Gartner Inc (IT) — Q3 2023 Earnings Call Transcript

Good morning, everyone. Welcome to Gartner's Third Quarter 2023 Earnings Call. I'm David Cohen, Senior Vice President of Investor Relations. After comments from Gene Hall, the Chief Executive Officer of Gartner, and Craig Safian, the Chief Financial Officer, we will have a question-and-answer session. Please note that this conference is being recorded. This call will cover the financial results for the third quarter of 2023 and Gartner's outlook for the year, as detailed in today's earnings release and earnings supplement, which are both available on our website. Unless otherwise noted, all references to EBITDA are for adjusted EBITDA, with adjustments specified in our earnings release and supplement. The contract values and growth rates we discuss are based on 2023 foreign exchange rates and exclude contributions from the first quarter divestiture and the exit from Russia in 2022. All growth rates mentioned by Gene are neutral to foreign exchange, unless stated differently. All references to share counts are based on fully diluted weighted average share counts unless noted otherwise. Reconciliations for all non-GAAP figures we discuss can be found in the Investor Relations section of our website. As outlined in today's earnings release, some statements made during this call may be forward-looking and can differ significantly from actual results, as they are subject to various risks and uncertainties, which are detailed in the company's 2022 annual report on Form 10-K, quarterly reports on Form 10-Q, and other SEC filings. I encourage everyone to review the risk factors listed in these documents. Now, I will turn the call over to Gene Hall.

Good morning, and thanks for joining us today. Gartner drove another strong performance in Q3. We delivered high single-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 informs smarter decisions and drives 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 continued 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, while contract value growth was 8%. Contract value for enterprise function leaders continues to grow at double-digit rates. We serve executives and their teams through distinct sales channels, global technology sales, or GTS, which sources leaders and their teams within IT. GTS also sources leaders at technology vendors, including CEOs, Chief Marketing Officers, and Senior Product Leaders. GTS contract value grew 7%. GTS sales to enterprise function leaders performed well in the quarter. GTS sales to leaders at technology vendors were affected by technology sector dynamics and tough year-over-year comparisons. We expect sales to technology vendors will return to normal growth rates over the next 12 to 18 months. Global business sales, or GBS, serve leaders and their teams beyond IT. This includes HR, supply chain, finance, marketing, sales, legal, and more. GBS contract value grew 14%. Through a relentless execution of proven practices, we're able to deliver unparalleled value to our clients. Our business remains resilient despite a persistent, complicated external environment and tough comparisons for the technology vendor market. Gartner conferences deliver extraordinarily valuable insights to an engaged and qualified audience. This will be the first full year of in-person conferences since 2019. We're having a great year. In-person attendance and advanced bookings are at record levels. The fourth quarter is off to a great start and our outlook for the year remains strong. The IT Symposium Expo is our flagship conference series. I recently attended this conference in Orlando. Attendance was strong. Our sales teams were highly engaged with clients and prospects, and feedback from the conference continues to be excellent. Gartner consulting is an extension of Gartner Research. Consulting 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 23% in the third quarter with record results and contract optimization. Given the strong performances across our business, we've increased our 2023 guidance for revenue, EBITDA, and free cash flow. Greg will take you through the details. We're well positioned to have a strong close to the year and get off to a fast start in 2024. In closing, Gartner achieved another strong quarter of growth. We deliver unparalleled value to enterprise leaders and their teams across every major function, whether they're thriving, struggling, or anywhere in between. We're exceptionally agile and continuously adapt to the changing world. We know the right things to do to be successful in any environment. Looking ahead, we are well-positioned to continue our strong 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 revenue growth. We expect margins will expand modestly over time, and we generate significant free cash flow well in excess of net income. Even as we invest for future growth, we will return significant levels of excess capital to our shareholders. This reduces shares outstanding and increases returns over time. With that, I will hand the call over to our Chief Financial Officer, Craig Safian.

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 continues to flow through the P&L as expected. EBITDA was $333 million ahead of our guidance and about in line with last year. Adjusted EPS was $2.56, up 6% from Q3 of last year. Free cash flow was $302 million. We 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 function leaders increased double-digits as well. CV from tech vendors grew low single-digits, compared to mid-teens growth in the third quarter of 2022. Quarterly net contract value increase, or NCVI, was $101 million. As we have discussed in the past, there is notable seasonality in this metric. CV growth was broad-based across practices, industry sectors, company sizes, and geographic regions. Across our combined practices, the majority of the industry sectors grew at double-digit rates, led by the transportation, services, and public sectors. We had high single-digit growth across all of our enterprise size categories other than the small category, which has the largest tech vendor mix, and grew low single-digits. We also drove double-digit or high single-digit growth in the majority of our Top 10 countries. Global Technology sales contract value was $3.6 billion at the end of the third quarter, up 7% versus the prior year. GTS CV increased $65 million from the second quarter. Wallet retention for GTS was 102% for the quarter, which compares to 107% in the prior year, when we saw a near record high for this metric. IT Enterprise function leaders' retention remained above historical GTS levels during the third quarter. GTS new business was up 7% versus last year. New business with IT enterprise function leaders increased mid-teens compared to the prior year. GTS quota-bearing headcount was up 5% year-over-year. With the dynamic territory planning we introduced a few years ago, the catch-up hiring we did last year and our teams moving up the tenure curve, we're well positioned for growth moving into 2024. Our regular full set of GTS metrics can be found in the appendix of our earning supplement. Global business sales contract value was $1 billion at the end of the third quarter, up 14% year-over-year. All of our GBS practices grew at double-digit or high single-digit rates other than sales, which grew mid-single digits. Growth was again led by supply chain and HR. GBS CV increased $36 million from the second quarter, while retention for GBS was 108% for the quarter, which compares to 114% in the prior year when we saw one of the highest ever results for this metric. GBS new business was up 10% compared to last year. GBS quota-bearing headcount was up 10% year-over-year. This excludes headcount associated with the Q1 divestiture. As with GTS, our regular full set of GBS metrics can be found in the appendix of our earning supplement. Conferences revenue for the third quarter was $57 million ahead of our expectations during a seasonally small period; we delivered strong growth for the conferences we held in Q3 compared to the same conferences in 2022. The calendar shifted significantly from 2022 to 2023 with the return to in-person. Contribution margin in the quarter was 36%, consistent with typical seasonality and reflecting investments for future growth. We held nine destination conferences in the quarter, all in person. Third quarter consulting revenues increased by 24% year-over-year to $133 million. On an FX neutral basis, revenues were up 23%. Consulting contribution margin was 37% in the third quarter. Labor-based revenues were $100 million, up 10% versus Q3 of last year, as reported and on an FX neutral basis. Backlog at June 30th was $180 million, increasing 15% year-over-year on an FX neutral basis with continued booking strength. Our contract optimization business is highly valuable. We delivered $33 million of revenue in the quarter with some of the revenue pulled forward from the fourth quarter relative to our prior outlook. Consolidated cost of services increased 8% year-over-year in the third quarter as reported and 7% on an FX neutral basis. The biggest driver of the increase was higher headcounts to support our future growth. SG&A increased 8% year-over-year in the third quarter as reported and 7% on an FX neutral basis. SG&A increased in the quarter as a result of headcount growth. EBITDA for the third quarter was $333 million, about in line with last year. Third quarter EBITDA upside to our guidance primarily reflected revenue exceeding our expectations in consulting and prudent expense management. Depreciation in the quarter of $25 million was up modestly compared to 2022. Net interest expense excluding deferred financing costs in the quarter was $21 million. This was down $8 million versus the third quarter of 2022 due to higher interest income on our cash balances. The modest floating rate debt we have is fully hedged through maturity. The Q3 adjusted tax rate, which we used for the calculation of adjusted net income, was 22% for the quarter. The tax rate for the item used to adjust that income was 35% for the quarter. Adjusted EPS in Q3 was $2.56, up 6% compared with last year. We had 80 million shares outstanding in the third quarter. This is a reduction of close to 1 million shares or about 1% year over year. We exited the third quarter with about 79 million shares on an unweighted basis. Operating cash flow for the quarter was $331 million, up 5% compared to last year. CapEx for the quarter was $28 million, down 11% year over year as a result of catch-up spending on technology investments in 2022, which normalized this year. Free cash flow for the quarter was $302 million. Free cash flow as a percent of revenue on a rolling four-quarter basis was 18% of revenue and 67% of EBITDA. Adjusted for the after-tax impact of the Q1 divestiture, free cash flow conversion from GAAP net income was 122%. Our free cash flow conversion is generally higher when CV growth is accelerating. At the end of the third quarter, we had about $1.2 billion of cash. Our September 30th debt balance was about $2.5 billion. Our reported gross debt to trailing 12-month EBITDA was under two times. Our expected free cash flow generation available revolver and excess cash remaining on the balance sheet provide ample liquidity to deliver on our capital allocation strategy, share repurchases, and strategic tuck-in M&A. Our balance sheet is very strong with $2.2 billion of liquidity, low levels of leverage, and effectively fixed interest rates. We repurchased $209 million of stock during the third quarter and about $100 million in October. The board increased the authorization by $500 million earlier this week, and we expect they will continue to refresh the repurchase authorization as needed going forward. At the end of October, following the increased authorization, we had about $1 billion available for repurchases. As we continue to repurchase shares, our capital base will shrink. Over time, this is accretive to earnings per share and combined with growing profits also delivers increasing returns on invested capital. We are raising our full-year guidance to reflect the better-than-expected Q3 performance and good visibility into the fourth quarter. For research, we continue to innovate and provide a very compelling value proposition for clients and prospects. Subscription research growth will reflect recent trends in contract value. We continue to expect stronger growth from the subscription business than the non-subscription part of the segment consistent with the third quarter. For conferences, we still expect Q4 to be the largest quarter of the year. For consulting revenues, the labor business continues to perform well. We have very tough contract optimization comparisons in Q4 and pulled some revenue into Q3 relative to our prior expectations. We will continue to manage expenses prudently to support future growth and deliver strong margins. Our updated 2023 guidance is as follows. We expect research revenue of at least $4.875 billion, which is FX neutral growth of about 6% or 7%, excluding the Q1 divestiture. The update to the research revenue guidance reflects better-than-planned NCVI performance in Q3 with continued stability in the non-subscription part of the business. There is modest incremental upside relative to the expectations we built into the guidance last quarter. We expect conference revenue of at least $500 million, which is FX neutral growth of about 27%. We have increased our outlook for conferences by $10 million to reflect a good start to the fourth quarter. We expect consulting revenue of at least $550 million, which is growth of about 8% FX neutral, reflecting the very strong performance of Q3 and timing in the contract optimization business. The result is an outlook for consolidated revenue of $5.89 billion, which is FX neutral growth of 8%. We now expect full-year EBITDA of at least $1.440 billion, up $80 million from our prior guidance. With the strong performance in Q3, we have increased confidence in the margin forecast for the fourth quarter. We expect typical operating expense seasonality from Q3 to Q4. We now expect 2023 adjusted EPS of at least $10.90 per share. For 2023, we now expect free cash flow of at least $1.025 billion, up $50 million from our prior guidance. The higher free cash flow reflects a conversion from GAAP net income of 136%, excluding the after-tax divestiture proceeds. Our guidance is based on 80 million fully diluted, weighted-average shares outstanding, which reflects the repurchases made through the end of October. We are performing well this year, despite continuing global macro uncertainty and the dynamic tech vendor market. Contract value grew high single digits in the quarter. Revenue and EBITDA performance exceeded our expectations, and we increased our guidance. Free cash flow was strong in the quarter, and we increased the guidance for the full year. We have repurchased about $550 million in stock year-to-date through October and remain eager to return excess capital to our shareholders. We will continue to be disciplined, opportunistic, and price-sensitive. Looking out over the medium term, our financial model and expectations are unchanged. With 12% to 16% research CV growth, we will deliver double-digit revenue growth. With gross margin expansion, sales costs growing in about inline with CV growth and G&A leverage, we will expand EBITDA margins modestly over time. We can grow free cash flow at least as fast as EBITDA because of our modest CapEx needs and the benefits of our clients paying us up front. And we will continue to deploy our capital on share repurchases, which will lower the share count over time and on strategic value-enhancing tuck-in M&A. With that, I will turn the call back over to the operator, and we will be happy to take your questions.

Hi. Thank you for taking my question. I was hoping to ask a question about expense management. As you look into next year, assuming that tech vendor spending potentially starts to lap with either comparison, is there 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 vast. Over time, we intend to grow our salesforce in line with capturing that market opportunity. Over the last couple of years, we have dramatically increased our sales force. And we feel like we're in a really good position as we go into the end of '23 and '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? Is that a 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, from our perspective, much of the business they had was pulled forward. They overhired and have been having some retrenchment, which has impacted our business. We believe that the tech business is going to grow over time, and their revenues will grow, allowing our business to get back to normal growth as well.

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

Thank you. I was hoping you could give us some metrics around the current average tenure of your salespeople compared to 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. During normal times, typically 35% to 40% of our Salesforce is relatively new. However, we were in the 50%+ 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 were very back-end loaded last year in terms of hiring. Those people we hired in the third and fourth quarter of last year are now approaching or have just crossed over their one-year anniversary. Again, this is relevant to Heather's question. We have enough capacity, and the tenuring will look more normal as we roll into 2024, significantly better than what we experienced in 2023.

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

No. 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 broke apart our client retention rates for enterprise function leaders in GTS, those client retention rates are at or above historical levels. 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 to 500 basis points higher than GTS, and so we feel really good about that. That said, we are never done on retention. I'll let Gene talk a little bit about that.

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

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

Good morning, Seth. Great question. So, I think there are a couple of things going on within your question. From an operating expense perspective, we are relatively back to a normalized level of expenses. There will always be puts and takes, but we are at a relatively normalized level of expenses. I would note, and this is obviously embedded in the guidance, that there is a 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 marketing related to conferences and Q1 activities, etc. So, it reflects a normal Q3 to Q4 step-up; just make sure you factor that into OPEX. One key thing to keep in mind is that our largest revenue line is our research, and there is a lag between when contract value starts accelerating and when the revenue flows through. So, we are very mindful of watching that as it can impact margins significantly, both sequentially and year-over-year.

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

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

Perfect. Okay. Thank you, guys.

Hello?

Can you hear me now?

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 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's 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, many of those people are now gaining tenure. As we look, especially for '24, we feel like we are well situated in terms of capacity between the larger number of additions we made over the last two years and the fact that those people are coming up the tenure curve and are in a very good position as we head into '24 and '25 as well.

Okay. And then, Craig, you just alluded to this, but I was surprised to see subscription revenue performance as well as it did in research. I'm not sure if there's some FX impact or divestiture impact or something, but to see it on Slide 7 actually accelerate while CV's still been decelerating, can you 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 guidance a little bit too, is that NCVI growth came in earlier in the quarter than we had originally anticipated. The combination of, if it books in July, we get to take two months of it. If it books at the end of September, it's all in Q4. So, we got a little bit of that benefit flowing through into Q3. We are also able to raise the full-year guidance for the research segment as well because we beat our expectations for the third quarter in NCVI.

Hi, good morning. Thanks for taking my question. I wanted to ask about headcount and perhaps frame it a different way. 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 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 Craig. The way we're thinking about it again, we will provide full guidance in February. 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 headcount quarter-to-quarter, there can be a bit of noise in those numbers. As we roll into next year and beyond, the algorithm we continue to think about is that we will grow our territories and our headcount by about four to five points lower than contract value growth. And that four to five points is really dependent on what we are seeing from wage inflation. If wage inflation is abating a bit, we will be closer to CV minus four. If it's higher, it will be CV minus five or whatever. But that's the algorithm over the long term. Quarter-to-quarter, it may shift a bit given what's going on.

Makes sense. Thank you. For my follow-up, I just wanted to ask how the last year or so, given all the macro uncertainty, geopolitical dynamics, tech vendor weakness, all these various noisy items, performance and that growth has remained very strong and within your medium-term target. I'm wondering if having been through that the past couple of years, you have any 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 from 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 that business leaders outside of IT and HR and finance and legal and sales need help on their mission-critical priorities. 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, and we've gotten better in everything we do. But the net of it is that business leaders have problems, and we have great products to help them solve those problems. Again, we believe that won't change moving forward.

Yes, thank you.

You mentioned that NCVI was better this quarter than you expected. So, are 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 your Salesforce gaining traction there?

Yeah, I guess, Josh, I'd say that we saw a pretty consistent market environment between Q2 and Q3. Our experts look at what are the most important issues facing executives in each of their functional areas, and we give them advice on how to address those things. That's done in all kinds of environments, whether it's a robust environment or a less robust one for that individual enterprise. We think clients see a lot of value from our research, and it's been true over time.

Thank you for that, Gene. On the consulting side, I appreciate that 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 optimize their spend? Or is that more of a one-time event for you? Do you expect sustained strength in the contract optimization business for the next couple of quarters?

Yeah, the contract optimization business we've talked about in the past is very lumpy. It's really just a matter of when deals happen and what clients are looking for at that point in time. You can’t take a single quarter and extrapolate something that is different in the market. The best way to evaluate that business is over a longer timeframe rather than any one quarter. I do think, Josh, one other thing I’d add is that clients like saving money in any operating environment. So, it's obviously a really strong value proposition, even in a stable economic environment.

Thank you. Good morning. Craig, just to ask the expense question a little differently. The seasonal tick-up going into 4Q is noted, but if you look at the full year thus far, 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's roughly normal. As we pivot into next year, we are likely to see a little faster headcount and territory growth. That would have to be modeled into your normal wage inflation and merit increase considerations, but the other metrics are generally reflective of 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. How much of that was comps versus momentum there?

In terms of the selling environment, again, I think it is unchanged. We see the same selling dynamics from Q2 and Q3, and we are expecting that same environment in Q4 in terms of comparison outlook. Craig?

Correct. I mean, I think you are referring to the headcount numbers. GBS headcount was up 10% year-over-year. GTS was up 4.5%. We are recalibrating those numbers around different scenarios as we approach the end of the year. We expect to end the year aligned from an account perspective and contract value perspective, so we roll into next year with the right size salesforce. We will continue to grow that salesforce moving forward to pursue that huge market opportunity.

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

Okay. Sorry about that. On the new business side, there is a combination of a little bit easier comps and the maturation of the sales force coming up the tenure curve.

Hi. Thanks. Good morning. Going back to tech vendor trends, you mentioned that research non-subscription revenues were similar in terms of performance to Q2, and tech vendor CV growth was in the low single digits. Can you elaborate on what you are seeing with tech vendors, and if your updated 2023 guide assumes stabilization or improvement in performance?

For Q3, we didn't observe any change in the tech vendor environment, it remained the same as we saw in Q2. In terms of the guidance, I will let Craig expand on that.

I mean, I think it's stabilization, George. We haven't yet seen signs that the market has shifted. We do believe that over the next year to year-and-a-half, we will return to more normal growth trends there. But what we saw in Q3 and what’s embedded in the guidance is stabilization. Also, remember that contract value growth we achieve in Q4 has almost a minimal impact on the annual research revenue numbers from a subscription revenue perspective. So, we do see stabilization baked in there, and similarly for the non-subscription line; we haven't assumed any significant rebound but rather stabilization.

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

Sure. Our view on our margin profile has not changed from prior quarters and prior discussions. Our foundational margins are in the low 20s, which is significantly higher than they were before the pandemic and before the CEB acquisition. We believe there is operating leverage in the business which will contribute to higher margins over time. We'll provide guidance in February as we always do. And while this year's operating expense is a reasonable starting point to think about margins for next year, keep in mind that other factors, beyond just the OPEX level and the level of investment we put into the business next year, will impact margins. Most notably where we end this year from a contract value perspective, because there is a lag in terms of the revenue and the CV relationship, both when CV is decelerating and when it begins to accelerate. So, 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.

Thank you so much. I'm not going to ask a margin question. Actually, I wanted to talk about pricing. If I remember correctly, this is the time of year when you start instituting price increases. I'm wondering how that has gone? Have you seen any pushback from clients regarding their purchases?

Alright, Jeff, I'll start. As I mentioned earlier, we haven’t seen any pushback. It is the time when we increased prices, and it rolls through clients as they renew. I'd say it’s a normal environment. We have not encountered any pushback.

Yes, Jeff, the major price increase for us went into effect two days ago on November 1st. We are very early in that cycle. But, if you think about it, the average client spends about $250,000 or $260,000 a year with us. So, the difference between a 4% and 5% increase isn’t significant in the grand scheme of things. We're focused on delivering value well in excess of that average client spend. So, we’re generally able to implement the price increase as part of the normal course of business.

That's helpful, appreciate it. 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 or networking, and perhaps 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. We've effectively communicated those challenges and how to address them. As we market our conferences, we focus on the relevant issues and how we can assist. The primary driver of our conference performance is that we offer solutions to the issues that matter to our clients. Additionally, we've been adding back conferences, so people who couldn't attend in the past can now participate. You can see that reflected in terms of comparison points, but the key focus is on value.

Okay. Thanks so much.

Well, here's what I'd like you to take away from today's call. Gartner drove another strong performance in Q3. We deliver unparalleled value to enterprise leaders and their teams across every major function, whether they are 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 in future growth, we will return significant levels of excess capital to our shareholders. This reduces shares outstanding and increases returns over time. Thanks for joining us today, and we look forward to updating you again next quarter.