August 26, 2022

Can you please provide some insight into the sales and marketing line item, and how it will eventually grow slower than revenue to reverse the profitability decline?

Between 2017 and 2020, sales and marketing expenses grew roughly in line with revenues, accounting for roughly 15% of sales. As we focused on accelerating topline growth in 2021 and in the first half of 2022, our spending in this area has outpaced revenue. For the first six months of 2022, sales and marketing as a percentage of revenues was 18.7%.

The primary drivers of the increase in the first half of 2022 versus the prior year period were compensation and benefits, commissions, advertising and marketing, and travel and related expenses. Higher compensation and benefits costs reflected increases in sales and marketing headcount, driven primarily by the PitchBook and Sustainalytics product areas, as well as the previously discussed larger merit increase effective Jan 1, 2022. The rise in commissions continues to be driven by outperformance of sales targets in the licensing segments of the business. Finally, the increase in advertising and marketing expenditures partially reflected a timing difference related to the Morningstar Investment Conference-US, which was held in May 2022 after previously being held in September 2021. It also included advertising and demand generation activities, especially for PitchBook, where our customer lifetime value relative to acquisition costs remains very positive.

We believe that as we grow, we will have the opportunity to generate operating leverage in our sales and marketing activities. That said, we will continue to spend prudently in sales and marketing activities where we see the potential to generate attractive returns, which could result in higher levels of spend in certain periods.

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