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)
August 2, 2013
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):
| £ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| £ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| £ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| £ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On August 2, 2013, Gartner, Inc. (the “Company”) announced financial results for the three and six months ended June 30, 2013. A copy of the Company’s press release is furnished 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 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
| (d) | Exhibits |
| EXHIBIT NO. | DESCRIPTION | |
|
99.1
|
Press Release issued August 2, 2013 with respect to financial results for Gartner, Inc. for the three and six months ended June 30, 2013. |
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: August 2, 2013 | By: | /s/ Christopher J. Lafond |
| Christopher J. Lafond Executive Vice President, Chief Financial Officer | ||
EXHIBIT INDEX
| EXHIBIT NO. | DESCRIPTION | |
| 99.1 | Press Release issued August 2, 2013 with respect to financial results for Gartner, Inc. for the three and six months ended June 30, 2013. |
EXHIBIT 99.1
 |
 |
CONTACT:
Brian Shipman
Group Vice President, Investor Relations
+1 203 316 3659
brian.shipman@gartner.com
Gartner Reports Financial Results for Second Quarter 2013
Contract Value Increased 13% YOY FX Neutral to $1.3 Billion
Revenue Increased 12% YOY to $446 Million
GAAP Diluted Earnings per Share Increased 14% YOY to $0.49
STAMFORD, Conn., August 2, 2013 — Gartner, Inc. (NYSE: IT), the leading provider of research and analysis on the global information technology industry, today reported results for second quarter 2013 and updated its outlook for full year 2013 revenues, Normalized EBITDA, and EPS.
Total revenue was $446.0 million for second quarter 2013, an increase of 12% on a reported basis compared to first quarter 2012 and 13% adjusted for foreign exchange impact. Second quarter 2013 net income was $46.5 million, an increase of 12%, while Normalized EBITDA was $89.9 million, an increase of 14%. (See “Non-GAAP Financial Measures” below for a discussion of Normalized EBITDA). Diluted earnings per share was $0.49 in second quarter 2013 compared to $0.43 in second quarter 2012. The second quarter of 2013 and 2012 earnings per share were negatively impacted by after-tax acquisition-related charges of $(0.01) and $(0.02) per share, respectively. The acquisition-related charges include intangible amortization and integration costs.
For the six months ended June 30, 2013, total revenue was $852.8 million, an increase of 11% over the same period in 2012. Revenues increased 12% excluding the impact of foreign exchange. Net income increased 10%, to $83.2 million, while Normalized EBITDA increased 10%, to $165.0 million. Diluted earnings per share was $0.87 in 2013 compared to $0.79 in 2012, which includes the negative impact of acquisition-related charges of $(0.02) per share for both periods.
Gene Hall, Gartner’s chief executive officer, commented, “Our second quarter results continued our trend of delivering consistent double-digit growth. Revenue, contract value, Normalized EBITDA and EPS again grew at double-digit rates, in line with our long-term expectations. Despite a mixed economic environment, we continue to see robust demand for our services across all three segments, which illustrates both the value we provide to our clients and the market opportunity for our services. We remain confident in our ability to deliver on our long term goals for double-digit growth in revenues, earnings and cash flow.”
Business Segment Highlights
Research
Revenue for second quarter 2013 was $311.2 million, up 12% compared to second quarter 2012. The impact of foreign exchange on Research revenue was not significant. The gross contribution margin was 69% for the second quarter of 2013 compared to 68% in the same quarter of 2012. Contract value was $1,293 million at June 30, 2013, up 13% compared to June 30, 2012 excluding the impact of foreign
-more-
exchange. Client and wallet retention were 82% and 97% for the second quarter of 2013 compared to 83% and 99% for the prior year quarter, respectively.
Consulting
Revenue for second quarter 2013 was $85.9 million, an increase of 12% compared to second quarter 2012 and 13% when adjusted for the impact of foreign exchange, driven by increases in our contract optimization business and in core consulting. The gross contribution margin for second quarter 2013 was 39% compared to 36% in second quarter 2012. Consultant utilization was 68% and 67% for second quarter 2013 and 2012, respectively, while billable headcount was 518 at June 30, 2013. Backlog was $94.0 million at June 30, 2013 compared to $93.1 million at June 30, 2012.
Events
Second quarter 2013 revenue was $48.9 million, an increase of 15% compared to second quarter 2012. The impact of foreign exchange was not significant. The gross contribution margin was 47% in second quarter of 2013 compared to 48% in the prior year quarter. The Company held 25 events in the second quarter of 2013 and 21 in the second quarter of 2012, while attendees were 12,098 and 12,540, respectively.
Cash Flow and Balance Sheet Highlights
Gartner generated operating cash flow of $140.3 million during the first half of 2013 compared to $99.5 million in the first half of 2012, an increase of 41%, which was primarily driven by earlier collections compared to the same period in 2012. Additions to property, equipment and leasehold improvements (“Capital Expenditures”) were $19.6 million in the first half of 2013. The Company had $333.4 million of cash at June 30, 2013. Through June 30, 2013, the Company deployed its free cash flow principally to repurchase 1.8 million of its common shares.
Updated Financial Outlook for 2013
The Company updated its guidance for the full year 2013. The changes were driven by foreign exchange, revised tax rate assumptions and strength in our Events business. The Company’s full year 2013 updated guidance is as follows:
Projected Revenue
| ($ in millions) | 2013 Projected | % Change | ||||||||||
| Research | $1,265 | – | 1,285 | 11% | – | 13 | % | |||||
| Consulting | 305 | – | 320 | 0% | – | 5 | % | |||||
| Events | 190 | – | 200 | 9% | – | 15 | % | |||||
| Total Revenue | $1,760 | – | 1,805 | 9% | – | 12 | % | |||||
Projected Earnings and Cash Flow
| ($ in millions, except per share data) | 2013 Projected | % Change | ||||||||||
| Diluted Earnings Per Share | $1.90 | – | $2.04 | 10% | – | 18 | % | |||||
| Normalized EBITDA (1) | $345 | – | $365 | 9% | – | 16 | % | |||||
| Operating Cash Flow | $296 | – | 316 | 6% | – | 13 | % | |||||
| Capital Expenditures | (37) | – | (38) | |||||||||
| Free Cash Flow (1) | $259 | – | 278 | 10% | – | 17 | % | |||||
| (1) | See “Non-GAAP Financial Measures” below for a discussion of Normalized EBITDA and Free Cash Flow. |
| Gartner, Inc. | page 2 |
Conference Call Information
Gartner has scheduled a conference call at 8:30 a.m. eastern time on Friday, August 2, 2013 to discuss the Company’s financial results. 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 888-679-8035 and the international dial-in number is 617-213-4848 and the participant passcode is 91140820. 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 90 days following the call.
About Gartner
Gartner, Inc. (NYSE: IT) is the world’s leading information technology research and advisory company. We deliver the technology-related insight necessary for our clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, we are the valuable partner to clients in over 13,315 distinct organizations. Through the resources of Gartner Research, Gartner Consulting and Gartner Events, we work with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and as of June 30, 2013, had 5,744 associates, including 1,457 research analysts and consultants, and clients in 85 countries. For more information, visit www.gartner.com.
Non-GAAP Financial Measures
Normalized EBITDA: Represents operating income excluding depreciation, accretion on obligations related to excess facilities, amortization, stock-based compensation expense, and acquisition related adjustments. We believe Normalized EBITDA is an important measure of our recurring operations as it excludes items that may not be indicative of our core operating results. Investors are cautioned that Normalized EBITDA is not a financial measure defined under generally accepted accounting principles and as a result is considered a non-GAAP financial measure. We provide this measure to enhance the user’s overall understanding of the Company’s current financial performance and the Company’s prospects for the future. It should not be construed as an alternative to any other measure of performance determined in accordance with generally accepted accounting principles.
Free Cash Flow: Represents cash provided by operating activities plus cash acquisition and integration payments less additions to property, equipment and leasehold improvements (“Capital Expenditures”). We believe that Free Cash Flow is an important measure of the recurring cash generated by the Company’s core operations that is available to be used to repurchase stock, repay debt obligations and invest in future growth through new business development activities or acquisitions.
Safe Harbor Statement
Statements contained in this press release regarding the Company’s growth and prospects, projected 2013 financial results and all other statements in this release other than recitation of historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. Such factors include, but are not limited to, the following: our ability to 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
| Gartner, Inc. | page 3 |
professional staff of research analysts and consultants as well as experienced sales personnel upon whom we are dependent; our ability to achieve and effectively manage growth, including our ability to integrate acquisitions and consummate future acquisitions; our ability to pay our debt; 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, 2012 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 4 |
GARTNER,
INC.
Condensed Consolidated Statements of Operations
(Unaudited; in thousands, except per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Research | $ | 311,233 | $ | 278,302 | 12 | % | $ | 621,564 | $ | 552,922 | 12 | % | ||||||||||||
| Consulting | 85,928 | 76,676 | 12 | % | 158,561 | 151,239 | 5 | % | ||||||||||||||||
| Events | 48,886 | 42,504 | 15 | % | 72,676 | 62,492 | 16 | % | ||||||||||||||||
| Total revenues | 446,047 | 397,482 | 12 | % | 852,801 | 766,653 | 11 | % | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||
| Cost of services and product development | 177,904 | 161,247 | 10 | % | 341,641 | 307,710 | 11 | % | ||||||||||||||||
| Selling, general and administrative | 185,629 | 165,221 | 12 | % | 366,107 | 327,739 | 12 | % | ||||||||||||||||
| Depreciation | 7,017 | 6,182 | 14 | % | 14,117 | 12,077 | 17 | % | ||||||||||||||||
| Amortization of intangibles | 1,404 | 928 | 51 | % | 2,738 | 1,667 | 64 | % | ||||||||||||||||
| Acquisition and integration charges | 106 | 1,182 | -91 | % | 206 | 1,182 | -83 | % | ||||||||||||||||
| Total costs and expenses | 372,060 | 334,760 | 11 | % | 724,809 | 650,375 | 11 | % | ||||||||||||||||
| Operating income | 73,987 | 62,722 | 18 | % | 127,992 | 116,278 | 10 | % | ||||||||||||||||
| Interest expense, net | (2,144 | ) | (2,153 | ) | 0 | % | (4,580 | ) | (4,348 | ) | 5 | % | ||||||||||||
| Other expense, net | (280 | ) | (76 | ) | >100 | % | (69 | ) | (1,054 | ) | -93 | % | ||||||||||||
| Income before income taxes | 71,563 | 60,493 | 18 | % | 123,343 | 110,876 | 11 | % | ||||||||||||||||
| Provision for income taxes | 25,049 | 19,009 | 32 | % | 40,154 | 35,171 | 14 | % | ||||||||||||||||
| Net income | $ | 46,514 | $ | 41,484 | 12 | % | $ | 83,189 | $ | 75,705 | 10 | % | ||||||||||||
| Income per common share: | ||||||||||||||||||||||||
| Basic | $ | 0.50 | $ | 0.44 | 14 | % | $ | 0.89 | $ | 0.81 | 10 | % | ||||||||||||
| Diluted | $ | 0.49 | $ | 0.43 | 14 | % | $ | 0.87 | $ | 0.79 | 10 | % | ||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||
| Basic | 93,574 | 93,350 | 0 | % | 93,584 | 93,383 | 0 | % | ||||||||||||||||
| Diluted | 95,188 | 95,423 | 0 | % | 95,426 | 95,826 | 0 | % | ||||||||||||||||
BUSINESS
SEGMENT DATA
(Unaudited; in thousands)
| Revenue | Direct Expense | Gross Contribution | Contribution Margin | ||||||||||||
| Three Months Ended 6/30/13 | |||||||||||||||
| Research | $ | 311,233 | $ | 97,822 | $ | 213,411 | 69 | % | |||||||
| Consulting | 85,928 | 52,743 | 33,185 | 39 | % | ||||||||||
| Events | 48,886 | 25,772 | 23,114 | 47 | % | ||||||||||
| TOTAL | $ | 446,047 | $ | 176,337 | $ | 269,710 | 60 | % | |||||||
| Three Months Ended 6/30/12 | |||||||||||||||
| Research | $ | 278,302 | $ | 88,831 | $ | 189,471 | 68 | % | |||||||
| Consulting | 76,676 | 48,770 | 27,906 | 36 | % | ||||||||||
| Events | 42,504 | 22,110 | 20,394 | 48 | % | ||||||||||
| TOTAL | $ | 397,482 | $ | 159,711 | $ | 237,771 | 60 | % | |||||||
| Six Months Ended 6/30/13 | |||||||||||||||
| Research | $ | 621,564 | $ | 192,939 | $ | 428,625 | 69 | % | |||||||
| Consulting | 158,561 | 102,839 | 55,722 | 35 | % | ||||||||||
| Events | 72,676 | 42,454 | 30,222 | 42 | % | ||||||||||
| TOTAL | $ | 852,801 | $ | 338,232 | $ | 514,569 | 60 | % | |||||||
| Six Months Ended 6/30/12 | |||||||||||||||
| Research | $ | 552,922 | $ | 174,848 | $ | 378,074 | 68 | % | |||||||
| Consulting | 151,239 | 95,733 | 55,506 | 37 | % | ||||||||||
| Events | 62,492 | 34,203 | 28,289 | 45 | % | ||||||||||
| TOTAL | $ | 766,653 | $ | 304,784 | $ | 461,869 | 60 | % | |||||||
SELECTED STATISTICAL DATA
| June 30, 2013 | June 30, 2012 | ||||||||
| Research contract value | $ | 1,293,027 | (a) | $ | 1,141,461 | (a) | |||
| Research client retention | 82 | % | 83 | % | |||||
| Research wallet retention | 97 | % | 99 | % | |||||
| Research client organizations | 13,315 | 12,474 | |||||||
| Consulting backlog | $ | 93,954 | (a) | $ | 93,100 | (a) | |||
| Consulting—quarterly utilization | 68 | % | 67 | % | |||||
| Consulting billable headcount | 518 | 481 | |||||||
| Consulting—average annualized revenue per billable headcount | $ | 428 | (a) | $ | 425 | (a) | |||
| Events—number of events for the quarter | 25 | 21 | |||||||
| Events—attendees for the quarter | 12,098 | 12,540 | |||||||
| (a) | Dollars in thousands. |
SUPPLEMENTAL INFORMATION (in thousands, except per share amounts)
Reconciliation - Operating income to Normalized EBITDA (a):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Net income | $ | 46,514 | $ | 41,484 | $ | 83,189 | $ | 75,705 | ||||||||
| Interest expense, net | 2,144 | 2,153 | 4,580 | 4,348 | ||||||||||||
| Other expense, net | 280 | 76 | 69 | 1,054 | ||||||||||||
| Tax provision | 25,049 | 19,009 | 40,154 | 35,171 | ||||||||||||
| Operating income | $ | 73,987 | $ | 62,722 | $ | 127,992 | $ | 116,278 | ||||||||
| Normalizing adjustments: | ||||||||||||||||
| Stock-based compensation expense (b) | 7,232 | 7,863 | 19,574 | 18,802 | ||||||||||||
| Depreciation, accretion, and amortization (c) | 8,464 | 7,167 | 16,942 | 13,857 | ||||||||||||
| Acquisition and integration adjustments (d) | 228 | 1,263 | 465 | 1,263 | ||||||||||||
| Normalized EBITDA | $ | 89,911 | $ | 79,015 | $ | 164,973 | $ | 150,200 | ||||||||
| (a) | Normalized 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 charges and adjustments related to the acquisition of Ideas International, which we acquired in June 2012. The charges consist of directly-related expenses for legal, consulting, and severance. Also included are non-cash fair value adjustments on pre-acquisition deferred revenues, which are being amortized ratably over the remaining life of the underlying contracts. |