Gartner(IT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited financials show total assets at $7.36 billion, equity at $586.5 million, and Q2 revenues up 9% to $1.50 billion Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $1,172,828 | $697,999 | +68.0% | | Fees receivable, net | $1,271,792 | $1,556,786 | -18.3% | | Total Assets | $7,355,933 | $7,299,736 | +0.8% | | Liabilities & Equity | | | | | Total Liabilities | $6,769,427 | $7,071,938 | -4.3% | | Total Stockholders' Equity | $586,506 | $227,798 | +157.5% | Condensed Consolidated Statements of Operations Q2 2023 vs Q2 2022 Performance (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $1,503,185 | $1,376,521 | +9.2% | | Operating income | $283,107 | $297,122 | -4.7% | | Net income | $198,043 | $204,925 | -3.4% | | Diluted EPS | $2.48 | $2.53 | -2.0% | Six Months 2023 vs 2022 Performance (in thousands, except per share data) | Metric | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $2,912,054 | $2,639,261 | +10.3% | | Operating income | $691,064 | $514,369 | +34.4% | | Net income | $493,826 | $377,440 | +30.8% | | Diluted EPS | $6.17 | $4.60 | +34.1% | - A pre-tax gain of $135.4 million was recorded in the first six months of 2023 from the sale of a divested operation (TalentNeuron), significantly boosting operating and net income for the period[9][31] Condensed Consolidated Statements of Cash Flows Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Cash provided by operating activities | $600,461 | $583,392 | +2.9% | | Cash provided by (used in) investing activities | $109,363 | $(38,385) | N/A | | Cash used in financing activities | $(228,732) | $(920,548) | -75.2% | - Investing activities were positive in H1 2023 due to $156.1 million in cash proceeds from the sale of the TalentNeuron business[15][31] - Financing activities in H1 2023 included $238.4 million for treasury stock purchases, a significant reduction from the $929.9 million used for repurchases in H1 2022[15][180] Notes to Condensed Consolidated Financial Statements - In February 2023, the company sold its TalentNeuron business for approximately $161.1 million, recognizing a pre-tax gain of $135.4 million[31] - As of June 30, 2023, the company had total outstanding debt principal of $2.48 billion; in May 2023, the interest rate benchmark for the 2020 Credit Agreement was amended from LIBOR to SOFR[65][78] - The company repurchased 751,513 shares for $238.4 million in the first six months of 2023; as of June 30, 2023, $827.9 million remained available under the share repurchase authorization[82][84] - Impairment charges of $10.0 million and $18.7 million were recorded on right-of-use assets and other long-lived assets for the three and six months ended June 30, 2023, respectively, related to office leases the company will no longer use[108][109] Management's Discussion and Analysis (MD&A) Management reports Q2 2023 revenue up 9% to $1.5 billion, driven by strong segment performance, and maintains strong liquidity with $1.2 billion cash Consolidated Results of Operations Q2 2023 vs Q2 2022 Consolidated Results (in thousands) | Line Item | Q2 2023 | Q2 2022 | % Change (Reported) | % Change (FX-Neutral) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $1,503,185 | $1,376,521 | 9% | 10% | | Cost of services | $487,418 | $424,535 | 15% | 15% | | SG&A | $680,168 | $604,911 | 12% | 14% | | Operating income | $283,107 | $297,122 | -5% | N/A | - The increase in Cost of Services and SG&A expenses was primarily driven by higher compensation costs from increased headcount; the number of quota-bearing sales associates increased by 14% year-over-year[144][145] Segment Results Q2 2023 Segment Performance vs Q2 2022 (in thousands) | Segment | Q2 2023 Revenue | Q2 2022 Revenue | % Change | Q2 2023 Gross Contribution | Q2 2022 Gross Contribution | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Research | $1,207,885 | $1,142,329 | +6% | $885,282 | $843,965 | +5% | | Conferences | $168,897 | $113,525 | +49% | $98,450 | $73,526 | +34% | | Consulting | $126,403 | $120,667 | +5% | $47,321 | $50,223 | -6% | - Research: Total contract value grew to $4.6 billion, up 9% year-over-year on an FX-neutral basis; Global Technology Sales (GTS) CV grew 7% and Global Business Sales (GBS) CV grew 15%[162] - Conferences: Revenue growth was driven by the return to in-person destination conferences; the company held 17 in-person conferences in Q2 2023 compared to 6 in-person and 8 virtual conferences in Q2 2022[166] - Consulting: Revenue increased 5% (6% FX-neutral), while gross contribution margin decreased from 42% to 37% due to higher personnel costs; backlog increased 17% FX-neutral to $171.6 million[167][169][171] Liquidity and Capital Resources - As of June 30, 2023, the company had $1.2 billion in cash and cash equivalents and approximately $1.0 billion of available borrowing capacity under its revolving credit facility[173] - Cash from operations for the first six months of 2023 was $600.5 million, a slight increase from $583.4 million in the prior-year period[178] - 50% of cash and cash equivalents were held outside the U.S. as of June 30, 2023[175] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates on $278.6 million floating-rate debt and foreign currency fluctuations, with a 10% adverse change potentially impacting $67.0 million of cash - Interest rate risk on $278.6 million of variable-rate debt is managed through an interest rate swap contract that effectively converts it to a fixed rate[186] - The company is exposed to foreign currency risk, with 50% of its $1.2 billion cash held outside the U.S.; a 10% adverse change in all relevant foreign exchange rates would impact cash by approximately $67.0 million[175][188] - Transaction risk from foreign currency is partially mitigated using foreign currency forward exchange contracts[189] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[193] - No material changes were made to the internal control over financial reporting during the second quarter of 2023[194] PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings, but does not expect any material financial impact on its operations or position - The company states that ongoing legal proceedings are not expected to have a material financial impact[195] Risk Factors No material changes to risk factors were reported from the prior Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors were reported for the quarter[196] Unregistered Sales of Equity Securities and Use of Proceeds The company had no unregistered equity sales, repurchased 423,833 shares for $132.7 million in Q2 2023, with $827.9 million remaining available for future repurchases Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased | Average Price Paid | Total Cost (approx. in millions) | | :--- | :--- | :--- | :--- | | April 2023 | 144,649 | $306.73 | $44.4 | | May 2023 | 234,758 | $311.24 | $73.0 | | June 2023 | 44,426 | $342.18 | $15.2 | | Total Q2 | 423,833 | $312.95 | $132.7 | - In February 2023, the Board authorized an additional $0.4 billion for the share repurchase program; as of quarter-end, $827.9 million was available for future repurchases[198][199] Exhibits This section lists filed exhibits, including CEO/CFO certifications, credit agreement amendments, and the amended Long-Term Incentive Plan - Exhibits filed include an amendment to the credit agreement, the amended Long-Term Incentive Plan, and required CEO/CFO certifications[201]