Q1 2021 Gartner Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to Gartner first quarter 2021 earnings conference call. At this time all participant lines are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask the question. During the session you would need the press Star then one on your telephone. Please be advised the today's conference is being recorded if you acquire any further assistance. Please press Star then zero.
I would now like the hand, the conference over to your host today, David Cohen G V. P of Investor Relations. Please go ahead.
Good morning, everyone. We appreciate you joining us today for Gartner first quarter 2021 earnings call and I Hope you are well with me on the call today are Gene Hall, Chief Executive Officer of Craig Safety.
The and Chief Financial Officer.
The call include a discussion of first quarter 2021 financial results. The Gartner has updated outlook for 2021 as disclosed in today's earnings release and earnings supplement posted on our website Investor day, Gartner Dot Com following comments by gene and Craig We will open on the call for your questions. We ask that you limit your questions to one and the follow up on the call.
Unless stated otherwise all references to EBITDA are for adjusted EBITDA with the adjustments as described on our earnings release all growth rates in Gene's comments are FX neutral unless stated otherwise reconciliations from non-GAAP numbers. We use are available in the Investor Relations section of the Gartner Dot Com website finally, all contract values and the associated growth rates, we did.
Or based on 2020, one 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 encourage all of you to review the risk factors listed in these documents now I will turn the call over to Gartner as Chief Executive Officer Gene Hall, Good morning, and thanks for joining us.
Gartner performance accelerated in the first quarter of 2021, we delivered strong results across contract value revenue EBITDA and free cash flow.
Revenues were up 6% with each of our business segments research conferences and consulting exceeding our expectations.
The research is our largest and most profitable segment of our research segment sort of executives and their teams across all major enterprise functions in every industry around the world researches of vast market opportunity across all sectors sizes and geographies co.
Technology sales or GTS serves leaders of the teams with the Nike for Q1 GTS contract value grew 5%.
First quarter, New business was up 21% as a result of new logos and upsells with existing clients.
Clinton engagement continued to be strong with content and the enlist interaction volumes up 26% compared to Q1 2020.
We saw strong performances across several regions and industries, including Tech and mid size enterprises.
We expect GTS contract value growth to continue to accelerate in 2021 and returned to double digit growth in the future.
Global business sales or GBS serves leaders and their teams beyond Daiichi. This.
This includes HR supply chain finance marketing sales legal and more.
GBS achieved contract value growth of 12%, it's first quarter of double digit growth.
New business growth was a very strong 87% in the quarter.
Oh practices with the exception of marketing ended Q1 with double digit contract value growth rates and all practices delivered positive quarterly in CDI.
Across our entire research business, we practiced relentless execution of proven practices and we're seeing the results of our efforts.
Our research business is well positioned to return to sustained double digit growth over the medium term.
Turning to conferences as many of you know during 2020, our conferences business pivoted from in person destination conferences to virtual or.
Our value proposition for virtual conferences remains the same as for in person conferences, we deliver extraordinarily valuable insights to an engaged and qualified audience, while Q1 of the small quarter for conferences the business exceeded our expectations.
On peripheral conferences, we continue to prepare to return to in person conferences in the second half of 2021.
Gartner consulting is an extension of the Gartner research it helps clients execute their most strategic initiatives through deeper extended project based work.
Building segment also exceeded our expectations with bookings up 26% during Q1 our.
Of our consulting business will continue to serve as an important complement to our research business.
One of our objectives is to generate strong cash flow free cash flow for the quarter was $145 million up significantly versus the prior year.
In addition, we used that cash flow plus cash balances to purchase more than $600 million of stock through April of this year with.
With these repurchases our board increased our share repurchase authorization by another $500 million.
We recently launched our 2020 corporate responsibility report the report details the progress, we made and accelerating positive social change and contributing to a more sustainable world.
We want our associates communities and clients to continue to thrive today and in the future.
The report can be found on Gartner dot com and I encourage you to take a look.
Summarizing Q1 was the strong quarter with all three business segments exceeding our expectations. Looking ahead, we are well positioned for sustained success with.
With the vast addressable market, which will allow us to achieve double digit contract value and revenue growth over the next five years and beyond.
We expect to deliver modest EBITDA margin expansion going forward from a normalized 2021.
We generate significant free cash flow in excess of net income, which will continue to deploy through share repurchases and strategic tuck in acquisitions.
And with that I'll hand, the call over to Craig Craig. Thank you gene and good morning, I hope everyone remains safe and well first quarter results were outstanding with very good momentum across the business.
Revenue was well above our expectations.
Despite the lower than planned expenses, we are well positioned to take advantage of the strong demand environment.
We'll continue to restore spending to support and drive long term sustained double digit growth.
With stronger than expected results in contract value non subscription research and consulting we are increasing our revenue growth and normalized margin outlook, which results in a meaningful increase towards 2021 guidance. The improved outlook reflects the increased visibility we have following the stronger than expected first quarter.
The quarter revenue was $1.1 billion up 8% year over year as reported and 6% FX neutral. In addition, total contribution margin was 70% up more than 320 basis points versus the prior year.
EBITDA was $320 million up 50% year over year and up 44% FX neutral adjusted EPS was $2 and free cash flow on the quarter was $145 million.
The research revenue in the first quarter grew 8% year over year as reported and 6% on an FX neutral basis, and we saw strong retention and new business throughout the quarter.
The first quarter research contribution margin was 74% of about 200 basis points versus 2020.
Higher contribution margins reflect both improved operational effectiveness and the avoidance of travel expenses some of the margin improvement compared to historical levels as temporary and will reverse as the world Reopens and we increased spending to support growth.
We are seeing a benefit from increased scale and a mix shift of higher margin products, including from the discontinuation of certain lower margin marketing products.
Total contract value grew 6% FX neutral to $3 $7 billion at March 31.
Quarterly net contract value increase or N. C V I was $59 million significantly better than the pandemic affected first quarter of last year.
Early N C V is a helpful way to measure of contract value performance in the quarter, even though there is notable seasonality in this metric.
Global technology sales contract value of the end of the first quarter was $3 billion up 5% versus the prior year G. T. S. C V increased $34 million from the fourth quarter the.
The selling environment continued to improve in the first quarter, but wallet retention isn't yet fully back to normal moving forward, we expect win backs and a return to more expansion with existing clients to contribute to growth in 2021, consistent with our experience coming out of the last downturn.
By industry CV growth was led by technology health care and services.
Wallet retention for GTS was 98 per cent for the quarter down about 560 basis points year over year sequentially, a majority of our industry groups of retention improved from the fourth quarter.
GTS, new business was up 21% versus last year with strength in new logos and an improvement in upsell with existing clients. Our regular full set of metrics can be found in our earnings supplement global business sales contract value was $731 million at the end of the first quarter up 12% year over year.
G. B S. C V increased $25 million from the fourth quarter. This was the strongest first quarter performance, we've seen from G. B S C.
<unk> growth was led by the health care and technology industries, all practices recorded double digit CV growth with the exception of marketing, which was impacted by discontinued products. However, our marketing practice saw improving retention rates and a return to year over year, new business growth in the quarter all of our practices, including marketing showed sequential increases in C V.
From the fourth quarter.
Wallet retention for GBS was 104% for the quarter up more than 330 basis points year over year GBS, New business was up 87% over last year led by very strong growth across the full portfolio as with G. T. S. Our regular full set of GBS metrics can be found in our earnings supplement.
Conferences revenue for the quarter was $25 million, we had about $10 million of one time revenue in the quarter. This reflected contract entitlements, which we extended beyond the end of 'twenty 'twenty as the result of the pandemic contribution margin in the quarter was 56% we held five virtual conferences in the quarter. We also held the number of Virtu.
Dwell of anthem meetings.
First quarter consulting revenues increased by 4% year over year to $100 million on an FX neutral basis revenues were flat.
<unk> contribution margin was 39% in the first quarter up 860 basis points versus the prior year quarter.
Labor based revenues were $84 million up 4% versus Q1 of last year and down 1% on an FX neutral basis labor based billable head count of 744 was down 8% due to head count actions taken in Q2, and Q3 of last year utilization was 68% of about 550 basis points.
Year over year.
Backlog at March 31 was $116 million of 3% year over year on an FX neutral basis. After a strong bookings quarter. Our backlog provides us with about four months of forward revenue coverage.
Our contract optimization business was up 6% on a reported basis versus the prior year quarter and 3% FX neutral as we've detailed in the past. This part of the consulting segment is highly variable.
Consolidated cost of services decreased 2% year over year on 4% FX neutral on the first quarter cost of services declined due to lower travel and entertainment costs during the quarter as well as the continuation of various cost avoidance initiatives.
SG&A decreased 2% year over year, and 4% FX neutral on the first quarter as well SG&A declined due to lower facilities travel Entertainment and conference related expenses as well as the continuation of various cost avoidance initiatives.
As C V rebounds, this year, our traditional sales productivity metrics will also improve for 2021 we have ample sales capacity to drive increasing CV growth.
Our more tenured the unusual sales force several consecutive quarters of strong client engagement, which should drive improving retention and the insights to help our clients address their most critical priorities.
Going forward. In addition to the initiatives to improve sales force productivity and cost effectiveness. We have been discussing in the past few years. This year, we are investing to upgrade many of our sales technology tools, we will be ramping up our sales force hiring later in the year to ensure we have the team in place to drive strong CV growth next year, we still anticipate high single digit growth in.
Both GTS and GBS head count by the end of 2021 EBITDA for the first quarter was $320 million up 50% year over year on a reported basis and up 44% FX neutral first quarter EBITDA reflected revenue above the high end and cost towards the low end of our expectations for the first quarter.
Depreciation in the quarter was up about $3 million versus 2020, including real estate and software, which went into service since the first quarter of last year net interest expense, excluding deferred financing costs in the quarter was $25 million flat versus the first quarter of 2020, the Q1 adjusted tax rate, which we use for the calculation of adjusted.
Net income was 23.5 per cent for the quarter the.
Tax rate for the items used to adjust net income was 22, 4% in the quarter.
Adjusted EPS in Q1 was $2 recall that about $6 million of equity compensation expense, which we normally would have incurred in the fourth quarter of 2020 shifted into the first quarter of 2021, the weighted average fully diluted share count for the first quarter was 89.1 million shares the ending fully diluted share count at March 30.
The first was 87.7 million shares.
Operating cash flow for the quarter was $157 million compared to $56 million last year the.
The increase in operating cash flow was primarily driven by EBITDA growth improved collections and cost avoidance initiatives.
Capex for the quarter was $13 million down 49% year over year, lower Capex is largely a function of lower real estate investments.
Free cash flow for the quarter was $145 million, which was up about 360 per cent versus the prior year free cash flow growth continues to be an important part of our business model with modest capital expenditure needs and upfront client payments.
Free cash flow as a percent of revenue or free cash flow margin was 22% on a rolling four quarter basis, continuing the improvement we've been making over the past few years free cash flow was well in excess of both GAAP and adjusted net income.
At the end of the first quarter, we had $446 million of cash our March 31 debt balance was $2 billion at the end of the first quarter, we had about $1 billion of revolver capacity our reported gross debt to trailing 12 month EBITDA was about 2.2 times, we remain very comfortable with our current gross debt level and the corresponding lower leg.
<unk> multiple of.
Multiple has reduced predominantly from increased EBITDA.
Our expected free cash flow generation and excess cash remaining on the balance sheet provide ample liquidity and cash to deliver on our capital allocation strategy of share repurchases and strategic tuck in M&A. During the first quarter, we repurchased $398 million in stock at an average price of about $180 per share in the month of April we.
More than $200 million of our stock at the end of April of the board increased our share repurchase authorization for the second time this year, adding another $500 million as of April 30th we have around $790 million available for open market repurchases. We expect the board will continue to refresh the repurchase authorization as needed going forward.
As we continue to repurchase shares we expect our capital base to shrink going forward. This is the accretive to earnings per share and combined with growing profits also delivers increasing returns on invested capital over time as well we are updating our full year guidance to reflect Q1 performance and an improved and increased outlook for the remainder of the year for.
Research the strong start to the year on CV performance and improvements to non subscription revenue are contributing to higher than previously expected research revenue.
The conference is our guidance is still based on being virtual for the full year.
Operationally, we are planning to relaunch in person event the meetings in the third quarter and in person destination conferences, starting in September our guidance includes fixed costs, primarily people and marketing related to both the full year of virtual and a partial year of in person conferences, we've excluded the valuable costs, primarily venue related associated with in person.
Conferences from our guidance, if we were able to run in person conferences, we expect incremental upside to both our revenue and profitability for 2021.
For consulting revenues demand started the year better than we expected and the backlog improved during the first quarter for.
For expenses, we have reinstated benefits, which were either canceled or deferred in 2020.
This includes our annual Merit increase which took effect April one.
We also plan to increase quota bearing head count in the high single digits for both GTS and GBS by the end of 2021.
Additionally, we continued to invest in several other programs the impact of most of these expense restorations or investments impact our P&L starting in the second quarter. As you know travel expenses were close to zero from April 2020 through March 2021, our current plants continue to assume a modest ramp up and travel related expenses over the course of 2021.
On <unk>.
Most of this ramp is built into the second half of the year, if travel restrictions remain in place for longer than we've assumed we'd see expense savings.
For our revenue guidance, we now expect research revenue of at least $3.935 billion, which is growth of at least nine 2%. We expect conferences revenue of at least $170 million, which is growth of at least 42%.
We now expect consulting revenue of at least $400 million, which is growth of at least 6.4%. The result is an outlook for consolidated revenue of at least $4.5 billion, which is growth of 9.9%.
Based on current foreign exchange rates and business mix. The consolidated growth includes an FX benefit of about 200 basis points year over year FX benefit is more pronounced in the first half of the year with the ongoing business momentum. We are seeing we are planning to restore growth spending as we move through the year.
We now expect full year adjusted EBITDA of at least $1 billion, which is an increase of about 22, 3% versus 2020 and reported margins of at least 22%. This is based on conferences running virtual only the.
The 18% to 19% expected margins in the back half of the year should provide a reasonable run rate for thinking about the margins going forward as we will have more fully restored cost and resumed growth hiring.
We expect our full year 2021, adjusted net interest expense to be $102 million we.
We expect an adjusted tax rate of around 22 per cent for 2020 one we.
We now expect 2021, adjusted EPS of at least $6.25 per.
For 2021 we now expect free cash flow of at least $850 million. This is before any insurance proceeds related to 2020 conference cancellations all of the details of our full year guidance are included on our Investor Relations site.
Finally, we expect to deliver at least $270 million of EBITDA in Q2 of 2021, we expect the second quarter tax rate in the high Twenty's.
Looking out over the medium term, our financial model and expectations are unchanged.
With 12% to 16% research CV growth, we will deliver double digit revenue growth with gross margin expansion sales costs growing in line with CV growth overtime and G&A leverage we can modestly expand margins from a normalized 2021 level of around 18% to 19%.
We can grow free cash flow at least as fast as EBITDA because of our modest capex needs and the benefits of our clients paying us upfront, we will repurchase shares over time, which will lower the share count as well.
We had a strong start to the year with momentum across the business. We have meaningfully updated our outlook for 2021 to reflect the stronger demand environment and our enhanced visibility, we're restoring certain expenses and investing to ensure we are well positioned to rebound as the economy recovers, we repurchase more than $600 million worth of stock this year through the end.
Of April and remain committed to returning excess capital to our shareholders with that I'll turn the call back over to the operator, and we'll be happy to take your questions operator.
Thank you.
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Our first question comes from the line of Jeff Mueller with Baird. Your line is now open.
Yeah. Thanks.
So anything further to say on.
The GBS metrics and how you look at the opportunity gene you've obviously been really positive on it for a while in many on this call of been skeptical, but beyond the I told you. So answer it like is it.
Is it that there's a much richer seats per client opportunity because of all of the different verticals that you serve with the GBS just trying to I guess better understand how the the new business sold for instance could be up 87%.
Hi, Jeff.
So the GBS.
Has been accelerating over several quarters, if you look back and what's going on is as you said there is a tremendous growth opportunity of the untapped market in GBS.
<unk>, it's a huge untapped market in GBS, we're even less penetrated than that and so the first piece of it is there's an incredibly large market opportunity the <unk>.
Second piece of it is that we had to get all of the elements that we know that a part of the Gartner formula lined up to fully realize the opportunity and it's things like training. The sales force. We introduced the whole set of products, which are of the gx Upfronts, we talked on overtime.
And the combination of.
Both are getting our sales force up to speed on the kind of Gartner way, we sell and getting all of the new products introduced and be sure of the sales force understood them on how to sell them on.
That has resulted in us getting in and implementing all of the kind of process improvements that we've used historically to continue to improve you called the flute those things together and that's resulted in GBS accelerating each of the quarters as we talked about earlier and so the combination of all of the sort of applying the triple versions of the supply and the Gartner formula to the GBS market, where we have this incredible.
Huge opportunity.
Okay.
And then I guess I was I know you said it was from Q2 and Q3 actions, but I was surprised at how much sales head count was down sequentially with the momentum that seems to be building in the business I'm guessing there's not an issue here given the C V of new business sold metrics, but can you just help us.
Maybe understand like the the sales retention of the eight players or those that you want to retain how was it around year end and then as you think about sales force head count planning.
How's the apparatus functioning.
For hiring new salespeople in a remote work and training environments.
Or do you kind of need to get back to the office to release spend that up thanks.
So on in a remote environment as well as non ops environment, we have a great value proposition to track sellers to Gartner, we have over time and will continue to be if you wanna be it on.
On the field Gartner is the place to be on from the way we've had remote sales people for a long time, many probably you know a large proportion of our field sales people actually deployed.
Remotely even before the pandemic and so we're used to working remotely there.
The we use the opportunity of the pandemic to look at what sales territories were most productive and our sales head count did go down a little bit as we looked at.
The areas that we thought there were less productive, but we can actually invest better and if you look at our sales productivity for 2020. One we have plenty of capacity to continue to accelerate in terms of our growth removed GBS and GTS.
The going forward as Craig said during the year, we expect to accelerate our hiring and in the year with high single digit growth in head count in both GBS, and GTS, which positions us really well for 'twenty 'twenty two to continue the growth was begun in the past.
And again the other thing of Jeff. The other thing I'd add is one of the things we were very mindful of.
Last year as to not cut into our recruiting capacity.
Our selling organization.
<unk> and so we really did maintain recruiting capacity so that when we wanted to turn it back on we have the ability to turn it back on relatively quickly and again, we do believe and we're confident of our ability to get to those high single digit growth rates for both GTS and GBS this year.
Helpful. Thank you both.
Thank you. Our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is now open.
Thanks very much.
Was hoping you could guide of into the margin drivers of a little bit more and just talk about the system.
Sustainability of the strength there.
It's about travel being of potential lever.
In terms of the Delta between what your guidance cut.
The an upside, but maybe also talk about the shift to the higher margin products day, you talk to that in and the sales force ramp being faster or slower on how to think about the driver for.
For the year on the margin side. Thanks.
Sure Good morning, Tony and thanks for that on the margins clearly Q1 was exceptionally strong margin performance and yeah as we talked about.
Earlier with the combination of Super strong performance on the top line.
And.
Under spending versus our our estimates.
Sort of across the board, resulting in very strong EBITDA and very strong EBITDA margins as we look out over the balance of the year.
We expect margins in the 18% to 19% range.
For the balance of the year of for the second half of the year and we feel like that's a good baseline because we will have.
Fully restored or at least begun begin restoring all of the expenses that.
We have been avoiding for the last several quarters now we want to put back in we will be.
Aggressively adding growth to our sales force and a number of other areas and also investing in key areas that we believe are are super important for us to be able to sustain double digit growth.
Obviously moving forward the business is going to look a little bit different of the P&L is going to look a little bit different than it did pre pandemic and clearly our expectations around our quote unquote normal operating margins or EBITDA margins are a lot higher than they were of pre pandemic and that's because of some of the structural changes that you alluded.
T Tony that we're going to.
Fully harvest moving forward and so those are things like having lower overall travel expenses, we've learned through the pandemic that we we do want to travel and we do need the travel, but we don't need to spend nearly as much would drive as much volume in terms of travel to run our business going forward.
I think similarly with facilities you know we have the ability now to.
Reallocated reapportion are our facility footprint, which means we can we can really grow into what we currently have and we shouldn't need to meaningfully increase our facilities expenses as we historically when we added lots of people, we always needed to make sure we grow facilities.
Two big ones.
And then the last thing I would mention just on your point on the on the margin side. We are benefiting from from a few things. There one is and I'll give you. The bulk of the example is within the marketing practice and as we told you.
Several quarters ago, we discontinued several low margin products and the sales team has been focused on replacing them with higher margin products and we're seeing that happen in the marketing practice and we're also seeing that happen in several of our other practices, including GPS as well, which is certainly helping the overall.
The gross margin and overall margin profile as well and then lastly, clearly with GBS growing the way it is.
We're adding scale to each of the practices that we serve and support as well, which is clearly helping on the economic on margin front as well.
That's helpful Gary.
During the prepared remarks, you mentioned upgrading your sales technology tools.
The major program or just a more modest upgrade can you talk about how long that might take and when we start to see the benefits and just what kind of benefits we should at the back there.
So Tony.
As you know one of the important elements of growing sales productivity is the tools. We provide our sales force we've been focused on over time and in fact over the last couple of years, specifically, we've done on a program to upgrade all of the many of the internal systems that support sales things like billing system.
Things like that net impact sales productivity.
And the indirect way because salespeople use of even though it's not necessarily the tool. They use every day. In addition to that we are currently.
In the process of implementing a new CRM system. The should we use my sales as well as other people throughout the business and as we design. The system. We know there are a number of opportunities to put capabilities of the system that we believe will enhance sales productivity over time and in fact much of sales productivity, but also help our service teams be more effective as well.
Thanks, a lot.
Thank you.
Our next question comes from the line of Gary Bisbee with Bank of America. Your line is now open.
Hey, guys good morning, and terrific results.
I guess, let me ask one about free cash flow Craig you'd introduce this concept on the last couple of quarters of free cash flow margin.
Given given the higher normalized EBITDA margin.
The commentary you just provided.
Is it is it reasonable to think that the free cash flow margin, maybe somewhat better beyond this year, then and how you've been framing that previously.
Good morning day in and Great question, Yeah. So I think that you know the way that we think about the the free cash flow margin is running.
About three points below the.
The EBITDA margin and so with an improved EBIT.
EBITDA margin outlook on the free cash flow margin outlook moves up and in conjunction with that and.
It's.
Obviously, the the EBITDA growth is sort of the.
The primary fuel for the the strong free cash flow, but clearly our focus on managing that Capex line and also our focus on making sure that our collections pacing and collections efficiency.
Is is strong as well are the are the things that are driving of our our updated outlook on that on that free cash flow margin.
Okay, Great and then just a question on the new business metric and the strength across both segments.
How much of this would you attribute to.
Just sort of catch up to what was obviously a period of time, where it's very difficult to sell a couple of quarters ago.
Versus improvement in the underlying momentum certainly GBS it feels like you've had that momentum improving regardless of the pandemic impact.
Number of quarters now, but on the GTS side.
Is it more just catch up or.
Yes.
The continued dynamic change in technology.
The real underlying growth other than just catch up from a couple of tough quarters itself.
Yeah, Hey, Gary Great Great question, and we think it's actually both I think there is clearly from pent up demand where people wanted to buy our services, but the company on our clients. We're cautious in the past in terms of Inc.
Which extended selling cycles, and obviously left from pent up demand and I think we're certainly seeing some of that in addition, the out to your point every business who's now figured out that they want to be the they need to be of digital business and so that's clearly also supporting new business growth as well.
In GBS in particular again I think we as I mentioned earlier have just been getting better and better at every aspect of our business. Both the products are better the sales of excuses when of sales support is great. The service support is great and so I think we're getting better over time.
The combination of factors.
Thank you.
Thank you.
Our next question comes from the line of George Tong with Goldman Sachs. Your line is now open.
Hi, Thanks, Good morning, GBS CV growth was 12% in the quarter, how do you expect GBS CV to perform over the remainder of the year, especially considering skeevy comps get easier as we move through the year.
Hey, good morning, George.
Oh go ahead gene do you want to take it.
Joe Greg.
Okay.
So I.
I think.
Obviously with the GBS CV growth we've seen.
Accelerating in that metric over the last few quarters.
And I would agree with you that the Q1 and Q2 comps were.
Easier I think with the acceleration we saw in contract value growth and in new business strength in the second half of last year. The GBS comps I wouldn't say are are particularly easy.
We do feel really good about where we are with with the with the GBS business and have a lot of strength there again.
Logging, 87% year over year, new business growth, even on an easy compare as still.
Pretty impressive number.
So we feel good about where the.
The C V balances at the end the at the end of the first quarter.
On the pipeline looks strong our sales teams.
I feel good about the future we don't guide on CV, specifically as you know George.
And so we're not going to provide what we think the number is going to be in Q3 of Q4, but we do feel very good about the.
The pacing and the strength of the business that we've seen and the other thing I'd mention is the really nice thing about the GBS growth in both gene and I.
Moving to this earlier is it's real great strength across all of the major practices.
We're starting to see marketing chip in as well, which is great. So it's not just one practice that is driving the growth we're seeing really strong growth in HR in supply chain and finance in legal in sales and with marketing.
Moving to gain altitude as well so we do feel good about the strength of the GBS business right now.
Got it that's helpful. You mentioned the under spending a bit in <unk> and that you're now targeting 18% to 19% normalized EBITDA margins in the second half of the year, which is going to be the base of which to expand.
Going forward, how should we think about margins more near term in <unk>.
Yes, so the the margins in <unk>.
Based on.
What we're seeing from a revenue outlook perspective will also be probably a little bit higher than normal or will be a little bit higher than normal just based on the pacing of us.
Making the investments and putting the money to work and so you know as we've talked about one of the big investments obviously is.
Growing the sales forces and that will happen and ramp over the year over over the balance of the year and so we will have some of that hit in Q2, but then it sort of compounds as we roll into Q3, and Q4 and so I think the Q2 margins.
It will be higher than that normalized level that we're talking about for the second half of the year for sure.
Very helpful. Thank you.
Thank you.
Next question comes from the line of Andrew Nicholas with William Blair. Your line is now open.
Hi, good morning.
Given the strength in both GTS and GBS.
It certainly seems like a pretty receptive and market I'm just wondering how aggressive you can be on the hiring front and I know you mentioned sticking with high single digit growth in head count in both businesses and that's certainly not not a small number but did you give any thought to accelerating that growth. Even further are there limitations to how quickly you can add bodies.
Or any other considerations worth keeping in mind.
Yeah, Hi, Andrew Gene Great question. So as we look at our sales force today, we believe we kind of a lot of capacity in terms of improving our sales productivity and so on.
We want to make sure we captured that.
The capacity as well and then complement that with growth.
As we said our target right now is in the high single digits. This year to position us really well for next year in terms of double digit growth and so that's kind of of our plan right now.
Okay.
Got it thank you and then.
Maybe the bigger picture question, we're over a year now from.
But what most would consider to be the start of the pandemic that I was hoping you could spend some time kind of discussing what you think are the biggest learnings from the management team in terms of running the business. Obviously, you've spent spent time on the cost structure already.
So probably don't need to spend more time, there, but but maybe on on kind of sales force training or execution or.
The optimal conference mix between hybrid and in person constant engagement whatever it is just love to hear kind of the top two or three things that that you feel like.
You are taking away from the past year that you might not have otherwise had had transparency too. Thanks.
Andrew It's a great question and we've talked about it a lot.
So it could be the old adage about.
The the tough times make you stronger I think certainly applies to how we feel about it for us in the sense that when.
When the pandemic hit last year was pretty tough and so there are a lot of innovations. We tried we really were.
<unk> had a the largest set of innovative things that we tried.
And the I guess in the second beginning second quarter of last year things like different kinds of formats, ranging value remotely things like that and what we found is that the whole wave of innovation has resulted in some learnings on some stuff didn't work that great. Some sort of worked really really well and we're going to continue that those things going forward. So I think one learn.
<unk> is just that.
There were a bunch of specific innovations that we came up with an example of that kind of is very.
The clear is.
Virtual conferences, where we didn't have anywhere from conferences before certainly begs the question going forward and we've learned the very successful the virtual conferences well when we could go back to in person.
Should we continue those virtual conferences as well, which we almost certainly will in different circumstances.
Similarly, with our products, we learn some ways to add value of remotely that we hadn't used before that we will continue to use going forward.
We also learned that we need less travel as Craig said earlier, we'd probably be less travel than we thought we did before the pandemic.
We have also.
Of always had a large of a relatively launch of our workforce working remotely.
But for the pandemic, we had everybody working remotely. So again, we developed new work practices that will I think.
Improve our productivity going forward for all of our remote workers, even with some of our workers are back in the office. So those are exempt from examples of some of the learnings that we've had.
From the.
This time, we've gone through this pandemic time.
Thanks Gene.
Thank you. Our next question comes from the line of Jeff Silber with BMO capital markets. Your line is now open.
Thanks, so much in the Ed Let me add my congratulations as well.
First question is just on the guidance for the year. It looks like you took revenue guidance of about $140 million and adjusted EBITDA guidance up about $240 million I know you had that big upside in the first quarter I don't think you provided official guidance, but compare to where we were three months ago are you also raising expectations for the last three quarters.
Of the ear or is it just makes it really on the first quarter upside surprise.
Hey, good morning, Jeff It's a combination of both so yeah. The strength we saw on the first quarter.
Or the source of the.
The D. If you will was a combination of revenue strength.
Sticks and also because of lot of it was CV strength, we get the flowed that through now the balance of the year income.
Combined with.
Lightness in spending and we.
We are going to be increasing costs.
You know.
Nicely and consistently over the next year.
Three quarters.
That said, it's a little bit lighter than what we originally baked into our forecast just based on some of the the softness.
We saw in Q1 and in our ability to ramp up as quickly as we want to so it is definitely a combination of.
The the Q1 over performance and then extending that through the balance of the year given the momentum we've seen not only on the on the subscription.
Part of the research business, but the non subscription part of the research business. The strength, we saw on bookings and backlog in the quarter allowed us to increase our consulting outlook.
We increased our conferences the outlook a little bit as well so it was strength across the board.
And I'd say the other the other big thing is obviously getting through the first quarter gave us a lot more visibility into not only what happened in the rearview mirror during the first quarter, but the outlook as well and the combination of all of those things gave us the confidence to increase the overall for the year the way you see it.
In our updated guidance.
Okay appreciate that and if I can just switch back to the research I know you talked about the strength across all verticals of one or we can give us some comments about geographies I'm just curious how the U S on doing versus the non U S and if theres any international countries to call out either positively or negative that would be great. Thanks.
Yeah, I mean basically.
Go ahead Craig.
No no. Please go ahead you got it.
Yeah. So.
The when it says.
On the we did well around the world. The U S was stronger than some other markets in there of some markets like you can imagine India.
Which isn't a big for us, but didn't do as well Europe didn't grow as fast as the U S. So you can think about kind of it correlates pretty closely to how the pandemic is doing around the world.
Okay, that's what I thought thank you so much.
Thank you on.
Next question comes from the line of Manav Patnaik with Barclays.
Your line is now open.
Thank you.
Gene I just wanted to ask just on the GBS again.
The obviously the growth is very impressive.
I just wanted to.
Talk about the dynamic of the client count in GBS continued to decline I was just hoping you could just talk.
Talk a lot of that again.
Some of you are you asking about just to clarify are you asking about on.
What's happened with the growth in the number of clients.
Yeah, I mean, the you know the youre selling all of it it sounds like with the wallet contains the media selling more of existing clients with that client count that you report keeps declining so I'm just curious what's happening there.
Hey gene.
Yes, Craig.
Good morning, Michael sorry.
So I think a couple of couple of things one is yes, it's down year over year, but we've actually.
<unk> seen nice sequential improvement, particularly from fourth quarter into Q1.
If you'll remember manav the way we go to market in GBS is essentially by functional area and so just because the client might be an HR client.
We've got a team that goes in net and then tries to.
Convert the finance team and bring them on as clients and so we are able to generate really nice growth from existing enterprises, because we mailing of one function as of.
Clients, who may of two we may have three we may have four on it.
It varies across the board and so I think that the strength in GBS, new business was a combination of.
New logo growth and expanding within existing client enterprises, but even against the understood that point when we are expanding in client enterprises. It is often like a brand new client where they've gone from zero CV in finance they'd become of finance client.
And again, it won't increment up necessarily the the client enterprise count, but again, we did we did see a nice sequential bump.
From <unk> into the first quarter and a large portion of that.
Net new business strength, we saw in GBS in the first quarter could be attributed to brand new logos.
Got it and Craig just on the guidance you know, obviously understandably given the COVID-19 dynamics, you've gone through this kind of at least a guidance number that you gave out there and I just wanted to.
Have you talk a little bit more about.
The increased visibility that you talked about but still you know perhaps of what else is cloudy out there outside of the <unk>.
<unk> business.
Just to try and gauge how conservative you're still dealing with these numbers.
Sure Yeah, so we actually converted to the the at least prepaid debit.
It gets associated with the with the fed dynamic, but we had actually converted to this this way of guiding.
Just prior to the pandemic I think.
We want to guide in ways that we feel that we are very confident that we will be able to achieve that guidance and the way we've been updating our guidance each quarter over the last several quarters is we analyze what happened in the most.
Recent quarter, we utilize the enhanced visibility we have.
From the performance in that quarter and looking forward and then we flow that through.
Both of our top line metrics and.
On the expense side as well.
Think you know in particular.
We were a little cautious.
Entering the year, particularly with thinking about the CV ramp, which drives the bulk of our a bulk of our revenue for the business and we had a really strong first quarter from the CV ramp perspective, and the beauty of that is we had some benefit in the first quarter, but the reality is the bulk of that benefit flows.
True to the balance of the year as we recognize that revenue and now we've got a view into the into Q2 pipeline into Q3 pipeline as well. So we just have that advanced.
Enhanced visibility as well and so again I think from a guidance perspective. These are numbers that.
Based on everything we're seeing based on most recent performance based on the visibility that we have around.
All right.
Subsequent quarters of quarters that are coming up. This is what we believe the business is going to perform at and that hasn't really changed in terms of our I'd say guidance philosophy of our guidance methodology, such as given the volatility in the overall selling environment driven by the pandemic driven by recessions driven by.
Other things, obviously, the the visibility does change or the or the facts that drive the visibility on have been changing very rapidly quarter to quarter and we have been.
Adjusting on that each and every quarter since and so from where we sit today. The the updated guide while it is significantly higher than what we had guided originally at the year both of the numbers and feel very confident with.
Alright, Thanks, a lot of Craig.
Thank you.
Our next question comes from the line of Hamzah Mazar with Jefferies. Your line is now open.
Hi, This is Jon filling in for Hamzah could you talk a bit about your current penetration level I believe it's around four to six seats across the enterprise what do you think of go from here. Thanks.
So great question, Jon I mean the.
We have two two levels that underpin the trade one is just the number of enterprises that we have.
We've talked about before we have more than 100000 enterprises that we target today.
And so we have a large number of enterprises. We can go after and then secondly, then within each enterprise, we have a lot of opportunity for additional seats and it's a little different with GTS GBS and GTS of.
When you think about it as being within the technology organizations. Those are large organizations they are growing and even among our existing client theres tremendous growth opportunities. We have products for obviously the C level their direct reports and then on down through the organization and then if you look at GBS.
Then you have each of the functions you know as Craig mentioned earlier finance marketing sales.
Legal et cetera, and each of those functions today, we have very very low penetration of both enterprises and we still have the same opportunity to add seats for each of those organizations as well and many of those organizations are quite large like you'd think of on the sales organization for example, or financial organization Theres just enormous opportunities there.
And so the whether it's GTS or GBS, we have huge opportunities both for the additional enterprises, but also for individual seats within those enterprises, both directly with the fee level reported the C level and then throughout the organization.
Yes.
Yeah.
Great. Thank you maybe could you just walk us through how sales trends progressed throughout the quarter.
From January February and March and then if you have any thoughts on April did we accelerated the quarter. Thanks.
So.
What I would say of the selling environment improved through throughout the quarter.
In particular, I think selling cycles between shorter on throughout the quarter and with most countries say is that they've got more visibility in terms of their own operations and so new better what kind of money budget money. They added so I'd sort of say the southern volume got better throughout the quarter.
Okay.
Perfect. Thank you.
Thank you there are no further questions I will now turn the call back to gene Hall for closing remarks.
So summarizing today's call Q1 was a strong quarter when exceeded expectations across all three of our business segments research conferences and consulting.
GBS delivered its first quarter of double digit growth in the Cros GTS and GBS, we had very strong new business growth.
Looking ahead, we're well positioned for success for.
For sustained success and we have a vast addressable market, which will allow us to achieve double digit contract value and revenue growth of the next five years of beyond.
We expect to deliver modest EBITDA margin expansion going forward from a normalized 2021, we generate.
Significant free cash flow in excess of net income, which will continue to deploy from share repurchases and strategic tuck in acquisitions.
Thanks for joining us today, and we look forward to updating you again next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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