Gartner, Inc. Q2 FY2025 earnings call

• AI is an important opportunity for Gartner across several dimensions, with clients seeking help on AI and mission-critical topics like cybersecurity, cost optimization, etc.
• Q2 had headwinds including U.S. federal government initiatives and tariff policies leading to cost-cutting measures.
• Adaptations include aligning with U.S. federal government priorities, expanding cost optimization capabilities, redesigning research insight processes, rolling out AskGartner, leveraging AI internally, and adapting sales and services.
• The Research segment was renamed Business and Technology Insights (Insights) to better describe the value delivered.

Insights revenue in the quarter grew 4% year-over-year as reported and 3% FX neutral. Subscription revenue grew 5% FX-neutral. Non-subscription Insights revenue was affected by shifts in traffic volumes. Insights contribution margin was 74%, up 20 basis points versus last year. Contract value at the end of the second quarter was $5 billion, up 5% versus the prior year (FX-neutral). Excluding the U.S. federal government, CV growth was about 150 basis points faster at around 6%. Global NCVI in the quarter, excluding the U.S. federal government, was positive $13 million. Conferences revenue for the second quarter was $211 million, increasing 14% as reported and 12% FX neutral compared to Q2 of 2024. Q2 Consulting revenue was $156 million compared with $143 million in the year ago period, up about 9% as reported and 6% FX neutral. Contract optimization revenue in the quarter was $46 million, up 26% versus Q2 of last year and 24% FX neutral.

Expect Insights revenue of at least $5.255 billion (FX-neutral growth of about 2%) with subscription Insights revenue growth of about 4% and non-subscription revenue around $210 million. Conferences revenue is expected to be at least $625 million (FX-neutral growth of about 5%). Consulting revenue is expected to be at least $575 million (growth of about 1% FX neutral). Consolidated revenue is expected to be at least $6.455 billion (FX-neutral growth of 2%). Full year EBITDA is expected to be at least $1.515 billion, down $20 million from prior guidance. 2025 adjusted EPS is expected to be at least $11.75, and free cash flow is expected to be at least $1.145 billion.

• U.S. federal government initiatives made it more challenging for clients to purchase or renew many of Gartner's products.
• Tariff policies led to companies implementing cost-saving measures, stretching selling cycles.

Q: Appreciate the build on the return to high single-digit or even double-digit CV growth. I wanted to ask specifically on the tariff-impacted industry piece. Is there anything you can do to kind of size what you've determined to be the tariff-affected industries? How much that represents in terms of CV?

A: The way we've defined tariff impact in industries is not perfect. We've looked at industries that rely heavily on importing and exporting, and those where the U.S. is a major trade partner. Around 35% to 40% of our CV fell into that category across both GTS and GBS.

Q: On the AI topic, I want to maybe focus on the operational efficiency piece. Again, just asking, is there anything you can do to kind of quantify that? I understand that improving the product was one part of the top line growth acceleration. But if we think about later this year or into '26 and '27, is there anything that you can say about what those internal efficiencies might do for the cost structure or margin profile broadly?

A: We've implemented about 50 internal applications where we're using AI. Most of those are custom applications. It's too early to say what impact they'll have on the cost structure over the long term.

Q: Thank you for the comments on AskGartner in the prepared remarks, and also the clarification on sort of the proprietary data and processes that you have. I was hoping -- I know AI has been a topic that has been most frequent for you coming in from customers. Just what are the most common questions or topics that clients come to you for understanding, just better and how you help them like that? And I think my main purpose in asking the question is trying to figure out what is it that can't be addressed by sort of deep research AI tools that you're able to help with that clients are seeing the value in?

A: We help clients with mission-critical priorities like building cybersecurity capability, fully leveraging AI within organizations, using leveraging technology for financial transformation. These are complex multi-quarter, often multiyear journeys. We have several terabytes of proprietary data from 500,000 one-on-one conversations with clients and 27,000 briefings from technology vendors, and world-class experts synthesize this to provide unique insights.

Q: You provided very helpful renewal metrics on federal government clients in the quarter. Can you talk a little bit more about how new purchases among these government clients are performing? Have they come to a full standstill? Or are you seeing some trickle in?

A: We mentioned the dollar retention rate that we've been achieving, which is just a shade under 50% on a year-to-date basis. We are writing some new business, though the contracting process is not simple, but we are engaging in new business.

Q: This is Brendan, on for Manav. I just want to ask on the tariff commentary. I mean, we've had a lot of companies report, and it seemed like the view was that confidence that kind of returned by the end of the quarter, even though there was definitely some concerns earlier in the quarter and not necessarily huge strategy changes outside maybe a couple of industries. So just seeing like kind of what's different about your business in this environment right now?

A: Companies worried about tariffs and wanted to cut costs to maintain client pricing and margins. Clients widely said they needed to cut costs to maintain revenues and margin structure.

Q: I guess considering the magnitude of the slowdown in the ex Fed business, I guess what's your level of conviction that this is really tariff related versus clients just pulling back and blaming tariffs because I can't imagine the existence of tariffs is that much of a surprise in Q2 versus Q1, right? So I guess what's your confidence about tariffs being the precise driver there?

A: We track every single deal and ask clients and salespeople about win/loss reasons. We have confidence tariffs are a driver as clients are focused on cost reduction, and we've seen similar behavior in past recessions.

Q: Gene, we did not get that response, and I think a lot of us have a similar question. So yes, if you could try to ring-fence the AI risk, including from my perspective, just what you're hearing on pipeline conversion, and if that's coming up as an issue at all for those that may not understand the richness of the Gartner value proposition as well.

A: Our pipeline is up at robust double-digit rates for both GTS and GBS. The time to close deals has gone up as deals are escalated to higher management, stretching the selling process.

Q: Just following up on the idea of the behavior of clients around tariffs. Just any color around any differences you might have seen between perhaps your U.S. versus your international clients? I noticed you specifically called out Canada and Australia.

A: Companies impacted by tariffs are similar globally. In Canada, procurement processes changed making it harder to buy; in Australia, an election led to changes in government machinery causing purchases/renewals to stop for a few months.

Q: I know it's late. I'll just ask one. I wanted to focus on the number of client enterprises. It's been going down at least in GTS for the past couple of years, and now we're seeing it in GBS. Is it just that clients are maybe centralizing the decision-making process and buying as one entity as opposed to multiple entities? I know there's probably some federal government impact this past quarter, but it's been going down for a while. So any color would be great.

A: The biggest driver of the decrease in client enterprises has been high churn amongst small tech vendors.