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Gartner Reports Financial Results for Second Quarter 2014

Companies mentioned in this article: Gartner, Inc.

STAMFORD, Conn. -- (BUSINESS WIRE) -- Gartner, Inc. (NYSE:IT), the leading provider of research and analysis on the global information technology industry, today reported results for second quarter 2014 and reiterated its full year 2014 financial outlook for revenues, Normalized EBITDA and cash flows, but updated its EPS guidance.

Total revenue was $519.8 million for second quarter 2014, an increase of 17% on a reported basis compared to second quarter 2013. Revenues increased 16% excluding the impact of foreign exchange. Net income was $53.0 million in the second quarter of 2014, an increase of 14% compared to the prior year quarter, while Normalized EBITDA was $105.0 million, an increase of 17% compared to second quarter 2013. Diluted earnings per share was $0.58 in second quarter 2014 compared to $0.49 in second quarter 2013. Diluted Earnings Per Share Excluding Acquisition Adjustments was $0.64 per share for second quarter 2014 and $0.50 per share for second quarter 2013. (See “Non-GAAP Financial Measures” below for a discussion of Normalized EBITDA and Diluted Earnings Per Share Excluding Acquisition Adjustments).

For the six months ended June 30, 2014, total revenue was $966.5 million, an increase of 13% over the same period in 2013. The impact of foreign exchange was not significant. Net income increased 9%, to $90.8 million, while Normalized EBITDA was $190.1 million, an increase of 15% compared to 2013. Diluted earnings per share for the six month periods was $0.99 in 2014 compared to $0.87 in 2013. Diluted Earnings Per Share Excluding Acquisition Adjustments was $1.08 per share and $0.89 per share for the six months ended June 30, 2014 and 2013, respectively.

Gene Hall, Gartner’s chief executive officer, commented, “We continued our trend of consistent, double-digit growth in revenue, contract value, normalized EBITDA and EPS. Our recent acquisitions and our accelerated pace of share repurchase activity demonstrates our confidence and optimism in our tremendous market opportunity and growth potential over the long term.”

Business Segment Highlights

Research

Revenue for second quarter 2014 was $358.5 million, up 15% compared to second quarter 2013, with an insignificant foreign exchange impact. The gross contribution margin was 69% in both second quarter 2014 and 2013. Contract value was $1,436 million at June 30, 2014, up 11% compared to June 30, 2013 on a reported basis and 13% excluding the impact of foreign exchange. Enterprise level client retention was 84% and 83% for second quarter 2014 and 2013, respectively. Enterprise level wallet retention was 105% and 104% for the second quarter of 2014 and 2013, respectively.

Consulting

Revenue for second quarter 2014 was $93.5 million, an increase of 9% compared to second quarter 2013, due to stronger results in both core consulting and our contract optimization business. Revenues in our contract optimization business can fluctuate from period to period. Excluding the foreign exchange impact, revenues increased 8%. The gross contribution margin for both second quarter 2014 and 2013 was 39%. Consultant utilization was 70% and 68% for second quarter 2014 and 2013, respectively, while billable headcount was 505 at June 30, 2014. Backlog was $104.6 million at June 30, 2014, an 11% increase compared to June 30, 2013.

Events

Second quarter 2014 revenue was $67.8 million, an increase of 39% compared to second quarter 2013 and 38% excluding the foreign exchange impact. We held 28 events with 16,594 attendees in the second quarter of 2014 compared to 25 events and 12,098 attendees in the second quarter of 2013. The increase in the number of events, revenue and attendees was primarily due to a change in our events calendar, as several large events held in the first quarter of 2013 were held in the second quarter of 2014. The gross contribution margin was 50% in second quarter of 2014 compared to 47% in the prior year quarter, due to higher profitability from the 21 ongoing events, and to a lesser extent, the events that were moved into the quarter.

Cash Flow and Balance Sheet Highlights

Gartner generated operating cash flow of $152.8 million in the six months ended June 30, 2014 compared to $140.3 million in the same period of 2013. Additions to property, equipment and leasehold improvements (“Capital Expenditures”) were $19.2 million in the six months ended June 30, 2014. The Company had $317.9 million of cash at June 30, 2014 and $365.5 million of available borrowing capacity on its revolver facility. Through June 30, 2014, the Company has used $307.4 million of cash to repurchase common shares and $107.5 million of cash paid at close for acquisitions. We have made three acquisitions in 2014 to date, including Software Advice, Inc., which assists customers with software purchases; Market Visio Oy, a Finnish company and former sales agent for Gartner research in Finland and Russia; and SircleIT, Inc., a U.S. company that provides cloud-based search technology that identifies subject-matter experts which operates principally through Senexx Israel Ltd., its subsidiary in Israel.

Financial Outlook for 2014

The Company's full year 2014 financial outlook is presented below. Revenues, Normalized EBITDA, and cash flows remain the same as previously reported. The GAAP diluted EPS has increased by $0.01 on both the low and high end; Diluted EPS excluding acquisition adjustments was increased by $0.03 on both the low and high end.

Projected Revenue

     
 
($ in millions) 2014 Projected % Change
Research $ 1,435      

-

    $ 1,455 13 %  

-

 

 

14 %
Consulting 315

-

330

-

-

5
Events 210  

-

220   6  

-

11  
Total Revenue $ 1,960  

-

$ 2,005   10 %

-

 

12 %
 
     

Projected Earnings and Cash Flow (1)

 
($ in millions, except per share data) 2014 Projected % Change
Diluted Earnings Per Share $ 1.97  

-

  $ 2.14 2 %  

-

    11 %
Diluted Earnings Per Share Excluding Acquisition Adjustments 2.18

-

2.35 11

-

19
Normalized EBITDA 375

-

400 9

-

16
Operating Cash Flow 336

-

358 6

-

13
Capital Expenditures (36 )

-

(38 ) (1 ) 4
Free Cash Flow $ 300  

-

$ 320   7 %

-

14 %
 

(1) See “Non-GAAP Financial Measures” below for a discussion of Diluted Earnings Per Share Excluding Acquisition Adjustments, Normalized EBITDA, and Free Cash Flow.

Conference Call Information

Gartner has scheduled a conference call at 8:30 a.m. eastern time on Tuesday, August 5, 2014 to discuss the Company’s financial results. The conference call will be available via the Internet by accessing the Company’s website at http://investor.gartner.com or by dial-in. The U.S. dial-in number is 888-713-4213, the international dial-in number is 617-213-4865 and the participant passcode is 94923308. The question and answer session of the conference call will be open to investors and analysts only. A replay of the webcast will be available for 90 days following the call.

About Gartner

Gartner, Inc. (NYSE: IT) is the world’s leading information technology research and advisory company. We deliver the technology-related insight necessary for our clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, we are the valuable partner to clients in 9,115 distinct enterprises. Through the resources of Gartner Research, Consulting and Events, we work with clients to research, analyze and interpret the business of IT within the context of their individual roles. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and as of June 30, 2014, had 6,377 associates, including 1,487 research analysts and consultants, and clients in 85 countries. For more information, visit www.gartner.com.

Non-GAAP Financial Measures

Normalized EBITDA: Represents operating income excluding depreciation, accretion on obligations related to excess facilities, amortization, stock-based compensation expense, and acquisition and integration charges. We believe Normalized EBITDA is an important measure of our recurring operations as it excludes items that may not be indicative of our core operating results. Investors are cautioned that Normalized EBITDA is not a financial measure defined under generally accepted accounting principles and as a result is considered a non-GAAP financial measure. We provide this measure to enhance the user’s overall understanding of the Company’s current financial performance and the Company’s prospects for the future. Normalized EBITDA should not be construed as an alternative to any other measure of performance determined in accordance with generally accepted accounting principles.

Diluted Earnings Per Share Excluding Acquisition Adjustments: Represents GAAP diluted earnings per share adjusted for the per share impact of certain items directly related to acquisitions, net of tax effect. The adjustments consist of amortization of identifiable intangibles, non-recurring acquisition and integration charges such as legal, consulting, retention, severance and other costs, and non-cash fair value adjustments on pre-acquisition deferred revenues. We believe Diluted Earnings Per Share Excluding Acquisition Adjustments 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 plus cash acquisition and integration payments less Capital Expenditures. We believe that Free Cash Flow is an important measure of the recurring cash generated by the Company’s core operations that is available to be used to repurchase stock, repay debt obligations and invest in future growth through new business development activities or acquisitions.

Safe Harbor Statement

Statements contained in this press release regarding the Company’s growth and prospects, projected 2014 financial results and all other statements in this release other than recitation of historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). Such forward-looking statements involve known and unknown risks, 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 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 and effectively manage growth, including our ability to integrate acquisitions and consummate future acquisitions; our ability to pay our debt; 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; and other factors described under “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2013 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.

             

GARTNER, INC.

Condensed Consolidated Statements of Operations

(Unaudited; in thousands, except per share amounts)

 
Three Months Ended June 30, Six Months Ended June 30,
2014     2013 2014     2013
Revenues:
Research $ 358,495 $ 311,233 15 % $ 706,609 $ 621,564 14 %
Consulting 93,488 85,928 9 177,759 158,561 12
Events 67,837   48,886   39 82,154   72,676   13
Total revenues 519,820 446,047 17 966,522 852,801 13
Costs and expenses:
Cost of services and product development 203,178 177,904 14 373,999 341,641 9
Selling, general and administrative 218,537 185,629 18 423,154 366,107 16
Depreciation 7,721 7,017 10 15,180 14,117 8
Amortization of intangibles 1,979 1,404 41 3,258 2,738 19
Acquisition and integration charges 6,644   106   >100 10,000   206   >100
Total costs and expenses 438,059   372,060   18 825,591   724,809   14
Operating income 81,761 73,987 11 140,931 127,992 10
Interest expense, net (2,680 ) (2,144 ) 25 (4,930 ) (4,580 ) 8
Other income (expense), net 175   (280 ) >100 (54 ) (69 ) (22 )
Income before income taxes 79,256 71,563 11 135,947 123,343 10
Provision for income taxes 26,216   25,049   5 45,171   40,154   12
Net income $ 53,040   $ 46,514   14 $ 90,776   $ 83,189   9 %
 
Earnings per common share:
Basic $ 0.59   $ 0.50   18 % $ 1.00   $ 0.89   12 %
Diluted $ 0.58   $ 0.49   18 % $ 0.99   $ 0.87   14 %
 
Weighted average shares outstanding:
Basic 89,521   93,574   (4 )% 90,595   93,584   (3 )%
Diluted 90,744   95,188   (5 )% 92,012   95,426   (4 )%
 
 

BUSINESS SEGMENT DATA

(Unaudited; in thousands)

 
    Revenue     Direct

Expense

    Gross

Contribution

    Contribution

Margin

Three Months Ended June 30, 2014
Research $ 358,495 $ 110,232 $ 248,263 69 %
Consulting 93,488 57,253 36,235 39 %
Events 67,837   33,605   34,232   50 %
TOTAL $ 519,820   $ 201,090   $ 318,730   61 %
 
Three Months Ended June 30, 2013
Research $ 311,233 $ 97,822 $ 213,411 69 %
Consulting 85,928 52,743 33,185 39 %
Events 48,886   25,772   23,114   47 %
TOTAL $ 446,047   $ 176,337   $ 269,710   60 %
 
Six Months Ended June 30, 2014
Research $ 706,609 $ 212,244 $ 494,365 70 %
Consulting 177,759 111,186 66,573 37 %
Events 82,154   44,959   37,195   45 %
TOTAL $ 966,522   $ 368,389   $ 598,133   62 %
 
Six Months Ended June 30, 2013
Research $ 621,564 $ 192,939 $ 428,625 69 %
Consulting 158,561 102,839 55,722 35 %
Events 72,676   42,454   30,222   42 %
TOTAL $ 852,801   $ 338,232   $ 514,569   60 %
 
       

SELECTED STATISTICAL DATA

 
June 30, 2014 June 30, 2013
Research contract value (a) $ 1,436,157 $ 1,293,027
Research client retention - enterprise level (b) 84 % 83 %
Research client retention - organization level (b) 83 % 82 %
Research wallet retention - enterprise level (b) 105 % 104 %
Research wallet retention - organization level (b) 99 % 97 %
Research client organizations 14,091 13,315
Research client enterprises 9,115 8,516
 
Consulting backlog (a) $ 104,600 $ 93,954
Consulting—quarterly utilization 70 % 68 %
Consulting billable headcount 505 518
Consulting—average annualized revenue per billable headcount (a) $ 454 $ 428
 
Events—number of events for the quarter 28 25
Events—attendees for the quarter 16,594   12,098  

(a)

   

Dollars in thousands.

(b)

We define an enterprise as a single company or customer. We define an organization as a buying center within an enterprise, such as a location or department. A single enterprise may have multiple organizations.

 
       

SUPPLEMENTAL INFORMATION (in thousands, except per share amounts)

Reconciliation - Operating income to Normalized EBITDA (a):

 
Three Months Ended Six Months Ended
June 30, June 30,
2014     2013 2014     2013
Net income $ 53,040 $ 46,514 $ 90,776 $ 83,189
Interest expense, net 2,680 2,144 4,930 4,580
Other (income) expense, net (175 ) 280 54 69
Tax provision 26,216   25,049   45,171   40,154
Operating income $ 81,761 $ 73,987 $ 140,931 $ 127,992
Normalizing adjustments:
Stock-based compensation expense (b) 6,865 7,232 20,617 19,574
Depreciation, accretion, and amortization (c) 9,740 8,464 18,514 16,942
Acquisition and integration charges (d) 6,644   228   10,000   465
Normalized EBITDA $ 105,010   $ 89,911   $ 190,062   $ 164,973

(a) Normalized EBITDA is based on GAAP operating income adjusted for certain normalizing adjustments.
(a) Consists of charges for stock-based compensation awards.
(b) Includes depreciation expense, accretion on excess facilities accruals, and amortization of intangibles.
(c) Consists of directly related incremental charges from acquisitions.

Reconciliation - Diluted Earnings Per Share to Diluted Earnings Per Share Excluding Acquisition Adjustments (a):

  Three Months Ended June 30,
2014   2013
After-tax Amount   EPS After-tax Amount   EPS
Diluted earnings per share $ 53,040 $ 0.58 $ 46,514 $ 0.49
Acquisition adjustments, net of tax effect (b):
Amortization of acquired intangibles (c) 1,258 0.01 893 0.01
Acquisition and integration charges (d) 4,618   0.05   153  
Diluted earnings per share excluding acquisition adjustments (e) $ 58,916   $ 0.64   $ 47,560   $ 0.50
  Six Months Ended June 30,
2014   2013
After-tax Amount   EPS After-tax Amount   EPS
Diluted earnings per share $ 90,776 $ 0.99 $ 83,189 $ 0.87
Acquisition adjustments, net of tax effect (b):
Amortization of acquired intangibles (c) 2,077 0.02 1,748 0.02
Acquisition and integration charges (d) 6,745   0.07   314  
Diluted earnings per share excluding acquisition adjustments (e) $ 99,598   $ 1.08   $ 85,251   $ 0.89

(a) Diluted earnings per share excluding acquisition adjustments represents GAAP diluted earnings per share adjusted for the per share impact of certain items directly related to acquisitions, net of tax effect.
(b) The effective tax rates used for the adjustments were 32% and 33.5% for the three and six months ended June 30, 2014, respectively, and 36% for both the three and six months ended June 30, 2013.
(c) Consists of non-cash amortization charges related to acquired intangibles.
(d) Consists of directly related incremental charges from acquisitions.
(e) The EPS is calculated based on 90.7 million and 92.0 million shares for the three and six months ended June 30, 2014, respectively, and 95.2 million and 95.4 million shares for the three and six months ended June 30, 2013, respectively.


Copyright © Business Wire 2014
Contact:

Gartner, Inc.
Brian Shipman, +1 203-316-6537
Group Vice President, Investor Relations
investor.relations@gartner.com