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) |
February 6, 2018 |
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 February 6, 2018, Gartner, Inc. (the “Company” or "Gartner" ) announced financial results for the three and twelve months ended December 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 DISCLOSURES.
On February 6, 2018, 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 “Fourth Quarter 2017 Results”). The Company intends to use the Fourth Quarter 2017 Results slides in connection with its conference call that is scheduled for Tuesday, February 6, 2018, regarding the Company’s results for the three and twelve months ended December 31, 2017.
Also on February 6, 2018, Gartner announced that it has reached a definitive agreement to sell its CEB Talent Assessment business as the outcome of its previously announced review of strategic alternatives. A copy of the Company’s Press Release is furnished as Exhibit 99.3 to this Current Report on Form 8-K.
In accordance with General Instruction B.2 of Form 8-K, the information in this Item 7.01 and in Exhibits 99.2 and 99.3 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 February 6, 2018 with respect to financial results for Gartner, Inc. for the three and twelve months ended December 31, 2017. | ||
99.2 | Gartner, Inc. Fourth Quarter 2017 Results slides dated February 6, 2018. | ||
99.3 | Press Release issued February 6, 2018 with respect to a definitive agreement to sell the CEB Talent Assessment business. | ||
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: February 6, 2018 | By: | /s/ Craig W. Safian |
Craig W. Safian Executive Vice President and Chief Financial Officer | ||
EXHIBIT INDEX
EXHIBIT NO. | DESCRIPTION | |
Press Release issued February 6, 2018 with respect to financial results for Gartner, Inc. for the three and twelve months ended December 31, 2017. | ||
Gartner, Inc. Fourth Quarter 2017 Results slides dated February 6, 2018. | ||
Press Release issued February 6, 2018 with respect to a definitive agreement to sell the CEB Talent Assessment business. | ||
EXHIBIT 99.1
Gartner | Press Release |
CONTACT:
David Cohen
GVP, Investor Relations, Gartner
+1 203 316 6631
investor.relations@gartner.com
Gartner Reports Financial Results for Fourth Quarter 2017
Heritage Gartner Total Contract Value up 16% YoY FX Neutral
Heritage Gartner Fourth Quarter Revenue up 15% YOY and 13% YOY FX Neutral
STAMFORD, Conn., February 6, 2018 — Gartner, Inc. (NYSE: IT), the world's leading research and advisory company, today reported results for fourth quarter and full year 2017 and provided its preliminary financial outlook for 2018. The Company also announced today in a separate Press Release that it has reached a definitive agreement to sell its CEB Talent Assessment business as the outcome of its previously announced review of strategic alternatives.
Consolidated Results Highlights
Our consolidated and segment results below for the three and twelve months ended December 31, 2017 include the results of CEB Inc. ("CEB"), which we acquired on April 5, 2017. References to "heritage Gartner" operating results and business measurements refer to Gartner excluding CEB. References to CEB 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 February 6, 2018, and on the Company's website.
The Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law on December 22, 2017. The Tax Act requires numerous changes and modifications with varying effective dates. The significant changes that impact Gartner for 2017 are the remeasurement of deferred taxes in connection with the reduction in the corporate statutory income tax rate from 35% to 21% and a one-time mandatory tax on previously deferred foreign earnings. The provisional net impact of these adjustments increased our net income for both the three and twelve months ended December 31, 2017 by $59.6 million. There are also other provisions of the Tax Act that could materially impact Gartner's results in future years.
For fourth quarter 2017 total revenue was $1.0 billion, an increase of 44% over fourth quarter 2016 as reported and 42% on a foreign exchange neutral basis. Heritage Gartner revenue increased 15% on a reported basis and 13% on a foreign exchange neutral basis. Adjusted revenue was $1.1 billion in fourth quarter 2017. Net income was $107.3 million in fourth quarter 2017, while adjusted EBITDA was $220.9 million, a 52% increase over fourth quarter 2016. GAAP diluted income per share was $1.16 in fourth quarter 2017, which includes a favorable impact from the Tax Act of approximately $0.65 per share, compared to $0.79 per share in fourth quarter 2016. Adjusted EPS was $1.17 per share in fourth quarter 2017 compared to $0.97 in fourth quarter 2016. (See “Non-GAAP Financial Measures” below for definitions of our Non-GAAP measures).
For the twelve months ended December 31, 2017, total revenue was $3.3 billion, an increase of 35% on both a reported and foreign exchange neutral basis. Heritage Gartner revenue increased 14% both as reported and foreign exchange neutral. Net income was $3.3 million in the 2017 period. Adjusted EBITDA was $661.0 million in the twelve months ended December 31, 2017 compared to $457.1 million in the same period of 2016, a 45% increase. GAAP diluted income per share was $0.04, which includes a favorable impact from the Tax Act of approximately $0.66 per share, for the twelve months ended December 31, 2017, compared to $2.31 per share for the prior year. Adjusted EPS was $3.31 per share in the 2017 period compared to $2.96 per share in the 2016 period.
-more-
Gene Hall, Gartner’s chief executive officer, commented, "We delivered another great year. In 2017, we drove strong operating results, we closed and largely integrated CEB, and we took steps to support future growth. I continue to be excited about our business, our prospects for growth and our strategy to drive value to our shareholders over the long term."
Segment Results Highlights
Research
Revenue for fourth quarter 2017 was $692.8 million, up 43% compared to fourth quarter 2016 on a reported basis and 40% on a foreign exchange neutral basis. Heritage Gartner revenue increased 19% reported and 17% on a foreign exchange neutral basis in fourth quarter 2017 compared to fourth quarter 2016. The gross contribution margin was 67% and 68% in fourth quarter 2017 and 2016, respectively. Excluding the deferred revenue fair value adjustment related to our recent acquisitions, the gross contribution margin was 69% in fourth quarter 2017.
Heritage Gartner total contract value was $2.2 billion at December 31, 2017, an increase of 15% on a reported basis and 16% on a foreign exchange neutral basis compared to December 31, 2016. CEB contract value was $557.0 million at December 31, 2017. Heritage Gartner client retention was 84% in both fourth quarter 2017 and 2016, while wallet retention was 106% in fourth quarter 2017 and 104% in fourth quarter 2016. CEB wallet retention was 96% in fourth quarter 2017.
Consulting
Revenue for fourth quarter 2017 was $85.3 million compared to $81.1 million for fourth quarter 2016, an increase of 5% on a reported basis and 3% on a foreign exchange neutral basis. The gross contribution margin was 26% in fourth quarter 2017 and 23% in fourth quarter 2016. Fourth quarter 2017 utilization was 64% compared to 65% in fourth quarter 2016. As of December 31, 2017, billable headcount was 682 compared to 628 at December 31, 2016. Backlog was $95.2 million at December 31, 2017 compared to $88.6 million at December 31, 2016.
Events
Revenue for fourth quarter 2017 was $166.5 million compared to $136.3 million in fourth quarter 2016, an increase of 22% on a reported basis and 20% on a foreign exchange neutral basis. Heritage Gartner revenue increased 7% on a reported basis and 5% on a foreign exchange neutral basis in fourth quarter 2017 compared to fourth quarter 2016. Gross contribution margin was 51% in fourth quarter 2017 compared to 54% in the prior year quarter. The Company held a total of 15 events in the fourth quarter of 2017, with the heritage Gartner events business holding 13 events with 26,649 attendees in fourth quarter 2017 compared to 14 events with 24,080 attendees in fourth quarter 2016. CEB held 2 events with 2,538 attendees in fourth quarter 2017.
Talent Assessment & Other
Revenue for fourth quarter 2017 was $70.0 million while gross contribution margin was 60%.
Cash Flow and Balance Sheet Highlights
The Company generated $254.5 million of cash from operating activities in the twelve months ended December 31, 2017 compared to $365.6 million in the same period in 2016. Free Cash Flow was $264.6 million in the twelve months ended December 31, 2017 compared to $347.2 million in the same period in 2016 (See “Non-GAAP Financial Measures” below for the definition of Free Cash Flow). During 2017, the Company used $2.6 billion (net) in cash for acquisitions, $41.3 million to repurchase its common shares, $110.8 million for capital expenditures, and $120.9 million for acquisition, integration, and other non-recurring items. The Company had $538.9 million of cash and cash equivalents and $558.0 million of additional borrowing capacity under its revolving credit facility as of December 31, 2017.
Gartner, Inc. | page 2 |
Financial Outlook for 2018
The table below provides the Company's preliminary financial outlook for full year 2018:
($ in millions, except per share data) (1) | ||||||||||
2018 Projected Range (2) | ||||||||||
Revenue: | ||||||||||
Research | $ | 3,095 | — | $ | 3,145 | |||||
Consulting | 340 | — | 355 | |||||||
Events | 380 | — | 400 | |||||||
Talent Assessment & Other | 280 | — | 300 | |||||||
Total Revenue (GAAP) | 4,095 | — | 4,200 | |||||||
Deferred revenue fair value adjustment | 10 | — | 10 | |||||||
Total Adjusted Revenue (Non-GAAP) | $ | 4,105 | — | $ | 4,210 | |||||
Operating income (GAAP) | $ | 301 | $ | 351 | ||||||
Adjusted EBITDA (Non-GAAP) | 750 | 800 | ||||||||
Diluted EPS (GAAP) | 1.26 | 1.66 | ||||||||
Adjusted EPS (Non-GAAP) | 3.71 | 4.11 | ||||||||
Operating Cash Flow (GAAP) | $ | 460 | $ | 510 | ||||||
Acquisition, integration, and other non-recurring payments | 126 | 126 | ||||||||
Capital Expenditures | (135 | ) | (145 | ) | ||||||
Free Cash Flow (Non-GAAP) | $ | 451 | $ | 491 | ||||||
(1) See “Non-GAAP Financial Measures” below for definitions of our Non-GAAP metrics.
(2) Includes the Talent Assessment business.
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 income (loss) excluding stock-based compensation expense; depreciation, amortization, and accretion on excess facilities obligations; amortization of adjustments to 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 income adjusted for the impact of certain items directly related to acquisitions and other non-recurring items. These adjustments include the amortization of acquired intangibles; 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; the amortization of fair value adjustments on pre-acquisition deferred revenues; the non-recurring impact from the enactment of the Tax Cuts and Jobs Act of 2017; 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 weighted average diluted shares outstanding. We believe Adjusted EPS is an important measure of our recurring operations as it excludes items that may not be indicative of our core operating results.
Free Cash Flow: Represents cash provided by operating activities determined in accordance with GAAP plus payments for acquisition and integration items directly-related to our acquisitions and certain non-recurring items; 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 Tuesday, February 6, 2018 to discuss the Company’s financial results for fourth quarter and full year 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 888-679-8033 and the international dial-in number is 617-213-4846. The participant passcode is 16094527#. 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 and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their mission-critical priorities and build the successful organizations of tomorrow. Our unmatched combination of expert-led, practitioner-sourced and data-driven research steers clients toward the right decisions on the issues that matter most. We’re trusted as an objective resource and critical partner by more than 12,000 organizations in more than 100 countries — across all major functions, in every industry and enterprise size. To learn more about how we help decision makers fuel the future of business, visit 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 acquisitions and consummate and integrate future acquisitions; our ability to pay our debt; our ability to maintain and expand our products and services; our ability to expand or retain our customer base; our ability to grow or sustain revenue from individual customers; our ability to attract and retain a professional staff of research analysts and consultants as well as experienced sales personnel upon whom we are dependent; our ability to achieve continued customer renewals and achieve new contract value, backlog and deferred revenue growth in light of competitive pressures; our ability to carry out our strategic initiatives and manage associated costs; our ability to successfully compete with existing competitors and potential new competitors; our ability to enforce or protect our intellectual property rights; additional risks associated with international operations including foreign currency fluctuations; the impact of restructuring and other charges on our businesses and operations; general economic conditions; risks associated with the creditworthiness and budget cuts of governments and agencies; the impact of the Tax Cut and Jobs Act of 2017; 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, copies 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 December 31, | Twelve Months Ended December 31, | |||||||||||||||||||||
2017 (a) | 2016 | 2017 (a) | 2016 | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Research (b) | $ | 692,799 | $ | 485,844 | 43 | % | $ | 2,471,280 | $ | 1,857,001 | 33 | % | ||||||||||
Consulting (b) | 85,257 | 81,058 | 5 | % | 327,661 | 318,934 | 3 | % | ||||||||||||||
Events | 166,476 | 136,315 | 22 | % | 337,903 | 268,605 | 26 | % | ||||||||||||||
Talent Assessment & Other | 69,977 | — | 100 | % | 174,650 | — | 100 | % | ||||||||||||||
Total revenues | 1,014,509 | 703,217 | 44 | % | 3,311,494 | 2,444,540 | 35 | % | ||||||||||||||
Costs and expenses: | ||||||||||||||||||||||
Cost of services and product development | 398,378 | 279,063 | 43 | % | 1,320,198 | 945,648 | 40 | % | ||||||||||||||
Selling, general and administrative expense | 465,371 | 289,862 | 61 | % | 1,599,004 | 1,089,184 | 47 | % | ||||||||||||||
Depreciation | 18,260 | 9,782 | 87 | % | 63,897 | 37,172 | 72 | % | ||||||||||||||
Amortization of intangibles | 53,260 | 6,183 | >100% | 176,274 | 24,797 | >100% | ||||||||||||||||
Acquisition and integration charges | 16,346 | 9,640 | 70 | % | 158,450 | 42,598 | >100% | |||||||||||||||
Total costs and expenses | 951,615 | 594,530 | 60 | % | 3,317,823 | 2,139,399 | 55 | % | ||||||||||||||
Operating income (loss) | 62,894 | 108,687 | (42 | )% | (6,329 | ) | 305,141 | >(100)% | ||||||||||||||
Interest (expense), net | (36,312 | ) | (5,822 | ) | >(100)% | (124,936 | ) | (25,116 | ) | >(100)% | ||||||||||||
Other income, net | 1,795 | 3,320 | (46 | )% | 3,448 | 8,406 | (59 | )% | ||||||||||||||
Income (loss) before income taxes | 28,377 | 106,185 | (73 | )% | (127,817 | ) | 288,431 | >(100)% | ||||||||||||||
(Benefit) provision for income taxes | (78,930 | ) | 39,700 | >(100)% | (131,096 | ) | 94,849 | >(100)% | ||||||||||||||
Net income (c) | $ | 107,307 | $ | 66,485 | 61 | % | $ | 3,279 | $ | 193,582 | >(98)% | |||||||||||
Net income per share: (c) | ||||||||||||||||||||||
Basic | $ | 1.18 | $ | 0.80 | 48 | % | $ | 0.04 | $ | 2.34 | (98 | )% | ||||||||||
Diluted | $ | 1.16 | $ | 0.79 | 47 | % | $ | 0.04 | $ | 2.31 | (98 | )% | ||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||
Basic | 90,785 | 82,637 | 10 | % | 88,466 | 82,571 | 7 | % | ||||||||||||||
Diluted | 92,152 | 83,939 | 10 | % | 89,790 | 83,820 | 7 | % | ||||||||||||||
(a) Includes CEB results beginning on April 5, 2017, the date of acquisition. The 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 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 began 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) Net income for both the three and twelve months ended December 31, 2017 includes a favorable impact of approximately $59.6 million due to the Tax Act. As a result, both basic and diluted earnings per share increased by approximately $0.65 for the three months ended December 31, 2017, and for the twelve months ended December 31, 2017, both basic and diluted increased by approximately $0.66 per share.
Gartner, Inc. | page 6 |
BUSINESS SEGMENT DATA |
(Unaudited; in thousands) |
Revenue | Direct Expense | Gross Contribution | Contribution Margin | |||||||||||
Three Months Ended 12/31/17 (a), (b) | ||||||||||||||
Research (c) | $ | 692,799 | $ | 227,690 | $ | 465,109 | 67% | |||||||
Consulting | 85,257 | 63,172 | 22,085 | 26% | ||||||||||
Events | 166,476 | 82,309 | 84,167 | 51% | ||||||||||
Talent Assessment & Other | 69,977 | 28,240 | 41,737 | 60% | ||||||||||
TOTAL | $ | 1,014,509 | $ | 401,411 | $ | 613,098 | 60% | |||||||
Three Months Ended 12/31/16 (b) | ||||||||||||||
Research | $ | 485,844 | $ | 154,509 | $ | 331,335 | 68% | |||||||
Consulting | 81,058 | 62,433 | 18,625 | 23% | ||||||||||
Events | 136,315 | 63,234 | 73,081 | 54% | ||||||||||
Talent Assessment & Other | — | — | — | |||||||||||
TOTAL | $ | 703,217 | $ | 280,176 | $ | 423,041 | 60% | |||||||
Twelve Months Ended 12/31/17 (a), (b) | ||||||||||||||
Research (c) | $ | 2,471,280 | $ | 818,266 | $ | 1,653,014 | 67% | |||||||
Consulting | 327,661 | 234,018 | 93,643 | 29% | ||||||||||
Events | 337,903 | 174,423 | 163,480 | 48% | ||||||||||
Talent Assessment & Other | 174,650 | 84,401 | 90,249 | 52% | ||||||||||
TOTAL | $ | 3,311,494 | $ | 1,311,108 | $ | 2,000,386 | 60% | |||||||
Twelve Months Ended 12/31/16 (b) | ||||||||||||||
Research | $ | 1,857,001 | $ | 571,390 | $ | 1,285,611 | 69% | |||||||
Consulting | 318,934 | 229,200 | 89,734 | 28% | ||||||||||
Events | 268,605 | 131,950 | 136,655 | 51% | ||||||||||
Talent Assessment & Other | — | — | — | |||||||||||
TOTAL | $ | 2,444,540 | $ | 932,540 | $ | 1,512,000 | 62% | |||||||
(a) Includes CEB results beginning on April 5, 2017, the date of acquisition. The 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 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 began 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% for both the three and twelve months ended December 31, 2017 excluding the deferred revenue fair value adjustment resulting from our recent acquisitions.
Gartner, Inc. | page 7 |
SELECTED STATISTICAL DATA (unaudited)
Heritage Gartner | CEB | |||||||||||||||
December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | |||||||||||||
Research | ||||||||||||||||
Total contract value (a), (b) | $ | 2,213 | $ | 1,930 | $ | 557 | $ | 549 | ||||||||
Client retention | 84 | % | 84 | % | na | na | ||||||||||
Wallet retention | 106 | % | 104 | % | 96 | % | 90 | % | ||||||||
Client enterprises | 11,904 | 11,122 | na | na | ||||||||||||
Consulting | ||||||||||||||||
Backlog (c), (d) | $ | 95,200 | $ | 88,600 | na | na | ||||||||||
Quarterly utilization | 64 | % | 65 | % | na | na | ||||||||||
Quarterly billable headcount | 682 | 628 | na | na | ||||||||||||
Average annualized revenue per billable headcount (c) | $ | 371 | $ | 372 | na | na | ||||||||||
Events | ||||||||||||||||
Number of events for the quarter (e) | 13 | 14 | 2 | 2 | ||||||||||||
Number of attendees for the quarter (e) | 26,649 | 24,080 | 2,538 | 1,635 | ||||||||||||
(a) In millions.
(b) The 2016 CEB contract value was calculated based on Gartner's 2017 foreign exchange rates.
(c) In thousands.
(d) The December 31, 2016 heritage Gartner consulting backlog was restated to reflect the reclassification of the SAS business.
(e) Excludes single day, local events.
na - not applicable or not available.
Selected Balance Sheet Data (Unaudited; in thousands):
December 31, | ||||||||
2017 (a) | 2016 | |||||||
Cash and cash equivalents | $ | 538,908 | $ | 474,233 | ||||
Fees receivable, net | 1,176,843 | 643,013 | ||||||
Total assets | 7,283,173 | 2,367,335 | ||||||
Deferred revenues | 1,630,198 | 989,478 | ||||||
Total current and long-term debt (b) | 3,278,845 | 694,391 | ||||||
Total liabilities | 6,299,708 | 2,306,457 | ||||||
Total stockholders’ equity | $ | 983,465 | $ | 60,878 | ||||
(a) Certain accounts exclude held-for-sale balances.
(b) Net of deferred financing fees.
Selected Cash Flow Data (Unaudited; in thousands):
Twelve Months Ended December 31, | ||||||||
2017 | 2016 | |||||||
Cash provided by operating activities | $ | 254,517 | $ | 365,632 | ||||
Cash paid for capital expenditures | (110,765 | ) | (49,863 | ) | ||||
Cash paid for treasury stock | (41,273 | ) | (58,961 | ) | ||||
Cash paid for acquisitions, net | (2,634,809 | ) | (34,186 | ) | ||||
Cash paid for acquisition, integration, and other non-recurring items | (120,874 | ) | (31,431 | ) | ||||
Cash receipts (payments) on debt and debt fees, net | $ | 2,569,391 | $ | (124,975 | ) | |||
Gartner, Inc. | page 8 |
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 (Unaudited; in thousands):
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
GAAP total revenue | $ | 1,014,509 | $ | 703,217 | $ | 3,311,494 | $ | 2,444,540 | ||||||||
Deferred revenue fair value adjustment (a) | 50,085 | — | 205,425 | — | ||||||||||||
Adjusted Revenue | $ | 1,064,594 | $ | 703,217 | $ | 3,516,919 | $ | 2,444,540 | ||||||||
(a) The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.
Reconciliation - Operating Income (Loss) to Adjusted EBITDA (Unaudited; in thousands):
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
GAAP net income | $ | 107,307 | $ | 66,485 | $ | 3,279 | $ | 193,582 | ||||||||
Interest expense, net | 36,312 | 5,822 | 124,936 | 25,116 | ||||||||||||
Other income, net | (1,795 | ) | (3,320 | ) | (3,448 | ) | (8,406 | ) | ||||||||
Tax (benefit) provision | (78,930 | ) | 39,700 | (131,096 | ) | 94,849 | ||||||||||
Operating income (loss) | 62,894 | 108,687 | (6,329 | ) | 305,141 | |||||||||||
Adjustments: | ||||||||||||||||
Stock-based compensation expense (a) | 8,972 | 10,533 | 61,303 | 46,661 | ||||||||||||
Depreciation, accretion, and amortization (b) | 71,802 | 15,986 | 240,900 | 62,057 | ||||||||||||
Amortization of pre-acquisition deferred revenues (c) | 50,085 | — | 205,425 | — | ||||||||||||
Acquisition & integration charges and other non-recurring items (d) | 27,173 | 9,899 | 159,680 | 43,285 | ||||||||||||
Adjusted EBITDA | $ | 220,926 | $ | 145,105 | $ | 660,979 | $ | 457,144 | ||||||||
(a) Consists of charges for stock-based compensation awards.
(b) Includes depreciation expense, accretion on excess facilities obligations, and amortization of intangibles.
(c) Consists of the amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.
(d) Consists of incremental and directly-related charges from acquisitions and other non-recurring items.
Gartner, Inc. | page 9 |
Reconciliation - GAAP Net Income to Adjusted Net Income and Adjusted EPS (Unaudited; in thousands, except per share amounts):
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
GAAP net income | $ | 107,307 | $ | 66,485 | $ | 3,279 | $ | 193,582 | ||||||||
Acquisition and other adjustments: | ||||||||||||||||
Amortization of acquired intangibles (a) | 53,260 | 6,089 | 175,992 | 24,421 | ||||||||||||
Amortization of pre-acquisition deferred revenues (b) | 50,085 | — | 205,425 | — | ||||||||||||
Acquisition & integration charges and other non-recurring items (c), (d) | 29,034 | 9,899 | 174,310 | 43,285 | ||||||||||||
Impact of the Tax Cuts and Jobs Act of 2017 (e) | (59,599 | ) | — | (59,599 | ) | — | ||||||||||
Tax impact of adjustments (f) | (72,044 | ) | (1,258 | ) | (201,773 | ) | (13,090 | ) | ||||||||
Adjusted net income | $ | 108,043 | $ | 81,215 | $ | 297,634 | $ | 248,198 | ||||||||
Diluted shares | 92,152 | 83,939 | 89,790 | 83,820 | ||||||||||||
Adjusted EPS (g) | $ | 1.17 | $ | 0.97 | $ | 3.31 | $ | 2.96 | ||||||||
(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 twelve months ended December 31, 2017, which is recorded in Interest expense, net in the Consolidated Statement of Operations and in the Adjusted EBITDA table presented above.
(e) Consists of the provisional, non-recurring net income tax benefit from the reduction of certain deferred tax liabilities and the repatriation tax on foreign earnings resulting from the Tax Cuts and Jobs Act of 2017.
(f) The effective tax rate was 54% and 36% for the three and twelve months ended December 31, 2017, respectively, and 8% and 19% for the three and twelve months ended December 31, 2016, respectively.
(g) Calculated by dividing Adjusted net income by the weighted average diluted shares outstanding for the respective period.
Reconciliation - GAAP Cash Provided by Operating Activities to Free Cash Flow (a) (Unaudited; in thousands):
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
GAAP cash provided by operating activities | $ | 22,250 | $ | 83,369 | $ | 254,517 | $ | 365,632 | ||||||||
Adjustments: | ||||||||||||||||
Plus: cash paid for acquisition, integration, and other non-recurring items | 27,270 | 6,575 | 120,874 | 31,431 | ||||||||||||
Less: cash paid for capital expenditures | (35,146 | ) | (12,986 | ) | (110,765 | ) | (49,863 | ) | ||||||||
Free Cash Flow | $ | 14,374 | $ | 76,958 | $ | 264,626 | $ | 347,200 | ||||||||
# # #
Gartner, Inc. | page 10 |
0 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Fourth Quarter 2017 Results
February 6, 2018
1 CONFIDENTIAL AND PROPRIETARY I © 2018 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 acquisitions, and consummate and integrate future acquisitions; the ability to pay Gartner’s debt
obligations, 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;
the impact of the Tax Cut and Jobs Act of 2017; 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 February 6, 2018 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 "Heritage Gartner" operating results and business measurements refer to Gartner excluding CEB.
Disclaimer & Explanatory Note
2 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Highlights: Fourth Quarter 2017
Heritage Gartner Total FX Neutral CV
Growth of 16%
y/y improvements in both client and wallet
retention metrics with strong productivity growth
Adjusted EBITDA of $221M
Adjusted Earnings Per Share of $1.17Total Combined Adjusted Revenue
Growth of 11%
13% y/y FX neutral growth for Heritage
Gartner business
3 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Overview: Fourth Quarter 2017
a) Please refer to appendix slides for definition of non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
b) Net Debt is calculated by subtracting total cash of $549M from total outstanding debt of $3,323M as of Q4’17. Total cash includes a $10M unrestricted cash balance,
which is classified as a held for sale asset
In $ millions (unless stated) Q4’16 (Combined) Q4’17 YOY Change
Total Adjusted Revenue (a) 960 1,065 11%
Adjusted EBITDA (a) 217 221 2%
Adjusted Diluted Earnings Per Share (a) N/A $1.17 N/M
Free Cash Flow (a) 105 14 -86%
12 Month Rolling Free Cash Flow Conversion 122% 112% N/M
Net Debt (b) 229 2,774 1111%
Net Debt/Adjusted LTM EBITDA 0.5x 4.0x N/M
4 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Research: Fourth Quarter 2017
Heritage Gartner Research:
Total FX neutral contract value
growth of 16%
Adjusted FX neutral revenue
growth of 17%
New business growth of 23% year-
on-year
Average Spend per Enterprise of
$186K, up 8% year-on-year on an
FX neutral basis
a) Please refer to appendix slides for definition of non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
b) CEB total contract value recast at 2017 FX rates
In $ millions (unless stated) Q4’16 Q4’17 YOY Change
Research Combined Adjusted Revenue (a) 641 732 14%
Combined Adjusted Gross Contribution (a) 441 504 14%
Combined Adjusted Gross Contribution Margin (a) 69% 69% +20 bps
Total Contract Value (Heritage Gartner) 1,903 2,213 16%
CEB Total Contract Value (b) 549 557 2%
Client Retention (Heritage Gartner) 84% 84% +70 bps
Wallet Retention (Heritage Gartner) 104% 106% +125 bps
Wallet Retention (CEB) 90% 96% +550 bps
# of Client Enterprises (Heritage Gartner) 11,122 11,904 7%
5 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Heritage Gartner Research Highlights
Direct Quota Bearing Headcount FX Neutral Sales Productivity*
$116K
$105K$104K
$99K$101K
Q4’17Q2’17Q1’17Q4’16 Q3’17
*Excludes L2
2,807
2,716
2,574
2,4602,423
Q3’17Q4’16 Q4’17Q1’17 Q2’17
6 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Events: Fourth Quarter 2017
a) Please refer to appendix slides for definition of non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
b) Includes Heritage Gartner and CEB destination events
On a same-events basis, Heritage
Gartner Event business adjusted
revenues increased 8% and 6%
year-on-year in Q4 2017 on a
reported and FX neutral basis,
respectively
Heritage Gartner Events held 13
events in Q4 2017, with 12% year-
on-year increase in same event
attendees
CEB held 2 destination events in Q4
2017
In $ millions (unless stated) Q4’16 (Combined) Q4’17 YOY Change
Events Adjusted Revenue (a) 160 169 5%
Adjusted Gross Contribution (a) 87 86 -1%
Adjusted Contribution Margin (a) 55% 51% -330 bps
Number of Events (b) 14 15 1
Events Attendees (b) 25,715 29,187 14%
7 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Consulting: Fourth Quarter 2017
137134128125123
Q4’17
+11%
Q3’17Q2’17Q1'17Q4'16
9591918989
Q3’17
+7%
Q4’17Q2’17Q1’17Q4’16
Managing Partners Consulting Backlog* ($M)
* No longer includes backlog associated with Strategic Advisory Services (SAS)
Continued investment in Managing
Partners, up 11% compared to
Q4 2016
Backlog increased by 7% and 9%
year-on-year on a reported and FX
neutral basis in Q4 2017,
respectively
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
In $ millions (unless stated) Q4’16 (Combined) Q4’17 YOY Change
Consulting Adjusted Revenue (a) 81 85 5%
Adjusted Gross Contribution (a) 19 22 19%
Adjusted Contribution Margin (a) 23% 26% +300 bps
Quarterly Utilization Rate 65% 64% -60 bps
Billable Headcount 629 682 8%
Avg. Annualized Rev. per
Billable Headcount ($ thousands)
372 371 -30 bps
8 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Talent Assessment & Other: Fourth Quarter 2017
Talent Assessment & Other includes
CEB's previously disclosed Talent
Assessment business as well as
certain CEB non-subscription based
talent products and services
• Following a strategic review, the
company signed a definitive
agreement to divest the biggest
component of the Talent Assessment
segment. The transaction is
expected to close in the first half of
the year with a purchase price of
around $400 million.
a) Please refer to appendix slides for definition of non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
In $ millions (unless stated) Q4’16 (Combined) Q4’17 YOY Change
Talent Assessment & Other
Adjusted Revenue (a)
78 79 2%
Adjusted Gross Contribution (a) 46 51 11%
Adjusted Contribution Margin (a) 59% 64% +550 bps
9 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Cash Flow Highlights: Fourth Quarter 2017
• The decrease to Operating and Free
cash flow on a comparable basis
versus prior year is due to higher
interest and capex
• In addition, there was a one-time,
$40 million impact from the timing of
billings, which is expected to reverse
in the first half of 2018
• Our business model continues to
convert Free Cash Flow in excess of
Adjusted Net Income on a combined
basis
In $ millions (unless stated) Q4’16 (Combined) Q4’17 YOY Change
Adjusted EBITDA 217 221 2%
Operating Cash Flow 119 22 -81%
- Capital Expenditures (21) (35) 68%
+ Cash Acquisition and
Integration Payments
7 27 320%
= Free Cash Flow 105 14 -86%
12 Month Rolling Free Cash
Flow Conversion
122% 112% N/M
10 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Net Debt* / EBITDA Ratio
Balance Sheet and Capital Structure: Fourth Quarter 2017
*Net Debt in Leverage Ratio calculated using LTM of Adjusted EBITDA of $697M of Adjusted EBITDA
Revolver capacity was $558M as of the end of 4Q17
66% of gross debt has fixed interest rates
Total cash includes a $10M unrestricted cash balance, which is classified as a held for sale asset
-$0.5B
-$1.2B
-$0.6B -$0.6B -$0.5B
$0.7B
$1.7B
$3.5B $3.4B $3.3B
1Q17
$0.4B
$0.2B
4Q16 4Q17
$2.8B
2Q17 3Q17
$2.9B $2.8B
DebtCash
Net Debt ($B)
4.0x4.0x4.1x
0.9x
0.5x
1Q174Q16 2Q17 3Q17 4Q17
Completed
acquisition of CEB in
April 2017
11 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
2018 Guidance
In $ millions, except per share amounts 2018 Guidance Range
Research adjusted revenue 3,100 - 3,150
Consulting adjusted revenue 340 - 355
Events adjusted revenue 380 - 400
Talent Assessment & Other adjusted revenue 285 - 305
Total Adjusted Revenue 4,105 - 4,210
Adjusted EBITDA 750 - 800
Adjusted Diluted Earnings Per Share $3.71 - $4.11
Fully Diluted Number of Shares 93
Operating Cash Flow 460 - 510
Acquisition and Integration Payments 126
Capital Expenditures (135) - (145)
Free Cash Flow 451 - 491
Please refer to appendix slides for definition of non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
12 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Additional 2018 Guidance Items
In $ millions, unless stated
Stock-based compensation 73 - 74
Depreciation 80 - 81
Amortization of intangible assets 190
Effective tax rate (GAAP) 27 - 28%
Effective tax rate (adjusted) 26%
13 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
$0.31
$(1.59)
$0.94
$1.49
GAAP and Adjusted EPS 2018 Outlook
~$0.08
~$0.83
~$1.54
$1.26 – $1.66
Adjusting items calculated at the midpoint of guidance range
Amortization of
Acquired
Intangibles
GAAP EPS
Guidance
Range
Acquisition and
Integration and
Other Non-
Recurring Items
Pre-Acquisition
Deferred Revenues
Adjusted EPS
Guidance Range
$3.71 – $4.11
14 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Appendix
15 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Adjusted Revenue Reconciliation – 2018 Guidance
a) Please refer to appendix slides for definition of non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
In $ millions 2018 GAAP Revenue Guidance
Deferred Revenue Fair
Value Adjustment
2018 Adjusted
Revenue
Research revenue 3,095 - 3,145 5 - 5 3,100 - 3,150
Consulting revenue 340 - 355 - 340 - 355
Events revenue 380 - 400 - 380 - 400
Talent Assessment & Other 280 - 300 5 - 5 285 - 305
Total Revenue 4,095 - 4,200 10 - 10 4,105 - 4,210
16 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Operating Income (Loss) to
Adjusted EBITDA(a) Reconciliation
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 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
In $ thousands Q4’16 (Combined) Q4’17
Operating income (Loss) 67,258 62,894
Normalizing adjustments:
Stock-based compensation expense (b) 16,239 8,972
Depreciation, accretion, and amortization (c) 41,371 71,802
Amortization of pre-acquistion deferred revenues (d) 2,911 50,085
Acquisition and integration charges and other
nonrecurring items (e)
11,376 27,173
Other charges (f) 77,608
Adjusted EBITDA 216,763 220,926
17 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Adjusted Earnings Per Share(a): Fourth Quarter 2017
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) Consists of the provisional, non-recurring net income tax benefit from the reduction of certain deferred tax liabilities and the repatriation tax on foreign earnings resulting from the Tax Cuts and Jobs Act of 2017
f) The effective tax rate was 54% and 36% for the three and twelve months ended December 31, 2017, respectively, and 8% and 19% for the three and twelve months ended December 31, 2016
g) Calculated by dividing Adjusted net income by the weighted average diluted shares outstanding for the respective period
In $ thousands, except per share amounts
Three Months Ended
31-Dec-17
Net Income (Loss) 107,307
Acquisition and other adjustments:
Amortization of acquired intangibles (b) 53,260
Amortization of pre-acquisition deferred revenues (c) 50,085
Acquisition and integration charges and other
nonrecurring items (d)
29,034
Impact of Tax Cuts and Jobs Act of 2017 (e) (59,599)
Tax impact of adjustments (f) (72,044)
Adjusted net income 108,043
Adjusted diluted earnings per share (g): $1.17
Weighted average shares outstanding:
92
Diluted (in millions)
18 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Operating Cash Flow to Free Cash Flow(a) Reconciliation
a) Represents cash provided by operating activities determined in accordance with GAAP plus payments for acquisition and integration items directly-related to our acquisitions and certain nonrecurring items; less
payments for capital expenditures
In $ thousands Q4’16 (Combined) Q4’17
Cash provided by operating activities 119,220 22,250
Normalizing adjustments:
Cash paid for acquisition and integration 6,575 27,270
Cash paid for capital expenditures (20,952) (35,146)
Free Cash Flow 104,843 14,374
19 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Adjusted Segments
Three Months Ended
December 31, 2016
Combined(a)
Three Months Ended
December 31, 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 Heritage 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 641,235 (212) 641,447 200,490 440,957 69%
Consulting 81,058 - 81,058 62,433 18,625 23%
Events 157,180 (2,653) 159,833 72,650 87,183 55%
Talent Assessment & Other 77,894 - 77,894 32,042 45,852 59%
TOTAL 957,367 (2,865) 960,232 367,615 592,617 62% 216,763
In $ thousands GAAP Revenue
Deferred Revenue Fair
Value Adjustment
Adjusted Revenue
Direct
Expense
Adjusted
Gross
Contribution
Adjusted
Contribution
Margin
Adjusted
EBITDA
Research 692,799 38,674 731,473 227,690 503,782 69%
Consulting 85,257 - 85,257 63,172 22,085 26%
Events 166,476 2,240 168,716 82,309 86,407 51%
Talent Assessment & Other 69,977 9,172 79,149 28,240 50,908 64%
TOTAL 1,014,509 50,085 1,064,594 401,412 663,182 62% 220,926
20 CONFIDENTIAL AND PROPRIETARY I © 2018 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 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; the non-recurring impact
from the enactment of the Tax Cuts and Jobs Act of 2017; and other non-recurring items.
Adjusted EPS: Represents Adjusted Net Income divided by the weighted average diluted shares outstanding.
Free Cash Flow: Represents cash provided by operating activities determined in accordance with GAAP plus payments for acquisition
and integration items directly-related to our acquisitions and certain nonrecurring items; less payments for capital expenditures.
Adjusted Gross Contribution: Adjusted Revenue less Direct Expenses.
Adjusted Gross Margin: Adjusted Gross Contribution divided by Adjusted Revenue.
21 CONFIDENTIAL AND PROPRIETARY I © 2018 Gartner, Inc. and/or its affiliates. All rights reserved.
Press Release
FOR IMMEDIATE RELEASE
CONTACTS:
Media: Investors;
Andrew Spender David Cohen
Gartner Gartner
+1 203 316 3286 +1 203 316 6631
andrew.spender@gartner.com david.cohen@gartner.com
Gartner Signs Definitive Agreement to Sell CEB Talent Assessment to Exponent for $400
Million
STAMFORD, Conn., February 6, 2018 — Gartner, Inc. (NYSE: IT), the world’s leading research and
advisory company, today announced that it has reached a definitive agreement to sell CEB Talent
Assessment to Exponent Private Equity, a UK-based private equity firm, for $400 million. The
agreement comes at the end of a previously announced process to evaluate strategic alternatives for
CEB Talent Assessment, formerly SHL, which was acquired by Gartner as part of the CEB acquisition
in 2017. The transaction is expected to close in the first half of 2018 and is subject to customary closing
conditions.
CEB Talent Assessment is a leading global provider of talent assessment solutions. CEB Talent
Assessment’s best-in-class product portfolio of science-based assessment tools, benchmark data,
predictive technologies and consultancy services drive business results by equipping organizations to
assess, select, and develop the right people for the right roles. “While CEB Talent Assessment is a
recognized leader in an expanding marketplace with significant growth opportunities, we determined
that it was not aligned with our core focus of providing research and advisory services to address the
mission-critical priorities of every functional leader in the enterprise,” said Gene Hall, CEO Gartner.
“This transaction with Exponent is a positive step for CEB Talent Assessment clients and associates as
it represents an opportunity to bring a renewed focus on the business to better support innovation,
product development and long-term growth.”
The purchase price is subject to typical adjustments for, among other things, the working capital of the
business. Gartner intends to use the majority of the proceeds to repay debt, and remains committed to
reaching its leverage targets in-line with its existing plan. The valuation for the business is approximately
10.5x trailing twelve month EBITDA through December 31, 2017. Gartner expects the divestiture would
be about $0.17 dilutive to its 2018 adjusted earnings per share on a full year basis.
About Gartner
Gartner, Inc. (NYSE: IT), is the world’s leading research and advisory company and a member of the
S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their
mission-critical priorities and build the successful organizations of tomorrow.
Our unmatched combination of expert-led, practitioner-sourced and data-driven research steers clients
toward the right decisions on the issues that matter most. We’re trusted as an objective resource and
critical partner by more than 12,000 organizations in more than 100 countries—across all major
functions, in every industry and enterprise size. To learn more about how we help decision makers fuel
the future of business, visit www.gartner.com.
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