Gartner, Inc. (IT) Q1 2019 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the Gartner First Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] as a reminder this conference is being recorded. I would now like to introduce your host for today's conference David Cohen, GVP of Investor Relations. You may begin.

Thank you, Gigi, and good morning, everyone. We appreciate you joining us today for Gartner's first quarter 2019 earnings call. With me today are Gene Hall, Chief Executive Officer; and Craig Safian, Chief Financial Officer. This call will include a discussion of first quarter 2019 financial results and our current outlook for 2019, as disclosed in today's press release. In addition to today's press release, we have provided a detailed review of our financials and business metrics in an earnings supplement for investors and analysts. We have posted a press release and the earnings supplement on our website, investor.gartner.com. Following comments by Gene and Craig , we will open up the call for your questions. We ask that you limit your questions to one and followup. On the call, unless stated otherwise, all references to revenue and contribution margin are for adjusted revenue and adjusted contribution margin, which exclude the deferred revenue purchase accounting adjustments and the 2018 divestures. All references to EBITDA are for adjusted EBITDA, with the adjustments as described in our earnings release and excluding the 2018 divestures. All cash flow numbers unless stated otherwise are as reported with no adjustments related to the 2018 divestures. All growth rates in Gene's comments are FX neutral, unless stated otherwise. In our discussion of global business sales or GBS we will refer to the GXL products. These are the products for business leaders across the enterprise. Gartner for Marketing Leaders is GML; Gartner for Finance Leaders is GFL, and so on. In aggregate, we refer to these products for business leaders as GXL. Reconciliations for all non-GAAP numbers we use are available in the Investor Relations section of the gartner.com website. Finally, all contract values and associated growth rates we discuss are based on 2019 foreign exchange rates. 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 2018 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. We delivered another robust performance in the first quarter of 2019 total revenues were up 11% fueled by double-digit growth in each of our business segments; Research, Conferences, and Consulting. We continue to make a significant global impact. We help more than 15,000 enterprise clients in more than a 100 countries around the world with their mission-critical priorities. We are providing great jobs to more than 15,000 associates globally. Research, our largest and most profitable segment is the core of our value proposition. Our Research business was up 11% over this time last year. As was described on our Investor Day we have the Gartner formula for sustained double-digit growth to drives success in our Research business. It consists of indispensible insights, exceptional talent, sales excellence, and enabling infrastructure. For each of these elements we drive relentless globally consistent execution at best practices and continuous to improve in innovation. Global Technology Sales or GTS serves leaders and teams within IT. This group represents more than 80% of our total research contract value. GTS contract value growth accelerated and is more than 14% year-over-year. Sales productivity once again improved. We again delivered double-digit growth in every region across every size company and in virtually every industry. Global Business Sales or GBS serves leaders and their teams beyond IT and represents about 20% of our total research contract value. This includes supply chain and marketing which we've addressed for several years and as well as other major enterprise roles including HR, finance, legal, sales, and more. Each of these roles has the same need for our services as IT and demand continues to grow. Our new GXL product line gained momentum. GXL products provide greater value to clients because they are tailored to the clients' individual needs. This in turn results in higher prices per user and stronger retention. Beyond better pricing and retention, GXL products provide exponentially more growth opportunities, because we can sell these high value products throughout our clients' organizations. At our Investor Day we shared the growth trends of the individual GXL products. Our GXL products continue to accelerate in line with these trends. For Q1 2019, GXL contract value grew 76% year-over-year and new business was up 84%. As expected, legacy products contract value decline. Total GBS contract value improved modestly sequentially as growth in GXL just offset the decline in legacy contract value. We continue to expect double-digit contract value growth in GBS by the end of the year. Overall our Research segment continues to deliver strong results. Our Conferences segment also delivered a terrific performance in Q1 with double-digit revenue growth of 17%. Garner Conferences combine the outstanding value of our research with immersive experience of live interactions making every conference we produce the most important gathering for the executives we serve. We continue to invest in our conferences portfolio. In GTS we are expanding our flagship conference, Gartner IT Symposium. This year we are holding IT Symposium Conference in Canada. In GBS we're building out our conference portfolio to align with the GBS roles we serve. In early April we held our Gartner Marketing Symposium. The program featured expanded content coverage including a dedicated track for B2B marketers and one for emerging customer market insights. The results for this conference surpassed expectations. Total attendees were up more than 40% to about 1700 attendees. We also plan to launch an Executives Summit just for the finance function within the year and we'll continue to expand our GBS conferences over time. In addition to that, we'll continue making investments in the event business. Our Consulting segment also achieved double-digit growth in Q1 with revenues up 16%. Gartner Consulting is the extension of Gartner Research and provides clients a deeper level of involvement through extended project-based work developed to execute the most strategic initiatives. Our growth in the quarter was a combination of strength and our labor based business and in our contract optimization business. I recently met with many of our top performing sales people from around the world. This includes sales people from GTS, GBS and Conferences. I continue to be inspired by their energy and passion for serving our clients. They have best-in-class sales goals and they continue to embrace and implement the Gartner formula for sustained double-digit growth. Our future at Gartner remains bright. We provided credible value by helping our more than 15,000 enterprise clients with their most important initiatives. Our business model allows us to drive strong double-digit growth in our key metrics including cash flow and we have an incredibly talented team across the business. With this foundation we're on track to achieve sustained double-digit growth in revenues, earnings and cash flow for years to come. With that, I'd like to hand the call over to Craig to give you an in depth view of the quarter. Craig?

Thank you Gene, and good morning everyone. Demand for our services remains robust around the world and in the first quarter we again delivered strong financial results across our three operating segments. As our 2019 outlook demonstrates, we continue to expect to deliver double-digit FX neutral revenue and EBITDA growth with strong free cash flow generation. First quarter revenue was $970 million up 8% on a reported basis and 11% on an FX neutral basis. The product retirements we discussed last quarter impacted topline growth rate by about 1 full point. In addition, contribution margin was 64% up about 100 basis points from the prior year. EBITDA was $142 million down 2% year-over-year and up 0.5% FX neutral, consistent with our expectations as discussed last quarter. Adjusted EPS was $0.58 and free cash flow in the quarter was $35 million. Our Research business had another excellent quarter. Research revenue grew 8% in the first quarter and 11% on an FX neutral basis. First quarter gross contribution margin was 70%. Total contract value was $3.1 billion at March 31, growth of 11.2% versus the prior year. We always report contract value growth in FX neutral terms and we have updated our historical metrics at 2019 FX rates in our earnings supplement. I'll now review the details of our performance for both GTS and GBS. In the first quarter GTS contract value increased 14% versus the prior year, accelerating its growth rate both sequentially and year-over-year. GTS had contract value of $2.5 billion on March 31, representing just over 80% of our total contract value. Client retention for GTS remained strong at 82%, wallet retention for GTS was 105% for the quarter up 130 basis points year-over-year and the highest we've reported for GTS. A combination of the client and wallet retention rates shows how our clients spend more with us each and every year. GTS new business grew 12% versus the first quarter of last year. New business is coming from a mix of new enterprises and growth in existing enterprises through sales of additional services and upgrades. We ended the first quarter with 12,821 GTS clients up 4% compared to Q1 2018. The average contract value for enterprise also continues to grow. It now stands at $198,000 for enterprise and GTS up 10% year-over-year. As we've discussed at Investor Day, we continue to invest in GTS. The investment in headcount growth and improving productivity are driving the GTS acceleration you have seen over the course of 2018 and into the first quarter of 2019. For GTS the year-over-year net contract value increase or NCVI divided by the beginning period quarter bearing headcount was $115,000 per salesperson up 9% versus the first quarter of last year. This is the sixth consecutive quarter of year-over-year productivity improvement. Turning to global business sales, GBS contract value was $595 million at the end of the first quarter or about 20% of our total contract values. CV declined 3/10th of a percent year-over-year but slightly increased sequentially from the fourth quarter of 2018. Many of our GBS metrics are affected by the discontinuation in 2018 of sales of the largest legacy products. As we described last quarter, the discontinuations were based on purposeful strategy that allows our sales teams to focus on GXL products going forward. GXL products continue to gain share and are an important part of our strategy. Looking at total contract value from the GXL products we drove an FX neutral increase of 76% year-over-year from $180 million $208 million continuing the growth we saw in the back half of 2018. Similar to last quarter, on Page 11 we provided a bridge from fourth quarter 2018 to first quarter 2019 CV for GBS and the corresponding bridge from the prior year. We sold $24 million of GXL products new business in Q1, $11 million more than we did in the prior year quarter. While Q1 is generally a seasonally lighter quarter for new business, GXL new business increased by 84% over the prior year quarter. We continue to make great progress with our GXL products across each of the functions GBS serves. More than half of the GXL new in the quarter came from newly launched products. GXL CV now makes up 35% of our total GBS contract value, up 15 percentage points from Q1 of last year. While legacy GBS CV attrition is close to 30%, GXL attrition is around 20%, almost the GTS levels. On a blended basis that's about 27%. We will reduce attrition levels through improving client engagement. We are driving increased client engagement during expansion of our service teams and growing adoption of individualized content and service. For the standalone quarter we saw an improvement in the attrition rates for GBS. For contracts that were up for new in the first quarter, attrition improved by almost 200 basis points over the prior year quarter. Again, this is the result of the increased engagement we've discussed in all of our other retention programs starting to have an impact. We continue to expect to achieve double-digit CV growth in GBS by the end of this year. As we described last quarter and at our Investor Day there are multiple paths to achieving double-digit CV growth by the end of 2019. The combination of improving attrition and corresponding retention rates and continued ramping of GXL new business are the metrics that will get us there. In both GTS and GBS the first quarter is typically our seasonally lightest quarter for new business. And as we discussed last quarter the new business compares get easier as we move through the year. Our pipeline is building and the team has more experience every day. In Conferences revenues increased by 13% year-over-year in Q1 to $52 million. FX neutral growth was 17%. First quarter gross contribution margin was 36% up by 120 basis points compared to the year ago quarter. We had 12 destination conferences in the first quarter. On a same conference FX neutral basis revenues were up 17% with a 6% increase in attendees. The first quarter is a seasonally small quarter, but the results were very strong. First quarter Consulting revenues increased by 12% to $93 million. FX neutral growth was 16%. Consulting gross contribution margin was 31% in the first quarter. Labor based revenues were $79 million up 7% versus Q1 of last year or 11% on an FX neutral basis. Labor based global head count of 739 was up 6%. Utilization was 69%. Backlog ended the quarter at $108 million up 7% year-over-year on a FX neutral basis. We have updated our reporting of backlog to be FX neutral consistent with our practice for research contract value. The updated historical data is in the earnings supplement. Our 2019 pipeline remained strong. The contract optimization services revenues were up over 60% versus the prior year quarter. As we have detailed in the past, this part of the Consulting segment is highly variable. SG&A increased 13% year-over-year in the first quarter or 17% on an FX neutral basis. We continue to grow sales capacity and the enabling infrastructure to support our strategy of delivering sustained double-digit growth over the long-term. The enabling infrastructure includes investments in human resources functions like recruiting and in real estate to support our increased number of associates around the world. As we discussed at Investor Day our largest dollar investments are in GTS where we have seen acceleration in contract value and productivity. We are investing to increase territories, to reduce open rolls, and to drive improvements to sales productivity. Our continuing investment in GCS, the Conferences sales team have been driving faster growth in that segment. We are investing to increase territories, to reduce open territories and to drive productivity. GBS investments are also continuing and we expect to see acceleration this year and going forward. At the end of the first quarter we had 3,917 quota-bearing associates in research. This includes 3049 in GTS and 868 and GBS or growth of 11% and 21% respectively. We expect GBS headcount growth to moderate by the end of the year to approximately 14% to 16%. Adjusted EBITDA for the first quarter was $142 million down 2% on a reported basis and up 0.5% on an FX neutral basis. EBITDA was affected by about 5 percentage points or $6 million impact due to the product retirements. Taking that into consideration, the underlying FX neutral EBITDA growth was about 5% in the quarter. The first quarter is our smallest revenue quarter of the year which contrasts with the expense base that is less seasonal. Depreciation was up about $3 million from last year as additional office space went into service. Amortization was flat sequentially after taking in expected step down in the fourth quarter as some of the acquisition intangibles reached their 18-month lives. Integration expenses were down year-over-year as we have moved passed the biggest part in the integration work. Interest expense in the quarter was $25 million down from $35 million in the first quarter of 2018. The lower interest expense resulted from paying down roughly $700 million in debt over the past year. The Q1 adjusted tax rate which we use for the calculation of adjusted net income was 19.8% for the quarter. First quarter is typically a seasonally low quarter for the tax rate primarily due to equity related excess tax benefits. The tax rate for the items used to adjust net income was 28.5% in the quarter. We still expect our adjusted tax rate to be about 25.5% for the full year, but it may have more quarterly variance this year. As you can see in the disclosure in our 10-Q subsequent to the end of the quarter there was intercompany sale of some intellectual property that will have a material favorable impact on the second quarter adjusted tax rate. Our 2Q EPS guidance includes an adjusted tax rate of 13%. Our full year EPS guidance contemplated 2Q benefit. Adjusted EPS in Q1 was $0.58 with upside relative to our expectations from below the line items including a lower than expected tax rate. In Q1 operating cash flow was $36 million compared to $3 million last year. The increase in operating cash flow was driven by lower interest expense and lower payments for acquisition and integration and other non-recurring items. Q1 2019 CapEx was $20 million and Q1 cash acquisition and integration payments and other nonrecurring items were approximately $20 million as well. This yields Q1 free cash flow of $35 million which is up 30% versus the prior year quarter. It’s worth noting that Q1 of the prior year included free cash flow associated with our divested business. Excluding free cash flow from the divested businesses, our first quarter free cash flow would have been up over 100%. On a rolling four quarter basis our free cash flow conversion was 130% of adjusted net income excluding divested operations. Turning to the balance sheet. We adopted the new lease accounting standard ASC 842 as of January 1, 2019. The impact of this new standard is the recognition on our balance sheet of right-of-use assets of $634 million and an operating lease liability of $836 million. $769 million of the operating lease liability is recorded as a long-term liability with the balance recorded as a current liability. There was no material impact on our income statement from the adoption of this standard. Our March 31 debt balance was about $2.3 billion. Our debt remained 95% fixed rate. Adjusting EBITDA for the divestitures, our gross leverage ratio is now about 3.4 times EBITDA. We repurchased about $45 million of stock in the quarter. We will continue to be price sensitive and opportunistic as we return capital to shareholders. We have about $870 million remaining on our repurchase authorization. Our capital allocation strategy remains the same. We deploy our free cash flow and balance sheet flexibility by returning capital to our shareholders through our buyback programs and through strategic value enhancing M&A. Turning to the outlook for 2019. Revenue, adjusted EBITDA, free cash flow and EPS guidance all remain the same. As I mentioned when discussing the tax rates, we expected our tax rates for the second quarter will be around 13%. Our full-year guidance already reflected a lower 2Q rate. As you think about modeling the rest of the year, we expect mostly typical seasonality for the quarterly phasing. The EBITDA compare is particularly challenging in the third quarter. And lastly our guidance reflects FX rates as of April 30. The dollar strengthened over the course of 2018 and FX is causing roughly 2 point negative impact for our projected 2019 full year growth rates across revenues, adjusted EBITDA, adjusted EPS and free cash flows. The highlights of our full-year 2019 guidance are as follows; we expect revenues of approximately $4.2 billion to $4.3 billion. That is FX-neutral growth of 10% to 13%. In addition to the non-core businesses that we divested over the course of 2018, there were some additional products from the CEB acquisition that we viewed as non-core. We retired these, which is impacting our 2019 total revenue growth rate by about 75 basis points. This is almost $30 million about two thirds of which drops to EBITDA. We expect adjusted EBITDA of $720 million to $765 million, FX neutral growth of 7% to 13%. Again, EBITDA growth this year is impacted by about 3 points from the product retirements we discussed previously. Excluding the product retirements, 2018 EBITDA would have been around $667 million. We expect an adjusted tax rate of around 25.5% for 2019. Please note, that if you are adding back from GAAP net income, the rate for the tax affect on the add backs is also about 25.5%. We expect 2019 adjusted EPS of between $3.82 and $4.19 per share, FX-neutral growth of approximately 7% to 15%. For 2019 we expect free cash flow of $455milion to $485 million. That is projected FX neutral growth of 11% to 19% versus our normalized 2018 free cash flow. All the details of our full-year guidance are included on our investor relations site. Finally, for the second quarter we expect adjusted EPS of about $1.15 to $1.20 per share. We've had a great start to the year with strength across all of our operating segments and improvements in most of our key operating measures. Notably GTS contract value continued to accelerate and sales of our new GXL products and GBS continue to rise. Our Conferences and Consulting businesses both had strong quarters. Free cash flow was up versus last year and conversion was stable. 2019 is trending well so far. We are applying the Gartner Formula across the combined business to drive sustained long-term double-digit growth to revenue, EBITDA and free cash flow. With that, I’ll turn the call back over to the operator and we’ll be happy to take your questions. Operator?

[Operator Instructions] Our first question is from Tim McHugh from William Blair. Your line is now open.

Yes, hello. Just wanted to ask on the, I guess, the productivity on the GBS side, I guess in your comment you said the momentum was still improving, but I guess, look at overall new business sales it feels like there is – I guess, it wasn’t quite as strong as I would have expected, so is it, I guess you’ve seen more of a drop off on the legacy side or help us think about the per person may be productivity of the new business sales on the GBS side as the new GXL products ramp up? Thank you.

Hey Tim, it’s Gene. So, first our durable strategy we have as you know in GBS expanded sales force, get higher productivity as people learn, go up the learning curve, get higher retention because GXL products are high retaining products over time. We also want to expand on the legacy products, improve their retention as well over time which we expect to have. In terms of Q1, Q1 is - in terms of new business is always our seasonally lightest quarter. I’ll give you a flavor for why that happens. We do large share promotions for people between Q4 and Q1. The promotions are higher performers and see what happens is they close up their pipeline in Q4, knowing that they are going to have a new job in Q1, they are not building a pipeline for Q1. Someone else then comes in who has a zero pipeline who is also a new person and anyhow has much more productivity between the combination of the starting zero pipeline and the fact that they are new to the company. And again they were placing it with a higher performance. So as a business our Q1 is always the lightest quarter for new business and across the business including in GTS. And there is really – I’ll tell you one example of this other practices well invested kind of it's operational stuff that’s driving it.

The other thing I’d add Tim, just really quickly is, when you look at productivity remember it is a – it’s a combination of the new business productivity and the retention or attrition depending on which side of the equation you’re looking at. As I mentioned in my remarks for the contracts that came up for renewal over the course of Q1 2019, we saw roughly 200 basis point improvement in retention and again as we’ve talked about with full-year benefit of our retention programs and our real focus on that, we expect to continue to drive our retention improvements over the balance of the year as well.

Maybe on that topic then, can you help us reconcile the client count metrics, I guess, the client retention metrics on the GBS side and I think a little bit also on the GTS side this quarter?

Yes, the one thing I would say about the client counts and this is why we tend to focus more on the Wallet retention numbers than the client retention numbers is, yes, we typically do have churn or higher churn amongst our smaller, lower spending clients. I think that is what happened with the GTS numbers for sure, but we continue to actually add a good number of new enterprises. The mix of new business from new enterprises was pretty consistent with what we’ve seen historically and where actually the enterprises that we keep we’re getting them to spend more and more with us each and every quarter. On the GBS side, again, we’re working through the transition of getting everyone up to speed on GXL. There’s a modest amount of migration going on, but the real focus for the bulk of the sales force is really finding new buying centers within both existing GBS enterprises and new GBS enterprises and selling then GXL.

Okay, thank you.

Thank you. Our next question is from Manav Patnaik from Barclays. Your line is now open.

Thank you very much. So I guess, you know in the Q I think you said that you saw double-digit growth across three quarters of the industry segments, I was just curious, you know, what are the areas where you are not seeing that and I guess is it just post double-digits or what are the headwinds there?

Manav, I think, what we’ve said historically is really no different than what we’ve seen in the past several or even dozen quarters is we saw double – in GTS we saw double-digit contract value growth, in every region, in every company size, and in virtually every industry. There are maybe one or two smaller industries that did not record double-digit growth, but again, it’s no different than what we’ve seen in previous quarters.

Okay, got it. And then just on the GXL products, I mean what does the pipeline there look like in terms of additional GXLs or I guess version 2s or whatever you call it based on the client feedback and so forth you are getting?

Yes, so, it’s Gene. The - our GXL pipeline is building really nicely, that’s why you saw the kind of new business growth we saw in Q1, and as we go forward through the year, as I mentioned earlier, we’d expect that pipeline to continue to build.

The other thing I’d add Manav is, just like everything we do we’re constantly iterating and evolving and improving the products set and so, even though we've launched the new GXL products we don’t stand still and just hang, we’re always looking to make sure we’re consistently improving the product set.

Got it. Thank you.

Thank you. Our next question is from Gary Bisbee from Bank of America. Your line is now open.

Hi, guys. Good morning, so I guess the first question, GTS sales productivity continues to move up and if I just survey the last 12 years annually it’s never risen two years in a row. And so I guess, I wonder, and I'm not suggesting it won’t continue to do well, but given that history, what are you doing different today or what conviction do you have that there’s more room to go with sales productivity in the technology business?

Yes, hey, it’s Gene, Gary. So, the - you know we’re committed to continuous improvement and continuous innovation across our business, and over time we introduce innovations in all aspects of our sales processes. It ranges from what Craig said, which is, making sure the products are better every year, so obviously the products are better, they are easier to sell and on top of that, you get better retention. And then as you know we focus on tools, training, et cetera and processes and those things are continuously improving as well. So, if you get down to it those are the things, the combination of constant improving products, constant improving sales tools, constant improving sales training, recruiting, also, we make sure, we are getting better every year at finding people that are better fit for the company as well. And so, it’s a combination of all that stuff that’s driving productivity, and so we are committed to continue to drive productivity up over time.

And then just more of a macro question. When I look back over the history there have been a few times where you’ve seen a little bit of softening in the CV growth when either macroeconomic or sort of end market challenges made it a little tougher to sell, there’s been some slowdown in global growth and yet the business continues to fire incredibly well in the technology franchise. So do you don’t think that’s more just your execution or is there anything about demand in technology and how much, you know, the velocity of change in technology that’s also contributing to the performance?

Yes, I don’t think it’s the velocity of change in technology. That would be sort of a more minor factor I think. You know, one of the things that we’ve learned is that, at any given point in time some of our clients are doing well and some of our clients are in distress. And we have specific programs where we go and help clients that are distressed. They are not the same programs as clients that are in growth are doing well. And again if I look across the – our client pace, we are we’re in a hundred countries, we’re in every industry with every size client, there’s always some people in trouble. And I could give you specific countries where we did really, really well last year even though the economy was shrinking. And so the, you know, we have a real focus on making sure we can do well through the actual programs we run with our clients individually during well or not, and whether they are in a good macroeconomic situation or not.

Thank you.

Thank you. Our next question is from Jeff Meuler from Baird. Your line is now open.

Yes, thanks, good morning. This is Nick [indiscernible] on for Jeff. Just going back to the GBS enterprise count, I realize the wallet retention metric is more important and but just is there anything you're hearing about the product or pricing changes that maybe aren't resonating with some of the smaller legacy clients? Or is that really just kind of an outsized impact from the products being discontinued or an internal focus on some larger client opportunities if anything you can add there?

Yes, so just to build on Craig's point earlier, the client count is really driven by small companies and there are some more volatility with small companies, they are much more likely to get acquired, they are much more likely to go out of business. And so, in any given quarter, the kind of swings that happen are more driven by how many of those companies were not in existence or got acquired et cetera. So it's - and that's true by the way of GTS as well as GBS in terms of the swing in client counts. If you think about like at the extreme, the S&P 500 companies that we serve, we're likely able to keep serving year after year, after year, after year is very high. Gene's pizza parlor that buys Gartner services, I may get quite a lot of business lot more frequently than S&P 500 companies. So that's really what's driving the client count.

Okay, that's helpful and just a follow up on the CV trends and outlook over the rest of the year. Can you guys talk about how Q1 compared to your internal expectations and just given that sales force growth remains above the full-year target initiatives and you say that's easing comp, so are you kind of confident that Q1 should be the low watermark for the year?

Hey, Nick, it's Craig. I think when we look at the Q1 performance across the board, whether we're talking revenue, profit, booking, CV, we kind of came in around where we expected to, again recognizing that Q1 is generally our latest quarter from a new business perspective, from a Conferences perspective, et cetera. So I would say we came in right around our expectations. I think in terms of thinking about the balance of the year, as we discussed on our last earnings call and at Investor Day, particularly within GBS, that compares do get a little easier as we go through the year, just based on the phase out of legacy new business that we sold over the course of 2018. And so the most - the bulk of that was sold in the first half of the year with a real step down as we fully launched and rolled out the new GXL products in the second half of the year. So that's the one place where we could argue or I would argue that the compare gets a little bit easier. I think on the rest of the business we performed really, really well last year and our expectation is that we continue to keep pace and/or accelerate our performance across the rest of our businesses.

Thank you.

Our next question is from Toni Kaplan from Morgan Stanley. Your line is now open.

Thank you, good morning. Using your framework last quarter showing the 8% CV growth given the same productivity rates, I tried to calculate it for LTM this quarter and assuming I have the inputs right it looks a little bit closer to 6%. And so, just I guess does that sound consistent with sort of what you're seeing and does that make you any less confident in the double-digit target, or is it just that you're expecting the comps to get easier, and so that's what makes you feel good about it?

Hey, good morning, Toni. So I think your math is right, so as you look at the extrapolation of new business productivity on an LTM basis, it did step down in the first quarter. We expect it to step back up over the next few quarters. Again as the sales force gets more seasoning, more tenured and gets really rolling from a productivity or new business productivity perspective, particularly around GXL, as you'll remember from that chart and discussion, there are two levers the attrition lever and the new business productivity lever. And again as I mentioned, we're seeing nice improvement in - on the attrition side, and so again there were multiple paths to get to that double-digit contract value growth. We remain as confident coming out of Q1 as we were going into Q1 and again there are multiple ways to get there through various combinations of attrition improvement and new business productivity.

Okay, terrific. And is there anything you could call out in terms of trends, in terms of tenure of sales people, basically are you keeping the GBS sales people that you want to be keeping, is there sort of any like any sort of retention trends in the sales people that would be helpful? Thanks.

Great question, because sales people's productivity goes up very rapidly the tenure, we want to retain people. As in GBS we have retention that is on par with GTS, and in fact our GBS retention is better this year than it was last year. So that will be another tailwind we'll have through the year is we'll have a richer mix of more tenured people.

Thanks for that.

Thank you. Our next question is from Bill Warmington from Wells Fargo. Your line is now open.

Good morning, everyone. So we're a little over a third of the way through Q2 and I wanted to ask whether Q2 was actually going to be the inflection point for the GBS contract value growth. It would seem that, that would need to be the case if you're targeting double-digit by the end of the year, but I just wanted to confirm, that's the way you guys are expecting it or was it actually going to be Q3?

Hey good morning, Bill. We don't give quarterly guidance on CV and/or inflection points, but again the way I would describe it is, as I said earlier, the Q1 compare was the toughest, the Q2 compare is the next toughest, the Q3 compare is then the next toughest and then the Q4 compare would then the be the - I cringe using the word, but the easiest. So again, the way we're looking at it is really not on a quarter-by-quarter basis. As we've discussed, we are laying the foundation for future sustained and accelerated double-digit growth. We remain committed and we firmly believe we will get there by the end of the year.

And then as my follow-up question, the GXL new products are driving the 84% year-over-year, new business growth. I know you target a number of different multiples there HR, legal, accounting sales, in which vertical are you seeing the most traction and in which vertical are you seeing the least traction?

Bill, actually we're seeing good traction across the verticals. We showed a chart on Investor Day showed in six of the verticals, how we were doing and each one continues to accelerate. So I'd sort of say there's not one we see as the problem there, actually they're all doing really well in terms of the acceleration acceleration in GXL sales.

Got it, thank you for the help.

Thank you. Our next question is from Jeff Silber from BMO Capital Markets. Your line is now open.

Thank you so much. I know you had mentioned that this is a relatively seasonally light quarter for new business, but if I could focus just on the GBS new business, are you seeing cross-selling to existing GTS customers, are these new customers for you, if you can give us a little bit of color on it, I'd appreciate it?

So it's a very good question, Jeff. So we do have cross selling, obviously we have a lot of relationships, you know 12,000 give or take GTS [indiscernible] we cross-sell to. We do cross sell. With GBS though the opportunity is so vast and we're still under-penetrated that it is, that's not the most important factor. So where it is helpful our sales force is doing that and we facilitate it. We're trying to facilitate it internally, but it's just the products are attractive and there is so much open market opportunity, that that's not the kind of most important factor.

Okay, and I know your business has nothing to do with the stock market, but we saw kind of a wide swing in sentiment between what the market was expecting overall in the fourth quarter and what the market seems to be expecting in this last quarter. Did you see any change of tone in any of your customers because of that?

Are you thinking from a macroeconomic viewpoint, Jeff?

Yes, exactly.

Yes. So as Craig said in his remarks, I would characterize our - the selling environment the same as it's been all last year - Q1 was the same as it was in Q4 and those were the same as we saw all last year and in fact for some time actually I'd say. There is some - there are some countries that are not doing that great, but there's always some countries that are not doing that great. And I'd say for the big economies, they're kind of moving along at a - what I'd call a normal pace.

Okay, I appreciate the color. Thanks so much.

Thank you. Our next question is from Joseph Foresi from Cantor Fitzgerald. Your line is now open.

Hi, in GBS, is this a matter of selling more of the new and less of the old and some better comps? I'm just trying to get a sense there. And then also are you selling new products to new clients or new products to old clients? I am just trying to get a sense of how that works at all?

So, on the first piece - on the second piece, if a client has legacy product and they're happy with it, we let them stay and be happy with it. We have very good margins on our products and we want to do that. And so, our real focus is not on upgrading, but on selling to new clients. It could be new clients in the same enterprise. So it could be a different division of the company, but it's really the folks are selling new clients. As Craig mentioned in his remarks, there are some upgrades, but that's not our primary focus.

And Joe, it's Craig. The way to think about it, again, if you look at Page 11 in the earning supplement from this quarter or from last quarter when we reviewed the full year 2018, I'd say there are two primary levers here; one is continuing to focus on driving engagement, which translates into higher retention rates or lower attrition rates, and then two is the ramp of GXL new business more than outpacing the declines in legacy new business. We are still selling some, what we call legacy new business in certain small areas where we have not launched the corresponding GXL C, that's kind of at a stable level now and we expect that to continue into the future until we replace them potentially with GXL products, but it's kind of all about the ramp of GXL new business combined with better retention.

Got it. And then just as a followup, I understand the metrics associated with productivity and retention and the new products versus the old products. So that all makes sense on paper, but is there anything different that you could call out from a visibility standpoint in GBS that gives you added, I guess, confidence in the double digits? I'm sure the Street is curious as to why you're holding to it. So I'm just wondering if there's any difference around the visibility from a sales perspective or the process around it? Thanks.

So, it's a combination of things. So first, we've added significant capacity and we know that those sales people will gain tenure and will sell more. Secondly, we know that even if all the people that are still going through the learning curve and they'll sell more and our pipeline reflects that. So, again, if you compare the pipeline for Q2 versus pipeline for Q1, it is significantly better, just kind of selling pipeline. And the second piece is like Craig said, which is, we know that GXL products have significantly higher retention and so as that mix continues, we sell more GXL, that mix continues to get richer with more GXL products and Craig mentioned, it's about 10 points higher retention or 10 points lower attrition then they are legacy products for the deals that renewed in Q1, and we expect that to continue. So as we get more and more proportion of GXL products that have significantly higher retention and we get our sales - our larger sales force with more tenure as we extrapolate that out, we see that it looks - that's why we have confidence that we are on a good track.

Thank you.

Thank you. Our next question is from Peter Appert from Piper Jaffray. Your line is now open.

Thank you. Good morning. So, Craig, just expanding a bit on your earlier comments in terms of the evolution in the GBS product, if you stop selling or you are de-emphasizing selling the legacy GBS product, does that imply then that the legacy GBS contract value continues to decline at the recent rate?

Yes. it does, Peter. So that - yes, essentially what we've been tracking and trying to provide some visibility around is the mix. And so as I - I think I mentioned in my prepared remarks, today we sit with 35% of our GBS contract value is in GXL and that's about 15 percentage points higher than it was Q1 of last year. And we expect soon over the next several quarters for GXL to be a bigger portion of the portfolio. That's a combination of accelerated GXL growth and continued declines in the legacy contract value.

And does the legacy business then go to zero at some point?

So, I don't think the legacy goes all the way to zero. There are still a handful of smaller functions that we serve with the legacy product set and it's a valuable product and the buyers or end users in our client set really, really like and value these products. Overtime there's a potential that we could launch GXL type product in those areas, but again that's not where the largest opportunity is. The other thing I'd say is our strategy and Gene alluded to this earlier, is we - if clients are happy with the legacy and they want to keep renewing and keep paying us, we generally are fine with that as a strategy. And so, I think it's unlikely it goes all the way to zero. But again as I mentioned, it will continue to drift downward as we replace a lot of it with the new GXL new business.

Got it. Thank you.

Thank you. Our next question is from George Tong from Goldman Sachs. Your line is now open.

Hi. Thanks, good morning. I'd like to dive deeper into GBS sales productivity. The productivity of your GBS segment was negative 2,000 in net contract value increase per year ago sales headcount. I know 1Q is your lightest quarter for new business and you're retiring legacy products. But can you elaborate on why productivity is coming in negative given it takes 12 to 18 months for new sales hires to ramp and most of the GBS sales force was layered in a year ago?

Hi. Good morning, George. Yes, it's actually, I mean, the primary factor that drove that decline is essentially the phase out of selling legacy new business. So, in Q1 of last year, the bulk of our sales force was still selling legacy leadership councils, we phased that out to the point where as of the beginning of Q3, we are only selling legacy leadership councils in the smaller businesses. I just mentioned that we don't have a corresponding GXL product and we essentially lost that strong new business quarter in the rolling 4 quarter NCVI and replaced it with this first quarter where we had really strong GXL new business, but not enough to offset the decline, as you can see again on that Slide 11 of the decline in legacy new business. And so, you again as we look at it again, we're not playing the one quarter game here. As we look at it over the long term, to get to the double-digit growth we talked about, we will absolutely have to have and will deliver very positive productivity for the full year again. You can do the math on what that would need to be. But again, I think it's just - it's a one quarter impact where we have the toughest compare, and as we progress through the year, as I mentioned the compares get easier, and we expect to see the GXL new business continue to ramp.

Got it. That's helpful. Your GXL new business activity in the quarter was $24 million, but if you compare that to legacy product attrition that was $23 million. Can you discuss what factors over the next several quarters will help you to excel on new business trends outperform legacy attrition besides just using comps?

Yes, we expect new business to accelerate for all the reasons we've been talking on the call. So the fact that we had more sales people with more tenure and more used to selling GBS products and so we expect new business to accelerate. And then secondly, we expect retention to get better or attrition to get better, less attrition for two reasons, one is that, we have - each quarter that goes on, we have more GXL products and GXL products as Craig mentioned have a higher retention rate, and secondly, for even the legacy products, we're putting in place retention programs to improve that retention as well. And so, it may never be as good as GXL, but we think we can still make substantial improvements in legacy product retention. So, it's the combination of new business accelerating and retention getting better as well.

Got it, thank you.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Gene Hall, CEO for closing remarks.

Well, summarizing today's call, we delivered another robust performance in the first quarter of 2019 fueled by double-digit growth in each of our business segments, Research, Conferences, and Consulting. We continue to make significant global impact. We got more than 15,000 enterprise clients in more than 100 countries around the world with their mission critical priorities while providing great jobs to more than 15,000 counted associates globally. The Gartner Formula for sustained double-digit growth underpins our success our Research business and our business model allows us to write strong double-digit growth in all key metrics including cash flow. Our future at Gartner remains bright. Thanks for joining us today and we look forward to updating you again next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.