XML 26 R15.htm IDEA: XBRL DOCUMENT v3.23.3
Segment and Geographical Area Information
9 Months Ended
Sep. 30, 2023
Segment Reporting [Abstract]  
Segment and Geographical Area Information Segment and Geographical Area Information
 
Segment Information

As disclosed in Note 2, the Company revised its operating segments in accordance with FASB ASC 280. Aggregation of similar operating segments into a single reportable operating segment is permitted if the businesses have similar economic characteristics and meet established qualitative criteria.The Company concluded that it has seven business components, which comprise three operating segments after applying aggregation, and also three reportable segments:
Data and Analytics
Asset and Index Solutions
Credit Ratings and Solutions

Data and Analytics provides investors comprehensive data, research and insights, and investment analysis to empower investment decision-making. Data and Analytics includes product areas, such as PitchBook, Morningstar Data, Morningstar Direct, Morningstar Sustainalytics, and Morningstar Advisor Workstation.

Asset and Index Solutions empowers investors by creating investable solutions and strategies to build portfolios based on unique Morningstar intellectual property. It consists of a variety of offerings, such as managed portfolios, advisor tools and platforms, managed retirement accounts, fiduciary services, retirement platforms, and indexes to be used as performance benchmarks and for the creation of index-linked products such as exchange-traded funds. Asset and Index Solutions includes product areas such as Morningstar Wealth, Morningstar Retirement (formerly Workplace Solutions), and Morningstar Indexes.

Credit Ratings and Solutions provides investors with credit ratings, research, data, and credit analytics solutions that contribute to the transparency of international and domestic credit markets. Credit Ratings and Solutions includes the DBRS Morningstar product area and the Morningstar Credit data and credit analytics product areas.

FASB ASC 280 establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the CODM, in deciding how to allocate resources and assess performance. The Company's chief executive officer, who is considered to be its CODM, reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance.
The CODM allocates resources and assesses performance of segments based on segment revenue as well as Adjusted Operating Income. Segment Adjusted Operating Income excludes intangible amortization, merger and acquisition (M&A)-related expenses (including M&A-related earn-outs), and items related to the significant reduction and shift of the Company's operations in China, such as severance and personnel expenses, transformation costs, and asset impairment costs. The CODM does not consider these items for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although the amounts are excluded from segment Adjusted Operating Income, they are included in reported consolidated operating income and are included in the reconciliation to consolidated results. Expenses presented as part of the Company's segments include allocations of shared costs. These allocations are based on expected utilization of shared resources. Adjusted Operating Income is the reported measure that the Company believes is most consistent with those used in measuring the corresponding amount in the consolidated financial statements.

The CODM does not review any information regarding total assets on a segment basis. Operating segments do not record intersegment revenues; therefore, there is none to be reported.

The following tables present information about the Company’s reportable segments for the three and nine months ended September 30, 2023 and 2022, along with the items necessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements. Prior period amounts have been recast to reflect the basis on which current period segment information is presented and reviewed by the CODM.

Three months ended September 30,Nine months ended September 30,
(in millions)2023202220232022
Revenue:
Data and Analytics$359.4 $322.5 $1,049.8 $920.9 
Asset and Index Solutions103.2 93.9 296.2 288.5 
Credit Ratings and Solutions52.9 51.8 153.9 186.2 
Total Revenue$515.5 $468.2 $1,499.9 $1,395.6 
Segment Adjusted Operating Income:
Data and Analytics$113.5 $93.2 $304.7 $246.8 
Asset and Index Solutions8.6 6.1 6.2 32.1 
Credit Ratings and Solutions1.1 8.6 (1.3)42.5 
Corporate and other (1)
(31.2)(31.3)(96.1)(88.9)
Total Adjusted Operating Income$92.0 $76.6 $213.5 $232.5 
Intangible amortization expense$17.7 $18.7 $52.9 $48.4 
M&A-related expenses1.7 4.9 8.9 13.7 
M&A-related earn-outs (2)
— 0.9 — 8.0 
Severance and personnel expenses (3)
1.3 27.0 5.4 27.0 
Transformation costs (3)
0.6 3.1 7.0 3.1 
Asset impairment costs (3)
0.7 — 3.1 — 
Operating Income$70.0 $22.0 $136.2 $132.3 
____________________________________________________________________________________________
(1) Reflects unallocated corporate expenses, such as finance, human resources, legal, and other management-related costs that are not considered when segment performance is evaluated.

(2) Reflects the impact of M&A-related earn-outs included in operating expense (compensation expense), primarily due to the earn-out for Morningstar Sustainalytics.

(3) Reflects costs associated with the significant reduction of the Company's operations in Shenzhen, China and the shift of work related to its global business functions to other Morningstar locations.
Severance and personnel expenses include severance charges, incentive payments related to early signing of severance agreements, transition bonuses, and stock-based compensation related to the accelerated vesting of restricted stock unit (RSU) and market share unit (MSU) awards. In addition, the reversal of accrued sabbatical liabilities is included in this category.

Transformation costs include professional fees and the temporary duplication of headcount. As the Company hired replacement roles in other markets and shifted capabilities, it employed certain Shenzhen-based staff through the transition period, which resulted in elevated compensation costs on a temporary basis.

Asset impairment costs include the write-off or accelerated depreciation of fixed assets in the Shenzhen, China office that were not redeployed, in addition to lease abandonment costs as the Company downsized its office space prior to the lease termination date.

The following tables present segment revenue disaggregated by revenue type:

Three months ended September 30, 2023
 Reportable Segments
(in millions)Data and AnalyticsAsset and Index SolutionsCredit Ratings and SolutionsTotal
Revenue by Type:
License-based$356.4 $25.1 $3.0 $384.5 
Asset-based— 71.5— 71.5
Transaction-based3.06.649.959.5
Total$359.4 $103.2 $52.9 $515.5 

Nine months ended September 30, 2023
Reportable Segments
(in millions)Data and AnalyticsAsset and Index SolutionsCredit Ratings and SolutionsTotal
Revenue by Type:
License-based$1,041.9 $73.9 $8.7 $1,124.5 
Asset-based— 204.1 — 204.1 
Transaction-based7.9 18.2 145.2 171.3 
Total$1,049.8 $296.2 $153.9 $1,499.9 


Three months ended September 30, 2022
Reportable Segments
(in millions)Data and AnalyticsAsset and Index SolutionsCredit Ratings and SolutionsTotal
Revenue by Type:
License-based$322.2 $20.4 $— $342.6 
Asset-based— 67.3 — 67.3 
Transaction-based0.3 6.2 51.8 58.3 
Total$322.5 $93.9 $51.8 $468.2 
Nine months ended September 30, 2022
Reportable Segments
(in millions)Data and AnalyticsAsset and Index SolutionsCredit Ratings and SolutionsTotal
Revenue by Type (1):
License-based$919.1 $62.9 $— $982.0 
Asset-based— 203.4 — 203.4 
Transaction-based1.8 22.2 186.2 210.2 
Total$920.9 $288.5 $186.2 $1,395.6 

Geographical Area Information

The tables below summarize our revenue, long-lived assets, which includes property, equipment, and capitalized software, net, and operating lease assets by geographical area:
Revenue by geographical areaThree months ended September 30,Nine months ended September 30,
(in millions)2023202220232022
United States$370.7 $340.9 $1,083.5 $1,007.2 
Asia13.0 11.2 36.7 33.5 
Australia14.5 13.6 43.5 42.3 
Canada28.8 27.2 86.2 83.8 
Continental Europe47.3 39.1 136.0 121.6 
United Kingdom38.4 33.6 106.2 99.6 
Other2.8 2.6 7.8 7.6 
Total International144.8 127.3 416.4 388.4 
Consolidated revenue$515.5 $468.2 $1,499.9 $1,395.6 
Property, equipment, and capitalized software, net by geographical area
(in millions)As of September 30, 2023As of December 31, 2022
United States$174.0 $165.6 
Asia10.1 12.8 
Australia1.9 2.3 
Canada3.9 4.5 
Continental Europe6.8 8.5 
United Kingdom7.4 5.4 
Other0.2 0.3 
Total International30.3 33.8 
Consolidated property, equipment, and capitalized software, net$204.3 $199.4 
Operating lease assets by geographical area
(in millions)As of September 30, 2023As of December 31, 2022
United States$104.9 $120.0 
Asia18.3 22.6 
Australia3.4 3.9 
Canada3.3 5.5 
Continental Europe15.2 18.5 
United Kingdom18.0 20.6 
Other0.3 0.5 
Total International58.5 71.6 
Consolidated operating lease assets$163.4 $191.6