Gartner, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the same 2020 periods. Financial statements are unaudited. Gartner provides research, conferences and consulting services.
Financial results and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,167.3 million (+20%) | $973.1 million | $2,271.4 million (+14%) | $1,992.0 million |
| Operating income | $274.7 million | $99.7 million | $500.1 million | $224.4 million |
| Net income | $271.2 million | $55.1 million | $435.3 million | $130.2 million |
| Diluted EPS | $3.13 | $0.61 | $4.95 | $1.45 |
| Cash from operating activities | — | $732.6 million | $398.9 million |
- Q2 revenue growth was 16% excluding foreign-currency effects; six-month growth was 11% on that basis. Q2 segment revenue: Research $1,003.2 million (+15%), Conferences $58.2 million (versus $0.3 million), and Consulting $105.9 million (+9%).
- Q2 operating margin was approximately 23.5%, versus 10.2% a year earlier. The company recorded a separate $135.5 million pre-tax gain on event-cancellation insurance claims; this is not included in operating income.
- At June 30, cash and cash equivalents were $796.3 million; cash, cash equivalents and restricted cash totaled $800.5 million. Available revolving-credit capacity was approximately $1.0 billion. Management said liquidity was adequate for anticipated needs for at least 12 months.
- Debt principal outstanding was $2.496 billion ($2.463 billion net carrying amount). Gartner issued $600 million of 3.625% notes due 2029, using part of the proceeds to repay $100 million of term loans. It reported $2.5 billion of principal debt and approximately $0.3 billion of floating-rate debt; swaps effectively fixed rates on variable-rate borrowings.
- Six-month financing cash outflow was $590.2 million, including $1,083.4 million of share repurchases. The company had $527.6 million of stockholders’ equity at quarter-end, down from $1.090 billion at year-end 2020.
Material changes and operating trends
- Research contract value reached $3.8 billion, up 11% year over year on a foreign-currency-neutral basis. Client retention improved in both technology and business sales; wallet retention was 101% and 110%, respectively.
- Conferences remained affected by COVID-19 cancellations. Gartner held 18 virtual conferences in the first half; six-month segment revenue was $83.0 million, versus $14.2 million, and gross contribution recovered to $56.5 million from a loss of $17.3 million.
- Consulting revenue increased 6% in the first half; gross contribution margin rose to 40% from 33%. Backlog was $108.4 million, up 7% on a foreign-currency-neutral basis.
- Six-month operating cash flow increased by $333.7 million year over year, reflecting higher pre-tax income—including the insurance gain—and higher deferred revenue from Research bookings. Accounts payable and accrued liabilities cash-flow movements partly offset the increase.
Outlook, risks and unusual items
- The filing provides no quantified full-year revenue or earnings guidance. Management said Research contract-value growth improved in the first half and Q2 was comparable to pre-pandemic levels. Consulting labor-based revenue also returned to pre-pandemic levels in the first half.
- Gartner planned to resume some in-person destination conferences in September 2021 while continuing virtual events. Management cautioned that virtual conferences generate significantly less revenue and gross contribution than in-person events, and timing depends on pandemic conditions.
- The $135.5 million insurance gain followed receipt of $150 million in May for 2020 event-cancellation claims. Recovery of remaining 2020 claims is uncertain; insurers contested reinstatement of limits and coverage for 2021 COVID-related cancellations, and Gartner was in litigation over these matters.
- COVID-19, conference attendance and timing, customer renewals and contract-value growth, acquisition integration, debt service, foreign exchange, interest-rate benchmark transition, and tax changes are among the disclosed risks. Gartner expected restored business investments in 2021 and later periods, which could pressure margins.
- The effective tax rate was 28.5% in Q2 2021 versus 6.6% in Q2 2020. The comparison reflects approximately $28.3 million of prior-year tax benefits from intercompany intellectual-property sales, absent in 2021, and the UK tax-rate increase effective in 2023.
- Pulse Q&A was acquired on June 17 for an aggregate purchase price of $30 million; its results were not material. On July 29, the board authorized an additional $800 million of repurchases, a subsequent event.
Important facts for investors to verify
- How much of reported earnings and operating cash flow is sustainable without the event-cancellation insurance proceeds and gain.
- Progress and financial impact of the insurer disputes, including remaining 2020 claims and contested 2021 coverage.
- Whether planned in-person conferences resume as expected and how conference revenue and margins compare with virtual events.
- Trends in Research contract value, client and wallet retention, and Consulting backlog and utilization.
- Debt, liquidity and the pace of repurchases, including the effect of substantial buybacks on equity and cash balances.
- Future tax-rate effects and other COVID-19, foreign-currency and interest-rate exposures.