Gartner, Inc. reports 120% EBITDA growth in 2018 and 5.9 pp EBITDA Margin growth from 7.1% to 13.0%
02/05/2019 • About Gartner, Inc. (
$IT) • By InTwits
Gartner, Inc. reported 2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Gartner, Inc. is a fast growth stock: 2018 revenue growth was 20.1%, 5 year revenue CAGR was 17.4% at 2018 ROIC 6.9%
- Gartner, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.5%. At the same time it's a lot of higher than industry average of 3.1%.
- CAPEX is quite volatile: $127m in 2018, $111m in 2017, $50m in 2016, $46m in 2015, $38m in 2014
- In the last 5 years the company invested considerably less than D&A: $372m vs. $644m. In 2018 this situation was still the same: CAPEX was 127 while D&A was 256
- The company has potentially unprofitable business model: ROIC is 6.9%
- It operates with high leverage: Net Debt/EBITDA is 4.1x while industry average is -0.4x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue surged on 20.1%. Revenue growth showed slowdown in 18Q4 - it was 7.3% YoY. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 7.4 pp from 23.1% to 30.6% in 2018. During the last 5 years EBITDA Margin bottomed in 2017 at 7.1%.
Gross Margin increased on 2.9 pp from 60.1% to 63.1% in 2018. SG&A as a % of Revenue decreased slightly on 0.89 pp from 48.3% to 47.4% in 2018. SG&A as a % of Revenue followed a growing trend at 1.2 pp per annum in 2014-2018. Stock Based Compensation (SBC) as a % of Revenue decreased slightly on 0.72 pp from 2.4% to 1.7% in 2018. During the last 5 years SBC as a % of Revenue topped in 2017 at 2.4%.
Net Income margin increased on 3.0 pp from 0.099% to 3.1% in 2018. During the last 5 years Net Income margin bottomed in 2017 at 0.099%. The efficient tax rate was 32.4% in 2018.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 3.2% in 2018. CAPEX/Revenue increased slightly on 1.1 pp from 2.1% in 2015 to 3.2% in 2018. Average CAPEX/Revenue for the last three years was 2.9%. CAPEX as a % of Revenue stuck to a growing trend at 0.38 pp per annum in the last 5 years.
Accounts receivable as a % of Revenue decreased on 4.0 pp from 35.5% to 31.6% in 2018.
Gartner, Inc. has spent
$16m on M&A in 2018 which accounts for 0.40% of revenue.
Return on investment
The company operates at good ROE (13.4%) while ROIC is low (6.9%). ROIC increased on 7.2 pp from -0.25% to 6.9% in 2018. ROE jumped on 12.7 pp from 0.63% to 13.4% in 2018. ROIC followed a declining trend at -12.8 pp per annum in the last 5 years.
Leverage (Debt)
Debt level is 4.1x Net Debt / EBITDA and 4.4x Debt / EBITDA. Net Debt / EBITDA dropped on 7.6x from 11.7x to 4.1x in 2018. Debt dropped on 30.4% while cash dropped on 71.0%.
Gartner, Inc. has short term refinancing risk: cash is only 94.4% of short term debt.
Valuation and dividends
Gartner, Inc.'s trades at EV/EBITDA 28.8x and P/E 103.9x.
Management team
Gartner, Inc.'s CEO is Eugene A Hall. Eugene A Hall is a founder and has 15 years tenure with the company. CEO total compensation was
$11,502,517 in 2018 which included
$908,197 salary. Craig W Safian is a the company's CFO. Craig W Safian has spent 5 years at the company.
The company has 3.0% shares owned by insiders. Insider ownership didn't change in 2018.
The company has 15,173 employees. The number of employees showed almost no change in 2018. Average revenue per employee in 2018 was
$262,008 and it surged on 19.7%.
Financial and operational results
FY ended 12/31/2018
Gartner, Inc. ($IT) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 2,021 | 2,163 | 2,445 | 3,311 | 3,975 | 20.1% |
| Gross Profit | 1,224 | 1,324 | 1,499 | 1,991 | 2,507 | 25.9% |
| SG&A | 876 | 963 | 1,089 | 1,599 | 1,884 | 17.8% |
| EBITDA | 326 | 335 | 367 | 234 | 515 | 120.4% |
| EBIT | 286 | 288 | 305 | -6 | 260 | |
| Tax | 91 | 97 | 95 | -131 | 59 | |
| Net Income | 184 | 176 | 194 | 3 | 122 | 3,634.6% |
| Stock Based Compensation | 19 | 32 | 47 | 79 | 66 | -16.2% |
Balance Sheet
|
|---|
| Cash | 365 | 373 | 474 | 539 | 156 | -71.0% |
| Accounts Receivable | 552 | 581 | 643 | 1,177 | 1,255 | 6.7% |
| Short Term Debt | 20 | 35 | 30 | 380 | 166 | -56.4% |
| Long Term Debt | 385 | 784 | 664 | 2,899 | 2,116 | -27.0% |
Cash flow
|
|---|
| Capex | 38 | 46 | 50 | 111 | 127 | 14.5% |
| Acquisitions | 124 | 196 | 34 | 2,635 | 16 | -99.4% |
Ratios
|
|---|
| Revenue growth | 13.3% | 7.0% | 13.0% | 35.5% | 20.1% | |
| EBITDA growth | 5.0% | 2.9% | 9.5% | -36.3% | 120.4% | |
|
|---|
| Gross Margin | 60.5% | 61.2% | 61.3% | 60.1% | 63.1% | 2.9% |
| EBITDA Margin | 16.1% | 15.5% | 15.0% | 7.1% | 13.0% | 5.9% |
| EBIT Margin | 14.2% | 13.3% | 12.5% | -0.2% | 6.5% | 6.7% |
| SG&A, % of revenue | 43.3% | 44.5% | 44.6% | 48.3% | 47.4% | -0.9% |
| SBC, % of revenue | 0.9% | 1.5% | 1.9% | 2.4% | 1.7% | -0.7% |
| Net Income Margin | 9.1% | 8.1% | 7.9% | 0.1% | 3.1% | 3.0% |
| CAPEX, % of revenue | 1.9% | 2.1% | 2.0% | 3.3% | 3.2% | -0.2% |
|
|---|
| ROIC | 48.5% | 44.4% | 41.0% | -0.2% | 6.9% | 7.2% |
| ROE | 70.3% | | | 0.6% | 13.4% | 12.7% |
| Net Debt/EBITDA | 0.1x | 1.3x | 0.6x | 11.7x | 4.1x | -7.6x |
People
|
|---|
| Insider ownership | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 0.0% |
| Employees | 6,758 | 7,834 | 8,813 | 15,131 | 15,173 | 0.3% |
| Revenue/Employee, th. $ | 299 | 276 | 277 | 219 | 262 | 19.7% |
Gartner, Inc. ($IT) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 964 | 1,001 | 922 | 1,089 | | 54.1% | 18.7% | 11.3% | 7.3% |
| EBITDA | 59 | 153 | 121 | 182 | | -15.3% | | 173.5% | 35.5% |
| Net Income | -20 | 46 | 12 | 84 | | -153.8% | | | -21.7% |
Balance Sheet
|
|---|
| Cash | 190 | 142 | 211 | 156 | | -84.5% | -75.9% | -66.5% | -71.0% |
| Short Term Debt | 790 | 284 | 93 | 166 | | 2,589.2% | 2.3% | -77.8% | -56.4% |
| Long Term Debt | 2,186 | 2,147 | 2,077 | 2,116 | | 36.7% | -31.6% | -28.9% | -27.0% |
Ratios
|
|---|
| Gross Margin | 62.9% | 63.3% | 63.5% | 62.5% | | 0.9% | 5.0% | 3.6% | 1.8% |
| EBITDA Margin | 6.2% | 15.3% | 13.1% | 16.7% | | -5.0% | 17.0% | 7.8% | 3.5% |
| Net Income Margin | -2.0% | 4.6% | 1.3% | 7.7% | | -7.9% | 15.6% | 7.1% | -2.9% |
Peers in IT Consulting & Other Services
Below we provide Gartner, Inc. benchmarking against other companies in IT Consulting & Other Services industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Gopher Protocol Inc ($GOPH) | | -25.0% | 83.3% | 5,471.1% | 461.0% |
| CLPS Incorporation ($CLPS) | | | | 8.1% | 56.0% |
| EPAM Systems, Inc. ($EPAM) | | 25.2% | 26.9% | 25.0% | 27.1% |
| Computer Task Group, Incorporated ($CTG) | | -6.0% | -12.1% | -7.3% | 19.1% |
| Virtusa Corporation ($VRTU) | | 20.7% | 25.3% | 43.0% | 18.9% |
| |
|---|
| Median (35 companies) | | 3.3% | 7.7% | 3.8% | 3.4% |
|---|
| Gartner, Inc. ($IT) | | 7.0% | 13.0% | 35.5% | 20.1% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Inpixon ($INPX) | 29.8% | 28.9% | 28.1% | 68.7% | 71.4% |
| InterXion Holding N.V. ($INXN) | 59.2% | 60.8% | 61.5% | 61.1% | 60.9% |
| LiveRamp Holdings, Inc. ($RAMP) | 25.1% | 38.6% | 42.5% | 45.7% | 56.2% |
| Booz Allen Hamilton Holding Corporation ($BAH) | 50.4% | 50.8% | 52.3% | 53.6% | 53.5% |
| Teradata Corporation ($TDC) | 54.1% | 50.4% | 51.2% | 47.5% | 47.4% |
| |
|---|
| Median (37 companies) | 25.8% | 30.9% | 28.1% | 27.7% | 28.9% |
|---|
| Gartner, Inc. ($IT) | 60.5% | 61.2% | 61.3% | 60.1% | 63.1% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InterXion Holding N.V. ($INXN) | 41.3% | 44.9% | 43.3% | 42.2% | 42.8% |
| Switch, Inc. ($SWCH) | | 50.7% | 37.0% | 28.5% | 39.8% |
| Cognizant Technology Solutions Corporation ($CTSH) | 20.4% | 19.9% | 19.8% | 19.7% | 20.5% |
| Taoping Inc. ($TAOP) | -54.0% | -237.5% | -117.7% | 13.2% | 18.7% |
| DXC Technology Company ($DXC) | | | | 8.0% | 16.3% |
| |
|---|
| Median (36 companies) | 4.8% | 3.3% | 6.7% | 6.3% | 7.2% |
|---|
| Gartner, Inc. ($IT) | 16.1% | 15.5% | 15.0% | 7.1% | 13.0% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InterXion Holding N.V. ($INXN) | 62.5% | 48.1% | 57.4% | 50.5% | 78.3% |
| Switch, Inc. ($SWCH) | | 71.5% | 90.2% | 106.4% | 67.9% |
| Taoping Inc. ($TAOP) | 1.4% | 29.2% | 34.0% | 20.8% | 8.7% |
| Teradata Corporation ($TDC) | 2.0% | 2.1% | 2.3% | 3.6% | 7.1% |
| ServiceSource International, Inc. ($SREV) | 3.4% | 4.7% | 10.4% | 7.2% | 6.5% |
| |
|---|
| Median (35 companies) | 0.9% | 0.8% | 1.1% | 1.2% | 1.5% |
|---|
| Gartner, Inc. ($IT) | 1.9% | 2.1% | 2.0% | 3.3% | 3.2% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Accenture plc ($ACN) | 80.5% | 81.0% | 81.3% | 61.7% | 66.1% |
| The Hackett Group, Inc. ($HCKT) | 11.2% | 19.5% | 31.7% | 23.8% | 24.6% |
| Cognizant Technology Solutions Corporation ($CTSH) | 24.7% | 22.0% | 21.3% | 21.9% | 23.8% |
| Booz Allen Hamilton Holding Corporation ($BAH) | 25.3% | 26.5% | 23.1% | 22.6% | 22.5% |
| EPAM Systems, Inc. ($EPAM) | 19.7% | 18.4% | 18.2% | 18.9% | 21.2% |
| |
|---|
| Median (44 companies) | 6.2% | 4.7% | 7.3% | 5.6% | 6.9% |
|---|
| Gartner, Inc. ($IT) | 48.5% | 44.4% | 41.0% | -0.2% | 6.9% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Infinite Group Inc ($IMCI) | | | 169.6x | | 10.5x |
| InterXion Holding N.V. ($INXN) | 3.3x | 2.9x | 3.4x | 3.8x | 4.6x |
| Switch, Inc. ($SWCH) | | 2.2x | 4.0x | 3.2x | 3.3x |
| Presidio, Inc. ($PSDO) | 0.0x | | 5.6x | 3.6x | 3.1x |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION ($SAIC) | 1.3x | 0.7x | 3.0x | 2.6x | 2.9x |
| |
|---|
| Median (28 companies) | -0.2x | -0.3x | 0.0x | 0.4x | 0.4x |
|---|
| Gartner, Inc. ($IT) | 0.1x | 1.3x | 0.6x | 11.7x | 4.1x |
