Gartner(IT) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (Unaudited) This section presents Gartner's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, with key financial highlights for the period ended September 30, 2023 Condensed Consolidated Balance Sheets Gartner's balance sheet as of September 30, 2023, reflects a slight decrease in total assets, a significant increase in cash, and a substantial rise in stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,249,355 | $697,999 | | Goodwill | $2,933,266 | $2,930,211 | | Total Assets | $7,244,404 | $7,299,736 | | Liabilities & Equity | | | | Deferred revenues | $2,394,556 | $2,443,762 | | Long-term debt, net | $2,449,913 | $2,453,607 | | Total Liabilities | $6,677,766 | $7,071,938 | | Total Stockholders' Equity | $566,638 | $227,798 | Condensed Consolidated Statements of Operations Gartner's Q3 2023 revenues increased 6% to $1.41 billion, while nine-month revenues grew 9% to $4.32 billion, with net income significantly boosted by a divestiture gain Q3 2023 vs Q3 2022 Performance (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $1,408,784 | $1,331,868 | 5.8% | | Operating Income | $244,417 | $253,418 | -3.6% | | Net Income | $180,009 | $173,545 | 3.7% | | Diluted EPS | $2.26 | $2.17 | 4.1% | Nine Months 2023 vs 2022 Performance (in thousands, except per share data) | Metric | Nine Months 2023 | Nine Months 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $4,320,838 | $3,971,129 | 8.8% | | Operating Income | $935,481 | $767,787 | 21.8% | | Net Income | $673,835 | $550,985 | 22.3% | | Diluted EPS | $8.44 | $6.77 | 24.7% | - A pre-tax gain of $135.4 million from the sale of a divested operation significantly boosted operating and net income for the nine months ended September 30, 2023[9] Condensed Consolidated Statements of Cash Flows Cash provided by operating activities increased to $931.4 million for the nine months ended September 30, 2023, with investing activities providing cash primarily from a divestiture, while financing activities focused on share repurchases Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Operating Activities | $931,407 | $898,313 | | Investing Activities | $77,112 | ($74,570) | | Proceeds from sale of divested operation | $156,057 | $— | | Financing Activities | ($434,024) | ($1,013,430) | | Purchases of treasury stock | ($447,739) | ($1,026,414) | | Net Change in Cash | $574,495 | ($189,687) | Notes to Condensed Consolidated Financial Statements Detailed notes disclose the $161.1 million divestiture of TalentNeuron, the company's $2.48 billion debt, $447.7 million in share repurchases, and a reduced effective tax rate for Q3 2023 - In February 2023, the company completed the sale of its non-core business, TalentNeuron, for approximately $161.1 million, recognizing a pre-tax gain of $135.4 million[32] - Total outstanding debt principal was $2.48 billion as of September 30, 2023, composed of a term loan facility and several series of senior notes[65] - The company repurchased 1.4 million shares for $447.7 million in the nine months ended September 30, 2023. As of this date, $610.8 million remained available under the share repurchase program[82][84] - The effective income tax rate for Q3 2023 was 19.8%, a decrease from 25.2% in Q3 2022, primarily due to a favorable foreign tax credit notice and the expiration of statutes for uncertain tax positions[92] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses Q3 2023 financial performance, highlighting 6% revenue growth driven by Research and Consulting segments, a decline in operating income due to higher costs, and a strong liquidity position Consolidated Results Q3 2023 consolidated revenues increased 6% to $1.4 billion, but operating income declined 4% due to higher costs, while nine-month operating income rose 22% aided by a divestiture gain Q3 2023 vs Q3 2022 Consolidated Results (in thousands) | Line Item | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $1,408,784 | $1,331,868 | 6% | | Cost of services | $450,841 | $416,837 | 8% | | SG&A | $660,527 | $613,031 | 8% | | Operating income | $244,417 | $253,418 | -4% | - The increase in Cost of Services and SG&A expenses was primarily driven by increased compensation costs resulting from higher headcount[142][143] Segment Results Research segment revenues grew 6% with 8% contract value growth, Conferences revenue declined 26% due to event timing, and Consulting revenue surged 24% driven by contract optimization Q3 2023 Revenue by Segment (in thousands) | Segment | Q3 2023 Revenue | Q3 2022 Revenue | % Change | | :--- | :--- | :--- | :--- | | Research | $1,218,739 | $1,147,823 | 6% | | Conferences | $57,200 | $77,031 | -26% | | Consulting | $132,845 | $107,014 | 24% | - Research contract value grew to $4.7 billion at September 30, 2023, an 8% increase year-over-year on an FX-neutral basis[160] - The decrease in Conferences revenue for Q3 was due to holding fewer in-person destination conferences than in Q3 2022, as several events were held earlier in 2023[164] - Consulting revenue growth was significantly boosted by a 98% increase in contract optimization revenue[168] Liquidity and Capital Resources Gartner maintains a strong liquidity position with $1.2 billion in cash and $1.0 billion available credit, supported by $931.4 million in operating cash flow, with share repurchases as a primary cash use - As of September 30, 2023, the company had $1.2 billion in cash and cash equivalents and approximately $1.0 billion of available borrowing capacity[172] - Cash provided by operating activities increased to $931.4 million for the nine months ended September 30, 2023, up from $898.3 million in the prior year[177] - During the first nine months of 2023, the company used $447.7 million of cash for share repurchases[179] QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company manages market risks including interest rate, foreign currency, and credit risk, with interest rate swaps and forward contracts mitigating exposure, and limited credit risk due to a diverse customer base - Interest rate risk on variable-rate debt is managed through an interest rate swap contract that effectively converts floating rates to fixed rates[184] - The company is exposed to foreign currency translation risk. A 10% change in foreign exchange rates against the U.S. dollar could have increased or decreased reported cash and cash equivalents by approximately $77.1 million as of September 30, 2023[186] - Foreign currency transaction risk is partially mitigated through the use of foreign currency forward exchange contracts[187] CONTROLS AND PROCEDURES As of September 30, 2023, the company's disclosure controls and procedures were deemed effective by management, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[191] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[192] PART II. OTHER INFORMATION LEGAL PROCEEDINGS The company is involved in ordinary course legal proceedings, which are not expected to materially impact its financial position, cash flows, or results of operations - The company does not expect ongoing legal proceedings to have a material impact on its financial condition or results[193] RISK FACTORS No material changes to the company's risk factors were reported for the period, consistent with disclosures in the prior Annual Report on Form 10-K - No material changes to the company's risk factors were reported for the period[194] UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During Q3 2023, Gartner repurchased 648,616 shares at an average price of $341.11, with $610.8 million remaining for future repurchases and an additional $500 million authorized post-quarter end Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2023 | 28,977 | $347.83 | | August 2023 | 449,932 | $337.73 | | September 2023 | 169,707 | $348.93 | | Total for Quarter | 648,616 | $341.11 | - On October 31, 2023, the Board of Directors authorized an incremental $500.0 million for the company's share repurchase program[196] EXHIBITS This section lists exhibits filed with the Form 10-Q, including corporate governance documents and required CEO/CFO certifications - The exhibits filed with this report include required CEO/CFO certifications under Sarbanes-Oxley and interactive data files in Inline XBRL format[204]