Gartner, Inc.

Good morning and welcome to the Gartner First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to David Cohen, Gartner's GDP of Investor Relations. Please go ahead.

Thank you, Heather, and good morning, everyone. We appreciate your joining us today for Gartner's fourth quarter 2018 earnings call. With me today are Gene Hall, Chief Executive Officer, and Craig Safian, Chief Financial Officer. This call will include a discussion of fourth quarter 2018 financial results and our outlook for 2019 as disclosed in today's press release. In addition to today's press release, we have provided an earnings supplement for investors and analysts in which we provide a detailed review of our financials and business metrics. In the earnings supplement, we included a full non-GAAP P&L excluding divested operations. This table combines Heritage Gartner and Heritage CUB and removes the operating results of the divestitures starting January 1, 2017. For 2018, the table provides results as if we had used the net proceeds from the divestitures to repay debt on December 31, 2017. This gives you a view down to adjusted EPS for 2018 that reflects how we are thinking about the business as we move into 2019. Please note our events segment has been renamed conferences to align with the business operations. Also, in our discussion of global business sales, or GBS, we will refer to the GXL product. These are the products for business leaders across the enterprise. Gartner for marketing leaders is GML. Gartner for finance leaders is GFL, and so on. We have introduced six of these products over the past five quarters and will introduce more in the future. In aggregate, we refer to these products for business leaders as GXL. We have posted the press release and the earnings supplement on our website, investor.gartner.com. Following comments by Jean and Craig, we will open up the call for your questions. We ask that you limit your questions to one and one follow-up. On the call, unless stated otherwise, all references to revenue and contribution margin are for adjusted revenue excluding divested operations and adjusted contribution margin excluding divested operations, which exclude the deferred revenue purchase accounting adjustment and the recently divested businesses. All references to EBITDA are for adjusted EBITDA excluding divested operations with the adjustments as described in our earnings release and excluding the divested operations. All cash flow numbers, unless stated otherwise, are as reported with no adjustments related to the divested operations. All growth rates in Jean's comments are FX neutral unless stated otherwise. Reconciliations for all non-GAAP numbers we use are available in the investor relations section of the Gartner.com website. Finally, all contract values and associated growth rates we discuss are based on 2018 foreign exchange rates. In the earnings supplement, the abbreviation XDO indicates that the metric excludes divested operations. As set forth in more detail in today's earnings release, certain statements made on this column may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's 2017 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC. I encourage all of you to review the risk factors listed in these documents. Now, I will turn the call over to Gartner's Chief Executive Officer, Gene Hall.

Good morning, and thanks for joining us. 2018 was a strong year. We continue to have world-class operational execution and innovation while making progress on our core strategy of establishing leading market positions in every role across the enterprise. We continue to invest in our business to drive sustained double-digit growth. Across the business, we grew our sales forces and reduced open sales positions to record lows. We made substantial investments in GBS products, service, and sales to accelerate future growth. We also made substantial investments in critical support functions, such as recruiting, to ensure that we have the talent to support sustained double-digit growth. We divested several non-core businesses to focus on our enormous market opportunity. We helped 15,600 enterprise clients in 100 countries around the world with their mission-critical priorities. We provided great jobs to 15,000 associates around the world and delivered market-beating returns for our shareholders. Few organizations had this level of global impact. In 2018, total revenues were up 12%, fueled by strong performances from our research, conferences, and consulting businesses. Research delivered another strong year of double-digit growth, up 12% over 2017. One factor fueling our growth is the consistent application of the Gartner formula. The Gartner formula for growth is our playbook for driving sustained double-digit growth. It consists of indispensable insights, exceptional talent, sales excellence, and enabling infrastructure. For all of these, we drive globally consistent execution of best practices and continuous improvement and innovation. We continue to apply the Gartner formula to both global technology sales, or GTS, and global business sales, or GBS. GTS serves leaders and their teams within IT, and represents 80% of our total contract value. In GGS, our performance continued to accelerate in 2018. Contract value growth increased to 14%, and sales productivity improved. We again delivered double-digit growth in every region, across every size company, and in virtually every industry. This acceleration was driven by three primary factors. Consistent application of the Gartner formula for growth, continued growth in our sales force, and a reduction in proportion of open territories. During 2018, we had the best level of execution yet of these programs. GBS serves leaders and their teams outside of IT. This includes supply chain and marketing, which we've addressed for several years, as well as other major enterprise roles, including HR, finance, legal, sales, and more. Each of these roles has the same need for our services as IT. For example, HR leaders recognize that future effectiveness depends on talent analytics. We help HR leaders build their talent analytics capability and use it to drive successful business decisions and outcomes. Talent analytics capabilities are dynamic and constantly changing, so HR leaders are continually having to adapt. This is an example of why our HR offering is as essential for HR leaders as our IT offering is for IT leaders. Over time, our HR business has the potential to have contract value of over a billion dollars. Finance, sales, marketing, and supply chain could be equally large. This gives GVS incredible growth potential. Our objective in 2018 was to build the initial foundation for sustained double-digit growth to realize this incredible opportunity. We're implementing the Gartner Formula for Growth across GVS. In 2018, we put special emphasis in three key areas, products, processes, and Salesforce growth. As David said, we refer to our products for business leaders as GXL. GXL products deliver sustained growth compared to legacy products. They provide greater value to clients because they're tailored to the client's individual needs. This, in turn, results in higher prices per user and stronger retention. Beyond better pricing retention, GXL products provide exponentially more growth opportunities because we can sell these high-value products throughout our clients' organizations. We've had GXL products in our supply chain business, and they've been very successful. We've also had GXL products in our marketing business, and they've been very successful. Beginning late in 2017 and continuing 2018, we added GXL products for the largest GBS roles, including HR, finance, sales, and legal. Over time, we'll add more GXL products for other roles. Another essential element for sustained growth is best practice training, tools, and processes. Over the past decade, we've developed sales training, tools, and processes for GTS that are among the best in the world. During 2018, we began equipping the GBS sales force with these best practices. The learning to use these best practices isn't easy. It's a significant change from the previous way of doing things. and can take talented, experienced salespeople years to become proficient. For example, in GTS, we hire talented, highly experienced salespeople. These new hires take three years to achieve full productivity. In their second year, they sell almost double that of their first year, and productivity continues to improve again in year three. One way to think about GBS is that virtually all the salespeople and their managers were in their first year with Gartner in 2018. Like experienced new hires, they need to learn the Gartner best practices. It'll take them some time to become fully proficient. Beyond products and the Gartner formula, we grew sales capacity 23% during 2018, which sets us up for long-term growth in 2019 and beyond. As a growth company, we were aggressive in building this foundation to provide long-term double-digit growth. We transitioned from legacy to higher-value GXL products as fast as practical. We piloted the new GXL products in late 2017. Then the products were rolled out and salespeople trained during the first half of 2018. Salespeople continued to sell the legacy products during the first half to close out their existing pipeline. Beginning at mid-year, salespeople began selling only GXL products. As a result, sales of legacy products were robust in the first half but stopped in the second half. As expected, the GBS sales force rapidly went up the learning curve, and sales of GXL products accelerated throughout 2018. Our sales force sold more than $100 million of GXL new business, almost triple the $37 million from 2017. And almost half of these sales were from products that weren't fully launched until mid-year. However, the transition from legacy to GXL had an impact on our 2018 contract value growth. GXL's accelerated, but not fast enough during 2018 to outpace the decline in legacy sales. As our sales force continues to gain experience selling GXL products in 2019, we expect to achieve double-digit contract value growth by the end of the year. As I noted earlier, we haven't yet introduced GXL products to replace all legacy products. So we have sales people who don't have GXL products to sell. These salespeople will continue selling legacy products until we introduce a GXL replacement. As a result, we'll still have some legacy product new business until that point. So in GBS, we enter 2019 with a 23% larger sales force. That sales force has more tenure and is further up learning and productivity curve. We have a higher mix of GXL products, which have greater retention. And we'll have a full year of our retention programs. This is our path to double-digit growth. Beyond research, our conference and consulting businesses performed very well in 2018. Gartner conferences delivered incredible insights to our attendees while building brand awareness and making a profit. The newly renamed conferences segment had its best year yet. Investments we made at the conference sales organizations and the event of business were critical in driving these strong results. Revenue was up more than 19% and surpassed $400 million because of the tremendous value our clients get from our conferences. Our advantage of business accelerated to more than 20% growth for the year, compared to no growth prior to the acquisition. The forward-looking metrics for our conferences segment remain strong going into 2019. Gartner Consulting extends the value of our research, providing in-depth expertise on longer-term engagements. Our consulting business grew 7% during 2018. Building off a strong base, our labor-based business and our contract optimization business both drove improvements over 2017. We ended the year with our backlog up 12% year-over-year, which sets us up for a great 2019. SG&A grew 16%. G&A grew 9%, slower than the overall business. This included investments in growing our recruiting capability to meet our long-term talent needs. As a growth company, we made significant investments in sales to drive future growth. We invested in three areas. First, our largest investment was in expanding the GTS sales force and reducing the number of open territories. This was a key contributor to GTS contract value growth and acceleration. We also invested in expanding the global conferences sales force and reducing the number of open territories. This was a major factor in conferences having a record-breaking year. And finally, we invested in expanding the GBS sales force, growing headcount about 23%. This provides a great foundation for future growth. In summary, 2018 was a strong year. We continue to have world-class operational execution innovation while making progress on our core strategy of establishing market-leading positions in every role across the enterprise. We made investments across the business to support sustained double-digit growth, and leading indicators are strong. We assist our clients around the world with their mission-critical priorities, provide a great job for our associates, and deliver another year of market-beating returns for our shareholders. And now here's Craig Safian, our CFO, to give an in-depth view of our financials. Craig?