Gartner, Inc. (IT)

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Gartner, Inc. (IT)

Q1 2008 Earnings Call

May 8, 2008 10:00 am ET

Executives

Henry A.  Diamond - Group Vice President, Gartner, Inc.

Eugene A. Hall - Chief Executive Officer

Christopher J. Lafond - Executive Vice President and Chief Financial Officer
 

Analysts

Peter Appert - Goldman Sachs

Laura Lederman- William Blair

William Sutherland - Boenning & Scattergood

Presentation

Operator

Good morning, ladies and gentlemen and welcome to Gartner Incorporated’s earnings conference call for the first quarter 2008. A replay of this call will be available through June 8, 2008. The replay can be accessed by dialing 888-286-8010 for domestic calls, and 617-801-6888 for international calls, and by entering the pass code 84659984. This call is being simultaneously webcast and will be archived at Gartner's website at www.gartner.com for approximately 90 days.

I will now turn the conference over to Mr. Hank Diamond, Group Vice President of Investor Relations and Corporate Finances for opening remarks and introductions. Please go ahead, sir.

Henry A.  Diamond

Good morning, everyone and thank you all for joining us. On the call with me today are our CEO, Gene Hall, and our CFO, Chris Lafond.

Before we discuss our results for the quarter, I would like to remind everyone of four things. First, the rebroadcast, reproduction, and retransmission of this conference call or webcast without the express written consent of Gartner are strictly prohibited.

Second, if you did not receive a copy of our press release, it is available on our website at www.gartner.com, or on the First Call system.

Third, the company will be making statements about its future results and other forward-looking statements during this call. Statements about future results made during the call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment. Forward-looking statements and projections are inherently subject to significant economic, competitive, and other uncertainties and contingencies which are beyond the control of management.

The company cautions that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements.

Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are specified in the company’s filings with the SEC, including in its annual report on Form 10-K for fiscal year 2007.

Finally, during the call the company will be using certain non-GAAP financial measures as defined under SEC rules. Where required, we have provided a reconciliation of those measures to the most directly comparable GAAP measures in the tables and the press release.

Before I turn the call over to our CEO, let me briefly review the major points from today’s press release.

First, GAAP EPS from continuing operations for the first quarter was $0.14 a share, an increase of 56% versus the first quarter last year. Research contract value, which is a key leading indicator for our business, increased 17% year over year to a record $778 million, and total revenue grew 10% to $290 million.

Net income increased 163% year over year to $22 million and normalized EBITDA increased 26% to $40 million.

Please take note that GAAP EPS from continuing operations and normalized EBITDA exclude the results of the company’s former Vision Events business, which was sold in February 2008 and is now reported as a discontinued operation, and the $7.3 million gain on sale resulting from the divestiture, which is included in net income.

Turning to cash flow, the company generated $14 million of operating cash flow during the first quarter versus a cash use of $200,000 during first quarter 2007. It deployed $7.5 million for capital expenditures and repurchased 3.6 million shares of its stock for $66 million.

As of March 31st, the company had total debt of $421 million and cash on the balance sheet of $96 million.

Finally, we reiterated our most recent outlook for full year 2008. Chris will give you more details but to highlight, we continue to project revenue growth in the range of 9% to 12%, EPS from continuing operations growth in the range of 33% to 48%, and operating cash flow of between $155 million and $170 million.

Now I would like to turn the call over to Gartner's Chief Executive Officer, Gene Hall.

Eugene A. Hall

Thanks, Hank. Good morning, everyone and thanks for joining us. Our results for the first quarter demonstrate that we are off to a strong start for 2008. We generated high teens research contract value growth for the fifth straight quarter and double-digit total revenue growth, all of which is in line with our expectations despite the uncertain economic environment.

At the same time, we delivered better-than-expected EPS growth as a result of our decision to tightly manage expenses and to postpone some investments to later in the year. We also continued the opportunistic use of our capital to repurchase our stock at a significant discount from where it is trading today.

We were able to produce these results during an uncertain period for many companies and there are several reasons for this. First, we offer services that provide high value to our clients at a relatively low cost and these services are critical to the operation of their IT programs regardless of the economic environment. Second, we have a vast, untapped market opportunity for our research and third, we have the right strategy, products, and people to capture that opportunity.

Read the rest of this transcript for free on seekingalpha.com