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Gartner Reports Financial Results for Second Quarter 2017

STAMFORD, Conn.--(BUSINESS WIRE)--Gartner, Inc. (NYSE:IT), the world's leading research and advisory company, today reported results for second quarter 2017. Gartner also provided a revised financial outlook for full year 2017 and announced an update to its reporting segments as a result of its recently completed CEB Inc. ("CEB") acquisition.

Acquisition of CEB and Changes In Reportable Segments

On April 5, 2017, Gartner completed its previously announced acquisition of CEB. Our consolidated operating results below for the three and six months ended June 30, 2017 include the results of CEB beginning on the acquisition date. The Company provides commentary below regarding the impact of CEB for the three and six months ended June 30, 2017. In addition, the Company has provided a slide presentation with supplemental information which is available as Exhibit 99.2 to the Company's Current Report on Form 8-K furnished to the SEC on August 8, 2017 and on the Company's website. References to "traditional Gartner" operating results and business measurements below refer to Gartner excluding CEB. References to "CEB" below refer to the operating results and business measurements of CEB subsequent to the acquisition.

With the CEB acquisition, Gartner is reporting four business segments reflecting the Company’s enlarged scale and breadth of advisory services. The Company’s reportable segments are as follows:

  • Research - includes our previous Gartner Research segment as well as the results of CEB’s core subscription-based best practice and decision support research activities. In addition, Research now includes our Strategic Advisory Services ("SAS") business, which was previously included in the Consulting segment.
  • Consulting - includes our previous Gartner Consulting segment except, as noted above, the results of our SAS business are now included in the Research segment.
  • Events - includes the results of our previous Gartner Events segment and the results of CEB’s former Evanta business and destination event activities.
  • Talent Assessment & Other - this is a new segment for Gartner and it includes CEB's previously disclosed Talent Assessment business as well as certain CEB non-subscription based talent products and services.

Consolidated Results Highlights

For second quarter 2017, total revenue was $843.7 million, an increase of $233.7 million, or 38% over second quarter 2016 as reported and up 40% on a foreign exchange neutral basis. Traditional Gartner revenue increased 13% on a reported basis and 15% on a foreign exchange neutral basis. Adjusted revenue was $935.3 million in second quarter 2017. Net (loss) was $(92.3) million in second quarter 2017, while Adjusted EBITDA was $185.0 million. GAAP diluted (loss) earnings per share was $(1.03) in second quarter 2017 compared to $0.62 in second quarter 2016. Adjusted EPS was $0.88 per share in second quarter 2017 compared to $0.75 in second quarter 2016. (See “Non-GAAP Financial Measures” below for definitions of our Non-GAAP measures). For second quarter 2016, both the previously reported GAAP diluted earnings per share and Adjusted EPS have increased due to the Company's early adoption of FASB Accounting Standards Update (ASU) No. 2016-09 in 2016 (see below for additional explanation).

For the six months ended June 30, 2017, total revenue was approximately $1.5 billion, an increase of $301.6 million compared to the same period in 2016, or 26% as reported and 27% on a foreign exchange neutral basis. Traditional Gartner revenue increased 13% as reported and 14% adjusted for the foreign exchange impact. Net (loss) was $(55.8) million in the 2017 period while Adjusted EBITDA was $291.1 million. GAAP diluted (loss) earnings per share was $(0.65) per share and $1.15 per share for the six months ended June 30, 2017 and 2016, respectively. Adjusted EPS was $1.49 per share in the 2017 period compared to $1.42 per share in the 2016 period. Both the previously reported GAAP diluted earnings per share and Adjusted EPS for 2016 have increased due to the adoption of ASU No. 2016-09.

Gene Hall, Gartner’s chief executive officer, commented, “Gartner delivered another quarter of double-digit growth in the second quarter of 2017. The integration of Gartner and CEB is going extraordinarily well and gives us a quantum leap in capability. In our first 120 days, we’ve integrated our organizations, launched new products, introduced new commercial terms, and accelerated sales force hiring. And we’re not slowing down. Our outlook for long term growth remains incredibly strong.”

Business Segment Highlights

Research

Revenue for second quarter 2017 was $613.7 million, up 34% compared to second quarter 2016 on a reported basis and 33% on a foreign exchange neutral basis. The gross contribution margin was 65% and 70% in second quarter 2017 and 2016, respectively. Adjusting for the deferred revenue fair value adjustment related to CEB, the gross contribution margin was 68% in second quarter 2017. Traditional Gartner revenue increased 15% on a reported basis in second quarter 2017 and 16% on a foreign exchange neutral basis compared to second quarter 2016.

Traditional Gartner total contract value was approximately $2.0 billion at June 30, 2017, an increase of 14% on a reported basis and 15% on a foreign exchange neutral basis compared to June 30, 2016. CEB contract value was $578.0 million at June 30, 2017. Traditional Gartner client retention was 83% in both second quarter 2017 and 2016, while wallet retention was 105% in second quarter 2017 and 104% in second quarter 2016. CEB wallet retention was 94% and 93% in second quarter 2017 and 2016, respectively.

Consulting

Revenue for second quarter 2017 was $91.7 million compared to $86.5 million for second quarter 2016, an increase of 6% on a reported basis and 8% on a foreign exchange neutral basis. The gross contribution margin was 34% and 33% in second quarter 2017 and 2016, respectively. Second quarter 2017 utilization was 65% compared to 69% in second quarter 2016. As of June 30, 2017, billable headcount was 667 compared to 626 at June 30, 2016. Backlog was $91.0 million at June 30, 2017 compared to $93.3 million at June 30, 2016.

Events

Revenue for second quarter 2017 was $91.2 million compared to $66.8 million in the second quarter 2016, an increase of $24.4 million, or 37% on both a reported and foreign exchange neutral basis. Traditional Gartner revenue increased 13% on both a reported basis and foreign exchange neutral basis in second quarter 2017 compared to second quarter 2016. Gross contribution margin was 55% in second quarter 2017 compared to 54% in the prior year quarter. The Company held a total of 26 events in the second quarter of 2017, with the Gartner traditional events business holding 25 events with 18,064 attendees in second quarter 2017 compared to 25 events with 15,451 attendees in second quarter 2016. CEB held 1 event with 475 attendees in second 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 second quarter 2017 was $47.1 million while gross contribution margin was 37%.

Cash Flow and Balance Sheet Highlights

The Company generated $82.7 million of cash from operating activities in the six months ended June 30, 2017 compared to cash generated of $161.8 million in the same period in 2016. Free Cash Flow was $106.2 million in the six months ended June 30, 2017 compared to $148.3 million in same period in 2016 (See “Non-GAAP Financial Measures” below for the definition of Free Cash Flow). During the six months ended June 30, 2017, the Company used $2.6 billion (net) in cash for acquisitions, $33.8 million to repurchase its common shares, $41.6 million for capital expenditures, and $65.1 million for acquisition and integration payments. The Company had $589.3 million of cash and cash equivalents and 5.0 million of additional borrowing capacity under its revolving credit facility as of June 30, 2017.

Impact of the Adoption of FASB ASU No. 2016-09 on our Previously Reported 2016 Numbers

In the third quarter of 2016, the Company early adopted Financial Accounting Standards Board Update 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU No. 2016-09"), which changed the accounting for stock-based compensation awards. The accounting changes required by ASU No. 2016-09 were applied to the beginning of the Company's 2016 fiscal year, and as a result certain...


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