Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported)
 
July 26, 2018
 
 
 
GARTNER, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
DELAWARE
 
1-14443
 
04-3099750
 
 
 
 
 
(State or Other Jurisdiction of
Incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)
 
P.O. Box 10212
56 Top Gallant Road
Stamford, CT 06902-7747
(Address of Principal Executive Offices, including Zip Code)
 
(203) 316-1111
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter): o

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: o
                                                






ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On August 1, 2018, Gartner, Inc. (the “Company” or "Gartner" ) announced financial results for the three and six months ended June 30, 2018. A copy of the Company’s Press Release is furnished herein as Exhibit 99.1.
In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02 and in Exhibit 99.1 of this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

ITEM 5.02. DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGMENTS OF CERTAIN OFFICERS.
On July 26, 2018, Michael J. Bingle informed the Board of Directors (the “Board”) of Gartner, Inc. (the “Company”) of his decision to resign, effective as of July 26, 2018, as a member of the Board and the Compensation Committee. Mr. Bingle has been a valued member of the Board since 2004, and is resigning to focus on his activities as a managing partner and managing director at Silver Lake. His resignation is not due to a disagreement with the Board or the Company on any matter relating to the Company’s operations, policies or practices. The Company thanks Mr. Bingle for his many contributions to the Company’s growth and progress.

ITEM 7.01. REGULATION FD DISCLOSURES.
Gartner has scheduled a conference call at 8 a.m. Eastern time on August 1, 2018 to discuss the Company’s financial results for the first quarter of 2018. A slide presentation will also be available via the Internet by accessing the Company’s website at http://investor.gartner.com. An audio replay of the webcast will also be available on the Company's website.
In accordance with General Instruction B.2 of Form 8-K, the information in this Item 7.01 of this Current Report on Form 8-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits
EXHIBIT NO.
 
DESCRIPTION
 
 
 
 
Press Release issued August 1, 2018 with respect to financial results for Gartner, Inc. for the three and six months ended June 30, 2018.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
Gartner, Inc.
 
 
 
Date: August 1, 2018
By:
/s/ Craig W. Safian
 
 
 
 
 
Craig W. Safian
Executive Vice President and Chief Financial Officer



Exhibit


EXHIBIT 99.1
 
 
Gartner
Press Release
Gartner Reports Second Quarter 2018 Financial Results
Total Contract Value $2.9 Billion, +12% YoY FX Neutral

THREE MONTHS ENDED JUNE 30, 2018 HIGHLIGHTS
Revenues: $1.0 billion, +19%; adjusted revenues excluding divested operations: $1.0 billion, +14%.
Net income: $46 million; adjusted EBITDA excluding divested operations: $191 million, +11%.
Diluted EPS: $0.50; adjusted EPS: $1.03.
Operating cash flow: $174 million; free cash flow: $183 million.
Sold several non-core assets for $406 million in net cash.
Repurchased 0.5 million common shares for $68 million and paid down $554 million of debt.
2018 FULL YEAR FINANCIAL OUTLOOK
The Company updated its GAAP EPS guidance and reiterated its Non-GAAP guidance:
Revenues $3.9-4.0 billion; adjusted revenues $3.9-4.0 billion.
Net income $104-140 million; adjusted EBITDA $710-760 million.
Diluted EPS $1.12-1.51; adjusted EPS $3.51-3.91.
Operating cash flow $425-475 million; free cash flow $416-456 million.
STAMFORD, Conn., August 1, 2018 — Gartner, Inc. (NYSE: IT), the world's leading research and advisory company, today reported results for the second quarter 2018 and updated its GAAP EPS guidance and reiterated its Non-GAAP guidance for full year 2018. Gene Hall, Gartner’s chief executive officer, commented, “We got off to a great start for the year and that continued through the second quarter. The leading indicators across all parts of our business are overwhelmingly positive, and we are well-positioned for sustained, long-term double digit growth."
CONFERENCE CALL INFORMATION
The Company will host a webcast call at 8:00 a.m. Eastern time on Wednesday, August 1, 2018 to discuss the Company’s financial results. The call will be available via the Internet by accessing the Company’s website at http://investor.gartner.com or by dialing 216-562-0463 and referencing the conference code 1894032. A replay and a transcript will be available for approximately 30 days following the call on the Company's website.

CONSOLIDATED RESULTS HIGHLIGHTS
($ in millions, except per share data)
 
Three Months Ended
 
 
 
 
 
 
June 30,
 
%
 
 
 
 
2018
 
2017
 
Change
 
 
GAAP Metrics:
 
 
 
 
 
 
 
 
Revenues
 
$
1,001

 
$
844

 
19
%
 
(a) 
Net income (loss)
 
46

 
(92
)
 
>100%

 
 
Diluted EPS
 
0.50

 
(1.03
)
 
>100%

 
 
Operating cash flow

 
$
174

 
$
112

 
55
%
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Metrics:
 
 
 
 
 
 
 
 
Adjusted revenues excluding divested operations
 
$
1,001

 
$
879

 
14
%
 
 
Adjusted EBITDA excluding divested operations
 
191

 
172

 
11
%
 
 
Adjusted EPS
 
1.03

 
0.88

 
17
%
 
 
Free cash flow
 
$
183

 
$
129

 
42
%
 
 
 
 
 
 
 
 
 
 
 
(a) The foreign currency neutral percentage change in revenue was 16%.



ABOUT GARTNER
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 and build the successful organizations of tomorrow. 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’re trusted as an objective resource and critical partner by more than 15,000 organizations in more than 100 countries — across all major functions, in every industry and enterprise size. To learn more about how we help decision makers fuel the future of business, visit www.gartner.com.

CONTACT:
David Cohen, GVP, Investor Relations, Gartner
+1 203.316.6631/investor.relations@gartner.com

SEGMENT RESULTS HIGHLIGHTS
Unless indicated otherwise, our segment results below for the three and six months ended June 30, 2017 include the operating results of CEB Inc., beginning April 5, 2017, the date of acquisition. Additional information regarding our segment results can be obtained in our quarterly report on Form 10-Q filed with the SEC on August 1, 2018. Certain financial metrics contained in this Press Release are considered non-GAAP financial measures. Definitions of these non-GAAP financial measures are included in this Press Release under "Non-GAAP Financial Measures" and reconciliations under "Supplemental Information — Non-GAAP Reconciliations." In the tables below, some totals may not add due to rounding. In addition, percentage changes are based on the whole number and recalculation based on millions may yield a different result. In the second quarter of 2018 the Company divested its CEB Talent Assessment business and its CEB Workforce Survey & Analytics business. These two businesses were acquired in the CEB acquisition and were previously reported with the Talent Assessment & Other segment. As a result of these divestitures, the Company changed the segment name to Other.

Research
($ in millions)
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
 
 
2018
 
2017
 
% Change
 
FX Neutral
 
2018
 
2017
 
% Change
 
GAAP Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
770

 
$
614

 
25
%
 
23
%
 
$
1,534

 
$
1,125

 
36
%
(a) 
Direct expense
 
237

 
213

 
11
%
 
10
%
 
470

 
373

 
26
%
 
Gross contribution
 
$
533

 
$
401

 
33
%
 
29
%
 
$
1,064

 
$
752

 
42
%
 
Contribution margin
 
69
%
 
65
%
 
4 points

 
 
 
69
%
 
67
%
 
2 points

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted revenues
 
$
771

 
$
675

 
14
%
 
12
%
 
$
1,541

 
$
1,330

 
16
%
 
Adjusted contribution
 
534

 
462

 
16
%
 
13
%
 
1,071

 
915

 
17
%
 
Adjusted contribution margin
 
69
%
 
68
%
 
1 point

 
 
 
70
%
 
69
%
 
1 point

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Measurements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total contract value (b)
 
$
2,940

 
$
2,632

 
 
 
12
%
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For GTS (c) :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract value (b) 
 
$
2,329

 
$
2,045

 
 
 
14
%
 
 
 
 
 
 
 
Client retention
 
82
%
 
83
%
 
 
 
(1) point

 
 
 
 
 
 
 
Wallet retention
 
105
%
 
104
%
 
 
 
1 point

 
 
 
 
 
 
 
Client enterprises
 
12,375

 
11,696

 
 
 
6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For GBS (c) :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract value (b) 
 
$
611

 
$
587

 
 
 
4
%
 
 
 
 
 
 
 
Client retention
 
83
%
 
79
%
 
 
 
4 points

 
 
 
 
 
 
 
Wallet retention
 
97
%
 
97
%
 
 
 

 
 
 
 
 
 
 
Client enterprises
 
5,659

 
5,619

 
 
 
1
%
 
 
 
 
 
 
 
(a) The foreign currency neutral percentage change in revenues was 33% for the six months.
(b) Contract value dollar amounts and percentages are foreign currency neutral.
(c) GTS includes sales to users and providers of technology. GBS includes sales to all other functional leaders.

Events
($ in millions)
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
 
 
2018
 
2017
 
% Change
 
FX Neutral
 
2018
 
2017
 
% Change
 
GAAP Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
111

 
$
91

 
22
 %
 
21
%
 
$
157

 
$
126

 
24
%
(a) 
Direct expense
 
48

 
41

 
15
 %
 
14
%
 
77

 
63

 
23
%
 
Gross contribution
 
$
63

 
$
50

 
28
 %
 
27
%
 
$
80

 
$
63

 
26
%
 
Contribution margin
 
57
%
 
55
%
 
2 points

 
 
 
51
%
 
50
%
 
1 point

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted revenues
 
$
111

 
$
95

 
17
 %
 
16
%
 
$
157

 
$
131

 
20
%
 
Adjusted contribution
 
63

 
54

 
18
 %
 
18
%
 
80

 
67

 
19
%
 
Adjusted contribution margin
 
57
%
 
57
%
 

 
 
 
51
%
 
51
%
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Measurements (b) :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of destination events held
 
24

 
26

 
(8
)%
 
 
 
 
 
 
 
 
 
Number of destination events attendees
 
20,896

 
18,539

 
13
 %
 
 
 
 
 
 
 
 
 
(a) The foreign currency neutral percentage change in revenues was 22% for the six months.
(b) Single day, local events are excluded.

Consulting
($ in millions, except for Revenue per billable headcount, which is in thousands)
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
 
 
2018
 
2017
 
% Change
 
FX Neutral
 
2018
 
2017
 
% Change
 
GAAP Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
96

 
$
92

 
5
%
 
2
%
 
$
179

 
$
170

 
5
%
(a) 
Direct expense
 
62

 
61

 
4
%
 
1
%
 
121

 
115

 
5
%
 
Gross contribution
 
$
34

 
$
31

 
7
%
 
5
%
 
$
58

 
$
55

 
4
%
 
Contribution margin
 
35
%
 
34
%
 
1 point

 
 
 
32
%
 
33
%
 
(1) point

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted revenues
 
$
96

 
$
92

 
5
%
 
2
%
 
$
179

 
$
170

 
5
%
 
Adjusted contribution
 
34

 
31

 
7
%
 
5
%
 
58

 
55

 
5
%
 
Adjusted contribution margin
 
35
%
 
34
%
 
1 point

 
 
 
32
%
 
32
%
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Measurements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Backlog
 
$
106

 
$
91

 
16
%
 
 
 
 
 
 
 


 
Quarterly utilization
 
67
%
 
65
%
 
2 points

 
 
 
 
 
 
 
 
 
Quarterly billable headcount
 
710

 
667

 
6
%
 
 
 
 
 
 
 


 
Revenue per billable headcount (b)
 
$
397

 
$
378

 
5
%
 
 
 
 
 
 
 


 
(a) The foreign currency neutral percentage change in revenues was 2% for the six months.
(b) Calculated on an average annualized basis. Dollar amounts are in thousands.
 
Other (previously called Talent Assessment & Other)

This segment was created concurrent with the CEB acquisition on April 5, 2017. The segment consisted of three primary businesses: the CEB Talent Assessment business, which was the largest business in the segment; the CEB Workforce Survey & Analytics business; and the CEB Challenger sales training business. The Company divested the CEB Talent Assessment and CEB Workforce Survey & Analytics businesses in second quarter 2018. As a result of the divestitures, the Company changed the name of the segment to Other.

($ in millions)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
% Change
 
FX Neutral
 
2018
 
2017
 
% Change
 
GAAP Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
23

 
$
47

 
(51
)%
 
(51
)%
 
$
94

 
$
47

 
100
 %
(a) 
Direct expense
 
8

 
30

 
(73
)%
 
(73
)%
 
36

 
30

 
20
 %
 
Gross contribution
 
$
15

 
$
17

 
(13
)%
 
(10
)%
 
$
58

 
$
17

 
>100%

 
Contribution margin
 
65
%
 
37
%
 
28 points

 
 
 
62
%
 
37
%
 
25 points

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted revenues
 
$
23

 
$
74

 
(69
)%
 
(69
)%
 
$
97

 
$
143

 
(32
)%
 
Adjusted contribution
 
15

 
44

 
(66
)%
 
(66
)%
 
61

 
81

 
(25
)%
 
Adjusted contribution margin
 
65
%
 
59
%
 
6 points

 
 
 
63
%
 
57
%
 
6 points

 
Adjusted revenues excluding divested operations
 
$
22

 
$
17

 
29
 %
 
41
 %
 
$
42

 
$
35

 
20
 %
 
Adjusted contribution excluding divested operations
 
$
15

 
$
9

 
67
 %
 
84
 %
 
$
27

 
$
17

 
59
 %
 
Adjusted contribution margin excluding divested operations
 
68
%
 
53
%
 
15 points

 
 
 
64
%
 
49
%
 
15 points

 
(a) The foreign currency neutral percentage change in revenues was 98% for the six months.

       

FINANCIAL OUTLOOK FOR FULL YEAR 2018

The table below provides the Company's financial outlook for 2018:
($ in millions, except per share data)
 
 
 
 
 
 
2018 Projected Range
Revenues:
 
 
 
 
 
 
Research
 
$
3,093

 
 
$
3,143

Events
 
380

 
 
400

Consulting
 
340

 
 
355

Other
 
107

 
 
127

Total revenue
 
3,920

 
 
4,025

Deferred revenue fair value adjustment
 
10

 
 
10

Total adjusted revenue (Non-GAAP) (a)
 
$
3,930

 
 
$
4,035

 
 
 
 
 
 
 
Adjusted Segment Revenues:
 
 
 
 
 
 
Research
 
$
3,100

 
 
$
3,150

Events
 
380

 
 
400

Consulting
 
340

 
 
355

Other
 
$
110

 
 
$
130

 
 
 
 
 
 
 
Income:
 
 
 
 
 
 
Net income
 
$
104

 
 
$
140

Adjusted EBITDA (Non-GAAP) (a), (b)
 
710

 
 
760

Diluted EPS
 
1.12

 
 
1.51

Adjusted EPS (Non-GAAP) (a), (b)
 
$
3.51

 
 
$
3.91

 
 
 
 
 
 
 
Expense:
 
 
 
 
 
 
Stock-based compensation expense

 
$
71

 
 
$
71

Depreciation
 
80

 
 
80

Amortization of intangibles
 
185

 
 
185

Deferred revenue fair value adjustment
 
11

 
 
11

Acquisition and integration charges and other non-recurring items
 
111

 
 
111

Gain on divestitures
 
$
(25
)
 
 
$
(25
)
 
 
 
 
 
 
 
Interest expense
 
$
116

 
 
$
116

Amortization of deferred financing fees
 
14

 
 
14

Total interest expense
 
$
130

 
 
$
130

 
 
 
 
 
 
 
Cash Flow:
 
 
 
 
 
 
Operating cash flow
 
$
425

 
 
$
475

Acquisition, integration, and other non-recurring payments
 
126

 
 
126

Capital expenditures
 
(135
)
 
 
(145
)
Free cash flow (Non-GAAP) (a)
 
$
416

 
 
$
456

(a) See below for definitions of our Non-GAAP metrics under "Non-GAAP Financial Measures."
(b) See below for reconciliations under "Supplemental Information - Non-GAAP Reconciliations."





FORWARD LOOKING STATEMENTS
 
Statements contained in this press release regarding the Company’s growth and prospects, projected financial results and all other statements in this release other than recitation of historical facts are forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, estimates, uncertainties and other factors that may cause actual results to be materially different.

Such factors include, but are not limited to, the following: our ability to achieve and effectively manage growth, including our ability to integrate our acquisitions and consummate and integrate future acquisitions; our ability to pay our debt; our ability to maintain and expand our products and services; our ability to expand or retain our customer base; our ability to grow or sustain revenue from individual customers; our ability to attract and retain a professional staff of research analysts and consultants as well as experienced sales personnel upon whom we are dependent; our ability to achieve continued customer renewals and achieve new contract value, backlog and deferred revenue growth in light of competitive pressures; our ability to carry out our strategic initiatives and manage associated costs; our ability to successfully compete with existing competitors and potential new competitors; our ability to enforce or protect our intellectual property rights; additional risks associated with international operations including foreign currency fluctuations; the impact of restructuring and other charges on our businesses and operations; general economic conditions; risks associated with the creditworthiness and budget cuts of governments and agencies; the impact of the Tax Cuts and Jobs Act of 2017; and other factors described under “Risk Factors” contained in our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, which can be found on Gartner’s website at www.investor.gartner.com and the SEC’s website at www.sec.gov.

Forward-looking statements included herein speak only as of the date hereof and Gartner disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances, except as required by applicable law.

NON-GAAP FINANCIAL MEASURES
Certain financial measures used in this Press Release are not defined by generally accepted accounting principles ("GAAP") and as such are considered non-GAAP financial measures. We provide these measures to enhance the user’s overall understanding of the Company’s current financial performance and the Company’s prospects for the future. Investors are cautioned that these non-GAAP financial measures may not be defined in the same manner by other companies and as a result may not be comparable to other similarly titled measures used by other companies. Also, these non-GAAP financial measures should not be construed as alternatives, or superior, to other measures determined in accordance with GAAP.
The Company's non-GAAP financial measures are as follows:
Adjusted Revenue: Represents GAAP revenue plus: (i) revenue for pre-acquisition period(s) from CEB, as applicable; (ii) the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the non-cash fair value adjustments on pre-acquisition deferred revenues is recognized ratably over the remaining period of the underlying revenue contract. We believe Adjusted Revenue is an important measure of our recurring operations as it provides a more accurate period-over-period comparison of trends in revenues, on both a consolidated and segment results basis.
Adjusted Contribution and Adjusted Contribution Margin: Adjusted Contribution represents GAAP contribution plus: (i) the contribution for pre-acquisition period(s) from CEB, as applicable; (ii) the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. Adjusted contribution for the consolidated Company also reflects a reduction for unallocated bonus and fringe costs. The Adjusted Contribution Margin represents the contribution margin on Adjusted revenue. We believe Adjusted Contribution and Adjusted Contribution Margin are important measures of our recurring operations as they provide a more accurate and consistent period-over-period comparison of our segment results.
Adjusted Revenue, Adjusted Contribution, and Adjusted Contribution Margin - Excluding Divested Operations:
Represent the non-GAAP metrics defined above less results of divested operations. We believe these adjustments are important measures of our recurring operations as they provide a more accurate and consistent period-over-period comparison of our segment results.
Adjusted EBITDA: Represents GAAP net income (loss): (i) plus stock-based compensation expense; depreciation, amortization, and accretion on excess facilities obligations; the amortization of non-cash fair adjustments on pre-acquisition deferred revenues; acquisition and integration charges and certain other non-recurring items; (ii) plus the Adjusted EBITDA related to pre-acquisition periods for CEB, as applicable; and (iii) less gain on divestitures. We believe Adjusted EBITDA is an important measure of our recurring operations as it excludes items not representative of our core operating results.
Adjusted EBITDA Excluding Divested Operations: Represents Adjusted EBITDA as defined above less EBITDA from divested operations. We believe these adjustments are important measures of our recurring operations as they provide a more accurate and consistent period-over-period comparison of our segment results.

Adjusted Net Income: Represents GAAP net income (loss) adjusted for the impact of certain items directly related to acquisitions and other non-recurring items. These adjustments include (i) the amortization of acquired intangibles; (ii) acquisition and integration charges and certain other non-recurring items; (iii) the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues; (iv) the non-recurring impact from the enactment of the Tax Cuts and Jobs Act of 2017; (v) gain on divestitures; and (vi) certain other non-recurring items. We believe Adjusted Net Income is an important measure of our recurring operations as it excludes items not indicative of our core operating results.
Adjusted EPS: Represents Adjusted Net Income divided by the weighted-average diluted shares outstanding. We believe Adjusted EPS is an important measure of our recurring operations as it excludes items that may not be indicative of our core operating results.
Free Cash Flow: Represents cash provided by operating activities determined in accordance with GAAP: (i) plus payments for acquisition and integration items directly-related to our acquisitions and certain other non-recurring items; (ii) less payments for capital expenditures. We believe that Free Cash Flow is an important measure of the recurring cash generated by the Company’s core operations that may be available to be used to repay debt obligations, repurchase our stock, invest in future growth through new business development activities, or make acquisitions.
Foreign Currency Neutral (FX Neutral): We provide foreign currency neutral dollar amounts and percentages for our contract values, revenues, certain expenses, and other metrics. These foreign currency neutral dollar amounts and percentages eliminate the effects of exchange rate fluctuations and thus provide a more accurate and meaningful trend in the underlying data being measured. We calculate foreign currency neutral dollar amounts by converting the underlying amounts in local currency for different periods into U.S. dollars by applying the same foreign exchange rates.

SUPPLEMENTAL INFORMATION - NON-GAAP RECONCILIATIONS
The following tables provide reconciliations of certain Non-GAAP financial measures used in this Press Release with the most directly comparable GAAP measure. See "Non-GAAP Financial Measures" above for definitions of these Non-GAAP financial measures.
Reconciliation - GAAP Revenue to Adjusted Revenue, Adjusted Contribution, and Adjusted Contribution Margin (Unaudited; in millions. Some totals may not add due to rounding.):

For the three months ended June 30, 2018:
 
 
Research
 
Events
 
Consulting
 
Other
 
Unallocated
 
Total
GAAP revenue
 
$
770

 
$
111

 
$
96

 
$
23

 
$

 
$
1,001

Add: Amortization of deferred revenue fair value adjustment (a)
 
1

 

 

 

 

 
1

Adjusted revenue
 
771

 
111

 
96

 
23

 

 
1,002

Less: divested operations
 

 

 

 
(1
)
 

 
(1
)
Adjusted revenue excluding divested operations
 
$
771

 
$
111

 
$
96

 
$
22

 
$

 
$
1,001

 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP contribution
 
$
533

 
$
63

 
$
34

 
$
15

 
$

 
$
645

Add: Amortization of deferred revenue fair value adjustment (a)
 
1

 

 

 

 

 
1

Less: Unallocated expense (b)
 

 

 

 

 
(11
)
 
(11
)
Adjusted contribution
 
534

 
63

 
34

 
15

 
(11
)
 
635

Less: divested operations
 

 

 

 

 

 

Adjusted contribution excluding divested operations
 
$
534

 
$
63

 
$
34

 
$
15

 
$
(11
)
 
$
635

Adjusted contribution margin excluding divested operations
 
69
%
 
57
%
 
35
%
 
68
%
 

 
63
%
 
 
 
 
 
 
 
 
 
 
 
 
 

For the six months ended June 30, 2018:
 
 
Research
 
Events
 
Consulting
 
Other
 
Unallocated
 
Total
GAAP revenue
 
$
1,534

 
$
157

 
$
179

 
$
94

 
$

 
$
1,965

Add: Amortization of deferred revenue fair value adjustment (a)
 
7

 

 

 
3

 

 
10

Adjusted revenue
 
1,541

 
157

 
179

 
97

 

 
1,975

Less: divested operations
 

 

 

 
(55
)
 

 
(55
)
Adjusted revenue excluding divested operations
 
$
1,541

 
$
157

 
$
179

 
$
42

 
$

 
$
1,920

 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP contribution
 
$
1,064

 
$
80

 
$
58

 
$
58

 
$

 
$
1,260

Add: Amortization of deferred revenue fair value adjustment (a)
 
7

 

 

 
3

 

 
10

Less: Unallocated expense (b)
 

 

 

 

 
(20
)
 
(20
)
Adjusted contribution
 
1,071

 
80

 
58

 
61

 
(20
)
 
1,250

Less: divested operations
 

 

 

 
(34
)
 

 
(34
)
Adjusted contribution excluding divested operations
 
$
1,071

 
$
80

 
$
58

 
$
27

 
$
(20
)
 
$
1,216

Adjusted contribution margin excluding divested operations
 
70
%
 
51
%
 
32
%
 
64
%
 

 
63
%

(a) Consists of the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.
(b) Consists of certain unallocated costs.
 

For the three months ended June 30, 2017:
 
 
Research
 
Events
 
Consulting
 
Other
 
Unallocated
 
Total
GAAP revenue
 
$
614

 
$
91

 
$
92

 
$
47

 
$

 
$
844

Add: Amortization of deferred revenue fair value adjustment (a)
 
61

 
4

 

 
27

 

 
92

Adjusted revenue
 
675

 
95

 
92

 
74

 

 
936

Less: divested operations
 

 

 

 
(57
)
 

 
(57
)
Adjusted revenue excluding divested operations
 
$
675

 
$
95

 
$
92

 
$
17

 
$

 
$
879

 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP contribution
 
$
401

 
$
50

 
$
31

 
$
17

 
$

 
$
499

Add: Amortization of deferred revenue fair value adjustment (a)
 
61

 
4

 

 
27

 

 
92

Less: Unallocated expense (b)
 

 

 

 

 
(7
)
 
(7
)
Adjusted contribution
 
462

 
54

 
31

 
44

 
(7
)
 
584

Less: divested operations
 

 

 

 
(35
)
 

 
(35
)
Adjusted contribution excluding divested operations
 
$
462

 
$
54

 
$
31

 
$
9

 
$
(7
)
 
$
549

Adjusted contribution margin excluding divested operations
 
68
%
 
57
%
 
34
%
 
53
%
 

 
62
%
 
 
 
 
 
 
 
 
 
 
 
 
 

For the six months ended June 30, 2017:
 
 
Research
 
Events
 
Consulting
 
Other
 
Unallocated
 
Total
GAAP revenue
 
$
1,125

 
$
126

 
$
170

 
$
47

 
$

 
$
1,469

Add: Pre-acquisition revenue
 
144

 
1

 

 
69

 

 
214

Add: Amortization of deferred revenue fair value adjustment (a)
 
61

 
4

 

 
27

 

 
92

Adjusted revenue
 
1,330

 
131

 
170

 
143

 

 
1,775

Less: divested operations
 

 

 

 
(108
)
 

 
(108
)
Adjusted revenue excluding divested operations
 
$
1,330

 
$
131

 
$
170

 
$
35

 
$

 
$
1,667

 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP contribution
 
$
752

 
$
63

 
$
55

 
$
17

 
$

 
$
888

Add: Pre-acquisition contribution
 
102

 

 

 
37

 

 
139

Add: Amortization of deferred revenue fair value adjustment (a)
 
61

 
4

 

 
27

 

 
92

Less: Unallocated expense (b)
 

 

 

 

 
(8
)
 
(8
)
Adjusted contribution
 
915

 
67

 
55

 
81

 
(8
)
 
1,111

Less: divested operations
 

 

 

 
(64
)
 

 
(64
)
Adjusted contribution excluding divested operations
 
$
915

 
$
67

 
$
55

 
$
17

 
$
(8
)
 
$
1,047

Adjusted contribution margin excluding divested operations
 
69
%
 
51
%
 
32
%
 
49
%
 
%
 
63
%
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Consists of the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.
(b) Consists of certain unallocated costs.

 




Reconciliation - GAAP Net Income (Loss) to Adjusted EBITDA (Unaudited; in millions):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
GAAP net income (loss)
 
$
46

 
$
(92
)
 
$
26

 
$
(56
)
Interest expense, net
 
37

 
44

 
72

 
50

Gain on divestitures
 
(25
)
 

 
(25
)
 

Other (income) expense, net
 
(1
)
 

 
(2
)
 
(1
)
Tax (benefit) provision
 
29

 
(50
)
 
6

 
(38
)
Operating income (loss)
 
86

 
(98
)
 
77

 
(45
)
Adjustments:
 
 
 
 
 
 
 
 
Stock-based compensation expense (a)
 
14

 
16

 
44

 
39

Depreciation, accretion, and amortization (b)
 
67

 
84

 
136

 
100

Amortization of deferred revenue fair value adjustment (c)
 
1

 
91

 
10

 
92

Acquisition and integration charges and other non-recurring items (d)
 
23

 
92

 
85

 
105

  Subtotal
 
191

 
185

 
352

 
291

Plus: CEB pre-acquisition EBITDA (e)
 

 

 

 
36

Adjusted EBITDA
 
191

 
185

 
352

 
327

Less: Divested operations EBITDA (f)
 

 
(13
)
 
(8
)
 
(19
)
Adjusted EBITDA excluding divested operations
 
$
191

 
$
172

 
$
344

 
$
308


(a) Consists of charges for stock-based compensation awards.
(b) Includes depreciation expense, accretion on excess facilities obligations, and amortization of intangibles.
(c) Consists of the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.
(d) Consists of incremental and directly-related charges from acquisitions and other non-recurring items.
(e) Consists of CEB Adjusted EBITDA for the period prior to the acquisition. The Company compiled the EBITDA amounts from unaudited financial data provided by CEB in accordance with Gartner's EBITDA definition.
(f) Consists of Adjusted EBITDA from divested operations.

Reconciliation - GAAP Net Income (Loss) to Adjusted Net Income and Adjusted EPS (Unaudited; in millions, except per share amounts):
 
 
Three Months Ended June 30,
 
 
2018
 
2017
 
 
Amount
 
Per share
 
Amount
 
Per share
GAAP net income (loss)
 
$
46

 
$
0.50

 
$
(92
)
 
$
(1.03
)
Acquisition and other adjustments:
 
 
 
 
 
 
 
 
Amortization of acquired intangibles (a)
 
50

 
0.54

 
65

 
0.72

Amortization of deferred revenue fair value adjustment (b)
 
1

 
0.01

 
91

 
1.01

Acquisition & integration charges and other non-recurring items (c), (d)

 
31

 
0.34

 
101

 
1.11

Gain on divestitures
 
(25
)
 
(0.28
)
 

 

Impact of Tax Cuts & Jobs Act of 2017 - provisional adjustment
 
1

 
0.01

 

 

Tax impact of adjustments (e)
 
(9
)
 
(0.09
)
 
(86
)
 
(0.95
)
Rounding
 

 

 

 
0.02

Adjusted net income and Adjusted EPS (f)
 
$
95

 
$
1.03

 
$
79

 
$
0.88

 
 
Six Months Ended June 30,
 
 
2018
 
2017
 
 
Amount
 
Per share
 
Amount
 
Per share
GAAP net income (loss)
 
$
26

 
$
0.29

 
$
(56
)
 
$
(0.65
)
Acquisition and other adjustments:
 
 
 
 
 
 
 
 
Amortization of acquired intangibles (a)
 
102

 
1.10

 
72

 
0.82

Amortization of deferred revenue fair value adjustment (b)
 
10

 
0.11

 
92

 
1.05

Acquisition & integration charges and other non-recurring items (c), (d)

 
96

 
1.04

 
114

 
1.30

Gain on divestitures
 
(25
)
 
(0.28
)
 

 

Impact of Tax Cuts and Jobs Act of 2017 - provisional adjustment
 
1

 
0.01

 

 

Tax impact of adjustments (e)
 
(49
)
 
(0.53
)
 
(92
)
 
(1.04
)
Rounding
 

 
0.01

 

 
0.01

Adjusted net income and Adjusted EPS (f)
 
$
161

 
$
1.75

 
$
130

 
$
1.49


(a) Consists of non-cash amortization charges from acquired intangibles.
(b) Consists of the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.
(c) Consists of incremental and directly-related charges related to acquisitions and other non-recurring items.
(d) Includes the amortization and write-off of deferred financing fees, which is recorded in Interest expense, net in the Condensed Consolidated Statement of Operations and in the Adjusted EBITDA table.
(e) The effective tax rates on the adjustments were 15% and 27% for the three and six months ended June 30, 2018, respectively, and 33% for both the three and six months ended June 30, 2017.
(f) Adjusted EPS was calculated based on 92.2 million and 90.6 million diluted shares for the three months ended June 30, 2018 and 2017, respectively, and 92.3 million and 87.4 million diluted shares for the six months ended June 30, 2018 and 2017, respectively.

Reconciliation - GAAP Cash Provided by Operating Activities to Free Cash Flow (Unaudited; in millions):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
 
2018
 
2017
 
2018
 
2017
(a) 
GAAP cash provided by operating activities
 
$
174

 
$
112

 
$
177

 
$
83

 
Adjustments:
 
 
 
 
 
 
 
 
 
Plus: cash paid for acquisition, integration, and other non-recurring items
 
31

 
48

 
73

 
65

 
Less: cash paid for capital expenditures
 
(22
)
 
(31
)
 
(40
)
 
(42
)
 
Free Cash Flow
 
$
183

 
$
129

 
$
210

 
$
106

 
(a) The six months ended June 30, 2017 excludes pre-acquisition CEB.

Financial Outlook Reconciliation - GAAP Net Income to Adjusted EBITDA (Unaudited; in millions):
 
 
2018 Full Year Guidance
 
 
Low
 
High
Net income
 
$
104

 
$
140

Interest expense, net (a)
 
130

 
130

Other (income) expense, net
 
2

 
2

Gain on divestitures
 
(25
)
 
(25
)
Tax provision
 
41

 
55

Operating income
 
252

 
302

 
 
 
 
 
Normalizing adjustments:
 
 
 
 
Stock-based compensation expense
 
71

 
71

Depreciation, accretion, and amortization
 
266

 
266

Deferred revenue fair value adjustment
 
10

 
10

Acquisition and integration charges and other nonrecurring items
 
111

 
111

Adjusted EBITDA
 
$
710

 
$
760

(a) Includes $14.0 million of amortization of deferred financing fees, which is reported in Interest expense, net.

Financial Outlook Reconciliation - GAAP EPS to Adjusted EPS (Unaudited):
 
 
2018 Full Year Guidance
 
 
Low
 
High
GAAP EPS
 
$
1.12

 
$
1.51

 
 
 
 
 
Normalizing adjustments:
 
 
 
 
Amortization of acquired intangibles
 
1.49

 
1.49

Acquisition and integration charges and other nonrecurring items
 
1.00

 
1.00

Deferred revenue fair value adjustment
 
0.08

 
0.08

Gain on divestitures
 
(0.18
)
 
(0.18
)
Rounding
 

 
0.01

Adjusted EPS
 
$
3.51

 
$
3.91









GARTNER, INC.

Condensed Consolidated Balance Sheets

(Unaudited; in thousands)  
 
June 30,
 
December 31,
 
2018
 
2017
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
141,805

 
$
538,908

Fees receivable, net
1,083,990

 
1,176,843

Deferred commissions
183,481

 
205,260

Prepaid expenses and other current assets
199,208

 
124,632

Assets held-for-sale

 
542,965

Total current assets
1,608,484

 
2,588,608

Property, equipment and leasehold improvements, net
225,901