Gartner, Inc. (IT)

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Gartner Inc. (IT)

Q4 2011 Earnings Call

February 7, 2012 8:30 am ET

Executives

Brian Shipman - VP of IR

Gene Hall - CEO

Chris Lafond - CFO

Analysts

Peter Appert - Piper Jaffray

Dave Lewis - JPMorgan

Robert Riggs - William Blair

William Bird - Lazard

Bill Sutherland - Northland Capital Markets

Brian Karimzad - Goldman Sachs

Dan Leben - Robert W. Baird

Manav Patnaik - Barclays Capital

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to Gartner's earnings conference call for the fourth quarter and full year 2011. A replay of this call will be available through March 7, 2012. The replay can be accessed by dialing 1-888-286-8010 for domestic calls, and 617-801-6888 for international calls; and by entering the passcode 57406329. 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 Brian Shipman, Gartner's Group Vice President of Investor Relations for opening remarks and introductions. Please go ahead, sir.

Brian Shipman

Thank you and good morning, everyone. Welcome to Gartner's fourth quarter and full year 2011 earnings conference call. With me today is our Chief Executive Officer, Gene Hall; and our Chief Financial Officer, Chris Lafond. This call will begin with a discussion of Q4 and full year financial results disclosed in today's press release. We will also discuss our outlook for the company, including our newly issued guidance for 2012, followed by an opportunity for you to ask questions. I'd like to remind everyone that the press release is available on our website, that url is www.gartner.com.

Before we begin we need to remind you that certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's 2010 annual report on Form 10-K and quarterly reports on Form 10-Q as well as in other filings with the SEC. I would encourage all of you to review the risk factors listed in these documents. The company undertakes no obligation to update any of its forward-looking statements.

I would also like to take the opportunity to remind everyone that we will be hosting our Annual Investor Day on Thursday, February 16 in New York City, and registration is required in advance. If you haven't done so already, please make sure you contact my assistant Germaine Scott at 203-316-3411 to register for the event and she'll provide you with the logistics.

With that, I would like to hand the call over to Gartner's Chief Financial Officer, Chris Lafond. Chris?

Chris Lafond

Thanks, Brian, and good morning, everyone. We ended 2011 with double-digit growth in revenue, earnings and cash flow. Our results again demonstrate the continued successful execution of our strategy, our ability to consistently deliver on the long-term financial objectives we communicated over the past several years and our overall importance for the strategic IT initiatives of our clients.

We saw a continuation of the strong trends in our key business metrics that we delivered during the first three quarters in the year. Year-over-year contract value growth remained strong and retention rates ended at or near all-time highs. Consulting backlog were 8% since the end of Q3 and both attendees and exhibitors at our events increased by double-digits year-over-year.

Demand for our services was robust across all of our business segments in the fourth quarter. Our strong topline performance and effective execution and capitalizing on the operating leverage in our business allowed us to once again expand, both our growth contribution and EBITDA margin. As a result, we delivered significant growth in earnings, both in Q4 and for full year.

In the fourth quarter normalized EBITDA increased 17% year-over-year and our GAAP diluted earnings per share was up 14%. For the full year, we delivered normalized EBITDA of $279, up 21% from 2010. GAAP diluted earnings per share were $1.39, up 45% from last year. With the strong finish to 2011, we are well-positioned for continued growth in 2012.

I'll now provide a review of our three business segments for the fourth quarter and full year and then conclude with a discussion of our outlook for 2012. Starting with research. Fourth quarter research revenue was up 14% to $263 million with negligible impact in foreign exchange in the quarter. For the full year, research revenue grew 17% to over $1 billion. On an FX neutral basis research revenue grew 14% for the full year in 2011.

The margin in this segment increased 220 basis points year-over-year to 66.9% in the fourth quarter, as our strong execution continues to capitalize on the operating leverage in this business. For the full year the contribution margin in our research business grew by 210 basis points to 67.4%. All of our key research business metrics remains fairly strong in the fourth quarter.

Contract value grew a record level of $1.116 billion, a growth of 14% year-over-year. As was the case throughout 2011, our growth in contract value in Q4 was extremely broad-based with all geographies, client-sizes and industry segments delivering strong growth year-over-year.

New business again increased year-over-year, continuing the trends that we've seen since late 2009. The new business mix was balanced between sales to new clients and sales of additional services and upgrade to existing clients. While our contract value growth continues to benefit from our discipline of annual price increases and no discounting, approximately 85% of our contract value growth came from volume with the balance coming from price increases.

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