filings.toolsGartner 10-Q 2022-09-30
Filed 2022-11-01. 7 sections, 180K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | ||||
| For the quarterly period ended September 30, 2022 | |||||
| OR | |||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
Commission File Number 1-14443
Gartner, Inc.
(Exact name of Registrant as specified in its charter)
| Delaware | 04-3099750 | ||||||||||
| (State or other jurisdiction of | (I.R.S. Employer | ||||||||||
| incorporation or organization) | Identification Number) | ||||||||||
| P.O. Box 10212 | 06902-7700 | ||||||||||
| 56 Top Gallant Road | (Zip Code) | ||||||||||
| Stamford, | |||||||||||
| Connecticut | |||||||||||
| (Address of principal executive offices) |
Registrant’s telephone number, including area code: (203) 316-1111
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Common Stock, $.0005 par value per share | IT | New York Stock Exchange |
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) 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.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||||||||||||||||||
| Smaller reporting company | ☐ | Emerging growth company | ☐ | ||||||||||||||||||||
| 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of October 28, 2022, 79,024,380 shares of the registrant’s common shares were outstanding.
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
GARTNER, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited; in thousands, except share data)
| September 30, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 528,687 | $ | 756,493 | |||||||
| Fees receivable, net of allowances of $7,500 and $6,500, respectively | 1,047,140 | 1,365,180 | |||||||||
| Deferred commissions | 269,310 | 380,569 | |||||||||
| Prepaid expenses and other current assets | 135,118 | 117,838 | |||||||||
| Total current assets | 1,980,255 | 2,620,080 | |||||||||
| Property, equipment and leasehold improvements, net | 256,176 | 273,562 | |||||||||
| Operating lease right-of-use assets | 460,910 | 548,258 | |||||||||
| Goodwill | 2,936,140 | 2,951,317 | |||||||||
| Intangible assets, net | 603,833 | 714,418 | |||||||||
| Other assets | 288,640 | 308,689 | |||||||||
| Total Assets | $ | 6,525,954 | $ | 7,416,324 | |||||||
| Liabilities and Stockholders’ (Deficit) Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 848,910 | $ | 1,134,814 | |||||||
| Deferred revenues | 2,229,648 | 2,238,035 | |||||||||
| Current portion of long-term debt | 7,335 | 5,931 | |||||||||
| Total current liabilities | 3,085,893 | 3,378,780 | |||||||||
| Long-term debt, net of deferred financing fees | 2,454,853 | 2,456,833 | |||||||||
| Operating lease liabilities | 614,442 | 697,766 | |||||||||
| Other liabilities | 435,692 | 511,887 | |||||||||
| Total Liabilities | 6,590,880 | 7,045,266 | |||||||||
| Stockholders’ (Deficit) Equity | |||||||||||
| Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or outstanding | — | — | |||||||||
| Common stock, $0.0005 par value, 250,000,000 shares authorized; 163,602,067 shares issued for both periods | 82 | 82 | |||||||||
| Additional paid-in capital | 2,161,940 | 2,074,896 | |||||||||
| Accumulated other comprehensive loss, net | (130,548) | (81,431) | |||||||||
| Accumulated earnings | 3,600,012 | 3,049,027 | |||||||||
| Treasury stock, at cost, 84,433,523 and 81,205,504 common shares, respectively | (5,696,412) | (4,671,516) | |||||||||
| Total Stockholders’ (Deficit) Equity | (64,926) | 371,058 | |||||||||
| Total Liabilities and Stockholders’ (Deficit) Equity | $ | 6,525,954 | $ | 7,416,324 |
See the accompanying notes to Condensed Consolidated Financial Statements.
GARTNER, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited; in thousands, except per share data)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Research | $ | 1,147,823 | $ | 1,037,124 | $ | 3,426,532 | $ | 3,020,094 | |||||||||||||||
| Conferences | 77,031 | 24,415 | 200,910 | 107,396 | |||||||||||||||||||
| Consulting | 107,014 | 94,743 | 343,687 | 300,149 | |||||||||||||||||||
| Total revenues | 1,331,868 | 1,156,282 | 3,971,129 | 3,427,639 | |||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of services and product development | 416,837 | 359,237 | 1,218,405 | 1,044,506 | |||||||||||||||||||
| Selling, general and administrative | 613,031 | 512,573 | 1,835,846 | 1,488,324 | |||||||||||||||||||
| Depreciation | 22,882 | 25,371 | 68,993 | 76,972 | |||||||||||||||||||
| Amortization of intangibles | 24,369 | 27,109 | 74,271 | 83,777 | |||||||||||||||||||
| Acquisition and integration charges | 1,331 | 1,771 | 5,827 | 3,713 | |||||||||||||||||||
| Total costs and expenses | 1,078,450 | 926,061 | 3,203,342 | 2,697,292 | |||||||||||||||||||
| Operating income | 253,418 | 230,221 | 767,787 | 730,347 | |||||||||||||||||||
| Interest expense, net | (30,286) | (31,599) | (91,399) | (85,138) | |||||||||||||||||||
| Gain on event cancellation insurance claims | — | — | — | 135,545 | |||||||||||||||||||
| Other income, net | 8,930 | 211 | 46,684 | 12,019 | |||||||||||||||||||
| Income before income taxes | 232,062 | 198,833 | 723,072 | 792,773 | |||||||||||||||||||
| Provision for income taxes | 58,517 | 49,968 | 172,087 | 208,572 | |||||||||||||||||||
| Net income | $ | 173,545 | $ | 148,865 | $ | 550,985 | $ | 584,201 | |||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | 2.19 | $ | 1.78 | $ | 6.84 | $ | 6.80 | |||||||||||||||
| Diluted | $ | 2.17 | $ | 1.76 | $ | 6.77 | $ | 6.72 | |||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 79,259 | 83,566 | 80,516 | 85,877 | |||||||||||||||||||
| Diluted | 80,059 | 84,766 | 81,373 | 86,925 |
See the accompanying notes to Condensed Consolidated Financial Statements.
GARTNER, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited; in thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income | $ | 173,545 | $ | 148,865 | $ | 550,985 | $ | 584,201 | |||||||||||||||
| Other comprehensive (loss) income, net of |
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this Management’s Discussion and Analysis (“MD&A”) is to facilitate an understanding of significant factors influencing the quarterly operating results, financial condition and cash flows of Gartner, Inc. Additionally, the MD&A conveys our expectations of the potential impact of known trends, events or uncertainties that may impact future results. You should read this discussion in conjunction with our Condensed Consolidated Financial Statements and related notes included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). Historical results and percentage relationships are not necessarily indicative of operating results for future periods. References to “Gartner,” the “Company,” “we,” “our” and “us” in this MD&A are to Gartner, Inc. and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are any statements other than statements of historical fact, including statements regarding our expectations, beliefs, hopes, intentions, projections or strategies regarding the future. In some cases, forward-looking statements can be identified by the use of words such as “may,” “will,” “expect,” “should,” “could,” “believe,” “plan,” “anticipate,” “estimate,” “predict,” “potential,” “continue” or other words of similar meaning.
We operate in a very competitive and rapidly changing environment that involves numerous known and unknown risks and uncertainties, some of which are beyond our control. Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future quarterly and annual revenues, operating income, results of operations and cash flows, as well as any forward-looking statement, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following: the impact of general economic conditions, including inflation (and related monetary policy by governments in response to inflation), on economic activity and our operations; changes in macroeconomic and market conditions and market volatility, including interest rates and the effect on the credit markets and access to capital; the impact of the COVID-19 pandemic and related disruptions on our business and on the global economy; our ability to carry out our strategic initiatives and manage associated costs; our ability to recover potential claims under our event cancellation insurance; the timing of conferences and meetings, in particular our Gartner Symposium/Xpo series that normally occurs during the fourth quarter; our ability to achieve and effectively manage growth, including our ability to integrate our acquisitions and consummate and integrate future acquisitions; our ability to pay our debt obligations; our ability to maintain and expand our products and services; our ability to expand or retain our customer base; our ability to grow or sustain revenue from individual customers; our ability to attract and retain a professional staff of research analysts and consultants as well as experienced sales personnel upon whom we are dependent, especially in light of recent labor shortages; our ability to achieve continued customer renewals and achieve new contract value, backlog and deferred revenue growth in light of competitive pressures; our ability to successfully compete with existing competitors and potential new competitors; our ability to enforce and protect our intellectual property rights; additional risks associated with international operations, including foreign currency fluctuations; the impact on our business resulting from changes in international conditions, including those resulting from the war in Ukraine and current and future sanctions imposed by governments or other authorities; the impact of restructuring and other charges on our businesses and operations; cybersecurity incidents; risks associated with the creditworthiness, budget cuts, and shutdown of governments and agencies; the impact of changes in tax policy (including the recently enacted Inflation Reduction Act of 2022) and heightened scrutiny from various taxing authorities globally; changes to laws and regulations; and other risks and uncertainties detailed in this Form 10-Q, our most recent Form 10-K and other filings we make with the SEC. The potential fluctuations in our operating income could cause period-to-period comparisons of operating results not to be meaningful and could provide an unreliable indication of future operating results. A description of the risk factors associated with our business is included under “Risk Factors” in Item 1A. of the 2021 Form 10-K, which is incorporated herein by reference.
Forward-looking statements are subject to risks, estimates and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those listed above or described under “Risk Factors” in Item 1A of the 2021 Form 10-K. Readers should not place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date on which they were made. Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.
BUSINESS OVERVIEW
Gartner, Inc. (NYSE: IT) delivers actionable, objective insight to executives and their teams. Our expert guidance and tools enable faster, smarter decisions and stronger performance on an organization’s mission critical priorities.
We deliver our products and services globally through three segments – Research, Conferences and Consulting, as described below.
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Research** equips executives and their teams from every function and across all industries with actionable, objective insight, guidance and tools. Our experienced experts deliver all this value informed by an unmatched combination of practitioner-sourced and data-driven research to help our clients address their mission critical priorities.
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Conferences** provides executives and teams across an organization the opportunity to learn, share and network. From our Gartner Symposium/Xpo series, to industry-leading conferences focused on specific business roles and topics, to peer-driven sessions, our offerings enable attendees to experience the best of Gartner insight and guidance.
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Consulting** serves senior executives leading technology-driven strategic initiatives leveraging the power of Gartner’s actionable, objective insight. Through custom analysis and on-the-ground support we enable optimized technology investments and stronger performance on our clients’ mission critical priorities.
Recent Global Events
The invasion of Ukraine by Russia and the sanctions and other measures being imposed in response to this conflict have increased the level of economic and political uncertainty. In March 2022, we began winding down our business in Russia. Russia has not composed a material portion of our consolidated revenues, net income, net assets or workforce. We do not have a business in Ukraine. Other impacts due to this evolving situation are currently unknown and could subject our business to materially adverse consequences should the situation escalate or cause an expansion of economic disruption beyond its current scope to the rest of Europe, where a material portion of our business is carried out. A prolonged disruption may adversely affect our business operations, financial performance and results of operations.
Inflation rates, particularly in North America and Europe, have increased significantly in the past year. Inflation has not had a material effect on our business operations, financial performance and results of operations, other than its impact on the general economy. However, if our costs, in particular personnel-related costs, were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases in future periods. Our inability or failure to realize these offsets could adversely affect our business operations, financial performance and results of operations.
On August 16, 2022, the Inflation Reduction Act of 2022 was enacted into law in the United States. The statute includes a 15% corporate alternative minimum tax on U.S. corporations with adjusted financial statement income in excess of $1.0 billion which is effective for taxable years beginning after December 31, 2022. The statute also includes a 1% excise tax on publicly traded U.S. corporations for the value of any of its stock that is repurchased by the corporation, excluding certain excepted repurchases. We are evaluating the impact on our future U.S. tax expense, cash taxes and effective tax rate, as well as the impact on potential future share repurchases.
COVID-19 Impact
As a result of the COVID-19 pandemic, we temporarily closed Gartner offices around the world and implemented significant travel restrictions. Although all Gartner offices have reopened, the vast majority of our employees have been working from home. In early 2022, we began to operate under a hybrid virtual-first working environment, meaning that most of our employees will have the option to work remotely, at least some of the time, for the foreseeable future. As a result, in the fourth quarter of 2021 we evaluated our real estate footprint globally, and determined that certain of our leased locations were no longer necessary for our operations. This evaluation resulted in the impairment of right-of-use assets and other long-lived assets, net of a reduction in lease liabilities, of $49.5 million during the fourth quarter of 2021 related to certain office locations we no longer intend to use. We continued our evaluation during 2022, which resulted in additional impairment charges of $2.0 million and $37.5 million during the three and nine months ended September 30, 2022, respectively. We expect to continue to evaluate our real estate footprint globally. If we determine there is any additional excess property, there is no assurance that we will be able to sublease any such excess properties or that we will not incur costs in connection with such exit activities, which may be material.
Of the three business segments in which we operate, Research and Consulting have returned to growth levels that were in line with our growth prior to the pandemic. However, Conferences revenue and gross contribution were more negatively impacted. We cancelled in-person conferences scheduled for 2020 beginning in late February/early March 2020 with the remainder being cancelled after the World Health Organization’s declaration of the COVID-19 pandemic later in March 2020. We began holding virtual conferences during the second half of 2020 and have continued to hold virtual conferences. These virtual conferences have resulted in significantly less revenue and gross contribution than in-person conferences, but we believe they aid in client retention and engagement. We re-launched in-person destination conferences during the second quarter of 2022 and expect to hold in-person destination conferences in future periods as conditions permit.
For cancelled conferences, our event cancellation insurance enables us to receive an amount up to expected revenues, plus incurred expenses minus saved expense. Our event cancellation insurance provides up to $170 million in coverage for 2020 with the right to reinstate that amount one time if those limits are utilized. The insurer has contested our right to reinstate limits. Gartner also has event cancellation insurance for 2021, covering events that were planned for 2021 but cancelled, of up to $150 million with the right to reinstate up to that amount one time if the initial limits are inadequate. The insurer has contested all coverage for events planned for 2021 but cancelled due to COVID-19. We are in litigation with the insurer on these issues. In 2021, we received $166.9 million of proceeds related to 2020 insurance claims and recorded a gain of $152.3 million. The timing and ability to receive the remaining proceeds from 2020 and 2021 insurance claims is uncertain so we will not record any insurance claims in excess of expenses incurred related to the remaining claims until the receipt of the insurance proceeds is deemed to be realizable. Our insurance coverage for 2022 (and likely beyond) excludes cancellation due to communicable diseases.
BUSINESS MEASUREMENTS
We believe that the following business measurements are important performance indicators for our business segments:
| BUSINESS SEGMENT | BUSINESS MEASUREMENT | |||||||
| Research | Contract value represents the dollar value attributable to all of our subscription-related contracts. It is calculated as the annualized value of all contracts in effect at a specific point in time, without regard to the duration of the contract. Contract value primarily includes Research deliverables for which revenue is recognized on a ratable basis, as well as other deliverables (primarily Conferences tickets) for which revenue is recognized when the deliverable is utilized. Comparing contract value year-over-year not only measures the short-term growth of our business, but also signals the long-term health of our Research subscription business since it measures revenue that is highly likely to recur over a multi-year period. Our contract value consists of Global Technology Sales contract value, which includes sales to users and providers of technology, and Global Business Sales contract value, which includes sales to all other functional leaders. | |||||||
| Client retention rate represents a measure of client satisfaction and renewed business relationships at a specific point in time. Client retention is calculated on a percentage basis by dividing our current clients, who were also clients a year ago, by all clients from a year ago. Client retention is calculated at an enterprise level, which represents a single company or customer. | ||||||||
| Wallet retention rate represents a measure of the amount of contract value we have retained with clients over a twelve-month period. Wallet retention is calculated on a percentage basis by dividing the contract value of our current clients, who were also clients a year ago, by the contract value from a year ago, excluding the impact of foreign currency exchange. When wallet retention exceeds client retention, it is an indication of retention of higher-spending clients, or increased spending by retained clients, or both. Wallet retention is calculated at an enterprise level, which represents a single company or customer. | ||||||||
| Conferences | Number of destination conferences represents the total number of hosted virtual or in-person conferences completed during the period. Single day, local meetings are excluded. | |||||||
| Number of destination conferences attendees represents the total number of people who attend virtual or in-person conferences. Single day, local meetings are excluded. | ||||||||
| Consulting | Consulting backlog represents future revenue to be derived from in-process consulting and benchmark analytics engagements. | |||||||
| Utilization rate represents a measure of productivity of our consultants. Utilization rates are calculated for billable headcount on a percentage basis by dividing total hours billed by total hours available to bill. | ||||||||
| Billing rate represents earned billable revenue divided by total billable hours. | ||||||||
EXECUTIVE SUMMARY OF OPERATIONS AND FINANCIAL POSITION
The fundamentals of our strategy include a focus on creating actionable insights for executive leaders and their teams, delivering innovative and highly differentiated product offerings, building a strong sales capability, providing world class client service with a focus on client engagement and retention, and continuously improving our operational effectiveness.
We had total revenues of $1.3 billion during the third quarter of 2022, an increase of 15% compared to the third quarter of 2021. During the third quarter of 2022, revenues for Research increased by 11%, Conferences revenue increased by 216%, and Consulting revenues increased by 13%, compared to the third quarter of 2021. For a more complete discussion of our results by segment, see Segment Results below.
For the third quarter of 2022 and 2021, we had net income of $173.5 million and $148.9 million, respectively, and diluted income per share of $2.17 and $1.76, respectively. Cash provided by operating activities was $898.3 million and $1,077.7 million during the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had $528.7 million of cash and cash equivalents and approximately $1.0 billion of available borrowing capacity on our revolving credit facility. For a more complete discussion of our cash flows and financial position, see the Liquidity and Capital Resources section below.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For information regarding our critical accounting policies and estimates, please refer to Part II, Item 7, “Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no material changes to the critical accounting policies previously disclosed in that report.
RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB has issued accounting standards that have not yet become effective and that may impact the Company’s consolidated financial statements or its disclosures in future periods. Note 1 — Business and Basis of Presentation in the Notes to Condensed Consolidated Financial Statements provides information regarding those accounting standards.
RESULTS OF OPERATIONS
Consolidated Results
In addition to GAAP results, we provide foreign currency neutral dollar amounts and percentages for our revenues, certain expenses, contract values and other metrics. These foreign currency neutral dollar amounts and percentages eliminate the effects of exchange rate fluctuations and thus provide a more accurate and meaningful trend in the underlying business performance being measured. We calculate foreign currency neutral dollar amounts by converting the underlying amounts in local currency for different periods into U.S. dollars by applying the same foreign exchange rates to all periods presented.
The table below presents an analysis of selected line items and period-over-period changes in our interim Condensed Consolidated Statements of Operations for the periods indicated (in thousands).
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Increase (Decrease) | Increase (Decrease) % | ||||||||||||||||||||
| Total revenues | $ | 1,331,868 | $ | 1,156,282 | $ | 175,586 | 15 | % | |||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of services and product development | 416,837 | 359,237 | 57,600 | 16 | |||||||||||||||||||
| Selling, general and administrative | 613,031 | 512,573 | 100,458 | 20 | |||||||||||||||||||
| Depreciation | 22,882 | 25,371 | (2,489) | (10) | |||||||||||||||||||
| Amortization of intangibles | 24,369 | 27,109 | (2,740) | (10) | |||||||||||||||||||
| Acquisition and integration charges | 1,331 | 1,771 | (440) | (25) | |||||||||||||||||||
| Operating income | 253,418 | 230,221 | 23,197 | 10 | |||||||||||||||||||
| Interest expense, net | (30,286) | (31,599) | (1,313) | (4) | |||||||||||||||||||
| Other income, net | 8,930 | 211 | 8,719 | nm | |||||||||||||||||||
| Less: Provision for income taxes | 58,517 | 49,968 | 8,549 | 17 | |||||||||||||||||||
| Net income | $ | 173,545 | $ | 148,865 | $ | 24,680 | 17 | % | |||||||||||||||
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Increase (Decrease) | Increase (Decrease) % | ||||||||||||||||||||
| Total revenues | $ | 3,971,129 | $ | 3,427,639 | $ | 543,490 | 16 | % | |||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of services and product development | 1,218,405 | 1,044,506 | 173,899 | 17 | |||||||||||||||||||
| Selling, general and administrative | 1,835,846 | 1,488,324 | 347,522 | 23 | |||||||||||||||||||
| Depreciation | 68,993 | 76,972 | (7,979) | (10) | |||||||||||||||||||
| Amortization of intangibles | 74,271 | 83,777 | (9,506) | (11) | |||||||||||||||||||
| Acquisition and integration charges | 5,827 | 3,713 | 2,114 | 57 | |||||||||||||||||||
| Operating income | 767,787 | 730,347 | 37,440 | 5 | |||||||||||||||||||
| Interest expense, net | (91,399) | (85,138) | 6,261 | 7 | |||||||||||||||||||
| Gain on event cancellation insurance claims | — | 135,545 | (135,545) | nm | |||||||||||||||||||
| Other income, net | 46,684 | 12,019 | 34,665 | 288 | |||||||||||||||||||
| Less: Provision for income taxes | 172,087 | 208,572 | (36,485) | (17) | |||||||||||||||||||
| Net income | $ | 550,985 | $ | 584,201 | $ | (33,216) | (6) | % | |||||||||||||||
| nm = not meaningful | |||||||||||||||||||||||
Total revenues for the three months ended September 30, 2022 were $1.3 billion, an increase of $175.6 million, or 15% compared to the same period in 2021 on a reported basis and 20% excluding the foreign currency impact. Total revenues for the nine months ended September 30, 2022 were $4.0 billion, an increase of $543.5 million, or 16% compared to the same period in 2021 on a reported basis and 20% excluding the foreign currency impact. Refer to the section of this MD&A below entitled “Segment Results” for a discussion of revenues and results by segment.
Cost of services and product development was $416.8 million during the three months ended September 30, 2022, an increase of $57.6 million compared to the same period in 2021, or 16% on a reported basis and 21% excluding the foreign currency impact. The increase in Cost of services and product development was primarily due to increased compensation costs as a result of higher headcount, and increased conference related expenses, due to the return to in-person destination conferences. Cost of services and product development as a percent of revenues was 31% for both the three months ended September 30, 2022 and 2021. Cost of services and product development was $1,218.4 million during the nine months ended September 30, 2022, an increase of $173.9 million compared to the same period in 2021, or 17% on a reported basis and 20% excluding the foreign currency impact. The increase was primarily due to the same factors that caused the year-over-year quarterly increase, in addition to increased research program expenses. Cost of services and product development as a percent of revenues was 31% and 30% during the nine months ended September 30, 2022 and 2021, respectively.
Selling, general and administrative (“SG&A”) expense was $613.0 million during the three months ended September 30, 2022, an increase of $100.5 million compared to the same period in 2021, or 20% on a reported basis and 24% excluding the foreign currency impact. SG&A expense was $1,835.8 million during the nine months ended September 30, 2022, an increase of $347.5 million compared to the same period in 2021, or 23% on a reported basis and 27% excluding the foreign currency impact. The increase in SG&A expense during both the three and nine months ended September 30, 2022 was primarily due to higher personnel costs in the current year, including higher commission expense, following strong contract value growth in 2021, which is amortized as the related revenue is recognized, as well as higher salary expense due to increased headcount. The increase in SG&A during the nine months ended September 30, 2022, as compared to the prior fiscal year, was also due to charges associated with the impairment of right-of-use assets and other long-lived assets of $37.5 million, related to certain office locations we no longer intend to use. The number of quota-bearing sales associates in Global Technology Sales increased by 16% to 3,473 and in Global Business Sales increased by 19% to 1,081 compared to September 30, 2021. On a combined basis, the total number of quota-bearing sales associates increased by 17% when compared to September 30, 2021. SG&A expense as a percent of revenues was 46% and 44% during the three months ended September 30, 2022 and 2021, respectively. SG&A expense as a percent of revenues was 46% and 43% during the nine months ended September 30, 2022 and 2021, respectively. We expect SG&A expense as a percentage of revenue to increase over the near-term as our hiring continues.
Depreciation decreased by 10% during both the three and nine months ended September 30, 2022, compared to the same periods in 2021. The decreases for the three and nine months ended September 30, 2022 were primarily due to a reduction in leasehold improvements depreciation as a result of the impairment losses recorded in the fourth quarter of 2021 and the nine months ended September 30, 2022.
Amortization of intangibles decreased by 10% and 11% during the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021 due to certain intangible assets becoming fully amortized in 2021.
Acquisition and integration charges decreased by $0.4 million and increased by $2.1 million during the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.
Operating income was $253.4 million and $230.2 million during the three months ended September 30, 2022 and 2021, respectively. Operating income was $767.8 million and $730.3 million during the nine months ended September 30, 2022 and 2021, respectively. The increase in operating income for both the three and nine months ended September 30, 2022 as compared to the prior year periods was due to increased revenue, partially offset by an increase in cost of services and product development and selling, general and administrative expenses.
Interest expense, net decreased by $1.3 million during the three months ended September 30, 2022, compared to the same period in 2021. Interest expense, net increased by $6.3 million during the nine months ended September 30, 2022, compared to the same period in 2021. The increase during the nine months ended September 30, 2022 was primarily due to an increase in outstanding debt as a result of the issuance of the 2029 Notes in June 2021.
Gain on event cancellation insurance claims of $135.5 million during the nine months ended September 30, 2021 reflected proceeds, net of expense recoveries, related to the 2020 conference cancellation insurance claims.
Other income, net for the periods presented herein included the net impact of foreign currency gains and losses from our hedging activities. Other income, net for the three and nine months ended September 30, 2022 also included gains of $11.2 million and $51.7 million, respectively, on de-designated interest rate swaps. Other income, net for the three and nine months ended September 30, 2021 also included a $0.4 million loss and $12.1 million gain, respectively, on de-designated interest rate swaps.
The provision for income taxes was $58.5 million and $50.0 million for the three months ended September 30, 2022 and 2021, respectively, and $172.1 million and $208.6 million for the nine months ended September 30, 2022 and 2021, respectively.
The effective income tax rate was 25.2% and 25.1% for the three months ended September 30, 2022 and 2021, respectively, and 23.8% and 26.3% for the nine months ended September 30, 2022 and 2021, respectively. During the second quarter of 2021, the United Kingdom enacted legislation raising its corporate tax rate from 19% to 25% effective April 2023, which led to a higher effective income tax rate for the nine months ended September 30, 2021 as compared to the same period in 2022.
Net income for the three months ended September 30, 2022 and 2021 was $173.5 million and $148.9 million, respectively, while net income for the nine months ended September 30, 2022 and 2021 was $551.0 million and $584.2 million, respectively. Our diluted net income per share during the three and nine months ended September 30, 2022 increased by $0.41 and $0.05, respectively, compared to the same period in 2021. The increase in net income during the three months ended September 30, 2022 was primarily the result of increased revenue, partially offset by increased operating expenses. The decrease in net income during the nine months ended September 30, 2022 was primarily the result of the gain on event cancellation insurance recognized in the prior year, as well as increased operating expenses, partially offset by increased revenues and the gain from de-designated interest rate swaps.
SEGMENT RESULTS
We evaluate reportable segment performance and allocate resources based on gross contribution margin. Gross contribution is defined as operating income or loss excluding certain Cost of services and product development expenses, SG&A expenses, Depreciation, Amortization of intangibles, and Acquisition and integration charges. Gross contribution margin is defined as gross contribution as a percent of revenues.
Reportable Segments
The sections below present the results of the Company’s three reportable business segments: Research, Conferences and Consulting.
Research
| As Of And For The Three Months Ended September 30, 2022 | As Of And For The Three Months Ended September 30, 2021 | Increase (Decrease) | Percentage Increase (Decrease) | As Of And For The Nine Months Ended September 30, 2022 | As Of And For The Nine Months Ended September 30, 2021 | Increase (Decrease) | Percentage Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||
| Financial Measurements: | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues (1) | $ | 1,147,823 | $ | 1,037,124 | $ | 110,699 | 11 | % | $ | 3,426,532 | $ | 3,020,094 | $ | 406,438 | 13 | % | |||||||||||||||||||||||||||||||
| Gross contribution (1) | $ | 848,438 | $ | 769,091 | $ | 79,347 | 10 | % | $ | 2,541,782 | $ | 2,235,594 | $ | 306,188 | 14 | % | |||||||||||||||||||||||||||||||
| Gross contribution margin | 74 | % | 74 | % | 0 point | — | 74 | % | 74 | % | 0 point | — | |||||||||||||||||||||||||||||||||||
| Business Measurements: | |||||||||||||||||||||||||||||||||||||||||||||||
| Global Technology Sales (2): | |||||||||||||||||||||||||||||||||||||||||||||||
| Contract value (1), (3) | $ | 3,494,100 | $ | 3,100,700 | $ | 393,400 | 13 | % | |||||||||||||||||||||||||||||||||||||||
| Client retention | 86 | % | 85 | % | 1 point | — | |||||||||||||||||||||||||||||||||||||||||
| Wallet retention | 107 | % | 104 | % | 3 points | — | |||||||||||||||||||||||||||||||||||||||||
| Global Business Sales (2): | |||||||||||||||||||||||||||||||||||||||||||||||
| Contract value (1), (3) | $ | 976,600 | $ | 804,400 | $ | 172,200 | 21 | % | |||||||||||||||||||||||||||||||||||||||
| Client retention | 89 | % | 86 | % | 3 points | — | |||||||||||||||||||||||||||||||||||||||||
| Wallet retention | 114 | % | 113 | % | 1 point | — |
(1)Dollars in thousands.
(2)Global Technology Sales includes sales to users and providers of technology. Global Business Sales includes sales to all other functional leaders.
(3)Contract values are on a foreign exchange neutral basis. Contract values as of September 30, 2021 have been calculated using the same foreign currency rates as 2022.
Research revenues increased by $110.7 million during the three months ended September 30, 2022 compared to the same period in 2021, or 11% on a reported basis and 15% excluding the foreign currency impact. For the nine months ended September 30, 2022, research revenues increased by $406.4 million compared to the same period in 2021, or 13% on a reported basis and 17% excluding the foreign currency impact. The segment gross contribution margin was 74% for all the periods presented herein. The increase in revenues during 2022 was primarily due to the same factors driving the trend in our Research contract value, which are discussed below.
Contract value increased to $4.5 billion at September 30, 2022, or 15% compared to September 30, 2021 excluding the foreign currency impact. Global Technology Sales (“GTS”) contract value increased by 13% at September 30, 2022 when compared to September 30, 2021. The increase in GTS contract value was primarily due to new business from new and existing clients, as well as improved client retention. GTS contract value increased by double-digits for all enterprise sizes and almost all sectors. Global Business Sales (“GBS”) contract value increased by 21% year-over-year, also primarily driven by new business from new and existing clients, and improved client retention. All of our GBS practices achieved double-digit growth rates, with the majority of enterprise size and sectors growing more than 20% year-over-year.
GTS client retention was 86% and 85% as of September 30, 2022 and 2021, respectively, while wallet retention was 107% and 104%, respectively. GBS client retention was 89% and 86% as of September 30, 2022 and 2021, respectively, while wallet retention was 114% and 113%, respectively. The increase in GTS and GBS wallet retention was largely due to increased spending by existing clients.
Conferences
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Increase (Decrease) | Percentage Increase (Decrease) | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Increase (Decrease) | Percentage Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||
| Financial Measurements: | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues (1) | $ | 77,031 | $ | 24,415 | $ | 52,616 | 216 | % | $ | 200,910 | $ | 107,396 | $ | 93,514 | 87 | % | |||||||||||||||||||||||||||||||
| Gross contribution (1) | $ | 40,318 | $ | 11,456 | $ | 28,862 | 252 | % | $ | 110,968 | $ | 67,954 | $ | 43,014 | 63 | % | |||||||||||||||||||||||||||||||
| Gross contribution margin | 52 | % | 47 | % | 5 points | — | 55 | % | 63 | % | (8) points | — | |||||||||||||||||||||||||||||||||||
| Business Measurements: | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of destination conferences (2) | 13 | 8 | 5 | 63 | % | 32 | 26 | 6 | 23 | % | |||||||||||||||||||||||||||||||||||||
| Number of destination conferences attendees (2) | 14,619 | 6,472 | 8,147 | 126 | % | 32,990 | 27,123 | 5,867 | 22 | % |
(1)Dollars in thousands.
(2)Includes both virtual and in-person conferences. Single day, local meetings are excluded.
Conferences revenues increased by $52.6 million during the three months ended September 30, 2022 compared to the same period in 2021. Conferences revenues increased by $93.5 million during the nine months ended September 30, 2022 compared to the same period in 2021. The increase in revenues for the three and nine months ended September 30, 2022 was primarily due to the return to in-person destination conferences. We re-launched in-person destination conferences during the second quarter of 2022 and expect to hold in-person destination conferences in future periods as conditions permit. We held 10 and 16 in-person destination conferences during the three and nine months ended September 30, 2022, respectively. We held 3 and 16 virtual conferences during the three and nine months ended September 30, 2022, respectively, compared to 8 and 26 during the three and nine months ended September 30, 2021, respectively. Gross contribution increased to $40.3 million during the three months ended September 30, 2022 compared to $11.5 million in the same period last year. Gross contribution increased to $111.0 million during the nine months ended September 30, 2022 compared to $68.0 million in the same period last year. The increase in gross contribution was primarily the result of the return to in-person destination conferences noted above. We expect Conferences gross contribution margin to decrease from 2021 levels as the mix of in-person destination conferences increases.
Consulting
| As Of And For The Three Months Ended September 30, 2022 | As Of And For The Three Months Ended September 30, 2021 | Increase (Decrease) | Percentage Increase (Decrease) | As Of And For The Nine Months Ended September 30, 2022 | As Of And For The Nine Months Ended September 30, 2021 | Increase (Decrease) | Percentage Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||
| Financial Measurements: | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues (1) | $ | 107,014 | $ | 94,743 | $ | 12,271 | 13 | % | $ | 343,687 | $ | 300,149 | $ | 43,538 | 15 | % | |||||||||||||||||||||||||||||||
| Gross contribution (1) | $ | 37,213 | $ | 30,972 | $ | 6,241 | 20 | % | $ | 138,448 | $ | 112,840 | $ | 25,608 | 23 | % | |||||||||||||||||||||||||||||||
| Gross contribution margin | 35 | % | 33 | % | 2 points | — | 40 | % | 38 | % | 2 points | — | |||||||||||||||||||||||||||||||||||
| Business Measurements: | |||||||||||||||||||||||||||||||||||||||||||||||
| Backlog (1), (2) | $ | 162,000 | $ | 121,700 | $ | 40,300 | 33 | % | |||||||||||||||||||||||||||||||||||||||
| Billable headcount | 852 | 749 | 103 | 14 | % | ||||||||||||||||||||||||||||||||||||||||||
| Consultant utilization | 66 | % | 62 | % | 4 points | — | 70 | % | 67 | % | 3 points | — |
(1)Dollars in thousands.
(2)Backlog is on a foreign exchange neutral basis. Backlog as of September 30, 2021 has been calculated using the same foreign currency rates as 2022. We changed our method of calculating backlog beginning in 2022 to include multi-year contracts.
Consulting revenues increased by 13% during the three months ended September 30, 2022 compared to the same period in 2021 on a reported basis and 21% excluding the foreign currency impact, with an increase in labor-based consulting revenue of 16% and a decrease in contract optimization revenue of 3%, each on a reported basis. Contract optimization revenue may vary significantly and, as such, revenues for the third quarter of 2022 may not be indicative of results for the remainder of 2022 or beyond. The segment gross contribution margin was 35% and 33% for the three months ended September 30, 2022 and 2021, respectively. The increase in gross contribution margin during the third quarter of 2022 was primarily due to the increase in revenue.
For the nine months ended September 30, 2022, Consulting revenues increased 15% compared to the same period in 2021 on a reported basis and 20% excluding the foreign currency impact, with an increase in labor-based consulting revenue of 14% and an increase in contract optimization revenue of 18%, each on a reported basis. The segment gross contribution margin for the nine months ended September 30, 2022 increased by 2 points compared to the same period in 2021. The increase in gross contribution margin for the nine months ended September 30, 2022 was also primarily due to the increase in revenue.
Backlog increased by $40.3 million, or 33%, from September 30, 2021 to September 30, 2022 excluding the foreign currency impact. The change in our method of calculating backlog noted above contributed approximately 11 percentage points to the backlog growth rate.
LIQUIDITY AND CAPITAL RESOURCES
We finance our operations through cash generated from our operating activities and borrowings. Note 8 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations. At September 30, 2022, we had $528.7 million of cash and cash equivalents and approximately $1.0 billion of available borrowing capacity on the revolving credit facility under our 2020 Credit Agreement. We believe that the Company has adequate liquidity to meet its currently anticipated needs for both the next twelve months and the foreseeable future.
We have historically generated significant cash flows from our operating activities, benefiting from the favorable working capital dynamics of our subscription-based business model in our Research segment, which is our largest business segment and historically has constituted a significant portion of our total revenues. The majority of our Research customer contracts are paid in advance and, combined with a strong customer retention rate and high incremental margins, our subscription-based business model has resulted in continuously strong operating cash flow. Cash flow generation has also benefited from our ongoing efforts to improve the operating efficiencies of our businesses as well as a focus on the optimal management of our working capital as we increase sales.
Our cash and cash equivalents are held in numerous locations throughout the world with 83% held outside the U.S. at September 30, 2022. We intend to reinvest substantially all of our accumulated undistributed foreign earnings, except in instances where repatriation would result in minimal additional tax. As a result of the U.S. Tax Cuts and Jobs Act of 2017, we believe that the income tax impact if such earnings were repatriated would be minimal.
The table below summarizes the changes in the Company’s cash balances for the periods indicated (in thousands).
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Increase (Decrease) | |||||||||||||||
| Cash provided by operating activities | $ | 898,313 | $ | 1,077,684 | $ | (179,371) | |||||||||||
| Cash used in investing activities | (74,570) | (61,700) | (12,870) | ||||||||||||||
| Cash used in financing activities | (1,013,430) | (944,186) | (69,244) | ||||||||||||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | (189,687) | 71,798 | (261,485) | ||||||||||||||
| Effects of exchange rates | (42,228) | (14,651) | (27,577) | ||||||||||||||
| Beginning cash and cash equivalents and restricted cash | 760,602 | 712,583 | 48,019 | ||||||||||||||
| Ending cash and cash equivalents and restricted cash | $ | 528,687 | $ | 769,730 | $ | (241,043) | |||||||||||
Operating
Cash provided by operating activities was $898.3 million and $1,077.7 million during the nine months ended September 30, 2022 and 2021, respectively. The year-over-year decrease was primarily due to $150.0 million of insurance proceeds received in the 2021 period related to 2020 event cancellation claims, as well as higher commission and interest payments in 2022, partially offset by reduced income tax payments.
Investing
Cash used in investing activities was $74.6 million and $61.7 million during the nine months ended September 30, 2022 and 2021, respectively. The increase from 2021 to 2022 was the result of increased capital expenditures primarily due to higher capitalized software and computer equipment additions, partially offset by the 2021 acquisition of Pulse Q&A Inc.
Financing
Cash used in financing activities was $1,013.4 million and $944.2 million during the nine months ended September 30, 2022 and 2021, respectively. During the 2022 period, we used $1,026.4 million of cash for share repurchases and paid a net $4.0 million in debt principal repayments. During the 2021 period, we used $1,438.8 million of cash for share repurchases, issued $600.0 million of 3.625% Senior Notes due 2029, and repaid $100.0 million on our term loan facility under the 2020 Credit Agreement. During the 2021 period, we also repaid a net $5.0 million on our revolving credit facility under the 2020 Credit Agreement and paid a net $6.6 million in debt principal repayments, exclusive of the $100.0 million term loan repayment.
Debt
As of September 30, 2022, the Company had $2.5 billion of principal amount of debt outstanding, of which $1.9 million is to be repaid in the remainder of fiscal year 2022. Note 8 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations. From time to time, the Company may seek to retire or repurchase its outstanding debt through various methods including open market repurchases, negotiated block transactions, or otherwise, all or some of which may be effected through Rule 10b5-1 plans. Such transactions, if any, depend on prevailing market conditions, our liquidity and capital requirements, contractual restrictions, and other factors, and may involve material amounts.
OFF BALANCE SHEET ARRANGEMENTS
From January 1, 2022 through September 30, 2022, the Company has not entered into any material off-balance sheet arrangements or transactions with unconsolidated entities or other persons.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
As of September 30, 2022, the Company had $2.5 billion in total debt principal outstanding. Note 8 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations.
Approximately $0.3 billion of the Company’s total debt outstanding as of September 30, 2022 was based on a floating base rate of interest, which potentially exposes the Company to increases in interest rates. However, we reduce our overall exposure to interest rate increases through our interest rate swap contract, which effectively converts the floating base interest rates on all of our variable rate borrowings to fixed rates.
FOREIGN CURRENCY RISK
A significant portion of our revenues are typically derived from sales outside of the United States. Among the major foreign currencies in which we conduct business are the Euro, the British Pound, the Japanese Yen, the Australian dollar and the Canadian dollar. The reporting currency of our Condensed Consolidated Financial Statements is the U.S. dollar. As the values of the foreign currencies in which we operate fluctuate over time relative to the U.S. dollar, the Company is exposed to both foreign currency translation and transaction risk.
Translation risk arises as our foreign currency assets and liabilities are translated into U.S. dollars because the functional currencies of our foreign operations are generally denominated in the local currency. Adjustments resulting from the translation of these assets and liabilities are deferred and recorded as a component of stockholders’ equity. A measure of the potential impact of foreign currency translation can be determined through a sensitivity analysis of our cash and cash equivalents. At September 30, 2022, we had $528.7 million of cash and cash equivalents, with a substantial portion denominated in foreign currencies. If the exchange rates of the foreign currencies we hold all changed in comparison to the U.S. dollar by 10%, the amount of cash and cash equivalents we would have reported on September 30, 2022 could have increased or decreased by approximately $51.2 million. The translation of our foreign currency revenues and expenses historically has not had a material impact on our consolidated earnings because movements in and among the major currencies in which we operate tend to impact our revenues and expenses fairly equally. However, our earnings could be impacted during periods of significant exchange rate volatility, or when some or all of the major currencies in which we operate move in the same direction against the U.S. dollar.
Transaction risk arises when we enter into a transaction that is denominated in a currency that may differ from the local functional currency. As these transactions are translated into the local functional currency, a gain or loss may result, which is recorded in current period earnings. We typically enter into foreign currency forward exchange contracts to mitigate the effects of some of this foreign currency transaction risk. Our outstanding foreign currency forward exchange contracts as of September 30, 2022 had an immaterial net unrealized loss.
CREDIT RISK
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of short-term, highly liquid investments classified as cash equivalents, fees receivable, interest rate swap contracts and foreign currency forward exchange contracts. The majority of the Company’s cash and cash equivalents, interest rate swap contracts and foreign currency forward exchange contracts are with large investment grade commercial banks. Fees receivable balances deemed to be collectible from customers have limited concentration of credit risk due to our diverse customer base and geographic dispersion.
Item 4. CONTROLS AND PROCEDURES
We have established disclosure controls and procedures that are designed to ensure that the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported in a timely manner. Specifically, these controls and procedures ensure that the information is accumulated and communicated to our executive management team, including our chief executive officer and our chief financial officer, to allow timely decisions regarding required disclosure.
Management conducted an evaluation, as of September 30, 2022, of the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision and with the participation of our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material Company information required to be disclosed by us in reports filed under the Exchange Act.
There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in legal and administrative proceedings and litigation arising in the ordinary course of business. We believe that the potential liability, if any, in excess of amounts already accrued from all proceedings, claims and litigation will not have a material effect on our financial position, cash flows or results of operations when resolved in a future period.
Item 1A. RISK FACTORS
There were no material changes to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities during the period covered by this report.
Issuer Purchases of Equity Securities
In May 2015, the Company’s Board of Directors (the “Board”) authorized a share repurchase program to repurchase up to $1.2 billion of the Company’s common stock. The Board authorized incremental share repurchases of up to an additional $1.6 billion, and $1.0 billion of the Company’s common stock during 2021 and the first half of 2022, respectively. The Company may repurchase its common stock from time-to-time in amounts, at prices and in the manner that the Company deems appropriate, subject to the availability of stock, prevailing market conditions, the trading price of the stock, the Company’s financial performance and other conditions. Repurchases may be made through open market purchases (which may include repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended), accelerated share repurchases, private transactions or other transactions and will be funded by cash on hand and borrowings. Repurchases may also be made from time-to-time in connection with the settlement of the Company’s stock-based compensation awards. The table below summarizes the repurchases of our common stock during the three months ended September 30, 2022.
| Period | Total Number of Shares Purchased (#) | Average Price Paid Per Share ($) | Total Number of Shares Purchased Under Announced Programs (#) | Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) | ||||||||||||||||||||||
| July 1, 2022 to July 31, 2022 | 284,085 | $ | 247.13 | 283,214 | $ | 634,439 | ||||||||||||||||||||
| August 1, 2022 to August 31, 2022 | 23,861 | 279.77 | 13,109 | 630,939 | ||||||||||||||||||||||
| September 1, 2022 to September 30, 2022 | 67,130 | 277.87 | 65,522 | $ | 612,767 | |||||||||||||||||||||
| Total for the quarter (1) | 375,076 | $ | 254.71 | 361,845 |
(1)The repurchased shares during the three months ended September 30, 2022 included purchases for both the settlement of stock-based compensation awards and open market purchases.
Item 6. EXHIBITS
| EXHIBIT NUMBER | DESCRIPTION OF DOCUMENT | |||||||
| 31.1* | Certification of chief executive officer under Rule 13a — 14(a)/15d — 14(a). | |||||||
| 31.2* | Certification of chief financial officer under Rule 13a — 14(a)/15d — 14(a). | |||||||
| 32* | Certification under 18 U.S.C. 1350. | |||||||
| 101.INS* | Inline XBRL Instance Document | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104* | Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101). |
- Filed with this report.
Items 3 and 4 of Part II are not applicable and have been omitted.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Gartner, Inc. | ||||||||
| Date: | November 1, 2022 | /s/ Craig W. Safian | ||||||
| Craig W. Safian | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) |