MORNINGSTAR,INC. (NASDAQ:MORN) Files An 8-K Regulation FD Disclosure

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MORNINGSTAR,INC. (NASDAQ:MORN) Files An 8-K Regulation FD Disclosure
Item 7.01. Regulation FD Disclosure.

The following information is included in this Current Report on Form8-K as a result of Morningstar,Inc.’s policy regarding public disclosure of corporate information. Answers to additional inquiries, if any, that comply with this policy are scheduled to become available on August4, 2017.

Caution Concerning Forward-Looking Statements

This current report on Form8-K contains forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations about future events or future financial performance. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue.” These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. For us, these risks and uncertainties include, among others,

· a prolonged outage of our database, technology-based products and services, or network facilities; and

· challenges faced by our non-U.S. operations, including the concentration of data and development work at our offshore facilities in China and India.

Investor Questions and Answers: July7, 2017

We encourage current shareholders, potential shareholders, and other interested parties to send questions to us in writing and make written responses available on a regular basis. The following answers respond to selected questions received through July5, 2017.

If you would like to submit a question, please send an e-mail to [email protected] or write to us at the following address:

Morningstar,Inc.

Investor Relations

22 W. Washington

Chicago,IL 60602

Economic Moat

1. How hard is it for competitors to offer independent research that could rival that of Morningstar, given proprietary research has been the key contributor to Morningstar’s brand moat source?

We face numerous competitors in the research area, including independent boutiques, investment consulting firms, and large sell-side houses. But what has differentiated us in the marketplace has been our combination of strong investor advocacy, breadth of coverage, and suite of proprietary analytics. We pioneered mutual-fund data and analysis in the 1980s and have consistently pounded the table for greater transparency, lower fees, and investor-first behavior. The credibility we’ve built with investors is one of our biggest assets and one that would be difficult to replicate. Our breadth of coverage on both funds (4,000 funds covered) and stocks (1,500 stocks) has also made us one of the largest—if not the largest—independent providers globally. To support this coverage, we have a large team of analysts, totaling about 300 globally. We’re therefore a natural choice for individual investors, financial advisors, and institutional investors who need high-quality independent research on a large pool of investments.

Our proprietary data assets and metrics have further set us apart. These proprietary metrics started with star ratings, fund categories, and >

2. Would you say that your proprietary research is hard to replicate partly because Morningstar believes in long-term moat-driven investment philosophy?

Our moat-driven philosophy certainly helps differentiate our research—particularly our equity research—in the marketplace and is a big reason investors turn to us. We’re proud of the performance track record of our stock ratings since they launched in 2001, and we believe our long-term investment approach and focus on economic moats are key factors in that performance.

We’re able to assign moat ratings to 1,500 global companies because we have a large team of experienced equity analysts, and while it’s certainly possible for others to build such a team, the investment required to do that creates a barrier to entry. Thanks to our independence, we’re always able to put the investor first and advocate a long-term view; the incentives of many firms in the financial industry are, unfortunately, not so well-aligned with investors and prone to encourage performance chasing. Finally, the knowledge we’ve developed over the past 15 years around competitive advantage and how it applies to equity investing would be difficult to replicate, in our opinion.

Morningstar.com

3. The premium memberships for Morningstar.com have been falling in the last couple of years. Even though the website doesn’t contribute as much revenue as other parts of the business such as Morningstar Data/Direct, could you please explain as to why the number of premium memberships was falling while number of unique visitors increased? And do you think this could be a sign that end customers (being individual investors) no longer value Morningstar’s proprietary research?

For the trailing 12 months ending March31, 2017, we reported that total Premium Memberships for Morningstar.com in the United States were down about 1.3%, compared with a 1.6% increase in average monthly unique users.

Morningstar.com has always served a niche segment of highly engaged and active investors. Similar to other competitive subscription businesses, our business saw a decline in paying subscribers as the markets bottomed out during the financial crisis of 2008. Over the past several years, a move toward passive investing has shifted some investor focus from investment selection (which is a major part of the value proposition for the Premium service) to portfolio planning and asset allocation. But as with other investment-oriented subscription offerings targeted at individuals, we have not seen as significant a renewed interest in investing by the larger population as was the case in past market upswings.

At the same time, we’ve expanded our licensing efforts for Morningstar data, research, and reports to brokerage companies looking to enhance their online client engagement with more tools and analysis on their platforms. The individuals on those platforms can now access Morningstar data, research, and reports through these brokerage portals versus directly on Morningstar.com. When we make these decisions, we consider the potential negative impact of cannibalization on Morningstar.com subscriptions and price our offerings to reflect this possibility.

Despite some pressure on subscription growth, we believe that Morningstar.com continues to provide a unique and comprehensive offering to individuals and advisors to help them complete the tasks they are looking to fulfill. Over the last two years, we’ve been rolling out a revamped “jobs-focused” digital experience to engage a broader segment of the investing population. We’ve also started to see some more positive trends in subscription growth thanks to focused efforts on search engine marketing and improved targeting programs.

Finally, it’s worth noting that we also serve individuals through our Morningstar Retirement Manager offering. This is effectively our “robo-advisor” in the retirement space and currently reaches more than 1 million individuals who use our managed retirement accounts. Further, as a larger percentage of individuals choose to work with a financial advisor, we’ve invested in expanding our Morningstar Managed Portfolios offering as well.

Morningstar Indexes

4. In your filings, the ‘Asset-Based Revenue’ line includes revenue from Morningstar Indexes. How large are the current assets under management for Morningstar Indexes and for Morningstar ETFs?

As of March31, 2017, assets in all investable products based on Morningstar’s indexes totaled approximately $28.4 billion, and assets in ETFs based on Morningstar’s indexes totaled approximately $25.0 billion.

Market Share

5. Among financial advisor, broker-dealer, and asset manager customers, what is your approximate market share for each of the Advisor Workstation, Direct, and Office product lines?

We don’t have precise numbers for market share at the product level, but we can give you some estimates for our level of penetration with the relevant audience for each product. We estimate that we currently reach approximately 60% of U.S.-based advisors through Morningstar Advisor Workstation and 9% through Morningstar Office. Our reach with financial advisors outside the United States varies by country but is significantly lower overall, leaving more room for potential growth. For Morningstar Direct, we estimate that we currently reach approximately two-thirds of large- and medium-sized asset management firms in the United States. We’re also increasingly targeting the wealth management market with Morningstar Direct and see a significant potential for expansion there.


About MORNINGSTAR,INC. (NASDAQ:MORN)

Morningstar, Inc. is a provider of independent investment research in North America, Europe, Australia and Asia. The Company offers a line of data, software, research and investment management offerings for financial advisors, asset managers, retirement plan providers and sponsors, and individual investors. In addition to its United States-based products and services, the Company offers local versions of its products designed for investors in Asia, Australia, Canada, Europe, Latin America and South Africa. The Company serves approximately 250,000 financial advisors, over 1,300 asset management firms, approximately 30 retirement plan providers, over 300,000 retirement plan sponsors and approximately 10.1 million individual investors. The Company has operations in approximately 30 countries. The Company tracks market data on approximately 20 million exchange-traded equities, derivatives, commodities, currencies and other investments.