GARTNER INC Q1 FY2025 earnings call

• Gartner's Q1 contract value grew 7%, with revenue, EBITDA, EPS, and free cash flow ahead of expectations. • Increased sales headcount across sales organizations by 4%. • Research remains the largest segment; GTS contract value growth improved for the fourth consecutive quarter, and GBS contract value increased 11%. • Conferences delivered 12% revenue growth on the same conference basis. • Consulting revenue grew 5%, with contract optimization revenue up 38% and backlog up 16%. • Gartner emphasizes its unique client value proposition of delivering actionable, objective insight, guidance, and tools, disciplined cost management, and prudent investment in future growth. • Leverages AI internally to support business and plans to roll out AI-driven tools for clients after ensuring it's bulletproof.

Research was the largest and most profitable segment. Contract value grew 7%. Excluding The U.S. federal business, contract value grew 8%. Within research, Global technology sales (GTS) contract value grew 6%, with 7% growth excluding U.S. federal. Global business sales (GBS) contract value increased 11%. Gartner conferences revenue grew 4% as reported and 5% FX neutral, with 12% growth FX neutral when adjusting for moved conferences. Gartner Consulting revenue grew 4% as reported and 5% FX neutral, with contract optimization revenue growing robust 38% and consulting backlog growing 16%. Revenue contribution: Research was the largest segment, followed by other segments like conferences and consulting with their respective growth rates.

• Updated 2025 guidance: Research revenue expected at least $5.34 billion (4% FX-neutral growth), conferences revenue at least $625 million (6% FX-neutral growth), consulting revenue at least $575 million (2% FX-neutral growth). Consolidated revenue expected at least $6.535 billion (4% FX-neutral growth). • Full-year EBITDA expected at least $1.535 billion, adjusted EPS at least $11.70, free cash flow at least $1.145 billion. • Q2 adjusted EBITDA expected at least $400 million. • Expect reacceleration of contract value growth to 12%-16% when macro environment normalizes, with EBITDA margin expansion.

• Macroeconomic uncertainty, including government policy and tariff changes affecting enterprises globally. • Impact of U.S. federal government contract renewals and terminations, with nearly all U.S. federal contracts up for renewal in 2025 and some termination notices received. • Volatility in selling environments outside the federal government, with slower decision-making by clients during periods of uncertainty leading to extended sales cycles.

Q: What percentage of the contract value base are you following the directly impacted areas? And how are you managing sales headcount, I guess, for U.S. federal government agency prospects or the more meaningfully other directly impacted areas in terms of are you reassigning it to other opportunities? Or are you kind of preserving some of that capacity, including to position for like win-back opportunities?

A: From a directly impacted area perspective, it is largely U.S. federal that we're talking about now. And so obviously, we're not looking to grow our QBH there, but we wanted to make sure it was really clear that outside of that directly impacted area, we were actually targeting to continue to grow the number of headcount, number of territories for both GTS and GBS in the mid-single digits. Basically, as Craig said, the largest impacted area is by far is the U.S. federal government. And there, what we're planning to do is we're not backfilling, and we're basically making sure we're controlling our head out there very carefully. The rest of the business, but not impact carries, as I said, rent to grow in mid-single digits this year.

Q: I was hoping to get just maybe a little bit more color on the guidance. I know you talked about on the slide and in the remarks that the guidance reflects 1Q new business and retention trends. I know you mentioned that there was a little bit of a change during the quarter, maybe a slower like back half of the quarter. So, I wanted to sort of understand, does the guidance reflect like the complete 1Q, which was maybe a little bit better or more weighted towards like the more recent, like slower experience that you've seen?

A: When we were together in early February, talking about Q4 commentary at that point through the month of January is we hadn't really seen a change in the selling environment and that was the case. Clearly, things started to change mid-February into early March. I would say, from a metric perspective, though, since we are so dominated by the third month of every quarter, what we saw in the back half of February and March, in particular, in March, is reflective of the quarter. And again, we've taken that experience and rolled it forward across Q2, Q3 and Q4 to drive that update on the revenue guidance. So, while January was normal, it's really small, and the bulk of the volume in Q1 actually happened during the month of March.

Q: Your business outlook for 2025 research revenue was downwardly revised by $135 million. Can you elaborate on how much of this reflects updated views on federal contract renewals versus updated views on other customer segments like tech vendors and enterprise functional leaders?

A: The guidance is reflective of everything we've seen and everything we know. And so obviously, the biggest thing or the largest impact that we saw that was sort of off trend in Q1 was related to the U.S. federal government, which we just talked about with Jeff and Toni. But in terms of what we're seeing more broadly, macroeconomically, that has been factored into the updated guidance. So, I think what I'd say is from an update on the guidance perspective, and this applies to all the revenue lines, but research, in particular, is we took our Q1 experience and we flowed that through across our contract expirations for the balance of the year. We took what we knew specifically about U.S. federal government. We modeled in the new FX rates. And as always, we try and take a prudent approach to how we approach our guidance for the full year. So, I'd say those are the four things that factored into the update of all the guidance lines and the research line in particular.

Q: Good morning. Thanks for taking my question. I was wondering if you could talk about the selling environment outside of federal. It seems like you're saying that the environment became more volatile. But I guess if I add back the impact that you gave for the federal government. It seems like the CV ex-federal was fairly similar to what you had in Q4. So, just trying to triangulate the comment about volatility and then the relatively good ex federal CV growth?

A: The selling environment because of the federal government we talked about, and that was the main thing that impacted our results in Q1. Outside of the federal government, it's not completely uniform in terms of the impact. So, there are some companies that are more impacted, for example, by tariffs than others. By the way, both U.S. as well as non-U.S. companies. And so, the companies that don't have a lot of tariff impact or other kinds of impact for policy changes, it's kind of business as usual in terms of decision-making. The ones that are more directly impacted decision-making has slowed. They're still buying. They're still renewing, but decision cycles have extended compared to what they were, say, Q4 of last year. So, we still see the value. Our pipeline is actually very robust, but decisions are taking longer to get than they would get in Q4 or last year basically.