David Cohen, SVP of Investor Relations, welcomes everyone to Gartner's Fourth Quarter 2023 Earnings Call. He introduces Gene Hall, CEO, and Craig Safian, CFO, who will discuss the company's financial results and outlook for 2024. The call will also address certain statements that may be considered forward-looking and remind listeners to review the risk factors listed in the company's SEC filings. Gene Hall highlights Gartner's strong performance in the fourth quarter.

In 2023, Gartner saw high single-digit growth in various areas such as contract value, revenue, EBITDA, adjusted EPS, and free cash flow. This growth was achieved despite multiple disruptions in the world, including high interest rates, inflation, geopolitical conflicts, shifts in work patterns, cybersecurity attacks, and advancements in AI. Gartner serves leaders in every industry and geography, providing them with objective insights to make smarter decisions and drive stronger performance. As they move into 2024, Gartner's operational capabilities are at their strongest, with a low proportion of open positions, strong recruiting, and a high-performing team. Their research segment remains their largest and most profitable, with a vast market opportunity in all sectors, sizes, and geographies.

In the fourth quarter, Gartner's business showed resilience in a complex external environment, delivering value to clients through proven practices. Research revenue grew 5% and subscription revenue accounted for over 75% of global revenue, with 8% organic growth. Contract value also grew by 8%, with double-digit growth from enterprise function leaders and new business. Gartner serves executives and their teams through two sales channels, GTS for IT leaders and technology vendors, and GBS for leaders in other functions. Gartner Conferences had a successful year, with strong attendance at in-person events such as IT Symposium and Ravage HR.

The paragraph discusses the success of Gartner's destination conferences, with increased attendance and positive feedback. It also mentions the growth of their consulting business and their introduction of 2024 guidance. The company has achieved strong growth and is well positioned for future success, with a focus on delivering value to clients and returning capital to shareholders. The CFO notes that fourth quarter results exceeded expectations.

In 2023, our company saw significant growth in global contract value and consolidated revenue, with an increase of 8%. Our EBITDA was $1.5 billion and diluted adjusted EPS was $11.33. We have introduced 2024 guidance which we believe is achievable in various economic and geopolitical scenarios. In the fourth quarter, revenue was $1.6 billion, up 5% year-over-year. Our research revenue also saw growth of 6% and subscription revenue grew by 8%. We have a strong team and are well-positioned in terms of talent and tenure. Non-subscription revenue has been affected by a shift to higher-quality traffic, but we expect this to drive higher prices and revenue in the future. Research contribution margin was 74% in the fourth quarter. For the full year, research revenues increased by 6% and contract value grew by 8%. We had record new business in December 2023.

In the fourth quarter, there was strong growth in CV from enterprise function leaders and new business, while tech vendor CV remained flat. NCVI increased by $180 million, with growth seen across practices, industry sectors, company sizes, and geographic regions. GTS CV increased by $134 million, with wallet retention at 101% and new business up 12%. Quota-bearing head count remained flat, but the company is well positioned for growth in 2024.

In the fourth quarter, the company saw growth in Global Business Sales and Conferences revenue. GBS contract value increased by $46 million and wallet retention was at 107%. Conferences revenue was at an all-time high of $214 million, with a contribution margin of 50%. Consulting revenues were slightly lower than the previous year, but labor-based revenues saw a 3% increase. The company has also provided historical contract value data for the past 2 years in the earnings supplement.

In the fourth quarter, the company's backlog increased by 21% year-over-year, with strong bookings and $29 million in Contract Optimization revenue. Consulting revenue was up 7% on a reported basis and 8% FX-neutral for the full year. EBITDA for the quarter was $386 million, with disciplined expense management leading to upside in guidance. For the full year, EBITDA was almost $1.5 billion, a 1% increase over 2022. Net interest expense decreased due to higher interest income on cash balances. The adjusted tax rate for the quarter was 24%, resulting in adjusted EPS of $3.04. The company had 79 million shares outstanding in the fourth quarter, a reduction of 1 million shares from the previous year.

In the fourth quarter, the company had 79 million shares and an adjusted EPS of $11.33 for the full year. Operating cash flow was $224 million, up 10% from last year, and free cash flow was $196 million, up 19%. On a rolling four quarter basis, free cash flow was 18% of revenue and 71% of EBITDA. The company expects a 4 to 6 point difference between EBITDA margin and free cash flow margins in a typical year, with a normal free cash flow conversion from GAAP net income of 140% to 160%. The company has $1.3 billion in cash and a debt balance of $2.5 billion, with a reported gross debt to trailing 12-month EBITDA of under two times. The company's balance sheet is strong with $2.3 billion in liquidity and low levels of leverage.

In the fourth quarter, the company repurchased $158 million of stock and plans to continue refreshing the repurchase authorization. This will lead to increasing returns on invested capital and earnings per share. The company's outlook for 2024 research revenue growth is based on three factors: 2023 ending contract value, the timing of growth bottoming and reacceleration, and the performance of nonsubscription revenue. The company has taken a prudent view of noncontract value phasing and believes that research subscription revenue will bottom about one quarter after contract value growth bottoms. If new business and retention perform well, there could be upside to the company's guidance. Nonsubscription revenue accounted for about 6% of consolidated revenue in 2023.

The company's 2024 guidance includes a shift to higher-quality traffic sources, with a focus on in-person destination conferences and consulting services. The company has good visibility into 2024 revenue and is aligning expense growth with CV growth to balance short-term margins and invest for long-term growth. The expenses will have a seasonal pattern, with notable increases during conference season and for merit increases. The company plans to increase sales headcount by mid to high single digits in 2024 to invest in future growth while meeting margin targets.

In 2024, the company expects to see growth in research, conference, and consulting revenue, resulting in a total consolidated revenue of at least $6.24 billion. They also anticipate an EBITDA margin of at least 23% and an adjusted EPS of at least $10.55 per share. Free cash flow is expected to be at least $1.065 billion, with a conversion from GAAP net income of above 140%. The company also plans to repurchase shares and return excess capital to shareholders. Despite global uncertainty, the company performed well in the past year, with high single digit growth in global CV and double digit growth in enterprise function leaders CV. They exceeded their expectations for revenue, EBITDA, and EPS performance.

The company's financial model and expectations for the medium term remain unchanged, with double-digit revenue growth and modest EBITDA margin expansion. The research nonsubscription part of the business has been experiencing headwinds, mainly due to market pressure on pricing. The company has responded by focusing on driving higher quality traffic and has seen stable pricing since making adjustments after Q2 earnings.

The company is focused on providing value to both small business buyers and sellers through their offerings. They have shifted their focus to higher-quality traffic, which may have a short-term impact on revenues but will lead to higher pricing and revenue in the long term. The company has not factored in any increase in pricing in their guidance. They are seeing positive trends in new business sold for tech vendors, but retention for these vendors may be affected by the current market environment. Many small tech vendors are struggling to get funding, which could lead to difficulties in renewing contracts.

The speaker discusses the state of the tech sector, including the high number of companies going out of business and the resulting impact on retention. They also mention the increase in new business in the tech sector, particularly in the enterprise and HT vendor segments, and expect an inflection point in contract value this year.

The company saw strong new business results in the fourth quarter, which is seen as a leading indicator for the market. There was a modest improvement in new business compared to the previous quarters, with tech vendor growing for the first time in 2023. However, there is still pressure on retention in the small tech vendor market. The company expects CV to bottom in 2024 and reaccelerate. The headcount growth has been slowing in the last two quarters, but the company sees a huge market opportunity.

The company plans to capture a market opportunity over the next few years and will grow their headcount to achieve this. They have already embedded selling capacity in their current team and expect mid to high single-digit growth in quota-bearing headcount. They can go faster if needed. The renewals on the tech vendor side are going normally, although a bit slower due to layoffs. The company expects this to change as there is plenty of demand in the market.

The company expects that retention will improve in the future as the market for small tech vendors shifts towards AI. Larger tech clients may see modest cuts in spending, but typically maintain a significant presence with Gartner and eventually renew their contracts. The company's long-term view on this segment of the business remains unchanged and they believe it will grow in line with their medium-term objectives, with a reacceleration of the business over time.

The speaker discusses the expected timeframe for reacceleration in the market and the strong demand for their offerings. They clarify that the nonsubscription revenue growth will be down low double digits. The strong new business wins are attributed to their strong value proposition and focus on sales productivity. Improvements in tenure also contribute to their success.

The company's fundamental driving force is the intrinsic demand for their services from clients. There has been a modest improvement in the selling environment throughout 2023. Artificial intelligence has received a lot of publicity and there is a high level of interest from clients, but it is not causing a significant boost in demand.

The company is seeing robust demand in certain areas, but the growth of contract value (CV) is dependent on individual client situations. The first half of the year will have a bigger impact on future revenue than the second half. The company is not guiding to a specific bottom for CV, but they expect it to reaccelerate throughout 2024. They are aiming to get back to double-digit CV growth, with strong QBH and new business contributing to this goal.

The main factor impacting contract value and growth is the tech vendor business, which has been flat for the year. The enterprise function leader portion of the business, which makes up 75% of total CV, has been consistently growing at double-digit rates. As the tech sector rebounds and salespeople gain more experience, the company expects to see an increase in contract value growth in 2024. The company is also planning to hire more employees to sustain this growth in the coming years.

During a recent earnings call, an unidentified analyst asked for more information on the growth rates within GBS. Gene Hall, the CEO, responded by stating that the segment is still performing well with a 12.9% or 13% year-over-year growth. He also mentioned that supply chain, legal, and HR are the fastest-growing aspects of the segment. When asked about the impact of tech vendor renewals, Hall stated that they have a slight bubble in the first quarter and they want to take a prudent approach to their first half NCVI guidance.

The speaker reiterates that they expect CV growth to bottom out in 2024 and begin to increase again, with a focus on tech vendor renewals in the first quarter. They then shift to discussing margins and explain that the targeted headcount growth in certain areas, combined with normal wage inflation and a growing conferences business, will lead to an 8-9% increase in operating expenses in 2024. They also mention that revenue will lag behind the recovery in contract value, but they have been expecting this and will continue to invest in the future and grow their sales force. The deceleration of CV in 2023 will have an impact on 2024 revenues.

The nonsubscription revenue performance and consulting growth rate are impacting the overall revenue, but the company is still meeting its medium-term guidance. The tech market has undergone a recalibration, leading to a decrease in funding and layoffs, which has made it more challenging to sell to clients in this sector. The company is still providing value to its clients in this market.

The company is confident in the value they provide and the long-term growth prospects for their business, but they are currently facing challenges due to the recalibration of their clients. This is especially difficult in a tough selling environment, as clients are focused on potential layoffs. The pandemic caused a pull forward of tech spending, but it was temporary and now companies are adjusting to getting back to normal. There is nothing structural causing this volatility, it is just a natural part of the business cycle.

The speaker discusses the current state of the market and business opportunities, emphasizing the $200 billion market opportunity and the $190 billion opportunity for serving enterprise function leaders. They also mention a 4% price increase that was implemented in November, with clients not pushing back on it due to the relatively small difference in spending. The focus remains on providing incremental value each year.

The company is seeing success in selling multiyear contracts with upfront invoicing. They have been able to stick to their pricing and not discount, which has driven economic value for the business. The first quarter has a higher concentration of tech vendor renewals, but it is not significantly different from previous years. The company is guiding for a 23% EBITDA margin for the year, with potential for upside driven by revenue growth. OpEx is back to normal levels, with merit increases starting on April 1.

Gartner had a strong performance in Q4 and is well positioned for future growth. They provide value to clients in any environment and are adaptable. They expect sustained double-digit revenue growth, modest margin expansion, and significant free cash flow. They will also return excess capital to shareholders.

This summary was generated with AI and may contain some inaccuracies.