Gartner, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Gartner first quarter 2020 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 would need to press star then one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, David Cohen, GVP Investor Relations. Please go ahead.

Good morning, everyone. We appreciate your joining us today for Gartner's first quarter 2020 earnings call and hope you are well. Joining me today on the call are Gene Hall, Chief Executive Officer, and Craig Safian, Chief Financial Officer. All will include a discussion of first quarter 2020 financial results, and our updated outlook for 2020 is disclosed in today's press release. In addition to today's release, we have provided a detailed review of our financials and business metrics and an earnings supplement for investors and analysts. We have posted the 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 EBITDA are for adjusted EBITDA, with the adjustments as described in our earnings release. Reconciliations for all non-GAAP numbers we use are available in the Investor Relations section of the Gartner.com website. We've updated the definition we use for free cash flow, the cash provided by operating activities determined in accordance with GAAP as payments for capital expenditures. The definition of free cash flow no longer excludes acquisition and other non-recurring items as we believe this change better captures actual cash generated in the period for the purposes of capital allocation. In a supplement, we've included the historical add-backs for prior periods as well as what they would have been in the first quarter to allow for comparability. Finally, all contract values and associated growth rates we discuss are based on 2020 foreign exchange rates, unless stated otherwise. To set forth in more detail on today's earnings release, certain statements made on this call 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 2019 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. I hope you're all safe and healthy. The COVID-19 pandemic is a humanitarian crisis that continues to drive massive social, economic, and operational disruption everywhere around the world. As we navigate this environment, there are three messages you should take away from our discussion today. We're well-positioned to help our clients address the pandemic and the economic downturn. We've taken steps to carefully manage our costs and cash flow in response to the economic downturn, and we will come out of the recession strong and well-positioned to resume driving long-term, sustained double-digit growth. As most of you know, Gartner operates in three business segments, research, conferences, and consulting. Each of these business segments has been impacted somewhat differently by the current environment. Research is our largest and most profitable segment and remains the core of our value proposition. Our research segment is well-positioned to operate as a virtual business. Prior to the pandemic, the majority of our analysts, experts, and thought leaders were located in countries around the world. They were already supporting our clients via tele- and video conferences. A large share of our sales and service teams were based in centralized office locations, but were selling and servicing our clients remotely. All Gartner associates are equipped with laptops configured for a virtual work environment as part of our business continuity program. In response to the pandemic and local government directives, we closed our offices during Q1. Because we had a strong infrastructure in place, associates were able to make a smooth transition to working from home. Of course, not everything went as planned. For example, some associates have relatively slow Internet connections, and some managers had to adjust to managing their teams remotely. Our most immediate challenge has been an increased difficulty bridging prospects and some clients in their remote environments rather than in their offices. We continue to make a significant global impact through our research insights, tools, and advice. We're agile with our research content. We continuously adapt our research agenda to ensure we're writing on topics that support our clients' current mission-critical priorities. Q1 was no different. When news of the pandemic broke, we added comprehensive content for every major functional role across the enterprise on critical topics such as what steps to take in response to COVID-19, what to do so that employees are productive working from home, and how to make smart cost reductions across the organization. In addition, we took the best cross-practice content and made it available to all clients. Findings from our expanded coronavirus coverage and real-time surveys are being widely used by our clients. These insights have also been cited by well-known media outlets, including the Wall Street Journal, CNBC, The Economist, and more. During Q1, we significantly increased the number of webinars and other virtual events where we deliver content to our clients. These have been highly valued. For example, in early March, we launched a global webinar on leading through COVID-19. Registrations for that event were about eight times more than our average for 2019 webinars. Client engagement is one of the biggest drivers of retention. and by being agile and adapting our content, our client engagement has remained strong. Our services are very cost-effective and provide high value to clients because we're able to get the right content to the right audience at the right time in a virtual format. Our new business and renewals have been impacted by COVID-19. In today's environment, we see three categories of clients. First, there are those companies and industries most impacted by COVID-19, such as travel, entertainment, and retail. Renewals and new business with companies in these industries is more difficult than it was last year. However, many realize they continue to need our services and are continuing to buy, just at a slower rate. The second category includes companies that have been minimally impacted economically by COVID-19, such as companies that provide goods or services like food, cleaning supplies, and some types of software. Renewals in new business within these companies continues at about the same pace as it has in the past. The third category is companies that are not directly impacted by COVID-19 but are experiencing reduced demand for their products and services. While these companies continue to buy, they're placing additional scrutiny on all purchases, including Gartner products and services. This can extend the time to complete a sale or renewal. Across GTS and GVS, our clients have expressed how important our services are, especially during these turbulent times. Our HR, finance, and legal practices had demand and buy cycles similar to IT. Out of the GBS practices, supply chain and marketing businesses had the weakest performance in Q1. Due to interruptions in supply chains, many supply chain leaders have been forced to pause their strategic initiatives and become more directly involved in tactical supply chain operations. This often extends the time to complete a sale or renewal. As we discussed last quarter, we're phasing out certain marketing products with low profitability, which reduce the retention and growth rate of our marketing practices. Overall, our research business is well positioned to operate successfully as a virtual business. Our conferences segment has been impacted the most by COVID-19. Because of government mandates and health concerns, we were able to hold only a limited number of conferences during Q1. With this situation, we're now planning to hold 17 destination conferences later this year out of our original full-year plan of 77. This as well as our reduced advances schedule, will reduce our expected revenues from our conference's business. Based on the reduced expected revenues from this segment, we've taken steps to reduce costs, including staff reductions. Our conferences provide tremendous value to both attendees and exhibitors. We're in constant contact with our exhibitors. They continue to have a high level of interest and are ready to return when safe to do so. There's a similar level of interest among potential attendees. We're carefully developing changes in our conferences to increase safety, such as sanitation standards, additional separations, et cetera. We're also developing virtual conference formats. We held our first virtual conference just last week. That conference for sales leaders went from concept to event, including the marketing for the conference, in less than three weeks. There were nine sessions held over a single day. We had more than 1,900 total registrations for this conference. The net promoter score was 77, a strong score which exceeded our expectations. While we are operationally planning to hold conferences during the latter part of the year, we recognize that this may not be possible due to government mandates or health concerns. As a result, our updated financial guidance assumes that we will be unable to hold these conferences. Looking at the long term, we expect conferences to continue to be an important contributor to our overall business. Gartner Consulting is an extension of Gartner Research. and provides clients with a deeper level of involvement through extended project-based work to help them execute their most strategic initiatives. Consultant has also been impacted by COVID-19. Many clients are postponing major new initiatives until they have more clarity as to the impact of the pandemic and the economic downturn. As a result, our backlog was up only 1% during Q1. Looking across our business, during Q1, we closed our offices worldwide for the safety of our associates and to comply with government mandates. Consistent with government guidelines, we've reopened our offices in Shanghai and Beijing. We'll use our experiences with these offices to reopen in other countries when sheltered home directives begin to relax. We've taken steps across the business to manage our costs without impairing our ability to drive growth in the future. We've implemented very tight controls on staffing levels, including hiring freezes where appropriate. We reduced staff in our conferences business, as I mentioned earlier. We've significantly cut non-labor spendings. and we've slowed our capital expenditures, such as the build-outs of new office space. The operational changes we made will help ensure we have positive cash flow. In addition, we're tightly managing our financial operations functions to positively impact cash flows. We've also taken steps to help ensure we maintain adequate liquidity. We ended the quarter with $228 million in cash. On April 1st, we drew an additional $300 million from our revolver, and we have another $700 million of capacity available. Finally, who negotiated an amendment to her credit facility with financial covenants that gives us improved flexibility. We will come out of this session strong and well-positioned to continue driving long-term, sustained double-digit growth. We continue to have vast market opportunity across all sectors, sizes, and geographies. We'll continue to maintain and improve our core capabilities to capture our market opportunity while carefully managing our cost structure and cash flow. We plan to maintain and improve our analyst and advisor capability for developing highly valuable research insights and strong services capability to meet client needs. We plan to maintain and improve our sales coverage and capacity while taking this opportunity to address underperforming sales territories. We will remain agile, so we're prepared for whatever may come next. In summary, as we navigate the uncertainties of this unique environment, these are the three messages you could take away from our discussion today. We are well-positioned to help our clients address the pandemic and economic downturn. We've taken steps to carefully manage our costs and cash flow in response to the economic downturn. And we will come out of the recession strong and well-positioned to resume driving long-term, sustained, double-digit growth. I'll now turn the call over to our CFO, Craig Sapien.