process automation, machine learning, and natural language processing to further automate the manual, non-structured, and complex data-acquisition processes that traditional technologies are not able to address. Machine-learning models reduce the time and effort to collect data, thus creating additional capacity to acquire new data sets and maintaining data quality, which is paramount to making sound investment decisions. We are continuing to migrate users to the cloud-based data delivery system we launched in 2020. This new system allows users to more easily explore our data capabilities, access the data they specifically want, and have flexibility around format and delivery options. In 2021, we plan to release our application programming interface, which will give us the ability to stream data directly to our clients.

In 2020, we enhanced our coverage of assets used in defined-contribution retirement plans by acquiring Hueler’s stable-value product database. We also launched our new proxy votes dataset, which tracks fund family voting records on company resolutions and shareholder proposals, including ESG topics.

Pricing for Morningstar Data is based on the number of investment vehicles covered, 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.”

Our main global competitors for mutual fund data include Financial Express and Thomson Reuters. 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, Interactive Data, and Thomson Reuters.

Morningstar Data is our largest product based on revenue and accounted for 15.5%, 16.7%, and 18.2% of our consolidated revenue in 2020, 2019, and 2018, respectively. In 2020, we estimate that the annual revenue renewal rate for Morningstar Data was approximately 101%.

DBRS Morningstar

DBRS Morningstar is the world’s fourth largest credit rating agency. We provide independent credit ratings for financial institutions, corporate and sovereign entities, and structured finance products and instruments. Our credit ratings on structured finance instruments cover a broad range of sectors, including CMBS, residential mortgage-backed securities (RMBS), single-family rental securities, collateralized loan obligations (CLO), and other asset-backed securities (ABS).

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Credit ratings are forward-looking opinions about credit risk that reflect the creditworthiness of an entity or fixed income security. They are determined through a Rating Committee process that facilitates rating decisions, which are a collective assessment of DBRS Morningstar opinions rather than the view of an individual analyst; are based on information that incorporates both global and local considerations and the use of approved methodologies; and are determined subject to policies and procedures designed to avoid or manage conflicts of interest.

Our credit ratings are determined based on established methodologies, models, and criteria that apply to entities and securities that we rate and that are periodically reviewed and updated. DBRS Morningstar maintains a comprehensive range of rating policies to support the objectivity and integrity of its rating processes and to promote the transparency of its rating operations. As part of our credit rating services, we also provide corporate credit estimates and operational risk assessment rankings.

In 2020, DBRS Morningstar completed the assignment of successor DBRS Morningstar credit ratings in the remaining U.S. structured finance asset classes and Morningstar Credit Ratings, LLC (Morningstar’s former credit rating business) ceased to operate as a credit rating agency. We also progressed our capabilities with respect to the consideration of ESG factors as part of credit rating analysis, launching a new microwebsite dedicated to ESG matters, and publishing research incorporating ESG factors deemed relevant to our credit ratings.

For new-issue credit ratings, we charge one-time fees to the issuer based on the type of transaction, the size of the transaction, and the complexity of the issue.

DBRS Morningstar competes with several other firms, including Fitch, Kroll Bond Ratings, Moody’s, and S&P Global Ratings.

DBRS Morningstar is our second-largest product based on revenue and accounted for 14.9%, 10.8%, and 3.6% of our consolidated revenue in 2020, 2019, and 2018, respectively.

In 2020, we estimate that transaction-based fees comprised 59.9% of DBRS Morningstar's revenue; the remainder can be classified as transaction-related, representing recurring annual fees tied to surveillance, research, and other services.

PitchBook

PitchBook provides data and research covering the private capital markets, including venture capital, private equity, and M&A. PitchBook's main product is the PitchBook Platform, an all-in-one research and analysis workstation for sophisticated investment and research professionals, including venture capital and private equity firms, corporate development teams, investment banks, limited partners, lenders, law firms, and accounting firms. Customers rely on us for a central, easy-to-use platform that provides access to the broadest and most powerful collection of data, timely and trusted insights, and a team dedicated to customer support. To accommodate their diverse needs, the platform offers company profiles for both private and public companies, advanced search functionality, and features that help to optimize workflow by surfacing information and extracting relevant insights. Our users source deals, raise funds, build buyer lists, create benchmarks, and network with the PitchBook Platform.

PitchBook also offers a mobile application, Excel plug-in, data feeds, and flexible, à la carte data solutions that allow clients to access a variety of data points on demand.

In 2020, we continued our investment in data, research, and product development to support our goal of making it faster and easier to derive meaningful insights into the evolving capital markets. Across more than 360 product releases during 2020, notable enhancements focused on empowering core customer use cases and driving key workflow enhancements. For example, we launched Funds Overview, an interactive and customizable visualization of the fund landscape that enables limited partners to quickly understand the dry powder, fundraising trends, open funds, and top general partners in a given alternative fund strategy or segment. In 2020, PitchBook also introduced a new Market Size Estimates module to the platform, offering personalized recommendations and visualizations for over 240,000 market size estimates across tens of thousands of industries and market niches extracted from global news. We also made it easier for users to collaborate with their teams with the launch of Workspaces, Collaborative Lists, and Note Sharing features. This set of features enables our users to seamlessly add companies, research reports, notes, and their own content to workspaces that are shared with their teammates.

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Our research team continued to expand our core datasets in venture capital, private equity, M&A, and debt, adding over 344,000 new financing events in 2020. To provide a fuller view into the entire alternative assets space, we also added comprehensive data on hedge funds, real estate, infrastructure and natural resources including limited partners, general partners and funds. In response to pandemic-driven activity in the credit markets, we tripled our coverage of private debt rounds versus 2019. We also continued to emphasize geographic expansion, doubling our coverage of valuations for European venture-backed companies and separately, we delivered a market-leading comprehensive venture capital dataset in China covering over 16,000 companies and 30,000 financing rounds.

In collaboration with Morningstar’s Data team, in 2020 we continued to build our public company data capabilities. We introduced new data sets such as normalized profitability metrics, and we added additional public company financial estimates to enable the incorporation of forward-looking valuation estimates into public comp models.These additions compliment improved workflow tools for automatically generating relevant precedent transaction comps on target companies with the launch of M&A Comps Analysis available on company profiles.

Pricing for the PitchBook Platform is based on the number of seats, with the standard base license fees per user, with customized prices for large enterprises, boutiques, and startup firms.

PitchBook's main competitors are CB Insights, Preqin, S&P Capital IQ, and Refinitv.

PitchBook is our third-largest product based on revenue and made up 14.5%, 12.6%, and 9.8% of our consolidated revenue in 2020, 2019, and 2018, respectively. In 2020, we estimate that our annual revenue renewal rate for PitchBook was approximately 115%.

PitchBook had 52,288 licensed users worldwide as of December 31, 2020.

Morningstar Direct

Morningstar Direct is an investment-analysis platform that delivers rich data and analytics across asset classes, built on Morningstar's global database of both registered and non-registered securities, as well as data from third-party providers. Users can create advanced performance comparisons and in-depth analysis of an investment's underlying investment style, as well as custom-branded reports and presentations. Morningstar Direct helps equity and multi-asset strategy asset managers with product management, competitive analysis, and distribution activities, whereas wealth managers predominately use the tool to assist with fund selection and the construction, monitoring, and distribution of model portfolios.

In 2020, Morningstar Direct released enhancements that improved Presentation Studio and Risk Model, as well as fixed income, research, and portfolio analysis capabilities. We also significantly added to Morningstar’s ESG coverage.

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Sustainable investing has continued to be a key area of focus at Morningstar, from thought leadership to new tools. The acquisition of Sustainalytics creates the opportunity to enhance Morningstar Direct with the support of one of the largest dedicated ESG research and ratings firm in the world. As a result, Morningstar Direct now includes hundreds of new ESG-related data points for publicly-traded companies. These data points can provide views at the individual security level, can be aggregated to provide fund-level views, and can also combine further to analyze the ESG profile of an investor’s entire portfolio. Examples of new data points added in 2020 include carbon metrics and proxy vote data. Morningstar Direct will continue to bring transparency to this space with the new ESG Risk Model, which highlights ESG exposure and risk. With new reporting templates and a range of new data points and metrics to highlight, Morningstar Direct empowers clients to more easily visualize and communicate their investment approach.

Morningstar Direct now includes a new multi-asset risk model, so clients can assess the drivers of risk and return for funds and portfolios holding fixed income instruments. Regionally specific risk models were created to empower users to more accurately forecast risk according to local market factors. Additional market driven scenarios and new requested pre-defined scenarios continue to be developed, reflecting Morningstar’s commitment to incorporating client needs into the platform.

Enhanced fixed income capabilities were introduced within the fixed income exposure analysis tool, as well as calculated fixed income statistics for user defined portfolios. By building out Morningstar’s fixed income data and analytics, investors can compare fixed income portfolio characteristics using a common set of measures, which is crucial for accurately assessing the drivers of risk and return.

Pricing for Morningstar Direct is based on the number of licenses purchased. Add-on features, like the advanced Global Risk Model, may incur additional fees.

Morningstar Direct's primary competitors are Bloomberg, eVestment Alliance, FactSet Research System’s Cognity and SPAR, Strategic Insight’s Simfund, and Refinitiv’s Eikon.

Morningstar Direct is our fourth-largest product based on revenue and accounted for 11.4%, 12.6%, and 13.5% of our consolidated revenue in 2020, 2019, and 2018, respectively. In 2020, we estimate that our annual revenue renewal rate for Morningstar Direct was approximately 96%.

Morningstar Direct had 16,388 licensed users worldwide as of December 31, 2020.

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Investment Management

Investment Management’s flagship offering is Morningstar Managed Portfolios, an advisor service consisting of model portfolios designed mainly for fee-based independent financial advisors. We target like-minded advisors that hire us to manage a substantial portion of their client’s assets in the Morningstar way—putting investors first, keeping costs low, and investing for the long-term. We provide an immersive, easy-to-use, friction-free, digitally-enabled experience, and give them back time to focus on comprehensive financial planning designed to help people reach their financial goals. 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.

Morningstar Managed Portfolios are available through two channels: our fee-based discretionary asset management service, also known as a turnkey asset management program (TAMP), or as strategist models on third-party managed account platforms. We have TAMPs available in the U.S. and India, and act strictly as a fund and model provider in our other international markets.

Our TAMP is an end-to-end fee-based advisory experience, in which advisors access our model portfolios through a proprietary technology platform that offers functionality, such as proposals, client reporting, customer service, and back-office features, such as trading. Using our TAMP allows the advisor to share fiduciary responsibility with us.

When acting solely as a model provider, we do not provide any of the functionality that is provided by our TAMP, nor do we have an advisory relationship with the advisor’s end client. We charge asset-based program fees for Morningstar Managed Portfolios, which are typically based on the type of service (i.e., TAMP versus strategist models) and the products contained within the portfolios.

In 2020, we launched two digital resources: a U.S. Advisor Portal and an investor-friendly public insights hub increasing transparency and communications. We also made progress in our international expansion efforts by increasing our client penetration in South Africa, implementing Australian separately-managed account (SMA) portfolios on Charles River, and launching a full suite of Australian SMAs and managed funds for a new client.

Also in 2020, we converted $1.1 billion in existing client assets into model portfolios that invest in a series of nine open-end, multimanager mutual funds registered as series of the Morningstar Funds Trust under the Investment Company Act of 1940. That brought the amount of total assets under management in Morningstar Funds to more than $4.5 billion since the funds were launched in 2018. Given advisor demand for high-quality, cost-effective, outsourced investment management, we expect demand for our portfolios that use Morningstar Funds to grow in 2021 and beyond.

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, Hong Kong, India, Japan, South Africa, the U.K., and the U.S.

We base pricing for institutional asset-management and asset-allocation services on the scope of work, our degree of investment discretion, and the level of service required. In the majority of our contracts, we receive asset-based fees.

For Morningstar Managed Portfolios offered through our TAMP, our primary competitors are AssetMark, Orion/Brinker Capital, and SEI Investments. Our primary strategist offering competitors are Blackrock, Russell, and Vanguard in the U.S., and we face competition from Financial Express and Seven in Europe, Middle East, and Africa (EMEA), and Dimensional, Russell, and Vanguard in Australia. We also compete with in-house research teams at independent broker/dealers who build proprietary portfolios for use on brokerage firm platforms, as well other registered investment advisors that provide investment strategies or models on these platforms.

Morningstar Investment Management is our fifth-largest product based on revenue and made up 8.5%, 9.8%, and 10.9% of our consolidated revenue in 2020, 2019, and 2018, respectively.

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Morningstar Advisor Workstation

Morningstar Advisor Workstation is a web-based research, financial planning, and proposal generation platform that illustrates financial decision trade-offs using our data, research, and robust portfolio analytics. 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. It allows advisors to build and maintain a client portfolio database that can be fully integrated with the home-office firm's back-office technology and resources. This helps advisors present and clearly illustrate their portfolio investment strategies and show the value of their advice.

In 2020, we continued to improve our financial planning workflow by focusing on Goal Bridge, a financial planning tool that extends Advisor Workstation’s investment planning and proposal generation capabilities. In the second quarter of 2020, Morningstar completed its acquisition of Plan Plus Global, which presents an exciting opportunity to integrate its strong risk scoring and financial planning capabilities into Advisor Workstation. These capabilities are becoming more important to the market as planning grows more central to the value advisors deliver to clients and regulations put more focus on ensuring investment plans are well suited to investor goals.

We also launched a companion mobile app to Advisor Workstation that digitally captures and inputs client portfolio information from pictures of brokerage statements. Advisors can access client portfolios within the companion app or the web version of Morningstar Advisor Workstation to perform analysis, generate client reports, and illustrate decision trade-offs with ease. In 2021, we are adding capabilities to digitize a wider range of data and document types to reduce friction in bringing investor information into Advisor Workstation.

Throughout 2020, we continued to invest in capabilities to modernize advice and address regulatory changes, including the U.S. SEC’s Regulation Best Interest and the Canadian CSA’s Client Focused Reforms. This included a dedicated workflow to address the “Care Obligation,” which helps advisors find and track their consideration of reasonably available alternatives.

Additionally, we applied our first series of design enhancements to bring our clients onto the next generation of the Advisor Workstation platform. This marked our commitment to a more iterative release of upgrades that will continue through 2021 and ensure that the user experience aligns to how our subscribers want to work.

Pricing for Morningstar Advisor Workstation varies based on the number of users, as well as the number of databases licensed and level of functionality. 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.

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Competitors for Morningstar Advisor Workstation include AdvisoryWorld (LPL Financial), YCharts, Riskalyze, ASI, Kwanti, and Financial Express outside of the U.S. Occasionally, broker/dealers also decide to build their own internal tools and attempt to bring their advisors’ practice management tools in-house.

In 2020, we estimate that our annual revenue renewal rate for Advisor Workstation was approximately 91%.

As of December 31, 2020, 187 companies held licenses for the enterprise version of Morningstar Advisor Workstation in the U.S.

Workplace Solutions

Morningstar Workplace Solutions includes several different offerings, including managed retirement accounts (MRA), fiduciary services, Morningstar Lifetime Allocation Funds, and custom models.

Delivered primarily through the Morningstar Retirement Manager platform, our MRA program helps retirement plan participants define, track, and achieve their retirement goals. As part of this service, we deliver personalized recommendations for a target retirement income goal, a recommended contribution rate to help achieve that goal, a portfolio mix based on our Total Wealth methodology, and specific investment recommendations. We then manage the participant’s investment portfolio for them, assuming full discretionary control. We also offer Advisor Managed Accounts, a program that allows financial advisors 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 main competitors in MRA are Financial Engines, Fidelity, and NextCapital. Companies that provide automated investment advice to consumers, such as Betterment and Wealthfront, are also attempting to break into employer-sponsored retirement markets.

In our fiduciary services offering, we help plan sponsors build out an appropriate investment lineup for their participants while helping to mitigate their fiduciary risk. 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.

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 in direct competition with record-keepers.

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With our custom models, we offer two different services. We work with retirement plan record-keepers to design scalable solutions for their investment lineups, including target maturity models and risk-based models. We also provide custom model services direct to large plan sponsors, creating target date funds that are customized around a plan’s participant demographics and investment menus. For custom models, we often compete with retirement plan consultants. We also serve as a non-discretionary subadvisor and index provider for the Morningstar Lifetime Allocation Funds, a series of target-date CITs offered by UBS Asset Management to retirement plan sponsors. Retirement plan sponsors can select a conservative, moderate, or growth version of the glide path for the funds based on the needs of participants in the plan. For the Lifetime Allocation Funds, we compete with other providers of target-date funds.

In 2020, we expanded our relationships with eight key retirement RIA clients, giving us a total of 13 RIA clients signed on to use our Advisor Managed Accounts solution. We also launched Morningstar Plan Advantage with a large broker dealer in the fall of 2020.

Pricing for Workplace Solutions is generally asset-based and depends on several factors, including the level of services offered (including whether the services involve acting as a fiduciary under the Employee Retirement Income Security Act, or ERISA), the number of participants, the level of systems integration required, total assets under management or advisement, and the availability of competing products.

Sustainalytics

Sustainalytics provides ESG data, research, analysis and insights to institutional investors globally, covering equity and fixed income asset classes. Sustainalytics also serves issuers and banking institutions through its sustainable finance unit and is notably the world’s largest provider of green bond Second Party Opinions.

Morningstar acquired Sustainalytics on July 2, 2020 and intends to leverage its resources to support the integration of ESG data, research, and insights into products and services across Morningstar. This will entail providing ESG content, product development support, distribution strategies, market positioning and brand development. Together, Morningstar and Sustainalytics aim to elevate ESG throughout Morningstar’s product portfolio, helping investors of all types integrate ESG considerations into their decision-making. At the enterprise level, we’ll work together to develop and implement ESG best practices and embed sustainability into Morningstar’s corporate culture globally.

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In 2020, we launched a number of new products including Impact Metrics, a data set of 40 metrics to aid investors with impact reporting, and Material Risk Engagement where, on behalf of investors, we leverage our ESG Risk Ratings to identify and engage with companies exhibiting materially high ESG risk. Our new Country Risk Ratings, designed for fixed income investors, measure the risk to a country’s long-term prosperity and economic development by assessing sustainably it is managing its wealth.

We also introduced an ESG Benchmarking service to help companies assess their ESG practices against peers and launched a new web site making our company level ESG Risk Ratings on 4,000 companies publicly available. Finally, Sustainalytics and Morningstar Equity Research worked together to implement a a globally consistent framework to capture ESG risk across over 1,500 stocks. Analysts will identify valuation-relevant risks for each company using Sustainalytics’ ESG Risk Ratings, which measure a company’s exposure to material ESG risks, then evaluate the probability those risks materialize and the associated valuation impact.

Sustainalytics operates on a subscription-based pricing model for its ESG research products, which supports recurring revenue. The Sustainable Finance Solutions unit deploys a model that combines one-time revenue with subscription-based recurring licensing revenue.

Major competitors for Sustainalytics include MSCI, FTSE Russell, Institutional Shareholder Services (ISS), S&P Global, Moody's, ecovadis, and Federated Hermes. While the traditional ESG research market has gone through aggressive consolidation, the market will continue to evolve as new entrants emerge and investors acquire ESG data from new distributors (for example, directly from stock exchanges). In fact, large asset managers like BlackRock, State Street, UBS, and JP Morgan are also investing heavily to build in-house ESG capabilities and greener products. New technologies, specifically AI-related, are making all of this easier by accelerating the sourcing and use of unstructured ESG data.

Morningstar.com

Our largest website, Morningstar.com, helps individual investors discover, evaluate, and monitor stocks, ETFs, and mutual funds; build and monitor portfolios; and monitor the markets. Revenue is generated from paid memberships through Morningstar Premium and Internet advertising sales.

Our Morningstar Premium offering is focused on bringing clarity and confidence to investment decisions. Members have access to proprietary Morningstar research, ratings, data, and tools, including analyst reports, portfolio management tools (such as Portfolio X-Ray), and stock and fund screeners. We offer Premium Membership services in Australia, Canada, Italy, the U.K., and the U.S.

Unlike many consumer-facing websites, Morningstar.com sells ad space directly to advertisers. This approach allows us to build meaningful relationships with our advertisers, and helps us protect the integrity of our brand. In our experience, advertisers continue to support Morningstar.com because of our commitment to transparency and clarity.

In 2020, we made various upgrades to the technology platform supporting Morningstar.com, which provide improved uptime, faster performance, and cost savings in maintaining the website. We also launched a beta version of a new portfolio management tool allowing users to connect held-away portfolios and have the investment holdings in those portfolios automatically connect to our proprietary research content.

We charge a monthly, annual, or multiyear subscription fee for Morningstar.com's Premium Membership service.

Morningstar.com primarily competes with trading platforms that concurrently offer research and investing advice, such as Fidelity, Schwab, and TD Ameritrade. Research sites, such as The Motley Fool, Seeking Alpha, and Zacks Investment Research, also compete with us for paid membership. In addition, free or “freemium” websites such as Yahoo Finance, Dow Jones/Marketwatch, The Wall Street Journal, Kiplinger, and TheStreet.com, all compete for the advertising dollars of entities wishing to reach an engaged audience of investors.

As of December 31, 2020, Morningstar.com had over 113,000 paid Premium members in the U.S. plus an additional16,000Premium members across other global markets.

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Morningstar Indexes

We offer a broad range of indexes that can be used as performance benchmarks and for the purposes of creating investment products. Our indexes track major asset classes, including global equity, global fixed income, and multi-asset. We offer strategic beta indexes based on Morningstar’s proprietary research and sustainability indexes based on Sustainalytics data and research.

In 2020, several global asset managers launched low-cost investment vehicles tracking Morningstar’s beta indexes. In addition, products based on our strategic-beta indexes--which included sustainability, listed private equity, and indexes that draw upon our fundamental equity research—launched in the North America, Europe, and Australia. Also in 2020, we expanded our reach into the asset owner segment and licensed an ESG index for use in one of the largest gender-lens mandates.

Morningstar also launched a suite of multi-asset indexes tailored to match the risk tolerance of investors in the U.S., the U.K., Canada, and Europe. We created additional sustainability-focused index families, including Gender Diversity, Renewable Energy, and Corporate Bond Sustainability. In alignment with the Morningstar Style Box, we also launched a new U.S. Broad Style family that facilitates better benchmarking of various size and style dimensions of the U.S. equity market.

We license Morningstar Indexes to numerous institutions that offer ETFs, exchange-traded notes, and structured products 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). In both cases, our pricing varies based on the level of distribution, the type of user, and the specific indexes licensed.

Major competitors for Morningstar Indexes include MSCI, FTSE Russell, S&P Dow Jones Indices (offered through S&P Global), and Bloomberg Indices.

Largest Customer

In 2020, our largest customer accounted for less than 2% of our consolidated revenue.

Acquisitions and Divestitures

Since our founding in 1984, we've supported our organic growth by introducing new products and services and expanding our existing offerings. From 2006 through 2020, we also completed 38 acquisitions to support our growth objectives. We acquired the Stable Value Fund database and index assets of Hueler Analytics in the first quarter of 2020, the financial planning provider PlanPlus Global during the second quarter of 2020, and Sustainalytics in the third quarter of 2020.

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For more information about our acquisitions and divestitures, refer to Notes 8 and 9 of the Notes to our Consolidated Financial Statements.

International Operations

We conduct our business operations outside of the U.S. through wholly owned or majority-owned operating subsidiaries based in each of the following 28 countries: Australia, Brazil, Canada, Chile, Denmark, France, Germany, India, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, People's Republic of China (both Hong Kong and the mainland), Poland, Romania, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, UAE, and the U.K. See Note 6 of the Notes to our Consolidated Financial Statements for additional information concerning revenue from customers and assets from our business operations outside the U.S.

Intellectual Property and Other Proprietary Rights

We treat our brand name and logo, product names, databases and related content, software, technology, know-how, and the like as proprietary. We seek to protect this intellectual property by using: (i) trademark, copyright, patent and trade secrets laws; (ii) licensing and nondisclosure agreements; and (iii) other security and related technical measures designed to restrict unauthorized access and use. For example, we generally provide our intellectual property to third parties through the use of standard licensing agreements, which define the extent and duration of any third-party usage rights and provide for our continued ownership in any intellectual property furnished.

Because of the value of our brand name and logo, we generally seek to register one or both of them as trademarks in all relevant international classes in any jurisdiction in which we have business offices or significant operations. We have registered the Morningstar name and/or logo in approximately 50 jurisdictions, including the EU, and have registrations pending in several others. In some jurisdictions, we may also choose to register one or more product names.

“Morningstar” and the Morningstar logo are both registered marks of Morningstar in the U.S. The table below includes some of the trademarks and service marks referenced in this report:

Morningstar® Advisor WorkstationSM Morningstar® Plan AdvantageSM

Morningstar Analyst RatingTM Morningstar® Portfolio X-Ray®

Morningstar® ByAllAccounts® Morningstar RatingTM

Morningstar® Data Morningstar® Retirement ManagerSM

Morningstar DirectSM Morningstar Style BoxTM

Morningstar® Enterprise Components Morningstar Sustainability RatingTM

Morningstar® Indexes Morningstar.com®

Morningstar® Managed PortfoliosSM PitchBook®

Morningstar Market BarometerSM DBRS®

Morningstar Office CloudSM Sustainalytics®

In addition to trademark registrations, we hold a number of U.S. patents, either directly or through our wholly owned subsidiary, Morningstar Investment Management LLC. These patents include those for coordinate-based document processing/data entry, financial portfolio management, 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. 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.

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We maintain licensing agreements with most of our larger Morningstar operating companies around the world to allow them to access our intellectual property, including, without limitation, our products, trademarks, databases and content, technology, and know-how. We put these agreements in place to allow our operating companies to both market standard Morningstar products and services in their operating territories and to develop and sell territory-specific variants of those products under the Morningstar name in their specific territories.

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. We sell most of our products with subscription or license terms of at least one year and we recognize revenue ratably over the term of each subscription or license agreement. This tends to offset most of the seasonality in our business.

We believe market movements and general market conditions have more influence on our performance than seasonality. The revenue we earn from asset-based fees depends on the value of assets on which we provide advisory services, and the size of our asset base can increase or decrease along with trends in market performance. In addition, our credit rating business is subject to market effects on the level of fixed income issuance.

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, Thomson Reuters, Moody's, and Fitch. These companies have financial resources that are significantly greater than ours. We also compete with a variety of other companies 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 believe the most important competitive factors in our industry are brand and reputation, data accuracy and quality, technology, breadth of data coverage, quality of investment and credit research and analytics, design, product reliability, and value of the products and services provided.

Research and Development

A key aspect of our growth strategy is to expand our investment and credit research capabilities and enhance our existing products and services. We strive to adopt new technology that can improve our products and services. As a general practice, we manage our own websites and build our own software rather than relying on outside vendors. This allows us to control our technology development and better manage costs, enabling us to respond quickly to market changes and to meet customer needs efficiently. As of December 31, 2020, our technology team consisted of approximately 1,700 programmers and technology and infrastructure professionals.

Government Regulation

In addition to generally applicable laws and regulations, certain subsidiaries of Morningstar engage in lines of business or other activities that subject them to various laws and regulations specific to those businesses or activities. These laws and regulations are primarily designed to protect investors and are most pervasive in our credit rating, investment management, and investment research businesses. 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. The rules governing the regulation of these subsidiaries are very detailed and technical. Accordingly, the discussion below is general in nature, does not purport to be complete and is subject to change based on future legislative, enforcement, and examination activities. 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.

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Investment Management and Investment Research

United States

Investment advisory and broker/dealer businesses are subject to extensive regulation in the U.S. at both the federal and state level, as well as by self-regulatory organizations. Financial services companies are among the nation's most extensively regulated. The Securities and Exchange Commission (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). As Registered Investment Advisors, these companies are subject to the requirements and regulations of the Advisers Act, including certain fiduciary duties to clients. The fiduciary duties of a Registered Investment Adviser 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. Other requirements primarily relate to record-keeping and reporting, as well as general anti-fraud prohibitions. As Registered Investment Advisors, these subsidiaries are subject to examination by the SEC, which may include an on-site examination.

Morningstar Funds Trust (the Trust) is an open-end management investment company under the Investment Company Act of 1940, as amended (Investment Company Act). Morningstar Investment Management serves as the sponsor and investment advisor of the Trust, and therefore, is subject to the requirements of the Investment Company Act. These requirements relate primarily to record-keeping, reporting, standards of care, valuation, and distribution. As sponsor and investment advisor to the Trust, Morningstar Investment Management is subject to examinations by the SEC, which may include on-site examinations.

Connected with the Trust, Morningstar Investment Management is registered with the U.S. Commodity Futures Trading Commission as a commodity pool operator (CPO) and a member of the National Futures Association (NFA). As such, Morningstar Investment Management is subject to the requirements and regulations applicable to CPOs under the Commodity Exchange Act. These requirements primarily relate to record-keeping and reporting. As a CPO, Morningstar Investment Management is subject to examinations for the NFA and/or the U.S. Commodity Futures Trading Commission, which may include on-site examinations.

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 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.

Morningstar Investment Services LLC is a broker/dealer registered under the Securities Exchange Act of 1934 (Exchange Act) and a member of FINRA. The regulation of broker/dealers has, to a large extent, been delegated by the federal securities laws to self-regulatory organizations, including FINRA. Subject to approval by the SEC, FINRA adopts rules that govern its members. FINRA and the SEC conduct periodic examinations of the brokerage operations of Morningstar Investment Services.

Broker/dealers are subject to regulations that cover all aspects of their securities business, including sales practices, capital structure, record-keeping, and the registration and conduct of directors, officers, and employees. As a registered broker/dealer, Morningstar Investment Services LLC is subject to certain net capital requirements under the Exchange Act. These requirements are designed to regulate the financial soundness and liquidity of broker/dealers.

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Australia

Morningstar Australasia Pty Limited and Morningstar Investment Management Australia Limited are subsidiaries that provide financial information services and advice in Australia. They are registered under an Australian Financial Services license and subject to oversight by the Australian Securities and Investments Commission (ASIC). This license requires them to maintain positive net asset levels and minimum capital requirements, and to comply with the audit requirements of the ASIC.

United Kingdom

Morningstar Investment Management Europe Limited is authorized and regulated by the U.K. Financial Conduct Authority (FCA) to provide financial services commensurate with the regulatory permissions afforded.Those regulatory permissions allow Morningstar Investment Management Europe Limited to advise, arrange, deal and manage investments for professional and eligible counterparty clients across a range of investment instruments including shares, debt securities and units in collective investment schemes.The related services are delivered through the managed portfolios, manager selection, segregated mandates and U.K. authorized fund offerings, predominantly to U.K. domiciled clients and investors.As an authorized firm, Morningstar Investment Management Europe Limited is subject to the applicable requirements and regulations, as defined in the FCA Handbook of rules and guidance.

European Union

Pending final authorization, Morningstar Investment Consulting France SAS has received provisional approval for categorization as a Markets in Financial Instruments Directive (MiFID) investment firm. Once final authorization is received, Morningstar Investment Consulting France SAS will be able to provide investment advice regarding shares, debt securities and units, or shares, of collective investment undertakings to financial institutions throughout the European Union (EU).Final authorization is expected once a number of related conditions are met.

Morningstar Investment Consulting France SAS remains registered as a conseiller en investissement financier (CIF) providing only non-discretionary investment advisory services to French domiciled financial institutions. As a CIF, Morningstar Investment Consulting France SAS does not currently benefit from MiFID passport rights (i.e., the ability to provide investment advisory services outside of one’s home country).

Furthermore, Morningstar, Inc. is authorized in accordance with the EU Benchmarks Regulation to act as a third country benchmark administrator within the EU on a recognition basis. Morningstar Investment Management Europe Limited has been appointed the legal representative for this arrangement.Consequently, Morningstar Investment Management Europe Limited provides the necessary support and oversight, pursuant to this appointment.

Sustainalytics has not, to date, been deemed subject to the Benchmark Regulation.As regulation in this area and ESG products and services continue to evolve, potential for falling under scope will continue to be assessed.

Other Regions

We have a variety of other entities (including in Canada, France, Hong Kong, India, Japan, Singapore, and South Africa) that are registered with their respective regulatory bodies; however, the amount of business conducted by these entities related to the registration is relatively small to date.

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Credit Ratings

United States

DBRS Morningstar’s U.S. credit rating entity, DBRS, Inc., is registered with the 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. These requirements primarily relate to record-keeping, reporting, governance, and conflicts of interest. As part of its NRSRO registration, DBRS, Inc. is subject to annual examination by the SEC. DBRS, Inc.’s affiliated rating agencies, DBRS Limited, DBRS Ratings Limited, and DBRS Ratings GmbH, are each also registered with the SEC as credit rating affiliates of DBRS, Inc.

Canada

DBRS Morningstar’s Canadian credit rating entity, DBRS Limited, is designated as a Designated Rating Organization (DRO) in Canada with the Ontario Securities Commission (OSC) as its principal regulator. DBRS Limited provides independent credit rating services in structured finance instruments, corporate credit issuers, governments, insurance companies, and financial institutions. As a DRO, DBRS Limited is subject to certain requirements and regulations under National Instrument 25-101. These requirements primarily relate to record-keeping, reporting, governance, and conflicts of interest. As part of its DRO registration, DBRS Limited is subject to examination by the OSC. DBRS Limited’s affiliated rating agencies, DBRS, Inc., DBRS Limited, DBRS Ratings Limited, and DBRS Ratings GmbH, are each also registered in Canada as DRO affiliates.

United Kingdom

DBRS Morningstar’s credit rating entity located in the U.K., DBRS Ratings Limited, is registered with, and regulated, by the 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. These requirements primarily relate to record-keeping, reporting, governance, and conflicts of interest.

European Union

DBRS Morningstar operates in the EU primarily through DBRS Ratings GmbH in Germany, which together with its branch in Spain, is registered with the European Securities and Markets Authority (ESMA) as a credit rating agency. DBRS Ratings GmbH is registered to provide 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 GmbH is subject to certain requirements under Regulation (EC) No 1060/2009, as amended. These requirements primarily relate to record-keeping, reporting, governance, and conflicts of interest.

Information about our Executive Officers

As of February 26, 2021, we had five executive officers. The table below summarizes information about each of these officers.

Name Age Position

Joe Mansueto 64 Executive Chairman and Chairman of the Board

Kunal Kapoor 45 Chief Executive Officer

Jason Dubinsky 47 Chief Financial Officer

Bevin Desmond 54 Head of Talent and Culture

Danny Dunn 45 Chief Revenue Officer

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Joe Mansueto

Joe Mansueto founded Morningstar in 1984 and served as our chief executive officer from 1984 to 1996 and again from 2000 to 2016. In 2017, he became executive chairman. In September 2019, Mansueto became owner and chairman of Chicago Fire FC, an American professional soccer franchise. Mansueto has served on Morningstar’s board of directors since the Company’s inception.

Under Mansueto's leadership, Morningstar was named twice to Fortune magazine’s “100 Best Companies to Work For” list. The Chicago Tribune recognized Morningstar as one of the top 100 workplaces in the Chicago area on three separate occasions under Mansueto’s leadership, and Crain’s Chicago Business listed Morningstar in its Fast Fifty feature four times. While Mansueto was CEO, Morningstar won the 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. MutualFundWire.com recognized Mansueto as one of the 10 most influential individuals in the mutual fund industry in 2015, and he was the recipient of Plansponsor’s Lifetime Achievement Award in 2013. Mansueto has received the Tiburon CEO Summit award, MutualFundWire.com named him ninth on its list of the 100 Most Influential People of the year, and Chicago magazine listed Mansueto among its top 40 Chicago pioneers over the past four decades. SmartMoney magazine recognized Mansueto in the “SmartMoney Power 30,” its annual list of the 30 most powerful forces in business and finance. He has also received the Distinguished Entrepreneurial Alumnus Award from The University of Chicago Booth School of Business.

Mansueto holds a bachelor's degree in business administration from The University of Chicago and a master's degree in business administration from The University of Chicago Booth School of Business.

Kunal Kapoor

Kunal Kapoor, CFA, is chief executive officer of Morningstar and a member of Morningstar’s board of directors. Before assuming his current role in 2017, he served as president, responsible for product development and innovation, sales and marketing, and driving strategic prioritization across the firm.

Since joining Morningstar in 1997 as a data analyst, Kapoor has held a variety of roles at the firm, including leadership positions in research and innovation. He served as director of mutual fund research and was part of the team that launched Morningstar Investment Services, Inc., before moving on to other roles, including director of business strategy for international operations, and later, president and chief investment officer of Morningstar Investment Services. During his tenure, he also led Morningstar.com and the firm’s data business, as well as its global products and client solutions group.

Kapoor holds a bachelor’s degree in economics and environmental policy from Monmouth College and a master’s degree in business administration from The University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation, is a member of the CFA Society of Chicago, served on the board of PitchBook, prior to its acquisition by Morningstar in late 2016, and currently serves on the board of Wealth Enhancement Group, a privately-owned wealth management firm. Kapoor is also a member of the board of trustees of The Nature Conservancy in Illinois. In 2010, Crain’s Chicago Business named him to its annual 40 Under 40 class, a list that includes professionals from a variety of industries who are contributing to Chicago’s business, civic, and philanthropic landscape.

Jason Dubinsky

Jason Dubinsky is chief financial officer for Morningstar, responsible for controllership, tax, treasury, internal audit oversight, financial planning and analysis, real estate, procurement, and investor relations.

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Before joining Morningstar in 2017, Dubinsky served as senior vice president and chief financial officer of planning and central operations for Walgreens Boots Alliance, Inc. At the pharmacy store chain, he was responsible for accounting and shared service functions for Walgreens' U.S. operations and led the financial planning and analysis function for the global business. Prior to the merger of Walgreens and Alliance Boots in 2014, he was Walgreens' vice president of finance and treasurer, with responsibility for business unit finance, treasury operations, risk management, and investor relations. Before joining Walgreens in 2009, he served as vice president of investment banking at Goldman Sachs and Lehman Brothers, where he led mergers and acquisitions and corporate finance activity for clients across various industries.

Dubinsky holds a bachelor's degree in business administration from the University of Michigan and a master’s degree in business administration from New York University's Stern School of Business.

Bevin Desmond

Bevin Desmond is head of talent and culture, a role she has held since 2010. She is responsible for overseeing talent and culture for all of Morningstar’s global operations. She also oversees Morningstar’s data and development centers.

Desmond joined Morningstar in 1993 and was one of three employees who started the company’s international business in the late 1990s. From 1999 to 2000, she served as manager of all international ventures. From 2000 to 2008, Desmond was president of Morningstar’s international operations while also serving as president of institutional software. Previously, Desmond was head of international operations from 2001 until 2010 – from 2010 to 2017, she held the role of head of global markets in tandem with her role as head of talent & culture.

Desmond also sits on the Morningstar Japan K.K. (MJKK) board of directors and the Skills for Chicagoland's Future board of directors. She was named one of Crain’s Notable Women Over 50 in both 2019 and 2020, and she holds a bachelor's degree in psychology from St. Mary’s College.

Danny Dunn

Danny Dunn is chief revenue officer for Morningstar. He is responsible for sales, customer success, support services, demand generation, and field operations for the firm globally.

Before joining Morningstar in 2016, Dunn was vice president of the Midwest Enterprise business unit for IBM, a global information technology firm. He was responsible for marketing, sales, client services, and channels for the complete IBM portfolio, including Cloud, Software, Analytics, Services, and Systems in the region. Prior to that, he held a number of different executive leadership roles of increasing responsibility in the marketing, sales and services functions of the company. Before joining IBM in 2007, he led sales, account management, and client service at Neology, a software and technology solutions subsidiary of SmithBucklin Corp.

Dunn holds a bachelor’s degree from the University of Vermont and a master’s degree in business administration, with concentrations in marketing, strategy, and managerial economics, from the Kellogg School of Management at Northwestern University.

Company Information

We were incorporated in Illinois on May 16, 1984. Our corporate headquarters is located at 22 West Washington Street, Chicago, Illinois, 60602.

We maintain a corporate website at http://www.morningstar.com/company. Shareholders and other interested parties may access our investor relations website at http://shareholders.morningstar.com, which we useas a primary channel for disclosing key information to our investors, some of which may contain material and previously non-public information.Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to any of these documents are available free of charge on this site as soon as reasonably practicable after the reports are filed with or furnished to the SEC. We also post quarterly press releases on our financial results and other documents containing additional information related to Morningstar on this site. We provide this website and the information contained in or connected to it for informational purposes only. That information is not part of this report.

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Item 1A. 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. If any of the following risks or uncertainties materialize, our business, financial condition, or operating results could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. 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. Our reputation and business may also be harmed by allegations made about possible conflicts of interest, by other negative publicity or media reports, or by adverse outcomes in regulatory proceedings.

We believe that our brand is well recognized and highly regarded at both a corporate and product level among key decision makers at purchasers and users of our products and services. We also believe independence is at the core of our brand and business, and our reputation is one of our greatest corporate assets. We rely on our reputation for integrity and high-caliber products and services as a competitive advantage. Any failure to uphold our high ethical standards and ensure that our customers have a consistently positive experience with us could damage our reputation, either as an objective, honest, and credible source for investment and credit research and information or as a trusted solutions provider to our asset management and investment advisory customers, or both. Our ESG offerings insert Morningstar very publicly into the debate over a variety of non-financial issues around the environment, social concerns, and corporate governance, and our position as a leading source of ESG research and opinions may cause proponents of various causes to demand that we publicly take stands on a variety of controversial topics not directly related to our corporate mission. Allegations of improper conduct, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity or media reports about Morningstar, whether valid or not, may harm our reputation and damage our 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. Morningstar’s corporate culture and reputation contribute to our ability to attract and retain talent, and reputational damage could negatively affect both our hiring and employee retention.

As our business has evolved, we have entered lines of business and business arrangements that may give rise to allegations of conflicts of interest or perceived failures of our independence. 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 also provide investment advisory and investment management services, including through our own series of mutual funds, which exposes us to the claim that we are acting as both a referee and a player in the investment management industry. In our credit rating business, which we significantly expanded through the purchase of DBRS, we are participants in an issuer-pay business model under which we receive payments from issuers for our credit ratings rather than from the investors who consume such ratings. An issuer pay model also applies to Sustainalytics’ Sustainable Finance Solutions business unit products and services. These payments may create the perception that our credit ratings and research are not independently determined or reliable. 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 view of best corporate practices.

Our business expansion has also resulted in greater exposure to governmental regulation across our product lines. In some cases, such as with respect to our credit ratings business, interactions with regulators are extensive and continuous, raising the risk that they may result in enforcement investigations and proceedings. To the extent any of those investigations or proceedings result in a finding of misconduct or noncompliance, they could pose a significant reputational risk to us and negatively impact our business.

Our reputation may also be harmed by factors outside of our control, such as news reports about our clients, consultants, or partners or adverse publicity about certain investment and ratings products. Our reputation could also suffer if we fail to perform competitively in our investment management offerings.

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Prolonged volatility or downturns affecting the financial sector, global financial markets, and the global economy may impact our results, resulting in lower revenue from asset-based fees and credit ratings business, as well as other parts of our business to a lesser extent.

Our business results are partly driven by factors outside of our control, including general economic and financial market trends. Any unfavorable changes in the market environment in which we operate could cause a corresponding negative effect on our business results. As a result, we may experience lower revenue, operating income, and other financial results in the event of a market downturn.

For our licensed-based businesses, many of our customers are asset-management firms and other financial-services companies, which are also subject to external trends and changes. For example, the financial crisis of 2008 and 2009 led to sustained spending cutbacks among many of the companies to which we sell. Some institutional clients implemented additional review processes for new contracts or started providing certain services, such as investment management, in-house rather than hiring outside service providers. There is currently uncertainty regarding the duration and long-term economic and societal consequences of the COVID-19 pandemic, as well as the effects of unprecedented levels of fiscal and monetary stimulus, which may cause clients to modify spending decisions. Consolidation in the financial services sector has in the past, and may in the future, reduce the number of potential clients for our products and services. These trends could impact demand for our products and services or change the financial services landscape in which we operate.

Many companies in the financial services industry have also been subject to increasing government regulation and pressure to reduce fees. In turn, 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 of PitchBook's clients are investment banks and other participants in the capital and M&A markets, which are subject to periodic business downturns driven by changes in such markets. 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 clients for PitchBook. As a data and research provider focusing on the private capital markets (including venture capital, private equity, and M&A), PitchBook may also be subject to volatility based on the amount of activity and market interest in these areas.

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 along with trends in market performance. Our revenue from asset-based fees may be adversely affected by market declines, cash outflows from portfolios that we help manage, and the industrywide trend toward lower asset-based fees. Concerns about asset price bubbles, in particular in equities, have proliferated as the performance of the stock market appears disconnected from the real economy where the COVID-19 pandemic has had a greater negative impact on employment, spending, and general consumer economic activity.

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 and volatility or uncompetitive investment performance. 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.

Our largest transaction-based business, the credit rating business, can be severely impacted by volatility in U.S. and international financial markets due to its dependence on the number and dollar volume of debt securities issued in the capital markets. Market disruptions and economic slowdowns have in the past negatively impacted, and may in the future negatively impact, the volume of debt securities issued in global capital markets and the demand for credit ratings.

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Conditions that reduce issuers’ ability or willingness to issue debt securities, such as market volatility, increasing inflation, declining growth, currency devaluations, or other adverse economic trends, reduce the number and value of debt issuances for which we provide credit ratings services and thereby adversely affect the fees we earn in our credit ratings business. Future debt issuances also could be negatively affected by increases in interest rates, widening credit spreads, regulatory and political developments, growth in the use of alternative sources of credit, and defaults by significant issuers. Our ability to reduce costs in the event of such adverse developments can be negatively impacted by, among other things, our obligations to monitor and maintain outstanding ratings. Declines or other changes in the markets for debt securities may materially and adversely affect our business, operating results, and financial condition.

Our transactional business results may also be hurt by negative trends in Internet advertising sales. Many advertisers have shifted some of their advertising spend to programmatic buying platforms that target users on other sites, which has from time to time had a negative effect on advertising revenue for our website for individual investors, Morningstar.com. The reliance on virtual events as the COVID-19 pandemic restricted large gatherings during 2020 impacted our financial results for our Morningstar-sponsored investor conferences around the world. We are uncertain whether these trends will continue.

Failing to differentiate our products and services and continuously create innovative, proprietary and insightful financial technology solutions may harm our competitive position and business results.

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 investors of all kinds. Morningstar offers a suite of solutions that serve individuals, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar also applies its long-term investing philosophy to managing assets for clients. Our customers have access to a wide selection of investment data, fundamental equity research, manager research, credit ratings, private capital markets research, and ESG data and research, directly on Morningstar’s proprietary desktop or web-based software platforms, or through subscriptions, data feeds, and third-party distributors. Our financial technology solutions also allow advisors to serve investors at all stages of the investing process. Morningstar’s managed portfolio offerings help advisors outsource investment selection and asset allocation through proprietary portfolio strategies based on Morningstar’s valuation-driven, fundamentals-based approach to investing. Applying its expertise in asset allocation, investment selection, and portfolio construction, our global investment team creates long-term investment strategies built on Morningstar’s data and ratings. We also help retirement plan sponsors build high-quality savings programs for employees. The breadth and depth of our service offerings set us apart from our competitors, which is a significant competitive advantage.

If we fail to continuously innovate and develop new research, methodologies, content or software to meet the needs of our customers, our competitive position and business results may suffer. In addition, our reputation could be harmed if we’re perceived as not moving quickly enough to meet the changing needs of investors or their financial advisors. These changing needs include a greater reliance on goals-based investing, the increased use of asset allocation portfolio models, and a significant emphasis on financial planning. Clients may also delay purchases of our currently offered research tools and software in anticipation of us offering new products or enhanced versions of existing products. Our competitive position and business results may also suffer if other companies are able to successfully introduce innovative, proprietary research tools and software that gain attention from our clients. We believe lower technology costs, the growth of open software platforms, and cloud computing technologies have lowered the barriers to entry for new competitors, making it easier for new players to enter the market. Smaller companies, including startup firms funded by private equity and venture capital, may be able to move more quickly than us to develop data sets, research, tools, and advisor software platforms that gain a wide following.

In addition, the value of our products and services may be negatively affected by the increasing amount of information and tools that are available for free, or at low cost, through Internet sources or other low-cost delivery systems, and by the ability of machine learning and other artificial intelligence systems to process and organize large data sets. Regulations, such as the SEC’s requirement that registered investment companies report their fund portfolio holdings publicly on Form N-PORT, may reduce demand for some of our data sets or make them more easily replicable. Although we believe our products and services contain value-added features and functionality that deeply embed them in our customers’ workflows, such developments may over time reduce the demand for, or customers’ willingness to pay for, certain of our products and services.

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If we fail to introduce innovative, proprietary research tools and frameworks or financial advisor software, we may not generate enough interest from potential clients to win new business. Consolidation within the financial services industry has provided our competitors resources to expand into adjacent business lines, often using our data in innovative ways or focusing on different client types or use cases. We cannot guarantee that we will successfully develop new product features and tools that differentiate our product offerings from those of our competitors.

In addition, we must make long-term investments and commit significant resources often before knowing whether such investments will result in products or services that satisfy our clients’ needs or generate revenues sufficient to justify such investments. In addition, from time to time, we also incur costs to transition clients to new or enhanced products or services. Such transitions can involve material execution risks and challenges. If we are unable to manage these investments and transitions successfully, our business, financial condition, and results of operations could be materially adversely affected.

Our results could suffer if fee compression within the asset and wealth management sectors continues, or if the financial industry continues to meaningfully consolidate.

Part of our growth since 1984 can be attributed to favorable industry trends as investors and their financial advisors embraced the need for complete, accurate, and timely research and data on investable securities. A significant portion of our research has historically focused on actively managed, equity-related funds. In 2019, the portion of assets invested in passively managed U.S. equity funds surpassed the assets invested in actively managed U.S. equity funds for the first time. Passively managed portfolios generally charge lower management fees than active strategies and lower management fees are a significant factor in investment recommendations of financial advisors and plan sponsors attempting to fulfill their fiduciary duties. However, the ascendance of passive strategies may affect both the profitability of asset managers, on whose success we in part depend, and the perceived value of our research regarding such strategies. In addition, the change in financial advisor activity away from security selection to goals-based asset allocation and portfolio construction and the increasing use of model portfolios, as well as the growth of online wealth management tools that provide automated, algorithm-based portfolio management advice, sometimes called robo-advice, may further reduce demand for our security-specific data and analyst research. In addition, as fee compression continues to affect recordkeepers, asset managers, and financial advisors, these customers for our software solutions and investment management and retirement solutions may seek price reductions and product enhancements to offset the effects of such compression on their businesses.

The growth of the mutual fund industry is also being affected by merger and acquisition activity within the asset management industry and brokerage and custodial distribution platforms, the pruning by some mutual fund and ETF platforms of the number of funds available for purchase, and the continuing impacts of regulation. This consolidation reduces the number of asset managers and platforms offering mutual funds and ETFs, reducing the number of potential customers in our traditional client base and increasing their relative bargaining power. With respect to regulation, the Markets in Financial Instruments Directive (MiFID II) in the EU, which requires that asset managers pay banks and brokers for investment research, has presented us with new business opportunities, but has also caused some of our clients to adapt their business practices and pricing models significantly to reflect or avoid these new costs, which may adversely affect their demand for our services. Industry consolidation also may reduce demand for our software products that support financial advisers and also gives the combined entities additional pricing power with respect to some of our investment products like Retirement Managed Accounts.

In addition, consolidation throughout the financial services industry among custodians, registered investment advisers, discount brokers, and record keepers provides surviving companies scale and resources to expand into adjacent service offerings which may compete with ours. For example, we have seen asset managers roll out model portfolios that compete with our managed portfolio offering. This trend requires us to continually expand and customize our service offerings and ensure that our products remain seamlessly integrated with our customers’ business processes and technology.

Prolonged downturns, sustained volatility in the financial markets, or a lack of investor confidence could reduce investor interest and investment activity and decrease demand for our software, data, and analyst research products. Intermittent volatility that reduces issuance or increased investor interest in other investment vehicles can put negative pressure on our credit ratings and investment management businesses.

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Our acquisitions and other investments may not produce the results we anticipate.

We have completed numerous acquisitions over the past 10 years, and we intend to continue to pursue selective acquisitions to support our business strategy. However, there can be no assurance we can identify suitable acquisition candidates at acceptable prices. In addition, each acquisition presents potential challenges and risks. We may not achieve the growth targets that we established for the acquired business at the time of the acquisition. The process of integration may require more resources than we expected or present challenges that were not foreseen.

We may assume unintended liabilities or experience operating difficulties or costs that we did not forecast. We may also fail to retain key personnel of the acquired business, which would make it difficult to follow through on our operating goals for the business. If an acquisition does not generate the results we anticipate, it could have a material adverse effect on our business, financial condition, and results of operations.

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. While we obtain various rights in connection with such investments, the future value of such investments is highly dependent on the management skill of the managers of those companies.

We expect to continue making acquisitions and establishing investments and joint ventures as part of our long-term business strategy. Acquisitions, investments, and joint ventures involve a number of risks. They can be time-consuming and may divert management’s attention from day-to-day operations, particularly if numerous acquisitions are in process at the same time. Financing an acquisition could result in dilution from issuing equity securities, reduce our financial flexibility because of reductions in our cash balance, or result in a weaker balance sheet from incurring debt.

Risks Related to Legal and Regulatory Matters

Our investment management operations may subject us to liability for any losses that result from a breach of our fiduciary duties or a failure to comply with our duties to clients under applicable securities laws.

Three of our subsidiaries, Morningstar Investment Management LLC, Morningstar Investment Services LLC, and Morningstar Research Services LLC, are registered as investment advisors with the SEC under the Advisers Act. As Registered Investment Advisors, these companies 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. The fiduciary duties of a Registered Investment Adviser 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. 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. 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.

Our subsidiaries outside the U.S. that have investment advisory operations are subject to similar requirements.

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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. In some of our retirement contracts, we act as an ERISA fiduciary by, for example, selecting and monitoring a broad range of diversified plan options. We also provide a managed account service for retirement plan participants who elect to have their accounts managed by our programs. Such activities have been the subject of increasing class action litigation in recent years. For example, in 2017, a participant in a pension plan filed a putative class action proceeding against us alleging that we, together with other defendant parties, violated the Racketeer Influenced and Corrupt Organizations Act by allegedly engaging in actions to steer plan participants into high-cost investments that pay unwarranted fees to the defendants. Our motion to dismiss that proceeding was granted, but there can be no assurance that other putative class action proceedings based on the same or other legal theories may not be brought against us in different contexts or, if brought, will be successfully dismissed. We could face substantial liabilities related to our management of assets in our managed retirement accounts.

We rely on automated investment technology for our retirement advice and managed retirement accounts services. The Wealth Forecasting Engine is our core advice and managed accounts engine that determines appropriate asset allocations for retirement plan participants and assigns individuals to portfolios. We also rely on automated portfolio construction tools. As these become more interconnected with other product offerings, including the technology of clients and other third parties, the increasing complexity of the technology requires more expertise and efforts to manage and test. 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.

We seek to constantly innovate and improve our retirement services offering, and in doing so, we regularly release new versions of the technology and update our methodology. 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. If we make an error, we may be subject to potentially large liabilities for make-whole payments and/or litigation. We cannot quantify the potential size of these liabilities with any level of precision.

In addition, we may face other legal liabilities based on other theories of liability relating to various substantive requirements of the Advisers Act and other federal and state securities laws, even in the absence of an actual or claimed breach of fiduciary duty. We could face substantial liabilities related to the investment advisory and management services we provide.

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.

DBRS Morningstar, 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. In operating under these laws and regulations, DBRS Morningstar can experience good faith uncertainty over the scope, interpretation, and administration of such laws and regulations. In addition, differences between the laws and rules governing credit rating agencies in Canada, the U.S., the U.K., and the EU can result in inconsistent regulatory requirements that it may not be possible to fully reconcile in a cost-efficient manner for a credit rating agency of DBRS Morningstar's size.

New laws, regulations and regulatory implementation guidance may also affect the day-to-day operation of the business of DBRS Morningstar, its customers, and users of its credit ratings, including by imposing new or expanded requirements on such matters as communications with issuers as part of the rating assignment process, the manner in which DBRS Morningstar’s ratings are developed and communicated, the manner in which customers may use credit ratings, and other aspects of the business model for credit rating agencies. Failures by DBRS Morningstar could lead to 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.

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Our investment management operations are subject to complex securities laws and other laws in multiple jurisdictions. The activities of our investment advisory operations in the U.S. are subject to provisions of the Advisers Act, ERISA, and, in the case of our advisory relationship with the Morningstar Funds Trust, the Investment Company Act of 1940 and the Commodity Exchange Act. In addition, Morningstar Investment Services is a broker/dealer registered under the Exchange Act and is subject to the rules of FINRA. If we fail to comply with securities laws and other regulatory requirements, we may be subject to fines or other events that could have a negative effect on our business.

We also provide investment advisory services in other areas around the world, and our operations are subject to additional regulations in markets outside the U.S. In preparation for the end of the transition period following the U.K.’s exit from the EU, we restructured our European investment management operations. While we have been conditionally granted authorization for our French investment advisory subsidiary to continue to provide investment advisory services to those EU institutional clients previously serviced by our U.K. based investment advisory subsidiary, this process has been time consuming and has resulted in increased costs and duplication of functions. Furthermore, as there has not been an “equivalence” determination in terms of applicable regulations in the U.K. and the EU following Brexit, we anticipate ongoing costs to monitor and comply with potentially diverging legal and regulatory developments in each jurisdiction.

The Morningstar Funds Trust, a registered open-end mutual fund for which Morningstar Investment Management acts as investment advisor under an investment management agreement. The independent Board of Trustees of the Morningstar Funds Trust must annually approve the terms of the investment management agreement (including fees) and can terminate the agreement upon 60-days' notice. If we are no longer able to satisfy the Board of Trustees of our effective management of the Morningstar Funds Trust, the Board has authority to lower the fees that we receive or terminate our contract, which could have a material adverse effect on the revenues and net income of our investment advisory services.

Our Sustainalytics business could be negatively affected by increased regulation of ESG research and data. To date, regulatory activity, principally in the EU, has focused on new ESG disclosure requirements for publicly traded companies, and rules relating to the design, delivery and sale of financial services and products using ESG labels. Sustainalytics as a research and data provider has not been affected directly by this regulation. However, certain European regulators have proposed new legislation that would grant the European securities regulator, ESMA, supervisory powers over ESG data providers. ESG data providers would be required to disclose the sources of their data, their data collection processes, how missing data is estimated, and their data quality controls, among other things. ESG data providers would have to detail their governance and internal controls, their compliance practices for managing conflicts of interest, and their review functions for monitoring methodologies, models and key rating assumptions. The proposed regulation would require consistency of fees to ensure that the provision of sustainability-related products/services are not discriminatory. Such a regulatory regime could impose significant compliance burdens and costs on Sustainalytics and, as with all new regulation, could be subject to ambiguous interpretation that could result in inadvertent noncompliance. Furthermore, as our 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 could be negatively affected by increased regulation of benchmarks generally, which could increase the costs and risks of producing and administering indexes. For example, ESMA has proposed that it be granted the authority to require benchmark administrators to modify their benchmarks. Such regulations may discourage market participants from continuing to use, administer, or contribute to indexes, trigger changes in the rules or methodologies relating indexes, and/or lead to declining demand for indexes.

The laws, rules, and regulations, and their interpretations, applicable to our business may change in the future, and we may not be able to comply with these changes without extensive changes to our business practices. 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. Regulations aimed at increasing transparency for investors or providing individuals greater control over their own data may devalue the investments we have made in our data sets or reduce their use cases. In addition, the broad scope of our business operations makes it more difficult to monitor areas that may be subject to regulatory and compliance risk. Developments, such as the National Security Law in Hong Kong which reduce press freedoms could impact the safety of our local employees and ultimately cause us to discontinue operations in that jurisdiction. 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.

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Failure to protect our intellectual property rights, or claims of intellectual property infringement against us, could harm our brand and ability to compete effectively.

The steps we have taken to protect our intellectual property may not be adequate to safeguard our proprietary information. We rely primarily on patent, trademark, copyright, and trade secret rights, as well as contractual protections and technical safeguards, to protect our intellectual property rights and proprietary information. Despite these efforts, third parties may still attempt to challenge, invalidate, or circumvent our rights or improperly obtain our proprietary information. Further, effective trademark, copyright, and trade secret protection may not be available in every country in which we offer our services. Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary content, and affect our ability to compete in the marketplace.

From time to time, we encounter jurisdictions in which one or more third parties have a pre-existing trademark registration in certain relevant international classes that may prevent us from registering our own marks in those jurisdictions. Our continued ability to use the “Morningstar” name or logo, either on a stand-alone basis or in association with certain products or services, could be compromised in those jurisdictions because of these pre-existing registrations. Similarly, from time to time, we encounter situations in certain jurisdictions where one or more third parties are already using the Morningstar name, either as part of a registered corporate name, a registered domain name, or otherwise. Our ability to effectively market certain products and/or services in those locations could be adversely affected by these pre-existing usages.

We have from time to time been subject to claims by third parties alleging infringement of their intellectual property rights. Such claims can also be alleged against clients, customers, or distributors of our products or services whom we have agreed to indemnify against third party claims of infringement. The defense of such claims can be costly and consume valuable management time and attention. We may be forced to settle such claims on unfavorable terms, which can include the payment of damages, the entry into royalty or licensing arrangements on commercially unfavorable terms, or the suspension of our ability to offer affected products or services. If litigation were to arise from any such claim, there can be no certainty we would prevail in it. If any of these risks were to materialize, it could have a material adverse effect on our business, financial condition, or results of operations.

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 requires that we securely collect, process, store, and transmit confidential information, including personal information, relating to our operations, customers, employees, and other third parties. We continuously invest in systems, processes, controls, and other security measures to guard against the risk of improper access to or release of such information. However, these measures do not guarantee absolute security, and improper access to or release of confidential information may still occur through employee error or malfeasance, system error, other inadvertent release, failure to properly purge and protect data, or cyberattack. Furthermore, these security measures are less effective in situations where employees are utilizing personal devices and home networks while working remotely.

We may suffer malicious attacks by individuals or groups (including those sponsored by nation-states, terrorist organizations, or global corporations seeking to illicitly obtain technology or other intellectual property) seeking to attack our products and services or penetrate our network infrastructure to gain access to confidential information, including personal information, or to launch or coordinate distributed denial of service attacks. While we have dedicated resources responsible for maintaining appropriate levels of cybersecurity and implemented systems and processes intended to help identify cyberattacks and protect and remediate our network infrastructure, these attacks have become increasingly frequent, sophisticated, and difficult to detect. Our measures may not be adequate for all eventualities and may be vulnerable to circumvention of security systems, denial of service attacks or other cyberattacks, hacking, “phishing” attacks, computer viruses, ransomware or malware, employee or insider error, employee or vendor malfeasance, social engineering, physical breaches or other malicious actions.

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We may also be impacted by a cyberattack targeting one of our vendors or within our technology supply chain or infrastructure. Recent well-publicized security breaches at government agencies and other companies have led to enhanced government and regulatory scrutiny of the measures taken by companies to protect against cyberattacks and may in the future result in heightened cybersecurity requirements, including additional regulatory expectations for oversight of customers, vendors, and service providers. Our information technology systems interact with those of customers, vendors, and service providers and collect an increasing amount of data as we expand our product and service offerings, for example in financial planning. Our contracts with those parties typically require them to implement and maintain adequate security controls, but we may not have the ability to effectively monitor the security measures of all our customers, vendors, and service providers. These risks may be heightened in connection with employees working from remote work environments occasioned by the COVID-19 pandemic as our dependency on certain service providers, such as video conferencing and web conferencing services, has significantly increased. In a number of cases, our customers build and host their own web applications and access our solutions through our APIs. In these cases, additional risks reside in the customer’s system with respect to security and preventive controls. As a result, inadequacies of our customers’ security technologies and practices may only be detected after a security breach has occurred.

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.

In addition to the risks above related to general confidential information, we may also be subject to specific obligations relating to personal information and personal financial information. Our products and websites in certain cases collect, store, process, and transmit personal information about an individual, including personally identifiable information and personal financial information such as portfolio holdings, account numbers, and credit card information. Our business also operates across national borders and routinely moves personal information from one jurisdiction to another. We and our customers are often subject to federal, state, and foreign laws relating to privacy, cybersecurity, and data protection. The scope of the laws that may be applicable is often uncertain and 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. Our compliance with these changing and increasingly burdensome regulations and requirements may cause us to incur substantial costs or require us to change our business practices which may impact financial results. If we fail to comply with these regulations or requirements, we may be exposed to litigation expenses and possible significant liability, fees, or fines. For example, in the EU, noncompliance with the General Data Protection Regulation (GDPR) requirements could result in penalties of up to 4% of worldwide revenues.

Additionally, we make disclosures and statements regarding our use of personal information through our privacy policies and statements covering our products and websites as required by privacy or data protection regulation. One of Morningstar’s core strengths is the ability to collect data and enrich it with data from another part of the business to provide valuable information and insights to investors. As data is accessible across our products, consistent data privacy practices and disclosure becomes more important and challenging. 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. While we perform extensive due diligence on the technology systems and practices of these companies, there can be no assurance that such companies have not suffered data breaches or system intrusions prior to or continuing after our acquisition for which we may be liable. Acquired businesses may not have invested as heavily in such security measures or data privacy controls and they introduce additional cybersecurity and data privacy risk as their systems are integrated with ours.

While we maintain insurance coverage that is intended to address certain aspects of cybersecurity and data protection risks, such coverage may not be sufficient to cover all or the majority of the costs, losses, or types of claims. Our insurance coverage would not extend to any reputational damage, loss of customers, or required improvements to our systems.

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Failing to respond to technological change, keep pace with new technology developments, or adopt a successful technology strategy may negatively affect our competitive position and business results.

We believe the technology landscape has been changing at an accelerating rate over the past several years. Changes in technology are fundamentally changing the ways investors, issuers and other market participants access data and content. Examples include the shift from local network computing to cloud-based systems, the proliferation of wireless mobile devices, rapid acceleration in the use of social media platforms, the dissemination of data through application programming interfaces that permit real-time updating rather than raw data feeds, and the proliferation of machine learning and other artificial intelligence technologies. As our customers further automate their business processes, their need for our products may change and the technological flexibility and interoperability of our systems may become more important. In addition, there has been an increasing focus on technology not merely supplying additional tools for users, but also offering solutions to specific client problems.

Our software development process is based on frequently rolling out new features so that we can quickly incorporate user feedback. While some changes in technology may offer opportunities for Morningstar, we cannot guarantee that we will successfully adapt our product offerings to meet evolving customer needs or that the transition to such new offerings will be seamless. If we fail to develop and implement new technology rapidly enough, we may sacrifice new business opportunities or renewals from existing customers. We may also incur additional operating expense if major software projects take longer than anticipated or if clients decline to migrate to new systems and we must support two platforms over an extended period of time. Our technology is also heavily dependent on the quality and comprehensiveness of our data and our ability to successfully build analytics, research, and other intellectual property around that data. We are investing significant resources in consolidating our various data assets and improving their usability and deliverability across our platform of products. Our competitive position and business results may suffer if we fail to develop new technologies to meet client demands, if our execution speed is too slow, if we adopt a technology strategy that doesn't align with changes in the market, or if we fail to realize the value and potential of our data assets.

Finally, we rely on technology for our own internal business operations and must continually evaluate these tools to ensure they are sufficient for our expanding needs. If we are unable to develop or purchase technology to support our finance, legal, compliance, audit, human resources, and other corporate teams, these functions may operate inefficiently, at higher cost, or with greater risks than is necessary.

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.