Gartner, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Gartner's fourth quarter 2020 earnings conference call. At this time, all participants are in listening 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 one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, David Cohen, Gartner's GVP of Investor Relations. Thank you. Please go ahead, sir.

Good morning, everyone. We appreciate your joining us today for Gartner's fourth quarter 2020 earnings call and hope you are well. With me on the call today are Gene Hall, Chief Executive Officer, and Craig Safian, Chief Financial Officer. This call will include a discussion of fourth quarter 2020 financial results and Gartner's outlook for 2021 as disclosed in today's earnings release and earnings supplement, both posted to 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. All growth rates and jeans 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 2020 foreign exchange rates unless stated otherwise. As set forth in more detail in 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. 2020 was an extraordinary year. The COVID-19 pandemic, global macroeconomic conditions, social unrest, and geopolitical changes all pose significant challenges to enterprises around the world. In this context, Gartner delivered a strong performance across contract value, revenue, EBITDA, and free cash flow. As many of you know, we entered 2020 with a financial plan to align costs with revenues. By executing this plan and taking swift cost actions when the pandemic first began, we quickly stabilized our financial position. We maintained disciplined cost management throughout the year while restoring investments to support future growth. We successfully pivoted our global workforce to operate effectively in a remote environment. We grew our capability in key functions across our business. We drove strong operational execution, and we were extremely agile in serving our clients, pivoting our content to address critical contemporary issues such as the pandemic, remote work environments, cost optimization, and business continuity. We are well positioned to spring back quickly as the macroeconomic environment improves. Our performance improved in Q4 compared to earlier in 2020. We delivered strong performances in GBS contract value, research revenues, EBITDA, and free cash flow. Research is our largest and most profitable segment. It has a vast market opportunity across all sectors, sizes, and geographies. Our research segment serves executives and their teams across all major enterprise functions in every industry around the world. We are uniquely positioned to support leaders enterprise-wide on hundreds of critically important topics. Topics with the highest interest during Q4 included data and analytics, cost optimization, and talent management. Global technology sales, or GTS, serves leaders and their teams within IT. For the full year 2020, GTS contract value grew 4%. Our key underlying metrics have improved each quarter since Q2. Fourth quarter 2020 contract value from new logos was up from a year ago, while cancels were about the same. Our existing clients continued to increase their spend. However, it was a slower pace than in 2019. This was the biggest factor impacting our growth in the quarter. Client engagement continued to be strong, with both content and analyst interactions up 30% versus 2019. We saw strong performances across several regions and industries, including tech, retail, and services. Some of the topics with the highest interest included digital transformation, application development, cloud management, and the digital workplace. We expect GTS contract value growth to accelerate in 2021 and return to double-digit growth in the future. Global business sales, or GBS, serves leaders and their teams beyond IT. This includes HR, supply chain, finance, marketing, sales, legal, and more. GBS contract value continued to perform well throughout the year, with contract value growth of 7%. New business growth was a very strong 26% in the quarter, driven by our GXL product line. The sales, finance, and HR practices all ended Q4 with double-digit growth rates. And all practices, with the exception of marketing, contributed to GBS's growth. Across our entire research business, we've practiced relentless execution of proven practices, and we're seeing the results of our efforts. Our research business is well positioned to return to sustained double-digit growth over the medium term. Turning to conferences, as many of you know, our conferences segment had great momentum coming out of 2019, but was hard hit in 2020 by the global pandemic. To replace our traditional in-person destination conferences, which were no longer possible in 2020, we pivoted to virtual conferences. The performance of these conferences exceeded our expectations in 2020. And now, with several months' experience under our belt, we've got a set of best practices that we'll continue to refine. Our value proposition for virtual conferences remains the same as for in-person conferences. We deliver extraordinarily valuable insights to an engaged and qualified audience. Beyond virtual conferences, operationally, we're preparing to return to in-person conferences in the second half of 2021. Gartner Consulting is an extension of Gartner Research and helps clients execute their most strategic initiatives through deeper, extended, project-based work. Our consulting segment was also impacted by the pandemic, with revenues down 12% in Q4 and 5% for the full year 2020. Over the past several years, we've made great progress in our consulting business, and it will continue to serve as an important complement to our IT research business. Company-wide, we continue to strengthen our stance against racism and discrimination. We appointed a new leader of diversity, equity, and inclusion. We established a center of excellence dedicated to improvement in this area, and we strengthened our employee resource groups, which helped remove barriers for diverse populations and support associate engagement. Sustainability is an important factor in how we manage our business. For example, we've signed contracts for our Stanford headquarters and our UK hub to be powered by 100% renewable energy. We'll be eliminating single-use plastics across our offices. And finally, we're benchmarking our environmental footprint and developing programs to minimize it over time. Summarizing, we've performed well in the context of a pandemic. Looking ahead, we're well-positioned for sustained growth. We expect to return to revenue growth in 2021 and are on track to return to double-digit CV and revenue growth thereafter. We expect to deliver 2021 EBITDA margins up 2019 and to further expand margins over time. We generate significant free cash flow in excess of net income, which we'll deploy to return capital to our shareholders through share repurchases and make strategic tuck-in acquisitions.