What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 136 added, 96 removed, 200 unchanged (54% of the section changed)

16 unchanged sentences

the adequacy or effectiveness of steps we take to respond to the pandemic;

the impact of general economic conditions, including 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;

our ability to carry out our strategic initiatives and manage associated costs;

our ability to recover potential claims under our event cancellation insurance;

7 unchanged sentences

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 carry out our strategic initiatives and manage associated costs;

our ability to successfully compete with existing competitors and potential new competitors;

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cybersecurity incidents;

general economic conditions;

changes in macroeconomic and market conditions and market volatility, including interest rates and the effect on the credit markets and access to capital;

risks associated with the creditworthiness, budget cuts, and shutdown of governments and agencies;

the impact of changes in tax policy and heightened scrutiny from various taxing authorities globally;

uncertainty from the discontinuance of LIBOR and transition to any other interest rate benchmark;

changes to laws and regulations;

6 unchanged sentences

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.

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.

15 unchanged sentences

We do not have a business in Ukraine.

Other impacts due to this rapidly 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.

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.

COVID-19 Impact

3 unchanged sentences

As a result, in the fourth quarter of 2021 we evaluated our real estate footprint globally, and determined that certain of our leased locations are 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 related to certain office locations we no longer intend to use.

We continued our evaluation during the three months ended March 31, 2022, which resulted in an additional impairment charge of $23.9 million.

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 $11.6 million and $35.5 million during three and six months ended June 30, 2022, respectively.

We expect to continue to evaluate our real estate footprint globally.

2 unchanged sentences

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 continues to be negatively impacted.

However, Conferences revenue and gross contribution continue to be 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.

We held 5 virtual conferences during the three months ended March 31, 2022 and expect to continue to deliver some conferences virtually during the remainder of the year.

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 are planning to re-launch in-person destination conferences beginning in the second quarter of 2022 and expect to hold in-person destination conferences in future periods as conditions permit.

We began holding virtual conferences during the second half of 2020 and have continued to hold virtual conferences.

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.

We also expect to continue to deliver some conferences virtually during the remainder of the year.

For cancelled conferences, our event cancellation insurance enables us to receive an amount up to expected revenues, plus incurred expenses minus saved expense.

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Our insurance coverage for 2022 (and likely beyond) excludes cancellation due to communicable diseases.

In response to the pandemic’s impacts to our business, we implemented cost avoidance initiatives in the first half of 2020 including significant limitations on hiring and third-party spending, reductions to discretionary spending and elimination of non-essential travel and re-prioritization of capital expenditures.

We began to restore certain investments in the business during the second half of 2020 and accelerated these investments in 2021 and the three months ended March 31, 2022.

We expect these investments to increase in future periods, which may have a negative impact on operating margins.

BUSINESS MEASUREMENTS

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Single day, local meetings are excluded.

Consulting Consulting backlog represents future revenue to be derived from in-process consulting and measurement engagements.

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.

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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 first quarter of 2022, an increase of 14% compared to the first quarter of 2021.

During the first quarter of 2022 revenues for Research increased by 16% year-over-year, Conferences revenue decreased by $14.4 million, and Consulting revenues increased by 17%.

We had total revenues of $1.4 billion during the second quarter of 2022, an increase of 18% compared to the second quarter of 2021.

During the second quarter of 2022, revenues for Research increased by 14%, Conferences revenue increased by $55.3 million, and Consulting revenues increased by 14%, compared to the second quarter of 2021.

For a more complete discussion of our results by segment, see Segment Results below.

For the first quarter of 2022 and 2021, we had net income of $172.5 million and $164.1 million, respectively, and diluted income per share of $2.08 and $1.84, respectively.

Cash provided by operating activities was $167.8 million and $157.3 million during the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, we had $456.2 million of cash and cash equivalents and approximately $1.0 billion of available borrowing capacity on our revolving credit facility.

For the second quarter of 2022 and 2021, we had net income of $204.9 million and $271.2 million, respectively, and diluted income per share of $2.53 and $3.13, respectively.

Cash provided by operating activities was $583.4 million and $732.6 million during the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, we had $360.5 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.

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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 data being measured.

We calculate foreign currency neutral dollar amounts by converting the underlying amounts in local currency for different periods into U.S.

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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 March 31, 2022 Three Months Ended March 31, 2021 Increase (Decrease) Increase

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 Increase (Decrease) Increase

Total revenues $ 1,376,521 $ 1,167,319 $ 209,202 18 %

7 unchanged sentences

Interest expense, net (29,719) (27,390) 2,329 9

Gain on event cancellation insurance claims — 135,545 (135,545) nm

Other income (expense), net 8,548 (3,682) 12,230 nm

Provision for income taxes 71,026 107,951 (36,925) (34)

Net income $ 204,925 $ 271,236 $ (66,311) (24) %

Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 Increase (Decrease) Increase

Total revenues $ 2,639,261 $ 2,271,357 $ 367,904 16 %

Costs and expenses:

Cost of services and product development 801,568 685,269 116,299 17

Selling, general and administrative 1,222,815 975,751 247,064 25

Depreciation 46,111 51,601 (5,490) (11)

Amortization of intangibles 49,902 56,668 (6,766) (12)

Acquisition and integration charges 4,496 1,942 2,554 132

Operating income 514,369 500,126 14,243 3

Interest expense, net (61,113) (53,539) 7,574 14

Gain on event cancellation insurance claims — 135,545 (135,545) nm

Other income, net 37,754 11,808 25,946 220

1 unchanged sentence

Net income $ 377,440 $ 435,336 $ (57,896) (13) %

Total revenues for the three months ended March 31, 2022 were $1.3 billion, an increase of $158.7 million, or 14% compared to the same period in 2021 on a reported basis and 16% excluding the foreign currency impact.

nm = not meaningful

Total revenues for the three months ended June 30, 2022 were $1.4 billion, an increase of $209.2 million, or 18% compared to the same period in 2021 on a reported basis and 22% excluding the foreign currency impact.

Total revenues for the six months ended June 30, 2022 were $2.6 billion, an increase of $367.9 million, or 16% compared to the same period in 2021 on a reported basis and 19% 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 $377.0 million during the three months ended March 31, 2022, an increase of $42.6 million compared to the same period in 2021, or 13% on a reported basis and 14% excluding the foreign currency impact.

Cost of services and product development was $424.5 million during the three months ended June 30, 2022, an increase of $73.7 million compared to the same period in 2021, or 21% on a reported basis and 25% excluding the foreign currency impact.

The increase in Cost of services and product development was primarily due to increased compensation costs, research program expenses and conference related expenses.

Cost of services and product development as a percent of revenues was 30% during both periods.

Selling, general and administrative (“SG&A”) expense was $617.9 million during the three months ended March 31, 2022, an increase of $130.6 million compared to the same period in 2021, or 27% on a reported basis and 29% excluding the foreign currency impact.

The increase in SG&A expense was primarily due to higher personnel costs in the current year, specifically commission expense, following strong contract value growth in 2021, which gets amortized as the related revenue is recognized, and salary expense due to increased headcount.

The increase in SG&A during the three months ended March 31, 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 $23.9 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 0.6% to 3,009 and in Global Business Sales increased by 15.1% to 998 compared to March 31, 2021.

On a combined basis, the total number of quota-bearing sales associates increased by 3.8% when compared to March 31, 2021.

SG&A expense as a percent of revenues was 49% and 44% during the three months ended March 31, 2022 and 2021, respectively.

Depreciation decreased by 10% during the three months ended March 31, 2022, compared to the same period in 2021.

The decrease for the three months ended March 31, 2022 was primarily due to a reduction in leasehold improvements deprecation as a result of the impairment losses recorded in the fourth quarter of 2021.

Amortization of intangibles decreased by 18% during the three months ended March 31, 2022 compared to the same periods in 2021 due to certain intangible assets that became fully amortized in 2021.

Acquisition and integration charges increased by $1.6 million during the three months ended March 31, 2022 compared to the same period in 2021.

Operating income was $217.2 million and $225.4 million during the three months ended March 31, 2022 and 2021, respectively.

The decrease in operating income was primarily du e to increased selling, general and administrative expenses.

Interest expense, net increased by $5.2 million during the three months ended March 31, 2022, compared to the same period in 2021.

Cost of services and product development as a percent of revenues was 31% and 30% for the three months ended June 30, 2022 and 2021, respectively.

Cost of services and product development was $801.6 million during the six months ended June 30, 2022, an increase of $116.3 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.

Cost of services and product development as a percent of revenues was 30% during both the six months ended June 30, 2022 and 2021.

Selling, general and administrative (“SG&A”) expense was $604.9 million during the three months ended June 30, 2022, an increase of $116.4 million compared to the same period in 2021, or 24% on a reported basis and 27% excluding the foreign currency impact.

SG&A expense was $1,222.8 million during the six months ended June 30, 2022, an increase of $247.1 million compared to the same period in 2021, or 25% on a reported basis and 28% excluding the foreign currency impact.

The increase in SG&A expense during both the three and six months ended June 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, 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 $11.6 million and $35.5 million for the three and six months ended June 30, 2022, respectively, related to certain office locations we no longer intend to use.

The number of quota-bearing sales associates in Global Technology Sales increased by 9% to 3,237 and in Global Business Sales increased by 17% to 1,036 compared to June 30, 2021.

On a combined basis, the total number of quota-bearing sales associates increased by 11% when compared to June 30, 2021.

SG&A expense as a percent of revenues was 44% and 42% during the three months ended June 30, 2022 and 2021, respectively.

SG&A expense as a percent of revenues was 46% and 43% during the six months ended June 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 11% during both the three and six months ended June 30, 2022, compared to the same periods in 2021.

The decreases for the three and six months ended June 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 six months ended June 30, 2022.

Amortization of intangibles decreased by 5% and 12% during the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021 due to certain intangible assets becoming fully amortized in 2021.

Acquisition and integration charges increased by $1.0 million and $2.6 million during the three and six months ended June 30, 2022 compared to the same period in 2021.

Operating income was $297.1 million and $274.7 million during the three months ended June 30, 2022 and 2021, respectively.

Operating income was $514.4 million and $500.1 million during the six months ended June 30, 2022 and 2021, respectively.

The increase in operating income for both the three and six months ended June 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 increased by $2.3 million and $7.6 million during the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

The increase was primarily due to an increase in outstanding debt as a result of the issuance of the 2029 Notes in June 2021.

Other income, net for the periods presented herein included the net impact of foreign currency gains and losses from our hedging activities.

During 2022, Other income, net also included a $29.9 million gain on de-designated interest rate swaps.

The provision for income taxes for the three months ended March 31, 2022 and 2021 was $42.5 million and $50.7 million, respectively.

The effective income tax rate was 19.8% and 23.6% for the three months ended March 31, 2022 and 2021, respectively.

The year-over-year decrease in the effective income tax rate was primarily due to the relative impact of tax benefits from stock-based compensation.

Net income for the three months ended March 31, 2022 and 2021 was $172.5 million and $164.1 million, respectively.

Our diluted net income per share during the three months ended March 31, 2022 increased by $0.24 compared to the same period in 2021.

The increase in net income during the three months ended March 31, 2022 was primarily the result of increased revenues, and the gain from de-designated interest rate swaps , partially offset by an increase in operating expenses.

Gain on event cancellation insurance claims of $135.5 million during the three and six months ended June 30, 2021 reflected proceeds, net of expense recoveries, related to the 2020 conference cancellation insurance claims.

Other income (expense), net for the periods presented herein included the net impact of foreign currency gains and losses from our hedging activities.

Other income (expense), net for the three and six months ended June 30, 2022 also included gains of $10.7 million and $40.5 million, respectively, on de-designated interest rate swaps.

Other income (expense), net for the three and six months ended June 30, 2021 also included a $4.0 million loss and $11.8 million gain, respectively, on de-designated interest rate swaps.

The provision for income taxes was $71.0 million and $108.0 million for the three months ended June 30, 2022 and 2021, respectively, and $113.6 million and $158.6 million for the six months ended June 30, 2022 and 2021, respectively.

The effective income tax rate was 25.7% and 28.5% for the three months ended June 30, 2022 and 2021, respectively, and 23.1% and 26.7% for the six months ended June 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 three and six months ended June 30, 2021 as compared to the same periods in 2022.

Net income for the three months ended June 30, 2022 and 2021 was $204.9 million and $271.2 million, respectively, while net income for the six months ended June 30, 2022 and 2021 was $377.4 million and $435.3 million, respectively.

Our diluted net income per share during the three and six months ended June 30, 2022 decreased by $0.60 and $0.35, respectively, compared to the same period in 2021.

The decrease in net income during the three and six months ended June 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

5 unchanged sentences

Research, Conferences and Consulting.

As Of And For The Three Months Ended March 31, 2022 As Of And For The Three Months Ended March 31, 2021 Increase

As Of And For The Three Months Ended June 30, 2022 As Of And For The Three Months Ended June 30, 2021 Increase

(Decrease) Percentage

(Decrease) As Of And For The Six Months Ended June 30, 2022 As Of And For The Six Months Ended June 30, 2021 Increase

(Decrease) Percentage

Financial Measurements:

1 unchanged sentence

Gross contribution (1) $ 843,965 $ 742,131 $ 101,834 14 % $ 1,693,344 $ 1,466,503 $ 226,841 15 %

Gross contribution margin 75 % 74 % 1 point —

Gross contribution margin 74 % 74 % 0 point — 74 % 74 % 0 point —

Business Measurements :

1 unchanged sentence

Contract value (1), (3) $ 3,406,000 $ 3,000,000 $ 406,000 14 %

Client retention 86 % 83 % 3 points —

Client retention 86 % 85 % 1 point —

Wallet retention 107 % 101 % 6 points —

7 unchanged sentences

(3) Contract values are on a foreign exchange neutral basis.

Contract values as of March 31, 2021 have been calculated using the same foreign currency rates as 2022.

Research revenues i ncreased by $156.6 million during the three months ended March 31, 2022 compared to the same period in 2021, or 16% on a reported basis and 18% excluding the foreign currency impact.

The segment gross contribution margin was 75% and 74% during the three months ended March 31, 2022 and 2021, respectively.

Contract values as of June 30, 2021 have been calculated using the same foreign currency rates as 2022.

Research revenues i ncreased by $139.1 million during the three months ended June 30, 2022 compared to the same period in 2021, or 14% on a reported basis and 17% excluding the foreign currency impact.

For the six months ended June 30, 2022, research revenues increased by $295.7 million compared to the same period in 2021, or 15% on a reported basis and 18% 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.

The increase in margin of 1 point for the three months ended March 31, 2022 compared to the same prior year period was primarily due to the increase in revenue.

Contract value increased to $4.2 billion at March 31, 2022, or 16% compared to March 31, 2021 on a foreign currency neutral basis.

Global Technology Sales (“GTS”) contract value increased by 14% at March 31, 2022 when compared to March 31, 2021.

Contract value increased to $4.3 billion at June 30, 2022, or 15% compared to June 30, 2021 excluding the foreign currency impact.

Global Technology Sales (“GTS”) contract value increased by 14% at June 30, 2022 when compared to June 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 over half of all sectors.

GTS contract value increased by double-digits for all enterprise sizes and almost all sectors.

Global Business Sales (“GBS”) contract value increased by 23% 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 growing more than 20% year-over-year.

GTS client retention was 86% and 83% as of March 31, 2022 and 2021, respectively, while wallet retention was 107% and 98%, respectively.

GBS client retention was 87% and 84% as of March 31, 2022 and 2021, respectively, while wallet retention was 115% and 105%, respectively.

GTS client retention was 86% and 85% as of June 30, 2022 and 2021, respectively, while wallet retention was 107% and 101%, respectively.

GBS client retention was 88% and 85% as of June 30, 2022 and 2021, respectively, while wallet retention was 115% and 110%, respectively.

The increase in GTS and GBS wallet retention was largely due to increased spending by existing clients, as well as improved client retention of larger clients.

The number of GTS client enterprises increased by 6.3% when compared to prior year, while GBS client enterprises increased by 4.3% at March 31, 2022 when compared to March 31, 2021.

As Of And For The Three Months Ended March 31, 2022 As Of And For The Three Months Ended March 31, 2021 Increase

The number of GTS client enterprises increased by 4.2% at June 30, 2022 when compared to prior year, while GBS client enterprises increased by 4.7% at June 30, 2022 when compared to the prior year.

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 Increase

(Decrease) Percentage

(Decrease) Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 Increase

(Decrease) Percentage

Financial Measurements:

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Gross contribution (1) $ 73,526 $ 42,602 $ 30,924 73 % $ 70,650 $ 56,498 $ 14,152 25 %

Gross contribution margin (28) % 56 % (84) points —

Gross contribution margin 65 % 73 % (8) points — 57 % 68 % (11) points —

Business Measurements:

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Single day, local meetings are excluded.

We held 5 virtual conferences during each of the three months ended March 31, 2022 and 2021.

We expect to continue to deliver some conferences virtually during the remainder of the year, but are planning to re-launch in-person destination conferences beginning in the second quarter of 2022 and expect to hold in-person destination conferences in future periods as conditions permit.

Conferences revenues decreased by $14.4 million during the three months ended March 31, 2022 compared to the same period in 2021.

The decrease in revenues was primarily due to the use of ticket entitlements during the three months ended March 31, 2021 which we extended from 2020 due to the pandemic.

Gross contribution decreased to a loss of $2.9 million during the three months ended March 31, 2022 compared to $13.9 million in income in the same period last year.

As Of And For The Three Months Ended March 31, 2022 As Of And For The Three Months Ended March 31, 2021 Increase

Conferences revenues increased by $55.3 million during the three months ended June 30, 2022 compared to the same period in 2021.

Conferences revenues increased by $40.9 million during the six months ended June 30, 2022 compared to the same period in 2021.

The increase in revenues for the three and six months ended June 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 also expect to continue to deliver some conferences virtually during the remainder of the year.

We held 6 in-person destination conferences during the three months ended June 30, 2022.

We held 8 and 13 virtual conferences during each of the three months ended June 30, 2022 and 2021, respectively.

Gross contribution increased to $73.5 million during the three months ended June 30, 2022 compared to $42.6 million in the same period last year.

Gross contribution increased to $70.7 million during the six months ended June 30, 2022 compared to $56.5 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.

As Of And For The Three Months Ended June 30, 2022 As Of And For The Three Months Ended June 30, 2021 Increase

(Decrease) Percentage

(Decrease) As Of And For The Six Months Ended June 30, 2022 As Of And For The Six Months Ended June 30, 2021 Increase

(Decrease) Percentage

Financial Measurements:

1 unchanged sentence

Gross contribution (1) $ 50,223 $ 42,770 $ 7,453 17 % $ 101,235 $ 81,868 $ 19,367 24 %

Gross contribution margin 44 % 39 % 5 points —

Gross contribution margin 42 % 40 % 2 points — 43 % 40 % 3 points —

Business Measurements:

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Billable headcount 799 740 59 8 %

Consultant utilization 72 % 68 % 4 points —

Consultant utilization 71 % 70 % 1 point — 72 % 69 % 3 points —

(1) Dollars in thousands.

(2) Backlog is on a foreign exchange neutral basis.

Backlog as of March 31, 2021 has been calculated using the same foreign currency rates as 2022.

Backlog as of June 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 17% during the three months ended March 31, 2022 compared to the same period in 2021 on a reported basis and 20% excluding the foreign currency impact, with a revenue increase in labor-based consulting of 14% and an increase in contract optimization of 29%, each on a reported basis.

Contract optimization revenue may vary significantly and, as such, revenues for the first quarter of 2022 may not be indicative of results for the remainder of 2022 or beyond.

The segment gross contribution margin was 44% and 39% for the three months ended March 31, 2022 and 2021, respectively.

The increase in gross contribution margin during the first quarter of 2022 was primarily due to the increase in revenue.

Backlog increased by $34.1 million, or 30%, from March 31, 2021 to March 31, 2022 on a foreign currency neutral basis.

The change in our method of calculating backlog noted above contributed approximately seven percentage points to the backlog growth rate.

Consulting revenues increased by 14% during the three months ended June 30, 2022 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 11% and an increase in contract optimization revenue of 28%, each on a reported basis.

Contract optimization revenue may vary significantly and, as such, revenues for the second quarter of 2022 may not be indicative of results for the remainder of 2022 or beyond.

The segment gross contribution margin was 42% and 40% for the three months ended June 30, 2022 and 2021, respectively.

The increase in gross contribution margin during the second quarter of 2022 was primarily due to the increase in revenue.

For the six months ended June 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 13% and an increase in contract optimization revenue of 28%, each on a reported basis.

The segment gross contribution margin for the six months ended June 30, 2022 increased by 3 points compared to the same period in 2021.

The increase in gross contribution margin for the six months ended June 30, 2022 was also primarily due to the increase in revenue.

Backlog increased by $47.4 million, or 45%, from June 30, 2021 to June 30, 2022 excluding the foreign currency impact.

The change in our method of calculating backlog noted above contributed approximately 12 percentage points to the backlog growth rate.

LIQUIDITY AND CAPITAL RESOURCES

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Note 8 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations.

At March 31, 2022, we had $456.2 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.

At June 30, 2022, we had $360.5 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, has resulted in continuously strong operating cash flow.

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 56% held overseas at March 31, 2022.

Our cash and cash equivalents are held in numerous locations throughout the world with 82% held outside the U.S.

at June 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.

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The table below summarizes the changes in the Company’s cash balances for the periods indicated (in thousands).

Three Months Ended March 31, 2022 Three Months Ended March 31, 2021 Increase

Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 Increase

Cash provided by operating activities $ 583,392 $ 732,645 $ (149,253)

1 unchanged sentence

Cash used in financing activities (920,548) (590,237) (330,311)

Net decrease in cash and cash equivalents and restricted cash (294,960) (258,443) (36,517)

Net (decrease) increase in cash and cash equivalents and restricted cash (375,541) 95,155 (470,696)

Effects of exchange rates (20,479) (7,281) (13,198)

1 unchanged sentence

Ending cash and cash equivalents and restricted cash $ 364,582 $ 800,457 $ (435,875)

Cash provided by operating activities was $167.8 million and $157.3 million during the three months ended March 31, 2022 and 2021, respectively.

The year-over-year increase was primarily due to an increase in deferred revenues resulting from increased bookings in Research, partially offset by higher commission and interest payments.

Cash used in investing activities was $17.3 million and $12.5 million during the three months ended March 31, 2022 and 2021, respectively.

The cash used in both periods was for capital expenditures.

The increase from 2021 to 2022 was the result of an increase in capitalized software additions.

Cash used in financing activities was $445.5 million and $403.2 million during the three months ended March 31, 2022 and 2021, respectively.

During the 2022 period, we paid a net $1.3 million in debt principal repayments and used $451.1 million of cash for share repurchases.

During the 2021 period, we repaid a net $5.0 million on our revolving credit facility under the 2020 Credit Agreement, paid a net $5.1 million in debt principal repayments and used $398.5 million of cash for share repurchases.

As of March 31, 2022, the Company had $2.5 billion of principal amount of debt outstanding, of which $4.6 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.

Cash provided by operating activities was $583.4 million and $732.6 million during the six months ended June 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.

Cash used in investing activities was $38.4 million and $47.3 million during the six months ended June 30, 2022 and 2021, respectively.

The decrease from 2021 to 2022 was the result of the 2021 acquisition of Pulse Q&A Inc., partially offset by increased capital expenditures due primarily to higher capitalized software additions.

Cash used in financing activities was $920.5 million and $590.2 million during the six months ended June 30, 2022 and 2021, respectively.

During the 2022 period, we used $929.9 million of cash for share repurchases and paid a net $2.7 million in debt principal repayments.

During the 2021 period, we used $1,083.4 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 $5.3 million in debt principal repayments, exclusive of the $100.0 million term loan repayment.

As of June 30, 2022, the Company had $2.5 billion of principal amount of debt outstanding, of which $3.3 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.

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OFF BALANCE SHEET ARRANGEMENTS

From January 1, 2022 through March 31, 2022, the Company has not entered into any material off-balance sheet arrangements or transactions with unconsolidated entities or other persons.

From January 1, 2022 through June 30, 2022, the Company has not entered into any material off-balance sheet arrangements or transactions with unconsolidated entities or other persons.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis