Gartner : FQ4 2022 Earnings Call Transcripts

Gartner, Inc. NYSE:IT

FQ4 2022 Earnings Call Transcripts

Tuesday, February 07, 2023 1:00 PM GMT

S&P Global Market Intelligence Estimates

		-FQ4 2022-		-FQ1 2023-		-FY 2022-		-FY 2023-
	CONSENSUS	ACTUAL	SURPRISE	CONSENSUS	CONSENSUS	ACTUAL	SURPRISE	CONSENSUS
EPS	2.58	3.70	43.41	2.01	10.15	11.27	11.03	9.56
Normalized
Revenue	1453.32	1505.00	3.56	1371.01	5426.89	5500.00	1.35	5774.81
(mm)
Currency: USD
Consensus as of Jan-24-2023 6:11 AM GMT

		- EPS NORMALIZED -
	CONSENSUS	ACTUAL	SURPRISE
FQ1 2022	1.72	2.33	35.47 %
FQ2 2022	2.14	2.85	33.18 %
FQ3 2022	1.87	2.41	28.88 %
FQ4 2022	2.58	3.70	43.41 %

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Contents

Table of Contents

Call Participants	3
Presentation	4
Question and Answer	10

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GARTNER, INC. FQ4 2022 EARNINGS CALL | FEB 07, 2023

Call Participants

EXECUTIVES

Craig W. Safian

Executive VP & CFO

David Cohen

Group Vice President of Investor

Relations

Eugene A. Hall

CEO & Director

ANALYSTS

Andrew Owen Nicholas

William Blair & Company L.L.C.,

Research Division

Heather Nicole Balsky

BofA Securities, Research Division

Jeffrey Marc Silber

BMO Capital Markets Equity

Research

Jeffrey P. Meuler

Robert W. Baird & Co.

Incorporated, Research Division

Keen Fai Tong

Goldman Sachs Group, Inc.,

Research Division

Manav Shiv Patnaik

Barclays Bank PLC, Research

Division

Seth Robert Weber

Wells Fargo Securities, LLC,

Research Division

Toni Michele Kaplan

Morgan Stanley, Research Division

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GARTNER, INC. FQ4 2022 EARNINGS CALL | FEB 07, 2023

Presentation

David Cohen

Group Vice President of Investor Relations

Good morning, everyone. Welcome to Gartner's Fourth Quarter 2022 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'll be a question-and-answer session. Please be advised that today's conference is being recorded.

This call will include a discussion of fourth quarter 2022 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. All growth rates in Gene's comments are FX neutral, unless stated otherwise, and his contract value comments exclude Russia from 2021. 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, 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.

Eugene A. Hall

CEO & Director

Good morning, and thanks for joining us today. Gartner drove a strong performance in the fourth quarter with double-digit growth in contract value, revenue, EBITDA and EPS. We generated nearly $1 billion

in free cash flow, and we returned even more than that to shareholders through our ongoing share repurchase program.

Enterprise leaders are dealing with high volatility and uncertainty. Inflation accelerated to the highest level in 40 years. The dollar was the strongest it's been in 20 years, and it remains extremely volatile. There are ongoing supply chain issues. Energy prices have been volatile. The labor market has been volatile. Enterprises are assessing the impact of remote versus hybrid versus in-person work. There are widespread concerns of a recession. All of these factors and more impact enterprises around the world.

Leaders need help navigating this turbulent time, and they know Gartner is the best source for that help. Our services often make the difference between success and failure for executives and their enterprises. We help clients succeed with their mission-critical clarities, whether they're in growth mode or cutting costs.

With all this volatility, our most recent research shows that Chief Financial Officers are more carefully scrutinizing the expenses but at the same time are increasing investment in mission-critical priorities. Even in enterprises, they are under extreme financial pressure.

Our research business continues to be our largest and most profitable segment. We help leaders across all major enterprise functions in every industry around the world. Our market opportunity is fast across all sectors, sizes and geographies. And we're delivering more value than ever. Research revenue grew 13% in the fourth quarter. Total contract value growth was 12%. Contract value growth was broad-based across practices, industry sectors, company sizes and geographic regions.

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GARTNER, INC. FQ4 2022 EARNINGS CALL | FEB 07, 2023

We serve executives and their teams through two distinct sales channels. Global Technology Sales, or GTS is our largest sales force. GTS contract value grew 11%. The large majority of GTS serves IT leaders and their teams, and we saw double-digit growth with this client segment despite tough compares. GTS also serves leaders at technology vendors, including CEOs and product managers. In this segment, growth moderated but still grew at high single digits despite even tougher compares.

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 grew 19% in 2022. In the 5 years since we launched our GXL products within GBS, we have seen exceptional compound annual growth rates.

Gartner Conferences deliver extraordinarily valuable insights to an engaged and qualified audience. In the first half of 2022, we delivered most of our conferences virtually. In the second half, we pivoted back to in- person for nearly all our conferences. Feedback has been excellent. Most in-person conferences were sold out in 2022, and we've sold significantly more than half of our exhibitor space for 2023.

Gartner Consulting is an extension of Gartner Research. Consultant helps clients execute their most strategic initiatives through deeper, extended project-based work. Consulting is an important complement to our IT research business. Consulting revenue grew 24% in the fourth quarter.

We exited the year with a strong backlog and pipeline. Our business is fueled by our highly talented associates. During 2022, we grew our team by about 2,900 associates. With this growth, we ended 2022 with the lowest percentage of open positions ever. When we're fully staffed, we provide our clients better service, which results in better retention. We also sell more in territories that are fully staffed. We have carefully aligned our hiring with recent demand and the long-term opportunity we have for growth.

Our 2023 outlook reflects our most recent experiences from Q4. We've also been prudent in considering the potential impact of volatility from the global environment. We expect to deliver at least 21.5% margins across a wide range of economic scenarios and our guidance has opportunity for upside if the business performs in line with historical trends. Craig will take you through our guidance in more detail.

One of the unique things about Gartner is that we provide value to enterprises that are thriving, struggling or anywhere in between. By being exceptionally agile and adapting to the changing world, we have sustained record of success. We're well prepared as we enter 2023. We've carefully aligned staffing levels with demand and we have the lowest percentage of open positions ever.

Our content addresses today's mission-critical priorities, and we know the right things to do to be successful in any environment.

In closing, we again saw strong growth across the business. Looking ahead, we are well-positioned to drive growth far into the future. Even as we invest for future growth, we expect margins to increase modestly over time, and we generate significant free cash flow well in excess of net income. We'll return capital to our shareholders through buybacks, which reduces shares outstanding and increases returns over time.

With that, I'll hand the call over to our Chief Financial Officer, Craig Safian.

Craig W. Safian

Executive VP & CFO

Thank you, Gene, and good morning. Fourth quarter results were strong with double-digit growth in contract value, revenue, EBITDA and adjusted EPS. FX-neutral growth was even stronger than our reported results. We also delivered better-than-planned EBITDA margins.

During 2022, we generated almost $1 billion of free cash flow, and we returned more than that to shareholders through stock repurchases. Our financial performance for the full year 2022 included total contract value growth of 12%, total revenue growth of 16%, EBITDA growth of 14%, diluted adjusted EPS of $11.27 and free cash flow of $993 million.

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