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Gartner (IT) Beats Q2 Earnings on Solid Top-Line Growth

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Information technology services provider Gartner, Inc. IT reported strong second-quarter 2017 results with double-digit growth in revenues and total contract value. Adjusted earnings for the reported quarter were $79.4 million or 88 cents per share compared with $63.0 million or 75 cents in the year-ago quarter. Adjusted earnings for second-quarter 2017 beat the Zacks Consensus Estimate by 5 cents.

However, Gartner recorded GAAP net loss of $92.3 million or loss of $1.03 per share as against a net income of $51.6 million or 62 cents per share in the prior-year quarter. The year-over-year decrease in earnings, despite significant top-line growth, was primarily attributable to high operating costs which increased 79% year over year to $942.1 million.

Total non-GAAP revenue for the reported quarter increased to $935.3 million from $610.0 million due to solid contract value growth and accretive acquisitions, and exceeded the Zacks Consensus Estimate of $920 million. Total contract value for traditional Gartner business was approximately $2.0 billion, up 14% year over year. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) for the quarter increased to $185.0 million from $117.7 million in the prior-year period.

Gartner, Inc. Price, Consensus and EPS Surprise

Gartner, Inc. Price, Consensus and EPS Surprise | Gartner, Inc. Quote


Segmental Performance

Gartner has reorganized its operating segments to better reflect the enlarged scale and breadth of its advisory services post the successful completion of the acquisition of CEB. Currently, the company has added a new business segment titled Talent Assignment & Other to its existing three segments. The new business segment CEB's previously disclosed Talent Assessment business as well as certain CEB non-subscription based talent products and services.

Research segment’s revenues increased 34% to $613.7 million and accounted for 72.7% of total GAAP revenue. Client retention was 83%, while wallet retention was 105%. The quarterly gross contribution margin was 65% for the quarter, down from 70% in the year-ago period.

Consulting revenues improved to $91.7 million from $86.5 million in the prior-year period, accounting for 10.9% of total revenue. Backlog, the key leading indicator of future revenue growth for the Consulting business, was $91 million compared with $93.3 million in the prior-year period. Gross contribution margin was slightly better at 34% compared with 33% in the year-earlier quarter.

Events revenue was significantly up from $66.8 million to $91.2 million. Gross contribution margin was 55%, up approximately 100 bps compared to the second quarter of 2016.

Talent Assessment & Other revenue for second-quarter 2017 was $47.1 million, while gross contribution margin was 37%.

Balance Sheet and Cash Flow

At quarter end, Gartner had about $589.3 million in cash and cash equivalents with gross debt of $3.5 billion. Net cash from operating activities for the first six months of 2017 was $82.7 million compared with cash flow of $161.8 million in the year-earlier period, resulting in respective free cash flow of $106.2 million and $148.3 million.

During the first half of 2017, Gartner used $33.8 million in cash to repurchase its shares, $2.6 billion for acquisitions, $41.6 million for capital expenditures, and $65.1 million for acquisition and integration payments. As of Jun 30, 2017, the company had $675.0 million of additional borrowing capacity under its revolving credit facility.

Guidance

In order to better reflect the successful integration of CEB, Gartner has updated its earlier guidance for full year 2017. The company currently expects GAAP revenues in the range of $3,225–$3,320 billion, compared with earlier expectations of $3,219–$3,314 billion, and adjusted EPS in the range of $3.32–$3.49, compared with $3.32–$3.60 expected earlier. Operating cash flow is likely to be within $315–$335 million.

Gartner presently has a Zacks Rank #2 (Buy). Some other stocks worth considering in the industry include CBIZ, Inc. CBZ, CRA International, Inc. CRAI and Exponent, Inc. EXPO, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CBIZ topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 24.33%.

CRA International topped estimates twice in the trailing four quarters with an average positive earnings surprise of 5.34%.

Exponent has a long-term earnings growth expectation of 12%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 10.14%.

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