Gartner(IT) - 2022 Q4 - Annual Report

Part I Item 1. Business Gartner provides objective research and advisory services to over 15,000 enterprises globally through its Research, Conferences, and Consulting segments - Gartner delivers actionable, objective insight to over 15,000 enterprises in approximately 90 countries and territories[9] - The company operates through three business segments: Research, Conferences, and Consulting[10] - The Research segment provides subscription-based services with access to published content and a network of approximately 2,500 research experts, who had over 460,000 direct client interactions in 2022[17] - The Conferences segment held 25 in-person and 16 virtual conferences in 2022, with over 60,000 attendees[20] - As of December 31, 2022, Gartner had approximately 19,500 employees globally, with about 47% identifying as female worldwide and 24% of U.S. employees identifying as racially or ethnically diverse[23][27] - Gartner has committed to achieving net-zero greenhouse gas emissions by 2035 in accordance with the Science Based Target initiative's (SBTi) Net-Zero Standard[34] Item 1A. Risk Factors The company faces strategic, operational, macroeconomic, industry, legal, and regulatory risks, including subscription dependence, external conference factors, talent retention, and cybersecurity - Strategic and Operational Risks: The company's success depends on maintaining high-quality products, developing new offerings, and retaining clients, with the Research business, constituting about 76% of 2022 revenues, relying heavily on subscription renewals[40][41][45] - Conferences Risk: The Conferences business is subject to external factors like public health crises, which led to cancellations and a shift to virtual events, with future cancellation insurance for communicable diseases excluded[48][52] - Human Capital Risk: The company faces intense competition for qualified professionals and risks related to labor shortages and wage inflation, with the hybrid work environment potentially impacting company culture and productivity[56][58] - Cybersecurity and Privacy Risk: Gartner is exposed to cybersecurity threats and must comply with evolving data privacy laws like GDPR and CCPA, where a breach could lead to reputational harm, customer loss, and financial penalties[61][62][63] - Macroeconomic and Industry Risks: Global economic conditions, including inflation, rising interest rates, and potential recession, could negatively affect demand for Gartner's services, and the company faces intense competition from various information providers[81][83] - Legal and Regulatory Risks: The company must comply with complex U.S. and foreign laws, including anti-bribery regulations, and is subject to risks from litigation and changes in global tax laws, such as the OECD's Pillar Two proposal for a global minimum tax[89][91][92] Item 2. Properties Gartner leases approximately 85 global office properties, including its Stamford headquarters, and believes its current real estate footprint is sufficient due to a hybrid work model - The Company does not own any real property and leases approximately 20 domestic and 65 international office properties for its operations[98] - The corporate office is in Stamford, Connecticut, with the lease expiring in 2027, and other important locations include Arlington, VA, Fort Myers, FL, and international offices in the UK, India, and Spain[98][99] - In early 2022, Gartner adopted a hybrid virtual-first work environment, leading management to believe the current real estate footprint is adequate for future needs[100] Item 3. Legal Proceedings Gartner is involved in ordinary course legal proceedings, with management believing potential liabilities will not materially affect financial results - The company is involved in legal proceedings arising in the ordinary course of business[101] - Management believes that the potential liability from these proceedings will not have a material effect on the company's financial position, cash flows, or results of operations[101] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Gartner's common stock trades on the NYSE under 'IT', with the company actively repurchasing shares, including $1.0 billion authorized in 2022 - Gartner's common stock is listed on the NYSE under the symbol 'IT', with 969 holders of record as of February 3, 2023[104] - The Board of Directors authorized incremental share repurchases of up to $1.0 billion in 2022 and an additional $400 million on February 2, 2023[106] Share Repurchases in Q4 2022 | Period | Total Number of Shares Purchased () | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | October 1, 2022 to October 31, 2022 | 24,587 | $ 279.60 | | November 1, 2022 to November 30, 2022 | 9,392 | 320.65 | | December 1, 2022 to December 31, 2022 | 4,189 | 344.30 | | Total for the quarter | 38,168 | $ 296.80 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Gartner's total revenues grew 16% to $5.5 billion, driven by strong performance across all segments, supported by robust liquidity and share repurchases 2022 Financial Highlights vs. 2021 | Metric | 2022 | 2021 | % Change (Reported) | | :--- | :--- | :--- | :--- | | Total Revenues | $5.5 billion | $4.7 billion | 16% | | Net Income | $807.8 million | $793.6 million | 2% | | Diluted EPS | $9.96 | $9.21 | 8% | | Cash from Operations | $1.1 billion | $1.3 billion | (16)% | - In November 2022, Gartner entered an agreement to sell its TalentNeuron business, with the sale completed on February 2, 2023, for approximately $164.0 million[120][121] - The company repurchased 3.8 million shares of common stock for an aggregate price of approximately $1.0 billion during 2022[128] Results of Operations Total revenues increased 16% to $5.5 billion in 2022, driving a 20% rise in operating income to $1.1 billion, despite higher costs Consolidated Results of Operations (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $ 5,475,846 | $ 4,733,962 | 16 % | | Operating income | $ 1,100,106 | $ 915,751 | 20 % | | Net income | $ 807,799 | $ 793,560 | 2 % | - Cost of services and product development increased 17% to $1.7 billion, primarily due to higher compensation costs from increased headcount and the return to in-person conferences[142] - Selling, general and administrative (SG&A) expense increased 15% to $2.5 billion, mainly due to higher personnel and commission costs, partially offset by reduced facilities expense from real estate footprint reduction[143] - The 2021 net income included a $152.3 million gain on event cancellation insurance claims, which was not present in 2022[149] Segment Results All three segments showed strong revenue growth in 2022, with Research up 12%, Conferences surging 82% due to in-person events, and Consulting increasing 15% Segment Revenue Performance 2022 vs 2021 (in thousands) | Segment | 2022 Revenue | 2021 Revenue | % Increase | | :--- | :--- | :--- | :--- | | Research | $ 4,604,791 | $ 4,101,392 | 12 % | | Conferences | $ 389,273 | $ 214,449 | 82 % | | Consulting | $ 481,782 | $ 418,121 | 15 % | | Total | $ 5,475,846 | $ 4,733,962 | 16 % | Research The Research segment's revenue grew 12% to $4.6 billion, maintaining a 74% gross margin, driven by strong contract value growth and high client retention Research Segment Financials (in thousands) | Financial Measurement | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $ 4,604,791 | $ 4,101,392 | 12 % | | Gross contribution | $ 3,414,574 | $ 3,036,925 | 12 % | | Gross contribution margin | 74 % | 74 % | 0 pts | Research Segment Business Metrics (Contract Value in thousands) | Business Measurement | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Global Technology Sales (GTS) | | | | | Contract value (FX neutral) | $ 3,632,200 | $ 3,300,600 | +10% | | Client retention | 86 % | 86 % | 0 pts | | Wallet retention | 105 % | 106 % | (1) pt | | Global Business Sales (GBS) | | | | | Contract value (FX neutral) | $ 1,028,200 | $ 864,600 | +19% | | Client retention | 89 % | 87 % | +2 pts | | Wallet retention | 112 % | 115 % | (3) pts | Conferences The Conferences segment's revenue surged 82% to $389.3 million due to the return of in-person events, though gross margin decreased to 54% Conferences Segment Financials (in thousands) | Financial Measurement | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $ 389,273 | $ 214,449 | 82 % | | Gross contribution | $ 210,726 | $ 133,748 | 58 % | | Gross contribution margin | 54 % | 62 % | (8) pts | Conferences Segment Business Metrics | Business Measurement | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Number of destination conferences | 41 | 39 | 5 % | | Number of destination conferences attendees | 60,104 | 57,145 | 5 % | - The increase in revenue was primarily due to the return to in-person destination conferences in 2022, with the company holding 25 in-person and 16 virtual conferences in 2022, compared to 39 all-virtual conferences in 2021[163] Consulting The Consulting segment's revenue grew 15% to $481.8 million, with improved gross margin and strong backlog growth, driven by labor-based and contract optimization services Consulting Segment Financials (in thousands) | Financial Measurement | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $ 481,782 | $ 418,121 | 15 % | | Gross contribution | $ 189,834 | $ 158,843 | 20 % | | Gross contribution margin | 39 % | 38 % | +1 pt | Consulting Segment Business Metrics (Backlog in thousands) | Business Measurement | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Backlog (FX neutral) | $ 139,700 | $ 113,000 | +24% | | Average billable headcount | 827 | 749 | +10% | | Consultant utilization | 70 % | 68 % | +2 pts | - Revenue growth was driven by a 13% increase in labor-based consulting and a 25% increase in contract optimization[166] Liquidity and Capital Resources Gartner maintained strong liquidity with $698.0 million cash and $1.0 billion credit availability, using $1.0 billion for share repurchases, with total debt at $2.5 billion Summary of Cash Flows (in thousands) | | 2022 | 2021 | | :--- | :--- | :--- | | Cash provided by operating activities | $ 1,101,422 | $ 1,312,470 | | Cash used in investing activities | $ (117,558) | $ (80,467) | | Cash used in financing activities | $ (1,027,442) | $ (1,157,609) | - As of December 31, 2022, the company had $698.0 million in cash and cash equivalents and approximately $1.0 billion of available borrowing capacity on its revolving credit facility[168] - The decrease in operating cash flow from 2021 was primarily due to $166.9 million of insurance proceeds received in 2021 related to 2020 event cancellation claims[173] - Cash used in financing activities in 2022 was primarily for $1.0 billion in share repurchases[175] Future Contractual Cash Commitments (in thousands) | Commitment Description | Total | | :--- | :--- | | Debt – principal, interest, and commitment fees | $ 3,136,934 | | Operating leases | $ 914,459 | | Deferred compensation arrangements | $ 96,641 | | Other | $ 266,240 | | Totals | $ 4,414,274 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk Gartner manages market risks from interest rates, foreign currency, and credit through swaps, forward contracts, and a diverse customer base - Interest Rate Risk: As of Dec 31, 2022, approximately $282.0 million of the company's debt was variable-rate, with this risk mitigated through interest rate swap contracts that effectively convert floating rates to fixed rates[183][184] - Foreign Currency Risk: A significant portion of revenue is derived from outside the U.S., where a hypothetical 10% adverse change in foreign exchange rates against the U.S. dollar would have decreased reported cash and cash equivalents by approximately $42.9 million at year-end 2022[185][186] - Credit Risk: The company has limited concentration of credit risk due to a diverse customer base and the use of large, investment-grade commercial banks for its cash, investments, and derivative contracts[188] Item 8. Financial Statements and Supplementary Data This section presents Gartner's audited consolidated financial statements for 2020-2022, including balance sheets, income statements, and cash flow statements, along with KPMG's report Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $ 2,786,107 | $ 2,620,080 | | Total Assets | $ 7,299,736 | $ 7,416,324 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $ 3,597,600 | $ 3,378,780 | | Total Liabilities | $ 7,071,938 | $ 7,045,266 | | Total Stockholders' Equity | $ 227,798 | $ 371,058 | | Total Liabilities and Stockholders' Equity | $ 7,299,736 | $ 7,416,324 | Consolidated Statement of Operations Data (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total revenues | $ 5,475,846 | $ 4,733,962 | $ 4,099,403 | | Operating income | $ 1,100,106 | $ 915,751 | $ 490,150 | | Net income | $ 807,799 | $ 793,560 | $ 266,745 | | Diluted EPS | $ 9.96 | $ 9.21 | $ 2.96 | Consolidated Statement of Cash Flows Data (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Cash provided by operating activities | $ 1,101,422 | $ 1,312,470 | $ 903,278 | | Cash used in investing activities | $ (117,558) | $ (80,467) | $ (83,888) | | Cash used in financing activities | $ (1,027,442) | $ (1,157,609) | $ (416,224) | Item 9A. Controls and Procedures Management and independent auditors concluded Gartner's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[193] - Based on an assessment using the COSO framework, management concluded that Gartner's internal control over financial reporting was effective as of December 31, 2022[196] - KPMG LLP, the independent auditor, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[196][213] - There were no changes in internal control over financial reporting during the quarter ended December 31, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal control[197] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Required information for this item is incorporated by reference from the Company's 2023 Proxy Statement, specifically under the captions 'The Board of Directors,' 'Proposal One: Election of Directors,' 'Executive Officers,' and 'Corporate Governance'[200] Item 11. Executive Compensation Executive and director compensation details are incorporated by reference from the 2023 Proxy Statement - Required information for this item is incorporated by reference from the Company's 2023 Proxy Statement, specifically under captions such as 'Compensation Discussion & Analysis' and 'Compensation Tables and Narrative Disclosures'[201] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and equity compensation plan information is incorporated by reference from the 2023 Proxy Statement - Required information for this item is incorporated by reference from the Company's 2023 Proxy Statement, under the captions 'Equity Compensation Plan Information' and 'Security Ownership of Certain Beneficial Owners and Management'[202] Item 13. Certain Relationships and Related Transactions and Director Independence Related person transactions and director independence information is incorporated by reference from the 2023 Proxy Statement - Required information for this item is incorporated by reference from the Company's 2023 Proxy Statement, under the captions 'Transactions With Related Persons' and 'Corporate Governance — Director Independence'[203] Item 14. Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2023 Proxy Statement - Required information for this item is incorporated by reference from the Company's 2023 Proxy Statement, under the caption 'Proposal Five: Ratification of Appointment of Independent Registered Public Accounting Firm'[204] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits, including auditor reports, corporate documents, and compensation plans, filed with the Form 10-K - This section includes the financial statements and the reports of the independent registered public accounting firm, KPMG LLP[205] - The exhibit list includes key agreements such as the Amended and Restated Credit Agreement dated September 28, 2020, and indentures for Senior Notes due in 2028, 2029, and 2030[206] - Various management compensation plans are filed as exhibits, including the 2011 Employee Stock Purchase Plan, the Long-Term Incentive Plan, and forms of stock appreciation right and performance stock unit agreements for executive officers[206] - Certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed with the document[207]