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TheStreet Open House

Gartner Reports Financial Results For Second Quarter 2012

Stocks in this article: IT

Financial Outlook for 2012

Gartner also reiterated its previously disclosed full year 2012 projections for revenues, EPS, and cash flow:

           

Projected Revenue

($ in millions)       2012 Projected       % Change
Research

$1,130 – 1,150

12% – 14%

Consulting 310 – 330 1% – 7%
Events

160 – 170

8% – 14%

Total Revenue

$1,600 – 1,650

9% – 12%
 
               
 

Projected Earnings and Cash Flow

($ in millions, except per share data)

        2012 Projected    

 

 

% Change

Diluted Earnings Per Share

$1.63 – $1.79

17% – 29%

Normalized EBITDA (1) $315 – $335 13% – 20%
 
Operating Cash Flow (2) $285 – 305 12% – 19%
Capital Expenditures (2) (46) – (48)
Free Cash Flow (1)

$239 – 257

12% – 20%

 
(1)   See “Non-GAAP Financial Measures” below for a discussion of Normalized EBITDA and Free Cash Flow.
(2)

Capital expenditures includes $16.0 million of estimated payments we will make for the renovation of our Stamford headquarters facility, which are contractually reimbursable from the landlord. The accounting impact of these renovation payments increases both cash flow from operations and capital expenditures (investing activities) by the same amount and as a result has no net impact on Free Cash Flow.

Conference Call Information

Gartner has scheduled a conference call at 8:30 a.m. eastern time on Friday, August 3, 2012 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 888-713-4209 and the international dial-in number is 617-213-4863 and the participant passcode is 49526468. 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 approximately 90 days following the call.

About Gartner

Gartner, Inc. (NYSE: IT) is the world’s leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for its 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, Gartner is a valuable partner to clients in over 12,470 distinct organizations. Through the resources of Gartner Research, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has approximately 5,200 associates, including 1,361 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 related adjustments. 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. It should not be construed as an alternative to any other measure of performance determined in accordance with generally accepted accounting principles.

Diluted Income Per Share Excluding Acquisition Adjustments : Represents diluted income per share excluding certain adjustments directly related to acquisitions, which consists of amortization of identifiable intangibles, non-recurring acquisition and integration charges such as legal, consulting, severance and other costs, and non-cash fair value adjustments on pre-acquisition deferred revenues. We believe Diluted Income 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 additions to property, equipment and leasehold improvements (“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 2012 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, 2011 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 Six Months Ended
June 30, June 30,
2012 2011 2012 2011
Revenues:
Research $ 278,302 $ 250,015 11 % $ 552,922 $ 493,450 12 %
Consulting 76,676 77,962 -2 % 151,239 148,592 2 %
Events   42,504     37,566   13 %   62,492     53,068   18 %
Total revenues 397,482 365,543 9 % 766,653 695,110 10 %
Costs and expenses:
Cost of services and product development 161,247 152,461 6 % 307,710 285,777 8 %
Selling, general and administrative 165,221 152,758 8 % 327,739 294,430 11 %
Depreciation 6,182 6,234 -1 % 12,077 12,505 -3 %
Amortization of intangibles 928 2,522 -63 % 1,667 5,049 -67 %
Acquisition and integration charges   1,182     -   100 %   1,182     -   100 %
Total costs and expenses   334,760     313,975   7 %   650,375     597,761   9 %
Operating income 62,722 51,568 22 % 116,278 97,349 19 %
Interest expense, net (2,153 ) (2,797 ) -23 % (4,348 ) (5,581 ) -22 %
Other expense, net   (76 )   (571 ) -87 %   (1,054 )   (953 ) 11 %
Income before income taxes 60,493 48,200 26 % 110,876 90,815 22 %
Provision for income taxes   19,009     15,977   19 %   35,171     29,401   20 %
Net income $ 41,484   $ 32,223   29 % $ 75,705   $ 61,414   23 %
 
Income per common share:
Basic $ 0.44 $ 0.33 33 % $ 0.81 $ 0.64 27 %
Diluted $ 0.43 $ 0.32 34 % $ 0.79 $ 0.62 27 %
 
Weighted average shares outstanding:
Basic 93,350 96,886 -4 % 93,383 96,664 -3 %
Diluted 95,423 99,340 -4 % 95,826 99,642 -4 %
 
 
                             
 
BUSINESS SEGMENT DATA
(Dollars in thousands)
 
Direct Gross Contribution
Revenue Expense Contribution Margin
 
Three Months Ended 6/30/12
Research $ 278,302 $ 88,831 $ 189,471 68 %
Consulting 76,676 48,770 27,906 36 %
Events   42,504   22,110   20,394 48 %
TOTAL $ 397,482 $ 159,711 $ 237,771 60 %
 
Three Months Ended 6/30/11
Research $ 250,015 $ 81,711 $ 168,304 67 %
Consulting 77,962 49,089 28,873 37 %
Events   37,566   20,251   17,315 46 %
TOTAL $ 365,543 $ 151,051 $ 214,492 59 %
 
Six Months Ended 6/30/12
Research $ 552,922 $ 174,848 $ 378,074 68 %
Consulting 151,239 95,733 55,506 37 %
Events   62,492   34,203   28,289 45 %
TOTAL $ 766,653 $ 304,784 $ 461,869 60 %
 
Six Months Ended 6/30/11
Research $ 493,450 $ 160,645 $ 332,805 67 %
Consulting 148,592 94,230 54,362 37 %
Events   53,068   30,088   22,980 43 %
TOTAL $ 695,110 $ 284,963 $ 410,147 59 %
 
 
                       
 
SELECTED STATISTICAL DATA
 
 
June 30, June 30,
2012 2011
Research contract value $ 1,141,461 (a) $ 1,006,923 (a)
Research client retention 83 % 82 %
Research wallet retention 99 % 100 %
Research client organizations 12,474 11,607
Consulting backlog $ 93,100 (a) $ 94,845 (a)
Consulting--quarterly utilization 67 % 64 %
Consulting billable headcount 481 490
Consulting--average annualized revenue
per billable headcount $ 425 (a) $ 414 (a)
Events--number of events for the quarter 21 21
Events--attendees for the quarter 12,540 11,295
 
 
(a) Dollars in thousands.
 
 
                 
 
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,
2012 2011 2012 2011
Net income $ 41,484 $ 32,223 $ 75,705 $ 61,414
Interest expense, net 2,153 2,797 4,348 5,581
Other expense, net 76 572 1,054 953
Tax provision   19,009   15,976   35,171   29,401
Operating income $ 62,722 $ 51,568 $ 116,278 $ 97,349
 
Normalizing adjustments:
Stock-based compensation expense (b) 7,863 7,831 18,802 16,993
Depreciation, accretion, and amortization (c) 7,167 8,893 13,857 17,845
Acquisition and integration adjustments (d)   1,263   -   1,263   -
Normalized EBITDA $ 79,015 $ 68,292 $ 150,200 $ 132,187
 
(a) Normalized EBITDA is based on GAAP operating income adjusted for certain normalizing adjustments.
 
(b) Consists of charges for stock-based compensation awards.
 
(c) Includes depreciation expense, accretion on excess facilities accruals, and amortization of intangibles.
 

(d) Primarily consists of legal, consulting, severance, and other costs directly related to acquisitions. Also included are non-cash fair value adjustments on pre-acquisition deferred revenues, which are being amortized ratably over the remaining life of the underlying contracts.

 

                                               
 
Reconciliation - Diluted income per share to Diluted Income Per Share Excluding
Acquisition Adjustments (a):
Three Months Ended June 30,
2012 2011
After-tax After-tax
Amount EPS Amount EPS
Diluted income per share $ 41,484 $ 0.43 $ 32,223 $ 0.32
Acquisition adjustments, net of tax effect (b):
Amortization of intangibles (c) 577 0.01 1,519 0.02
Acquisition and integration adjustments (d)   865   0.01   -   -
Diluted Income Per Share Excluding Acquisition Adjustments (e) $ 42,926 $ 0.45 $ 33,742 $ 0.34
 
Six Months Ended June 30,
2012 2011
After-tax After-tax
Amount EPS Amount EPS
Diluted income per share $ 75,705 $ 0.79 $ 61,414 $ 0.62
Acquisition adjustments, net of tax effect (b):
Amortization of intangibles (c) 1,024 0.01 3,038 0.03
Acquisition and integration adjustments (d)   865   0.01   -   -
Diluted Income Per Share Excluding Acquisition Adjustments (f) $ 77,594   0.81 $ 64,452 $ 0.65
 

(a) Diluted Income Per Share Excluding Acquisition Adjustments is based on GAAP diluted income per share adjusted for the per share impact of acquisition adjustments, net of tax effect.

 
 

(b) Acquisition adjustments reflect effective tax rates of 34.2% and 35.5% for the three and six months ended June 30, 2012 respectively and 39.5% for both the three and six months ended June 30, 2011.

 
 
(c) Consists of non-cash amortization charges related to acquired intangibles.
 

(d) Primarily consists of legal, consulting, severance, and other costs directly related to acquisitions. Also included are non-cash fair value adjustments on pre-acquisition deferred revenues, which are being amortized ratably over the remaining life of the underlying contracts.

 

 
(e) Based on fully diluted shares of 95.4 million and 99.3 million in 2012 and 2011, respectively.
 
(f) Based on fully diluted shares of 95.8 million and 99.6 million in 2012 and 2011, respectively.
 
 




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