Gartner, Inc. (IT)

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Gartner Inc. (IT)

Q2 2008 Earnings Call

July 30, 2008 10:00 am ET

Executives

Hank Diamond - Group VP of IR and Corporate Finance

Gene Hall - CEO

Chris Lafond - EVP and CFO

Analysts

Peter Appert - Goldman Sachs

Laura Lederman - William Blair

Dave Lewis - JPMorgan

Eric Wiemann - Schwerin Boyle

Bill Sutherland - Boenning & Scattergood

Dave Lewis - JPMorgan

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to Gartner's, Inc. Earnings Call for the second quarter 2008. A replay of this call will be available through August 30, 2008. The replay can be accessed by dialing 1-888-286-8010 for domestic call and 617-801-6888 for international call and by entering the pass code 51065265. This call is being simultaneously webcast and will be archived on 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 Finance for opening remarks and introductions. Please go ahead, sir.

Hank Diamond

Good morning, everyone, and thank you all for joining us. On the call with me today are Gartner's CEO, Gene Hall and 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 FirstCall 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 direct comparable GAAP measures in the tables and in 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, diluted EPS from continuing operations for the second quarter 2008 was $0.30 a share, an increase of 173% versus the second quarter last year. Research contract value, which is a key leading indicator for our business, increased 16% year-over-year to a record $794 million and total revenue grew 17% to $344 million.

Excluding the impact of foreign exchange, research contract value and the total revenue, each increased 13% year-over-year. Net income increased a 113% year-over-year to $30 million, and the normalized EBITDA increased 37% to $61 million.

Please take note that diluted 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.

Turning to the cash flow statement and balance sheet, operating cash flow for the second quarter increased 54% to $68 million and capital expenditures totaled $5 million. During the quarter, the company repurchased 3.9 million shares of its stock for $85 million, and as of June 30, the company had total debt of $470 million and cash of $137 million.

Turning to Gartner's financial outlook for full year 2008, the company increased its projection for total revenue by $10 million at both the low end and high end of the range. This increase was primarily due to higher than originally anticipated foreign exchange benefits. The company also reiterated its previous guidance for normalized EBITDA, EPS and operating cash flow.

Chris will give you more details, but to highlight, we now project full year 2008 revenue growth in the range of 10% to 12% and continue to expect EPS from continuing operations growth in the range of 33% to 48%, EBITDA growth of 10% to 15%, 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.

Gene Hall

Thanks, Hank. Good morning, everyone, and thanks for joining us. Second quarter marked another period of strong growth in both revenue and profits for Gartner, as we continue to deliver on our commitment to generate double-digit revenue and earnings growth. During the quarter, our research revenue grew 20% year-over-year and our contract value increased 16%.

For six consecutive quarters, we've grown research contract value in the high teens and generated wallet retention in excess of 100%. We continue to see growth across our research products, client segments and geographies and to generate business both by further penetrating our existing clients, and by attracting new clients. In fact, approximately 70% of our year-over-year contract value growth in the second quarter was from client enterprises that we did not do business with a year before.

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