Craig Safian
Executive Vice President & Chief Financial Officer at Gartner
Thank you, Gene, and good morning. Fourth quarter revenue, EBITDA, adjusted EPS and free cash flow were better than expected as we continue to execute very well in a complex environment. Our financial performance for the full year 2023 included global contract value and consolidated revenue growth of 8%, EBITDA of $1.5 billion, diluted adjusted EPS of $11.33 and free cash flow of $1.1 billion. We are introducing 2024 guidance which we view is achievable across a wide range of economic and geopolitical scenarios with opportunity for upside.
Fourth quarter revenue was $1.6 billion, up 5% year-over-year was reported and 4% FX neutral. In addition, total contribution margin was 67%. EBITDA was $386 million, ahead of our guidance, primarily as a result of disciplined cost management. Adjusted EPS was $3.04, and free cash flow was $196 million.
We finished the quarter with 20,237 associates, up 5%, excluding the 2023 divestiture and about the same as Q3. We have a great team across Gartner, driven by a very compelling associate value proposition. Moving into 2024, we are in an excellent position from a talent and tenure perspective.
Research revenue in the fourth quarter grew 6% year-over-year as reported and 5% FX neutral. Subscription revenue grew 8% on an organic FX neutral basis. Non-subscription revenue performance in the quarter reflects a shift to higher quality traffic. While this action has a short term effect on revenue, we expect it will drive higher prices and increase revenue over time. Fourth quarter research contribution margin was 74% consistent with the prior year period as we have caught up on hiring and returned to the new expected levels of travel. For the full year 2023, research revenues increased by 6%, both as reported and FX neutral. The gross contribution margin for the year was 74%.
Contract value or CV was $4.8 billion at the end of the fourth quarter, up 8% versus the prior year. CV growth is FX neutral and excludes the first quarter 2023 divestiture. We expect new business to be a leading indicator for retention, and in turn, contract value growth. We had the highest one month of new business dollars ever in December 2023.
For the fourth quarter, CV from enterprise function leaders across GTS and GBS grew at double digit rates. New business with enterprise function leaders increased double digits as well. CV from tech vendors was about flat versus the prior year and up sequentially. Tech vendor's CV continued the quarterly improvement we saw in Q3. Tech vendor new business was up high single digits in Q4, marking the first year-over-year increase in 2023. Quarterly net contract value increase, or NCVI, was $180 million. As we've discussed in the past, there is notable seasonality in this metric.
CV growth was broad based across practices, industry sectors, company sizes and geographic regions. Across our combined practices, the majority of the industry sectors grew at double digit or high single digit rates, led by the energy, manufacturing and public sectors. We had high single digit growth across almost all of our enterprise size categories. The small category, which has the largest tech vendor mix, grew modestly. We also drove double digit or high single digit growth in the majority of our top 10 countries.
Global technology sales contract value was $3.7 billion at the end of the fourth quarter, up 6% versus the prior year. GTS CV increased $134 million from the third quarter. Wallet retention for GTS was 101% for the quarter, reflecting net growth even before the addition of new clients. In the fourth quarter, IT enterprise function leaders wallet retention was consistent with historical GTS levels. GTS new business increased 12% versus last year. New business with IT enterprise function leaders increased mid teens compared to 2022.
New business with tech vendors increased high single digits in the quarter. GTS quota bearing headcount was about flat year-over-year, with the dynamic territory planning we introduced a few years ago, the catchup hiring we did last year and our teams moving up 10 year curve were well positioned for growth moving into 2024. Operationally, we are continuously allocating resources to the best near term opportunities even as we ensure we are well positioned to capture the large addressable market opportunity over time. Our regular full set of GTS metrics can be found in the earnings supplement.
Global business sales contract value was $1.1 billion at the end of the fourth quarter, up 13% year-over-year. The majority of our GBS practices grew at double digit rates. Growth was led by supply chain, legal and HR. GBS CV increased $46 million from the third quarter. Wallet retention for GBS was 107% for the quarter, reflecting strong net growth with our existing clients. GBS new business was up 13% compared to last year. GBS quota-bearing headcount was up 8% versus the fourth quarter of 2022. This excludes headcount associated with the Q1 divestiture. As with GTS, a regular full set of GBS metrics can be found in the earnings supplement. As we do each year at this time, we've provided two years of quarterly historical contract value data updated to 2024 FX rates in the appendix of the earnings supplement.
Conferences revenue for the fourth quarter was $214 million, 14% year-over-year. Contribution margin in the quarter was 50%, consistent with typical seasonality. We held eleven destination conferences in the quarter, all in-person. For the full year 2023, we delivered an all time high revenue of $505 million, which was an increase of 30% on a reported basis and 29% FX neutral. Gross contribution margin was 50%.
Fourth quarter consulting revenues were $128 million, compared with $138 million in 2022 when we saw record performance in the contract optimization business. Consulting contribution margin was 27% in the fourth quarter, affected by revenue mix and growth hiring. Labor-based revenues were $99 million, up 3% versus Q4 of last year's reported end on an FX neutral basis. Backlog at December 31 was $162 million, increasing 21% year-over-year on an FX neutral basis with continued booking strength.
We delivered $29 million of contract optimization revenue in the quarter. This part of our business is highly variable. For the second half of 2023, revenues were $62 million, up from the second half of 2022 when we delivered our largest ever quarter in Q4. Full year consulting revenue was up 7% on a reported basis and 8% FX neutral. Gross contribution margin was 35% compared to 39% in 2022. Consolidated cost of services increased 11% year-over-year in the fourth quarter as reported and 10% on an FX neutral basis. The biggest driver of the increase was higher headcount to support our future growth.
SG&A increased 9% year-over-year in the fourth quarter as reported and 8% on an FX neutral basis. SG&A increased in the quarter as a result of headcount growth. EBITDA for the fourth quarter was $386 million compared to $421 million last year. Fourth quarter EBITDA upside to our guidance primarily reflect a disciplined expense management. EBITDA for the full year was almost $1.5 billion, a 1% increase over 2022 on a reported basis and up 2% FX neutral.
Depreciation in the quarter of $26 million was up modestly compared to 2022. Net interest expense, excluding deferred financing costs in the quarter was $19 million. This was down $9 million versus the fourth quarter of 2022 due to higher interest income on our cash balances. The modest floating rate debt we have is fully hedged through maturity. The Q4 adjusted tax rate, which we used for the calculation of adjusted net income was 24% for the quarter. The tax rate for the items used to adjust net income was 15% for the quarter. The full year tax rate for the calculation of adjusted net income was 22%.
Adjusted EPS in Q4 was $3.04 compared with $3.70 last year. We had 79 million shares outstanding in the fourth quarter. This is a reduction of about 1 million shares, or about 1% year-over-year. We exited the fourth quarter with about 79 million shares on an unweighted basis. For the full year, adjusted EPS was $11.33, up modestly from 2022.
Operating cash flow for the quarter was $224 million, up 10% compared to last year. Capex for the quarter was $28 million, down $4 million as a result of catch up spend on technology investments in 2022, which normalized this year. Free cash flow for the quarter was $196 million, up 19% compared to last year. Free cash flow for the full year was almost $1.1 billion, a 6% increase versus 2022. Free cash flow on a rolling four quarter basis was 18% of revenue and 71% of EBITDA. Adjusting for the Q1 divestiture, the full year free cash flow conversion from GAAP net income would have been 138%. Our free cash flow conversion is generally higher when CV growth is accelerating.
We have a new slide in the earnings supplement which shows the conversion from both EBITDA and GAAP net income to free cash flow on a rolling four quarter basis. The past two years have had some unusual items affecting the conversion, including insurance proceeds related to pandemic conference cancellations and the 2023 divestiture. We expect about a four to six point difference between EBITDA margin and free cash flow margins in a typical year. The normal free cash flow conversion from GAAP net income is 140% to 160%.
At the end of the fourth quarter, we had about $1.3 billion of cash. Our December 31st debt balance was about $2.5 billion. Our reported gross debt to trailing 12-month EBITDA was under two times. Our expected free cash flow generation, available revolver and excess cash remaining on the balance sheet provide ample liquidity to deliver on our capital allocation strategy of share purchases and strategic tuck-in M&A. Our balance sheet is very strong with $2.3 billion of liquidity, low levels of leverage, and effectively fixed interest rates.
We repurchased $158 million of stock during the fourth quarter and more than $600 million for the full year. At the end of December, we had about $1 billion of authorization for repurchases remaining, and we expect the board will continue to refresh the repurchase authorization going forward. As we continue to repurchase shares, our capital base will shrink. Over time, this is accretive to earnings per share and combined with growing profits, also delivers increasing returns on invested capital.
Before providing the 2024 guidance details, I want to discuss our base level assumptions and planning philosophy for 2024. 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.
The outlook for 2024 research revenue growth is a function of three primary factors. First, 2023 ending contract value. Second, the timing of growth bottoming and the slope of the reacceleration. And third, the performance of non-subscription revenue. Starting with the research subscription revenue which was 76% of 2023 consolidated revenue. Our guidance reflects CV bottoming and reaccelerating during 2024. First quarter and first half NCVI are important inputs to calendar 2024 revenue growth.
We have taken a prudent view of NCVI phasing because Q1 is a seasonally important quarter for tech vendor renewals. With the majority of our contracts being multiyear, some haven't come up for renewal during the tech sector's recalibration. And research subscription revenue will likely bottom about one quarter after contract value growth bottoms. If new business continues to perform well and retention is better than we've incorporated into the plan, there would be upside to our guidance.
The non-subscription revenue is about 6% of consolidated revenue in 2023. In this part of the business, we help small business buyers find the best software for their needs and help sellers find customers. This adds a lot of tangible value for both groups. The outlook built into the 2024 guidance reflects a shift to higher quality traffic sources. As I mentioned, this affects revenue in the short term, but we expect it to drive higher prices and increase revenue over time.
For conferences, which was about 9% of 2023 revenue, we are basing our guidance on the 51 in-person destination conferences we have planned for 2024. We expect similar seasonality to what we saw in 2023, with Q4 the largest quarter followed by Q2. We have very good visibility into 2024 revenue with a majority of what we've guided already under contract. This is consistent with last year and ahead of historical levels.
For consulting, which was also about 9% of 2023 revenue, we have more visibility into the first half based on the composition of our backlog and pipeline as usual. Contract optimization has had several very strong years. It's also seasonally slower in the first quarter and remains highly variable. We've incorporated a prudent outlook for this part of the segment.
We remain focused on aligning expense growth with CV growth. This is the best way for us to balance short term margins while investing for long term, sustained double digit growth. Our base level assumptions for consolidated expenses reflect a more typical cadence than we've seen in a while. We are investing for future growth even as we have taken a prudent view of the timing of revenue flowing into the P&L.
We recommend thinking about expenses sequentially with notable seasonality driven by the conference's calendar and merit increases. Our plan for mid-to-high single digit sales headcount growth for 2024 reflects our commitment to invest for future growth while delivering on our margin targets. We have the recruiting capacity to go faster depending on how the year plays out, and we have other levers like increased tenure to support CV growth in 2024. At current rates, FX will be approximately neutral to growth for the full year.
Our guidance for 2024 is as follows. We expect research revenue of at least $5.15 billion, which is FX neutral growth of about 5%. The research revenue guidance reflects a prudent plan for NCVI performance and a recalibration of non-subscription part of the business. The guidance reflects subscription revenue growth in the high single digits.
We expect conferences revenue of at least $560 million, which is FX neutral growth of about 10%. We expect consulting revenue of at least $530 million, which is growth of about 3% FX neutral. The result is an outlook for consolidated revenue of at least $6.24 billion, which is FX neutral growth of 5%. We expect full year EBITDA of at least $1.435 billion, which results in an EBITDA margin of at least 23%. We expect 2024 adjusted EPS of at least $10.55 per share. For 2024, we expect free cash flow of at least $1.065 billion. This reflects a conversion from GAAP net income of above 140%. Our guidance is based on 79 million shares, which only assumes repurchases to offset dilution. Finally, for the first quarter of 2024, we expect to deliver EBITDA of at least $335 million.
We performed well this year despite continuing global macro uncertainty and a dynamic tech vendor market. Global CV grew high single digits in the quarter with enterprise function leader CV growing double digits. Revenue, EBITDA and EPS performance exceeded our expectations and we introduced achievable guidance with opportunity for upside. We repurchased more than $600 million in stock during 2023 and more than $3 billion in the past three years. We remain eager to return excess capital to our shareholders. We will continue to be price sensitive, opportunistic and disciplined.
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 about in-line with cv growth and G&A leverage, we will expand EBITDA margins modestly over time. 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 will continue to deploy our capital on share repurchases, which 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?
