Gartner Q3 2009 earnings

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.  

logo-gartner.gifGartner, Inc. (NYSE:IT) announced its Q3 2009 earnings on October 30, 2009. See the end of this blog post for a summary and link to the press release.

In general Gartner’s results were much as expected at this point in a recession. All the key statistics were down year-over-year, but improved (i.e., less bad) quarter-to-quarter sequentially. All statistics are year-over-year and are FX neutral unless noted.

  • Overall revenues: $267.5m, down 7%.
  • Research: $187.7m, down 4%.
  • Events: $16m, down 6%.
  • Consulting: $65.7m, down 16%.

Demonstrating that a well-managed advisory analyst firm can be a cash machine, Gartner generated $55.1m in cash in Q3, only a half-million below Q3 2008. For the full year, Gartner raised its guidance on cash flow to $125m to $135m. Cash and equivalents at the end Q3 2009 was $113m, down from $141m at the end of Q3 2008. During the first nine months of 2009, Gartner primarily used cash to repay $151m in debt. Gartner retains $250m in available credit, which with the $113m in cash should give it the necessary resources to maintain its business as well as conduct M&A activity. On the M&A front, CEO Hall maintained the position that M&A opportunities are being constantly evaluated, but unlike Forrester, who mentioned it was actively evaluating potential deals, he provided no color to that remark.


In his remarks CEO Gene Hall mentioned that Gartner’s most recent price increase was holding. Hall also said that Gartner was implementing a price increase on November 1, 2009. Yes, Gartner has been and continues to raise prices even in a recession. This can be attributed to its position as the dominate player (an effective duopoly with Forrester being the junior partner) in the end-user advisory market, its premium brand value, a large and growing sales force, many green field opportunities in the $1bn+ enterprise market sector, and the real business value delivered to end-user clients, especially in a recession when IT budgets are tight.

Client Retention and New Clients

In Q3 client retention was 77%, the same as Q2 09 and down from 81% in Q3 08, continuing the typical decrease in clients during a recession. Gartner’s primary sources of non-renewals are technology vendors. Wallet retention was 85%, down from 86% in Q2 09 and 97% in Q3 08. This reflects continuing contract cuts by vendors and end users who were keeping their spending flat.

However, Gartner picked up 408 large enterprise clients during the quarter. This brings the number of new large enterprise clients for 2009 to 962. Each quarter in 2009 has seen sequential growth in numbers of new large enterprise clients (Q1 249, Q2 305, Q3 408). This in part reflects the growing productivity and effectiveness of the newer sales representatives.

The number of new enterprise clients is a very relevant statistic 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 Q3 was 952 up a net 19 from Q2. The goal was to keep headcount and territories approximately flat for the year, but so far in 2009 Gartner has added a net 24 sales reps or 2.6%. This is a critical insight because it would be easy to reduce costs by not filling openings as sales reps leave the company. As to Q4 and 2010, Hall would not commit to adding a specific number of sales reps (“It’s too early to say”). It was also mentioned several times that a lot of focus today is making the existing sales force more productive and they are seeing progress. That Gartner is continuing to invest in its sales force is an important point because that means Gartner will be well positioned to accelerate the increase in enterprise clients once the economy recovers and budgets loosen… increasing its influence.

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 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 growing the 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:

Press release link

Gartner Reports Financial Results for Third Quarter 2009

EPS from Continuing Operations Were $0.21, Including $0.05 Per Share from Tax Benefits

Research Contract Value Increased 1% versus June 30, 2009 to $742.9 Million

Company Increased Its Outlook for Cash from Operations for Full Year 2009

STAMFORD, Conn.–(BUSINESS WIRE)–Oct. 30, 2009– Gartner, Inc. (NYSE: IT), the leading provider of research and analysis on the global information technology industry, today reported results for third quarter 2009. In addition, the Company increased its outlook for cash from operations and reiterated its outlook for revenue, Normalized EBITDA and EPS from continuing operations for full year 2009.

For third quarter 2009, EPS from continuing operations were $0.21, net income was $20.1 million, Normalized EBITDA was $40.8 million, and cash from operations was $55.1 million. EPS from continuing operations and net income were positively impacted by the timing of certain non-cash tax benefits totaling $4.7 million, or $0.05 per share, which are not expected to recur. See “Non-GAAP Financial Measures” for a discussion of Normalized EBITDA.

Total revenue for third quarter 2009 was $267.5 million. Excluding the impact of foreign exchange, total revenue decreased 7% year-over-year.

Gene Hall, Gartner’s chief executive officer, commented, “During the third quarter, our key business metrics continued to improve sequentially. We increased salesforce productivity, grew new business in Research and improved retention on Research subscriptions that came up for renewal during the quarter. As a result, our Research Contract Value grew sequentially by almost $7 million. These improvements were driven both by the success of our efforts to improve sales effectiveness and a more favorable economic environment. Looking ahead, we expect our business trends to continue to improve in the fourth quarter and we expect to generate revenue, earnings and cash flow growth in 2010.”

Business Segment Highlights


  • Revenue for third quarter 2009 was $185.7 million, down 4% year-over-year excluding the impact of foreign exchange. Gross contribution margin improved approximately 1 percentage point year-over-year to 66%.
  • Contract value was $742.9 million at September 30, 2009, up 1% versus June 30, 2009. Year-over-year, contract value decreased 4% excluding the impact of foreign exchange.
  • Client and wallet retention rates for third quarter 2009 were 77% and 85%. Wallet retention excludes the impact of foreign exchange.


  • Revenue for third quarter 2009 was $65.7 million, down 16% year-over-year excluding the impact of foreign exchange. Gross contribution margin was 36%.
  • Third quarter 2009 utilization was 64% and billable headcount was 449. Backlog was $84.7 million at September 30, 2009, up 4% versus June 30, 2009.


  • Revenue for the third quarter was $16.0 million, down 6% year-over-year excluding the impact of foreign exchange. Gross contribution margin improved approximately 6 percentage points to 37%.
  • The Company held 15 events with 5,413 attendees during the quarter.

Cash Flow and Balance Sheet Highlights

Gartner generated cash from operations of $55.1 million during third quarter 2009 versus $55.6 million during third quarter 2008. Capital expenditures were $2.7 million during third quarter 2009 versus $5.3 million during third quarter 2008.

During the first nine months of 2009, the Company deployed its cash principally to repay $151.3 million in debt. As of September 30, 2009, the Company had total debt of $265.0 million and cash of $112.8 million.