GARTNER INC - FORM 8-K - EX-99.1

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8-K - GARTNER INC	c70542_8k.htm

Exhibit 99.1

CONTACT:
Brian Shipman
Group Vice President, Investor Relations
+1 203 316 3659
brian.shipman@gartner.com

Gartner Reports Financial Results for Second Quarter 2012

Contract Value Increased 14% YoY FX Neutral to $1,141 Million

Revenue Increased 9% YoY to $397.5 Million

Diluted Earnings per Share Increased 34% YoY

STAMFORD, Conn., August 3, 2012 — Gartner, Inc. (NYSE: IT), the leading provider of research and analysis on the global information technology industry, today reported results for second quarter 2012 and reiterated its financial outlook for 2012 revenues, EPS, and cash flows.

Total revenue was $397.5 million for second quarter 2012, up 9% compared to second quarter 2011. Total revenue increased 12% excluding the impact of foreign exchange. Second quarter 2012 net income was $41.5 million, an increase of 29% over second quarter 2011, and Normalized EBITDA was $79.0 million, an increase of 16%. Diluted earnings per share was $0.43 in second quarter 2012 compared to $0.32 in second quarter 2011. Both the second quarter of 2012 and 2011 were negatively impacted by acquisition-related charges of $(0.02) per share after-tax. Diluted Income Per Share Excluding Acquisition Adjustments, which excludes the acquisition-related charges, was $0.45 for second quarter 2012 and $0.34 for second quarter 2011. See “Non-GAAP Financial Measures” below for a discussion of Normalized EBITDA and Diluted Income Per Share Excluding Acquisition Adjustments.

For the six months ended June 30, 2012, total revenue was $766.7 million, an increase of 10%, but excluding the impact of foreign exchange, revenues increased 12%. Net income was $75.7 million in the 2012 period, while Normalized EBITDA was $150.2 million, an increase of 14% over 2011. Diluted income per share was $0.79 in 2012 compared to $0.62 in 2011. Diluted Income Per Share Excluding Acquisition Adjustments was $0.81 for 2012 and $0.65 for 2011.

Gene Hall, Gartner’s chief executive officer, commented, “We continued our trend of delivering consistent, double-digit growth in the second quarter. Revenue, contract value, Normalized EBITDA and EPS were again consistent with our long-term expectations. The increases in our revenue and contract value, as well as the expansion of key operating metrics such as client retention, illustrate both the strong value we provide our clients and the sizeable market opportunity for our services. As we look ahead to the second half of 2012, we remain excited about the opportunity we see in the market and expect to deliver another year of double-digit growth in our key business metrics.”

-more-

Business Segment Highlights

Research

Second quarter 2012 revenue was $278.3 million, up 11% compared to second quarter 2011. Excluding the impact of foreign exchange, Research revenue increased approximately 14%. Gross contribution margin improved 1 percentage point, to 68%. Contract value was up 14% on an FX neutral basis at June 30, 2012 compared to June 30, 2011, and 13% as reported. Client and wallet retention rates for second quarter 2012 were 83% and 99%, respectively, compared to 82% and 100% in the second quarter 2011.

Consulting

Revenue for second quarter 2012 was $76.7 million, a decrease of 2% compared to second quarter 2011. Adjusted for the impact of foreign exchange, revenue increased 1%. Gross contribution margin for second quarter 2012 was 36%. Second quarter 2012 utilization was 67%, an increase of 3 points over second quarter 2011. Billable headcount was 481 as of June 30, 2012, and backlog was $93.1 million.

Events

Revenue for second quarter 2012 was $42.5 million, up 13% compared to second quarter 2011. Excluding the impact of foreign exchange, revenues increased 16%. Gross contribution margin improved by 2 points in second quarter 2012, to 48%. During second quarter 2012, the Company held 21 events with 12,540 attendees, compared to 21 events and 11,295 attendees in second quarter 2011.

Cash Flow and Balance Sheet Highlights

Gartner generated $99.5 million of operating cash flow during the first half of 2012. Additions to property, equipment and leasehold improvements (“Capital Expenditures”) totaled $20.6 million in the first half of 2012, which includes $7.1 million of Stamford headquarters renovation costs that are reimbursable from the facility landlord. The Company had $150.5 million of cash at June 30, 2012 and almost $362.0 million of borrowing capacity on its revolving credit facility. During the first half of 2012 the Company used $84.7 million of cash to repurchase shares and $9.5 million on a net basis to complete the acquisition of Ideas International.

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%



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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



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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.

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GARTNER, INC.
Condensed Consolidated Statements of Operations
(Unaudited; in thousands, except per share amounts)


	Three Months Ended June 30,								Six Months Ended 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)


	Revenue		Direct Expense		Gross Contribution		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, 2012			June 30, 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 June 30,				Six Months Ended 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 Amount		EPS		After-tax 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 Amount		EPS		After-tax 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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