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) |
October 31, 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 November 2, 2017, Gartner, Inc. (the “Company” or "Gartner" ) announced financial results for the three and nine months ended September 30, 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 5.02. DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS.
On October 31, 2017, the Board of Directors (the “Board”) of Gartner, Inc. (the “Company”) elected Ms. Eileen Serra as a director, effective immediately. Ms. Serra has been a Senior Advisor of JPMorgan Chase & Co. since 2016, focusing on strategic growth initiatives across Chase Consumer and Community Banking businesses. From 2012 to 2016, she served as the CEO of Chase Card Services. Prior to joining Chase Card Services in 2006, Ms. Serra was a Managing Director at Merrill Lynch. She was a Senior Vice President at American Express and a partner at McKinsey & Company earlier in her career. Ms. Serra currently serves on the boards of Women’s Refugee Commission and Family Promise. As a director, Ms. Serra will participate in the compensation program applicable to all non-employee directors, which is described under the heading “The Board of Directors - Compensation of Directors” in the Company’s definitive proxy statement on Schedule 14A, filed with the Securities and Exchange Commission on April 10, 2017. Ms. Serra has not yet been named to a Board committee.
ITEM 7.01. REGULATION FD DISCLOSURE.
On November 2, 2017, Gartner made available on its website at www.gartner.com the slide presentation furnished as Exhibit 99.2 to this Current Report on Form 8-K (the “Third Quarter 2017 Results”). The Company intends to use the Third Quarter 2017 Results slides in connection with its conference call that is scheduled for Thursday, November 2, 2017, regarding the Company’s results for the three and nine months ended September 30, 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 November 2, 2017 with respect to financial results for Gartner, Inc. for the three and nine months ended September 30, 2017. | ||
99.2 | Gartner, Inc. Third Quarter 2017 Results slides dated November 2, 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: November 2, 2017 | By: | /s/ Craig W. Safian |
Craig W. Safian Executive Vice President and Chief Financial Officer | ||
EXHIBIT INDEX
EXHIBIT 99.1
Gartner | Press Release |
CONTACT:
Germaine Scott
+1 203 316 6537
investor.relations@gartner.com
Gartner Reports Financial Results for Third Quarter 2017
Total Contract Value up 15% YoY FX Neutral Excluding CEB
Third Quarter Revenue up 15% YOY and 14% YOY FX Neutral Excluding CEB
STAMFORD, Conn., November 2, 2017 — Gartner, Inc. (NYSE: IT), the world's leading research and advisory company, today reported results for third quarter 2017. Gartner also updated its financial outlook for full year 2017.
Our consolidated and segment results below for the three and nine months ended September 30, 2017 include the results of CEB Inc. ("CEB"), which we acquired on April 5, 2017. References below to "traditional Gartner" operating results and business measurements refer to Gartner excluding CEB. References to CEB below refer to the operating results and business measurements of CEB subsequent to the acquisition. Our commentary below regarding the impact of CEB is supplemented by a slide presentation which is available as Exhibit 99.2 to the Company's Current Report on Form 8-K furnished to the SEC on November 2, 2017, and on the Company's website.
Consolidated Results Highlights
For third quarter 2017, total revenue was $828.1 million, an increase of $254.0 million, or 44% over third quarter 2016 as reported and up 43% on a foreign exchange neutral basis. Traditional Gartner revenue increased 15% on a reported basis and 14% on a foreign exchange neutral basis. Adjusted revenue was $891.7 million in third quarter 2017. Net loss was $(48.2) million in third quarter 2017 and operating loss was $(24.3) million. Adjusted EBITDA was $149.0 million in third quarter 2017, a 64% increase over third quarter of 2016. GAAP diluted (loss) per share was $(0.53) in third quarter 2017 compared to GAAP income per share of $0.36 in third quarter 2016. Adjusted EPS was $0.65 per share in third quarter 2017 compared to $0.58 in third quarter 2016. (See “Non-GAAP Financial Measures” below for definitions of our Non-GAAP measures).
For the nine months ended September 30, 2017, total revenue was approximately $2.3 billion, an increase of 32% on both a reported and foreign exchange neutral basis. Traditional Gartner revenue increased 14% on both a reported and foreign exchange neutral basis. Net loss was $(104.0) million in the 2017 period. Adjusted EBITDA was $440.1 million in the nine months ended September 30, 2017 compared to $312.0 million in the same period of 2016, a 41% increase. GAAP diluted (loss) per share was $(1.19) and GAAP diluted income per share was $1.52 for the nine months ended September 30, 2017 and 2016, respectively. Adjusted EPS was $2.13 per share in the 2017 period compared to $1.99 per share in the 2016 period.
Gene Hall, Gartner’s chief executive officer, commented, “Our business continues to perform extraordinarily well. Our traditional Gartner business again achieved double-digit contract value growth in every geography, across every client size and in virtually every industry. We’ve successfully integrated CEB’s talented associates into Gartner and are already delivering value to our clients through a “best of both” approach. I remain extremely excited about our long-term prospects for growth and delivering shareholder value.”
-more-
Segment Results Highlights
Research
Revenue for third quarter 2017 was $653.4 million, up 40% compared to third quarter 2016 on a reported basis and 38% on a foreign exchange neutral basis. The gross contribution margin was 67% and 69% in third quarter 2017 and 2016, respectively. Adjusting for the deferred revenue fair value adjustment related to CEB, the gross contribution margin was 69% in third quarter 2017. Traditional Gartner revenue increased 18% on a reported basis and 16% on a foreign exchange neutral basis in third quarter 2017 compared to third quarter 2016.
Traditional Gartner total contract value was $2.1 billion at September 30, 2017, an increase of 14% on a reported basis and 15% on a foreign exchange neutral basis compared to September 30, 2016. CEB contract value was $571.0 million at September 30, 2017. Traditional Gartner client retention was 83% in both third quarter 2017 and 2016, while wallet retention was 104% in both third quarter 2017 and 2016. CEB wallet retention was 93% in both third quarter 2017 and 2016.
Consulting
Revenue for third quarter 2017 was $72.1 million compared to $73.7 million for third quarter 2016, a decline of 2% on a reported basis and 3% on a foreign exchange neutral basis. The gross contribution margin was 22% and 25% in third quarter 2017 and 2016, respectively. Third quarter 2017 utilization was 61% compared to 63% in third quarter 2016. As of September 30, 2017, billable headcount was 682 compared to 630 at September 30, 2016. Backlog was $91.4 million at September 30, 2017 compared to $89.9 million at September 30, 2016.
Events
Revenue for third quarter 2017 was $45.0 million compared to $33.5 million in third quarter 2016, an increase of $11.5 million, or 34% on a reported basis and 31% on a foreign exchange neutral basis. Traditional Gartner revenue increased 25% on a reported basis and 22% on a foreign exchange neutral basis in third quarter 2017 compared to third quarter 2016. Gross contribution margin was 36% in third quarter 2017 compared to 43% in the prior year quarter. The Company held a total of 17 events in the third quarter of 2017, with the Gartner traditional events business holding 16 events with 10,075 attendees in third quarter 2017 compared to 15 events with 7,431 attendees in third quarter 2016. CEB held 1 event with 565 attendees in third quarter 2017.
Talent Assessment & Other
The Talent Assessment & Other segment is a new reporting segment for the Company resulting from the CEB acquisition. Revenue for third quarter 2017 was $57.6 million while gross contribution margin was 54%. On October 4, 2017, the Company announced that it has initiated a process to explore and evaluate strategic alternatives for its Talent Assessment business, which is a significant portion of the Talent Assessment & Other segment. As part of this process, the Company intends to consider a range of strategic options, which may include, among other things, a sale of the Talent Assessment business.
Cash Flow and Balance Sheet Highlights
The Company generated $232.3 million of cash from operating activities in the nine months ended September 30, 2017 compared to cash generated of $282.3 million in the same period in 2016. Free Cash Flow was $250.3 million in the nine months ended September 30, 2017 compared to $270.2 million in the same period in 2016 (See “Non-GAAP Financial Measures” below for the definition of Free Cash Flow). During the nine months ended September 30, 2017, the Company used $2.6 billion in cash (net) for acquisitions, $37.2 million to repurchase its common shares, $75.6 million for capital expenditures, and $93.6 million for acquisition and integration payments. The Company had $630.0 million of cash and cash equivalents and $534.0 million of additional borrowing capacity under its revolving credit facility as of September 30, 2017.
Gartner, Inc. | page 2 |
Financial Outlook for 2017
The table below, which includes CEB, provides the Company's updated financial outlook for full year 2017:
($ in millions, except per share data) (1) | ||||||||||
2017 Projected Range | ||||||||||
Revenue (GAAP): | ||||||||||
Research | $ | 2,455 | — | $ | 2,480 | |||||
Consulting | 320 | — | 335 | |||||||
Events | 323 | — | 338 | |||||||
Talent Assessment & Other | $ | 159 | — | $ | 174 | |||||
Total Revenue (GAAP) | $ | 3,257 | — | $ | 3,327 | |||||
Deferred Revenue Fair Value Adjustment (Non-GAAP) | 203 | — | 203 | |||||||
Total Adjusted Revenue (Non-GAAP) | $ | 3,460 | — | $ | 3,530 | |||||
Operating income (GAAP) | $ | 14 | $ | 39 | ||||||
Diluted EPS (GAAP) | $ | (0.85 | ) | $ | (0.65 | ) | ||||
Adjusted EBITDA (Non-GAAP) | $ | 685 | — | $ | 710 | |||||
Adjusted EPS (Non-GAAP) | $ | 3.39 | $ | 3.50 | ||||||
Operating Cash Flow (GAAP) | $ | 335 | $ | 345 | ||||||
Acquisition and Integration Payments | 115 | 125 | ||||||||
Capital Expenditures | (115 | ) | (125 | ) | ||||||
Free Cash Flow (Non-GAAP) | $ | 335 | $ | 345 | ||||||
(1) See “Non-GAAP Financial Measures” below for definitions of our Non-GAAP metrics.
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 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 (loss) income excluding stock-based compensation expense; depreciation, amortization, and accretion on obligations related to excess facilities; amortization of pre-acquisition deferred revenues; acquisition and integration charges; and other non-recurring items. We believe Adjusted EBITDA is an important measure of our recurring operations as it excludes items not representative of our core operating results.
Gartner, Inc. | page 3 |
Adjusted Net Income: Represents GAAP net (loss) income adjusted for the impact of certain items directly related to acquisitions and other non-recurring items. These adjustments include the amortization of identifiable intangibles from acquisitions; incremental and directly-related acquisition and integration charges related to the achievement of certain performance targets and employment conditions, as well as legal, consulting, severance, and other costs; fair value adjustments on pre-acquisition deferred revenues; and 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 number of Non-GAAP diluted shares. 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 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 repay debt obligations, repurchase our stock, 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.
Conference Call Information
Gartner has scheduled a conference call at 8:00 a.m. eastern time on Thursday, November 2, 2017 to discuss the Company’s financial results for third 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 888-680-0879 and the international dial-in number is 617-213-4856. The participant passcode is 79608857#. 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.
About Gartner
Gartner, Inc. (NYSE: IT) is the world’s leading research and advisory company. The Company helps business leaders across all major functions in every industry and enterprise size with the objective insights they need to make the right decisions. Gartner's 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 more than 14,000 associates serving clients in over 11,000 enterprises in approximately 100 countries. For more information, visit www.gartner.com.
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 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 recent CEB acquisition and other acquisitions, as well as 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, and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, both of 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2017 (a) | 2016 | 2017 (a) | 2016 | ||||||||||||||||||
Revenues: | |||||||||||||||||||||
Research (b) | $ | 653,443 | $ | 466,877 | 40 | % | $ | 1,778,481 | $ | 1,371,157 | 30 | % | |||||||||
Consulting (b) | 72,117 | 73,707 | (2 | )% | 242,404 | 237,876 | 2 | % | |||||||||||||
Events | 44,953 | 33,475 | 34 | % | 171,427 | 132,290 | 30 | % | |||||||||||||
Talent Assessment & Other | 57,572 | — | 100 | % | 104,673 | — | 100 | % | |||||||||||||
Total revenues | 828,085 | 574,059 | 44 | % | 2,296,985 | 1,741,323 | 32 | % | |||||||||||||
Costs and expenses: | |||||||||||||||||||||
Cost of services and product development | 332,207 | 223,122 | 49 | % | 921,820 | 666,585 | 38 | % | |||||||||||||
Selling, general and administrative expense | 421,163 | 269,902 | 56 | % | 1,133,633 | 799,322 | 42 | % | |||||||||||||
Depreciation | 17,340 | 9,531 | 82 | % | 45,637 | 27,390 | 67 | % | |||||||||||||
Amortization of intangibles | 51,224 | 6,221 | >100% | 123,014 | 18,614 | >100% | |||||||||||||||
Acquisition and integration charges | 30,500 | 16,557 | 84 | % | 142,104 | 32,958 | >100% | ||||||||||||||
Total costs and expenses | 852,434 | 525,333 | 62 | % | 2,366,208 | 1,544,869 | 53 | % | |||||||||||||
Operating (loss) income | (24,349 | ) | 48,726 | >-100% | (69,223 | ) | 196,454 | >-100% | |||||||||||||
Interest expense, net | (38,762 | ) | (5,932 | ) | >100% | (88,624 | ) | (19,294 | ) | >100% | |||||||||||
Other income, net | 1,171 | 1,954 | (40 | )% | 1,653 | 5,086 | (67 | )% | |||||||||||||
(Loss) income before income taxes | (61,940 | ) | 44,748 | >-100% | (156,194 | ) | 182,246 | >-100% | |||||||||||||
(Benefit) provision for income taxes | (13,760 | ) | 14,264 | >-100% | (52,166 | ) | 55,149 | >-100% | |||||||||||||
Net (loss) income | $ | (48,180 | ) | $ | 30,484 | >-100% | $ | (104,028 | ) | $ | 127,097 | >-100% | |||||||||
Net (loss) income per share: | |||||||||||||||||||||
Basic | $ | (0.53 | ) | $ | 0.37 | >-100% | $ | (1.19 | ) | $ | 1.54 | >-100% | |||||||||
Diluted | $ | (0.53 | ) | $ | 0.36 | >-100% | $ | (1.19 | ) | $ | 1.52 | >-100% | |||||||||
Weighted average shares outstanding: | |||||||||||||||||||||
Basic | 90,624 | 82,638 | 10 | % | 87,585 | 82,549 | 6 | % | |||||||||||||
Diluted | 90,624 | 83,803 | 8 | % | 87,585 | 83,761 | 5 | % | |||||||||||||
(a) Includes the results of CEB beginning on April 5, 2017, the date of acquisition. The Company's Research segment includes the results of CEB's core subscription-based best practice and decision support research activities. Events includes the results of CEB's former Evanta business and destination event activities, while the Talent Assessment & Other segment, which is a new segment, includes the results of CEB's previously disclosed Talent Assessment business as well as certain CEB non-subscription based talent products and services.
(b) Effective June 30, 2017, the Company is reporting the results of its strategic advisory services ("SAS") business in the Research segment whereas previously the SAS business was reported with Consulting. The impact of the reclassification was not significant, however prior periods have been updated to conform to the current period presentation.
BUSINESS SEGMENT DATA |
(Unaudited; in thousands) |
Revenue | Direct Expense | Gross Contribution | Contribution Margin | |||||||||||
Three Months Ended 9/30/17 (a), (b) | ||||||||||||||
Research (c) | $ | 653,443 | $ | 217,221 | $ | 436,222 | 67% | |||||||
Consulting | 72,117 | 55,929 | 16,188 | 22% | ||||||||||
Events | 44,953 | 28,942 | 16,011 | 36% | ||||||||||
Talent Assessment & Other | 57,572 | 26,357 | 31,215 | 54% | ||||||||||
TOTAL | $ | 828,085 | $ | 328,449 | $ | 499,636 | 60% | |||||||
Three Months Ended 9/30/16 (b) | ||||||||||||||
Research | $ | 466,877 | $ | 144,231 | $ | 322,646 | 69% | |||||||
Consulting | 73,707 | 55,492 | 18,215 | 25% | ||||||||||
Events | 33,475 | 18,946 | 14,529 | 43% | ||||||||||
Talent Assessment & Other | — | — | — | —% | ||||||||||
TOTAL | $ | 574,059 | $ | 218,669 | $ | 355,390 | 62% | |||||||
Nine Months Ended 09/30/17 (a), (b) | ||||||||||||||
Research | $ | 1,778,481 | $ | 590,575 | $ | 1,187,906 | 67% | |||||||
Consulting | 242,404 | 170,846 | 71,558 | 30% | ||||||||||
Events | 171,427 | 92,114 | 79,313 | 46% | ||||||||||
Talent Assessment & Other | 104,673 | 56,161 | 48,512 | 46% | ||||||||||
TOTAL | $ | 2,296,985 | $ | 909,696 | $ | 1,387,289 | 60% | |||||||
Nine Months Ended 09/30/16 (b) | ||||||||||||||
Research | $ | 1,371,157 | $ | 416,881 | $ | 954,276 | 70% | |||||||
Consulting | 237,876 | 166,766 | 71,110 | 30% | ||||||||||
Events | 132,290 | 68,716 | 63,574 | 48% | ||||||||||
Talent Assessment & Other | — | — | — | —% | ||||||||||
TOTAL | $ | 1,741,323 | $ | 652,363 | $ | 1,088,960 | 63% | |||||||
(a) Includes the results of CEB beginning on April 5, 2017, the date of acquisition. The Company's Research segment includes the results of CEB's core subscription-based best practice and decision support research activities. Events includes the results of CEB's former Evanta business and destination event activities, while the Talent Assessment & Other segment, which is a new segment, includes the results of CEB's previously disclosed Talent Assessment business as well as certain CEB non-subscription based talent products and services.
(b) Effective June 30, 2017, the Company is now reporting the results of its strategic advisory services ("SAS") business in the Research segment whereas previously the SAS business was reported with Consulting. The impact of the reclassification was not significant, however prior periods have been updated to conform to the current period presentation.
(c) The Research gross contribution margin was 69% in third quarter 2017 when adjusted for the deferred revenue fair value adjustment resulting from the CEB acquisition.
SELECTED STATISTICAL DATA (unaudited)
Traditional Gartner | CEB | ||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||
Research | |||||||||||||||
Total contract value (a), (b) | $ | 2,063 | $ | 1,815 | $ | 571 | $ | 578 | |||||||
Client retention | 83 | % | 83 | % | na | na | |||||||||
Wallet retention | 104 | % | 104 | % | 93 | % | 93 | % | |||||||
Client enterprises | 11,338 | 10,673 | na | na | |||||||||||
Consulting | |||||||||||||||
Backlog (c), (d) | $ | 91,400 | $ | 89,900 | na | na | |||||||||
Quarterly utilization | 61 | % | 63 | % | na | na | |||||||||
Billable headcount | 682 | 630 | na | na | |||||||||||
Average annualized revenue per billable headcount (c) | $ | 355 | $ | 368 | na | na | |||||||||
Events | |||||||||||||||
Number of events for the quarter (e) | 16 | 15 | 1 | 1 | |||||||||||
Number of attendees for the quarter (e) | 10,075 | 7,431 | 565 | 767 | |||||||||||
(a) In millions.
(b) The 2016 CEB contract value was calculated based on Gartner's 2017 foreign exchange rates.
(c) In thousands.
(d) The September 30, 2016 traditional Gartner $89.9 million backlog was restated to reflect the reclassification of the SAS business.
(e) Excludes single day, local events.
na - not applicable or not available.
SUPPLEMENTAL INFORMATION
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 (a) (Unaudited; in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Total Revenue (GAAP) | $ | 828,085 | $ | 574,059 | $ | 2,296,985 | $ | 1,741,323 | ||||||||
Deferred Revenue Fair Value Adjustment | 63,655 | — | 155,340 | — | ||||||||||||
Adjusted Revenue | $ | 891,740 | $ | 574,059 | $ | 2,452,325 | $ | 1,741,323 | ||||||||
(a) The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.
Reconciliation - Operating (Loss) Income to Adjusted EBITDA (Unaudited; in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
GAAP net (loss) income | $ | (48,180 | ) | $ | 30,484 | $ | (104,028 | ) | $ | 127,097 | ||||||
Interest expense, net | 38,762 | 5,932 | 88,624 | 19,294 | ||||||||||||
Other expense (income), net | (1,171 | ) | (1,954 | ) | (1,653 | ) | (5,086 | ) | ||||||||
Tax (benefit) provision | (13,760 | ) | 14,264 | (52,166 | ) | 55,149 | ||||||||||
Operating (loss) income | $ | (24,349 | ) | $ | 48,726 | $ | (69,223 | ) | $ | 196,454 | ||||||
Adjustments: | ||||||||||||||||
Stock-based compensation expense (a) | 13,198 | 9,520 | 52,331 | 36,128 | ||||||||||||
Depreciation, accretion, and amortization (b) | 68,960 | 15,776 | 169,098 | 46,071 | ||||||||||||
Amortization of pre-acquisition deferred revenues (c) | 63,655 | — | 155,340 | — | ||||||||||||
Acquisition & integration charges and other nonrecurring items (d) | 27,523 | 16,985 | 132,507 | 33,386 | ||||||||||||
Adjusted EBITDA | $ | 148,987 | $ | 91,007 | $ | 440,053 | $ | 312,039 | ||||||||
(a) Consists of charges for stock-based compensation awards.
(b) Includes depreciation expense, accretion on excess facilities accruals, 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 customer contract.
(d) Consists of incremental and directly-related charges related to acquisitions and other non-recurring items.
Reconciliation - GAAP Net (Loss) Income to Adjusted Net Income and Adjusted EPS (Unaudited; in thousands, except per share amounts):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
GAAP net (loss) income | $ | (48,180 | ) | $ | 30,484 | $ | (104,028 | ) | $ | 127,097 | ||||||
Acquisition and other adjustments: | ||||||||||||||||
Amortization of acquired intangibles (a) | 51,130 | 6,127 | 122,732 | 18,332 | ||||||||||||
Amortization of pre-acquisition deferred revenues (b) | 63,655 | — | 155,340 | — | ||||||||||||
Acquisition & integration charges and other nonrecurring items (c) (d) | 31,282 | 16,985 | 145,276 | 33,386 | ||||||||||||
Tax impact of adjustments (e) | (38,371 | ) | (5,371 | ) | (129,729 | ) | (11,832 | ) | ||||||||
Adjusted net income | $ | 59,516 | $ | 48,225 | $ | 189,591 | $ | 166,983 | ||||||||
GAAP basic shares | 90,624 | 82,638 | 87,585 | 82,549 | ||||||||||||
Potentially dilutive shares (f) | 1,423 | 1,165 | 1,393 | 1,212 | ||||||||||||
Non-GAAP diluted shares (f) | 92,047 | 83,803 | 88,978 | 83,761 | ||||||||||||
Adjusted EPS | $ | 0.65 | $ | 0.58 | $ | 2.13 | $ | 1.99 | ||||||||
(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 for both the three and nine months ended September 30, 2017 which is recorded in Interest expense, net in the Consolidated Statement of Operations and in the Adjusted EBITDA table presented above.
(e) The effective tax rate was 26% and 31% for the three and nine months ended September 30, 2017, respectively, and 23% for both the three and nine months ended September 30, 2016.
(f) Non-GAAP diluted shares includes basic shares calculated in accordance with GAAP and potentially dilutive shares related to the Company's stock-based compensation awards.
Reconciliation - Cash Provided by Operating Activities to Free Cash Flow (a) (Unaudited; in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Cash provided by operating activities | $ | 149,549 | $ | 120,480 | $ | 232,267 | $ | 282,263 | ||||||||
Adjustments: | ||||||||||||||||
Cash paid for acquisition and integration activities (a) | 28,504 | 12,985 | 93,604 | 24,856 | ||||||||||||
Cash paid for capital expenditures | (33,992 | ) | (11,540 | ) | (75,619 | ) | (36,877 | ) | ||||||||
Free Cash Flow | $ | 144,061 | $ | 121,925 | $ | 250,252 | $ | 270,242 | ||||||||
(a) Consists of payments for activities that are incremental and directly-related to our acquisitions.
# # #
0 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Third Quarter 2017 Results
November 2, 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 the CEB acquisition, other acquisitions and consummate acquisitions in the future; the ability to pay Gartner’s debt
obligations, which have increased substantially with the 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 November 2, 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.
In this presentation, we include “Combined” numbers that, for periods prior to our acquisition of CEB (unless expressly noted otherwise), reflect
numerical addition of the results of Gartner and CEB for each line item and do not include all the adjustments required with respect to the
presentation of pro forma financial information under GAAP and the rules and regulations of the SEC. Accordingly, these “Combined” numbers are
non-GAAP, but are provided because Gartner believes they are useful in comparing performance of Gartner following the CEB acquisition with
performance of Gartner and CEB independently prior to Gartner’s acquisition of CEB. These Combined numbers should be read together with the
historical financial statements of Gartner and CEB included in their respective quarterly reports on Form 10-Q and annual reports on Form 10-K, and
the pro forma financial statements included in Exhibit 99.1 to Gartner’s Current Report on Form 8-K filed with the SEC on April 6, 2017 and footnote
2 to Gartner’s Current Report on Form 10-Q for the period ended September 30, 2017.
References in this presentation to "Traditional Gartner" operating results and business measurements refer to Gartner excluding CEB.
Disclaimer & Explanatory Note
2 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Third Quarter 2017: Highlights
Traditional Gartner Total FX Neutral CV
Growth of 15%
y/y improvements in both client and wallet
retention metrics with strong productivity growth
Adjusted EBITDA of $149M
Combined Free Cash Flow Conversion
Rate of 139%
on a comparable basis
Adjusted Earnings Per Share of $0.65
above the high end of guidance range
Total Combined Adjusted Revenue
Growth of 11%
15% y/y FX neutral growth for traditional
Gartner business
Combined Free Cash Flow Growth of 14%
3 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ millions (unless stated) Q3’17
Q3’16
(Combined) YOY Growth
Total Adjusted Revenue (a) $891.7 $805.4 +11%
Operating Income (Loss) $(24.3) $66.3 nm
Adjusted EBITDA (a) $149.0 $150.7 -1%
Diluted Earnings (Loss) Per Share $(0.53) -
Adjusted Diluted Earnings Per Share (a) $0.65 -
Operating Cash Flow $149.5 $129.1 +16%
Free Cash Flow (a) $144.1 $126.1 +14%
12 Month Rolling Free Cash Flow Conversion (b) 121% 128%
Net Debt (c) $2,758
Net Debt/Adjusted LTM EBITDA 4.0x
Third Quarter 2017: Overview
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
b) On a combined basis, 12 month rolling free cash flow conversion would have been 139% through Q3’17
c) Net Debt is calculated by subtracting total cash of $630M from total outstanding debt of $3,388M as of Q3’17
4 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ millions (unless stated) Q3’17 Q3’16 YOY Change
Combined Adjusted Research Revenue (a) $701.2 $619.1 +13%
Combined Adjusted Gross Contribution (a) $483.9 $432.4 +12%
Combined Adjusted Gross Contribution
Margin (a)
69% 70% -80 bps
Total Contract Value (Traditional Gartner) $2,063 $1,815 +14%
CEB Total Contract Value (b) $571 $578 -1%
Client Retention (Traditional Gartner) 83% 83% +70 bps
Wallet Retention (Traditional Gartner) 104% 104% +80 bps
Wallet Retention (CEB) 93% 93% -30 bps
# of Client Enterprises (Traditional Gartner) 11,338 10,673 +6%
Third Quarter 2017: Research
Traditional Gartner Total FX Neutral
Contract Value growth of 15%
Traditional Gartner Research
adjusted FX neutral revenue growth
of 16%
Traditional Gartner new business
growth of 11% year-on-year
Average Spend per Enterprise of
$182K, up 8% year-on-year on an
FX neutral basis
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
b) CEB total contract value recast at 2017 FX rates
5 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Traditional Gartner Research Highlights
Direct Quota Bearing Headcount FX Neutral Sales Productivity*
*Excluding L2, sales productivity increased 18% year over year and increased 1% on a sequential basis.
Sales productivity at reported rates was $100K and $107K for Q3’16-Q4’16, respectively.
Q3’17Q3’16 Q4’16 Q2’17Q1’17
2,331 2,423
2,460 2,574
2,716
Q2’17Q1’17 Q3’17Q4’16Q3’16
$116K$114K
$105K
$99K
$117K
6 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ millions (unless stated) Q3'17
Q3'16
(Combined) YOY Growth
Adjusted Events Revenue (a) $45.1 $36.2 +25%
Adjusted Gross Contribution (a) $16.2 $12.8 +27%
Adjusted Contribution Margin (a) 36% 35% +40 bps
Number of Events (b) 17 16 -
Events Attendees 10,640 8,198 +30%
Third Quarter 2017: Events
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
b) Includes Traditional Gartner and CEB destination events
On a same-events basis, Traditional
Gartner Event business adjusted
revenues increased 18% and 15%
year-on-year in Q3 2017 on a
reported and FX neutral basis,
respectively
Traditional Gartner Events held 16
events in Q3 2017, with 21% year-
on-year increase in same event
attendees
CEB held one destination event in
Q3 2017 (ReimagineHR)
7 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ millions (unless stated) Q3'17
Q3'16
(Combined) YOY Change
Adjusted Consulting Revenue (a) $72.1 $73.7 -2%
Adjusted Gross Contribution (a) $16.2 $18.2 -11%
Adjusted Contribution Margin (a) 22% 25% -230 bps
Quarterly Utilization Rate 61% 63% -150 bps
Billable Headcount 682 630 +8%
Avg. Annualized Rev. per Billable Headcount
($ Thousands)
$355 $368 -4%
Third Quarter 2017: Consulting
134128125123115
Q2’17Q1'17Q4'16Q3'16
+17%
Q3’17
9191898990
Q2’17Q1’17Q4’16Q3’16 Q3’17
+2%
Managing Partners Consulting Backlog* ($M)
* No longer includes backlog associated with Strategic Advisory Services (SAS)
Continued investment in Managing
Partners, up 17% compared to
Q3 2016
Backlog increased by 3% year-on-
year on an FX-neutral basis in Q3
2017
Backlog represents approximately
4 months of forward coverage, in
line with operational target
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
8 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ millions (unless stated) Q3'17
Q3'16
(Combined) YOY Growth
Adjusted Talent Assessment & Other Revenue (a) $73.4 $76.4 -4%
Adjusted Gross Contribution (a) $47.0 $45.0 +4%
Adjusted Contribution Margin (a) 64% 59% +520 bps
Third Quarter 2017: Talent Assessment & Other
Talent Assessment & Other includes
CEB's previously disclosed Talent
Assessment business as well as
certain CEB non-subscription based
talent products and services
• On October 4, 2017, the Company
announced that it has initiated a
process to explore and evaluate
strategic alternatives for the Talent
Assessment business, which is a
substantial part of the Talent
Assessment & Other segment
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
9 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Third Quarter 2017: Adjusted Earnings Per Share(a)
In $ thousands, except per share amounts
Three Months Ended
September 30, 2017
Net Income (Loss) $(48,180)
Acquisition adjustments, net of tax effect:
Amortization of acquired intangibles (b) $51,130
Amortization of pre-acquisition deferred revenues (c) $63,655
Acquisition and integration charges and other nonrecurring items (d) (e) $31,282
Tax impact of adjustments (f) $(38,371)
Adjusted net income $59,516
Adjusted diluted earnings per share (g): $0.65
Weighted average shares outstanding:
Diluted (in millions) 92.0
a) Adjusted earnings per share represents GAAP diluted earnings per share adjusted for the per share impact of certain items directly-related to acquisitions and other items
b) Consists of non-cash amortization charges from acquired 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 related to acquisitions and other non-recurring items
e) Includes the amortization and write-off of deferred financing fees for both the three and nine months ended September 30, 2017 which is recorded in Interest expense, net in the Consolidated Statement of Operations and in the
Adjusted EPS table presented above
f) The effective tax rate was 26% for the three months ended September 30, 2017
g) The adjusted diluted EPS is calculated based on 92.0 million shares for the three months ended September 30, 2017
10 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ millions Q3'17
Q3'16
(Combined) YOY Change
Adjusted EBITDA $149.0 $150.7 -1%
Operating Cash Flow $149.5 $129.1 +16%
- Capital Expenditures $(34.0) $(16.0)
+ Cash Acquisition and
Integration Payments
$28.5 $13.0
= Free Cash Flow $144.1 $126.1 +14%
Free Cash Flow Conversion* 121% 128%
Third Quarter 2017: Cash Flow Highlights
*On a combined basis, 12 month rolling free cash flow conversion would have been 139% through Q3’17
On a comparable basis, Q3 2017
operating cash flow growth was 16%
year-on-year, driven by the strong
performance of traditional Gartner
research in Q3 2017
On a comparable basis, free cash
flow increased by 14% year-on-year
driven by higher operating cash flow
Our business model continues to
convert Free Cash Flow well in
excess of Adjusted Net Income
11 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
$745 $703 $1,658
$3,468 $3,388
$(466) $(474)
$(1,228)
$(589) $(630)
3Q16 4Q16 1Q17 2Q17 3Q17
Total Debt Cash
Net Debt ($M)
0.7x
0.5x
0.9x
4.1x 4.0x
3Q16 4Q16 1Q17 2Q17 3Q17
Net Debt* / EBITDA Ratio
Third Quarter 2017: Balance Sheet and Capital Structure
$279 $229
$430
*Q3’17 Net Debt Leverage Ratio calculated using LTM of Adjusted EBITDA of $692.7M
Revolver capacity was $534M as of the end of Q3’17
65% of gross debt has fixed interest rates
$2,758$2,879
12 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Fiscal Year 2017
Outlook
13 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Updated 2017 Guidance
In $ millions, except per share amounts Updated 2017 Guidance Range*
Research revenue $2,455 - $2,480
Consulting revenue $320 - $335
Events revenue $323 - $338
Talent Assessment & Other $159 - $174
Total Revenue (GAAP) $3,257 - $3,327
Deferred Revenue Fair Value Adjustment $203 - $203
Total Adjusted Revenue $3,460 - $3,530
Operating Income $14 - $39
Adjusted EBITDA $685 - $710
Diluted Earnings (Loss) Per Share (GAAP) $(0.85) - $(0.65)
Adjusted Diluted Earnings Per Share $3.39 - $3.50
Fully Diluted Number of Shares 89.9 - 90.5
Operating Cash Flow $335 - $345
Acquisition and Integration Payments $115 - $125
Capital Expenditures $(115) - $(125)
Free Cash Flow $335 - $345
*2017 guidance is based on 12 months of traditional Gartner results plus 9 months of CEB results
14 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
GAAP to Adjusted Revenue Guidance Reconciliation
In $ millions
2017 GAAP Revenue
Guidance
Deferred Revenue Fair
Value Adjustment
2017 Adjusted Revenue
Guidance
Research revenue $2,455 - $2,480 $145 - $145 $2,600 - $2,625
Consulting revenue $320 - $335 - $320 - $335
Events revenue $323 - $338 $7 - $7 $330 - $345
Talent Assessment & Other $159 - $174 $51 - $51 $210 - $225
Total Revenue $3,257 - $3,327 $203 - $203 $3,460 - $3,530
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
15 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
$0.31
$(1.59)
$0.94
$1.49
Reconciliation of 2017 Adjusted to GAAP EPS Outlook
~$(1.29)
~$(1.38)
~$(1.53)
$3.39 – $3.50
**Adjusting items calculated at the midpoint of guidance range
Amortization of
Pre-Acquisition
Deferred Revenue
Adjusted EPS
Guidance
Range
Amortization
of Acquired
Intangibles Acquisition and
Integration and Other
Non-Recurring Items
$(0.85) – $(0.65)
GAAP EPS
Guidance Range
16 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Appendix
17 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 $65 - $66
Depreciation $65 - $66
Amortization of intangible assets $183
Effective tax rate (GAAP) 33 - 34%
Effective tax rate (adjusted) 31 - 32%
18 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Operating Income (Loss) to Adjusted EBITDA(a)
Reconciliation
In $ thousands
Q3’17
Q3’16
(Combined)(g)
Operating income (Loss) $(24,349) $66,288
Normalizing adjustments:
Stock-based compensation expense (b) $13,198 $14,413
Depreciation, accretion, and amortization (c) $68,960 $40,676
Amortization of pre-acquisition deferred revenues (d) $63,655 $1,535
Acquisition and integration charges and other nonrecurring items (e) $27,523 $17,396
Other charges (f) $10,368
Adjusted EBITDA $148,987 $150,676
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. The depreciation and amortization amounts do not include any fair value adjustments as a result of the acquisition
d) 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
e) Consists of incremental and directly-related charges related to acquisitions and other non-recurring items
f) Primarily consists of restructuring costs, real estate and business transformation costs, equity investment losses and non-operating foreign currency impact related to the acquired CEB business
g) Please refer to Exhibit 99.2 filed with Form 8-K on August 8, 2017 for a breakdown of the combined amounts into the Traditional Gartner and CEB components
19 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Operating Cash Flow to Free Cash Flow(a) Reconciliation
In $ thousands
Q3’17
Q3’16
(Combined)
Cash provided by operating activities $149,549 $129,063
Adjustments:
Cash paid for acquisition and integration $28,504 $12,985
Cash paid for capital expenditures $(33,992) $(15,986)
Free Cash Flow $144,061 $126,062
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
20 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Adjusted Segments
Three Months Ended
September 30, 2016
Combined(a)
In $ thousands GAAP Revenue
Deferred
Revenue Fair
Value
Adjustment
Adjusted
Revenue Direct Expense
Adjusted Gross
Contribution
Adjusted
Contribution
Margin
Adjusted
EBITDA
Research $653,443 $47,725 $701,168 $217,221 $483,947 69%
Consulting $72,117 $0 $72,117 $55,929 $16,188 22%
Events $44,953 $147 $45,100 $28,942 $16,158 36%
Talent Assessment &
Other
$57,572 $15,783 $73,355 $26,357 $46,997 64%
TOTAL $828,085 $63,655 $891,740 $328,449 $563,290 63% $148,987
Three Months Ended
September 30, 2017
As Reported
a) Please refer to Exhibit 99.2 filed with Form 8-K on August 8, 2017 for a breakdown of the combined amounts into the Traditional Gartner and CEB components
In $ thousands GAAP Revenue
Deferred
Revenue Fair
Value
Adjustment
Adjusted
Revenue Direct Expense
Adjusted Gross
Contribution
Adjusted
Contribution
Margin
Adjusted
EBITDA
Research $618,636 $429 $619,065 $186,660 $432,405 70%
Consulting $73,707 $0 $73,707 $55,492 $18,215 25%
Events $35,119 $1,106 $36,225 $23,392 $12,833 35%
Talent Assessment &
Other $76,441 $0 $76,441 $31,449 $44,992 59%
TOTAL $803,903 $1,535 $805,438 $296,993 $508,445 63% $150,676
21 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Definitions
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.
Adjusted EBITDA: Represents GAAP operating (loss) income excluding stock-based compensation expense; depreciation,
amortization, and accretion on obligations related to excess facilities; amortization of pre-acquisition deferred revenues; acquisition and
integration charges; and other non-recurring items.
Adjusted Net Income: Represents GAAP net (loss) income adjusted for the impact of certain items directly related to acquisitions and
other non-recurring items. These adjustments include the amortization of identifiable intangibles from acquisitions; incremental and
directly-related acquisition and integration charges related to the achievement of certain performance targets and employment
conditions, as well as legal, consulting, severance, and other costs; fair value adjustments on pre-acquisition deferred revenues; and
other non-recurring items.
Adjusted EPS: Represents Adjusted Net Income divided by the number of Non-GAAP diluted shares.
Free Cash Flow: Represents cash provided by operating activities determined in accordance with GAAP plus cash acquisition and
integration payments less payments for capital expenditures.
Adjusted Gross Contribution: Adjusted Revenue less Direct Expenses.
Adjusted Gross Margin: Adjusted Gross Contribution divided by Adjusted Revenue.
22 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.