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 ofGartner, 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 endedDecember 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 toGartner, 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 theSecurities 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; theU.K.'s exit from theEuropean 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 theSEC . 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 27 --------------------------------------------------------------------------------
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) 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 most critical priorities.
We deliver our products and services globally through three 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 an unmatched combination of practitioner-sourced and data-driven research to help our clients address their most 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' most 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. We began a limited reopening of our offices inthe United States inJune 2021 . Reopening of our remaining offices 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. We expect to move to a more flexible mix of work from home and in the office going forward. As a result, we are in the process of evaluating our real estate footprint globally, and may determine that certain of our leased locations are no longer necessary for our operations. If we determine there is any 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 remains impacted. We cancelled in-person conferences beginning in late February/earlyMarch 2020 with the remainder being cancelled after theWorld Health Organization's declaration of the COVID-19 pandemic later inMarch 2020 . We began holding virtual conferences during the second half of 2020. We held 26 virtual conferences during the nine months endedSeptember 30, 2021 and will continue to deliver conferences virtually through the remainder of 2021. 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. 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 plan to resume in-person conferences in 2022. 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. We are in litigation with the insurer on these issues. 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 cancelled in 2021 due to COVID-19. InMay 2021 , we received$150 million of proceeds related to 2020 insurance claims, and recorded a gain of$135.5 million . The timing of receiving the remaining proceeds from 2020 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.
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
28 -------------------------------------------------------------------------------- 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 the first nine months of 2021. We expect these investments to increase in future periods, which may have a negative impact on operating margins. 29 --------------------------------------------------------------------------------
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 peoplewho 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. 30
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EXECUTIVE SUMMARY OF OPERATIONS AND FINANCIAL POSITION
The fundamentals of our strategy include a focus on creating actionable insights 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$1.2 billion during the third quarter of 2021, an increase of 16% compared to the third quarter of 2020. During the third quarter of 2021 revenues for Research increased by 16% year-over-year, Conferences revenue increased by$11.7 million , and Consulting revenues increased by 6%. For a more complete discussion of our results by segment, see Segment Results below. For the third quarter of 2021 and 2020, we had net income of$148.9 million and$17.0 million , respectively, and diluted income per share of$1.76 and$0.19 , respectively. Cash provided by operating activities was$1,077.7 million and$642.8 million during the nine months endedSeptember 30, 2021 and 2020, respectively. As ofSeptember 30, 2021 , we had$765.5 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 endedDecember 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 intoU.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). 31 --------------------------------------------------------------------------------
Three Months Three Months Increase Ended September Ended September Increase (Decrease) 30, 2021 30, 2020 (Decrease) % Total revenues$ 1,156,282 $ 994,618 $ 161,664 16 % Costs and expenses: Cost of services and product development 359,237 329,767 29,470 9 Selling, general and administrative 512,573 521,508 (8,935) (2) Depreciation 25,371 22,743 2,628 12 Amortization of intangibles 27,109 31,228 (4,119) (13) Acquisition and integration charges 1,771 1,722 49 3 Operating income 230,221 87,650 142,571 163 Interest expense, net (31,599) (30,538) 1,061 3 Loss on extinguishment of debt - (44,814) (44,814) nm Other income, net 211 1,869 (1,658) (89) Less: Provision (benefit) for income taxes 49,968 (2,797) 52,765 nm Net income$ 148,865 $ 16,964 $ 131,901 778 % nm = not meaningful Nine Months Ended Nine Months Ended Increase September 30, September 30, Increase (Decrease) 2021 2020 (Decrease) % Total revenues$ 3,427,639 $ 2,986,644 $ 440,995 15 % Costs and expenses: Cost of services and product development 1,044,506 993,596 50,910 5 Selling, general and administrative 1,488,324 1,512,987 (24,663) (2) Depreciation 76,972 67,988 8,984 13 Amortization of intangibles 83,777 94,615 (10,838) (11) Acquisition and integration charges 3,713 5,438 (1,725) (32) Operating income 730,347 312,020 418,327 134 Interest expense, net (85,138) (87,182) (2,044) (2) Gain on event cancellation insurance claims 135,545 - 135,545 nm Loss on extinguishment of debt - (44,814) (44,814) nm Other income (expense), net 12,019 (10,046) (22,065) nm Less: Provision for income taxes 208,572 22,840 185,732 nm Net income$ 584,201 $ 147,138 $ 437,063 297 % nm = not meaningful Total revenues for the three months endedSeptember 30, 2021 were$1.2 billion , an increase of$161.7 million , or 16% compared to the same period in 2020 on a reported basis and 15% excluding the foreign currency impact. Total revenues for the nine months endedSeptember 30, 2021 were$3.4 billion , an increase of$441.0 million , or 15% compared to the same period in 2020 on a reported basis and 12% 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$359.2 million during the three months endedSeptember 30, 2021 , an increase of$29.5 million compared to the same period in 2020, or 9% on a reported basis and 8% excluding the foreign currency impact. The increase in Cost of services and product development was primarily due to increased compensation costs, research program expenses and conference related expenses. Cost of services and product development as a percent of revenues was 31% and 33% during the three months endedSeptember 30, 2021 and 2020, respectively. Cost of services and product development was$1,044.5 million during the nine months endedSeptember 30, 2021 , an increase of$50.9 million compared to the same period in 2020, or 5% on a reported basis and 3% excluding the foreign currency impact. The increase was primarily due to increased compensation costs and program expenses, partially offset by reduced travel and entertainment costs. Cost of services and 32 --------------------------------------------------------------------------------
product development as a percent of revenues was 30% and 33% during the nine
months ended
Selling, general and administrative ("SG&A") expense was$512.6 million during the three months endedSeptember 30, 2021 , a decrease of$8.9 million compared to the same period in 2020, or 2% on a reported basis and 3% excluding the foreign currency impact. The decrease in SG&A expense was primarily due to the timing of certain compensation and benefits costs last year, partially offset by higher personnel costs in the current year. The number of quota-bearing sales associates in Global Technology Sales decreased by 3% to 2,988 and in Global Business Sales increased by 8% to 909 compared toSeptember 30, 2020 . On a combined basis, the total number of quota-bearing sales associates decreased by 1% when compared toSeptember 30, 2020 . Global Technology Sales turnover remains modestly elevated. SG&A expense as a percent of revenues was 44% and 52% during the three months endedSeptember 30, 2021 and 2020, respectively. SG&A expense was$1,488.3 million during the nine months endedSeptember 30, 2021 , a decrease of$24.7 million compared to the same period in 2020, or 2% on a reported basis and 4% excluding the foreign currency impact. The decrease was primarily due to the same factors that caused the year-over-year quarterly decrease as well as reduced travel and entertainment costs. SG&A expense as a percent of revenues was 43% and 51% during the nine months endedSeptember 30, 2021 and 2020, respectively. Depreciation increased by 12% and 13% during the three and nine months endedSeptember 30, 2021 , respectively, compared to the same periods in 2020. The increases for the three and nine months endedSeptember 30, 2021 were due to additional investments, including new leasehold improvements as additional office space went into service, and capitalized software.
Amortization of intangibles decreased by 13% and 11% during the three and nine
months ended
Acquisition and integration charges increased by less than$0.1 million during the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , and decreased by$1.7 million during the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . Gain on event cancellation insurance claims of$135.5 million during the nine months endedSeptember 30, 2021 reflected proceeds, net of expense recoveries, related to the 2020 conference cancellation insurance claims. Operating income was$230.2 million and$87.7 million during the three months endedSeptember 30, 2021 and 2020, respectively. The increase in operating income was due to increased revenue. Operating income was$730.3 million and$312.0 million during the nine months endedSeptember 30, 2021 and 2020, respectively. The increase in operating income was also primarily due to increased revenue. Interest expense, net increased by$1.1 million during the three months endedSeptember 30, 2021 , compared to the same period in 2020. The increase was primarily due to an increase in outstanding debt, as a result of the issuance of the 2029 Notes inJune 2021 , partially offset by a decrease in the amortization of debt issuance costs. Interest expense, net decreased by$2.0 million during the nine months endedSeptember 30, 2021 , compared to the same period in 2020. The decrease during the nine months endedSeptember 30, 2021 was primarily due to a reduction in the amortization of debt issuance costs. Loss on extinguishment of debt during the three and nine months endedSeptember 30, 2020 was related to the early redemption premium and write-off of deferred financing fees on our redemption of the 2025 Notes onSeptember 28, 2020 . Other income (expense), net for the periods presented herein included the net impact of foreign currency gains and losses from our hedging activities. Other income (expense), net for the three and nine months endedSeptember 30, 2021 also included a$0.4 million gain and$12.1 million gain, respectively, on de-designated interest rate swaps. Other income (expense), net for the nine months endedSeptember 30, 2020 included the release of$10.3 million on interest rate swaps from Accumulated other comprehensive loss, net related to forecasted interest payments no longer being probable as a result of the payment under the then outstanding 2016 Credit Agreement term loan and revolving credit facility onJune 30, 2020 . The provision for income taxes for the three months endedSeptember 30, 2021 and 2020 was an expense of$50.0 million and a benefit of$2.8 million , respectively. The provision for income taxes for the nine months endedSeptember 30, 2021 and 2020 was an expense of$208.6 million and$22.8 million , respectively. The effective income tax rate was an expense of 25.1% and a benefit of 19.7% for the three months endedSeptember 30, 2021 and 2020, respectively. The three month results for both years included movements in unrecognized tax benefits as well as changes in estimated geographical mix of earnings. The change in the effective tax rate was largely attributable to differences in the relative impacts of these items period over period. 33 -------------------------------------------------------------------------------- The effective income tax rate was 26.3% and 13.4% for the nine months endedSeptember 30, 2021 and 2020, respectively. In addition to the items noted above, the nine month results for 2020 included benefits from intercompany sales of certain intellectual property. Approximately$28.3 million of tax benefits were recognized, representing the value of future tax deductions for amortization of the assets in the acquiring jurisdiction. No such benefits were included in the nine months endedSeptember 30, 2021 . This drove an additional increase in the 2021 year to date effective income tax rate. Net income for the three months endedSeptember 30, 2021 and 2020 was$148.9 million and$17.0 million , respectively, while net income for the nine months endedSeptember 30, 2021 and 2020 was$584.2 million and$147.1 million , respectively. Our diluted net income per share during the three months endedSeptember 30, 2021 increased by$1.57 compared to the same period in 2020. The increase in net income during the three months endedSeptember 30, 2021 was primarily the result of increased revenues and the prior year loss on extinguishment of debt, partially offset by an increase in income tax expense. The increase in net income during the nine months endedSeptember 30, 2021 was primarily the result of increased revenues, the gain on event cancellation insurance claims, the prior year loss on extinguishment of debt, the gain from de-designated interest rate swaps and the prior year loss on de-designation of interest rate swaps, partially offset by the 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 sections below present the results of the Company's three reportable business segments: Research, Conferences and Consulting.
34 -------------------------------------------------------------------------------- Research As Of And For As Of And For The As Of And For The Percentage As Of And For The Nine The Nine Months Percentage Three Months Ended Three Months Ended Increase Increase Months Ended September Ended September Increase IncreaseSeptember 30, 2021 September 30, 2020 (Decrease) (Decrease) 30, 2021 30, 2020 (Decrease) (Decrease)
Financial Measurements: Revenues (1) $ 1,037,124 $ 892,719$ 144,405 16 %$ 3,020,094 $ 2,677,339 $ 342,755 13 % Gross contribution (1) $ 769,091 $ 642,328$ 126,763 20 %$ 2,235,594 $ 1,928,422 $ 307,172 16 % Gross contribution margin 74 % 72 % 2 points - 74 % 72 % 2 points - Business Measurements: Global Technology Sales (2): Contract value (1), (3)$ 3,168,000 $ 2,833,000 $ 335,000 12 % Client retention 85 % 80 % 5 points - Wallet retention 104 % 99 % 5 points - Global Business Sales (2): Contract value (1), (3) $ 814,000 $ 665,000$ 149,000 22 % Client retention 86 % 82 % 4 points - Wallet retention 113 % 99 % 14 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 ofSeptember 30, 2020 have been calculated using the same foreign currency rates as 2021. Research revenues increased by$144.4 million during the three months endedSeptember 30, 2021 compared to the same period in 2020, or 16% on a reported basis and 15% excluding the foreign currency impact. The segment gross contribution margin was 74% and 72% during the three months endedSeptember 30, 2021 and 2020, respectively. For the nine months endedSeptember 30, 2021 , research revenues increased by$342.8 million compared to the same period in 2020, or 13% on a reported basis and 10% excluding the foreign currency impact. 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 endedSeptember 30, 2021 compared to the same prior year period was primarily due to the growth in revenue. The nine months endedSeptember 30, 2021 also benefited from a decline in travel and entertainment expenses due to COVID-19 travel restrictions. Total contract value increased to$4.0 billion atSeptember 30, 2021 , or 14% compared toSeptember 30, 2020 on a foreign currency neutral basis. Global Technology Sales ("GTS") contract value increased by 12% atSeptember 30, 2021 when compared toSeptember 30, 2020 . The increase in GTS contract value was primarily due to new business from new and existing clients, as well as improved client retention. Global Business Sales ("GBS") contract value increased by 22% year-over-year, also primarily driven by new business from new and existing clients, and improved client retention. GTS client retention was 85% and 80% as ofSeptember 30, 2021 and 2020, respectively, while wallet retention was 104% and 99%, respectively. GBS client retention was 86% and 82% as ofSeptember 30, 2021 and 2020, respectively, while wallet retention was 113% and 99%, respectively. The increase in GTS and GBS wallet retention was largely due to increased spending by existing clients. The number of GTS client enterprises increased by 11% when compared to prior year, while GBS client enterprises increased by 3% atSeptember 30, 2021 when compared toSeptember 30, 2020 . 35
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Conferences As Of And As Of And For The For The Three Three Months Months Ended Ended Percentage As Of And For The Nine As Of And For The Nine Percentage September September Increase Increase Months Ended September Months Ended September Increase Increase 30, 2021 30, 2020 (Decrease) (Decrease) 30, 2021 30, 2020 (Decrease) (Decrease) Financial Measurements: Revenues (1)$ 24,415 $ 12,738 $ 11,677 92 %$ 107,396 $ 26,925 $ 80,471 299 % Gross contribution (1)$ 11,456 $ 2,044 $ 9,412 460 %$ 67,954 $ (15,246) $ 83,200 nm Gross contribution margin 47 % 16 % 31 points - 63 % (57) % 120 points - Business Measurements: Number of destination conferences (2) 8 2 6 300 % 26 7 19 271 % Number of destination conferences attendees (2) 6,472 2,584 3,888 150 % 27,123 5,948 21,175 356 % 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 fromMarch 2020 through at leastDecember 2021 , and pivoted to producing virtual conferences with a focus on maximizing the value we deliver to our clients. We held 8 and 26 virtual conferences during the three and nine months endedSeptember 30, 2021 , respectively, and plan on holding additional virtual conferences through the remainder of 2021. Operationally, we are planning to resume in-person conferences in 2022. Conferences revenues increased by$11.7 million during the three months endedSeptember 30, 2021 compared to the same period in 2020. Conferences revenues increased by$80.5 million during the nine months endedSeptember 30, 2021 , compared to the same period in 2020. The increase in revenues for the three months endedSeptember 30, 2021 was the result of the increase in the number of virtual conferences held during the period, compared to the prior year. The increase in revenues for the nine months endedSeptember 30, 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. Gross contribution increased to$11.5 million during the three months endedSeptember 30, 2021 compared to$2.0 million in the same period last year. Gross contribution increased to$68.0 million during the nine months endedSeptember 30, 2021 compared to a loss of$15.2 million in the same period last year. 36 --------------------------------------------------------------------------------
Consulting As Of And For The Three Months As Of And For The Ended Percentage As Of And For The Nine As Of And For The Nine Percentage Three Months Ended September Increase Increase Months Ended September Months Ended September Increase IncreaseSeptember 30, 2021 30, 2020 (Decrease) (Decrease) 30, 2021 30, 2020 (Decrease) (Decrease) Financial Measurements: Revenues (1)$ 94,743 $ 89,161 $ 5,582 6 %$ 300,149 $ 282,380 $ 17,769 6 % Gross contribution (1)$ 30,972 $ 28,161 $ 2,811 10 %$ 112,840 $ 91,086 $ 21,754 24 % Gross contribution margin 33 % 32 % 1 point - 38 % 32 % 6 points - Business Measurements: Backlog (1), (2)$ 125,500 $ 99,200 $ 26,300 27 % Billable headcount 749 737 12 2 % Consultant utilization 62 % 60 % 2 points - 67 % 61 % 6 points - Average annualized revenue per billable headcount (1), (3) $ 387$ 364 $ 23 6 % $ 419 $ 361$ 58 16 %(1)Dollars in thousands. (2)Backlog is on a foreign exchange neutral basis. Backlog as ofSeptember 30, 2020 has been calculated using the same foreign currency rates as 2021. (3)Previously reported average annualized revenue per billable headcount has been corrected from$387 to$421 for the three months endedMarch 31, 2021 , and from$379 and$383 to$448 and$435 for the three and six months endedJune 30, 2021 , respectively. Consulting revenues increased 6% during the three months endedSeptember 30, 2021 compared to the same period in 2020 on both a reported basis and excluding the foreign currency impact, with a revenue increase in labor-based consulting of 5% and an increase in contract optimization of 13%, each on a reported basis. Contract optimization revenue may vary significantly and, as such, revenues for the third quarter of 2021 may not be indicative of results for the remainder of 2021 or beyond. The segment gross contribution margin was 33% and 32% for the three months endedSeptember 30, 2021 and 2020, respectively. The increase in gross contribution margin during the third quarter of 2021 was primarily due to the increase in revenue. For the nine months endedSeptember 30, 2021 , Consulting revenues increased 6% compared to the same period in 2020 on a reported basis and 3% excluding the foreign currency impact, while the segment gross contribution margin increased by 6 points. The increase in revenues was due to an increase in labor-based consulting of 11%, partially offset by a decrease in contract optimization of 10%.
Backlog increased by
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LIQUIDITY AND CAPITAL RESOURCES
We finance our operations through cash generated from our operating activities and borrowings. Note 8 - Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company's outstanding debt obligations. AtSeptember 30, 2021 , we had$765.5 million of cash and cash equivalents and approximately$1.0 billion of available borrowing capacity on the revolving credit facility under our 2020 Credit Agreement. We believe that the Company has adequate liquidity to meet its currently anticipated needs for at least the next twelve months. We have historically generated significant cash flows from our operating activities. Our operating cash flow has been continuously maintained by the leverage characteristics of our subscription-based business model in our Research segment, which is our largest business segment and historically has constituted a significant portion of our total revenues. The majority of our Research customer contracts are paid in advance and, combined with a strong customer retention rate and high incremental margins, has resulted in continuously strong operating cash flow. Cash flow generation has also benefited from our ongoing efforts to improve the operating efficiencies of our businesses as well as a focus on the optimal management of our working capital as we increase sales. Our cash and cash equivalents are held in numerous locations throughout the world with 77% held overseas atSeptember 30, 2021 . We intend to reinvest substantially all of our accumulated undistributed foreign earnings, except in instances where repatriation would result in minimal additional tax. As a result of theU.S. Tax Cuts and Jobs Act of 2017, we believe that the income tax impact if such earnings were repatriated would be minimal.
The table below summarizes the changes in the Company's cash balances for the periods indicated (in thousands).
Nine Months Ended Nine Months September 30, Ended September Increase 2021 30, 2020 (Decrease) Cash provided by operating activities$ 1,077,684 $ 642,830 $ 434,854 Cash used in investing activities (61,700) (60,845) (855) Cash used in financing activities (944,186) (318,025) (626,161)
Net increase in cash and cash equivalents and restricted cash
71,798 263,960 (192,162) Effects of exchange rates (14,651) 8,919 (23,570) Beginning cash and cash equivalents 712,583 280,836 431,747
Ending cash and cash equivalents and restricted cash
$ 553,715 $ 216,015 Operating Cash provided by operating activities was$1,077.7 million and$642.8 million during the nine months endedSeptember 30, 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$135.5 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.
Investing
Cash used in investing activities was$61.7 million and$60.8 million during the nine months endedSeptember 30, 2021 and 2020, respectively. The cash used in 2021 was for capital expenditures and the acquisition ofPulse Q&A Inc. The slight increase from 2020 to 2021 was the result of the 2021 acquisition ofPulse Q&A Inc. , partially offset by reduced capital spending in response to the COVID-19 pandemic. Financing Cash used in financing activities was$944.2 million and$318.0 million during the nine months endedSeptember 30, 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. We also repaid a net$5.0 million on our revolving credit facility under the 2020 Credit Agreement, paid a net$106.6 million in debt principal repayments and used$1,438.8 million of cash for share repurchases. During the 2020 period, we repaid a net$148.0 million on our revolving credit facility under the 2016 Credit Agreement, paid a net$53.3 million in debt 38 -------------------------------------------------------------------------------- principal repayments and used$76.1 million of cash for share repurchases. Additionally, we paid$23.6 million in deferred financing fees related to our 2020 financing activities and$30.8 million in early redemption premium payments related to the redemption of our 2025 Notes.
Debt
As ofSeptember 30, 2021 , the Company had$2.5 billion of principal amount of debt outstanding, of which$1.3 million is to be repaid in the remainder of fiscal year 2021. Note 8 - 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. OnJune 18, 2021 , the Company issued$600.0 million aggregate principal amount of 3.625% Senior Notes due 2029. The 2029 Notes were issued pursuant to the 2029 Note Indenture, dated as ofJune 18, 2021 , among the Company, the guarantors party thereto andU.S. Bank National Association , as trustee. The 2029 Notes were issued at an issue price of 100.00% and bear interest at a rate of 3.625% per annum. Interest on the 2029 Notes is payable onJune 15 andDecember 15 of each year, beginning onDecember 15, 2021 . The Notes will mature onJune 15, 2029 . The Company used a portion of the net proceeds of the 2029 Notes (i) to repay$100.0 million of the outstanding borrowings under the Company's existing term loan facility and (ii) to pay related fees and expenses. The Company intends to use the remaining net proceeds from the issuance of the 2029 Notes for general corporate purposes.
OFF BALANCE SHEET ARRANGEMENTS
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