NYSE:IT Gartner Q2 2023 Earnings Report $416.37 -1.48 (-0.35%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$416.28 -0.09 (-0.02%) As of 04/25/2025 07:16 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Gartner EPS ResultsActual EPS$2.85Consensus EPS $2.51Beat/MissBeat by +$0.34One Year Ago EPS$2.85Gartner Revenue ResultsActual Revenue$1.50 billionExpected Revenue$1.48 billionBeat/MissBeat by +$22.23 millionYoY Revenue Growth+9.20%Gartner Announcement DetailsQuarterQ2 2023Date8/1/2023TimeBefore Market OpensConference Call DateTuesday, August 1, 2023Conference Call Time8:00AM ETUpcoming EarningsGartner's Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled at 8:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Gartner Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 1, 2023 ShareLink copied to clipboard.There are 14 speakers on the call. Operator00:00:00Good morning, everyone. Welcome to Gartner's Second Quarter 2023 Earnings Call. I'm David Cohen, SVP of Investor Relations. At this time, all participants are in a listen only mode. After comments by Gene Hall, Gartner's Chief Executive Officer and Craig Safian, Gartner's Chief Financial Officer, There will be a question and answer session. Operator00:00:18Please be advised that today's conference is being recorded. This call will include a discussion of Q2 2023 financial results and Gartner's outlook for 2023 is 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. All contract values and associated growth rates we discuss are based on 2023 foreign exchange rates and exclude contributions related to the Q1 divestiture in the 2022 Russia exit. Operator00:00:54All growth rates in Gene's comments are FX neutral unless stated otherwise. All references to share counts are 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 Web To step forward in more detail in today's earnings release, certain statements made on this call may constitute forward looking statements. Forward looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's 2022 annual report on Form 10 ks Quarterly reports on Form 10 Q as well as on other filings with the SEC encourage all of you to review the risk factors listed in these documents. Now, I will turn the call over to Gartner's Chief Executive Officer, Gene Hall. Speaker 100:01:42Good morning and thanks for joining us today. Gartner drove another strong performance in Q2. We delivered double digit revenue growth and high single digit growth in contract value. EBITDA, EBITDA margins and adjusted EPS came in above expectations as a result of modest revenue upside and Disciplined Cost Management. Free cash flow in the quarter was excellent. Speaker 100:02:07The environment remains highly uncertain. The tech sector continues to adjust to post pandemic demand. The banking industry is grappling with rising interest rates. Many industries continue to be impacted by supply chain challenges and more. Enterprise leaders and their teams need actionable objective insight. Speaker 100:02:27Gartner is the best source for the insight, tools and advice that make the difference between success and failure For these leaders and the enterprises they serve, we're helping our clients make better decisions whether they're thriving, struggling or anywhere in between. We do this through consistent execution of operational best practices. Research continues to be our largest and most profitable segment. We guide leaders across all major enterprise functions. Our market opportunity is fast across all sectors, sizes and geographies. Speaker 100:03:00We estimate our opportunity at around $200,000,000,000 95% of our addressable market is with enterprise function leaders like Chief Information Officers, CFOs, heads of supply chain and more. The balance of the market opportunity is with technology vendors. In the Q2, we helped clients with a wide range of topics, including cybersecurity, data analytics, Artificial intelligence, remote work, cost optimization and more. Research revenue grew 7% in Q2. Subscription revenue grew 9% on an organic basis. Speaker 100:03:40Total contract value growth was 9%. Contract value for enterprise function leaders continued to grow at double digit rates. We serve executives and their teams through distinct sales channels. Global Technology Sales or GTS serves leaders and their teams within IT. GTS also serves leaders at technology vendors, including CEOs, Chief Marketing Officers and Senior Product Leaders. Speaker 100:04:05GTS contract value grew 7%. GTS sales to enterprise function leaders performed well in the quarter. GTS sales to leaders and technology vendors We're affected by technology sector dynamics and tough year over year comparisons. We expect sales to technology vendors will return to our target growth rates over the medium term. Global Business Sales or GBS serves leaders and their teams beyond IT. Speaker 100:04:32This includes HR, supply chain, finance, marketing, sales, legal and more. GBS contract value grew 15%. Through relentless execution of proven practices, we're able to deliver unparalleled value to our clients. Our business remains resilient despite a persistent complicated external environment and tough compares for the technology vendor market. Gartner Conferences deliver extraordinarily valuable insights to an engaged and qualified audience. Speaker 100:05:02This will be the 1st full year of in person conferences since 2019 and we're off to a great start. Attendance is strong. Exhibitor bookings are at record levels and feedback continues to be excellent. We had a great first half and the outlook for the year is strong. Gartner Consulting is an extension of Gartner Research. Speaker 100:05:22Consulting helps clients execute their most strategic initiatives through deeper extended project based work. Consulting is an important complement to our IT Research business. Consulting revenue grew 6% in the Q2. We updated our 2023 guidance, increasing EBITDA and free cash flow. We've revised our non subscription research revenue to reflect technology vendor dynamics and our outlook for conferences is higher. Speaker 100:05:50Craig will take you through the details. In closing, Gartner achieved another strong quarter of growth. We delivered unparalleled value to enterprise leaders and their teams across We're exceptionally agile and continuously adapt to the changing world. We know the right things to do to be successful in any environment. Looking ahead, we are well positioned to continue our sustained record of success far into the future. Speaker 100:06:18Our client value proposition and addressable market opportunity will allow us to drive long term sustained double digit revenue growth. We expect margins will expand modestly over time and we generate significant free cash flow well in excess of net income. Even as we invest for future growth, we'll return significant levels of excess capital to our shareholders. This reduces shares outstanding and increases returns over time. With that, I'll hand the call over to our Chief Financial Officer, Craig Sapien. Speaker 200:06:48Thank you, Gene, and good morning. 2nd quarter results were strong with high single digit growth in contract value and double digit FX neutral revenue growth. EBITDA, EBITDA margins and adjusted EPS were better than expected as a result of modest revenue upside and disciplined cost management. Free cash flow in the quarter was excellent. With good visibility into the balance of the year, we are increasing our 2023 EBITDA and free cash flow guidance. Speaker 200:07:152nd quarter revenue was $1,500,000,000 up 9% year over year as reported and 10% FX neutral. In addition, total contribution margin was 68% compared to 69% in the prior year as we caught up on hiring during 2022. EBITDA was $384,000,000 ahead of our guidance and about in line with last year. Adjusted EPS was $2.85 consistent with Q2 of last year. And free cash flow was $410,000,000 We finished the quarter with 20,104 associates, up 12% from the prior year and 1% from the end of the Q1. Speaker 200:07:54We remain well positioned from a talent perspective with low levels of open territories and our new associates coming up the 10 year curve. We will continue to carefully calibrate headcount and operating expenses based on near term revenue growth and opportunities to invest for the future. Research revenue in the Q2 grew 6% year over year as reported and 7% on an FX neutral basis. Subscription revenue grew 9% on an organic FX neutral basis. 2nd quarter research contribution margin was 73% compared to 74% in the prior year period as we have caught up on hiring and returned to the new expected levels of travel. Speaker 200:08:32Contract value or CV was $4,600,000,000 at the end of the second quarter, up 9% versus the prior year. The Q2 last year was one of our strongest research quarters ever with outstanding performance on nearly every metric we provide. CV growth is FX neutral and excludes the Q1 of 2023 divestiture. CV from enterprise function leaders across GTS and GBS with double digit rates. CV from tech vendors grew low single digits compared to mid teens growth in the Q2 of 2022. Speaker 200:09:07Quarterly net contract value increase or NCVI was $41,000,000 As we've discussed in the past, there's notable seasonality in this metric. TV Growth was broad based across practices, industry sectors, company sizes and geographic regions. Across our combined practices, the majority of industry sectors grew at double digit rates, again led by the transportation, retail and public sectors. We had high single digit growth across all of our enterprise size categories other than small category, which grew mid single digits. This category has the largest tech vendor mix. Speaker 200:09:44We also drove double digit or high single digit growth in the majority of our top 10 countries. Global Technology sales contract value was $3,500,000,000 at the end of the second quarter, up 7% versus the prior year. TPS had quarterly NCVI of $14,000,000 While retention for GTS was 102% for which compares to 107% in the prior year when we saw a record high for this metric. IT enterprise Function leaders wallet retention remained above historical GTS levels during the Q2. GTS new business was down 4% versus last year. Speaker 200:10:23New business with IT enterprise function leaders increased high single digits compared to the prior year against the tough compare. GTS quota bearing headcount was up 13% year over year, reflecting the catch up hiring we did in 2022. We will continue to manage hiring based on both short term performance and the medium term opportunity. Our regular full set of GTS metrics can be found in the appendix of our earnings supplement. Global business sales contract value was $1,000,000,000 at the end of the second quarter, up 15% year over year, which remains towards the higher end our medium term outlook of 12% to 16%. Speaker 200:10:59All of our GBS practices grew at double digit or high single digit rates, again led by supply chain and HR. GBS CV increased $27,000,000 from the Q1. Wallet retention for GBS was 109% for the quarter, which compares to 100 15% in the prior year when we saw one of the highest ever results for this metric. TBS new business was up 2% compared to last year against strong compare. GBS quarter bearing headcount was up 15% year over year. Speaker 200:11:30This excludes headcount associated with the Q1 divestiture. As with GTS, our regular full set of GBS metrics can be found in the appendix of our earnings supplement. Conferences revenue for the Q2 was 169,000,000 dollars ahead of our expectations as we saw strong performance with both exhibitors and attendees. Contribution margin in the quarter was 58% consistent with typical seasonality. We held 17 destination conferences in the quarter, all in person. Speaker 200:11:582nd quarter consulting revenues increased by 5 in the Q2. Labor based revenues were $104,000,000 up 9% versus Q2 of last year and up 11% on an FX neutral basis. Backlog at June 30th was $172,000,000 increasing 17% year over year on an FX neutral basis with continued booking strength. Our contract optimization business is highly variable. We delivered $22,000,000 of revenue in the quarter and the pipeline for both Contract optimization and labor based revenues remained strong. Speaker 200:12:41Consolidated cost of services increased 15% year over year in the Q2 as reported and on an FX neutral basis. The biggest driver of the increase was higher headcount to support our continued strong growth. We also saw an increase in costs year over year with the return to in person conferences. SG and A increased 12% year over year in the 2nd quarter as reported and 14 on an FX neutral basis. SG and A increased in the quarter as a result of headcount growth. Speaker 200:13:08EBITDA for the Q2 was $384,000,000 compared to $389,000,000 in the year ago period. 2nd quarter EBITDA upside to our guidance reflected revenue exceeding our expectations in conferences and Prudent Expense Management. Depreciation in the quarter of $24,000,000 was up modestly compared to 2022. Net interest expense excluding deferred financing costs in the quarter was $23,000,000 This was down $5,000,000 versus the Q2 of 2022 due to higher interest income on our cash balances. The modest floating rate debt we have is fully hedged through maturity. Speaker 200:13:44The Q2 adjusted tax rate, which we use for the calculation of adjusted net income was 25% for the quarter. The tax Rate for the items used to adjust net income was 27% for the quarter. Adjusted EPS in Q2 was $2.85 in line with last year. We had 80,000,000 shares outstanding in the 2nd quarter. This is a reduction of close to 1,000,000 shares or about 1% year over year. Speaker 200:14:09We exited the Q2 with about 80,000,000 shares on an unweighted basis. Operating cash flow for the quarter was $436,000,000 up 5% compared to last year. CapEx for the quarter was $26,000,000 up 21% year over year as a result of an increase in technology investments. Free cash flow for the quarter was $410,000,000 Free cash flow as a percent of revenue on a rolling 4 quarter basis was 17% of revenue 66% of EBITDA. Adjusted for the after tax impact of the Q1 divestiture, free cash flow conversion from GAAP net income was 119%. Speaker 200:14:47Our free cash flow conversion is generally higher when CV growth is accelerating. At the end of the second quarter, we had about $1,200,000,000 of cash. Our June 30 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 $2,200,000,000 of liquidity, Low levels of leverage and effectively fixed interest rates. Speaker 200:15:26We repurchased $132,000,000 of stock during the 2nd quarter. We had about $830,000,000 remaining on our share repurchase authorization at June 30th. We expect the Board to continue to refresh repurchase authorization as needed 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 over time. Speaker 200:15:53We are increasing our full year conferences, EBITDA and free cash flow guidance to reflect the strong Q2 performance. We are updating our research revenue guidance to reflect Tech vendor market dynamics on the non subscription part of the business. For Research, we continue to innovate and provide a very compelling value proposition for clients and prospects. We've got tough compares across most of the segment for another quarter. We expect stronger growth from subscription business than the non subscription part of the segment As we indicated last quarter, the non subscription part of the business has direct exposure to tech vendor spending. Speaker 200:16:28The outlook continues to be based on all of our 47 destination conferences for 2023 running in person. There is seasonality to the business based on the conference's calendar, which is different than the historical pattern. We still expect Q4 to be the largest quarter of the year. We expect Q3 will be the smallest revenue quarter of the year as I noted in May. For consulting revenues, contract optimization remains highly variable. Speaker 200:16:52We had a very strong year in 2022, especially in contract optimization in the Q4. We will continue both to manage expenses prudently to support future growth and deliver strong margins. Our updated 2023 guidance is as follows. We expect research revenue of at least $4,855,000,000 which is FX neutral growth of about 6% or 7% excluding the Q1 divestiture. The update to Research revenue guidance reflects the effect of at Vendor Market Dynamics on the non subscription part of the business. Speaker 200:17:26We expect conferences revenue of at least $490,000,000 which is growth of about 26%. We have increased our outlook for conferences by $20,000,000 We expect consulting revenue of at least $505,000,000 which is growth of about 5% effect neutral, consistent with the outlook we gave in May. The result is an outlook for consolidated revenue of at least $5,850,000,000 which is FX neutral growth of 7%. The guidance reflects an update to non subscription research revenue, partially offset by an increase to conferences. We now expect full year EBITDA of at least $1,360,000,000 up $30,000,000 from our prior guidance and an increase in our margin outlook as well. Speaker 200:18:08We will deliver on our margin guidance in most economic scenarios. If revenue is stronger than our outlook, EBITDA would be better than our guidance. We now expect 2023 adjusted EPS of at least $10 For 2023, we now expect free cash of at least $975,000,000 up $55,000,000 from our prior guidance. This higher free cash flow reflects a conversion from GAAP net income of about 140 percent excluding the after tax divestiture proceeds. Our guidance is based on 80,000,000 fully diluted weighted average shares outstanding, which reflects the repurchases made through the end of June. Speaker 200:18:46Finally, for the Q3 of 2023, we expect EBITDA of at least $275,000,000 We had a strong first half despite continuing global macro uncertainty in a dynamic tech vendor market. CB and revenue grew high single digits in the quarter. Conferences and EBITDA performance exceeded our expectations and we increased our guidance as well. Margins are strong, consistent with our prior commentary. Free cash flow was strong in the quarter and we increased the guidance for the full year. Speaker 200:19:16We repurchased over $230,000,000 in stock during the first half We remain committed to returning excess capital to our shareholders. And we have ample liquidity that we are ready to deploy on behalf of shareholders over the coming quarters. Looking out over the medium term, our financial model and expectations are unchanged. With 12% to 16% Research CV growth, We will deliver double digit revenue growth. With gross margin expansion, sales costs growing in line with CV growth over time and G and A leverage, we can modestly expand margins. Speaker 200:19:46We can grow free cash flow at least as fast as 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. Operator? Speaker 300:20:09Thank you. Now first question coming from the line of Jeff Meuler with Baird. Your line is open. Speaker 400:20:29Yes, thanks. Q2 CV and new business sold seemed solid to me, but just want to make sure to 100% confirm that there was no Change to research non or I'm sorry, research subscription revenue expectations in the guidance that's signaling like Surprising step down recently or incremental slowing recently in CV. And If it's all limited to just the non subs, a $70,000,000 reduction on a $422,000,000 revenue base seems like a big Mid year adjustment, if you can just talk through the dynamics there. Speaker 500:21:07Yes, Jeff, good morning and thanks for the questions. So on the first part of your question, the subscription revenue piece of our business continues to perform Very well. As you noted, we do have the tech vendor dynamics impacting the business, but GBS continues to be very strong. The IT end user portion of GTS continues very strong. Your point The CV growth for each of those and the new business dynamics for each of those were spot on in the quarter. Speaker 500:21:39And so essentially Yes, the revision to guidance, where we thought we were going to be from a subscription perspective, it's the non sub piece that really impacted The guidance. I think and Gene will hop in here too. The way to think about the impact, so Clearly, as we've talked about, the non sub business has direct exposure to tech vendor marketing spending and that has become Yes, very constrained over the last few quarters and more constrained in the first half of this year. And that's essentially what's impacting that business. We do believe That when the tech vendor market stabilizes that this will get back to being a great growth business for us, just like it will within the GPS Subscription part of the business as well. Speaker 500:22:30We're just dealing with a little bit of those temporary dynamics that we're talking about. And again, having 2 quarters of history to be able then to look forward With the facts we saw in the first half of the year that led to that revision, but again solely on the non subscription part of the business. Speaker 400:22:53Okay. And then when I hear about tech vendor marketing spend weakness, obviously, we see that in the broader landscape. So what's happening In your non subs business and research directionally makes sense, but the thing that I would worry about is, does Conferences revenue also get hit again or get hit at some point and I get that the conference's attendance is strong, but It seems surprising to me that the exhibitor bookings are doing as well as they are in conferences against that landscape. And Maybe if you could compare and contrast like if there's a major client difference or if it's just The value prop is so strong or if how you think about I guess future risk on exhibitor bookings in conferences? Thank you. Speaker 600:23:42Hi, Jeff. So our conferences business, as a great business, has great value proposition, is doing extremely well. On the attendee side, we're seeing great growth across the board. We're expanding a number of conferences as quickly as we can do it operationally because we're seeing such great take up. On the exhibitor side, similarly, because we have such great attendees, it's very attractive to exhibitors. Speaker 600:24:02And our exhibitor bookings have been very strong In line with Speaker 700:24:06what we've seen last year, Speaker 600:24:07which were also extremely strong. And it's because of the great value proposition we have with both our attendees and with the exhibitors. Speaker 400:24:16Okay. Thank you. Speaker 300:24:20Thank you. We're on for next question. And our next question coming from the line of Heather Balsky with Bank of America. Your line is open. Speaker 800:24:29Hi, thank you very much. You just kind of talked about your Enterprise business and how it's holding up strong and you talked about it running up double digits this quarter. I'm just curious quarter to quarter, I guess 2Q versus 1Q, how that business is trending? Are you where you see demand going in the current environment? And potentially what you think some of the catalysts are in either direction? Speaker 800:24:57Thanks. Speaker 500:25:01Good morning, Heather. Thanks. I think the trends on the enterprise function leader part of the business were pretty consistent From Q1 to Q2, so nothing within the quarter and really nothing too much from a variability perspective from Q1 Q2. So those businesses continue to perform very well. And our expectation is they continue to perform Very well. Speaker 500:25:27So nothing really to see there from a monthly perspective or from a quarter to quarter perspective. Speaker 800:25:36Okay. That's helpful. Thank you. And with regards To your outlook for the tech vendors, you talked about that you see it returning to Sure. Your normalized run rate growth over the midterm. Speaker 800:25:53And then I think you just mentioned that it's probably more of a short term trend. I'm just curious kind of Are you seeing any signs of potential improvement as you move to the year or even to 2024? Or just Curious why you're talking more over the midterm versus the short term? Speaker 600:26:12Thanks. Hey, Heather, it's Gene. So what I'd say is on a short term basis, No change Q1 and Q2 in terms of tech vendor demand, very similar with the exception of the Non subscription business, which is we've talked about. It's our perspective that what happened was going to the tech industry is That demand got pulled forward during the recession during the pandemic and that so there was some demand that was already built then And demand will get back to trend once sort of a little time elapses. And how long it takes? Speaker 600:26:45We don't know. But we believe the technology business will get back Trend in the medium term. Speaker 800:26:52Appreciate it. Thank you. Speaker 300:26:55Thank you. And our next question coming from the line of Toni Kaplan with Morgan Stanley. Your line is open. Speaker 900:27:03Thanks so much. I was hoping that you could talk about the current client spending appetite. If you're seeing Cost cutting or if you're seeing just business as usual, it sounds like the subscription business is performing well, And it's just this tech vendor piece that's having a little bit of a hiccup. So just wanted to get any color on the overall customer environment. Speaker 600:27:29Yes. So, hey, Tony. So as you pointed out, contract value for enterprise function leaders continue to grow at double digit rates. I will say while we're growing there that more decision can be escalated and there's more scrutiny than there was like a year ago. So it's a tougher environment In terms of West Relations, at the end of the day, people see our value and buy, which is why we've had that great performance. Speaker 900:27:53Terrific. Wanted to ask about whether AI could actually be a help for you With regard to adding additional seats across the enterprise, are you thinking that Corporations will start to need an AI strategy across some of the GBS lines like finance, legal, HR, could that lead to additional seats? And then similarly within GTS, Could that lead to additional seats as well? Or do you view this as being sort of similar to prior technology trends like cloud and so Therefore, it's just a change of topic. Thanks. Speaker 600:28:36I expect it's a little bit in between actually that it is a change of topics, But there's more kind of intense interest in the topic of AI than there was in such a short period with cloud. Give you a flavor of it, we did more than 22,000 interactions in the first half. This is one on one calls with our experts on the subject of AI, Which is higher than any other single topic and at the rate of growth is very high. We're seeing a lot of demand with enterprises that we hadn't seen before where they're saying, hey, please come in and talk to us about AI. We expect that that will be a positive for our business. Speaker 500:29:18And sorry, Tony, I mean the only thing I'd add is just underscore your point on This is a broad applicability of AI being a little bit different than some other topics because to your point, finance leaders care about it, legal leaders care about it, HR leaders care about it in addition to IT leaders and their teams caring about it. So there is the potential that it is a little More broad based to your point than prior technology wins. Speaker 900:29:47Thanks so much. Speaker 300:29:49Thank you. And our next question coming from the line of Seth Weber with Wells Fargo. Your line is open. Speaker 1000:29:57Hey, good morning guys. I wanted to ask just about the implied EBITDA margin raise for the year. Is that Just a function of mix or is there something else that's supporting the stronger margin outlook for the year? Thanks. Speaker 500:30:13Good morning, Seth. On the margins, as we've talked about, the margins can pop around a little bit quarter to quarter depending on spending trends and where the revenue is trending as well. And so our margins were a little bit higher than We initially anticipated in the first half of the year. And I'd say it's really just a combination of Revenue modestly exceeding our expectations in the first half and expenses modestly being a little bit below our expectations. Said another way, we're Yes, more prudently managing our OpEx as we work our way through the year. Speaker 500:30:54So again, margins Pop around, there's no megatrends there, I would say, other than a little bit of modest revenue upside and us making sure that, again, we talked about In our prepared remarks, really carefully calibrating our headcount levels and our OpEx levels to ensure that we deliver consistently strong margins. Speaker 1000:31:15Got it. Thanks, Craig. And then just on the big ramp in the quota bearing Headcount. Can you just talk to where you think you are from an efficiency perspective for the new hires? Are they kind of on track or Any kind of metrics that you could call out as far as efficiency or productivity goes with the new hires? Speaker 1000:31:36Thanks. Speaker 600:31:37Yes. So we've to your point, we've ramped up our sales force with the lowest number of opens we've had in a long time. And the talent that we've been hiring, if you look at kind of how we track the quality of the talent is very, very high. And we ramped up hiring the most last year. So these people are starting to get A little bit of tenure under their belt and we expect over the next 3 years as they get up to full tenure that actually the productivity will be very good and we're seeing the ramp we'd expect at this point. Speaker 1000:32:06Got it. Thank you, guys. Speaker 300:32:09Thank you. And our next Question coming from the line of Manav Patak with Barclays. Your line is open. Speaker 1100:32:17Thank you. I was just on the margin front, Craig, I think in the call you mentioned T and E is back to normal or something of that effect. So I was just curious, are we at Those normalized levels where you talked about kind of the long term margin being in the low 20s or is there more normalization to occur Still overall with all the different moving pieces? Speaker 500:32:41Yes. Good morning, Manav. It's a great question. So we are back to what we believe Roughly the new normal from both the T and E perspective and last year in particular we were playing catch up On hiring throughout the course of the year. And so, as you look at our operating expenses now, I think we're at a pretty normal level of operating expenses. Speaker 500:33:08And so what we're looking at from Q2 Yes, through the end of this year is normal seasonality from an OpEx perspective with our new normal levels of T and E, Modest headcount growth to make sure that we're investing for the future, etcetera, I kind of baked in. So I think it is a good Normalized, if you will, OpEx level that we're working off of this year. Speaker 1100:33:35Got it. Okay. And then just on the second half, A little bit more specifically, can you just talk about the I suppose the hiring expectations and maybe even just on the cost side, It just seems like it could be it seems a little conservative, but maybe there's some things we're missing here. Speaker 500:33:54Yes. I think there's a few things in there, Manav. So one is the seasonality with our conferences business. We are performing really, really well in conferences and Q4 is by far our largest conference And that means you generally see expenses pop in the Q4 just to deliver those conferences. And then Because it's the Q4 and because we have so many conferences, there's a lot of additional travel and marketing activity that spikes in the Q4 as well, Which again is sort of back to our typical seasonality that we had from an OpEx perspective pre pandemic. Speaker 500:34:34So if you think about OpEx, It's relatively flattish from 2Q to Q3, a little bit of step down because of it's a later conference this quarter And then a pretty big step up in OpEx from Q3 to Q4 driven by the conferences calendar, significant travel to support our conferences calendar And marketing to support the conference's calendar and the close of our year as well. We are Running a number of scenarios and we are planning in a very agile way in terms of The headcount that we plan to add between now and the end of this year. And there's a wide range of scenarios and we've got a wide range of Recruiting scenarios as well. I mean one of the things that we've been very careful about is making sure that we maintain our recruitment capacity, So that when supercharged growth returns, we are more than ready to turn that dial from a recruitment perspective. So we're maintaining our recruitment capacity and we're ready to tune those dials up or down depending You know what the second half of the year looks like predominantly from a contract value growth perspective. Speaker 1100:35:55Got it. Thank you, Craig. Speaker 300:35:58Thank you. And our next question coming from the line of Josh Chen with UBS. Your line is open. Speaker 1200:36:05Hi, good morning. Thanks for taking my questions. I guess on GTS, obviously, the wallet retention is impacted by the overall environment. I was just wondering what you think the trajectory of the GTS wallet retention will be over the coming quarters? Would it Surprise you if it went below 100% or is that too drastic of a scenario? Speaker 500:36:28Hey, Josh, good morning. I think important to Just aggregate the enterprise function leader portion of GTS and the tech vendor portion of GTS. So Yes. Overall, we are still well over 100% on wallet retention and that's with the enterprise function portion of our GTS wallet retention being above historical averages. And so we expect that to continue. Speaker 500:36:57On the tech vendor side, while retention is a rolling 4 quarter metric and so we'll have These more challenging quarters in the number for a little while, but I would say we don't forecast raw retention Or I shouldn't say we don't forecast it. We don't guide while retention or contract value. But given that, the enterprise function leader, part of the GTS business is the predominant part of it, call it, Yes, 70 ish percent of the business that continues to be very strong and that should drive a lot of attention over the coming quarters. Speaker 1200:37:37Okay, that's helpful. Thank you for that. And then on your comment about headcount, I guess, what indicators are you looking for in order to kind of Toggle up or toggle down the recruitment in the second half? Thanks for the color. Speaker 600:37:53Yes. The main thing we look at is what our CD growth is. So we look at what our bookings are and how sales are going, because we want to make sure we match our headcount growth to the amount of bookings that we have. And that kind of helps ensure that our The forms of business going forward is in the right space from both a growth viewpoint as well as a margin viewpoint. Speaker 1200:38:11Okay, great. Thank you both for the color. Speaker 300:38:14Thank you. And our next question coming from the line of Stephanie Moore with Jefferies. Your line is open. Speaker 800:38:22Hi, good morning. Thank you. I wanted to touch on the research Pricing environment, I believe you tend to increase those, in the fall of the year. So just wanted to get an update on How you're thinking about price increases for this year into next? Speaker 500:38:39Yes. Good morning, Stephanie. So I think One of our core goals with pricing is to make sure that at a minimum we are offsetting our projected wage inflation. And so in the past few years when we were seeing higher wage inflation, we went a little bit stronger on the price increase. This year, again, the labor market for the type of people that we are recruiting is still relatively strong. Speaker 500:39:08But the wage inflation, we expect to be a little bit more muted. We're still working through all the details of the price increase, which again, Your point goes into effect in November, but I would suspect it's a little bit lighter than what we've done in the last few years just given Yes, the inflationary environment, particularly wage inflationary environment has abated a little bit. Speaker 800:39:33Great. That's really helpful. I'll leave it at that. Thank you. Speaker 300:39:38Thank you. One moment for our next question. And our next question coming from the line of George Tong with Goldman Sachs. Your line is open. Speaker 700:39:46Hi, thanks. Good morning. Following up on some of the tech vendor non subscription trends, can you talk about which products specifically are seeing reduced demand Due to a slowdown in tech vendor marketing spend and generally is the non subscription demand leading, Coincident or lagging with broader client IT spend? Speaker 500:40:12Hey, George. I just want to clarify your question. So it Which products are most impacted? Is that what the question was? Speaker 700:40:19Yes. Within your non subscription book of Products. Speaker 500:40:24Yes, sure. So within the non subscription part of the business, which again represents Around 8% or less than 10%, let's call it, of our overall research revenue. The predominant way we derive revenue There is through lead generation for tech vendors and really focused on the, I call it nonenterprise IT market, so smaller businesses, etcetera. And Our GTS business is really focused on enterprise tech companies whereas The non subscription business is really focused on a combination of enterprise and really small business focused of Technology Companies. And so that's where we've seen on the small technology companies, the companies Most focused on selling into small businesses. Speaker 500:41:24That's where we've seen the biggest challenge. Again, you've covered All the things that are happening in the tech market, from funding and the overall dynamics there. But as those companies are recalibrating their operating expenses, clearly Marketing and lead gen is a place that they often love to get a big handle on and I think that's what's happening. That said, they are still spending and spending well in that business. And as Gene mentioned earlier, and I think I mentioned 2, we fully expect once the market is recalibrated, it will get back to growing. Speaker 500:42:09But it's predominantly around the lead gen stuff and the focus on lead gen in smaller businesses. Speaker 700:42:18Okay, got it. That's helpful. And then separately, could you talk about how the tech vendor non subscription performance trended Over the course of the quarter, did you see a bottoming? Did you see further deterioration as you move through the quarter? And does your updated guide Assume trends stabilize from 2Q levels or worsen from 2Q levels? Speaker 500:42:42Yes, it's a great question. I think it's been relatively consistent with Normal levels of volatility, week to week and actually even day to day, but trends pretty consistent Q1 to Q2. And what we've modeled into our guide is essentially stabilization from those Q2 levels for the balance of the year. Speaker 700:43:10Got it. Very helpful. Thank you. Speaker 300:43:13Thank you. And our next question coming from the line of Jeb Silber with BMO Capital Markets. Your line is now open. Speaker 1300:43:22Thanks so much. I'm sorry to keep on focusing on the non subscriptions piece. Normally, can you just tell us from a breakdown perspective what percentage comes from tech vendors and what percentage comes from enterprise customers? If we could just focus in on the enterprise customers component of that, can you talk about how that's trending? Speaker 500:43:42Jeff, 100 percent of the revenue comes from tech vendors in the non subscription piece of the part of the business. So 100% of that less than 10% of our overall research business is TechFinder Voci's. Speaker 1300:43:57Okay. I appreciate you clarifying that. Wanted to actually circle back and talk about AI, but the potential impact on your business internally. Do you think it's going to make your analysts more efficient? Do you think you might be able to reduce headcount from an analyst perspective just to take advantage of the technology? Speaker 1300:44:15Any thoughts would be great. Speaker 600:44:17Yes, Jeff. So we're looking at AI from a lot of perspectives. The first and most important one is what I talked about earlier, which is there's Tremendous amount of client demand and we're the best source for clients to get help in AI and it's some tremendous interest with them. So That's the key place that we are most focused on. We actually use AI in our business today. Speaker 600:44:38We have for years in different parts of our business. And so internally, we look at are there cost optimization opportunities we use internally. As I said, we've been doing that. We're increasing the amount of that over time. We're also looking at can we provides customer services using IAI that would be enhanced, all those kinds of things. Speaker 600:45:01All of those I'd say internally, those kinds of uses Are going to be normal course of business being we always focus on improved productivity. There are a lot of tools, a lot of technology is a big part of the toolkit And I just want Speaker 200:45:13to add just one Speaker 600:45:14of those tools improving productivity over time, which we've always been focused on. So I don't see any kind of like some costs dropping by 15% or something because I see more of Part of our ongoing continuous improvement and continuous innovation that we've been doing for years. Speaker 1300:45:28All right. That's really helpful. Thanks so much. Speaker 300:45:32Thank you. And I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Gene Hall for any closing remarks. Speaker 600:45:40So here's what I'd like you to take away from today's call. Gartner drove another strong performance in Q2. We deliver unparalleled value to enterprise leaders and their teams Across every major function, whether they're thriving, struggling or anywhere in between. We're exceptionally agile and continuously adapt to the changing world. We know the right things to do to be successful in any environment. Speaker 600:46:00Looking ahead, we're well positioned to continue our sustained record of success far into the future. Our client value proposition and addressable market opportunity will allow us to drive long term sustained double digit revenue growth. Fixed margins will expand modestly over time and we generate significant free cash flow well in excess of net income. Even as we invest for future growth, We'll return significant levels of excess capital to our shareholders. This produces shares outstanding and increases returns over time. Speaker 600:46:26Thanks for joining us today and we look forward to updating you again next quarter.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallGartner Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Gartner Earnings HeadlinesSelector identified by Gartner® as a Representative Vendor in the 2025 Market Guide for Event Intelligence SolutionsApril 25 at 12:55 PM | finance.yahoo.comFake job seekers are flooding the market, thanks to AIApril 23 at 6:59 PM | cbsnews.comTrump’s Secret Social Security Plan?In less than a decade, Social Security could be out of money. But a surprising plan from Trump’s inner circle may not just save the system — it could unlock a major opportunity for savvy investors. Financial insider Jim Rickards calls it “Social Prosperity,” and says those who act now could see the biggest gains.April 26, 2025 | Paradigm Press (Ad)Will Gartner (IT) be Able to Manage the Current Challenges?April 23 at 11:21 AM | msn.comiGrafx was recognized in the 2025 Gartner® Magic Quadrant™ for Process Mining PlatformsApril 22, 2025 | finance.yahoo.comGartner (NYSE:IT) Price Target Cut to $475.00 by Analysts at BarclaysApril 22, 2025 | americanbankingnews.comSee More Gartner Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Gartner? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Gartner and other key companies, straight to your email. Email Address About GartnerGartner (NYSE:IT) operates as a research and advisory company in the United States, Canada, Europe, the Middle East, Africa, and internationally. It operates through three segments: Research, Conferences, and Consulting. The Research segment delivers its research primarily through a subscription service that include on-demand access to published research content, data and benchmarks, and direct access to a network of research experts. The Conferences segment offers executives and teams in an organization the opportunity to learn, share, and network. The Consulting segment offers market-leading research, custom analysis, and on-the-ground support services. This segment also offers actionable solutions for IT-related priorities, including IT cost optimization, digital transformation, and IT sourcing optimization. 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There are 14 speakers on the call. Operator00:00:00Good morning, everyone. Welcome to Gartner's Second Quarter 2023 Earnings Call. I'm David Cohen, SVP of Investor Relations. At this time, all participants are in a listen only mode. After comments by Gene Hall, Gartner's Chief Executive Officer and Craig Safian, Gartner's Chief Financial Officer, There will be a question and answer session. Operator00:00:18Please be advised that today's conference is being recorded. This call will include a discussion of Q2 2023 financial results and Gartner's outlook for 2023 is 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. All contract values and associated growth rates we discuss are based on 2023 foreign exchange rates and exclude contributions related to the Q1 divestiture in the 2022 Russia exit. Operator00:00:54All growth rates in Gene's comments are FX neutral unless stated otherwise. All references to share counts are 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 Web To step forward in more detail in today's earnings release, certain statements made on this call may constitute forward looking statements. Forward looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's 2022 annual report on Form 10 ks Quarterly reports on Form 10 Q as well as on other filings with the SEC encourage all of you to review the risk factors listed in these documents. Now, I will turn the call over to Gartner's Chief Executive Officer, Gene Hall. Speaker 100:01:42Good morning and thanks for joining us today. Gartner drove another strong performance in Q2. We delivered double digit revenue growth and high single digit growth in contract value. EBITDA, EBITDA margins and adjusted EPS came in above expectations as a result of modest revenue upside and Disciplined Cost Management. Free cash flow in the quarter was excellent. Speaker 100:02:07The environment remains highly uncertain. The tech sector continues to adjust to post pandemic demand. The banking industry is grappling with rising interest rates. Many industries continue to be impacted by supply chain challenges and more. Enterprise leaders and their teams need actionable objective insight. Speaker 100:02:27Gartner is the best source for the insight, tools and advice that make the difference between success and failure For these leaders and the enterprises they serve, we're helping our clients make better decisions whether they're thriving, struggling or anywhere in between. We do this through consistent execution of operational best practices. Research continues to be our largest and most profitable segment. We guide leaders across all major enterprise functions. Our market opportunity is fast across all sectors, sizes and geographies. Speaker 100:03:00We estimate our opportunity at around $200,000,000,000 95% of our addressable market is with enterprise function leaders like Chief Information Officers, CFOs, heads of supply chain and more. The balance of the market opportunity is with technology vendors. In the Q2, we helped clients with a wide range of topics, including cybersecurity, data analytics, Artificial intelligence, remote work, cost optimization and more. Research revenue grew 7% in Q2. Subscription revenue grew 9% on an organic basis. Speaker 100:03:40Total contract value growth was 9%. Contract value for enterprise function leaders continued to grow at double digit rates. We serve executives and their teams through distinct sales channels. Global Technology Sales or GTS serves leaders and their teams within IT. GTS also serves leaders at technology vendors, including CEOs, Chief Marketing Officers and Senior Product Leaders. Speaker 100:04:05GTS contract value grew 7%. GTS sales to enterprise function leaders performed well in the quarter. GTS sales to leaders and technology vendors We're affected by technology sector dynamics and tough year over year comparisons. We expect sales to technology vendors will return to our target growth rates over the medium term. Global Business Sales or GBS serves leaders and their teams beyond IT. Speaker 100:04:32This includes HR, supply chain, finance, marketing, sales, legal and more. GBS contract value grew 15%. Through relentless execution of proven practices, we're able to deliver unparalleled value to our clients. Our business remains resilient despite a persistent complicated external environment and tough compares for the technology vendor market. Gartner Conferences deliver extraordinarily valuable insights to an engaged and qualified audience. Speaker 100:05:02This will be the 1st full year of in person conferences since 2019 and we're off to a great start. Attendance is strong. Exhibitor bookings are at record levels and feedback continues to be excellent. We had a great first half and the outlook for the year is strong. Gartner Consulting is an extension of Gartner Research. Speaker 100:05:22Consulting helps clients execute their most strategic initiatives through deeper extended project based work. Consulting is an important complement to our IT Research business. Consulting revenue grew 6% in the Q2. We updated our 2023 guidance, increasing EBITDA and free cash flow. We've revised our non subscription research revenue to reflect technology vendor dynamics and our outlook for conferences is higher. Speaker 100:05:50Craig will take you through the details. In closing, Gartner achieved another strong quarter of growth. We delivered unparalleled value to enterprise leaders and their teams across We're exceptionally agile and continuously adapt to the changing world. We know the right things to do to be successful in any environment. Looking ahead, we are well positioned to continue our sustained record of success far into the future. Speaker 100:06:18Our client value proposition and addressable market opportunity will allow us to drive long term sustained double digit revenue growth. We expect margins will expand modestly over time and we generate significant free cash flow well in excess of net income. Even as we invest for future growth, we'll return significant levels of excess capital to our shareholders. This reduces shares outstanding and increases returns over time. With that, I'll hand the call over to our Chief Financial Officer, Craig Sapien. Speaker 200:06:48Thank you, Gene, and good morning. 2nd quarter results were strong with high single digit growth in contract value and double digit FX neutral revenue growth. EBITDA, EBITDA margins and adjusted EPS were better than expected as a result of modest revenue upside and disciplined cost management. Free cash flow in the quarter was excellent. With good visibility into the balance of the year, we are increasing our 2023 EBITDA and free cash flow guidance. Speaker 200:07:152nd quarter revenue was $1,500,000,000 up 9% year over year as reported and 10% FX neutral. In addition, total contribution margin was 68% compared to 69% in the prior year as we caught up on hiring during 2022. EBITDA was $384,000,000 ahead of our guidance and about in line with last year. Adjusted EPS was $2.85 consistent with Q2 of last year. And free cash flow was $410,000,000 We finished the quarter with 20,104 associates, up 12% from the prior year and 1% from the end of the Q1. Speaker 200:07:54We remain well positioned from a talent perspective with low levels of open territories and our new associates coming up the 10 year curve. We will continue to carefully calibrate headcount and operating expenses based on near term revenue growth and opportunities to invest for the future. Research revenue in the Q2 grew 6% year over year as reported and 7% on an FX neutral basis. Subscription revenue grew 9% on an organic FX neutral basis. 2nd quarter research contribution margin was 73% compared to 74% in the prior year period as we have caught up on hiring and returned to the new expected levels of travel. Speaker 200:08:32Contract value or CV was $4,600,000,000 at the end of the second quarter, up 9% versus the prior year. The Q2 last year was one of our strongest research quarters ever with outstanding performance on nearly every metric we provide. CV growth is FX neutral and excludes the Q1 of 2023 divestiture. CV from enterprise function leaders across GTS and GBS with double digit rates. CV from tech vendors grew low single digits compared to mid teens growth in the Q2 of 2022. Speaker 200:09:07Quarterly net contract value increase or NCVI was $41,000,000 As we've discussed in the past, there's notable seasonality in this metric. TV Growth was broad based across practices, industry sectors, company sizes and geographic regions. Across our combined practices, the majority of industry sectors grew at double digit rates, again led by the transportation, retail and public sectors. We had high single digit growth across all of our enterprise size categories other than small category, which grew mid single digits. This category has the largest tech vendor mix. Speaker 200:09:44We also drove double digit or high single digit growth in the majority of our top 10 countries. Global Technology sales contract value was $3,500,000,000 at the end of the second quarter, up 7% versus the prior year. TPS had quarterly NCVI of $14,000,000 While retention for GTS was 102% for which compares to 107% in the prior year when we saw a record high for this metric. IT enterprise Function leaders wallet retention remained above historical GTS levels during the Q2. GTS new business was down 4% versus last year. Speaker 200:10:23New business with IT enterprise function leaders increased high single digits compared to the prior year against the tough compare. GTS quota bearing headcount was up 13% year over year, reflecting the catch up hiring we did in 2022. We will continue to manage hiring based on both short term performance and the medium term opportunity. Our regular full set of GTS metrics can be found in the appendix of our earnings supplement. Global business sales contract value was $1,000,000,000 at the end of the second quarter, up 15% year over year, which remains towards the higher end our medium term outlook of 12% to 16%. Speaker 200:10:59All of our GBS practices grew at double digit or high single digit rates, again led by supply chain and HR. GBS CV increased $27,000,000 from the Q1. Wallet retention for GBS was 109% for the quarter, which compares to 100 15% in the prior year when we saw one of the highest ever results for this metric. TBS new business was up 2% compared to last year against strong compare. GBS quarter bearing headcount was up 15% year over year. Speaker 200:11:30This excludes headcount associated with the Q1 divestiture. As with GTS, our regular full set of GBS metrics can be found in the appendix of our earnings supplement. Conferences revenue for the Q2 was 169,000,000 dollars ahead of our expectations as we saw strong performance with both exhibitors and attendees. Contribution margin in the quarter was 58% consistent with typical seasonality. We held 17 destination conferences in the quarter, all in person. Speaker 200:11:582nd quarter consulting revenues increased by 5 in the Q2. Labor based revenues were $104,000,000 up 9% versus Q2 of last year and up 11% on an FX neutral basis. Backlog at June 30th was $172,000,000 increasing 17% year over year on an FX neutral basis with continued booking strength. Our contract optimization business is highly variable. We delivered $22,000,000 of revenue in the quarter and the pipeline for both Contract optimization and labor based revenues remained strong. Speaker 200:12:41Consolidated cost of services increased 15% year over year in the Q2 as reported and on an FX neutral basis. The biggest driver of the increase was higher headcount to support our continued strong growth. We also saw an increase in costs year over year with the return to in person conferences. SG and A increased 12% year over year in the 2nd quarter as reported and 14 on an FX neutral basis. SG and A increased in the quarter as a result of headcount growth. Speaker 200:13:08EBITDA for the Q2 was $384,000,000 compared to $389,000,000 in the year ago period. 2nd quarter EBITDA upside to our guidance reflected revenue exceeding our expectations in conferences and Prudent Expense Management. Depreciation in the quarter of $24,000,000 was up modestly compared to 2022. Net interest expense excluding deferred financing costs in the quarter was $23,000,000 This was down $5,000,000 versus the Q2 of 2022 due to higher interest income on our cash balances. The modest floating rate debt we have is fully hedged through maturity. Speaker 200:13:44The Q2 adjusted tax rate, which we use for the calculation of adjusted net income was 25% for the quarter. The tax Rate for the items used to adjust net income was 27% for the quarter. Adjusted EPS in Q2 was $2.85 in line with last year. We had 80,000,000 shares outstanding in the 2nd quarter. This is a reduction of close to 1,000,000 shares or about 1% year over year. Speaker 200:14:09We exited the Q2 with about 80,000,000 shares on an unweighted basis. Operating cash flow for the quarter was $436,000,000 up 5% compared to last year. CapEx for the quarter was $26,000,000 up 21% year over year as a result of an increase in technology investments. Free cash flow for the quarter was $410,000,000 Free cash flow as a percent of revenue on a rolling 4 quarter basis was 17% of revenue 66% of EBITDA. Adjusted for the after tax impact of the Q1 divestiture, free cash flow conversion from GAAP net income was 119%. Speaker 200:14:47Our free cash flow conversion is generally higher when CV growth is accelerating. At the end of the second quarter, we had about $1,200,000,000 of cash. Our June 30 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 $2,200,000,000 of liquidity, Low levels of leverage and effectively fixed interest rates. Speaker 200:15:26We repurchased $132,000,000 of stock during the 2nd quarter. We had about $830,000,000 remaining on our share repurchase authorization at June 30th. We expect the Board to continue to refresh repurchase authorization as needed 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 over time. Speaker 200:15:53We are increasing our full year conferences, EBITDA and free cash flow guidance to reflect the strong Q2 performance. We are updating our research revenue guidance to reflect Tech vendor market dynamics on the non subscription part of the business. For Research, we continue to innovate and provide a very compelling value proposition for clients and prospects. We've got tough compares across most of the segment for another quarter. We expect stronger growth from subscription business than the non subscription part of the segment As we indicated last quarter, the non subscription part of the business has direct exposure to tech vendor spending. Speaker 200:16:28The outlook continues to be based on all of our 47 destination conferences for 2023 running in person. There is seasonality to the business based on the conference's calendar, which is different than the historical pattern. We still expect Q4 to be the largest quarter of the year. We expect Q3 will be the smallest revenue quarter of the year as I noted in May. For consulting revenues, contract optimization remains highly variable. Speaker 200:16:52We had a very strong year in 2022, especially in contract optimization in the Q4. We will continue both to manage expenses prudently to support future growth and deliver strong margins. Our updated 2023 guidance is as follows. We expect research revenue of at least $4,855,000,000 which is FX neutral growth of about 6% or 7% excluding the Q1 divestiture. The update to Research revenue guidance reflects the effect of at Vendor Market Dynamics on the non subscription part of the business. Speaker 200:17:26We expect conferences revenue of at least $490,000,000 which is growth of about 26%. We have increased our outlook for conferences by $20,000,000 We expect consulting revenue of at least $505,000,000 which is growth of about 5% effect neutral, consistent with the outlook we gave in May. The result is an outlook for consolidated revenue of at least $5,850,000,000 which is FX neutral growth of 7%. The guidance reflects an update to non subscription research revenue, partially offset by an increase to conferences. We now expect full year EBITDA of at least $1,360,000,000 up $30,000,000 from our prior guidance and an increase in our margin outlook as well. Speaker 200:18:08We will deliver on our margin guidance in most economic scenarios. If revenue is stronger than our outlook, EBITDA would be better than our guidance. We now expect 2023 adjusted EPS of at least $10 For 2023, we now expect free cash of at least $975,000,000 up $55,000,000 from our prior guidance. This higher free cash flow reflects a conversion from GAAP net income of about 140 percent excluding the after tax divestiture proceeds. Our guidance is based on 80,000,000 fully diluted weighted average shares outstanding, which reflects the repurchases made through the end of June. Speaker 200:18:46Finally, for the Q3 of 2023, we expect EBITDA of at least $275,000,000 We had a strong first half despite continuing global macro uncertainty in a dynamic tech vendor market. CB and revenue grew high single digits in the quarter. Conferences and EBITDA performance exceeded our expectations and we increased our guidance as well. Margins are strong, consistent with our prior commentary. Free cash flow was strong in the quarter and we increased the guidance for the full year. Speaker 200:19:16We repurchased over $230,000,000 in stock during the first half We remain committed to returning excess capital to our shareholders. And we have ample liquidity that we are ready to deploy on behalf of shareholders over the coming quarters. Looking out over the medium term, our financial model and expectations are unchanged. With 12% to 16% Research CV growth, We will deliver double digit revenue growth. With gross margin expansion, sales costs growing in line with CV growth over time and G and A leverage, we can modestly expand margins. Speaker 200:19:46We can grow free cash flow at least as fast as 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. Operator? Speaker 300:20:09Thank you. Now first question coming from the line of Jeff Meuler with Baird. Your line is open. Speaker 400:20:29Yes, thanks. Q2 CV and new business sold seemed solid to me, but just want to make sure to 100% confirm that there was no Change to research non or I'm sorry, research subscription revenue expectations in the guidance that's signaling like Surprising step down recently or incremental slowing recently in CV. And If it's all limited to just the non subs, a $70,000,000 reduction on a $422,000,000 revenue base seems like a big Mid year adjustment, if you can just talk through the dynamics there. Speaker 500:21:07Yes, Jeff, good morning and thanks for the questions. So on the first part of your question, the subscription revenue piece of our business continues to perform Very well. As you noted, we do have the tech vendor dynamics impacting the business, but GBS continues to be very strong. The IT end user portion of GTS continues very strong. Your point The CV growth for each of those and the new business dynamics for each of those were spot on in the quarter. Speaker 500:21:39And so essentially Yes, the revision to guidance, where we thought we were going to be from a subscription perspective, it's the non sub piece that really impacted The guidance. I think and Gene will hop in here too. The way to think about the impact, so Clearly, as we've talked about, the non sub business has direct exposure to tech vendor marketing spending and that has become Yes, very constrained over the last few quarters and more constrained in the first half of this year. And that's essentially what's impacting that business. We do believe That when the tech vendor market stabilizes that this will get back to being a great growth business for us, just like it will within the GPS Subscription part of the business as well. Speaker 500:22:30We're just dealing with a little bit of those temporary dynamics that we're talking about. And again, having 2 quarters of history to be able then to look forward With the facts we saw in the first half of the year that led to that revision, but again solely on the non subscription part of the business. Speaker 400:22:53Okay. And then when I hear about tech vendor marketing spend weakness, obviously, we see that in the broader landscape. So what's happening In your non subs business and research directionally makes sense, but the thing that I would worry about is, does Conferences revenue also get hit again or get hit at some point and I get that the conference's attendance is strong, but It seems surprising to me that the exhibitor bookings are doing as well as they are in conferences against that landscape. And Maybe if you could compare and contrast like if there's a major client difference or if it's just The value prop is so strong or if how you think about I guess future risk on exhibitor bookings in conferences? Thank you. Speaker 600:23:42Hi, Jeff. So our conferences business, as a great business, has great value proposition, is doing extremely well. On the attendee side, we're seeing great growth across the board. We're expanding a number of conferences as quickly as we can do it operationally because we're seeing such great take up. On the exhibitor side, similarly, because we have such great attendees, it's very attractive to exhibitors. Speaker 600:24:02And our exhibitor bookings have been very strong In line with Speaker 700:24:06what we've seen last year, Speaker 600:24:07which were also extremely strong. And it's because of the great value proposition we have with both our attendees and with the exhibitors. Speaker 400:24:16Okay. Thank you. Speaker 300:24:20Thank you. We're on for next question. And our next question coming from the line of Heather Balsky with Bank of America. Your line is open. Speaker 800:24:29Hi, thank you very much. You just kind of talked about your Enterprise business and how it's holding up strong and you talked about it running up double digits this quarter. I'm just curious quarter to quarter, I guess 2Q versus 1Q, how that business is trending? Are you where you see demand going in the current environment? And potentially what you think some of the catalysts are in either direction? Speaker 800:24:57Thanks. Speaker 500:25:01Good morning, Heather. Thanks. I think the trends on the enterprise function leader part of the business were pretty consistent From Q1 to Q2, so nothing within the quarter and really nothing too much from a variability perspective from Q1 Q2. So those businesses continue to perform very well. And our expectation is they continue to perform Very well. Speaker 500:25:27So nothing really to see there from a monthly perspective or from a quarter to quarter perspective. Speaker 800:25:36Okay. That's helpful. Thank you. And with regards To your outlook for the tech vendors, you talked about that you see it returning to Sure. Your normalized run rate growth over the midterm. Speaker 800:25:53And then I think you just mentioned that it's probably more of a short term trend. I'm just curious kind of Are you seeing any signs of potential improvement as you move to the year or even to 2024? Or just Curious why you're talking more over the midterm versus the short term? Speaker 600:26:12Thanks. Hey, Heather, it's Gene. So what I'd say is on a short term basis, No change Q1 and Q2 in terms of tech vendor demand, very similar with the exception of the Non subscription business, which is we've talked about. It's our perspective that what happened was going to the tech industry is That demand got pulled forward during the recession during the pandemic and that so there was some demand that was already built then And demand will get back to trend once sort of a little time elapses. And how long it takes? Speaker 600:26:45We don't know. But we believe the technology business will get back Trend in the medium term. Speaker 800:26:52Appreciate it. Thank you. Speaker 300:26:55Thank you. And our next question coming from the line of Toni Kaplan with Morgan Stanley. Your line is open. Speaker 900:27:03Thanks so much. I was hoping that you could talk about the current client spending appetite. If you're seeing Cost cutting or if you're seeing just business as usual, it sounds like the subscription business is performing well, And it's just this tech vendor piece that's having a little bit of a hiccup. So just wanted to get any color on the overall customer environment. Speaker 600:27:29Yes. So, hey, Tony. So as you pointed out, contract value for enterprise function leaders continue to grow at double digit rates. I will say while we're growing there that more decision can be escalated and there's more scrutiny than there was like a year ago. So it's a tougher environment In terms of West Relations, at the end of the day, people see our value and buy, which is why we've had that great performance. Speaker 900:27:53Terrific. Wanted to ask about whether AI could actually be a help for you With regard to adding additional seats across the enterprise, are you thinking that Corporations will start to need an AI strategy across some of the GBS lines like finance, legal, HR, could that lead to additional seats? And then similarly within GTS, Could that lead to additional seats as well? Or do you view this as being sort of similar to prior technology trends like cloud and so Therefore, it's just a change of topic. Thanks. Speaker 600:28:36I expect it's a little bit in between actually that it is a change of topics, But there's more kind of intense interest in the topic of AI than there was in such a short period with cloud. Give you a flavor of it, we did more than 22,000 interactions in the first half. This is one on one calls with our experts on the subject of AI, Which is higher than any other single topic and at the rate of growth is very high. We're seeing a lot of demand with enterprises that we hadn't seen before where they're saying, hey, please come in and talk to us about AI. We expect that that will be a positive for our business. Speaker 500:29:18And sorry, Tony, I mean the only thing I'd add is just underscore your point on This is a broad applicability of AI being a little bit different than some other topics because to your point, finance leaders care about it, legal leaders care about it, HR leaders care about it in addition to IT leaders and their teams caring about it. So there is the potential that it is a little More broad based to your point than prior technology wins. Speaker 900:29:47Thanks so much. Speaker 300:29:49Thank you. And our next question coming from the line of Seth Weber with Wells Fargo. Your line is open. Speaker 1000:29:57Hey, good morning guys. I wanted to ask just about the implied EBITDA margin raise for the year. Is that Just a function of mix or is there something else that's supporting the stronger margin outlook for the year? Thanks. Speaker 500:30:13Good morning, Seth. On the margins, as we've talked about, the margins can pop around a little bit quarter to quarter depending on spending trends and where the revenue is trending as well. And so our margins were a little bit higher than We initially anticipated in the first half of the year. And I'd say it's really just a combination of Revenue modestly exceeding our expectations in the first half and expenses modestly being a little bit below our expectations. Said another way, we're Yes, more prudently managing our OpEx as we work our way through the year. Speaker 500:30:54So again, margins Pop around, there's no megatrends there, I would say, other than a little bit of modest revenue upside and us making sure that, again, we talked about In our prepared remarks, really carefully calibrating our headcount levels and our OpEx levels to ensure that we deliver consistently strong margins. Speaker 1000:31:15Got it. Thanks, Craig. And then just on the big ramp in the quota bearing Headcount. Can you just talk to where you think you are from an efficiency perspective for the new hires? Are they kind of on track or Any kind of metrics that you could call out as far as efficiency or productivity goes with the new hires? Speaker 1000:31:36Thanks. Speaker 600:31:37Yes. So we've to your point, we've ramped up our sales force with the lowest number of opens we've had in a long time. And the talent that we've been hiring, if you look at kind of how we track the quality of the talent is very, very high. And we ramped up hiring the most last year. So these people are starting to get A little bit of tenure under their belt and we expect over the next 3 years as they get up to full tenure that actually the productivity will be very good and we're seeing the ramp we'd expect at this point. Speaker 1000:32:06Got it. Thank you, guys. Speaker 300:32:09Thank you. And our next Question coming from the line of Manav Patak with Barclays. Your line is open. Speaker 1100:32:17Thank you. I was just on the margin front, Craig, I think in the call you mentioned T and E is back to normal or something of that effect. So I was just curious, are we at Those normalized levels where you talked about kind of the long term margin being in the low 20s or is there more normalization to occur Still overall with all the different moving pieces? Speaker 500:32:41Yes. Good morning, Manav. It's a great question. So we are back to what we believe Roughly the new normal from both the T and E perspective and last year in particular we were playing catch up On hiring throughout the course of the year. And so, as you look at our operating expenses now, I think we're at a pretty normal level of operating expenses. Speaker 500:33:08And so what we're looking at from Q2 Yes, through the end of this year is normal seasonality from an OpEx perspective with our new normal levels of T and E, Modest headcount growth to make sure that we're investing for the future, etcetera, I kind of baked in. So I think it is a good Normalized, if you will, OpEx level that we're working off of this year. Speaker 1100:33:35Got it. Okay. And then just on the second half, A little bit more specifically, can you just talk about the I suppose the hiring expectations and maybe even just on the cost side, It just seems like it could be it seems a little conservative, but maybe there's some things we're missing here. Speaker 500:33:54Yes. I think there's a few things in there, Manav. So one is the seasonality with our conferences business. We are performing really, really well in conferences and Q4 is by far our largest conference And that means you generally see expenses pop in the Q4 just to deliver those conferences. And then Because it's the Q4 and because we have so many conferences, there's a lot of additional travel and marketing activity that spikes in the Q4 as well, Which again is sort of back to our typical seasonality that we had from an OpEx perspective pre pandemic. Speaker 500:34:34So if you think about OpEx, It's relatively flattish from 2Q to Q3, a little bit of step down because of it's a later conference this quarter And then a pretty big step up in OpEx from Q3 to Q4 driven by the conferences calendar, significant travel to support our conferences calendar And marketing to support the conference's calendar and the close of our year as well. We are Running a number of scenarios and we are planning in a very agile way in terms of The headcount that we plan to add between now and the end of this year. And there's a wide range of scenarios and we've got a wide range of Recruiting scenarios as well. I mean one of the things that we've been very careful about is making sure that we maintain our recruitment capacity, So that when supercharged growth returns, we are more than ready to turn that dial from a recruitment perspective. So we're maintaining our recruitment capacity and we're ready to tune those dials up or down depending You know what the second half of the year looks like predominantly from a contract value growth perspective. Speaker 1100:35:55Got it. Thank you, Craig. Speaker 300:35:58Thank you. And our next question coming from the line of Josh Chen with UBS. Your line is open. Speaker 1200:36:05Hi, good morning. Thanks for taking my questions. I guess on GTS, obviously, the wallet retention is impacted by the overall environment. I was just wondering what you think the trajectory of the GTS wallet retention will be over the coming quarters? Would it Surprise you if it went below 100% or is that too drastic of a scenario? Speaker 500:36:28Hey, Josh, good morning. I think important to Just aggregate the enterprise function leader portion of GTS and the tech vendor portion of GTS. So Yes. Overall, we are still well over 100% on wallet retention and that's with the enterprise function portion of our GTS wallet retention being above historical averages. And so we expect that to continue. Speaker 500:36:57On the tech vendor side, while retention is a rolling 4 quarter metric and so we'll have These more challenging quarters in the number for a little while, but I would say we don't forecast raw retention Or I shouldn't say we don't forecast it. We don't guide while retention or contract value. But given that, the enterprise function leader, part of the GTS business is the predominant part of it, call it, Yes, 70 ish percent of the business that continues to be very strong and that should drive a lot of attention over the coming quarters. Speaker 1200:37:37Okay, that's helpful. Thank you for that. And then on your comment about headcount, I guess, what indicators are you looking for in order to kind of Toggle up or toggle down the recruitment in the second half? Thanks for the color. Speaker 600:37:53Yes. The main thing we look at is what our CD growth is. So we look at what our bookings are and how sales are going, because we want to make sure we match our headcount growth to the amount of bookings that we have. And that kind of helps ensure that our The forms of business going forward is in the right space from both a growth viewpoint as well as a margin viewpoint. Speaker 1200:38:11Okay, great. Thank you both for the color. Speaker 300:38:14Thank you. And our next question coming from the line of Stephanie Moore with Jefferies. Your line is open. Speaker 800:38:22Hi, good morning. Thank you. I wanted to touch on the research Pricing environment, I believe you tend to increase those, in the fall of the year. So just wanted to get an update on How you're thinking about price increases for this year into next? Speaker 500:38:39Yes. Good morning, Stephanie. So I think One of our core goals with pricing is to make sure that at a minimum we are offsetting our projected wage inflation. And so in the past few years when we were seeing higher wage inflation, we went a little bit stronger on the price increase. This year, again, the labor market for the type of people that we are recruiting is still relatively strong. Speaker 500:39:08But the wage inflation, we expect to be a little bit more muted. We're still working through all the details of the price increase, which again, Your point goes into effect in November, but I would suspect it's a little bit lighter than what we've done in the last few years just given Yes, the inflationary environment, particularly wage inflationary environment has abated a little bit. Speaker 800:39:33Great. That's really helpful. I'll leave it at that. Thank you. Speaker 300:39:38Thank you. One moment for our next question. And our next question coming from the line of George Tong with Goldman Sachs. Your line is open. Speaker 700:39:46Hi, thanks. Good morning. Following up on some of the tech vendor non subscription trends, can you talk about which products specifically are seeing reduced demand Due to a slowdown in tech vendor marketing spend and generally is the non subscription demand leading, Coincident or lagging with broader client IT spend? Speaker 500:40:12Hey, George. I just want to clarify your question. So it Which products are most impacted? Is that what the question was? Speaker 700:40:19Yes. Within your non subscription book of Products. Speaker 500:40:24Yes, sure. So within the non subscription part of the business, which again represents Around 8% or less than 10%, let's call it, of our overall research revenue. The predominant way we derive revenue There is through lead generation for tech vendors and really focused on the, I call it nonenterprise IT market, so smaller businesses, etcetera. And Our GTS business is really focused on enterprise tech companies whereas The non subscription business is really focused on a combination of enterprise and really small business focused of Technology Companies. And so that's where we've seen on the small technology companies, the companies Most focused on selling into small businesses. Speaker 500:41:24That's where we've seen the biggest challenge. Again, you've covered All the things that are happening in the tech market, from funding and the overall dynamics there. But as those companies are recalibrating their operating expenses, clearly Marketing and lead gen is a place that they often love to get a big handle on and I think that's what's happening. That said, they are still spending and spending well in that business. And as Gene mentioned earlier, and I think I mentioned 2, we fully expect once the market is recalibrated, it will get back to growing. Speaker 500:42:09But it's predominantly around the lead gen stuff and the focus on lead gen in smaller businesses. Speaker 700:42:18Okay, got it. That's helpful. And then separately, could you talk about how the tech vendor non subscription performance trended Over the course of the quarter, did you see a bottoming? Did you see further deterioration as you move through the quarter? And does your updated guide Assume trends stabilize from 2Q levels or worsen from 2Q levels? Speaker 500:42:42Yes, it's a great question. I think it's been relatively consistent with Normal levels of volatility, week to week and actually even day to day, but trends pretty consistent Q1 to Q2. And what we've modeled into our guide is essentially stabilization from those Q2 levels for the balance of the year. Speaker 700:43:10Got it. Very helpful. Thank you. Speaker 300:43:13Thank you. And our next question coming from the line of Jeb Silber with BMO Capital Markets. Your line is now open. Speaker 1300:43:22Thanks so much. I'm sorry to keep on focusing on the non subscriptions piece. Normally, can you just tell us from a breakdown perspective what percentage comes from tech vendors and what percentage comes from enterprise customers? If we could just focus in on the enterprise customers component of that, can you talk about how that's trending? Speaker 500:43:42Jeff, 100 percent of the revenue comes from tech vendors in the non subscription piece of the part of the business. So 100% of that less than 10% of our overall research business is TechFinder Voci's. Speaker 1300:43:57Okay. I appreciate you clarifying that. Wanted to actually circle back and talk about AI, but the potential impact on your business internally. Do you think it's going to make your analysts more efficient? Do you think you might be able to reduce headcount from an analyst perspective just to take advantage of the technology? Speaker 1300:44:15Any thoughts would be great. Speaker 600:44:17Yes, Jeff. So we're looking at AI from a lot of perspectives. The first and most important one is what I talked about earlier, which is there's Tremendous amount of client demand and we're the best source for clients to get help in AI and it's some tremendous interest with them. So That's the key place that we are most focused on. We actually use AI in our business today. Speaker 600:44:38We have for years in different parts of our business. And so internally, we look at are there cost optimization opportunities we use internally. As I said, we've been doing that. We're increasing the amount of that over time. We're also looking at can we provides customer services using IAI that would be enhanced, all those kinds of things. Speaker 600:45:01All of those I'd say internally, those kinds of uses Are going to be normal course of business being we always focus on improved productivity. There are a lot of tools, a lot of technology is a big part of the toolkit And I just want Speaker 200:45:13to add just one Speaker 600:45:14of those tools improving productivity over time, which we've always been focused on. So I don't see any kind of like some costs dropping by 15% or something because I see more of Part of our ongoing continuous improvement and continuous innovation that we've been doing for years. Speaker 1300:45:28All right. That's really helpful. Thanks so much. Speaker 300:45:32Thank you. And I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Gene Hall for any closing remarks. Speaker 600:45:40So here's what I'd like you to take away from today's call. Gartner drove another strong performance in Q2. We deliver unparalleled value to enterprise leaders and their teams Across every major function, whether they're thriving, struggling or anywhere in between. We're exceptionally agile and continuously adapt to the changing world. We know the right things to do to be successful in any environment. Speaker 600:46:00Looking ahead, we're well positioned to continue our sustained record of success far into the future. Our client value proposition and addressable market opportunity will allow us to drive long term sustained double digit revenue growth. Fixed margins will expand modestly over time and we generate significant free cash flow well in excess of net income. Even as we invest for future growth, We'll return significant levels of excess capital to our shareholders. This produces shares outstanding and increases returns over time. Speaker 600:46:26Thanks for joining us today and we look forward to updating you again next quarter.Read morePowered by