This analysis does not look at areas of interest to investors, but seeks to pull out insights that are relevant to clients and prospects of the “Big Two” advisory analyst firms as well as communications and IT vendor analyst relations (AR) teams.
Gartner, Inc. (NYSE:IT) announced its Q1 2009 earnings on May 8, 2009. See the end of the blog post for a summary and link to the press release.
In general, Gartner’s results were much as expected. All statistics are year-over-year and FX neutral unless noted. Events took a big hit (down 18%) due to cancelation of conferences, enterprise travel freezes that cut ticket sales, and vendors cutting sponsorships. Consulting was down in revenues (4%) and backlog ($86.7m 1Q09 versus $116.8m). However, Consulting modestly exceeded expectations due to popularity of the Contract Optimization Service. Research revenue grew 4% and Research contract value grew 2%. It is the Research growth that kept Gartner revenues flat rather than falling like Forrester’s.
Cash was down nearly $70m from prior year mainly because Gartner paid down some long term debt. However, it still has $70m in cash and a $250m in available credit, which should give it the necessary resources to maintain its business and conduct M&A activity. On the M&A front, CEO Gene Hall maintained the position that M&A opportunities are being constantly evaluated.
Interesting factoid: Client inquiries were up 27% in 1Q09 versus 1Q08. CEO Hall attributed that increase to enterprise clients (primarily IT managers) wanting advice on today’s tactical issues. This is consistent with our research that shows that vendors do not use client inquiry as much as they should. The implication for the vendor community is that IT managers are seeking advice on how to manage costs, which could impact ongoing sales deals and future purchasing plans.
Interesting factoid: Research reprints are approximately a $7m business for Gartner. This is why Gartner will defend its copyrights as we discussed in Vendors need to respect analyst firm copyrights.
Pricing
As always, CEO Hall mentioned that Gartner is maintaining its pricing discipline. When pressed by two financial analysts about how competitors’ pricing initiatives are affecting Gartner’s pricing, Hall did not directly address what competitors are doing. Rather, he indicated that Gartner has a different value proposition than its competitors and could maintain prices. This is consistent with what we hear from our clients that Gartner is not giving ground on pricing, even during a recession.
Client Retention
In Q1 client retention was 80%, within 2% of the all-time high and in the steady 80%-82% range since 2005. It was mentioned several times that Gartner is trying to increase client retention by making sure that clients know about all the services available to them and actually utilize the services.
Gartner picked up 249 enterprise clients during the quarter. This is a very relevant number for both IT manager clients and vendors. Enterprise client inquiry is an important source of data points for analysts, and contributes to the quality of their research. Hearing what other enterprises are doing with spending, strategies, and so on is a popular topic of conversation between analysts and IT manager clients. More clients mean more inquiries leading to more interesting and relevant data points. For vendor AR teams the number of enterprise clients and growth in research contract value is important because syndicated research contracts and total clients are simple indicators of potential changes in a firm’s influence with technology buyers. The more enterprise syndicated research clients there are, the more opportunities there are for Gartner analysts to influence vendor deals.
Sales Force
The total quota bearing personnel at the end of Q1 was 930, up two. There are also 10 sales openings on Gartner’s careers webpage. The goal is to keep headcount and territories approximately flat for the year. This is a critical insight because it would be easy to reduce costs by not filling openings as sales reps leave the company.
Analysts
As always, Gartner executives rarely mention analysts unless asked. Analyst headcount has been approximately flat for the last three years with low single digit turnover recently. There are five analyst job openings currently listed on gartner.com. Analyst headcount came up within the context of the great and growing margins for the Research business – Gartner has kept analyst headcount flat even as it has grown the Research revenues.
SageCircle Technique:
- Because of its emphasis on maintaining pricing discipline – backed in part by its market dominance and large sales force – clients should not put significant energy into trying to obtain discounts from Gartner. Rather, clients and prospects should manage Gartner expenditures by focusing on reducing unused or unnecessary services.
- AR teams should use Gartner’s growth in enterprise clients as an education tool with stakeholders and executive sponsors. Rather than experiencing shrinking influence in this recession, Gartner has increased influence because of the business value it offers to enterprise clients and its ability to leverage the largest sales force in the analyst industry.
Bottom Line: Gartner is performing well in the current economic environment, losing revenues where expected but maintaining modest growth in the all-important Research contract value area and number of enterprise clients. Vendors need to take into account that advising enterprise IT managers about how to reduces expenses – which is why Gartner contracts are often considered “self funded” – can have an impact on current and future sales deals. Vendors should train their sales teams on the potential influence of Gartner analysts and how to deal with that influence.
Question: Have you seen Gartner’s presence in your customer base and overall market grow or shrink during this time of economic challenge?
Highlights from press release:
STAMFORD, Conn.–(BUSINESS WIRE)–Gartner, Inc. (NYSE: IT – News), the leading provider of research and analysis on the global information technology industry, today reported results for first quarter 2009. In addition, the Company raised the low-end of its guidance for EPS from continuing operations and Normalized EBITDA and reiterated its guidance for revenue and cash flow from operations for full year 2009.
EPS from continuing operations increased 50% to $0.21, net income decreased 7% to $20.0 million, and Normalized EBITDA increased 20% to $48.3 million. See “Non-GAAP Financial Measures” for a discussion of Normalized EBITDA. Net income for first quarter 2008 included a $7.0 million benefit related to the results and gain on sale of the Company’s former Vision Events business.
Contract value, a key leading indicator for Gartner’s Research segment, was $760.7 million at March 31, 2009. Excluding the impact of foreign exchange, contract value increased 2% year-over year.
Total revenue for first quarter 2009 was $273.5 million. Excluding the impact of foreign exchange, total revenue increased 1% year-over-year driven by growth in the Company’s Research business.
Gene Hall, Gartner’s chief executive officer, commented, “During first quarter 2009, we continued to grow our Research revenue year-over-year excluding the impact of foreign exchange. This growth, coupled with tight cost controls, generated significantly increased earnings and higher cash flow despite the challenging global economic environment.”
Hall further commented, “With our vast untapped market opportunity, premier brand and services that provide great value to our clients, I remain confident in our prospects for long-term double digit revenue and earnings growth, once global economic activity returns to more normal levels.”
Business Segment Highlights
Research
Revenue for first quarter 2009 was $187.7 million, up 4% year-over-year excluding the impact of foreign exchange. Gross contribution margin improved approximately 3 percentage points year-over-year to 66%.
Contract value, a key leading indicator for Gartner’s Research segment, was $760.7 million at March 31, 2009. Excluding the impact of foreign exchange, contract value increased 2% year-over year.
Client and wallet retention rates for first quarter 2009 were 80% and 90%, respectively, versus 82% and 97%, respectively, for first quarter 2008. Wallet retention for both periods is now reported excluding the impact of foreign exchange.
In first quarter 2009, the Company eliminated the “Other” revenue line. “Other” revenue and related expenses are now included in the Research segment. In addition, certain expenses that were formerly classified as selling, general & administrative expenses are now presented in cost of services and product development and are included in the Research segment. Corresponding prior period presentations of these revenues and expenses have been reclassified for comparability purposes.
Consulting
Revenue for first quarter 2009 was $70.3 million, down 4% year-over-year excluding the impact of foreign exchange. Gross contribution margin was 38%.
First quarter 2009 utilization was 72% and billable headcount was 470, both unchanged from first quarter 2008. Backlog was $86.7 million at March 31, 2009.
Events
Revenue for first quarter 2009 was $15.5 million, down 18% year-over-year excluding the impact of foreign exchange. Gross contribution margin was 31%.
During first quarter 2009, the Company held 12 events with 2,858 attendees.
Building a Community 
[…] has said for 2009, research contract value will increase by 1%. In its Q1 earnings call, Gartner said research contract value was up 2% and 249 enterprise clients were added. While this […]