June 17, 2022

Do you have long-term profitability targets? Do these include a commitment to increase margins over time? It seems to us that you are facing more inflationary pressure in your business or are investing much more heavily. The factors that you cite as sources of compensation pressure are the same factors a lot of companies are experiencing, but they are not seeing the same margin pressure you are experiencing. What segments and products are the biggest sources of investment?

You are correct that we are investing heavily in the business, reflecting the opportunities we see to deliver outsized revenue growth in the large and expanding addressable markets in which we serve investors. That has translated into large investments into parts of the business including Pitchbook, DBRS Morningstar, Morningstar Sustainalytics, Indexes, and Wealth Management. To support that growth, our headcount expanded by over 1600 team members in the 12 months ended March 2022. The expansion in headcount was the biggest driver of the recent increase in compensation costs. The increase in our compensation pool in our January 2022 merit cycle, which could be categorized as inflationary pressure, played a smaller, but significant, role.

In the short-term, we recognize that these investments can impact margins. While we do not disclose our long-term margin targets, our goal is to improve margins over time as we scale and benefit from operating leverage and the investments we are making in the business.

For more detail on our investment priorities and the impact on margins, refer to our May 2022 Investor Q&A.

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