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Financial Release

08/01/18

Total Contract Value $2.9 Billion, +12% YoY FX Neutral

THREE MONTHS ENDED JUNE 30, 2018 HIGHLIGHTS

  • Revenues: $1.0 billion, +19%; adjusted revenues excluding divested operations: $1.0 billion, +14%.
  • Net income: $46 million; adjusted EBITDA excluding divested operations: $191 million, +11%.
  • Diluted EPS: $0.50; adjusted EPS: $1.03.
  • Operating cash flow: $174 million; free cash flow: $183 million.
  • Sold several non-core assets for $406 million in net cash.
  • Repurchased 0.5 million common shares for $68 million and paid down $554 million of debt.

2018 FULL YEAR FINANCIAL OUTLOOK

The Company updated its GAAP EPS guidance and reiterated its Non-GAAP guidance:

  • Revenues $3.9-4.0 billion; adjusted revenues $3.9-4.0 billion.
  • Net income $104-140 million; adjusted EBITDA $710-760 million.
  • Diluted EPS $1.12-1.51; adjusted EPS $3.51-3.91.
  • Operating cash flow $425-475 million; free cash flow $416-456 million.

STAMFORD, Conn.--(BUSINESS WIRE)--Aug. 1, 2018-- Gartner, Inc. (NYSE: IT), the world's leading research and advisory company, today reported results for the second quarter 2018 and updated its GAAP EPS guidance and reiterated its Non-GAAP guidance for full year 2018. Gene Hall, Gartner’s chief executive officer, commented, “We got off to a great start for the year and that continued through the second quarter. The leading indicators across all parts of our business are overwhelmingly positive, and we are well-positioned for sustained, long-term double digit growth."

CONFERENCE CALL INFORMATION
The Company will host a webcast call at 8:00 a.m. Eastern time on Wednesday, August 1, 2018 to discuss the Company’s financial results. The call will be available via the Internet by accessing the Company’s website at http://investor.gartner.com or by dialing 216-562-0463 and referencing the conference code 1894032. A replay and a transcript will be available for approximately 30 days following the call on the Company's website.

CONSOLIDATED RESULTS HIGHLIGHTS

($ in millions, except per share data)

 

  Three Months Ended        
    June 30,   %    
    2018   2017   Change    
GAAP Metrics:                
Revenues   $ 1,001     $ 844     19 %   (a)
Net income (loss)   46     (92 )   >100%    
Diluted EPS   0.50     (1.03 )   >100%    
Operating cash flow   $ 174     $ 112     55 %    
             
Non-GAAP Metrics:            
Adjusted revenues excluding divested operations   $ 1,001     $ 879     14 %
Adjusted EBITDAexcluding divested operations   191     172     11 %
Adjusted EPS   1.03     0.88     17 %
Free cash flow   $ 183     $ 129     42 %

(a) The foreign currency neutral percentage change in revenue was 16%.

ABOUT GARTNER
Gartner, Inc. (NYSE: IT), is the world’s leading research and advisory company and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their mission-critical priorities and build the successful organizations of tomorrow. Our unmatched combination of expert-led, practitioner-sourced and data-driven research steers clients toward the right decisions on the issues that matter most. We’re trusted as an objective resource and critical partner by more than 15,000 organizations in more than 100 countries — across all major functions, in every industry and enterprise size. To learn more about how we help decision makers fuel the future of business, visit www.gartner.com.

SEGMENT RESULTS HIGHLIGHTS
Unless indicated otherwise, our segment results below for the three and six months ended June 30, 2017 include the operating results of CEB Inc., beginning April 5, 2017, the date of acquisition. Additional information regarding our segment results can be obtained in our quarterly report on Form 10-Q filed with the SEC on August 1, 2018. Certain financial metrics contained in this Press Release are considered non-GAAP financial measures. Definitions of these non-GAAP financial measures are included in this Press Release under "Non-GAAP Financial Measures" and reconciliations under "Supplemental Information — Non-GAAP Reconciliations." In the tables below, some totals may not add due to rounding. In addition, percentage changes are based on the whole number and recalculation based on millions may yield a different result. In the second quarter of 2018 the Company divested its CEB Talent Assessment business and its CEB Workforce Survey & Analytics business. These two businesses were acquired in the CEB acquisition and were previously reported with the Talent Assessment & Other segment. As a result of these divestitures, the Company changed the segment name to Other.

Research

($ in millions)

    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2018   2017   % Change   FX Neutral   2018   2017   % Change  
GAAP Metrics:                              
Revenues   $ 770     $ 614     25 %   23 %   $ 1,534     $ 1,125     36 % (a)
Direct expense   237     213     11 %   10 %   470     373     26 %  
Gross contribution   $ 533     $ 401     33 %   29 %   $ 1,064     $ 752     42 %  
Contribution margin   69 %   65 %   4 points       69 %   67 %   2 points  
                               
Non-GAAP Metrics:                              
Adjusted revenues   $ 771     $ 675     14 %   12 %   $ 1,541     $ 1,330     16 %  
Adjusted contribution   534     462     16 %   13 %   1,071     915     17 %  
Adjusted contribution margin   69 %   68 %   1 point       70 %   69 %   1 point  
                               
Business Measurements:                              
Total contract value (b)   $ 2,940     $ 2,632         12 %              
                               
For GTS (c) :                              
Contract value (b)   $ 2,329     $ 2,045         14 %              
Client retention   82 %   83 %       (1) point              
Wallet retention   105 %   104 %       1 point              
Client enterprises   12,375     11,696         6 %              
                               
For GBS (c) :                              
Contract value (b)   $ 611     $ 587         4 %              
Client retention   83 %   79 %       4 points              
Wallet retention   97 %   97 %                      
Client enterprises   5,659     5,619         1 %              

(a) The foreign currency neutral percentage change in revenues was 33% for the six months.

(b) Contract value dollar amounts and percentages are foreign currency neutral.

(c) GTS includes sales to users and providers of technology. GBS includes sales to all other functional leaders.

Events

($ in millions)

    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2018   2017   % Change   FX Neutral   2018   2017   % Change  
GAAP Metrics:                              
Revenues   $ 111     $ 91     22 %   21 %   $ 157     $ 126     24 % (a)
Direct expense   48     41     15 %   14 %   77     63     23 %  
Gross contribution   $ 63     $ 50     28 %   27 %   $ 80     $ 63     26 %  
Contribution margin   57 %   55 %   2 points       51 %   50 %   1 point  
                               
Non-GAAP Metrics:                              
Adjusted revenues   $ 111     $ 95     17 %   16 %   $ 157     $ 131     20 %  
Adjusted contribution   63     54     18 %   18 %   80     67     19 %  
Adjusted contribution margin   57 %   57 %           51 %   51 %      
                               
Business Measurements (b) :                              
Number of destination events held   24     26     (8 )%                  
Number of destination events attendees   20,896     18,539     13 %                  

(a) The foreign currency neutral percentage change in revenues was 22% for the six months.

(b) Single day, local events are excluded.

Consulting

($ in millions, except for Revenue per billable headcount, which is in thousands)

    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2018   2017   % Change   FX Neutral   2018   2017   % Change  
GAAP Metrics:                              
Revenues   $ 96     $ 92     5 %   2 %   $ 179     $ 170     5 % (a)
Direct expense   62     61     4 %   1 %   121     115     5 %  
Gross contribution   $ 34     $ 31     7 %   5 %   $ 58     $ 55     4 %  
Contribution margin   35 %   34 %   1 point       32 %   33 %   (1) point  
                               
Non-GAAP Metrics:                              
Adjusted revenues   $ 96     $ 92     5 %   2 %   $ 179     $ 170     5 %  
Adjusted contribution   34     31     7 %   5 %   58     55     5 %  
Adjusted contribution margin   35 %   34 %   1 point       32 %   32 %      
                               
Business Measurements:                              
Backlog   $ 106     $ 91     16 %                  
Quarterly utilization   67 %   65 %   2 points                  
Quarterly billable headcount   710     667     6 %                  
Revenue per billable headcount (b)   $ 397     $ 378     5 %                  

(a) The foreign currency neutral percentage change in revenues was 2% for the six months.

(b) Calculated on an average annualized basis. Dollar amounts are in thousands.

Other (previously called Talent Assessment & Other)

This segment was created concurrent with the CEB acquisition on April 5, 2017. The segment consisted of three primary businesses: the CEB Talent Assessment business, which was the largest business in the segment; the CEB Workforce Survey & Analytics business; and the CEB Challenger sales training business. The Company divested the CEB Talent Assessment and CEB Workforce Survey & Analytics businesses in second quarter 2018. As a result of the divestitures, the Company changed the name of the segment to Other.

($ in millions)

    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2018   2017   % Change   FX Neutral   2018   2017   % Change  
GAAP Metrics:                              
Revenues   $ 23     $ 47     (51 )%   (51 )%   $ 94     $ 47     100 % (a)
Direct expense   8     30     (73 )%   (73 )%   36     30     20 %  
Gross contribution   $ 15     $ 17     (13 )%   (10 )%   $ 58     $ 17     >100%  
Contribution margin   65 %   37 %   28 points       62 %   37 %   25 points  
                               
Non-GAAP Metrics:                              
Adjusted revenues   $ 23     $ 74     (69 )%   (69 )%   $ 97     $ 143     (32 )%  
Adjusted contribution   15     44     (66 )%   (66 )%   61     81     (25 )%  
Adjusted contribution margin   65 %   59 %   6 points       63 %   57 %   6 points  
Adjusted revenues excluding divested operations   $ 22     $ 17     29 %   41 %   $ 42     $ 35     20 %  
Adjusted contribution excluding divested operations   $ 15     $ 9     67 %   84 %   $ 27     $ 17     59 %  
Adjusted contribution margin excluding divested operations   68 %   53 %   15 points       64 %   49 %   15 points  

(a) The foreign currency neutral percentage change in revenues was 98% for the six months.

FINANCIAL OUTLOOK FOR FULL YEAR 2018

The table below provides the Company's financial outlook for 2018:

($ in millions, except per share data)  
     
    2018 Projected Range
Revenues:            
Research   $ 3,093       $ 3,143  
Events   380       400  
Consulting   340       355  
Other   107       127  
Total revenue   3,920       4,025  
Deferred revenue fair value adjustment   10       10  
Total adjusted revenue (Non-GAAP) (a)   $ 3,930       $ 4,035  
             
Adjusted Segment Revenues:            
Research   $ 3,100       $ 3,150  
Events   380       400  
Consulting   340       355  
Other   $ 110       $ 130  
             
Income:            
Net income   $ 104       $ 140  
Adjusted EBITDA (Non-GAAP) (a), (b)   710       760  
Diluted EPS   1.12       1.51  
Adjusted EPS (Non-GAAP) (a), (b)   $ 3.51       $ 3.91  
             
Expense:            
Stock-based compensation expense   $ 71       $ 71  
Depreciation   80       80  
Amortization of intangibles   185       185  
Deferred revenue fair value adjustment   11       11  
Acquisition and integration charges and other non-recurring items   111       111  
Gain on divestitures   $ (25 )     $ (25 )
             
Interest expense   $ 116       $ 116  
Amortization of deferred financing fees   14       14  
Total interest expense   $ 130       $ 130  
             
Cash Flow:            
Operating cash flow   $ 425       $ 475  
Acquisition, integration, and other non-recurring payments   126       126  
Capital expenditures   (135 )     (145 )
Free cash flow (Non-GAAP) (a)   $ 416       $ 456  

(a) See below for definitions of our Non-GAAP metrics under "Non-GAAP Financial Measures."

(b) See below for reconciliations under "Supplemental Information - Non-GAAP Reconciliations."

FORWARD LOOKING STATEMENTS

Statements contained in this press release regarding the Company’s growth and prospects, projected financial results and all other statements in this release other than recitation of historical facts are forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, estimates, 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 achieve and effectively manage growth, including our ability to integrate our acquisitions and consummate and integrate future acquisitions; our ability to pay our debt; 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 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; the impact of the Tax Cuts and Jobs Act of 2017; and other factors described under “Risk Factors” contained in our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, 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, except as required by applicable law.

NON-GAAP FINANCIAL MEASURES

Certain financial measures used in this Press Release are not defined by generally accepted accounting principles ("GAAP") and as such are considered non-GAAP financial measures. We provide these measures to enhance the user’s overall understanding of the Company’s current financial performance and the Company’s prospects for the future. Investors are cautioned that these non-GAAP financial measures may not be defined in the same manner by other companies and as a result may not be comparable to other similarly titled measures used by other companies. Also, these non-GAAP financial measures should not be construed as alternatives, or superior, to other measures determined in accordance with GAAP.

The Company's non-GAAP financial measures are as follows:

Adjusted Revenue: Represents GAAP revenue plus: (i) revenue for pre-acquisition period(s) from CEB, as applicable; (ii) the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the non-cash fair value adjustments on pre-acquisition deferred revenues is recognized ratably over the remaining period of the underlying revenue contract. We believe Adjusted Revenue is an important measure of our recurring operations as it provides a more accurate period-over-period comparison of trends in revenues, on both a consolidated and segment results basis.

Adjusted Contribution and Adjusted Contribution Margin: Adjusted Contribution represents GAAP contribution plus: (i) the contribution for pre-acquisition period(s) from CEB, as applicable; (ii) the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. Adjusted contribution for the consolidated Company also reflects a reduction for unallocated bonus and fringe costs. The Adjusted Contribution Margin represents the contribution margin on Adjusted revenue. We believe Adjusted Contribution and Adjusted Contribution Margin are important measures of our recurring operations as they provide a more accurate and consistent period-over-period comparison of our segment results.

Adjusted Revenue, Adjusted Contribution, and Adjusted Contribution Margin-Excluding Divested Operations:

Represent the non-GAAP metrics defined above less results of divested operations. We believe these adjustments are important measures of our recurring operations as they provide a more accurate and consistent period-over-period comparison of our segment results.

Adjusted EBITDA: Represents GAAP net income (loss): (i) plus stock-based compensation expense; depreciation, amortization, and accretion on excess facilities obligations; the amortization of non-cash fair adjustments on pre-acquisition deferred revenues; acquisition and integration charges and certain other non-recurring items; (ii) plus the Adjusted EBITDA related to pre-acquisition periods for CEB, as applicable; and (iii) less gain on divestitures. We believe Adjusted EBITDA is an important measure of our recurring operations as it excludes items not representative of our core operating results.

Adjusted EBITDA Excluding Divested Operations: Represents Adjusted EBITDA as defined above less EBITDA from divested operations. We believe these adjustments are important measures of our recurring operations as they provide a more accurate and consistent period-over-period comparison of our segment results.

Adjusted Net Income: Represents GAAP net income (loss) adjusted for the impact of certain items directly related to acquisitions and other non-recurring items. These adjustments include (i) the amortization of acquired intangibles; (ii) acquisition and integration charges and certain other non-recurring items; (iii) the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues; (iv) the non-recurring impact from the enactment of the Tax Cuts and Jobs Act of 2017; (v) gain on divestitures; and (vi) certain other non-recurring items. We believe Adjusted Net Income is an important measure of our recurring operations as it excludes items not indicative of our core operating results.

Adjusted EPS: Represents Adjusted Net Income divided by the weighted-average diluted shares outstanding. We believe Adjusted EPS 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 determined in accordance with GAAP: (i) plus payments for acquisition and integration items directly-related to our acquisitions and certain other non-recurring items; (ii) less payments 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 may be available to be used to repay debt obligations, repurchase our stock, invest in future growth through new business development activities, or make acquisitions.

Foreign Currency Neutral (FX Neutral): We provide foreign currency neutral dollar amounts and percentages for our contract values, revenues, certain expenses, and other metrics. These foreign currency neutral dollar amounts and percentages eliminate the effects of exchange rate fluctuations and thus provide a more accurate and meaningful trend in the underlying data being measured. We calculate foreign currency neutral dollar amounts by converting the underlying amounts in local currency for different periods into U.S. dollars by applying the same foreign exchange rates.

SUPPLEMENTAL INFORMATION - NON-GAAP RECONCILIATIONS

The following tables provide reconciliations of certain Non-GAAP financial measures used in this Press Release with the most directly comparable GAAP measure. See "Non-GAAP Financial Measures" above for definitions of these Non-GAAP financial measures.

Reconciliation - GAAP Revenue to Adjusted Revenue, Adjusted Contribution, and Adjusted Contribution Margin (Unaudited; in millions. Some totals may not add due to rounding.):

For the three months ended June 30, 2018:

    Research   Events   Consulting   Other   Unallocated   Total
GAAP revenue   $ 770     $ 111     $ 96     $ 23     $     $ 1,001  
Add: Amortization of deferred revenue fair value adjustment (a)   1                     1  
Adjusted revenue   771     111     96     23         1,002  
Less: divested operations               (1 )       (1 )
Adjusted revenue excluding divested operations   $ 771     $ 111     $ 96     $ 22     $     $ 1,001  
                         
GAAP contribution   $ 533     $ 63     $ 34     $ 15     $     $ 645  
Add: Amortization of deferred revenue fair value adjustment (a)   1                     1  
Less: Unallocated expense (b)                   (11 )   (11 )
Adjusted contribution   534     63     34     15     (11 )   635  
Less: divested operations                        
Adjusted contribution excluding divested operations   $ 534     $ 63     $ 34     $ 15     $ (11 )   $ 635  
Adjusted contribution margin excluding divested operations   69 %   57 %   35 %   68 %       63 %

For the six months ended June 30, 2018:

    Research   Events   Consulting   Other   Unallocated   Total
GAAP revenue   $ 1,534     $ 157     $ 179     $ 94     $     $ 1,965  
Add: Amortization of deferred revenue fair value adjustment (a)   7             3         10  
Adjusted revenue   1,541     157     179     97         1,975  
Less: divested operations               (55 )       (55 )
Adjusted revenue excluding divested operations   $ 1,541     $ 157     $ 179     $ 42     $     $ 1,920  
                         
GAAP contribution   $ 1,064     $ 80     $ 58     $ 58     $     $ 1,260  
Add: Amortization of deferred revenue fair value adjustment (a)   7             3         10  
Less: Unallocated expense (b)                   (20 )   (20 )
Adjusted contribution   1,071     80     58     61     (20 )   1,250  
Less: divested operations               (34 )       (34 )
Adjusted contribution excluding divested operations   $ 1,071     $ 80     $ 58     $ 27     $ (20 )   $ 1,216  
Adjusted contribution margin excluding divested operations   70 %   51 %   32 %   64 %       63 %

(a) Consists of the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.

(b) Consists of certain unallocated costs.

For the three months ended June 30, 2017:

    Research   Events   Consulting   Other   Unallocated   Total
GAAP revenue   $ 614     $ 91     $ 92     $ 47     $     $ 844  
Add: Amortization of deferred revenue fair value adjustment (a)   61     4         27         92  
Adjusted revenue   675     95     92     74         936  
Less: divested operations               (57 )       (57 )
Adjusted revenue excluding divested operations   $ 675     $ 95     $ 92     $ 17     $     $ 879  
                         
GAAP contribution   $ 401     $ 50     $ 31     $ 17     $     $ 499  
Add: Amortization of deferred revenue fair value adjustment (a)   61     4         27         92  
Less: Unallocated expense (b)                   (7 )   (7 )
Adjusted contribution   462     54     31     44     (7 )   584  
Less: divested operations               (35 )       (35 )
Adjusted contribution excluding divested operations   $ 462     $ 54     $ 31     $ 9     $ (7 )   $ 549  
Adjusted contribution margin excluding divested operations   68 %   57 %   34 %   53 %       62 %

For the six months ended June 30, 2017:

    Research   Events   Consulting   Other   Unallocated   Total
GAAP revenue   $ 1,125     $ 126     $ 170     $ 47     $     $ 1,469  
Add: Pre-acquisition revenue   144     1         69         214  
Add: Amortization of deferred revenue fair value adjustment (a)   61     4         27         92  
Adjusted revenue   1,330     131     170     143         1,775  
Less: divested operations               (108 )       (108 )
Adjusted revenue excluding divested operations   $ 1,330     $ 131     $ 170     $ 35     $     $ 1,667  
                         
GAAP contribution   $ 752     $ 63     $ 55     $ 17     $     $ 888  
Add: Pre-acquisition contribution   102             37         139  
Add: Amortization of deferred revenue fair value adjustment (a)   61     4         27         92  
Less: Unallocated expense (b)                   (8 )   (8 )
Adjusted contribution   915     67     55     81     (8 )   1,111  
Less: divested operations               (64 )       (64 )
Adjusted contribution excluding divested operations   $ 915     $ 67     $ 55     $ 17     $ (8 )   $ 1,047  
Adjusted contribution margin excluding divested operations   69 %   51 %   32 %   49 %   %   63 %

(a) Consists of the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.

(b) Consists of certain unallocated costs.

Reconciliation - GAAP Net Income (Loss) to Adjusted EBITDA(Unaudited; in millions):

    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018   2017   2018   2017
GAAP net income (loss)   $ 46     $ (92 )   $ 26     $ (56 )
Interest expense, net   37     44     72     50  
Gain on divestitures   (25 )       (25 )    
Other (income) expense, net   (1 )       (2 )   (1 )
Tax (benefit) provision   29     (50 )   6     (38 )
Operating income (loss)   86     (98 )   77     (45 )
Adjustments:                
Stock-based compensation expense (a)   14     16     44     39  
Depreciation, accretion, and amortization (b)   67     84     136     100  
Amortization of deferred revenue fair value adjustment (c)   1     91     10     92  
Acquisition and integration charges and other non-recurring items (d)   23     92     85     105  
Subtotal   191     185     352     291  
Plus: CEB pre-acquisition EBITDA (e)               36  
Adjusted EBITDA   191     185     352     327  
Less: Divested operations EBITDA (f)       (13 )   (8 )   (19 )
Adjusted EBITDA excluding divested operations   $ 191     $ 172     $ 344     $ 308  

(a) Consists of charges for stock-based compensation awards.

(b) Includes depreciation expense, accretion on excess facilities obligations, and amortization of intangibles.

(c) Consists of the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.

(d) Consists of incremental and directly-related charges from acquisitions and other non-recurring items.

(e) Consists of CEB Adjusted EBITDA for the period prior to the acquisition. The Company compiled the EBITDA amounts from unaudited financial data provided by CEB in accordance with Gartner's EBITDA definition.

(f) Consists of Adjusted EBITDA from divested operations.

Reconciliation - GAAP Net Income (Loss) to Adjusted Net Income and Adjusted EPS (Unaudited; in millions, except per share amounts):

    Three Months Ended June 30,
    2018   2017
    Amount   Per share   Amount   Per share
GAAP net income (loss)   $ 46     $ 0.50     $ (92 )   $ (1.03 )
Acquisition and other adjustments:                
Amortization of acquired intangibles (a)   50     0.54     65     0.72  
Amortization of deferred revenue fair value adjustment (b)   1     0.01     91     1.01  
Acquisition & integration charges and other non-recurring items (c), (d)   31     0.34     101     1.11  
Gain on divestitures   (25 )   (0.28 )        
Impact of Tax Cuts & Jobs Act of 2017 - provisional adjustment   1     0.01          
Tax impact of adjustments (e)   (9 )   (0.09 )   (86 )   (0.95 )
Rounding               0.02  
Adjusted net income and Adjusted EPS (f)   $ 95     $ 1.03     $ 79     $ 0.88  
    Six Months Ended June 30,
    2018   2017
    Amount   Per share   Amount   Per share
GAAP net income (loss)   $ 26     $ 0.29     $ (56 )   $ (0.65 )
Acquisition and other adjustments:                
Amortization of acquired intangibles (a)   102     1.10     72     0.82  
Amortization of deferred revenue fair value adjustment (b)   10     0.11     92     1.05  
Acquisition & integration charges and other non-recurring items (c), (d)   96     1.04     114     1.30  
Gain on divestitures   (25 )   (0.28 )        
Impact of Tax Cuts and Jobs Act of 2017 - provisional adjustment   1     0.01          
Tax impact of adjustments (e)   (49 )   (0.53 )   (92 )   (1.04 )
Rounding       0.01         0.01  
Adjusted net income and Adjusted EPS (f)   $ 161     $ 1.75     $ 130     $ 1.49  

(a) Consists of non-cash amortization charges from acquired intangibles.

(b) Consists of the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.

(c) Consists of incremental and directly-related charges related to acquisitions and other non-recurring items.

(d) Includes the amortization and write-off of deferred financing fees, which is recorded in Interest expense, net in the Condensed Consolidated Statement of Operations and in the Adjusted EBITDA table.

(e) The effective tax rates on the adjustments were 15% and 27% for the three and six months ended June 30, 2018, respectively, and 33% for both the three and six months ended June 30, 2017.

(f) Adjusted EPS was calculated based on 92.2 million and 90.6 million diluted shares for the three months ended June 30, 2018 and 2017, respectively, and 92.3 million and 87.4 million diluted shares for the six months ended June 30, 2018 and 2017, respectively.

Reconciliation - GAAP Cash Provided by Operating Activities to Free Cash Flow (Unaudited; in millions):

    Three Months Ended
June 30,
  Six Months Ended
June 30,
 
    2018   2017   2018   2017 (a)
GAAP cash provided by operating activities   $ 174     $ 112     $ 177     $ 83    
Adjustments:                  
Plus: cash paid for acquisition, integration, and other non-recurring items   31     48     73     65    
Less: cash paid for capital expenditures   (22 )   (31 )   (40 )   (42 )  
Free Cash Flow   $ 183     $ 129     $ 210     $ 106    

(a) The six months ended June 30, 2017 excludes pre-acquisition CEB.

Financial Outlook Reconciliation - GAAP Net Income to Adjusted EBITDA (Unaudited; in millions):

    2018 Full Year Guidance
    Low   High
Net income   $ 104     $ 140  
Interest expense, net (a)   130     130  
Other (income) expense, net   2     2  
Gain on divestitures   (25 )   (25 )
Tax provision   41     55  
Operating income   252     302  
         
Normalizing adjustments:        
Stock-based compensation expense   71     71  
Depreciation, accretion, and amortization   266     266  
Deferred revenue fair value adjustment   10     10  
Acquisition and integration charges and other nonrecurring items   111     111  
Adjusted EBITDA   $ 710     $ 760  

(a) Includes $14.0 million of amortization of deferred financing fees, which is reported in Interest expense, net.

Financial Outlook Reconciliation - GAAP EPS to Adjusted EPS (Unaudited):

    2018 Full Year Guidance
    Low   High
GAAP EPS   $ 1.12     $ 1.51  
         
Normalizing adjustments:        
Amortization of acquired intangibles   1.49     1.49  
Acquisition and integration charges and other nonrecurring items   1.00     1.00  
Deferred revenue fair value adjustment   0.08     0.08  
Gain on divestitures   (0.18 )   (0.18 )
Rounding       0.01  
Adjusted EPS   $ 3.51     $ 3.91  

 

GARTNER, INC.

Condensed Consolidated Balance Sheets

(Unaudited; in thousands)

  June 30,   December 31,
  2018   2017
Assets      
Current assets:      
Cash and cash equivalents $ 141,805     $ 538,908  
Fees receivable, net 1,083,990     1,176,843  
Deferred commissions 183,481     205,260  
Prepaid expenses and other current assets 199,208     124,632  
Assets held-for-sale     542,965  
Total current assets 1,608,484     2,588,608  
Property, equipment and leasehold improvements, net 225,901     221,507  
Goodwill 2,974,513     2,987,294  
Intangible assets, net 1,177,297     1,292,022  
Other assets 166,742     193,742  
Total Assets $ 6,152,937     $ 7,283,173  
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable and accrued liabilities $ 542,071     $ 666,821  
Deferred revenues 1,687,724     1,630,198  
Current portion of long-term debt 284,009     379,721  
Liabilities held-for-sale     145,845  
Total current liabilities 2,513,804     2,822,585  
Long-term debt, net of deferred financing fees 2,146,829     2,899,124  
Other liabilities 570,872     577,999  
Total Liabilities 5,231,505     6,299,708  
Stockholders’ Equity      
Preferred stock      
Common stock 82     82  
Additional paid-in capital 1,798,075     1,761,383  
Accumulated other comprehensive (loss) income, net (24,051 )   1,508  
Accumulated earnings 1,659,658     1,647,284  
Treasury stock (2,512,332 )   (2,426,792 )
Total Stockholders’ Equity 921,432     983,465  
Total Liabilities and Stockholders’ Equity $ 6,152,937     $ 7,283,173  

 

GARTNER, INC.

Condensed Consolidated Statements of Operations

(Unaudited; in thousands, except per share data)

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2018   2017   2018   2017
Revenues:              
Research $ 770,314     $ 613,732     $ 1,534,238     $ 1,125,038  
Events 111,253     91,205     157,340     126,474  
Consulting 96,458     91,693     179,354     170,287  
Other 23,311     47,101     93,969     47,101  
Total revenues 1,001,336     843,731     1,964,901     1,468,900  
Costs and expenses:              
Cost of services and product development 367,637     352,004     724,846     589,613  
Selling, general and administrative 460,803     408,226     948,548     712,470  
Depreciation 16,711     18,057     33,121     28,297  
Amortization of intangibles 50,127     65,500     101,773     71,790  
Acquisition and integration charges 19,962     98,332     79,228     111,604  
Total costs and expenses 915,240     942,119     1,887,516     1,513,774  
Operating income (loss) 86,096     (98,388 )   77,385     (44,874 )
Interest expense, net (37,604 )   (43,956 )   (72,663 )   (49,862 )
Gain from divested operations 25,460         25,460      
Other income (expense), net 1,120     (407 )   2,019     482  
Income (loss) before income taxes 75,072     (142,751 )   32,201     (94,254 )
Provision (benefit) for income taxes 28,802     (50,470 )   5,518     (38,406 )
Net income (loss) $ 46,270     $ (92,281 )   $ 26,683     $ (55,848 )
               
Net income (loss) per share:              
Basic $ 0.51     $ (1.03 )   $ 0.29     $ (0.65 )
Diluted $ 0.50     $ (1.03 )   $ 0.29     $ (0.65 )
Weighted average shares outstanding:              
Basic 91,048     89,297     91,026     86,066  
Diluted 92,156     89,297     92,252     86,066  

 

GARTNER, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited; in thousands)

  Six Months Ended
  June 30,
  2018   2017
Operating activities:      
Net income (loss) $ 26,683     $ (55,848 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation and amortization 134,894     100,087  
Stock-based compensation expense 45,300     53,573  
Deferred taxes (18,019 )   (78,004 )
Gain on divestitures (25,460 )    
Amortization and write-off of deferred financing fees 10,601     9,475  
Changes in assets and liabilities, net of acquisitions and divestitures 2,748     53,435  
Cash provided by operating activities 176,747     82,718  
Investing activities:      
Additions to property, equipment and leasehold improvements (40,126 )   (41,627 )
Acquisitions - cash paid (net of cash acquired)     (2,604,178 )
Divestitures - cash received 405,542      
Other 1,000      
Cash provided by (used in) investing activities 366,416     (2,645,805 )
Financing activities:      
Proceeds from employee stock purchase plan 7,627     5,662  
Proceeds from borrowings     2,885,000  
Payments for deferred financing fees     (51,170 )
Payments on borrowings (858,609 )   (119,812 )
Purchases of treasury stock (96,271 )   (33,786 )
Cash (used in) provided by financing activities (947,253 )   2,685,894  
Net (decrease) increase in cash and cash equivalents and restricted cash (404,090 )   122,807  
Effects of exchange rates on cash and cash equivalents and restricted cash (3,012 )   10,406  
Cash and cash equivalents and restricted cash, beginning of period 567,058     499,354  
Cash and cash equivalents and restricted cash, end of period $ 159,956     $ 632,567  

 

Source: Gartner, Inc.

Gartner
David Cohen, +1 203-316-6631
GVP, Investor Relations,
investor.relations@gartner.com

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Gartner's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.