# GARTNER INC (IT) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GARTNER INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/749251/000074925122000006/it-20211231.htm
Accession: 0000749251-22-000006
Filing date: 2022-02-23
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/IT/
All MD&A years: /company/IT/mda/
Next year: /company/IT/mda/fy2022/ (FY 2022)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to facilitate an understanding of significant factors influencing the 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 consolidated financial statements and related notes included in this Annual Report on 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.

This MD&A provides an analysis of our consolidated financial results, segment results and cash flows for 2021 and 2020 under the headings “Results of Operations,” “Segment Results” and “Liquidity and Capital Resources.” For a similar detailed discussion comparing 2020 and 2019, refer to those headings under Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2020.

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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.

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K 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; 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 U.K.’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. 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 this Annual Report on 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 this Annual Report on 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 Annual Report on Form 10-K 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

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Gartner, Inc. (NYSE: IT) delivers actionable, objective insight to executives and their teams. Our expert guidance and tools enable faster, smarter decisions and stronger performance on an organization’s mission critical priorities.

We are a trusted advisor and an objective resource for more than 15,000 enterprises in approximately 100 countries and territories — across all major functions, in every industry and enterprise size.

Gartner delivers its 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. Our experienced experts deliver all this value informed by a combination of practitioner-sourced and data-driven research to help our clients address their mission critical priorities.

•Conferences provides executives and teams 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 guidance.

•Consulting serves senior executives leading technology-driven strategic initiatives leveraging the power of Gartner’s actionable, objective insight. Through custom analysis and on-the-ground support we enable optimized technology investments and stronger performance on our clients’ mission critical priorities.

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 we have reopened most offices and have plans to reopen substantially all remaining offices in early 2022, health and safety permitting, reopening is subject to many factors outside of our control. The vast majority of our employees transitioned to 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 are 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 related to certain office locations we no longer intend to use. 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. As of the date of this filing, we do not believe our work from home protocol has affected our internal controls over financial reporting.

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 continues to be 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. We held 39 virtual conferences during the year ended December 31, 2021 and expect to continue to deliver conferences virtually during 2022. 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 are operationally planning to re-launch in-person destination conferences when 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 of receiving 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.

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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 accelerated these investments in 2021. We expect these investments to increase in future periods, which may have a negative impact on operating margins.

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BUSINESS MEASUREMENTS

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

[[GREPCENT_TABLE]]
[["BUSINESS SEGMENT","","BUSINESS MEASUREMENT"],["Research","","Total contract value represents the dollar 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."]]
[[/GREPCENT_TABLE]]

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EXECUTIVE SUMMARY OF OPERATIONS AND FINANCIAL POSITION

We have executed a strategy since 2005 to drive revenue and earnings growth. The fundamentals of our strategy include a focus on creating actionable, objective insight 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 $4.7 billion in 2021, an increase of 15% compared to 2020 on a reported basis and 14% excluding the foreign currency impact. Net income increased to $793.6 million in 2021 from $266.7 million in 2020 and, as a result, diluted earnings per share was $9.21 in 2021 compared to $2.96 in 2020.

Research revenues increased to $4.1 billion in 2021, an increase of 14% compared to 2020 on a reported basis and 12.0% excluding the foreign currency impact. The Research gross contribution margin was 74% and 72% in 2021 and 2020, respectively. Total contract value was $4.2 billion at December 31, 2021, an increase of 16% compared to December 31, 2020 on a foreign currency neutral basis.

Conferences revenues increased to $214.4 million in 2021, an increase of 78% compared to 2020 both on a reported basis and excluding the foreign currency impact. The Conferences gross contribution margin was 62% and 48% in 2021 and 2020, respectively. We held 39 virtual conferences in 2021, and 5 in-person and 15 virtual conferences in 2020.

Consulting revenues increased to $418.1 million in 2021, an increase of 11% compared to 2020 on a reported basis and 9% excluding the foreign currency impact. The Consulting gross contribution margin was 38% and 31% in 2021 and 2020, respectively. Backlog was $116.7 million at December 31, 2021.

Cash provided by operating activities was $1.3 billion and $903.3 million during 2021 and 2020, respectively. As of December 31, 2021, we had $756.5 million of cash and cash equivalents and approximately $1.0 billion of available borrowing capacity on our revolving credit facility. During 2021, we repurchased 7.3 million shares of the Company’s common stock for an aggregate purchase price of approximately $1.7 billion.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our consolidated financial statements requires the application of appropriate accounting policies and the use of estimates. Our significant accounting policies are described in Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements. Management considers the policies discussed below to be critical to an understanding of our consolidated financial statements because their application requires complex and subjective management judgments and estimates. Specific risks for these critical accounting policies are also described below.

The preparation of our consolidated financial statements requires us to make estimates and assumptions about future events. We develop our estimates using both current and historical experience, as well as other factors, including the general economic environment and actions we may take in the future. We adjust such estimates when facts and circumstances dictate. However, our estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on our best judgment at a point in time and, as such, they may ultimately differ materially from actual results. Ongoing changes in our estimates could be material and would be reflected in the Company’s consolidated financial statements in future periods.

Our critical accounting policies and estimates are described below.

Revenue recognition — Our revenue by significant source is accounted for as follows:

•Research revenues are mainly derived from subscription contracts for research products. The related revenues are deferred and recognized ratably over the applicable contract term. Fees derived from assisting organizations in selecting the right business software for their needs are recognized when the leads are provided to vendors.

•Conferences revenues are deferred and recognized upon the completion of the related conference or meeting.

•Consulting revenues are principally generated from fixed fee or time and materials engagements. Revenues from fixed fee contracts are recognized as we work to satisfy our performance obligations. Revenues from time and materials engagements are recognized as work is delivered and/or services are provided. Revenues related to contract optimization engagements are contingent in nature and are only recognized upon satisfaction of all conditions related to their payment.

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The majority of our Research contracts are billable upon signing, absent special terms granted on a limited basis from time to time. Research contracts are generally non-cancelable and non-refundable, except for government contracts that may have cancellation or fiscal funding clauses. It is our policy to record the amount of a subscription contract that is billable as a fee receivable at the time the contract is signed with a corresponding amount as deferred revenue because the contract represents a legally enforceable claim.

Note 1 — Business and Significant Accounting Policies and Note 9 — Revenue and Related Matters in the Notes to Consolidated Financial Statements provide additional information regarding our revenues.

Accounting for income taxes — The Company uses the asset and liability method of accounting for income taxes. We estimate our income taxes in each of the jurisdictions where the Company operates. This process involves estimating our current tax expense or benefit together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. When assessing the realizability of deferred tax assets, we consider if it is more likely than not that some or all of the deferred tax assets will not be realized. In making this assessment, we consider the availability of loss carryforwards, projected reversals of deferred tax liabilities, projected future taxable income, and ongoing prudent and feasible tax planning strategies. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained based on the technical merits of the position. Recognized tax positions are measured at the largest amount of benefit with greater than a 50% likelihood of being realized. The Company uses estimates in determining the amount of unrecognized tax benefits associated with uncertain tax positions. Significant judgment is required in evaluating tax law and measuring the benefits likely to be realized. Uncertain tax positions are periodically re-evaluated and adjusted as more information about their ultimate realization becomes available.

Accounting for stock-based compensation — The Company accounts for stock-based compensation awards in accordance with FASB ASC Topics 505 and 718 and SEC Staff Accounting Bulletins No. 107 and No. 110. The Company recognizes stock-based compensation expense, which is based on the fair value of the award on the date of grant, over the related service period. Note 10 — Stock-Based Compensation in the Notes to Consolidated Financial Statements provides additional information regarding stock-based compensation. Determining the appropriate fair value model and calculating the fair value of stock-based compensation awards requires the use of certain subjective assumptions, including the expected life of a stock-based compensation award and the Company’s common stock price volatility. In addition, determining the appropriate periodic stock-based compensation expense requires management to estimate the likelihood of the achievement of certain performance targets. The assumptions used in calculating the fair values of stock-based compensation awards and the related periodic expense represent management’s best estimates, which involve inherent uncertainties and the application of judgment. As a result, if circumstances change and the Company deems it necessary in the future to modify the assumptions it made or to use different assumptions, or if the quantity and nature of the Company’s stock-based compensation awards changes, then the amount of expense may need to be adjusted and future stock-based compensation expense could be materially different from what has been recorded in the current period.

A change in any of the terms or conditions of stock-based compensation awards is accounted for as a modification of the award. Incremental compensation cost is measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are modified, measured based on the fair value of the awards at the modification date. For vested awards, we recognize incremental compensation cost in the period the modification occurs. For unvested awards, we recognize any incremental compensation expense at the modification date or ratably over the requisite remaining service period, as appropriate. If the fair value of the modified award is lower than the fair value of the original award immediately before modification, the minimum compensation cost we recognize is the cost of the original award.

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RESULTS OF OPERATIONS

Consolidated Results

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2021","","Year Ended December 31, 2020","","Increase (Decrease)","","Percentage Increase (Decrease)"],["Total revenues","","$","4,733,962","","","$","4,099,403","","","$","634,559","","","15","%"],["Costs and expenses:"],["Cost of services and product development","","1,444,093","","","1,345,024","","","99,069","","","7"],["Selling, general and administrative","","2,155,658","","","2,038,963","","","116,695","","","6"],["Depreciation","","102,802","","","93,925","","","8,877","","","9"],["Amortization of intangibles","","109,603","","","125,059","","","(15,456)","","","(12)"],["Acquisition and integration charges","","6,055","","","6,282","","","(227)","","","(4)"],["Operating income","","915,751","","","490,150","","","425,601","","","87"],["Interest expense, net","","(116,620)","","","(113,549)","","","3,071","","","3"],["Gain on event cancellation insurance claims","","152,310","","","\u2014","","","152,310","","","nm"],["Loss on extinguishment of debt","","\u2014","","","(44,814)","","","44,814","","","nm"],["Other income (expense), net","","18,429","","","(5,654)","","","24,083","","","(100)"],["Less: Provision for income taxes","","176,310","","","59,388","","","116,922","","","197"],["Net income","","$","793,560","","","$","266,745","","","$","526,815","","","197","%"]]
[[/GREPCENT_TABLE]]

nm = not meaningful

Total revenues for 2021 were $4.7 billion, an increase of $634.6 million compared to 2020, or 15% on a reported basis and 14% excluding the foreign currency impact. The tables below present (i) revenues by geographic region (based on where the sale is fulfilled) and (ii) revenues by segment for the years indicated (in thousands).

[[GREPCENT_TABLE]]
[["Primary Geographic Market","","Year Ended December 31, 2021","","Year Ended December 31, 2020","","Increase (Decrease)","","Percentage Increase (Decrease)"],["United States and Canada","","$","3,048,902","","","$","2,637,824","","","$","411,078","","","16","%"],["Europe, Middle East and Africa","","1,130,979","","","966,273","","","164,706","","","17"],["Other International","","554,081","","","495,306","","","58,775","","","12"],["Total revenues","","$","4,733,962","","","$","4,099,403","","","$","634,559","","","15","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Segment","","Year Ended December 31, 2021","","Year Ended December 31, 2020","","Increase (Decrease)","","Percentage Increase (Decrease)"],["Research","","$","4,101,392","","","$","3,602,892","","","$","498,500","","","14","%"],["Conferences","","214,449","","","120,140","","","94,309","","","78"],["Consulting","","418,121","","","376,371","","","41,750","","","11"],["Total revenues","","$","4,733,962","","","$","4,099,403","","","$","634,559","","","15","%"]]
[[/GREPCENT_TABLE]]

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 $1.4 billion in 2021, an increase of $99.1 million compared to 2020, or 7% on a reported basis and 6% excluding the foreign currency impact. The increase was primarily due to increased compensation costs, conference expenses and program expenses, partially offset by reduced travel and entertainment costs. Cost of services and product development as a percent of revenues was 31% and 33% during 2021 and 2020, respectively.

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Selling, general and administrative (“SG&A”) expense was $2.2 billion in 2021, an increase of $116.7 million compared to 2020, or 6% on a reported basis and 4% excluding the foreign currency impact. The increase in SG&A during the year ended December 31, 2021, as compared to the prior fiscal year, was primarily due to charges associated with the impairment of right-of-use assets and other long-lived assets, net of a reduction in lease liabilities, of $49.5 million related to certain office locations we no longer intend to use. Additionally, conference-related expenses increased due to expenses on cancelled conferences. SG&A expense also increased due to higher personnel costs in the current year, partially offset by reduced severance costs. There was a slight decrease in the number of quota-bearing sales associates in Global Technology Sales and an increase in Global Business Sales to 3,072 and 934, respectively, at December 31, 2021. On a combined basis, the total number of quota-bearing sales associates increased by 2% when compared to December 31, 2020. SG&A expense as a percent of revenues was 46% and 50% during 2021 and 2020, respectively.

Depreciation increased by 9% during 2021 compared to 2020. This increase was due to additional investments, including new leasehold improvements as additional office space went into service, and capitalized software.

Amortization of intangibles decreased by 12% during 2021 compared to 2020 due to certain intangible assets that became fully amortized in 2021 and 2020.

Operating income was $915.8 million and $490.2 million during 2021 and 2020, respectively. The increase in operating income was primarily due to increased revenue.

Interest expense, net increased by $3.1 million during 2021 compared to 2020. The increase in interest expense, net was primarily due to an increase in debt, partially offset by a reduction in the amortization of debt issuance costs.

Gain on event cancellation insurance claims of $152.3 million during the year ended December 31, 2021 reflected proceeds, net of expense recoveries, related to the 2020 conference cancellation insurance claims.

Loss on extinguishment of debt during the year ended December 31, 2020 was related to the early redemption premium and write-off of deferred financing fees on our redemption of the 2025 Notes on September 28, 2020.

Other income (expense), net for the years presented herein included the net impact of foreign currency gains and losses from our hedging activities, as well as sales of certain state tax credits and the recognition of other tax incentives. During 2021 and 2020, Other income (expense), net included a $20.2 million and a 2.2 million gain on de-designated interest rate swaps, respectively. Other income (expense), net for the year ended December 31, 2020 also included the release of $10.3 million from Accumulated other comprehensive loss, net related to forecasted interest payments that were no longer probable as a result of the payment under the then outstanding 2016 Credit Agreement term loan and revolving credit facility on June 30, 2020.

Provision for income taxes was $176.3 million and $59.4 million during 2021 and 2020, respectively, with an effective income tax rate of 18.2% for both 2021 and 2020. The Company completed intercompany sales of certain intellectual property in both 2021 and 2020. As a result, the Company recorded net tax benefits of approximately $54.1 million and $28.3 million during 2021 and 2020, respectively. These benefits represent the value of future tax deductions for amortization of the assets in the acquiring jurisdiction, net of any tax recognized in the selling jurisdiction. The Company’s intellectual property footprint continues to evolve and may result in tax rate volatility in the future. Note 12 — Income Taxes in the Notes to Consolidated Financial Statements provides additional information regarding the Company’s income taxes.

Net income was $793.6 million and $266.7 million during 2021 and 2020, respectively. Additionally, our diluted net income per share increased by $6.25 in 2021 compared to 2020. These year-over-year changes reflect: (i) the increase in our 2021 operating income; (ii) the gain on event cancellation insurance claims; (iii) the prior year loss on extinguishment of debt; and (iv) higher Other income (expense), net, partially offset by increased income tax expense due to higher pre-tax income in 2021 compared to 2020.

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

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The sections below present the results of the Company’s three reportable business segments: Research, Conferences and Consulting.

Research

[[GREPCENT_TABLE]]
[["","As Of And For The Year Ended December 31, 2021","","As Of And For The Year Ended December 31, 2020","","Increase (Decrease)","","Percentage Increase (Decrease)"],["Financial Measurements:"],["Revenues (1)","$","4,101,392","","","$","3,602,892","","","$","498,500","","14","%"],["Gross contribution (1)","$","3,036,925","","","$","2,597,852","","","$","439,073","","17","%"],["Gross contribution margin","74","%","","72","%","","2","points","","\u2014"],["Business Measurements:"],["Global Technology Sales (2):"],["Contract value (1), (3)","$","3,373,000","","","$","2,957,000","","","$","416,000","","14","%"],["Client retention","86","%","","83","%","","3","points","","\u2014"],["Wallet retention","106","%","","98","%","","8","points","","\u2014"],["Global Business Sales (2):"],["Contract value (1), (3)","$","874,000","","","$","706,000","","","$","168,000","","24","%"],["Client retention","87","%","","83","%","","4","points","","\u2014"],["Wallet retention","115","%","","101","%","","14","points","","\u2014"]]
[[/GREPCENT_TABLE]]

(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 December 31, 2020 have been calculated using the same foreign currency rates as 2021.

Research revenues increased by $498.5 million during 2021 compared to 2020, or 14% on a reported basis and 12% excluding the foreign currency impact. The gross contribution margin was 74% in 2021 compared to 72% in 2020. 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 was primarily due to the growth in revenue.

Total contract value increased to $4.2 billion at December 31, 2021, or 16% compared to December 31, 2020 on a foreign currency neutral basis. Total contract value growth was led by the manufacturing, services, and technology sectors. Global Technology Sales (“GTS”) contract value increased by 14% at December 31, 2021 when compared to December 31, 2020. 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 over half of all sectors. Global Business Sales (“GBS”) contract value increased by 24% 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 growing more than 20% year-over-year.

GTS client retention was 86% and 83% as of December 31, 2021 and 2020, respectively, while wallet retention was 106% and 98%, respectively. GBS client retention was 87% and 83% as of December 31, 2021 and 2020, respectively, while wallet retention was 115% and 101% as of December 31, 2021 and 2020, respectively. The number of GTS client enterprises and GBS client enterprises increased by 9% and 5%, respectively, at December 31, 2021 when compared to December 31, 2020.

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Conferences

[[GREPCENT_TABLE]]
[["","As Of And For The Year Ended December 31, 2021","","As Of And For The Year Ended December 31, 2020","","Increase (Decrease)","","Percentage Increase (Decrease)"],["Financial Measurements:"],["Revenues (1)","$","214,449","","","$","120,140","","","$","94,309","","78","%"],["Gross contribution (1)","$","133,748","","","$","57,302","","","$","76,446","","133","%"],["Gross contribution margin","62","%","","48","%","","14","points","","\u2014"],["Business Measurements:"],["Number of destination conferences (2)","39","","20","","19","","95","%"],["Number of destination conferences attendees (2)","57,145","","42,273","","14,872","","35","%"]]
[[/GREPCENT_TABLE]]

(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 December 2021, and pivoted to producing virtual conferences with a focus on maximizing the value we deliver to our clients. We held 39 virtual conferences during the year ended December 31, 2021. During 2020, we successfully held 5 in-person conferences prior to the COVID-19 pandemic and 15 virtual conferences during the second half of the year. We expect to continue to deliver conferences virtually during 2022, but are operationally planning to re-launch in-person destination conferences when conditions permit. Conferences revenues increased by $94.3 million during 2021 compared to 2020, or 78%, on both a reported basis and excluding the foreign currency impact. The increase in revenues for the year ended December 31, 2021 was due to the virtual conferences held during the period, as well as the use of ticket entitlements which we extended from 2020 due to the pandemic. The segment gross contribution margin was 62% and 48% in 2021 and 2020, respectively. The higher gross contribution margin during 2021 was primarily due to increased revenues.

Consulting

[[GREPCENT_TABLE]]
[["","As Of And For The Year Ended December 31, 2021","","As Of And For The Year Ended December 31, 2020","","Increase (Decrease)","","Percentage Increase (Decrease)"],["Financial Measurements:"],["Revenues (1)","$","418,121","","","$","376,371","","","$","41,750","","11","%"],["Gross contribution (1)","$","158,843","","","$","115,744","","","$","43,099","","37","%"],["Gross contribution margin","38","%","","31","%","","7","points","","\u2014"],["Business Measurements:"],["Backlog (1), (2)","$","116,700","","","$","103,300","","","$","13,400","","13","%"],["Average billable headcount","749","","768","","(19)","","(2)","%"],["Consultant utilization","68","%","","61","%","","7","points","","\u2014"],["Average annualized revenue per billable headcount (1)","$","429","","","$","368","","","$","61","","17","%"]]
[[/GREPCENT_TABLE]]

(1)Dollars in thousands.

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

Consulting revenues increased 11% during 2021 compared to 2020 on a reported basis and 9% excluding the foreign currency impact. The increase in revenues on a reported basis was due to a 13% increase in labor-based consulting, and a 4% increase in contract optimization. Contract optimization revenue may vary significantly and, as such, 2021 revenues may not be indicative of future results. The segment gross contribution margin was 38% and 31% in 2021 and 2020, respectively. The increase in gross contribution margin during 2021 was primarily due to the increase in revenue.

Backlog increased by $13.4 million, or 13%, from December 31, 2020 to December 31, 2021.

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LIQUIDITY AND CAPITAL RESOURCES

We finance our operations through cash generated from our operating activities and borrowings. Note 6 — Debt in the Notes to Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations. At December 31, 2021, we had $756.5 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 and access to capital markets to meet its currently anticipated needs for both the next twelve months and the foreseeable future.

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 31% held overseas at December 31, 2021. The Company intends to reinvest substantially all of its 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 years indicated (in thousands).

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Increase (Decrease)"],["","2021","","2020"],["Cash provided by operating activities","$","1,312,470","","","$","903,278","","","$","409,192"],["Cash used in investing activities","(80,467)","","","(83,888)","","","3,421"],["Cash used in financing activities","(1,157,609)","","","(416,224)","","","(741,385)"],["Net increase in cash and cash equivalents and restricted cash","74,394","","","403,166","","","(328,772)"],["Effects of exchange rates","(26,375)","","","28,581","","","(54,956)"],["Beginning cash and cash equivalents","712,583","","","280,836","","","431,747"],["Ending cash and cash equivalents and restricted cash","$","760,602","","","$","712,583","","","$","48,019"]]
[[/GREPCENT_TABLE]]

Operating

Cash provided by operating activities was $1,312.5 million and $903.3 million in 2021 and 2020, respectively. The year-over-year increase was primarily due to higher pre-tax income in the 2021 period, in part due to a $152.3 million gain on event cancellation insurance claims, and an increase in deferred revenues resulting from increased bookings in Research, partially offset by higher income tax payments and deferred commissions.

Investing

Cash used in investing activities was $80.5 million and $83.9 million in 2021 and 2020, respectively. The cash used in 2021 was for capital expenditures and the acquisition of Pulse Q&A Inc. The slight decrease from 2020 to 2021 was the result of reduced capital spending in response to the COVID-19 pandemic, partially offset by the 2021 acquisition of Pulse Q&A Inc.

Financing

Cash used in financing activities was $1.2 billion and $416.2 million in 2021 and 2020, respectively. During the 2021 period, we 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 with a portion of the proceeds from the issuance of the 2029 Notes. During 2021, we used $1.7 billion of cash for share repurchases. During 2020, the Company repaid a net $148.0 million on our revolving credit facility under the 2016 Credit Agreement, paid a net $58.5 million in debt principal repayments, borrowed $5.0 million under the 2020 Credit Agreement and used $176.3 million for share repurchases. Additionally, we paid $25.8 million in deferred financing fees related to our financing activities and $30.8 million in early redemption premium payments related to the repayment of our

29

2025 Notes. See Note 6 — Debt in the Notes to Consolidated Financial Statements provides additional information regarding the Company’s financing activities in 2021 and 2020.

OBLIGATIONS AND COMMITMENTS

Debt

As of December 31, 2021, the Company had $2.5 billion of principal amount of debt outstanding. Note 6 — Debt in the Notes to Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations.

Off-Balance Sheet Arrangements

Through December 31, 2021, the Company has not entered into any material off-balance sheet arrangements or transactions with unconsolidated entities or other persons.

Contractual Cash Commitments

The table below summarizes the Company’s future contractual cash commitments as of December 31, 2021 (in thousands).

[[GREPCENT_TABLE]]
[["Commitment Description","","Due In Less Than 1 Year","","Due In 2-3 Years","","Due In 4-5 Years","","Due In More Than 5 Years","","Total"],["Debt \u2013 principal, interest, and commitment fees (1)","","$","124,651","","","$","247,417","","","$","461,956","","","$","2,450,696","","","$","3,284,720"],["Operating leases (2)","","146,114","","","272,298","","","228,855","","","417,750","","","1,065,017"],["Deferred compensation arrangements (3)","","9,298","","","14,118","","","10,653","","","76,792","","","110,861"],["Other (4)","","38,542","","","56,342","","","37,896","","","31,272","","","164,052"],["Totals","","$","318,605","","","$","590,175","","","$","739,360","","","$","2,976,510","","","$","4,624,650"]]
[[/GREPCENT_TABLE]]

(1)Principal repayments of the Company’s debt obligations were classified in the above table based on the contractual repayment dates. Interest payments were based on the effective interest rates as of December 31, 2021, including the effects of the Company’s interest rate swap contracts. Commitment fees were based on unused balances and commitment rates as of December 31, 2021. Note 6 — Debt in the Notes to Consolidated Financial Statements provides information regarding the Company’s debt obligations and interest rate swap contracts.

(2)The Company leases various facilities, automobiles, computer equipment and other assets under non-cancelable operating lease agreements expiring between 2022 and 2038. The total commitment excludes approximately $292.7 million of estimated future cash receipts from the Company’s subleasing arrangements. Note 1 — Business and Significant Accounting Policies and Note 7 — Leases in the Notes to Consolidated Financial Statements provide additional information regarding the Company’s leases.

(3)The Company has supplemental deferred compensation arrangements with certain of its employees. Amounts payable with known payment dates have been classified in the above table based on those scheduled payment dates. Amounts payable whose payment dates are unknown have been included in the Due In More Than 5 Years category because the Company cannot determine when the amounts will be paid. Note 15 — Employee Benefits in the Notes to Consolidated Financial Statements provides additional information regarding the Company’s supplemental deferred compensation arrangements.

(4)Other includes: (i) contractual commitments (a) for software, telecom and other services and (b) to secure sites for our Conferences business (c) deferred consideration held in escrow in connection with business acquisitions (see Note 1 — Business and Significant Accounting Policies and Note 2 — Acquisitions in in the Notes to Consolidated Financial Statements); and (ii) projected cash contributions to the Company’s defined benefit pension plans. Note 15 — Employee Benefits in the Notes to Consolidated Financial Statements provides additional information regarding the Company’s defined benefit pension plans.

In addition to the contractual cash commitments included in the above table, the Company has other payables and liabilities that may be legally enforceable but are not considered contractual commitments. Information regarding the Company’s payables and liabilities is included in Note 5 — Accounts Payable and Accrued and Other Liabilities in the Notes to Consolidated Financial Statements.

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RECENTLY ISSUED ACCOUNTING STANDARDS

The FASB has issued accounting standards that had not yet become effective as of December 31, 2021 and may impact the Company’s consolidated financial statements or its disclosures in future periods. Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements provides information regarding those accounting standards.