Gartner, Inc. (NYSE:IT), the leading provider of research and analysis on the global information technology industry, today reported results for second quarter 2015 and reiterated its previously announced financial outlook for full year 2015.

For second quarter 2015, total revenue was $547.9 million, an increase of 5% over second quarter 2014 and 12% excluding the foreign exchange impact. Second quarter 2015 net income was $51.2 million, a decrease of 4% compared to second quarter 2014. Normalized EBITDA was $110.1 million for second quarter 2015, an increase of 5%, while diluted earnings per share was $0.61 in second quarter 2015 compared to $0.58 in second quarter 2014. Diluted Earnings Per Share Excluding Acquisition Adjustments was $0.65 in second quarter 2015 compared to $0.64 in second quarter 2014. (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, 2015, total revenue was $1.019 billion, an increase of 5% over the same period in 2014 and 12% adjusted for the foreign exchange impact. Net income was $79.5 million while Normalized EBITDA was $190.8 million. Diluted earnings per share for the six month periods was $0.92 in 2015 compared to $0.99 in 2014. Diluted Earnings Per Share Excluding Acquisition Adjustments was $1.02 per share and $1.08 per share for the six months ended June 30, 2015 and 2014, respectively.

Gene Hall, Gartner’s chief executive officer, commented, “We continue to perform extraordinarily well as a company. We achieved another quarter of 15% CV growth and we continue to deliver strong results across all our underlying metrics."

Business Segment Highlights

Research

Revenue for second quarter 2015 was $385.7 million, up 8% compared to second quarter 2014 and 14% excluding the foreign exchange impact. The quarterly gross contribution margin was 70% in 2015 and 69% in 2014. Contract value was $1.595 billion at June 30, 2015, an increase of 11% on a reported basis and 15% on a foreign exchange neutral basis compared to June 30, 2014. Client retention was 85% and 84% in the second quarter of 2015 and 2014, respectively, while wallet retention was 106% in the 2015 quarter and 105% in the 2014 quarter.

Consulting

Revenue for second quarter 2015 was $88.3 million, a decrease of 6% compared to second quarter 2014 but an increase of 2% excluding the foreign exchange impact. The gross contribution margin was 38% and 39% in second quarter 2015 and 2014, respectively. Second quarter 2015 utilization was 68% compared to 70% in second quarter 2014. As of June 30, 2015, billable headcount was 564 compared to 505 as of June 30, 2014. Backlog was $97.4 million at June 30, 2015 compared to $104.6 million at June 30, 2014.

Events

Revenue for second quarter 2015 was $73.9 million, an increase of 9% compared to second quarter 2014. Adjusted for the foreign exchange impact, quarterly revenue increased 15% in the 2015 period. The gross contribution margin was 53% in second quarter 2015 compared to 50% in the prior year quarter. The Company held 26 events with 17,107 attendees in second quarter 2015 compared to 28 events and 16,594 attendees in second quarter 2014.

Cash Flow and Balance Sheet Highlights

Gartner generated $149 million of operating cash flow in the first half of 2015 compared to $153 million in the first half of 2014. Additions to property, equipment and leasehold improvements (“Capital Expenditures”) totaled $24 million in the first half of 2015. At June 30, 2015, the Company had $358 million of cash and $776 million of available borrowing capacity on its revolving credit facility. The Company used $441 million in cash to repurchase its common shares in the first half of 2015.

Financial Outlook for 2015

The Company also reiterated its previously announced financial outlook for 2015:

Projected Revenue

   
($ in millions) 2015 Projected Range % Change
Research $ 1,580     —     $ 1,600 9 %   —     11 %
Consulting 330 — 350 (5 ) — 1
Events 240   — 255   5 — 12
Total Revenue $ 2,150   — $ 2,205   6 % — 9 %
 

Projected Earnings and Cash Flow (1)

   
($ in millions, except per share data) 2015 Projected Range % Change
GAAP Diluted Earnings Per Share $ 2.11   —     $ 2.30 4 %   —     13 %
Diluted Earnings Per Share Excluding Acquisition Adjustments 2.27 — 2.46 1 — 10
Normalized EBITDA 405 — 430 5 — 11
 
Operating Cash Flow 348 — 374 — — 8
Acquisition and Integration Payments 12 — 12 >100 — >100
Capital Expenditures (45 ) — (46 ) 17 — 19
Free Cash Flow $ 315   — $ 340   1 % — 9 %

(1) See “Non-GAAP Financial Measures” below for descriptions 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 Thursday, July 30, 2015 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 888-679-8034 and the international dial-in number is 617-213-4847 and the participant passcode is 50713067#. 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. 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 almost 10,000 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. Gartner is headquartered in Stamford, Connecticut, U.S.A., and as of June 30, 2015, had 7,385 associates, including 1,634 research analysts and consultants, and clients in over 90 countries. For more information, visit www.gartner.com.

Non-GAAP Financial Measures

Normalized EBITDA: Represents operating income excluding depreciation and amortization, accretion on obligations related to excess facilities, 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 cash paid 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 is available to be used to repurchase our stock, repay debt obligations, invest in future growth through new business development activities, or make acquisitions.

Safer Harbor Statement

Statements contained in this press release regarding the Company’s growth and prospects, projected 2015 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, 2014, 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,

 
2015   2014 2015   2014
Revenues:
Research $ 385,718 $ 358,495 8 % $ 766,808 $ 706,609 9 %
Consulting 88,336 93,488 (6 )% 165,128 177,759 (7 )%
Events 73,882   67,837   9 % 87,186   82,154   6 %
Total revenues 547,936 519,820 5 % 1,019,122 966,522 5 %
Costs and expenses:
Cost of services and product development 210,495 203,178 4 % 388,257 373,999 4 %
Selling, general and administrative 237,991 218,537 9 % 467,513 423,154 10 %
Depreciation 8,440 7,721 9 % 16,429 15,180 8 %
Amortization of intangibles 2,107 1,979 6 % 4,246 3,258 30 %
Acquisition and integration charges 3,683   6,644   (45 )% 8,775   10,000   (12 )%
Total costs and expenses 462,716   438,059   6 % 885,220   825,591   7 %
Operating income 85,220 81,761 4 % 133,902 140,931 (5 )%
Interest expense, net (5,240 ) (2,680 ) 96 % (8,720 ) (4,930 ) 77 %
Other (expense) income, net (468 ) 175   >100 % (1,430 ) (54 ) >100 %
Income before income taxes 79,512 79,256 — % 123,752 135,947 (9 )%
Provision for income taxes 28,357   26,216   8 % 44,246   45,171   (2 )%
Net income $ 51,155   $ 53,040   (4 )% $ 79,506   $ 90,776   (12 )%
 
Income per common share:
Basic $ 0.61 $ 0.59 3 % $ 0.94 $ 1.00 (6 )%
Diluted $ 0.61 $ 0.58 5 % $ 0.92 $ 0.99 (7 )%
Weighted average shares outstanding:
Basic 83,203 89,521 (7 )% 84,871 90,595 (6 )%
Diluted 84,271   90,744   (7 )% 86,064   92,012   (6 )%
 
 

BUSINESS SEGMENT DATA
(Unaudited; in thousands)

 
    Revenue  

Direct
Expense

 

Gross
Contribution

 

Contribution
Margin

Three Months Ended 6/30/15
Research $ 385,718 $ 115,872 $ 269,846 70%
Consulting 88,336 55,081 33,255 38%
Events 73,882   34,440   39,442   53%
TOTAL $ 547,936   $ 205,393   $ 342,543   63%
 
Three Months Ended 6/30/14
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%
 
Six Months Ended 6/30/15
Research $ 766,808 $ 229,897 $ 536,911 70%
Consulting 165,128 105,546 59,582 36%
Events 87,186   45,302   41,884   48%
TOTAL $ 1,019,122   $ 380,745   $ 638,377   63%
 
Six Months Ended 6/30/14
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%
 
 

SELECTED STATISTICAL DATA

 
  June 30, 2015       June 30, 2014
Research contract value (a) $ 1.595 $ 1.436
Research client retention - enterprise (b) 85 % 84 %
Research wallet retention - enterprise (b) 106 % 105 %
Research client enterprises 9,956 9,115
 
Consulting backlog (c) $ 97,400 $ 104,600
Consulting—quarterly utilization 68 % 70 %
Consulting billable headcount 564 505
Consulting—average annualized revenue per billable headcount (c) $ 409 $ 454
 
Events—number of events for the quarter 26 28
Events—attendees for the quarter 17,107   16,594  
(a)   In billions.
(b) We define an enterprise as a single company or customer.
(c) In thousands.
 
 

SUPPLEMENTAL INFORMATION
Reconciliation - Operating income to Normalized EBITDA (a) (Unaudited; in thousands):

 
   

Three Months Ended
June 30,

 

Six Months Ended
June 30,

2015   2014 2015   2014
Net income $ 51,155 $ 53,040 $ 79,506 $ 90,776
Interest expense, net 5,240 2,680 8,720 4,930
Other expense (income), net 468 (175 ) 1,430 54
Tax provision 28,357   26,216   44,246   45,171
Operating income $ 85,220 $ 81,761 $ 133,902 $ 140,931
Normalizing adjustments:
Stock-based compensation expense (b) 10,663 6,865 27,392 20,617
Depreciation, accretion, and amortization (c) 10,564 9,740 20,716 18,514
Acquisition and integration adjustments (d) 3,683   6,644   8,775   10,000
Normalized EBITDA   $ 110,130   $ 105,010   $ 190,785   $ 190,062
(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) Consists of directly-related incremental expenses from acquisitions.
 
 

Reconciliation - Diluted Earnings Per Share to Diluted Earnings Per Share Excluding Acquisition Adjustments (a)
(Unaudited; in thousands, except per share amounts):

 
    Three Months Ended June 30,
2015   2014

After-tax
Amount

  EPS

After-tax
Amount

  EPS
Diluted earnings per share $ 51,155 $ 0.61 $ 53,040 $ 0.58
Acquisition adjustments, net of tax effect (b):
Amortization of acquired intangibles (c) 1,268 0.02 1,258 0.01
Acquisition and integration charges (d) 2,519   0.02   4,618   0.05
Diluted earnings per share excluding acquisition adjustments (e) $ 54,942   $ 0.65   $ 58,916   $ 0.64
 
Six Months Ended June 30,
2015 2014

After-tax
Amount

EPS

After-tax
Amount

EPS
Diluted earnings per share $ 79,506 $ 0.92 $ 90,776 $ 0.99
Acquisition adjustments, net of tax effect (b):
Amortization of acquired intangibles (c) 2,576 0.03 2,077 0.02
Acquisition and integration charges (d) 5,743   0.07 6,745   0.07
Diluted earnings per share excluding acquisition adjustments (e)   $ 87,825   $ 1.02   $ 99,598   $ 1.08
(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 on the adjustments were 34% and 35% for the three and six months ended June 30, 2015 and 32% and 34% for the three and six months ended June 30, 2014.
(c) Consists of non-cash amortization charges related to acquired intangibles.
(d) Consists of directly-related incremental expenses from acquisitions.
(e) Calculated based on 84.3 million and 86.1 million shares for the three and six months ended June 30, 2015, respectively, and 90.7 million and 92.0 million shares for the three and six months ended June 30, 2014, respectively.