Gartner, Inc.

Good day, ladies and gentlemen, and welcome to the Gardner Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator assistance, please press star then zero on your touch-tone telephone. Please note that today's call is being recorded. I would now like to introduce your host for today's conference, David Cohen, Gardner's GVP of Investor Relations, Mr. Cohen, you may begin.

Thank you, Sarah, and good morning, everyone. We appreciate your joining us today for Gartner's second 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 second 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 and an earnings supplement for investors and analysts. We have posted the press release and the earnings supplement on our website, investor.gartner.com. Following comments by Jean 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 revenue and contribution margin are for adjusted revenue and adjusted contribution margins. which exclude the deferred revenue purchase accounting adjustments and the 2018 divestitures. All references to EBITDA are for adjusted EBITDA, with the adjustments as described in our earnings release and excluding the 2018 divestitures. All cash flow numbers, unless stated otherwise, are as reported, with no adjustments related to the 2018 divestitures. All growth rates in Jean'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 discussed 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. For the second quarter of 2019, we continued to deliver strong performances across our business. Total revenues were up 12%, fueled by double-digit growth in each of our business segments, research, conferences, and consulting. We continue to make significant global impact through these segments. We help 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 16,000 associates globally. Research, our largest and most profitable segment, is the core of our value proposition. Our research business was up 10% over this time last year. The Gartner formula for sustained double-digit growth drives our success in our research business. As we've previously highlighted, the Gartner formula consists of indisputable insights, exceptional talent, sales excellence, and enabling infrastructure. For each of these elements, we drive relentless, globally consistent execution of best practices and continuous improvement and innovation. Global technology sales, or GTS, serves leaders and their teams within IT. This group represents more than 80% of our total research contract value. GTS contract value growth was 14% year over year. We deliver 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, as well as other major enterprise roles, including HR, finance, legal, sales, and more. GPS continued on a path towards double-digit growth, with total GPS contract value accelerating to 1%. Our GXL product line continued to gain momentum, with contract value increasing $20 million sequentially. GXL products provide greater value to clients because they're tailored to the client's individual needs. This in turn results in higher prices per user and stronger retention. Without better pricing and retention, GXL products provide exponentially more growth opportunities because we can sell these high-value products throughout our clients' organizations. For Q2, GXL contract value grew 71% year-over-year, and new business was up 51%. We continue to expect double-digit contract value growth in GBS by the end of the year. Our conferences segment also delivered a terrific performance in Q2, with double-digit revenue growth of 29%. Gartner conferences combine the outstanding value of our research with the 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 expanded our flagship conference, Gartner IT Symposium. We held an IT Symposium conference in Canada, which exceeded performance expectations. In GBS, we continued to build out our conference portfolio to align to the GBS roles we serve. In June, we launched the Gartner CFO and Finance Executive Conference. This program featured strategic guidance on the trends that shape finance, company performance, and personal leadership. We're giving participants the opportunity to connect with peers and talk one-on-one with thought leaders. This conference had great attendance, with 63% of attendees at the CFO or VP level. Over time, we'll launch additional conferences to support the other functions in GBS. In addition to all that, we'll continue growing the event of business. Our consulting segment also achieved double-digit growth in Q2, with revenues up 10%. Gartner Consulting is an extension of Gartner Research and provides clients a deeper level of involvement through extended project-based work to help them execute their most strategic initiatives. Our growth on the quarter was a combination of our labor-based business and strength in our contract optimization business. As you'll hear from Craig, we've adjusted our guidance for the rest of the year. These changes are driven by two factors, a modest reduction in expected revenues and and a modest increase in expected costs. The revenue change was driven by two factors as well. First, lower non-subscription research revenue than expected. Within our research segment, we have some non-subscription based products, many of which are legacy. One of our strategic priorities is emphasizing subscription based research offerings compared to non-subscription based offerings. In Q2, our non-subscription based revenues were lower than expected, and we expect this to affect our revenues during the rest of the year as well. The second factor is lower than forecast subscription revenue. While very strong, our contract value growth is modestly below our plan set out at the start of the year. There are a number of drivers that are individually minor, but in aggregate have an impact. These items included a larger than usual number of sales leadership changes in GTS, expanded deployment of sales teams into our Dallas and Barcelona offices, and changes to our selling approach for very small tech companies. The second major factor driving our adjusted guidance is a modest increase in costs, as we were more successful than expected in filling open sales territories. Sales territories become open through a combination of planned growth, promotions, lateral moves within Gartner, salespeople leaving the business. Once a salesperson gives notice that they're leaving, it takes about three months to hire a replacement and another six weeks to train them before they get into territory. It can take longer in some countries or when specialized skills are needed. Now, we sell less in a sales territory with no salesperson than one that has a salesperson. So one of our priorities is to minimize the time sales territories are open. We made significant progress last year We've exceeded our expectations again this year and expect this trend to continue. For example, in one of our sales organizations, we planned for 6% open territories and are achieving 2%. Over time, these additional salespeople will come up to speed, which will lead to higher sales. In the near term, we incur higher-than-planned costs. These include compensation, recruiting, training, and technology. As a result, we're expecting our SG&A for the rest of the year to be higher than originally planned, with the payoff in incremental sales being realized in 2020. So we've adjusted our guidance to reflect a modest reduction in revenues combined with a modest increase in costs. Looking ahead, we are well positioned for sustained double-digit growth. We expect continued sustained double-digit growth in GTS. We're at an inflection point in GBS. We've invested to get GBS on a growth trajectory to realize the incredible market potential. In Q2, contract value growth accelerated, and we expect continued acceleration. Going forward, we expect to get a strong return on the investments we've made in GBS, with GBS contributing to both higher research contract value growth and increasing profit. And of course, conferences and consulting are on a strong path. Looking ahead to 2020, With the great strategic positioning of GTS and GVS, together with leveraging the investments we've made, we expect double-digit top-line growth and EBITDA growing approximately in line with revenues. With that, I'll hand the call over to Craig.