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(Exact name of Registrant as specified in its charter)
iDelaware
i04-3099750
(State
or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)
iP.O. Box 10212
i06902-7700
i56
Top Gallant Road
(Zip Code)
iStamford,
iConnecticut
(Address of principal
executive offices)
Registrant’s telephone number, including area code: (i203) i964-0096
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol
Name of each exchange on which registered
iCommon Stock, $.0005 par value per share
iIT
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☑ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☑ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i☑
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 — iBusiness
and Basis of Presentation
Business.Gartner, Inc. (NYSE: IT) delivers actionable, objective insight that drives smarter decisions and stronger performance on an organization’s mission-critical priorities.
i
Segments. Gartner delivers its products and services globally through ithree
business segments: Research, Conferences and Consulting. Revenues and other financial information for the Company’s segments are discussed in Note 7 — Segment Information.
/
i
Basis of presentation. The accompanying interim Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted
accounting principles in the United States of America (“U.S. GAAP”), as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 270 for interim financial information and with the applicable instructions of U.S. Securities and Exchange Commission (“SEC”) Rule 10-01 of Regulation S-X on Form 10-Q, and should be read in conjunction with the consolidated financial statements and related notes of the Company in its Annual Report on Form 10-K for the year ended December 31, 2023.
The fiscal year of Gartner is the twelve-month period from January 1 through December 31. In the opinion of management, all normal recurring accruals and adjustments considered necessary for a fair presentation
of financial position, results of operations and cash flows at the dates and for the periods presented herein have been included. The results of operations for the three months ended March 31, 2024 may not be indicative of the results of operations for the remainder of 2024 or beyond. When used in these notes, the terms “Gartner,” the “Company,”“we,”“us,” or “our” refer to Gartner, Inc. and its consolidated subsidiaries.
i
Principles
of consolidation. The accompanying interim Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.
i
Use of estimates. The preparation of the accompanying interim Condensed Consolidated Financial Statements requires management to make estimates and assumptions about future events. These estimates
and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of fees receivable, goodwill, intangible assets and other long-lived assets, as well as tax accruals and other liabilities. In addition, estimates are used in revenue recognition, income tax expense or benefit, performance-based compensation charges, depreciation and amortization. Management believes its use of estimates in these interim Condensed Consolidated Financial Statements to be reasonable.
Management continually evaluates and revises its estimates using historical experience and other factors, including the general economic environment and actions it may take in the future. Management adjusts these estimates when facts and circumstances dictate. However, these
estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on management’s best judgment at a point in time. As a result, differences between estimates and actual results could be material and would be reflected in the Company’s consolidated financial statements in future periods.
i
Cash and cash equivalents and restricted cash.iiBelow is a table presenting the beginning-of-period and end-of-period cash amounts from the Company’s Condensed Consolidated Balance Sheets and the total cash amounts presented in the
Condensed Consolidated Statements of Cash Flows (in thousands)./
(1)Restricted
cash consisted of an escrow account established in connection with one of the Company’s business acquisitions. Generally, such cash is restricted to use due to provisions contained in the underlying acquisition agreement. The Company
/
8
will disburse the restricted cash to the sellers of the business upon satisfaction of any contingencies described in such agreements (e.g., potential indemnification claims, etc.).
iRevenue
recognition. Revenue is recognized in accordance with the requirements of FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). Revenue is only recognized when all of the required criteria for revenue recognition have been met. The accompanying Condensed Consolidated Statements of Operations present revenue net of any sales or value-added taxes that we collect from customers and remit to government authorities. ASC Topic 270 requires certain disclosures in interim financial statements around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Note 4 — Revenue and Related Matters provides additional information regarding the
Company’s revenues.
Gain on event cancellation insurance claims. In February 2023, the Company received $i3.1 million of proceeds related to 2020 event cancellation insurance claims. The Company does not record any gain on insurance claims in excess of expenses incurred until the receipt of the insurance proceeds
is deemed to be realizable.
i
Accounting standards issued but not yet adopted. The FASB has issued an accounting standard that has not yet become effective as of March 31, 2024 and may impact the Company’s Consolidated Financial Statements or related disclosures in future periods. The standard and its potential impact are discussed below.
Income
Taxes— In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU No. 2023-09”). The amendments in this ASU are expected to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 requires entities to enhance income tax disclosures primarily related to the rate reconciliation and income taxes paid information. Companies will need to disaggregate the disclosure of income taxes paid (net of refunds received) by federal, state, and foreign taxes on an annual basis. Additionally, on an annual basis, companies would disclose income taxes paid disaggregated by individual jurisdiction using a quantitative threshold of 5% of total income taxes paid. Public business entities would also be required to provide, on an annual basis, rate reconciliation information by specific categories, including state and local income tax, the effect of cross-border
tax laws, foreign tax effects, changes in prior year unrecognized tax benefits, and tax credits, among others. Additionally, some categories would then require disaggregation based on a quantitative threshold of 5%. The foreign tax effect category requires disaggregation by both jurisdiction and nature. The ASU also requires additional qualitative disclosures. All public entities will be required to report income tax information in accordance with the new guidance starting in annual periods beginning after December 15, 2024. The Company expects this ASU to only impact its disclosures with no impacts to the Company’s results of operations, cash flows, and financial condition.
Segment
Reporting— In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements in Reportable Segment Disclosures (“ASU No. 2023-07”). The amendments in the ASU are expected to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators or capital for additional, more detailed information about a reportable segment’s expenses. ASU 2023-07 requires public companies to disclose, on an annual and interim basis, significant expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit and loss. The amendments in the ASU require that a public company provide all annual disclosures about a reportable segment’s profit or loss and assets currently required under ASC 280 in interim periods. The amendments in the ASU also require that a public entity
disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss. The amendments in the ASU, among other items, also requires that a public company disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The ASU applies to all public entities that are required to report segment information in accordance with Topic 280. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023 and for interim periods within annual periods beginning after
December 15, 2024. The Company expects this ASU to only impact its disclosures with no impacts to the Company’s results of operations, cash flows, and financial condition.
Note 2 — iAcquisition and Divestiture
Acquisition
In
September 2023, the Company acquired i100% of a formerly independent sales agent of Gartner research products in the Czech Republic for an aggregate purchase price of $i7.9
million, including cash acquired and deferred consideration. During the
9
three months ended March 31, 2024, the Company paid $i2.0 million of deferred consideration. The allocation of the purchase price
is preliminary with respect to certain tax matters.
Divestiture
In February 2023, the Company completed the sale of a non-core business, TalentNeuron, for approximately $i161.1 million net of post-close adjustments. The Company
recorded pre-tax gains of $i139.3 million and $i135.4 million on the sale of TalentNeuron, which is included in Gain from sale
of divested operation in the Consolidated Statement of Operations during the three months ended March 31, 2023 and the year ended December 31, 2023, respectively. TalentNeuron was included in the Company’s Research segment.
Note 3 — iGoodwill and Intangible Assets
Goodwill
Goodwill
represents the excess of the purchase price of acquired businesses over the estimated fair values of the tangible and identifiable intangible net assets acquired. Evaluations of the recoverability of goodwill are performed in accordance with FASB ASC Topic 350, which requires an annual assessment of potential goodwill impairment at the reporting unit level and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.
When performing the annual assessment of the recoverability of goodwill, the Company initially performs a qualitative analysis evaluating whether any events or circumstances occurred or exist that provide evidence that it is more likely than not that the fair value of any of the
Company’s reporting units is less than the related carrying amount. If the Company does not believe that it is more likely than not that the fair value of any of the Company’s reporting units is less than the related carrying amount, then no quantitative impairment test is performed. However, if the results of the qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is less than its respective carrying amount, then a quantitative impairment test is performed. Evaluating the recoverability of goodwill requires judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of the estimates are subject to uncertainty.
The
Company’s most recent annual impairment test of goodwill was a qualitative analysis conducted during the quarter ended September 30, 2023 that indicated ino impairment. Subsequent to completing the 2023 annual impairment test, there were no events or changes in circumstances noted that required an interim impairment test.
i
The
table below presents changes to the carrying amount of goodwill by segment during the three months ended March 31, 2024 (in thousands).
(1)The
Company does inot have any accumulated goodwill impairment losses.
/
10
Finite-Lived Intangible Assets
i
The
tables below present reconciliations of the carrying amounts of the Company’s finite-lived intangible assets as of the dates indicated (in thousands).
(1)
Finite-lived intangible assets are amortized using the straight-line method over the following periods: Customer relationships—i6 to i13 years; Technology-related—i3
years; and Other—i11 years.
/
Amortization expense related to finite-lived intangible assets was $i23.0
million and $i22.7 million during the three months ended March 31, 2024 and 2023, respectively. iThe
estimated future amortization expense by year for finite-lived intangible assets is presented in the table below (in thousands).
2024 (remaining nine months)
$
i66,973
2025
i81,263
2026
i78,589
2027
i77,980
2028
i76,509
Thereafter
i96,387
$
i477,701
Note
4 — iRevenue and Related Matters
i
Disaggregated Revenue — The Company’s disaggregated
revenue by reportable segment is presented in the tables below for the periods indicated (in thousands).
(1)Revenue
is reported based on where the sale is fulfilled.
The Company’s revenue is generated primarily through direct sales to clients by domestic and international sales forces and a network of independent international sales agents.
(1)Research
revenues in this category are recognized in connection with performance obligations that are satisfied over time using a time-elapsed output method to measure progress. Consulting revenues in this category are recognized over time using costs incurred to date relative to total estimated costs at completion.
(2)The revenues in this category are recognized in connection with performance obligations that are satisfied at the point in time that the contractual deliverables are provided to the customer.
/
Performance Obligations — For customer contracts that are greater than
one year in duration, the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2024 was approximately $i5.6 billion. The Company expects to recognize $i2.6
billion, $i2.2 billion and $i0.8 billion of this revenue (most of which pertains to Research) during the remainder of 2024, the year ending December 31, 2025 and thereafter,
respectively. The Company applies a practical expedient that is permitted under ASC Topic 606 and, accordingly, it does not disclose such performance obligation information for customer contracts that have original durations of one year or less. The Company’s performance obligations for contracts meeting this ASC Topic 606 disclosure exclusion primarily include: (i) stand-ready services under Research subscription contracts; (ii) holding conferences and meetings where attendees and exhibitors can participate; and (iii) providing customized
Consulting solutions for clients under fixed fee and time and materials engagements. The remaining duration of these performance obligations is generally less than one year, which aligns with the period that the parties have enforceable rights and obligations under the affected contracts.
12
Customer Contract Assets and Liabilities — The timing of the recognition of revenue and the amount and timing of the Company’s billings and cash collections,
including upfront customer payments, result in the recognition of both assets and liabilities on the Company’s Condensed Consolidated Balance Sheets. iThe table below provides information regarding certain of the Company’s balance sheet accounts that pertain to its contracts with customers (in thousands).
(1)Fees
receivable represent an unconditional right to payment from the Company’s customers and include both billed and unbilled amounts.
(2)Contract assets represent recognized revenue for which the Company does not have an unconditional right to payment as of the balance sheet date because the project may be subject to a progress billing milestone or some other billing restrictions.
(3)Deferred revenues represent amounts (i) for which the Company has received an upfront customer payment or (ii) that
pertain to recognized fees receivable. Both situations occur before the completion of the Company’s performance obligation(s).
The Company recognized revenue of $i1.0 billion and $i0.9
billion during the three months ended March 31, 2024 and 2023, respectively, that was attributable to deferred revenues that were recorded at the beginning of each such period. Those amounts primarily consisted of Research revenues that were recognized ratably as control of the goods or services passed to the customer during the reporting periods. During each of the three months ended March 31, 2024 and 2023, the Company did not record any material impairments related to its contract assets.
Note
5 — iComputation of Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of shares of Common Stock outstanding during the period. Diluted EPS reflects the potential dilution of securities that could share in earnings. Potential shares of common stock are excluded from the computation of diluted earnings per share when their effect would be anti-dilutive.
i
The
table below sets forth the calculation of basic and diluted income per share for the periods indicated (in thousands, except per share data).
Net
income used for calculating basic and diluted income per share
$
i210,545
$
i295,783
Denominator:
Weighted
average common shares used in the calculation of basic income per share
i78,339
i79,452
Dilutive
effect of outstanding awards associated with stock-based compensation plans (1)
i625
i830
Shares
used in the calculation of diluted income per share
i78,964
i80,282
Basic
income per share
$
i2.69
$
i3.72
Diluted
income per share
$
i2.67
$
i3.68
(1)Certain
outstanding awards associated with stock-based compensation plans were not included in the computation of diluted income per share because the effect would have been anti-dilutive. These anti-dilutive outstanding awards
/
13
associated with stock-based compensation plans was de minimis for the three months ended March 31, 2024 and approximately i0.3 million
for the three months ended March 31, 2023.
Note 6 — iStock-Based Compensation
The Company grants stock-based compensation awards as an incentive for employees and directors to contribute to
the Company’s long-term success. The Company currently awards stock-settled stock appreciation rights, service-based and performance-based restricted stock units, and common stock equivalents. As of March 31, 2024, the Company had i5.6 million
shares of its common stock, par value $i0.0005 per share, (the “Common Stock”) available for stock-based compensation awards under the Gartner, Inc. Long-Term Incentive Plan as amended and restated in June 2023 (the “Plan”).
i
The
tables below summarize the Company’s stock-based compensation expense by award type and expense category line item during the periods indicated (in millions).
Three Months Ended
March 31,
Award
type
2024
2023
Stock appreciation rights
$
i4.6
$
i2.5
Restricted
stock units
i45.6
i42.2
Common
stock equivalents
i0.3
i0.3
Total
(1)
$
i50.5
$
i45.0
/
i
Three
Months Ended
March 31,
Expense category line item
2024
2023
Cost of services and product development
$
i19.5
$
i18.3
Selling,
general and administrative
i31.0
i26.7
Total
(1)
$
i50.5
$
i45.0
(1)Includes
costs of $i30.6 million and $i26.8 million during the three months ended March 31, 2024 and 2023, respectively,
for awards to retirement-eligible employees. Those awards vest on an accelerated basis.
/
Note 7 — iSegment Information
The
Company’s products and services are delivered through ithree 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 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.
The Company evaluates segment performance
and allocates resources based on gross contribution margin. Gross contribution, as presented in the tables below, is defined as operating income or loss excluding certain Cost of services and product development expenses, Selling, general and administrative expenses, Depreciation, Amortization of intangibles, Acquisition and integration charges and Gain from sale of divested operation. Certain bonus and fringe benefit costs included in consolidated Cost of services and product development are not allocated to segment expense. The accounting policies used by the reportable segments are the same as those used by the Company. There are ino
intersegment revenues. The Company does
14
not identify or allocate assets, including capital expenditures, by reportable segment. Accordingly, assets are not reported by segment because the information is not available by segment and is not reviewed in the evaluation of segment performance or in making decisions regarding the allocation of resources.
i
The
tables below present information about the Company’s reportable segments for the periods indicated (in thousands).
Cost of services and product development - unallocated (1)
i8,627
i3,380
Selling,
general and administrative
i689,833
i657,090
Depreciation
and amortization
i49,307
i46,631
Acquisition
and integration charges
i460
i1,368
Gain
from sale of divested operation
i—
(i139,316)
Operating
income
i273,885
i407,957
Interest
expense and other, net
(i14,328)
(i29,757)
Gain
on event cancellation insurance claims
i—
i3,077
Less:
Provision for income taxes
i49,012
i85,494
Net
income
$
i210,545
$
i295,783
(1)The
unallocated amounts consist of certain bonus and fringe costs recorded in consolidated Cost of services and product development that are not allocated to segment expense. The Company’s policy is to allocate bonuses to segments at i100% of a segment employee’s target bonus. Amounts above or below i100%
are absorbed by corporate.
/
Note 8 — iDebt
15
i
The
Company’s total outstanding borrowings are summarized in the table below (in thousands).
(1)The
contractual annualized interest rate as of March 31, 2024 on the 2024 Credit Agreement was i6.725%, which consisted of Term Secured Overnight Financing Rate (“SOFR”) of i5.375% plus a
margin of i1.350%. However, the Company has an interest rate swap contract that effectively converts the floating SOFR on outstanding amounts to a fixed base rate.
(2)The Company had approximately $i0.7
billion of available borrowing capacity on the 2024 Credit Agreement revolver (not including the expansion feature) as of March 31, 2024.
(3)Consists of a State of Connecticut economic development loan originated in 2019 with a i10-year maturity and bears interest at a fixed rate of i1.75%.
This loan may be repaid at any time by the Company without penalty.
(4)The weighted average annual effective rate on the Company’s outstanding debt for the three months ended March 31, 2024, including the effects of its interest rate swaps discussed below, was i5.01%.
(5)Deferred
financing fees are being amortized to Interest expense, net over the term of the related debt obligation.
/
2024 Credit Agreement
On March 26, 2024, the Company entered into a Credit Agreement (the “2024 Credit Agreement”) among the Company, as borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”).
The
2024 Credit Agreement provides for a $i1.0 billion senior unsecured ifive-year revolving facility. The facility may be increased, at the Company’s option and under certain conditions, by up to an additional $i750 million
in the aggregate. The facility may be used for revolving loans, and up to $i75.0 million may be used for letters of credit. The revolving loans may be borrowed, repaid and re-borrowed until March 26, 2029, at which time all amounts borrowed must be repaid, subject to customary extension mechanics.
On March 26, 2024, the
Company borrowed $i274.4 million under the 2024 Credit Agreement. The initial borrowing was used to repay the outstanding amounts under the 2020 Credit Agreement. Additional amounts borrowed under the 2024 Credit Agreement will be used for working capital needs and general corporate purposes of the Company and its subsidiaries, including the funding of acquisitions and investments, payment of capital expenditures and the repurchase of shares.
Interest
under the revolving facility accrues, at a variable rate, based on, at our option, (i) the Secured Overnight Funding Rate (“SOFR”) plus a credit spread adjustment of i0.10% or (ii) an alternate base rate (“Base Rate”) plus, in each case, an applicable margin, and is payable monthly. The applicable margin ranges between i1.125%
and i1.75%, depending on the lower rate determined by either the Company’s leverage ratio or the credit rating of the Company’s senior unsecured debt. At March 31, 2024, the applicable all-in margin on the revolving facility was i1.35%
(including the credit spread adjustment). The commitment fee payable on the unused portion of the facility is equal to between i0.125% and i0.25% based on utilization of the facility. The
Company has also agreed to pay customary letter of credit fees.
The 2024 Credit Agreement contains certain customary restrictive loan covenants, including, among others, a financial covenant requiring a maximum leverage ratio and covenants limiting the Company’s ability to grant liens, make acquisitions, be acquired and the ability of the Company’s subsidiaries to incur indebtedness. Subsidiaries of the Company are not required to guarantee obligations under
the facility, unless such subsidiaries guarantee indebtedness in excess of a threshold set out in the 2024 Credit Agreement, subject to certain limitations and exceptions.
16
The 2024 Credit Agreement contains customary events of default that include, among others, non-payment of principal, interest or fees, material inaccuracy of representations and warranties, violation of covenants, cross defaults to certain other indebtedness, bankruptcy and insolvency events, ERISA defaults, material judgments, and events constituting a change of control. The occurrence of an event of default allows the lenders to terminate their obligations to lend
under the 2024 Credit Agreement and could result in the acceleration of the Company’s obligations under the facility.
2029 Notes
On June 18, 2021, the Company issued $i600.0 million aggregate principal amount of iii3.625//%
Senior Notes due 2029. The 2029 Notes were issued pursuant to an indenture, dated as of June 18, 2021 (the “2029 Note Indenture”), among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee.
The 2029 Notes were issued at an issue price of i100.0%
and bear interest at a rate of iii3.625//%
per annum. Interest on the 2029 Notes is payable on June 15 and December 15 of each year, beginning on December 15, 2021. The 2029 Notes will mature on June 15, 2029.
The Company may redeem some or all of the 2029 Notes at any time on or after June 15, 2024 for cash at the redemption prices set forth in the 2029 Notes Indenture, plus accrued and unpaid interest to, but excluding, the redemption date. Prior to June 15, 2024, the Company
may redeem up to i40% of the aggregate principal amount of the 2029 Notes in connection with certain equity offerings, or some or all of the 2029 Notes with a “make-whole” premium, in each case subject to the terms set forth in the 2029 Note Indenture.
On March 26, 2024, in connection with the closing of the Credit Agreement and as a result
of the termination of the 2020 Credit Agreement, the Company’s subsidiaries that guaranteed the Company’s 2029 Notes were released from their guarantee obligations with respect to the Notes, in accordance with the terms of the indenture pursuant to which the 2029 Notes was issued.
2030 Notes
On September 28, 2020, the Company issued $i800.0
million aggregate principal amount of iii3.75//%
Senior Notes due 2030. The 2030 Notes were issued pursuant to an indenture, dated as of September 28, 2020 (the “2030 Note Indenture”), among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee.
The 2030 Notes were issued at an issue price of i100.0%
and bear interest at a rate of iii3.75//%
per annum. Interest on the 2030 Notes is payable on April 1 and October 1 of each year, beginning on April 1, 2021. The 2030 Notes will mature on October 1, 2030.
The Company may redeem some or all of the 2030 Notes at any time on or after October 1, 2025 for cash at the redemption prices set forth in the 2030 Note Indenture, plus accrued and unpaid interest to, but excluding, the redemption date. Prior to October 1, 2025, the Company
may redeem up to i40% of the aggregate principal amount of the 2030 Notes in connection with certain equity offerings, or some or all of the 2030 Notes with a “make-whole” premium, in each case subject to the terms set forth in the 2030 Note Indenture.
On March 26, 2024, in connection with the closing of the Credit Agreement and as a result
of the termination of the 2020 Credit Agreement, the Company’s subsidiaries that guaranteed the Company’s 2030 Notes were released from their guarantee obligations with respect to the Notes, in accordance with the terms of the indenture pursuant to which the 2030 Notes was issued.
2028 Notes
On June 22, 2020, the Company issued $i800.0
million aggregate principal amount of iii4.50//%
Senior Notes due 2028. The 2028 Notes were issued pursuant to an indenture, dated as of June 22, 2020 (the “2028 Note Indenture”), among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee.
The 2028 Notes were issued at an issue price of i100.0%
and bear interest at a rate of iii4.50//%
per annum. Interest on the 2028 Notes is payable on January 1 and July 1 of each year, beginning on January 1, 2021. The 2028 Notes will mature on July 1, 2028.
17
The Company may redeem some or all of the 2028 Notes at any time on or after July 1, 2023 for cash at the redemption prices set forth in the 2028 Note Indenture, plus accrued and unpaid interest to, but excluding, the redemption date. Prior to July
1, 2023, the Company may redeem up to i40% of the aggregate principal amount of the 2028 Notes in connection with certain equity offerings, or some or all of the 2028 Notes with a “make-whole” premium, in each case subject to the terms set forth in the 2028 Note Indenture.
On March
26, 2024, in connection with the closing of the Credit Agreement and as a result of the termination of the 2020 Credit Agreement, the Company’s subsidiaries that guaranteed the Company’s 2028 Notes were released from their guarantee obligations with respect to the Notes, in accordance with the terms of the indenture pursuant to which the 2028 Notes was issued.
2020 Credit Agreement
Prior to entering into the 2024 Credit Agreement, the
Company had a credit facility that provided for a $i400.0 million Term loan facility and a $i1.0 billion Revolving credit facility (the “2020 Credit Agreement”). The 2020 Credit Agreement contained certain
customary restrictive loan covenants, including, among others, financial covenants that applied a maximum consolidated leverage ratio and a minimum consolidated interest expense coverage ratio. On March 26, 2024, concurrently with the Company’s entry into the 2024 Credit Agreement, the Company terminated the 2020 Credit Agreement and repaid all amounts outstanding.
Interest Rate Swap
As of March 31, 2024, the Company had ione
fixed-for-floating interest rate swap contract with a notional value of $i350.0 million that matures in September 2025. Under the contract, the Company pays a base fixed rate of i2.98%
and in return receives a floating Term SOFR base rate on i30-day notional borrowings.
Effective June 30, 2020, the Company de-designated all of its interest rate swaps and discontinued hedge accounting. Accordingly, subsequent changes to the fair value of the interest rate swap are recorded in Other income (expense), net. The amounts previously recorded in Accumulated other comprehensive loss are amortized into Interest expense, net over the terms of the hedged forecasted
interest payments. As of March 31, 2024, $i27.5 million is remaining in Accumulated other comprehensive loss, net. See Note 11 — Derivatives and Hedging for the amounts remaining in Accumulated other comprehensive loss, net of tax effect, at March 31, 2024 and December 31, 2023. See Note 12 — Fair Value Disclosures for a discussion of the fair values of Company’s interest rate swaps.
Note
9 — iEquity
Share Repurchase Authorization
In 2015, the Company’s Board of Directors (the “Board”) authorized a share repurchase program to repurchase up to $i1.2
billion of the Company’s common stock. The Board authorized incremental share repurchases of up to an aggregate additional $i3.5 billion of the Company’s common stock during 2021, 2022, and 2023. As of March 31, 2024, $i831.3 million
remained available under the share repurchase program. The Company may repurchase its common stock from time-to-time in amounts, at prices and in the manner that the Company deems appropriate, subject to the availability of stock, prevailing market conditions, the trading price of the stock, the Company’s financial performance and other conditions. Repurchases may be made through open market purchases (which may include repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended), accelerated share repurchases, private transactions or other transactions and will be funded by cash on hand and borrowings. Repurchases may also be made from time-to-time in connection with the settlement
of the Company’s stock-based compensation awards.
i
The Company’s share repurchase activity is presented in the table below for the periods indicated.
Cash
paid for repurchased shares (in thousands) (2)
$
i225,124
$
i106,850
/
18
(1)The
average purchase price for repurchased shares was $i459.69 and $i332.18 for the three months ended March 31, 2024 and 2023, respectively. The repurchased shares during the three months ended
March 31, 2024 and 2023 included purchases for both open market purchases and stock-based compensation award settlements.
(2)The cash paid for repurchased shares during the three months ended March 31, 2023 excluded $i2.0 million of open market purchases with trade dates in March 2023 that settled in April 2023.
Accumulated
Other Comprehensive Loss, net (“AOCL”)
i
The tables below provide information about the changes in AOCL by component and the related amounts reclassified out of AOCL to income during the periods indicated (net of tax, in thousands) (1).
(1)Amounts
in parentheses represent debits (deferred losses).
(2)$i4.8 million and $i5.1 million of the reclassifications related to interest rate swaps (cash flow
hedges) were recorded in Interest expense, net, for the three months ended March 31, 2024 and 2023, respectively. See Note 8 — Debt and Note 11 — Derivatives and Hedging for information regarding the cash flow hedges.
/
(3)The reclassifications related to defined benefit pension plans were recorded in Other income (expense), net.
The estimated net amount of the existing losses on the Company’s interest rate swaps that are reported in Accumulated other comprehensive loss,
net at March 31, 2024 that is expected to be reclassified into earnings within the next 12 months is $i18.7 million.
Note 10 — iIncome
Taxes
The provision for income taxes was $i49.0 million and $i85.5 million for the three months ended March 31, 2024 and 2023,
respectively. The effective income tax rate was i18.9% and i22.4% for the three months ended March 31, 2024 and 2023, respectively. The effective income tax rate
was higher in the prior year primarily due to the impact of the sale of the TalentNeuron business.
19
The Company had gross unrecognized tax benefits of $i152.4 million on March 31, 2024 and $i148.4
million on December 31, 2023. It is reasonably possible that gross unrecognized tax benefits will decrease by approximately $i6.0 million within the next twelve months due to the anticipated closure of audits and the expiration of certain statutes of limitation.
In January 2024, the
Company completed an intercompany transfer of certain intellectual property. The tax impact of the transfer did not have a significant impact on our effective tax rate. Prior to the sale, the Company had a $ii103.1/ million
deferred tax asset for tax basis in the related IP and a full valuation allowance due to no expected local tax benefit of the asset. As a result of the IP transfer, the deferred tax asset and related valuation allowance were written off with no impact to tax expense. The Company’s intellectual property footprint continues to evolve and may result in tax rate volatility in the future.
The Organization for Economic Co-operation and Development (“the OECD”) has issued various tax proposals including a two-pillar approach to global taxation (BEPS 2.0/ Pillar Two), focusing on global profit allocation and a 15% global corporate minimum tax rate. Several countries in which Gartner does business have proposed or enacted new laws to align with OECD Pillar Two proposals. The minimum tax is treated as a current
cost beginning in 2024 and does not have a significant impact on the Company's effective tax rate for the current period. Significant details around the provisions are still uncertain as the OECD and participating countries continue to work on defining the underlying rules and administrative procedures. The Company will continue to monitor and reflect the impact of such legislative changes in future financial statements as appropriate.
Note 11 — iDerivatives
and Hedging
The Company enters into a limited number of derivative contracts to mitigate the cash flow risk associated with changes in interest rates on variable-rate debt and changes in foreign exchange rates on forecasted foreign currency transactions. The Company accounts for its outstanding derivative contracts in accordance with FASB ASC Topic 815, which requires all derivatives, including derivatives designated as accounting hedges, to be recorded on the balance sheet at fair value. iThe
tables below provide information regarding the Company’s outstanding derivative contracts as of the dates indicated (in thousands, except for number of contracts).
(1)Effective
June 30, 2020, the Company de-designated all of its interest rate swaps and discontinued hedge accounting. Accordingly, subsequent changes to fair value of the interest rate swap are recorded in Other income (expense), net. The amounts previously recorded in Accumulated other comprehensive loss are amortized into Interest expense, net over the terms of the hedged forecasted interest payments. See Note 8 — Debt for additional information regarding the Company’s interest rate swap contract.
(2)The
Company has foreign exchange transaction risk because it typically enters into transactions in the normal course of business that are denominated in foreign currencies that differ from the local functional currency. The Company enters into short-term foreign currency forward exchange contracts to mitigate the cash flow risk associated with changes in foreign currency rates on forecasted foreign currency transactions. These contracts are accounted for at fair value with realized and
20
unrealized
gains and losses recognized in Other income (expense), net because the Company does not designate these contracts as hedges for accounting purposes. All of the outstanding foreign currency forward exchange contracts at March 31, 2024 matured before April 30, 2024.
(3)See Note 12 — Fair Value Disclosures for the determination of the fair values of these instruments.
At March 31, 2024, all of the
Company’s derivative counterparties were investment grade financial institutions. The Company did not have any collateral arrangements with its derivative counterparties and none of the derivative contracts contained credit-risk related contingent features. iThe table below provides information regarding amounts recognized in the accompanying Condensed Consolidated Statements
of Operations for derivative contracts for the periods indicated (in thousands).
Three Months Ended
March 31,
Amount
recorded in:
2024
2023
Interest expense, net (1)
$
i4,806
$
i5,117
Other
(income) expense, net (2)
(i4,314)
i1,904
Total
(income) expense, net
$
i492
$
i7,021
(1)Consists
of interest expense from interest rate swap contracts.
(2)Consists of net realized and unrealized gains and losses on foreign currency forward contracts and gains and losses on de-designated interest rate swaps.
Note 12 — iFair Value
Disclosures
The Company’s financial instruments include cash equivalents, fees receivable from customers, accounts payable and accrued liabilities, all of which are normally short-term in nature. The Company believes that the carrying amounts of these financial instruments reasonably approximate their fair values due to their short-term nature. The Company’s financial instruments also include its outstanding variable-rate borrowings under the 2024 Credit Agreement. The Company believes that the carrying amounts of its variable-rate borrowings reasonably
approximate their fair values because the rates of interest on those borrowings reflect current market rates of interest for similar instruments with comparable maturities.
The Company enters into a limited number of derivatives transactions but does not enter into repurchase agreements, securities lending transactions or master netting arrangements. Receivables or payables that result from derivatives transactions are recorded gross in the Company’s Condensed Consolidated Balance Sheets.
FASB ASC Topic 820 provides a framework for the measurement of fair value and a valuation hierarchy based on the transparency of inputs used in the valuation of assets and liabilities.
Classification within the valuation hierarchy is based on the lowest level of input that is significant to the resulting fair value measurement. The valuation hierarchy contains three levels. Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs such as internally-created valuation models. Generally, the Company does not utilize Level 3 valuation inputs to remeasure any of its assets or liabilities. However, Level 3 inputs may be used by the
Company when certain long-lived assets, including identifiable intangible assets, goodwill, and right-of-use assets are measured at fair value on a nonrecurring basis when there are indicators of impairment. Additionally, Level 3 inputs may be used by the Company in its required annual impairment review of goodwill. Information regarding the periodic assessment of the Company’s goodwill is included in Note 3 — Goodwill and Intangible Assets. The Company does not typically transfer assets or liabilities between different levels of the valuation hierarchy.
i
The
table below presents the fair values of certain financial assets and liabilities that are measured at fair value on a recurring basis in the Company's financial statements (in thousands).
(1)The
Company has a deferred compensation plan for the benefit of certain highly compensated officers, managers and other key employees. The assets consist of investments in money market funds, mutual funds and company-owned life insurance contracts, which are valued based on Level 1 or Level 2 inputs. The related deferred compensation plan liabilities are recorded at fair value, or the estimated amount needed to settle the liability, which the Company considers to be a Level 2 input.
(2)The Company enters into foreign currency forward exchange contracts to
hedge the effects of adverse fluctuations in foreign currency exchange rates (see Note 11 — Derivatives and Hedging). Valuation of these contracts is based on observable foreign currency exchange rates in active markets, which the Company considers to be a Level 2 input.
(3)The Company has an interest rate swap contract that hedges the risk of variability from interest payments on its borrowings (see Note 8 — Debt). The fair value of the interest rate swap is based on mark-to-market valuations prepared by a third-party broker. This valuation is based on observable
interest rates from recently executed market transactions and other observable market data, which the Company considers to be Level 2 inputs. The Company independently corroborates the reasonableness of the valuations prepared by the third-party broker by using an electronic quotation service.
i
The table below presents the carrying amounts
(net of deferred financing costs) and fair values of financial instruments that are not recorded at fair value in the Company’s Condensed Consolidated Balance Sheets (in thousands). The estimated fair value of the financial instruments was derived from quoted market prices provided by an independent dealer, which the Company considers to be a Level 2 input.
Carrying
Amount
Fair Value
March 31,
December 31,
March 31,
December 31,
Description
2024
2023
2024
2023
2028 Notes
$
i794,384
$
i794,088
$
i763,032
$
i759,040
2029
Notes
i595,009
i594,794
i541,800
i543,408
2030
Notes
i793,411
i793,189
i715,496
i709,600
Total
$
i2,182,804
$
i2,182,071
$
i2,020,328
$
i2,012,048
/
Assets
and liabilities measured at fair value on a non-recurring basis
The Company’s certain long-lived assets, including identifiable intangible assets, goodwill, right-of-use assets and other long-lived assets, are measured at fair value on a nonrecurring basis when there are indicators of impairment. During the three months ended March 31, 2024, the Company recorded impairment charges of $i0.4
million on right-of-use assets and $i0.1 million on other long-lived assets primarily related to certain office leases that the Company determined will no longer be used. The impairments were derived by comparing the fair value of the impacted assets to the carrying value of those assets as
22
of the impairment measurement
date, as required under ASC Topic 360 using Level 3 inputs. See Note 14 — Leases for additional discussion related to these impairment charges.
Note 13 — iContingencies
Legal Matters.The Company is involved in legal proceedings and litigation
arising in the ordinary course of business. A provision is recorded for pending litigation in the Company’s consolidated financial statements when it is determined that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. The Company believes that the potential liability, if any, in excess of amounts already accrued from all proceedings, claims and litigation will not have a material effect on its financial position, cash flows or results of operations when resolved in a future period.
Indemnifications.The Company has various agreements that may obligate it to indemnify the
other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations related to matters such as title to assets sold and licensed or certain intellectual property rights. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of the Company’s obligations and the unique facts of each particular agreement. Historically, payments made by the
Company under these agreements have not been material. As of March 31, 2024, the Company did not have any material payment obligations under any such indemnification agreements.
Note 14 — iiLeases/
The
Company’s leasing activities are primarily for facilities under cancelable and non-cancelable lease agreements expiring during 2024 and through 2038. These facilities support our executive and administrative activities, sales, systems support, operations, and other functions. The Company also has leases for office equipment and other assets, which are not significant. Certain of these lease agreements include (i) renewal options to extend the lease term for up to iten years and/or (ii) options to terminate the agreement within ione
year. Additionally, certain of the Company’s lease agreements provide standard recurring escalations of lease payments for, among other things, increases in a lessor’s maintenance costs and taxes. Under some lease agreements, the Company may be entitled to allowances, free rent, lessor-financed tenant improvements and other incentives. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company subleases certain office space that it does not intend to occupy. Such sublease arrangements
expire during 2024 and through 2032 and primarily relate to facilities in Arlington, Virginia. Certain of the Company’s sublease agreements: (i) include renewal and termination options; (ii) provide for customary escalations of lease payments in the normal course of business; and (iii) grant the subtenant certain allowances, free rent, Gartner-financed tenant improvements and other incentives.
All of the Company’s leasing and subleasing activity is recognized in Selling, general and administrative expense in the accompanying Condensed Consolidated Statements of Operations. iThe
table below presents the Company’s net lease cost and certain other information related to the Company’s leasing activities as of and for the periods indicated (dollars in thousands).
Three Months Ended
March
31,
Description:
2024
2023
Operating lease cost (1)
$
i25,903
$
i28,799
Lease
cost (2)
i5,631
i4,720
Sublease
income
(i11,882)
(i12,641)
Total
lease cost, net (3) (4)
$
i19,652
$
i20,878
Cash
paid for amounts included in the measurement of operating lease liabilities
$
i34,049
$
i34,948
Cash
receipts from sublease arrangements
$
i11,110
$
i12,439
Right-of-use
assets obtained in exchange for new operating lease liabilities
$
i6,791
$
i1,647
(1)Included
in operating lease cost was $i9.2 million and $i10.6 million for the three months ended March 31, 2024 and 2023, respectively, for
costs related to subleasing activities.
(2)These amounts are primarily variable lease and nonlease costs that are not fixed at the lease commencement date or are dependent on something other than an index or a rate.
23
(3)The Company did not capitalize any operating lease costs during any of the periods presented.
(4)Amount excludes impairment charges on lease related assets, as discussed below.
i
The
table below indicates where the discounted operating lease payments from the above table are classified in the accompanying Condensed Consolidated Balance Sheets (in thousands).
March 31,
December 31,
Description:
2024
2023
Accounts
payable and accrued liabilities
$
i98,558
$
i98,493
Operating
lease liabilities
i491,182
i513,406
Total
operating lease liabilities included in the Condensed Consolidated Balance Sheets
$
i589,740
$
i611,899
/
As
a result and in consideration of the changing nature of the Company’s use of office space, the Company continues to evaluate its existing real estate lease portfolio. In connection with this evaluation, the Company reviewed certain of its right-of-use assets and related other long-lived assets for impairment under ASC 360. As a result of the evaluation, the Company recognized impairment losses during the three months ended March 31, 2024 and 2023 of $i0.5
million and $i8.7 million, respectively, which are included as a component of Selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. The impairment losses recorded include $i0.4 million and
$i6.3 million related to right-of-use assets and $i0.1 million and $i2.4
million related to other long-lived assets, primarily leasehold improvements, for the three months ended March 31, 2024 and 2023, respectively.
The fair values for the asset groups relating to the impaired long-lived assets were estimated primarily using discounted cash flow models (income approach) with Level 3 inputs. The significant assumptions used in estimating fair values include the expected downtime prior to the commencement of future subleases, projected sublease income over the remaining lease periods and discount rates that reflect the level of risk associated with receiving future cash flows.
24
ITEM
2. 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 quarterly 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 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 ended December 31, 2023 (the “2023 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.
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 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: the impact of general economic conditions, including inflation (and related monetary policy by governments in response to inflation), recession, and national elections in a number of large countries on economic activity and our operations; changes in macroeconomic and market conditions and market volatility, including interest rates and the effect on the credit markets and access to capital; our ability to carry out our strategic initiatives and manage associated costs; 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; 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, especially in light of labor competition; 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
successfully compete with existing competitors and potential new competitors; our ability to enforce and protect our intellectual property rights; our ability to keep pace with technological developments in artificial intelligence; additional risks associated with international operations, including foreign currency fluctuations; the impact on our business resulting from changes in global geopolitical conditions, including those resulting from the conflict in the Middle East, the war in Ukraine and current and future sanctions imposed by governments or other authorities; the impact of restructuring and other charges on our businesses and operations; cybersecurity incidents; risks associated with the creditworthiness, budget cuts, and shutdown of governments and agencies; our ability to meet ESG commitments; the impact of changes in tax policy (including global minimum tax legislation) and heightened scrutiny from various taxing authorities globally; 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 the 2023 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. 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 2023 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 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.
25
BUSINESS OVERVIEW
Gartner,
Inc. (NYSE: IT) delivers actionable, objective insight that drives smarter decisions and stronger performance on an organization’s mission-critical priorities.
We deliver our 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 an unmatched 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.
On March 26, 2024, we entered into a Credit Agreement (the “2024 Credit Agreement”) among us, as borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”).
The 2024 Credit Agreement provides for a $1.0 billion senior unsecured five-year revolving facility.The facility may be increased, at the Company’s option and under certain conditions, by up to an additional $750 million in the aggregate. The facility may be used for revolving loans, and up to $75.0 million
may be used for letters of credit. The revolving loans may be borrowed, repaid and re-borrowed until March 26, 2029, at which time all amounts borrowed must be repaid, subject to customary extension mechanics.
On March 26, 2024, the Company borrowed $274.4 million under the 2024 Credit Agreement.The initial borrowing was used to repay the outstanding amounts under the 2020 Credit Agreement. Additional amounts borrowed under the 2024 Credit Agreement will be used for working capital needs and general corporate purposes of the Company and its subsidiaries,
including the funding of acquisitions and investments, payment of capital expenditures and the repurchase of shares.
For additional information, see Note 8 — Debt in the Notes to Condensed Consolidated Financial Statements.
BUSINESS MEASUREMENTS
We believe that the following business measurements are important performance indicators for our business segments:
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BUSINESS
SEGMENT
BUSINESS MEASUREMENT
Research
Contract valuerepresents 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. 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 contract value consists of Global Technology Salescontract value, which includes sales to users and providers of technology, and Global Business Salescontract value, which includes sales to all other functional leaders.
Client retention raterepresents 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 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 benchmark analytics 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.
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EXECUTIVE
SUMMARY OF OPERATIONS AND FINANCIAL POSITION
The fundamentals of our strategy include a focus on creating actionable insight for executives 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 $1.5 billion during the first quarter of 2024, an increase of 5% compared to the first quarter of 2023. During the first quarter of 2024, revenues for Research increased by 4%, Conferences revenue increased by 8%, and Consulting revenues increased by 6%, compared to the first quarter of 2023. For a more complete discussion of our results by segment, see Segment Results below.
For
the first quarter of 2024 and 2023, we had net income of $210.5 million and $295.8 million, respectively, and diluted income per share of $2.67 and $3.68, respectively. Cash provided by operating activities was $188.8 million and $164.7 million during the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had $1.2 billion of cash and cash equivalents and approximately $0.7 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 ended December 31, 2023. 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.
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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 business performance 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.
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).
Total
revenues for the three months ended March 31, 2024 were $1.5 billion, an increase of $64.1 million, or 5% compared to the same period in 2023 on both a reported basis and 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 $459.4 million during the three months ended March 31, 2024, an increase of $24.3 million compared to the same period in 2023, or 6% on a reported basis and 5% excluding the foreign currency impact. The increase in Cost of services and product development was primarily due to increased compensation costs associated with merit increases. Cost of services and product development as a percent of revenues was 31%
for both the three months ended March 31, 2024 and 2023.
Selling, general and administrative (“SG&A”) expense was $689.8 million during the three months ended March 31, 2024, an increase of $32.7 million compared to the same period in 2023, or 5% on a reported basis and excluding the foreign currency impact. The increase in SG&A expense during the three months ended March 31, 2024 was primarily a result of higher personnel expenses due to increased headcount and merit increases. This increase was partially offset by lower charges associated with the impairment of right-of-use assets and other long-lived assets. The number of quota-bearing
sales associates in Global Technology Sales decreased by 2% to 3,602 and in Global Business Sales, increased by 7% to 1,223 compared to March 31, 2023. On a combined basis, the total number of quota-bearing sales associates was flat when compared to March 31, 2023. SG&A expense as a percent of revenues was 47% during both the three months ended March 31, 2024 and 2023.
Depreciation increased by 10% during the three months ended March 31, 2024, compared to the same period in 2023. The increase for the three months ended March 31, 2024 was primarily due to increased software additions during
the last twelve months.
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Amortization of intangibles increased by 1% during the three months ended March 31, 2024, compared to the same period in 2023.
Acquisition and integration charges decreased by $0.9 million during the three months ended March 31, 2024, compared to the same period in 2023.
Gain from sale of divested operation was attributable to the sale of the TalentNeuron business in February 2023. We recognized a pre-tax gain of $139.3 million during the
three months ended March 31, 2023.
Operating income was $273.9 million and $408.0 million during the three months ended March 31, 2024 and 2023, respectively. The decrease in operating income for the three months ended March 31, 2024 as compared to the prior year period was primarily due to the gain from sale of divested operation recognized during the three months ended March 31, 2023 and increases in cost of services and product development and selling, general and administrative expenses, partially offset by increased revenue.
Interest expense, net decreased
by $8.2 million during the three months ended March 31, 2024, compared to the same period in 2023. The decrease for the three months ended March 31, 2024 was due to increased interest income, primarily as a result of higher cash balances than the prior year.
Gain on event cancellation insurance claims of $3.1 million during the three months ended March 31, 2023 reflected proceeds related to 2020 conference cancellation insurance claims.
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 months ended March 31,
2024 also included a gain of $4.5 million on de-designated interest rate swaps. Other income (expense), net for the three months ended March 31, 2023 included a loss of $1.4 million on de-designated interest rate swaps.
The provision for income taxes was $49.0 million and $85.5 million for the three months ended March 31, 2024 and 2023, respectively. The effective income tax rate was 18.9% and 22.4% for the three months ended March 31, 2024 and 2023, respectively. The effective income tax rate was higher in the prior year primarily due to the impact of the sale of the TalentNeuron business.
Net
income for the three months ended March 31, 2024 and 2023 was $210.5 million and $295.8 million, respectively. Our diluted net income per share during the three months ended March 31, 2024 decreased by $1.01. The decrease in net income during the three months ended March 31, 2024 was primarily due to the gain from sale of divested operation recognized during the three months ended March 31, 2023 and increased operating expenses, partially offset by an increase in revenue and lower 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, Acquisition and integration charges and Gain from sale of divested operation. 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.
(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 March 31, 2023 have been calculated using the same foreign currency rates as 2024.
Research revenues increased by $51.0 million during the three months ended March 31, 2024 compared to the same period in 2023, or 4% on a reported basis and excluding the foreign currency impact. The increase in revenues during 2024 was primarily due to Research contract value growth in 2023. The segment gross contribution margin was 74% for both the three months ended
March 31, 2024 and 2023.
Contract value increased to $4.9 billion at March 31, 2024, or 7% compared to March 31, 2023 excluding the foreign currency impact. The majority of industry sectors grew high single-digit rates or faster. The higher growth sectors were the energy, manufacturing and public sectors. Global Technology Sales (“GTS”) contract value increased by 5% at March 31, 2024 when
compared to March 31, 2023. The increase in GTS contract value was primarily due to new business from existing clients. GTS contract value increased by high single-digit rates or faster for the majority of enterprise sizes and half of industry sectors. Global Business Sales (“GBS”) contract value increased by 12% year-over-year, also primarily driven by new business from existing clients. The majority of our GBS practices achieved double-digit growth rates, with all enterprise sizes and the majority of sectors growing double-digits year-over-year.
GTS client retention was
83% and 85% as of March 31, 2024 and 2023, respectively, while wallet retention was 101% and 104%, respectively. GBS client retention was 87% and 89% for March 31, 2024 and 2023, respectively, while wallet retention was 107% and 110%, respectively. The decrease in GTS and GBS wallet retention was largely due to lower levels of spending by existing clients compared to the same period in 2023. GTS client and wallet retention were also affected by a slowdown in tech vendor spending and higher levels of tech vendor spending in the prior year period.
Conferences revenues increased by $5.4 million during the three months ended March 31, 2024 compared to the same period in 2023. The increase in revenue for the three months ended March 31, 2024 was primarily due to holding two more in-person destination conferences than in the first quarter of 2023. We held 12 and 10 in-person destination conferences during the three months ended March 31, 2024 and 2023, respectively. Gross contribution decreased to $23.3 million during the three months ended March 31, 2024 compared
to $26.8 million in the same period last year. The decrease in gross contribution during the three months ended March 31, 2024 was primarily due to an increase in conference-related expenses and increased headcount, partially offset by an increase in revenue.
(2)Backlog
is on a foreign exchange neutral basis. Backlog as of March 31, 2023 has been calculated using the same foreign currency rates as 2024.
Consulting revenues increased by 6% during the three months ended March 31, 2024 compared to the same period in 2023 on a reported basis and 7% excluding the foreign currency impact, with an increase in labor-based consulting revenue of 12% and a decrease in contract optimization revenue of 13%, each on a reported basis. Contract optimization revenue may vary significantly and, as such,
revenues for the first quarter of 2024 may not be indicative of results for the remainder of 2024 or beyond. The segment gross contribution margin was 40% for both the three months ended March 31, 2024 and 2023.
Backlog increased by $27.0 million, or 17%, from March 31, 2023 to March 31, 2024, excluding the foreign currency impact.
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LIQUIDITY
AND CAPITAL RESOURCES
We finance our operations through cash generated from our operating activities and, to a lesser extent, borrowings. Note 8 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations. At March 31, 2024, we had $1.2 billion of cash and cash equivalents and approximately $706.7 million of available borrowing capacity on the revolving credit facility under our 2024 Credit Agreement. We believe that the Company has adequate liquidity 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, benefiting from the favorable working capital dynamics 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, our subscription-based business model 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 49% held outside the U.S. at March 31, 2024. We intend to reinvest substantially all of our accumulated undistributed foreign earnings, except in instances where repatriation would result in minimal additional tax.
The table below summarizes the changes in our cash balances for the periods indicated (in thousands).
Net (decrease) increase in cash and cash equivalents and restricted cash
(55,505)
200,998
(256,503)
Effects of exchange rates on cash and cash equivalents
(27,693)
(5,485)
(22,208)
Beginning
cash and cash equivalents and restricted cash
1,319,599
698,599
621,000
Ending cash and cash equivalents and restricted cash
$
1,236,401
$
894,112
$
342,289
Operating
Cash
provided by operating activities was $188.8 million and $164.7 million during the three months ended March 31, 2024 and 2023, respectively. The year-over-year increase was primarily due to increased operating income, excluding the 2023 gain from sale of divested operation.
Investing
Cash (used in) provided by investing activities was $(24.7) million and $137.6 million during the three months ended March 31, 2024 and 2023, respectively. The decrease from 2023 to 2024 was the result of the proceeds received from the sale of the TalentNeuron business in February 2023.
Financing
Cash
used in financing activities was $219.7 million and $101.3 million during the three months ended March 31, 2024 and 2023, respectively. We used $225.1 million and $106.9 million of cash for share repurchases during the three months ended March 31, 2024 and 2023, respectively.
Debt
As of March 31, 2024, the Company had $2.5 billion of principal amount of debt outstanding. Note 8 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information
regarding the Company’s outstanding debt
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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.
OFF
BALANCE SHEET ARRANGEMENTS
From January 1, 2024 through March 31, 2024, the Company has not entered into any material off-balance sheet arrangements or transactions with unconsolidated entities or other persons.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST
RATE RISK
As of March 31, 2024,the Company had $2.5 billion in total debt principal outstanding. Note 8 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company’s outstanding debt obligations.
Approximately $274.4 million of the Company’s total debt outstanding as of March 31, 2024 was based on a floating base rate of interest, which potentially exposes the
Company to increases in interest rates. However, we reduce our overall exposure to interest rate increases through our interest rate swap contract, which effectively converts the floating base interest rates on all of our variable rate borrowings to fixed rates.
FOREIGN CURRENCY RISK
A significant portion of our revenues are typically derived from sales outside of the United States. Among the major foreign currencies in which we conduct business are the Euro, the British Pound, the Japanese Yen, the Australian dollar and the Canadian dollar. The reporting currency of our Condensed Consolidated Financial Statements is the U.S. dollar. As the values of the foreign currencies in which we operate
fluctuate over time relative to the U.S. dollar, the Company is exposed to both foreign currency translation and transaction risk.
Translation risk arises as our foreign currency assets and liabilities are translated into U.S. dollars because the functional currencies of our foreign operations are generally denominated in the local currency. Adjustments resulting from the translation of these assets and liabilities are deferred and recorded as a component of stockholders’ equity. A measure of the potential impact of foreign currency translation can be determined through a sensitivity analysis of our cash and cash equivalents. At March 31, 2024, we had $1.2 billion of cash and cash equivalents, with a substantial portion denominated in foreign
currencies. If the exchange rates of the foreign currencies we hold all changed in comparison to the U.S. dollar by 10%, the amount of cash and cash equivalents we would have reported on March 31, 2024 could have increased or decreased by approximately $66.4 million. The translation of our foreign currency revenues and expenses historically has not had a material impact on our consolidated earnings because movements in and among the major currencies in which we operate tend to impact our revenues and expenses fairly equally. However, our earnings could be impacted during periods of significant exchange rate volatility, or when some or all of the major currencies in which we operate move in the same direction against the U.S. dollar.
Transaction risk arises when we enter into a transaction that is denominated in a currency that
may differ from the local functional currency. As these transactions are translated into the local functional currency, a gain or loss may result, which is recorded in current period earnings. We typically enter into foreign currency forward exchange contracts to mitigate the effects of some of this foreign currency transaction risk. Our outstanding foreign currency forward exchange contracts as of March 31, 2024 had an immaterial net unrealized loss.
CREDIT RISK
Financial instruments that potentially subject the
Company to concentration of credit risk consist primarily of short-term, highly liquid investments classified as cash equivalents, fees receivable, interest rate swap contracts and foreign currency forward exchange contracts. The majority of the Company’s cash and cash equivalents, interest rate swap contracts and foreign currency forward exchange contracts are with large investment grade commercial banks. Fees receivable balances deemed to be collectible from customers have limited concentration of credit risk due to our
diverse customer base and geographic dispersion.
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ITEM 4. CONTROLS AND PROCEDURES
We have established disclosure controls and procedures that are designed to ensure that the information we are required to disclose in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and such information is accumulated and communicated to our executive management
team, including our chief executive officer and our chief financial officer, to allow timely decisions regarding required disclosure.
Management conducted an evaluation, as of March 31, 2024, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, under the supervision and with the participation of our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of March 31, 2024, the Company’s disclosure controls and procedures were effective.
Except
as noted below, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange ActRules 13a-15 or 15d-15 that occurred during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During the quarter ended March 31, 2024, we implemented a new enterprise resource planning (“ERP”) system. The new cloud-based ERP system replaced our previous ERP system, including our accounting systems and general ledgers. As a result of this implementation, we modified certain existing controls and implemented new controls and procedures related to the new ERP system
to maintain appropriate internal control over financial reporting during and after the system change. The Company does not believe this implementation has had or will have in the future a material adverse effect on the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
We are involved in legal and administrative proceedings and litigation arising in the ordinary course of business. We believe that the potential liability, if any, in excess of amounts already accrued from all proceedings, claims and litigation will not have a material effect on our financial position, cash flows or results of operations when resolved in a future period.
ITEM 1A. RISK FACTORS
There were no material changes to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31,
2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities during the period covered by this report.
Issuer Purchases of Equity Securities
In May 2015, the Company’s Board of Directors (the “Board”) authorized a share repurchase program to repurchase up to $1.2 billion of the Company’s
common stock. The Board authorized incremental share repurchases of up to an aggregate additional $3.5 billion of the Company’s common stock during 2021, 2022, and 2023. The Company may repurchase its common stock from time-to-time in amounts, at prices and in the manner that the Company deems appropriate, subject to the availability of stock, prevailing market conditions, the trading price of the stock, the Company’s financial performance and other conditions. Repurchases may be made through open market purchases (which may include repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange
Act of 1934, as amended), accelerated share repurchases, private transactions or other transactions and will be funded by cash on hand and borrowings. Repurchases may also be made from time-to-time in connection with the settlement of the Company’s stock-based compensation awards. The table below summarizes the repurchases of our common stock during the three months ended March 31, 2024.
Period
Total Number
of Shares Purchased (#)
Average Price Paid Per Share ($)
Total Number of Shares Purchased Under Announced Programs (#)
Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands)
(1)The repurchased shares during the three months ended March 31, 2024 included 150,107 shares purchased for the settlement of stock-based compensation awards and 339,627 shares purchased in the open market. All amounts presented are exclusive of the excise tax accrual.
ITEM 5. OTHER INFORMATION
No director or Section 16 officer iiadopted/
or iiterminated/ a trading arrangement intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or a non-Rule 10b5–1 trading arrangement during the three months ended March 31, 2024.
Items
3 and 4 of Part II are not applicable and have been omitted.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.