高德納諮詢公司 (IT) 2003 Q1 法說會逐字稿

Good morning, Ladies and Gentlemen, and welcome to the Gartner March Quarter 2003 Earnings Conference Call.

At this time, all participants are in a listen-only mode.

Following today's presentation, instructions will be given for the question-and-answer session.

If anyone needs assistance at any time during today's conference, please press the star, followed by the zero.

As a reminder, this conference is being recorded Tuesday, May 6, 2003.

I would now like to turn the conference over to Ms. Heather McConnell, Vice President of Investor Relations.

Please go ahead, ma'am.

Thank you, Jeff (ph) .

Good morning, everyone, and thank you for joining us today as we announce our results for the March 2003 quarter.

Additionally, we will provide guidance for the June 2003 quarter, along with revised guidance for the full 2003 calendar year.

Speaking on the call today will be Michael Fleisher, Chairman and CEO, and Maureen O'Connell, EVP and Chief Financial and Administrative Officer.

Following their remarks, we will be pleased to respond to questions.

A replay of this call will be available through Tuesday May 13th.

The replay can be accessed by dialing 303-590-3000 for both domestic and international calls, and by entering the passcode 535034.

This call is also being simultaneously Webcast and will be archived on our Web site for 30 days, at Gartner.com/investors.

As a reminder, this call cannot be taped or otherwise duplicated without the company's prior consent.

I'd like to remind everyone of the cautionary language about forward-looking statements and projections contained in the press release, and our periodic filings with the SEC.

The same language applies to any forward-looking comments made by management during today's call.

We'd like to caution you that these statements are just predictions and that that those actual events or results may differ materially.

We encourage you to read the company's SEC filings, including our 8-K for the March quarter and this morning's press release, which discuss important factors that could cause actual results to differ from those made in any forward-looking statements.

These filings can also be found on our Web site and on other financial informational sites including www.sec.gov.

Please note that throughout the call, we will refer to financial measures including normalized net income and normalized EPS.

Please refer to the press release and the footnotes for the financial statements for full definition of those terms.

Once again, thank you for joining us on the call today, and now I would like to turn the call over to Michael.

Michael?

Thanks Heather and good morning everyone.

For the past six months I've been telling you that our strategy in this market would be to make moderate investments to stabilize and then grow core research revenues and to drive growth and increasing profitability as business conditions improve.

Our performance for the March quarter was consistent with this approach, and generated results that were once again in line with our guidance.

Our revenues were up slightly and normalized earnings were down somewhat from a year ago.

We did see some impact from the war in Iraq in terms of differed commitments for future spending by federal government agencies.

This has caused us to be more cautious about guidance in the consulting segment of our business, and Maureen will talk more about that later.

But on the whole, our business remains stable.

Let me briefly review the financial results.

Total revenues were 204 million for the first quarter, and normalized EPS was four cents.

After a $5 million restructuring charge, which we announced last quarter, the GAAP results were a loss of two cents per share.

Of course the economic climate in which we are now operating continues to be terrible, but not terribly surprising.

Over supply in the technology sector and a justifiable lack of confidence in the global economy generally continue to be the distinguishing features of today's business environment.

Our research client retention rate held steady at 74 percent.

This clearly shows that clients still recognize the value of their relationships with Gartner.

We remain an essential resource to our clients.

We also continue to manage expenses.

SG&A was down in absolute dollars and as a percentage of revenues in the March quarter.

The recent $5 million restructuring charge reflects our ongoing commitment to adjust facilities and headcount to the economic realities of our business.

More important, we've made real progress in building a framework for our future profitable growth.

We continue to pursue initiatives to maintain our market leadership and drive growth over the longer term.

We're taking advantage of this time to strengthen our relationships with clients and to ensure that we have the products they'll need when the market returns.

We continue to drive our enhancements to the sales channel to make that organization as powerful as possible.

Our research provides strong evidence of a tech recovery in 2004, and I'm confident that we're in an excellent position to capture a sizable share of our prospects' and clients' spending once the recovery materializes.

Previously, I've talked about some of our growth initiatives, such as reorganizing the sales force to target $1 billion-plus high-potential accounts, and our emphasis on premier research membership programs.

What we've been doing, quite simply, is taking advantage of this lull in the market to further strengthen the qualities that have made Gartner the leader in our business.

We're working to sharpen our client focus, create the most effective sales force possible, drive increased cross-selling, develop marketing strategies to support our highest-value products and add talented people to move the business forward.

The focus of this activity, as we have said before, is to increase our penetration among companies with sales over $1 billion, 70 percent of whom are not clients of Gartner or any of our competitors.

As you know, I believe Gartner's growth will come from an expansion of our market.

It's not about talking market share from other, smaller research competitors.

More specifically, our growth will come from offering products that have been tailored to serve targeted segments of the market.

Toward that end, we hired an outside firm to conduct an attitude and use study that has framed the buying centers into segments based on needs and wants.

Over 2000 hour-long interviews with clients and prospects were conducted, and it's important to know that respondents were not aware that Gartner was the sponsor of the survey.

Based on that study, we have a keen insight into the various, distinct types of buyers and a better understanding of how their purchasing decisions are driven by their differing wants and needs.

We're using this knowledge to better tailor products, services and messaging to these buying decision makers.

Additionally, we've confirmed that CIOs are integral in the decision making process for research and advisory services, with over 60 percent in CIOs involved in research and advisory purchase decisions.

This finding is highly supportive of our named account strategy, and our emphasis on our premium EXP executive membership program for CIOs.

The attitude and use survey is just one of the things we're doing to strengthen our client relationships.

Overall, we're making a greater effort than ever to understand clients' needs and make our products and services more relevant to them.

In fact, the independent study also found that Gartner's overall client satisfaction rate was 84 percent, seven points higher than our nearest competitor.

We also recently launched the Gartner client advisory board, consisting of CIOs of six leading companies.

The board meets with me regularly to offer insights about our business, our products and our market opportunity.

The client advisory board includes Doreen Wright of Campbell Soup.

Maggie Miller of Sainsbury's, Bill Oates of Starwood, Steve Shiak (ph) of Beck and Dickinson (ph) , Greg Tranter of Allmerica Insurance and our own CIO, Scott Fertig.

Since we launched our named account sales strategy in mid January, we've made significant progress in putting the key elements of that program in place.

As planned, each of the 3,500 companies in our target universe has been assigned to a member of our sales force.

Furthermore, each sales rep was charged with developing an account plan, including an in-depth understanding of each target prospect and the specific Gartner products they would be most likely to need.

This undertaking was successfully completed the end of February.

Any change of this scale takes time and effort to bear fruit.

But we remain very confident in our ability to execute and capture the market opportunity.

If you recall, in April of 2002, I told you that 524 of the Fortune 1000 companies were Gartner clients.

Today, we have 605 clients from that group, and their combined spend with Gartner is $214 million.

That means we have brought 81 new Fortune 1000 companies on board since April of last year.

Impressive, considering the market conditions in which we're operating.

A great example of this trend is a Fortune 500 clothing manufacturing company which became a new client this past quarter.

Through focused account planning and relationship management, our sales rep was able to educate the CIO and their direct reports about the power of research access.

Based on the knowledge of their requirements, we built a unique research program for the team, which included a combination of three EXP memberships, reference and advisor seats.

With a named account focus and good process, our sales rep was able to bring in a two-year $285,000 per year research contract.

Coupled with the sharpened client focus and named account sales approach, we are repositioning some of our research products and services.

This means putting our energies behind the most relevant products and packaging them in a way that will allow us to command a premium price.

Our membership programs have been modeled after Gartner EXP, our highly successful executive program for CIOs.

Membership programs are premium priced packages that target specific roles within organizations.

These programs give us an opportunity to strengthen our relationship with the CIO's direct reports and show them the value of our products.

This quarter, we launched two additional membership programs in the securities space and CRM.

The packaging of these products gives our sales rep something focused and new to discuss with their clients.

Ultimately, membership programs are intended to drive growth of all types of our research products.

To encourage [Inaudible] , we focused on two over-arching areas of opportunity.

At our December Investor Day, we told you about the product cross-sell factor.

In our target companies, there's a 20 times multiple of revenues if a client purchases from all three of our core product lines: research, consulting and measurement.

We have quantified the product and service cross-selling opportunity, and it's extraordinarily significant.

Our focus on the named account strategy and product rationalization is driven by this cross-sell opportunity identified in our target accounts.

The second effort is focused on world-based cross selling.

We're leveraging our established relationships with clients for introductions to other key executives in the same organizations.

Additionally, we continue to leverage the power of our EXP network for referrals.

Members have responded very positively as their network becomes stronger with each introduction that turns into an EXP membership.

Clearly, we want to align our marketing and promotion activities to reach the target market segments and support our largest sources of volume.

As you know, Jack Smith joined us as Chief Marketing Officer last quarter.

He and his team already have begun to work with product managers to create marketing plans and allocate spending to the highest potential, highest value products.

While being prudent about spending, we are making selective investments in high caliber personnel to support the opportunities we believe will arise in our business.

It's also essential that our compensation, employee development and human resources program help us attract, retrain and motivate the people who drive our business.

To help us in that regard, Lorraine Magliali (ph) has joined Gartner as SVP Human Resources.

Lorraine (ph) has had a distinguishing career in both marketing and HR, having most recently served as the HR leader for A&P supermarkets.

I think this brief review clearly shows that we're making progress in each aspect of our growth strategy.

We're determined to use this trough in the market to position Gartner for the next upturn in the cycle, by creating stronger client relationships, relevant role based products and a disciplined sales and marketing approach.

I'll talk more about our perspective on the marketplace shortly, but first Maureen will comment on the financials in greater detail.

Thank you Michael and good morning everyone.

As Michael noted, March quarter results were in line with expectations.

We continue to drive contract value from its current decline into stabilization and are progressing as planned.

Total revenues were 204 million, an increase of two percent from the prior year.

Research and consulting revenues each decreased six percent over the prior year.

This was offset by an increase in events due to timing of Spring Symposium and added events.

Normalized EPS was four cents per share, meeting consensus estimates.

After the five million restructuring charge, we had a GAAP net loss of two cents per share.

Now let me turn to a review of our three primary business segments.

Research revenue was 116 million decreasing six percent over the prior year.

Research contract value of 474 million declined seven percent over the prior year.

As we told you last quarter, we continue to see stabilizing trends despite the decline in research contract value.

Research client retention was 74 percent and dollar retention increased two points sequentially to 83 percent.

Total new research business for the quarter was approximately 20 million.

This is the 10th consecutive quarter we have generated 20 million or more in new research business.

We continue to deliver this consistent performance even with the difficult economic environment we are operating in.

Our sales force today is giving significantly more attention to growing our largest and most profitable client segment, companies with more than a billion in revenue.

We know that these large companies spend more with us, an average of 295,000 versus an average of 87,000 across our entire client base.

They also stay longer than smaller companies, renewing at better than 90 percent.

With that in mind, we made the changes to the sales channel that Michael discussed.

We are tightly monitoring the transition and are realistic about the amount of time needed before we gain momentum.

ESP, our highly successful executive membership program for CIO's, once again delivered double-digit revenue growth over the prior year at 32 percent.

We surpassed the 1800 member milestone as we continued to grow the largest CIO network in the world.

This underscores the importance of our emphasis on C-level relationships and client satisfaction.

We know these clients spend two times that of nonmembers and will drive membership within our target client accounts.

We continue to find new product opportunities for EXP.

This quarter, we hosted our first tremendously successful CIO Boot Camp, a three-day session focused on the six essential imperatives for success in the CIO role.

Twenty-three CIOs from our targeted companies, those with revenues greater than 1 billion, attended the event.

GartnerG2 also continues to grow at double-digit rates.

GartnerG2 successfully expands our reach into new business audiences.

Eighty percent of GartnerG2 clients are business executives.

We continue to improve the product packaging and positioning, based on client feedback and our segmentation study.

Consulting revenues decreased six percent over the prior year to 62 million, but rose six percent sequentially.

Consulting backlog of 98 million decreased 12 percent sequentially.

Backlog is one area where we experienced the impact of the war, as federal government clients' deferred decision on new spending commitments.

In fact, government business in North America was by far the largest factor in the sequential decline in backlog.

State and local governments will continue to be challenging this year as well.

We expect to recover some of the revenues from deferred federal decision making in the latter half of the year.

But to be clear, we have not seen any impact to our research business.

We continue to manage the consulting business tightly.

Headcount is down 14 percent from the prior year.

At the same time, as the staff turns over, we are selectively adding high-caliber consultants who can increase the value we provide to clients and grow revenue and profitability.

Consulting utilization held relatively steady at 55 percent as compared to year end.

Our billing rate of $285 is up slightly from the same period last year, and the average client engagement is longer and has grown to $107,000.

We believe the focus on our target companies gives us the opportunity to sell larger deals and over time this should have a positive impact on our utilization rates.

Our consulting practice was borne as a result of our client demand, and is now a fundamental pillar in our offerings.

We will continue to develop our practice areas to focus on our key buyers within the target clients Michael discussed.

We are working aggressively to strengthen our consulting pipeline.

As an example, during Spring Symposium events, we held 70 individual workshop sessions with attendees, during the process of pursuing the business opportunities from those sessions.

This is an excellent example of our cross-selling opportunity that results from our mix of products and services.

Revenues from events were 24 million, compared to nine million in the prior year, primarily due to a shift in the timing of Spring Symposium into the first quarter.

This timing shift has been reflected in our guidance.

I should note that, even without the benefit of Spring Symposium and new events, events revenues rose by about $1 million over last year.

Direct expenses increased $10 million in the quarter due to the costs associated with this symposium.

Events deferred revenue has also been effected by the timing of Spring Symposium, as well as a change in our billing turn.

While the events industry has been extremely weak due to economic forces, Gartner's events business is showing relative strength.

For example, attendance at our Spring Symposium was 2,400, despite the fact that U.S. symposium opened soon after the war in Iraq began.

We held 15 events in the quarter, bringing our total attendance to 4,600 for the quarter.

Due to the quality of our events, we continue to attract a more senior level executive.

In this difficult operating environment, the caliber of attendee is very appealing to vendors who exhibit on our showroom floor, as demonstrated by very high on-sight renewal of 48 percent, up sharply versus 26 percent a year ago.

So let me turn to the balance sheet.

We continue to have a very strong cash position.

We ended the March quarter with $135 million in cash, especially strong in light of our stock repurchase program.

During the latest quarter, we repurchased $7 million in stock, bringing the total repurchases to $91 million since the inception of the program.

Capital expenditures in March quarter were $3 million, somewhat below expectations because some projects were deferred until later this year.

In total, capital expenditures will be in the order of $35 million for all of 2003.

That includes funding to improve client meeting facilities at some of our offices, the upgrade of order management systems, and the overhaul of our research publishing systems.

Now let me review second quarter and full year guidance.

As we have discussed for the last several quarters, we expect revenues to be flat to down, as compared to 2002.

Consulting is an area that will continue to experience pressure, with the largest factor being the softness in our government business.

As previously mentioned, we expect to recapture some of the deferred federal business.

However, state and local will remain a challenge for the year.

At the same time, as part of our strategy, we are intentionally focusing the bulk of our sales efforts on stabilizing and then growing the research business.

Given the outlook for the consulting segment, we have revised our full year guidance.

We remain confident in our ability to achieve the original guidance in our research and event businesses.

For the second quarter of 2003, the company is targeting [Inaudible] revenue of approximately $206 to $217 million, normalized EPS of nine to 12 cents a share on 128 million fully diluted shares.

For the full calendar 2003, the company is targeting total revenues of approximately $835 to $880 million, normalized EPS of 40 to 45 cents a share on 128 million fully diluted shares.

The full details for revenue guidance by business segment can be found in our press release.

Now I'll turn it back to Michael.

Thanks, Maureen.

As we've told you in the past, we will continue to monitor our business and give you the most accurate assessment of where we are in light of the current market environment.

We remain steadfast in our strategy to focus on a return to research revenue growth.

Now let me take a minute to give you my current high-level view of what's going on in the technology market.

Clearly the first part of 2003 has turned out to be no better for our markets in the two years that preceded it.

However, we prepared for this eventuality, and are holding our own.

And we're putting in place a solid framework for growth.

In my remarks at Spring Symposium, I made the point that Gartner was early in calling the downturn in the technology market, and remained on the pessimistic side of the scale for a relatively prolonged time.

Now we see signs of a strong technology recovery in 2004.

On the supply side, over capacity is finally being wrung out of the system, through vendor cutbacks and consolidation.

While the next several quarters will likely see some final desperate moves by desperate vendors, pricing power will begin to return to the surviving vendors in many technology sectors, a key element of recovery.

On the demand side, we're reaching a point where upgrading and aging installed base can no longer be deferred.

We believe the basic financial and operational pressures will drive replacement on a significant level in 2004.

The financial and performance advantages of new systems such as new server technology and enterprise services architectures, also will become too compelling to be ignored.

Finally, major platform shifts will also start to stimulate demand for new products.

For example, it's now been clearly demonstrated that Linux technology can support serious applications, and there's a powerful impetus to move to wireless as several tech companies virtually give away their technology to stimulate demand.

Taken together, we believe these factors indicate a strong likelihood of a significant tech recovery in 2004.

Gartner is taking the initiative to understand our current and potential clients, insure that we have the right products and equip our people to sell them in the most effective manner.

I'm confident that we'll be in a strong position to expand our leadership and grow our business as market conditions improve.

Now we'll be pleased to respond to questions.

Operator?

Thank you sir.

Ladies and gentlemen, at this time we will begin the question-and-answer session.

If you have a question, please press the star followed by the one on your push button phone.

If you would like to decline from the polling process, please press the star, followed by the two.

You will have a three-tone prompt acknowledging your selection.

Your questions will be polled in the order they are received.

As a reminder, if you are using speaker equipment, you will need to lift the handset before pressing the numbers.

One moment for our first question.

First question comes from Fred McCrea.

Please state your company name followed by your question.

Thomas Weisel Partners.

Good morning.

Hi Fred.

How are you Michael?

Great, thank you.

Maybe we could chat a little bit about the consulting business.

First off, in terms of the federal versus state and local, maybe you could walk us through, obviously we've seen deferments in the federal side.

Does that imply that the state and local is actually weaker now, or we haven't seen it yet, but you expect some weakness going forward?

I think we're seeing two different impacts and as you know the government business has become a more important part of our -- and a very successful part of our consulting business over the past several years.

On the federal side, in large part due to the war on Iraq, in part due to not having an approved budget, we saw deferrals in consulting spending, and only in consulting spending, not in research, in the last quarter.

And we believe that a good chunk of that should come back now that there's an official budget in place and now that the war in Iraq is over.

On the state and local side, as state and local budgets are approved, it's clear that spending is going to be down across most state and municipal governments.

And it's not 100 percent -- we're not 100 percent sure what that impact will be, but we're being conservative in anticipating that that's going to be a much tougher segment throughout the balance of the year.

So, state and local I noticed that you didn't mention consulting only there, so that will have some impact, you think, on the research side as well?

Haven't seen it yet.

You know, remember, the research business is, as you know, it's sort of subscription, it's typically purchased on long-term contracts, so we really haven't seen any -- the government teams who sell to those folks across the U.S., for example, hasn't seen any pullback on the research side.

It's just been a deferment of consulting projects.

OK.

And maybe you could walk us through percentage of revenue total, government, on consulting and also on the research side?

It's a little more than 20 percent on the consulting business and it's less than 15 percent on the research business.

OK, and then, in terms of the consulting side, where are you at now in terms of total number of consultants after the restructuring.

Is it about 400?

I'll let Maureen grab the actual number for you and get it.

Right now we're at 500 -- I'm sorry, 457.

Four-fifty-seven.

OK.

And that had been at about 600 I think a year ago?

Yes, and last year, we opened the year about 596.

OK, and then in terms of an overall utilization rate target, what is the kind of longstanding target number you'd like to be in?

Well, I think the longstanding target is to be north of 60 percent.

We're not targeting to be north of 60 percent for the balance of this year, really for two reasons.

One is, obviously the dials that you're controlling are how much time are your people spending engaged doing projects, versus how much time are they out selling and making sure that you have a strong backlog and pipeline.

And right now, we're sort of balancing that extraordinarily carefully.

And then the second piece is, as you know, the way you get to sort of success in the consulting business is looking at the combination of utilization, billing rate, and the costs of your people and combining those to make sure that you're getting the margin you want.

And obviously we'd like to have a higher utilization rate over the long haul, but we're also pretty pragmatic about the realities of the environment we're operating in right now.

Very good.

Thanks so much.

I'll follow up.

Thanks, Fred.

Thank you very much.

The next question comes from Rob Tholemeier.

Please state your company name, followed by your question.

Hi, it's Ramberg Whalen.

Thank you very much for taking my question.

If you look at the IT spending, it's depending on whose survey you look at, it' s down a couple of points or up a couple of points.

But when you look at the results of all the IT companies, there is a dramatic falloff in major, major categories, and only one or two of the smaller categories looks like they're growing.

Then if you look at business services companies, they've been growing fantastically through the recession, and they continue to look good, these sort of BPO (ph) -type companies.

So I'm curious.

You talked about CIO programs, and I can see why CIOs would spend money just to defend their sort of domain.

But what are you guys doing - or maybe you disagree completely - what are you doing to address the, what's called BPO (ph) business process outsourcing market?

I'm not talking about the report you put out a couple of days ago about the large outsourcing contracts, where it seems like there are as many new ones as there are people that are ditching them.

But what are you doing to grow what looks like the biggest opportunity in IT spending, where individual business managers are, instead of buying technology, merely outsourcing very specific business processes?

Thank you.

Thanks for the question.

Let me focus on sort of what we're doing in our business, as opposed to responding, which would take a lot longer, to sort of our views of - you made comments on several areas - IT outsourcing, generally, and BPO (ph) , all of which are heavily covered in our research.

And we'd be happy to hook you up with the right analysts.

In terms of our business, I think there are two pieces.

One is, the agenda we cover in our research is a constantly evolving process.

It's sort of a living document.

And today includes a lot more intellectual capital around the issues that support BPO (ph) , both from a technology perspective and a business perspective in order to help our clients.

Because I don't think it's clear cut in any company who is driving those initiatives.

In many, many, many companies today, CIOs really are business executives and are aggressively driving those initiatives.

The other thing we started about a year ago was creating a new product set for the business unit leaders that you described, and that's a product called GartnerG2.

And GartnerG2 is all about the application of technology to business, the sort of pragmatic reality from a business perspective.

And also covers outsourcing broadly, not only from a tech perspective, but from a business process outsourcing perspective.

So I think there was a couple both in the core research products and in G2, specifically, going after business folks.

There's pretty tight coverage of those spaces.

And the only place where I disagree at the broadest level with your comments is that a notion that CIOs aren't driving these initiatives.

Certainly in the largest companies around the world, I think the CIOs in many, many cases are really the drivers of those initiatives.

Thank you.

Could I just ask a follow-up, please?

Sure.

Could you talk a little bit about the revenue that's being generated by G2 and what specific or general plans you have to grow that?

What sort of forecast or outlook you have for G2.

And I know you can't give exact numbers, but just roughly would be great.

Yes.

I mean G2 is a fairly small piece of the business today.

It's been growing quite nicely, double-digit rates, obviously also small based.

The plan is this - and I think we've been pretty clear about it - that we're not going to make a sort of bet the company right-hand turn into the business community, but rather create a core set of products in GartnerG2, under that brand, that we could put in place with that target segment of clients.

And we're actually pretty satisfied that the clients who are currently receiving GartnerG2 are 80 percent business executives.

And now using the feedback from that group to more than change that product to make sure that it exactly meets their needs.

And we've done a lot of that work, actually, over the last six months.

And we're seeing good, strong renewal rates with those clients.

And we'll now start more aggressively pushing that sort of product out there using our channel as part of our selling effort to get directly to the billion dollar plus companies.

Thank you.

Thank you.

Our next question comes from Steve Lidberg.

Please state your company name followed by your question.

Hi.

Pacific Crest.

Couple of questions.

Maureen, with regards to your comments about $20 million in new research business, what kind of proportion of that is coming from I guess your target market of a billion dollar company as in higher?

Right now our research business, the 20 million we're generating is evenly split between increased selling to customers that we have and completely new customers, and I think that we are, right now, seeing a higher concentration at the top as we target those top customers.

Steve, it's Michael, I think it's fair to say that though we anticipate over time that the fast majority of that will come from the, you know, our largest targeted companies.

I think the mix today still probably looks more akin to our standard mix of clients.

Sure.

Great.

And on the events business, contribution margin was obviously down, you know, fairly significantly year over year.

I was wondering what that was attributed to.

I mean it sounds like attendance was fine.

Was it the pricing that you're able to get from vendors attending the conference, I guess what are some of the contributing factors there?

Well one of the impacts in this environment is you really have to increase your spending on marketing to really yield the same level of attendance that we've seen in the past as well as the same level of vendor participation.

So we're very happy with the performance of Spring Symposium this year.

It was down about a $1 million in revenue as compared to last year, but the costs were also up about $1 million and this is really because in this type of environment we have to increase our spend.

And Steve, I looked up your question as you were asking your second question, and of the 20 million that we generated, half was at what we call extra large clients.

Great.

And I guess just following up on the events questions is part of the reason that I guess you're looking or facing increasing marketing expense is due to the fact that you had such, you know, that renewing vendors last year was so much more challenging than what it appears to be this year, does that bode well for I guess profitability heading into '04 in the events business?

Well clearly the higher renewal rate is a good leading indicator for next year, but I think that what we're finding is people attending our events or making the decisions much later.

And so we're spending ahead of that curve to make sure that we have the level of attendance and participation that we want to make the events profitable.

But they are making new decision later, closer to the events.

We've had several walk-in candidates, clients at our last event.

OK, so this is probably you know, the level of profitability is something that we're kind of facing throughout 2003 then?

And it's reflected in our guidance.

Right, right.

Great.

And Michael, I guess with, you provided some broader reviews as far as your thoughts on technology, especially heading into '04, any particular application areas or topics of interest that are top of mind with your customer base today?

Thanks.

Yes, I think there's a few, the not surprising one is security, though I will tell you that most clients still struggle to find out where they're supposed to spend the money they've allocated to it.

In large part, they're just not sure what they're going to get for the money they're spending and whether they're really going to get reality of security or perception of security.

And I think that's a substantive issue in the market today.

Second area is wireless, and though I think there continues to be lots of hype and talk about interesting devices and the network, there still seems to be a lack of applications.

I don't believe the applications are going to come in a sort of big, highly exposed way.

I think the applications are going to be company by company, figuring out how they really use this technology in a successful way to make their business better, and I think that's going to be exciting as it happens, but there's not going to be some gangbusters killer application.

And the last is, I think the Linux space is extraordinarily interesting.

I don't visit with a single client that isn't experimenting in some way with Linux and trying to get a very pragmatic handle on the real cost-benefit tradeoffs.

What are the real risks and what are the real benefits?

And it's clearly a space that we're doing a lot of work on and advising a lot of our clients as we handle those hundreds of phonecalls a day to our analysts.

Great.

Thank you.

Thanks, Steve.

Thank you.

Ladies and gentlemen, if you have an additional question, please press the star, followed by the one.

And if you are using speaker equipment, we do ask that you lift the handset before pressing the number.

Our next question is a follow up question from Fred McCrea.

Quick follow up.

In terms of the overall consulting business, maybe you could walk through the competitive landscape in terms your products and services offerings, and typically the engagements that you're currently engaged in.

Not future targets but current engagements, who you find yourself competing with most directly?

I think the competition falls in three broad categories.

As I think everyone's well aware, what we do in consulting is a little bit different than what everyone else does, because we're really asking strategic advisor by applying our research to get the specific answers to clients' questions.

And so broadly we compete with three groups of people.

By far the largest today is still clients doing it themselves.

It's folks figuring they can have their own internal staff, look at it, and make the strategic insights necessary to answer their question.

Secondly, we compete with the folks who do big strategy implementation work, and as you know, they're oftentimes quite willing to give away the strategy work in order to get the back-end, downstream big-dollar implementations.

Not a tough place to compete, usually, because either a client buys into a believes the notion that having independent advice is helpful or they don't.

And I will tell you that over the last year or so, that's gotten to be an easier sell, not a harder one.

And then the third group is the large strategy consulting firms, who are in many ways have a tremendous amount of over-capacity and are trying to drop down out of the CEO's office anywhere they can in the company.

Sometimes they land in the CIO's office.

And when we compete with those folks, there's a pretty clear distinction.

In order to do business strategy work, you don't have to know a whole lot about the business you're doing the work for, because you can learn it from the client.

I started my career in that business so I know it pretty well.

In order to do the type of work we do, successfully, you've really got to understand technology and infrastructure and legacy because what our clients are really struggling with is, I've got a tremendous amount of legacy technology here, I've actually got a whole bunch of stuff I bought that I haven't used yet.

And I have a business strategy on the other side, and how am I going to make those two things come together, and what am I going to have to do to really make it all work, which is obviously really the sweet spot of who we are and what we do.

Great.

Thanks so much.

Thanks, Fred.

Thank you.

Our next question comes from Peter Black (ph) .

Please state your company name, followed by your question.

Yes, hi, this is Peter Black (ph) from Winfield Capital.

Could you just give us your deferred revenue for this quarter on the research business versus the year ago quarter?

Sure, just give us a second to look it up.

OK.

OK.

We don't break out deferred revenues separately by business.

The total deferred revenue in the balance sheet was 301 in the quarter versus 306 last quarter, so a decline of about one percent.

OK.

OK, thanks.

I appreciate it.

Thank you.

Our next question comes from Tom Kerr (ph) .

Please state your company name, followed by your question.

My question has been answered.

Thank you.

Thank you.

Our next question comes from Sandra Notardonato.

Hi, Michael.

I'd just like a little clarity on what you think gives Gartner the competitive advantage to penetrate the essentially untapped market that is characterized by the 1 billion and greater in revenue, and I'd like to hear you talk about how you compare yourself specifically to Forrester and now with the acquisition of Giga, how that changes ,better or worse, your competitive positioning.

Sure.

I think -- well, first of all, why do I think we sort of have a competitive shot at the 70 percent of the unserved market is really two reasons.

Well, first is, we own 75 percent of the market today, so I think that we're coming to that untapped market with a lot of strength, and frankly with a whole lot more brand equity and franchise value and reputation than any of our competitors.

And obviously with a tremendous amount of financial strength as well today.

And I think the second piece is, I think we're the only ones going after that market, frankly.

Everyone else -- I should say it that way, but certainly the research competitors in our business have spent most of their lives going after our existing clients and trying to either take them from us or in most cases try to peacefully coexist and take a smaller piece of the total pie.

And so I continue to believe, as I've stated before, we're going to grow by growing the size of the market and finding those new accounts, and everyone else is going to grow by playing in our shadows and continuing to try to sort of coexist.

As to the specific comparison with Forrester, as I've stated before, the folks at Forrester had to do something to get back in good graces with the CIO.

They left that client base a long time ago, as you well know.

And that's why, I think, in their latest quarter their revenues were down still something like 26 percent year over year.

So the merger with Giga makes all the sense in the world to me from that perspective.

We know how to compete with the Giga folks and have done that pretty aggressively and successfully over the last few years, as we've gained share against them.

And so I think it's good healthy competition.

I also think that having experienced ourselves something like 15 acquisitions over the last 10 years, we have a pretty good understanding of just how hard that is.

And just how tough those cultural challenges are and just how tough it is to keep your clients satisfied and so we're excited about the opportunity to compete in the open market with them.

Lastly I will note that you won't find us competing with the competition in accounts that are not in our target market.

So we will be super aggressive in our target market of the people we want to go after and have as accounts, but just because a competitor has an account that isn't in our target market isn't going to be a reason to sway us off of our road that we're on to go after our targeted segments.

OK, if we can just talk about consulting for a second.

I'm hearing that some of the strategic advisory firms, Diamond Cluster companies like that, are proving similar services to what your provide to clients.

Has that affected you at all, and it looks like they're wrapping it up into larger consulting engagements.

Have you seen that in the market place and has it affected you?

Haven't seen any dramatic change competitively in that space.

I think two points, one is on Diamond Cluster specifically, somewhere along the way they wandered into the implementing world, and so I still don't know that clients fully understand who they are or what they are, if they do strategic advisor or if they're implementers, and I think being clear about that is extraordinarily important in today's environment, because people care about conflicts in a more meaningful way than they did in the past.

And other than, you know, other than that on them specifically, we haven't seen any other changes expect for the fact that there's lots of folks in the consulting business that still have tremendous over capacity, and therefore are doing crazy things, vis-à-vis pricing and rate.

You can tell by our billing rate remaining constant that we're not willing to do that.

There's business we want and we go after it, but we only go after it if we can make money on it.

OK, thanks.

Thanks Sandra.

Thank you.

We have no further questions at this time.

I would like to turn it back to the ladies and gentlemen for any closing comments.

Great.

Thank you very much for your time and your continued support, and we look forward to seeing you as we travel out there on the road and visit with our investor community.

Thank you.

Ladies and gentlemen this concludes the Gartner March quarter 2003 earnings conference call.

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