Gartner Reports Financial Results for Third Quarter 2009

October 30, 2009 8:00 AM EDT

EPS from Continuing Operations Were $0.21, Including $0.05 Per Share from Tax Benefits

Research Contract Value Increased 1% versus June 30, 2009 to $742.9 Million

Company Increased Its Outlook for Cash from Operations for Full Year 2009

STAMFORD, Conn.--(BUSINESS WIRE)-- Gartner, Inc. (NYSE: IT), the leading provider of research and analysis on the global information technology industry, today reported results for third quarter 2009. In addition, the Company increased its outlook for cash from operations and reiterated its outlook for revenue, Normalized EBITDA and EPS from continuing operations for full year 2009.

For third quarter 2009, EPS from continuing operations were $0.21, net income was $20.1 million, Normalized EBITDA was $40.8 million, and cash from operations was $55.1 million. EPS from continuing operations and net income were positively impacted by the timing of certain non-cash tax benefits totaling $4.7 million, or $0.05 per share, which are not expected to recur. See "Non-GAAP Financial Measures" for a discussion of Normalized EBITDA.

Total revenue for third quarter 2009 was $267.5 million. Excluding the impact of foreign exchange, total revenue decreased 7% year-over-year.

Gene Hall, Gartner's chief executive officer, commented, "During the third quarter, our key business metrics continued to improve sequentially. We increased salesforce productivity, grew new business in Research and improved retention on Research subscriptions that came up for renewal during the quarter. As a result, our Research Contract Value grew sequentially by almost $7 million. These improvements were driven both by the success of our efforts to improve sales effectiveness and a more favorable economic environment. Looking ahead, we expect our business trends to continue to improve in the fourth quarter and we expect to generate revenue, earnings and cash flow growth in 2010."

Business Segment Highlights

Research

Revenue for third quarter 2009 was $185.7 million, down 4% year-over-year excluding the impact of foreign exchange. Gross contribution margin improved approximately 1 percentage point year-over-year to 66%.

Contract value was $742.9 million at September 30, 2009, up 1% versus June 30, 2009. Year-over-year, contract value decreased 4% excluding the impact of foreign exchange.

Client and wallet retention rates for third quarter 2009 were 77% and 85%. Wallet retention excludes the impact of foreign exchange.

Consulting

Revenue for third quarter 2009 was $65.7 million, down 16% year-over-year excluding the impact of foreign exchange. Gross contribution margin was 36%.

Third quarter 2009 utilization was 64% and billable headcount was 449. Backlog was $84.7 million at September 30, 2009, up 4% versus June 30, 2009.

Events

Revenue for the third quarter was $16.0 million, down 6% year-over-year excluding the impact of foreign exchange. Gross contribution margin improved approximately 6 percentage points to 37%.

The Company held 15 events with 5,413 attendees during the quarter.

Cash Flow and Balance Sheet Highlights

Gartner generated cash from operations of $55.1 million during third quarter 2009 versus $55.6 million during third quarter 2008. Capital expenditures were $2.7 million during third quarter 2009 versus $5.3 million during third quarter 2008.

During the first nine months of 2009, the Company deployed its cash principally to repay $151.3 million in debt. As of September 30, 2009, the Company had total debt of $265.0 million and cash of $112.8 million.

Financial Outlook for 2009

Based on its results for the first 9-months of 2009 and current business trends, Gartner increased its outlook for cash from operations and reiterated its outlook for revenue, Normalized EBITDA and EPS from continuing operations for full year 2009. The Company's outlook for revenue by segment and total revenue is as follows. The year-over-year change is presented both as reported and excluding the impact of foreign exchange (FX Neutral):

($ in millions)   2009 Projected   % Change as Reported   % Change FX Neutral
                  Revenue

Research (1)      $737 - 757       (6%) - (3%)            (2%) - 1%

Consulting        265 - 295        (24%) - (15%)          (21%) - (12%)

Events            98 - 108         (35%) - (28%)          (33%) - (26%)

Total Revenue     $1,100 - 1,160   (14%) - (9%)           (10%) - (6%)


(1) Projected research revenue includes the revenue of the Company's "Other"
category, which was eliminated in first

quarter 2009. For 2008, reported "Other" revenue was $8.3 million.

Gartner now expects cash from operations of $125 to $135 million for full year 2009. The Company continues to target Normalized EBITDA of $170 to $200 million, EPS from continuing operations of $0.66 to $0.87, and capital expenditures of $15 to $20 million for full year 2009. Normalized EBITDA excludes a projected $26 to $28 million of pre-tax expense related to SFAS 123(R).

Conference Call Information

Gartner has scheduled a conference call at 10:00 a.m. ET today, Friday, October 30, 2009, to discuss the Company's financial results. The conference call will be available via the Internet by accessing the Company's web site at http://investor.gartner.com. A replay of the webcast will be available for 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 indispensable partner to 60,000 clients in 10,000 distinct organizations. Through the resources of Gartner Research, Gartner Executive Programs, 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 has 4,000 associates, including 1,200 research analysts and consultants, and clients in 80 countries. For more information, visit www.gartner.com.

Non-GAAP Financial Measures

Investors are cautioned that normalized EBITDA contained in this press release is not a financial measure under generally accepted accounting principles. In addition, it should not be construed as an alternative to any other measures of performance determined in accordance with generally accepted accounting principles. This non-GAAP financial measure is provided to enhance the user's overall understanding of the Company's current financial performance and the Company's prospects for the future. 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. Normalized EBITDA is based on operating income, excluding depreciation, accretion on obligations related to excess facilities, amortization, SFAS 123 (R) expense, and Other charges.

Safe Harbor Statement

Statements contained in this press release regarding the growth and prospects of the business, the Company's projected 2009 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 include risks and uncertainties; 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 ability to expand or even retain the Company's customer base; ability to grow or even sustain revenue from individual customers; ability to attract and retain professional staff of research analysts and consultants upon whom the Company is dependent; ability to achieve and effectively manage growth; ability to pay the Company's debt obligations; ability to achieve continued customer renewals and achieve new contract value, backlog and deferred revenue growth in light of competitive pressures; ability to carry out the Company's strategic initiatives and manage associated costs; substantial competition from existing competitors and potential new competitors; additional risks associated with international operations including foreign currency fluctuations; the impact of restructuring and other charges on the Company's businesses and operations; general economic conditions; and other risks listed from time to time in the Company's reports filed with the Securities and Exchange Commission. These filings can be found on Gartner's Web site at www.gartner.com/investors and the SEC's Web site at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and the Company 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.

Condensed Consolidated Statements of Operations

(Unaudited; in thousands, except per share amounts)

                 Three Months Ended                Nine Months Ended

                 September 30,                     September 30,

                 2009         2008                 2009         2008

Revenues:

Research (a)     $ 185,718    $ 199,646    -7  %   $ 557,325    $ 589,415    -5  %

Consulting         65,708       80,404     -18 %     205,341      253,129    -19 %

Events             16,043       17,656     -9  %     48,307       89,200     -46 %

Total revenues     267,469      297,706    -10 %     810,973      931,744    -13 %

Costs and
expenses:

Cost of
services and
product            118,120      128,490    -8  %     351,864      415,569    -15 %
development
(a)

Selling,
general and        115,049      127,707    -10 %     345,980      387,373    -11 %
administrative
(a)

Depreciation       6,363        6,427      -1  %     19,176       19,000     1   %

Amortization       416          400        4   %     1,220        1,215      0   %
of intangibles

Total costs        239,948      263,024    -9  %     718,240      823,157    -13 %
and expenses

Operating          27,521       34,682     -21 %     92,733       108,587    -15 %
income

Interest           (4,914  )    (4,997  )  -2  %     (13,105 )    (14,672 )  -11 %
expense, net

Other
(expense)          (127    )    (860    )  >100%     (2,505  )    (487    )  >100%
income, net

Income before      22,480       28,825     -22 %     77,123       93,428     -17 %
income taxes

Provision for      2,413        10,044     -76 %     19,875       29,926     -34 %
income taxes

Income from
continuing         20,067       18,781     7   %     57,248       63,502     -10 %
operations

Income from
discontinued
operations,        -            -          -         -            6,723      >100%
net of taxes
(b)

Net income       $ 20,067     $ 18,781     7   %   $ 57,248     $ 70,225     -18 %

Income per
common share:

Basic:

Income from
continuing       $ 0.21       $ 0.20       5   %   $ 0.61       $ 0.66       -8  %
operations

Income from
discontinued       -            -          0   %     -            0.07       >100%
operations

Income per       $ 0.21       $ 0.20       5   %   $ 0.61       $ 0.73       -16 %
share

Diluted:

Income from
continuing       $ 0.21       $ 0.19       11  %   $ 0.59       $ 0.63       -6  %
operations

Income from
discontinued       -            -          0   %     -            0.07       >100%
operations

Income per       $ 0.21       $ 0.19       11  %   $ 0.59       $ 0.70       -16 %
share

Weighted
average shares
outstanding:

Basic              94,872       94,539     0   %     94,380       95,725     -1  %

Diluted            97,657       98,552     -1  %     96,885       99,750     -3  %

(a)  The Company eliminated its previously reported "Other" revenue line in the
     first quarter of 2009.

     "Other" revenue and related expenses are now being reported in the Research
     segment.

     In addition, certain expenses that were formerly classified as Selling,
     general and administrative (SG&A)

     are now presented in Cost of services and product development (COS) and are
     considered to be expenses

     of the Research segment.

     Corresponding prior period presentations of these revenues and expenses
     have been reclassified

     in a consistent manner for comparability purposes.

(b)  2008 includes the results and gain on sale of the Vision Events business,
     which we sold in February 2008.

BUSINESS SEGMENT DATA

(Dollars in thousands)

                                     Direct       Gross           Contribution

                        Revenue      Expense      Contribution    Margin

Three Months Ended
9/30/09

Research (a)            $ 185,718    $ 63,107     $ 122,611       66 %

Consulting                65,708       42,050       23,658        36 %

Events                    16,043       10,109       5,934         37 %

TOTAL                   $ 267,469    $ 115,266    $ 152,203       57 %

Three Months Ended
9/30/08

Research (a)            $ 199,646    $ 69,220     $ 130,426       65 %

Consulting                80,403       47,520       32,883        41 %

Events                    17,657       12,199       5,458         31 %

TOTAL                   $ 297,706    $ 128,939    $ 168,767       57 %

Nine Months Ended
9/30/09

Research (a)            $ 557,325    $ 190,518    $ 366,807       66 %

Consulting                205,341      127,027      78,314        38 %

Events                    48,307       32,007       16,300        34 %

TOTAL                   $ 810,973    $ 349,552    $ 461,421       57 %

Nine Months Ended
9/30/08

Research (a)            $ 589,415    $ 212,300    $ 377,115       64 %

Consulting                253,129      148,373      104,756       41 %

Events (b)                89,200       52,125       37,075        42 %

TOTAL                   $ 931,744    $ 412,798    $ 518,946       56 %

(a)  The Company eliminated its previously reported "Other" revenue line in the
     first quarter of 2009.

     "Other" revenue and related expenses are now being reported in the Research
     segment.

     In addition, certain expenses that were formerly classified as Selling,
     general and administrative (SG&A)

     are now presented in Cost of services and product development (COS) and are
     considered to be expenses

     of the Research segment.

     Corresponding prior period presentations of these revenues and expenses
     have been reclassified

     in a consistent manner for comparability purposes.

(b)  Excludes the results of the Vision Events business, which we sold in
     February 2008.

SELECTED STATISTICAL DATA

                                      September 30,        September 30,

                                      2009                 2008

Research contract value               $ 742,885     (a)    $ 812,210     (a)

Research client retention               77%                  81%

Research wallet retention (b)           85%                  97%

Research client organizations           9,998                10,347

Consulting backlog                    $ 84,747      (a)    $ 110,141     (a)

Consulting--quarterly utilization       64%                  69%

Consulting billable headcount           449                  494

Consulting--average annualized
revenue

per billable headcount                $ 389         (a)    $ 440         (a)

Events--number of events for the        15                   16
quarter

Events--attendees for the quarter       5,413                6,179

(a) Dollars in thousands.

(b) Excludes the impact of foreign exchange.

SUPPLEMENTAL INFORMATION

GAAP to Normalized EBITDA Reconciliation

(in thousands)

Reconciliation - GAAP to Normalized EBITDA (1):

                                Three Months Ended     Nine Months Ended

                                September 30,          September 30,

                                2009       2008        2009        2008

Net income                      $ 20,067   $ 18,781    $ 57,248    $ 70,225

Interest expense, net             4,914      4,997       13,105      14,672

Other expense, net                127        860         2,505       487

Income from discontinued          -          -           -           (6,723  )
operations (2)

Tax provision                     2,413      10,044      19,875      29,926

Operating income                $ 27,521   $ 34,682    $ 92,733    $ 108,587

Normalizing adjustments:

Depreciation, accretion, and      6,941      7,046       20,935      20,929
amortization

Stock-based compensation          6,352      5,259       19,477      18,315
expense (3)

Normalized EBITDA               $ 40,814   $ 46,987    $ 133,145   $ 147,831

(1)  Normalized EBITDA is based on operating income excluding depreciation,

     accretion on obligations related to excess facilities, amortization of
     intangibles,

     Other charges, and stock-based compensation expense.

(2)  The nine months ended September 30, 2008, includes the gain on sale of the
     Vision Events business.

(3)  Stock-based compensation expense represents the cost of stock-based
     compensation

     awarded by the Company to its employees. The expense is determined in
     accordance

     with FASB Accounting Standards Codification Topic 718.

    Source: Gartner, Inc.

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