Good morning everyone. Welcome to Gartner’s Third Quarter 2022 Earnings Call. I am David of Investor Relations. At this time, all participants are in a listen-only mode. After comments by Gene Hall, Gartner’s Chief Executive Officer; and Craig Safian, Gartner’s Chief Financial Officer there will be a question-and-answer session. Please be advised that today’s conference is being recorded. This call will include a discussion of third quarter 2022 financial results. And Gartner’s updated outlook for 2022 as disclosed in today’s earnings release and earnings supplement both posted to our website, investor.gartner.com. On the call unless stated otherwise all references to EBITDA are for adjusted EBITDA, but the adjustments is described in our earnings release and the supplement. All growth rates in Gene’s comments are FX-neutral, unless stated otherwise. All references to share counts are for fully diluted weighted average share counts, 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 2022 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 2021 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. Thanks for joining us. We continue to deliver incredible value to more than 15,000 enterprises around the world. This led to another strong performance in the third quarter. We achieved double digit growth in contract value, revenue, EBITDA and EPS. We have strong growth in all practices, all industry sectors, across every size plant and in every region. In addition, through Q3, we repurchased over a billion dollars of stock. Our clients continue to face a rapidly changing world, things like digital transformation, future of work, high inflation, shifting customer needs, supply chain disruptions, and more. Our clients know they need help on these issues. And they know Gartner is the best source of help. Through our actual objective insights we help executives and their teams across all major enterprise functions achieve their mission critical priorities. We know how to help whether our clients are thriving, struggling, or somewhere in between. With all of this demand for our services remain strong. Research continues to be our largest and most profitable segments. Total research revenue grew 15%. Contract value growth was 14%. We serve executives and their teams through distinct sales channels. Global technology Sales or GTS serves leaders and their teams within IT. We help chief information officers achieve mission critical priorities, such as leading digital transformations, financing talent and challenging labor market and fueling innovation. GTS contract value group 13%. Global business sales or GBS service leaders and their teams beyond IT. This includes HR, supply chain, finance, marketing, sales, legal and more. We help leaders across these functions achieve their mission critical priorities. For example, we help HR leaders engage employees in a hybrid world, evolve organizational design with the transition to digital business, manage compensation in an inflationary environment, manage employee expectations on divisive social…

Thank you Gene and good morning. Third quarter results were strong with double digit growth and contract value revenue and adjusted EPS. FX neutral growth was even stronger than our reported results. We also delivered better than planned EBITDA margins, reflecting the strong third quarter, enthusiastic demand for our in person conferences and continued success in balancing cost discipline with investing for future growth we are again increasing our 2022 guidance. Third quarter revenue was $1.3 billion up 15% year-over-year as reported and 20% FX neutral. In addition, total contribution margin was 69% down 20 basis points versus the prior year. EBITDA was $332 million up 9% year-over-year and up 15% FX neutral. Adjusted EPS was $2.41 up 19% and free cash flow in the quarter was $283 million. Research revenue in the third quarter grew 11% year-over-year as reported and 15% on an FX neutral basis driven by our strong contract value growth. Third quarter research contribution margin was 74% modestly below last year. The continued higher than normal contribution margin reflects improved operational effectiveness, increased scale, travel expenses still modestly below our post pandemic expectations and research related headcount with a bit more catch up still to go. Contract value or CV was $4.5 billion at the end of the third quarter up 14.5% versus the prior year. CV growth is always FX neutral. Excluding the impact of exiting Russia, growth for Q3 would have been 14.9%. Quarterly net contract value increase or NCBI was $128 million. Quarterly NCBI is a helpful way to measure contracts value performance in the quarter even though there is notable seasonality in this metric. The sequential increase in CV of $128 million was driven by the combination of continued strong retention rates and near record new business of almost $250 million similar…

Thank you. [Operator Instructions] Our first question comes from Jeff Meuler with Baird. Your line is now open.

Yes, thank you just maybe if I could better understand the messaging on where you are in terms of catch up hiring. I thought for Jene, you talked about 80% associate growth and having the capacity you need and being caught up on hiring but then it seemed like in Craig’s comments, you’re still calling up some areas where you’re still in the process of doing catch up hiring and you’re maintaining the low 20s underlying margin target despite seemingly run rating above that on a seasonally adjusted basis. So just if I could better understand where you are in that process.

Jeff, it’s Gene. So the 18% associated growth that talked about on the call is largely catch up hiring. If you look over the last three years or so we had very robust growth in our business. And our hiring lag behind that give you a flavor for the compound growth rate or sub contract value was about 11%. And the compound growth rate of headcount was about 5.5%. And so it lagged a lot we got behind. The good news is that we’re as of Q3, end of Q3 we are almost fully caught up. And so we expect to see not the same rate of hiring as we go into Q4 next year, we expect to normalize more which we’ve done traditionally, which is to have our headcount growth, have CV grow about five or six points higher than actual headcount growth going forward.

And then, obviously notable, the big step up in GTS quota bears, I guess, just to what extent, are you seeing signs of unmet demand that you’re fulfilling, and I don’t know if that’s showing up in the new business sold metric with GTS which also has the tough comp, just trying to understand to what extent maybe the 12%, or 12.5% whatever was CV growth in GTS has been governed down because of some sales capacity constraints that you’re addressing versus to what extent this is about getting out ahead of demand and building capacity into what’s still a good demand momentum environment.

Jeff, good morning. It’s Craig. Just a couple of points and then Gene will fill in any blanks. So as Gene mentioned, we did fall behind in terms of our headcount hiring across the business, but probably most notably in GTS over the course of 2021, especially as that segments, CV really accelerated. And so a lot of what we were doing, starting in the first three quarter of ‘21, and through the first three quarters of this year is catching up and filling open territories. And the open territory challenge and opportunity was a little exacerbated by the accelerated growth. And we had to promote more people than we normally do, as we’ve talked about in previous quarters at the beginning of the year which put even more of an emphasis on making sure that we were recruiting and growing our primary hire face. And so to think about it, and again, we talked about this when we did our initial guide for the year as well, which was last year, we had the benefit of the most, the highest proportion of tenured sellers that we’ve ever had, obviously, this year is reversed. And as we roll into next year, we expect it to be more “normal” like we’ve seen historically. And so the all those dynamics are at play as well and again, as you think about Gene’s comment earlier on, we’re catching up, but we’re also making sure that we are seeding the ground with investments so that we can sustain our double digit growth into the future.

Our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is now open.

Thanks so much. Wanted to ask on the conferences that symposium had better attendance in pre-pandemic. Are there any gating factors that should lead 2023 to not be fully back to 2019 levels or higher, just assuming that current travel restrictions stay as they are now?

Good morning, Toni. Thanks for the question. So, it’s been great to return to in person conferences. And as we’ve said the past few quarters and Gene referenced some large October conferences as well. We’ve had exhibitors and attendees really enthusiastically returned, which is awesome. And the conferences are hugely valuable to everyone who goes and its super valuable to the entire Gartner franchise. As we look towards 2023 and again, we’ll give guidance in February around the full calendar of ‘23 conferences, etc. We’re not going to be anywhere near the 70 conferences, destination conferences that we delivered in 2019. We are carefully building back up. Our goal over the long term is to have a conference for every major function that we cover in every major geography in which we do business. But we can’t just snap our fingers and be there. It takes time to build those up and to re-launch that. And so we are taking a measured approach to doing that. We’re going to be as aggressive as we can, but we’re going to be nowhere near the 70 conferences that we ran in 2019 pre-pandemic.

And I actually wanted to ask about that the new business growth as well. So you mentioned the GTS have down five and GBS of one. The comp was very tough and the two year CAGR are good. I guess, with the sales hiring, that those would be higher. I know, you said stuff catch up that you’re doing. But I guess like, what are your thoughts on the level of like, those new business levels? And I guess I’m only asking because everything else seemed like, is going really, really strong. And so that’s sort of the one that I think, maybe it’s pick. So just what are your thoughts on the new business? Thanks.

Hey Toni, it’s Gene. So our new business was at an all time high. So just to be clear, wasn’t like it was not a good compared to business acumen for dollars was at an all time high, it was near an all time high. Secondly, the fact that it’s impacting new business the most that Craig talked about in terms of the proportion of our sales force, it is tenured versus non-tenured. Last year, we had, as Craig mentioned, the highest proportion of tenured salespeople that we have on record. This year, because of promotions and growth hiring, we had among the lowest proportion of tenured salespeople on record. And a tenured salesperson sells whole number multiples higher, more in new business than a non-tenured salesperson. The productivity accelerates rapidly during the salespersons first three years. And that’s the primary factor that impacted our business in Q3.

Thank you. Our next question comes from the line of Andrew Nicholas with William Blair. Your line is open.

Hi, good morning. I wanted to start just with a question on sales activity levels. As the quarter progressed, and maybe into October, did you notice any and it’s seems like double digit growth across every practice, every industry, every region, every client size, but was there any kind of distinguishing change over the course of the quarter? Or are those conversations and the length of contract cycles relatively consistent with what you’ve seen year-to-date?

Hey Andrew. So during the quarter, I would say was typical, with September being slightly stronger than with a little bit more acceleration during the quarter than you might normally see. But within a small range, call it overall a pretty normal quarter.

And then you talked quite a bit about the catch up hiring and the sales force growth. What about on the kind of T&E side. Where do you sit relative to kind of pre-pandemic levels and where you would ultimately expect those expenses to level off? I think last quarter, you talked about the second half of the year being more indicative of normal travel. So just wondering if that’s in the third quarter number, if there’s still some more increases to expect there as well. Thank you.

Good morning, Andrew. It’s Craig. Yes, so we’re obviously orders of magnitude lower than 2019 by design, and that’s the way we’re going to run it going forward. I would say Q3 is almost back to where we think the new normal should be. So Q3 and Q4 will be pretty close to the new normal. But also recognizing that as we roll out more conferences, as we travel to see our global teams, etc there might be a little bit more lift in the travel number, but not order of magnitude lift. We feel pretty good about where we are, again, there’s probably a little bit more uplift that we’ll see in travel rolling into next year, but Q3 and Q4 are roughly indicative of what we expect moving forward.

Thank you. Our next question comes from the line of Seth Weber with Wells Fargo. Your line is now open.

Good morning. I wanted to touch on if you could give us any thoughts on the pricing environment. I think last quarter and you’ve talked about pricing is kind of running a little bit above sort of normal levels. Can you just talk about what you’re seeing there and customer appetite for multiyear contracts and of just given the uncertain environment. Thank you.

Good morning Seth it’s Craig. So I agree with your assertion on the pricing. So rolling into this year, we were a little bit more aggressive than we normally have been. So we’ve typically been in the 3% to 4% range this year thinking the five-ish to 6% range, in terms of overall price increase, similar rolling into next year. Price increase actually went effective today for most of our clients and sellers around the world. And we haven’t seen much friction or pushback from clients on that. Obviously, it is a more inflationary environment. Our costs are going up roughly in that range and we’re roughly pricing to offset that. In terms of the multiyear comment I think our sales teams do a fantastic job of articulating the value that we can deliver over the short term, over the medium term and over the long term. And they’ve done a fantastic job of continuing to get our clients to sign up for multiyear contracts. So we haven’t really seen a step back in that from clients either.

And then maybe just on the share repurchase in the quarter it stepped down from where it’s been trending for the last, I don’t know, the last year and a quarter year and a half or so. Was that just kind of front end loaded some of the spending in the first half of the year or so just saying, are you just trying to save some powder for M&A or anything that we should read into the tick down here in the third quarter and share repurchase?

No, I wouldn’t read anything into it. I’d say on a year-to-day basis, we’re over a billion dollars in share repurchases over the last seven quarters, it’s 2.6-ish billion dollars of share repurchases, it remains our primary use of capital going forward and we’ll bump up or bump down from time to time from quarter to quarter. But over the long over the last seven quarters, we’ve obviously returned a lot of capital to shareholders through our repurchase programs. And moving forward, we expect return a lot of capital for our shareholders or repurchase programs.

Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is now open.

You had a big step up in sales headcount in 3Q notably in GTS. Was there any pull forward in hiring from 4Q? Or do you expect to continue to see healthy increases in headcount in 4Q on a quarter-over-quarter basis?

So we’re focused on ending the year of double digit in a quarter bearing headcount, again, really making sure that we’re set up to roll into 2023 with full territories and a more tenured sales force etc. There can obviously be a lot of puts and takes, but what I’d say is we expect to end the year for both GTS and GBS with strong double digit quarter bearing hires growth on a year-over-year basis.

And then with respect to EBITDA margins, your outlook continues to move higher. Can you just at a high level frame for us your evolving views around normalized EBITDA margins and how your investment activity so far this year are on pace to get you back to what normalized spending should be?

Yes, absolutely. And Gene feel free to fill in any blanks here as well. So as Gene mentioned in his prepared remarks and as we have been saying, for the last couple of quarters, we now believe the underlying metrics, the underlying margin of the business is in the low 20s, which is obviously comfortably and well above pre-pandemic levels of EBITDA margins. I think there are a number of factors that have allowed us to increase that outlook as we’ve gotten comfortable with the way the business is running and the way we’re running the business. Most notably, I would say, is one as Gene mentioned, we’re going to grow our CV base about four to five or five to six points faster than we grow our quarter bearing hires. That allows us to essentially fix our cost of sale, if you will, or not dilute our margins through cost of sale. We can get gross margin leverage just by virtue of research being our biggest and most profitable segment and we can get a little G&A leverage as well going forward. On top of that with GBS we were starting to see or we’re seeing returns on the investments that we made in 2017 and 2018. And we now have much more scale in that business. There is still a lot of scale to be gained in GBS but obviously, we’re orders of magnitude higher in our contract values, and we were pre-pandemic. And so again and then there are other things like real estate and travel, where we just gotten smarter around the way we run our business, which have also helped us to raise our expectation on what the underlying margins of the business are. Clearly we’ve done a lot of hiring through the course of 2022, as Gene mentioned, and we’ve said multiple times, most of that was catch up hiring from all the growth we delivered in 2021 and 2022. Obviously, those costs roll into ‘23, which is why we’re stating and sticking to the fact that our underlying margins are in the low 20s. And that we can grow our business at double digit growth rates moving forward, and we can modestly improve those margins over time as well.

Thank you. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Your line is now open.

Thank you so much. I wanted to go back to the earlier pricing question. I know this segment or this industry that you’re in is very broad, but some of the other info services companies that we talked to have started to be a little bit more aggressive in terms of giving price concessions in exchange for multiyear contracts. Are you doing any of that? Are you seeing that in the market as well?

So Jeff, good morning. No, not really. I think we lead with multiyear contracts as sort of the de facto standard. That’s generally what our clients want, because they’re missing critical priorities, are not bounded by a 12 month contract or something like that. And so we’ve seen real no change in the selling environment, or the selling motion around the price increase we’ve talked about earlier as well as our contracted vehicles.

We haven’t changed our pricing on multiyear approach, or multiyear contracts, the pricing approach has remained the same.

And I know in your prepared comments, you talked about the strength in your research business being broad based. I just was wondering, we can parse down a little bit if there’s specific end markets that are doing better, or worse than others, and I’m specifically interested in Europe versus the U.S. Thanks.

So as Craig mentioned, both North America and Europe had double digit growth in the third quarter.

And we saw, and it was broad, based across Europe and North America from an industry and size perspective. So there’s really nothing to point to in terms of softness. It’s the average growth for GTS and overall for GTS is around 13%, and overall, around 14%. And when you peel back the onion, it’s pretty close to that at lower levels, whether you live regionally industry, by size, etc.

Thank you. Our next question comes from the line of Manav Patnaik with Barclays. Your line is now open.

Thank you. Good morning. Gene and Craig and I guess historically, I think you guys just talk about how to do it up two to three points about sales force growth. And now on the call, I’ve heard you say four, five and six. So in that context, I guess, should we still expect Gartner to keep going that sales force 10% to 15% year-over-year like use methods in the past?

I think the way to think about it is that we want to make sure that our cost of sale, if you will, so sales cost as a percent of CV or percent of revenue remain roughly fixed. And we believe we can do that by having CV growth at whatever that is or whatever we deliver, and toggling the amount of headcount growth so that we keep our cost of sale roughly fixed. If CV is growing 20% then yes, we would grow headcount yes close to 15%. Is CV we’re growing 10% we would probably, we would toggle down the growth investment to again, lock in, roughly lock in that overall cost of sale. And so this is a pivot we made in the second half of 2019 as we shifted to really wanted to make sure that we got returns on the investments we’re making, and managed the sales portion of our overall margin. I think the one difference that you point to, which is the gap between CV growth and headcount growth is really just driven by what we’re seeing from a wage inflation perspective. And so when it was three to four point gap, that’s because that that’s what we were seeing from wage inflation perspective. Now, we’re obviously seeing a little bit greater. So we’re just dialing that into our growth algorithm to make sure that we account for it.

Got it. And then, in the core you made comments around SG&A being elevated. Was that a fourth quarter specific comment or more longer term? And also, just to clarify you talked about the Q3 and Q4 runway kind of being where you want it to be. But that was specific to T&E I believe we just talked about from an overall margin perspective, how we should think about today numbers below 20, to talk about.

Yes, absolutely. So the SG&A comment is more of a near term comment. So as we are catching up on the hiring and you get [Audio Gap] just think about high teens growth we’re seeing in both GTS and GBS. Obviously, that rolls into next year, because we, the hiring was really concentrated in the back half of the year. And so that will put pressure on the cost of sale and margin as designed into 2023. So it’s more of a near term comment. In terms of the other things we’re seeing again, we talked about the growing sales force a little bit, or growing to be a little bit faster than we’re growing the sales force, etc. That is more in a steady state, obviously, 2022 as we indicated at the beginning of the year, and we have indicated each quarter, as we move through the year, there was a lot of catch up happening in 2022. And that obviously impacts 2023. We believe, again, that the underlying margins for the business are in the low 20s. And that through the combination of the investments we’re making, the size of the market opportunity opportunities in productivity, etc, that we can grow the business, the top line at double digit growth rates, and modestly expand margins from that underlying margin in the low 20s.

Our next question comes from the line of Stephanie Moore with Jefferies. Your line is open.

Hi. Good morning. I wanted to touch a bit on the hiring. Maybe it’d be helpful to provide just on where wage inflation stands and we’re going to kind of be aggressive hiring that we think this year.

Hey, good morning, Stephanie. We had a little trouble hearing you. I think what you asked was just provide a little bit more color around our hiring trends and where we may be seeing more pronounced wage inflation? Is that was the question was?

Yes, I apologize. That is correct.

So I think and Gene will hop in here too, I think we have a great associated brand out in the market, especially for sellers, but broadly as well. Sellers know the Gartner brand. Sellers know that Gartner is a very sales focused organization. And so we’re able to really recruit pretty well are very well, I should say, in the market, and we have no problems meeting our needs, and the supply is there for us to be able to keep hiring. I think the wage inflation is just what we’re seeing when we look at our, our competitors for talent. And we do lots of surveys and we have a lot of market data. And we’re basically just keeping track with the market or keeping pace with the market to make sure that in addition to the great associated value proposition that we have, that we’re actually paying our people at market as well as. Gene you want to add anything?

But again, if you look at where the highest wage inflation is, it’s in countries where inflation is very high. like Turkey, for example, but a small sales force in Turkey and wage inflation is higher there than it is in, like the U.S., for example. And there’s other countries around the world. So places where it’s the highest or in the countries where overall inflation rates are higher.

Understood, and I guess if we take that further given kind of a step up in hiring, that this certainly this year, does that mean that we should expect potentially a step up and kind of pricing as you look at your contract so the next coming years, understanding that they are multi year just to make up for kind of the investments made this year? Or am I thinking about it incorrectly?

No, Stephanie I wouldn’t think about it that way. Yes, I would think about the catch up hiring we’re doing is basically really to fulfill all the growth that will be sold in 2021 and 2022. And make sure that we can serve and grow that going forward. The pricing is really there as an offset to the wage inflation. So we as Gene mentioned earlier we fell behind in hiring. He talked about, the fact that our CV over the last three years, has grown at a compound annual growth rate of 11% and our headcount only grown at a compound annual growth rate of 5%. And we had some catching up to do, again, to make sure that we can really provide amazing service to our clients, and then grow them over time as well. And so that’s the way we’re thinking about the catch up hiring. The price increase is really just to offset wage inflation.

Understood, and then maybe taking more of a medium term and long term, longer term question here. And I appreciate the color that you gave on the underlying EBITDA margin improving over time just efficiency of an or leverage of the hiring. Could you maybe talk about other investments we might see from just an overall sales force productivity standpoint as we kind of look over the next several years?

Hey Stephanie so we could we invest across our business and the economics and cap and the bars and stuff we’ve talked about includes those investments. We do a lot of investment in business. We have invested in new internal systems, things like billings so that we can build up best faster and collect faster so our cash flow is higher. And it’s also easier for our sales force to generate orders and bills, things like that. We constantly invest in new product features. We have a wide variety of products that are tailored for specific roles. And we constantly improve those product offerings to provide continuously more value to our clients, which can help strengthen retention rates and growth in your business over time. And so we are continuing to invest in those kinds of areas in our business to make sure we support future growth. With all those investments are embedded in the normalized margins that Craig referred to.

Thank you. I am showing no further questions at this time. I’d like to hand the call back over to Gene Hall for closing remarks.

To summarize today’s call for the third quarter we’d really another strong performance across the business, achieve double digit growth in contract value revenue EBITDA and EPS with strong growth in all practices, all industry sectors across every size client and in every region. We’ve caught up on hiring and a position to deliver sustained future growth. Our underlying margins are in the low 20s comfortably above pre-pandemic levels, and we expect them to modestly increase over time. We’ll continue to generate significant free cash flow and excess net income. We will continue to return significant levels of capital to our shareholders. Thanks for joining today and I look forward to updating you again in the new year.

This concludes today’s conference call. Thank you for participating. You may now disconnect.