Gartner, Inc. (NYSE: IT) is the world’s leading research and advisory company and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their goalsmission-critical priorities today and build the successful organizations of tomorrow. We believe we have anour unmatched combination of expert-led, practitioner-sourced and data-driven research that steers clients toward the right decisions on the issues that matter most. We’reWe are a trusted advisor and an objective resource for more than 15,000 organizationsenterprises in more than 100 countries — across all major functions, in every industry and enterprise size.

Gartner delivers its products and services globally through three business segments:segments – Research, Conferences and Consulting, as described below.

Technology increasingly drives organizational strategies rather than just supporting them,Enterprise leaders face enormous pressure to stay ahead and three megaforces - technology-driven industry disruption, the growing pervasiveness of technology across every part of the enterprise, and sustained macroeconomic and political volatility (such as commodity price swings, exchange rate flux, Brexit) - are rapidly changing how businesses and other organizations plan and operate.

Our diversified business model provides multiple entry points and sources of value for our clients that facilitate increased client spending on our research and advisory services, conferences and consulting services and conferences.services. A critical part of our long-term strategy is to increase business volume and penetration with our most valuable clients, identifying relationships with the greatest sales potential and expanding those relationships by offering strategically relevant research and advice. We also seek to extend the Gartner brand name to develop new client relationships, augment our sales capacity and expand into new markets around the world. In addition, we seek to increase our revenue and operating cash flow through more effective pricing of our products and services. These initiatives have created additional revenue streams through more effective packaging, campaigning and cross-selling of our products and services.

Our principal products and services are delivered through our three business segments:segments, as described below.

We believe that the principal factors that differentiate us from our competitors are:are as follows:

Notwithstanding these differentiating factors, we face competition from a significant number of independent providers of information products and services. We compete indirectly with consulting firms and other data and information providers, including electronic and print media companies. These indirect competitors could choose to compete directly with us in the future. In addition, we face competition from free sources of information that are available to our clients through the internet. Limited barriers to entry exist in the markets in which we do business. As a result, new competitors may emerge and existing competitors may start to provide additional or complementary services. While we believe the breadth and depth of our research positions us well versus our competition, increased competition could result in loss of market share, diminished value in our products and services, reduced pricing, and increased sales and marketing expenditures.

Our success has resulted in part from proprietary methodologies, software, reusable knowledge capital and other intellectual property rights. We rely on a combination of patent, copyright, trademark, trade secret, confidentiality, non-compete and other contractual provisions to protect our intellectual property rights. We have policies related to confidentiality, ownership, and the use and protection of Gartner’s intellectual property. We also enter into agreements with our employees and third parties as appropriate that protect our intellectual property, and we enforce these agreements if necessary. We recognize the value of our intellectual property in the marketplace and vigorously identify, create and protect it. Additionally, we actively monitor and enforce contract compliance by

 

We had a total of 15,17316,724 employees as of December 31, 2018, a slight increase compared to 15,131 at December 31, 2017. The2019, an increase of 10% when compared to 15,173 employees at December 31, 2018 is net2018. The overall growth in the number of a reductionemployees was due, in part, to an increase in the total number of 1,547 employees resulting from our 2018 business divestitures. Adjusting for these divestitures, our total headcount increased by approximately 11% year-over-year.quota-bearing sales associates during 2019.

We had 8,8029,468 employees, or 58%57% of our total employees, basedlocated in the U.S.United States at December 31, 20182019 in 83approximately 45 offices. WeAt such date, we had 1,3121,314 employees located at our headquarters facility in Stamford, Connecticut and nearby; 1,9302,040 employees located at our Ft.Fort Myers,

We had 6,3717,256 employees, or 42%43% of our total employees, located outside of the United States at December 31, 20182019 in 43 offices: 1,135approximately 75 offices. At such date, 1,616 employees were located in Gurgaon, India; 1,180 employees were located in Egham, the United Kingdom; 1,089and 4,460 employees were located elsewhere in Gurgaon, India; and 4,147 employees were located elsewhere.the world.

Our employees may be subject to collective bargaining agreements at a company or industry level, or works councils, in those foreign countries where this issuch arrangements are part of the local labor law or practice. We have experienced no work stoppages and consider our relations with our employees to be favorable.

Our U.S. government contracts are subject to the approval of appropriations by the U.S. Congress to fund the agencies contracting for our products and services. Additionally, our contracts at the state and local levels, as well as foreign government contracts, are subject to various governmental authorizations and funding approvals and mechanisms. In general, most if not allCertain of these contracts may be terminated at any time by the government entity without cause or penalty.

The Company's financial information by business segment for the three-year period ended December 31, 20182019 is provided in Note 1416 — Segment Information in the Notes to Consolidated Financial Statements. Additional information regarding revenues by business segment is locatedprovided in Note 19 — BusinessRevenue and Significant Accounting PoliciesRelated Matters in the Notes to Consolidated Financial Statements.

There can be no assurance that we will be able to successfully compete against current and future competitors and our failure to do so couldwill result in loss of market share, diminished value in our products and services, reduced pricing and increased marketing expenditures. Furthermore, we maywill not be successful if we cannot compete effectively on quality of research and analysis, timely delivery of information, customer service, the ability to offer products to meet changing market needs for information and analysis, or price.

Our research subscription contracts are typically for 12-monthstwelve months or longer. Our ability to maintain contract renewals is subject to numerous factors, including the following:

Additionally, as we continue to adjust our products and service offerings to meet our clients’ continuing needs, we may shift the type and pricing of our products which may impact client renewal rates. While our Research client retention rate was 82% and 83% at both December 31, 2019 and 2018, and 2017,respectively, there can be no guarantee that we will continue to maintain this rate of client renewals.

AnyA material decline in our ability to replace consulting engagements couldwill have an adverse impact on our revenues and our financial condition. In addition, revenue from our contract optimization business can fluctuate significantly from period to period and is not predictable.

In addition, continuously evolving data protection laws and regulations, such as the European Union General Data Protection Regulation (“GDPR”) (effective in May 2018)(GDPR), and the new California Consumer Privacy Act (“CCPA”), which takes effect in(CCPA) (effective January 2020,2020), pose increasingly complex compliance challenges. We have implemented a GDPR and CCPA compliance program and are working towards CCPA compliance.programs. In the meantime, Gartner will continue to maintain and rely upon our comprehensive global data protection compliance program, which includes administrative, technical, and physical controls to safeguard our associates’ and clients' personal data. The interpretation and application of these laws in the United States, the European UnionEU and elsewhere are often uncertain, inconsistent and ever changing. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

in connection with stolen customer, employee,could cause us to experience reputational harm, loss of customers and revenue, fines, regulatory actions and scrutiny, sanctions or other confidential information; westatutory penalties, litigation, liability for failure to safeguard our customers’ information, or financial losses that are required to dedicate significant resources to system repairseither not insured against or increase cyber security protection; or we otherwise incur significant litigation, regulatory actionnot fully covered through any insurance maintained by us.

Any of the foregoing may have a material adverse effect on our business, operating results and scrutiny or other costs as a result of these occurrences.financial condition.

The debt service requirements of these borrowings could impair our future financial condition and operating results. In addition, the affirmative, negative and financial covenants of the 2016 Credit Agreement, as amended, as well as the covenants related to the Senior Notes, could limit our future financial flexibility. A failure to comply with these covenants could result in acceleration of all amounts outstanding, which could materially impact our financial condition unless accommodations could be negotiated with our lenders and Noteholders.noteholders. No assurance can be given that we would be successful in doing so, or that any accommodations that we were able to negotiate would be on terms as favorable as those currently.currently in place. The outstanding debt may limit the amount of cash or additional credit available to us, which could restrain our ability to expand or enhance products and services, respond to competitive pressures or pursue future business opportunities requiring substantial investments of additional capital.

In addition, variable ratevariable-rate borrowings under our 2016 Credit Agreement typically use LIBOR as a benchmark for establishing the rate of interest. LIBOR is the subject of recent national and international regulatory scrutiny which may result in changes that cause LIBOR to disappear entirely after 2021 or to cause it to perform differently than in the past. The consequences of these LIBOR developments on our variable ratevariable-rate borrowings, including the possible transition to other rates such as the Secured Overnight Financing Rate (SOFR), cannot be predicted at this time, but could include an increase in the cost of our variable ratevariable-rate indebtedness and volatility in our earnings.

Our employees are subject to restrictive covenant agreements (which include restrictions on employees' ability to compete and solicit customers and employees) and assignment of invention agreements, to the extent permitted under applicable law. When the period expires relating to thetheir particular restriction,restrictions, former employees may compete against us. If a former employee violates the provisions of his/her restrictive covenant agreement, we seek to enforce the restrictions but there is no assurance that we will be successful in our efforts.

We are also in the process of adding new leased spaces to support our continued growth. If the new spaces are not completed on schedule, or if the landlord defaults on its commitments and obligations pursuant to the new leases, we may incur additional expenses. In addition, unanticipated difficulties in initiating operations in a new space, including construction delays, IT system interruptions, or other infrastructure support problems, could result in a delay in moving into the new space, resulting in a loss of employee and operational productivity and a loss of revenue and/or additional expenses, which could also have an adverse, material impact on our operating results.

At the present time, the United StatesCorporate tax reform, base-erosion efforts and other countriestax transparency continue to be high priorities in many countries. Tax reform legislation is being proposed or enacted in a number of jurisdictions where we do business have either changed or are actively considering changes in their tax, accounting and other related laws. In the United States, tax reform has introduced numerous new complicated tax laws which could unfavorably impact our future effective tax rate. Various provisions of thebusiness. The U.S. Tax Cuts and Jobs Act of 2017 ("the Act") are(the Act) adopted broad U.S. corporate income tax reform and introduced several highly complex provisions. The U.S. Treasury Department and remain unclear in certain respects. Additionalother standard-setting bodies will continue to interpret and issue guidance inon how provisions of the form of noticesAct will be applied and proposed regulations have been issued, and further guidance is expected to be issued. Changes could be made to the proposed regulations, future legislation could be enacted, and more regulations and notices could be issued.administered. We will continue to monitor and will reflect impactsthe impact of the Act in future financial statements as appropriate. In addition, many state and local tax jurisdictions are still determining how they will interpret the Act. Final state and local governments’ legislation or guidance relating to the Act may impact our financial results.

During 2015, the Organization for Economic Cooperation and Development (“OECD”)(OECD) released final reports on various action items associated with its initiative to prevent Base Erosion and Profit Shifting (“BEPS”)(BEPS). Numerous countries have and continue to propose tax law changes intended to address BEPS. The future enactment by various governments of these and other proposals could significantly increase our tax obligations in many countries where we do business. These actual, potential, and other changes, both individually and collectively, could materially increase our effective tax rate and negatively impact our financial position, results of operations, and cash flows.

In addition, our tax filings for various years are subject to examination by domestic and international taxing authorities and, during the ordinary course of business, we are under audit by various tax authorities. Recent and future actions on the part of the OECD and various governments have increased scrutiny of our tax filings. Although we believe that our tax filings and related accruals are reasonable, the final resolution of tax audits may be materially different from what is reflected in our historical tax provisions

and accruals and could have a material adverse effect on our effective tax rate, financial position, results of operations, and cash flows, particularly in major taxing jurisdictions including, but not limited to: the United States, Ireland, India, Canada, United Kingdom, Japan, and France.flows.

As of December 31, 2018,2019, we had approximately $171.0$142.0 million of accumulated undistributed earnings in our non-U.S. subsidiaries. Our cash and cash equivalents are held in numerous locations throughout the world. At December 31, 2018, 79%2019, 92% of our cash and cash equivalents was held overseas, with a substantial portion representing accumulated undistributed earnings of our non-U.S. subsidiaries. Under U.S. GAAP,generally accepted accounting principles in the United States of America, no provision for income taxes that may result from the remittance of accumulated undistributed foreign earnings is required if the Company intends to reinvest such earnings overseas indefinitely. OurThe provisions of the Act significantly changed the way earnings of non-U.S. subsidiaries are taxed in the United States. The Act imposed a one-time transition tax on earnings of foreign subsidiaries that were previously tax deferred, adopted a system of current liquidity requirements do not demonstratetaxation of foreign global intangible low-taxed income and provided for a needdeduction on repatriation of dividends from foreign subsidiaries. As a result of and subsequent to repatriate accumulatedthe enactment of the Act, the Company has remitted previously undistributed foreign earnings to fund our U.S. operations or otherwise satisfy the liquidity needs of our U.S. operations. Accordingly, thewith minimal additional tax cost. The Company intends to continue to reinvest substantially all of its accumulated undistributed foreign earnings, except in instances in whichwhere the repatriation of those earnings would result in minimal additional tax. As a result, we have not recognized income tax expense on the amounts deemed permanently reinvested. However, under the provisions of the U.S Tax Cuts and Jobs Act of 2017, we envision that the income tax that would be payable if such earnings were repatriated would be minimal.

None.

 

As of December 31, 2018,2019, we leased 83approximately 45 domestic and 4375 international active properties.office properties for our ongoing business operations. These offices, which exclude certain properties that we sublease to others, support our executive and administrative activities, research and consulting, sales, systems support, operations, and other functions. We have a significant presenceOur corporate office is based in Stamford, Connecticut; Ft.Connecticut. We also maintain an important presence in: Fort Myers, Florida; Arlington, Virginia; Egham, the United Kingdom; Gurgaon, India; Irving, Texas; and Irving, Texas.Barcelona, Spain. The Company does not own any real properties.property.

Our Stamford corporate headquarters are located in 213,000 square feetis comprised of leased office space in three buildings located on the same campus. The Company'sOur lease onfor the Stamford headquarters facility expires in 2027 and contains three five-year renewal options at fair value. In 2017Additionally, we leased an additional 57,000 square feet oflease office space in a fourth building adjacent to our Stamford headquarters facility under a lease designed to be co-terminus with our headquarters and we alsolease. We have options for furtheradditional space in this fourth building.

We expect to continue to invest in our business by adding headcount and, as a result, we may need additional office space in various locations. Should additional space be necessary, we believe that it will be available and aton reasonable terms.

We are involved in various legal and administrative proceedings and litigation arising in the ordinary course of business. The outcome of these individual matters is not predictable at this time. However, weWe believe that the ultimate resolutionpotential liability, if any, in excess of these matters, after considering amounts already accrued from all proceedings, claims and insurance coverage,litigation will not have a material adverse effect on our financial position, cash flows or results of operations or cash flowswhen resolved in a future periods.period.

Not applicable.

Our common stock is listed on the New York Stock Exchange under the symbol "IT". As of January 31, 2019,2020, there were 1,1891,113 holders of record of our common stock. Our 20192020 Annual Meeting of Stockholders will be held on May 30, 2019June 8, 2020 at the Company’s corporate headquarters in Stamford, Connecticut. We did not submit any matter to a vote of our stockholders during the fourth quarter of 2018.2019.

 

The equity compensation plan information set forth in Part III, Item 12 of this Annual Report on Form 10-K is hereby incorporated by reference into this Part II, Item 5.

The Company has a $1.2 billion board authorization adopted in May 2015 to repurchase the Company'sits common stock. 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 fromby cash on hand and borrowings under our 2016 Credit Agreement.borrowings. Repurchases may also be made from time-to-time in connection with the settlement of the Company's share-basedstock-based compensation awards.

 

TOTAL REVENUESTotal revenues for the year ended December 31, 2018 increased $664.0 million, to $4.02019 were $4.2 billion, an increase of 20%$269.9 million, or 7% compared to the year ended December 31, 20172018 on a reported basis and 19%9% excluding the foreign currency impact. A portion of the total revenue increase for 2018 compared to 2017 was due to the CEB acquisition.

Refer to the section of this MD&A below entitled “Segment Results” for a discussion of revenues and results by segment.

Cost of services and product development was $1.5$1.6 billion in 2018,2019, an increase of $148.6$81.8 million compared to 2017,2018, or 11%6% on both a reported basis and 7% excluding the foreign currency impact. ThisThe increase in Cost of services and product development was primarily due to higher payroll and related benefits costs resulting from increased headcount, as well as incremental payroll and related benefits costs resultingpartially offset by a reduction in expense from the CEB acquisition.certain businesses that were divested during 2018. Cost of services and product development as a percent of revenues was 37% during both 2019 and 40% for 20182018.

Selling, general and 2017, respectively, with the improvement in 2018 primarily due to the negative impact on revenue from the deferred revenue fair value accounting adjustment, which was substantially less in 2018 compared to 2017.

DEPRECIATIONDepreciation increased $4.7 millionby 20% during 2018 when2019 compared to 2017. Such increase was due to property, equipment and leasehold improvements acquired with CEB and additional Gartner investments.

ACQUISITION AND INTEGRATION CHARGES declinedAmortization of intangibles decreased by 31% during 2019 compared to 2018 due to certain businesses that were divested during 2018, including the related intangible assets, as well as certain intangible assets that became fully amortized in 2018 and 2019.

Acquisition and integration charges declined by $97.7 million during 2019 compared to 2017 as2018. This decrease was the result of the Company hadhaving completed two acquisitions in 2017, no acquisitions in 2018 and noneone minor acquisition in 2018. Acquisitionlate 2019.

Operating income was $370.1 million and integration charges consist of additional costs$259.7 million during 2019 and expenses resulting from our acquisitions and include, among other items, professional fees, severance, stock-based compensation charges and accruals for exit costs for certain office space2018, respectively. The increase in Arlington, Virginia related to our acquisition of CEB that the Company does not intend to occupy. During 2018, exit costs represented the single largest component of our acquisition and integration charges.

INTEREST EXPENSE, NETInterest expense, net declined slightly in 2018by $24.4 million during 2019 compared to 2017. The weighted-average debt2018. This decrease was primarily due to lower average outstanding in 2018 was approximately $2.5 billion compared to $2.8 billion in 2017. Offsetting the favorable impact of theborrowings during 2019 and nominally lower weighted-average debt outstanding in 2018 was a higher weighted-averageweighted average annual effective interest rate during 2018 when compared to 2017.rates on the Company's total outstanding debt.

GAIN FROM DIVESTED OPERATIONS wasGain from divested operations of $45.4 million in 2018 and was attributabledue to sales of certain business units and other miscellaneous assets. Additional information is includedLoss from divested operations of $2.1 million in 2019 was primarily due to adjustments of certain working capital balances related to the Company's 2018 divestitures. Note 2 — Acquisitions and Divestitures in the Notes to Consolidated Financial Statements whileprovides additional information regarding our segments isthe Company's 2018 divestitures.

Other income, net for the years presented herein included in Note 14 — Segment Information.

PROVISION (BENEFIT) FOR INCOME TAXES in 2018The provision for income taxes was an expense of$42.4 million and $58.7 million on pretax income of $181.1 million compared to a benefit of $131.1 million on a pretax loss of $127.8 million in 2017. Theduring 2019 and 2018, respectively, with an effective income tax rate wasof 15.4% in 2019 and 32.4% in 2018 compared to 102.6% in 2017. Both periods included favorable adjustments for the impact of the U.S. Tax Cuts and Jobs Act of 2017.2018. The adjustment in 2017 was more significant than 2018 and had a larger favorable impact on the 20172019 effective tax rate. The 2017 tax rate was also favorably impacted byincludes a significant benefit from the recognitionintercompany sale of unrealized capital losses from a divested business. Seecertain intellectual property, while no such benefit occurred in 2018. Note 10 -12 — Income Taxes in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for furtherprovides additional information related toregarding the Company’s effective tax rates.Company's income taxes.

NET INCOMENet income was $233.3 million and $122.5 million during 2019 and $3.3 million during 2018, and 2017, respectively. Additionally, our diluted net income per share increased by $1.29$1.23 in 2018 when2019 compared to 2017.2018. These year-over-year changes reflect an improvementreflect: (i) increases in our 20182019 operating profitability

We evaluate reportable segment performance and allocate resources based on gross contribution margin. Gross contribution is defined as operating income (loss),or loss excluding certain Cost of services and product development charges,expenses, SG&A expenses, Depreciation, Amortization of intangibles, and Acquisition and integration charges, and Amortization of intangibles.charges. Gross contribution margin is defined as gross contribution as a percent of revenues.

During 2018, the Company divested all three of the non-core businesses that comprised its Other segment each of which were acquired as part of the acquisition of CEB Inc. in April 2017. As a result of these divestitures and the movement ofmoved a small residual product infrom the Other segment into the Research business the Company isand, as a result, no longer recording any additional operating activity has been recorded in the Other segment effective September 1, 2018. Additional information regarding the divestitures is included in 2019. The Other segment had $105.6 million of revenue during 2018, while gross contribution was $65.1 million. Note 2 –Acquisitions— Acquisitions and Divestitures in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.provides additional information regarding the Company's 2018 divestitures.

The Company's currentCompany’s reportable segments are as follows:

The sections below present the results of the Company's three currently reportable business segments and its Other segment:segments.