Research Up 8%, Consulting Up 29% and Events Up 53%
Stamford, Conn. (April 17, 2001) — Gartner, Inc. (NYSE: IT and ITB), the world`s leading research and advisory firm, today reported results for the second fiscal quarter ending March 31, 2001.
Total revenue from continuing operations for the second quarter of fiscal 2001 grew 16% to $224.8 million from $193.3 million in the second quarter of fiscal 2000. Net income from continuing operations, excluding the net loss on sale of investments and losses from minority-owned investments, was $1.0 million, or normalized earnings per fully diluted share of $0.01. Net loss from continuing operations, including the net loss on the sale of investments and losses from minority-owned investments, was $1.4 million, or a loss of $0.02 per fully diluted share. EBITDA (earnings before interest, taxes, depreciation and amortization) totaled $20.8 million.
For the first half of the fiscal year, Gartner`s total revenue from continuing operations increased 15% to $480.4 million from $416.2 million for the first half of fiscal 2000. Net income from continuing operations, excluding the net gain on the sale of investments and losses from minority-owned investments, was $16.4 million, or normalized earnings per fully diluted share of $0.19. Net income from continuing operations, including the gain on the sale of investments and losses from minority-owned investments, was $16.3 million, or $0.19 per fully diluted share. EBITDA totaled $61.2 million.
Business Review
Research revenue increased 8% to $132.7 million in the second quarter and rose 6% to $271.9 million in the first half of fiscal 2001, as clients were successfully migrated from legacy to seat-based pricing and embraced the newly launched gartner.com. Ratable contract value was $558.1 million. Normalized for currency exchange, contract value grew 6% from a year ago.
Consulting revenue grew 29% to $68.8 million in the second quarter and increased 35% to $118.5 million in the first half of fiscal 2001, driven by the growing penetration of Gartner`s existing research clients with consulting services. Backlog ended the quarter at $92.5 million.
Events revenue rose 53% to $17.4 million in the second quarter and grew 33% to $79.8 million in the first half of fiscal 2001 on continued growth in conference attendees, exhibitors and conference fees. Deferred revenue was $56.8 million, up 30% from a year ago.
Michael D. Fleisher, Gartner`s Chief Executive Officer, said, "We are very pleased to have achieved strong financial performance for all three of our core businesses. This accomplishment is even more rewarding in light of the tough economic climate of the past three months. We believe our ability to deliver excellent quarterly results is clear evidence that clients need our help now more than ever."
Fleisher concluded, "Looking forward, the deferred revenue in research and events, and our backlog in consulting, give us very good visibility into our future business. We have a broadly diversified business model, with 59% of revenues from research, 31% from consulting, 8% from events, and the remainder from other products and services. Gartner has the largest customer base in the industry and touches more than 10,000 companies each day around the world. The importance and best-in-class quality of our products and services is reflected in the high rates of renewal for our research and in the multiple strong relationships we have developed with our clients across our businesses. In summary, we believe Gartner is still the best-positioned research and advisory business in the industry."
Sale of TechRepublic
On April 9, 2001, Gartner signed a definitive agreement to sell TechRepublic to CNET Networks for $23 million in cash and common stock. The Company also formed a content alliance with CNET, which will give Gartner a high profile presence on both the TechRepublic and CNET sites. The transaction is expected to close in early July. Said Fleisher, "We continue to believe in the long-term prospects of the TechRepublic business model. However, it became increasingly clear that the planned profitability for TechRepublic would be very slow in coming unless it was owned by a business like CNET with leveragable scale in online advertising."
Fleisher continued, "Part of our rationale in originally acquiring TechRepublic was to give Gartner ongoing access to TechRepublic`s audience of over 1.5 million registered users. With this transaction, we can now deliver our brand, insight and analysis to an even larger audience of IT and business professionals, while driving greater profitability for Gartner."
Silver Lake Partners Convertible Reset
On April 17, 2000, Silver Lake Partners, LP ("SLP") made an investment of $300 million in Gartner in the form of a five-year private convertible subordinate note with a 6% coupon. The original agreements provide for a conversion price reset on the first anniversary of the financing, in the event of a reduction in the market price of Gartner stock. The conversion price is calculated at 110% of the average market price for the 30 trading days leading to the anniversary date. The reset will occur under the existing terms and conditions of the convertible note. SLP has a moratorium on conversion until April 17, 2003, after which time they can put the convertible bond with accrued interest back to Gartner; Gartner can, however, elect at that time to convert the bond into Gartner Class A common stock or cash of equivalent value, at its discretion. The reset conversion price is $7.45, representing approximately 33% of Gartner`s shares outstanding on an as-converted basis.
Fleisher said, "For the last several months, we have worked diligently to explore financial alternatives to the SLP convertible bond reset. This included the selection of Goldman Sachs as our financial advisor and rigorous scrutiny and consideration of several options, including refinancing using various forms of debt and equity, and re-negotiation of our existing agreement with SLP. Based primarily on the chal-lenging state of the capital markets, our Board of Directors concluded that the reset as scheduled better served the interests of Gartner`s shareholders than any other alternatives available to the Company."
Business Outlook
"Looking forward, our strong top line growth in recent quarters, combined with the divestiture of TechRepublic, should provide significantly improved EBITDA, EPS and cash flow," said Regina M. Paolillo, Gartner`s Chief Financial Officer. "Our best strategy for maximizing existing shareholder value is to prioritize our resources on enhanced profitability in our three core businesses: research, consulting and events." The following is the Company`s fiscal year and third quarter 2001 guidance, exclusive of TechRepublic.
The Company expects total revenue to increase to approximately $950 to $975 million in fiscal 2001. Total revenue for the third fiscal quarter is expected to increase approximately 10% to 15% from a year ago.
Research revenue is expected to increase approximately 5% to 7% for the fiscal year and 5% to 7% in the third fiscal quarter. Consulting revenue is expected to be up approximately 25% to 30% for the fiscal year and 30% to 35% in the third fiscal quarter. Events revenue is expected to be up approximately 20% to 25% for the fiscal year and 10% to 15% in the third fiscal quarter.
For fiscal 2001, diluted EPS, excluding the "as if" effect of the convertible bond is expected to be in the range of $0.42 to $0.50. For the third fiscal quarter, diluted EPS is expected to be in the range of $0.13 to $0.15.
EBITDA in fiscal 2001 is expected to be approximately $135 to $145 million. For the third fiscal quarter, EBITDA is expected to be approximately $38 to $42 million.
These business outlook statements are based on current expectations and should be considered forward-looking; actual results may differ materially. These statements do not include the potential impact of any business risks, opportunities or developments that may occur after March 31, 2001. See the discussion below. Readers are also strongly encouraged to read the full cautionary statements included in this release and in the Company`s SEC filings.
Conference Call Information
The Company has scheduled a conference call with investors at 10:00 a.m. EST on Tuesday, April 17, 2001, to discuss the Company`s financial results. The conference call will also be available via the Internet by accessing the "Investor Information" section of Gartner`s web site at www.gartner.com, or at www.vcall.com. A replay of the webcast will be available for a limited time.
About Gartner
Gartner, Inc. is a research and advisory firm that helps more than 10,000 clients understand technology and drive business growth. Gartner`s divisions consist of Gartner Research, Gartner Consulting, Gartner Measurement and Gartner Events. Founded in 1979, Gartner, Inc. is headquartered in Stamford, Connecticut and consists of 4,600 associates, including 1,400 research analysts and consultants, in more than 80 locations worldwide. The company achieved fiscal 2000 revenues of $859 million. For more information, visit www.gartner.com.
Certain statements contained herein, including statements regarding the Company`s business outlook, the development of the Company`s services, markets and future demand for the Company`s services and other statements regarding matters that are not historical facts, are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). Such forward-looking statements include risks and uncertainties; consequently, actual results may differ materially from those expressed or implied thereby. Factors that could cause actual results to differ materially include, but are not limited to, ability to attract and retain professional staff of research analysts and consultants upon whom the Company is dependent, ability to effectively manage growth, ability to achieve continued customer renewals and achieve new contract value, backlog and deferred revenue growth in light of potentially adverse economic conditions and competitive pressures, ability to integrate operations of possible acquisitions, ability to carry out the Company`s strategic initiatives and manage associated costs, ability to manage the Company`s strategic partnerships, rapid technological advances, substantial competition from existing competitors and potential new competitors, risks associated with intellectual property rights important to the Company`s products and services, additional risks associated with international operations including foreign currency fluctuations and other risks listed from time to time in the Company`s reports filed with the Securities and Exchange Commission. Forward-looking statements included herein speak only as of the date hereof and the Company undertakes no obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances.
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