Craig Safian
Executive Vice President and Chief Financial Officer at Gartner
Thank you, Gene, and good morning. Fourth quarter results were strong with double-digit growth in contract value, revenue, EBITDA and adjusted EPS. FX-neutral growth was even stronger than our reported results. We also delivered better-than-planned EBITDA margins. During 2022, we generated almost $1 billion of free cash flow and we returned more than that to shareholders through stock repurchases.
Our financial performance for the full-year 2022 included total contract value growth of 12%, total revenue growth of 16%, EBITDA growth of 14%, diluted adjusted EPS of $11.27 and free cash flow of $993 million. We are introducing 2023 guidance, which reflects higher-than-normal variability in the set of reasonably likely outcomes. The guidance accounts for the tough compares at the start of the year and the opportunity for upside if near-term demand is stronger than we've built into the outlook.
With the catch-up hiring we did last year, we are very well-positioned to add value to enterprise function leaders and their teams across all industries and around the world.
Fourth quarter revenue was $1.5 billion, up 15% year-over-year as reported, and 20% FX-neutral. In addition, total contribution margin was 68%, down 100 basis points versus the prior year. EBITDA was $421 million, up 37% year-over-year and up 44% FX-neutral. Adjusted EPS was $3.70, up 24% and free cash flow in the quarter was $166 million.
We finished the year with 19,505 associates, up 18% from the end of 2021. About 40% of the headcount growth was catch-up from prior years. Our hiring has been carefully calibrated to revenue growth and future demand, and we are well-positioned from a talent perspective, heading into 2023.
Research revenue in the fourth quarter grew 9% year-over-year as reported, and 13% on an FX-neutral basis, driven by our strong contract value growth. Fourth quarter Research contribution margin was 74%, consistent with 2021. The contribution margin had a benefit during the quarter from somewhat lower headcount levels and travel expenses still modestly below our post-pandemic expectations.
For the full-year 2022, Research revenues increased by 12% on a reported basis and 16% FX-neutral. The gross contribution margin for the year was 74%, in line with 2021. Contract value or CV represents the annualized revenue under contract at a point in time. And looking at our global contract value across both GTS and GBS, more than 75% of our CV is from enterprise function leaders and their teams with the bulk of the balance coming from leaders at tech vendors.
Our enterprise function leaders business includes IT leaders who are end users of technology and who we serve through our GTS sales force and leaders of other business functions who we serve through our GBS sales force. In both cases, we serve leaders around the world and across all industries. We're helping these enterprise function leaders address their most important mission-critical priorities.
CV was $4.7 billion at the end of the fourth-quarter, up 11.9% versus the prior year and up 12.3% adjusted for the impact of exiting Russia. CV from enterprise function leaders across GTS and GBS grew at strong double-digit rates. CV from tech vendors grew high-single-digits compared to a high-teens growth rate in the fourth quarter of '21.
Quarterly net contract value increase or NCVI was $189 million [Indecipherable] business of almost $400 million. CV growth was broad-based across practices, industry sectors, company sizes and geographic regions. Across our combined practices all industry sectors grew at double-digit rates other than technology and media, which grew at high-single-digit rates. The fastest growth was in the transportation, retail and manufacturing sectors. We had double-digit growth across all of our enterprise sized categories. We also drove double-digit growth in nine of our top 10 countries with high-single-digit growth in the 10th.
Global Technology Sales CV was $3.6 billion at the end of the fourth quarter, up 10% versus the prior year and up 10.5% adjusted for the exit of Russia. GTS had quarterly NCVI of $138 million, while retention for GTS was 105% for the quarter. GTS new business was down 8.5% versus last year. New business with IT function leaders was up modestly year-over-year against the tough compare. New business with tech vendors facing even tougher compare against Q4 of 2021, which was its strongest quarter ever.
GTS quota-bearing headcount was up 18% compared to December of last year, about 40% of the growth was catch-up hiring from 2021. Our continued investments in our sales teams will drive long-term sustained double-digit growth. Our regular full set of GTS metrics can be found in the appendix of our earnings supplement.
Global Business Sales CV was over $1 billion at the end of the fourth quarter, up 19% year-over-year, which is above the high-end of our medium-term outlook of 12% to 16%. All of our GBS practices other than marketing grew at double-digit growth rates, led by supply chain and HR, which both continued to grow faster than 20%.
GBS CV increased $52 million from the third quarter, while retention for GBS was 112%. GBS new business was up 3% versus last year, I guess, a very strong compare. The two-year compound annual growth rate for new business was 9%. GBS quota-bearing headcount increased 22% year-over-year with a little more than 50% of the growth being catch-up from 2021. Headcount we hired in 2022 will help to position us for sustained double-digit growth in the future. As with GTS, our regular full set of GBS metrics can be found in the appendix of our earnings supplement.
Conferences revenue for the fourth quarter was $188 million. Contribution margin in the quarter was 53%. We held nine in-person conferences in the quarter. It has been very exciting for our business to return to in-person conferences. For the full-year 2022, revenue increased 82% on a reported basis and 90% FX-neutral. Gross contribution margin was 54%.
Fourth quarter Consulting revenues increased by 17% year-over-year to $138 million. On an FX-neutral basis, revenues were up 24%. Consulting contribution margin was 37% in the fourth-quarter. Labor-based revenues were $96 million, up 11% versus Q4 of last year and up 19% on an FX-neutral basis. Backlog at December 31st was $140 million, increasing 24% year-over-year on an FX-neutral basis with another strong bookings quarter. The inclusion of multi-year contracts in our backlog calculation, a change we described earlier last year, contributed about 13 percentage point to the year-over-year growth rate.
Our contract optimization business had a very strong quarter, increasing 36% as-reported and 39% on an FX-neutral basis versus the prior year. As we have detailed in the past, this part of the Consulting segment is highly variable. Full-year Consulting revenue was up 15% on a reported basis and 22% on an FX-neutral basis. Gross contribution margin of 39% was up 140 basis points from 2021.
Consolidated cost of services increased 19% year-over-year in the fourth quarter as reported and 24% on an FX-neutral basis. The biggest drivers of the increase were higher headcount to support our continued strong growth and the return to in-person destination conferences.
SG&A decreased 3% year-over-year in the fourth-quarter as reported and increased 1% on an FX-neutral basis. We had lower non-cash non-recurring charges in 2022 compared to 2021. On a comparable basis, SG&A was up due to additional headcount for sales and G&A functions.
For the full-year, cost of services increased 17% on a reported basis and 21% on an FX-neutral basis. SG&A increased 15% on a reported basis and 19% on an FX-neutral basis in 2022.
EBITDA for the fourth quarter was $421 million, up 37% year-over-year on a reported basis and up 44% FX-neutral. Fourth quarter EBITDA upside to our guidance reflected revenue exceeding our forecasts, most notably in consulting and expenses at the low-end of our expectations. EBITDA for the full-year was $1.47 billion, 14% increase over 2021 on a reported basis and up 19% FX-neutral.
Depreciation was $24 million in the fourth quarter, down modestly versus 2021. Net interest expense, excluding deferred financing cost in the quarter was $29 million, about flat with the prior year. The modest floating rate debt we have is fully hedged through maturity. The Q4 adjusted tax rate, which we use for the calculation of adjusted net income was 16.7% for the quarter. The tax rate for the items used to adjust net income was 23.2% for the quarter. Full-year tax-rate was 21.6% on the same basis.
Adjusted EPS in Q4 was $3.70, up 19% year-over-year. The average share count for the fourth quarter was 80 million shares. This is a reduction of about 3.7 million shares or about 4%year-over-year. We exited the fourth quarter with about 80 million shares outstanding on an unweighted basis. For the full-year, adjusted EPS was $11.27. EPS growth for the year was 22%.
Operating cash flow for the quarter was $203 million. Excluding insurance proceeds in Q4 of 2021, operating cash flow is down about 7%. Q4 cash flow was impacted by Hurricane Ian, which hit our Center of Excellence in Fort Myers extremely hard in late-September. While we were able to sell and service our clients from Fort Myers, we did have some delays in getting invoices out as quickly as we normally would. Elections for some of these delayed invoices slipped into January, but we are now caught up.
Capex for the quarter was $38 million, up about $16 million year-over-year, led by increases in capitalized technology labor costs and catch-up laptop spend. Free cash flow for the quarter was $166 million. Free cash flow growth continues to be an important part of our business model with modest capex needs and upfront client payments. As many of you know, we generate free cash flow well in excess of net income. Our conversion from EBITDA is also very strong with the differences being cash interest, cash taxes and modest capex, partially offset by strong working capital cash inflows. Free cash flow as a percent of revenue or free cash flow margin was 18% on a rolling four-quarter basis. On the same basis, free cash flow was 68% of EBITDA and 123% of GAAP net income.
At the end of the fourth quarter, we had almost $700 million of cash. Our December 31st debt balance was $2.5 billion. Our reported gross debt to trailing 12-month EBITDA was under 2 times. Our expected free cash flow generation, unused revolver and excess cash remaining on the balance sheet, provide ample liquidity to deliver on our capital allocation strategy of share repurchases and strategic tuck-in M&A. Our balance sheet is very strong with $1.7 billion of liquidity, low levels of leverage and effectively fixed interest rates.
We repurchased more than $1 billion of stock throughout 2022. We expect the Board will refresh our share repurchase authorization as-needed, which they did earlier this month. We now have about $1 billion authorized for share repurchases. Across the past two years, we have returned $2.7 billion to shareholders by repurchasing more than 11 million shares. Over that timeframe, we have reduced our shares outstanding by 11%. As we continue to repurchase shares, 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.
Before providing the 2023 guidance details, I want to discuss our base level assumptions and planning philosophy for 2023. For Research, we continue to innovate and provide a very compelling value proposition for clients and prospects. Executives and their teams face uncertainty and challenges and they recognize how Gartner can help regardless of the economic environment. Our plan allows for a higher-than-normal level of uncertainty in the world, as Gene discussed. We've got tough compares across the business and particularly with tech vendors for another quarter or two. We've taken a prudent approach based on historical trends, as well as more normal patterns, which we reflected in the guidance.
If near-term demand is stronger than we've built into the outlook, and NCVI phasing retention rates and non-subscription growth perform closer to the way they have historically, there will be upside to our guidance. In addition, our teams are focused on driving greater growth than what's embedded in the guidance.
Finally, as you think about GBS, overall CV and revenue growth for 2023, please keep in mind that we closed on the divestiture of a small non-core asset last week. We sold TalentNeuron, which we acquired as part of the CEB transaction for $164 million. In the earnings supplement appendix, we've provided historical contract value updated for 2023 FX rates, as well as the removal of TalentNeuron from prior years.
For Conferences, we are basing our guidance on being 100% in-person for the 47 destination conferences we have planned for 2023. We expect to return to more typical seasonality for the business with fourth quarter the largest followed by the second quarter.
For Consulting revenues, we have more visibility into the first-half based on the composition of our backlog and pipeline as usual. Contract optimization is seasonally slower in the first quarter and remains highly variable. We had a very strong year in 2022, especially in contract optimization in the fourth-quarter.
Our base level assumptions for consolidated expenses reflect significant headcount increases from 2022 annualizing into 2023. Our plans for headcount for 2023 is more in line with our normal model as we've caught up on hiring last year. If demand is stronger than what's in the initial plan, we will have the opportunity to add even more great talent to our teams. We also expect T&E cost to more fully normalize this year.
Finally, we continue to invest in our systems and process automation, both client-facing and internal applications as part of our innovation and continuous improvement programs. We will continue both to manage expenses prudently to support future growth and deliver strong margins. At current rates, FX will be a modest tailwind to growth for the full-year with the benefit in the second-half.
Our guidance for 2023 is as follows. We expect Research revenue of at least $4.92 billion, which is growth of about 7%. Excluding the effect of the divestiture adds 1 percentage point to the year-over-year growth rate. We expect Conferences revenue of at least $445 million, which is growth of about 14%. We expect Consulting revenue of at least $500 million, which is growth of about 4%. The result is an outlook for consolidated revenue of at least $5.865 billion, which is growth of about 7%. Excluding the divested business from 2022 would add about 80 basis points to the growth rate.
As I've mentioned, we've taken a prudent approach to planning for 2023. This applies to revenue, operating expenses and free cash flow. We expect full-year EBITDA of at least $1.26 billion. We expect to be able to deliver at least 21.5% margins in most economic scenarios. If revenue is stronger than our guidance, we expect upside to EBITDA and margins.
Included in the guidance is equity comp of $132 million, up from 2022. We expect 2023 adjusted EPS of at least $8.80 per share. For 2023, we expect free cash flow of at least $920 million. Our EPS guidance is based on $80 million shares, which only assumes repurchases to offset dilution. Finally, for the first quarter of 2023, we expect to deliver at least $310 million of EBITDA. All the details of our full-year guidance are included on our Investor Relations site.
Our strong performance in 2022 continued in the fourth-quarter. Contract value grew 12%. Adjusted EPS increased 19%, fueled in part by the significant reduction of shares in 2021 and 2022. Over the past few years, our hiring has been carefully calibrated to demand and we are well-positioned from a talent perspective, heading into 2023. Our continued investments in our teams will drive long-term sustained double-digit growth. We repurchased more than $1 billion in stock last year and remain committed to returning excess capital to our shareholders over time. As I mentioned, we expect to generate at least $920 million in free-cash flow in 2023. In addition, we have ample liquidity and the net proceeds from last week's divestiture for our capital deployment initiatives.
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 and G&A leverage, we can modestly expand margins. 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 will lower the share count over time and on 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?
