Gartner, Inc.

Good morning, everyone. Welcome to Gartner's fourth quarter 2024 earnings call. I'm David Cohn, 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. Please be advised that today's conference is being recorded. This call will include a discussion of fourth quarter 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 adjustments as described in our earnings release and supplement. All contract values and associated growth rates we discuss are based on 2024 foreign exchange rates. All growth rates and jeans 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-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC. 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.

Good morning, and thanks for joining us today. Gartner continues to remain resilient in a complex environment. In Q4, contract value grew 8%. Fourth 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. 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 remained 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. 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. 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 governments. we'll apply our insights and best practices to help the US 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. 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 and their teams within IT. GTS knew business through 13%. with double-digit growth in both enterprise leaders and tech vendors. GTS contract value accelerated to 7%, and contract value with tech vendor clients improved for the third consecutive quarter. Global business sales, or GBS, serves leaders and 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%. Gartner conferences deliver extraordinarily valuable insights to an engaged and qualified audience. Conferences revenue grew 17% in the fourth quarter, 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%. Contract optimization revenue was $50 million, which exceeded expectations. Three foundational elements of our long-term success are first, an unrelenting focus on globally consistent execution of Gartner best practices. Second, 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. Tech Denver's EV 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 actionable, 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. With that, I'll hand the call over to our Chief Financial Officer, Craig Safian.

Thank you, Gene, and good morning. Fourth quarter contract value growth accelerated to almost 8%. Revenue, EBITDA, adjusted EPS, and free cash flow were better than expected as we continued to execute well in a complex environment. Our financial performance for the full year of 2024 included global contract value growth of 8%, consolidated revenue growth of 6%, EBITDA of $1.6 billion, diluted adjusted EPS of $14.09, and free cash flow of $1.4 billion. We repurchased more than $735 million 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. Fourth quarter revenue was $1.7 billion, up 8% year-over-year as reported, and FX neutral. In addition, total contribution margin was 66%. EBITDA was $417 million, up 8% as reported and 9% FX neutral. Adjusted EPS was $5.45, up 79% versus Q4 2023. This includes a benefit and a quarter from our tax planning initiatives. And free cash flow was $311 million, 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 an excellent position from a talent and tenure perspective with a strong hiring plan for the coming year. Research revenue in the fourth quarter grew 5% year over year as reported and 6% FX neutral. Subscription revenue grew 8% on an FX-neutral basis. Non-subscription revenue was in line with our expectations and guidance. Fourth quarter research contribution margin was 74%, consistent with the prior year period. For the full year 2024, research revenue increased by 5%, as reported in FX-neutral. The gross contribution margin for the year was 74%. Contract value, or CV, was $5.3 billion at the end of the fourth quarter, up 8% versus the prior year. Quarterly net contract value increase, or NCVI, was $220 million. As we've discussed in the past, there is notable seasonality in this metric. For the fourth quarter, CV from enterprise function leaders across GTS and GBS grew 9%. CV from tech vendors accelerated for the third consecutive quarter. CV growth was broad-based across practices, industry sectors, company sizes, and geographic regions. 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 billion at the end of the fourth quarter, up 7% versus the prior year. GTS-CV increased $165 million from the third 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. 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 $1.2 billion at the end of the fourth 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. GBS-CV increased $55 million from the third quarter. Wallet retention for GBS was 106% for the quarter, reflecting strong net growth with our existing clients. GBS new business was up 15% compared to last year. GBS quarter-bearing headcount was up 9% versus the fourth quarter of 2023. We are planning double-digit QBH growth for GBS in 2025. As with GTS, a regular, full set of GBS metrics can be found in our earnings supplements. 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 a larger than normal revaluation. As you build your 2025 models, please remember to use the updated data as the baseline for your forecasting. Conferences revenue for the fourth quarter was $251 million, 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 of 2024, we delivered revenue of $583 million, which was an increase of 15% on a reported and FX neutral basis. Full year gross contribution margin was 48%. We made investments during the year for conference launches and the expansion of existing conferences. Fourth quarter consulting revenue of $153 million increased 19% compared with the fourth quarter of 2023. Consulting contribution margin was 35% in the fourth quarter. Labor-based revenue was $104 million, up 4% versus Q4 of last year as reported and on an FX neutral basis. Backlog at December 31st was $192 million, increasing 17% year-over-year on an FX neutral basis on strength in multi-year contracts. We delivered $50 million of contract optimization revenue in Q4. The quarter was very strong with more and larger deals compared with last year. About $8 million were pulled forward from the first quarter of 2025. Our contract optimization revenue is highly variable. Full-year consulting revenue was up 9% on a reported and FX-neutral basis. Gross contribution margin was 36%, compared to 35% in 2023. Consolidated cost of services increased 9% year-over-year in the fourth 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&A increased 10% year-over-year in the fourth quarter as reported and on an FX neutral basis. SG&A increased in the quarter as a result of headcount growth, mostly in sales. EBITDA for the fourth quarter was $417 million, an increase of 8% as reported and 9% on an FX neutral basis. Fourth quarter EBITDA upside to our guidance primarily reflected stronger-than-expected revenue performance. EBITDA for the full year was almost $1.6 billion, a 5% increase over 2023 on a reported basis and up 6% FX neutral. Depreciation in the quarter of $29 million was up 10% compared to 2023 and similar to Q3. Net interest expense, excluding deferred financing costs in the quarter, was $11 million. This was an improvement of $8 million versus the fourth quarter of 2023 due to higher interest income on our cash balances. The Q4 adjusted tax rate, which we used 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 fourth 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 million shares outstanding in the fourth quarter. This is a reduction of about 1 million shares or about 1% year-over-year. We exited the fourth quarter with just under 78 million 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 million, up 50% compared to last year with a working capital timing benefit in the quarter. CapEx for Q4 was $24 million, about $4 million less than the prior year. Free cash flow for the quarter was $311 million, up 59% compared to last year. Free cash flow for the full year was almost $1.4 billion, 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. At the end of the fourth quarter, we had about $1.9 billion of cash. Our December 31st debt balance was about $2.5 billion. Our reported gross debt to trailing 12-month EBITDA was under two 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 purchases and strategic duck-in M&A. Our balance sheet is very strong, with $2.6 billion of liquidity, low levels of leverage, and effectively fixed interest rates. We repurchased $102 million of stock during the fourth quarter and more than $735 million for the full year. At the end of December, we had more than $900 million 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 US dollar has strengthened significantly. We expect FX will be around a two 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 three primary factors. 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. First 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. With the U.S. federal government, we ended 2024 with around $270 million of CV, which is 5% of the total. Our contracts are spread widely across agencies and departments. Around 85% of U.S. federal CV is in GTS. Almost all the U.S. federal contracts are for one year, with renewals spread across the year. 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. 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. We expect gross margins in the second quarter to be the highest of the year for the conference segment. We have very good visibility into 2025 revenue with a 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. It's seasonally slower in the first quarter. We pulled forward about $8 million in 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 2024 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 conference's calendar and annual merit increases. 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. The most important way we invest for long-term sustained double-digit growth is by increasing our sales headcounts. 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 billion, which is FX-neutral growth of about 6%. The guidance reflects FX-neutral research subscription revenue growth near 8%, consistent with 2024 CV growth. We expect conferences revenue of at least $625 billion, which is FX neutral growth of about 10%. We expect consulting revenue of at least $565 billion, which is FX neutral growth of about 2%. The result is an outlook for consolidated revenue of at least $6.555 billion, which is FX neutral growth of 6%. We expect full-year EBITDA of at least $1.51 billion. 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. We expect 2025 adjusted EPS of at least $11.45 per share. For 2025, we expect free cash flow of at least $1.14 billion. This reflects a conversion from gap net income of about 140%. Our guidance is based on 78 million shares, which only assumes repurchases to offset deletion. Finally, for the first quarter of 2025, we expect to deliver EBITDA of at least $345 million. We performed well in 2024 despite continuing global macro uncertainty and a dynamic tech vendor market. We finished the year with high single-digit CV growth. Revenue, EBITDA, EPS, and free cash flow performance exceeded our expectations and the guidance we set a year ago. We repurchased about $735 million in stock during 2024 and more than $4 billion over the past four 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. 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&A leverage, we will expand EBITDA margins modestly over time. We 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 up front. and we'll continue to deploy our capital on share purchases, which will lower the share count over time, and on strategic value-enhancing tuck-in M&A. With that, I'll turn the call back over to the operator, and we'll be happy to take your questions. Operator?