Gartner Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 4, 2025

There are 15 speakers on the call.

Operator

Good morning, everyone. Welcome to Gartner's 4th Quarter 2024 Earnings Call. I'm David Cahn, SVP of Investor Relations. 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.

Operator

Please be advised that today's conference is being recorded. This call will include a discussion of Q4 2024 financial results and Gartner's outlook for 2025 as disclosed in today's earnings release and earnings supplement, both posted to our website, investor. Gartner.com. On the call, unless stated otherwise, all references to EBITDA are for adjusted EBITDA, with the adjustments as described in our earnings release and supplement. Our contract values and associated growth rates we discuss are based on 2024 foreign exchange rates.

Operator

All growth rates in Gene'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. 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 2023 Annual Report on Form 10 ks and quarterly reports on Form 10 Q as well as in other filings with the SEC.

Operator

I encourage all of you to review the risk factors listed in these documents. Now, I will turn the call over to Gartner's Chairman and Chief Executive Officer, Gene Hall.

Speaker 1

Good morning, and thanks for joining us today. Gartner continues to remain resilient in a complex environment. In Q4, contract value grew 8%. 4th quarter revenue, EBITDA, EPS and free cash flow were ahead of expectations. We delivered 6% headcount growth across our sales organizations and will continue to accelerate growth in 2025.

Speaker 1

In 2024, geopolitical polarization and conflict was the worst in decades. Supply chains continued to experience major disruptions. Cybersecurity attacks escalated becoming even more sophisticated. Enterprises remain challenged by how to leverage artificial intelligence while mitigating risk and more. Executives across the enterprise are facing greater uncertainty than ever before and the rate of change continues to accelerate.

Speaker 1

Leaders know they need help and they know Gartner is the best source for the insight, guidance and tools they need to succeed. We help our clients make smarter decisions that address their mission critical priorities, while managing risk, saving time, saving money and building confidence. Gartner guides leaders across every size enterprise in all major geographies and in every major industry. This includes government. There is no organization that knows more about how to help governments than Gartner.

Speaker 1

We support public sector leaders in 74 countries, including the 30 largest economies except Russia. And of course, we know more than anybody in the world about how to leverage technology in the private sector. In the U. S, there's a focus on leveraging technology to improve the efficiency and effectiveness of government. We'll apply our insights and best practices to help the U.

Speaker 1

S. Achieve these objectives. One topic that continues to challenge leaders across the enterprise is how to harness AI innovation in their environment. In the world of artificial intelligence, the pace of innovation is almost impossible to keep up with. During our 2024 IT Symposium Conference Series, Gartner analysts discussed ways leaders could successfully pivot from learning AI to scaling AI and pursuing what's next.

Speaker 1

We're helping tens of thousands of executives determine how best to leverage AI in their enterprises. Research continues to be our largest and most profitable segment. Within our research segment, we serve executives and their teams through distinct sales channels. Global Technology Sales or GTS serves leaders in their teams within IT. GTS new business grew 13% with double digit growth in both enterprise leaders and tech vendors.

Speaker 1

GTS contract value accelerated to 7% and contract value with tech vendor clients improved for the 3rd consecutive quarter. Global Business Sales or GBS serves leaders in their teams beyond IT. This includes HR, supply chain, finance, marketing, legal, sales and more. GBS contract value accelerated to 12% with strong new business growth of 15%. Curtner Conferences deliver extraordinarily valuable insights to an engaged and qualified audience.

Speaker 1

Conferences revenue grew 17% in the Q4 and our plan and advanced bookings for 2025 are strong. Gartner Consulting is an extension of Gartner Research. Consulting helps clients execute their most strategic initiatives through deeper project based work. Consulting is an important complement to our IT Research business. Labor based consulting revenue grew 4%.

Speaker 1

Contract optimization revenue was $50,000,000 which exceeded expectations. 3 foundational elements of our long term success are first, an unrelenting focus on globally consistent execution of Gartner best practices. 2nd, a company wide commitment to continuous improvement and innovation. And third, our vibrant culture, which inspires associates to operate and win as a global team. In closing, Gartner delivered financial results ahead of expectations.

Speaker 1

TechDegender CV growth continued to accelerate. We have a powerful client value proposition and a vast addressable market opportunity. We will continue to create value for our shareholders by providing actual objective insight, guidance and tools to our clients, prudently investing for future growth and returning capital to our shareholders through our share repurchase program. We expect to deliver modest margin expansion over time and will continue to generate significant free cash flow well in excess of net income. All of this and more positions us to drive long term double digit revenue growth and sustain our track record of success far into the future.

Speaker 1

With that, I'll hand the call over to our Chief Financial Officer, Craig Safian.

Speaker 2

Thank you, Gene, and good morning. 4th quarter contract value growth accelerated to almost 8%. Revenue, EBITDA, adjusted EPS and free cash flow were better than expected as we continue to execute well in a complex environment. Our financial performance for the full year 2024 included global contract value growth of 8%, consolidated revenue growth of 6%, EBITDA of $1,600,000,000 diluted adjusted EPS of $14.09 and free cash flow of $1,400,000,000 We repurchased more than $735,000,000 of stock through December and remain eager to repurchase shares opportunistically. We are introducing 2025 guidance which we view as achievable with opportunity for upside.

Speaker 2

4th quarter revenue was $1,700,000,000 up 8% year over year as reported and FX neutral. In addition, total contribution margin was 66%. EBITDA was $417,000,000 up 8% as reported and 9% FX neutral. Adjusted EPS was $5.45 up 79% versus Q4 2023. This includes a benefit in the quarter from our tax planning initiatives.

Speaker 2

And free cash flow was $311,000,000 a very strong finish to the year. We ended the quarter with 21,044 associates, up 4% year over year. We have a great team across Gartner driven by a very compelling associate value proposition. Moving into 2025, we are in excellent position from a talent and tenure perspective with a strong hiring plan for the coming year. Research revenue in the Q4 grew 5% year over year as reported and 6% FX neutral.

Speaker 2

Subscription revenue grew 8% on an FX neutral basis. Non subscription revenue was in line with our expectations and guidance. 4th quarter research contribution margin was 74% consistent with the prior year period. For the full year 2024, research revenue increased by 5% as reported and FX neutral. The gross contribution margin for the year was 74%.

Speaker 2

Contract value or CV was $5,300,000,000 at the end of the 4th quarter, up 8% versus the prior year. Quarterly net contract value increase or NCVI was $220,000,000 As we've discussed in the past, there is notable seasonality in this metric. For the Q4, CV from enterprise function leaders across GTS and GBS grew 9%. CV from tech vendors accelerated for the 3rd consecutive quarter. CV growth was broad based across practices, industry sectors, company sizes and geographic regions.

Speaker 2

Across our combined practices, the majority of the industry sectors grew at double digit or high single digit rates, led by the healthcare, manufacturing and public sectors. We had high single digit growth across almost all of our enterprise size categories. The small category which has the largest tech vendor mix grew mid single digits. We also drove double digit or high single digit growth in the majority of our top 10 countries. Global technology sales contract value was $4,000,000,000 at the end of the 4th quarter, up 7% versus the prior year.

Speaker 2

GTS CV increased $165,000,000 from the 3rd quarter. Wallet retention for GTS was 102% for the quarter, reflecting net growth even before the addition of new clients. GTS new business increased 13% versus last year with double digit growth with both enterprise leaders and tech vendors. GTS quota bearing headcount increased 4% year over year consistent with our plan. We added 138 net new sellers in the quarter, the largest sequential increase since Q4 of 2022.

Speaker 2

We are planning mid single digit QBH growth for GTS in 2025. Our regular full set of GTS metrics can be found in the earnings supplement. Global business sales contract value was $1,200,000,000 at the end of the 4th quarter, up 12% year over year. The majority of our GBS practices grew at double digit rates. Growth was led by finance, sales and legal.

Speaker 2

GBS CV increased $55,000,000 from the 3rd quarter. Wallet retention for GBS was 106% for the quarter, reflecting strong net growth with our existing clients. CBS new business was up 15% compared to last year. GBS quota bearing headcount was up 9% versus the Q4 of 2023. We are planning double digit QBH growth for GBS in 2025.

Speaker 2

As with GTS, our regular full set of GBS metrics can be found in our earnings supplement. As we do each year at this time, we've provided quarterly historical contract value data updated to 2025 FX rates in the appendix of the earnings supplement. The dollar strengthened significantly during 2024 against our major currencies. This resulted in larger than normal revaluation. As you build your 2025 models, please remember to use the updated data as the baseline for your forecast.

Speaker 2

Conferences revenue for the Q4 was $251,000,000 up 17% year over year. Contribution margin in the quarter was 48% consistent with typical seasonality. We held 13 destination conferences in the quarter all in person. For the full year 2024, we delivered revenue of $583,000,000 which was an increase of 15% on a reported and FX neutral basis. Full year gross contribution margin was 48%.

Speaker 2

We made investments during the year for conference launches and the expansion of existing conferences. 4th quarter consulting revenue of 150 $1,000,000 increased 19% compared with the Q4 of 2023. Consulting contribution margin was 35% in the 4th quarter. Labor based revenue was $104,000,000 up 4% versus Q4 of last year as reported and on an FX neutral basis. Backlog at December 31 was $192,000,000 increasing 17% year over year on an FX neutral basis on strength in multiyear contracts.

Speaker 2

We delivered $50,000,000 of contract optimization revenue in Q4. The quarter was very strong with more and larger deals compared with last year. About $8,000,000 were pulled forward from the Q1 of 2025. Our contract optimization revenue is highly variable. Full year consulting revenue was up 9% on a reported and FX neutral basis.

Speaker 2

Gross contribution margin was 36% compared to 35% in 2023. Consolidated cost of services increased 9% year over year in the 4th quarter as reported and 8% on an FX neutral basis. The biggest driver of the increase was higher headcount to support our future growth. SG and A increased 10% year over year in the Q4 as reported and on an FX neutral basis. SG and A increased in the quarter as a result of headcount growth mostly in sales.

Speaker 2

EBITDA for the Q4 was $417,000,000 an increase of 8% of reported and 9% on an FX neutral basis. 4th quarter EBITDA upside to our guidance primarily reflected stronger than expected revenue performance. EBITDA for the full year was almost $1,600,000,000 a 5% increase over 2023 on a reported basis and up 6% FX neutral. Depreciation in the quarter of $29,000,000 was up 10% compared to 2023 and similar to Q3. Net interest expense excluding deferred financing costs in the quarter was $11,000,000 This was an improvement of $8,000,000 versus the Q4 of 2023 due to higher interest income on our cash balances.

Speaker 2

The Q4 adjusted tax rate which we use for the calculation of adjusted net income was a benefit of 25% for the quarter as a result of favorable tax planning which took place during the quarter. The tax rate for the items used to adjust net income was 32% in Q4. The full year tax rate for the calculation of adjusted net income was 10%, again as a result of the favorable tax planning in the 4th quarter. Adjusted EPS in Q4 was $5.45 up 79% versus Q4 2023. If the adjusted tax rate had been 23%, adjusted EPS in the quarter would have been $3.37 We had 78,000,000 shares outstanding in the 4th quarter.

Speaker 2

This is a reduction of about 1,000,000 shares or about 1% year over year. We exited the 4th quarter with just under 78,000,000 shares on an unweighted basis. For the full year, adjusted EPS was $14.09 up 24% from 2023. If the adjusted tax rate had been 23%, adjusted EPS for the year would have been $11.99 Operating cash flow for the quarter was $335,000,000 up 50% compared to last year with a working capital timing benefit in the quarter. CapEx for Q4 was $24,000,000 about $4,000,000 less than the prior year.

Speaker 2

Free cash flow for the quarter was $311,000,000 up 59% compared to last year. Free cash flow for the full year was almost $1,400,000,000 a 31% increase versus 2023. There were several items affecting net income and free cash flow during 2024 including after tax insurance proceeds, a real estate lease termination payment and tax planning benefits. Adjusting for these items, free cash flow for 2024 was 18% of revenue, 74% of EBITDA and 140% of GAAP net income. Our free cash flow conversion is generally higher when CV growth is accelerating.

Speaker 2

At the end of the Q4, we had about $1,900,000,000 of cash. Our December 31 debt balance was about $2,500,000,000 Our reported gross debt to trailing 12 month EBITDA was under 2 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 repurchases and strategic tuck in M and A. Our balance sheet is very strong with $2,600,000,000 of liquidity, low levels of leverage and effectively fixed interest rates. We repurchased $102,000,000 of stock during the Q4 and more than $735,000,000 for the full year.

Speaker 2

At the end of December, we had more than $900,000,000 of authorization for repurchases remaining and we expect the Board will continue to refresh the repurchase authorization going forward. As we continue to repurchase shares, our capital base will shrink. Over time, this is accretive to earnings per share and combined with growing profits also delivers increasing returns on invested capital. Before providing the 2025 guidance details, I want to discuss our base level assumptions and planning philosophy for 2025. As you know, the U.

Speaker 2

S. Dollar has strengthened significantly. We expect FX will be around a 2 percentage point headwind to revenue and EBITDA growth for the full year. For research, we continue to innovate and provide a very compelling value proposition for clients and prospects. The outlook for 2025 research revenue growth is a function of 3 primary factors.

Speaker 2

First, 2024 ending contract value second, the timing and slope of the continued CV acceleration and third, the performance of non subscription revenue. Starting with research subscription revenue, which was 77% of 2024 consolidated revenue. Our guidance reflects CV continuing to accelerate during 2025. 1st quarter and first half NCVI are important inputs to calendar 2025 revenue growth. We have taken a prudent view of NCVI phasing because Q1 is a seasonally important quarter for renewals.

Speaker 2

With the U. S. Federal government, we ended 2024 with around $270,000,000 of CV, which is 5% of the total. Our contracts are spread widely across agencies and departments. Around 85% of U.

Speaker 2

S. Federal CV is in GTS. Almost all the U. S. Federal contracts are for 1 year with renewals spread across the year.

Speaker 2

We offer a very compelling value proposition for our public sector clients. As Jean discussed, we help government function leaders address their mission critical priorities. Potential government changes may affect our business in the short term. We will continue to provide great sales, service and research levels to our clients. This will position us to drive strong growth over time.

Speaker 2

The non subscription part of the research segment was about 5% of consolidated revenue in 2024. We built into the guidance a continuation of second half traffic trends. If the underlying fundamentals of this portion of the segment improve, we'll be able to increase the full year outlook. For conferences, which was about 9% of 2024 revenue, we are basing our guidance on the 53 in person destination conferences we have planned for 2025. We expect similar seasonality to what we saw in 2024 with Q4 the largest quarter followed by Q2.

Speaker 2

We expect gross margins in the Q2 to be the highest of the year for the Confidence segment. We have very good visibility into 2025 revenue with the majority of what we've guided already under contract. This is consistent with last year. For consulting, which was also about 9% of 2024 revenue, we have more visibility into the first half based on the composition of our backlog and pipeline as usual. Contract optimization has had several very strong years.

Speaker 2

It's seasonally slower in the Q1. We pulled forward about $8,000,000 into Q4 and the business remains highly variable. We've incorporated a prudent outlook for this part of the segment. Our base level assumptions for consolidated expenses reflect the run rate from the second half twenty twenty four hiring and the growth hiring we have planned for 2025. Beyond the hiring factors, we recommend thinking about expenses sequentially with notable seasonality driven by the conferences calendar and annual merit increases.

Speaker 2

Our plan for mid to high single digit sales headcount growth for 2025 reflects our commitment to invest for future growth while delivering strong margins and free cash flow. For GTS, we expect mid single digit QBH growth again in 2025. We have the capacity we need for the tech vendor part of the business for now and we're going to be thoughtful about our public sector hiring in the short term. For GBS, we plan to grow QBH double digits this year. We have the recruiting capacity to go faster depending on how the year plays out.

Speaker 2

The most important way we invest for long term sustained double digit growth is by increasing our sales headcount. This is an essential part of our 2025 operating plan. Our guidance for 2025 is as follows. We expect research revenue of at least $5,365,000,000 which is FX neutral growth of about 6%. The guidance reflects FX neutral research subscription revenue growth near 8%, consistent with 2024 CV growth.

Speaker 2

We expect conferences revenue of at least $625,000,000 which is FX neutral growth of about 10%. We expect consulting revenue of at least $565,000,000 which is FX neutral growth of about 2%. The result is an outlook for consolidated revenue of at least $6,555,000,000 which is FX neutral growth of 6%. We expect full year EBITDA of at least $1,510,000,000 On a reported basis, we expect an EBITDA margin of at least 23%. Compared with 2024 margins, this factors in FX, 2024 headcount additions, 2025 growth hiring and a prudent approach to the plan.

Speaker 2

We expect 2025 adjusted EPS of at least $11.45 per share. For 2025, we expect free cash flow of at least $1,140,000,000 This reflects a conversion from GAAP net income of about 140%. Our guidance is based on 78,000,000 shares, which only assumes repurchases to offset dilution. Finally, for the Q1 of 2025, we expect to deliver EBITDA of at least $345,000,000 We performed well in 2024 despite continuing global macro uncertainty in a dynamic tech vendor market. We finished the year with high single digit CV growth.

Speaker 2

Revenue, EBITDA, EPS and free cash flow performance exceeded our expectations and the guidance we set a year ago. We repurchased about $735,000,000 of stock during 2024 and more than $4,000,000,000 over the past 4 years. We remain eager to return excess capital to our shareholders. We will continue to be price sensitive, opportunistic and disciplined. 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 costs growing about in line with CV growth and G and A leverage, we will expand EBITDA margins modestly over time. We can grow free cash flow at least assesses EBITDA because of our modest CapEx needs and the benefits of our clients paying us upfront. And we'll continue to deploy our capital on share repurchases, which will lower the share count over time and on strategic value enhancing tuck in M and A. With that, I'll turn the call back over to the operator and we'll be happy to take your questions.

Speaker 2

Operator?

Speaker 3

Thank you. And our first question will come from Jeff Meuler from Robert W. Baird. Your line is open.

Speaker 4

Yes, thank you. Good morning. You gave us a lot of perspective, but I'm still trying to tie some of the things you gave us together. A 7.8% Q4 CV exit rate with research subscription constant currency growth only landing near 8%, especially when you have an easier comp to begin the year and that flows through while the revenue at CV does well then. Just are you seeing anything from the renewal risk heat map perspective?

Speaker 4

Or are you hearing things from the U. S. Federal government salespeople or seeing something in those renewal trends on the ground yet? Or just anything you're trying to signal beyond the prudence in the guidance assumptions to tie those figures together?

Speaker 5

Hey, good morning, Jeff. So the biggest driver of forward year subscription revenue growth is going to be the end of year prior year CV growth. And that sort of determines, call it 80% to 85% of how much revenue actually flows through into the following year. The other important part, which we talked about a little bit during the prepared remarks is the phasing of our NCVI quarter to quarter to quarter. And as we mentioned, we Q1 is a heavy renewal quarter, a little bit heavier than average and it is our lowest new business quarter.

Speaker 5

And so we generally take a pretty prudent approach to how we plan for Q1 and Q2 NCVI. And those Q1 and Q2 are the quarters that can materially move the revenue up or down depending on the performance. And so what you're looking at is sort of I would characterize a sort of a normal flow of ending contract value growth flowing into 2025. And then our normal expectations for first half NCBI rolling into that around 8% constant currency subscription revenue growth for 2025.

Speaker 4

Okay. And then on 2025 margin guidance, I hear you on opportunity for upside. But should we be thinking that wherever 2025 margin lands will be the fully rebased year to expand modestly from over time consistent with the medium term framework? And I ask because it sounds like you're still reaccelerating sales headcount, still reimplementing growth investment and you're not going to be fully back to the medium term growth framework for GTS, quota bearing headcount in terms of the growth rate yet in 2025. So are we still likely going to be talking about, I guess, needing to annualize that spend a year from now?

Speaker 4

Or is 2025 kind of the final margin reset? Thank

Speaker 5

you. Thanks, Jeff. So I'd like to say yes. I don't know what the year has in store for us in terms of the dynamism of the environment that we're operating in. But one way to step back and think about it is the implied operating expense growth that we have baked into our 2025 plan and guide is around 9% year over year operating expense growth.

Speaker 5

And that encompasses the growth we brought on board in 2024, particularly from a QBH perspective, but across the company and the growth we have planned for 2025 with more normal phasing of that hiring. And so if revenue and again and we have modeled in our CV growth rate accelerating over the course of 2025. And so if 2025 ends up being a more again normal year, yes, I would say 2025 could be a new baseline. But again, given the dynamic world in which we operate, it's hard to call that right this moment.

Speaker 2

Fair enough. Thank you.

Speaker 3

Thank you. And our next question will come from Toni Kaplan from Morgan Stanley. Your line is open.

Speaker 6

Thanks so much. I caught the part in the prepared remarks where tech vendor growth continued to accelerate in the quarter. I know last year we had that 1st quarter dynamic, but wanted to understand, are we in a place where tech vendor is a non issue now for this year? And should we expect to see accelerating growth throughout the year? So,

Speaker 1

hi, Tony. The Tech Bender market has recovered nicely and we are as well as we expect it to return to a more normal like state over the next several quarters. And so I think it's we expect to continue to accelerate through the year.

Speaker 6

Great. And then I think one of the questions that people have been asking recently is on the buyback. So Craig, could you just remind us what goes into your decision making process on that? And any thoughts about I know you mentioned in the guide, you're only really contemplating buying back for dilution. But to the extent that you have a lot of excess cash on the balance sheet, your leverage level is below where your target is.

Speaker 6

Just want to understand whether we could see upside to that buyback guide? Thanks.

Speaker 5

Thank you, Tony. So I'll start. Philosophically, we want to make sure that we deploy our capital on shareholder value enhancing initiatives. One of those initiatives that we know delivers great returns over the long term is returning capital to our shareholders through our buyback programs. And we remain committed to deploying our capital in smart ways, whether it be through the buyback program or through strategic value enhancing tuck in M and A.

Speaker 5

On the buyback side, again, just zooming back for a moment, we bought back north of $700,000,000 in 2024. Over the past 4 years, it's been over $4,000,000,000 And so I think we've proven that, yes, we are more than willing to put our money to work and capital to work and free cash flow to work on behalf of our shareholders. That said, we don't want to just be in the market buying blindly. We have a philosophy of being price sensitive, opportunistic and disciplined. And when we see an opportunity to go big, when there is a disruption either in the market or in the share price or in the sector or whatever it may be, we are ready to go big.

Speaker 5

We were able to repurchase over $700,000,000 of stock last year at attractive prices because we follow that philosophy. And so going forward, as I mentioned on Jeff's question, the world is a pretty dynamic place and volatile place. And so that should give us opportunities to get into the market and be more aggressive, but we're not going to deviate from our overall philosophy of being price sensitive, opportunistic and disciplined.

Speaker 6

Thank you so much.

Speaker 3

Thank you. Our next question will come from Faiza Alwy from Deutsche Bank. Your line is open.

Speaker 7

Yes. Hi. Thank you. Good morning. First, I wanted to ask about the public sector.

Speaker 7

You said that you are going to be thoughtful about public sector hiring in the short term. And I know you talked about the value proposition for the public sector. Obviously, there's been a lot in the news. Just give us a bit more color and thank you for the quantification there. But give us a bit more color about how you're tactically approaching the public sector just in light of the dynamic environment there?

Speaker 1

So let me start, first for the public sector for us encompasses federal government, state governments, local governments in 74 countries around the world. So when it comes to public sector, we're actually incredibly diversified in terms of where public sector comes from. And we help among the most advanced governments in the world with their service, delivering better services to their citizens and we're an essential service for them. And so we're going to continue doing that. And so as we look at the public sector, if you think about it as being not just like U.

Speaker 1

S. Government, but being actually 74 countries and federal, state, local, all of whom technology is just as important just for the commercial sector. And so we see it as a very vibrant sector for us overall that we expect to continue to do very well with us.

Speaker 7

Okay, understood. And then you talked about 1Q being like a higher renewal quarter for you. Give us some perspective on how much is that across the board? Is that were you talking specifically about tech lenders or GTS? Or is it across the board?

Speaker 5

Yes. Faiza, hi, it's Craig. So our renewals are phased pretty evenly throughout the year, but it's not 25%, 25%, 25%, 25%. And so Q1 happens to be a little bit higher than the 25% mark. And as I mentioned earlier, it's our lowest new business quarter.

Speaker 5

4th quarter is our largest new business quarter. We have our most conferences. We build the most pipeline and we sell the most new business. And as we roll into Q1, it tends to be our lightest new business quarter. So it's really the dynamic of slightly higher than average amount of renewals in the quarter and seasonally our lowest new business quarter that causes us to make sure that we're thoughtful about the Q1 NCVI that we build into our revenue plan.

Speaker 7

Got it. Thank you.

Speaker 3

Thank you. Our next question will come from Andrew Nicholas from William Blair. Your line is open.

Speaker 8

Hi, good morning. First question, I just kind of wanted to circle back on the government piece. I understand it's not a massive part of the business and you're optimistic about the opportunity in medium and long term. But can you just clarify like are you already getting feedback from that part of your business that the renewal cycle will be choppy? I think

Speaker 9

you

Speaker 8

mentioned those are generally 1 year contracts or is it just kind of reacting to news flow and being a bit more cautious? Just not sure if it's tangible to this point or goes back to a typically conservative approach.

Speaker 1

So if I look again, if I look at our total business, the 74 countries in federal, state, local, we're highly diversified, no change there. If I zoom in just on the U. S. Public sector, I'd say it's we're seeing the same the trends we're seeing now are the same trends we saw in Q4. There's no change.

Speaker 1

And that could change in the future, but as we sit here today, there's no trends no difference from what we saw in Q4.

Speaker 8

Great. Thank you. And then for my follow-up, I just wanted to ask about generative AI broadly. It seems like every day we get a new release from 1 of the major players there in terms of new models, new capabilities. Any update to how you're thinking about your ability to leverage that technology within your business, become more efficient, generate more content, whatever it may be?

Speaker 8

Any updated thoughts there would be great. Thank you.

Speaker 1

So AI is fantastic for us. If I start with our clients and I'll come back to us. But if I start with our clients, it's the it's one of the biggest areas of uncertainty. There's a lot of expectation. It can provide a lot of productivity growth in the future for our clients.

Speaker 1

And we're the best positioned in the world to help our clients sort this out, both on the enterprise function leader side as well as on the tech vendor side. Within Gartner in particular, we have in the range of tens of different kinds of initiatives where we're applying AI, generative AI, but other kinds of AI as well. And it ranges from advanced statistical techniques with some types of AI to using generative AI for things like training as well as in some of our client facing, doing things like translations and things like that. And so we've got like many tens of applications we're using. No single application is going to be like improved productivity 50%.

Speaker 1

Each of these are going to be like small little things. Some will work out and be great. Maybe great meeting like they'll give us a 5% productivity improvement and some will try and we'll find actually if they don't have a big impact and move on to the next one. And so we're seeing it as sort of we have a strategy of continuous improvement, continuous innovation. AI and generative AI both are just another piece of our continuous innovation, continuous improvement strategy.

Speaker 2

So in the

Speaker 1

case, it will be it won't be transformational, it will help us continue to improve our effectiveness over time both with clients. But the big issue is the big advantage for us is not on the internal side. It's really about helping clients figure out how to use their business, which is the rate of change is so high that there's there are few things that have been in business history that so much uncertainty, which is great for us.

Speaker 8

Thank you.

Speaker 3

Thank you. Our next question will come from Manav Patnaik from Barclays. Your line is open.

Speaker 10

Thank you. Good morning. Gene, I was just wondering in terms of GTS, right, I think you talked about in your prepared remarks how sales growth is very important to your long term double digit growth. And you're doing that in GBS. I was just wondering in GTS, why only mid single digits?

Speaker 10

What kind of environment or what does it take for you to get back to the double digit sales force growth on the GTS side?

Speaker 1

So the if I look at GTS, we believe that there is room to improve productivity in GTS in addition to growing headcount. And so the reason we're growing GTS headcount modestly slower than we wanted to over the medium term is that we believe we can get growth out of productivity, particularly on the tech vendor side of our business.

Speaker 10

Okay. And then

Speaker 4

Marketing like that

Speaker 1

is just we think we can do both, improve productivity and grow headcount.

Speaker 10

Okay. Fair enough. And then Craig, just in terms of being opportunistic on the buybacks, is it really just the I guess your interpretation if the stock is cheap or not, but just besides that, is there any deal pipeline or anything of that nature that might be part of why you're holding back as well?

Speaker 5

Manav, we're in a position where because of our excess cash we have on the balance sheet, balance sheet flexibility and the $1,000,000,000 plus of free cash flow that we generate each year. It's an and question, not an or question for us in terms of buybacks or M and A. So I would not read anything into our opportunism and discipline around our buyback program and M and A pipeline.

Speaker 10

And again, and I think

Speaker 5

the other thing I would just highlight is the bulk or virtually all of our M and A targets, I would characterize as small to medium kind of tuck in acquisitions, nothing big transformational like we did 8 years ago.

Speaker 11

Got it. Thank you.

Speaker 3

Thank you. Our next question will come from Surinder Thind from Jefferies LLC. Your line is open.

Speaker 12

Thank you. James, a big picture question here is, as you think about tech vendor and maybe the cyclicality in that part of the business, how do you think about that on a go forward basis in the sense of how unusual do you think this cycle has been? And if I interpret your comments correctly, it sounds like tech vendors should be back to normalized growth by the end of 2025. And if so, what does normalized growth for that business look like?

Speaker 1

So I think the period that we've been through over the last 3 or 4 years has been pretty extraordinarily in the tech sector. There was a if you look at venture capital funding during that time period, it went up by whole number multiples, I think 3 to 4 times. And so there was a from my view, an unusually large, I'll call it bubble of venture capital spending, which then drove a kind of bubble with all those tech companies. I can't recall that happening and I don't see that happening again. Anything could happen, but I do think that was very unusual.

Speaker 1

And if you look at the 20 years prior to that, we didn't see that. We saw ups and downs, but not anything like that. And so I don't expect it to be anywhere near as cyclical spend. The other thing that happened then too is it wasn't just cyclical. There was a shift in what the venture capital firms were investing in that happened simultaneously.

Speaker 1

So a lot of the investments made that were not in AI. And now there's a big focus in venture capital in AI. And so there's a big shift going on from companies that used to get funding 4 years ago or 3 years ago, today can't get funding, a different set of companies now that are getting this funding. That's also I think a very that's not a usual event if you look back over the last 20 years.

Speaker 5

And 2 other thoughts there, Surinder. So one, when we think about our medium term objective for research and CV growth, it's 12% to 16%. And that's across the entire GTS and GBS portfolio inclusive of Tech Vendor. And if you go back historically, Tech Vendor has grown in that range year after year after year after year. And so I do think the most recent cycle has been abnormal or atypical.

Speaker 5

The other thing just to clarify, I think what Gene said is returning to normal growth over the next several quarters. He wasn't pegging end of year or anything like that. And so we expect our tech vendor CV to continue to accelerate. It has accelerated these past three quarters, and will continue to accelerate into 2016 and beyond.

Speaker 12

That's helpful. And then maybe just on the non subscription, lead gen part of the business. Can you maybe talk about, where you believe you are in that part of the strategic shift? Maybe how demand pricing has evolved versus the expectations over the last year and where you think it's going to head to or what's in the assumptions for 2025?

Speaker 1

So I'll start with kind of where the business is. So the business went through, in fact it was impacted by the same things we just like earlier with this, I will call tech bubble. And we're kind of, I think, getting working our way through all of those. And I think the business will then normalize and be back to kind of where both traffic, conversion traffic and pricing then stabilizes again over the next few quarters.

Speaker 13

Got it. Thank you.

Speaker 3

Thank you. Our next question will come from Josh Chan from UBS. Your line is open.

Speaker 11

Hi, good morning, Jean and Craig. I was wondering if you could talk about the selling environment. I noticed that the GTS wallet retention improved nicely this quarter. So wonder if any change you've noticed there in terms of selling and renewals? Thank you.

Speaker 1

So I would say the selling environment is unchanged, but our level of execution continues to improve. I think the improvement you're seeing across the business is due to improved execution on our part.

Speaker 11

Okay. That's great color. Thank you. And then on your comment about the Q1 renewal prudence, I think last year you had slightly negative NCVI in Q1, but that was because tech vendors were in a much tougher spot. And so I guess with tech vendors seemingly getting better this year, can we roll out negative NCVI in Q1?

Speaker 11

I guess would you care to comment on that?

Speaker 5

Yes. It's we don't guide on CV and we're not going to guide on Q1 and we're only 1 month into the cycle. I would just emphasize that the world is a very dynamic place. We have planned what we consider to be appropriately and prudently for Q1 NCVI. And we are fighting for every new business win and every renewal rate like we always do.

Speaker 5

We are executing better as Gene mentioned than we had 4 quarters ago, 6 quarters ago, 8 quarters ago. And we'll continue to do that. We'll update you on Q1 in April or early May.

Speaker 11

Great. Thank you and good luck in Q1.

Speaker 2

Thank you.

Speaker 3

Thank you. Our next question will come from George Tong from Goldman Sachs. Your line is open.

Speaker 13

Hi, thanks. Good morning. This sort of built on the prior question, but you talked about taking a prudent view of NCVI phasing since 1Q is a heavier renewal quarter and lower new business quarter. Can you talk about some of the top internal or external swing factors that you're watching that could affect how NCVI comes in?

Speaker 5

It's the normal stuff, George. So obviously, we have a global business that operates with the largest companies in the world down to smaller companies. We've got small tech vendor baked in there. We obviously have our public sector business and some level of U. S.

Speaker 5

Fed Renewables in the Q1. So there's always large swing factors. Last year was a bit unique in that we had several very large tech vendor renewals where we knew the situations were going to be challenging. So there are either like large M and A closing and us having to deal with the ramifications of that or large layoffs announced in the throes of us going through the renewal process. So we don't have that to the same extent that we did last year.

Speaker 5

But we're talking about thousands and thousands of deals that our teams are working both from a research perspective, a service perspective, a renewal perspective and a growth perspective over the course of the quarter. And so any of those underneath the covers can drive the overall NCVI and CV growth up or down a little bit.

Speaker 13

Got it. That's helpful context. And then you're planning to increase sales headcountmid single digits and GTS in double digits and GBS this year. Can you talk about the phasing of this hiring if it's going to be front end loaded or back end loaded or perhaps evenly distributed across the year?

Speaker 5

Yes, it's a great question, George. So I think in 2024, almost all of our growth hiring or the net increase in quota bearing headcount was back end loaded. In 2025, current plan is for it to be more evenly spread throughout the year. The one thing I would note though is the number can bounce around a little bit quarter to quarter. We're not necessarily hiring to a deadline of we must have you on board by midnight on March 31, so we can hit our numbers.

Speaker 5

We are much more pragmatic about how we run the business. So there can be a little bit of noise in the numbers from quarter to quarter. The other thing I'd say is Q1 can often be a lighter net growth quarter, not hiring quarter, but net growth quarter because that's when we do our promotions and then we backfill them. We often backfill a lot of them in advance in the Q4. We also tend to see a little bit higher turnover in the Q1 because if people didn't earn money in 2024, they often opt out and leave and look for greener pass through somewhere else in the Q1.

Speaker 5

So there can be a little bit of volatility in the numbers for all those reasons, but we would anticipate not being nearly as back end loaded in 2025 as we were in 2020.

Speaker 13

Very helpful. Thank you.

Speaker 3

Thank you. And our next question will come from Jeff Silber from BMO Capital Markets. Your line is open.

Speaker 14

Thanks so much for squeezing me in. I wanted to ask about pricing. If I remember correctly, you take price increases in the beginning of November, and I think you said it was roughly 4%. Is that across the board? Is it different by product and geography?

Speaker 14

And I'm just wondering, did you get any pushback this year greater than normal?

Speaker 5

Hey, Jeff. Good morning. So the price increase for the most part goes into effect, as you said, on November 1. On average, it was a little bit below 4%, but we don't paint it with a broad paintbrush. We actually look at it specifically by product and by geography.

Speaker 5

And so in markets that are more inflationary, we will be more aggressive on pricing. And again, one of the key inputs that we look at is wage inflation in the given markets as well, because as we've talked about philosophically, we want to make sure that our pricing at least offsets what our expectation is from a wage inflation perspective. So it is not a broad paintbrush. We're actually very laser focused on making sure that we're taking the pricing up the right amount in the right places in the right currencies. And then in terms of pushback, it's been the standard price increase.

Speaker 5

So nothing of no related pushback. I think we're very focused on making sure that we are constantly improving our delivery and our products and that justifies the very modest price increase that we put on top

Speaker 2

for our clients each year.

Speaker 14

All right. That's really helpful. If I could shift gears maybe just talk about some different geographies. I think you said that the growth was broad based, but I'm really curious specifically in Europe and China, what the trends were there? Thanks.

Speaker 5

Yes. So it's Europe, the selling environment in Europe is basically been pretty consistent from what we saw in the second half of twenty twenty four. So nothing or no news to report there. On the China side, had been pretty challenging, especially with larger clients there in China. What I would say is we've had some success and seen some improvement in selling to like a tier below that over the second half of the year, but it's been largely consistent our performance over the course of 2024.

Speaker 2

All right.

Speaker 13

Thanks so much for the color.

Speaker 3

Thank you. Our next question will come from Jason Haas from Wells Fargo. Your line is

Speaker 9

open. Hi, good morning and thanks for taking my questions. I saw the GTS productivity improved from 3Q to 4Q despite the fact that you increased headcount, which can be difficult to drive. And then you made some comments earlier about better execution. So I was curious if you could provide some more color on that in terms of what changes you've made and how you've been able to drive that?

Speaker 9

Thank you.

Speaker 1

So, hey, Pritesh, it's basically the normal stuff, which is we're very focused on making sure we hire the right people. And when we get the right people that we give them right training. And so we're constantly improving our recruiting processes. We also are constantly improving our training. We have a big focus on training.

Speaker 1

And then again, if I look at like the tools we provide our sales force, we're always innovating those tools and those are always taken to another level literally quarter by quarter. And so it's basically who we recruit, how we train them and the tools we give our salespeople.

Speaker 9

Got it. That's helpful. And then there was also a comment earlier about an expectation. I know you don't got to CV, but there's a comment about an expectation that CV growth would continue to accelerate. So, I was hoping you could put a finer point on that.

Speaker 9

Are you seeing that the 7.8% that you reported in 4Q, is that expected to be the bottom here and each quarter should be above that? Or could it potentially be a more sort of rough path from here?

Speaker 5

Yes. Hey, Jason. I think the comment is more that over the course of 2025 and when we exit 2025, we would expect to be higher than 7.8%. As we've talked about in the past, the CV growth rate may not go up in a precisely straight line or that the slope may not be precisely straight, more so that the trend will be that it will exit 2025 higher than 7.8%. And again, and with a goal towards continuing to accelerate to 1st double digit and then to our medium term objective of 12% to 16%.

Speaker 9

Got it. That's very helpful. Thank

Speaker 3

you. Thank you. And I am showing no further questions from our phone lines. I'd now like to turn the call back over to Gene Hall for any closing remarks.

Speaker 1

So here's what I'd like you to take away from today's call. Gartner delivered financial results ahead of expectations. Tech vendor CV growth continues to accelerate. We have a vast addressable market opportunity with a strong and compelling value proposition. Looking ahead, we're well positioned to drive sustained double digit revenue growth over the long term.

Speaker 1

We'll continue to create value for our shareholders by providing actual objective insight, guidance and tools to our clients, prudently investing for future growth, generating free cash flow well in excess of net income and returning capital to our shareholders through our repurchase program. Thanks for joining us today and we look forward to updating you again next quarter.

Speaker 3

Thank you. This concludes today's

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Gartner Q4 2024
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