Gartner's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Gartner Inc. (IT)

Q2 2012 Earnings Call

August 3, 2012 8:30 AM ET

Executives

Brian Shipman – Group VP, IR

Eugene Hall – CEO

Chris Lafond – EVP and CFO

Analysts

Peter Appert – Piper Jaffray

Bill Bird – Lazard

Manav Patnaik – Barclays

Tim – William Blair

Bill Sutherland – Northland Securities

Kelly Flynn – Credit Suisse

Brian Karimzad – Goldman Sachs

Dan Leben – Robert W Baird

Eric Boyer – Wells Fargo

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Gartner’s Earnings Conference Call for the Second Quarter 2012. A replay of this call will be available through September 3, 2012. The replay can be accessed by dialing 888-286-8010 for domestic calls and 617-801-6888 for international calls, and by entering the passcode 27832693. This call is being simultaneously webcast and will be archived on Gartner’s website at www.gartner.com for approximately 90 days.

I would like to turn the call over to Mr. Brian Shipman, Group VP of Investor Relations. Please proceed sir.

Brian Shipman

Thank you and good morning everyone. Welcome to Gartner’s second quarter 2012 earnings call. With me today is our Chief Executive Officer, Gene Hall; and our Chief Financial Officer, Chris Lafond.

This call will begin with a discussion of Q2 2012 financial results disclosed in today’s press release, followed by an opportunity for you to ask questions. I’d like to remind everyone that the press release is available on our website, that URL is www.gartner.com.

Before we begin, we need to remind you that certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results, and are subject to a number of risks and uncertainties, including those contained in the company’s 2011 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as well as in other filings with the SEC. I would encourage all of you to review the risk factors listed in these documents. The company undertakes no obligation to update any of its forward-looking statements.

With that, I would like to hand the call over to Gartner’s Chief Executive Officer, Gene Hall. Gene?

Eugene Hall

Good morning, everyone. Welcome to our quarterly earnings call. For the second quarter of 2012 Gartner once again delivered strong results. On an FX neutral basis, we showed growth across all three of our business segments.

Research, our largest and most profitable segment continued to grow at double-digit rates. Consulting had another solid quarter performance and events continued to exceed our long-term growth targets. Normalized EBITDA was up 16% quarter-over-quarter, and diluted earnings per share was up 34% over second quarter of 2011.

As you’re aware, we’re looking at a tough world economy with economic uncertainty coming from all major geographies. Here in the U.S. unemployment continues to be a challenge. In Europe, the debt crisis remains threatening and in Asia, growth has slowed. Despite this environment, Gartner consistently delivered excellent results across all our businesses.

We’ve achieved double-digit results across all geographies and industries for the past several quarters, and we expect this trend to continue. Our results demonstrate the strength and successful execution of our strategy for growth. Our strategy enables us to continue to capture our substantial market opportunity, which as I’ve stated in the past, we estimate to be at $47 billion. The fundamentals of our strategy are to create extraordinary research insights, to build strong sales capability, to deliver high-value differentiated offerings, to provide world-class service, and to continually improve our operational effectiveness.

IT is complex, continually evolving and remains one of the most important drivers of growth and competitive advantage for virtually every institution in the world. Whether an organization is looking to leverage technology to achieve rapid growth, or looking to manage costs, Gartner is the best resource to turn to for help and our results show it. The Gartner brand is in a class by itself. Our products, services and people are superior to the competition. And we have a successful and attractive business model with high renewal rates, great cash flow and incremental margins. I remain confident and excited about our prospects for sustained double-digit growth over the long term.

With that, I’ll hand the call to Chris, who can comment in detail on our second quarter results.

Chris Lafond

Thanks, Gene and good morning, everyone. We delivered another very strong quarter in Q2. On an FX neutral basis, we once again achieved double-digit growth in revenue, earnings and cash flow. In research, year-over-year contract value growth remained strong at 14% on an FX neutral basis, and retention rates ended at or near all-time highs.

In Events, our revenues were up 16% FX neutral and accelerated in Q2 from Q1 on a same events basis. And in Consulting, our benchmark and core Consulting businesses grew a combined 9% year-over-year FX neutral while our Contract Optimization business was lower year-over-year as a few deals moved into Q3.

Demand for our services was robust across all three business segments in the second quarter. Our strong top line performance and effective execution in capitalizing on the operating leverage in our business allowed us to once again expand our gross contribution margin, which is now at 60%, up from 59% in Q2 of 2011.

As a result, we delivered significant growth in earnings in Q2. In the second quarter, normalized EBITDA increased 16% year-over-year and our GAAP diluted earnings per share were up 34%. With this strong start, we’re well positioned for continued growth for the remainder of 2012. These results again demonstrate the continued successful execution of our strategy, our ability to consistently deliver on the long-term financial objectives we have established over the past few years and the overall value we bring to the strategic IT initiatives of our clients.

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