Gartner Inc Continues to Build Its Book of Business

Image source: Gartner.

Gartner(IT -1.05%)reported third quarter results on Nov. 5, 2015. The leading provider of research and analysis on the global information technology industry saw solid growth in contract value -- a key indicator of future revenue and profitability -- although foreign currency fluctuations continue to take a toll on the company's results.

Gartner results: the raw numbers

Data source: Gartner Q3 2015 earnings press release.

What happened with Gartner this quarter?

• Total revenue rose 6% to $500.2 million (13% excluding the negative impact of foreign exchange rate fluctuations).

• Normalized EBITDA (earnings before interest, taxes, depreciation, and amortization), which excludes stock-based compensation and certain acquisition-related charges, increased 7% to $79.8 million.

• Adjusted earnings per share, excluding acquisition-related charges, was $0.45, compared to $0.44 in the prior-year quarter.

Business segment results
Drilling down into Gartner's individual business segments, we see that research revenue rose 8% (16% on a constant currency basis) to $396.2 million. Gross margin was flat at 69%. Contract value was $1.643 billion at Sept. 30, 2015, an increase of 11% (14% on a constant currency basis). Client retention remained steady at 84%, while wallet retention -- retention times revenue per customer -- increased to 106%, up from 105% in the year-ago quarter.

Somewhat offsetting the gains in the research division was a 9% (3% in constant currency) decrease in consulting revenue to $74.7 million. Consulting segment gross contribution margin also declined, falling to 29% from 30% in Q3 2014, and utilization fell from 65% to 63%. Gartner did, however, grow both its consultant force and backlog during the third quarter, with its billable head count and backlog rising to 588 and $109.6 million, respectively, as of Sept. 30, 2015, compared to 534 and $108.5 million at the end of the third quarter of 2014.

Revenue in Gartner's smallest segment, its event business, was $29.3 million, representing a year-over-year jump of 26% (38% on a constant currency basis). Gross contribution margin for the events segment climbed to 39%, an increase of 9 percentage points year over year.

Cash flow, capital returns, and acquisitions
Gartner continues to generate impressive cash flow, including $266 million of operating cash flow and $230 million in free cash flow in the first three quarters of 2015. That has allowed the company to return cash to shareholders via stock buybacks, with $453 million allocated to share repurchases during that time. In addition, $196 million in cash was used to acquire Nubera eBusiness S.L. and Capterra -- two businesses that assist organizations in selecting the right software for their needs.

Looking forward
The company also updated its full-year 2015 projections for revenues, earnings per share, normalized EBITDA, and cash flow as follows:

• Total revenue of $2.15 billion to $2.19 billion, up 6% to 8% year over year
• Adjusted earnings per share of $2.29 to $2.39, up 2% to 7%
• Normalized EBITDA of $405 million to $420 million, up 5% to 9%
• Operating cash flow of $337 million to $352 million, down 3% to up 1%
• Free cash flow of $305 million to $320 million, down 2% to up 3%

"Gartner continues to deliver robust results as a company," said CEO Gene Hall. "We achieved another quarter of double-digit CV growth and we continue to deliver strong results across our underlying metrics."