# Gartner Inc: Form 10-Q for the period ended Mar 31, 2020

- Company: [Gartner Inc](/companies/it.md) (CIK 749251)
- Form: 10-Q
- Filed: 2020-05-07
- Accepted by EDGAR: May 7, 2020, 10:17 ET
- Period: 2020-03-31
- Accession: 0000749251-20-000015
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/749251/000074925120000015/it-20200331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/749251/000074925120000015/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-01-01 to 2020-03-31 | $1.02bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-01-01 to 2020-03-31 | $341.3m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2020-01-01 to 2020-03-31 | $496.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-01-01 to 2020-03-31 | $124.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-01-01 to 2020-03-31 | $26.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-01-01 to 2020-03-31 | $21.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | $75.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-01-01 to 2020-03-31 | $0.83 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-01-01 to 2020-03-31 | $0.84 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-01-01 to 2020-03-31 | 90,066,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | $55.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 3 months, 2020-01-01 to 2020-03-31 | $73.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2020-03-31 | $227.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-03-31 | $1.77bn | us-gaap:AssetsCurrent |
| Total assets | at 2020-03-31 | $6.80bn | us-gaap:Assets |
| Current liabilities | at 2020-03-31 | $2.53bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-03-31 | $5.91bn | us-gaap:Liabilities |
| Long-term debt | at 2020-03-31 | $2.04bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2020-03-31 | $149.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2020-03-31 | $890.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,600 characters.

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, 2019 (the "2019 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 risks and uncertainties, some of which are beyond our control. Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future quarterly and annual revenues, operating income, results of operations and cash flows, as well as any forward-looking statement, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following: uncertainty of the magnitude, duration, geographic reach and impact on the global economy of the COVID-19 pandemic; the current, and uncertain future, impact of the COVID-19 pandemic and governments’ responses to it on our business, growth, reputation, projections, prospects, financial condition, operations, cash flows, and liquidity; the adequacy or effectiveness or steps we take to respond to the crisis, including cost reduction or other mitigation programs; the timing of our Gartner Symposium/Xpo series that normally occurs during the fourth quarter, as well as our other conferences and meetings; the amount of new business generated, including from acquisitions; the mix of domestic and international business; domestic and international economic conditions; the U.K.’s exit from the European Union and its impact on our results; the impact of changes in tax policy and heightened scrutiny from various taxing authorities globally; changes in market demand for our products and services; changes in foreign currency rates; changes in macroeconomic and market conditions and market volatility (including developments and volatility arising from the COVID-19 pandemic), including interest rates and the effect on the credit markets and access to capital; the timing of the development, introduction and marketing of new products and services; competition in the industry; the payment of performance compensation; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; and other risks and uncertainties detailed in this Form 10-Q and our most recent Form 10-K and other filings that we make with the SEC. 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 Part I, Item 1A. of the 2019 Form 10-K, which is incorporated herein by reference and "Risk Factors" in Part II, Item 2A of this Form 10-Q.

Forward-looking statements are subject to risks, estimates and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements, and are currently, or in the future could be, amplified by the COVID-19 pandemic. Factors that might cause such a difference include, but are not limited to, those listed above or described under “Item 1A. Risk Factors” in the 2019 Form 10-K and "Risk Factors" in Part II, Item 2A of this Form 10-Q. 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.

### BUSINESS OVERVIEW

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 mission–critical priorities today and build the successful organizations of tomorrow. We believe our unmatched combination of expert-led, practitioner-sourced and data-driven research steers clients toward the right decisions on the issues that matter most. We are a trusted advisor and an objective resource for more than 15,000 enterprises in more than 100 countries — across all major functions, in every industry and enterprise size.

Our products and services are delivered through three segments – Research, Conferences and Consulting, as described below.

- ***Research*** provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of an enterprise through reports, briefings, proprietary tools, access to our research experts, peer networking services and membership programs that enable our clients to drive organizational performance.
- ***Conferences*** provides business professionals 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 advice live.
- ***Consulting*** combines the power of Gartner market-leading research with custom analysis and on-the-ground support to help chief information officers and other senior executives driving technology-related strategic initiatives move confidently from insight to action.

### COVID-19 Impact

In December 2019, a novel coronavirus disease (“COVID-19”) was reported in Wuhan, China and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The virus has since spread to nearly all regions in the world and has created significant uncertainties and disruption in the global economy. Gartner is closely monitoring the pandemic-related developments, and our highest priority is the health and safety of our associates, clients, vendors, partners, and other stakeholders. We are working closely with our clients to provide best in class COVID-19 related research to assist them in achieving their mission critical priorities.

As a result of the COVID-19 pandemic, we have temporarily closed Gartner offices (including our corporate headquarters) in the United States, United Kingdom, Europe, parts of Asia and several other impacted locations and implemented significant travel restrictions. Though many of our employees continue to work remotely, these changes impact the normal operation of our business. We cannot predict when or how we will begin to lift the actions put in place as part of our business continuity plans, including work from home requirements and travel restrictions. As of the date of this filing, we do not believe our work from home protocol has affected our internal controls over financial reporting.

We have seen negative impacts to all of our segments with Conferences being the most impacted. The majority of our 2020 destination conferences and over half of our Evanta conferences have been cancelled. Most of the remaining conferences are scheduled to be held in the fourth quarter of 2020. At the date of this filing, the expected impact of the cancellations is a reduction of planned revenue and contribution margin of $214 million and $128 million, respectively, for the year ended December 31, 2020. Additionally, for any conferences that are held later in 2020, we will likely have reduced revenues relative to plan. The safety of our associates and clients remain our top priority so the conferences will be held only if we determine the relevant impacts of COVID-19 have sufficiently receded in the jurisdictions where our conferences are to be held.

In connection with the cancellation of the majority of our 2020 conferences noted above, in April 2020, we committed to workforce reductions and implemented an employee furlough program in our Conferences segment affecting approximately 45% of total Conference employees (approximately 3% of our total employees). The majority of terminations and furloughs were effective April 30, 2020. We expect to incur an aggregate of approximately $5 million to $6 million in costs relating to these workforce reductions. We expect the majority of these charges to be incurred and paid in the second quarter of 2020.

As of March 31, 2020, we had $10 million recorded in Prepaid expenses and other current assets on the balance sheet related to cancelled conferences. We expect to recover the majority of these and potential termination costs for future conferences through either force majeure clauses in our vendor contracts or event cancellation insurance claims. For cancelled conferences, our event cancellation insurance enables us to receive an amount up to the lost contribution margin per conference. The timing of receiving the insurance claims is uncertain so we will not record any insurance claims in excess of expenses incurred until the receipt of the insurance proceeds.

Our Research segment has started to experience a slowdown as CV growth was 10.6% in the first quarter of 2020 compared to 11.7%, in the fourth quarter of 2019. CV growth slowed late in the quarter as the global virus response led to lower new business growth and lower retention rates. However, because our revenue and CV have been historically stable and predictable as a result of our subscription-based business model, we are only expecting a modest decrease in Research revenue for the remainder of the year. Slower CV growth this year however may lead to slower research revenue growth in 2021. Nonetheless, we believe that our emphasis on producing COVID-19 related research will continue to drive client engagement and satisfaction with our Research products.

Our Consulting segment was only mildly impacted by the COVID-19 pandemic as many engagements could be performed by associates working remotely. Labor based consulting was performing close to plan through February but saw some weakness in March due to the pandemic as we transitioned to fulfilling engagements from a work from home environment. This weakness continued in April due to weaker demand which could continue for the remainder of 2020. Overall, we expect Consulting revenues to be lower throughout the remainder of the year, due to a slowdown in labor-based demand.

In response to the pandemic’s impacts to our business, we have implemented other actions to include significant limitations on hiring and third-party spending, reductions to discretionary spending and elimination of non-essential travel and re-prioritization of capital expenditures. To the extent the business disruption continues for an extended period, we may need to implement additional cost management actions.

We have updated our Risk Factors in Part II, Item 1A, in light of the COVID-19 pandemic and its potential impact on our business, results of operations, financial condition and cash flows.

### BUSINESS MEASUREMENTS

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

| BUSINESS SEGMENT | BUSINESS MEASUREMENT |
| --- | --- |
| Research | Total contract value represents the value attributable to all of our subscription-related contracts. It is calculated as the annualized value of all contracts in effect at a specific point in time, without regard to the duration of the contract. Total contract value primarily includes Research deliverables for which revenue is recognized on a ratable basis, as well as other deliverables (primarily Conferences tickets) for which revenue is recognized when the deliverable is utilized. Comparing contract value year-over-year not only measures the short-term growth of our business, but also signals the long-term health of our Research subscription business since it measures revenue that is highly likely to recur over a multi-year period. Our total contract value consists of Global Technology Sales contract value, which includes sales to users and providers of technology, and Global Business Sales contract value, which includes sales to all other functional leaders. |
|  | Client retention rate represents a measure of client satisfaction and renewed business relationships at a specific point in time. Client retention is calculated on a percentage basis by dividing our current clients, who were also clients a year ago, by all clients from a year ago. Client retention is calculated at an enterprise level, which represents a single company or customer. |
|  | Wallet retention rate represents a measure of the amount of contract value we have retained with clients over a twelve-month period. Wallet retention is calculated on a percentage basis by dividing the contract value of our current clients, who were also clients a year ago, by the total contract value from a year ago, excluding the impact of foreign currency exchange. When wallet retention exceeds client retention, it is an indication of retention of higher-spending clients, or increased spending by retained clients, or both. Wallet retention is calculated at an enterprise level, which represents a single company or customer. |
| Conferences | Number of destination conferences represents the total number of hosted destination conferences completed during the period. Single day, local meetings are excluded. |
|  | Number of destination conferences attendees represents the total number of people who attend destination conferences. Single day, local meetings are excluded. |
| Consulting | Consulting backlog represents future revenue to be derived from in-process consulting and measurement engagements. |
|  | Utilization rate represents a measure of productivity of our consultants. Utilization rates are calculated for billable headcount on a percentage basis by dividing total hours billed by total hours available to bill. |
|  | Billing rate represents earned billable revenue divided by total billable hours. |
|  | Average annualized revenue per billable headcount represents a measure of the revenue generating ability of an average billable consultant and is calculated periodically by multiplying the average billing rate per hour times the utilization percentage times the billable hours available for one year. |

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### EXECUTIVE SUMMARY OF OPERATIONS AND FINANCIAL POSITION

The fundamentals of our strategy include a focus on creating extraordinary research insight, 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 $1.0 billion during the first quarter of 2020, an increase of 5% compared to the first quarter of 2019. Quarter-over-quarter revenues for Research and Consulting increased by 10% and 3%, respectively, during the first quarter of 2020, while Conferences revenue declined by 73%. For a more complete discussion of our results by segment, see Segment Results below.

For the first quarter of 2020, we had net income of $75.1 million and diluted income per share of $0.83. Cash provided by operating activities was $55.7 million and $35.6 million during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, we had $227.9 million of cash and cash equivalents and $1.0 billion of available borrowing capacity on our revolving credit facility. For a more complete discussion of our cash flows and financial position, see the Liquidity and Capital Resources section below.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For information regarding our critical accounting policies and estimates, please refer to Part II, Item 7, “Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. There have been no material changes to the critical accounting policies previously disclosed in that report.

### RECENTLY ISSUED ACCOUNTING STANDARDS

The FASB has issued accounting standards that have not yet become effective and that may impact the Company’s consolidated financial statements or its disclosures in future periods. Note 1 — Business and Basis of Presentation in the Notes to Condensed Consolidated Financial Statements provides information regarding those accounting standards.

### RESULTS OF OPERATIONS

### Consolidated Results

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).

|  | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Total revenues | $1,018,891 | $970,444 | $48,447 | 5% |
| Costs and expenses: |  |  |  |  |
| Cost of services and product development | 341,278 | 346,645 | (5,367) | (2) |
| Selling, general and administrative | 496,639 | 518,770 | (22,131) | (4) |
| Depreciation | 22,517 | 19,775 | 2,742 | 14 |
| Amortization of intangibles | 32,179 | 33,683 | (1,504) | (4) |
| Acquisition and integration charges | 1,560 | 2,772 | (1,212) | (44) |
| Operating income | 124,718 | 48,799 | 75,919 | 156 |
| Interest expense, net | (26,349) | (24,847) | 1,502 | 6 |
| Loss from divested operations | — | (2,075) | (2,075) | (100) |
| Other expense, net | (1,515) | (824) | 691 | 84 |
| Less: Provision for income taxes | 21,757 | 258 | 21,499 | 8,333 |
| Net income | $75,097 | $20,795 | $54,302 | 261% |

27

Total revenues for the three months ended March 31, 2020 were $1.0 billion, an increase of $48.4 million, or 5% compared to the same period in 2019 on a reported basis and 6% 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 $341.3 million during the three months ended March 31, 2020, a decrease of $5.4 million compared to the same period in 2019, or 2% on a reported basis and 1% excluding the foreign currency impact. The decrease in Cost of services and product development was primarily due to cancellations or postponements of conferences during the first quarter of fiscal year 2020 in response to the COVID-19 pandemic, resulting in lower travel and entertainment costs during the quarter as well as the implementation of various cost cutting initiatives. These factors were partially offset by higher payroll and benefit related costs due to increased headcount. Cost of services and product development as a percent of revenues was 33% and 36% during the three months ended March 31, 2020 and 2019, respectively.

Selling, general and administrative (“SG&A”) expense was $496.6 million during the three months ended March 31, 2020, a decrease of $22.1 million compared to the same period in 2019, or 4% on a reported basis and 3% excluding the foreign currency impact. The decrease in SG&A expense was primarily due to reduced internal meetings and travel and entertainment costs resulting from the COVID-19 pandemic which is partially offset by: (i) more payroll and related benefits costs, which were driven mostly by increased headcount; and (ii) higher facilities costs during the three months ended March 31, 2020. The overall headcount growth included quota-bearing sales associate increases in Global Technology Sales and Global Business Sales to 3,196 and 862, respectively, at March 31, 2020. On a combined basis, the total number of quota-bearing sales associates increased by 3.6% when compared to March 31, 2019. SG&A expense as a percent of revenues was 49% and 53% during the three months ended March 31, 2020 and 2019, respectively.

Depreciation increased by 14% during the three months ended March 31, 2020 compared to the same period in 2019. This increase was due to additional investments, including new leasehold improvements as additional office space went into service and capitalized software.

Amortization of intangibles decreased by 4% during the three months ended March 31, 2020 compared to the same period in 2019 due to certain intangible assets that became fully amortized in 2019.

Acquisition and integration charges declined by $1.2 million during the three months ended March 31, 2020 compared to the same period in 2019. This decrease was the result of the decline in the number of acquisitions completed by the Company during fiscal years 2018 and 2019.

Operating income was $124.7 million and $48.8 million during the three months ended March 31, 2020 and 2019, respectively. The increase in operating income reflects several factors, including (i) higher revenue primarily in our research segment and (ii) reduced Cost of Services and SG&A charges, which were partially offset by higher Depreciation.

Interest expense, net increased by $1.5 million during the three months ended March 31, 2020 compared to the same period in 2019. The increase was primarily due to higher weighted average annual effective rates related to the replacement of expired interest rate swaps with interest rate swaps with higher effective interest rates in late 2019.

Loss from divested operations of $2.1 million during the three months ended March 31, 2019 was primarily due to adjustments of certain working capital balances resulting from the Company's 2018 business unit divestitures.

Other expense, net for the periods presented herein included the net impact of foreign currency gains and losses from our hedging activities.

The provision for income taxes for the three months ended March 31, 2020 and 2019 was an expense of $21.8 million and $0.3 million, respectively. The effective income tax rate was 22.5% and 1.2% for the three months ended March 31, 2020 and 2019, respectively. The quarter-over-quarter increase in the effective income tax rate was primarily due to the relative impact of tax benefits from stock-based compensation. These benefits, approximately $5.9 million and $7.2 million for the first three months of 2020 and 2019 respectively, had less of an impact in reducing the effective tax rate for the period in 2020 on pretax income of $96.9 million as compared to the same period in 2019 on pretax income of $21.1 million. In April 2020, the Company completed an intercompany sale of certain intellectual property that it expects will have a material favorable tax impact on the second quarter 2020 financial results. The Company's intellectual property footprint continues to evolve and this may result in tax rate volatility in the future.

Net income was $75.1 million and $20.8 million during the three months ended March 31, 2020 and 2019, respectively. Additionally, our diluted net income per share increased by $0.60 during the three months ended March 31, 2020 compared to the same period in 2019. These quarter-over-quarter changes reflect an increase in our 2020 operating income, partially offset by a higher effective income tax rate in 2020 compared to 2019.

### SEGMENT RESULTS

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

#### Reportable Segments

The Company’s reportable segments are as follows:

- ***Research*** provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of an enterprise through reports, briefings, proprietary tools, access to our research experts, peer networking services and membership programs that enable our clients to drive organizational performance.
- ***Conferences*** provides business professionals 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 advice live.
- ***Consulting*** combines the power of Gartner market-leading research with custom analysis and on-the-ground support to help chief information officers and other senior executives driving technology-related strategic initiatives move confidently from insight to action.

The sections below present the results of the Company's three reportable business segments.

#### Research

| Financial Measurements: | As Of And For The Three Months Ended March 31, 2020 | As Of And For The Three Months Ended March 31, 2019 | Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Revenues (1) | $909,291 | $825,374 | $83,917 | 10% |
| Gross contribution (1) | $653,469 | $575,168 | $78,301 | 14% |
| Gross contribution margin | 72% | 70% | 2 points | — |
| Business Measurements: |  |  |  |  |
| Global Technology Sales (2): |  |  |  |  |
| Contract value (1), (3) | $2,815,000 | $2,534,000 | $281,000 | 11% |
| Client retention | 82% | 82% | — | — |
| Wallet retention | 104% | 105% | (1) point | — |
| Global Business Sales (2): |  |  |  |  |
| Contract value (1), (3) | $646,000 | $596,000 | $50,000 | 8% |
| Client retention | 83% | 81% | 2 points | — |
| Wallet retention | 101% | 94% | 7 points | — |

(1) Dollars in thousands.

(2) Global Technology Sales includes sales to users and providers of technology. Global Business Sales includes sales to all other functional leaders.

(3) Contract values are on a foreign exchange neutral basis. Contract values as of March 31, 2019 have been calculated using the same foreign currency rates as 2020.

Research revenues increased by $83.9 million during the three months ended March 31, 2020 compared to the same period in 2019, or 10% on a reported basis and 11% excluding the foreign currency impact. The segment gross contribution margin was 72% and 70% during the three months ended March 31, 2020 and 2019, respectively. The increase in revenues during 2020 was primarily due to the same factors driving the trend in our Research contract value, which are discussed below. The improvement in margin was primarily due to headcount growing at a slower pace than the corresponding revenue and a decline in travel and entertainment expenses due to COVID-19 travel restrictions.

Total contract value increased to $3.5 billion at March 31, 2020, or 11% compared to March 31, 2019 on a foreign exchange neutral basis. Total contract value at March 31, 2020 increased by double-digits across more than half of the Company’s client sizes and nearly half of its industry segments when compared to March 31, 2019. Global Technology Sales ("GTS") contract value increased by 11% at March 31, 2020 when compared to March 31, 2019. The increase in GTS contract value was primarily due to increased spending by existing clients. Global Business Sales ("GBS") contract value increased by 8% year-over-year , primarily driven by the combined effect of improved retention and new business, with a large portion of the new business coming from newly launched products.

GTS client retention was 82% as of March 31, 2020 and 2019, while wallet retention was 104% and 105%, respectively. GBS client retention was 83% and 81% as of March 31, 2020 and 2019, respectively, while wallet retention was 101% and 94%, respectively. The increase in GBS wallet retention was largely due to increased spending by existing clients. The number of GTS client enterprises remained relatively flat when compared to prior year, while GBS client enterprises declined by 4% at March 31, 2020 when compared to March 31, 2019.

#### Conferences

| Financial Measurements: | As Of And For The Three Months Ended March 31, 2020 | As Of And For The Three Months Ended March 31, 2019 | Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Revenues (1) | $13,870 | $51,932 | $(38,062) | (73)% |
| Gross contribution (1) | $(6,060) | $18,876 | $(24,936) | (132)% |
| Gross contribution margin | (44)% | 36% | (80) points | — |
| **Business Measurements:** |  |  |  |  |
| Number of destination conferences (2) | 5 | 12 | (7) | (58)% |
| Number of destination conferences attendees (2) | 3,364 | 11,530 | (8,166) | (71)% |

(1) Dollars in thousands.

(2) Single day, local meetings are excluded.

Conferences revenues decreased by $38.1 million during the three months ended March 31, 2020 compared to the same period in 2019, or 73% on a reported basis and excluding the foreign currency impact. Revenues from both attendees and exhibitors at our destination conferences, as well as revenues from our single day, local meetings, decreased by double-digits during the first quarter of 2020 compared to the same period in 2019. We held 5 destination conferences during the three months ended March 31, 2020 and due to the outbreak of COVID-19, we cancelled or postponed 6 destination conferences scheduled for the first quarter of 2020. As such, the number of attendees decreased 71% and the number of exhibitors decreased 79% when compared to the same period in 2019, while the average revenue per attendee and the average revenue per exhibitor decreased by 45% and 51%, respectively. The impact of COVID-19 cancellations resulted in the segment gross contribution margin declining to (44)% compared to 36% in the same period last year.

#### Consulting

| Financial Measurements: | As Of And For The Three Months Ended March 31, 2020 | As Of And For The Three Months Ended March 31, 2019 | Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Revenues (1) | $95,730 | $93,138 | $2,592 | 3% |
| Gross contribution (1) | $29,382 | $28,718 | $664 | 2% |
| Gross contribution margin | 31% | 31% | — | — |
| **Business Measurements:** |  |  |  |  |
| Backlog (1), (2) | $109,800 | $108,400 | $1,400 | 1% |
| Billable headcount | 808 | 739 | 69 | 9% |
| Consultant utilization | 62% | 69% | (7) points | — |
| Average annualized revenue per billable headcount (1) | $367 | $401 | $(34) | (8)% |

(1) Dollars in thousands.

(2) Backlog is on a foreign exchange neutral basis. Backlog as of March 31, 2019 has been calculated using the same foreign currency rates as 2020.

Consulting revenues increased 3% during the three months ended March 31, 2020 compared to the same period in 2019 on a reported basis and 4% excluding the foreign currency impact, with revenue improvements in labor-based core consulting and contract optimization of 3% and 1%, respectively, on a reported basis. Contract optimization revenue may vary significantly and, as such, revenues for the first quarter of 2020 may not be indicative of results for the remainder of 2020 or beyond. The segment gross contribution margin was 31% for the three months ended March 31, 2020 and 2019. The flat gross contribution margin during the first quarter of 2020 was primarily due to an increase in labor-based consulting and contract optimization revenue, billing rate increases, improvements in our labor-based consulting margins and benefits derived from certain cost-reduction initiatives, offset by increased personnel costs and commissions.Consultant utilization decreased by 7 points during the three months ended March 31, 2020 compared to the same period in 2019 due to a significant increase in billable headcount.

Backlog increased by $1.4 million, or 1%, from March 31, 2019 to March 31, 2020. The $109.8 million of backlog at March 31, 2020 represented approximately four months of backlog, which is in line with the Company's operational target.

### LIQUIDITY AND CAPITAL RESOURCES

We finance our operations through cash generated from our operating activities and borrowings. Note 7 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company's outstanding debt obligations. At March 31, 2020, we had $227.9 million of cash and cash equivalents and approximately $1.0 billion of available borrowing capacity on the revolving credit facility under our 2016 Credit Agreement. On April 1, 2020, we drew down an additional $300 million under the revolving credit facility to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets. We believe that the Company has adequate liquidity to meet its currently anticipated needs. As a cautionary measure, we have elected to suspend our share repurchase activity.

We have historically generated significant cash flows from our operating activities. Our operating cash flow has been maintained by the leverage characteristics of our subscription-based business model in our Research segment, which is our largest business segment and historically has constituted a significant portion of our total revenues. The majority of our Research customer contracts are paid in advance and, combined with a strong customer retention rate and high incremental margins, has resulted in historically strong operating cash flow. Cash flow generation has also benefited historically 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 66% held overseas at March 31, 2020. The Company intends to reinvest substantially all of its accumulated undistributed foreign earnings, except in instances where repatriation would result in minimal additional tax. As a result of the U.S. Tax Cuts and Jobs Act of 2017, we believe that the income tax impact if such earnings were repatriated would be minimal.

The table below summarizes the changes in the Company’s cash balances for the periods indicated (in thousands).

|  | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Cash provided by operating activities | $55,749 | $35,596 | $20,153 |
| Cash used in investing activities | (24,536) | (22,355) | (2,181) |
| Cash used in financing activities | (68,490) | (23,438) | (45,052) |
| Net decrease in cash and cash equivalents | (37,277) | (10,197) | (27,080) |
| Effects of exchange rates | (15,709) | 804 | (16,513) |
| Beginning cash and cash equivalents | 280,836 | 158,663 | 122,173 |
| Ending cash and cash equivalents | $227,850 | $149,270 | $78,580 |

#### Operating

Cash provided by operating activities was $55.7 million and $35.6 million during the three months ended March 31, 2020 and 2019, respectively. The year-over-year increase was primarily due to higher net income in the 2020 period, offset by higher bonus payments made in 2020 related to 2019.

#### Investing

Cash used in investing activities was $24.5 million and $22.4 million during the three months ended March 31, 2020 and 2019, respectively. The cash used in both periods was primarily for capital expenditures.

#### Financing

Cash used in financing activities was $68.5 million and $23.4 million during the three months ended March 31, 2020 and 2019, respectively. During the 2020 period, the Company used $73.2 million of cash for share repurchases. During the 2019 period, the Company borrowed $35 million, paid $18.7 million in debt principal repayments and paid $44.8 million for share repurchases.

#### Debt

As of March 31, 2020, the Company had $2.2 billion of principal amount of debt outstanding, of which $111.8 million is to be repaid in fiscal 2020. Note 7 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company's outstanding debt obligations. From time to time, the Company may seek to retire or repurchase its outstanding debt through various methods including open market repurchases, negotiated block transactions, or otherwise, all or some of which may be effected through Rule 10b5-1 plans. Such transactions, if any, depend on prevailing market conditions, our liquidity and capital requirements, contractual restrictions, and other factors, and may involve material amounts.

We have a credit facility that currently provides a $1.5 billion Term loan A facility and a $1.2 billion revolving credit facility. The 2016 Credit Agreement contains certain customary restrictive loan covenants, including, among others, financial maintenance covenants that apply a maximum consolidated leverage ratio, a maximum consolidated secured leverage ratio and a minimum consolidated interest expense ratio.

Our financial covenants as of March 31, 2020 are summarized in the table below:

| Covenants\* : |  | Maximum/Minimum\* | As of March 31, 2020 |
| --- | --- | ---: | ---: |
| Consolidated Leverage Ratio | **\<** | 4.50 | 3.07 |
| Consolidated Secured Leverage Ratio | **\<** | 3.50 | 1.96 |
| Consolidated Interest Expense Ratio | **≥** | 3.25 | 7.40 |

#### \*- metrics as defined in the 2016 Credit Agreement

On May 6, 2020, the 2016 Credit Agreement was amended with the consent of the required lenders to, among other things, modify certain financial maintenance covenants to provide additional flexibility to Gartner through December 31, 2021. The amendment increases the maximum consolidated leverage ratio to 5.00 to 1.00 and maximum consolidated secured leverage ratio to 3.75 to 1.00 (each as determined in accordance with the 2016 Credit Agreement), in each case for fiscal quarters ending on June 30, 2020 through and including December 31, 2021. The amendment only increases the applicable margin for all outstanding Revolving Loans and Tranche A Term Loans (each as defined in the 2016 Credit Agreement) to the extent the consolidated leverage ratio (as determined in accordance with the 2016 Credit Agreement) exceeds 4.50 to 1.00. See Part II, Item 5 for additional information on the amendment to the 2016 Credit Agreement.

We were in full compliance with the covenants noted above as of March 31, 2020 and on the date this Quarterly Report on Form 10-Q is filed. Note 7 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company's outstanding debt obligations.

### OFF BALANCE SHEET ARRANGEMENTS

Through March 31, 2020, the Company has not entered into any material off-balance sheet arrangements or transactions with unconsolidated entities or other persons.

## Market risk

As filed, 4,062 characters.

### INTEREST RATE RISK

As of March 31, 2020, the Company had $2.2 billion in total debt principal outstanding. Note 7 — Debt in the Notes to Condensed Consolidated Financial Statements provides additional information regarding the Company's outstanding debt obligations.

Approximately $1.4 billion of the Company's total debt outstanding as of March 31, 2020 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 contracts, which effectively convert the floating base interest rates on the borrowings to fixed rates. Thus, we are only exposed to base interest rate risk on floating rate borrowings in excess of any amounts that are not hedged. At March 31, 2020, the Company was effectively fully hedged against the base interest rate risk on its floating rate borrowings.

### 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 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, 2020, we had $227.9 million 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, 2020 could have increased or decreased by approximately $15.0 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, 2020 had an immaterial net unrealized gain.

### 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.

## Controls and procedures

As filed, 1,392 characters.

We have established disclosure controls and procedures that are designed to ensure that the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported in a timely manner. Specifically, these controls and procedures ensure that the 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, 2020, of the effectiveness of the design and operation of our disclosure controls and procedures, 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 the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material Company information required to be disclosed by us in reports filed under the Exchange Act.

There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 5,413 characters.

The following represents a material change in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

***The COVID-19 pandemic is having a material adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of our customers, and the duration and extent to which the COVID-19 pandemic will continue to affect our operations, financial performance, results of operations, achievement of strategic objectives, and/or stock price remains uncertain.***

The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected, and is expected to continue to adversely affect, our operations, financial performance and demand for our products and services. It has also adversely affected the operations and financial performance of many of our clients. Additionally, the COVID-19 pandemic has resulted in, and is expected to continue to result in, a substantial curtailment of business activities (including the decrease in demand for a broad variety of products and services both regionally and globally), weakened economic conditions, significant economic uncertainty and volatility in the financial markets.

The COVID-19 pandemic has subjected our operations and financial performance to a number of risks that may have a material adverse impact on our operations and financial condition, including, but not limited to those discussed below:

- Cost-saving measures by our clients, have adversely affected, and could continue to adversely affect, their ability or willingness to attend our conferences, purchase our products or engage our consultants. Such measures could also delay purchasing decisions of potential customers and lengthen payment terms in our contracts or reduce the duration of our subscription contracts and negatively impact retention rates.
- We have temporarily closed Gartner offices (including our corporate headquarters) in the United States, United Kingdom, Europe, parts of Asia and several other impacted locations and implemented travel restrictions. Though many of our employees continue to work remotely, these changes interfere with the normal operation of our business. A loss of our ability to provide on-site consulting services to our customers could delay certain consulting projects or affect prospective clients’ decisions to engage our consultants.
- We have cancelled or postponed all in-person conferences through August 2020, and we may deem it advisable to similarly cancel, postpone or otherwise alter additional conferences in the future.
- Our management is focused on mitigating the effects of COVID-19 on our business, which has required and will continue to require, a substantial investment of time and may delay other value-added services.

Additionally, we face challenges from evolving factors related to the COVID-19 pandemic that are not within our control, remain uncertain and to which we may not effectively respond. For example, our operations span numerous locations around the world, and many local governments and countries have imposed or may impose various restrictions on our employees, partners and customers’ physical movement to limit the spread of COVID-19. These restrictions are constantly changing, and we cannot predict how long and to what extent they will continue. Moreover, COVID-19 has adversely impacted, and may continue to adversely impact, our subscription-based business model (which accounts for a significant portion of our revenue) by causing clients to decrease new and renewals of subscription-based services and to request to cancel or renegotiate current subscription-based services. The effect of COVID-19 on our subscription-based model may not be fully reflected in our results of operations until future periods.

Further, the duration and extent of the impact from the COVID-19 pandemic and its impact on our operations and financial performance depend on future developments that cannot currently be accurately predicted, such as: the severity and transmission rate of the virus; the extent and effectiveness of containment actions; the health and well-being of our workforce; the extent and duration of the effect on client spending and the impact of these and other factors on our employees, customers, partners and vendors; the impact on our liquidity; increased volatility and pricing in the capital markets; the effect of the pandemic on the credit-worthiness of our customers; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides. The occurrence or continuation of any of the foregoing could have a material adverse effect on our operations or financial performance.

The impact of COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, may also precipitate or exacerbate other risks discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K, any of which could have a material effect on us. This situation is changing rapidly and additional effects may arise that we are not presently aware of or that we currently do not consider to present significant risks to our operations. If we are not able to respond to and manage the impact of such events effectively, our business and financial condition will be negatively impacted.

Filed May 7, 2020.
Source: SEC EDGAR, the filing index for accession 0000749251-20-000015. Last ingested by Listed: Nov 10, 2026, 01:53 ET. No prices; not investment advice.