Gartner's Q1 Results: Steady Growth Masks Concerns Over New Business
14min read Gartner (NYSE: IT) delivered a mixed bag of results for Q1 2025, showing steady revenue growth and robust cash flow, but also revealing persistent challenges in winning new contracts. While the company’s financial health remains solid, the negative quarterly Net Contract Value Increase (NCVI) across all segments has investors questioning whether the firm can sustain its growth trajectory.
Ask Aime: "Gartner's Steady Revenue Growth Amid Challenges"
The quarter’s highlights include a 4.2% revenue rise to $1.5 billion, driven by strong performance in its Research and Consulting segments. Free cash flow surged 73% to $288 million, reflecting tight cost management. Yet, the $63 million drop in NCVI—a key metric for tracking new business—signals a struggle to attract fresh clients or expand deals with existing ones.
Ask Aime: How can Gartner sustain its growth despite Q1's challenging NCVI?
Segment Performance: Strength in Retention, Weakness in Acquisition
Gartner’s Research division, which accounts for 88% of revenue, grew 4.2% to $1.322 billion, with client retention at a robust 84.4%. However, wallet retention (measuring how much clients spend with Gartner) dipped below 100% for the first time in years, hitting 103.0%. The segment’s negative NCVI of -$58 million highlights that while clients stay, they’re not increasing their budgets with gartner.
Conferences and Consulting segments also posted modest growth (3.6% and 3.7%, respectively), but both saw negative NCVI. Conferences, which host high-profile tech events, reported a same-conference revenue jump of 12.1%, suggesting pricing power. Yet the segment’s NCVI of -$5 million hints at a shrinking pipeline of new event bookings.
The NCVI Problem: A Red Flag for Growth
The $63 million quarterly NCVI decline is the most critical issue here. While Gartner has historically used this metric to gauge new business momentum, the negative trend has now persisted for three quarters. CEO Gene Hall noted that cost discipline and “strategic investments” drove results, but investors are likely asking: Where’s the new growth?
The company’s medium-term targets—12-16% growth in Research, 5-10% in Conferences—are ambitious given the current NCVI drag. If this trend continues, hitting even the lower end of those ranges could prove challenging.
Financial Fortitude and Strategy
Gartner’s balance sheet remains a bright spot. With $2.1 billion in cash and a net debt-to-EBITDA ratio of 0.2x, the company has ample flexibility. It spent $163 million on share buybacks in Q1, leaving $870 million remaining under its current authorization. This focus on returning capital aligns with its goal to keep leverage below 2.5x, which preserves its investment-grade ratings.
The 73% free cash flow surge is a major win, as it gives Gartner room to invest in R&D, M&A, or dividends without overextending. However, the stock’s 3.25% premarket drop on May 6 suggests investors are prioritizing NCVI over cash flow for now.
Guidance and Market Outlook
Gartner reaffirmed its 2025 targets: at least $6.535 billion in revenue, $11.70 in adjusted EPS, and $1.535 billion in adjusted EBITDA. The medium-term goals—10%+ revenue growth with accelerating EPS—rely on improving NCVI, which hasn’t materialized yet.
Analysts will be watching Q2 closely for signs of stabilization in contract value. If NCVI remains negative, pressure could build on management to explain its growth strategy.
Conclusion: A Reliable Cash Generator, But Growth Risks Remain
Gartner’s Q1 results paint a company with two faces: one of financial resilience and the other of unresolved growth concerns. The free cash flow surge and stable client base are positives, but the NCVI slide is a red flag.
The stock’s dip post-earnings reflects this tension. At $426.98, Gartner trades at 36x trailing adjusted EPS—a premium valuation that demands consistent growth. If NCVI turns positive in coming quarters, the stock could rebound. But if the trend continues, the company’s targets may prove overly optimistic.
For now, investors can take comfort in Gartner’s cash flow and capital returns, but the NCVI issue must be resolved to justify the stock’s price. The question isn’t whether Gartner can survive—it’s whether it can thrive.
