Gartner, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Gardner fourth quarter 2019 earnings conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. If you require any further assistance, please press star then zero. I would now like to turn the conference over to your speaker today, David Cohen, Gardner's GVP of Investor Relations. Please go ahead.

Thank you, Sarah, and good morning, everyone. We appreciate your joining us today for Gartner's fourth quarter 2019 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 2019 financial results and our outlook for 2020 as disclosed in today's press release. In addition to today's press release, we have provided a detailed review of our financials and business metrics, and an earnings supplement for investors and analysts. We've posted a press release and the earnings supplement on our website, investor.gartner.com. Following comments by Gene and Craig, we will open up the call for your questions. We ask that you limit your questions to one and a follow-up. On the call, unless stated otherwise, all references to revenue and contribution margin are for adjusted revenue and adjusted contribution margin, which exclude deferred revenue purchase accounting adjustments and the 2018 divestitures. All references to EBITDA are for adjusted EBITDA, with the adjustments as described in our earnings release and excluding the 2018 divestitures. All cash flow numbers, unless stated otherwise, are as reported, with no adjustments related to the 2018 divestitures. References to organic growth exclude the recently acquired topo. All growth rates and genes 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 2019 foreign exchange rates unless stated otherwise. 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 2018 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. In 2019, we continued to deliver strong performances across our businesses. We made progress on our core strategy of establishing leading market positions in every role across the enterprise while continuing to drive innovation. 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 we have the talent to support sustained, long-term, double-digit growth. We helped more than 15,000 enterprise clients in 100 countries around the world with their mission-critical priorities. We provided great jobs to 17,000 associates around the world and positioned our company for the long-term benefit of our shareholders. In 2019, total revenues were up 11%, fueled by double-digit growth in each of our business segments, research, conferences, and consulting. Research, our largest and most profitable segment, is the core of our client value proposition. Our research business was up 11% year over year. The Gartner formula for sustained, long-term, double-digit growth continues to drive success in our research business. As we've previously highlighted, the Gartner formula consists of indispensable insights, exceptional talent, sales excellence, and enabling infrastructure. For each of these elements, we drive relentless, globally consistent execution of best practices and continuous improvement and innovation. Global technology sales, or GTS, serves leaders and their teams within IT. This group represents more than 80% of our total research contract value. GTS contract value grew 12% against a tough compare over the prior year. In most of our top markets, including the US, UK, and Canada, we had strong double-digit growth. We also had growth of more than 20% in a number of markets with slow GDP growth, such as Japan, Brazil, and Saudi Arabia. And this is due to the high value clients received from our products. Despite these strengths, GTS contract value growth decelerated. There were three primary factors. The single biggest factor was the impact of our revised strategy for serving very small tech vendors, as we've discussed previously. The next largest factor was leadership changes in Germany and India, which we've also discussed previously. Finally, we had challenges in China. So while GTS had some challenges, we achieved strong double-digit contract value growth of 12%. And we've put actions in place to address the challenges and expect to see improvements over time. We continue to have vast market opportunity across all sectors, sizes, and geographies. We've made investments over the past two years, including sales headcount, that position us well to capture that market opportunity. Following 12% growth in GTS headcount over the past two years, we expect GTS headcount growth for 2020 in the high single digits. Last quarter, I outlined three sales optimization initiatives, dynamic territory planning, just-in-time recruiting, and just-in-time training. Over time, these initiatives will help us align our cost growth with our revenue growth while enabling us to train and employ our sales hires more effectively. We estimate that these new programs are the equivalent to adding three to five points to our reported headcount growth. Global Business Sales, or GBS, serves leaders and their teams beyond IT and represents about 20% of our total research contract value. 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. GBS contract value continued to accelerate, growing 8% organically. Retention improved more than 400 basis points for the year, and productivity was up significantly. GBS growth accelerated throughout 2019, though we did have some challenges. The GBS marketing practice has some products unique to marketing that have weak retention and low profitability. Marketing contract value grew only 4% largely due to these products. As we align our cost growth to revenue growth, we're transitioning to these lower margin, low retention products, to more profitable GXL products. We're making this transition as the lower margin products come up for renewal during 2020. And we expect this will have a negative impact on our 2020 CD growth, but will improve profitability going forward. Our GXL product line continued to gain momentum, with contract value increasing $43 million during 2019. GXL products 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 client organizations. We implemented the Gartner Formula for Growth in GBS. In 2018, we invested in the products, processes, and Salesforce growth. In 2019, growth accelerated and our GXL products gained momentum. We have built a great foundation for future growth. Our conferences segment also delivered a terrific performance in 2019, with double-digit revenue growth of 18% and conference attendee growth of 8%. Gartner conferences combine the outstanding value of our research with the immersive experience of live interactions, making every conference we produce the most important gathering for the executives we serve. Looking ahead to 2020, we plan to introduce more new conferences. For example, in Europe, for GTS, we'll launch security and risk management and data and analytics summits. And in Europe, for GBS, we'll launch marketing symposium expo and supply chain planning summit. Our consulting segment also achieved double-digit growth in 2019, with revenues up 14%. Gartner Consulting is an extension of Gartner Research and provides clients a deeper level of involvement through extended project-based work to help them execute their most strategic initiatives. Our growth was a combination of our labor-based business and strength in our contract optimization business. We had a record year in the contract optimization business. We expect another good year in 2020, but likely at a lower growth rate given how strong 2019 was. Over the past several years, we've made great progress in the consulting business and are well positioned for continued long-term success. Summarizing, we delivered another strong year across all three of our business segments. Looking ahead, we are well positioned for sustained long-term growth. With the great strategic position of GTS and GVS, together with leveraging the investments we've made, we expect strong top-line growth and EBITDA growing in line with revenues. With that, I'll hand the call over to Craig.