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'…

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…

[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.