What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-02 · 103 added, 101 removed, 235 unchanged (46% of the section changed)

14 unchanged sentences

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 the COVID-19 pandemic and related disruptions on our business and on the global economy;

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;

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, as well as the timing of our return to in-person conferences and meetings and willingness of participants to attend;

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;

8 unchanged sentences

additional risks associated with international operations, including foreign currency fluctuations;

the impact on our business of the war in Ukraine and current and future sanctions imposed by governments or other authorities;

the U.K.’s exit from the European Union and its impact on our results;

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;

1 unchanged sentence

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;

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;

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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

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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 are no longer necessary for our operations.

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

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.

As of the date of this filing, we do not believe our hybrid virtual-first working arrangement has affected our internal controls over financial reporting.

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 continue to be negatively impacted.

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.

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.

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.

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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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 $1.4 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.

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 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 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.

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

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

Total revenues $ 1,331,868 $ 1,156,282 $ 175,586 15 %

7 unchanged sentences

Interest expense, net (30,286) (31,599) (1,313) (4)

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

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

Other income, net 8,930 211 8,719 nm

Provision for income taxes 58,517 49,968 8,549 17

Net income $ 173,545 $ 148,865 $ 24,680 17 %

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

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Increase (Decrease) Increase

Total revenues $ 3,971,129 $ 3,427,639 $ 543,490 16 %

12 unchanged sentences

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.

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 $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 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.

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 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.

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.

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

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Research, Conferences and Consulting.

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

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

(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) 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

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Client retention 89 % 86 % 3 points —

Wallet retention 115 % 110 % 5 points —

Wallet retention 114 % 113 % 1 point —

(1) Dollars in thousands.

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

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.

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

Research revenues i ncreased 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 $4.3 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.

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.

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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 growing more than 20% year-over-year.

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 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

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.

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

(Decrease) Percentage

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

(Decrease) Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Increase

(Decrease) Percentage

9 unchanged sentences

Single day, local meetings are excluded.

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.

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 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.

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.

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

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

(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) 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

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Billable headcount 852 749 103 14 %

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

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 June 30, 2021 has been calculated using the same foreign currency rates as 2022.

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 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.

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.

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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 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.

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.

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Our cash and cash equivalents are held in numerous locations throughout the world with 83% held outside the U.S.

at June 30, 2022.

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.

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

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

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Increase

Cash provided by operating activities $ 898,313 $ 1,077,684 $ (179,371)

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Ending cash and cash equivalents and restricted cash $ 528,687 $ 769,730 $ (241,043)

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

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.

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.

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.

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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.

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.

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.

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OFF BALANCE SHEET ARRANGEMENTS

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.

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.

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