Q3 2021 Gartner Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to the Gardner's third quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
If you require any further assistance press star Zero I would now like to hand, the conference over to your Speaker today, David Cohen G V. P of Investor Relations. Please go ahead.
Good morning, everyone. We appreciate your joining us today for <unk> third quarter 2021 earnings call and hope you are well.
With me on the call today are Gene Hall, Chief Executive Officer, and Craig Safian, Chief Financial Officer.
This call will include a discussion of <unk> third quarter 2021 financial results and garners updated outlook for 2021 as disclosed in today's earnings release and earnings supplement posted to our website investor deck Gartner Dot com following comments by gene and Craig We will open up the call for your questions. We ask that you limit your questions to one and a follow up on.
On the call unless stated otherwise all references to EBITDA for adjusted EBITDA with the adjustments as described in our earnings release and supplement our growth rates in Gene's comments are FX neutral unless stated otherwise.
Conciliations for all non-GAAP numbers, we use are available in the Investor Relations section of the Gartner Dot Com website.
Finally, all contract values and associated growth rates, we discuss are based on 2021 foreign exchange rates unless stated otherwise.
Set forth in more detail in today's earnings release certain statements made on this call may constitute forward looking statements forward looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's 2020 annual report on Form 10-K, and quarterly reports on Form 10-Q, as well as in other filings with the SEC encourage all of you to review that.
Factors listed in these documents.
Now I will turn the call over to Gartner as Chief Executive Officer Gene Hall, Good morning, and thanks for joining us our growth increased again in the third quarter were performing well across the business. We delivered strong performances in contract value revenue EBITDA and free cash flow.
Total company revenues were up 15% in Q3 with continued momentum across all three of our business segments. We also repurchased another $355 million of stock in the quarter, bringing our year to date total through October to one $6 billion and we're thriving in the current environment.
Research continues to be our largest and most profitable segments. Our research segment provides actionable objective insight to executives and their teams we serve leaders across all major enterprise functions in every industry around the world our market opportunity is vast across all sectors sizes and geographies and we're delivering more.
Value than ever.
Everywhere around the world our clients are facing more issues than ever before challenging issues things like the future of work cyber security carbon footprints digital business diversity equity and inclusion cloud and more our research is closely aligned to our clients' priorities. We recently launched a new.
<unk> resource center that provides clients and prospects with actual insights on sustainable business strategy.
Research contract value growth increased to 14% with acceleration in both GTS and GBS driven by strong execution in both retention and new business Global technology sales or GTS returned to double digit growth GTS contract value growth accelerated to 12% we expect GTS.
To deliver long term sustained double digit contract value growth.
Global business sales or GBS delivered another outstanding quarter with contract value growth of 22%.
All practices across GBS drove double digit contract value growth.
Across our entire research business, we're driving consistent execution of prudent practices and we continue to see the results of our efforts. Our conferences business also continues to deliver excellent performance in 2020, we developed an entirely new conferences business model. This model leverages virtual conferences to deliver extraordinarily valuable.
<unk> audiences, we delivered a strong performance in conferences for the third quarter of 2021 conferences revenues were $24 billion total attendee numbers were up in Q3, as we're increasing our reach through our valuable content.
There is a large constituency of our clients and prospects who prefer in person conferences.
We've recently held some in person events events, which were very well received as.
As conditions continue to stabilize we are operationally prepared to return to in person conferences, where and when we can.
We will continue to leverage our profitable virtual conferences as appropriate garner consulting is an extension of Gartner research consulting helps clients execute their most strategic initiatives through deeper extended project based work consulting is an important complement to our research business consulting revenues grew 6% in Q3, so overall.
We are performing really well as a company.
We're thriving in a current environment, we're able to serve our clients and sell to prospects very effectively in a virtual environment.
Most of our associates appreciate working virtually.
We'd like some in person interactions with their colleagues when that's the best way to engage with each other and get work done we've created an operating model that supports virtual and in person interactions and this gives our associates flexibility while promoting activities to drive associate engagement.
We've also ramped up our recruiting function to support long term sustained double digit growth, we're seeing great success in hiring during one of the toughest labor markets ever.
Finally, we're taking steps to make the associate experience at Gartner, even better we are a growth company. We're focused on ensuring our associates are clear and compelling career paths, we're helping our managers and leaders have powerful career development conversations with their teams.
We continue to improve on our proven practices and we're innovating processes and technology to streamline operations and closing Gartner delivered another strong performance in Q3, we're performing well across all three of our business segments. We delivered strong performances in contract value revenue EBITDA and free cash flow and we repurchased and.
There are $355 million of stock in the quarter.
We continue to get better faster stronger as a company Gartner is a great place to be for our associates, we deliver extraordinary value to our current clients.
We provide outstanding returns for our shareholders and we're thriving in the current environment.
With that I'll hand, the call over to our Chief Financial Officer, Craig Safian, Greg. Thank you gene and good morning third quarter results were again excellent with acceleration in contract value growth and strength in revenue EBITDA and free cash flow. We are increasing our 2021 guidance to reflect our strong Q3 performance third quarter revenue was.
$1 2 billion up 16% year over year as reported and 15% FX neutral. In addition, total contribution margin was 69% up more than 200 basis points versus the prior year EBITDA was $305 million up 82% year over year and up 80% FX neutral adjusted EPS was.
$2 <unk>.
And free cash flow in the quarter was $331 million research revenue in the third quarter grew 16% year over year as reported and 15% on an FX neutral basis, we drove both strong retention and new business in the quarter third quarter research contribution margin was 74% up over 200 basis points versus 2002.
<unk> higher than normal contribution margins reflect improved operational effectiveness continued avoidance of travel expenses and lower than planned head count total contract value grew 14% FX neutral year over year to $4 billion at September 30th quarterly net contract value increase or and CVI was a very strong 100.
$46 million.
<unk> and CVI is a helpful way to measure contract value performance in the quarter, even though there is notable seasonality in this metric global technology sales contract value was $3 2 billion at the end of the third quarter up almost 12% versus the prior year.
GTS CV increased $102 million from the second quarter CV growth was led by the technology manufacturing and retail industries.
Wallet retention for GTS was 104% for the quarter up 490 basis points year over year.
<unk>, new business was up 25% versus last year with strong growth in new logos and expansion with existing client enterprises GTS quota bearing head count increased from the second quarter. We are beginning to see the positive effects of our investments to ramp up recruiting capacity, we continue to be successful recruiting new salespeople turnover among GTS.
Frontline sellers is stable at the modestly elevated range, we saw in the second quarter with increased recruiting capacity and stable turnover. We expect to see continued expansion of the GTS sales team in Q4 and into 2022 and beyond our regular full set of metrics can be found in our earnings supplement.
Global business sales contract value was $814 million at the end of the third quarter up 22% year over year, which is above the high end of our medium term outlook of 12% to 16% GBS CV increased $43 million from the second quarter broad based CV growth included particular strength in the health care technology and services industry.
Yes.
All of our GBS practices achieved double digit growth rates with a majority growing more than 20% year over year growth in the third quarter was led by the supply chain HR and sales practices.
Wallet retention for GBS was 113% for the quarter up more than 14 percentage points year over year GBS, new business was up 38% compared to last year, reflecting strong growth across our full portfolio GBS quota bearing head count increased sequentially and is up 8% year over year.
As with GTS irregular full set of GBS metrics can be found in our earnings supplement.
Conference is revenue for the third quarter was $24 million with reported growth of 92% and 93% FX neutral contribution margin in the quarter was 47% we held eight virtual conferences in the quarter. We also held a number of virtual events meetings, we were able to reintroduce in person events and meetings in the quarter.
And plan to ramp those up in Q4.
<unk> is up significantly year over year as we've watched more virtual conferences to cover additional roles third quarter consulting revenues increased by 6% year over year to $95 million on an FX neutral basis revenues were also up 6% consulting contribution margin was 33% in the third quarter up more than 110 basis points versus the prior year.
Quarter.
Labor based revenues were $78 million up 5% versus Q3 of last year and up 4% on an FX neutral basis labor based billable head count of 749 was up 2% utilization was 62% up more than 130 basis points year over year backlog at September 30th was $126 million increasing <unk>.
7% year over year on an FX neutral basis. After another strong bookings quarter, our contract optimization business was up 13% on a reported basis versus the prior year quarter and up 12% FX neutral as we've detailed in the past. This part of the consulting segment is highly valuable.
<unk> cost of services increased 9% year over year, and 8% FX neutral in the third quarter.
SG&A decreased 2% year over year, and 3% FX neutral in the third quarter.
Year over year decline is largely related to the timing of certain prior year expenses, we expect SG&A expenses to increase over time as our hiring across the business continues to ramp.
Total operating expenses were lower than planned because conferences continue to be virtual we are resuming business travel and reopening offices at a very deliberate pace and we are still ramping up our net growth hiring to our target levels.
EBITDA for the third quarter was $405 million up 82% year over year on a reported basis and up 8% FX neutral third quarter EBITDA again reflected revenue above the high end and cost towards the low end of our expectations depreciation in the quarter was up about $3 million versus 2020, reflecting real estate in software, which went into service.
Since the third quarter of last year net interest expense, excluding deferred financing costs in the quarter was $30 million up slightly versus the third quarter of 2020 due to an increase in total debt balances. The Q3 adjusted tax rate, which we use for the calculation of adjusted net income was 25, 2% for the quarter the tax rate for the items used to adjust.
Net income was 25, 4% in the quarter.
Adjusted EPS in Q3 was $2 three.
The weighted average fully diluted share count for the third quarter was $84 8 million shares we exited the quarter with $84 2 million fully diluted shares.
Operating cash flow for the quarter was $345 million up 41% compared to last year cash flow strength continues to be driven by EBITDA growth and improved collections.
Capex for the quarter was $14 million down 5% year over year, lower Capex is largely a function of lower real estate investments free.
Free cash flow for the quarter was $331 million free cash flow growth continues to be an important part of our business model with modest capital expenditure needs and upfront client payments.
Free cash flow as a percent of revenue or free cash flow margin was 25% on a rolling four quarter basis adjusted for the $150 million of insurance proceeds received in the second quarter free cash flow is well in excess of both GAAP and adjusted net income.
At the end of the third quarter, we had $766 million of cash our September 30 debt balance was $2 5 billion a reported gross debt to trailing 12 month EBITDA was about two times, our expected free cash flow generation and excess cash remaining on the balance sheet provide ample liquidity to deliver on our capital allocation strategy of <unk>.
Share repurchases and strategic tuck in M&A through the end of October we have repurchased more than $1 6 billion in stock this year, including $355 million during the third quarter year to date, we have repurchased over 7 million shares reducing our net share count by around 7% as of November <unk>, we have around six.
<unk> hundred million dollars remaining on our repurchase authorization, which we expect the board will refresh as needed as we continue to repurchase shares we expect our capital base will shrink. This is accretive to earnings per share and combined with growing profits also delivers increasing returns on invested capital over time, we are updating our full year guidance to reflect Q3 performance and an improved.
An increased outlook for the remainder of the year.
The revenue guidance, we now expect research revenue of at least $4.07 billion.
Which is growth of 13%, we now expect conferences revenue of at least $190 million, which is growth of 58%. We still expect consulting revenue of at least $400 million, which is growth of 6%.
<unk> is an outlook for consolidated revenue of at least 466 billion.
Which is growth of 14% based on current foreign exchange rates and business mix. The consolidated growth includes an FX benefit of about 190 basis points. This reflects modest headwinds from FX in the fourth quarter.
For expenses, we are investing in expanding our recruiting capacity to drive additional hiring across the entire business, including our sales teams. The additional hiring will continue into 2022 and beyond to support current and future growth we plan to exit the year with quota bearing head count about flat for GTS, we expect low double digit growth for <unk>.
<unk> by the end of 2021. Additionally, we continue to invest in a number of programs with a focus on improving sales productivity and cost effectiveness. We're also incurring some conference cancellation fees in the fourth quarter and are in the process of reopening dozens of offices as well.
We now expect full year adjusted EBITDA of at least 1.2 dollars 6 billion, which.
Which is an increase of about 54% versus 2020 and reflects reported margins of 27% consistent with our comments last quarter. We estimate that normalized 2021 margins would be around 19%. If this had been a more typical year about two thirds of the adjustments are head count related with most of the rest from travel and real estate.
We expect our full year 2021, adjusted net interest expense to be $113 million looking out to 2022 as the balance sheet stands today, we expect interest expense to be around $115 million, we expect an adjusted tax rate of around 22% for 2021.
We now expect 2021, adjusted EPS of at least $8 54.
For 2021, we now expect free cash flow of at least one to two.
Two 5 billion. This includes the $150 million of insurance proceeds received in the second quarter of this year all the details of our full year guidance are included on our Investor Relations site.
We had a strong third quarter with momentum across the business contract value growth accelerated and we had very strong revenue EBITDA and free cash flow in the quarter, we've put our capital to work repurchasing more than $1 $6 billion worth of our stock. This year through the end of October and we've updated our guidance to reflect continuing strength and momentum in the <unk>.
Looking out over the medium term, our financial model and expectations are unchanged with 12% to 16% research CV growth, we will deliver double digit revenue growth with gross margin expansion sales costs growing in line with CV growth overtime and G&A leverage we can modestly expand margins from our normalized 2021 level of.
Around 19%, we can grow free cash flow at least as fast as EBITDA because of our modest capex needs and the benefits of our clients paying us upfront and we'll continue to deploy our capital on share repurchases, which lower the share count over time and strategic value enhancing tuck in M&A with that I'll turn the call back over to the operator and we'll be happy.
To take your questions operator.
Thank you as a reminder to ask a question Youll need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from Jeff Miller with Baird. Your line is open.
Yes. Thank you good morning, so great to see sales head count back to growth in fully here yet.
Investments, you're making in recruiting capacity and the payback youre seeing on that.
I guess my question is.
At what point does.
The sales head count growth in GTS need to step up meaningfully or how much capacity is remaining in the system, where you can continue to drive this type of growth just like is it quarters as there just trying to understand how much leeway you have.
Before you really did hit the gas on sales head count.
Hey, Jeff So first.
We do have a lot of headcount and headcount is one of the levers that we use for growth, but it's not the only lever. We also early are very focused on productivity and we believe there is quite a bit of room for productivity improvements going forward.
With that as I mentioned on the call with Brexit as well, we have initiatives underway to ramp up our recruiting capacity and output and were finding actually.
Value proposition is very attractive in the market.
And so.
Optimistic about our ability to ramp up hiring if we need to leverage fluctuate anytime.
Okay.
And then can you help me with some of the GTS metrics.
It looks like most of the growth is coming from client enterprise growth.
CV per enterprise flattish, despite having 100% wallet retention.
So I don't know to what extent there.
Sales head count mix impact if there is post COVID-19 wind back.
Help me understand what's going on and is it a good thing that most of the growth is coming from client enterprises, given that you can expand after you land.
Hey, good morning, Jeff Yeah, I think there's a couple of ways to look at what's happening under the covers I think number one seeing the pickup in wallet retention is certainly a very positive trend, which we anticipated and as we've looked at the amount of upsell and expansion that we're driving within.
Existing client enterprises, we're back to normal levels.
And while our retention as.
It's strong it's not quite back to historical levels, but we feel really good about the level of expansion, we're driving within existing enterprises again some of that is win back some of that is organic growth.
Growth activities within existing enterprises, but while it is pretty strong I think on the.
The enterprise Count enterprise growth, we've seen now.
A few quarters.
Enterprise is expanding and as you'd expect when a new enterprise comes in it comes in at a lower CV level than our overall average and so the net enterprise adds that we've been doing will suppress a little bit or mute a little bit.
For our enterprise.
But what are you seeing actually is both levers working really well for the last several quarters, particularly in the third quarter with that expansion with existing enterprises showing up in the Meanwhile.
Retention number and the number of enterprises growing nicely as well.
Okay. Thank you.
Thank you. Our next question comes from Gary Bisbee with.
Bank of America Securities. Your line is open.
Hey, good morning, guys.
If I go back to the GTS head count.
Really kept you from bringing that back more quickly I know last quarter, you talked about having to ramp up recruiting capacity to deliver on that but how much is the tight labor market impacting the pace at which you bring people back and what's the risk in the next six months that.
You continue to have sort of sluggish editions.
Yes.
How do we think about that.
When would that impact revenue growth in this segment, if you don't get that up towards high single digits or wherever you are targeting thank you.
Hey, guys. So a couple of things going on with GTS headcount first it is a highly competitive labor market and short turnover was up modestly and of course, there within that modestly higher turnover. There are pockets that are higher.
Modest turnover, but overall just modestly up and we recognize that and we are we have a number of programs in place, which we think will actually address that we have a very good and we have a very strong employee value proposition in fact.
I don't have any trouble recruiting people into the company.
And so the combination of continuing to strengthen our employee value proposition, we believe we'll get turnover our turnover back to normal levels.
In parallel with that we are rapidly.
Wrapping up our capacity as I mentioned.
We actually started ramping up we're putting capacity back in may.
What happens is you start you're.
Got to hire recruiters and takes a little while to actually get them on the job and then just like any other job protection for partners.
Some time to get up to full capacity and so while we started ramping up we're putting capacity back in may It takes a little time before that definitely makes sense.
As Craig mentioned in his script.
Prepared remarks.
We're already seeing that we're back to kind of the levels of hiring than we were back in 2019 and again, we expect that to continue to go up. So we expect the combination of improved employee turnover from the progress we have in place combined with higher recruiting capacity to really address this issue.
Okay. That's helpful and then on GBS.
Outstanding productivity there.
I guess on the back of outstanding New business over the last four quarters or five quarters now.
How should we think about productivity and I'm not asking Q4, even next year like over the next few years.
The LTM right now is way ahead of what its ever been in GTS I guess, one could argue you've got multiple franchises that youre selling there and so it could be higher.
There's also a lot of factors have improved it.
Would it be reasonable to think that it gravitates back towards.
Where GPS has been historically or do you believe you can keep this level of productivity or at least higher just because of the number of shots on goal you've got with the different practice areas youre selling thank you.
So in GBS and GTS, we are a great value proposition, we provide actual insights to our clients on their toughest issues. So we start with you I think it starts with US we have a really great value proposition.
Talked about we invested in making sure we had the content sales training a number of experts et cetera over the last really two or three years to make sure that we had all the pieces in place to add to be able to deliver that incredible value proposition now we're seeing the benefits of that we're going to continue to keep investing in those areas and so I would expect.
Our value proposition is very strong and also get our ability to execute on sales will continue to be very strong as well. The other thing I would note carriers in that net productivity number youre seeing is as you called out really strong new business growth, but we are also seeing meaningful improvements in our retention rates and that obviously flows through to the end.
Per quota bearing head as well so yes, it underscores James points around the value proposition being super strong. So not only are we getting lots of shots on goal as you say across the franchises were.
We're scoring those goals I guess, if I can.
As a metaphor.
Keeping.
Yes.
There is in the franchise with stronger retention rates.
Great. Thank you.
Yeah.
Thank you our next question comes from.
Toni Kaplan with Morgan Stanley Your line is open.
Thank you actually just wanted to ask a follow up on that last topic. So on on GBS, you mentioned, how youre seeing growth driven by supply chain and HR and sales practices.
Surprised there those have been the topics really impacting many companies right now.
Are these really new client subscriptions are add ons from existing clients for the most part and do you view any of that.
Temporary so like if supply issues are addressed.
The supply chain issues or the land for example.
With those clients still stay on or could you see kind of a little bit of a higher.
Okay I'll turn it over.
Okay.
Good morning, Tony its Greg.
Across the all the GBS practices as we mentioned.
All of them are at double digit growth rates on a year over year basis in the third quarter and more than half of them are north of 20% year over year growth. So we highlighted the top three.
Which are performing really strongly but that's not those aren't the only ones that are even north of 20% and again to underscore the point all of them are a double digit growth rates, yes, I think what we're seeing and you can see this through a combination of metrics is.
We are.
Selling a lot of new functions within existing enterprises, which is why you've seen in a while retention rate move up as nicely as it has and so just because the client is purchasing supply chain subscription selling into their finance team or their HR team with our legal team is a brand new sale for us.
And we're doing really really well there in addition to bringing on brand new enterprises into the GBS franchise as well. So it's a combination of those two factors really really driving that GBS growth.
Yes, the cyclical versus secular.
I'd go back to James.
Points earlier, we have a really really strong value proposition.
Each of these functional areas that we are selling into we've invested a lot over the last several years to make sure that we've got the right content and the right analysts and advisors and the right service capacity and the right selling capacity.
We feel good about each of these opportunities again if you.
Scanned back I mean, these are enormous market opportunities for us.
Really really really early innings of going after that market opportunity.
That's great.
Wanted to ask about the pace of expenses, returning I think the way that I'm sort of thinking about it is yes, TNT and hiring that are going to make up probably some of the bigger buckets of returning costs and I know you talked about hiring a lot. So I'll skip that one but just on <unk> I guess, how far back are you at this point.
What is fully back and.
Versus pre Covid like is the level of sort of lower and maybe the easier way to ask it and he talked about the 19% baseline for adjusted EBITDA margin. This year, so modest growth off of that next year.
Is that how we should be thinking about 'twenty, two or could you see costs more gradually come back and talk about are stuck in a situation like we had this year where are you a little bit over.
Over over earning on margin next year.
Yes, that's a great it's great question.
Ways to think about it so one.
Biggest bucket by far is head count related.
And as we've talked about we are made.
Making progress there.
We've increased recruiter capacity as gene talked about.
We're growing both sales forces now sequentially and we intend to do that not only with sales, but across the rest of the company as needed as well. So that is by far the biggest piece of it I think as I mentioned in my prepared remarks about two thirds of the quote unquote normalizing adjustments relate to hedge.
Count on the <unk>.
Travel front, we are still almost at zero.
And so there is still a long way to bounce back from that when we were sitting here in may we thought second half of the year. It would start to bounce back when we were sitting here in August we saw in the fourth quarter.
Bounce back.
It is reopening a little bit, but we're still at a tiny fraction of where we were historically and as we roll into 2022, we do think it will rebound to reset at a new normal level will that be all the way back to 2019, perhaps perhaps not there.
Or are things, we can do a little more efficiently and effectively but it's still going to be a pretty significant step up from what we spent in 2021, which is virtually nothing back to normal a new normal level in 2022.
Super helpful. Thank you.
Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is open.
Hi, Thanks, good morning.
Wanted to stay on GBS productivity.
GBS NCI of 176000 really come significantly above what we're seeing in GBS, even before Covid and you mentioned strong new business growth and improved retention as drivers were there any unusual tailwind to productivity or seasonality factors to consider in the quarter.
I mean, how sustainable at current levels of productivity.
Good morning, George.
Productivity is an LTM measure and so we're trying to.
Even out or take out seasonality from the measure.
There are some structural differences that we've talked about in the past.
And looking at GBS compared to GBP GTS and again.
Based on where we are in and the journey on these two businesses and so on the GBS side, because we are as I mentioned earlier in the really early innings of going after this really enormous market opportunity we have.
A richer mix of what we call business developers are hunters.
Sole job is to go out and find new business and they are performing really really well.
And we've been building to that it wasn't just a one quarter phenomenon, it's a several quarter or multi year phenomenon that we've been experiencing there and so.
Again, they are performing really well the retention levels are helping a lot.
On the types of.
Quota bearing hires or aes that manage CV and drive growth through organic expansion. So it's really a combination of those two things.
As we look at it the future is this the right level to think about we will see.
There is we do believe there was a little bit of pent up demand out there in the market.
Coming through the <unk>.
Zemanek last year, but we feel like we're in a really good place with GBS, achieving strong growth rates and again through a combination of really strong new business and <unk>.
Proving retention rates as well.
Got it Thats helpful.
You mentioned normalized EBITDA margins are running at 19% and this is a little bit improved from previously it was running at 18% to 19%.
Can you discuss where in the business youre seeing improved cost profiles.
Yes, George it's actually a combination.
Improved revenue outlook and performance.
And some improved.
Cost profiles as well as really driving that.
Modest adjustment from 18 to 19 to where we are now which is around 19%, but generally the way to think about the normalized margin.
Of around 19% as it is how our P&L with look in a more typical year with sales head count growing a few points lower than CV offices opened for the full year normal travel levels. As we just discussed on Tony's question and growth investments too.
To support all the growth that we're driving across the business and so a modest little change, but again I would say a combination.
The revenue performing a little bit better than expected as we've talked about each quarter.
And some.
Lightning or more efficiency on the cost side as well.
Got it thank you.
Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is open.
Hi, good morning, and thank you for taking my questions.
I'll start with conferences I realize that you are only in the early stages of reintroducing in person conferences and events, but I'm wondering if you have an updated view on the long term mix of conferences between in person and virtual particularly as we start to plant between 22, and then given even more.
<unk> today than.
In the past couple of quarters with the virtual format, whether you have any additional clarity on the profitability of that model and or the hybrid model longer term relative to pre pandemic levels.
Hey, Andrew Greg Great question.
Conferences are important part of our business and we have.
The.
<unk> developed quite good virtual conferences.
A lot of value to our clients and have been very well received.
Having said that a lot of our clients.
Once you in particular used to be in person conferences as we do our customer research. There is strong interest and desire for us to provide them with in person conferences as well so as we look out in the future right now the way we are thinking is when it is safe to do so it allowed.
And in each geographic area.
Our range for environment, we will we plan to hold in person conferences, because it does provide tremendous value to our clients and having said that we also plan to continue with virtual consciousness.
Those clients that either don't want to travel or can't travel.
Kevin when we have our in person conferences and so our long term strategy. Our long term plan is to have a mix of both in person conferences and virtual conferences.
Going back to kind of the great success, we had with the personal loans combine it with what we've learned on pandemic with a virtual conferences.
Got it. Thank you is there anything you can say about the profitability differences between those two are what with the profitability of that hybrid model looks like.
Andrew its hard to say right now.
We've been operating a little bit.
Between the two models as we.
As you know we were preparing to run.
A portion of our conferences this year in person and so we add staff on board to be able to do that and then obviously we had to cancel those.
Person conferences in the fourth quarter.
And relaunch our virtual.
And so again I think the way we think about it is that.
The contribution margin will look similar to the way it looked pre pandemic for the overall conferences business I do think and again, we'll provide guidance on 2022 and February we're working through our operational plans now.
But.
And again, we've talked about this in the past.
We are not going to be in a position to relaunch. The 70 in person conferences that we had in 2019 run them at the exact same profile economic in an otherwise in 2022, it's going to take some time to build back into those and so again as we think about it the combined.
Operating margin for conferences looks pretty similar to the way it looks looks prior to the pandemic as it stands right now.
That's perfect really helpful. Thank you and then for my.
My follow up but it looks like you're looking at the Q that United States, and Canada are growing a little bit faster than EMEA and the rest of the international business.
So it's certainly a small gap just wondering if you could speak to the different market dynamics in the U S versus internationally and if theres anything specific whether its selling motion or the receptiveness to the new products that that you would call out between those regions. Thank you.
So let me start on that Andrew So the first thing is GBS is largely weighted to the U S and so.
Most of the GBS growth just because of it.
It is much less mature outside the U S. Even in the U S.
To be more heavily weighted it's growing well outside the U S as well, but it's just a share business that our salespeople are.
Overwhelmingly in the U S over time, just as we've done with Gcs, we expect to have our international markets and GBS just strongly staff because we havent GTS today as we keep getting people over time. So that's one of the factors that drives the U S markets.
In terms of actual.
Our value proposition is very strong in U S. <unk> in Europe, very strong in Asia and so.
Equally effective there, sometimes we make some industries effects, a particular geography or a particular market where.
One set of interest you might not be doing as well and so it's a little tougher selling environment.
But again overall our value props are strong in all those markets and it's more specific things like that have an impact and as I said, though our mix of salespeople could you in GBS.
Great. Thanks, so much.
Thank you. Our next question comes from Jeff Silber with BMO capital markets. Your line is open.
Thanks, So much just a couple of follow up questions first going back to the whole issue about labor supply.
I'm just wondering what the impact of these tight labor market has been on wage inflation, both for the sales force and for our year associates broadly without throughout the company.
Hey, Jeff Good morning.
So with the with the labor markets as you've identified everyone's been dealing with yes, we've seen a.
A little bit of wage inflation.
Totally within a manageable level as what we basically seen but there has been.
Some wage inflation both from as we look at externally and also as we want to make sure that we are retaining our.
Our associates as well, but all within manageable levels at this point.
What we found.
The biggest issue is that we have a lot of associates and there have been pockets, where we didn't realize we might not have been competitive and now we know we weren't competitive in those pockets and so I think that's been the biggest.
Sort of what you might call wage inflation.
Okay. That's helpful and then shifting over to conferences.
I know theres a lot of the issues.
In deciding whether to hold a conference remotely or hold it lives.
But I'm just curious and I know this may vary across your major conferences, how much lead time. It needed. If you decide to go you kind of hold it remote and then decided to go like how quickly can you ramp that up.
So if we were planning to be virtual switching July if it takes a long time, because you have to reserve and use up too.
No.
Sell exhibitor or things like that it's easier to go the other way around being planned for life and go virtual because you have all the pieces in place already.
And so typically as you know this year, we plan to go live for some of our conferences and then concluded it was not either allowed or was not safe to do so.
It's easier to make it that way once you have an in person conference planned.
<unk> planned to go virtual because you don't have to worry about the venue and things like that have you have to reserve those venues trying to get them at the right time, and then et cetera.
Tough to do.
Okay. So.
We're talking months I wouldn't say years, but if you decided to do something for next year, you would have to start looking at it right now.
So the yes, basically it can take months it can take years, because if you sort of the vessel spot for venues hooked up literally.
A couple of years in advance so if youre trying to look at it.
If it's a partner venue trying to look at the last second can be very tough. So that's the plan and actually you can take years.
Makes sense. Thanks, so much.
Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open.
Thank you Jim you talked about beefing up the recruiting efforts and making changes I'm. Just curious what you guys are always good on that front, just curious to know what what needs to change in the new hybrid vehicles.
Hey, Manav good great question. So the one of the things in the hybrid world needs to focus on we always focus on this to a degree but we have to talk about to your point, which is our employee value proposition.
And why shouldn't the social.
Commercial Gardner the talent market, we compete in is a very it's a.
Very very competitive market, we are very attractive.
Attractive employer, we have to make sure that our candidates understand that and understand what's different in a virtual environment and might have been when it was a pure office based environments. So that's kind of the key change.
Okay got it and.
Just curious on you've done the one I guess that can deal with this year that sounds like things are going well across the fund balance sheet is healthy just curious if M&A is something we should see higher up on the agenda manav.
The same.
Yes, good morning.
I would say again, our capital allocation strategy.
Remains unchanged, we are focused on returning capital to shareholders through our buyback programs, which as you've seen we've been very aggressive with over the course of this year and then also hunting out on strategic value enhancing tuck in M&A.
The priority.
And one day from a priority perspective, we continue to scour the market for assets that make sense for us.
We are an organic grower, we don't need to do M&A to support our medium term objectives and so we can be very very very disciplined on the M&A front will will remain very disciplined on that front.
Alright, thank you.
Thank you our next question comes from.
Hamas.
Missouri with Jefferies. Your line is open.
Hi, This is Mario <unk> filling in for Hamzah.
I guess just first question is just around.
Conversion rate and just could you help us maybe think about how we should think about the conversion rate in research business from those in person conferences versus virtual as you get more back to the in person conferences should we expect a larger uplift in that conversion and even better growth in research.
Hey, Mario good morning.
As you as you highlighted new conferences are an important piece of that.
Overall portfolio and really support our research business in a variety of ways.
One of those is in getting.
Getting prospects, there and having them experience.
Gardner Gardner insight and then converting them.
We also obviously have the benefit of engagement with existing clients and so there is.
Positive benefit on retention as well.
When we did pivot to virtual we were very focused on making sure that we maintain those levels of engagement both in terms of engaging existing shareholders too.
To help with retention rates and also getting lots of prospects through so we've been very focused on again I think in the fourth quarter of last year. When we really ran our virtual conference portfolio in earnest and we did really good job on both fronts and I think we're seeing the benefit of that from a retention rate perspective. This year. It certainly.
Helping and it's also been contributing nicely too.
Into our overall, new business growth rates on research as well and as we roll forward that gene talked about in this sort of hybrid.
World running in person, where we can and where to do so.
We're going to take advantage of that from a research perspective, and when we run a virtual we intent to make sure we.
We get the benefits of that on the research side as well so.
Ever format, we run in.
It's a great business, but it's really.
Section of our research business.
That's the way, we will continue to run it whether it's in person or virtual.
Got it and then in terms of consulting could you just talk about what practices are faring better than others and maybe you can update us on which verticals are adjacencies that you may be underpenetrated in.
Yes, Mario on the consulting side.
We've continued to have.
Relatively strong performance there.
Obviously, a lot of work with what.
Are the major trends in technology digital transformation.
Cloud optimization cyber security things of those nature of those are those are really the big ones for us as you know we tend to focus our consulting business on our largest most complex clients.
They have those issues in earnest.
A lot of our other.
<unk> clients as well, but we've seen really good performance broadly geographically spread.
Spread nicely across.
Those couple of areas and I would throw in strategic sourcing and cost optimization into that consulting.
Mix as well that is a strong practice for us.
Great. Thank you very much.
Thank you and I'm showing no further questions at this time I would like to turn the call back to gene Hall for closing remarks.
So as you heard on today's call. We once again delivered strong performances in Q3, and we performed well across all three of our businesses research consulting and conferences.
Stripes branches in contract value revenue, EBITDA and free cash flow and we repurchased another $355 million of stock in the quarter.
You get better faster and stronger as a company.
Gartner is a great place for our associates, we provide outstanding returns for our shareholders and we're thriving in the current environment. Thanks for joining us today, and we look forward to updating you again next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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