# Gartner Inc: Form 10-Q for the period ended Mar 31, 2021

- Company: [Gartner Inc](/companies/it.md) (CIK 749251)
- Form: 10-Q
- Filed: 2021-05-04
- Accepted by EDGAR: May 4, 2021, 10:07 ET
- Period: 2021-03-31
- Accession: 0000749251-21-000016
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/749251/000074925121000016/it-20210331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/749251/000074925121000016/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-01-01 to 2021-03-31 | $1.10bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-01-01 to 2021-03-31 | $334.5m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2021-01-01 to 2021-03-31 | $487.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-01-01 to 2021-03-31 | $225.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-01-01 to 2021-03-31 | $26.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-01-01 to 2021-03-31 | $50.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-01-01 to 2021-03-31 | $164.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-01-01 to 2021-03-31 | $1.84 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-01-01 to 2021-03-31 | $1.86 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-01-01 to 2021-03-31 | 89,139,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2021-01-01 to 2021-03-31 | $157.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 3 months, 2021-01-01 to 2021-03-31 | $398.4m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2021-03-31 | $446.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-03-31 | $2.00bn | us-gaap:AssetsCurrent |
| Total assets | at 2021-03-31 | $6.94bn | us-gaap:Assets |
| Current liabilities | at 2021-03-31 | $2.81bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-03-31 | $6.05bn | us-gaap:Liabilities |
| Long-term debt | at 2021-03-31 | $1.95bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2021-03-31 | $20.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2021-03-31 | $891.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,994 characters.

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to facilitate an understanding of significant factors influencing the quarterly operating results, financial condition and cash flows of Gartner, Inc. Additionally, the MD&A conveys our expectations of the potential impact of known trends, events or uncertainties that may impact future results. You should read this discussion in conjunction with our Condensed Consolidated Financial Statements and related notes included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). Historical results and percentage relationships are not necessarily indicative of operating results for future periods. References to “Gartner,” the “Company,” “we,” “our” and “us” in this MD&A are to Gartner, Inc. and its consolidated subsidiaries.

### FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are any statements other than statements of historical fact, including statements regarding our expectations, beliefs, hopes, intentions, projections or strategies regarding the future. In some cases, forward-looking statements can be identified by the use of words such as “may,” “will,” “expect,” “should,” “could,” “believe,” “plan,” “anticipate,” “estimate,” “predict,” “potential,” “continue” or other words of similar meaning.

We operate in a very competitive and rapidly changing environment that involves numerous known and unknown risks and uncertainties, some of which are beyond our control. Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future quarterly and annual revenues, operating income, results of operations and cash flows, as well as any forward-looking statement, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following: uncertainty of the magnitude, duration, geographic reach and impact on the global economy of the COVID-19 pandemic; the current, and uncertain future, impact of the COVID-19 pandemic and governments’ responses to it on our business, growth, reputation, projections, prospects, financial condition, operations, cash flows, and liquidity; the adequacy or effectiveness of steps we take to respond to the crisis, including cost reduction or other mitigation programs; 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; our ability to achieve and effectively manage growth, including our ability to integrate our acquisitions and consummate and integrate future acquisitions; our ability to pay our debt obligations; our ability to maintain and expand our products and services; our ability to expand or retain our customer base; our ability to grow or sustain revenue from individual customers; our ability to attract and retain a professional staff of research analysts and consultants as well as experienced sales personnel upon whom we are dependent; 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; our ability to enforce and protect our intellectual property rights; additional risks associated with international operations, including foreign currency fluctuations; the UK’s exit from the European Union and its impact on our results; the impact of restructuring and other charges on our businesses and operations; cybersecurity incidents; general economic conditions; changes in macroeconomic and market conditions and market volatility (including developments and volatility arising from the COVID-19 pandemic), 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 expected discontinuance of LIBOR and transition to any other interest rate benchmark; changes to laws and regulations; and other risks and uncertainties detailed in this Form 10-Q, our most recent Form 10-K and other filings we make with the SEC. The potential fluctuations in our operating income could cause period-to-period comparisons of operating results not to be meaningful and could provide an unreliable indication of future operating results. A description of the risk factors associated with our business is included under “Risk Factors” in Item 1A. of the 2020 Form 10-K, which is incorporated herein by reference.

Forward-looking statements are subject to risks, estimates and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements, and are currently, or in the future could be, amplified by the COVID-19 pandemic. Factors that might cause such a difference include, but are not limited to, those listed above or described under “Risk Factors” in Item 1A of the 2020 Form 10-K. Readers should not place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date on which they were made. Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.

### BUSINESS OVERVIEW

Gartner, Inc. (NYSE: IT) is the world’s leading research and advisory company and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their mission–critical priorities today and build the successful organizations of tomorrow. We believe our unmatched combination of expert-led, practitioner-sourced and data-driven research steers clients toward the right decisions on the issues that matter most. We are a trusted advisor and an objective resource for more than 14,000 enterprises in more than 100 countries — across all major functions, in every industry and enterprise size.

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

- ***Research*** provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of an enterprise through reports, briefings, proprietary tools, access to our research experts, peer networking services and membership programs that enable our clients to drive organizational performance.
- ***Conferences*** provides business professionals across an organization the opportunity to learn, share and network. From our Gartner Symposium/Xpo series, to industry-leading conferences focused on specific business roles and topics, to peer-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice.
- ***Consulting*** combines the power of Gartner market-leading research with custom analysis and on-the-ground support to help chief information officers and other senior executives driving technology-related strategic initiatives move confidently from insight to action.

### COVID-19 Impact

The coronavirus disease (“COVID-19”) pandemic has affected nearly every region in the world and has created significant uncertainties and disruption in the global economy. Gartner is closely monitoring the pandemic-related developments, and our highest priority is the health and safety of our associates, clients, vendors, partners, and other stakeholders. We are working closely with our clients to provide best in class COVID-19 related research to assist them in achieving their mission critical priorities.

As a result of the COVID-19 pandemic, we have temporarily closed Gartner offices (including our corporate headquarters) in the United States, United Kingdom, India, and several other impacted locations around the world and implemented significant travel restrictions. Although we have plans to reopen most offices in the fall of 2021, reopening is subject to many factors outside of our control. As a result, we cannot predict for certain when or how we will begin to lift the actions put in place as part of our business continuity plans, including work from home protocols and travel restrictions. As of the date of this filing, we do not believe our work from home protocol has affected our internal controls over financial reporting.

We have seen negative impacts to all of our segments with Conferences being the most impacted. We cancelled all in-person conferences after the World Health Organization’s declaration of the COVID-19 pandemic in March 2020, and began holding virtual conferences during the second half of 2020. We held five virtual conferences during Q1 2021 and plan on holding an additional 18 virtual conferences through August 2021. These virtual conferences are expected to result in significantly less revenue and gross contribution than if they had been in-person, but we believe they aid in client retention and engagement. The safety of our associates and clients remains our top priority so future in-person conferences will be held only when we determine the relevant impacts of COVID-19 have sufficiently receded in the jurisdictions where our conferences are to be held. Operationally, we are planning to resume in-person conferences starting in September 2021.

As of March 31, 2021, we had approximately $15 million recorded in Prepaid expenses and other current assets on the balance sheet related to cancelled conferences. We expect to recover the majority of these and potential termination costs for future conferences through either force majeure clauses in our vendor contracts, other arrangements with vendors or event cancellation insurance claims. For cancelled conferences, our event cancellation insurance enables us to receive an amount up to the lost contribution margin per conference plus incurred expenses. 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 and to include in reinstated limits conferences cancelled due to COVID-19. We are in litigation with the insurer on these issues. The timing of receiving the proceeds from these insurance claims is uncertain so we will not record any insurance claims in excess of expenses incurred until the receipt of the insurance proceeds.

Our Research segment has continued to experience a slowdown as contract value (CV) growth was 5.8% in the first quarter of 2021 compared to 10.5% in the first quarter of 2020 on a foreign currency neutral basis. CV growth slowed late in the first quarter of 2020 as the global virus response led to lower new business growth and lower retention rates. CV growth improved in the first quarter of 2021, compared to the second half of 2020. Since our revenue and CV have been historically stable and predictable as a result of our subscription-based business model, we only experienced a modest decrease in Research revenue growth in 2020 and the first quarter of 2021 compared to that in 2019. Slower CV growth in 2020 and the first quarter of 2021 however will likely lead to slower research revenue growth in 2021. Nonetheless, we believe that our emphasis on providing insight to enterprise leaders and their teams across every major business function will continue to drive client engagement and satisfaction with our Research products.

Our Consulting segment was only moderately impacted by the COVID-19 pandemic as many engagements are being performed by associates working remotely. Labor based consulting weakened late in the first quarter of 2020 due to the pandemic. This weakness continued in the remainder of 2020. Labor based consulting revenue improved in the first quarter of 2021 to pre-pandemic levels.

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 we expect these investments to increase in 2021 and future periods.

### BUSINESS MEASUREMENTS

We believe that the following business measurements are important performance indicators for our business segments:

| BUSINESS SEGMENT | BUSINESS MEASUREMENT |
| --- | --- |
| Research | Total contract value represents the value attributable to all of our subscription-related contracts. It is calculated as the annualized value of all contracts in effect at a specific point in time, without regard to the duration of the contract. Total contract value primarily includes Research deliverables for which revenue is recognized on a ratable basis, as well as other deliverables (primarily Conferences tickets) for which revenue is recognized when the deliverable is utilized. Comparing contract value year-over-year not only measures the short-term growth of our business, but also signals the long-term health of our Research subscription business since it measures revenue that is highly likely to recur over a multi-year period. Our total contract value consists of Global Technology Sales contract value, which includes sales to users and providers of technology, and Global Business Sales contract value, which includes sales to all other functional leaders. |
|  | Client retention rate represents a measure of client satisfaction and renewed business relationships at a specific point in time. Client retention is calculated on a percentage basis by dividing our current clients, who were also clients a year ago, by all clients from a year ago. Client retention is calculated at an enterprise level, which represents a single company or customer. |
|  | Wallet retention rate represents a measure of the amount of contract value we have retained with clients over a twelve-month period. Wallet retention is calculated on a percentage basis by dividing the contract value of our current clients, who were also clients a year ago, by the total contract value from a year ago, excluding the impact of foreign currency exchange. When wallet retention exceeds client retention, it is an indication of retention of higher-spending clients, or increased spending by retained clients, or both. Wallet retention is calculated at an enterprise level, which represents a single company or customer. |
| Conferences | Number of destination conferences represents the total number of hosted virtual or in-person conferences completed during the period. Single day, local meetings are excluded. |
|  | Number of destination conferences attendees represents the total number of people who attend virtual or in-person conferences. Single day, local meetings are excluded. |
| Consulting | Consulting backlog represents future revenue to be derived from in-process consulting and measurement engagements. |
|  | Utilization rate represents a measure of productivity of our consultants. Utilization rates are calculated for billable headcount on a percentage basis by dividing total hours billed by total hours available to bill. |
|  | Billing rate represents earned billable revenue divided by total billable hours. |
|  | Average annualized revenue per billable headcount represents a measure of the revenue generating ability of an average billable consultant and is calculated periodically by multiplying the average billing rate per hour times the utilization percentage times the billable hours available for one year. |

26

### EXECUTIVE SUMMARY OF OPERATIONS AND FINANCIAL POSITION

The fundamentals of our strategy include a focus on creating extraordinary research insight, 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 $1.1 billion during the first quarter of 2021, an increase of 8% compared to the first quarter of 2020. During the first quarter of 2021 revenues for Research increased by 8% year-over-year, while Conferences and Consulting revenues increased by 79% and 4%, respectively. For a more complete discussion of our results by segment, see Segment Results below.

For the first quarter of 2021 and 2020, we had net income of $164.1 million and $75.1 million, respectively, and diluted income per share of $1.84 and $0.83, respectively. Cash provided by operating activities was $157.3 million and $55.7 million during the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had $446.0 million of cash and cash equivalents and approximately $1.0 billion of available borrowing capacity on our revolving credit facility. For a more complete discussion of our cash flows and financial position, see the Liquidity and Capital Resources section below.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For information regarding our critical accounting policies and estimates, please refer to Part II, Item 7, “Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. There have been no material changes to the critical accounting policies previously disclosed in that report.

### RECENTLY ISSUED ACCOUNTING STANDARDS

The FASB has issued accounting standards that have not yet become effective and that may impact the Company’s consolidated financial statements or its disclosures in future periods. Note 1 — Business and Basis of Presentation in the Notes to Condensed Consolidated Financial Statements provides information regarding those accounting standards.

### RESULTS OF OPERATIONS

### Consolidated Results

In addition to GAAP results, we provide foreign currency neutral dollar amounts and percentages for our revenues, certain expenses, contract values and other metrics. These foreign currency neutral dollar amounts and percentages eliminate the effects of exchange rate fluctuations and thus provide a more accurate and meaningful trend in the underlying data being measured. We calculate foreign currency neutral dollar amounts by converting the underlying amounts in local currency for different periods into U.S. dollars by applying the same foreign exchange rates to all periods presented.

The table below presents an analysis of selected line items and period-over-period changes in our interim Condensed Consolidated Statements of Operations for the periods indicated (in thousands).

|  | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Increase (Decrease) | Increase (Decrease) % |
| --- | ---: | ---: | ---: | ---: |
| Total revenues | $1,104,038 | $1,018,891 | $85,147 | 8% |
| Costs and expenses: |  |  |  |  |
| Cost of services and product development | 334,467 | 341,278 | (6,811) | (2) |
| Selling, general and administrative | 487,255 | 496,639 | (9,384) | (2) |
| Depreciation | 25,750 | 22,517 | 3,233 | 14 |
| Amortization of intangibles | 30,514 | 32,179 | (1,665) | (5) |
| Acquisition and integration charges | 640 | 1,560 | (920) | (59) |
| Operating income | 225,412 | 124,718 | 100,694 | 81 |
| Interest expense, net | (26,149) | (26,349) | (200) | (1) |
| Other income (expense), net | 15,490 | (1,515) | 17,005 | nm |
| Less: Provision for income taxes | 50,653 | 21,757 | 28,896 | 133 |
| Net income | $164,100 | $75,097 | $89,003 | 119% |
| nm = not meaningful |  |  |  |  |

Total revenues for the three months ended March 31, 2021 were $1.1 billion, an increase of $85.1 million, or 8% compared to the same period in 2020 on a reported basis and 6% 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 $334.5 million during the three months ended March 31, 2021, a decrease of $6.8 million compared to the same period in 2020, or 2% on a reported basis and 4% excluding the foreign currency impact. The decrease in Cost of services and product development was primarily due to lower travel and entertainment costs during the quarter as well as the continuation of various cost avoidance initiatives. Cost of services and product development as a percent of revenues was 30% and 33% during the three months ended March 31, 2021 and 2020, respectively.

Selling, general and administrative (“SG&A”) expense was $487.3 million during the three months ended March 31, 2021, a decrease of $9.4 million compared to the same period in 2020, or 2% on a reported basis and 4% excluding the foreign currency impact. The decrease in SG&A expense was primarily due to reduced conferences related expenses, facilities costs and travel and entertainment costs as well as the continuation of various cost avoidance initiatives, partially offset by the restoration of some compensation and benefits programs for the three months ended March 31, 2021. The number of quota-bearing sales associates in Global Technology Sales decreased 6% to 2,992 and in Global Business Sales increased by 1% to 867 compared to March 31, 2020. On a combined basis, the total number of quota-bearing sales associates decreased by 5% when compared to March 31, 2020. SG&A expense as a percent of revenues was 44% and 49% during the three months ended March 31, 2021 and 2020, respectively.

Depreciation increased by 14% during the three months ended March 31, 2021, compared to the same period in 2020. The increase for the three months ended March 31, 2021 was due to additional investments, including new leasehold improvements as additional office space went into service, and capitalized software.

Amortization of intangibles decreased by 5% during the three months ended March 31, 2021, compared to the same period in 2020 due to certain intangible assets that became fully amortized in 2020.

Acquisition and integration charges decreased by $0.9 million during the three months ended March 31, 2021, compared to the same period in 2020.

Operating income was $225.4 million and $124.7 million during the three months ended March 31, 2021 and 2020, respectively. The increase in operating income was due to increased revenue, in addition to reduced Costs of services and product development and SG&A expenses.

Interest expense, net decreased by $0.2 million during the three months ended March 31, 2021, compared to the same period in 2020. The decrease was primarily due to a reduction in outstanding debt, partially offset by higher weighted average annual effective rates, as a result of interest expense on our de-designated swaps.

Other income (expense), net for the periods presented herein included the net impact of foreign currency gains and losses from our hedging activities. During 2021, Other (expense) income, net also included a $15.8 million gain on de-designated interest rate swaps.

The provision for income taxes for the three months ended March 31, 2021 and 2020 was an expense of $50.7 million and $21.8 million, respectively. The effective income tax rate was an expense of 23.6% and 22.5% for the three months ended March 31, 2021 and 2020, respectively. The quarter-over-quarter increase in the effective income tax rate was primarily due to the shifts in estimated geographical mix of earnings as well as the relative impact of tax benefits from stock-based compensation.

Net income for the three months ended March 31, 2021 and 2020 was $164.1 million and $75.1 million, respectively. Our diluted net income per share during the three months ended March 31, 2021 increased by $1.01 compared to the same period in 2020. The increase in net income during the three months ended March 31, 2021 was primarily the result of increased revenues, reduced operating expenses and the gain from de-designated interest rate swaps, partially offset by an increase in 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.

#### Reportable Segments

The Company’s reportable segments are as follows:

- ***Research*** provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of an enterprise through reports, briefings, proprietary tools, access to our research experts, peer networking services and membership programs that enable our clients to drive organizational performance.
- ***Conferences*** provides business professionals across an organization the opportunity to learn, share and network. From our Gartner Symposium/Xpo series, to industry-leading conferences focused on specific business roles and topics, to peer-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice.
- ***Consulting*** combines the power of Gartner market-leading research with custom analysis and on-the-ground support to help chief information officers and other senior executives driving technology-related strategic initiatives move confidently from insight to action.

The sections below present the results of the Company’s three reportable business segments.

#### Research

| Financial Measurements: | As Of And For The Three Months Ended March 31, 2021 | As Of And For The Three Months Ended March 31, 2020 | Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | --- | ---: |
| Revenues (1) | $979,732 | $909,291 | $70,441 | 8% |
| Gross contribution (1) | $724,372 | $653,469 | $70,903 | 11% |
| Gross contribution margin | 74% | 72% | 2 points | — |
| Business Measurements: |  |  |  |  |
| Global Technology Sales (2): |  |  |  |  |
| Contract value (1), (3) | $2,991,000 | $2,862,000 | $129,000 | 5% |
| Client retention | 83% | 82% | 1 point | — |
| Wallet retention | 98% | 104% | (6) points | — |
| Global Business Sales (2): |  |  |  |  |
| Contract value (1), (3) | $731,000 | $655,000 | $76,000 | 12% |
| Client retention | 84% | 83% | 1 point | — |
| Wallet retention | 105% | 101% | 4 points | — |

(1) Dollars in thousands.

(2) Global Technology Sales includes sales to users and providers of technology. Global Business Sales includes sales to all other functional leaders.

(3) Contract values are on a foreign exchange neutral basis. Contract values as of March 31, 2020 have been calculated using the same foreign currency rates as 2021.

Research revenues increased by $70.4 million during the three months ended March 31, 2021 compared to the same period in 2020, or 8% on a reported basis and 5% excluding the foreign currency impact. The segment gross contribution margin was 74% and 72% during the three months ended March 31, 2021 and 2020, respectively. The increase in revenues during 2021 was primarily due to the same factors driving the trend in our Research contract value, which are discussed below. The improvement in margin of 2 points for the three months ended March 31, 2021 compared to prior year was primarily due to the growth in revenue and a decline in travel and entertainment expenses due to COVID-19 travel restrictions.

Total contract value increased to $3.7 billion at March 31, 2021, or 6% compared to March 31, 2020 on a foreign currency neutral basis. Global Technology Sales (“GTS”) contract value increased by 5% at March 31, 2021 when compared to March 31, 2020. The increase in GTS contract value was primarily due to new business from new and existing clients. Global Business Sales (“GBS”) contract value increased by 12% year-over-year, also primarily driven by new business from new and existing clients.

GTS client retention was 83% and 82% as of March 31, 2021 and 2020, respectively, while wallet retention was 98% and 104%, respectively. The decrease in GTS wallet retention was primarily due to decreased spending by enterprises that were clients a year ago. GBS client retention was 84% and 83% as of March 31, 2021 and 2020, respectively, while wallet retention was 105% and 101%, respectively. The increase in GBS wallet retention was largely due to increased spending by existing clients. The number of GTS client enterprises increased by 3% when compared to prior year, while GBS client enterprises declined by 6% at March 31, 2021 when compared to March 31, 2020.

#### Conferences

| Financial Measurements: | As Of And For The Three Months Ended March 31, 2021 | As Of And For The Three Months Ended March 31, 2020 | Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Revenues (1) | $24,802 | $13,870 | $10,932 | 79% |
| Gross contribution (1) | $13,896 | $(6,060) | $19,956 | nm |
| Gross contribution margin | 56% | (44)% | nm | — |
| **Business Measurements:** |  |  |  |  |
| Number of destination conferences (2) | 5 | 5 | — | —% |
| Number of destination conferences attendees (2) | 5,382 | 3,364 | 2,018 | 60% |

nm = not meaningful

(1) Dollars in thousands.

(2) Includes both virtual and in-person conferences. Single day, local meetings are excluded.

In response to the COVID-19 pandemic, we cancelled all in-person conferences from March 2020 through at least August 2021, and pivoted to producing virtual conferences with a focus on maximizing the value we deliver to our clients. We held five virtual conferences during the three months ended March 31, 2021, and plan on holding 18 virtual conferences through August 2021. Operationally, we are planning to resume in-person conferences starting in September 2021. We began holding virtual Evanta conferences during the second quarter of 2020. Conferences revenues increased by $10.9 million during the three months ended March 31, 2021 compared to the same period in 2020, or 79% on a reported basis and 68% excluding the foreign currency impact. The increase in revenues was primarily due to the use of ticket entitlements which we extended from 2020 due to the pandemic. Gross contribution increased to $13.9 million during the three months ended March 31, 2021 compared to a loss of $6.1 million in the same period last year.

#### Consulting

| Financial Measurements: | As Of And For The Three Months Ended March 31, 2021 | As Of And For The Three Months Ended March 31, 2020 | Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Revenues (1) | $99,504 | $95,730 | $3,774 | 4% |
| Gross contribution (1) | $39,098 | $29,382 | $9,716 | 33% |
| Gross contribution margin | 39% | 31% | 8 points | — |
| **Business Measurements:** |  |  |  |  |
| Backlog (1), (2) | $116,500 | $113,100 | $3,400 | 3% |
| Billable headcount | 744 | 808 | (64) | (8)% |
| Consultant utilization | 68% | 62% | 6 points | — |
| Average annualized revenue per billable headcount (1) | $387 | $367 | $20 | 5% |

(1) Dollars in thousands.

(2) Backlog is on a foreign exchange neutral basis. Backlog as of March 31, 2020 has been calculated using the same foreign currency rates as 2021.

Consulting revenues increased 4% during the three months ended March 31, 2021 compared to the same period in 2020 on a reported basis and were flat excluding the foreign currency impact, with a revenue increase in labor-based consulting of 4%, and an increase in contract optimization of 6%, each on a reported basis. Contract optimization revenue may vary significantly and, as such, revenues for the first quarter of 2021 may not be indicative of results for the remainder of 2021 or beyond. The segment gross contribution margin was 39% and 31% for the three months ended March 31, 2021 and 2020, respectively. The increase in gross contribution margin during the first quarter of 2021 was primarily due to the increase in revenue, as well as benefits derived from certain cost-reduction initiatives implemented in 2020, including a decline in travel and entertainment expenses due to COVID-19 travel restrictions. Consultant utilization increased by 6 points during the three months ended March 31, 2021 compared to the same period in 2020 due to a reduction in billable headcount.

Backlog increased by $3.4 million, or 3%, from March 31, 2020 to March 31, 2021 on a foreign currency neutral basis. The $116.5 million of backlog at March 31, 2021 represented approximately four months of backlog, which is in line with the Company’s operational target.

### LIQUIDITY AND CAPITAL RESOURCES

We finance our operations through cash generated from our operating activities and borrowings. Note 7 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations. At March 31, 2021, we had $446.0 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 at least the next twelve months.

We have historically generated significant cash flows from our operating activities. Our operating cash flow has been continuously maintained by the leverage characteristics 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. 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 73% held overseas at March 31, 2021. We intend to reinvest substantially all of our accumulated undistributed foreign earnings, except in instances where repatriation would result in minimal additional tax. As a result of the U.S. Tax Cuts and Jobs Act of 2017, we believe that the income tax impact if such earnings were repatriated would be minimal.

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

|  | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Cash provided by operating activities | $157,298 | $55,749 | $101,549 |
| Cash used in investing activities | (12,521) | (24,536) | 12,015 |
| Cash used in financing activities | (403,220) | (68,490) | (334,730) |
| Net decrease in cash and cash equivalents | (258,443) | (37,277) | (221,166) |
| Effects of exchange rates | (8,145) | (15,709) | 7,564 |
| Beginning cash and cash equivalents | 712,583 | 280,836 | 431,747 |
| Ending cash and cash equivalents | $445,995 | $227,850 | $218,145 |

#### Operating

Cash provided by operating activities was $157.3 million and $55.7 million during the three months ended March 31, 2021 and 2020, respectively. The year-over-year increase was primarily due to higher pre-tax income in the 2021 period and an increase in deferred revenues resulting from increased bookings in Research, partially offset by higher bonus payments made in 2021 related to 2020.

#### Investing

Cash used in investing activities was $12.5 million and $24.5 million during the three months ended March 31, 2021 and 2020, respectively. The cash used in both periods was for capital expenditures. The decrease from 2020 to 2021 was the result of reduced capital spending in response to the COVID-19 pandemic.

#### Financing

Cash used in financing activities was $403.2 million and $68.5 million during the three months ended March 31, 2021 and 2020, respectively. 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. During the 2020 period, the Company borrowed a net $27.0 million on our then existing revolving credit facility, paid a net $28.0 million in debt principal repayments and paid $73.2 million for share repurchases.

#### Debt

As of March 31, 2021, the Company had $2.0 billion of principal amount of debt outstanding, of which $15.4 million is to be repaid in the remainder of fiscal year 2021. Note 7 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations. From time to time, the Company may seek to retire or repurchase its outstanding debt through various methods including open market repurchases, negotiated block transactions, or otherwise, all or some of which may be effected through Rule 10b5-1 plans. Such transactions, if any, depend on prevailing market conditions, our liquidity and capital requirements, contractual restrictions, and other factors, and may involve material amounts.

### OFF BALANCE SHEET ARRANGEMENTS

From January 1, 2021 through March 31, 2021, the Company has not entered into any material off-balance sheet arrangements or transactions with unconsolidated entities or other persons.

## Market risk

As filed, 3,837 characters.

### INTEREST RATE RISK

As of March 31, 2021, the Company had $2.0 billion in total debt principal outstanding. Note 7 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations.

Approximately $0.4 billion of the Company’s total debt outstanding as of March 31, 2021 was based on a floating base rate of interest, which potentially exposes the Company to increases in interest rates. However, we reduce our overall exposure to interest rate increases through our interest rate swap contracts, which effectively convert the floating base interest rates on all of our variable rate borrowings to fixed rates.

### FOREIGN CURRENCY RISK

A significant portion of our revenues are typically derived from sales outside of the United States. Among the major foreign currencies in which we conduct business are the Euro, the British Pound, the Japanese Yen, the Australian dollar and the Canadian dollar. The reporting currency of our Condensed Consolidated Financial Statements is the U.S. dollar. As the values of the foreign currencies in which we operate fluctuate over time relative to the U.S. dollar, the Company is exposed to both foreign currency translation and transaction risk.

Translation risk arises as our foreign currency assets and liabilities are translated into U.S. dollars because the functional currencies of our foreign operations are generally denominated in the local currency. Adjustments resulting from the translation of these assets and liabilities are deferred and recorded as a component of stockholders’ equity. A measure of the potential impact of foreign currency translation can be determined through a sensitivity analysis of our cash and cash equivalents. At March 31, 2021, we had $446.0 million of cash and cash equivalents, with a substantial portion denominated in foreign currencies. If the exchange rates of the foreign currencies we hold all changed in comparison to the U.S. dollar by 10%, the amount of cash and cash equivalents we would have reported on March 31, 2021 could have increased or decreased by approximately $38.7 million. The translation of our foreign currency revenues and expenses historically has not had a material impact on our consolidated earnings because movements in and among the major currencies in which we operate tend to impact our revenues and expenses fairly equally. However, our earnings could be impacted during periods of significant exchange rate volatility, or when some or all of the major currencies in which we operate move in the same direction against the U.S. dollar.

Transaction risk arises when we enter into a transaction that is denominated in a currency that may differ from the local functional currency. As these transactions are translated into the local functional currency, a gain or loss may result, which is recorded in current period earnings. We typically enter into foreign currency forward exchange contracts to mitigate the effects of some of this foreign currency transaction risk. Our outstanding foreign currency forward exchange contracts as of March 31, 2021 had an immaterial net unrealized loss.

### CREDIT RISK

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of short-term, highly liquid investments classified as cash equivalents, fees receivable, interest rate swap contracts and foreign currency forward exchange contracts. The majority of the Company’s cash and cash equivalents, interest rate swap contracts and foreign currency forward exchange contracts are with large investment grade commercial banks. Fees receivable balances deemed to be collectible from customers have limited concentration of credit risk due to our diverse customer base and geographic dispersion.

## Controls and procedures

As filed, 1,392 characters.

We have established disclosure controls and procedures that are designed to ensure that the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported in a timely manner. Specifically, these controls and procedures ensure that the information is accumulated and communicated to our executive management team, including our chief executive officer and our chief financial officer, to allow timely decisions regarding required disclosure.

Management conducted an evaluation, as of March 31, 2021, of the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision and with the participation of our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material Company information required to be disclosed by us in reports filed under the Exchange Act.

There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 151 characters.

There were no material changes to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.

Filed May 4, 2021.
Source: SEC EDGAR, the filing index for accession 0000749251-21-000016. Last ingested by Listed: Nov 10, 2026, 01:53 ET. No prices; not investment advice.