$ AAPL

$ ABBV

$ ABNB

$ ACGL

$ ADI

$ ADM

$ ADP

$ ADSK

$ AEE

$ AEP

$ AES

$ AFL

$ AIG

$ AIZ

$ AJG

$ AKAM

$ ALB

$ ALGN

$ ALL

$ AMAT

$ AMCR

$ AMD

$ AME

$ AMGN

$ AMP

$ AMT

$ AMZN

$ ANET

$ AOS

$ APA

$ APD

$ APO

$ APTV

$ ARE

$ ATO

$ AVB

$ AWK

$ AXON

$ BA

$ BALL

$ BAX

$ BBY

$ BDX

$ BEN

$ BG

$ BIIB

$ BKNG

$ BLDR

$ BMY

$ BR

$ BRO

$ BXP

$ CAG

$ CAH

$ CARR

$ CAT

$ CBOE

$ CBRE

$ CCL

$ CDNS

$ CDW

$ CEG

$ CF

$ CHD

$ CHRW

$ CI

$ CINF

$ CL

$ CLX

$ CMCSA

$ CMG

$ CMI

$ CMS

$ COIN

$ COO

$ COP

$ COR

$ CPAY

$ CPT

$ CRL

$ CRWD

$ CSCO

$ CTRA

$ CTSH

$ CTVA

$ CVS

$ CVX

$ CZR

$ DAL

$ DASH

$ DAY

$ DD

$ DDOG

$ DE

$ DELL

$ DG

$ DGX

$ DIS

$ DOC

Gartner beat Q2 expectations on revenue and EPS, but faces margin pressures and US Federal segment headwinds; AI initiatives and capital returns remain key catalysts.

# Gartner Delivers Q2 FY2025 Beat on Revenue and EPS, But Margin Pressures and Federal Headwinds Loom

---

## Executive Summary

- **Gartner Inc. (NYSE: IT) delivered a strong Q2 FY2025**, with **revenue of $1.7B (+5.7% YoY)** and **adjusted EPS of $3.53 (+9.6% YoY)**, both exceeding consensus expectations. The beat was driven by robust recurring revenue streams and solid execution across core segments.
- **Earnings quality remains high**, with adjusted EBITDA up **6.6% YoY** and free cash flow of **$347M (+2.0% YoY)**. However, **operating margin expansion was limited** due to rising costs, including COGS, SG&A, and tariff exposures, resulting in slight margin compression.
- **Management’s tone was bullish**, emphasizing Gartner’s accelerating AI initiatives (AskGartner, 50+ internal AI tools) and ongoing productivity gains. However, the company struck a **cautious note on macro headwinds**, particularly in the US Federal segment, where retention dipped below 50% due to procurement challenges.
- **Guidance was updated conservatively**: while revenue and EBITDA outlooks reflect macro caution, **adjusted EPS guidance was raised** and free cash flow guidance remains robust, signaling confidence in underlying business resilience.
- **Key risks** include persistent cost inflation, tariff exposure (impacting 35–40% of contract value in affected industries), and softness in new business volumes, especially in the GTS segment. **Opportunities** lie in AI-driven productivity and aggressive capital returns, with $274M in share repurchases this quarter and $700M newly authorized.
- **Catalyst watch:** Progress in AI monetization, stabilization in US Federal retention, and further capital return actions will be key for the next 1–2 quarters.

---

## Performance Snapshot

| Metric                | Reported   | Consensus | Surprise | YoY Change |
|-----------------------|------------|-----------|----------|------------|
| Revenue               | $1.7B      | $1.67B    | +$30M    | +5.7%      |
| Adjusted EPS          | $3.53      | $3.40     | +$0.13   | +9.6%      |
| Adjusted EBITDA       | $443M      | $430M     | +$13M    | +6.6%      |
| Free Cash Flow        | $347M      | $340M     | +$7M     | +2.0%      |
| Operating Income      | $327M      | —         | —        | +4.0%      |
| US Federal Retention* | <50%       | —         | —        | -          |

*Not a headline KPI, but a key segment risk.

---

## Earnings Quality

- **Revenue mix remains healthy**, with recurring income streams driving the majority of growth and no material one-offs inflating results.
- **Margin strength was muted**: While operating income grew, **operating margin expansion was limited** due to higher COGS, SG&A, and tariff-related costs. Quota-bearing headcount was flat, reflecting cost discipline but also signaling a cautious approach to growth investments.
- **Profitability outpaced sales growth** at the EPS and EBITDA line, but the divergence is narrowing as cost pressures mount.

---

## Management Commentary & Guidance

- **Management’s tone was confident** on the call, highlighting the company’s AI leadership (AskGartner, 50+ internal AI tools) and productivity initiatives as key differentiators.
- **Guidance was updated with a conservative bias**: Revenue and EBITDA outlooks were trimmed to reflect macro and Federal headwinds, but **adjusted EPS guidance was raised** and free cash flow guidance held steady, reflecting confidence in cost control and capital allocation.
- **Assumptions** include ongoing cost inflation, continued investment in AI, and a gradual recovery in Federal procurement.

---

## Key Risks

- **Cost inflation and margin pressures** from rising COGS, SG&A, and tariffs (impacting 35–40% of contract value in affected industries).
- **US Federal segment risk**: Retention below 50% due to procurement challenges, with potential for further softness if macro headwinds persist.
- **New business softness** in the GTS segment could weigh on future growth if not addressed.

---

## Expected Market Reaction

- **Analyst and investor sentiment is likely positive** given the headline beats, robust capital return, and AI progress.
- However, **margin pressures and Federal headwinds may temper enthusiasm**, with investors watching for signs of sustained cost discipline and stabilization in at-risk segments.

---

## Final Takeaway

- **Gartner delivered a strong quarter on the top and bottom line**, with high-quality earnings and clear progress in AI and capital returns.
- **The market may be underestimating the impact of rising costs and Federal headwinds**, but also underappreciating the long-term value of Gartner’s AI investments and disciplined capital allocation.
- **Upcoming catalysts:** Watch for updates on AI monetization, stabilization in US Federal retention, and further share repurchase activity in the next 1–2 quarters.

Gartner (IT): Q2 Beat, Margin & Federal Risks

Gartner’s Q2 FY25 outlook is supported by strong backlog growth and disciplined cost management, driving margin resilience despite modest revenue growth and rising short interest.

# Gartner, Inc. Q2 FY25 Earnings Preview: Margin Discipline and Backlog Strength Set the Stage for Resilient Results

## Executive Summary

We maintain a **Neutral-to-Bullish** outlook for Gartner, Inc. (NYSE: IT) heading into Q2 FY25, underpinned by **robust contract backlog growth (+6.7% YoY to $5.1B)** and **strong free cash flow generation (up 73% YoY in Q1 to $288M)**. While revenue growth is expected to remain modest (guided base case: **~$1.53B, +4.2% YoY**), management’s focus on cost discipline and operational efficiency should help sustain or slightly improve margins. The market may be underestimating the positive impact of recent cost management initiatives, which could provide a buffer against ongoing margin pressures in the Consulting segment. However, a **30% QoQ rise in short interest** and persistent personnel cost inflation present risks to the near-term outlook.

## Recent Trends Signal What’s Next

Gartner’s last two quarters have demonstrated **steady revenue growth and resilient margins**. Q1 FY25 revenue reached **$1.53B (+4.2% YoY)**, with gross margin holding at **69.0%**. The Research segment continues to anchor performance, delivering **$1.32B in revenue** and a **74% gross margin**. Operating cash flow surged **66% YoY to $314M** in Q1, reflecting strong underlying business health.

### Revenue, Margin, and EPS Trends (Last 4 Quarters)

| Quarter    | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | EPS ($) |
|------------|--------------|------------------|----------------------|---------|
| Q2 FY24    | 1.47         | 68.5             | 21.0                 | 2.85    |
| Q3 FY24    | 1.50         | 68.7             | 21.5                 | 2.90    |
| Q4 FY24    | 1.52         | 68.8             | 21.8                 | 2.95    |
| Q1 FY25    | 1.53         | 69.0             | 22.0                 | 2.98    |

**Trend:** Revenue and margins have shown incremental improvement each quarter, supporting a stable to slightly positive outlook for Q2 FY25.

## Management’s Forward Tone and Positioning

Management’s recent commentary has shifted to a **cautiously optimistic tone**, emphasizing both cost control and selective investment. In the Q1 FY25 call, leadership stated:  
> “Managing our costs to deliver Adjusted EBITDA margin ahead of our initial guidance while also investing for future growth.”  
This marks a subtle pivot from the prior quarter’s focus on “navigating macro uncertainty,” indicating greater confidence in margin management. The explicit mention of “cost discipline” and “future growth” signals a dual focus: protecting near-term profitability while positioning for longer-term expansion.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for Q2 FY25 are **contract backlog, cash flow, and short interest**:

### Key KPI Movements

| KPI                    | Q1 FY24 | Q4 FY24 | Q1 FY25 | YoY Change | QoQ Change |
|------------------------|---------|---------|---------|------------|------------|
| Contract Backlog ($B)  | 4.78    | 4.95    | 5.10    | +6.7%      | +3.0%      |
| Operating Cash Flow ($M)| 189     | 245     | 314     | +66%       | +28%       |
| Free Cash Flow ($M)    | 166     | 232     | 288     | +73%       | +24%       |
| Short Interest (% float)| 3.05    | 3.06    | 3.97    | +30%       | +30%       |

- **Contract Backlog:** The $5.1B backlog (+6.7% YoY) is a strong forward indicator, supporting Q2 revenue recognition and earnings stability.
- **Cash Flow:** Elevated operating and free cash flow provide flexibility to absorb cost pressures and invest in growth.
- **Short Interest:** The 30% QoQ increase in short interest (to 3.97% of float) could amplify downside volatility if sentiment turns negative.

## Missed by the Street

A key overlooked signal is the **proactive cost management** embedded in recent filings. Management’s reference to “investing for future growth” alongside a **73% YoY increase in free cash flow** suggests a more aggressive approach to cost efficiency than consensus models reflect. This could result in **better-than-expected margin resilience** in Q2, even if revenue growth remains modest.

## Scenarios for the Upcoming Quarter

### Q2 FY25 Scenario Table

| Scenario | Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                             |
|----------|--------------|---------|----------------------|-------------------------------------------------------------|
| Bull     | 1.56         | 3.10    | 23.0                 | Strong backlog conversion, accelerated cost controls         |
| Base     | 1.53         | 2.98    | 22.0                 | Modest growth, stable segment mix, continued margin focus    |
| Bear     | 1.50         | 2.90    | 21.0                 | Margin pressure from personnel costs, cautious market demand |

**Most Likely Scenario:** The **Base Case** is most probable, given current backlog strength, management’s cost discipline, and stable segment performance. Upside exists if cost initiatives deliver faster-than-expected margin gains; downside risk centers on Consulting margin pressure and market sentiment.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter    | Revenue ($B) | EPS ($) | Gross Margin (%) | Operating Margin (%) |
|------------|--------------|---------|------------------|----------------------|
| Q2 FY24    | 1.47         | 2.85    | 68.5             | 21.0                 |
| Q3 FY24    | 1.50         | 2.90    | 68.7             | 21.5                 |
| Q4 FY24    | 1.52         | 2.95    | 68.8             | 21.8                 |
| Q1 FY25    | 1.53         | 2.98    | 69.0             | 22.0                 |

### KPI Movement Table

| KPI                    | Q1 FY24 | Q4 FY24 | Q1 FY25 | YoY Change | QoQ Change |
|------------------------|---------|---------|---------|------------|------------|
| Contract Backlog ($B)  | 4.78    | 4.95    | 5.10    | +6.7%      | +3.0%      |
| Operating Cash Flow ($M)| 189     | 245     | 314     | +66%       | +28%       |
| Free Cash Flow ($M)    | 166     | 232     | 288     | +73%       | +24%       |
| Short Interest (% float)| 3.05    | 3.06    | 3.97    | +30%       | +30%       |

### Key Management Quotes

1. **“Managing our costs to deliver Adjusted EBITDA margin ahead of our initial guidance while also investing for future growth.”**  
   *Q1 FY25 Earnings Call*  
   *Interpretation: Margin discipline is a top priority, with selective growth investments.*

2. **“We’re seeing early signs of normalization in demand across our Research segment.”**  
   *Q1 FY25 Earnings Call*  
   *Interpretation: Demand is stabilizing, supporting steady revenue outlook.*

3. **“Personnel costs in Consulting remain elevated, impacting segment margins.”**  
   *Q1 FY25 10-Q*  
   *Interpretation: Ongoing margin pressure in Consulting is a risk factor.*

4. **“Our contract backlog reached a record $5.1 billion, up 6.7% year-over-year.”**  
   *Q1 FY25 Earnings Call*  
   *Interpretation: Strong forward revenue visibility.*

5. **“Free cash flow increased 73% year-over-year, providing flexibility for both investment and shareholder returns.”**  
   *Q1 FY25 Earnings Call*  
   *Interpretation: Enhanced financial flexibility to manage near-term risks.*

6. **“We remain cautious given the macro environment, but our pipeline remains healthy.”**  
   *Q1 FY25 Earnings Call*  
   *Interpretation: Management is balancing optimism with macro caution.*

7. **“Short interest has increased, but remains below industry averages.”**  
   *Q1 FY25 10-Q*  
   *Interpretation: Some market skepticism, but not at alarming levels.*

---

**Bottom Line:** Gartner’s Q2 FY25 is set up for modest revenue growth and stable-to-improving margins, with cost discipline and backlog strength as key supports. Margin pressure in Consulting and rising short interest are risks, but proactive management actions could deliver a slight upside surprise on profitability.

Gartner (IT): Margin Resilience Amid Backlog Strength