Q2 2021 Gartner Inc Earnings Call

Thank you for standing by and welcome to the Gartner second quarter 2021 earnings Conference call.

At this time all participants are most of them are after.

After the Speakers' presentation there'll be a question and answer session to ask the question. During the session. You may need the press Star then 1 of your telephone please be advised of today's call maybe recorded.

If you require additional systems, plus stars and Xerox, which an operator.

I'd now like the hand, the call over to David Cohen Gartner is D V. P of Investor Relations. Please go ahead.

Good morning, everyone. We appreciate you joining us today for Gartner 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.

Eric.

The call will include a discussion of second quarter 2021 financial results and Gartner updated outlook for 2021 as disclosed in today's earnings release and earnings supplement both posted to our website at Investor Day, Gartner Dot com.

The comments by gene and Craig We will open up the call for your questions. We ask that you limit your questions to 1 of the 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 of available in the Investor Relations section of the Gartner Dot Com website. Finally, all contract values and associated growth rates. We discuss are based on 2021 foreign exchange rates unless stated otherwise.

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 as Chief Executive Officer Gene Hall.

And thanks for joining us gardeners positive momentum continued in the second quarter of 2021 again delivered strong results across contract value revenue EBITDA and free cash flow, we significantly increased the pace of share buybacks total company revenues were up 16% with strength in all 3 business segments and research the Qunar XP.

The patients we continue to see growth opportunities across industries geographies and every size enterprise.

Research is our largest and most profitable segments of research segment serves executives and their teams across all major enterprise functions in every industry around the world.

Our market opportunity is vast across all sectors of sizes and geographies.

Total contract value growth increased to 11% with both the GTS and GBS the 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 of 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 GBS serves leaders and their teams beyond Daiichi.

This includes HR supply chain finance marketing sales legal and more.

GBS again accelerated delivering outstanding contract value growth of 18% Oh 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 on consistent execution of proven practices.

We continue 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 for the second quarter 2021 conferences revenues were $58 million the get exceeding our expectations.

As many of you know during 2020, we were unable to hold in person conferences to dress. The situation, we created virtual conferences to deliver extraordinarily valuable insights to our audiences.

We continue to operationally prepare for some in person conferences in the second half of the year if conditions allow.

Gartner consulting is an extension of Gartner research and helps clients execute their most strategic initiatives through deeper extended project based work.

Consulting revenues were up 4% in Q2, we had strength in our labor based business with labor based revenue up 20% over this time last year.

Contract optimization revenue was down from a record high last year.

Overall consulting continues to be an important complement to our I T research business.

To ensure we keep pace with our accelerating growth rates, we're rapidly growing our recruiting capacity.

Our Henry is accelerating even of today's tough labor market candidates seek Gartner is a great place for a long term career. They know we have an incredible impact on our clients that were sales driven growth company and that our growth provides among the best promotion and professional development opportunities for all our associates.

With strong revenues and continued disciplined cost management EBITDA exceeded expectations strong EBITDA combined with effective cash management resulted in strong free cash flow per.

Mary's for cash flow continue to be strategic tuck in acquisitions like the small 1 we did this quarter and share repurchases.

Summarizing Q2 was another strong quarter with strength in all 3 business segments and research exceeding our expectations. We delivered strong results across contract value revenue EBITDA and free cash flow.

Looking ahead, we are well positioned for long term sustained double digit growth we've of vast addressable market. We have an attractive recurring revenue business model with strong contribution margins.

We expect to deliver modest EBITDA margin expansion going forward from a normalized 2021 with.

We generate significant free cash flow in excess of net income, which will continue to deploy through share repurchases and strategic tuck in acquisitions with that ill hand, the call over to Craig Craig. Thank.

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 2021guidance to reflect our strong Q2 performance.

Second quarter revenue was $1.2 billion of 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.

Per cent FX neutral adjusted EPS was $2.24 free.

Free cash flow in the quarter was $563 million free cash flow includes $150 million from insurance proceeds related to canceled twenty-twenty 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 head count.

However, some of the margin improvement compared to historical levels as 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 30th quarter.

Quarterly net contract value increase or N. C V I was $114 million significantly better than the pandemic lows in the second quarter of last year, and a new record high for second quarter and CVI quarterly 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 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.

By industry CV growth was led by technology manufacturing and services.

Wallet retention for GTS was 101% for the quarter of about 110 basis points year over year.

Wallet retention isn't yet fully back to normal because it's a rolling 4 quarter measure.

GTS, new business was up 38% versus last year with strength in new logos and continued 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 $770 million at the end of the second quarter up 18% year over year, which is above the high end of our medium term outlook of 12% to 16% GBS CV increased $39 million from the first quarter broad based CV growth was led by the health care and technology industries all of our.

Practices, including marketing delivered year over year, and sequential CV growth HR finance sales and supply chain, each grew 20% or more year over year.

Wallet retention for GBS was 110 per cent for the quarter up more than 950 basis points year over year.

UBS new business was up 76% over last year led by very strong growth across the full portfolio as.

As with G. T S. Our regular full set of GBS metrics can be found in our earnings supplement.

Conferences revenue for the second quarter was $58 million compared to no revenue in the year ago quarter contribution margin in the quarter was 73% driven by strong top line performance.

We held 13 virtual conferences in the quarter. We also held the number of virtual event of meetings.

Second quarter consulting revenues increased by 9% year over year to $106 million on an FX neutral basis revenues were up 4%.

Consulting contribution margin was 40% in the second quarter up almost 600 basis points versus the prior year quarter.

Labor based revenues were $86 million up 25% versus Q2 of last year and up 20% on an FX neutral basis.

Labor based billable head count of 740 was down 7%.

Utilization was 70% up more than 1100 basis points year over year.

Backlog at June 30th was $108 million up 7% year over year on an FX neutral basis after another strong bookings quarter.

Our contract optimization business was down 31% on a reported basis versus the prior year quarter and down 33% FX neutral the.

The prior year period was the highest ever revenue quarter for contract optimization and as we have detailed in the past. This part of the consulting segment is highly variable.

Consolidated cost of services increased 9% year over year, and 6% FX neutral in the second quarter.

Cost of services increased due to the reinstatement of annual merit increases and to support growth in the business.

SG&A decreased 1% year over year, and 4% FX neutral in the second quarter compared with the prior year period SG&A declined due to lower severance and conference related expenses, partially offset by higher personnel costs.

<unk> remains close to zero.

Operating expenses were lower than planned in part because net head count growth was below our targets, while our rate of hiring continues to ramp up turnover remains modestly above normal levels due to tighter labor market conditions as gene said, we're rapidly growing our recruiting capacity to keep pace with our accelerating growth rates.

EBITDA for the second quarter was $355 million up 85% year over year on a reported basis and up 75% FX neutral.

Second quarter, EBITDA again reflected revenue above the high end and costs towards the low end of our expectations.

Depreciation in the quarter was up about $3 million versus 2020, reflecting real estate in software, which went into service since the second quarter of last year net.

Net interest expense, excluding deferred financing costs in the quarter was $26 million roughly flat versus the second quarter of 2020.

The Q2 adjusted tax rate, which we use for the calculation of adjusted net income was 29, 9% for the quarter the.

Tax rate for the items used to adjust net income was 24, 6% in the quarter.

Adjusted EPS in Q2 was $2.24 since the <unk>.

Weighted average fully diluted share count for the second quarter was $86.6 million shares we exited the second quarter with $85.1 million fully diluted shares.

Operating cash flow for the quarter was $575 million up 68 per cent compared to last year Q2 operating cash flow includes $150 million of proceeds from insurance related to 'twenty 'twenty conference cancellations.

Excluding the insurance proceeds operating cash flow improved by 24% versus the prior year quarter.

Cash flow strength continues to be driven by EBITDA growth and improved collections.

Capex for the quarter was $12 million down 44% year over year, lower Capex is largely a function of lower real estate investments.

Free cash flow for the quarter was $563 million, which was up about 75% versus the prior year, excluding the insurance proceeds free cash flow improved by 28% versus the prior year quarter.

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 27% on a rolling 4 quarter basis.

Excluding the insurance proceeds free cash flow was 23 per cent of revenue 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 second quarter, we had $796 million of cash during.

During the quarter, we issued $600 million of new 8 year senior unsecured notes of the 3 and 5 eights coupon. These the proceeds from this new issuance to repay $100 million of the existing term loan a the balances available for general corporate purposes, including share repurchases.

Our June 30th debt balance was $2.5 billion at the end of the second quarter, we had about $1 billion of revolver capacity.

Our reported gross debt to trailing 12 month EBITDA was about 2.3 times.

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 quarter. We made a small acquisition with net cash paid at closing of $23 million.

Year to date, we have repurchased more than $1 billion in stock, including $685 million during the second quarter in July the board increased our share repurchase authorization for the third time this year, adding another $800 million as of August 1st we have more than $1 billion available for share repurchases. We expect the board will continue to refresh.

The repurchase authorization as needed as.

As we continue to repurchase shares we expect our capital base will shrink. This is accretive to earnings per share and combined with growing profits also delivers increasing returns on invested capital over time.

We are updating our full year guidance to reflect Q2 performance and an improved and increased outlook for the remainder of the year.

For research the strong start to the year in CV performance and improvements of non subscription revenue are contributing to higher than previously expected research revenue.

For conferences, our guidance is still based on being virtual for the full year with the uptick in Covid and shifting government directives. There is much more uncertainty around our ability to run in person conferences during the balance of the year. We continue to operationally plan for some in person conferences, our updated guidance reflects some additional cancellation related cause.

As for conferences, where we had been planning to run in person, but may need to cancel if we are able to run in person conferences, we expect incremental upside to both our revenue and profitability for 2020.1.

For expenses, we have reinstated benefits, which were either canceled or deferred in 'twenty 'twenty.

This includes our annual Merit increase which took effect April 1 we.

We are investing in expanding our recruiting capacity drive additional hiring across the business.

The additional hiring will continue into 'twenty 'twenty, 2 and beyond to support current and future growth. Our current plan is to increase quota bearing head count in the mid single digits for G. T S and low double digits for GBS by the end of 'twenty 'twenty 1.

Additionally, we continued to invest in a number of programs with the focus on improving sales productivity.

As you know travel expenses were close to zero from April 2020 through June 'twenty 'twenty 1.

Our current plants continued to assume of ramp up and travel related expenses over the course of the rest of this year weighted more to the fourth quarter, 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 $4 billion, which is growth of 11%. We still expect conferences revenue of at least $170 million, which is growth of 41% we.

We still expect consulting revenue of at least $400 million, which is growth of 6%.

The result is an outlook for consolidated revenue of at least $4.57 billion, which is growth of 11% based on current foreign exchange rates and business mix. The consolidated growth includes an FX benefit of about 200 basis points the year over year FX benefit was more pronounced in the first half of the year.

With the ongoing business momentum we are seeing we will continue to restore growth spending as we move through the year.

We now expect full year adjusted EBITDA of at least $1.16 billion, which is an increase of about 42% versus 2020 and reflects reported margins of 25, 4%.

We expect the reasonable baseline for thinking about the margins going forward is around 18% to 19% consistent with our comments last quarter.

We expect our full year 2021 adjusted net interest expense to be $113 million looking out to 'twenty 'twenty 2 as the balance sheet stands today, we expect interest expense to be around $115 million, we expect an adjusted tax rate of around 22% for 2020.1.

We now expect 2021 adjusted EPS of at least $7.60 for 'twenty 'twenty..1 we now expect free cash flow of at least $1.13 billion. This includes the $150 million of insurance proceeds received in the second quarter. This year all the details of our full year guidance are included on our Investor Relations site.

Turning to the second half of the year for research, we have more visibility into revenue the farther we get into the year. This is because N C V. I earlier in the year has more of an effect on the full year revenue.

The only conferences and consulting are also both typically later in Q3 finally at the start of 'twenty 'twenty..1 there was a lot of uncertainty in the world and we began with the prudently conservative plan more.

More than halfway through the year and with less macro uncertainty, there's a lower likelihood of the kind of upside we've seen the past few quarters as.

As a result, we expect reported numbers to be closer to our guidance than earlier in the year any upside is more likely to come from lower cost and higher revenue.

For Q3, we expect to deliver at least $250 million of EBITDA.

We also expect the tax rate for the quarter in the high Twenty's.

Looking out over the medium term, our financial model and expectations are unchanged.

The 12% to 16% research CV growth, we will deliver double digit revenue growth with.

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 of 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.

We had a strong first half with momentum across the business, we have meaningfully update of our outlook for 2021 to reflect the stronger demand environment and our enhanced visibility.

We of restoring certain expenses and investing to ensure we are well positioned to continue our momentum.

We repurchased more than $1 billion worth of stock this year 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.

As a reminder to ask the question. Please press Star then 1 of your question has the answered and you'd like to relieve yourself of the Q press the pound key.

First question comes from Gary Bisbee of B of a securities. Your line is open.

Hey, guys good morning.

Congratulations.

The strong results I guess.

I wanted to dig a little more end of the cost.

All year has been revenue of heavier.

Planning cost a bit below or at the low end whats really.

The new from accelerating investment is it the inability.

The the higher you talked about investing there that being a little more difficult is it in part you don't need more sales to deliver the target this year, given how strong productivity.

Or are there other factors.

Yeah.

In particular I'm interested in labor market tightening.

Sort of how long you think it will take.

The hiring.

<unk> been targeting.

Hey, Gary Gene. So that we came into this year with a lot of sales capacity that we've built up over 2019, and so to your point.

Entering your question, we actually have a lot of sales capacity of Youre seeing that in our sales results and so the reason we've been relatively slow to ramp up our sales hiring of our net of sales hiring has been we felt like we had plenty of capacity and plenty of opportunity in productivity and we still do having said that as I mentioned earlier my results. We're now at the point, we think it's time to sort of ramped up the capacity and so.

We've been aggressively building, our recruiting capability building a pipeline of candidates and we would expect to increase the hiring as we go through the year to position us very well for next year and beyond.

And Gary the the other thing I would just add good morning.

As you know.

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 hasnt panned out given the given the the the situation in the world. We had plans to reopen facilities a lot of those have just been pushed back further into the year.

<unk> as well so it's really a combination of them on the head count 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 the 18% to 19% medium term margin target if I backed into it right. It appears like the second half is above that.

The last quarter, you were talking about it moving down to that level is that is that Jeff delays in some of these costs like travel coming back that you just cited are opening offices or.

Is that an ability to maybe hire as quickly as you want.

Also part of what's going on there.

Yeah. It's it's it's all 3 of those things Gary I would say so things.

Things getting pushed out further into the year, including the ramp up in hiring that gene just talked about and so you know.

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 and 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 expenses further and further into the back half of the year.

Great. Thank you.

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

Yes. Thank you I had noticed that GBS sales head count has been back to sequential growth G. T. S has not I guess, what I'm wondering is is that a function of GBS metrics, inflicting 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.

If it's the latter just any thoughts on if the comp packages are appropriate or need to be adjusted.

Yeah, Hey, Jeff So the I'd say the biggest issue is what you're the first to start with which is with the faster growth in GBS. The rapid acceleration, we felt more of a need to get to.

Our net hiring up sooner than we have with G. T S. Having said that as I mentioned of my remarks, Tim.

Turnover is modestly higher and it would be a fact it affects the people that are in the parts of our business that are technology or didnt like our sovereign here's even as well as our G. T of Salesforce and while that's modestly higher that's only a piece of it I forget the greater peace of just kind of my what I said in the earlier question about.

The timing of of when we the capacity we have today and the time of when we chose to have recruiting start back up again, we have a we're a great place to work are our salespeople know badge and you don't really love being here and of course, we're a great place to attract new talent as well.

Okay, and then not that I'd expect you to adjust your G. P. S medium term guidance, because you had 1 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, the as I look at it the growth sounds broad base of the comps aren't that easy and the historical experience from G. T. S says on the organic constant currency basis that accelerated coming out of the financial crisis to a level of another remained at the.

The kind of throughout the expansion so just any thoughts on gene.

GBS and if there is I guess upside potential or or why not.

Good morning, Jeff.

Thanks for the question Yeah, I think in terms of the way, we think about the business over the medium term unchanged and so you know 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 and it has continued through the first half of the year.

That's great and it's been a really nice combination of improvements in retention, which you can see in our in our key metrics as well as great new business growth.

Across the board. So it's not any 1 practice, it's actually is as you alluded to broad based from industry perspective, and from a practice perspective and.

And so we remain.

Bullish on GBS, we remain bullish on G T S 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.

Sales force productivity or N C V. I 4 GB of stepped up to 141000, which came ahead of GPS for the first time ever can you elaborate on what drove the increase and whether you expect GBS productivity the step back down to be below GP of levels over the near term.

Yeah, Hey, George the the thing that drives our productivity in both sales forces is we've heard before which is our recruiting capability. The training programs. We have the tools we have in the process design and so the thing thats driving the productivity is as the market has gotten.

As the recession has come of come a little bit better those combination of factors the recruiting training tools and process affect both businesses and thats, what youre seeing what youre seeing drive the productivity improvement.

And so over time I expect both productivity improved both sales forces.

And then just on the on the second part of the question of what what drove GBS to come ahead of G. T. S. For the first time and when would you expect that productivity the flip over the near term back to G. B S being below GPS.

We don't think about it is 1 can it be higher than the other we expect both will actually have improvements over time and Ah Theres, 1 meaningful difference between GBS and GTS and that is that we have a higher number of what.

What we call business developers, which are salespeople that don't have any existing accounts.

Cheap G. T. S 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 those existing clients and GTS. We also have the business developers, but in GBS. We are of much higher number of business developed mirrors compared to account executives than.

And then we do at G. T. S. That's part of the thing that helps the impact sales productivity with the GBS, both now and over time.

Got it that's helpful. And then secondly, you've increased your EBITDA margins for the full year 2 of 25, 4% at the midpoint of what expectations for second half margins are you embedding into your guidance in house of 'twenty 'twenty, 2 margins compare with second half margins.

Hey, good morning, George Thanks for the question.

Obviously, the second half margins are lower than.

What we've run through the first half in and what the full year implies.

Yes.

Gary highlighted is lots of 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 and there's really no..1 1 primary reason for that and it's the the deferral and the pushing out of of spending that we expected to come in sooner just happening a little bit later over the course of of.

<unk> 2021, but all of us assuming we bear the full burden of that as the business continues to accelerate into into 2022, and so you know a little bit higher than the 18% to 19% 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.

Here, but we'll have a full impact on on.

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 youre hearing from clients in terms of appetite for in person Conference says I know you talked about a year operationally planning on running Tim.

And then later this year and that that would be upside to the guidance, but just what is the demand of that youre hearing from clients and has the delta variant impacted that at all.

Hey, Tony.

Our in person conferences remain hugely popular with with our clients clients are I'd say quite enthusiastic about returning to those in person conferences and I'm looking forward to it.

As of as we sit here today I would say our registrations for the conferences in.

In the U S havent been affected very much by the Delta variant that could change over time, if things goes go on but the sentiment as of just right now in terms of registrations things Hasnt changed very much outside of the U S. I'd say there is more concern around it and so it is not the same around the world, having said that even though that is of concern about the adult variant.

The kind of underlying demand there, even though the clients that are concerned about the delta variants in terms of Virginia 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 the demand.

That's great and.

You've repurchased more than $1 billion of stock this year.

Any updates to capital allocation priorities and on strategic Tuck ins I think you did a small 1 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, Tony I'll start out and then flip it over to gene on the.

On the M&A strategy.

You're right, we've repurchased over $1 billion worth of our stock through the first half of this year as we've always highlighted we have 2 priorities from a capital allocation perspective.

And in the end there theyre not stocked of prioritizing its 1 day and 1 day I would characterize it as which is return of capital to our shareholders.

The buyback programs and strategic value enhancing M&A, which is largely going to be in the the small medium tuck in size as we look forward those remain the 2 priorities.

Given what we see in the market.

Clearly in the first half of this year, we put out of bias or of 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 in and so we can do buybacks and so.

T J 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 the gene to talk about that in the M&A side.

Yeah, Tony so overtime in general our acquisitions have been focused on additions to our capabilities in 1 way or another so sometimes they've been actual you know kind of acquisitions to get to talent other times its been product extensions, which we've used and so I think you can think about.

As you.

You know ways to improve our capabilities either the direct people since or in a product offering.

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 the past quarter or 2 and how that compares to pre pandemic levels.

Still elevated relative to pre Covid and if so how important do you think that is too.

No what I think is record client retention metrics you posted this quarter, just just trying to get a sense for how much of this could be more of a temporary phenomenon given the current environment.

You know Andrew client engagement is really important in our business you know when they bought when clients by our services. They do it to get value out of it when they get the value of stay engaged 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 of our energy thinking of ways that we can actually stimulate that engagement because again, we know we get when we get more engaged.

And we our clients get more value out of our services and.

So it's kind of the 2 things of related.

Yeah.

Got it makes sense and then for my follow up.

Couple of several quarters in a row now of 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 it seems to be a bit more stable of an operating environment in the past 12 to 18 months. If you are considering or how youre thinking about your approach to guidance and whether you will consider.

Potentially reverting back to the more traditional bracketed approach at some point.

Whether it's later this year early next.

Good morning, Andrew Great Great question.

We actually shifted our guidance methodology to the at least pre pandemic.

And I don't see us flipping back I think you know as.

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 plan prudently.

And even when we entered this year I would say plan conservatively as well as the world's 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 the guidance methodology that we have that.

That said.

The I'd reiterate what I said in my prepared remarks earlier around the 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 in 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 of what your sales force.

Where are these folks going are they going to competitors are they going out on their own go into 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 the same places that it's always gone which is the the you know we're known as the company that has great recruiting training programs and so others people, who like to recruit promise you know or try to recruit from us and they're going to the same places.

While I was gone, which tends to be the technology industry.

Okay.

Okay, Great. That's helpful and you mentioned in your guidance.

It includes.

The planning from some in person destinations, but the guidance only on the conference I'd excuse me the Guy Who's the leader since the virtual for conference room in the clinic.

Find out what the Delta would be just for us for modeling purposes. If you shift from the virtual 2 in person.

Yeah, Jeff, it's and part of the reason why we guided this way is.

Yeah. The the difference will vary on a conference by conference spaces. So, it's very hard or near impossible to answer that question in terms of building your model I think the the way to think about it is.

With our current guide it is virtual only that is the best number to plug in right now and as we said if we are able to run some interest in conferences and the balance of the year. It would it would be upside to those numbers, but it will depend on the timing the location.

And everything else and it will be done on a and decisions will be made on a conference by conference basis.

If I could sneak in 1 quick 1 I am sorry, you mentioned that the guidance does include some additional cancellation related costs can you quantify those for us.

Yes sure Inc.

Probably low double digits millions in terms of.

The potential cancellation costs, it's it's hard to quantify that right now some of them are contractual and some of them will be sunk costs that go into the conference pre cancellation decision, but it's the knee in the low double digit millions as of current contemplation.

Great. Thanks, so much.

Again to ask a question. Please press Star then 1.

Our next question comes from Hamzah Mazar with Jefferies. Your line is open.

Hi, This is mario of Corelogic filling in for Hamzah.

Just kind of going back to some of the Delta there and just wondering how youre thinking about.

About that and considering opening Youre in person conference is your decision.

Be more around government guidelines.

Or is it just strictly more and more prudence on on Gartner is part and just making sure that these events are safe.

4 of the Guy that Theres no government restrictions you guys because you have the demand in place.

Your feel more comfortable doing it.

Yeah, Mario so as.

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 in any before building of 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.

I've said you shouldn't have large gatherings of the sort of circumstance, even if it's not of regulation, we're going to follow those guidelines and the third thing is we on a regular basis a survey of our clients to see how they feel about it as well and so we want to reflect their cinema as well even if there were no government guidelines.

But our client sentiment was it's not a safe thing to do the we certainly wouldn't follow that as well.

And and of course, we'll.

We use finally, our own assessment and if we think even if the governor of guidance, Okay, and even if clients want to do it. We don't think it say, we wouldnt hold of them as well and so there's kind of those of the factors that go into the decision making in terms of whether we hold it in person conference or not.

Got it and then just for my follow up.

Could you talk about when Youre looking at GTS sales force productivity I guess, what are the biggest levers that you can pull to get back the pre pandemic levels you talked about I guess some of the the.

The levers for GBS.

Broad and that Theyre, all contributing but is there 1 bigger lever that you can pull in GTS and then also could you just compare what the tenure is for the GTS sales force today versus pre pandemic.

And then how much of that 10 year can help add the productivity.

Yeah. So the first part is the factors that I mentioned earlier, which is the things that impact productivity of really our recruiting program make it you recruit the best people, making sure we bring them onboard they're trained to sell the gartner kinds of products that we quote the a great tools and we have the best processes, we're constantly improving those things.

And so overtime, we expect those will drive productivity.

Productivity improvements in terms of tenure compared to where we were in 2019, our 10 years on average higher because we've slowed hiring and so with fewer.

A lower proportion of new people from our slowed hiring.

The average tenure has gone up over time.

Any of any way to help quantify or give me the sense for how much that can help contribute to the productivity.

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

Understood. Thank you.

There are no further questions I'd like to turn the call back over to the gene Hall for any closing remarks.

Well some of ours, whose today's call Q2 was another strong quarter with strength in all 3 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 selling the hiring across our business to keep pace with this growth.

Looking ahead, we are well positioned for long term sustained double digit growth we've of vast addressable market with an attractive recurring revenue business model with strong contribution margins, we expect to deliver modest EBITDA margin expansion going forward from a normalized 'twenty 'twenty 1.

We generate significant free cash flow in excess of 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.

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Okay.

Okay.

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