Q1 2023 Gartner Inc. Earnings Call

Speaker 1: You.

Speaker 2: relations. At this time, all participants are in a listen-only mode. After comments by Gene Hall, Gartner's Chief Executive Officer, and Craig Safian, Gartner's Chief Financial Officer, there will be a question-and-answer session. Please be advised that today's conference is being recorded.

Speaker 2: This call will include a discussion of first quarter 2023 financial results and Gartner's outlook for 2023 as disclosed in today's earnings release and earnings supplement, but posted to our website, investor.gartner.com.

Speaker 2: on the call unless stated otherwise all references to EBITDA are for adjusted EBITDA

Speaker 2: The adjustments have described in our earnings release and some all contract values and associated growth rates we discussed are based on 2023 foreign exchange rates and exclude contributions related to recent investiture and the Russia eggs.

Speaker 2: All growth rates in Jean's comments are FX neutral unless stated otherwise. All references to share counts are for fully diluted weighted average share counts unless stated otherwise. Reconciliations for all non-GAAP numbers we use are available in the investor relations section of the Gartner.com website.

Speaker 2: As 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 2022 Annual Report on Form 10-K . Music

Speaker 2: and quarterly reports on Form 10Q, as well as another filing of the SEC.

Speaker 2: I encourage all of you to review the risk factors listed in these documents.

Speaker 2: Now, I will turn the call over to Gartner's Chief Executive Officer, Teen Hall.

Speaker 3: Good morning and thanks for joining us today.

Speaker 3: Gartner drove strong performance in the first quarter with double digit growth in contract value, revenue, EBITDA and EPS.

Speaker 3: The rate of change and uncertainty in the world continues to accelerate.

Speaker 3: The tech sector is adjusting to post-contemic demand.

Speaker 3: The banking industry is grappling with rising interest rates.

Speaker 3: Many industries have been impacted by rising inflation and more.

Speaker 3: Enterprise leaders and their teams be actionable objective guidance. Gartner is the best source for the insights, tools and advice that makes the difference between success and failure for these leaders and enterprises they serve.

Speaker 3: We continue to the agile with the changing times.

Speaker 3: We're helping our clients make better decisions and achieve their mission critical priorities, whether they're thriving, struggling or anywhere in between.

Speaker 3: Research continues to be our largest and most profitable segment. We guide leaders across all major enterprise functions.

Speaker 3: Our market opportunity is vast across all sectors, sizes, and geographies.

Speaker 3: and we're delivering more value than ever.

Speaker 3: In the first quarter, we helped clients with a range of topics, including cybersecurity.

Speaker 3: Data analytics.

Speaker 3: Artificial Intelligence

Speaker 3: remote work,

Speaker 3: 9%, total contract value growth was 10%.

Speaker 3: Contrwork Value Growth was affected by slower-than-average growth with our technology vendor clients. This also affected the non-subscription portion of our research business. In-user contract value for both GTS and TBS continued to grow a strong double-digit race.

Speaker 3: We serve executives and their teams through two distinct sales channels. Global technology sales, or GTS, serves leaders in their teams within IT. GTS also serves leaders at technology vendors, including CEOs and product managers. GTS contract value grew 9%. Global business sales, or GBS, serves leaders in their teams beyond IT.

Speaker 3: This includes HR, supply chain, finance.

Speaker 3: Marketing, sales, legal, and more. Cubist contract value grew 16%.

Speaker 3: For relentless execution of proven practices, we're able to deliver unparalleled value to our clients.

Speaker 3: Plants continue to prioritize carton of research.

Speaker 3: Our business remains resilient despite a volatile and complicated external environment.

Speaker 3: Cardinal conference is to deliver extraordinarily valuable insights to engage and qualify to audience.

Speaker 3: This will be the first full year of in-person preferences since 2019.

Speaker 3: year of in-person trot princes since 2019. We're off to a great start.

Speaker 3: Attention to strong advanced bookings at record levels and feedback continues to be explored. Currently consulting is an extension of Gardner research.

Speaker 3: Consulting helps clients execute their most strategic initiatives through deeper, extended project-based work.

Speaker 3: Consulting is an important compliment to our IT research business. Consulting revenue grew 14% in the first quarter.

Speaker 3: Our business is fueled by our highly talented associates.

Speaker 3: We have carefully aligned our hiring with recent demands and our long term opportunity.

Speaker 3: We were well positioned to drive long-term, sustained, double-digit growth.

Speaker 3: We finished Q1 ahead of our expectations, despite volatility in the global environment.

Speaker 3: We're increasing our outlook for 2023, while still allowing for a higher than normal level of uncertainty in the world.

Speaker 3: Craig will take us to our guidance in more detail.

Speaker 3: We deliver unparalleled value to enterprise leaders and their teams across every major function. Whether they're thriving, struggling, or anywhere in between.

Speaker 3: We're exceptionally agile and continuously adapt to the changing world. We know the right things to do to be successful in any environment.

Speaker 3: Looking ahead, we are well positioned to continue our sustained record of success far into the future.

Speaker 3: We fit margins to increase modestly over time and we generate significant pre-cash flow well on excess of net income.

Speaker 3: Even as we invest for future growth, we'll return significant levels of excess capital to our shareholders.

Speaker 3: which reduces share-stop standing and increases returns over time. With that, I'll hand the call over to our chief financial officer, Greg Safian. Thank you, Gene, and good morning. First 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.

Speaker 2: We also again delivered better than planned EBITAM margins.

Speaker 2: The upside reflected stronger conferences and consulting revenue and discipline cost management. With results ahead of our expectations, we are increasing our 2023 guidance.

Speaker 3: First quarter revenue was $1.4 billion of 12% year-of-year is reported and 14% effects neutral.

Speaker 2: In addition, total contribution margin was 69%, down 103 basis points versus the prior year. EBITDA was $379 million, of 15% year-over-year and up 19% FX Neutral. Adjusted EPS was $2.88, up 24%, and free cash form quarter was $144 million.

Speaker 2: We finished the quarter with 19,830 associates, up 15% from the prior year and 2% from the end of the fourth quarter. We are well positioned from a talent perspective with low levels of open territories and our new associates coming up to 10 year curve. And we will continue to carefully calibrate headcount and operating expenses.

Speaker 2: based on near-term revenue growth and opportunities to invest for the future. Research revenue in the first quarter grew 7% year-over-year as reported, and 9% on an FX neutral basis.

Speaker 2: Subscription revenue grew 11% FX neutral. First quarter of research contribution margin was 74%, down about one point as we have caught up on hiring and returned to the new expected levels of travel.

Speaker 2: Contract value or CV was $4.5 billion at the end of the first quarter, up 10% versus the prior year. The first quarter last year was one of our strongest research quarters ever, without standing performance on nearly every metric we provide. CV girls is FX neutral and excludes both Russia and the recent investiture.

Speaker 2: CV from Enterprise Function Leaders across GTS and GBS through a double digit rates.

Speaker 2: CV from tech vendors grew mid-single digits compared to high-teens growth in the first quarter of 2022. Quarterly net contract value increase or NCVI was $26 million. As we've discussed in the past, there is notable seasonality in this metric.

Speaker 2: CV growth was broad-based across practices, industry sectors, company sizes, and geographic regions.

Speaker 2: Across our combined practices, all industry sectors grew at double digit rates, other than technology and media, which both grew at mid-single digit rates.

Speaker 2: The fastest growth was in the transportation, retail, and public sectors.

Speaker 2: We had high single digit growth across all of our enterprise size categories. We also drew double digit or high single digit growth in all of our top 10 countries.

Speaker 2: Global technology sales contract value was $3.5 billion at the end of the first quarter, of 9% versus the prior year. GTS had quarterly NCVI of $10 million. While retention for GTS was 104% for the quarter, which compares to 107% in the prior year when we saw a record high for this metric.

Speaker 2: While tech vendor wallet retention remained under pressure, on a net basis, our clients spent more with us compared to the prior year. GTS new business was down 1% versus last year. New business with IT function leaders increased compared to the prior year against the tough compare. New business with tech vendors declined versus very strong performance last year. The new business with IT function leaders increased compared to the prior year against the tough compare.

Speaker 2: GTS Quotabarang Headcount was up 22% year-over-year and 11% on a two-year compound annual growth rate basis.

Speaker 2: We will continue to manage hiring based on both short-term performance and the medium-term opportunity. Our regular full set of GTS metrics can be found in the appendix of our earning supplement. Global Business Sales Contract Value was $983 million at the end of the first quarter of 16% year over year, which is at the high end of our medium-term outlook of 12-16%.

Speaker 2: All of our GBS practices other than sales and marketing grew at double-dose rates.

Speaker 2: Supply chain and H.R. both continue to grow faster than 20%. GBS CV increased $16 million from the fourth quarter.

Speaker 2: While retention for GBS was 110% for the quarter, which compares to 115% in the prior year, when we saw the highest ever result for this metric.

Speaker 2: In addition to continued strong client retention, our clients spent significantly more with us than they did a year ago. GBS new business was down 4% compared to last year against a very strong compare. The two-year compound annual growth rate for new business was 6%. GBS quoted bearing headcount was up 18% year-to-year.

Speaker 2: This excludes headcount associated with the Q1 divestiture. As with GTS, our regular full set of GBS metrics can be found in the appendix of our earnings supplement.

Speaker 2: Conferences revenue for the first quarter was $65 million dollars ahead of our expectations as we saw strong performance with both exhibitors and attendees.

Speaker 2: The first quarter is always a seasonally small quarter, but we are off to a strong start for the year.

Speaker 2: Contribution margin in the quarter was 41% consistent with typical seasonality. We held 10 destination conferences in the quarter, all in person.

Speaker 2: First quarter consulting revenues increased by 10% year-over-year to 127 million dollars.

Speaker 2: On an effective basis, revenues were up 14%. Consulting contribution margin was 40% in the first quarter, consistent with incremental hiring and return to travel.

Speaker 2: Labor based revenues were $97 million of 1% versus Q1 of last year and up 5% on an FX formal basis.

Speaker 2: Backlog at March 31st was $161 million, increasing 14% year-rear on an FX-Tuthor basis with continued booking strength. Our contract optimization business had another very strong quarter of 53% reported and 56% on an FX-Tuthor basis versus the prior year.

Speaker 2: As we have detailed in the past, this part of the consulting segment is highly variable.

Speaker 2: Consolidated cost of services increased 15% year-over-year in the first quarter as reported and 17% on an FX neutral basis. The biggest driver of the increase was higher headcount to support our continued strong growth. We also saw an increase in cost year-over-year with return to in-person conferences.

Speaker 2: STNA increased 6% year-over-year in the first quarter as reported and 9% on an FX mutual basis. STNA increased in the quarter as a result of headcount growth. This increase was partially offset by lower charges associated with real estate rationalization.

Speaker 2: EBITDA for the first quarter was $379 million, up 15% year over year on a reported basis, and up 19% FX neutral. First quarter EBITDA upside to our guidance reflected revenue exceeding our expectations in conferences and consulting and prudent expense planning.

Speaker 2: The appreciation in the quarter of $24 million was up modestly compared to 2022. Net interest expense, excluding the first financing cost in the quarter, was $26 million. Down $4 million versus the first quarter of 2022, resulting from higher interest income on our cash balances.

Speaker 2: the modest floating rate that we have is fully hedged through maturity. The Q1 adjusted tax rate which we used for the calculation of adjusted net income was 18% for the quarter.

Speaker 2: A tax rate for the items used to adjust that income was 35% for the quarter. Adjusted EPS and Q1 was $2.88 of 24% year-over-year. We had 80 million shares outstanding in the first quarter. This is a reduction of close to 3 million shares or about 3% year-over-year. We exited the first quarter with about 80 million shares on an unweighted basis.

Speaker 2: Operating cash flow for the quarter was $165 million down 2% compared to last year. CapEx for the quarter was $21 million of 22% year-to-year as a result of an increase in technology modernization investments and equipment for new associates. Free cash flow for the quarter was $144 million.

Speaker 2: Free Casual was a percent of revenue on a rolling four quarter basis was 18% of revenue and 65% of EBITDA. Adjusted for the after tax impact of the divestiture and interest rate swap gains, free Casual conversion from gapment income was 120%.

Speaker 2: Our free cash flow conversion is generally higher when CV growth is accelerating. At the end of the first quarter, we had $894 million of cash. Our March 31st debt balance was $2.5 billion. Our reported gross debt to trail in 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.

Speaker 2: and strategic tuck-in M&A. Our balance sheet is very strong with $1.9 billion of liquidity, low levels of leverage, and effectively fixed interest rates. We repurchased more than $100 million of stock during the first quarter. We had about $950 million remaining on our share of purchase authorization at March 31st. As we continue to repurchase shares, our capital-based will shrink.

Speaker 2: is the creative to earnings for share and combined with growing profits also delivers increasing returns on a desktic capital over time.

Speaker 2: We are increasing our full year guidance to reflect a strong Q1 performance while still allowing for a higher than normal level of uncertainty in the world. As we move through the year, we have more visibility into the revenue outlook and the corresponding expenses needed to support the business and drive growth.

Speaker 2: For research, we continue to innovate and provide a very compelling value proposition for clients and prospects.

Speaker 2: Our plan for 2023 allows for a higher than normal range of outcomes as we discussed last quarter. We've got tough compares across the business and particularly with tech vendors and in GBS for another quarter or two.

Speaker 2: We've taken a prudent approach based on historical trends which we've reflected in the guidance. We expect stronger growth from the subscription business than the non-subscription part of the segment. The non-subscription part of the business faces tough compares and has more direct exposure to tech vendors spending. The outlook continues to be based on 100% of our 47 destination conferences for 2023 running in person. There is seasonality to the business based on the conference calendar which is different than the historical pattern.

Speaker 2: We expect you for to be the largest quarter and you three to be the smallest of the year.

Speaker 2: For consulting revenues, we have more visibility into the second quarter than the second half based on the composition of our backlog and pipeline as usual.

Speaker 2: Contract optimization remains highly valuable. We had a very strong year in 2022, especially in contract optimization in the fourth quarter. With Q1 behind us, we are comfortable. We can run the business successfully for this year while investing for future growth with lower consolidated expenses than we built into the original guidance.

Speaker 2: We will continue both to manage expenses prudently to support future growth and deliver strong margins.

Speaker 2: Our updated guidance for 2023 is as follows. We expect research revenue of at least $4.925 billion, which is FX Newter Growth of about 7%, or 8% excluding the Q1 divestiture.

Speaker 2: Research revenue guidance is up modestly from February . We expect conferences revenue at least $470 million, which is growth of about 21%.

Speaker 2: We have increased our outlook for conferences by $25 million.

Speaker 2: We expect consulting revenue at least $505 million, which is growth of about 5% FX neutral and a modest increase from February .

Speaker 2: The result is an outlook for consolidated revenue of at least $5.90 billion, which is effective for growth of 8%. Overall, we've increased our revenue outlook by $35 million.

Speaker 2: As I mentioned the last quarter, we've taken a prudent approach to planning for 2023. This applies to revenue, operating expenses, and free cash flow. We now expect full-year EBITDA at least $1.33 billion, up $70 million for prior guidance and increase in our margin outlook as well. We expected the able to deliver on our margin guidance in most economic scenarios.

Speaker 2: excluding the aftertacks the vestiture proceeds.

Speaker 2: Our guidance is based on 80 million fully deluded weighted average shares outstanding the for flex three purchases made through the end of March.

Speaker 2: Finally, for the second quarter of 2023, we expect EBITDA of at least $350 million. We had a strong start to the year despite continuing global macro uncertainty with notable performance in conferences and overall profitability.

Speaker 2: Contract value grew double digits. EPS grew more than 20%. We purchased over $100 million in stock during the first quarter and remained committed to returning excess capital to our shareholders.

Speaker 2: Combining our expected free cash flow generation with the after tax proceeds of a recent investiture, we have more than $1 billion available to deploy on the Haslover shareholders in 2023.

Speaker 2: Looking out over the medium term, our financial model and expectations are unchanged.

Speaker 2: With 12 to 16% research CV growth, we will deliver double-digit revenue growth. With gross margin expansion, sales cost growing in line with CV over time, and GNA leverage, we can modestly expand margins.

Speaker 2: We can grow free cash flow at least as fast as Ipata because our modest cat-backs needs and the benefits of our clients paying us upfront. And we'll continue to deploy our capital on share purchases 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?

Speaker 4: Thank you. As a reminder to ask a question, please press star 111 on your telephone and wait for your name to be announced. Do it draw your question plus press star 111 again. Please stand by while we compile the Q&A roster.

Speaker 4: Our first question comes from Jeffrey Mueller from Beard, New Line is open.

Speaker 5: Yeah, thank you. So I thought CV was good considering the macro and the comp. I know that you said comps are still tough another quarter or two. I don't know what macro is going to do later in the year. But it sounds like the relative weakness is still just concentrated in the tech.

Speaker 5: vendor channel. So I guess as you look at retention trends on business that's coming up for renewal on a quarterly basis or new business sold trends in a quarter on a seasonally adjusted to a balance on a basis. I guess the question is, have those metrics kind of stabilized after stepping down?

Speaker 5: concentrated in the tech vendor channel last year, or have you seen any sort of incremental weakening, including with the recent banking sector challenges, and any derivative effects from it?

Speaker 3: Hey Jeff, Gene. I think you characterized it right, which is the two biggest factors going on are that your real comparison is very tough because it's such a strong four-year ago. And then the whole check industry is realigning and that's impacting the business just as you described. And there are smaller things going on, those are the big things that are going on in your practice.

Speaker 6: business.

Speaker 5: Okay, but are those smaller things, including like the banking challenges, are they causing incremental deterioration or is that not a meaningful factor for you?

Speaker 3: Yeah, I don't think it's, I characterize it as small as opposed to meaningful. So clearly we're selling less to Silicon Valley Bank or public. But that's pretty isolated. So we have isolated things like that that are going on with regional banks, some countries like China. But there's always things like that going on. There's always things in particular in the three segments that are not perfect. So obviously this is central. We don't have thatzi. So faced with all??. Here's the message. Do the bridge. Take it. Namyeon is here. Yeah. So we can go. That source. We're Dome.

Speaker 5: Got it. Good to hear. And then I just love your perspective, Jean, on I guess the opportunities and risks from generative AI, including anything on how far along you are with implementing it. To me, I can see potential benefits on a number of front sales productivity, research productivity, I guess improving the client experience on your platform given the high quality.

Speaker 3: AI. Thanks. Yes, so we see generative AI has been really helpful for our business. As you said, there are a lot of internal efficiencies where we've had five years ago, we had teams of humans coming through publicly available information.

Speaker 3: Now we actually today use a generative AI to improve our efficiency on those kinds of things and we'll continue to. The second area that we are testing and I sure will get to its one point is having more of a natural language interface for our clients. And we're testing now to just to make sure it all works correctly and it doesn't have any surprises as you've seen in some of the public situations.

Speaker 3: And so I'd say first of all, it's great for internal efficiencies in every part of our business. Even like you mentioned, for salesperson, you want to get synthesized, publicly available information, it's a great tool to help with that. It's going to be, so it'll help internal efficiencies, it'll provide a better interface over time with our clients. And then, frankly, it's an area where clients see the upon as well. And so that's an area that helps with our basic client demand as well.

Speaker 3: You asked about our situation competitively there. I say we're highly differentiated from the public information you get because we have a lot of proprietary information, proprietary insights. We have a research process which is quite important in generating these proprietary insights. And of course we're independent objective.

So we say generational AI has really been a lot of help both the internal efficiencies with private a better interface for our clients helping clients with it, etc. Appreciate the comprehensive answer. Thank you.

One moment for our next question. We have a question from Heather Balsky from Bakel of America. I can't your line is open.

Hi, good morning. Thank you for taking my question. Can you help us think about the cadence of CV as we move through the year, both taking into account the sort of environment right now, especially with your tech vendors as well as sort of comparison zero-over-year? Just curious kind of.

do you expect to kind of soften as your progresses and improve into the fourth quarter? Just look at what space into yourself. That look. Thanks.

Hey, good morning Heather. This is Craig. Great question. So, you know, as we think about the way the business rolls, I guess, is doing back a little bit a couple of points just around historically how things look. So, you know, we typically generate our least amount of new business dollars in the first quarter of the year and our most amount of new business dollars in the fourth quarter of the year.

And there's a lot of reasons for that. We work through our pipelines in the fourth quarter. We've got a lot of conferences that we leverage in the fourth quarter. We make a lot of promotions and changes to positions in the first quarter. But first quarter generally lowest amount of new business.

Fort Porter, a lot more of your business and that sort of builds over the quarters. In terms of the way the CV flows.

First quarter and fourth quarter tend to be a little bit more heavily weighted in terms of the amount of CV that is expiring. It can vary a lot. Our sales teams will also often pull forward business as they see opportunities, but Q1 and Q4.

are typically our highest expiration quarters. In terms of the cost and the comparisons, I think if you look back, Q1 of 2022, on just about every measure you can look at, was the peak.

and or the toughest comparison for us, whether it is overall contract value growth, wallet retention, productivity, you know, you name it. The comparisons are still pretty tough through Q2 and Q3, most notably with our tech vendor clients.

and with GBS. So Q1, I'd say, was a tough comparison across the board, you know, across the entire research business. Again, most notably with tech vendors and with GBS. Q2 is still, again, if you go back and look at the metrics and TV growth, etc.

still very tough comparison there as well. The comparisons do ease a little bit, but it's still pretty high comparison point even as we get into the second half of the year. But again, if you think about our normal cadence, we'll be building our new business pipelines and building our new business dollars over the course of the year. We've got a full slate of in-person conferences.

as well. And as she mentioned, our clients and potential clients really need our help as well. So we're focused on making sure we deliver great values for our clients to drive those renewal rates and also work all our opportunities through the pipeline as well so we can deliver the new business that we need to deliver as well.

Thank you. I appreciate that. And as my follow-up, in an environment like we're seeing right now, whether it's the tech industry, realigning, what's going on in paying, from both the PBS and GTS perspective, what are you doing on the research side?

to stay engaged with customers, keeping them active gardener, gardener, gardener. You, hopefully you keeping that retention strong. Thanks.

Yeah, that's a great question. So we're always focused on research on the things that are most important to our clients. You think about today, you would be things like cybersecurity. You know, there are a few enterprises today that can let their card down with cybersecurity and the only health they can get. So that's an area that we're really focused on. Another one is using data analytics and their business.

The other one is cost optimization, making sure they understand how to optimize the cost they do have in a little tougher environment perhaps. We still see a lot of demand on commercial digital business. We also see a lot of demand on things like optimizing cloud computing. So those are some examples. The way we're focusing on research is making sure our research is focused on people.

really tough issues that senior leaders and our clients have to wrestle with, which these are some of the examples. And those issues are really important, even for organizations that are struggling, you're still going to deal with things like cyber security and get analytics, optimizing cloud computing. And so, it's something that applies whether clients are struggling or whether they're at the right point.

Thank you very much. Thank you one moment. We have a question from Tony Keplan with Morgan Stanley . Your line is open.

Thanks so much. I wanted to ask about GBS. I know you mentioned in the prepared remarks that all of the areas grew double digits, except for sales and marketing. Could you just give maybe a little bit of color on what slowed there, anything you're seeing or is that just a, you know, maybe it's a tough comp or, you know, I'm sure each quarter, you know, some are more positive.

our own operational effectiveness is as good as in some of the other GPS functions.

But there's nothing intrinsic. There's nothing in the marketplace or something like that. It's all about making sure that we have all the pieces really working together well. It's still a great growth because it's not as great. The GPS growth is really extremely strong, and they were just kind of not as strong as the strongest parts of GPS. Great. I want to also ask about the...

retention of salespeople. I imagine it's a lot better now than it was in recent history when we had the tighter labor market. I guess how are you thinking about that with regard to maturity of salespeople? Could that have upside potential for the guide this year?

and maybe talk about sort of if we should see productivity improvement as a result. It's a great question and salespeople are critical to our business to both current business and future growth. We got behind in hiring over the last couple of years. We're now fully caught up, which is fantastic. We have a very low number of open positions and our turnover.

I'm sorry, higher retention, lower turnover rate, as being really advantageous to the business.

The other thing is that as we do have hiring needs either from turnover or from growth, the market for us hiring salespeople is fantastic. We can get really fantastic salespeople. We always do great salespeople, but it's one of the best markets for hiring for us we've ever seen.

that as we do have hiring needs either from turnover or from growth, the market for us hiring salespeople is fantastic. We can get really fantastic salespeople. We always do great salespeople, but it's one of the best markets for hiring for us we've ever seen. Perfect. Thank you.

Thank you. Our next question will come from Seth Weber with Wells Fargo. Your line is open.

Hi, good morning. I wanted to ask you about the raised EBITDA margin outlook for the year. Is that just a function of higher revenue flowing through or is there something else that you feel like has changed there?

You know, relative to how you were thinking about the business last quarter. Thanks.

Hey good morning Seth. So if you look at the outlook raise based on the Q1 performance and based on the URL down to the year, we took revenue up by $35 million, most notably in conferences.

and we reduce our OpEx expense outlook by about $35 million. And that's what drove the $70 million increase in the overall EBITDA outlook. I'd say we are still dealing with a...

pretty uncertain macro environment as we both talked about. We took a pretty proven approach to in particular planning our operating expenses as we entered the year. And now that we've got three or four months behind us and have a better outlook for what the top line's going to look like for the blue year we were able to.

refine the expenses a bit. And so again, that's why we were able to raise the revenue by 35 and reduce the OpEx outlook by 35 million as well. And again, the math on that yielded you know, margins a little bit higher than we had initially guided to. Right, that makes sense. Thanks. And then maybe

It's a good call out. So, you know, I think.

Stepping back for a second, the free cash flow is still a very large number. The conversion numbers look very strong as well, both on a rolling four quarter basis and as we extrapolate it out of the forecast. The main thing there though is we would have been able to raise our free cash outlook if not for rally showing up in the inf revelation story or maybe we are both safe, but there

an additional cash tax burden that we calculated associated with the vestiture. So, we had a very strong profit year last year, which results in more cash taxes this year, which was fake Indian and so guidance. We sold a small non-porer.

business in February and got proceeds from that. Our initial guide didn't dial in enough cash taxes associated with that with the best shirt. And so the main thing here is for cash folks, they're really, really strong. Would have raised but for an additional cash tax expert associated with our recent vestiture.

Thank you guys, I appreciate it. Thank you. One moment for our next question. Andrew Nicholas from William Blair. Your line is open. Hi, good morning. Thanks for taking my questions. I wanted to follow up on a few of the earlier questions to start. First, I guess, Craig on the margins. Could you spend a bit of time talking on on first quarter upside or where?

some of that upside came from on the cost side and then understanding that the EVITA guidance bridge or the change versus last quarter still seems like

There's a pretty significant ramp up in implied expenses to the remainder of the year. If you could just give a little bit more color on that, I was under the impression that second half hiring activity was now in the run rate, so just trying to figure out where else the increased expense comes from over the next couple quarters.

Yeah, absolutely, Andrew, thanks for the question. In terms of Q1, I'd say it was a combination of modest revenue be most notably in conferences but a little bit insulting as well and prudent expense planning in the quarter. So

I think that's the way I would describe the Q1 margin performance. In terms of looking forward, if you think about the composition of our expenses and the phasing of our business, if you use the Q1 adjusted operating expense...

rolling out in Q2, Q3, Q4. Our conference calendar also picks up, most notably Q2 and Q4, and so there's a step up in operating expenses associated with that. Our travel tends to pick up and we spend more seasonally.

Q2 and Q4 and so that's a pickup in the op-x as well. And so again, I think we planned our revenue outlook pre-carefully and again keeping in mind the pretty volatile macro environment and the op-x to your point, we've already got a lot of the hiring from last year that is now in the Q1.

the environment for hiring field talent. It's so good today versus a year ago maybe. And then also how much does that impact your ability to be nimble on the head count front? It would seem like if there's a bunch of supply, you can be a little bit more careful and not feel like you need to hoard all the best people right away. Or is it a different dynamic where you decide to take advantage of all that's out there and potentially have a little bit narrower gap between head count growth and TV growth? Just how you're thinking about those dynamics. Thank you.

We have great recruiting teams. So there's a lot of operational reasons why things are going well. On top of that, then, the whole tech re-alignment, the talent market that we compete most in for our people is with technology companies. And so when they're laying people off and not as aggressive about hiring, obviously, it helps us, so that's the primary talent market. So it's a combination of, we're a great place to work, we have a great reputation, we have great recruiting teams, combined with the fact that our traditional talent competitors are just really scaled and really scaled back hard on a lot.

And so we're using that as an opportunity to make sure we hire really great people. You know, as we look forward, you know, as Craig and I both did in our remarks, we want to make sure our net hiring incorporates the term we have as well as our CV growth so that we are hiring a bit behind our CV growth so that we, you know, it doesn't impact our March and March is negatively.

Understood. Thank you.

Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is open. Hi, thanks. Good morning. You talked about research CV being relatively stable in markets outside of tech vendors. Just going back to the topic. Can you elaborate on what you're seeing?

or challenged and you know we have to tailor the problems that we're working on with what the company situation is.

again it gets back to the strategy I talked about earlier which is let's make sure our research is focused on the most important issues for our clients and then let's also make sure that our sales, fuel, and service delivery people know what those topics are. It can be right up front and helping clients and so as I mentioned before it's things like cybersecurity, data analytics.

cost optimization, building an additional business, optimizing cloud computing. And not every company has all of those, but if you look at each kind of a company, depending where they are, we help them with the issues that are most important for them. Got it. And then as it relates to your research sales head count expectations, can you outline what's the key?

appropriately where we exit this year from an overall headcount perspective across all of Gardner and in particular in terms of frontline sellers in both TTS and GBS.

And so, you know, there's a range of outcomes for the full year from both a contract value growth perspective, but also from a headcount perspective. And, you know, given all the dynamics we talked about in the labor markets and the fact that we've got, you know, world-class

recruiting our talent acquisition organization and we've got a great, you know, associate pilot proposition as well. We feel like we can be pretty agile on this and just make sure that we are appropriately calibrated so that we enter next year with enough investment to make sure that we can sustain growth.

but also deliver really strong margin performance as well. Got it. Thanks for the call. Thank you. Our next question.

comes from Jeff Silver with BMO Capital Market, your line is open. Thanks so much. I wanted to focus on the research pricing environment. If you can remind us what price increases you've been pushing through so far this year, what your expectations are for the rest of the year. And I know others in this space may not necessarily be direct competitors, but we're seeing some companies.

extending terms of the contract renewals by taking lower price. Is that something that you're doing or considering? Thanks. Good morning, Jeff. In terms of our pricing, the bulk of our pricing goes into effect on November 1, which impacts this current year. And so if you recall back to November ish of.

2021, we were increasing prices in the 5 to 6 percent range. This past cycle, it was more closer to 5 percent, again, given a little bit of...

less inflationary environment and again you know we want to make sure that at a minimum we are pricing to offset the wage inflation that we are seeing and in 21 we were seeing much more pressure on wage inflation and so we went a little bit harder on the price increases then this year a little less and so.

roughly around around five percent. You know in terms of the the environment and you know giving on terms or anything like that, you know generally I'd say we've managed to

you know, hold to our terms and so, you know, we're not giving away extra days or months in terms of, you know, when we could get paid. You know, we're still pushing very hard on getting to pay upfront, you know, which is obviously, you know, a core part of our free cash flow machine.

You know, Jean and I have all talked about in the past. Generally, our contracts are relatively small or small-ish ticket items for our clients representing a pretty teeny portion of their overall budgets. And so, you know, we're generally able to...

Again, not without negotiations and not without conversations, but hold to our pricing structure so note this counting and holding strong on our terms as well. Okay, that's helpful. It's a switch to the consulting segment.

I know it can be choppy, but utilization was down pretty significantly in the first quarter. Can we talk about what's going on there and what your expectations are for the rest of the year on that metric?

Yeah, great question. You know, on the consulting side, we, like in a lot of our business, we're playing catch up on headcount and hiring over the course of last year. And so we did grow the team based on the demand we were seeing fairly aggressively over the back half of last year.

We're still seeing really good demand. We're in a really good backlog position, you know, engineering Q1. And I'd say we ran a little bit hotter than normal in utilization last year, particularly in the first half of the year, but overall last year. So it's a tough top from that perspective.

And again, just like the rest of the business, we are making sure that we are appropriately calibrated from a headcount perspective and a demand perspective. And we feel like we're in that situation right now with consulting. We've got strong demand, we've got good backlog, and we'll continue to monitor it to make sure that we can both deliver on the top line but also make sure we're delivering on the bottom line.

With Park Lee, she line is open. Thank you. Good morning. Craig. I was just hoping on the expense side specific to S.G. NA you could help us with just you know the the cadence through the quarters there and you know You know is is the S bar still like two thirds of that mix right now

Good morning, Mono. Yeah, so if you look at the S-GNA line, again, think of it running mid-40s to high-40s as a percent of revenue on a rolling four-quarter basis.

about two-thirds of it is the selling portion, most notably GTS and GBS selling, although we do have our conference sales organizations and a few other sales organizations in the S line as well.

And the cadence of spending is similar to what I outlined with Andrew's question a few questions ago. Look at Q1 rough off-ax run rate and SGNA, adjusted SGNA run rate. Dear Mr. Speaker.

merit goes into effect on April 1 and so that impacts that run rate for Q2, Q3, Q4. As I mentioned, we do travel more in Q2 and Q4 and so you bake that in and if you bake those things in, you should have a pretty good view on

how SGA expands should look Q2, Q3, Q4 this year. Got it, okay, that's helpful. And then just, my second question was more, can you remind us what your multi-contract, like how much of your business is now multi-contract, but that...

average duration is because you know that should help you you know be obviously more resilient here. Yeah absolutely so you know our overall multi-year contracts as a percent of the research business is around 70%. So about 70% of the contracts that we have in force.

are multi-year in nature. The bulk of them are two-year contracts, although we do have a growing but small segment of more than two-year contracts. Important to note that some multi-year contracts will come due this year, obviously.

But you're right in terms of the resiliency of the business, clearly having a large portion of our contract value tied up in multi-year contracts that are not up for renewal over the course of 2023 is clearly a good thing for us. And

We recognize the strategic importance and value of focusing on multi-year contracts. Our sales people do as well. Our clients do as well, quite frankly. It's good for them too. It's clearly a strong element of the business that we have so much.

tied up in multi-year contracts. But again, most of them are two-year contracts. Got it. Thank you.

contracts. But again, most of them are two-year contracts. Got it. Thank you. Thank you. One moment.

We have a question from Stephanie Moore, which is, if your line is open.

Stephanie, how are your mornings opening? Yes. Hi, good morning. I just wanted to touch on the conference side of the business, clearly really strong growth. We'd love to get more color on what you're hearing in regards to maybe advanced bookings and other demand. Thank you for that question, Workinghearts negotiate Senator raising on your client's site.

and from exhibitors. My own take on it is that there's a lot of pent up demand to do in-person events, of which our conferences are part of that. And so we're seeing very strong demand on all parts of business.

Great, thank you. And then just for a follow-up, you know, I'm curious what you're seeing in general on the consulting side from just an overall upselling and cross-selling standpoint. Maybe any customers or clients, I'm sorry, that are pulling back at all on just number of seats just given the uncertain macro, or you're still kind of seeing the same level of activity. Thank you.

Hey Stephanie, it's Greg. So just to clarify your question, because I'm not sure I heard it completely. I heard consulting at the beginning, but then I heard research. So could you just repeat the question? Do you mind? No, I'm sorry. I apologize. I was just curious on what you're saying from an upsell and cross.

we're challenging in this environment, given their recalibration and sort of the tumult in that space. We're still upselling wherever we can. I do think in the particularly challenged areas like tech vendors.

and user industries as well, like as Jean mentioned, regional banking or things like that. But overall, I think it all comes back to, we're offering a really strong value proposition and our clients really, really need help. And as long as we're doing that, we'll be able to maintain.

you know, the investment level within clients and in fact, if you look at the wall, retention numbers increase on average the amount of spend each and every year and then when things in those impacted markets stabilize, we should get right back to the kind of growth that we've historically delivered.

Great, understood. Thank you so much. Thank you, and there are no other questions in the queue. I'd like to turn it back to Gene Hall for closing remarks. Well, here's what I'd like you to take away from today's call. In the first quarter of 23, we again saw strong growth across the business. Gartner delivers incredible value to enterprises that are thriving, struggling, or anywhere in between.

Our insights address today's mission critical priorities. And by being exceptionally agile and adapting to the changing world, we've delivered a sustained record of success. We've carefully aligned our hiring with recent demand and our long-term opportunity. We know the right things to do to be successful in any environment.

Looking ahead, we're well positioned to drive growth far into the future. We expect margins to increase modestly over time, and we generate significant free cash flow well in access to that income. Even as we invest for future growth, we'll return significant levels of access to capital to our shareholders, which reduces shares of the outstanding and increases returns over time.

Thanks for joining us today. We look forward to updating you again next quarter. This concludes today's conference call. Thank you for participating. You may now disconnect. Connect.