高德納諮詢公司 (IT) 2002 Q2 法說會逐字稿

Before I turned the call over to

Michael. I would like to quickly fiscal 2002, we reported revenue of 201.2 million, a decline of 12% over the second quarter of 2001 and proforma EBITDA, our guidance of 5 to 7 cents was based on normalized E.P.S., which does not include charges taken in this quarter, gains from the sale investments, and gains from the sale of the H.C.M.O. business. We delivered on

the high end of that range at 7 cents, 2 cents

above concensus compared to 4 cents of the

second quarter of 01. Including other charges,

reported net loss from continuing operations,

total 4.3 million or a loss of 5 cents per

diluted share compared to a lost of two cents a

year ago. For the first half of fiscal 2002 revenue, 450.5 million, a decline of 7% over the first after of 2001, and proforma EBITDA was 71.7 million. Normalized E.P.S., again,

including other charges total 24 cents per

diluted share versus 24 cents for the first

after of 2001. Reported net income from continuing operations and including other charges was 14.7 million or 16 cents per diluted share, compared to 19 cents for the first half of 2001. Just a reminder that all

of our financials reflect our adoption of last

quarter, we eliminates good landlord arm for

tags. Historical revenue and cost of product development has been restated to reflect our adoption of. P.S.1013 which requires

reclassification of reimbursable out of pocket

expenses and did not have a material impact. Finally, please note that throughout the call, we will refer to financial measures, including normalized E.P.S., pro forma EBITDA and net cash. Please refer to the. Now I'd like to

turn the call over to Michael.

Thank you. Julie. Good morning,

everyone. It's not been one year since we

first talked with you about a fundamental gift

in Gartner east strategy from one of high

investment to drive high growth to a strategy

of moderate investment with increasing levels

of profitability. Our view which we shared with you a year ago was that in a deteriorating economy, Gartner shareholders would best be served by a strategy that optimized EBITDA and earnings, rather than revenue growth. The

evidence of the past four quarters strongly

confirms the wisdom of this strategy.

strategy. On a going forward basis, we will

continue to do everything in our pour to

maximum shareholder value. When the economic environment permits us to grow revenues without sacrificing near term profit and cash flow, we will do so. But while the economy remains weak, which I believe will continue to be the case through 2002, our focus will remain firmly on profit, and cash. Two weeks ago I opened our spring symposium in Florence by cautioning our European clients not to believe the wide-spread reports about the blossoming recovery in the U.S. economy. When I.B.M. shocked Wall Street later that day with its announcement of an earnings shortfall, we were not surprised. Despite all the talk, there

were very few signs of real economic

improvement. The post 9/11 spending on defend

and homeland has juiced the public second for

but the private sector struggles. C.E.O.'s across the spectrum remain generally pessimistic about their ability to deliver earnings at a level that will satisfy investors. As a result, budgets that involve

any sort of discretionary spending will likely

remain very tight throughout the year. Three years ago, we initiated a broad series of investments. In gardener.com, in our regional infrastructure, in a seat based architecture and in the inside sales channel that have allowed us to enhance productivity and to improve margin. As the economy began to

deteriorate early this year, early last year,

we took further steps to reengineer our cost

structure tone sure our ability to deliver

increased profits, even in a prolonged economic

slow down. Through these productivity gains

and reductions in our cost structure that are

already initiated, we can clear see the ongoing

potential to extract increasing levels of

profitability well into 2003. At the same time, we continue to make moderate investments in important initiatives for growth in the long term. Gartner G.2, Gartner executive programs,

and the Gartner 500. So that when the economy

and the tech sector do actually rebound, we are

fully prepared to take advantage. Our second

quarter results show vividly both the

difficulty of the economy as well as our

sustained success in growing profits and mack

miezing shareholder value in this environment. While revenue was down from the prior year, EBITDA came in at 26.7 million, an increase of 23%. Q-2 normalized E.P.S. was 7 cents per share, compared to 4 cents per share during this period last year and to a concensus of 5 cents. Our cash balance now is $78.8 million, up $47.3 million or 151% year over year, and up 51.3 million, or 187% sequentially. Contribution margins increased in every business segment. While overall these are solid results, I don't want to pretend that we are happy or complacent about the revenue decline. We're not. But we believe that our

strategy is striking the right balance. In the current environment, chasing short term revenue growth through increasing our spending would foolishly compromise near term profitability.

This we will not do. We like revenue growth, but we like cash and profit more. At the same time, our focus on near term profitability is building important value for us improved margins and larger cash balances enhance our capacity to borrow and reduce our costs of capital. Thereby dramatically increasing our

financial flexibility, including, among other

things, our ability to continue to buy back

shares. Behind these strong results are a

number of very encouraging met tricks that

highlight the durability of our franchise and

the opportunity for us when times get better.

Let me highlight just a few of them. During

the second quarter, we actually saw small

increase in our overall research retention rate

to 74%. For clients who spend more than

$100,000 with us, the retention rate was

particularly strong, at 89%. These numbers

stand in stark Contras to industry averages.

Intense budget pressures are inevitably causing

some clients to reduce their spend with us, but

our consistently strong renewal rate makes it

clear we have successfully established many

meaningful, long-term relationships with

client, who need and highly value our advice,

even in tough times. We have every expectation

of growing these relationships when conditions

improve. Another highlight is the growth of

our consulting backlog, which is up for the

quarter 14% year over year, and 6%

sequentially. We're finding a specially strong

demand for our measurement services and our

strategic advisory services. During the

quarter, we booked 102 consulting deals worth

over $150,000 each. With ten of those projects

coming in at over $500,000 each. One

particularly noteworthy engagement is a

$2 million project for Exxon Mobil to benchmark

and assess its I.T. organization worldwide.

Our unique ability to deliver this sort of work

on a global basis was a key factor in securing

this engagement. We're also having

considerable success driving new research

business. Writing roughly $22 million in Q.1,

and another $22 million in Q2. With about half

of this coming from completely new research

clients. This is strong evidence that the

available market opportunity when times

improve. I can't even begin to tell you the

many challenges involved in forging a new

research relationship in this environment. Yet

we have been able to do so consistently in our

first two fiscal quarters. We don't know how

long this difficult economy will last, but

we're prepared for the day when things improve. Our commitment to maximizing shareholder value is leading up to apply the same rigorous analysis of and improvement to our sales processes that we have demonstrated with respect to our cost structure and operating expenses. The current downturn is Radcliffe

altered the landscape in our business to

Gartner's benefit. When the economy turns up, better sales processes will leverage the improved operating model that is already in place. This will be the next phase of

Gartner's evolution. In summary, we delivered

another strong quarter, all in the face of a

continuing weak economy and exceptional

upheaval in the tech sector. We're strongly

committed to maximizing shareholder value and

we will continue to demonstrate that

commitment.

We have a focused and

talented manage pt team. We're successfully

growing profits and gaining market share. And we are exceptionally well positioned through solid client relationships, through growing cash balances, and through prudent investment and long-term growth initiatives to prosper and extend our market leading position when the economy begins to recover.

Thanks, Michael. Good morning

everyone. There are three topics I would like

to cover. First a review of second quarter

results and our estimates for future

performance, second, our strategy for

continuing increase profitability and third, a

review of our progress in improving shareholder

value. I'll start with our business results

for Q-2. We have 14 performance objectives, profitability, cash flow, financial flexibility, and long-term revenue growth. In

Q-2, we made solid progress on all four. Profitability is measured by sending gross margins, total company EBITDA and grows margins are up. Cash flow as measured by the net cash flow we generate is up. Borrowing capacity and cost of capital has increases and lon term revenue growth is measured by our market share, client and wallet retention rates ond our progress towards specific growth initiatives like executive programs, Gartner G.2 and Gartner 500 have all gained momentum. In Q-2, on consolidated revenue of $201 million, we generated 27 million in EBITDA and 7 cents of normalized E.P.S. In the context of our guidance and in comparison to last year, we delivered more profit on less revenue. While revenues declined 12 percent year over year, EBITDA increased 23% and normalized E.P.S. increased 75 percent. Of particular note is

the fact we delivered a 75% increase in

normalized E.P.S., even as fully diluted shares

outstanding increased by 24%. The dechain in revenues was across all business segments, but the most significant occurred as planned in events with an 8 million dlar decline year over year. We have risk adjusted our poat foal of

theme conferences, eliminating new, unproven

and low profit events, driving attendee and

exhibit volumes to reduce list of venues with

the goal of greater profitability on fewer

events. Not only is this event strategy working, we continue to anticipate full year revenue at the high end of our guidance. Our total company EBITDA improvement of 23% is the result of five specific initiative. The first

is a shift in our client mix to larger accounts

that are more profitable an retain services at

higher levels. This is evidence by a 4% increase in the average spend per client, now at $85,000, and by our overall client and wallet retention rates, which, when calculated across all products and services are currently 72% and 85% respectively. The second is a reduction in our cost of deliveries, through the elimination of low profit products and markets. Examples would include the

elimination of research topics with low

utilization. The elimination of certain consulting practices in low volume regions like Latin America and Asia pacific. The

elimination of low profit conferences and

events. In Q-2, gross margins defined as revenues minus cost of delivery increased 5 points year over year from 51% to 56%. The third is a reduction in our cost of sales, from through broader use of our inside sales organization. Our inside sales organization continues to cost 6 to 8 cents less on the sales dollar. The year over year reduction in sales and marketing costs in the quarter is approximately $3 million. Fourth is a reduction in our general and administrative costs. With the elimination of low priority

facilities and systems. In the last year, we

have exited space and systems with a total

future cost of over $55 million. Additionally, we are experiencing increased productivity, in each of our H.R., finance, and I.T. functions from investments we made over the last couple of years to build a mature, regional infrastructure. Collectively these initiatives

contributed to a reduction in general and

administrative costs of over $5 million in the

quarter. The fifth initiative is continued success in the limited investments we are making in select growth initiatives that are focused on building revenue momentum over the long term. These include executive programs,

Gartner G.2 and Gartner 500. Each of which is

meeting or exceeding early milestones. Executive programs continues to grow revenue and contract value in excess of 20%. Gartner G2 is currently $6 million in contract value and the Gartner 500 sales process is now staffed and live in some 300 accounts. Let me move on to cover a brief overview of each of our three primary business segments, starting with research. Research revenue at $122.7 million for the quarter declined 8% year over year on an 8% decline in research contract value. Research contract value ended the

quarter at $511.2 million. This is

attributable to two factors. Wallet retention

rates that are down from historical highs and

an extraordinary difficult environment in which

to book new business. While our client

retention has remained constant, our wallet

retention has declined. Clients are

maintaining their relationships, but with

slightly less dollars. Traditionally, our new

business far exceeded our cancelled business.

As Michael mentioned earlier, it is extremely

difficult to get new clients to sign long-term

research contracts in the current environment.

That said, our client retention rate of 74% and

wallet retention rate of 80 percent remain

appreciably better than general industry

experience and, most importantly, up slightly

from Q.1. We attribute this to our scale, our global reach, our breath the -- breadth and depth of pricing and --. The retention and

wallet retention around 80% for a continued

down economy has been an important part of our

long return growth strategy. As the economy gains momentum and spending patterns build, our intimate relationship with clients and their technology based initiatives will naturally drive an up tick in revenue dollars. On

profitability, research delivered significant

improvement in its contribution margin, which

increased to 68%. 4 points better than last

year and 3 points better sequentially.

Excluding the investment we are making in

Gartner G.2 which net of related revenues was

$3.2 million in the 2nd quarter, the

contribution margin on core research was

70 percent. We know an important question for

many of you is when will we see research start

to improve? It's not an easy one to answer.

Our view is that research will improve when the

improvement in the economy materializes into

the tech sector. There are a number of factors

that inform that view. The greatest dechain in

wallet retention has come from our largest tech

following vendor clients. While the overall

Gartner spend in this sector has remained

constant year over year, these clients have

reduced research spend for more exchange in the

form of consulting. We have a high degree of

confidence that this group, as the economy

improves and discretionary budgets liberalize

will be the fastest to reengage the historical

research spent. Client and wallet retention

rates have stabilized 74% and 80% levels

respectively over the last three quarters. The current decline in research contract value and revenue is not, I repeat, not a further decline from client who went through renewal in fiscal 2001. It is for multiyear contracts in their

second and third years being transacted on for

the first time in a down economy and coming in

at slightly reduced amounts. The average cost

per seat has now stabilized around 10,000 for

seat, for advisor research seats which have

accessed to reserb much and and list recovery

and 3,000 per seats which is accessed to

research only. The volume of seats has

consistently remained above -- (inaudible) and

the mix of advisor and reference sees has

consistently maintained a 30/70 split. Client

research and utilization have remained strong

year over year. In addition, client

satisfaction is up. Historically, seat strong

usage and satisfaction, we have also seen

increases in retention. We have continued to

generate above $20 million in new research

business per quarter over the last three

quarters. Research contract value from our

executive programs continues to grow above 20%,

and research contract value from Gartner G.2

continues to build with a total C.V. today of

$6 million, up 19% sequentially, in

representing 325 contracts. Based on these

factors, we continue to gain confidence in the

long-term prospects for research growth.

Fueled by improved retention rates and new

growth initiatives. In the meantime, we have

increased visibility, web an lit particulars

and client service managements into the topics

that are most important to our client. This allows for greater intelligence in reducing and allocating resources to ensure we maintain research margins regardless of revenue levels.

Clearly we have done this in the last four

quarters resulting in this quarter's 68%

contract retention margin. On to consulting. Consulting revenue of 65.9 million in the second quarter decline year over year on a 22 reduction in -- sequentially, consulting revenue increased 18%, driven primarily by a significant ram m in our bench marking and. Backlog increased to 127.5 million, up 14% year over year and up 6% sequentially providing a solid basis for continued sequential ramp in consulting revenue. The effort to build

backlog in this environment is substantial,

taking increasingly more time on the part of

our consultants and continuing to put pressure

on utilization but the effort and focus are

paying off. In Q-2 alone, we booked over

$70 million in new business. Our strategy for

driving profitable growth in consulting is

three pronged. First a focus on larger deals,

second, a focus on a limited set of practices

and markets in which we can achieve significant

penetration and third, optimization of head

count and costs. In Q-2, we made good progress

on the strategy. The average engagement side

increased 15% to $109,000, and the average

engagement duration increased seven months, a

two month improvement on the prior year. After

studying all practice areas and markets, we

identified these do not have the scale and

volume to achieve our target profitability

levels and eliminate events. This enabled us

to reduce our consulting head count by 60

people. As a result, our consulting revenues

are down year over year, but our profitability

is up sequentially. Consulting contribution

margin was 34% in the quarter, up 4 points year

over year and up 9 points sequentially. The

increase in contribution margin is a direct

result of risk adjusting our investment in this

business, prioritizing profitability over

growth. The actions we took in Q-2 to reduce resources in our less profitable practice areas, client segments and geographies. More

profitability. 22 million from 23 million

last year. That represents 1 million of

incremental profit with 5 million less in --

more selling time, with an eye to selling large

deals in a tough economy. The percentage of

timal cat alindicated to al in Q-2 increased by

3 percent. Core consulting Utley saying at 52%

is flat year over year and sequentially. Billing rates remain lel at this, $283 per hour, with a healthy backlog, our reduction in billable S.T.E.s and consistent billing rate, we expect to continue to deliver growth in our consulting margins with a goal of 20 percent in the future. Down 8.3 million or 48% year over

year on fewer events. As indicated earlier,

this is a result of a planned strategy to risk

adjust the conference portfolio and improve

profitability. The contribution margin events

was up $157,000 and the contribution margin

percentage at 46% increased 23 points year over

year. Events deferred revenue of 54.3 million is down 5% year over year an up 20 million or up 8 percent esequentially: Raising our level of confidence in delivering full year revenues at 120 million, the high end of the guidance we set. Before we leave 2002 performance. Our charges of 17.2 million in the quarter consists of 5.8 million of a reduction in force, primarily in consulting, $10 million related to the cost of exiting various facilities around the world, and 1.4 million relating to a noncash charge to intangible assets for the discontinuance of certain databases. Collectively, these our charges will reduce operating expense by $11 million in 2000 and $15 million on a full year basis. Q-2, net cash, $51 million, an increase of $26 million over the prior year and $60 million sequentially. As a result, our net cash balance increased to 79 million at March 31, 2002, and an increase of 67 million year over year and 51 million sequentially. By the way, we generated 51 million of net cash after repurchase of 12.2 million of Gartner stock.

During the quarter, we repurchased 1 million

shares at an average price of $12.15. The

total number of shares we purchased awnd your

current 75 million-dollar repurchase program is

3.4 million shares at a total cost of

$306 million. Increased profitability and reduction in investment activities relating primarily to capital expenditures. Capital

expenditures, under 5 million, representing

70 percent reduction in spending over the prior

year. We continually to closely monitor the necessary it's and time of capital spending to ensure we stay on course to achieve our targeted year end net cash balance currently forecasted to be in excess of $120 million. As

we turned the corner on the first Mav of fiscal

2002, there are a number of observations we

have to setting further guidance. Our

competitors remain in a weakened state has

measured by the revenues of public companies

and technology and research and veriry space,

Garth ners market share is 72%, up another two

points over last year's 7 point gain. In the current environment, we can optimize EBITDA and gain market share all at the same time. The

economy remains uncertain. Our practical

experience tells us that budgets are still

tight and budget holders skeptical. As a

result, we see no reason to overspend to

develop new business. Our clients and wallet

retention rates have stablized, but it is

increasingly challenging to predict new

business volumes. Pipe lines are relatively

strong, but conversion rate and conversion time

exhibit new patterns every quarter the as a

result, we see no reason to ramp up resources.

Ahead of book business. Our ability to leverage our revenue visibility and to predictable profitability gets increasingly better. We have continued to end at the high end of our profitability, despite challenge revenue environment. Over the next few

quarters, maintain an intense focus on profit. The net result is we are reconfirm and EBITDA and E.P.S. guidance at the beginning of the fiscal year. Our guidance for the full year is as follows: Total revenue is estimated to be in the range of 900 to $920 million. Research

is estimated to be in the range of 495 to

$502 million. Consulting is estimated in the

range of 268 to $276 million, events is

estimated to be in the range of 120 to

$122 million, and other is estimated in the

range of 17 to $20 million. EBITDA is estimated to be in the range of 145 million to 155 million, normalized E.P.S. is estimated to be approximately 47 to 52 cents on 133 million shares, depreciation estimated at $41 million, amortization estimated at $2 million, net interest expense estimated at $22 million, other expense estimated at $2 million an we estimate our tax rate to be at 35%. As I said earlier, we expect our net cash balance to be in excess of 125 -- $120 million. Our guidance for the third quarter is as follows: Total revenue was estimated to be in the range of 234 to 243 million. Research is estimated to be in

the range of 120 to 123 million, consulting

estimated in the range of 72 to 76 million,

events, estimated in the range -- at

$38 million, other, estimated in the rairng of

4 to 6 million. EBITDA is estimated in the range of 37 to 42 million, our normalized E.P.S. is estimated in the range of 13 to 15 cents on 133 million shares. Depreciation is estimated at 10.5 million, amortization at half a million, net interest expense at 5.3 million. Other expense complies of F.X. lost at 5 million, our tax right 35% and our net cash bam estimated to exceed $103 million. We have been very focused over the last year on leveraging its revenue ability we have through research, contract value, deferred events revenue into pro dict able profitability. That focus has result you had in an EBITDA margin at 16%, nearly 3 points better than last year. The guidance we have laid out indicates that we are well on our way to achieving our longer term, targeted EBITDA margin of 20 percent. A

Funt amountal assumption in our guidance is

that we continue to improve profitability in a

continued down economy. Here is why. We have the ability to adjust resource levels in line with booking, research contract value, backlog, and deferred events revenue. Near 45% of our

business has a high percentage of its costs as

rare yabl. This would include consulting

events and software. In these businesses, we have a great opportunity to adjust cost levels based on sales pipe lines and booking volumes.

The remaining 55% of our business is comprised

of research. Historically, we did not have

this ability until our clients were consuming.

That made it extremely difficult to adjust

resources. Today, with Gartner.com, and web an

lit particulars and client services we have a

greater understanding of why and our our

clients are engaging with our analysts an

engaging with our research. Today we can pro

actively respond, we can increasingly better

resource decisions. One proof point, in the last six months, we incurred $85 million in research expense, down $12 million, since last year. Client utilization, inquiry and

satisfaction have all improved. Before I turn

the call back to Michael, I would like to take

a moment and reflect on our progress if

improving shareholder value. It's best

articulated by reviewing the things we are

doing to improve shareholder value in the short

term, mid term and long term. In the short

term, we are focused on delivering value today. Historically, we have made significant investments to drive the top line.

Aggressively investing in the short run to

maintain and grow our market share. Over the

last year, a combination of changes, namely a

weakened competitive landscape and uncertain

economy, and the diluted impact of the reset

conversion price on our convertible bond

pointed to a strategy that prioritizes

profitability sooner than later. Value gets

built by if creasing profitability quarter by

quarter. Segment margins have to improve, sales in general, administrative costs need to achief increasing levels of sufficiently. Our

incremental productivity and tax rates through

effective tax planning should decline over

time. Over the last four quairtters we have improved gross margins, reduced S.G.A., effectively investments and reduced our tax rate. We have seen a significant improvement

in our shareholder value over the last 12

months, the last 6 months and the last quarter.

As evidenced by our guidance, we believe we

have a solid foundationtory deliver increased

profitability in the next two fiscal years as

we work through the residue of an uncertain

economy. We also need to be doing things today

to build shareholder value for the mid term.

For Gartner, delivering value in the mid term

is all about building financial flexibility. We are accomplishing this through a build up of our cash balances, increases in our borrowing capacity and improvements in our cost to capital all of which have made excellent progress over the last year. This flexibility

will give us the opportunity to continue to buy

back shares. Our ability to enhance

profitability in the short term and build

financial flexibility in the mid term provides

a foundation for focusing on a few key

initiatives that will drive profitable growth

in 2004 and beyond. There are four key

elements to profitable the first is staying

power reduced budgets and skepticism has caused

our client to retract. By default, they are

resetting long term partnerships. In the last

three quarters we have maintained overall

client retention rate above 70% and over all

wallet retention rates of 85%. In

organizations that spend annually an average of

100,000 or more with us, we have maintained

client relationship rates above 85% and wallet

retention rates near 90 percent. Our staying

power measured by our retention rates is it

vital to our long-term growth strategy. As the

economy maintains mow men momentum and spending

increases, well get the lion's share of the

incremental operation. Executive programs.

Growing in excess of 20% per annum. Over the

last long, our ideal level of interaction and

the ideal context in which we want to interact

with clients. The result of growth in this product that is exponential to Gartner as thee clients spend over $170 million of Gartner, we believe that by the end of 2004, this business can be well over $100 million in contract value. The 3rd is Gartner G.2. Very simply,

Gartner G. 2 represents a significant long term

opportunity to take Gartner's reserb much and

advisory competence into a broader audience of

executives and senior managers. The key need for which we are building product, assisting these individuals with technology strategies that support their business strategies is undeniable. As we articulated earlier, to date

we have over 325 clients. By 2004, we believe

this business can be near $50 million. The 4th

is Gartner 500. Our objective, build larger

relationships with 500 regional and global

client organizations prying ample opportunity

for growth over the long term. Just as we built our inside sales organization into an efficient channel for selling and maintaining our small client accounts, so, too, will we build the Gartner 500 sales process into an efficient channel for our largest clients. In summary, we stand on some I had ground in delivering continued growth in shareholder value through increased profitability in the short term, through reduction in the long term and revenue base in the long term.

I believe that today's

economy compels companies to follow a very

simple agenda. Focus on high value customers,

manage manage your cost and plant the seeds for

future growth. This is what I tell our clients

every day, and I hope that it's clear from what

I have said and what REGINA has said that this

is what we're doing at Gartner. Long term

value gets built by increasing profitability

quarter by quarter. We have accomplished that

in the first two quarters of our current fiscal

year and we see plenty of room in the two that

lie ahead. We are prudently setting the stage

for 203 and beyond.

Ladies and gentlemen of the

jury, we will begin the question and answer

session. If you have a question, press star

followed by 1 on the push button phone. You

will hear a 3-ton prompt acknowledging your

selection m if you are using speaker equipment,

you will need to lift the hand set before

pressing the numbers. One moment please for

our first question.

Credit suites, first Boston.

Mike, I hope you're wrong on this technology

stuff because I think we're all going to be out

of a job soon. Anyway, I wanted to just touch

on the existing clients, what you're seeing in

terms of some of the long-term contracts. Have

you seen anyone come back and try to

renegotiate rates on contracts that are maybe a

year or two in on a three-to 4-year contract?

Secondly, in terms of the long term growth in

research, what's your sense there, Michael, in

kind of a normalized economy? Thanks.

It's a longer subject that I have -- I have an awful lot of evidence and an awful lot of empirical evidence from the we're we're doing that is true tech sector is going to remain tough for the rest of 2002, so hopefully we won't all be out of jobs because there's a great long-term business there. In

terms of long-term contracts, we have had our

share of clients push back and see if they

could renegotiate multiyear contracts. We've

held a very tough line on that. We believe

that when a company signs a contract, that's a

binding legal commitment. And we've been able

to hold the line quite nicely on that. It's

also important to note that as we have had

clients come up for renewals who decide that

they want to spend a little less money with us

but still maintain their relationship, we are

being very careful to provide them less service

for less money. As clients move down the the

scale of cost per seat, they have to pay more

per seat and the reason that's so important is

that's critical to maintaining the long-term

growth ability of the research business,

because as you give clients the same service

for less money, you'll never be able to grow

them, which, by the way, is something I think

many of our competitors are doing. So in terms

of the long-term growth of the research

business, as we have said before, we think that

long term the research business should be a 10%

grower.) Whether, it's I think in really good

times it could be above 10%. In tough times,

less than 10%. But our goal over the long

haul, I'm talking over the next three plus

years, is that that business should be a sort

of year in, year out, 10% grower.

Okay. Because it seems like

if C.V. continues to kind of decline here in

maybe mid to high single digit rates, when we

kind of stem that, there's obviously going to

be delay given the long term contracts in terms

of a resumption of growth there. Okay. In

terms of S.G.A. for Q.3, the level you were at

for Q-2, is that kind of what we should think

about or should it come down a little bit more?

The sales costs will go up slightly in line with the change in events.

You see that in Q.3 we've given guidance of

$38 million for events. In Q-2, it was 9.1.

For the flight rise relative to that -- there's

a slight rise relative to that, but generally

aside from that, you should see it continue to

come down. In large part, by the other charges

that we just announced. A good piece of that

is facility.

I guess two more questions and

I'll hand it over. In terms of on the billable

F.T. z for consulting if you have that number

and for both of you guys on the consulting

side, what type of, I guess, projects or which

of the practices there are the ones that are

kind of out performing in this environment?

Thanks.

533.

Thank you.

In terms of the nature

of the engagements that we're seeing and the

strength in that business, not surprisingly,

our measurement business continues to

benchmarking measurement business continues to

be very strong, which, as you know, is a good

business for us on a host of levels. It's less

customized if you will and therefore has good

margin associated with it. It also in times

like this, as we bill up businesses, we're

building more and more knowledge on that

database which is leverageble in all of our

business. We are continuing to see strength in

the business of sort of very short-term

engagements where people just want a day or two

of analyst time, as they're dealing with sort

of critical issues that they have to make very

quick decisions on and we're excited about that

because we're more an more seeing clients at a

high level turn to us more really strategic

decision making, which is terrific. And then

not surprisingly, all of the other sort of big

projects that people are still spending money

on, like C.R.M., like security or other areas

that we're continuing to see strengths.

Okay. Thanks very much, guys.

Our next question comes

from Laura letterman. Please state your

company name.

Yes, Laura letterman from

William bird. I have a strange question for

you pikal. You mentioned that you expect

technology is likely to be weak this year. I'm

wondering about long term, whether the absolute

level of I.T. spending allocated budget, not

spent budget, is just so high that long-term

tech following budgets won't go up much, which

kind of mutes a recovery if you will. It's

kind of a long-term theory about companies are

spending too much on absolute levels in terms

of allocated budget so we won't get much of an

allocated budget increase long term. Thanks.

Good question. One of

the things I hate doing sr being an analyst.

I've got a whole team of people that can answer

that question if greater detail. I'll give you

my high level view from our work and the time I

spend with C.E.O.s and C.I.O.s. I think

companies are getting increasingly smart about

getting a return on investment for their tech

spend, so I think we will see tech spend

increase because I think companies or going

thank you a process right now of putting more

business oriented rigor around their tech spend

an frankly around the people who control the

tech spend, C.I.O.s and other I.T. executives.

More often those are business people. So I

think there is a -- continues to be a great

long herm growth prospect for the tech industry

as a whole, this period aside. The other thing

I would tell you is our view is that we start

to see some substantial rebound in 2003 in tech

spend, in particular, delivered by something

which the tech spend doesn't focus on a whole

lot, which is replacement, but that is part of

the tech industry backing a more mature

industry and if you think about how much

equipment was purchased, software was

purchased, et cetera, in the late 1990 rs, that

had a designed useful life of call it three to

four years, companies are going to have to

spend for replacement just to keep the lights

on.

Okay. Another question, this one is for you, REGINA, if you look at the great cost savings you've done over the last year, can you give us a sense of how you get to that 20% operating margin long term? Where

else could you cut long term on a high level.

Where would the improvements come from?

I think a piece of the long term EBITDA margin at 20% is a resujs beyond 2003 to revenue amendments. We believe that we've got

-- we've still got runway into the second half,

and then into 2003 on many of the things that

we've laid out already that are just going to

have a full year impact next year that we're

redying these things at the half and next year

they will have a full year impact. As we said, with much greater visibility into the revenues, not only through our backlog, research contract value and deferred events revenue, but now through Gartner.com, as we see the volumes, we have a lot of runway to kind of take out the variable costs. So we're going to continue to

watch the consulting volumes and adjust

resource accordingly. We'll continue to watch

what we're being told an reallocate our reduced

resource accordingly. I think it's two areas,

getting leverage for the full year for the

actions taken already on infrastructure, as

well as cost of delivery and continuing to pay

very good attention to where the volumes are

and, you know, resource set accordingly.

Final question. If you look

to a normalized growth in consulting when the

economy gets better and tech spending hopefully

get better, what would a long term normalized

consulting growth be.

We believe that a 15 to

20% growth business in a good environment.

Thanks so much. I'll pass.

Our next question comes

from Richard, please state your company name

followed by your question.

Hi. This is actual live

ASHISH. Two questions, could you update us on

your success in Ben traiting the fortune 500

lines, in two respects. One is on the research

side as well as on the consulting side? That's

the first one.

Sure. As you know,

we've been building a program that we're

calling Bartner 500 and we'll take a 2nd to

describe what we're doing there. In

particular, to go out and change the nature of

our relationship with our largest clients,

primarily made up of Fortune 500 light

companies as well as our largest prospects,

because that prospect area is a place where

historically we haven't added a lot of those

new -- those prospects as foo clients over the

last several years. And I guess the way I

think about this is this. As you look over the last three years we built the inside sales function with a very focused mission of figuring out a way to have ar lower cost way, to serve our smallest clients, yet at the same time do that with higher client satisfaction and higher client renewal and that's worked exceptionally well and we will continue and you will continue to see us pof business out of our field based sales organization if to that inside sales channel that does such a good job there. At the same time, now we are in the process, which I think will also take several years, of reorienting our outside sales organization to become as well honed a machine as the inside sales machine is, but focused on our largest clients and prospects, so those are the 500 accounts that we've designated in the Gartner 500, but less porj going after the 400 plus Fortune 1000 companies that we don't have as clients today) so we're not going to report every quarter on exactly how many of those are clients and how many of them aren't. We will update people periodically on that, but that's a program and a set of investments that we're making in terms of our sales process and how we manage our relationships with our largest clients, that I really think will be sort of an important part of the sort of next generation of the evolution of our business.

In terms of sales, I think you mentioned about the S.G.A. line, selling costs, certificating the -- ex certificating the quarter after 55 million a quart tore or G. and A. at 55? If you can sort of update us on the

benefits you're seeing with it being down 8%,

you know, in a year an year basis, if you talk

about sort of the savings you see coming in on

the selling and G. and A. side because of the

restructuring or reorganization?

Absolutely. First, just to

clarify a point. The comment that I made in my

talk track on the 55 million was a comment

relevant to facilities that we have taken out

in the quarter, and to understand, some of

these facilities had 15 to 20 year leases a and

so that's the total cost, the total lifetime

cost for leases and depreciation and all of

that. That said, let's me talk a little bit

about S.G.A. I think you'll see that in the

half, at the half year mark, we've reduced our

S.G.A. by about 10.3 million. We expect that

to be 21 million or slightly higher for the

full year. The split between that is more or less the same between sales and marketing and G. and A. What actually reduces even greater savings at this point is that we're in an environment where we're being very conservative around our receivables, we've continued to have very good success in cash collections, and realization of stuff over fine 0, but we continue to build our bad debt reserves, and that's probably going to be 4 too $5 million higher for the full year, so you've got some relive great benefit, probably shared 50/50 by the sales and marketing, and the general administrative, that is a little bit dampened this year by the environment in which we're building the bad debt allowance to protect anything that we don't collect.

Last question, on research

productivity. I know you guys, two sort of key drivers or thought of, one was using sort of the technology platform to better direct research based on what clients are really using, as well as just sort of focusing your efforts more around areas not analyst interest but what you deem is the interest of customers.

Could you sort of update us on any met tricks

that -- that are showing you any benefits that

you've already begun to achieve on that end?

Let me do two links, the overall metric is that we are -- we're clearly seeing productivity gains if research, even with the decline in revenue in that business as evidenced by its expense rate and margin rate. That's the sort of overall place

you will see it pop out in the metrics, but in

terms of from the perspective of enhancing the

client experience and also manage ng our

resources more tight live tied to the client

experience, I'd actually urge you to spend a

little bit of time at Gartner.com. One of the

things you would find is even from the subject

areas of our spot lights and as you drill down

more and more into -- (Inaudible) that's

produced, you're going to be find it much more

highly focused around key subject areas. That

information is coming to us directly from the

feedback from the website, Gartner.cm. So we are watching at this point and adjusting our research agenda as we learn more and more from our clients what's of greatest interest now. I

have to caveat that by saying doing a good job

in our business has two pieces to. One is

being able to deliver for clients who have a

very particular need around a particular

subject now, as an example, C.R.L. today, very

high need for lots of clients. At the same time, being really great in our I business, which we've done now for 22 years, is also knowing the subject areas that are going to be of interest to chients before they know it and before they start pounding away at your website on that subject, so being sure you constantly balance your research agenda between what clients need today and also making the investments in coverage areas that they're going to need tomorrow is very important.

You'll see that quite clearly highlighted if

you just look through the list of spotlight

subjects on Gartner.com.

Absolutely the last question.

Any update further on the potential conflict

between sort of your customers that are in the

consulting business versus your entry into the

consulting market? I know that was something

you sort focused on contending withz and I just

think, that world has gotten a lot cleaner and

clearer for us.

In the environment we're all dealing with

today, the independent nature of gardener, the

type of advice and counsel that we give that's

independent of any vendor relationships, has

become n an even more valuable asset. Obviously it's been the philosophical underpinning of our business, but when you sit down with clients and talk about the work we do, there's a burning desire from clients to have independent advice and counsel from people who are not going to do implementation work for them, who are not selling other technology vendor's products and services, so we're start to go see increase he had traction both in government, not surprisingly, but also in the private sector around that particular selling feature of who we are both from a research perspective and a selling perspective. All of

that said, we haven't seen any upset in any of

our relationships with any of the big

consulting, systems implementation or out

sourcing firms as we continue to grow our

business.

Thanks a lot.

Our next question comes

from Steve wide Berg. Please sait your company

name.

Hi, pacific rest. Mike, I was

wondering if you could provide some thoughts on

the international trends that you're seeing in

your business, how it compares with the U.S.,

and then I have a couple of brief follow ups.

Sure, Steve. First of

all, what I would say is generally we're

seeing, and this is a huge generalization, but

generally we're seeing the economic impact and

the tech sector impact being pretty consistent

around the world. There are sort of bright

spots and dim spots 0 obviously, but really, we

haven't seen one particular part of the world

sort of come out of this thing earlier, or

sink, you know, much deeper into it, so our

business at this point, I would say, is

operating globally on a pretty consistent basis

around the world m I don't know if you have

anything different to add to that.

I guess the only continuing I would say is if you kind of look at EBITDA margins, you know, they improved, you know, fairly significantly in some of the lower regions, but I just track what Michael said. It's something we're seeing consistently, the revenue challenge around the world, and one exception, Asia pack is growing at the half about 4%, so we do have positive signs there.

Great. Just two brief

questions. Along the executive programs. How

many clients are involved in that area of the

business and then along the giens of G.2, how

many of the 325 clients have been existing

Gartner clients? Thanks.

On executive programs

today, we have about 1500C.I.O.s as members of

that program and about 70% of the G.2 clients

are -- come from existing client companies

where we're doing business already with that

organization. What we're trying to do with G.2, and we talked a little bit about this in the past, is we are trying to use and leverage our existing relationship to find the right business buyers for the G.2 product within the organization. We've had great successes in

flaiss -- if places with good long term Gartner

clients have introduced us into their business

folks as a valuable source to help them think

about how they're going to make their

businesses grow and be more successful using

tech nolg. technology.

At this time there are no

additional questions. Please continue.

Thank you, everyone. We look forward to

seeing everyone on the road over the next

several months and appreciate everybody's

continued support an look forward to talking to

everybody, if not sooner, next quarter.

Thanks.

Thank you. Ladies and gentlemen, this concludes the Gartner's second quarter 2002 earnings conference call.