David Cohen welcomes participants to Gartner's First Quarter 2024 Earnings Call and introduces Gene Hall, CEO, and Craig Safian, CFO. The call will discuss the financial results and outlook for 2024. All references to EBITDA are for adjusted EBITDA, and all growth rates are FX neutral unless stated otherwise. Reconciliations for non-GAAP numbers are available on the company's website. Certain statements made on the call may constitute forward-looking statements. Gene Hall notes that Gartner's contract value grew high single digits in Q1 and exceeded expectations.

Gartner, a leading research and advisory company, reported strong profitability and increased guidance for 2024 despite ongoing global uncertainty. The company's research segment, which serves enterprises across all industries, continues to be its largest and most profitable. In the first quarter, the company faced challenges in the selling environment due to macroeconomic conditions, but still saw growth in contract value for its enterprise functional leader business. However, its tech vendor clients were impacted by layoffs and shifts in venture capital investments, and there were higher than normal levels of contract renewals in the first quarter.

Gartner has guided clients through various challenging topics such as cybersecurity and supply chain optimization. Artificial intelligence was a popular topic across all business functions. They serve executives and their teams through different sales channels, with contract value growing in both the IT and non-IT sectors. Gartner Conferences had a successful start to the year and the outlook remains strong. Gartner Consulting helps clients execute strategic initiatives and had a strong performance in contract optimization. The company values its employees and has a positive outlook for growth in the future. They have updated their guidance for increased revenue, EBITDA, EPS, and free cash flow.

Gartner's financial results for the first quarter exceeded expectations, with 10% contract value growth and strong profitability and free cash flow. They are well positioned for future growth and plan to continue providing value to shareholders through their client value proposition, investments, and share repurchase program. The Chief Financial Officer, Craig Safian, also reported on the company's first quarter revenue, contribution margin, EBITDA, adjusted EPS, and free cash flow, which all showed modest growth. Research revenue and subscription revenue also saw growth in the first quarter.

In the first quarter of 2023, non-subscription revenue remained steady and research contribution margin was consistent with the previous year. Contract value increased by 7%, with growth in various industries and regions. Global Technology Sales also saw growth in contract value, but a slight decrease in tech vendor contracts. Wallet retention for GTS was at 101%, with a decrease in new business from tech vendors. Quota-bearing headcount for GTS decreased by 2%, but is expected to grow by the end of the year.

The company's focus on hiring is in the enterprise leader segment, with a 12% increase in Global Business Sales contract value and growth in all GBS practices except for sales. Two successful launches were made in the quarter, and Consulting revenues increased by 6% year-over-year. The company also saw growth in labor-based revenues and backlog, but their contract optimization business had a tough prior year compare. Consolidated cost of services increased mainly due to higher compensation costs.

In the first quarter, SG&A increased by 5% due to headcount growth and higher compensation costs. EBITDA was $382 million, slightly higher than last year. Depreciation increased by 10% and net interest expense was favorable by $9 million. The adjusted tax rate was 20% and adjusted EPS increased by 2%. Operating cash flow was up 15% and free cash flow was $166 million. The company had $1.2 billion in cash and $2.5 billion in debt at the end of the quarter. They also closed on a new $1 billion unsecured revolving credit facility.

In the first quarter, outstanding borrowings were rolled over into a new unsecured revolver, and the company's capital structure is now 100% unsecured. The company's credit was upgraded by Moody's and they have ample liquidity for their capital allocation strategy. They have a strong balance sheet, with $1.9 billion in liquidity and low leverage. They have also been repurchasing their stock and expect to continue doing so. The company is raising their full year guidance and their Research revenue is expected to remain strong. They also anticipate an increase in the CV growth rate and potential upside to their guidance if new business and retention improve.

The company expects subscription revenue growth to be slightly behind CV growth due to currency fluctuations. They have seen pricing stabilize and expect strong performance in conferences and demand for labor-based services in consulting. They are investing for future growth and expect expenses to be higher in certain quarters. With the strengthening dollar, FX-neutral growth is expected to be higher than reported growth. The updated 2024 guidance includes a 5% FX-neutral growth for Research revenue, 11% for Conferences, and 3% for Consulting, resulting in a consolidated revenue of at least $6.2 billion.

The company has increased its full year EBITDA and adjusted EPS guidance due to strong performance in the first quarter. They expect continued growth in CV and revenue, with a focus on returning excess capital to shareholders. The company's long-term financial expectations remain unchanged, with plans for double-digit revenue growth and modest EBITDA margin expansion. They anticipate growing free cash flow at least as fast as EBITDA due to low CapEx needs and upfront payments from clients.

In the first quarter, GTS new business for enterprise function leaders was up slightly, while on the tech vendor side it was down. This was due to a larger-than-normal amount of contracts coming up for renewal, which had not been touched in a few years and were impacted by the changing tech market.

The company has seen some challenges in the tech vendor market, but their medium to larger-sized clients are staying with them. However, there is less new business than normal on renewals. The company expects their tech vendor business to grow 12% to 16% in the medium and long term. Sales to new clients in this sector have been strong. The company has seen stability in retention rates and the disproportionate amount of tech vendor contracts coming up for renewal in Q1 made for a tough quarter. However, retention rates are stabilizing.

The company is seeing a strong pipeline in both GTS and GBS, which they believe will lead to an increase in contract value growth this year. Retention rates are expected to remain stable and contribute to this growth. In terms of recalibration and seat reduction, there are a few factors at play. In the small end of the market, companies that received funding a few years ago are struggling to secure funding now, which is impacting their renewals. On the other hand, larger companies are laying off employees, making it a tougher selling environment.

Craig and Toni discussed the first quarter being the worst in terms of renewals, but they expect it to improve throughout the year. AI is a popular topic among clients and has generated interest across all functional areas. However, it has not led to a significant increase in demand for additional seats. The company's research team is focused on understanding the applications of AI in different functional areas, and it has become a hot topic for new clients. AI has replaced cloud computing as the current hot topic.

The speaker discusses how companies are trying to understand the relevance and cost of certain trade-offs, which could lead to momentum over time. They also mention using data analytics and machine learning for internal purposes. The speaker then addresses a question about their guidance for CV acceleration, stating that despite a tough selling environment and layoffs in the tech industry, they are still confident in an inflection point this year. They also mention that their enterprise function leaders saw 10% growth in Q1, despite the challenging economic climate.

The company had a lot of renewals in the tech sector and expects more in the future, which gives them confidence in their outlook. Their sales force is gaining experience and they are constantly learning and adapting to tough environments. The renewals are more evenly spread out throughout the year, which adds to their confidence in the reacceleration of their total contract value growth rate.

The operator introduces Andrew Nicholas from William Blair and asks about the significant upside to the adjusted EBITDA outlook in the first quarter. Craig Safian responds that the OpEx favorability was broad based and not in any specific area, and that the foreign exchange rate also played a role. He also mentions that they added two new Conferences in the first quarter and are on track with their plans to have a conference in every region for GBS and GTS seats.

The company's strategy is to have destination conferences for every major constituency they serve in every region they operate. They have expanded their finance and CFO conferences to Australia and brought back a Data & Analytics Summit in Brazil. They plan to continue expanding their conference portfolio to support the Research business. The elevated renewals in Q1 had a significant impact on their CV growth, but absent this impact, the NCVI in Q2 is expected to be an easy comparison to last year due to the small new business quarter and tech vendor challenges.

Craig Safian discusses the potential for contract value (CV) growth to accelerate in the second and third quarters of the year. He compares the expected NCVI for this year to the NCVI from last year and believes that in order for the reacceleration to occur, they must do modestly more than the previous year's NCVI. He also mentions that the sales force tenure may improve during a challenging operating environment, but they still measure inputs to determine sales productivity.

The speaker discusses various measures being used to track the company's progress, such as the number of opportunities added and the frequency of interactions with clients. They also mention that pricing has stabilized, which could potentially lead to upside in guidance if it continues to improve. This stabilization is specifically for the non-subscription part of the Research business, and the subscription business has seen stable pricing.

The enterprise count is down 4% year-over-year due to challenges with tech vendors. The company plans to hire more quota-bearing salespeople to accelerate contract value growth. The company expects to stabilize CV for tech vendors and reaccelerate growth, with the primary determinant being the performance of CV for tech vendors.

The company believes that a combination of factors will lead to a reacceleration of growth in their CV business, including the tech vendor segment and the enterprise function leader segment. They do not give guidance on specific contract values, but expect total CV to begin reaccelerating in Q1 or Q2. The pricing for nonsubscription services has stabilized quickly in the past few months, but there may be a lag time before it improves further.

The company expects pricing to increase as they increase the quality of leads, but it is difficult to predict when this will happen due to the dynamic nature of the market. They do not see any significant changes in tech vendor trends and expect total CV to reaccelerate in the future. The company has raised their EBITDA margin outlook for the year due to stable expenses and higher revenues, and their margins are currently higher than in previous years.

The company has been performing well in Q1, exceeding expectations in revenue and controlling expenses. They have a 23.5% EBITDA margin for 2024 and expect to modestly expand margins in the future. They are disciplined in their expenses and are finding a balance between margin expectations and investing for future growth. Renewal activity has been strong and they are seeing a preference for longer contracts.

The company's standard contract is typically a two-year contract with price escalators of 3-5% on the anniversary of the contract. The team is focused on increasing the number of multiyear contracts. The hiring market for tech talent is currently low and the company has a high demand for job applicants due to their attractive employer value proposition.

The paragraph discusses the factors that contribute to Gartner's success, including their attractive employer brand, low turnover, and focus on both recruiting and retaining employees. They also mention their plans for hiring and growth in the coming years. Overall, Gartner has a strong value proposition and a large market opportunity.

The company is confident in their ability to maintain their success in the future. They plan to create value for shareholders, invest for growth, generate free cash flow, and continue their repurchase program. The conference call has now ended.

This summary was generated with AI and may contain some inaccuracies.