Gartner Inc (IT) — Q1 2024 Earnings Call Transcript

Good morning, everyone. Welcome to Gartner's First Quarter 2024 Earnings Call. I'm David Cohen, SVP of Investor Relations. 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. Please be advised that today's conference is being recorded. This call will include a discussion of first quarter 2024 financial results and Gartner's outlook for 2024 as disclosed in today's earnings release and earnings supplement, both posted to our website, investor.gartner.com. On the call, unless stated otherwise, all references to EBITDA are for adjusted EBITDA, with the adjustments as described in our earnings release and supplement, while contract values and associated growth rates discussed are based on 2024 foreign exchange rates, while growth rates in Gene's comments are FX neutral, unless stated otherwise. All references to share counts are for fully diluted weighted average share counts, unless stated otherwise. Reconciliations for all non-GAAP numbers we use are available in the Investor Relations section of the gartner.com website. As set forth in more detail in today's earnings release, certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's 2023 annual report on Form 10-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 Chief Executive Officer, Gene Hall.

Good morning, and thanks for joining us today. Gartner remains resilient in a complex environment. In Q1, contract value grew high single digits. Natural results for the quarter were ahead of expectations. We delivered strong profitability and free cash flow, and we increased our guidance for 2024 on an FX neutral basis. The world continues to experience broad geopolitical and economic uncertainty. Higher interest rates and uncertain outlook continue to affect banks. Federal and local governments are struggling to shift priorities. Inflation remains challenging for companies in many sectors, such as health care. Supply chains continue to be strained. We continue to see big shifts in where people work, which is affecting the real estate sector. Cybersecurity continues to be a global and universal threat. Enterprise leaders are just beginning to understand how to leverage artificial intelligence in their organizations. Enterprise leaders and their teams know they need help, and they know Gartner is the best source for that help. We provide the insights, tools and advice to drive smart decisions and achieve stronger performance on their mission-critical priorities. Our insights often make the difference between success and failure for the leaders we work with and the enterprises they serve. Gartner guides the leaders who shape the world. Research continues to be our largest and most profitable segment. Our Research business serves enterprises across all major functions in every industry and every geography. Our market opportunity is vast. We deliver unparalleled value to our clients, whether they're thriving, struggling or anywhere in between. In Q1, our clients experienced more challenging macroeconomic conditions, which led to a tougher selling environment. Because of the incredible value we deliver, contract value in our enterprise functional leader business grew 10%. Our tech vendor clients continue to be affected by sizable layoffs as well as reductions and shifts in venture capital investments. In addition, we had higher than normal levels of tech vendor contracts up for renewal in Q1, as expected. We guided clients through a wide range of challenging topics, including cybersecurity, supply chain optimization, data analytics, leader and manager development, managing emerging risks, cost optimization and more. Artificial intelligence was a topic with a high level of interest across every business function we serve. Gartner serves 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. GTS contract value grew 5%. GTS contract value with enterprise function leaders grew at high single digits. 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 grew 12%. Gartner Conferences deliver valuable insights to a highly engaged audience. We had a great start to the year, including the launch of two new Conferences. The outlook for Conferences remains strong. Gartner Consulting is the 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. Consulting revenue grew 7%. Labor-based revenue was up 13%. We drove a strong performance in contract optimization against a tough compare. People are at the heart of our business. I just returned from our sales recognition events where I spent time with some of our top performers. Our sales teams are enthusiastic about our prospects for growth in 2024. They love Gartner's strategy, culture and ability to innovate. Gartner is a place where our associates build lifelong careers in sales and beyond. Looking ahead, we updated our guidance for the stronger dollar and increased revenue, EBITDA, EPS and free cash flow on a FX-neutral basis. In closing, Gartner delivered financial results ahead of expectations and 10% contract value growth with enterprise function leaders. Gartner is well positioned for contract value growth to accelerate as we move through the year. Our client value proposition and addressable market opportunity will allow us to drive long-term sustained double-digit revenue growth. We will continue to create value for our shareholders by providing actionable objective insight to our clients, prudently investing for future growth and returning capital to our shareholders through our share repurchase program. We expect margins will expand modestly over time, and we'll continue to generate significant free cash flow well in excess of net income. All of this and more positions us to continue our sustained record of success into the future. With that, I'll hand the call over to our Chief Financial Officer, Craig Safian.

Thank you, Gene, and good morning. First quarter financial results were better than planned with particular strength in profitability and free cash flow. We remain well positioned for the global CV growth rate to accelerate from the first or second quarter of this year. We are increasing our revenue, profit and free cash flow guidance on an operating basis and updating for the stronger U.S. dollar. We have a lot of capacity for share repurchases and remain eager to buy back stock opportunistically. First quarter revenue was $1.5 billion, up 5% year-over-year as reported and FX neutral. In addition, total contribution margin was 69%, about in line with last year. EBITDA was $382 million, ahead of our guidance and up modestly from the first quarter 2023. Adjusted EPS was $2.93, up 2% from Q1 of last year, and free cash flow was $166 million. Research revenue in the first quarter grew 4% year-over-year as reported and on an FX-neutral basis. Subscription revenue grew 6% FX-neutral. Non-subscription revenue was similar to Q4 2023 following changes we made during the fourth quarter, which we discussed in February. First quarter Research contribution margin was 74%, consistent with last year. Contract value, or CV, was $4.9 billion at the end of the first quarter, up 7% versus the prior year and down about $10 million from the fourth quarter 2023. The NCVI results reflect the higher-than-normal level of tech vendor contracts up for renewal, which we discussed in February. In addition, Q1 is our seasonally smallest quarter for new business. CV from enterprise function leaders across GTS and GBS grew 10%. CV growth is FX neutral. CV growth outside of our tech vendor client base 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 energy, manufacturing and public sectors. CV grew double-digit or high single-digit rates across all enterprise sizes except small, which was about flat and has the largest tech vendor mix. We also drove double-digit or high single-digit growth in the majority of our top 10 countries. Global Technology Sales contract value was $3.8 billion at the end of the first quarter, up 5% versus the prior year. GTS enterprise leader CV increased high single digits. Tech vendor CV was down slightly year-over-year. GTS CV was $22 million lower than the fourth quarter. Wallet retention for GTS was 101% for the quarter, which compares to 104% in the prior year. Enterprise leader wallet retention was consistent with historical levels. As expected, tech vendors were the key driver of the change year-over-year. GTS new business was 1% lower than last year, even as enterprise leader new business increased year-over-year. GTS quota-bearing headcount was down 2% year-over-year. We continue to expect mid-single-digit QBH growth by the end of the year. The near-term hiring focus is in the enterprise leader portion of the business. Our regular full set of GTS metrics can be found in our earnings supplement. Global Business Sales contract value was $1.1 billion at the end of the first quarter, up 12% year-over-year. All of our GBS practices grew at double-digit or high single-digit rates other than sales, which grew mid-single digits. Growth was led by finance, legal and supply chain. GBS CV increased $12 million from the fourth quarter, while retention for GBS was 107% for the quarter, which compares to 110% in the prior year. GBS new business was up 7% compared to last year. GBS quota-bearing headcount was also up 7% year-over-year. As with GTS, our regular full set of GBS metrics can be found in our earnings supplement. Conferences revenue for the first quarter was $70 million, modestly ahead of our expectations during a seasonally small period. We had two successful launches in the quarter: our CFO and Finance Executive Conference in Australia, and our Data & Analytics Summit in Brazil. Contribution margin in the quarter was 33%, consistent with typical seasonality and reflecting investments for future growth. We held 12 destination conferences in the quarter. First quarter Consulting revenues increased by 6% year-over-year to $135 million. On an FX-neutral basis, revenues were up 7%. Consulting contribution margin was 40% in the first quarter. Labor-based revenues were $109 million, up 12% versus Q1 of last year's reported and 13% on an FX-neutral basis. Backlog at March 31 was $188 million, increasing 17% year-over-year on an FX-neutral basis with continued booking strength. Our contract optimization business is highly variable. We delivered $26 million of revenue in the quarter against a tough prior year compare. Consolidated cost of services increased 6% year-over-year in the first quarter as reported and 5% on an FX-neutral basis. The biggest driver of the increase was higher compensation costs. SG&A increased 5% year-over-year in the first quarter as reported and on an FX-neutral basis. SG&A increased in the quarter as a result of headcount growth and higher compensation costs. EBITDA for the first quarter was $382 million, up modestly from last year. First quarter strength compared to our guidance reflected modest revenue upside, effective expense management and a prudent approach to our initial guidance. Depreciation in the quarter of $26 million was up about 10% compared to 2023. Net interest expense, exclusive of deferred financing costs in the quarter, was $18 million. This is favorable by $9 million versus the first quarter of 2023 due to higher interest income on our cash balances. The modest floating rate debt we have is fully hedged through the third quarter of 2025. The Q1 adjusted tax rate, which we use for the calculation of adjusted net income was 20% for the quarter. The tax rate for the items used to adjust net income was 25% for the quarter. Adjusted EPS in Q1 was $2.93, up 2% compared with last year. We had 79 million shares outstanding in the first quarter. This is a reduction of close to 1 million shares or about 2% year-over-year. We exited the first quarter with about 79 million shares on an unweighted basis. Operating cash flow for the quarter was $189 million, up 15% compared to last year. CapEx for the quarter was $23 million, up modestly year-over-year. Free cash flow for the quarter was $166 million. Free cash flow as a percent of revenue on a rolling 4-quarter basis was 18% of revenue and 72% of EBITDA. Free cash flow conversion from GAAP net income was 135%. Our free cash flow conversion is generally higher when CV growth is accelerating. At the end of the first quarter, we had about $1.2 billion of cash. Our March 31 debt balance was about $2.5 billion. During the quarter, we closed on a new 5-year $1 billion unsecured revolving credit facility. Outstanding borrowings from the existing credit agreement were rolled over into the new unsecured revolver. The amount drawn remains fully hedged. Our capital structure is now 100% unsecured. After Moody's upgraded our credit in April, we now have three investment grade ratings from Fitch, S&P and Moody's. Our reported gross debt to trailing 12-month EBITDA was under 2x. 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&A. Our balance sheet is very strong with $1.9 billion of liquidity, low levels of leverage and effectively fixed interest rates. We repurchased $225 million of our stock during the first quarter. We expect the Board will continue to refresh the repurchase authorization as needed going forward. At the end of March, we had about $830 million authorized for repurchases. 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. We are raising our full year guidance on an FX-neutral basis to reflect Q1 performance. The dollar has gotten stronger since we reported in February, which is also incorporated into the guidance. For Research, we continue to innovate and provide a very compelling value proposition for clients and prospects. Executives and their teams face uncertainty and challenges, and they recognize how Gartner can help, regardless of the economic environment. For Research revenue, based on Q1 results and our outlook for the balance of the year, our guidance on an FX-neutral basis is unchanged. The guidance also reflects the CV growth rate reaccelerating this year. New business strength and improvements in retention would lead to upside to our guidance. And Research subscription revenue growth will likely lag CV growth reacceleration by about a quarter or two on an FX-neutral basis. The non-subscription revenue outlook continues to reflect the shift to higher-quality traffic sources we discussed last quarter. We saw pricing stabilizing over the past few months. An improvement in pricing would represent upside to the guidance. The first quarter for Conferences is seasonally small. We continue to expect strong performance for the full year. We expect similar seasonality to what we saw in 2023 with Q4 being the largest quarter, followed by Q2. For Consulting, we continue to see demand for our labor-based services in areas like digital transformation and cost optimization. Contract optimization has had several very strong years and is highly variable. We've incorporated a prudent outlook for this part of the segment. For consolidated expenses, we are investing for future growth, even as we have taken a balanced view of the timing of revenue flowing into the P&L. We recommend thinking about expenses sequentially with notable seasonality driven by the conferences calendar and merit increases. As a reminder, about 1/3 of our revenue and operating expenses are denominated in currencies other than the U.S. dollar. With the strengthening dollar, we now expect FX-neutral growth to be higher than reported growth by about 0.5 point for revenue and around a full point for EBITDA for the full year. Our updated 2024 guidance is as follows. We expect Research revenue of at least $5.115 billion, which is FX-neutral growth of about 5%. First quarter results were about in line with our expectations. We updated for the stronger dollar. We expect Conferences revenue of at least $560 million, which is FX-neutral growth of about 11%. We expect Consulting revenue of at least $525 million, which is growth of about 3% FX-neutral. The result is an outlook for consolidated revenue of at least $6.2 billion, which is FX-neutral growth of 5%. We now expect full year EBITDA of at least $1.455 billion, up $35 million from our prior guidance before the effect of a stronger dollar. We expect typical operating expense seasonality to continue through the rest of the year. We now expect 2024 adjusted EPS of at least $10.90. For 2024, we now expect free cash flow of at least $1.08 billion, up $15 million from our prior guidance. The higher free cash flow reflects a conversion from GAAP net income of 139%. Our guidance is based on 79 million fully diluted weighted average shares outstanding, which reflects the repurchases made through the end of March. And finally, for the second quarter, we expect adjusted EBITDA of at least $390 million. Our financial performance started the year ahead of our plan, despite continuing global macro uncertainty and a dynamic tech vendor market. CV grew high single digits in the quarter, and we expect CV growth to reaccelerate from the first or second quarter of this year. Revenue and EBITDA performance exceeded our expectations, we increased our operating guidance and incorporated the stronger U.S. dollar into the outlook. Free cash flow was strong in the quarter, and we increased the guidance for the full year. We repurchased about $225 million in stock year-to-date through March and 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 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&A. With that, I'll turn the call back over to the operator, and we'll be happy to take your questions.

Hello? Can you hear me?

Yes. Sorry about that. Was hoping you could give more perspective on GTS new business sold trends, and I'm obviously keying in on the year-over-year being a bit weaker this quarter than last. And I think that was one of the factors that you were pointing to for confidence in the CV reacceleration during 2024. So just any perspective? Did it soften at all later in the quarter? Was it consistent with your plan?

Jeff, it's Craig. Thank you for the question. On the new business side, again, you need to really differentiate between what we're seeing from a tech vendor perspective and what we're seeing on the enterprise function leader portion of the GTS business. And what we saw was GTS new business for enterprise function leaders was up low single digits year-over-year in the quarter and it was down a little bit year-over-year on the tech vendor side. And so those two dynamics are really what hit us in the first quarter. I would say just on the tech vendor side, and I'm sure we'll talk about this quite a bit as we work through the questions, that we highlighted in February that we had a larger-than-normal amount of contracts coming up for renewal on the tech vendor side. Those were typically 2- or 3-year deals, and so they hadn't been touched in a few years. And obviously, the tech market is very different today than it was a few years ago. And generally, what we're seeing, particularly with our medium to larger-sized tech clients, is they are staying with us, but there is still some recalibration. And what that means is there's less new business than normal on those renewals. Out over the medium term and long term, we expect our tech vendor business to be a 12% to 16% grower, but we're still, and again, you guys can often read the headlines as well as we can, we're still in a pretty challenging tech vendor end market. Gene, I don't know if you want to add.

The only thing to add is that our sales to new tech vendor clients have been strong. What Craig mentioned is that the strength is not in acquiring new clients, but rather in the renewals and the number of digital seats purchased during that process.

Regarding retention, we acknowledge your publicly reported metrics and note that you've highlighted the significant renewals for tech vendors this quarter. My question is whether the renewal rates for the business coming up for renewal are mostly stable on a quarter-to-quarter basis at this stage, indicating that you've just needed to manage the end of those renewals. I'm trying to determine how stable the situation is for upcoming renewals.

Yes. I think, Jeff, it's a great question. We have seen some stability in the retention rates. And generally, if you look at our NCVI in any given quarter, it's a combination of what did we renew and how much new business we sold. And with Q1 being a seasonally very small new business quarter, historically, it's always been that way, coupled with the disproportionate amount of tech vendor contracts we had coming up for renewal, the reason we highlighted that in February is because that makes for a tough math, if you will, on NCVI in a given quarter. We are seeing retention rates stabilize. We do see a strong pipeline across the board in both GTS and GBS. And so again, we firmly believe that contract value growth is going to reaccelerate this year, as we indicated in our prepared remarks. And stable retention rates will certainly be an ingredient in that reacceleration.

I was hoping you could just comment on the first part of the last question, the recalibration and seats as contracts come up for renewal. Are you seeing the large enterprise clients reducing seats? Or was that more of a comment around the tech vendor? And basically, if you could give sort of an outlook on how you think the tech vendor trends go from here and what percent of business is related to tech vendor at this point. You probably gave it. I just missed it.

Toni, it's Gene. There are a few factors at play. Firstly, on the smaller end of the market, companies that secured funding two or three years ago are now facing challenges in obtaining new funding for a couple of reasons. The first is the rise in interest rates, and the second is the significant shift in venture capital interest towards AI. It’s not surprising that AI start-ups are now more appealing to investors compared to the software start-ups they were supporting two years ago. Consequently, as funding for these smaller companies dries up, they struggle more. This trend is benefiting us as we successfully sell to AI start-ups. On the other hand, in the larger segment of the market, companies are laying off tens of thousands of employees, making it a more challenging selling environment than before. As Craig mentioned, the first quarter usually brings the highest number of renewals, representing a tougher start for us, but we anticipate improvements as the year progresses.

And then, Toni, just for context, the tech vendor CV is a little less than 25% of total CV, which is pretty consistent with where we've been over the last several quarters.

Yes, I wanted to ask about AI. You mentioned previously that it hasn't led to increased demand and is more of a topic of interest for clients. Why do you think there isn't an uptick in demand for additional seats in both GTS and GBS? It appears that more individuals within organizations might require knowledge on this subject. Additionally, have you found any ways to leverage AI for improved efficiency or sales?

There is significant interest in AI across all our functional areas, including IT, marketing, sales, finance, and legal. Each function shows a strong enthusiasm for AI, and we have a dedicated research team focused on exploring AI's applications in these areas. Our existing clients are actively looking at our AI research, and when we engage with new clients, AI is a key topic that often helps us secure sales. Two years ago, cloud computing was the primary focus, unlike AI, which is now very much in demand. The shift in interest is evident, and while we are experiencing heightened interest, it’s not that demand suddenly appeared; rather, AI is replacing prior interests. Companies are currently assessing its relevance, trade-offs, and costs, and as they work through these factors, we expect to see continued momentum, which benefits us. It is essential to note that this isn't creating a sudden surge in business but is substituting areas we were previously addressing. Over time, this will positively impact our margins. Internally, we are employing AI primarily in data analytics, leveraging advanced machine learning algorithms and neural networks to deepen our understanding of our operations, which highlights one of our major applications.

I would like to discuss your guidance that suggests CV is expected to start accelerating either after this quarter or the next. It appears that the sales environment has become more challenging, and we are still witnessing layoffs in the tech sector. I'm interested in what observations you have that support your belief that this will be the year we see an inflection point. Additionally, was there anything in the first quarter that you viewed as a positive indicator, considering that the first quarter is typically slower for your business? Please help us understand the confidence you have regarding this inflection.

Heather, let me start. In our first quarter, our enterprise function leaders experienced a 10% growth in customer value, despite a challenging economic environment where decision-making was delayed. We still managed to achieve that 10% growth. Additionally, we noted an increase in renewals from two to three years ago that are set to conclude later this year. Lastly, our future sales pipeline looks very strong. These factors contribute to our confidence that the outlook we provided is quite accurate.

I think our sales team is gaining experience every day, and that increases our confidence in a potential reacceleration. Additionally, we are a learning organization that adapts quickly, always seeking ways to improve even in challenging conditions. We have gained valuable insights from past disruptions and the recent quarters, and we are applying those lessons. We believe this will positively influence our performance and support the anticipated reacceleration.

And another question we got. You talked about the heavy renewals in the quarter, and you've warned us about that. As you think about the renewals coming from the, I guess, sort of peak period for the tech vendor space, how does the rest of the year look in terms of the renewals coming up?

Yes. It’s important that it adds up to 100% over the year. We were a bit weighted in the first quarter with those tech vendor renewals, and it will be more balanced for the rest of the year. This gives us additional confidence. If you examine how the renewals function and the way our new business develops throughout the year, it reinforces our belief that following Q1 or Q2, you will see a reacceleration in the growth rate of total contract value.

I wanted to first ask on operating expenses. Pretty significant upside to your adjusted EBITDA outlook on Q1. Just wondering where the major drivers were relative to your expectations in terms of spend. Any areas in particular where you're getting a bit more efficiency than you had expected and maybe what that means for operating expenses going through the rest of this year?

Andrew, I'd say the OpEx favorability was pretty broad-based. It wasn't any one particular area where we harvested significant savings. I would say the FX rate actually helped a little bit there, too. It obviously hurts on revenue, but helps on expenses. And so we have dialed in the savings in the areas that we saw in Q1. Some of that is timing. Some of that we're going to catch up on. And some of that is real savings. And so the new guidance reflects what we learned from Q1 from an OpEx perspective. But don't overlook the foreign exchange. As we talked about, the dollar has strengthened quite a bit. And about 1/3 of our operating expenses are denominated in currencies outside of the U.S. dollar. And so those pretty large movements can actually impact the reported OpEx and revenue pretty significantly, but again all reflected now in the new guide.

Got it. That's helpful. And then I wanted to ask about Conferences. I think you said you added two new Conferences in the first quarter. Can you just kind of talk about where you sit in terms of your plans on the Conference build out front? I know you had hoped to have, at some point in the future, a conference in every single region for every single kind of GBS and GTS seat. So if you could just kind of update us on that progress and the momentum in building out that plan.

Yes. And so that is still the plan, right? Strategy is for us to have a destination conference for every major constituency that we serve, role that we serve on every major region or geography in which we operate. And I think the two launches in the first quarter, while small, are indicative of that. And so we've expanded our finance, our CFO conferences to Australia in the first quarter, again, sort of building out that portfolio. And we brought back a Data & Analytics Summit in Brazil, again, because we've got a large business in Brazil, and there's demand for data and analytics. This year, 2024, we're going from 47 conferences last year to 51 in 2024. I would expect us to have a similar sort of build over the next several years as we continue to build out the Conferences portfolio to support the Research business.

The other thing we're doing to Andrew, too, is for some of these existing conferences, we're moving to larger venues so that we actually can accommodate the incremental demand that we're seeing, which is substantial.

Is there a way to estimate how much the elevated renewals in Q1 impacted your CV growth? And I guess, relatedly, absent this elevated renewal impact in Q2, how should we think about the NCVI in Q2 as compared to last year, which should theoretically be a pretty easy comparison, I think?

Thanks, Josh. The combination of the higher-than-usual number of contracts up for renewal and our smallest new business quarter is really central to the story regarding Q1 NCVI and Q1 CV growth. As we look forward, I gauge whether CV growth will accelerate by comparing our expectations for this year’s NCVI with last year’s figures. Last year, in the second quarter, we recorded about $40 million in NCVI across GTS and GBS. For contract value growth to pick up again in Q2, we need to achieve slightly more than that amount year-over-year. In Q3, last year we had approximately $100 million of NCVI, and to continue the reacceleration in the third quarter of 2024, we also need to have slightly more than that. As we consider when this reacceleration will take place, the mix of contracts coming up for renewal, along with our normal business expectations, and our assessments of pipeline, conversion rates, and pipeline velocity, give us confidence that we will see an uptick from either the Q1 or Q2 figures.

Great. I guess, on my follow-up on your sales force tenure, how do you think about the idea of the tenure improving into a time when the environment is not yet fully robust? Do you have to work harder on retaining, so that you can fully take advantage of the sales force when the environment does cooperate? How do you think about that?

Yes, it's a great question. So obviously, when we talk about average productivity and what we've seen historically, those are generally measured in more "normal" operating environments. And so clearly, when it's more challenging from an operating environment perspective, we can see some of the productivity measures or at least the final output productivity measures a little more muted. We also measure the inputs that go into sales. And so how many opportunities are being added? How quickly are those things advancing through the pipeline? How often are salespeople and service people interacting with their clients? How many prospects are we getting to webinars or the conferences and things like that? So there are other measures beyond just the pure NCVI measure, which is sort of the ultimate measure, but there are other measures that we can look at that give us confidence that our sellers are getting more at that and more experience and are coming up the tenure curve. And then when the economy does stabilize or perhaps even improve, we should be able to see the benefits from that.

Craig, in your prepared remarks, you made a comment around pricing stabilized, that it could be upside to guidance if it improves. So I was just hoping you could just give a little bit more detail on what the pricing, I guess, year-over-year growth is today versus historical. And were you implying that you guys might be raising prices here again?

Manav, just for clarity's sake, the pricing stabilization comment was really specifically about the non-subscription part of our Research business. And so as you recall, coming out of last year, on our February call, we talked a lot about focusing on higher-quality traffic. And by doing that over the medium to long term, we would expect to see improvements in pricing. And so what we saw in the first quarter is some stabilization to pricing, which, again, we view as positive. And as we continue to focus on that higher-quality traffic, if it does convert into better pricing there, that would reflect upside to the existing guidance.

And Manav, the pricing in our subscription business has been completely stable, so there's been no issue there.

Okay. Got it. And then just one quick one. I think the enterprise count is down about 4% year-over-year. I'm guessing a lot of that was the tech vendor challenges you talked about. But just in the context of your CV acceleration you're expecting, can you just remind us again of your hiring plans for the quota-bearing sales force?

Yes, of course, Manav. I'm glad to provide that information. Regarding the enterprise count, your observation is accurate. There is indeed more turnover happening in the small tech sector. As Gene mentioned earlier in our prepared comments, we are successfully adding new clients in this area and maintaining a decent performance; however, this growth is not enough to compensate for the losses. Gene highlighted that many of these clients secured funding two years ago when they signed their contracts, which may no longer be the case today. This encapsulates the main issue concerning the enterprise count. In terms of headcount growth, we are continuing to aim for mid- to high single-digit growth in quota-bearing heads by the end of this year. Given our starting size at the beginning of the year, along with people progressing in their tenure, combined with that expected growth in quota-bearing heads, we should be well-positioned to enhance contract value growth as we move into 2025.

Just following up on some of the tech vendor questions here. On an absolute dollar basis for CV for tech vendor, is the idea that we're close to stabilizing at this point? Or how should we think about the trajectory over the course of the year as you think about CV growth reaccelerating? So is the primary determinant of that where CV for tech vendor ends up? Or how should we think about that?

I believe it's a combination across the portfolio that will drive the reacceleration for CV. Clearly, tech vendor is an important part of that, making up about 25% of total CV. However, we also see opportunities for acceleration in the enterprise function leader segment of our business. As Gene pointed out, that area continues to grow at around 10%, indicating strong growth even in a challenging environment. Essentially, while I don't want to suggest that everything will benefit equally, all three parts of the CV base should experience improvements that contribute to the reacceleration of growth.

Got it. But as a clarification, does CV for tech vendor assume to inflect positively at any point in your guidance at this point?

Surinder, we generally don't guide around contract value. And so, yes, I can't answer that specifically. All I would say is from either the Q1 or Q2 point, we expect total CV to begin to reaccelerate. And certainly, tech vendor CV will contribute there.

Got it. And then just a quick follow-up on the nonsubscription pricing stabilization. It sounds like it stabilized fairly quickly or in the last few months. Is that a fair characterization? And then could the opposite also happen, how quickly could you potentially see improvement? Is that something that we could start to see in the back half of the year? Or how should we think about the potential for when pricing may reaccelerate or normalize?

Yes, Surinder, great question. The pricing is based on the quality of the leads, which refers to the proportion of leads we send that convert into actual clients. Our analysis has shown that increasing this proportion leads to higher prices. However, there's a delay between when we send a higher quality lead and when the pricing adjusts because the vendor needs time to close the deals. Therefore, while we expect prices to rise as we improve lead quality, predicting exactly when this will occur is challenging due to this delay. The companies need to receive and close the leads, acknowledge the new business, and then adjust their pricing accordingly.

Can you discuss how tech vendor trends performed moving through the quarter in the month of April? Are trends still trying to find the bottom? Have you seen any stabilization? Or are you seeing early signs of a positive inflection?

George, I don't think there's anything really to call out month-to-month. I mean, our business, as you know, tends to be very heavily weighted towards the last month of the quarter. And so it's hard to draw inferences or conclusions from January to February to March, et cetera. I guess, all I'd say is we expect that total CV will reaccelerate coming off of either Q1 or Q2. And again, as we just discussed with Surinder, tech vendor will be a piece of that reacceleration.

Okay. Got it. And then with respect to margins, you raised your EBITDA margin outlook for the year from 23% to 23.5%. Typically, revenue upside is what drives the margin upside, and expenses are stable at this point. So what's driving your improved margin outlook? And what are your latest thoughts on what normalized EBITDA margin should be?

Yes. George, great question. So spot on, on your assessment. I guess, I would say a couple of things. So one is that, clearly, our margins are structurally higher today than they were in 2016 or 2019. As you know, there are a lot of factors that can influence margins on a quarter-to-quarter basis or over the course of the year. As it stands right now with coming out of Q1, sort of putting aside foreign exchange for a little bit, we modestly outperformed our expectations or our operating plan on revenue and then had modest upside from an OpEx perspective as well. We have flowed that through the balance of the year, and what you see is a guidance that implies a 23.5% EBITDA margin for the year for 2024. In terms of how to think about future years, we're only one quarter into 2024. We'll give 2025 guidance in February of 2025. But again, a framework or a way to sort of think about it is with the QBH growth that we've got baked into the 2024 plan, we're growing our expenses in high single digits. And that's obviously consistent with our medium-term framework on how we want to run this over the long term to drive long-term sustained double-digit top line growth. Obviously, today, with decelerating CV, that puts a little bit of pressure on the margins as the revenue growth is not as great as the expense growth. That said, we're really disciplined around where we're spending and how we manage our expenses. And we're finding that balance between delivering on our margin expectations and making sure that we are investing appropriately to drive future growth. And then the last thing I'd say is over the medium to long term, there is operating leverage in the business, and we expect to modestly expand our margins each and every year over the medium to long term.

This is Ryan on for Jeff. On the renewal activity over the past couple of quarters, can you compare the terms of those renewals to all the new business you signed 2, 3 years ago? In particular, are you seeing greater preference for longer contracts? And then what sort of price escalators are typically embedded in there, if anything worth calling out?

It's been quite stable and normal. Our standard contract is typically for two years, with around 70% of our contract value coming from multiyear agreements, mostly two-year contracts. We do incorporate price escalators into these multiyear contracts that align with our pricing expectations when we sign. These escalators usually range from 3% to 5% at the anniversary of the contracts. Currently, we are selling about the same number of multiyear contracts as we did 12 to 18 months ago, and our team is dedicated to improving this number. It's advantageous for our economics and beneficial for our clients, as their challenges extend beyond a 12-month period. Thus, signing 24-month or 36-month contracts makes sense from both our business model and the clients’ needs, and this situation has remained consistent.

Got it. And then just on the quarterly cadence, what are the meaningful hiring quarters this year? And then just more broadly, how is the hiring market currently for tech talent?

Let me start with the tech talent market. Our turnover is extremely low, reaching near record lows, which is beneficial as it helps increase employee tenure. On the hiring side, we offer a strong value proposition for associates and have an exceptional recruiting team that effectively communicates this. Consequently, we see a high level of demand, with about 200 applicants for each job, which is significantly above average. This makes us a highly attractive employer, allowing us to hire excellent talent. Additionally, once our employees are on board, we manage to retain them, resulting in our low turnover rate. We focus on both recruiting and retention strategies, and this ongoing improvement is contributing to increased associate tenure, which ultimately enhances productivity over time.

Regarding the timing of hiring, dates can either fall on June 29, reflecting in the second-quarter numbers, or on July 1, impacting the third-quarter numbers. Our primary goal this year is to recruit the right number of individuals to ensure we have an adequate team of sellers ready by 2025. When discussing the mid- to high single-digit year-over-year growth in quota-bearing hires across GTS and GBS, we refer to a measurement from December to December. This is crucial because the hires we make throughout 2024 won't significantly affect that year, but by entering 2025 with skilled and trained individuals, we can positively influence performance in 2025, 2026, and beyond. As we aim for mid- to high single-digit growth in quota-bearing hires, we want to be well prepared as we conclude 2024.

Well, here's what I'd like you to take away from today's call. Gartner delivered financial results ahead of expectations and 10% contract value growth with enterprise function leaders. We have a vast addressable market opportunity. We have a strong value proposition. Looking ahead, we're well positioned to continue our sustained record of success far into the future. We'll continue to create value for our shareholders by providing actual objective insights to our clients, prudently investing for future growth, generating free cash flow well in excess of net income and returning capital to our shareholders through our repurchase program. Thanks for joining us today, and we look forward to updating you again next quarter.