高德納諮詢公司 (IT) 2008 Q4 法說會逐字稿

Good morning ladies and gentlemen.

Welcome to Gartner Incorporated earnings conference call for the Q4 and full year 2008.

(Operator Instructions)

I will now turn the conference call over to Mr.

Hank Diamond, Group Vice President of Investor Relations and Corporate Finance for opening remarks and introductions.

Good morning everyone, and thank you all for joining us.

On the call with me today are Gartner CEO Gene Hall and CFO Chris Lafond.

Before we discuss our results, I would like to remind everyone of four things.

First, the rebroadcast, reproduction, and retransmission of this conference call or web cast without the expressed written consent of Gartner are strictly prohibited.

Second, if you did not receive a copy of our press release it is available on our website at www.gartner.com or on the first call system.

Third, the company will be making statements about future results and other forward-looking statements during this call.

Statements about future results made during the call, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These are statements based on current expectations and the current economic environment.

Forward-looking statements and projections are inherently subject to significant economic competitive and other uncertainties and contingencies, which are beyond the control of management.

The Company cautions that these statements are not guarantees of future performance.

Actual results may differ materially from those expressed or implied in the forward-looking statements.

Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections, are specified in the Company's filings with the SEC, including in its annual report on form 10-K for fiscal year 2007.

Finally, during the call the Company will be using certain non-GAAP financial measures as defined under SEC rules.

We are required--we have provided a reconciliation of those measures to the most direct comparable GAAP measures in the tables and the press releases.

Before I turn the call over to our CEO, let me briefly review the major points from today's press release.

At December 31st, 2008, contract value, which is a key leading indicator for Gartner's Research Business was a record $834 million, up 11% year-over-year as reported, and 8%, excluding the impact of foreign exchange.

Revenue for the fourth quarter 2008 was $347 million, a year-over-year increase of 1% as reported and 6%, excluding the impact of foreign exchange.

And revenue for the full year 2008 was $1.279 billion, an increase of 9% as reported and 8%, excluding the impact of foreign exchange.

EPS from continuing operations for fourth quarter 2008 was $0.35 per share, versus $0.36 per share in fourth quarter 2007, an EPS from continuing operation for full year 2008 was $0.98, up 51% over 2007.

For the fourth quarter 2008, net income was $34 million, and to normalize EBITDA was $66 million, for the full year, net income was $104 million, up 41% versus 2007.

And to normalize EBITDA was $213 million, up 12% versus 2007.

Turning to cash flow and liquidity, for the full year 2008, Gartner generated $184 million of operating cash flow, up 24% versus 2007, and spent $24 million on capital expenditures.

During 2008, the company repurchased 9.7 million shares of its stock, for a total of $199 million.

On the balance sheet, the Company had a total debt of $416 million, and cash of $141 million as of December 31st, 2008.

Now, I would like to turn the call over to Gartner's Chief Executive Officer, Gene Hall.

Thanks, Hank.

Good morning everyone and thanks for joining us.

During 2008, Gartner grew its total revenue by 9%, including 15% growth in revenue from a research segment.

We expanded our profit margins; we generated $184 million operating cash flow, added new clients, and ended the year with record contract value.

We achieved these results, despite an already weak economic environment, which deteriorated sharply and rapidly during the fourth quarter.

Our results demonstrate tremendous value that our services provide to our clients, our vast market opportunity, and having the affected management of IT programs and investments, is always a critical business function.

Even during the fourth quarter, when macroeconomic conditions worsened substantially, we were able to grow a revenue and EPS, due to the resiliency of our resulting research and consulting businesses.

Although companies became increasingly cautious in November and December, both of our existing and potential clients continue to recognize the importance of using Gartner services.

As a result, we were able to deliver 11% FX mutual growth and research revenues, and 8% FX mutual growth and consulting revenues.

In research, we grew contract value to a record of $834 million, at December 31st, up 8% year-over-year, excluding the impact of foreign exchange.

This growth was broad based across all industry sectors, including financial services, and was driven by sales to both existing clients and new client enterprises.

We added 201 net new enterprises, as clients in the fourth quarter, growing our base of client enterprises by 3%, versus the third quarter, and 5% year-over-year.

We were also successful at renewing business with existing clients, as demonstrated by our 82% client retention rate, and 98% wallet retention rate.

Overall, the majority of our contract-value-growth, continued to come from volume versus price.

These results, are a testament to the fact that, both existing clients and potential new clients recognize that our research is a critical tool in running a cost affective IT program.

In consulting, fourth quarter results were stronger than expected, and this was driven by robust demand for contract optimization and benchmarking services.

These unique services directly help our clients lower cost, and their out performance continued a positive trend from the second and third quarters.

Our core consulting revenue, also grew in the fourth quarter, although, demand for new engagements has slowed, and we ended the quarter with lower backlog of $97 million.

Finally, events revenue declined by 7% FX neutral, which was within our expectations.

As discussed in our last earnings call, that business has been impacted by corporate travel restrictions, which have made it more difficult for our clients to attend our events.

However, even with these restrictions, we still had over 16,000 attendees during the quarter.

In addition, exhibitor revenues have been hurt by reductions in marketing spending at technology companies.

Preliminary for 2009, we've built our operating plan with the assumption that the economic environment, neither improves, nor worsens this year, as compared to the fourth quarter of 2008.

In order to maximize profitability in this uncertain environment, we have taken a number of actions.

For example, we have reduced our cost structure by eliminating, approximately, 120 jobs, primarily in non-quota-bearing and non-client facing functions.

At the spending and restructuring, a number of internal programs that are not critical to revenue generation.

We expect that these actions, along with others, will generate approximately $50 million in cost savings in 2009.

Second, as we do every year, we carefully evaluate each of our events to determine, which to retain and which to discontinue.

Based on this analysis in 2009, we are discontinuing 18 of our least profitable and least strategically important events, and we are launching only two small new events.

Although we've cut cost in certain areas, we are still investing in the long-term growth of our business.

We're also continuing to invest in areas, such as product development and customer service, so that we can continue to enhance the value of our services provided to clients.

Which is a key driver of client retention and growth over the long-term.

In addition, we plan to hold our number of sales territories roughly flat in 2009, and focus during this period on increasing productivity, so that we are well positioned for growth once the economic environment improves.

Before turning the call over to Chris, let me briefly comment on our preliminary 2009 guidance, which Chris is going to discuss in more detail.

2009 is a very difficult year to forecast, due to the highly uncertain economic environment.

While the economy was weak for most of 2008, conditions got substantially worse during the fourth quarter, and nobody knows for certain, whether we've seen the bottom, or when things will start to improve.

As a result, we've set a wide range of expectations, based on the trends we saw in our businesses during the fourth quarter, and no expectation of change during the macroeconomic environment.

We believe this is a prudent approach, given the highly uncertain environment.

Beginning with research, we expect revenues to be roughly flat on a FX neutral basis.

This is not in our cube, being driven by weak IT spending.

Enterprises are expected to spend about $3.5 trillion on information technology in 2009.

And the modest cost of Gartner Research Subscription can help them spend these dollars much more efficiently.

Thus, as our fourth quarter results demonstrate, clients continued to value our research, whether IT spending is relatively up, down, or flat.

So while the demand for our research remains strong, what has been impacted are the approval hurdles that clients must overcome to buy services.

Aside from facing layoffs, bankruptcies, and other organizational chaos, in the current environment, many of our clients and potential clients must often get CFO approval, even for the relatively small amount of spending required for a Gartner Research Subscription.

As a result, we've seen sales-cycles lengthen substantially, which is impacting our near-term growth.

Once macroeconomic conditions improve, we will remain confident in our ability to grow our research business at 15% to 20% annually over the long-term.

In consulting, we expect revenue to decline approximately 16%, on a FX neutral basis.

This is consistent with our backlog level at year end, and the expectation that we will not repeat some of the big contract optimization deals that we benefited from in 2008.

Finally in events, we expect revenue to be down approximately 29% on a FX neutral basis.

This is due to our decision to hold fewer events this year, coupled with both the expectation, the corporate travel restrictions will continue to impact our client's ability to attend events, and that reduction in marketing spend by technology companies will impact exhibitor revenues.

Based on this outlook, we expect to generate normalized EBITDA of $165 million to $200 million, EPS of $0.63 to $0.87, and operating cash flow of $100 million to $125 million.

So to summarize, during 2008 we generated 9% revenue growth, and 51% EPS growth from continuing operations, despite the very challenging economic environment.

Even during the fourth quarter, when macroeconomic conditions deteriorated significantly, we generated revenue growth, including double-digit growth in our research business.

We were able to achieve these results, because our services were made a critical tool to IT professionals, regardless of the economy, and they provide a high value at a relatively low cost.

With that, I'll turn it over to Chris for additional details on our results and our '09 outlook.

Thanks, Gene, and good morning.

I'll start today, with a review of our full-year results and fourth quarter results, and finish with a discussion of our full-year outlook.

Our fourth quarter revenue and earnings results, were in line with the guidance that we provided in our third quarter earnings release, despite an economic environment that, as you know, deteriorated significantly and rapidly during the quarter.

On an FX neutral basis, total revenues for the fourth quarter increased 6% over 2007.

EBITDA and EPS were also in line with expectations, including the costs related to the elimination of 120 positions, which we announced on January 8th.

We have seen continued demand for our products and services in this environment, because organizations have a critical need to reduce cost and affectively manage their IT programs and investments, regardless of the economy.

Let me now discuss each of our business segments in more detail.

In research year-over-year, FX neutral revenue growth was 11% for the fourth quarter and 14% for the full year.

Despite the environment, we delivered both sequential and year-over-year growth in contract value.

On December 31st, contract value was a record $834 million up 11% year-over-year, and 3% sequentially.

On an FX neutral basis, contract value increased 8% from December '07.

Our client-retention rates, increased slightly from Q3 to 82% and remained at the levels experienced throughout 2007 and early 2008.

At 98%, our wallet retention rate, also remained in the range we expected.

These retention rates demonstrate that the demand from our existing clients for our research services remain solid.

I will point out, however, that our clients ability to increase their spend, at the levels we experienced in 2007, is clearly being impacted by the economic environment.

Growth in contract value, also came from gaining new client organizations and enterprises throughout the year, and during Q4.

While the majority of contract value growth continued to come from new business volume, we also increased our effective selling prices in 2008.

As previously communicated, we announced a 3% price increase on our research products in Q3, and this took affect in Q4.

These results highlight two things, first, our sales expansion efforts enabled us to further penetrate our untapped market opportunity throughout 2008 and in Q4.

And second, in a period of uncertainty and increased scrutiny at many companies, the value, of our research services in helping clients achieve critical strategic objectives, is recognized.

Importantly, the sequential and year-over-year growth in contract value continued to be very broad-based across all client-sizes, geographies, and industries.

From a research product perspective, our role-based offerings continued to be an important driver of research growth, and an increase in percentage of our total contract value.

As of December 31st, Gartner, for IT leaders, our role-based products for the end-user market, accounted for $203 million of contract value, up 32% year-over-year.

And Gartner for business leaders, our role-based products for technology market, represented $101 million of contract value, up 82 % year-over-year.

Collectively, these two products were up 45% year-over-year and accounted for 37% of our total contract value.

We expect continued growth in these products from both new clients and migrations of existing clients for the foreseeable future.

Our executive programs offerings for CIO's, also continued its trend of double-digit growth in contract value, up 13% to $214 million at December 31st.

The continued growth and inherent operating leverage in the research business, led to a full year 2008 gross contribution margin increase, in this segment, up two percentage points, to 66%.

This increase included, severance charges related to the January action.

Fourth quarter gross-contribution-margin was 64%, and excluding these expenses, would have increased 1 point year-over-year.

As you can see from these metrics, our research business continued to grow in the fourth quarter, despite an economic environment that deteriorated more significantly than we expected.

On the FX neutral basis 2008, full year growth of 14% approached the low-end of our long-term road map for the segment of 15% to 20% annual growth.

Our research continues to be highly valued by clients, and our performance during the fourth quarter demonstrates that there is a vast untapped market opportunity for our services.

While contract value grew sequentially in Q4, the macroenvironment did begin impact on our results.

Research growth from both existing clients and prospects is being impacted by lengthening sales cycles, as companies deal with layoffs, restructurings, and other challenges, resulting from the turmoil in the economy.

As a result, both retention rates and new business in Q4 trended down, versus last year.

I will discuss this further, when we get to the 2009 guidance in a few moments.

Moving onto consulting, our consulting business exceeded our expectations for revenue growth in the fourth quarter and for the full year.

During the fourth quarter, consulting revenue increased 8% on an FX neutral basis.

For the full year 2008, revenue was up 6% on an FX neutral business, which is within our long-term growth objectives for this business of 3% to 8%.

As we experienced in the first three quarters of 2008, our contract optimization and benchmarking practices, both of which have clear value propositions, were stronger than expected.

And in fact, we had an exceptionally strong quarter in our contract optimization business.

Productivity remains solid with fourth quarter utilization at 70%.

For the full year, utilization was 72%, up 3 percentage points over 2007, and ahead of our long-term target of 70%.

Average billing rate and annual revenue per-billable head-count, were both up 3% and 7% respectively for the full year.

All of these metrics reflect our successful focus on improving the productivity and profitability of this segment.

For the full year, gross contribution margin increased, two percentage points to 41%, driven by these productivity improvements, and included the impact of severance costs.

For the fourth quarter gross contribution margin in the consulting segment was 39%, and excluding the impact of severance expense, it would have been 41%.

As of December 31st, consulting backlog was $97 million, down 20% year-over-year, as our fourth quarter bookings slowed with the weak economic environment.

As with research, we also witnessed lengthening sales-cycles for consulting engagements.

This level of backlog represents, approximately, four months of revenue, as we enter 2009.

During the fourth quarter, we saw year-over-year growth in both our contract optimization and benchmarking practices.

While we ended 2008 with 499 billable consultants, the action taken in January reduced this by, approximately, 30 to match delivery resources with our backlog, as we enter 2009.

Turning now to our event segment, this segment faced a number of challenges during 2008 particularly in the fourth quarter.

As discussed on our last earnings call, we have seen a significant increase in travel restrictions and other expense controls implemented at many companies.

This clearly impacted the attendance at our conferences, we held 17 events with over 16,000 attendees in the fourth quarter, compared with 12 conferences in Q4 of 2007.

Normalizing for the timing of events held during the fourth quarter, attendance at the 12 events also held in the prior year was down 14%, as a result of the severe travel restrictions.

For the full year, we held 70 events, compared to 62 last year.

The 41,000 attendees, we attracted, are down 6% year-over-year.

Our events are a platform for the delivery of a immediately actionable research content, and therefore, have remained valued by attendees even in the current economic environment.

On the exhibitor side, Technology Company budgets came under sever pressure in Q4, and in particular, marketing budget-cuts reduced the number of exhibitors at our events, as compared to 2007.

As a result of these macroenvironment factors, events revenue for both the fourth quarter and full year 2008 were down 7% on an FX neutral basis.

This was in line with the guidance we provided in October.

We anticipated the fourth quarter revenue decline, and we were able to take action to reduce costs in the events business.

Gross contribution margin for the quarter was 46%, but would have been 49%, excluding the impact of severance expenses.

For the full year, gross contribution margin was 43%.

We remain confident in the importance of the events to our overall portfolio, and the value that our conferences provide, as witness by the 16,000 people who attended during Q4.

As you will see, when I discuss guidance, in a few moments, we have decided to reduce the number of events to be held in 2009, as we do not expect this year to be an environment, where smaller events will be profitable.

Moving down the income statement, the increase in SG&A ,reflects the continued investment in our sales organization, which grew head-count by 15% during the year to 928 sales associates.

As we communicated earlier in the year, we decided to add additional sales capacity in 2008, based on our first half performance.

During Q4, we decided to hold-off additional hiring, and expect minimal growth hires in the sales organization in 2009.

Year-over-year, SG&A expense compares in the fourth quarter were negatively impacted by $2 million, due to the severance expenses.

We continue to carefully manage SG&A, which remained roughly flat as a percent of revenue for the full year 2008.

Turning now to cash, for the full year 2008, operating cash flow increased 24% to $184 million, which exceeded our guidance.

The growth in cash flow was driven by our strong operational performance, coupled with tight management of working capital.

In particular, our accounts receivable position improved significantly from last year, with receivables over 60 days on December 31st, well below last year and near an all time low.

Capital expenditures remained at the 2007 level of $24 million, and cash tax payments were less than originally expected.

As a result, we generated free cash flow per share, substantially in excess of our earnings per share, and were able to convert a significant percentage of our EBITDA into operating cash flow.

During 2008, we deployed our cash primarily to repurchase stock.

We repurchased 9.7 million shares at a total cost of $199 million.

As a result, our fully diluted shares, outstanding, decreased 9% in 2008 versus 2007.

Over the long-term, we believe that repurchasing our stock, remains a compelling use of our capital, and we have over $82 million remaining under our existing authorization.

In the near term, we will carefully manage and balance the returns from share repurchase, against prudence of ensuring, that we maintain a strong balance sheet and liquidity position in light of the uncertain economic environment and credit markets.

At December 31st, we had total debt of $416 million and cash of $141 million.

To summarize our 2008 performance, we generated 9% revenue growth, 12% normalized EBITDA growth, and 51% EPS, from continuing operations, growth, despite the rapidly worsening economic environment.

We continue to invest to accelerate the long-term growth and profitability of our research business and new product launches, sales capacity, and client-service improvements.

This positions us for growth, when client spending returns to normal levels.

We improved all key operating metrics in our consulting business, with utilization up three points, driving a contribution margin increase up two points for the year.

We face significant challenges in our events business, with both attendance and exhibitor participation down from 2007.

We generated $184 million in operating cash flow by effectively managing all aspects of working capital, most notably accounts receivable.

And we returned significant cash to our shareholders by repurchases close to 10 million shares of outstanding stock.

Now let me move on to our financial outlook for 2009.

Our 2009 guidance has been established in the context of the rapid and sever deterioration of the economy, we witnessed during the fourth quarter.

We have prudently and realistically, assumed that the same economic environment we experienced during the fourth quarter, persists throughout all of 2009.

All the of economic data and evidence we see daily, suggest that so far the environment we face in Q1 will be no better than Q4, and we have taken actions in light of this.

As this is an extremely challenging environment to forecast, we have provided a much wider range of potential outcomes with this guidance.

We can and will make hard decisions to effectively manage this business for the long-term in this environment.

For our research business, this means the contract value growth, from both existing clients and prospects, will continue to be influenced by the unprecedented challenges facing many companies and our clients today, including layoffs, business restructuring, and other organizational operational issues.

These challenges and the resulting uncertainty, will result, in lengthened sales cycles.

As we saw during the fourth quarter, this is likely to impact, both retention rates and new business.

In this environment, we expect research revenue to be roughly flat in 2009.

When we return to a more normal economic environment, we still expect to grow research revenue at 15% to 20% per year for our long-term financial road map.

For our consulting business, we are entering the year with a backlog that is 20% below where it was at the same time last year.

As I mentioned earlier, we had an exceptionally strong quarter in our contract optimization practice, during Q4, and while we expect this practice area to continue to do well in 2009, we are not expecting to repeat some of the large deals that benefited 2008.

With lengthening sales cycles, we are guiding to a 12% to 21% decrease in consulting revenue in 2009.

Over the long-term, however, we still expect to grow this business 3% to 8% per year.

For our events business, severe travel restrictions and marketing budget cuts at technology companies are expected to significantly impact, both the attendee and exhibitor participation.

As in previous years, we have evaluated each of our events in the portfolio, in order to determine, which to retain and which to discontinue.

This year, we decided to discontinue 18 events including, our spring symposium.

This is a larger number than in past years, and will reduce revenue by $21 million.

Unlike the past few years, where we have launched around 10 new events this year, we plan to only launch 2 small events, during 2009.

We do not believe that 2009 is a year conducive to establishing new events.

The events we eliminated, are those we felt would have less interest to our clients in the current environment, and would generate minimal or no profit in 2009.

So we expect to hold a total of 54 events, this year, down from 70 in 2008.

With fewer events and continued cost controls at our clients, our guidances for the events revenue is to decline 26% to 33%, in 2009.

Over the long-term, we still expect revenues for this business to grow at a rate consistent with our long-term target, of 5% to 10% annually.

With this context, we project total revenues to range from $1.1 billion to $1.16 billion for the full year, this represents a decline of $9 million to $14 million, as reported, and 6% to 10% excluding impact of foreign exchange.

Projected revenues, by segment, can be found in our press release issued earlier this morning.

With regard to expenses, and as Gene discussed, we have taken numerous actions to reduce and control costs in 2009, including, eliminating, approximately, 120 positions and reducing the number of events we will hold.

Importantly, we have also made conscious decisions not to cut costs in certain areas that we feel would weaken our business, or hurt our ability to grow, when the economy returns to health.

For example, we do not plan to reduce the size of our sales force, but rather, expect to continue to replace open sales positions throughout 2009.

We also expect to continue key product development efforts, like enhancing existing and launching new products, and plan to maintain the current levels of analysts to ensure we deliver on our client commitments.

To be clear, we could have cut additional costs to improve short-term profitability, at the expense of long-term profit growth, but purposely, decided not to do that.

We expect normalized EBITDA for 2009 to range between 165 to 200 million based on assumptions, this range of normalized EBITDA is being driven by, almost entirely, by gross contribution, by lower gross contribution expectations from the consulting and event segment.

Moving down the income statement, we expect total depreciation and amortization to be, approximately, $26 million in 2009, interest expense to be, approximately, $17 million, and other expenses to be, approximately, $2 million.

We are projecting an affective annual tax rate of between 32% and 33%.

And average fully diluted shares, outstanding of between 97 million and 99 million shares for the year.

This all results in an expected EPS range of $0.63 to $0.87.

We expect these operating expectations to translate in to cash flow from operations, of $100 million to $125 million, and we expect $15 million to $20 million in capital expenditures.

In 2008, we benefited from a significant improvement to the effectiveness of cash collection.

In this environment, we do not expect that to continue, in fact, as companies conserve cash, given the current state of the credit markets, our accounts receivable position could worsen.

In addition for the past few years, we have benefited from low cash tax payments, as we discussed last year this is expected to change overtime.

We believe that repurchasing our stock, remains a compelling use of our capital, and we have over $82 million remaining on our existing authorization, minimizing the dilution of our equity compensation plans, remains a priority for the deployment of cash in 2009.

While our policy is to provide annual, but not quarterly earnings guidance, I want to provide some additional information, to allow for an understanding of the seasonality, and the factors that will impact our revenue and earnings on a quarterly basis.

The full-year research revenue will be fairly, evenly distributed across each quarter of 2009.

Consulting revenue, will be slightly higher in the second and fourth quarters, and approximately, 50% of the full year events revenue will be earned in Q4, with a fall symposium and other large events held at quarter.

We preliminarily expect EPS in the first three quarters to be, roughly, 60% of the annual EPS, with roughly 20% in each quarter, and Q4 is expected to be 40% of the annual EPS, primarily due to the timing of our events calendar.

Finally, I would like to spend a moment on the impact of the volatility in the foreign exchange markets on our business.

As we have communicated to you in the past, research contract value was reported on an FX neutral basis, within each fiscal year.

We do this, so you can understand the true organic growth in our research segment throughout the year.

In January of each year, we restate the opening contract value, at new FX rates.

As a result of this significant strengthening of the US dollar in Q4, contract value on January 1st, will be, approximately, $40 million lower, than reported on December 31st.

This change is consistent with the treatment in previous years, and is soley due to foreign exchange movement and does not imply lower volumes.

Our guidance is based on spot rates in early January.

We have made no attempt, in our guidance, to anticipate any strengthening, nor weakening of the US dollar from the actual foreign exchange rates in early January.

Importantly, we still believe that movements in FX rates, will have a minimal impact on our earnings, given our mix of revenues and expense around the world.

However, with the continued significant volatility in foreign exchange markets, we'll update you on our quarterly earnings calls, during 2009.

Although we are bracing for a challenging year for growth due to weak and uncertain economic environment, looking ahead, we're very optimistic about the long-term business fundamentals and market opportunity.

We are prudently managing our business to ensure, that once the macroenvironment improves, we return to double-digit revenue growth, double-digit earnings growth, and increasing returns to our shareholders.

With that, we will open the call up for your questions.

Operator?

(Operator Instructions) You have a question from the line of Geoff Wehling of William Blair.

Hey guys, could you talk about how much your sales-cycles have lengthened, and also if business was weaker in the enterprise or middle market?

Basically, we haven't measured precisely, how much the sales-cycles have lengthened.

But, looking, we do reviews, very frequently individual deals, and it's our observation, that the number of steps it takes to get a deal closed are more than they were a year ago.

And as I mentioned in my comments, the -- in many cases, in most cases, if you went back a year ago in past times, you wouldn't have to take any, most of our contracts up to being signed off by a CFO of the Company.

Now, because the cost control is going to be put in place, people still want to buy, but they have to go through our clients, who want to buy it, have to go through more hurdles, internally, to get it approved, and that's lengthening the sales-cycles.

We haven't measured precisely, but it's very obvious that that's what is going on.

If you look at, in terms of, if you look at our performance across industries and size of companies, we've had similar performance across all industries and all sizes of companies and all geographies for that matter, APEC being sightly better, but the performance has been equal across all of those.

So we haven't seen the smaller companies get worse than larger companies, or something like that, and same thing by industry.

Can you guys also talk about your consulting business, so are projects being canceled or are they just shortening?

So, as you saw in our consulting business, we actually exceeded our expectations in Q4.

What we are seeing on a go-forward basis, is not projects being cancelled, but just that our backlog is down more than we would have expected.

So that's, sort of, what's been doing on.

So it's not projects being cancelled, it's more just fewer new projects.

One thing that Chris mentioned, is our contract authorization services are not included in our backlog.

So the -- it doesn't reflect that.

But, could you just comment on why you think the backlog is down so much?

Well I think it's a combination of two things, first, it's, part of it is the extended selling cycles, and that has an impact on consulting, just like it does on research.

It takes more steps to consulting projects.

Secondly, I think, more companies have blanket limits on new consulting contracts, compared to research where that doesn't apply.

Some companies just will say, "we are cutting consulting".

Then one final question is, would you expect your events margin to actually be higher in 2009?

Jeff, it's Chris, no I wouldn't say that, I think, the way we looked at our expectations and the guidance we given is a couple of things, number one, we certainly eliminated a number of lower margin events, so on the face of it you would think the margin would increase.

However, we've also expected that our existing on-going events, will have lower attendees and exhibitors than the prior years, which will put pressure on the margin.

So obviously, there is some fixed cost to holding an event, and at lower attendees and exhibitors, that's what you would expect.

So I would not expect the margin to necessarily increase, so that's not the expectation you should have.

Okay, thank you.

Your next question comes from the line of Peter Appert of Piper Jaffray.

Thanks.

Gene, the guidance for research in '09 was relative to at least the strength you saw in the fourth quarter, and it seems pretty cautionary, and appropriately so.

But, should we interpret from that, that you've seen some further significant deterioration in the January sales trends?

Hi Peter, this is Gene.

No, you should not.

Basically, it purely reflects, that guidance purely reflects, what we saw in Q4, and it basically reflects the down-tick in retention that you saw, and there has also been a modest down-tick in the amount of new business.

When we look at that over the course of 2009, that's what gives us that result, Chris you want to comment?

No, Peter, I think Gene is exactly right, as our contract value continues to increase a couple of point movement in contract, in retention, it has some fairly significant impacts.

And as Gene mentioned, we started to see a modest decline in the year-over-year basis in new business, so the combination of those two things certainly puts pressure on the early part of the year, and it's far too early for us to look all the way out to the end of the year.

But those are the things, that I think, we thought about as we looked at the research guidance.

And in the fourth quarter, I think I heard you correctly, right, you said you have 928 sales at the end of the year.

That's correct.

You did step-up the hiring in the fourth quarter.

How do you square that with the more cautionary view, that you were seeing as the quarter progressed?

Because of the extended selling-cycles, our sales productivity had declined.

And that's what is going on.

While we still see good demand if it takes, and I'll just use it lusteredly, if it used to take three steps to get a deal closed, and now it takes six, our sales productivity declines of that, and that's, kind of, what is going on in terms of capacity.

This is Chris, one other thing I would comment on, if you remember after the second quarter call, we started aggressively recruiting, so some of the fourth quarter hiring, you saw, was actually people we hired in the third quarter.

As I said during my comments, when we started to really see the fourth quarter change dramatically, we slowed that down, but we honored all the commitments to previous hiring because we still think it's a good idea to have that capacity.

So that's how you should think about it.

You shouldn't think that we were still plowing ahead, making offers in Q4 because, in fact, we slowed that down, as we saw Q4 playout.

The other thing I would comment on, just in terms of the research segment, in and our continued hiring is, you should not expect, we're not expecting, any degradation in the research margins.

So as I said during my comments, our guidance, and the impact on guidance, has really driven out of the consulting and events segments, not out of any degradation in the overall margin rates in our research business.

Then Gene, finally, you started your comments with some fairly strong statements with regard to your view as to the predicality of the Gartner product etc.

How do you square that then against detiorating sales trends?

So again, Peter, what is going on is, clients want to buy our products, but the internal hurdles they have to go through to get things approved, are a lot tougher than they were if you went back a year ago.

I'll give you an extreme case, as I said, we review deals all the time; there's a client we have, where the CIO was fired, and they put the IT department reporting in to the head of HR.

The people that worked for the CIO, all signed contracts with us to buy new services, the head of the HR, basically then, said, "I'm not going to let you buy anything right now, until the new CIO comes on board, because some of you guys may not be working here anymore".

So, it wasn't lack of demand, it was the internal difficulties that many companies have, are slowing down the processes.

I've seen many clients, where the new CIO comes on board and then gets approved, but it took a lot longer and a lot more sales effort than it did before.

That's different than, if we were seeing that people in stable situations were just saying, "Oh, we don't need Gartner anymore".

We are not seeing that, we are seeing our demand is, fundamental demand is just as strong as ever, but the steps required to get a contract closed, with all the organizational payout, the economic dislocations that are going on, and the tight cost control companies have in place, just makes the selling cycle a lot longer than it used to be.

And Peter, it's Chris.

One other comment I would make, most of Gene's comments are around existing clients, but also just to be clear on new clients, we talked about it during our comments, is we did penetrate new clients, during the quarter.

We were able to sign growth deals to get new the clients, so even in challenging environments, and even in companies, that when you see the kinds of clients we signed, are having significant challenges, we saw some of those companies signing new deals that were not previously clients.

That's how -- all of those combinations, is how we kind of get comfortable, that they there is still a real demand out there.

Back as recently as '06, the wallet retention was in the low 90s.

Is that a benchmark that you think might be relevant, in terms of thinking about the macroenvironment currently?

Peter it's Chris.

It's a great question.

We certainly think it's not out of the question that you could see a decline in the wallet retention rates.

We started to see little bit of a decline in the fourth quarter from the previous trend lines, so certainly we had been running kind of 100, 101, dipped it to 98.

So our current expectations, aren't that it necessarily goes to that low, but that is, I don't think anything you should say, is completely out of the question, however, I think, our guidance assumes more of what we saw in the fourth quarter, as opposed to its significantly weakening from there.

Okay.

Thank you.

Your next question comes from the line of David Lewis of JPMorgan.

Hi guys.

First question is, have you seen an impact from your government contracts, any material cancellations in 4Q, or thus far in this quarter?

What's the vulnerability, there going forward, in light of the budget crisis, on a state and federal level?

So we haven't seen any contract -- we've seen no different environment contract cancellations in Q4 than in previous periods.

And that applies to all the industries including the government sector.

Thanks.

Could you just talk in more detail about pricing, you mentioned the 3%, is that pretty firm?

Are you getting that 3% through 4Q, and how is that trending in the first quarter, thus far?

So long-term, our strategy is to increase prices 4% to 7% a year, which is what we did in '07.

In '08, towards the end of 08, where we have the normal price increase, given the macroeconomic situation, we decided it made since to have it little bit lower, and really it's because we don't want to see, provoke an emotional reaction to clients on that.

And through Q4, we didn't see -- that kind of approach worked, in the sense that we didn't see a lot of push back on the 3% price increase.

Meaning that, in our average research product for a new products revenue is $18,000 per user.

So people don't not buy because, it is, there is a 3% price increase on the $18,000.

That's kind of the net of it.

So through Q4, we didn't see a lot push back on that 3%, as opposed to the 5% to 7%, we had done in previous years.

That's great, thanks.

Last question is, I want to be clear on the commentary with regard to the first quarter.

You guys are assuming that, you are seeing an environment that's similar to 4Q in your forward-looking guidance, but are the trends in, thus far through January, are they still similar in the 4Q?

And the reason that I'm asking is, obviously, trends and many other industrys are worse, and so that's just the concern, is that things could be getting worse, as we speak.

It's Chris, currently two points; we are not seeing anything different.

It's far too early to really tell.

January is one of the smallest months of the whole year for us.

But in that small volume we've seen, we haven't seen anything different than we saw in the fourth quarter, at this point.

But I wouldn't necessarily read into the trend, one way or another, because it's far too early.

Your next question comes from the line of Brian Murphy with Sidoti & Company.

(Operator Instructions)

Thank you for taking my question.

Chris, you mentioned that you stepped up the sales force head count, and sales force productivity is depressed from previous levels.

At what point do you start to add to the sales force again?

Would you be doing that, when we have productivity returning to previous levels or would you do it ahead of that?

Hey, Brian, it's Gene.

If you don't mind, I'll answer that one.

Particularly, we are thinking that we are looking for a reasonably short pay-back in productivity on our salespeople.

We saw a situation, where we can get, kind of, a break even in their first year, if you look at cost versus their incremental profitability of what they sell, in the first 12 to 18 months that's what we are looking for.

What is going on is, as we hire new people, their productivity is lower in their first year, than after the first year.

If we can get a marginal break even or better in the first 12 to 18 months, that's when we will hire more people.

Gene, you mentioned, that you are sticking with your long-term target of growing research revenue about 15%.

Would you expect to get most of that growth as you have in the past by aggressively growing the sales force, or would you expect to get more from productivity gains?

I would say, we expect to get both kind of equally.

In other words, we think we can get a lot higher productivity than we were out before this economic downturn, as you know, over the past three years, we improved our sales productivity every year consistently, we think that that will continue after the downturn.

Basically, once the economy recovers, we are going to back on -- we are on track now to get sales productivity up, even in this environment we think it will continue to go up from the high point after the economy turns around.

Having said that, we will still add head-count, as well, again the basic economics, I was talking about.

We'll add head-count as fast as we can operationally absorb it and as fast as we can afford it, and we're still going to focus on sales productivity improvements, as well, and those have not topped out by any stretch.

Okay, thank you very much.

There are no further questions in the queue at this time.

I would like to turn the call back over to management for closing remarks.

Please proceed.

Hi, it's Gene.

Although we expect 2009 to presume the challenging environment for growth, we remain confident in our ability to generate double-digit revenue and earnings growth, once the economy returns to more normal levels.

We have taken decisive actions to control costs in the current environment, but we're still investing in our businesses, so that we are well positioned for long-term growth, once the macroeconomic environment improves.

Gartner brand is in a class by itself.

Our product, services, and people are superior to the competition.

We have a great business model, and we benefit from a vast, untapped market capability.

With these great capabilities, I remain optimistic about the future of our company.

Thanks for joining us, and I look forward to looking over the results for next quarter.

Thank you for your participation in today's conference, this concludes the presentation, you may now disconnect, good day