Gartner, Inc. 2026 Q2 Earnings Call

Good morning, everyone. Welcome to Gartner's second quarter 2026 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 Chairman and Chief Executive Officer, and Craig Safian, Gartner's Chief Financial Officer, there'll be a question-and-answer session. We ask that you limit yourself to one question in order to give all our analysts a chance to participate in the call. Please be advised that today's conference is being recorded. This call will include a discussion of second quarter 2026 financial results and Gartner's outlook for 2026, 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 revenue are for adjusted revenue, and all references to EBITDA are for adjusted EBITDA.

In each case, excluding the divested operation and with the adjustments as described in our earnings release and supplement. All contract values and associated growth rates we discuss are FX neutral. 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 2025 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. Thanks for joining us today. Second quarter revenue, EBITDA, adjusted EPS, and free cash flow were ahead of expectations. Return on invested capital was 31%. Client engagement improved again, up 140 basis points compared to last year. Contract value growth accelerated compared to the first quarter. Mid-size enterprise clients across both GTS and GBS grew mid-single digits year-over-year. We saw positive NCVI with our government clients. Wallet retention across both GTS and GBS improved sequentially. We delivered above-average growth in several of our end markets, we remained agile in managing expenses. We have a strong enduring value proposition. Gartner proactively guides C-level executives and their teams across every major enterprise function in every major geography, industry, and market sector on their journeys to achieve their Mission-Critical Priorities. Our insights help clients in four critical areas.

We identify blind spots, see around corners, fill critical information gaps, and prepare for the future. First, we leverage our vantage point across about 13,000 diverse enterprises to help leaders identify blind spots and avoid common pitfalls. Second, we help leaders see around proverbial corners. We guide leaders to understand how today's decisions can impact future performance. Third, we help clients fill critical information gaps. For example, most clients have data on their own performance but lack comparative data that helps them understand how their performance compares to others. Gartner provides access to highly detailed proprietary information, such as fast pricing databases, maturity models, and cost benchmarks that are not available through public sources. Finally, using our extensive knowledge of end-user needs and vendor capabilities, we help our clients determine what the future might look like and how best to prepare.

There's no other alternative where clients can get this kind of value on the full breadth and depth of their Mission-Critical Priorities. AI remains the single most requested topic, including with Chief Information Officers, Chief HR Officers, Chief Sales Officers, Chief Marketing Officers, and more. Demand for support on AI continues to grow. Gartner proactively covers the full range of AI technologies and priorities, AI strategy, domain and multimodal models, AI cybersecurity, physical AI and robotics, AI cloud to edge processing, AI adoption cases, and best practices, and more. Gartner is at the center of the three critical constituencies. We connect more than 80,000 business leaders looking to get value from AI, more than 10,000 CIOs and IT organizations implementing AI, and about 5,000 technology providers building out their AI strategies. In today's world, it's difficult for executives to know which sources they can trust for critical decisions.

Our analysts have deep expertise. They're independent and objective. Clients trust Gartner. We're seeing strong demand for help with AI. We also have strong demand for support on other essential priorities, such as cybersecurity, cost optimization, data and analytics, and more. In today's environment, persistent macroeconomic and geopolitical challenges are creating new and shifting budget pressures. As a result, executives are scrutinizing expenses, escalating approval processes, and delaying decisions. We're taking steps to further strengthen our value proposition to thrive in persistently challenging environments and return to historical growth rates. As we've discussed before, the heart of this change is our Business and Technology Insights transformation. We continue to make progress on this transformation in four key areas: volume, impact, timeliness, and user experience.

The number of documents in our Insights library is up 18%, which allows us to cover a broader range of Mission-Critical Priorities. The number of higher-impact documents is also up double digits. With the rapid pace of change in AI and other areas, it's essential for clients to stay current. To meet this need, the insights we produce immediately after important events are up significantly. Making it easier for clients to access our insights increases the value they receive from us. To address this, we continue to enhance the Gartner digital experience, and we're improving our sales, services and analyst capabilities to deliver value to our clients. With the strong demand we're seeing for help on Mission-Critical Priorities such as AI, a vast and growing library of high-impact, timely insights, and the transformational improvements we're making in our ability to deliver unparalleled client value, we remain optimistic about our future.

We expect contract value growth to continue to accelerate. We will continue to drive strong free cash flow that we can put to use to drive incremental shareholder value. We expect to deliver adjusted EPS on a compound annual basis above 12% over the next three years. With that, I'll hand the call over to our Chief Financial Officer, Craig Safian.

Good morning. Before updating you on the results of the quarter, I'm going to follow up on several points Gene just made. We are making significant progress on our BTI transformation with a focus on delivering even more value to our clients. Macro dynamics and AI are driving uncertainty and affecting enterprises around the world. The data we see across engagement, retention, and growth in multiple end markets reinforces the enduring value of Gartner's expert-led insights. This gives us confidence that this cycle will normalize and CV growth will continue to re-accelerate. Client engagement continues to improve meaningfully, increasing 140 basis points versus last year across both digital and human interactions, underscoring the relevance and the value of our expert insights. Digital engagement improved by more than 110 basis points year-over-year.

Human interactions increased more than 150 basis points year-over-year, including through improvements in the usage of analyst consultations. Wallet retention continues to improve as down-sell activity stabilizes and overall retention rates improve. In-quarter retention rates increased in Q2, providing another important leading indicator of future growth. We continue to win new business with both existing clients and new enterprises. Our clients have conviction in the value we can deliver for them. We are seeing multiple areas of above-average growth, reinforcing the value our clients place on expert insights and guidance. Core GBS subscription products grew 7% in the quarter. The sales practice grew double digits. Finance and legal grew mid-single digits. Conferences revenue increased 12% year-over-year on an organic FX-neutral basis. Mid-sized enterprise delivered mid-single-digit CV growth in the quarter.

Government CV returned to positive NCVI in the quarter and was an important contributor to overall acceleration. We see this as a leading indicator for the broader client base navigating different but analogous spending constraints. Tech vendors, which are among the organizations closest to AI-related advancements, continue to rely on Gartner for timely and actionable insights. Software and services were again our strongest-performing tech vendor subsectors. While some parts of this market are reprioritizing spending as they adapt to a rapidly evolving landscape, demand for our expertise remains healthy. Taken together, these trends demonstrate the resilience of our business model. Even as clients navigate budget pressures and evaluate AI-related investments, total company CV growth accelerated in the quarter. Second quarter contract value, or CV, grew 2% year-over-year. This was the second consecutive quarter of acceleration.

Revenue, EBITDA, adjusted EPS and free cash flow in the second quarter were better than expected. We are increasing our EBITDA, adjusted EPS and free cash flow guidance for the full year. In the second quarter, we reduced our share count by another 5%, buying back $547 million of stock. Rolling four-quarter return on invested capital was 31%, and we expect to generate significant free cash flow and have fewer shares outstanding over the course of the next several years. Second quarter revenue was $1.7 billion, up 3% year-over-year as reported and 2% FX neutral. In addition, total contribution margin was strong at 71%. EBITDA was $466 million, up 6% as reported and 4% FX neutral. Adjusted EPS was $4.37, up 24% from Q2 of last year. Free cash flow was $378 million, up 9% year-over-year.

Insights revenue in the quarter grew 2% year-over-year as reported and 1% FX neutral. Second quarter Insights contribution margin was 77%, up about 140 basis points versus last year. Contract value was $5.3 billion at the end of the second quarter, a sequential increase of 30 basis points from Q1. Year-over-year, CV was up 2%, which is a 70 basis point acceleration from last quarter. Excluding the US federal government, CV growth was 3.3%. At June 30th, we had approximately $125 million of US federal CV. We had about $240 million of new business in the second quarter as there continues to be considerable interest in Gartner's proprietary unbiased Insights. Across GTS and GBS, we saw new business dollars increase by about 10% from Q1. As you may have seen in the earnings supplement, we implemented a minor update to how we present FX neutral KPIs.