高德納諮詢公司 (IT) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to Gartner Incorporated's earnings conference call for the fourth quarter and full-year 2009.

A replay of this call will be available through March 9, 2010.

The replay can be accessed by dialing 888-286-8010 for domestic calls, and 617-801-6888 for international calls and by entering the pass code 46108845.

This call is being simultaneously web cast and will be archived on Gartner's Web site at www.Gartner.com, for approximately 90 days.

I will now turn the conference over to Mr.

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

Please go ahead, sir.

Good morning, everyone.

And thank you all for joining us.

On the call with me today are Gartner's 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 web site at www.Gartner.com, or on the First Call system.

Third, the Company will be making statements about its 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 statements are 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 2008.

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

Where required, we have provided a reconciliation of those measures to the most direct comparable GAAP measures in the tables and the press release.

Before I turn the call over to our CEO, let me briefly review the highlights of our fourth quarter and full-year 2009 financial results.

Please note that all of our business metrics, including contract value, client and wallet retention, and consulting backlog, exclude the impact of our recent acquisitions of AMR Research, and Burton Group.

We have done this to provide a clear and transparent view of the progress we have made during the fourth quarter on an organic basis.

While the acquisitions are reflected in our financial statements, they had an immaterial impact on revenue and expense and added virtually no profitability, as both closed in late December.

Later in the call, Chris will provide details on how we expect the acquisitions to impact our results in 2010.

Now, turning to our results for 2009.

At December 31, 2009, contract value, which is a key-leading indicator for Gartner's research business, was $784.4 million, up $41.5 million, or 6%, sequentially.

Revenue was $328.8 million for the fourth quarter, and $1.14 billion for the full year 2009.

Excluding the impact of foreign exchange, revenue was down 9% year-over-year, for the quarter, and down 8% for the full year.

Diluted income per share was $0.26 for the fourth quarter, and $0.85 for the full-year 2009.

Diluted income per share in both periods was negatively impacted by $0.02 per share in charges related to the acquisition and integration of AMR Research and Burton Group.

For the fourth quarter 2009, net income was $25.7 million, and normalized EBITDA was $58 million.

For the full year, net income was $83 million, and normalized EBITDA was $191.2 million.

Turning to cash flow and liquidity, for the full-year 2009, Gartner generated $161.9 million of cash provided by operating activities, and $146.8 million of free cash flow.

During 2009, the Company deployed its cash primarily to acquire AMR Research and Burton Group, and to repay $87.3 million in debt.

As of December 31, 2009, the Company had total debt of $329 million, and cash of $116.6 million.

Finally, in addition to announcing its fourth quarter and full-year 2009 earnings, Gartner gave its preliminary financial outlook for 2010.

To summarize, the Company projects total revenue growth of 8% to 11%, excluding the impact of foreign exchange, normalized EBITDA growth, of 9% to 17%, and GAAP diluted income per share growth of down 13% to up 2%.

On a reported basis, our income per share excluding acquisition and integration charges is expected to grow 5% to 18% versus 2009, and if we exclude the impact of the $0.05 per share tax benefit that we reported in the third quarter 2009, the expected growth rate is 11% to 26%.

The Company expects to generate cash provided by operating activities of $162 million to $182 million, which includes a projected $8 million in cash acquisition and integration charges, and free cash flow of $155 million to $170 million.

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.

Our performance improved significantly during the fourth quarter of 2009.

We now have seen three consecutive quarters of material improvement in most of our key business trends and we're back on the trajectory of growth.

The changes that we made to adapt to the economic challenges in 2009 have made us a stronger company, and our IT insight has never been more needed by IT professionals.

We finished the very challenging environment of 2009 strong, and as a result, we are in a great position to generate double digit contract value and revenue growth in 2010.

There are three main reasons why I'm so optimistic.

First, the positive momentum in our business that began in the second quarter last year accelerated significantly in the fourth quarter.

We generated a $42 million sequential organic increase in contract value during the fourth quarter.

One of our highest quarterly sequential changes ever.

Second, we completed two great acquisitions.

AMR Research and Burton Group.

Each of these companies is recognized as best in class for what they do, expands our research market opportunity and will accelerate our growth rate over time.

And third, the IT industry is complex and evolving.

Which means that Gartner's insight will always be needed by IT professionals.

Given our best in class services, and premiere brand, vast untapped market opportunity, and the renewed enthusiasm of our sales force about the current spending environment, we are well positioned for double digit revenue and earnings growth over the long term.

Let me address each of these in more detail.

Starting with the momentum, we have now experienced three consecutive quarters of improving trends in the key business metrics that drive Gartner's revenue growth.

The positive momentum in these trends accelerated significantly in the fourth quarter.

Starting with research, new business during the fourth quarter was at record levels, up 53% sequentially, and 23% year-over-year.

We added 650 new enterprises as clients.

This was the highest number of new client enterprises added during any quarter in Gartner's history.

Retention trends improved significantly.

In fact, during the fourth quarter, our reported client retention and wallet retention improved sequentially, for the first time since the recession began.

We maintained our pricing integrity and successfully implemented an annual price increase of approximately 3% effective November 1, 2009.

And sales productivity as measured by net increase in contract value improved substantially during the fourth quarter versus the third quarter, and was among the highest quarterly increase in Gartner's history.

Taken together, these successes generated a $42 million sequential increase in contract value during the fourth quarter, one of the highest increases in Gartner's history.

As a result, our contract value ended the year close to unchanged on an FX neutral basis versus 2008.

The improving trends in our research business were driven both by the success of our initiatives to adapt to the challenging economic environment and increased sales effectiveness, and by the strengthening of the economic environment.

When we entered 2009, many of our clients and potential clients faced layoffs, bankruptcies and other organizational chaos and had little clarity on their IT budget levels.

To respond to these head winds, we provided our sales force with tools to demonstrate the value that our research can generate, thus making our services a more attractive investment for our clients.

These initiatives were highly successful in improving sales effectiveness during 2009's challenging environment and significantly contributed to the positive trends in our research business.

As a result of these positive trends, we plan to reaccelerate sales force growth in 2010 and increase our sales force by approximately 15%, including the impact of the AMR and Burton acquisitions.

Turning to events, the trends in that business have also shown substantial improvement particularly in late 2009 and early into 2010.

While attendance was down at events held early in the fourth quarter our two events held in December each showed strong year-over-year attendee growth which showed a modest year-over-year improvement in attendance at our ongoing events for the fourth quarter as a whole.

This was the first increase in year-over-year attendance at ongoing events since the downturn began.

These positive trends have continued into 2010, with a meaningful increase in attendees at our first conference of the year and encouraging advanced sales for future events.

These improvements have been driven by our efforts to enhance sales effectiveness and customer experience at our events, coupled with some modest easing of corporate travel restrictions and increased marketing spend by technology providers.

The quality of our attendees at our events has never been better.

We had almost 2090 CIO's attend our flag ship fall symposium events in North America and Europe.

An increase of approximately 50% versus 2008.

This strong interest demonstrates their IT insight is highly valued by the most senior executives in IT organizations.

Even in times where every expense is under scrutiny.

Moreover, the tone at our recent events have been very upbeat, with clients engaged and excited about 2010.

Finally, in consulting, backlog grew 7% sequentially in the fourth quarter, after growing 4% sequentially in the third quarter.

The trends in that business have continued to strengthen, particularly in the US, as the economic environment has improved and the budget capacity of clients to invest in our unique consulting services has increased.

In addition, revenue per billable head count grew 12% sequentially in the fourth quarter, reflecting both improved demand for our services and our effective management of consulting head count to manage profitability.

Based on all of these positive trends in each of our three businesses, which have shown continuous improvement since the second quarter last year, we are confident that our businesses are poised for solid growth in 2010.

Turning to point two, during the fourth quarter, we invested in enhancing Gartner's long-term growth opportunities through two acquisitions.

AMR Research, and Burton Group.

These are companies that we have admired for some time.

Both AMR and Burton, like Gartner, have syndicated research businesses, coupled with events and consulting businesses, and are the market leaders for what they do.

Their research content and client focus is different but complimentary to Gartner.

Starting with Burton, Gartner focuses on providing IT insight to CIO's and IT leaders.

The senior most 10% of IT organizations.

While Burton provides practical advice to front line IT professionals and technologists which represents the other 90% of the IT organization.

The needs of these two constituencies are very different.

CIO's and IT leaders want the more strategic and business ready content and more personal delivery that Gartner provides.

While the front line IT staff wants the more practical, technically in-depth content that Burton provides.

Now, our CIO and IT leader clients have expressed the need for a Gartner Research product geared toward their front line staff.

The acquisition of Burton Group gives us the immediate ability to fill that need and provide IT research and insight to all levels of the IT organization.

AMR has a different but related research and client focus from Gartner.

AMR targets supply chain professionals, with research focused on the intersection of business processes and technology.

Supply chain management has grown in importance over the years.

It has become a critical business function for manufacturers, retailers, and other companies.

Moreover, supply chain management is inextricably linked to IT, and supply chain officers typically interact regularly on common issues with their CIO and IT leader counterparts.

So it is a natural and complimentary market for us to diversify into.

We estimate that the potential market opportunity for providing Burton Group's research products to front line IT staff is approximately $11 billion.

And the potential market opportunity for AMR Research's supply chain research is over $1 billion.

These acquisitions increase our research market opportunity alone to $33 billion.

AMR and Burton were never able to significantly penetrate their market opportunities because their growth was constrained by the lack of adequate scale and distribution.

The two companies in aggregate had only about 60 quota bearing sales associates.

As a result there is a substantial opportunity for us to significantly increase AMR's and Burton's revenues over time by leveraging the scale and relationships of our almost 1,000 person and growing sales force.

As well as make additional investments to expand the research coverage.

We're very excited about the opportunities presented by these two acquisitions, and expect them to be home runs over the long term.

Finally, turning to point three, Gartner is well positioned for double digit revenue and earnings growth in 2010 and over the long term.

IT remains and always will be a complex and continuously evolving industry.

And IT professionals seek Gartner's thought leadership and insight to make the right decisions every day in any economic environment.

During 2009, when many organizations were focused primarily in cutting costs, they turned to Gartner for help, and we saw research client inquiries, a statistic we tracked to measure how often clients utilize their Gartner subscriptions, increase by over 20% year-over-year.

Now, with the economy starting to strengthen, IT professionals have turned their focus from cost savings initiatives to investing for return to growth.

They have clarity on their IT budgets, and are expected to make over $3 trillion in IT investments in 2010.

They have complex IT problems to solve and decisions to make, and Gartner is the best and most cost effective resource they can turn to for help.

In addition, as you've heard us discuss before, there are hundreds of thousands of IT practitioners who could potentially be Gartner clients but have never been educated in the value we can provide.

We have a vast potential market opportunity which we barely penetrated.

To summarize, Gartner's entering 2010 not only with a better selling environment, but also as a stronger company.

Our sales force is larger, more experienced, and better trained than it has ever been.

We've acquired two best of breed companies that immediately expand our research and sales capabilities and that should enable us to serve new categories of clients and expand our growth opportunities over time.

The initiatives that we took during 2009 to maximize sales effectiveness, optimize our cost structure, and invest in our businesses, position us for success.

So you can see why I'm so excited about our growth prospects for 2010 and beyond.

The Gartner brand is in a class by itself.

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

We have a great business model, we benefit from a vast untapped market opportunity and our clients need our help to grapple with difficult IT issues now more than ever.

Based on our fourth quarter results and current business trends the positive momentum that enabled us to generate double digit revenue growth and expanding margins from 2004 to 2008 has clearly returned, and our sales force is energized.

We are in a great position to generate double digit revenue and earnings growth over the long term.

With that I will turn it over to Chris for additional details on our results and financial outlook.

Thanks, Gene.

And good morning.

I will start today with a review of our results for the fourth quarter and full-year 2009, and finish with a discussion of our outlook for 2010.

During the fourth quarter, the performance of our businesses continued to substantially improve.

Our key forward-looking business metrics strengthened significantly in the fourth quarter, continuing the sequential improvements we experienced in the second and third quarters.

We had strong demand for our products and services from both new and existing clients during the second half of 2009, because organizations have a critical need to effectively manage their IT programs and investments regardless of the economy.

And Gartner is the best and most cost effective source for much-needed insight.

Before I go through the details of our 2009 performance, let me remind that you all of our business metrics exclude the impact of our recent acquisitions of AMR and Burton.

Later in the call I will provide details on how we expect the acquisitions will impact our 2010 results.

Let me now discuss the results of each of our three business segments in detail.

In research, fourth quarter revenue was in line with our expectations, and full year revenue was within 1% of 2008, on an FX neutral basis, despite the challenging economic environment.

Our tight cost controls and ability to maintain pricing enabled us to continue to expand our gross contribution margin which was 63% for the fourth quarter, up one percentage point year-over-year and 65% for the full year, up two percentage points year-over-year.

Most importantly as Gene discussed the improvements in the trends that drive revenue growth and our research business accelerated during the fourth quarter, with the success of our initiatives to improve sales effectiveness and a better economic environment.

As a result we grew contract value sequentially by $42 million, or 6%.

This was one of our highest-ever sequential increases in contract value, and was driven by record new business, record additions of new client enterprises, and higher retention versus the first half of the year.

As in the third quarter, this sequential growth in contract value was broad-based across industries, geographies, and client sizes.

New business increased 53% sequentially and 23% year-over-year, reaching its highest level ever in a single quarter.

Consistent with the trend over the past few years, new business was divided about equally between sales to new clients and sales of additional services and upgrades to existing clients.

From a product perspective, our roll-based offerings and executive based programs continue to drive our new business and contract value growth with contract value for each reaching record levels at year-end.

As of December 31, Gartner For IT Leaders our role based products for the end user market accounted for $206 million of contract value, up 7% sequentially and 8% year-over-year, excluding the impact of foreign exchange.

Gartner For Business Leaders, our role-based product for the technology market, represented $120 million of contract value, up 11% sequentially, and 22% year-over-year.

And Executive Programs, our role-based products for CIO's, ended the year with a contract value of $209 million, up 9% sequentially and 5% year-over-year.

From a client perspective, retention rates also continue to improve and our reported metrics increased sequentially for the first time in 2009.

Reported client retention increased to 78%, and wallet retention to 87%.

As we've discussed in the past, these metrics are reported on a four quarter rolling basis, in order to eliminate any quarterly seasonality.

So the sequential increase in both reported retention metrics reflects significant improvements in the retention of both the clients and dollars that were up for renewal in the fourth quarter, on a stand-alone basis.

We continue to retain our larger clients with greater contract value, as reflected in the fact that wallet retention remains higher than client retention.

We added 651 enterprises as new clients, up 61% from the third quarter, and up 36% year-over-year.

And as a result, we ended the year with almost 10,500 client organizations, close to unchanged, from 2008.

The results in our research segment during 2009 highlight our continued success in both retaining our existing clients and penetrating the untapped market opportunity for our research services.

During a period of uncertainty and increased scrutiny at many companies, our performance demonstrates the clear and recognized value our research services deliver in helping clients achieve critical strategic objectives.

Moving on to consulting, trends in this business also continued to improve in the fourth quarter, and revenue was in the upper half of our original expectations.

As a result of our actions to adjust capacity and manage the utilization of our consulting resources, we were able to maintain solid productivity and margins in this segment.

Billable head count ended the year at 442, down 11% from December, 2008 as we tightly manage resources to match demand during the downturn.

Utilization in the fourth quarter and full-year 2009 was 68%, close to our long-term target.

Gross contribution margin was 41%, during the fourth quarter, up two percentage points year-over-year, and was 39% for the full year, which was within one percentage point of our long-term target.

Our key indicator of future growth backlog continued to strengthen during the fourth quarter.

Increasing 7% sequentially to almost $91 million.

This represents over four months of backlog which is higher than at year-end 2008.

As we saw in the third quarter, demand for our consulting services was particularly solid in the US, while demand in Europe continues to lag as the economies there do not appear to be improving as quickly.

Turning now to Events, our Events segment operated in a very difficult environment during 2009 with extreme travel restrictions implemented at most companies and reduced marketing spending by many technology providers.

Anticipating these challenges, we proactively reduced the number of events held in 2009 to 54, from 70, a 23% reduction from 2008.

During Q4, we held 13 events versus 17 last year.

Over 3,600 senior IT professionals attended our events last year, down 26% from 2008.

For ongoing events, which were held in both years, attendees were down only 12%.

The attendance trend began to show improvement during Q4, with overall attendance down only 3% and for ongoing events, attendance was actually up 2%.

This is a significant change in the trend, and highlights two things.

The beginning of the loosening of corporate travel budgets, and the positive results of our efforts to increase client retention, by enhancing the client experience, and the value that our events provide.

The improving attendee trends in the fourth quarter were particularly strong in December.

As Gene mentioned, we had meaningful year-over-year growth in attendance at our two largest summits held in December and also at our first conference of 2010.

We are beginning to see resumed marketing spend by technology companies and as a result, year-over-year comparisons for exhibitor participation also continue to improve sequentially.

On the cost side we were successful at maximizing the profitability of our events business in the light of the environment.

In the fourth quarter we increased Events gross contribution margin by one percentage point year-over-year to 47%.

And for the full year, it was 41%, down only two percentage points year-over-year.

Moving down the income statement, the combination of lower expenses related to fewer events held and our tight focus on cost controls across the entire company enabled us to decrease cost of service by 13% during the full year.

And as a result, our gross contribution margin increased one percentage point year-over-year to 56%.

Similarly, we maintained tight expense controls on both marketing and sales, and G&A while at the same time selectively investing in areas of growth.

Overall we decreased SG&A expense by 7% in 2009 despite growing our sales force by about 2%.

As of December 31, we had 942 quota bearing sales associates which does not include the additional 60 sales associates that joined us through the acquisitions of AMR and Burton.

Turning to cash, we had very strong cash flow during the fourth quarter and full-year 2009 through our focus on working capital management.

In particular our accounts receivable position once again showed significant year-over-year improvement with the percentage of receivables due over 60 days as of December 31 at an all-time low.

For the full year, we generated cash from operations of $162 million, or $1.64 per share.

Capital Expenditures were reduced to $15 million, from $24 million, in 2008, as part of our tight cost controls.

This led to free cash flow for the full year of $147 million, or $1.49 per share.

We continue to consistently convert a significant percentage of our EBITDA into cash from operations and generate free cash flow substantially in excess of our net income, given the working capital characteristics of our research business.

During 2009, we used our cash principally to fund the acquisitions of AMR and Burton for $118 million, of which approximately $105 million was paid out in 2009.

We also reduced the outstanding balance on our credit facility by $87 million, in order to further strengthen our balance sheet, and reduce interest expense.

Our current credit facility runs through January, 2012 and provides us with over $170 million of available borrowing capacity.

We have ample cash flow and liquidity to continue to grow our business, and execute initiatives that drive shareholder value.

We will continue to look for attractive acquisition opportunities as a potential use of cash and over the long term we believe that repurchasing our stock remains a compelling use of our capital and we have over $78 million remaining on our existing authorization.

Now let me turn to our business outlook for 2010.

We believe our businesses are well positioned for growth.

For the full year 2010, we expect that total revenues will grow 10% to 13% as reported and 8% to 11% excluding the impact of foreign exchange, to approximately $1.249 billion, to $1.289 billion.

The projected revenues by segment can be found in our press release but I would note that we expect growth in each of our three segments during 2010, with research revenue expected to be up 12% to 15% as reported and 10% to 13% excluding the impact of foreign exchange.

Consulting revenue up 5% to 10% as reported, and 3% to 8% excluding the impact of foreign exchange, and events revenue up 4% to 9% as reported, and 2% to 7% excluding the impact of foreign exchange.

Note that we plan to hold a similar number of events in 2010, as we held in 2009.

Our total revenue projections include approximately $58 million to $62 million in expected revenues, from the acquisitions of AMR and Burton.

By segment, roughly 85% of the revenues from these acquisitions will be reported in research, 9% in consulting, and 6% in events.

Note that the expected revenue contribution from the acquisitions is reported net of a $4 million fair value adjustment on preacquisition deferred revenue as required by accounting rules.

In terms of foreign exchange impact on our revenues, our guidance is based on the spot rates in early January.

We made no attempt on our guidance to anticipate any strengthening or weakening of the US dollar from the actual foreign exchange rates in early January.

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

Moving down the income statement we expect normalized EBITDA for the full-year 2010 to be between $208 million and $223 million.

An increase of 9% to 17% over 2009.

This projection includes $2 million to $4 million in expected normalized EBITDA from the acquisitions.

As Gene mentioned we plan to resume the growth of our sales organization this year.

And in 2010, the cost associated with stock-based compensation expense is expected to be approximately $29 million to $30 million.

We expect total depreciation and amortization to be approximately $25 million to $26 million, and this figure excludes $10 million in amortization of acquired intangible assets for the two acquisitions.

For the full year, total acquisition and integration charges are expected to be approximately $24 million to $26 million, of which amortization and the fair value adjustments on pre-acquisition deferred revenue are 55% of that total.

We expect interest expense of approximately $14 million to $15 million, and other expense of $2 million to $3 million.

We're projecting an effective annual tax rate of between 32% and 33%, and average fully diluted shares outstanding of between 99 million and 101 million shares for the year.

Note that as we saw in the third quarter of 2009, our tax rate may vary from quarter to quarter due to discrete items.

Our GAAP income per share for 2010 is expected to be $0.74 to $0.87, including $0.16 to $0.17 per share in acquisition and integration charges, related to the two acquisitions.

We will also report non-GAAP income per share, excluding these acquisition and integration charges and we expect this to be between $0.91 and $1.03, including between $0.00 and $0.02 per share from the acquisitions.

On a reported basis, our income per share excluding acquisition and integration charges in 2010 is expected to grow 5% to 18%, versus 2009.

Year-over-year comparisons for both GAAP income per share and income per share excluding acquisition and integration charges are negatively affected by $0.05 per share of tax benefits received in 2009 that are not expected to occur in 2010.

Excluding the impact of these non-recurring tax benefits recorded in 2009, income per share excluding acquisition and integration charges is expected to grow 11% to 26% in 2010.

We also expect to grow our cash flow as we drive growth in our research business.

In 2010, we expect cash from operations of $162 million to $182 million, which includes $8 million of cash acquisition charges.

We expect capital expenditures of $15 million to $20 million, and free cash flow of $155 million to $170 million.

Thus we expect to grow our free cash flow by between 6% and 16%, in 2010, and generate free cash flow per share of $1.54 to $1.72, substantially above our income per share.

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

For the full year, research revenue will be fairly evenly distributed across each quarter of 2010 with approximately 23% to 24% of the full-year revenue, in Q1.

Consulting revenue will be lowest in Q1 with 22% of the full-year revenue, and highest in Q4 with 29%.

With billable head count and backlog starting in 2010 lower than we started in 2009, we expect consulting revenue to be flat to slightly down year-over-year for Q1, with double digit or close to double digit growth in each of the subsequent quarters of 2010.

For Events, approximately 50% of the full-year revenue will be earned in Q4 because our fall symposium series is held in that quarter.

A number of conferences held in Q1 2009 will now be held in Q2 of 2010.

The total number of events in Q1 is expected to be nine versus 12 in last year.

And as a result, revenue will be approximately $1 million to $2 million lower year-over-year in Q1.

We preliminarily expect to earn approximately 20% of our income per share, excluding acquisition and integration charges, in each of the first three quarters of 2010.

Q4 is expected to be 40% of the annual amount, primarily due to the timing of our events.

For the full year, total acquisition and integration charges are expected to be approximately $0.16 to $0.17 per share, with approximately $0.11 in the first half of the year and the balance in the second half.

Finally, I would like to spend a moment on the impact of foreign exchange and the recent acquisitions on our contract value as we begin 2010.

As we've communicated to you in the past, research contract values are reported on an FX neutral basis throughout each fiscal year.

We do this so that you can understand the true organic growth in our Research segment.

In January of each year, we restate the opening contract value at current foreign exchange rates.

As a result of the weakening of the US dollar in 2009, contract value on January 1, 2010, is approximately $20 million higher than the $784 million reported on December 31.

In addition, the acquisitions add approximately $51 million to our beginning contract value in 2010.

So in total, our contract value as we begin the year is approximately $855 million, including the foreign exchange adjustment, and the acquisitions.

This is the baseline you should use for comparison purposes when judging our contract value growth in 2010.

From this level, we expect to grow contract value at least 10% on an FX neutral basis during the year.

To summarize, in our Research business, all our key metrics, new business, retention rates, additions of new clients, and the sequential growth in contract value, improved significantly during Q4.

These results demonstrate both the strength of our research business and our vast market opportunity.

Looking ahead to 2010, we expect to return to double digit contract value growth and remain confident in our ability to drive 15% to 20% annual revenue growth in our research business over the long term.

In our Events business, attendance trends improved significantly for events held in Q4, as compared to those held earlier in 2009.

At the same time, the quality of our attendees at our events significantly improved with substantial growth in the number of CIO's attending our symposium events in Q4.

This demonstrates that our events are viewed as must-attends by many senior IT decision makers even in an environment with extremely tight travel restrictions.

Based on the recent improving trends in this business we expect 2010 revenue growth at a rate consistent with our long term target of 5% to 10% annually.

In our Consulting business, the key leading indicator of growth backlog began to build in the back half of 2009.

Our consulting services provide value to clients in any economic environment due to our independence and objectivity and our unique portfolio of services including contract optimization and benchmarking services.

We are targeting revenue growth of 3% to 8% annually in this business, both in 2010 and over the long term.

We continue -- continued during the year to effectively manage costs and working capital to deliver income per share at the high end of our expectations, and cash flows significantly above our expectations.

Including free cash flow of $1.49 per share.

We will continue to generate strong cash flow both in 2010 and over the long term, with free cash flow consistently above our net income.

And with double digit growth and contract value expected in 2010, we established a solid foundation for further acceleration in revenue and earnings growth in 2011.

We're well positioned for double digit revenue and earnings growth and increasing returns to our shareholders over the long term.

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

Operator?

(Operator Instructions) Our first question comes from the line of Laura Lederman with William Blair.

Please proceed.

Yes, good morning.

Nice quarter.

And thank you for taking my questions.

A few.

What if you look at small, medium-sized business, versus enterprise, and how their purchasing was in Q4?

Were they equally strong?

Or was much of the growth from the larger businesses?

Hey, Laura, it is Gene.

Basically we saw strength across all size of businesses so it wasn't that one -- that large was more, or small is more.

And actually we saw very strong demand across the range of sizes.

Great to see.

Could you also talk a little bit about long-term margin goals and if you go out, let's say five years, what's your current thought on that?

Hi, Laura.

It is Chris.

So, I -- Our long-term goals are pretty consistent with what we've been talking about for quite some time now.

We have been targeting to get our normalized EBITDA margin to 20%.

And into the low 20s.

If you look back at the history of Gartner, we have been higher than that over time.

We had a different business mix then in terms of much more research than the mix we have today.

But also, I think as you get up to those levels, maybe not quite as much investment in the core business that should have been made.

So we certainly believe that we can get into the 20s, low 20s, and then we will assess that from there.

But that's the goal that we've been driving towards.

Gene, one of the questions I always love to ask because of obviously your position in the market is IT budget expectations for '10.

What are you seeing there?

And also, sort of a related question, given the volatility of the stock market and in the past it has some impact on budget setting and also on how those budgets were actually spent, what are you hearing from customers on A their budgets and B, are they getting a little nervous because of the market bouncing around?

Yes, Laura, so the-- what we're seeing is that our clients actually, and this is pretty broad spread, have a set of keen issues they've been given by their CEO or their senior leaders to tackle on that business and they're matching their budgets to address those.

And it kind of varies with the situation in the particular industry.

But broadly, people have very clear objectives of where they want to go and it's tied to the business and I don't see that being affected by the -- what's going on in the stock market, meaning that these initiatives sort of are not -- you know, they take a longer time to implement, to set up, execute, and companies seem pretty focused on continuing that path.

And what are you guys modeling, or your analysts showing for IT budget growth for '10 on a global basis?

I will get that number to you separately.

I don't have the latest right on top of my fingers here.

Thank you.

We will get that for you.

Thank you so much.

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

Please proceed.

Thanks.

So Chris, you were pretty successful in managing the costs in the context of a tough revenue environment in '09 so we should anticipate that maybe there's some catch-up spending in '10?

And how do you manage that in the context of getting the margins that you want to achieve?

Hi, Peter.

Thanks for the question.

I guess a couple of things.

We certainly took actions during 2009, some of which are sustainable, some of which over time will have to come back into the business.

One of the key investments that is going to come back into the business that we talked about is sales expansion.

So we only added 2% sales capacity last year.

As Gene mentioned, including the sales people from the two companies we acquired, that is going to be closer to 15%.

So that is certainly a increase in our expense and that is probably the single biggest place we're making investments this year, as we sit here today.

So you know, certainly as we continue to grow, as we talk about over time, we still expect to have pretty significant margin expansion, in the research business.

So as we grow contract value, over time, we do have to add analyst capacity.

But certainly nowhere near the same pace as revenue growth.

So we still expect margin expansion in that business.

We think that as the Events business returns to some of the growth numbers we've seen where we continue to bring in more attendees and more exhibitors, we will see the margin expand back to where we had seen it previously, so again, getting back it that kind of 50% level.

Probably not much more than that.

But getting back to where we think is a good long-term number.

And finally, in Consulting, as we get, you know, the backlog built back to between four and five months that will also bring back a little bit of the margin there.

So I think across the board, if you look at each of the three businesses that way that is kind of how we think about it, and you know, that's why we still believe that we can see margin expansion as we move through this year and into the future.

Great.

And Gene, I noticed that the number of sales people was down a little bit sequentially in the fourth quarter.

Anything to read into that?

And any thoughts in terms of how we should think about the build-out of the sales force in 2010?

Yes, so first, in terms of the sequential change, you can -- the way you can think about it is, it's normal turnover from our sales people, and there's -- any sales organization has 10% to 20% normal turnover so it is just the particular timing of it.

As Chris said, it was our intent, we did last year modestly increase the size of our sales force, overall.

And then you asked about 2010, as Chris said and as I talked earlier, we first got a number of sales people from our two acquisitions and we will through 2010 we expect to hire more sales people so that we -- we're positioned very well for the growth in 2011.

In terms of the new hiring, does that come then in the second half of the year, post the integration of the acquisitions?

I think it will be spread throughout the year, Peter, is what you would expect to see.

There may be a little bit of lag but it is pretty much going to be spread throughout the year.

Okay.

And then, Gene, how are you thinking about further acquisitions?

Are you done for the time being?

So, our acquisition strategy is the same as it has always been, which is that whenever we see a company that fits with our strategy, and is priced appropriately, we're very interested in acquisitions.

And you know, it took us four years the last time to find one, and the second one we found a week later.

So these things are very unpredictable.

But I'd -- our, our acquisition strategy is very consistent which is if we see the right company at the right price, we're interested, and that is a core part of our strategy.

Great.

Thank you.

(Operator Instructions) Our next question comes from the line of Dave Lewis with J.P.

Morgan.

Please proceed.

Hey guys, good morning.

I just wanted to touch on the acquisitions again.

You mentioned the big increase in the addressable market and, Gene or Chris, I was wondering if you could just talk about how the Burton sales and AMR sales, the products are going to be sold through your existing sales force, if there is a shift there in the strategy, where they can quickly bring themselves up to speed and sell those products, products in the same structure that it's currently in.

It's a great question.

It is Gene.

So let me take them one at a time.

So if you look at Burton, we have had, as you know, the -- our Gartner positioning historically has been with CIO's and with the direct reports of CIO's and to a degree a direct report of those guys.

That's kind of our core market.

And we do sell more broadly but that's kind of the market that we -- that's our sweet spot in the market.

And we have given an estimate in the past on that sized market.

We've had many of those clients the CIO's and IT leaders over the time come us to over time and say, look, this is great, that covers the top 10% of my IT organization, but I've got another 90% that Gartner could be really helpful with.

And so, we have been interested for some time, in developing a product set that is oriented towards the other 90%.

In other words, that are not the CIO's -- direct reports to the CIO's -- but the other 90% of the IT organization.

And Burton spent the last 10 to 20 years developing a product for that group.

And it is a more technical product, it is more how-to, it is more technically in depth.

And so we're faced with a really great situation here, which is that we have relationships with the CIO's and the IT leaders who have the purchasing budget, and they have been asking us for a product for this other 90% of the organization, and Burton has actually developed the best in class product for that group.

And so we've got, we've got the distribution and the demand is already there.

We don't have to generate the demand.

And Burton supplies us with that product.

And so the, in terms of can our sales people sell it, it's actually a completely natural sale because their clients have been asking for it anyway.

And we've had to say in the past we didn't have exactly the right fit.

Now we do.

And so I think this will be -- this is why I see this as such a homerun -- it's because the demand has already been there, Burton was constrained because they had so few sales people, and you know, you take our distribution and access to the people with the budgets, and the latent demand with this great product, it was a great combination.

So that is the Burton case.

So I don't -- there is no -- to me, we're selling to the same people we always call on.

They're the ones who have the budgets.

They already asked us for this product.

Now we have the product.

In the case of AMR, it is a little bit different, which is AMR product is principally designed for supply chain management professionals.

And these people are generally not in an IT organization.

And so there is a legitimate question, which is can you sell -- you know, someone who has a relationship in the IT organization also sell to the supply chain management organization.

And what AMR found, AMR actually started in the IT space and then developed this research and supply chain management, syndicated research and supply chain management very successfully.

And they tried it both ways.

They tried actually having people that only sold to the supply chain management people that were different than sold to IT, and they also tried having the IT guys sell to supply chain management.

What they found was that, the people who had the IT relationships actually were the most effective in selling to supply chain as well.

Because they understood the organization, what the organization issues were, and they could apply that across both functions.

And supply chain management, while it is a separate discipline, it is very tightly linked.

In fact, we kid about it being inextricably linked to IT.

So it is a different buying center, but it's very closely related to IT.

Then on top of that, so -- you know, the experimental evidence is that, and we believe this from our market research as well, our sales people will actually do just fine in selling the AMR Research to their clients because he understand the initiatives of those clients and how those clients work and they have good relationships.

In addition to that, of course, while the principal market for the supply chain management research is supply chain management professionals there are some IT people that do buy it and so that is another market as well.

So basically, in both the case of Burton and AMR, we have a very clear sales strategy and it is both, it is based on real experience that we and the two companies have had in selling those

That's great, Gene.

And just one quick follow-up there, I think it is implied in both your $0.02 guidance for the acquisitions in 2010, but it seems like the interest of the feedback has been very positive thus far.

I guess you suggested that there -- there was demand in asking for these products already so -- but the feedback subsequent to the acquisitions from customers has been very positive?

Absolutely.

In fact, the -- so, two thoughts.

One is, as I said, particularly in the case of Burton, our IT clients were asking for that product.

So this is kind of like, okay, about time you guys got it because we've been asking for this for years.

And so there is I think a lot of enthusiasm.

The second thing is we have a very good reputation with clients and us taking these products -- we intend to invest in these products, make them even more robust than they are today and clients really like that and they like the idea of being served, you know, they know we have delivered good service, great quality, and so, you know, there has been as you said a very enthusiastic reaction among our clients with it.

Great.

And -- now just let me ask one more if that is okay.

There has been a focus on improving the quality of your customer base, clearly targeted the CIO's.

I was wondering if you could just elaborate on the improvements you've made there, and how we should think about that adding to the business going forward, increased penetration of the CIO targeted customer base?

So we have by far the largest CIO base in the entire world across all continents.

In fact we have about 3700 CIO's.

There is nothing like that anywhere in the world.

Even with that level of 3700, as we've shown you on the last Investor Day, there is tremendous growth in our executive programs business, with even more CIO's.

And we have the best products there, the best service there, and we are going to continue to grow that market.

And the view of it is, you know, the CIO is the one, if they understand our -- the value that Gartner has, obviously that helps in selling to the entire rest of the organization, because they understand the value and it becomes -- you know, they -- an approval comes up to them, which often does, when they understand the value of Gartner, they are very supportive of that approval for the rest of the organization.

In fact, even as I said before with Burton, they asked us to help the rest of the organization.

While we're -- they know we're terrific at helping them, they want us to help everybody else as well.

So we will keep targeting CIO's and IT leaders as we go forward and there is essentially unlimited growth opportunity in that market still even though we have such a large number of people already.

That's great.

Thanks, Gene.

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

Please proceed.

Hi, thanks for taking my question.

Gene, I think you may have -- I'm not sure if you commented on this already, but, you know, very nice acceleration in new business growth in the fourth quarter here.

Did you talk about where the particular strength was in terms of vertical markets or where we may have seen a snap-back?

Well, you know, as I mentioned, our new business growth was at extremely high levels in Q4, and it was across everything, it was across all industries, across all geographies, you know, extremely broad.

So there wasn't any particular geography or industry that in fact was sort of driving it.

It was actually -- it was very broad.

And I think it reflects the fact that a lot of the actions that we were putting in place throughout the year, each quarter took hold more and more and you really saw the kind of full impact of all of those actions in Q4.

Okay.

Great.

Thank you.

Our next question comes from the line of Bill Sutherland with Boenning.

Please proceed.

Thanks, and good morning.

A couple number questions, Chris.

What was equity at 12/31/09?

Do you have that in front of you?

Our shareholders equity?

Yes.

Hang on.

Let me just grab the balance sheet.

Okay.

Shareholder's equity was about $113 million.

Okay.

Great.

And Chris, the -- on the FX, what is the approximate weighting as far as other currencies?

The biggest currencies we have would be the Euro, in terms of billing currencies would be the Euro, and then you know, the Pound, Australian Dollar, Japanese Yen.

Those are probably the top four currencies that we have.

From an expense perspective, similar.

Flipped a little bit, a little more in the Pound and a little less in the Euro than on the billing side.

But most of our expenses and revenues are fairly evenly matched across those currencies.

So we're about 60% to 65% US dollar.

Right.

Right.

Great.

Did you mention or touch on consulting head count plans for 2010?

I didn't specifically say, but so what we had been doing in 2009 and what we will do in 2010 is we will match resources with the capac-- with the demand.

And so during 2009, we reduced the head count to match the, you know, the lower backlog we had.

It is starting to build now.

Our utilization is starting to come back up to target levels.

So as it starts to stay and remain at 70 and north of 70, we will slowly begin to add capacity back where the backlog begins to build.

So I would expect, based on our guidance that we've given, that head count in the consulting business will grow during 2010.

Got you.

And then if you could, I know that the run rate revenue in '09, or I should say the '09 revenue for the two acquisitions, aggregated to $70 million, and then the $58 million to $62 million range you're using this year, and if you could just go through the -- I guess the reconciliation.

You did give us that deferred issue but I wondered if there is anything else?

So, you've got about $4 million of deferred revenue that we can't take, but that will, you know, over time come back.

So that's a kind of one-time timing issue.

And we did, as we always knew would happen with these acquisitions, we did expect some overlap, with some, particularly in the vendor client community, as we've experienced in the past, so we've adjusted for what we expect will be some of the overlap in lost revenue.

We knew that was going to be the case when we did the acquisition and it was included in all of the projections and estimates in our business cases that we put together.

And also, there are, you know, some smaller revenue streams that we will discontinue that we don't think are either scalable or make sense with the business model that we have today.

So that's not a huge amount but there are some smaller products on the fringe that won't continue.

So when you look at all of that together, that is kind of how you get to the $58 million to $62 million estimate from the number you referenced in terms of what they were stand-alone.

Right.

Okay.

An then last one, just curious as you get early indications of business trends outside the US, are you hopeful about the non-US, particularly European markets at some point in 2010?

Thanks.

It is Gene.

You know, as I mentioned, we saw equal strength in Europe as we did in the US and in Asia in Q4 and that's our expectation this year is that, for our business, that we'll see strength across all of the geographies including Europe.

Yes, so Bill, it is Chris.

Just to color, I think what you were referencing is my comment where I think in Event, in Consulting, I said that the US was coming back faster.

So I think Gene's point is in the research business, absolutely across the board, across all geographies we saw great strength including Europe.

Asia has always been relatively strong throughout the year.

Consulting, we did see backlog build even in Europe but it is not building quite as quickly in the US.

So, the comment that I was making was that we are certainly seeing it fastener the US than Europe but it is starting to come there.

And when you look at -- in consulting, when you look at the events business, we're starting to see good demand across all of the geographies as well.

So even our European symposium did fairly well in terms of year-over-year comparisons, compared to how the earlier events held in the year were.

So that is just a little more color in terms of geography.

Yes, I appreciate that.

Thank you.

Our next question comes from the line of Dan Leben with Robert W.

Baird.

Please proceed.

Right.

Thank you.

First off, on the research business in 2010, are there any expectations of being able to push through a price increase this year?

Hey, Dan, it is Gene.

Yes, we did a price increase last year.

We implemented another price increase on November 1, 2009.

And as we've seen, just as we saw last year, we don't expect any issues with our price increase.

We have steadily increased prices and clients -- we try to keep the price increase in a reasonable range and clients see a lot of value in our products and so that is not an issue.

We don't see that as an issue at all.

Okay.

So, very good performance since the November 1, 2009 increase in terms of customer acceptance?

Yes, same as we saw all year.

Again, we've not -- we've not had -- I know a lot of companies have an issue with it.

We have not had any issues at all in terms of increasing prices at the level we've been doing it with clients.

Great.

And then on the renewal rate in the fourth quarter, you guys commented directionally that the fourth quarter was higher than the kind of rolling 12 month average that you reported.

On a spot basis, are we back to kind of the historical levels, or are we still struggling to get up to that type of level?

We are getting close to some of the high points if you look at it as a stand alone basis.

So, you know, I don't want to sit here today and say that we think that is going to continue every single quarter going forward, because you know, we certainly have seasonal variations by quarter, but I think we felt very good that the numbers we saw in the fourth quarter are absolutely approaching some of our highest levels ever.

Great.

Thanks.

Sure.

Our next question comes from the line of Sam Hoffman with Lincoln Square.

Please proceed.

Good morning.

I had a couple of questions on the acquisitions.

Can you break down the revenue in terms of how it's allocated by segment, research, consulting and events?

Yes, Sam, the revenue for the two combined, about 85% of it is research, about 9% consulting, and the remainder is events.

Okay.

Second question is, are these the type of acquisitions -- I know, Gene, you've talked about the long-term market possibilities, but are these the type of acquisitions that we think can grow dramatically in the near term.

I mean, in thinking about them in the context and comparison with--of the new product launches that you had over the last several years, that grew from almost nothing to around $100 million, very quickly.

I mean is that the type of growth that you think these acquisitions can achieve in the near term?

And how do you look at acquisitions in that context, relative to the ramp or startup of the new products?

So, Sam, great question.

The way to think about these acquisitions, is that these are both great products, and they had, collectively, around 60 sales people.

We have around 1,000 sales people that will be able to sell these products this year, and so you can kind of do the math, in terms of what the growth rate is likely to be.

You know, we have -- there is latent demand, we are turning on these great products to 1,000 sales people.

And so, we have -- we are extremely optimistic about, about these opportunities, and the growth rate of these acquisitions over time.

In terms of acquisitions, again, I think these are great kinds of acquisitions, where you can take a company that's got a great product that doesn't have distribution, and we have incredible distribution worldwide, you know, that is a -- that will create a tremendous amount of value as you can imagine, with these products.

And these products we expect to have--they have the same kind of business we do, syndicated research (inaudible) consulting.

And so, as we grow these products, we don't see any reason why the margins would not be comparable to kind of margins we have in our base business.

So, we--it's a huge growth opportunity.

And they should be very profitable because it's the same kind of business.

And we know these businesses extremely well.

Okay, because it doesn't seem like that type of growth is included in your organic growth guidance research, for this year.

Hey, Sam, it is Chris.

A couple of things on that.

I think as Gene commented on, we absolutely believe there is a great opportunity here.

It is all a question of how quickly they ramp up and how quickly the sales force, from a revenue perspective, you always have a CV lag, so certainly you're not going to necessarily see the CB convert to revenue in the current year.

So from the current year revenue and P&L perspective, that's why there is minimal impact.

Okay.

(Inaudible)

What we've said about 2011 is that we expect the combination of the two to be between kind of $0.08 and $0.12 of EPS impact.

So that is a pretty significant impact to the business overall.

Which, which, when you do the math on that, tends to show you that we really do believe there is going to be a pretty significant ramp in contract value as we go through this year and into next year.

Terrific.

And.

Yes, Sam, also, just to add to Chris' point, you know, Chris said this in his talk as well, we are expecting double digit growth in our contract value this year which obviously as you and Chris were just talking about, turns into revenue in 2011.

Terrific.

Okay, and the final question is what are your objectives for debt to EBITDA?

Because it seems like right now, you're kind of at one times your guided 2010 EBITDA.

It is a great question.

And obviously, during 2009, we were very cautiously managing our balance sheet, and cash flow.

So we did not do any real meaningful share repurchases.

Obviously, as we got towards the end of the year, we had the two acquisitions that we were exploring and so used our capital primarily there.

And we consciously reduced our outstanding debt, as a result of the environment.

And so we still feel very comfortable.

Share repurchase makes sense, we still very comfortable that, with the right opportunities to increase the leverage higher, that we would do that, whether that is for acquisitions as Gene said, if those materialize again, or to continue share repurchases.

So we certainly believe that that is a portion of our balance sheet that should be there, and we can certainly absorb more for the right opportunities.

So basically what you're saying is, if you don't sign acquisitions to deploy the cash that you earn this year, then by the end of the year, you're not going to go lower than the current 1.1 times debt to EBITDA.

So we should at least expect that the cash that you generate this year will be deployed.

I think we've done a pretty good job over the past few years of using our capital and returning cash to shareholders, or using it for things that we think will drive shareholder value.

So prior to the last few years, we've been very aggressive, as hopefully, you know and others have seen with share repurchase.

So, I think we've shown that we're pretty actively making sure we leverage our strong balance sheet and cash flow to do that and I think we will continue to do that.

Terrific.

Thank you.

I would now like to turn the call over to Gartner Incorporated's Chief Executive Officer, Mr.

Gene Hall, for closing remarks.

So, I want to thank everyone for joining us today and we look forward to seeing you at our Investor Day on March 11, 2010.

Ladies and gentlemen, that concludes the conference.

Thank you so much for your participation.

You may now disconnect.

Have a wonderful day.