UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, DC 20549 |
FORM 8-K |
CURRENT REPORT |
Pursuant to Section 13 or 15(d) of the |
Securities Exchange Act of 1934 |
Date of Report (Date of earliest event reported) |
May 4, 2017 |
GARTNER, INC. |
(Exact name of registrant as specified in its charter) |
DELAWARE | 1-14443 | 04-3099750 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
P.O. Box 10212 |
56 Top Gallant Road |
Stamford, CT 06902-7747 |
(Address of Principal Executive Offices, including Zip Code) |
(203) 316-1111 |
(Registrant’s telephone number, including area code) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter): o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: o
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On May 4, 2017, Gartner, Inc. (the “Company” or "Gartner" ) announced financial results for the three months ended March 31, 2017. A copy of the Company’s Press Release is furnished herein as Exhibit 99.1.
In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02 and in Exhibit 99.1 of this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
ITEM 7.01. REGULATION FD DISCLOSURE.
On May 4, 2017, Gartner made available on its website at www.gartner.com the slides furnished as Exhibit 99.2 to this Current Report on Form 8-K (the “First Quarter 2017 Results”). The Company intends to use the First Quarter 2017 Results slides in connection with its conference call that is scheduled for Thursday, May 4, 2017, regarding the Company’s results for the three months ended March 31, 2017.
In accordance with General Instruction B.2 of Form 8-K, the information in this Item 7.01 and in Exhibit 99.2 of this Current Report on Form 8-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits
EXHIBIT NO. | DESCRIPTION | ||
99.1 | Press Release issued May 4, 2017 with respect to financial results for Gartner, Inc. for the three months ended March 31, 2017. | ||
99.2 | Gartner, Inc. First Quarter 2017 Results slides dated May 4, 2017. | ||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Gartner, Inc. | ||
Date: May 4, 2017 | By: | /s/ Craig W. Safian |
Craig W. Safian Senior Vice President and Chief Financial Officer | ||
EXHIBIT INDEX
EXHIBIT NO. | DESCRIPTION | ||
99.1 | Press Release issued May 4, 2017 with respect to financial results for Gartner, Inc. for the three months ended March 31, 2017. | ||
99.2 | Gartner, Inc. First Quarter 2017 Results slides dated May 4, 2017. | ||
EXHIBIT 99.1
Gartner | Press Release |
CONTACT:
Sherief Bakr
Group Vice President, Investor Relations
+1 203 316 6537
investor.relations@gartner.com
Gartner Reports Financial Results for First Quarter 2017
Total Contract Value up 15% YoY FX Neutral to $1.95 Billion
First Quarter Revenue Increased 13% FX Neutral to $625.2 Million
STAMFORD, Conn., May 4, 2017 — Gartner, Inc. (NYSE: IT) is the world's leading research and advisory company and today reported results for first quarter 2017. Gartner also provided an update to its financial outlook for full year 2017, which includes its projections for CEB Inc. ("CEB"), which Gartner acquired on April 5, 2017, as previously announced.
For first quarter 2017, total revenue was $625.2 million, an increase of 12% over first quarter 2016 and 13% adjusted for the foreign exchange impact. Net income was $36.4 million in first quarter 2017, while Adjusted EBITDA was $106.1 million, an increase of 3% over first quarter 2016 as reported and 1% adjusted for the foreign exchange impact. GAAP Diluted EPS was $0.43 in first quarter 2017 compared to $0.54 in first quarter 2016. Adjusted EPS was $0.60 in first quarter 2017 compared to $0.67 in first quarter 2016. (See “Non-GAAP Financial Measures” below for definitions of Adjusted EBITDA and Adjusted EPS). For first quarter 2016, both the previously reported GAAP Diluted EPS and Adjusted EPS have increased by $0.06 per share due to the Company's adoption of FASB Accounting Standards Update (ASU) No. 2016-09 (see below for additional discussion).
Gene Hall, Gartner’s chief executive officer, commented, "We delivered another strong quarter of double-digit growth in revenue and contract value for the first quarter of 2017. We closed the acquisition of CEB and remain extremely excited about our prospects for long term growth in both the Gartner and CEB businesses".
Business Segment Highlights
Research
Revenue for first quarter 2017 was $504.7 million, up 15% compared to first quarter 2016 on both a reported basis and adjusted for the foreign exchange impact. The quarterly gross contribution margin was 69% and 70% in first quarter 2017 and 2016, respectively. Total contract value was $1.95 billion at March 31, 2017, an increase of 13% on a reported basis and 15% on a foreign exchange neutral basis compared to March 31, 2016. Client retention was 83% and 84% in first quarter of 2017 and 2016, respectively. Wallet retention was 104% and 105% in first quarter 2017 and 2016, respectively.
Consulting
Revenue for first quarter 2017 was $85.2 million, which was flat on a reported basis compared to first quarter 2016 but an increase of 2% adjusted for the foreign exchange impact. The gross contribution margin was 33% and 35% in first quarter 2017 and 2016, respectively. First quarter 2017 utilization was 65% compared to 67% in first quarter 2016. As of March 31, 2017, billable headcount was 650 compared to 618 at March 31, 2016. Backlog was $103.2 million at March 31, 2017 compared to $114.1 million at March 31, 2016.
-more-
Events
Revenue for first quarter 2017 was $35.3 million compared to $32.1 million in the first quarter 2016, an increase of 10% on a reported basis and 11% adjusted for the foreign exchange impact. The gross contribution margin was 38% in first quarter 2017 compared to 41% in the prior year quarter. The Company held 11 events with 9,035 attendees in first quarter 2017 compared to 12 events with 7,640 attendees in first quarter 2016.
Cash Flow and Balance Sheet Highlights
Gartner used $29.6 million of cash in its operating activities in the first quarter of 2017 compared to cash generated of $13.3 million in the first quarter of 2016. Free Cash Flow for the first quarter of 2017 was $(22.7) million compared to $17.9 million in first quarter of 2016 (See “Non-GAAP Financial Measures” below for the definition of Free Cash Flow). During first quarter 2017 the Company used $22.0 million in cash to repurchase its common shares, $129.3 million for acquisitions, $10.7 million for capital expenditures, and $17.6 million for acquisition and integration payments. After the close of the CEB transaction, the Company had $640.0 million of cash and $630.0 million of additional borrowing capacity under its revolving credit facility.
Acquisition of CEB
On April 5, 2017, Gartner completed the acquisition of CEB by acquiring all of the outstanding shares of CEB in a cash and stock transaction with a total enterprise value of approximately $3.5 billion gross. Additional information regarding the acquisition is provided in the Company's March 31, 2017 Quarterly Report on Form 10-Q or on Gartner's website at http://investor.gartner.com.
Impact of the Adoption of FASB ASU No. 2016-09 on our Previously Reported Q1 2016 Numbers
In the third quarter of 2016 the Company early adopted Financial Accounting Standards Board Update 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU No. 2016-09"), which changed the accounting for stock-based awards. The accounting changes required by ASU No. 2016-09 were applied to the beginning of the Company's 2016 fiscal year, and as a result certain previously reported financial results for the three months ended March 31, 2016 have changed. These changes include a $4.8 million increase in net income, and a $0.06 increase in each of GAAP basic earnings per share, GAAP diluted earnings per share and Adjusted earnings per share. In addition, our previously reported operating cash flow for the three months March 31, 2016 increased by $4.8 million. Note 1 in the Notes to the Financial Statements in the Company's March 31, 2017 Quarterly Report on Form 10-Q provides additional information.
Gartner, Inc. | page 2 |
Financial Outlook for 2017
The Company also provided an update to its financial outlook for full year 2017, to include CEB:
($ in millions, except per share data) (1) | 2017 Projected Range | |||||||||||||||||||||||||||||
Gartner | CEB | Combined | ||||||||||||||||||||||||||||
Revenue (GAAP): | ||||||||||||||||||||||||||||||
Research | $ | 2,070 | — | $ | 2,105 | — | — | $ | 2,070 | — | $ | 2,105 | ||||||||||||||||||
Consulting | 345 | — | 360 | — | — | 345 | — | 360 | ||||||||||||||||||||||
Events | 285 | — | 300 | — | — | 285 | — | 300 | ||||||||||||||||||||||
CEB | — | — | $ | 519 | — | $ | 549 | $ | 519 | — | $ | 549 | ||||||||||||||||||
Total Revenue (GAAP) | $ | 2,700 | — | $ | 2,765 | $ | 519 | — | $ | 549 | $ | 3,219 | — | $ | 3,314 | |||||||||||||||
Deferred Revenue Fair Value Adjustment | — | — | 209 | — | 209 | 209 | — | 209 | ||||||||||||||||||||||
Total Adjusted Revenue (Non-GAAP) | $ | 2,700 | — | $ | 2,765 | $ | 728 | — | $ | 758 | $ | 3,428 | — | $ | 3,523 | |||||||||||||||
Adjusted EBITDA (Non-GAAP) | $ | 495 | — | $ | 530 | $ | 190 | — | $ | 205 | $ | 685 | — | $ | 735 | |||||||||||||||
Operating Income (GAAP) | $ | (42 | ) | $ | 8 | |||||||||||||||||||||||||
Diluted EPS (GAAP) | $ | (1.16 | ) | $ | (0.76 | ) | ||||||||||||||||||||||||
Adjusted EPS (Non-GAAP) | $ | 3.32 | $ | 3.60 | ||||||||||||||||||||||||||
Operating Cash Flow (GAAP) | $ | 315 | $ | 345 | ||||||||||||||||||||||||||
Acquisition and Integration Payments | 115 | 125 | ||||||||||||||||||||||||||||
Capital Expenditures | (95 | ) | (105 | ) | ||||||||||||||||||||||||||
Free Cash Flow (Non-GAAP) | $ | 335 | $ | 365 | ||||||||||||||||||||||||||
(1) See “Non-GAAP Financial Measures” below for definitions of Adjusted Revenue, Adjusted EBITDA, Adjusted EPS, and Free Cash Flow.
Conference Call Information
Gartner has scheduled a conference call at 8:00 a.m. eastern time on Thursday, May 4, 2017 to discuss the Company’s financial results for first quarter 2017. 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 888-680-0865 and the international dial-in number is 617-213-4853. The participant passcode is 16757805#. 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 30 days following the call on the Company's website. In addition, a transcript of the call will also be available on the Company's website shortly after the conclusion of the call.
Annual Meeting of Stockholders
Gartner will hold its 2017 Annual Meeting of Stockholders at 10:00 a.m. eastern time on June 1, 2017 at the Company’s offices in Stamford, Connecticut.
About Gartner
Gartner, Inc. (NYSE: IT) is the world’s leading research and advisory company. We help business leaders across all major functions in every industry and enterprise size with the objective insights they need to make the right decisions.
Our comprehensive suite of services delivers strategic advice and proven best practices to help clients succeed in their mission-critical priorities. Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 13,000 associates serving clients in over 11,000 enterprises in over 90 countries. For more information, visit www.gartner.com.
Gartner, Inc. | page 3 |
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 are not 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 to other measures determined in accordance with GAAP.
The Company's Non-GAAP financial measures are as follows:
Adjusted Revenue: Represents GAAP revenue plus 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. 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.
Adjusted EBITDA: Represents GAAP operating income excluding stock-based compensation expense, depreciation and amortization, accretion on obligations related to excess facilities, acquisition and integration adjustments, and other charges. We believe Adjusted EBITDA is an important measure of our recurring operations as it excludes items that may not be indicative of our core operating results.
Adjusted EPS: Represents GAAP diluted earnings per share adjusted for the impact of certain items directly related to acquisitions and other charges. The adjustment items consist of the amortization of identifiable intangibles; incremental acquisition and integration charges related to the achievement of certain performance targets and employment conditions, as well as legal, consulting, severance, and other costs; and non-cash fair value adjustments on pre-acquisition deferred revenues. 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 GAAP cash (used in) provided by operating activities plus cash acquisition and integration payments 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 repurchase our stock, repay debt obligations, invest in future growth through new business development activities, or make acquisitions.
Tables provided in this Press Release provide reconciliations of these Non-GAAP financial measures with the most directly comparable GAAP measure.
Gartner, Inc. | page 4 |
Safe Harbor Statement
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 (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 achieve and effectively manage growth, including our ability to integrate our recent CEB acquisition and other acquisitions, and consummate and integrate future acquisitions; our ability to pay our debt, which has increased substantially with the recent CEB acquisition; 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; and other factors described under “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2016, 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. | page 5 |
GARTNER, INC.
Condensed Consolidated Statements of Operations
(Unaudited; in thousands, except per share amounts)
Three Months Ended March 31, | |||||||||||
2017 | 2016 | ||||||||||
Revenues: | |||||||||||
Research | $ | 504,652 | $ | 440,271 | 15 | % | |||||
Consulting | 85,248 | 84,940 | — | % | |||||||
Events | 35,269 | 32,055 | 10 | % | |||||||
Total revenues | 625,169 | 557,266 | 12 | % | |||||||
Costs and expenses: | |||||||||||
Cost of services and product development | 237,609 | 212,041 | 12 | % | |||||||
Selling, general and administrative | 304,244 | 257,411 | 18 | % | |||||||
Depreciation | 10,240 | 8,834 | 16 | % | |||||||
Amortization of intangibles | 6,290 | 6,183 | 2 | % | |||||||
Acquisition and integration charges | 13,272 | 8,368 | 59 | % | |||||||
Total costs and expenses | 571,655 | 492,837 | 16 | % | |||||||
Operating income | 53,514 | 64,429 | (17 | )% | |||||||
Interest expense, net | (5,906 | ) | (6,006 | ) | (2 | )% | |||||
Other income, net | 889 | 1,884 | (53 | )% | |||||||
Income before income taxes | 48,497 | 60,307 | (20 | )% | |||||||
Provision for income taxes | 12,064 | 15,320 | (21 | )% | |||||||
Net income | $ | 36,433 | $ | 44,987 | (19 | )% | |||||
Income per common share: | |||||||||||
Basic | $ | 0.44 | $ | 0.55 | (20 | )% | |||||
Diluted | $ | 0.43 | $ | 0.54 | (20 | )% | |||||
Weighted average shares outstanding: | |||||||||||
Basic | 82,835 | 82,451 | — | % | |||||||
Diluted | 84,095 | 83,464 | 1 | % | |||||||
BUSINESS SEGMENT DATA |
(Unaudited; in thousands) |
Revenue | Direct Expense | Gross Contribution | Contribution Margin | |||||||||||
Three Months Ended 3/31/17 | ||||||||||||||
Research | $ | 504,652 | $ | 157,944 | $ | 346,708 | 69% | |||||||
Consulting | 85,248 | 56,906 | 28,342 | 33% | ||||||||||
Events | 35,269 | 21,702 | 13,567 | 38% | ||||||||||
TOTAL | $ | 625,169 | $ | 236,552 | $ | 388,617 | 62% | |||||||
Three Months Ended 3/31/16 | ||||||||||||||
Research | $ | 440,271 | $ | 132,085 | $ | 308,186 | 70% | |||||||
Consulting | 84,940 | 55,562 | 29,378 | 35% | ||||||||||
Events | 32,055 | 19,072 | 12,983 | 41% | ||||||||||
TOTAL | $ | 557,266 | $ | 206,719 | $ | 350,547 | 63% | |||||||
SELECTED STATISTICAL DATA (unaudited)
March 31, 2017 | March 31, 2016 | |||||||||||
Total contract value (a), (b) | $ | 1.953 | $ | 1.721 | ||||||||
Research client retention | 83 | % | 84 | % | ||||||||
Research wallet retention | 104 | % | 105 | % | ||||||||
Research client enterprises | 11,166 | 10,474 | ||||||||||
Consulting backlog (c) | $ | 103,200 | $ | 114,100 | ||||||||
Consulting—quarterly utilization | 65 | % | 67 | % | ||||||||
Consulting billable headcount | 650 | 618 | ||||||||||
Consulting—average annualized revenue per billable headcount (c) | $ | 359 | $ | 386 | ||||||||
Events—number of events for the quarter | 11 | 12 | ||||||||||
Events—attendees for the quarter | 9,035 | 7,640 | ||||||||||
(a) Total contract value represents the value attributable to all of our subscription-related contracts. It is calculated as the annualized value of all contracts in effect at a specific point in time, without regard to the duration of the contract. Total contract value primarily includes Research deliverables for which revenue is recognized on a ratable basis, as well as other deliverables (primarily Events tickets) for which revenue is recognized when the deliverable is utilized.
(b) In billions.
(c) In thousands.
SUPPLEMENTAL INFORMATION
Reconciliation - Operating income to Adjusted EBITDA (a) (Unaudited; in thousands):
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Net income | $ | 36,433 | $ | 44,987 | ||||
Interest expense, net | 5,906 | 6,006 | ||||||
Other income, net | (889 | ) | (1,884 | ) | ||||
Tax provision | 12,064 | 15,320 | ||||||
Operating income | $ | 53,514 | $ | 64,429 | ||||
Normalizing adjustments: | ||||||||
Stock-based compensation expense (b) | 22,576 | 15,495 | ||||||
Depreciation, accretion, and amortization (c) | 16,553 | 15,038 | ||||||
Acquisition and integration adjustments (d) | 13,415 | 8,368 | ||||||
Adjusted EBITDA | $ | 106,058 | $ | 103,330 | ||||
(a) Adjusted 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 and non-cash fair value adjustments on pre-acquisition deferred revenues.
Reconciliation - GAAP Diluted Earnings Per Share to Adjusted Earnings Per Share (a) (Unaudited; in thousands, except per share amounts):
Three Months Ended March 31, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Total Amount | EPS | Total Amount | EPS | |||||||||||||
GAAP diluted earnings per share | $ | 36,433 | $ | 0.43 | $ | 44,987 | $ | 0.54 | ||||||||
Acquisition and other adjustments: | ||||||||||||||||
Amortization of acquired intangibles (b) | 6,196 | 0.07 | 6,089 | 0.07 | ||||||||||||
Acquisition and integration adjustments (c) | 13,415 | 0.16 | 8,368 | 0.10 | ||||||||||||
Tax impact of adjustments (d) | (5,406 | ) | (0.06 | ) | (3,715 | ) | (0.04 | ) | ||||||||
Adjusted earnings per share (e) | $ | 50,638 | $ | 0.60 | $ | 55,729 | $ | 0.67 | ||||||||
(a) | Adjusted earnings per share represents GAAP diluted earnings per share adjusted for the impact of certain items directly-related to acquisitions and other items. |
(b) | Consists of non-cash amortization charges from acquired intangibles. |
(c) | Consists of directly-related incremental charges from acquisitions and non-cash fair value adjustments on pre-acquisition deferred revenues. |
(d) | The effective tax rates were 28% and 26% for the three months ended March 31, 2017 and 2016, respectively. |
(e) | Calculated based on 84.1 million and 83.5 million shares for the three months ended March 31, 2017 and 2016, respectively. |
Reconciliation - Cash Provided by Operating Activities to Free Cash Flow (a) (Unaudited; in thousands):
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Cash (used in) provided by operating activities | $ | (29,605 | ) | $ | 13,331 | |||
Adjustments: | ||||||||
Cash acquisition and integration payments | 17,585 | 11,100 | ||||||
Cash paid for capital expenditures | (10,700 | ) | (6,560 | ) | ||||
Free Cash Flow | $ | (22,720 | ) | $ | 17,871 | |||
(a) Free cash flow is based on cash provided by operating activities determined in accordance with GAAP plus cash acquisition and integration payments less additions to capital expenditures.
# # #
0 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
First Quarter 2017 Results
May 4th, 2017
1 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Statements contained in this presentation regarding the growth and prospects of the business, the Company’s projected
2017 financial results, long-term objectives and all other statements in this presentation 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; consequently, actual results may
differ materially from those expressed or implied thereby.
Factors that could cause actual results to differ materially include, but are not limited to, the ability to achieve and effectively
manage growth, including the ability to integrate our recent CEB acquisition, other acquisitions and consummate
acquisitions in the future; the ability to pay Gartner’s debt obligations, which have increased substantially with the recent
CEB acquisition; the ability to maintain and expand Gartner’s products and services; the ability to expand or retain Gartner’s
customer base; the ability to grow or sustain revenue from individual customers; the ability to attract and retain a
professional staff of research analysts and consultants upon whom Gartner is dependent; the ability to achieve continued
customer renewals and achieve new contract value, backlog and deferred revenue growth in light of competitive pressures;
the ability to carry out Gartner’s strategic initiatives and manage associated costs; the ability to successfully compete with
existing competitors and potential new competitors; the ability to enforce and protect our intellectual property rights;
additional risks associated with international operations including foreign currency fluctuations; the impact of restructuring
and other charges on Gartner’s businesses and operations; general economic conditions; risks associated with the credit
worthiness and budget cuts of governments and agencies; and other risks listed from time to time in Gartner’s reports filed
with the Securities and Exchange Commission, including Gartner’s most recent Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q.
The Company’s SEC filings can be found on Gartner’s website at investor.gartner.com and on the SEC’s website at
www.sec.gov.. Forward looking statements included herein speak only as of May 4, 2017 and the Company disclaims
any obligation to revise or update such statements to reflect events or circumstances after this date or to reflect the
occurrence of unanticipated events or circumstances.
Forward Looking Statements
2 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
First Quarter 2017: Highlights
Total FX Neutral Contract
Value Growth of 15%
Double digit growth in every
region, client size and virtually
every industry segment
Total FX Neutral Revenue
Growth of 13%
24 consecutive quarters of
double digit growth (Y/Y FX
neutral)
Adjusted EBITDA of
$106M
Free Cash Flow Conversion
Rate of 126%
Rolling 12 month Basis
Completed the Acquisition
of CEB on April 5th
Creates the Leading Global
Research & Advisory
Company for All Major
Functions in the Enterprise
Adjusted Earnings Per
Share of $0.60
Towards high end of
guidance range
3 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions (unless stated) 1Q17 1Q16 YOY Growth
(Reported)
YOY Growth
(FX Neutral)
Total Revenue $625.2 $557.3 +12% +13%
Operating Income $53.5 $64.4 -17% -19%
Adjusted EBITDA (1) $106.1 $103.3 +3% +1%
Diluted Earnings Per Share $0.43 $0.54 -20%
Adjusted Diluted Earnings Per Share (1) $0.60 $0.67 -10%
Operating Cash Flow $(29.6) $13.3
Free Cash Flow (1) $(22.7) $17.9
12 Month Rolling Free Cash Flow Conversion 126% 146%
Net Debt/(Cash) $430 $486
Net Debt/Adjusted EBITDA 0.9x 1.1x
First Quarter 2017: Overview
(1) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
4 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions (unless stated) 1Q17 1Q16 Y/Y Growth
(Reported)
Y/Y Growth
(FX Neutral)
Research Revenue $504.7 $440.3 +15% +15%
Total Contract Value $1,953 $1,721 +14% +15%
Gross Contribution $346.7 $308.2 +12%
Contribution Margin 68.7% 70.0% -130 bps
Client Retention 83% 84% -40 bps
Wallet Retention 104% 105% -70 bps
Number of Client Enterprises 11,166 10,474 +7%
Rolling FX Neutral 12 Month Net
Contract Value Increase (NCVI)
$256 $204* +25%
End of period QBH 2,460 2,237 +10%
Beginning of period QBH 2,237 1,933 +16%
Sales Productivity (NCVI per AE) $114K $106K +8%
First Quarter 2017: Research
Total FX Neutral Contract Value
growth of 14%, excluding L2
acquisition
Excluding acquisitions, Research
revenue growth of 14%
New business increased 13%
year-on-year
Average Spend per Enterprise
$175K, up 8% year-on-year on
an FX neutral basis
Excluding L2 acquisition, sales
productivity was flat on both a year-
on-year and sequential basis
Quota bearing headcount (QBH)
growth of 10% in Q1 17 impacted by
timing of training academies
Continue to target ~13% QBH
growth in 2017
*Rolling 12 month NCVI of $204 million re-stated at 2017 FX rates. At 2016 rates, rolling 12 month NCVI was $207 million
5 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions (unless stated) 1Q17 1Q16 YOY Growth
(Reported)
YOY Growth
(FX Neutral)
Events Revenue $35.3 $32.1 +10% +11%
Gross Contribution $13.6 $13.0 +4%
Contribution Margin 38.5% 40.5% -200 bps
Number of Events 11 12
Events Attendees 9,035 7,640 +18%
First Quarter 2017: Events
On a same-events and FX neutral
basis, Events revenues increased
6% year-on-year in Q1 2017
On a same-events basis, attendees
increased 11%
6 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions (unless stated) 1Q17 1Q16 YOY Growth
(Reported)
YOY Growth
(FX Neutral)
Consulting Revenue $85.2 $84.9 - +2%
Gross Contribution $28.3 $29.4 -4%
Contribution Margin 33.2% 34.6% -140 bps
Quarterly Utilization Rate 65% 67% -200 bps
Billable Headcount 650 618 +5%
Avg. Annualized Rev. per
Billable Headcount
$359K $386K -7%
First Quarter 2017: Consulting
Continued investment in Managing
Partners, up 14% compared to
Q1 2016
Excluding one large non-recurring
contract, backlog decreased by
4% year-on-year on a FX-neutral
basis
Backlog represents approximately
4 months of forward coverage, in
line with operational target
110 112 115 123
4Q163Q162Q161Q16 1Q17 3Q162Q161Q16
$114
4Q16 1Q17
Managing Partners Consulting Backlog ($M)
+14% -10%
$109 $104$104 $103125
7 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
First Quarter 2017: Consolidated Income Statement
In $ thousands, except per
share amounts
March 31, 2017 March 31, 2016 Year-on-Year
% Change
TOTAL REVENUES $625,169 $557,266 12%
Cost of services and product
development
237,609 212,041 12%
Selling, general and administrative
expense
304,244 257,411 18%
Depreciation and amortization 16,530 15,017 10%
Acquisition and integration charges 13,272 8,368 59%
TOTAL COSTS AND EXPENSES $571,655 $492,837 16%
Operating income $53,514 $64,429 -17%
Interest Expense, net (5,906) (6,006) -2%
Other income (expense), net 889 1,884 -53%
Income before income taxes $48,497 $60,307 -20%
Provision for income taxes 12,064 15,320 -21%
Tax Rate 24.9% 25.4%
NET INCOME $36,433 $44,987 -19%
Net income per share:
Diluted
$0.43 $0.54 -20%
Weighted average shares outstanding:
Diluted
84,095 83,464
Normalized SG&A increased 16%
year-on-year adjusting for one-time
stock compensation benefit in Q1
2016
Sales force continues to be
largest investment
Higher depreciation driven
by higher capital spending to
support growth
Higher acquisition and integration
charges primarily related to CEB
acquisition and, to a lesser extent,
by the L2 acquisition
GAAP tax rate of 24.9% versus
guidance of ~26%; favorable impact
of earnings mix and timing
of certain costs.
Three Months Ended
8 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
First Quarter 2017: Adjusted Earnings Per Share(a)
In $ thousands, except per
share amounts
March 31, 2017 March 31, 2016 Year-on-Year
% Change
Net Income $36,433 $44,987 -19%
Acquisition and other adjustments:
Amortization of acquired intangibles (b) 6,196 6,089 N/M
Acquisition and integration adjustments (c) 13,415 8,368 N/M
Tax impact of adjustments (d) (5,406) (3,715) N/M
Adjusted net income $50,638 $55,729 -9%
Adjusted diluted earnings per share (e):
Diluted $0.60 $0.67 -10%
Weighted average shares outstanding:
Diluted 84,095 83,464
a) Adjusted earnings per share represents GAAP diluted earnings per share adjusted for the impact of certain items directly related to acquisitions and other items.
b) Consists of non-cash amortization charges from acquired intangibles.
c) Consists of directly-related incremental charges and adjustments from acquisitions.
d) The effective tax rates were 28% and 26% for the three months ended March 31, 2017 and 2016, respectively.
e) The EPS is calculated based on 84.1 million shares and 83.5 million shares for the three months ended March 31, 2017 and 2016, respectively.
Three Months Ended
9 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions 1Q17 1Q16 YOY Growth
(Reported)
YOY Growth
(FX Neutral)
Adjusted EBITDA $106 $103 +3% +1%
Operating Cash Flow $(29.6) $13.3
- Capital Expenditures $(10.7) $(6.6)
+ Cash Acquisition and
Integration Payments
$17.6 $11.1
= Free Cash Flow $(22.7) $17.9
Free Cash Flow Conversion 126% 146%
First Quarter 2017: Cash Flow Highlights
Change in operating cash flow driven
by:
–Timing of contract value growth in the
quarter and the related collections
–Higher incentive payments
–Higher acquisition and
integration payments
Free cash flow driven by lower
operating cash flow and higher
capex
10 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
1.1x
0.9x
0.7x
0.5x
0.9x
4.3x
1Q16 2Q16 3Q16 4Q16 1Q17 4/5/17
April 5, 2017 post-close CEB transaction snapshot; represents Gartner and CEB cash as of 3/31/2017
Net Debt / (Cash) Position ($M) Net Debt* / EBITDA Ratio
First Quarter 2017: Balance Sheet and Capital Structure
890 835 745 703 1,658
3,633
(404) (445) (466) (474)
(1,228)
(642)
1Q16 2Q16 3Q16 4Q16 1Q17 4/5/17
Total Debt Cash
486 390 279 229
430
2,991
*Net Debt in Leverage Ratio calculated using LTM of Adjusted EBITDA of $688M of Adjusted EBITDA
11 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ millions (unless stated)
As of
4/5/2017 Interest Rate Maturity
Senior Secured Revolving Credit Facility (a) $545 LIBOR + 2.50% 1Q22
Term Loan A Credit Facility $1,485 LIBOR + 2.00% 1Q22
Term Loan B Credit Facility $500 LIBOR + 2.00% 2Q24
Total Secured Debt $2,530
Senior Unsecured 364-Day Bridge Credit Facility $300 LIBOR + 2.75% 2Q18
Senior Unsecured Notes $800 5.125% 2Q25
State of Connecticut economic development loan $3 3.00% 4Q22
Total Debt $3,633
Interest Rate Hedges (b) $1,400 1.84% 3Q19; 1Q22
Weighted Average Rate including Hedge 3.9 - 4.0%
Estimated Annual Interest Expense (c) ~$140 - $145M
Debt Balances and Interest Rates
a) Revolver capacity was $630M post-close of CEB
b) More than 60% of gross debt has fixed interest rates
c) At current debt levels, mix and LIBOR rate
12 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
First Quarter 2017
Financial Highlights
13 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
CEB First Quarter 2017: Highlights(1)
Total Adjusted
Revenue of $214M(2)
Adjusted EBITDA
of $36M(2)
CEB Segment Contract
Value declined by
approximately 1%*
Core CEB Wallet
Retention of 89%*
Increased 1pt
sequentially
*CEB Segment Contract Value and Wallet Retention based on constant currency
(1) Above results are what CEB would have reported as an independent company
(2) Please refer to appendix slides for definition of these non-GAAP measures and reconciliation to the most directly comparable GAAP measures
14 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Fiscal Year 2017
Outlook
15 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Updated 2017 Guidance
$ In millions, except per share amounts
Gartner
(12 months)
CEB
(9 months)
Combined
(12 months of Gartner &
9 months of CEB)
Research revenue $2,070 - $2,105 $2,070 - $2,105
Consulting revenue $345 - $360 $345 - $360
Events revenue $285 - $300 $285 - $300
CEB revenue (GAAP) $519 - $549 $519 - $549
Total Revenue (GAAP) $2,700 - $2,765 $519 - $549 $3,219 - $3,314
Deferred Revenue Fair Value Adjustment (CEB) $209 $209
Total Adjusted Revenue $2,700 - $2,765 $728 - $758 $3,428 - $3,523
Adjusted EBITDA $495 - $530 $190 – $205 $685 - $735
Operating Income $(42) - $8
Diluted Earnings Per Share (GAAP) $(1.16) - $(0.76)
Adjusted Diluted Earnings Per Share $3.32 – $3.60
Fully Diluted Number of Shares 89.5 – 90.5
Operating Cash Flow $315 - $345
Acquisition and Integration Payments $115 - $125
Capital Expenditures $(95) - $(105)
Free Cash Flow $335 - $365
16 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
$0.31
$(1.59)
Amortization
of acquired
intangibles
Deferred
Revenue Fair
Value Adjustment
GAAP EPS
Guidance Range
Adjusted EPS
Guidance
Range
Acquisition and
Integration
Charges
Real
Estate
Related &
Other
Charges
$0.94
$1.49
Reconciliation of 2017 Adjusted to GAAP EPS Outlook
~$(1.16)
~$(1.46)
~$(1.55)
~$(0.25)
$3.32 – $3.60
$(1.16) – $(0.76)
**Adjusting items calculated at the midpoint of guidance range
17 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Appendix
18 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Gartner Reconciliation Tables
In $ thousands
Reconciliation - Operating income
to Adjusted EBITDA (a):
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
Net income (GAAP) $44,987 $51,626 $30,484 $66,485 $36,433
Interest expense, net $6,006 $7,356 $5,932 $5,822 $5,906
Other (income) expense, net $(1,884) $(1,248) $(1,954) $(3,320) $(889)
Tax provision $15,320 $25,565 $14,264 $39,700 $12,064
Operating income $64,429 $83,299 $48,726 $108,687 $53,514
Normalizing adjustments:
Stock-based compensation expense (b) $15,495 $11,112 $9,520 $10,533 $22,576
Depreciation, accretion, and amortization (c) $15,038 $15,258 $15,776 $15,986 $16,553
Acquisition and integration adjustments (d) $8,368 $8,033 $16,985 $9,899 $13,415
Adjusted EBITDA $103,330 $117,702 $91,007 $145,105 $106,058
a) Adjusted 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 and non-cash fair value adjustments on pre-acquisition deferred revenues.
Three Months Ended
19 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Gartner Reconciliation Tables
a) Adjusted earnings per share represents GAAP diluted earnings per share adjusted for the impact of certain items directly related to acquisitions and other items.
b) Consists of non-cash amortization charges from acquired intangibles.
c) Consists of directly-related incremental charges and adjustments from acquisitions.
d) The effective tax rates were 28% and 26% for the three months ended March 31, 2017 and 2016, respectively.
e) The EPS is calculated based on 84.1 million shares and 83.5 million shares for the three months ended March 31, 2017 and 2016, respectively.
In $ thousands
GAAP Diluted Earnings
Per Share to Adjusted
Earnings Per Share (a): 3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
Three Months Ended
Total
Amount
EPS
Total
Amount
EPS
Total
Amount
EPS
Total
Amount
EPS
Total
Amount
EPS
GAAP Net Income/ diluted
earnings per share
$44,987 $0.54 $51,626 $0.62 $30,484 $0.36 $66,485 $0.79 $36,433 $0.43
Acquisition adjustments, net of tax
Amortization of acquired
intangibles (b)
$6,089 $0.07 $6,116 $0.07 $6,127 $0.07 $6,089 $0.07 $6,196 $0.07
Acquisition and integration
adjustments (c)
$8,368 $0.10 $8,033 $0.10 $16,985 $0.20 $9,899 $0.12 $13,415 $0.16
Tax impact of adjustments (d) (3,715) (0.04) (2,746) (0.03) (5,371) (0.06) (1,258) (0.01) (5,406) (0.06)
Adjusted Net Income/ earnings
Per Share (e)
$55,729 $0.67 $63,029 $0.76 $48,225 $0.58 $81,215 $0.97 $50,638 $0.60
Weighted average shares
outstanding
83,464 83,476 83,803 83,939 84,095
20 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Gartner Reconciliation Tables
In $ thousands
Cash Provided by Operating Activities to
Free Cash Flow (a)
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
Cash (used) provided by Operating Activities $13,331 $148,452 $120,480 $83,369 $(29,605)
Adjustments:
Cash acquisition and integration payments $11,100 $771 $12,985 $6,575 $17,585
Cash paid for capital expenditures $(6,560) $(18,777) $(11,540) $(12,986) $(10,700)
Free Cash Flow $17,871 $130,446 $121,925 $76,958 $(22,720)
a) Free cash flow is based on cash provided by operating activities determined in accordance with GAAP plus cash acquisition and integration payments less payments for
capital expenditures.
Three Months Ended
21 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
CEB Reconciliation Table
In $ thousands
Reconciliation – Operating
income to Adjusted EBITDA
3/31/2017
Operating Profit (Loss) ($11,314)
Normalizing adjustments:
Other (Expense) Income, Net ($1,458)
Net Non-Operating Foreign Currency Loss (Gain) $1,398
Loss on Other Investments, Net $1,101
Equity Method Investments Loss $67
Depreciation and Amortization $17,908
Business Transformation Costs $5,123
Impact of the Deferred Revenue Fair Value Adjustment $60
Acquisition Related Costs $4,243
CEB Tower Rent $3,817
Restructuring Costs $9,688
Share-Based Compensation $5,238
Adjusted EBITDA $35,871
Three Months Ended
Above results are what CEB would have reported as an independent company
22 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Additional 2017 Guidance Items
$ In millions, unless stated
Stock based compensation $67 -$68
Depreciation $69 - $70
Amortization of intangible assets $196
Effective tax rate (GAAP) 33 – 34%
Effective tax rate (adjusted) 32 – 33%
*CEB Adjusted Revenue
23 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Definitions
Adjusted Revenue: Represents revenue calculated in accordance with GAAP plus 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
Gartner Adjusted EBITDA: Represents GAAP operating income excluding stock-based compensation expense, depreciation
and amortization, accretion on obligations related to excess facilities, acquisition and integration adjustments, and
other charges.
CEB Adjusted EBITDA: refers to net income (loss), excluding: provision for income taxes; interest expense, net; debt
modification costs; net non-operating foreign currency gain (loss); loss on other investments, net; equity method investment
loss; depreciation and amortization; business transformation costs, the impact of the deferred revenue fair value adjustment;
acquisition related costs; CEO non-competition obligation; restructuring costs and share-based compensation.
Adjusted Earnings Per Share: Represents GAAP diluted earnings per share adjusted for the impact of certain items
directly related to acquisitions and other charges.
Free Cash Flow: Represents cash provided by operating activities plus cash acquisition and integration payments less
payments for capital expenditures.
24 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.