Stamford, CT. (July 18, 2002) - Gartner, Inc. (NYSE: IT and ITB), the world`s leading technology research and advisory firm, today reported results for the third fiscal quarter and nine months ending June 30, 2002. Significant increases in pro forma EBITDA(1), net income and EPS were driven by productivity gains and continued expense control.
For the third fiscal quarter of 2002:
Total revenue of $236.2 million declined 6% year over year. EBITDA grew 10% over the prior year to $45.7 million. On a GAAP reported basis, including unusual items, net income grew to $18.3 million, or $0.16 per diluted share, compared to a loss of $8.5 million, or ($0.10) per diluted share a year ago.
Excluding net losses on minority-owned investments of $2.5 million or $0.01 per share, normalized net income was $19.9 million, or $0.17 per diluted share. The normalized EPS of $0.17 was 2 cents above the high end of the Company`s guidance in a press release issued April 24, 2002.(2)
For the nine months ended June 30, 2002:
Total revenue of $686.6 million declined 7% year over year. EBITDA grew 12% over the prior year to $116.8 million.
On a GAAP reported basis, including unusual items, net income grew to $33.0 million, or $0.32 per diluted share, compared to a loss of $58.1 million, or ($0.67) per diluted share for the comparable nine-month period in 2001.
Excluding other charges of $17.2 million or $0.09 per share, net losses on minority-owned investments of $2.4 million or $0.01 per share, gains on sale of investments and businesses of $1.3 million or $0.01 per share, normalized net income totaled $45.1 million, or $0.41 per diluted share.(2)
Michael D. Fleisher, Gartner chairman and chief executive officer, said, "Our results reflect both our sustained success in growing profits and cash to maximize shareholder value as well as a difficult economy. The steps we have taken to diligently manage expenses and drive productivity gains throughout the organization have clearly yielded positive results. We delivered a 19% EBITDA margin this quarter, up 2.7 points from last year."
"We also delivered another quarter of very strong growth in cash flow from operations. Our cash balance has grown from $27 million at the end of December 2001 to $79 million at the end of March to $110 million at June 30, notwithstanding $34.1 million we spent repurchasing common stock thus far in fiscal `02."
During the quarter, the Company purchased 1.9 million shares of its common stock in the open market, for a total of $20.9 million. The transactions were executed under the Company`s $75 million stock repurchase program announced in July 2001.
Fleisher continued, "It`s clear that the uncertain economic environment will not disappear any time soon. That uncertainty compels us to focus on forging strong client relationships to drive retention rates and to continue to raise the bar on Gartner`s financial performance, specifically optimizing EBITDA margins, segment margins and cash flow.
"Even from the current vantage point, we can see - and are actively pursuing - growth opportunities for Gartner within our core audience of IT professionals, as well as within the broader audience of business executives, to aggregate and repackage our content for the specific needs of specific buyers. By evolving and refining our product development, marketing and sales capabilities, we are laying the groundwork for long-term profitable revenue growth."
Business Review
Research revenue of $121.6 million in the third quarter declined 9% from a year ago. Research contract value, the annualized value of all subscription-based research contracts in effect at a given time, declined 9% to $502.9 million. The decline in revenue and contract value is attributable to the current impact of the weaker economy and resulting holdback in technology spending. Other key indicators - the client and wallet retention rates of 75% and 80%, respectively, multi-year contracts, and average contract size - remain very stable, reflecting the fundamental relevance of Gartner research and the strength of the Company`s embedded client relationships.
On July 2, Gartner announced that Eileen McPartland, formerly of Ariba, will be joining the Company to lead Gartner`s worldwide research business.
Consulting revenue of $72.6 million in the third quarter declined 2% from a year ago on a 17% reduction in headcount. As a result, consulting utilization of 57% for the quarter grew 3 points year-over-year and 5 points sequentially. Consulting backlog, the future revenue to be derived from in-process consulting and measurement engagements, was up 4% from a year ago. Sequentially, backlog was down 2% on a 10% increase in consulting revenue as more backlog was worked through and converted to revenue in the quarter.
Events revenue totaled $38.4 million in the third quarter, a decline of 2% from a year ago. Events deferred revenue, the unearned revenue from billed events, was $39.0 million, down 24%. The results are due to both external factors (tighter T&E; budgets and the overall economy) and internal factors (the deliberate decision to eliminate unproven, less profitable events).
"Implicit in our financial results are a number of encouraging business metrics that are evidence of the durability of our franchise and the market opportunities that lie ahead," said Fleisher. "Our research client retention rate rose slightly in the quarter to 75% and wallet retention remains at 80%. For clients who spend more than $100,000 with us, client and wallet retention was even higher at 90%. Even though technology spending has stalled, demand for our products and services continues, as evidenced by $24 million in new research business in the quarter, more than half of which came from new clients."
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