Business Context and Reporting Period
This summary covers Gartner, Inc.'s Form 10-Q for the quarterly period ended September 30, 2008. Gartner is a leading information technology research and advisory company operating through three segments: Research, Consulting, and Events. The reporting period includes the sale of the Vision Events business in February 2008, which is now reported as a discontinued operation.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Total Revenues | $297.7 million | $931.7 million |
| Operating Income | $34.7 million | $108.6 million |
| Net Income | $18.8 million | $70.2 million |
| Diluted EPS (Continuing Ops) | $0.19 | $0.63 |
| Operating Cash Flow (9 months) | $137.4 million | |
| Cash and Equivalents (Sep 30, 2008) | $145.2 million | |
| Total Debt Outstanding | $424.5 million | |
| Available Borrowing Capacity | $178.0 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 11% for the quarter and 13% for the nine-month period compared to 2007. Excluding foreign currency effects, growth was approximately 9%.
- Profitability: Operating income rose 54% for the quarter and 74% for the nine-month period. Net income increased 50% for the quarter and 102% for the nine-month period.
- Segment Performance:
- Research: Revenues grew 16% (quarter) and 18% (nine months). Contract value increased 15% to $812.2 million.
- Consulting: Revenues grew 9% (quarter) and 8% (nine months), driven by improved utilization rates (69% vs 64% prior year) and higher billing rates.
- Events: Revenues declined 19% for the quarter and 2% for the nine months due to a shift in the event calendar and the discontinuation of certain events.
- Discontinued Operations: The Vision Events business was sold in Q1 2008 for a net gain of approximately $7.1 million. Results for 2007 have been restated to reflect this as a discontinued operation.
- Share Repurchases: The company repurchased 8.4 million shares for $175.5 million in the first nine months of 2008, compared to 2.9 million shares for $65.7 million in the prior year period.
Guidance, Outlook, and Risks
- Outlook: Management expects to maintain a balance between growing core businesses and generating profitability through a streamlined cost structure. The company continues to deploy capital for share repurchases.
- Foreign Currency: The company noted that the future impact of foreign exchange on results could be negative or positive given current market volatility. Favorable currency translation contributed to reported revenue growth.
- Debt Structure: The company entered into a new $150 million term loan in April 2008. Interest rate swaps are in place to convert floating rates on term loans to fixed rates, though the revolver remains exposed to interest rate risk.
- Risks: Key risks include economic conditions affecting client spending, competition, and the potential for goodwill impairment if fair value of reporting units declines. The company also faces uncertainty regarding the resolution of tax audits and legal proceedings, though management does not expect these to have a material effect.
Investor Verification Checklist
- Verify the sustainability of the 16% revenue growth in the Research segment and the 15% increase in contract value.
- Monitor the Events segment's revenue decline and the impact of the shifted event calendar on future quarters.
- Assess the impact of foreign currency fluctuations on future earnings, as reported growth was partially driven by favorable translation.
- Review the remaining $105.4 million authorization for share repurchases and the company's commitment to capital return.
- Confirm the status of the $4.7 million liability for excess facilities and the timeline for lease expirations through 2011.