Good morning, everyone. Welcome to Gartner's Third Quarter 2023 Earnings Call. I'm David Cohen, SVP of Investor Relations. [Operator Instructions]. 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 2023 financial results and Gartner's outlook for 2023 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, with the adjustments as described in our earnings release and supplement. Our contract values and associated growth rates we discuss are based on 2023 foreign exchange rates and exclude contributions related to the first quarter divestiture and the 2022 Russia exit. 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. 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 number of risks and uncertainties, including those contained in the company's 2022 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 today. Gartner drove another strong performance in Q3. We delivered high signal digit growth in contract value, revenue, EBITDA, and adjusted EPS came in above expectations. Free cash flow in the quarter was excellent. The external environment remains volatile and uncertain. The tech sector is still adjusting to post pandemic demand. The banking industry continues to grapple with rising interest rates. Supply chain challenges are still impacting many industries. There's heightened geopolitical volatility and more. Leaders know they need help and they know Gartner is the best source for that help. Gartner delivers actionable objective insight that smarter decisions and stronger performance on our client's mission critical priorities. Whether they're thriving, struggling, or anywhere in between. Our insights, tools and advice often mean the difference between success and failure for leaders and the enterprises they serve. We continue to be agile and adapt to the changing environment. Research continues to be our largest and most profitable segment. We guide leaders across all major enterprise functions in every industry around the world. Our market opportunity is vast, across all sectors, sizes and geographies. We estimate our opportunity at around $200 billion. In the third quarter, we continue to help clients with a wide range of topics such as cybersecurity, data analytics, artificial intelligence, remote work, cost optimization, and more. In the third quarter, research revenue grew 5%. Subscription revenue grew 8% on an organic basis, 20 contract value growth was 8%. Contract value for enterprise function leaders continue to grow at double digit rates. We serve executives and their teams through distinct sales channels, global technology sales, or GTS source leaders and their teams within IT. GTS also source leaders at technology vendors, including CEOs, Chief Marketing Officers, and Senior Product Leaders. GTS contract…

Thank you, Gene, and good morning. Third quarter results were strong with high single-digit growth in contract value. Revenue, EBITDA, adjusted EPS and free cash flow were better-than-expected with outstanding performance in consulting and disciplined cost management. With strong results in the quarter and good visibility into Q4, we are increasing our 2023 guidance. Third quarter revenue was $1.4 billion, up 6% year-over-year as reported and 5% FX neutral. In addition, total contribution margin was 68%, compared to 69% in the prior year, as the 2022 hiring catch-up continue to flow through the P&L as expected. EBITDA was $333 million ahead of our guidance and about inline with last year. Adjusted EPS was $2.56, up 6% from Q3 of last year. And free cash flow was $302 million. We have finished the quarter with 20,253 associates, up 6% from the prior year and 1% from the end of the second quarter. We remain well-positioned from a talent perspective, as our associates continue to move up the tenure curve. Research revenue in the third quarter grew 6% year-over-year as reported and 5% on an FX neutral basis. Subscription revenue grew 8% on an organic FX neutral basis. Non-subscription revenue performance was similar to Q2. Third quarter research contribution was 73%, compared to 74% in the prior year period, as we have caught up on hiring and returned to the new expected levels of travel. Contract value or CV was $4.7 billion at the end of the third quarter, up 8% versus the prior year. The third quarter last year was a very strong research quarter with outstanding performance across most key metrics. CV growth is FX neutral and excludes the first quarter 2023 divestiture. CV from enterprise function leaders across GTS and GBS, grew at double-digit rates. New business with enterprise…

[Operator Instructions]. Our first question is from Jeff Mueller with Baird. Please proceed. Jeff, your line is open. We will certainly continue with the next question. Next question is from Heather Balsky with Bank of America. Please proceed.

Hi. Thank you for taking my question. I was hoping to ask a question about expenses management, as you look into next year, assuming that tech vendor spending to potentially start to lap with either comparison, there is an opportunity to win back those sales. Do you think you need to invest behind that, or do you think you have an opportunity with your existing salesforce? And then also just your thoughts around expense management as you head into 2024, more broadly?

It is Gene. So, as we look at our market opportunities, our market opportunity is very fast. Overtime, we intend to grow our salesforce inline with capturing that market opportunity. Over the last couple of years, we have grown our sales force dramatically. And we feel like we're in a really good position as we go into the end of ‘23 and the ‘24 for the capacity we have. Again, over time we'll continue to grow that capacity.

And so just to clarify then, when you think about the tech vendor opportunity, do you think you can win back those sales with the sales force you have that's the fair assumption.

Yes. Over time, Heather, we think that the tech vendor market will return to the kind of growth we've seen historically. Again, as we -- our perspective on it is a lot of the business they had was pulled forward, their own sales as a result they kind of overhired and have been having some retrenchment, which has in impacted our business. We think -- again, that the tech business is going to grow over time. Their revenues will grow and our business will get back to normal growth over time as well.

And Heather, it’s Craig. The other thing I would add is as our tech business, as the contract value growth accelerated over the last two years, we also increased the number of territories we had serving that market. And so, we did a lot of hiring across all of both GTS and GBS as Gene mentioned, over the last couple years, tech vendor market included. And so, a lot of new people joined the company in 2022 in selling positions, and they are coming up the tenure curve. And so, as we think about our territory coverage, if you will, heading into 2024 and beyond, as well as the maturation of our sales force heading into 2024, we feel like we're in a really good position to return to the kind of target growth, that we want to over the medium term.

Our next question comes from the line of Toni Kaplan.

Thank you. I was hoping you could give us some metrics around the current average tenure of your salespeople, compared to sort of any reference point, maybe it's year-over-year or pre-pandemic or versus a historical average. Just want to get a sense of where we are now versus some historical point. Thanks.

Good morning, Toni. Thanks for the question. So, the way to think about it, is if you look at all of the net and gross ads we did in 2022, effectively when we entered this year, we had the least tenured or least experienced salesforce that we've ever had. Sort of order of magnitude. We're typically, and Gene and I have both talked about this in the past like in normal times, call it 35% to 40% of our Salesforce is on the new-ish side. We were in the 50% plus range being brand new to Gartner. As we've made our way through this year. Obviously, all those people we hired in 2022 have gained experience and tenure. We did -- we were very backend-loaded last year in terms of the hiring. And so those people we hired in third quarter and fourth quarter of last year are now approaching or have just crossed over their one-year anniversary. And again, that's sort of getting back to Heather's question. Gene, around, do we have enough capacity, et cetera, we have enough capacity and the tenuring will look more quote unquote normal as we roll into 2024, but significantly better than what we experienced or more tenured than we experienced over the course of 2023.

Yes. That makes sense. I wanted to ask about client retention. Sort of a step down in both GTS and GPS, the levels I think are still pretty within historical range, but like, I guess, is there anything you're doing to put in place initiatives to address retention? Or do you feel like you're at sort of more normal levels and I guess what's driving that? And any concern to call out?

No. So, on the GTS side, while we're still at or above historical levels, it's really tech vendor drag and it's really small tech vendor drag there. If you actually broke apart our enterprise function leader in GTS, those client retention rates are at or above your historical levels for GTS. And so, it's really just the tech vendor market impacting that client retention rate. On the GBS side, it's down a little, but it's still 400 basis points or 500 basis points higher than GTS, and so we feel really good about that. That said, we're never done on retention. And so, I'll let Gene talk a little bit about that.

As Craig said, even with the rates we have now, we are never satisfied. And so, we have a whole set of programs designed to improve those retention rates over time. And it includes things like how we use our conferences, the as the tools, the support tools we give to our service delivery associates as well as the training we have when people first come on board, and then the current trains throughout their careers, et cetera. So, we are never satisfied with the matter no matter how good it is, we always want to be better.

Our next question comes from the line of Seth Weber with Wells Fargo. Please proceed.

Good morning. I wanted to go back to the expense question just for a second. I mean, your margin guidance for this year is pretty well ahead of the initial framework that you guys were talking about earlier in the year or last year. And I'm just trying to think through, are there any big cost buckets that could come back next year? I think, Craig, you mentioned travel is kind of back T&E. So, I'm just trying to think through the margin leverage going forward in higher revenue, in a revenue growth rate environment. If there's anything we should be considering.

Good morning, Seth. great question. So, I think, there's a couple things, going on within your question. So, from an operating expense perspective, we are I guess relatively back to sort of normalized level of expenses, there are obviously always going to be puts and takes, but a relatively normalized level of expenses. I would note, and this is obviously embedded in the guidance, that there's a pretty significant step up in OpEx sequentially from Q3 to Q4 just given our conference schedule our travel related to conferences in the fourth quarter, and other client activity marketing related to conferences and Q1 activity, et cetera. So, it reflects sort of a normal Q3 to Q4 step up, but just make sure you kind of bake that into the OpEx. I think the only thing just to keep in mind is that obviously, our largest revenue line is our research. And there is a lag between when contract value does start accelerating, and when the revenue flows through. And so, we are just very mindful of watching that, and that can have a pretty significant impact on margins, on both a sequential and year-over-year basis.

Okay. That's helpful. Thanks. And then it just falling on that, is there any reason to think that pricing would be softer next year than it was in 2023?

It's Gene. It says what we are seeing in the marketplace is, clients value our products greatly. We expect pricing, the pricing environment will be the same next year as it is this year.

Perfect. Okay. Thank you, guys.

[Operator Instructions]. Comes from the line of Jeff -- from Wells Fargo. Please proceed. Jeff?

Hello?

Your line is open. Please proceed.

Can you hear me now?

Yes.

Okay. Thank you. Sorry to drag you back to it. I know you said you have sufficient sales capacity. I just want to make sure I am understanding the management of sales headcount appropriately. So, is this that you have already seen a slowing environment and you have already rebuilt your sales capacity? So, with those dynamics, you are well-calibrated? Or should we be reading into it that there's any sort of, like, incremental weakening you are seeing because we are not seeing that in any of your externally reported metrics?

Yeah, Jeff. So, you should not read into it in any way that we are seeing any kind of weakening. It is what we talked about earlier, which is that we expanded our salesforce a lot over the last two years. For general GTS, it's up about 18% since the end of 2021, that's a lot of capacity. So, we have added a lot of capacity. On top of that, as Craig mentioned, a lot of those people are now coming into tenure. And so, as we look, especially for '24, we feel like we are really well-situated in terms of actual capacity between the larger number of additions we have made in the last two years and the fact that those people we come up with tenure curve and kind of being at the really, really good spot at the tenure curve during '24. And by the way, the '25 as well.

Okay. And then, Craig, you just alluded to this, but, I guess, I was surprised to see subscription revenue performance as well as it did in research. And I am not sure if there is some FX impact or divestiture impact or something. But, to see it on Slide 7 actually accelerate, while CV's still been decelerating, if you can just address why research subscription revenue would be accelerating, with those dynamics.

Jeff, I think there is a little bit of FX in there. Obviously, I do think, over the course of Q3, and this is part of the reason why we are able to increase the research guide a little bit too is, NCBI or growth came in earlier in the quarter than we had originally anticipated. And so again, the combination of, it if books in July, we get to take two months of it. If it books at the end of September, it's all in Q4. And so, we got a little bit of that benefit flowing through into Q3. And then, obviously, we are able to raise the full-year guide for the research segment as well because of the beating our expectations for the third quarter in NCBI.

Comes from the line of Andrew Nicholas with William Blair. Please proceed.

Hi, good morning. Thanks for taking my question. I wanted to -- again, ask on the headcount question and maybe ask it a different way, which is given where you feel you are with headcount and territory coverage and the ramp for what was previously a lower tenured Salesforce, is it fair for us to expect next year for a bigger gap between CV growth and headcount growth than maybe the 4% to 5% that you've talked about historically as all those dynamics kind of come together?

Hey, good morning, Andrew. It's Greg. I think the way we're thinking about it again, we'll provide full guidance in February, but as we've mentioned throughout the course of this year, we are constantly recalibrating based on the external situation and how our business is performing. Looking at the headcount, sort of quarter-to-quarter, there can obviously be a little bit of noise in those numbers. And so, as Gene and I both included too, there's really nothing to see there. And as we roll into next year and beyond the algorithm that we continue to think about is we're going to grow our territories and our headcount in that kind of within four points – four points to five points of contract value growth. And the four points to five points is really dependent on what we're seeing from a wage inflation perspective. And so, wage of inflation is abating a little bit, will be closer to CV minus four. If wage inflation is higher, it'll be CV minus five or whatever. But that's the algorithm over the long term or medium term, quarter-to-quarter it may shift a little bit just given what's going on. But over the long term, given the huge addressable market opportunity, that's the algorithm we're going to go after.

Makes sense. Thank you. And then for my follow up, I just wanted to ask curious how the last year or so, given all the macro uncertainty, geopolitical dynamics, tech vendor weakness, all these different kinds of noisy items that performance and that growth has remained very strong and within your medium-term target. So, I'm just wondering if, having been through that the past couple years, if you have any kind of updated views on kind of the cyclicality of that business specifically? Because it does seem to have been more resilient than I would've expected, particularly off difficult comps last year. Thank you.

Hey, Andrew, sorry, you cut out at the very beginning. Are you talking about consulting?

Sorry. No, I was asking about GBS CV growth. Just kind of the resilience of the CV growth there.

Yes, I mean, I think it is just consistent with the story, and the facts we've been telling for a while, which is business leaders, outside of IT and HR and finance and legal and sales need help on their mission critical priorities. And we have great products that offer tremendous value in that space. That's really the headline there. We've gotten better at the insights we create. We've gotten better with our selling motions. We've gotten better in everything we do. But the net of it is -- is that business leaders have problems and we have great products to help them solve those problems. And again, we believe that that won't change moving forward.

Does that answer your question, Andrew?

Yes, thank you.

Our next question, please. And it's from the line of Josh Chan with UBS. Please proceed.

You mentioned that NCVI was better this quarter than you expected. So, is there any themes in terms of types of clients to call out and do you think that the strength is more a function of the market turning or is it your Salesforce gaining traction there?

Yeah, I guess, Josh, I'd say that we saw a pretty consistent market environment between Q2 and Q3. If we get -- a minute ago, which is that our experts look at what are the most important issues facing executives in each of their functional areas? And we have we give them advice on how to address those things that's done in all kinds of environments, whether it's a really robust environment or not as robust for that individual enterprise. And so, I think we see as just that clients give a lot of value out of our research and it's been true over time.

Thank you for that Gene, and I guess on the consulting side, I appreciate that you mentioned there was some timing pull forward there. But do you think the contract optimization string is more a function of where we are in the cycle and clients looking to, I guess, optimize their spend? Or is that more of a kind of a one-time type of event for you? Do you expect kind of sustained strength in the contract optimization business for the next couple of quarters, I guess?

Yeah, the contract optimization business we've talked about in the past is a very lumpy business. And so, you can't really take one quarter and sort of say, and extrapolate is something different in the market, whatever. It's really just a matter of when deals happen to come in and what clients have to be looking for that point in time. And so, the only way you really look at that business is kind of like over a year-long period or something from quarter to quarter. You can't really draw any conclusions. I do think, Josh, one other thing I'd add is that clients like saving money in any operating environment. So, again, I think, it's obviously a really strong value proposition even in a not choppy economic environment.

And it's from the line of Manav Patnaik with Barclays. Please proceed.

Thank you. Good morning. Craig, just to ask the expense question a little differently. I mean, obviously, the seasonal tick-up going into 4Q, but if you look at the full year thus far, like has that expense base been more normal or are there any other puts and takes we need to consider as we go into next year?

Yes. Good morning, Manav. I think it is -- I would characterize it as roughly normal. I do think that as we pivot into next year we are likely to get back to a little bit faster headcount and territory growth. And so, we need to model that in. But that's probably the biggest lever on that operating expense base. Other than the timing of conferences and things like that. It is just -- as Jean mentioned earlier, we grew a lot, particularly in 2022. And so, this year we have been, we are sort of operationalizing maturing, and digesting a lot of that growth. And so there has not been a huge amount of net headcount growth baked into the 2023 numbers. There is some, but not, as much as we have had historically. I think we get back to a more normal level of that next year. So that would have to be modeled in our normal wage inflation and merit increase, and things like that. But the other stuff is generally normal course.

Got it. Okay. And then my second question just around the new sales environment. Obviously, fourth quarter is the big quarter. Any color on that plus, just I think the new sales numbers you gave for GTS and GBS were positive mid to high single-digits. Like, how much of that was comps versus and just talk about the momentum there, I guess.

So, in terms of the selling environment, again, I think it is unchanged. We see the same selling grind sort of Q2, Q3, and we are expecting the same environment in Q4 in terms of comp outlook. Craig?

Correct. And, I mean, I think you are referring to the headcount numbers. And so, I mean, GBS headcount was up 10% year-over-year. GTS up 4.5%. Again, we are constantly, as we have talked about, you are probably tired of hearing me say recalibrating those numbers around a variety of different scenarios for the end of the year. Obviously, there is only another two months left in the year. But we expect to end the year, sort of aligned from an account perspective and CV perspective. So that we roll into next year with the right size salesforce. And then we will continue to grow that salesforce moving forward to go after that huge market opportunity.

Apologies, Craig. I was referring to the new business number, but I appreciate the headcount color as well.

Okay. Great. Sorry about that. So, on the new business side, I think it is a combination of a little bit easier comps, and the maturation of the sales force, coming up tenure curve.

Okay. Thank you so much.

One moment for the next question, please. And it comes from the line of George Tong with Goldman Sachs. Please proceed.

Hi. Thanks. Good morning. Going back to tech vendor trends, you mentioned that, research non-subscription revenues were similar in terms of performance to 2Q, and tech vendor CV growth was in the low single-digits. Can you elaborate a little bit more on what you are seeing with tech vendors? And if you are updated 2023 guide, assumes stabilization or improvement in performance.

So, I would say for Q3, we didn't see any change in the tech vendor environment, just the same as we have seen in Q2. In terms of the guidance, I will let Craig talk.

I mean, I think it's stabilization, George. So, we haven't yet seen signs that market has shifted yet. We do believe, again, over the medium-term or the next year, year-and-a-half that, we will get back to more normal growth trends there, but, I would say, what we saw in Q3 and what's embedded in the guidance. And again, I mean, the reality just also remember that, contract value or growth we sell in Q4 really has almost a de minimis impact on the full-year research revenue numbers from a subscription revenue perspective. And so, stabilization baked in there and similarly on the non-sub line we have not assumed any crazy rebound, sort of what we're seeing is stabilization, and that's what we've modeled into the guidance.

Got it. That's helpful. And then perhaps to ask the margin question a little bit differently, you've raised your full-year guidance for EBITDA margins, once again this quarter, can you provide your latest views on what structural EBITDA margins are, and if the factors that led to your improved full-year outlook for EBITDA margins can also lead to an improved view on structural margins?

Sure. Happy to. So, I think, the view is really not changed from prior quarters and prior discussions. So, what I'd say is, our view on our margin profile today is that the base or foundational margins are in the low 20s. Obviously, that is significantly higher than they were before the pandemic and before the CEB acquisition. In addition to that, as always, we believe there is operating leverage in the business and that our margins will go higher over time. We'll give guidance in February as we always do. We talked about on some of the other OpEx questions, this year's operating expense as a reasonable starting point to think about the margins and the overall P&L for next year. But just obviously keep in mind that there are other things beyond just the OpEx level and the level of investment we put into the business next year that will impact. The margins most notably where we end this year from a contract value perspective, because as we've talked about, there is a lag in terms of the revenue and the CV relationship, both when CV decelerating, but also when CV begins to accelerate as well. So, it does take a quarter or two for a lag for the sub-revenue to kind of catch up with the CV. And so again, just be mindful of that as you think about 2024 as well. We'll provide all those details in February when we come out with our initial guidance for 2024.

Got it. Thank you.

One moment for our next question, please. And it comes from the line of Jeffrey Silber with BMO Capital Markets.

Thank you, so much. I'm not going to ask a margin question. Actually, wanted to talk about pricing. If I remember correctly, this is the time of year when you start instituting price increases, and I'm just wondering how that been? If you've seen any pushback in terms of client may be pushing back on what they're buying. Thanks.

Alright, Jeff, I'll get started. Which is -- as I mentioned earlier, we haven't seen any, it is the time we increased prices. It rolls through obviously as clients renew. And I'd say it's a normal environment. We haven't seen any pushback.

Yes, I mean, Jeff, so the major price increase for us goes in went into place two days ago on November 1st. So, we're obviously very, very, very early in that cycle. But again, if you think about it, the average client is spending order of magnitude $250,000 or $260,000 a year with us. So, the difference between 4% and 5% is not a lot of money in the grand scheme of things. And again, we're very focused on making sure that we're delivering value well in excess of that $250,000 or $260,000. So, we're generally able to sell the price increase, again, sort of as a normal course of business for us.

Okay. That’s helpful, appreciate. Let me shift over to conferences. I know the numbers have been strong. But typically, when we're in an environment of economic uncertainty, that area of the business might tend to be a little bit weaker. Do you think we're just seeing kind of a bounce back from the pandemic and the fact that nobody was traveling and nobody was mingling, and maybe as we go into next year, you might see some softness in that business?

So, Jeff, I think the key thing driving the business is that our clients, our enterprise functional leaders have a lot of challenges. And we've done a good job at laying out what those challenges are and how they should address them. As we market our conferences to potential attendees, we focus on here are the issues we face, and here's how we're going to help you with that. You can come to the conference. And so, I think, the biggest single thing that's driving our conference performance is that we're on the issues people care. Our attendees have a lot of issues and we are on the, our experts have a lot of solutions to those issues that they get a lot of value from. I think that's kind of the biggest thing. In addition to that, obviously, we've been adding conferences back and so we're getting, I think some people that couldn't go to conferences in the past now can go. And so, you sort of see that in terms of comparison points, but it's really how you do more about the value. I think most of all.

Okay. Thanks, so much.

Thank you. And this concludes the Q&A session. I would like to turn the call over to Eugene Hall for his closing comments.

Well, here's what I'd like you to take away for today's call. Gartner drove another strong performance in Q3. We deliver unparalleled value to enterprise leaders in their teams across every major function with a thriving, struggling, or anywhere in between. We're exceptionally agile and continuously adapt to the changing world, and we know the right things to do to be successful in any environment. Looking ahead, we're well-positioned to continue our sustained record of success far into the future. Our client value proposition and addressable market opportunity will allow us to drive long-term sustained double-digit growth. We expect margins will expand modestly over time. We generate significant free cash flow well in excess of net income. Even as we invest for future growth, we'll return significant levels of excess capital, to our shareholders. This reduce the shares outstanding and increases for returns over time. Thanks for joining us today, and we look forward to updating you again next quarter.

And thank you all for participating and you may now disconnect.