Thank you for standing by and welcome to the Gartner’s Second Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to David Cohen, Gartner's GVP of Investor Relations. Please go ahead.

Good morning, everyone. We appreciate you joining us today for Gartner’s second quarter 2021 earnings call and hope you are well. With me on the call today are Gene Hall, Chief Executive Officer; and Craig Safian, Chief Financial Officer. This call will include a discussion of second quarter 2021 financial results and Gartner’s updated outlook for 2021 as disclosed in today’s earnings release and earnings supplement, both posted to 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 a follow-up. On the call, unless stated otherwise, all references to EBITDA are for adjusted EBITDA, with the adjustments as described in our earnings release. All growth rates in Gene’s comments are FX-neutral unless stated otherwise. 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 2021 foreign exchange rates unless stated otherwise. 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 2020 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. Gartner's positive momentum continued in the second quarter of 2021. We again delivered strong results across contract value, revenue, EBITDA and free cash flow. We significantly increased the pace of our buybacks. Total company revenues were up 16% with strength in all three business segments and research exceeding our expectations. We continue to see growth opportunities across industries, geographies, and every size enterprise. Research is our largest and most profitable segment. Our research segment serves executives and their teams across all major enterprise functions in every industry around the world. Our market opportunity is fast across all sectors, sizes and geographies. Total contract value growth increased to 11% with both GTS and GBS accelerating in the quarter. This was driven by strength in both retention and new business. Global Technology Sales or GTS, serves leaders and their teams within IT. For Q2, GTS contract value growth accelerated to 9% and we have CD growth in all of our top 10 countries. GTS drove strong growth across virtually all industries, including manufacturing, services, and tech and telecom. And we expect GTS contract value growth to continue accelerating, returning to double-digit growth in the future. Global business sales or GPS serves leaders and their teams beyond IT. This includes HR, supply chain, finance, marketing, sales, legal and more. GBS again accelerated, delivering outstanding contract value growth of 18%. Both practices contributed to our growth. And our HR, finance, sales and supply chain practices each exceeded 20% contract value growth. So across our entire research business, we're seeing the results of a sustained focus, a consistent execution of proven practices. We continued to have a vast market opportunity. And our research business is well-positioned as we continue to deliver long-term sustained double-digit growth. Turning to conferences.…

Thank you, Gene, and good morning. Second quarter results were excellent with strength in contract value growth, revenue, EBITDA and free cash flow. We are increasing our 2021 guidance to reflect our strong Q2 performance. Second quarter revenue was $1.2 billion, up 20% year-over-year as reported and 16% FX neutral. In addition, total contribution margin was 70%, up more than 300 basis points versus the prior year. EBITDA was $355 million, up 85% year-over-year and up 75% FX neutral. Adjusted EPS was $2.24. Free cash flow on the quarter was $563 million. Free cash flow includes $150 million from insurance proceeds related to cancelled 2020 conferences. Research revenue in the second quarter grew 15% year-over-year as reported and 11% on an FX neutral basis. We saw strong retention and new business in the quarter. Second quarter research contribution margin was 74%, up about 170 basis points versus 2020. Contribution margins reflect both improved operational effectiveness, continued avoidance of travel expenses and lower than planned headcount. However, some of the margin improvement compared to historical levels is temporary and will reverse as we resume normal travel and increased spending to support growth. Total contract value grew 11% FX neutral year-over-year to $3.8 billion at June 30. Quarterly net contract value increased or NCVI was $114 million, significantly better than the pandemic lows in the second quarter of last year and a new record high for second quarter NCVI. Quarterly NCVI is a helpful way to measure contract value performance in the quarter, even though there is notable seasonality in this metric. Global technology sales contract value at the end of the second quarter was $3 billion, up 9% versus the prior year. GTS CV increased $75 million from the first quarter. The selling environment continued to improve in the second quarter.…

[Operator Instructions] Our first question comes from Gary Bisbee with BofA Securities. Your line is open.

Hey, guys, good morning and congratulations on another strong results. I guess, I wanted to dig a little more into the cost. The trend all year has been revenue ahead of your plan and costs a bit below or at the low-end. What's really keeping you from accelerating investment? Is it the inability to hire, you talked about that investing there that being a little more difficult, is it in part that you don't need more sales to deliver to the target this year, given how strong productivity has been? Or are there other factors I guess, maybe particularly I'm interested in labor market tightness, and sort of how long you think it will take to get the hiring that you've been targeting on? Thank you.

Hey, Gary, it's Gene. So we came into this year with a lot of sales capacity that we've built up over 2019. And so to your point -- you mentioned in your question, we actually have a lot of sales capacity, you're seeing that in our sales results. And so the reason we've been relatively slow to ramp up our sales hiring, our net sales hiring has been we felt like we had plenty of capacity and plenty of opportunity and productivity and we still do. Having said that, as I mentioned earlier in my results, we're now at the point we think it's time to start ramping up that capacity. And so we've been aggressively building our recruiting capability, building our pipeline of candidates and we'd expect to increase that hiring as we go through the year to position us very well for next year and beyond.

And, Gary, the other thing I would just add, good morning, is as the world has started to reopen, we've had fits and starts with that as well. And so we did have plans to have more travel. And that hasn't panned out given that the situation in the world. We had plans to reopen facilities, a lot of those have just been pushed back further into the year as well. So it's really a combination on the headcount side that Gene just highlighted as well as some other large expense buckets that have just continued to be pushed out into the back half of the year.

Okay. And then just on that note, the quick follow-up, the 18% to 19% medium term margin target, if I backed into it, right, it appears like the second half is above that. Whereas last quarter, you were talking about it moving down to that level. Is that just delays in some of these costs, like travel coming back that you just cited? Or opening offices or is that inability to maybe hire as quickly as you want also part of what's going on there?

Yes, it's all three of those things, Gary, I would say. So, things getting pushed out further into the year, including the ramp up in hiring that Gene just talked about. So, let's pretend that we didn't hire all of our needs until December 1 that's obviously not going to happen. But low burden on the 2021 P&L, full year burden on the 2022 P&L. So our outlook in terms of margin for next year is really unchanged from last quarter. This year changed just because, again, we continue to push out certain expanses further and further into the back half of the year.

Great, thank you.

Our next question comes from Jeff Meuler with Baird. Your line is open.

Yes, thank you. I had noticed that GBS sales headcount has been back to sequential growth, GTS has not. I guess what I'm wondering is, is that a function of GBS metrics inflecting earlier and growth being stronger and therefore you kick the hiring into gear sooner there? Or is it more of a challenge in GTS because it's harder to retain individuals with tech domain selling experience? And if it's the latter, just any thoughts on if the comp packages are appropriate or need to be adjusted?

Yes, hey, Jeff. So, the -- I'd say the biggest issue is where you -- the first you started with, which is with the faster growth in GBS, the rapid acceleration, we've got more of a need to get to -- our net hiring up sooner than we have with GTS. Having said that, as I mentioned in my remarks, turnover is modestly higher and it would be affect-- it affects the people that are in the parts of our business that are technology like our software [indiscernible] even as well as our GTS sales force. And while that's mostly higher, that's only a piece of it. I think it's greater pieces, just kind of my what I said in the earlier question about the timing of when we -- the capacity we have today and the time when we chose to have recruiting start back up again. We have -- we're a great place to work. Our salespeople know that and really love being here. And of course, we're a great place to attract new talents as well.

Okay. And then not that I'd expect you to adjust your GBS medium term guidance, because you had one quarter above the range. But I guess how are you thinking about it? And is there some reason why there is like, cyclical lift in the current trends? Because I guess as I look at it, the growth sounds broad based, the comps aren't that easy. And the historical experience from GTS is on a organic constant currency basis that accelerated coming out of the financial crisis to a level and then it remained at that level kind of throughout the expansion. So just any thoughts on GBS and if there's, I guess, upside potential or why not.

Good morning, Jeff, and thanks for the question. I think in terms of the way we think about the business over the medium term unchanged. And so, again, we believe that over the medium term, we can grow both GTS and GBS in that 12% to 16% range. Obviously, GBS is performing exceptionally well. We've seen it accelerate, even last year the acceleration started, it has continued through the first half of the year. And this [indiscernible] has been a really nice combination of improvements in retention, which you can see in our key metrics as well as great new business growth across the board. So it's not any one practice. It's actually as you alluded to, broad based from industry perspective and from a practice perspective. And so, we remain bullish on GBS. We remain bullish on GTS as well. And over the medium term, again, we believe we can grow both in that 12% to 16% range.

Okay. Thank you, both.

Our next question comes from George Tong with Goldman Sachs. Your line is open.

Hi. Thanks. Good morning. The sales force productivity or NCBI for GBS stepped up to 141,000, which came ahead of GTS for the first time ever. Can you elaborate on what drove the increase? And whether you expect GBS productivity to step back down to be below GPS levels over the near-term?

Yes. hey, George. The thing that drives our productivity in both sales forces is we've heard before, which is our recruiting capability, the training portals we have, the tools we have in the process design. And so the thing that's driving productivity is, as the market has gotten, as the recession has come a little bit better, those combination of factors, the recruiting, training, tools and process affect both businesses. And that's what you're seeing what you're seeing drive the productivity improvement. And so over time, we expect both productivity improving in both sales forces.

And just on the second part of the question, what drove GBS to come ahead of GTS for the first time? And when would you expect that productivity to flip over the near-term back to GBS being below GTS?

We don't think about it as, one is going to be higher than the other. We expect both will actually have improvements over time. And there's one meaningful difference between GBS and GTS. And that is that we have a higher number of what we call business developers, which are sales people that don't have any existing accounts. GTS has a much larger installed base. And so we have a large number of what we call account executives, whose job is to sell more business to those existing clients. In GTS, we also have the business developers, but in GBS, we have a much higher number of business developers compared to account executives than we do at GTS. That's part of the thing that helps -- that impact sales productivity with GBS both now and over time.

Got it. That’s helpful. And then secondly, you've increased your EBITDA margins for the full year to 25.4% at the midpoint. What expectations respecting half margins? Are you embedding into your guidance? And how should 2022 margins compared with second half margins?

Good morning, George. Thanks for the question. Obviously, the second half margins are lower than what we've run through the first half and what the full year implies. Yet, as Gary highlighted as well, it's a little bit higher than the 18% to 19% that we've guided, or at least preliminary -- preliminarily guided around how to think about a normalized margin for this year. And there's really one primary reason for that, and it's the deferral and the pushing out of spending that we expected to come in sooner, just happening a little bit later over the course of 2021, but I was assuming we bear the full burden of that as the business continues to accelerate into 2022. And so, a little bit higher than 80% to 90% is the expectation for the second half of the year. But again, that's largely because we've pushed out and deferred certain expenses to later in this year. But we'll have a full impact on the 2022 P&L.

Got it. Very helpful. Thank you.

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

Thank you so much. I was hoping you could talk about what you're hearing from clients in terms of appetite for in-person conferences. I know you talked about you're operationally planning on running some of them later this year, and that would be upside to the guidance. But just what's the demand of that you're hearing from clients, and has the delta variant impacted that at all?

Hey, Toni. Our in-person conferences remain usually popular with our clients. Clients are, I'd say, quite enthusiastic about returning to those in-person conferences and we're looking forward to it. As of -- as we sit here today, I'd say our registrations for the conferences in the U.S haven't been affected very much by the delta variant, that could change over time, if things goes on. But the sentiment, as of just right now, in terms of registrations things, hasn't changed very much. Outside of the U.S., I'd say there's more concern about it, and so it's not the same around the world. Having said that, either there's a concern about the delta variant, the kind of underlying demand there, even the clients that are concerned about the delta variant in terms of attending a conference, if we can address that are wildly enthusiastic about conferences and really want to return back to them. And so, over time, we'd expect when it's safe to do so to be introducing in-person conferences to meet that demand.

That's great. And your free purchased more than a $1 billion of stock this year. Just any updates to capital allocation priorities and on strategic tuck-ins, I think you did a small one this quarter. So just give us a sense of what the optimal strategic tuck-in looks like right now at this point. Thanks.

Hey, good morning, Toni. I'll start out and then flip it over to Gene on the M&A strategy. You're right, we've repurchased over a $1 billion worth of our stock through the first half of this year. As we've always highlighted, we have two priorities from a capital allocation perspective. And they're not stacked to prioritize. It's 1A and 1B. I would characterize it as, which is returning capital to our shareholders, through buyback programs, and strategic value enhancing M&A, which is largely going to be in the small medium tuck-in size. As we look forward, those remain the two priorities, given what we see in the market. Clearly, in the first half of this year, we put a bias or a priority around returning capital through our buyback programs. But as we move forward, we have ample free cash flow, ample cash on balance sheet, ample balance sheet flexibility for it to be an end. So we can do buybacks and strategic tuck-in M&A as opposed to it being an overstatement. We just happened to put a strong bias towards buybacks through the first half of the year. And I'll flip it to Gene to talk about the M&A side.

Yes, Toni, so over time, in general, our acquisitions have been focused on additions to our capabilities in one way or another. So sometimes they've been actual kind of acquisitions to get to talent. Other times it's been product extensions, which we've used. And so I think -- you can think about it as ways to improve our capabilities, either in a direct people sense or in a product offering sense.

Thank you.

Our next question comes from Andrew Nicholas with William Blair. Your line is open.

Hi, good morning, I was hoping you could touch on the level of client engagement you've seen in the past quarter or two, and how that compares to pre-pandemic levels? If it's still elevated relative to two pre-COVID, and if so how important do you think that is to what I think is record client retention metrics you posted this quarter, just trying to get a sense for how much of this could be more of a temporary phenomenon, given the current environment?

Andrew, client engagement is really important in our business, when they -- when clients buy our services, they do it to get value out of it. When they get the values, they engage with us. And so, client engagement is up substantially compared to 2019. It's about the same as it was in 2020. And that's partially as you said, due to the environment, there's a lot of uncertainty. But it's also due to the fact that we spend a lot of our energy, thinking of ways that we can actually stimulate an engagement because again, we know we get -- when we get more engagement, we -- our clients get more value out of our services. So it's kind of the two things are related.

Got it. Makes sense. And then for my follow-up, several quarters in a row now have a pretty sizable upside in terms of your guidance, or at least relative to your at least, methodology. And so I'm just wondering given now that, that it seems to be a bit more stable of an operating environment than the past 12 to 18 months, it's if you're considering or how you're thinking about your approach to guidance, and whether you'll consider potentially reverting back to the more traditional bracketed approach at some point, whether it's later this year or early next. Thanks.

Good morning, Andrew. Great question. We've actually shifted our guidance methodology to the at least pre-pandemic. And I don't see us slipping back. I think you guys, as you alluded to, obviously, there's been a lot of uncertainty in the world. And we've been trying to since the beginning of the pandemic, plan thoughtfully, planned prudently. And even when we entered this year, I would say plan conservatively as well. As the world has stabilized and we've got a heck of a lot more visibility into how the business is performing. We are still comfortable with the guidance methodology that we have. That said, I'd reiterate what I said in my prepared remarks earlier around your expected variability. On that guidance moving forward, we would expect much less variability, probably more variability on the expense side than on the revenue side. But we are comfortable with the way that we guide now and the current methodology that we use.

Got it. Thank you.

Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Thank you so much. You noted in your prepared remarks about higher -- slightly higher than expected turnover from I believe it was your sales force. Where are these folks going? Are they going to competitors? Are they going out on their own going to other industries, any color would be great.

Hey, Jeff. The -- as I mentioned, turnover across the business is modestly up. And the turnover is going to same places that it's always gone, which is the -- we are known as a company that has great recruiting, training programs. And so there's people like to recruit from us. We're trying to recruit from us. And there's one of the simplest that has gone, which tends to be the technology industry.

Okay, great. That's helpful. And you mentioned in your guidance that it includes your planning from some in-person destinations, but the guidance only -- on the conference side, excuse me, the guidance is the least since virtual for conference revenue can remind us what the delta would be just for us for modeling purposes, if you shift from virtual to in-person.

Yes, Jeff, it's and part of the reason why we got it this way is, the difference will vary on a conference-by-conference basis. So it's very hard, or impossible to answer that question in terms of building your model. And I think the way to think about it is, with our current guide, it is virtual only. That is the best numbers to plug in right now. And as we said, if we are able to run some in-person conferences in the balance of the year, it would be upside to those numbers, but it will depend on the timing or location, and everything else and it will be done on a -- and decisions will be made on a conference-by-conference basis.

All right. If I could sneak in one quick one, I'm sorry. You mentioned that the guidance does include some additional cancellation related costs. Can you quantify those for us?

Yes, sure. It's probably low double digits millions in terms of the potential cancellation costs. It's hard to quantify that right now. Some of them are contractual, some of them will be some [ph] costs that go into to the conference pre-cancellation decision, but it's in the low double-digit million is a current contemplation.

Okay, great. Thanks so much.

[Operator Instructions] Our next question comes from Hamzah Mazari with Jefferies. Your line is open.

Hi, this Mario Cortellacci filling in for Hamzah. Just kind of going back to the delta variant, wondering how you're thinking about that and considering opening your in-person conferences. Is your decision for the based more around government guidelines? Or is it just strictly more prudence on Gartner's part, and just making sure that events are safe? Or if there's no government restrictions, you guys, because you have the demand in place, you will feel more comfortable doing it?

Yes, Mario. So as I mentioned, the starting point we have is that our clients, actually really appreciate the value of in-person conferences, and we'd like to get back to them. Having said that, what we're going to do and any -- before we hold in any in-person conference, we're certainly going to follow any government guidelines that are relevant. So where the CDC or the relevant agencies in other countries have said, you shouldn't have large gatherings in this sort of circumstance, even if it's not a regulation, we're going to follow those guidelines. And the third thing is we -- on a regular basis, survey our clients to see how they feel about it as well. And so, we want to reflect their center as well. Even if there were no government guidelines, but our client sentiment was, it's not a safe thing to do that we certainly wouldn't follow that as well. And, of course, we use finally our own assessment. And if we think even if the guidance, okay, and even if clients want to do it, we don't think it's safe. We wouldn't hold them as well. So it's kind of those are the factors that go into the decision making in terms of whether we hold in-person conference or not.

Got it. And then just for my follow-up, did you talk about when you're looking at a GTS sales force productivity, I guess, what are the biggest levers that you can pull to get back to pre-pandemic levels? You talked about, I guess, some of the levers for GBS being I guess, broad and that they're all contributing, but is there one bigger lever that you can pull in GTS. And then also, could you just compare what the 10-year is for the GTS sales force today versus pre-pandemic, and then how much of that 10-year can help add to productivity.

Yes, so the first part it's the factors I missed earlier, which is the things that impact productivity are really our recruiting program, making sure we recruit the best people, making sure we bring them on board that they're trained to sell the Gartner kinds of products, equipped with great tools. And if we have the best processes, we're constantly improving those things. And so, over time, we expect those will drive productivity improvements. In terms of tenure compared to where we were in 2019, our tenures, on average, higher because we slowed hiring and so with fewer new -- a lower proportion of new people from our slowed hiring are the average tenure has gone up over time.

Anyway to help quantify or give us a sense for how much that can help contribute to productivity?

Yes, I can't quantify it for you. I mean, again, we track the numbers, but we don't -- those aren't things we talked about publicly. And so the, I guess, I'll leave it at the 10 years higher.

Understood. Thank you.

There are no further questions, I could turn the call back over to Gene Hall for any closing remarks.

Well, summarizing today's call, Q2 was another strong quarter. It was strengthened all three business segments, and research exceeding our expectations. We delivered strong results across contract value, revenue, EBITDA and free cash flow. GTS contract value growth accelerated to 9% and GBS contract value growth accelerated to 18%. We're accelerating hiring across our business to keep pace with this growth. Looking ahead, we're well-positioned for long-term sustained double-digit growth. We’ve a vast addressable market. We’ve an attractive recurring revenue business model with strong contribution margins. We expect to deliver modest EBITDA margin expansion going forward from a normalized 2021. We generate significant free cash flow. Next is net income, which will continue to deploy through share repurchases and strategic tuck-in acquisitions. Thanks for joining us today and I look forward to updating you again next quarter.

This concludes the program. You may now disconnect. Everyone have a great day.