David Cohen, SVP of Investor Relations, welcomes participants to Gartner's Second Quarter 2024 Earnings Call. The call will include a discussion of financial results and outlook for 2024. All references to EBITDA, contract values, and growth rates are based on 2024 foreign exchange rates. Certain statements made on the call may constitute forward-looking statements and are subject to risks and uncertainties. Gene Hall, Gartner's CEO, notes the company's resilience in a complex environment and reports high-single digit growth in contract value for Q2.

Gartner's financial results for the second quarter exceeded expectations, with strong profitability and free cash flow. The external environment remains volatile and complex, with leaders facing multiple challenges simultaneously. Gartner's value proposition helps clients save time, money, and gain confidence in making decisions. Research is the largest and most profitable segment, with a wide market opportunity. The contract value with enterprise function leaders grew 10% and tech vendor clients returned to growth. Gartner's research business serves executives and their teams through distinct sales channels, with GTS new business growing 8%.

The third paragraph discusses the growth of contract value with GTS enterprise function leaders, GBS new business and contract value, Gartner Conferences revenue, and Gartner Consulting revenue. It also emphasizes the importance of teamwork and commitment to driving sustained double-digit growth. The company's financial results exceeded expectations and they expect to continue delivering strong results in the future. The Chief Financial Officer will now take over the call.

In the second quarter, contract value grew 7% year-over-year and is expected to continue to increase. Revenue, EBITDA, and EPS exceeded expectations. The company has repurchased $565 million of stock and remains open to buying more. Research revenue grew 5% and subscription revenue grew 7%. Overall, contract value and CV growth were broad-based and saw double-digit or high single-digit rates in most industry sectors.

In the second quarter, the company saw double-digit or high single-digit growth in CV across all enterprise sizes, except for small. The majority of top 10 countries also experienced this growth. Global Technology Sales CV increased by 6%, and GTS enterprise leader CV grew by high single digits. Tech vendor CV returned to growth and GTS new business was up 8% compared to last year. GTS quota-bearing head count decreased by 2% as the company manages sales territories in response to industry dynamics. Global Business Sales CV increased by 12%, led by finance, legal, and supply chain practices. GBS quota-bearing head count increased by 6% and the company is targeting high single-digit growth for 2024. Full metrics for both GTS and GBS can be found in the earnings supplement.

The company's conference revenue increased by 10% in the second quarter, with a 15% increase when adjusted for movement of conferences. Consulting revenue also increased by 13% and labor-based revenue by 3%. The backlog for June 30 was $199 million, a 16% increase from the previous year. The contract optimization business saw a 62% increase in revenue. Costs of services and SG&A both increased by 5%, mainly due to higher compensation costs. EBITDA increased by 8% and depreciation by 16%. Net interest expense was favorable by $4 million due to higher interest income.

In the second quarter, the adjusted tax rate was 24%, resulting in an adjusted EPS of $3.22. The company had 78 million shares outstanding, a decrease from the previous year. Operating cash flow was $370 million, with a decrease due to working capital timing. CapEx was $29 million and free cash flow was $341 million. The company has a strong balance sheet with $1.9 billion in liquidity and low levels of leverage. They repurchased $340 million of their stock and have a remaining capacity of $1 billion. This is expected to be accretive to earnings per share and increase returns on invested capital.

The company is updating its full year guidance to reflect recent performance and trends. The outlook for subscription research has improved due to favorable FX rates, while conferences and consulting have also seen an increase. The company's EBITDA guidance has been adjusted to reflect Q2 results and updated non-subscription research outlook. Subscription research remains the main source of revenue, with high visibility for the rest of the year. The company also helps small businesses find software and has updated its outlook for this segment. About 1/3 of the company's revenue and expenses are in currencies other than USD, but recent FX rates are expected to have a neutral or slightly positive impact in the second half of the year. The updated 2024 guidance includes FX-neutral growth of 5% for research revenue, 12% for conferences revenue, and 4% for consulting revenue, resulting in a consolidated revenue of at least $6.2 billion.

The company has increased its full year EBITDA and adjusted EPS guidance. They expect to receive $300 million in pretax proceeds during the third quarter from a settlement related to pandemic insurance. The guidance is based on 78 million shares outstanding and they expect adjusted EBITDA of at least $295 million for the third quarter. Despite global uncertainty, the company's financial results have been ahead of plan and they believe the first quarter was the bottom for CV growth. They have repurchased $565 million in stock year-to-date and plan to continue returning excess capital to shareholders. Their financial model remains unchanged, with expected double-digit revenue growth, gross margin expansion, and EBITDA margin expansion over time. They also plan to grow free cash flow and lower the share count through share repurchases and strategic M&A.

Jeff Meuler from Baird asks about the outlook for CV growth in light of the volatile operating environment. Craig Safian responds that Q1 marked the bottom and they expect growth to bounce around but ultimately reach 12-16% annually. Jeff also asks about the building headcount and Gene Hall explains their dynamic territory planning process, where they reassign salespeople to more productive territories as needed.

The company has made strategic decisions to not sell in certain territories, such as Russia, and instead focus on more productive areas. They constantly review and adjust their sales territories and resources to ensure maximum productivity and may even close down territories if necessary. Despite these changes, the company is still expecting mid-single-digit growth for GTS and high single-digit growth for GBS, thanks to their innovative approach to resource allocation.

The speaker explains that the reason for the lowered guidance is due to the decline in non-subscription business. The company's philosophy on buybacks is to be price sensitive, opportunistic, and disciplined. They have returned a lot of capital to shareholders in the first half of the year through buybacks and operating cash flow.

The company will continue to be price sensitive, opportunistic, and disciplined in their approach to driving shareholder value. They will focus on strategic value-enhancing acquisitions and buybacks, with a bias towards buybacks in the future. The new business growth has improved, likely due to improved productivity and response to changes in the market. The contract value per client enterprise has increased, possibly due to losing smaller clients and not necessarily adding more seats to larger enterprises.

Gene Hall and Craig Safian discuss their company's selling strategy of continuously selling additional business to existing clients while also acquiring new clients. They mention their goal of achieving low teens growth in the medium-term, but acknowledge the need for a stable operating environment. They also confirm their previous statement of expecting the tech market to return to normal growth within 12 to 18 months.

The speaker believes that the company is doing well in a volatile global operating environment. GBS is growing within the medium-term guidance range, while the end-user portion of GTS is growing at high single-digit rates. The tech vendor side is facing challenges, particularly in the lower end of the market. The company expects to follow its typical sequential trends in the second half of the year. GTS reaccelerated as predicted, but GBS has moderated slightly due to macro factors. The company grew 12% in the quarter.

The speaker discusses the market opportunity for GBS and their goal to capture it. They also mention the expected growth for GBS and GTS in the medium term. The speaker then addresses a question about margin and explains that the Q2 margin expansion may not carry over into the second half due to normal revenue and expense phasing, as well as investments for future growth. They also note that Q2 is the highest margin quarter for conferences. Overall, the expected EBITDA margin for the full year is around 23.5%.

During a conference call, a question was asked about the impact of Gen AI on companies' IT budgets. The CEO stated that Gen AI is a topic of high interest for all clients and they are starting to invest in it, but are still figuring out the best use cases. This presents an opportunity for the company to add value. When asked about potential M&A, the CFO mentioned three areas they would consider: enhancing research coverage, filling in geographic gaps, and targeting assets that can provide insights to operating executives.

The company's hiring plans are back-half loaded, as they want to ensure full productivity from their previous hires and assess the stability of the market.

The company plans to hire more people in the second half of the year to improve productivity and get back to their traditional hiring trend. This is due to the stability in the economy after a few tumultuous years. The increase in demand for CrowdStrike has also contributed to the need for more employees, as the company aims to help their clients with their priorities. This will result in a few hundred net people being hired by the end of the year.

In the paragraph, George Tong from Goldman Sachs asks about the enterprise functional leader CV growth in the second quarter and the research subscription revenue growth. Gene Hall responds that the selling environment was consistent between Q1 and Q2, and the macroeconomic and geopolitical environment did not change much. Craig Safian adds that research subscription revenue growth was in line with expectations and they feel good about it for the full year. They also mention that modest changes in CV growth will not have a big impact on revenue for this year, but will affect revenue in 2025. Overall, they are satisfied with the results for Q2 and their outlook for research subscription revenue.

During a conference call, a question was asked about the retention metrics for a research subscription revenue line for the rest of the year. The speaker responds by saying that there will be no significant changes, but there may be a small increase due to foreign exchange. The next question is about what it will take to improve the retention metrics. The speaker explains that while retention for the enterprise function leader part of the business is strong, there is a challenge from small technology vendors that is diluting the metrics. They believe this will eventually improve, but it will take time. They also mention that wallet retention for GBS is strong. The question then shifts to the contract length for research, and the speaker explains that they used to sell more three-year contracts.

Gartner's financial results exceeded expectations, with 10% contract value growth and a strong client value proposition. They have a large market opportunity and are well positioned for sustained revenue growth. They will continue to provide objective insight to clients, invest for future growth, generate free cash flow, and return capital to shareholders through share repurchases. The CEO thanked participants and looks forward to the next quarterly update.

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