UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the quarterly period ended September 30, 2019
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number 1-14443

Gartner, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	04-3099750
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
P.O. Box 10212	06902-7700
56 Top Gallant Road	(Zip Code)
Stamford,
Connecticut
(Address of principal executive offices)

Registrant’s telephone number, including area code: (203) 316-1111

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $.0005 par value per share	IT	New 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. Yes ☑ 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). Yes ☑ 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.

Large accelerated filer	☑	Accelerated filer	☐	Non-accelerated filer	☐
		Smaller reporting company	☐	Emerging growth company	☐
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 ☑

As of October 28, 2019, 89,452,966 shares of the registrant’s common shares were outstanding.

Table of Contents

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018	3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	4
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018	5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	6
Notes to Condensed Consolidated Financial Statements	7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44
ITEM 4. CONTROLS AND PROCEDURES	45
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	45
ITEM 1A. RISK FACTORS	45
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	45
ITEM 6. EXHIBITS	46

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GARTNER, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited; in thousands, except share data)

	September 30,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	306,727		$	156,368
Fees receivable, net of allowances of $7,800 and $7,700, respectively	1,028,320			1,255,118
Deferred commissions	197,607			235,016
Prepaid expenses and other current assets	173,851			165,237
Total current assets	1,706,505			1,811,739
Property, equipment and leasehold improvements, net	300,612			267,665
Operating leases - right-of-use assets	652,273			—
Goodwill	2,939,707			2,923,136
Intangible assets, net	936,313			1,042,565
Other assets	201,934			156,369
Total Assets	$	6,737,344		$	6,201,474
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	593,695		$	710,113
Deferred revenues	1,803,135			1,745,244
Current portion of long-term debt	130,433			165,578
Total current liabilities	2,527,263			2,620,935
Long-term debt, net of deferred financing fees	2,051,507			2,116,109
Operating leases - liabilities	776,562			—
Other liabilities	462,355			613,673
Total Liabilities	5,817,687			5,350,717
Stockholders’ Equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or outstanding	—			—
Common stock, $0.0005 par value, 250,000,000 shares authorized; 163,602,067 shares issued for both periods	82			82
Additional paid-in capital	1,885,370			1,823,710
Accumulated other comprehensive loss, net	(81,264		)	(39,867		)
Accumulated earnings	1,921,021			1,755,432
Treasury stock, at cost, 74,124,094 and 73,899,977 common shares, respectively	(2,805,552		)	(2,688,600		)
Total Stockholders’ Equity	919,657			850,757
Total Liabilities and Stockholders’ Equity	$	6,737,344		$	6,201,474

 

See the accompanying notes to condensed consolidated financial statements.

3

GARTNER, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited; in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues:
Research	$	840,998		$	774,188		$	2,492,427		$	2,308,426
Conferences	66,286			57,141			259,392			214,481
Consulting	93,218			78,752			290,009			258,106
Other	—			11,593			—			105,562
Total revenues	1,000,502			921,674			3,041,828			2,886,575
Costs and expenses:
Cost of services and product development	365,056			336,112			1,099,700			1,060,958
Selling, general and administrative	512,159			447,537			1,545,905			1,396,085
Depreciation	20,704			17,335			60,578			50,456
Amortization of intangibles	31,694			50,852			97,541			152,625
Acquisition and integration charges	1,742			17,114			4,156			96,342
Total costs and expenses	931,355			868,950			2,807,880			2,756,466
Operating income	69,147			52,724			233,948			130,109
Interest expense, net	(24,073		)	(26,984		)	(73,669		)	(99,647		)
Gain (loss) from divested operations	—			13,040			(2,075		)	38,500
Other income (expense), net	8,024			(827		)	6,953			1,193
Income before income taxes	53,098			37,953			165,157			70,155
Provision (benefit) for income taxes	11,710			26,200			(432		)	31,719
Net income	$	41,388		$	11,753		$	165,589		$	38,436
Net income per share:
Basic	$	0.46		$	0.13		$	1.84		$	0.42
Diluted	$	0.46		$	0.13		$	1.82		$	0.42
Weighted average shares outstanding:
Basic	89,846			90,854			89,947			90,969
Diluted	90,887			92,148			91,089			92,244

See the accompanying notes to condensed consolidated financial statements.

4

GARTNER, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited; in thousands)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018		2019			2018
Net income	$	41,388		$	11,753	$	165,589		$	38,436
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	3,553			964		9,078			(38,504		)
Interest rate swaps – net change in deferred gain or loss	(11,379		)	350		(50,599		)	13,557
Pension plans – net change in deferred actuarial loss	41			53		124			164
Other comprehensive (loss) income, net of tax	(7,785		)	1,367		(41,397		)	(24,783		)
Comprehensive income	$	33,603		$	13,120	$	124,192		$	13,653

See the accompanying notes to condensed consolidated financial statements.

5

GARTNER, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited; in thousands)

	Nine Months Ended
	September 30,
	2019			2018
Operating activities:
Net income	$	165,589		$	38,436
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	158,119			203,081
Stock-based compensation expense	57,893			56,018
Deferred taxes	(50,790		)	(4,746		)
Loss (gain) from divested operations	2,075			(38,500		)
Fair value adjustment - equity security	(9,120		)	—
Amortization of lease right-of-use assets	63,692			—
Amortization and write-off of deferred financing fees	4,865			12,205
Changes in assets and liabilities, net of divestitures:
Fees receivable, net	215,132			172,679
Deferred commissions	35,329			38,216
Prepaid expenses and other current assets	(941		)	(64,395		)
Other assets	(46,954		)	23,444
Deferred revenues	70,006			68,895
Accounts payable, accrued, and other liabilities	(182,294		)	(79,322		)
Cash provided by operating activities	482,601			426,011
Investing activities:
Additions to property, equipment and leasehold improvements	(95,701		)	(64,631		)
Acquisitions - cash paid	(2,295		)	(15,855		)
Divestitures - cash received (net of cash transferred)	—			520,709
Cash (used in) provided by investing activities	(97,996		)	440,223
Financing activities:
Proceeds from employee stock purchase plan	13,235			11,134
Proceeds from borrowings	5,000			—
Payments on borrowings	(109,612		)	(1,120,290		)
Purchases of treasury stock	(141,436		)	(104,400		)
Cash used in financing activities	(232,813		)	(1,213,556		)
Net increase (decrease) in cash and cash equivalents and restricted cash	151,792			(347,322		)
Effects of exchange rates on cash and cash equivalents and restricted cash	(3,728		)	(6,444		)
Cash and cash equivalents and restricted cash, beginning of period	158,663			567,058
Cash and cash equivalents and restricted cash, end of period	$	306,727		$	213,292

See the accompanying notes to condensed consolidated financial statements.

6

GARTNER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 — Business and Basis of Presentation

Business. 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 objective resource for more than 15,000 organizations in more than 100 countries — across all major functions, in every industry and enterprise size.

Segments. Gartner delivers its products and services globally through three business segments: Research, Conferences and Consulting. Our revenues by business segment are discussed below under the heading "Revenue Recognition." During 2018, the Company divested all of the non-core businesses that comprised its Other segment and moved a small residual product in the Other segment into the Research business and, as a result, no operating activity has been recorded in the Other segment in 2019.

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 the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 270 for interim financial information and with the applicable instructions of the 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 filed in its Annual Report on Form 10-K for the year ended December 31, 2018.

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 and nine months ended September 30, 2019 may not be indicative of the results of operations for the remainder of 2019 or beyond. When used in these notes, the terms “Gartner,” the “Company,” “we,” “us,” or “our” refer to Gartner, Inc. and its consolidated subsidiaries.

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.

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 our estimates and actual results could be material and would be reflected in the Company’s consolidated financial statements in future periods.

Revenue 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, which are provided below.

7

Disaggregated Revenue — Our disaggregated revenue by reportable segment is presented in the tables below for the periods indicated (in thousands).

By Primary Geographic Market (1), (2)

Three Months Ended September 30, 2019

	Research		Conferences		Consulting		Total
Primary Geographic Markets
United States and Canada	$	538,112	$	28,153	$	58,615	$	624,880
Europe, Middle East and Africa	196,121		24,497		26,468		247,086
Other International	106,765		13,636		8,135		128,536
Total revenues	$	840,998	$	66,286	$	93,218	$	1,000,502

Three Months Ended September 30, 2018

	Research		Conferences		Consulting		Other		Total
Primary Geographic Markets
United States and Canada	$	502,489	$	22,002	$	45,903	$	8,948	$	579,342
Europe, Middle East and Africa	180,124		25,422		26,255		2,645		234,446
Other International	91,575		9,717		6,594		—		107,886
Total revenues	$	774,188	$	57,141	$	78,752	$	11,593	$	921,674

Nine Months Ended September 30, 2019

	Research		Conferences		Consulting		Total
Primary Geographic Markets
United States and Canada	$	1,593,806	$	157,756	$	175,208	$	1,926,770
Europe, Middle East and Africa	583,742		67,520		90,350		741,612
Other International	314,879		34,116		24,451		373,446
Total revenues	$	2,492,427	$	259,392	$	290,009	$	3,041,828

Nine Months Ended September 30, 2018

	Research		Conferences		Consulting		Other		Total
Primary Geographic Markets
United States and Canada	$	1,485,545	$	131,215	$	146,816	$	59,419	$	1,822,995
Europe, Middle East and Africa	551,070		57,163		89,783		38,369		736,385
Other International	271,811		26,103		21,507		7,774		327,195
Total revenues	$	2,308,426	$	214,481	$	258,106	$	105,562	$	2,886,575

(1) Revenue is reported based on where the sale is fulfilled.

(2) During 2018, the Company divested all of the non-core businesses that comprised its Other segment and moved a small residual product in the Other segment into the Research business and, as a result, no operating activity has been recorded in the Other segment in 2019.

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. Most of the Company’s products and services are provided on an integrated worldwide basis and, because of this integrated delivery approach, it is not practical to precisely separate our revenue by geographic location. Accordingly, revenue information presented in the above tables is based on internal allocations, which involve certain management estimates and judgments.

8

By Timing of Revenue Recognition (1)

Three Months Ended September 30, 2019

	Research		Conferences		Consulting		Total
Timing of Revenue Recognition
Transferred over time (2)	$	769,718	$	—	$	77,570	$	847,288
Transferred at a point in time (3)	71,280		66,286		15,648		153,214
Total revenues	$	840,998	$	66,286	$	93,218	$	1,000,502

Three Months Ended September 30, 2018

	Research		Conferences		Consulting		Other		Total
Timing of Revenue Recognition
Transferred over time (2)	$	709,496	$	—	$	69,755	$	8,800	$	788,051
Transferred at a point in time (3)	64,692		57,141		8,997		2,793		133,623
Total revenues	$	774,188	$	57,141	$	78,752	$	11,593	$	921,674

Nine Months Ended September 30, 2019

	Research		Conferences		Consulting		Total
Timing of Revenue Recognition
Transferred over time (2)	$	2,276,783	$	—	$	235,641	$	2,512,424
Transferred at a point in time (3)	215,644		259,392		54,368		529,404
Total revenues	$	2,492,427	$	259,392	$	290,009	$	3,041,828

Nine Months Ended September 30, 2018

	Research		Conferences		Consulting		Other		Total
Timing of Revenue Recognition
Transferred over time (2)	$	2,119,393	$	—	$	220,838	$	86,667	$	2,426,898
Transferred at a point in time (3)	189,033		214,481		37,268		18,895		459,677
Total revenues	$	2,308,426	$	214,481	$	258,106	$	105,562	$	2,886,575

(1) During 2018, the Company divested all of the non-core businesses that comprised its Other segment and moved a small residual product in the Other segment into the Research business and, as a result, no operating activity has been recorded in the Other segment in 2019.

(2) Research revenues were recognized in connection with performance obligations that were satisfied over time using a time-elapsed output method to measure progress. Consulting revenues were recognized over time using labor hours as an input measurement basis. During 2018, Other revenues were recognized using either a time-elapsed output method, performance-based milestone approach or labor hours, depending on the nature of the underlying customer contract.

(3) The revenues in this category were recognized in connection with performance obligations that were satisfied at the point in time the contractual deliverables were 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 are unsatisfied (or partially unsatisfied) as of September 30, 2019 was approximately $2.9 billion. The Company expects to recognize $514.2 million, $1,592.9 million and $750.1 million of this revenue (most of which pertains to Research) during the remainder of 2019, the year ending December 31, 2020 and thereafter, respectively. The Company applies an available 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. Our 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

9

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.

Customer Contract Assets and Liabilities — The timing of the recognition of revenue, and the amount and timing of our billings and cash collections, as well as upfront customer payments, result in the recording of both assets and liabilities on our Condensed Consolidated Balance Sheets. The table below provides information regarding certain of the Company’s balance sheet accounts that pertain to its contracts with customers (in thousands).

	September 30,		December 31,
	2019		2018
Assets:
Fees receivable, gross (1)	$	1,036,120	$	1,262,818
Contract assets recorded in Prepaid expenses and other current assets (2)	$	24,905	$	26,119
Contract liabilities:
Deferred revenues (current liability) (3)	$	1,803,135	$	1,745,244
Non-current deferred revenues recorded in Other liabilities (3)	15,784		21,194
Total contract liabilities	$	1,818,919	$	1,766,438

(1) Fees receivable represent an unconditional right of payment from our customers and include both billed and unbilled amounts.

(2) Contract assets represent recognized revenue for which we do 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 restriction.

(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 our performance obligation(s).

The Company recognized revenue of $675.2 million and $642.0 million during the three months ended September 30, 2019 and 2018, respectively, and $1,312.3 million and $1,164.2 million during the nine months ended September 30, 2019 and 2018, respectively, that was attributable to deferred revenues that were recorded at the beginning of each such period. Those amounts primarily consisted of (i) Research revenues and, in the 2018 periods, Other revenues that were recognized ratably as control of the goods or services passed to the customer and (ii) Conferences revenue pertaining to conferences and meetings that occurred during the reporting periods. During each of the three and nine months ended September 30, 2019 and 2018, the Company did not record any material impairments related to its contract assets. The Company does not typically recognize revenue from performance obligations satisfied in prior periods.

Acquisition and divestiture activities. The Company recognized $1.7 million and $17.1 million of Acquisition and integration charges during the three months ended September 30, 2019 and 2018, respectively, and $4.2 million and $96.3 million during the nine months ended September 30, 2019 and 2018, respectively. Acquisition and integration charges reflect additional costs and expenses resulting from our acquisitions and include, among other items, professional fees, severance and stock-based compensation charges. During the nine months ended September 30, 2018, the charges included $51.4 million of exit costs for certain acquisition-related office space in Arlington, Virginia that the Company did not occupy (such activity for the three months ended September 30, 2018 was nominal). The Company recorded no exit costs for facilities during the three and nine months ended September 30, 2019. Although the Company did not complete any business acquisitions during the nine months ended September 30, 2019 or 2018, it paid $2.3 million and $15.9 million of restricted cash in 2019 and 2018, respectively, for deferred consideration from pre-2018 acquisitions.

During the nine months ended September 30, 2018, the Company completed the divestitures of three non-core businesses that had been reported as part of its Other segment. These businesses were acquired as part of the CEB Inc. acquisition in 2017. Revenue from those divested operations was $8.6 million and $97.0 million during the three and nine months ended September 30, 2018, respectively, while the gross contribution was $4.9 million and $60.1 million during the three and nine months ended September 30, 2018, respectively. Also during 2018, the Company sold other miscellaneous assets acquired in the CEB Inc. transaction. For the nine months ended September 30, 2018, the Company recorded $520.7 million in total net cash proceeds from these sales and a net pretax gain of $38.5 million. During the nine months ended September 30, 2019, the Company recorded a pretax Loss from divested operations of $2.1 million, primarily due to adjustments of certain working capital balances related to its 2018 divestitures.

Fair value adjustment - equity security. During both the three and nine months ended September 30, 2019, the Company recognized unrealized appreciation of $9.1 million related to a minority equity investment that we sold in October 2019. That benefit was

10

recorded in Other income (expense), net in the accompanying Condensed Consolidated Statements of Operations. The minority equity investment’s estimated fair value of $14.1 million was included in Prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2019. Our valuation of such investment was based on certain observable inputs, which the Company considers to be Level 2 inputs under the valuation hierarchy that is described in Note 10 - Fair Value Disclosures.

Cash and cash equivalents and restricted cash. For the nine months ended September 30, 2019, the beginning of period cash and cash equivalents and restricted cash balance of $158.7 million in the accompanying Condensed Consolidated Statements of Cash Flows consisted of $156.4 million of cash and cash equivalents and $2.3 million of restricted cash. The restricted cash, which was classified in Prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets as of December 31, 2018, was paid to a third party in 2019.

Adoption of new accounting standards. The Company adopted the accounting standards described below during the nine months ended September 30, 2019.

Targeted Improvements to Accounting for Hedging Activities — On January 1, 2019, the Company adopted Accounting Standards Update ("ASU") No. 2017-12, "Derivatives and Hedging" ("ASU No. 2017-12"). ASU No. 2017-12 is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the standard makes certain targeted improvements to simplify the application of the hedge accounting guidance in current U.S. GAAP. The adoption of the standard had no impact on the Company's consolidated financial statements.

Leases — On January 1, 2019, the Company adopted ASU No. 2016-02, "Leases," as amended ("ASU No. 2016-02" or the “new lease standard”). ASU No. 2016-02 significantly changes the accounting for leases because a right-of-use model is now used whereby a lessee must record a right-of-use asset and a related lease liability on its balance sheet for most of its leases. Under ASU No. 2016-02, leases are classified as either operating or finance arrangements, with such classification affecting the pattern of expense recognition in an entity's income statement. For operating leases, ASU No. 2016-02 requires recognition in an entity’s income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis.

The adoption of ASU No. 2016-02 on January 1, 2019 had a material impact on the Company’s consolidated balance sheet, while the accompanying Condensed Consolidated Statements of Operations and the cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows for the periods ended September 30, 2019 were not materially impacted. Prior to January 1, 2019, the Company recognized lease expense in accordance with then-existing U.S. GAAP under FASB ASC Topic 840, Leases (“prior GAAP”). Although there were significant changes to the Company’s leasing policies and procedures effective January 1, 2019 with the adoption of ASU No. 2016-02, the lease expense recognition patterns under ASU No. 2016-02 and prior GAAP during the periods ended September 30, 2019 and 2018, respectively, were substantively the same. As required by ASU No. 2016-02, the Company's disclosures regarding its leasing activities have been significantly expanded to enable users of our consolidated financial statements to assess the amount, timing and uncertainty of cash flows related to leases. These additional disclosures are included below.

The Company adopted ASU No. 2016-02 on January 1, 2019 using a modified retrospective approach. We elected to use an optional transition method available under ASU No. 2016-02 to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption rather than in the earliest comparative period presented. As such, the Company's historical consolidated financial statements have not been restated.

Under prior GAAP, lease arrangements that met certain criteria were considered operating leases and were not recorded on an entity's balance sheet. Prior to January 1, 2019 and through September 30, 2019, all of the Company’s lease arrangements were accounted for as operating leases. The adoption of ASU No. 2016-02 on January 1, 2019 had a material impact on the Company’s consolidated balance sheet due to the recognition of right-of-use assets of $651.9 million and related lease liabilities of $851.3 million. The Company’s adoption of ASU No. 2016-02 resulted in a net increase of $638.7 million in each of Total Assets and Total Liabilities. The adoption of the new lease standard did not affect Stockholders’ Equity.

In connection with our adoption of ASU No. 2016-02, the Company elected to use certain available practical expedients that were permitted under the new lease standard and made other elections that impact its lease accounting. The Company elected to use these practical expedients in connection with the adoption of ASU No. 2016-02 because, among other things, they simplified the adoption of the new lease standard, streamlined our internal processes and minimized the associated costs. The critical practical expedients and accounting policy elections used by the Company for all classes of leases accounted for under ASU No. 2016-02 were as follows:

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• Existing contracts were not reassessed to determine if they contained leases.

• Existing leases were not reassessed to determine if their classification should be changed.

• Initial direct costs for existing leases were not reassessed.

• Lease components and nonlease components (e.g., common area maintenance charges, etc.) related to a lease arrangement were accounted for as a single lease component for purposes of the recognition and measurement requirements of ASU No. 2016-02.

• The incremental borrowing rate used for the purpose of measuring each of our lease liabilities was derived by reference to the related lease’s remaining minimum payments and remaining lease term on the date of adopting the new lease standard. We used incremental borrowing rates because we were unable to determine the implicit interest rates in our leases.

Leasing Activities

The Company’s leasing activities are primarily for facilities under cancelable and non-cancelable lease agreements expiring during 2019 and through 2038. These facilities support our executive and administrative activities, research and consulting, 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 five years and/or (ii) options to terminate the agreement within one 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.

Prior to January 1, 2019, the Company recognized lease expense in accordance with prior GAAP. Because both ASU No. 2016-02 and prior GAAP generally recognize operating lease expense on a straight-line basis over the term of the lease arrangement and the Company only has operating lease arrangements, the lease expense recognition patterns under the two accounting methodologies during the three and nine months ended September 30, 2019 and 2018 were substantively the same.

Except for lease arrangements pertaining to facilities, all other operating lease activity is not significant. As such, operating leases for office equipment and other assets (collectively, “other leases”) are: (i) not recognized and measured under the relevant provisions of ASU No. 2016-02; (ii) excluded from the right-of-use assets and related lease liabilities on the accompanying Condensed Consolidated Balance Sheet as of September 30, 2019, as the related amounts are not material; and (iii) excluded from the quantitative disclosures provided below, other than the disclosures under the heading "Lease Disclosures Under Prior GAAP." Other leases are accounted for similar to the guidance for operating leases under prior GAAP, which generally recognizes lease expense on a straight-line basis over the term of the lease arrangement. As a result, the impact of excluding the other leases from the requirements of ASU No. 2016-02 is not significant.

The Company subleases certain office space that it does not intend to occupy. Such sublease arrangements expire during 2019 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.

Lease Accounting under ASU No. 2016-02

Under ASU No. 2016-02, a lease is a contract or an agreement, or a part of another arrangement, between two or more parties that, at its inception, creates enforceable rights and obligations that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

Right-of-use assets represent a right to use an underlying asset for the lease term and the related lease liability represents an obligation to make lease payments pursuant to the contractual terms of the lease agreement. Right-of-use assets and lease liabilities are initially recognized on the lease commencement date based on the present value of the lease payments over the lease term. For all of our facilities leases, we account for both lease components and nonlease components (e.g., common area maintenance charges, etc.) as a single lease component when determining the present value of our lease payments. Variable lease payments that are not dependent on an index or a rate are excluded from the determination of our right-of-use assets and lease liabilities and such payments are recognized as expense in the period when the related obligation is incurred.

The Company’s lease agreements do not provide implicit interest rates. Instead, the Company uses an incremental borrowing rate determined on the lease commencement date to calculate the present value of future lease payments. The incremental borrowing rate is calculated for each individual lease and represents the rate of interest that the Company would have to pay to borrow on a collateralized basis (in the currency that the lease is denominated) over a similar term an amount equal to the lease payments in a

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similar economic environment. Right-of-use assets also include any initial direct costs incurred by the Company and lease payments made to a lessor on or before the related lease commencement date, less any lease incentives received directly from the lessor.

Certain of the Company’s facility lease agreements include options to extend or terminate the lease. When it is reasonably certain that the Company will exercise a renewal or termination option, the present value of the lease payments for the affected lease is adjusted accordingly. Leases with a term of 12 months or less are accounted for in the same manner as long-term lease arrangements, including any related disclosures. Lease expense for operating leases is generally recognized on a straight-line basis over the lease term, unless the related right-of-use asset was previously impaired.

All of our existing sublease arrangements have been classified as operating leases with sublease income recognized on a straight-line basis over the term of the sublease arrangement. To measure the Company’s periodic sublease income, we elected to use an available practical expedient that is permitted under ASU No. 2016-02 to aggregate nonlease components with the related lease components when (i) the timing and pattern of transfer for the nonlease components and the related lease components are the same and (ii) the lease components, if accounted for separately, would be classified as an operating lease. This practical expedient applies to all of our existing sublease arrangements.

When our lease cost for the term of a sublease exceeds our anticipated sublease income for that same period, we treat that circumstance as an indicator that the carrying amount of our right-of-use asset may not be fully recoverable. In those circumstances, we perform an impairment analysis and, if indicated, we record a charge against earnings to reduce the right-of-use asset to the amount deemed to be recoverable in the future. There were no right-of-use asset impairments during the three and nine months ended September 30, 2019.

On the accompanying Condensed Consolidated Balance Sheet as of September 30, 2019, right-of-use assets are classified and reported in Operating leases - right-of-use assets, and the related lease liabilities are included in Accounts payable and accrued liabilities (current) and Operating leases - liabilities (long-term). On the accompanying Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2019, the amortization of right-of-use assets is presented separately and the change in operating lease liabilities is included under Accounts payable, accrued, and other liabilities in the reconciliation of net income to cash provided by operating activities.

Lease Disclosures Under ASU No. 2016-02

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. The 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).

Description:	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost (1)	$	35,443		$	106,958
Variable lease cost (2)	3,902			11,517
Sublease income	(10,205		)	(30,767		)
Total lease cost, net (3)	$	29,140		$	87,708
Cash paid for amounts included in the measurement of operating lease liabilities	$	34,294		$	100,172
Cash receipts from sublease arrangements	$	9,000		$	25,131
Right-of-use assets obtained in exchange for new operating lease liabilities	$	38,571		$	67,756
As of September 30, 2019:
Weighted average remaining lease term for operating leases (in years)				10.5
Weighted average discount rate for operating leases				6.9		%

(1) Included in operating lease cost was $10.8 million and $32.5 million of costs for subleasing activities during the three and nine months ended September 30, 2019, respectively.

(2) These amounts are primarily variable lease and nonlease costs that were not fixed at the lease commencement date or are dependent on something other than an index or a rate.

(3) The Company did not capitalize any operating lease costs during the three and nine months ended September 30, 2019.

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As of September 30, 2019, the (i) maturities of operating lease liabilities under non-cancelable arrangements and (ii) estimated future sublease cash receipts from non-cancelable arrangements were as follows (in thousands):

	Operating			Sublease
	Lease			Cash
Period ending December 31,	Payments			Receipts
2019 (remaining three months)	$	35,125		$	9,344
2020	133,534			40,534
2021	126,602			42,918
2022	121,021			43,587
2023	115,034			44,469
Thereafter	693,901			177,741
Total future minimum operating lease payments and estimated sublease cash receipts (1)	1,225,217			$	358,593
Imputed interest	(368,485		)
Total per the Condensed Consolidated Balance Sheet	$	856,732

(1) Approximately 84% of the operating lease payments pertain to properties in the United States.

The table below indicates where the discounted operating lease payments from the above table are classified in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2019 (in thousands).

Description:
Accounts payable and accrued liabilities	$	80,170
Operating leases - liabilities	776,562
Total operating lease liabilities per the Condensed Consolidated Balance Sheet	$	856,732

As of September 30, 2019, the Company had additional operating leases for facilities that have not yet commenced. These operating leases, which aggregated $146.6 million of undiscounted lease payments, are scheduled to commence between 2019 and 2021 with lease terms of up to ten years.

Lease Disclosures Under Prior GAAP

Based on the Company's selected method of adoption for ASU No. 2016-02, the prior GAAP disclosures presented below are required in our Condensed Consolidated Financial Statements.

As of December 31, 2018, future minimum annual cash payments under non-cancelable operating lease agreements for facilities, office equipment and other assets, which expire during 2019 and through 2038, were as follows (in thousands):

Year ending December 31,
2019	$	130,991
2020	121,802
2021	118,945
2022	111,117
2023	106,113
Thereafter	689,360
Total minimum lease payments (1)	$	1,278,328

(1) Excludes approximately $372.0 million of sublease income.

Accounting standards issued but not yet adopted. The FASB has issued accounting standards that have not yet become effective and may impact the Company’s consolidated financial statements or related disclosures in future periods. Those standards and their potential impact are discussed below.

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Accounting standards effective in 2020

Implementation Costs in a Cloud Computing Arrangement — In August 2018, the FASB issued ASU No. 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU No. 2018-15"). ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Costs that are capitalized under ASU No. 2018-15 will be expensed over the term of the cloud computing arrangement. ASU No. 2018-15 is effective for Gartner on January 1, 2020, with early adoption permitted. ASU No. 2018-15 may be adopted using either a retroactive or prospective method. The adoption of ASU No. 2018-15 is currently not expected to have a material impact on the Company's consolidated financial statements; however, the new standard will change the classification of certain items on the Company's consolidated balance sheets, statements of operations and statements of cash flows in future periods.

Defined Benefit Plan Disclosures — In August 2018, the FASB issued ASU No. 2018-14, "Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans" ("ASU No. 2018-14"). ASU No. 2018-14, which is part of the FASB's broader disclosure framework project, modifies and supplements the current U.S. GAAP annual disclosure requirements for employers that sponsor defined benefit pension plans. ASU No. 2018-14 is effective for Gartner for the year ending December 31, 2020, with early adoption permitted. ASU No. 2018-14 must be adopted on a retroactive basis and applied to each comparative period presented in an entity's financial statements. The adoption of ASU No. 2018-14 is currently not expected to have a material impact on the Company's financial statement disclosures.

Fair Value Measurement Disclosures — In August 2018, the FASB issued ASU No. 2018-13, "Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU No. 2018-13"). ASU No. 2018-13, which is part of the FASB's broader disclosure framework project, modifies and supplements the current U.S. GAAP disclosure requirements pertaining to fair value measurements, with an emphasis on Level 3 disclosures of the valuation hierarchy. ASU No. 2018-13 is effective for Gartner on January 1, 2020, with early adoption permitted. The adoption of ASU No. 2018-13 is currently not expected to have a material impact on the Company's financial statement disclosures.

Goodwill Impairment — In January 2017, the FASB issued ASU No. 2017-04, "Intangibles—Goodwill and Other - Simplifying the Test for Goodwill Impairment" ("ASU No. 2017-04"). ASU No. 2017-04 simplifies the determination of the amount of goodwill to be potentially charged off by eliminating Step 2 of the goodwill impairment test under current U.S. GAAP. ASU No. 2017-04 is effective for Gartner on January 1, 2020. The adoption of ASU No. 2017-04 is currently not expected to have a material impact on the Company's consolidated financial statements.

Financial Instrument Credit Losses — In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses" ("ASU No. 2016-13"). ASU No. 2016-13 amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU No. 2016-13 is effective for Gartner on January 1, 2020, with early adoption permitted. The adoption of ASU No. 2016-13 is currently not expected to have a material impact on the Company's consolidated financial statements.

The FASB continues to work on a number of other accounting standards which, if issued, could materially impact the Company's accounting policies and disclosures in future periods. As these standards have not yet been issued, the effective dates and potential impact are unknown.

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Note 2 — Computation 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. When the impact of common share equivalents is anti-dilutive, they are excluded from the calculation.

The table below sets forth the calculation of basic and diluted income per share for the periods indicated (in thousands, except per share data).

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Numerator:
Net income used for calculating basic and diluted income per common share	$	41,388	$	11,753	$	165,589	$	38,436
Denominator:
Weighted average common shares used in the calculation of basic income per share	89,846		90,854		89,947		90,969
Common stock equivalents associated with stock-based compensation plans (1)	1,041		1,294		1,142		1,275
Shares used in the calculation of diluted income per share	90,887		92,148		91,089		92,244
Basic income per share	$	0.46	$	0.13	$	1.84	$	0.42
Diluted income per share	$	0.46	$	0.13	$	1.82	$	0.42

(1) Certain common stock equivalents were not included in the computation of diluted income per share because the effect would have been anti-dilutive. These common share equivalents totaled less than 0.2 million for each of the three and nine months ended September 30, 2018. For the three and nine months ended September 30, 2019, approximately 0.3 million and 0.2 million, respectively, of common stock equivalents were excluded from the calculation of diluted income per share because they were anti-dilutive.

Note 3 — Stock-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 September 30, 2019, the Company had 4.4 million shares of its common stock, par value $.0005 per share, (the “Common Stock”) available for stock-based compensation awards under its 2014 Long-Term Incentive Plan.

The Company accounts for stock-based compensation awards in accordance with FASB ASC Topics 505 and 718 and SEC Staff Accounting Bulletins No. 107 and No. 110. Stock-based compensation expense for equity awards is based on the fair value of the award on the date of grant. The Company recognizes stock-based compensation expense over the period that the related service is performed, which is generally the same as the vesting period of the underlying award. Currently, the Company issues treasury shares upon the exercise, release or settlement of stock-based compensation awards.

Determining the appropriate fair value model and calculating the fair value of stock-based compensation awards requires the use of certain subjective assumptions, including the expected life of a stock-based compensation award and Common Stock price volatility. In addition, determining the appropriate periodic stock-based compensation expense requires management to estimate the likelihood of the achievement of certain performance targets. The assumptions used in calculating the fair values of stock-based compensation awards and the related periodic expense represent management’s best estimates, which involve inherent uncertainties and the application of judgment. As a result, if circumstances change and the Company deems it necessary in the future to modify the assumptions it made or to use different assumptions, or if the quantity and nature of the Company’s stock-based compensation awards changes, then the amount of expense may need to be adjusted and future stock-based compensation expense could be materially different from what has been recorded in the current period.

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Stock-Based Compensation Expense

The Company recognized the following stock-based compensation expense by award type and expense category line item during the periods indicated (in millions):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Award type	2019		2018		2019		2018
Stock appreciation rights	$	1.0	$	0.8	$	5.8	$	5.6
Restricted stock units	11.8		9.8		51.5		49.9
Common stock equivalents	0.2		0.1		0.6		0.5
Total (1)	$	13.0	$	10.7	$	57.9	$	56.0

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Expense category line item	2019		2018		2019		2018
Cost of services and product development	$	6.2	$	4.7	$	23.7	$	22.8
Selling, general and administrative	6.7		5.7		33.8		31.4
Acquisition and integration charges (2)	0.1		0.3		0.4		1.8
Total (1)	$	13.0	$	10.7	$	57.9	$	56.0

(1) Includes a charge of $0.4 million and a credit of $0.3 million during the three months ended September 30, 2019 and 2018, respectively, and charges of $21.8 million and $19.6 million during the nine months ended September 30, 2019 and 2018, respectively, for awards to retirement-eligible employees. Those awards vest on an accelerated basis.

(2) Includes charges related to an acquisition and the related integration process.

As of September 30, 2019, the Company had $100.0 million of total unrecognized stock-based compensation cost, which is expected to be expensed over the remaining weighted average service period of approximately 2.5 years.

Stock-Based Compensation Awards

The disclosures presented below provide information regarding the Company’s stock-based compensation awards, all of which have been classified as equity awards in accordance with FASB ASC Topic 505.

Stock Appreciation Rights

Stock-settled stock appreciation rights ("SARs") permit the holder to participate in the appreciation of the value of the Common Stock. After the applicable vesting criteria have been satisfied, SARs are settled in shares of Common Stock upon exercise by the employee. SARs vest ratably over a four-year service period and expire seven years from the date of grant. The fair value of a SARs award is recognized as compensation expense on a straight-line basis over four years. SARs have only been awarded to the Company’s executive officers.

When SARs are exercised, the number of shares of Common Stock issued is calculated as follows: (1) the total proceeds from the exercise of the SARs award (calculated as the closing price of the Common Stock as reported on the New York Stock Exchange on the date of exercise less the exercise price of the SARs award, multiplied by the number of SARs exercised) is divided by (2) the closing price of the Common Stock on the date of exercise. Upon exercise, the Company withholds a portion of the shares of the Common Stock to satisfy statutory tax withholding requirements. SARs recipients do not have any stockholder rights until the shares of Common Stock are issued in respect of the award, which is subject to the prior satisfaction of the vesting and other criteria relating to such grants.

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The table below summarizes changes in SARs outstanding during the nine months ended September 30, 2019.

	Stock Appreciation Rights ("SARs") (in millions)		Per Share Weighted Average Exercise Price		Per Share Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)
Outstanding at December 31, 2018	1.2		$	89.45	$	19.88	4.33
Granted	0.3		143.23		32.62		6.36
Forfeited	(0.1	)	118.31		26.52		n/a
Exercised	(0.1	)	70.54		16.64		n/a
Outstanding at September 30, 2019 (1) (2)	1.3		$	100.54	$	22.43	4.18
Vested and exercisable at September 30, 2019 (2)	0.7		$	83.36	$	18.46	3.11

n/a = not applicable

(1) As of September 30, 2019, 0.6 million of the total SARs outstanding were unvested. The Company expects that substantially all of those unvested awards will vest in future periods.

(2) As of September 30, 2019, the total SARs outstanding had an intrinsic value of $56.9 million. On such date, SARs vested and exercisable had an intrinsic value of $42.1 million.

The fair value of a SARs award is determined on the date of grant using the Black-Scholes-Merton valuation model with the following weighted average assumptions:

	Nine Months Ended
	September 30,
	2019		2018
Expected dividend yield (1)	—	%	—	%
Expected stock price volatility (2)	21	%	21	%
Risk-free interest rate (3)	2.5	%	2.5	%
Expected life in years (4)	4.6		4.5

(1) The expected dividend yield assumption was based on both the Company's historical and anticipated dividend payouts. Historically, the Company has not paid cash dividends on its Common Stock.

(2) The determination of expected stock price volatility was based on both historical Common Stock prices and implied volatility from publicly traded options in the Common Stock.

(3) The risk-free interest rate was based on the yield of a U.S. Treasury security with a maturity similar to the expected life of the award.

(4) The expected life represents the Company’s estimate of the weighted average period of time the SARs are expected to be outstanding (that is, the period between the service inception date and the expected exercise date).

Restricted Stock Units

Restricted stock units ("RSUs") give the awardee the right to receive shares of Common Stock when the vesting conditions are met and certain restrictions lapse. Each RSU that vests entitles the awardee to one share of Common Stock. RSU awardees do not have any of the rights of a Gartner stockholder, including voting rights and the right to receive dividends and distributions, until the shares are released. The fair value of an RSU award is determined on the date of grant based on the closing price of the Common Stock as reported on the New York Stock Exchange on that date. Service-based RSUs vest ratably over four years and are expensed on a straight-line basis over the vesting period. Performance-based RSUs are subject to the satisfaction of both performance and service conditions, vest ratably over four years and are expensed on an accelerated basis over the vesting period.

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The table below summarizes the changes in RSUs outstanding during the nine months ended September 30, 2019.

	Restricted Stock Units ("RSUs") (in millions)	Per Share Weighted Average Grant Date Fair Value
Outstanding at December 31, 2018	1.4