Acquisition Costs Dent Gartner Inc. Earnings

By Markets Fool.com

Image source: Gartner.

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Gartner(NYSE: IT)reported second-quarter results on Aug. 4. The leading provider of research and analysis on the global information technology industry saw its profits fall due to acquisition-related charges, but the company reaffirmed its outlook for the year ahead.

Gartner results: The raw numbers

Metric

Q2 2016

Q2 2015

Growth (YOY)

Revenue

$610 million

$548 million

11%

Net income

$48 million

$51 million

(6%)

Earnings per share

$0.57

$0.61

(7%)

Data source: Gartner Q2 2016 earnings. YOY = year over year.

What happened with Gartner this quarter?

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  • Total revenue rose 11% year over year to$610 million and 12% excluding the negative impact of foreign exchange rate movements.
  • Normalized EBITDA (earnings before interest, taxes, depreciation, and amortization), which excludes stock-based compensation and certain acquisition-related charges, increased 7% to$118 million, and 5% on a constant dollar basis.
  • GAAP EPS fell to $0.57 from $0.61 in Q2 2015, with roughly $0.14 worth of acquisition and integration charges denting results. Adjusted earnings per share, which excludes acquisition-related charges, grew 9% to$0.71.

Business segment results

Drilling down into Gartner's individual business segments, we see that research revenuerose 16% (17% in constant currency) to $449 million. Gross contribution margin held steady at 70%, while client retention and wallet retention (retention times revenue per customer) each declined 2 percentage points to 83% and 104%, respectively, compared to the prior-year period. And contract value was$1.75 billionatthe end of the quarter, an increase of 9% (13% in constant currency).

Consulting revenue grew 6% to $94 million. Consulting segment gross contribution margin fell to 35% from 38% in Q2 2015, while utilization improved to 69% from 68%. Gartner also grew both its consultant force and backlog, with its billable head count rising to 626 and backlog expanding to $109 million as of June 30, compared to 564 and$97 millionatthe end of the second quarter of 2015.

Revenue for Gartner's event business fell 10% to $67 million, mostly due to changes in Gartner's events calendar, with revenue rising 16% for events that were held in both Q2 2016 and Q2 2015. And gross contribution margin for the events segment climbed to 54%, up from 53% in the year-ago period.

Looking forward

Gartner reiterated its 2016 full-year guidance, including:

  • Total revenue of $2.405 billion to $2.465 billion
  • Adjusted EPS of $2.67 to $2.89
  • Normalized EBITDA of $450 million to $480 million
  • Operating cash flow of $370 million to $395 million
  • Free cash flow of $352 million to $377 million

"We are well on track to deliver another year of double-digit growth in contract value, revenue and earnings, coupled with strong cash flow conversion," said CEO Gene Hall. "We consistently deliver tremendous value to our clients which results in long-term growth in cash flow and earnings to our shareholders."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Gartner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.