Business context and reporting period
Gartner, Inc. is an IT research and advisory company with Research, Consulting and Events segments. This Form 10-K covers the fiscal year ended December 31, 2013; it is an annual report, not a standalone fourth-quarter filing. Amounts below are in U.S. dollars unless noted.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Revenue | $1,784.2 million | $1,615.8 million | +10% (+11% excluding currency impact) |
| Operating income | $275.5 million | $245.7 million | +12%; operating margin 15% in both years |
| Net income | $182.8 million | $165.9 million | +10% |
| Diluted EPS | $1.93 | $1.73 | +12% |
| Cash from operations | $315.7 million | $279.8 million | +13% |
Segment revenue: Research $1,271.0 million (+12%), Consulting $314.3 million (+3%) and Events $198.9 million (+14%). Segment contribution margins were 69%, 34% and 46%, respectively. Research contract value grew 13% to $1,423.2 million; client and wallet retention were 82% and 98%. Consulting utilization declined to 64% from 67%, while backlog rose 3% to $106.1 million. Events held 64 events versus 62; attendees declined 3% to 44,986, while exhibitor revenue supported growth.
Fourth-quarter revenue was $520.7 million versus $474.7 million in Q4 2012; operating income was $88.8 million versus $79.7 million, net income $61.4 million versus $58.8 million, and diluted EPS $0.65 versus $0.61.
Cash and cash equivalents were $424.0 million at year-end, up from $299.9 million. Current assets were $1,084.9 million and current liabilities $1,159.9 million, including $766.1 million of deferred revenue. Total debt was $205.0 million: $200.0 million under the 2013 credit agreement and a separate $5.0 million state loan. The company reported $541.1 million of available revolver capacity and compliance with its credit covenants. Capital expenditures were $36.5 million. Stock repurchases totaled 3.43 million shares at a cost of $196.7 million.
Changes, outlook, risks and unusual items
- Revenue and operating income both grew 10% or more; Research and Events drove growth, while Consulting margin and utilization weakened. The effective tax rate rose to 31.4% from 29.6%, mainly due to income mix by jurisdiction and state tax credits recognized in 2012.
- The company refinanced its credit arrangement in 2013 with a five-year $150 million term loan and $600 million revolver. A $200 million interest-rate swap fixed the base rate on the first $200 million of borrowings.
- The board authorized a new $800 million share-repurchase program on February 4, 2014, replacing a substantially used $500 million authorization. The filing provides no numerical revenue or earnings guidance.
- Management said existing cash, operating cash flow and borrowing capacity should meet anticipated needs. It intends to reinvest most undistributed foreign earnings; approximately $140 million was undistributed, with an estimated $33 million tax liability if not indefinitely reinvested.
- Risks include competition and free online information, economic weakness, subscription renewals, government appropriations and termination rights, event disruptions, foreign exchange, cyber/system failures, personnel retention, debt covenants and tax uncertainty. IRS audits of 2010 and 2011 had begun; management did not expect their ultimate resolution to have a material adverse effect. Ordinary-course litigation was not expected to have a material adverse effect after accruals and insurance.
- KPMG gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls and financial reporting controls were effective.
Important facts for investors to verify
- Whether Research contract value growth and retention rates remain strong, and whether Consulting utilization and contribution margin recover.
- Whether Events can sustain revenue growth given lower attendee counts and its reliance on exhibitor revenue.
- Debt balances and available borrowing capacity, covenant headroom, and the cash-versus-borrowing funding mix for the new repurchase authorization.
- Developments in the 2010–2011 IRS audits, unrecognized tax benefits, and any tax cost if foreign earnings are repatriated.
- Q4 seasonality and event timing when comparing quarterly results; the filing cautions that revenue, operating income and cash flow fluctuate between periods.