What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2022-11-01 · 102 added, 160 removed, 178 unchanged (60% of the section changed)

16 unchanged sentences

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;

the impact of global economic and geopolitical conditions, including inflation, recession and the COVID-19 pandemic;

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

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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;

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

our ability to meet ESG commitments;

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.

A description of the risk factors associated with our business is included under “Risk Factors” in Item 1A.

and other risks and uncertainties.

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 2022 Form 10-K, which is incorporated herein by reference.

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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.

We deliver our products and services globally through three business segments – Research, Conferences and Consulting, as described below.

• Research equips executives and their teams from every function and across all industries with actionable, objective insight, guidance and tools.

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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

As of March 31, 2023 we had approximately 19,830 employees globally, an increase of 15.1% from March 31, 2022.

Recent 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.

In 2022, we exited our business in Russia.

Russia has not composed a material portion of our consolidated revenues, net income, net assets or workforce.

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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.

We do not expect it will have a material impact on our future U.S.

tax expense, cash taxes and effective tax rate.

We also do not expect it to have a material impact on the amount of potential future share repurchases.

In February 2023, we completed the sale of a non-core business, TalentNeuron, for approximately $164.2 million and realized $158.7 million in cash from the sale, which was net of certain closing expenses.

The sale is subject to certain post-closing adjustments.

TalentNeuron was included in our Research segment.

The Company recorded a pre-tax gain of $139.3 million on the sale of TalentNeuron, which is included in Gain from sale of divested operation in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2023.

BUSINESS MEASUREMENTS

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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.

We had total revenues of $1.4 billion during the first quarter of 2023, an increase of 12% compared to the first quarter of 2022.

During the first quarter of 2023, revenues for Research increased by 7%, Conferences revenue increased by 524%, and Consulting revenues increased by 10%, compared to the first quarter of 2022.

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 the first quarter of 2023 and 2022, we had net income of $295.8 million and $172.5 million, respectively, and diluted income per share of $3.68 and $2.08, respectively.

Cash provided by operating activities was $164.7 million and $167.8 million during the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, we had $893.5 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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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

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

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

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Increase (Decrease) Increase

Total revenues $ 1,408,869 $ 1,262,740 $ 146,129 12 %

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Acquisition and integration charges 1,368 2,207 (839) (38)

Gain from sale of divested operation

(139,316) — (139,316) nm

Operating income 407,957 217,247 190,710 88

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Gain on event cancellation insurance claims 3,077 — 3,077 nm

Other income, net 46,684 12,019 34,665 288

Other (expense) income, net (2,366) 29,206 (31,572) nm

Provision for income taxes 85,494 42,544 42,950 101

1 unchanged sentence

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.

Total revenues for the three months ended March 31, 2023 were $1.4 billion, an increase of $146.1 million, or 12% compared to the same period in 2022 on a reported basis and 14% 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.

Cost of services and product development was $435.1 million during the three months ended March 31, 2023, an increase of $58.1 million compared to the same period in 2022, or 15% on a reported basis and 17% 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.

Cost of services and product development as a percent of revenues was 31% and 30% for the three months ended March 31, 2023 and 2022, respectively.

Selling, general and administrative (“SG&A”) expense was $657.1 million during the three months ended March 31, 2023, an increase of $39.2 million compared to the same period in 2022, or 6% on a reported basis and 9% excluding the foreign currency impact.

The increase in SG&A expense during the three months ended March 31, 2023 was primarily as a result of higher personnel expenses due to increased headcount.

This increase was partially offset by lower charges associated with the impairment of right-of-use assets and other long-lived assets of $8.7 million, compared to $23.9 million in the prior year.

The number of quota-bearing sales associates in Global Technology Sales increased by 22% to 3,666 and in Global Business Sales, adjusted for the sale of our TalentNeuron business, increased by 18% to 1,141 compared to March 31, 2022.

On a combined basis, the total number of quota-bearing sales associates increased by 21% when compared to March 31, 2022.

SG&A expense as a percent of revenues was 47% and 49% during the three months ended March 31, 2023 and 2022, respectively.

Depreciation increased by 3% during the three months ended March 31, 2023, compared to the same period in 2022.

The increase for the three months ended March 31, 2023 was primarily due to increased computer equipment and software additions

in 2022, partially offset by a reduction in leasehold improvements depreciation as a result of the impairment losses recorded during calendar year 2022.

Amortization of intangibles decreased by 10% during the three months ended March 31, 2023 compared to the same period in 2022 primarily due to intangible assets divested as part of the sale of our TalentNeuron business.

Acquisition and integration charges decreased by $0.8 million during the three months ended March 31, 2023, compared to the same period in 2022.

Gain from sale of divested operation of $139.3 million was attributable to the sale of our TalentNeuron business in February 2023.

Operating income was $408.0 million and $217.2 million during the three months ended March 31, 2023 and 2022, respectively.

The increase in operating income for the three months ended March 31, 2023 as compared to the prior year period was primarily due to the gain from sale of divested operation, as well as 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 $4.0 million during the three months ended March 31, 2023, compared to the same period in 2022, resulting from increased interest income and lower interest expense due to the maturation of $700.0 million in fixed-for-floating interest rate swap contracts in March 2022, partially offset by higher interest rate on our term loan.

Gain on event cancellation insurance claims of $3.1 million during the three months ended March 31, 2023 reflected proceeds related to 2020 conference cancellation insurance claims.

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

Other (expense) income, net for the three months ended March 31, 2023 and March 31, 2022 also included losses (gains) of $1.4 million and $(29.9) million, respectively, on de-designated interest rate swaps.

The provision for income taxes was $85.5 million and $42.5 million for the three months ended March 31, 2023 and 2022, respectively.

The effective income tax rate was 22.4% and 19.8% for the three months ended March 31, 2023 and 2022, respectively.

The year-over-year increase in the effective income tax rate was primarily due to the sale of our TalentNeuron business.

Net income for the three months ended March 31, 2023 and 2022 was $295.8 million and $172.5 million, respectively.

Our diluted net income per share during the three months ended March 31, 2023 increased by $1.60 compared to the same period in 2022.

The increase i n net income during the three months ended March 31, 2023 was primarily the result of the gain from sale of divested operations, as well as increased revenue, partially offset by increased operating expenses, a lower gain from de-designated interest rate swaps and higher income tax expense .

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.

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Research, Conferences and 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

(Decrease) As Of And For The Nine Months Ended September 30, 2022 As Of And For The Nine Months Ended September 30, 2021 Increase

As Of And For The Three Months Ended March 31, 2023 As Of And For The Three Months Ended March 31, 2022 Increase

(Decrease) Percentage

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Gross contribution (1) $ 899,514 $ 849,379 $ 50,135 6 %

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

Gross contribution margin 74 % 75 % (1) point —

Business Measurements :

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Client retention 89 % 87 % 2 points —

Wallet retention 114 % 113 % 1 point —

Wallet retention 110 % 115 % (5) points —

(1) Dollars in thousands.

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(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 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 $4.5 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.

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

(Decrease) Percentage

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

Contract values as of March 31, 2022 have been calculated using the same foreign currency rates as 2023.

(4) Contract value as of March 31, 2022 excludes the TalentNeuron business sold in February 2023.

Research revenues i ncreased by $80.8 million during the three months ended March 31, 2023 compared to the same period in 2022, or 7% on a reported basis and 9% excluding the foreign currency impact.

The segment gross contribution margin was 74% and 75% for the three months ended March 31, 2023 and 2022 , respectively.

The increase in revenues during 2023 was primarily due to strong Research contract value growth in 2022.

Contract value increased to $4.5 billion at March 31, 2023, or 10% compared to March 31, 2022 excluding the foreign currency impact.

Global Technology Sales (“GTS”) contract value increased by 9% at March 31, 2023 when compared to March 31, 2022.

The increase in GTS contract value was primarily due to new business from new and existing clients.

GTS contract value increased by at least high single-digits for all enterprise sizes and all sectors but Healthcare and Tech and Telecom.

Global Business Sales (“GBS”) contract value increased by 16% year-over-year, also primarily driven by new business from new and existing clients.

The majority of our GBS practices achieved double-digit growth rates, with all enterprise sizes and nearly all sectors growing double-digits year-over-year.

GTS client retention was 85% and 86% as of March 31, 2023 and 2022, respectively, while wallet retention was 104% and 107%, respectively.

GBS client retention was 89% and 87% as of March 31, 2023 and 2022, respectively, while wallet retention was 110% and 115%, respectively.

The decrease in GTS and GBS wallet retention was largely due to lower levels of incremental spending by existing clients.

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Increase

(Decrease) Percentage

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Revenues (1) $ 64,642 $ 10,354 $ 54,288 524 %

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 —

Gross contribution (1) $ 26,788 $ (2,876) $ 29,664 nm

Gross contribution margin 41 % (28) % 69 points —

Business Measurements:

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Number of destination conferences attendees (2) 11,125 3,904 7,221 185 %

nm = not meaningful.

(1) Dollars in thousands.

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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.

Conferences revenues increased by $54.3 million during the three months ended March 31, 2023 compared to the same period in 2022.

The increase in revenues for the three months ended March 31, 2023 was primarily due to the return to in-person destination conferences, beginning in the second quarter of 2022.

We held 10 in-person destination conferences during the three months ended March 31, 2023, compared to 5 virtual conferences during the three months ended March 31, 2022.

Gross contribution increased to $26.8 million during the three months ended March 31, 2023 compared to negative $2.9 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 September 30, 2022 As Of And For The Three Months Ended September 30, 2021 Increase

(Decrease) Percentage

(Decrease) As Of And For The Nine Months Ended September 30, 2022 As Of And For The Nine Months Ended September 30, 2021 Increase

As Of And For The Three Months Ended March 31, 2023 As Of And For The Three Months Ended March 31, 2022 Increase

(Decrease) Percentage

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Gross contribution (1) $ 50,808 $ 51,012 $ (204) — %

Gross contribution margin 35 % 33 % 2 points — 40 % 38 % 2 points —

Gross contribution margin 40 % 44 % (4) points —

Business Measurements:

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Billable headcount 904 780 124 16 %

Consultant utilization 66 % 62 % 4 points — 70 % 67 % 3 points —

Consultant utilization 67 % 72 % (5) 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.

Backlog as of March 31, 2022 has been calculated using the same foreign currency rates as 2023.

Consulting revenues increased by 10% during the three months ended March 31, 2023 compared to the same period in 2022 on a reported basis and 14% excluding the foreign currency impact, with an increase in labor-based consulting revenue of 1% and an increase in contract optimization revenue of 53%, each on a reported basis.

Contract optimization revenue may vary significantly and, as such, revenues for the first quarter of 2023 may not be indicative of results for the remainder of 2023 or beyond.

The segment gross contribution margin was 40% and 44% for the three months ended March 31, 2023 and 2022, respectively.

The decrease in gross contribution margin during the first quarter of 2023 was primarily due to increased personnel expense related to higher headcount.

Backlog increased by $19.8 million, or 14%, from March 31, 2022 to March 31, 2023 excluding the foreign currency impact.

LIQUIDITY AND CAPITAL RESOURCES

We finance our operations through cash generated from our operating activities and borrowings.

We finance our operations through cash generated from our operating activities and, to a lesser extent, 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.

At March 31, 2023, we had $893.5 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.

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Our cash and cash equivalents are held in numerous locations throughout the world with 47% 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.

at March 31, 2023.

We intend to reinvest substantially all of its accumulated undistributed foreign earnings, except in instances where repatriation would result in minimal additional tax.

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

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Increase

Cash provided by operating activities $ 164,679 $ 167,785 $ (3,106)

Cash used in investing activities (74,570) (61,700) (12,870)

Cash provided by (used in) investing activities 137,611 (17,293) 154,904

Cash used in financing activities (101,292) (445,452) 344,160

Net (decrease) increase in cash and cash equivalents and restricted cash (189,687) 71,798 (261,485)

Net increase (decrease) in cash and cash equivalents and restricted cash 200,998 (294,960) 495,958

Effects of exchange rates (5,485) (5,358) (127)

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Ending cash and cash equivalents and restricted cash $ 894,112 $ 460,284 $ 433,828

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 $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.

Cash provided by operating activities was $164.7 million and $167.8 million during the three months ended March 31, 2023 and 2022, respectively.

The year-over-year decrease was primarily due to lower contribution from deferred revenue growth partially offset by increased operating income.

Cash provided by (used in) investing activities was $137.6 million and $(17.3) million during the three months ended March 31, 2023 and 2022, respectively.

The increase from 2022 to 2023 was the result of the proceeds received from the sale of our TalentNeuron business in February 2023, partially offset by increased capital expenditures primarily due to higher capitalized software and computer equipment additions.

Cash used in financing activities was $101.3 million and $445.5 million during the three months ended March 31, 2023 and 2022, respectively.

During the 2023 period, we used $106.9 million of cash for share repurchases and paid a net $1.8 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.

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.

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

As of March 31, 2023, the Company had $2.5 billion of principal amount of debt outstanding, of which $6.0 million is to be repaid in the remainder of fiscal year 2023.

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 September 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, 2023 through March 31, 2023, 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