Q1 2025 Gartner Inc Earnings Call
Good morning, everyone. Welcome to Gartner's first quarter-twenty-five earnings call, and David Cohen SVP of Investrelations.
Speaker Change: At this time, all participants are in a listen only mode After comments by Gene Hall, Gartner's Chairman and 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 Change: This call will include a discussion of first quarter 2025 financial results, and Gartner's outlook for 2025 is disclosing today's earnings release and earning supplement, both posted to our website, investor.gartner.com . . . . . . . . . .
Speaker Change: On the call, unless stated otherwise, all references to EBITDA are for adjusted EBITDA, but the adjustments
Speaker Change: All contract values and associated growth rates we discuss are based on 2025 for an exchange rates All growth rates and genes comments are FX neutral unless stated otherwise [inaudible]
Speaker Change: All references to share counts are for fully diluted weighted average share counts unless they did otherwise [inaudible]
Speaker Change: Reconciliation for all non-GAAP numbers we use are available in the Investor Relations section of the Gartner.com website.
Speaker Change: It's set forth in more detail in today's earnings release. Certain statements made on this call in the costume forward-looking statements.
Speaker Change: Ford-looking statements convey materially from actual results, and are subject to a number of risks and uncertainties, including those contained in the company's 2024 annual report on Form 10K and quarterly reports on Form 10Q, as well as in other filings with the SEC. Encourage all of you to review the risk factors listed in these documents.
Speaker Change: Now, I will turn the call over to Gartner's Chairman and Chief Executive Officer, Gene Hall.
Good morning and thanks for joining us today.
Gartner remains resilient in a complex environment. [inaudible]
Q1, Contract Value Group 7%
Speaker Change: 1st quarter revenue, EBITDA, EPS and free cash flow, were ahead of our expectations
Speaker Change: As we navigate another year of volatility, uncertainty, complexity and ambiguity, we'll continue to be agile
Speaker Change: And we'll target our investments to support long-term, sustained, double-digit growth. Thank you very much.
Research continues to be our largest and most profitable segment.
Research contract value grew 7% [inaudible]
Excluding the U.S. Federal Business, Contract Value for 8%
Speaker Change: Within research, we serve executives and their teens to resistint sales channels. [inaudible]
Speaker Change: Global Technology Sales, or GTS, Sir's Leaders in their Teams with NIT
UTS Contract Value Grus 6%
Excluding the U.S. federal business, contract value grew 7%
Speaker Change: Contract Value with Tech Fender Clients, Improved for the 4th consecutive quarter [inaudible]
Speaker Change: Global Business Sales, or GBS, Source Leaders and Their Teams Beyond IT
Speaker Change: This includes HR, Supply Chain, Finance, Marketing, Legal, Sales, and More.
GBS Contract Value Increased 11%
Speaker Change: Gartner conferences, deliver extraordinarily valuable insights to engage in qualified audience.
Gardner Consulting is an extension of Gardner Research [inaudible]
Speaker Change: Consulting Helps clients execute their most strategic initiatives through deeper project-based work.
Consulting is an important complement to our IT research business.
Speaker Change: Consulting revenue grew 5% against a strong compare from Q-1 2024 .
Speaker Change: Revenue from contract optimization for robust 38% and consulting backlog grew 16% Overall, our Q1 financial results were ahead of expectations
Gartner has a unique client value proposition.
Speaker Change: We deliver actionable, objective insight, guidance and tools that help our clients succeed with their mission critical priorities.
Speaker Change: We practice disciplined cost management while remaining agile and prudently investing for future growth. We generate free cash flow while in excess of net income.
Speaker Change: and we return capital to our Shevholders through our Repurchase Program.
Speaker Change: Over the past five years, we've seen persistent elevated levels of volatility in the macroeconomic environment.
The COVID-19 Pandemic [inaudible]
The bursting of a text-spending bubble [inaudible]
The highest inflation in 40 years.
A sharp horizon interest rates [inaudible]
The first ground war in Europe in 80 years.
Speaker Change: Now, government policy and tariff changes are affecting enterprises across the US and around the world in different and complex ways.
There's a high level of macroeconomic uncertainty. [inaudible]
Executives know they need help
Speaker Change: Gartner is the best, most cost-effective source for the insight, guidance and tools they need to succeed.
Speaker Change: We help our clients make smarter decisions that address mission critical priorities, such as cost optimization,
Speaker Change: Managing through public policy changes, leveraging AI innovation, cybersecurity and more
Speaker Change: And we do this while helping them manage risk, save time, save money, and build confidence.
Speaker Change: Gartner helped senior executives make smarter decisions to achieve their mission critical priorities.
Speaker Change: Today, one urgent priority for the majority of our clients is harnessing the potential of artificial intelligence.
Speaker Change: Of course, Gartner is one of the world's leading experts in AI.
Speaker Change: We help thousands of end user enterprises, determine the best uses and business cases for AI.
Speaker Change: With our in-depth understanding of end user business cases, we also advise thousands of technology vendors on how to compete in the AI marketplace in the AI marketplace.
Speaker Change: And finally, we use AI internally to support our business. We've developed proprietary insight, guidance and tools to help senior executives make smarter decisions on their mission critical priorities.
Speaker Change: Our 2,500 experts developed these proprietary insights guidance and tools by analyzing our more than 500,000 one-on-one conversations that we hold with clients every year.
Speaker Change: In addition, we conduct proprietary primary research, which is only available through Gartner to supplement these conversations.
Speaker Change: All of this creates a valuable data set that is massive, proprietary and constantly updated. Finally, we incorporate publicly available data we're helpful, often using AI.
The combination of our 2500 experts. [inaudible]
Hundreds of thousands of conversations with end users and technology vendors. Thank you very much.
and proprietary data, methodologies and process.
Speaker Change: Makes our insights, guidance and tools, highly valuable, highly unique and highly differentiated from any other source. A core element for our strategy is continuous improvement in innovation, which will apply to further increase our value in differentiation over time.
Speaker Change: Our powerful client value proposition gives us a vast untapped market opportunity.
Speaker Change: and we know the right things to do to capture that opportunity.
Speaker Change: Gartner has proven best practices that address how we serve our clients [inaudible]
Recruit, hire, train, and deploy our salespeople [inaudible]
Creator Insights, Guidance and Tools
host attendees at our conferences,
Speaker Change: and support our largest technology clients through consulting. We also have best practices that address how we approach expense management to optimize flexibility while increasing selling capacity.
Speaker Change: For the remainder of 2025, we plan to grow sales headcount in the mid single digits, excluding directly impact areas This reflects our commitment to invest for future growth while delivering strong margins and free cash flow This reflects our commitment to invest for future growth while delivering strong margins and free cash flow
Speaker Change: Our plan is to exit the current environment better, faster and stronger than before. We've continued sales headcount growth and a return to historically strong productivity. [inaudible]
Speaker Change: We're well positioned to accelerate growth as the external environment evolves.
Speaker Change: We expect to re-accelerate CV growth to our target of 12-16% when the macroeconomic environment returns to normal.
Speaker Change: and we expect EBITDA margins to expand through the natural operating leverage in the business.
Gartner has a highly diversified client base. [inaudible]
Speaker Change: The U.S. federal government represents approximately 4% of our total contract value.
Speaker Change: Our US Federal business has been impacted by the recent policy changes [inaudible]
Speaker Change: Nearly all of our US federal contracts are up for renewal in 2025.
Speaker Change: Roughly 40% of these were transaction in Q1, the largest quarter of the year, and we renewed roughly half that business
Speaker Change: We remain laser focused on creating and delivering value for our U.S. federal clients.
Speaker Change: As the US federal government modifies and refines their priorities, we believe that we will be a core part of helping them achieve critical priorities such as cyber security, cost optimization, digital transformation and more . . . . . . . . .
Speaker Change: Stock buybacks are an important way we return value to shareholders
We remain eager to repurchase shares aggressively.
Speaker Change: Our approach is designed to optimize returns by being price sensitive, opportunistic, and disciplined.
In closing, Gartner delivered financial results ahead of expectations [inaudible]
Tech Thunder CB Growth continued to accelerate
Speaker Change: We have a powerful client value proposition and a vast, addressable market opportunity. [inaudible]
Speaker Change: We will continue to create value for our shareholders by providing actionable, objective insight, guidance and tools for our clients [inaudible]
Prudently Investing for Future Growth
Remaining Agile and Discipline in our Approach to Expenses
Speaker Change: And returning capital to our shareholders through our share reforches program. We expect to deliver modest margin expansion over time alongside double digit top line growth.
Speaker Change: and will continue to generate significant free cash flow, well in excess of net income.
Speaker Change: All of this and more, positions us to drive long-term, double-digit growth and sustain our track worker-dose success far into the future.
Speaker Change: With that, I'll hand the call over to our Chief Financial Officer, Craig Safian.
Craig Safian: Thank you, Gene, and good morning. First quarter contract value, or CV, grew 7% year-over-year. Revenue, EBITDA, Adjusted EPS, and free cash flow were better than expected as we continued to execute well in an increasingly complex environment.
We were resilient in a quarter affected by macro factors.
Craig Safian: Since we reported Q4 2024 results in early February , there were notable changes in US federal government and market
Craig Safian: The broader selling environment also shifted during a quarter as many company decision makers started to adjust to the evolving global macroeconomy. We are updating our guidance to reflect Q1 performance, the new macro landscape, the benefit from the move in FX rates and our own expense agility.
Craig Safian: We repurchased $163 million of stock in the quarter, maintaining flexibility as the market digest the changes in the macro landscape. We remain eager to repurchase shares, which we will do opportunistically. Thank you very much.
Craig Safian: First quarter revenue was $1.5 billion, up 4% year-of-year is reported and 6% effect neutral
Craig Safian: In addition, Total Contribution Margin was 69% up 20 basis points from last year [inaudible]
Craig Safian: EBITDA was $385 million, up 1% is reported, and 3% FX neutral versus the first quarter of 2024 24.
Craig Safian: Adjusted BPS was $2.98, up 2% from Q1 of last year. [inaudible]
Craig Safian: And free cash flow was $288 million, a very strong performance for our first quarter.
Craig Safian: Research revenue in the quarter grew 4% year of years reported and 6% FX neutral
Subscription revenue grew 8% FX Neutral [inaudible]
Non subscription research revenue was in line with our expectations. Thank you.
Craig Safian: First quarter research contribution margin was 74%, consistent with last year.
Craig Safian: Contract value was $5.1 billion at the end of the first quarter, up 7% versus the prior year [inaudible]
Contract Value and CV Growth RFX Neutral
Excluding the U.S. Federal Government, CV grew 8%
Contract value growth with tech vendors continue to improve
Craig Safian: Global CV was $63 million lower than Q4 2024, with around 80% of the change attributable to the US federal government and market.
Craig Safian: CV growth was broad-based across practices, industry sectors, company sizes, and geographic regions [inaudible]
Craig Safian: Across our combined practices, all of the industry sectors except two grew at high single-digit rates led by the energy, healthcare and manufacturing sectors .
Craig Safian: TV grew at high single digit rates across all enterprise sizes except small, which grew low single digits
Craig Safian: We also drove double digit or high single digit growth in the majority of our top ten countries.
Craig Safian: Canada, which represents about 3% of total CV, had a more challenging selling environment in the quarter.
Craig Safian: Nearly all of our U.S. federal contracts will come up for renewal during 2025, with about 40% having transacted in Q1, the largest quarter of this calendar year.
Craig Safian: In the first quarter, the dollar retention was almost 50% At March 31st, we had 225 million dollars of US federal CV [inaudible]
Craig Safian: Global technology sales contract value is $3.9 billion at the end of the first quarter, up 6% versus a prior year Excluding the US federal government from both periods, GTSCV grew 7% in the quarter as the tech vendor market continued to improve the growth.
Craig Safian: $44 million of the $58 million change in GTSCV from Q4 was due to the U.S. federal government. The U.S. federal government. The U.S. federal government. The U.S. federal government.
Wall Retention for GTS was 101% for the quarter
Craig Safian: GTS New Business was down 4% compared to last year. GTS Quaterbearing Head Count was up 3% year over year. Our regular full set of GTS metrics can be found in our earnings supplement.
Craig Safian: Global Business Sales Contract Value was $1.2 billion at the end of the first quarter, up 11% year-over-year .
Craig Safian: All of our major GBS practices grew at double digit or high single digit rates [inaudible]
Growth was led by the sales, finance, and legal practices. [inaudible]
Craig Safian: CBSCV was $5 million below the fourth quarter, excluding U.S. federal government, CBSCV was largely unchanged from Q4
Wall Retention for GBS was 105% for the quarter
GPS New Business was down 3% compared to last year [inaudible]
Craig Safian: GBS Quaterbearing Headcount was up 9% year-over-year. As with TTS, a regular full set of GBS metrics can be found that are earning supplement. [inaudible]
Craig Safian: Conference's revenue for the first quarter was $73 million, increasing 4% as reported, and 5% FX neutral compared to Q1 of 2024 4%
Craig Safian: Adjusting for the two conferences we moved to Q2 this year, revenue increased around 12% FX neutral.
Craig Safian: Contribution Margin was 38% consistent with typical Q1 seasonality We held 10 destination conferences in the first quarter as planned . . . .
Craig Safian: Q1 Consulting Revenue was $140 million, compared with $135 million in the year ago period of about 4% of reported and 5% effect neutral
Craig Safian: Labor-based revenue was $104 million. This part of the segment was down 4% versus Q1 of last year's reported and 2% effect neutral against the tough compare.
Craig Safian: Backlog at March 31st was $214 million, increasing 16% year-of-year FX Neutral. This was driven by strength in multi-year contracts.
Craig Safian: In contract optimization, we delivered $36 million of revenue in the quarter, up 36% versus Q1 of last year, and 38% FX Neutral. The quarter was ahead of our expectations
Our Contract Optimization Revenue is highly variable. [inaudible]
Craig Safian: Consolidated Cost of Services increased 3% year-over-year in the first quarter as reported and 4% FX neutral. The biggest driver of the increase was higher compensation costs. [inaudible]
Craig Safian: SGNA increased 6% year-of-year in the first quarter as reported, and about 7% on an FX-dirtual basis.
Craig Safian: SGNA increased in the quarter as a result of headcount growth [inaudible]
Craig Safian: EBITDA for the first quarter was $385 million, up 1% from last year's reported and up 3% FX neutral. We outperformed in the first quarter through modest revenue upside, effective expense management and a prudent approach to guidance.
Craig Safian: Depreciation in the quarter of $29 million was up 10% compared to 2024
Craig Safian: Net interest expense, excluding deferred financing cost in the quarter was $12 million. This is favorable by $5 million versus the first quarter of 2024 due to higher interest income on our cash balances.
Craig Safian: The modest floating rate that we have is fully heads through 3rd quarter of 2025.
Craig Safian: The Q1 adjusted tax rate, which we used for the calculation of adjusted net income, was 21% for the quarter The Q1 adjusted tax rate, which we used for the quarter
This compares to last year's rate of 19% [inaudible]
Craig Safian: The tax rate for the items used to adjust that income was 26% for the quarter [inaudible]
Craig Safian: Adjusted EPS in Q1 was $2.98, up 2% compared to Q1 last year
Craig Safian: We had 78 million shares outstanding in the first quarter. There's an improvement of over 1 million shares or about 1% year-over-year. We exited the first quarter with just under 78 million shares on an unweighted basis. [inaudible]
Craig Safian: Operating Casulo for the quarter was $314 million, up 66% compared with last year . . .
Craig Safian: CapEx was $26 million, up about $3 million year over year This was primarily due to real estate related costs and in line with our expectations . . .
Craig Safian: First quarter free cash flow was $288 million, up 73% compared with Q1 in 2024.
Craig Safian: Frecastlow on a rolling four-quarter basis was 120% of Gatnet income and 97% of EBITDA
Craig Safian: As we noted last quarter, there were several items in 2024 that affect rolling for quarter net income and free cash flow including after tax insurance proceeds, a real estate lease termination payment and tax planning benefits.
Craig Safian: Adjusting for these items, free cash flow on a rolling 4-quarter basis was 20% of revenue, 82% of EBITDA, and 155% of gap net income
Craig Safian: At the end of the first quarter, we had about $2.1 billion of cash.
Our March 31st debt balance was about $2.5 billion. $2.5 billion.
Craig Safian: A reported gross debt to Trailing Fall Month, Yvotha was well under two times. [inaudible]
Craig Safian: Our expected pre-castle generation, available revolver, and excess cash remaining on the balance sheet provide ample liquidity to deliver on our capital allocation strategy of discipline shared purchases and strategic tuck-in M&A.
Craig Safian: Our balance sheet is very strong, with $2.8 billion of liquidity, low levels of leverage, and effectively fixed interest rates [inaudible]
Craig Safian: We repurchase $163 million of stock during the first quarter. At the end of Q1, our share of purchased authorization was approximately $870 million in dollars.
Craig Safian: As we continue to repurchase shares, our capital-based will shrink. Over time, this is a creed of the earnings per share, and combined with growing profits, also delivers increasing returns on invested capital. [inaudible]
Craig Safian: We are updating our full year guidance to reflect recent performance and trends.
Craig Safian: Since we reported Q4 results in early February , the world has become significantly more dynamic. We are applying all the lessons we've learned from prior challenging environments.
Craig Safian: We are shifting our focus to the things our clients need the most in an extraordinarily uncertain operating environment. We're also remaining agile in managing our cost structure, while also investing for future growth. [inaudible]
Craig Safian: In particular, we are preserving and growing our selling capacity outside of directly impacted areas which is a key input into our algorithm for future sustained double digit growth .
Craig Safian: We've provided both the FX-driven and operational changes to guidance and our earning supplement. As a reminder, about one-third of our revenue and operating expenses are denominated in currencies other than the US dollar.
Craig Safian: For research subscription revenue in 2025, our guidance reflects an expectation that Q1 trends for new business and retention continue for the balance of the year.
Craig Safian: We've also incorporated the information we have about US Federal spending decisions to date.
Craig Safian: In addition, we've taken a prudent view of the outlook as the current environment remains very dynamic.
Craig Safian: For the non-subscription part of the research segment, we've built a continuation of recent traffic and pricing trends into the guidance
Craig Safian: For conferences we are basing our guidance on the 53 in-person destination conferences we have planned for 2025. We have good visibility into current year revenue with a majority of what we've guided already under contract. For consulting we have more visibility into the next quarter or two based on the composition of our backlog and pipeline as usual. Thank you very much.
Craig Safian: Given the shifts in the macro environment, we have been thoughtful about the outlook for the labor-based part of the business [inaudible]
Craig Safian: Contract optimization has had several very strong years, and the business remains highly valuable. We've incorporated a prudent outlook for this part of the segment. Our base level assumptions for consolidated expenses have changed to reflect the revenue outlook. . .
Craig Safian: We have demonstrated our ability to manage cost prudently in any market environment and we will remain agile
Craig Safian: We will do this while also investing for future growth Our plan is to exit the current environment better faster and stronger than before We can both deliver on our EBITDA margin commitments for this year while investing for future growth We will do this while investing for future growth Our plan is to exit the current environment better and stronger
Craig Safian: Our plan for both GTS and GBS is for mid-single digit sales headcount growth outside of directly impacted areas .
Craig Safian: This reflects our commitment to invest for future growth while delivering strong margins and free cash flow
Craig Safian: We're maintaining recruiting capacity and are prepared to go faster on the hiring based on the macro-driven demand.
Craig Safian: And as the selling environment gets back to normal, we expect significant benefits from QBH productivity.
Craig Safian: Our updated 2025 guidance is as follows. We expect research revenue of at least $5.34 billion, which is FX neutral growth of about 4% . . .
This reflects subscription research revenue growth of about 5%
We expect conferences revenue of at least $625 million.
Craig Safian: which is FX neutral growth of about 6%. We expect consulting revenue of at least $575 million, which is growth of about 2% FX neutral. The result is an outlook for consolidated revenue of at least $6.535 billion, which is FX neutral growth of 4%.
Craig Safian: We now expect full your EBITDA as at least $1.535 billion, up $25 million from our prior guidance.
Craig Safian: For 2025, we expect free cash of at least $1.145 billion. This reflects a conversion from gap net income of 137 percent.
Craig Safian: Our guidance is based on 78 million fully diluted weighted average shares outstanding, which reflects the repurchases made through the end of the first quarter [inaudible]
Craig Safian: For Q2, we expect adjusted EBITDA at least $400 million. $400 million.
Craig Safian: Our financial results through March were ahead of expectations, underscoring the resilience of our business model [inaudible]
Craig Safian: While we updated the revenue guidance to reflect the macro landscape, we will also benefit from the latest FX rates
Craig Safian: Our EBITDA Morgan Outlook is now higher than it was in February . [inaudible]
Craig Safian: We have successfully navigated challenging macro environments before and know the right things to do.
Craig Safian: We are running our operational best practices including delivering exceptional value for our clients, running our sales and services best practices playbooks, investing in sales capacity which is a key ingredient for future sustained double digit top line growth. Thank you very much.
Craig Safian: Managing our expenses aggressively and thoughtfully to protect profitability and cash flow and using our strong balance sheet and cash flow to buy our stock and for tuck-in MNA.
Craig Safian: Looking out over the medium term, in a normal macro environment, our financial model and expectations are unchanged
Craig Safian: With 12 to 16 percent research CV growth, we will deliver double-digit revenue growth.
Craig Safian: There is operating leverage in the business which allows us to expand margins
Craig Safian: With gross margin expansion, sales cost growing about in line with CV growth and GNA leverage, we will deliver modest EBITDA margin expansion
Craig Safian: We can grow free cashflow at least as fast as EBITDA because of our modest capex needs and the benefits of our clients paying us up front. And we'll continue to deploy our capital on share purchases, which will lower the share count over time and on strategic, value enhancing, tuck in M&A. We'll continue to deploy our capital on share purchases, which will lower the share count over time and on strategic, value enhancing,
Craig Safian: With that, I'll turn the call back over to the operator and we'll be happy to take your questions. Operator
Craig Safian: Thank you. As a reminder to ask a question, please press star 1-1 on your telephone to wait for your name to be announced. To withdraw your question, please press star 1-1 again.
Please stand by while the Q&A roster.
Speaker Change: Our first question comes from the line of Jeff Meuler, with Baird, your line is not open [inaudible]
Jeff Mueller: Thank you, good morning. So what percentage of the contract value base are you following the directly impacted areas and how are you managing sales headcount I guess for US federal government? Yes, I am.
Speaker Change: Agency, Crossbacks, 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 when back opportunities. Please.
Speaker Change: Hey Jeff, good morning, thanks for your question. I'll start then, then Jean will finish up on.
Your question, so...
Speaker Change: from a directly impacted area perspective. It is largely US 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. Thank you very much.
Yeah, basically Jeff, Craig Stead,
Jeff Mueller: The largest impacted area is my far, the US federal government, and there what we're planning to do is we're not backfilling and we're basically making sure we're, you know, controller head got there very carefully. The rest of the business, the non-impact areas, as I said, were intended to grow in mid-siggledges this year. [inaudible]
Thank you.
Jeff Mueller: But you're not reassigning the US Federal Government headcount, you're keeping them there for now.
Speaker Change: Yeah, great question. So basically, we have some very strong public sector salespeople who are sure we retain them, and those really strong salespeople, where we can reassign them, we are absolutely resigned, but we have plenty of sales opportunities.
Jeff Mueller: In some cases it makes sense, in other cases it doesn't. But wherever we can, we, of course, are retaining our great salespeople.
Speaker Change: Got it. And then what is where there's early camples for convenience among US Federal Government Agency contracts?
Jeff Mueller: What is the revrect treatment and what is the contract value treatment and can you just give us any sense of if that's a meaningful percentage of the
Speaker Change: The attrition versus just non-renewal as a contract naturally comes due
Craig Safian: Yeah, Jeff, great question. So actually, we've got details on that in the queue, but let me just summarize.
for the benefit of everyone on the call.
Craig Safian: Termination notices related to contracts that are set to expire later in the year.
Craig Safian: One way to think about it is, it's sort of just normal course. We've just been notified ahead that those things will not be renewing or we have the termination notice in hand. [inaudible]
Craig Safian: That 30 million remains in contract value because we are continuing to recognize the revenue on it. But in the grand scheme of not all of the US federal business but actually on total CV. It's a relatively small amount but that's our handling it. And there's a little bit more detail in the queue. I think on page 25, if you want to search it out. You'll see it in the next video.
Alright, I'll look for that. Thank you
Speaker Change: Thank you. Our next question comes from the line of Toni Kaplan with Morton Stanley, your line is not open.
Tony Kaplan: Thanks so much. 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 [inaudible]
Tony Kaplan: The guidance reflects, you know, one new new business and retention trends [inaudible]
Tony Kaplan: 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 of the quarter.
to want it to sort of understand this. [inaudible]
Does the guy interreflect? [inaudible]
Tony Kaplan: Like the complete one cue, which was maybe a little bit better or more weighted towards like the more recent like slower experience that you've seen.
Tony Kaplan: Yeah, Toni, it's a great, great question, you know, so when we were together in early February , talking about Q4
Tony Kaplan: You know, our commentary at that point through the month of January is we hadn't really seen a change in the selling environment and that was, you know, that was the case. Clearly things started to change, you know, mid February into early March. I would say from a metric perspective, those since we are.
So dominated by the third month of every quarter. [inaudible]
Tony Kaplan: What we saw in the back half February and March, in particular in March.
Tony Kaplan: is reflective of the quarter and again we take a mad experience.
Tony Kaplan: 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. [inaudible]
Got it and...
Then.
I wanted to ask, I know. I know.
Tony Kaplan: The big impact for what has changed on the government side. [inaudible]
Speaker Change: I wanted to, though, broaden it out to, you know, are you seeing anything at the state and local level or international government level that is similar to US federal and also maybe just opportunity for a win-back would be as Jeff sort of alluded to as well as there an opportunity there this year, too. Thanks.
Tony Kaplan: So, Toni, first on the wind back side, so we believe we provide a lot of value to our clients including our US federal government clients on helping you know, we help them things like having strong cyber security and security can't complete.
Thank you.
Tony Kaplan: And so we believe we provide a lot of value there and will over time continue to provide a lot of value to the federal government [inaudible]
Tony Kaplan: If you look at the state and local governments in the United States, there wasn't much change in Q1 compared to what we've seen in previous quarters, the things true for governments around the world outside of the US, whether it's at the federal level or at the provincial state.
and Lafayette Brown at Level.
Thanks a lot.
Thank you. Our next question comes from the line of George Tong with Goldman Sachs. Shevlin is now open.
Speaker Change: Hi, thanks. Good morning. 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? Thank you very much.
Speaker Change: George Good Morning, I would say that the guide is reflective of everything we've seen and everything we know.
Speaker Change: And so obviously, you know, the biggest thing or the largest impact that we saw [inaudible]
that was sort of...
Speaker Change: Off-trend in Q1 was related to US federal government, which we just talked about with, with Jeff and Toni, but in terms of...
Speaker Change: What we're seeing more broadly, economic, macroeconomically, that has been factored into the okay guys, so I think what I'd say is...
You know, from an update on the guidance perspective, and this is...
Speaker Change: This applies to all the review lines, but research in particular is we took our Q1 experience and we flowed that through
across our contract explorations for the balance of the year.
Speaker Change: 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 upgrade of all the guidance lines and the research lines.
Thank you all.
Speaker Change: Can you talk a little bit more about what you're seeing with tech vendors and enterprise functional leaders? Would you say that those trends are holding up better than what you're seeing with federal contract renewals? [inaudible]
Speaker Change: So, what I say is with tech vendors, the market continues to improve, our business there is accelerating, particularly the larger vendors, the smaller vendors are accelerating just at a slower pace, and the larger vendors, that businesses, I think, quite healthy, with enterprise fund leaders, again, sort of, you've separated into the federal government, which we talked about, and then all the other, all the other enterprise, a bunch of leaders to be added, which I think is more entrenched with local patterns. Thank you very much.
Got it. Very helpful. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Josh Chan with UBS. Your line is open.
Hi, good morning, you're incorrect. Thanks for taking my question.
Josh Chan: 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 your Nick V impact that you gave for the federal government, it seems like
Josh Chan: The CVX Federal was fairly similar to what you had in Q4, so I'll just try and triangulate the comment about volatility and then the volatility good X Federal CV growth.
Josh Chan: Gichash, so the cellular environment for the federal cover we talked about, and that was the main thing, the impact of our results in Q1.
Speaker Change: 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 US as well as on US companies.
Speaker Change: And so, the companies that don't have a lot of tariff impact or other kinds of impact for policy changes.
Speaker Change: 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 fine, they're still renewing, but decision cycles have extended to prepare what they were saved to for a class year.
Speaker Change: So still see the value, you know, our pipeline is actually very robust, but decisions are taking longer to get than they did in two-four cars all last year basically.
Okay, that's me Carly, thank you for that [inaudible]
Speaker Change: And then I guess, how are you thinking about your cost structure? [inaudible]
going forward because you know you clearly raised the guidance. Thank you very much.
Speaker Change: This by lowering the revenue, so could you kind of talk to, you know, I guess how, you know, the lower revenue, but then offset by your more prudent cost management.
is factoring into your increase margin guidance for the year.
Speaker Change: Yeah, Josh. So, I mean, the way to think about that is, you know, we've proven over the last several years. [inaudible]
Given all the things Jean outlined, it is prepared remarks about the craziness and the...
Speaker Change: Makro, and geopolitical environment, and just, you know, how challenging it has been that we've...
Speaker Change: Ben, very agile in managing our expenses. And what I'd say now is given the US Fed results and the impact that's having on the contract value growth. And then some of the things changed at that line as well in terms of...
Speaker Change: You know, longer selling cycles and things like that, we're taking the opportunity to make sure that we are managing our operating expense base super prudently and super carefully.
Speaker Change: But also making sure that we're investing in areas that we know, support and drive future growth, we're in a period right now where our CV is growing, called mid to high single digits. [inaudible]
Obviously, we firmly believe that we can be a...
Speaker Change: 12 to 16% grow, or on the research business, a double digit, grow it on the overall top line, and we want to make sure that we don't do anything.
Speaker Change: that damages or impedes or ability to get back there when the economic situation is more quote unquote normal. And so what we're doing is, you know, I call it like a, you know, a, a. A, a, a.
Speaker Change: A slight belt tightening across the board as we're seeing a little bit of pressure in some areas . . .
Speaker Change: but also making sure that we're growing our selling capacity, because we know that's a key ingredient going forward. So, we're not...
Speaker Change: Chopin, anything, we're not slamming on the brakes on anything, we're just being thoughtful and prudent and careful and also making sure that we're investing in areas that we know drive and support future growth.
Speaker Change: That makes our sense. Thank you both for the time in the color.
Speaker Change: Thank you. Our next question comes from the line of Faiza Alwy with Deutsche Bank. Your line is now open.
Speaker Change: Yes, hi, thank you. I wanted to talk about the clients that you mentioned are anticipated or impacted by terrorists, for example, where you've seen, you know, so we're decision making [inaudible]
Speaker Change: How have you seen that play out historically? Because I was saying that, as you mentioned in your script, these clients can certainly benefit from Gartner insights during this time [inaudible]
Speaker Change: And so is there this initial sort of, you know, period where folks are evaluating the situation and are you sort of leaning in harder with these clients to, you know, to explain, explain your value proposition and, you know, so how should we think about about those clients going forward? [inaudible]
Speaker Change: So basically, what we've seen historically is, when there's a lot of uncertainty? Okay.
Speaker Change: Client, Flow Their Decision Making, and then after, you know, a few months, they then say, well, we're in this world, we have something to do,
Speaker Change: We continue to maintain relationships, continue to build pipeline and clients to know the value but when there's this kind of sort of shock of uncertainty, the first reaction from some companies is to sort of say, let's slow or stop decision making for a period of time. [inaudible]
Speaker Change: But that period of time goes by, and then they know they need to get, they need help with cybersecurity, they need help with AI, they need help with cost optimization, all the things that are software selection. So all those things that are sweet spots are things that they know they need, and so there's a slowdown that picks up over time.
The Historical Pattern.
Speaker Change: Understood, and then just on capital allocation and share by back, I know you mentioned sort of your eagerness to buy back share at a couple of times. [inaudible]
Speaker Change: Is there any other perspective around that just given what's happened with the stock and the market overall? How are you viewing the opportunity to buy back stock and could we expect a more elevated level of share repurchases this year just given the amount of cash that you have on the balance sheet. [inaudible]
Speaker Change: Yeah, good morning Faiza. I think, you know, our long-term, you know, capital allocation strategy is...
Speaker Change: using our, you know, our balance sheet, our cash flow, and excess cash to return capital to shareholders through our buyback programs, and also to look for strategic value-enhancing, tuck-in M&A. We continue to believe that we can do both those things with our balance sheet and our capital allocation.
Speaker Change: From a buyback perspective, as we talked about historically, our strategy is to be price sensitive, opportunistic, and disciplined, and we're looking to optimize returns on our buybacks, not in a quarter or two, but over the long term. [inaudible]
Speaker Change: And so we are always looking at combinations of what's happening with the price of the stock, what's happening with overall multiples, what's happening with the market, what's happening with our stock individually, what is intrinsic value, all of those things are inputs. [inaudible]
into how we love to be priceless of opportunistic interests. [inaudible]
Speaker Change: You rightly point out that we have $2.1 billion of cash on our balance sheet. We expect to generate another order of magnitude, $800 billion of cash flow over the course of this year. And then we expect to generate well over a billion dollars of cash flow each and every year. So what that means is we have a lot of capital that we can put. Thank you very much.
Speaker Change: To use on behalf of our shareholders behind either buybacks or strategic tuck-in M&A, and we continue to monitor the situation very closely, but we're gonna stick to our guns and our approach of being price sensitive opportunistic and disciplined with a real focus on optimizing returns over the long term. [inaudible]
Thank you [inaudible]
Speaker Change: Thank you. Our next question comes from the line of Jason Haas with Wells Fargo. Your line is now open.
Jason Haas: Good morning and thanks for taking my questions. I believe previously you're guiding the GVS Quaradurant head count to grow double digits this year and I believe you said that you're not expecting it to grow mid-single digits. Can you just talk about what's the reason for the reduction in that segment specifically? Thanks.
Jason Haas: Morning, I think it's part of our sort of normal agile planning around the business.
Obviously...
We do have...
Jason Haas: US Federal footprint with our GBS business as well, and that has been impacted in the first quarter as we describe on our prepared remarks.
We're also dealing with...
Jason Haas: You know, a more challenging macro environment, gene reference, longer sales cycles, things of that nature. And so we're always tweaking what we want and expect from a photomaring headcount, growth perspective over the course of the year. What I would say is, you know, what we've got dialed into our outlook right now is mid single digit growth in both GTS and GBS. And so we're going to do that in the future. And so we're going to do that in the future. And so we're going to do that in the future.
Jason Haas: But if the end market improves or the demand environment improves or sell cycles reduce we have plenty of recruiting capacity to be able to go faster if we want to but essentially right now it's just a reflection of what we're seeing in the market and modest tapping of the brakes there just to make sure that we keep our cost structure in line with your CV growth expectations and our revenue and CV growth expectations rolling forward in 26. [inaudible]
and 27.
Thank you, that's helpful. Thank you.
Speaker Change: And then as a follow, I appreciate the commentary on how you're leveraging AI. I'm curious if you've put any thought to rolling out any sort of like chat functionality driven by AI. If that's something that your customers are asking for, or if there's any potential to use that to, you know, maybe make it a little bit easier for your customers to access in your lives all the primary insights from your research. Thank you. Thank you.
Speaker Change: Jason, as I mentioned my remarks, we're really experts on AI. We know it really well. We use AI internally, so we have an application once you describe where internally our associates can use AI to help them navigate through our very large content base. [inaudible]
Speaker Change: We're planning to release that to clients, but because of the problems like hallucinations and things like that, we want to make sure that we get the budget work out because like our clients [inaudible]
Speaker Change: It's kind of not to have any loose issues and things like that that can happen with AI So, we developed it, we're using it internally, you can think about it as piloting it, but it's very broad on thousands of our associates And it's working very well but we want to make sure that it is bulletproof before we roll it out to clients [inaudible]
Her clients understand that, you know.
We have to say no, we understand that they want to pull a proof. [inaudible]
God, that makes sense, thanks.
Speaker Change: Thank you. Our next question comes from the line of Andrew Nicholas with William Blair. Your line is now open.
Andrew Nicholas: Good morning, thanks for taking my questions. First time on the government side, just curious if you could provide any additional color on.
Speaker Change: The timing of renewals throughout the remainder of this year, I believe I caught 40% in the first quarter, but just curious if there's anything unique about kind of cadence throughout the rest of the year and and relatedly.
Speaker Change: I think you said half or roughly half of those contracts were renewed. Is there any reason for us to think that renewal rates?
Speaker Change: Will get better or worse from that level as the year goes on maybe as you get more comfortable, you know, selling back into that, that group or anything like that, but I'm not thinking of. [inaudible]
Andrew Nicholas: Yeah, Andrew, thanks. So, over the next three quarters, Q1 with the largest, as we mentioned, and you reference.
Speaker Change: Q2 is less than half of what we saw in Q1, in Q3, which aligns with the US Fed fiscal is our next largest quarter, but it's probably...
Speaker Change: You know, three quarters the size of what we saw in Q1 and so and then Q4 is really small in terms of the the explorations there so bulk is actually in in Q3 which again aligns with the US federal fiscal. You know in terms of. You know in terms of.
Speaker Change: What we've modeled in is what you highlight essentially what we experience during the first quarter, which is nearly half dollar attention, you know. [inaudible]
Speaker Change: Around 50%, we've modeled that forward. I do think and Jean made this point earlier as well, you know. [inaudible]
Speaker Change: We're intent on making sure I'm really helping our US federal clients.
Speaker Change: They've achieved their most important mission critical priorities and so we're not just abandoning our clients if the contract doesn't renew. We are there and we want to make sure that we are there when they are ready.
Speaker Change: to buy again, which we have a high degree of confidence that if they are still there, they will want to buy our services because we provide so much value. That's not baked in because again, we haven't seen it yet. And so our philosophy generally is not to build forecast plans and outlets based on what we hope is going to happen, but more along what we've seen. But that is certainly a possibility. And again, we're organizing our teams to make sure we take advantage of that. And so our philosophy is not to build forecast plans. And so our philosophy is not to build forecast plans.
Speaker Change: Probably more of a 26 and 27 dynamic than a 25 dynamic, but, you know, if we are able to, you know, get people back and turn on during 2025, great, and that would be that upside to what we're looking at. [inaudible]
Speaker Change: Understood, thank you, and then come changing gears for my follow-up. Just wanted to ask about the conservatism of the op-ex.
Speaker Change: Guy, to understand, and you gave some great reminders on the flexibility of the cost base and how you're kind of thinking about the cost structure, but you've also over the past several years, you know, given a pretty proven outlook in terms of spend so just. [inaudible]
Speaker Change: Hope, wondering if some of the cost actions that you've started to take and tightening of the belt over the past month plus maybe lower some of the conservatism on that front or if we should think about it being relatively consistent with previous approaches. Thank you
Speaker Change: Yeah, it's a great question. I mean, the environment is dynamic as we discussed, and so we are...
Speaker Change: Roling with that dynamism and attempting to have as much agility around our operating expense spaces possible, you know, the reality is we're obviously. Thank you.
You know, managing the 25. 5.
Speaker Change: P&L to make sure that we're investing for the future and protecting profitability and free cash flow, but in reality, as you know, we run this business for the long term, and we're making sure that our op-ex base is right size. [inaudible]
It's sort of our normal approach. [inaudible]
Speaker Change: to how we build our outlook and how we build our guidance. And as you mentioned earlier, we're prepared to invest more if we see positive changes in the environment. And we're prepared to, you know, type in the belt maybe one more notch if we have to as well. And so we're, you know, very focused on making sure we're doing the right things for the business over the long term. But we're also going to make the right decisions in the short term as well. [inaudible]
Speaker Change: Al, to make sure that we are, again, making the right investments but also protecting profitability and for cash flow. [inaudible]
Speaker Change: Thank you. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Your line is now open.
Jeff Silver: Thanks so much. I just wanted to go back to some of the mechanics regarding a cancellation of contracts. I know I'm the federal government side, most of your contracts, if not all of them are one year, but I think you have a number of multi-year contracts outside of that. Can a client, let's say I have a two-year contract? Yeah.
Speaker Change: Can we, as a client, cancel ahead of that? How much notice do I have to give you? Does it have to be around the anniversary date? Some of the specifics around that if you can provide would be great. [inaudible]
Speaker Change: Yeah, generally Jeff, a multi-year contract is a multi-year commitment with no out clauses or term for convenience rights within that contract and so our multi-year contracts are true multi-year contracts [inaudible]
Speaker Change: They can be two, three, four, even five years at some points, but the bulk of them are actually to your contracts, and so when a client, and again, your point is right, the US federal contracts are almost exclusively one-year contracts.
Speaker Change: But our multi-year contracts are multi-year with no true out clauses in that.
Speaker Change: And again, we've been very focused on continuing to increase the proportion of multi-year contracts in our contract value base.
Speaker Change: specifically for challenging macroeconomic times. And again, that's part of the resilience we've baked into our business or engineered into our business so that short-term challenges from a macro perspective.
Speaker Change: have a more muted impact on our overall results because of a focus on operational best practices like selling multi-year contracts. [inaudible]
Speaker Change: Okay, that's helpful. And then you were kind enough to give us kind of this finality on renewals for the federal government. Can we get some similarity for the non-federal government contracts? I know they vary, but any helpful would be great. Thank you very much.
and David Cohen.
Speaker Change: So I'd say again you can kind of see this in the external metrics as well. So...
Speaker Change: Client Retention is holding up really well and looks pretty good and would look even better or modestly better if we excluded US Federal from it. So retention rates broadly continue to look pretty good. I think that the challenge in Genolude to this earlier is...
and David Cohen. Thank you. Bye-bye.
Speaker Change: You know, our sales cycles from both a new logo perspective and also from an upsell perspective have lengthened and that impacts the wild retention numbers. And so you're seeing a little bit of that new business. This, um,
Speaker Change: Velocity, impacting the wild retention numbers, but overall the retention numbers are holding up pretty well and again, you can see that in both the GTS and GBS client and wild retention numbers. [inaudible]
Speaker Change: Is there a specific quarter where most of these contracts were new? [inaudible]
Speaker Change: Our two biggest quarters are Q1 and Q4 from an expiration perspective, Q2 and Q3 tend to be lighter quarters But you know one of our you know practices is to when we have the opportunity to early renew things. [inaudible]
Speaker Change: And so that can move things around, but you just look at the pure...
Speaker Change: contract term dates or end dates, overweighted to Q1 and Q4, think like 26 or 27% and then a little underweighted in Q2 and Q3, think in the 22 to 23% of total range.
That's really helpful, thanks so much.
Speaker Change: Thank you, and I'm currently showing no further questions at this time. I'd like to turn the call back over to Gene Hall for closing remarks
Jean Hall: Well, here's what am I, here's what I should take away for today's call, with Gardner delivered financial results ahead of expectations.
Jean Hall: Our tech vendor CD growth continues to accelerate. We have a vast addressable market opportunity with a strong and compelling client value proposition.
Jean Hall: Looking ahead, we're well positioned to drive sustained double-digit revenue growth over the long term.
Jean Hall: We'll continue to create value for our shareholders by providing actual, objective insight, guides, and tools to our clients by brutally invested for views or growth, by generating free cash flow, well in excess of that income, and by returning capital to our shareholders to our repurchase of our clients.
Jean Hall: Thanks for joining us today. We look forward to update you again next quarter.
Jean Hall: This concludes today's conference call. Thank you for your participation. You may now disconnect.