Q1 2022 Gartner Inc Earnings Call
Good day, and thank you for standing by and welcome to <unk> first quarter 2022 earnings Conference call.
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I'd like to hand, the conference over to your Speaker today, David Cohen Gartner S V. P of Investor Relations. Please go ahead.
Good morning, everyone. We appreciate your joining us today for <unk> first quarter 2022 earnings call and hope you are well.
With me on the call today are Gene Hall, Chief Executive Officer, and Craig Safian, Chief Financial Officer.
This call will include a discussion of first quarter 2022 financial results and gardeners updated outlook for 2022 as disclosed in today's earnings release and earnings supplement posted to our website investor Doc Gartner Dot com following comments by gene and Craig.
But up to call to your questions. We ask that you limit your questions to one and a follow up on the call unless stated otherwise all references to EBITDA are for adjusted EBITDA.
Chestman as described in our earnings release and supplement our growth rates in Gene's comments are FX neutral unless stated otherwise.
Conciliations for all non-GAAP numbers, we use are available in the Investor Relations section of the Gartner Dotcom website finally, all contract values and associated growth rates. We discuss are based on 2022 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.
<unk> can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's 2021 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 Gardner Chief Executive Officer Gene Hall.
Good morning, and thanks for joining us.
Gartner had a great start to 2022 and the first quarter performance was strong across the business.
Growth in revenue EBITDA, EPS and free cash flow, we drove acceleration in contract value and our significant share repurchase program has lowered our share count.
With a strong Q1 results, we're increasing our 2022 guidance.
Research continues to be our largest and most profitable segment.
Gartner research provides actionable objective insight to executives and their teams across all major enterprise functions in every industry around the world.
We continue to have a vast market opportunity across all sectors sizes, and geographies and we're delivering more value to our clients than ever before.
There's a high degree of volatility and uncertainty in the world.
Our clients are facing more challenging decisions than ever before.
We've been incredibly agile and supporting them through these trying times, we're delivering more relevant and timely tranches on current pressing issues such as successfully operating in a hybrid work environments.
Helping strategies to attract and retain talent.
In managing supply chain disruptions.
Beyond these issues, we continue to provide unparalleled insight and advice on top priorities, including transitioning to digital business building diverse equitable inclusive organization.
Managing cyber security threats and much more.
Whether our clients are experiencing good times or bad and regardless of role, we deliver incredible value to enterprise leaders and their teams.
And we have strong demand for our services.
Research revenue grew 18% in Q1.
Total contract value growth was 16% at the top end of our medium term outlook.
Within our research segments, we serve executives and their teams through distinct sales channels global.
Acknowledged sales, where GTS serves leaders and their teams within it E G.
GTS contract value grew 14%.
Global business sales or GBS serves leaders and their teams beyond Daiichi. This includes HR supply chain finance marketing sales.
And more GBS contract value grew 24%.
Turning now to our conferences business Gartner conferences deliver extraordinary value to an engaged and highly qualified audience.
Q1 is a seasonally small quarter for our conferences business, which performed as expected in the first quarter.
We ran five virtual conferences in Q1.
We pushed several conferences that traditionally occurred in Q1 to later in the year to facilitate bringing them in person.
We continue to see strong demand for in person conferences from our clients and prospects.
We're taking a deliberate based approach as we return to in person experiences next week, we will be hosting our first in person conference since our pivot to virtual in 2020.
The Gartner data and analytics summit, where our next week in London.
Cindy tickets and exhibitor space is sold out for the summit.
Our clients prospects analysts and sales teams are eager to come together.
As we return to in person conferences will continue to leverage our profitable virtual conferences as a complement to our in person conferences garten.
Gartner consulting is an extension of Gartner research consulting helps clients execute their most strategic initiatives through deeper extended project based work.
<unk> is an important complement to our IC research business consulting revenue grew a very strong 20% in the first quarter.
So we had a great start to the year.
To sustain our success over the long term, we've made targeted investments in hiring and retaining top talent that are paying off.
Across the company turnover has stabilized we expanded our recruiting capacity last year and are adding new associates at a strong pace in Q1, we had our highest number of new hires ever we grew head count 4% sequentially, achieving our quarterly hiring target we're on pace to achieve our hiring goals for 2022.
The World continues to face significant challenges.
The unrelenting COVID-19 pandemic.
Russia's invasion of the Ukraine is a terrible humanitarian crisis, our thoughts are with all those who continue to be impacted.
Gartner is exiting the Russian market. In addition, we've established a free resource center to help leaders address a range of business issues that have emerged as a result of this crisis.
In closing we started 2022 with strong performances, we have great momentum across the business.
With our clients are experiencing good times were bad and regardless of role we deliver incredible value to enterprise leaders and their teams and we have strong demand for our services with a vast untapped market opportunity, we generate significant free cash flow in excess of net income.
Looking ahead, well positioned to drive strong topline growth with modest margin expansion.
As we invest for future growth, we will continue to return significant levels of excess capital to our shareholders. This reduces our shares outstanding and increases returns on capital over time.
With a strong Q1 results were increasing our 2022 guidance with that I'll hand, the call over to our Chief Financial Officer, Craig Safian, who will give you more detail Greg. Thank you gene and good morning first quarter results were strong with acceleration in contract value growth and strength in revenue EBITDA and free cash flow E. P.
S was particularly strong as the benefit of share buybacks reduced our share count with results above our expectations. We are increasing our 2022 guidance. The improved outlook reflects the better than expected first quarter topline results and increase revenue from conferences. We now expect to hold in person first quarter revenue was $1.3 billion up 14%.
Year over year as reported and 16% FX neutral. In addition, total contribution margin was 70% up 44 basis points versus the prior year EBITDA was $329 million up 3% year over year and up 5% FX neutral adjusted EPS was $2.33 up 17% and free.
Cash flow in the quarter was $150 million up 4% year over year adjusting for insurance proceeds received last year free cash flow was up 17% on a rolling four quarter basis research revenue in the first quarter grew 16% year over year as reported and 18% on an FX neutral basis retention was very strong again and new business.
Continued to increase.
First quarter research contribution margin was 75% up 81 basis points versus 2021 higher than normal contribution margins reflect improved operational effectiveness increased scale and continued temporary avoidance of travel expenses, we've been increasing our head count, which we expect to continue as we move through the year.
Track value or CV was $4 $2 billion at the end of the first quarter up 16% versus the prior year. This includes our decision to exit the Russian market, which reduce CV by about $14 million.
Quarterly net contract value increase for N CVI was $80 million net of the impact of Russia CV just noted.
Quarterly N C. B is a helpful way to measure contract value performance in the quarter, even though there is notable seasonality in this metric we.
We saw broad based CV growth across all of our practices. Our technology practice grew 14% and all of our other business practices grew at double digit growth rates with the majority of them growing more than 20% year over year from an industry perspective retail manufacturing and services led our CV growth global.
Allergy sales contract value was $3 $3 billion at the end of the first quarter up 14% versus the prior year.
T S had quarterly N C V I, a $46 million in the quarter again net of the impact of exiting Russia.
Wallet retention for GTS was 107% for the quarter of about 900 basis points year over year GTS, New business was up 6% versus last year, when very strong new business benefited from a post pandemic bounce, including modestly higher than normal win backs G. T. S quota bearing head count was up slightly year over year in the first quarter, we promoted a higher than <unk>.
<unk> level of frontline sellers to sales manager roles. This reflected our strong CV performance and sets us up for future growth. This March was our best hiring months since the start of the pandemic. Our net hiring is in line with our plan turnover is improving and we remain on track to achieve double digit GBH growth. This year, our regular full set of G T.
S metrics can be found in the appendix of our earnings supplement.
Global business sales contract value was $899 million at the end of the first quarter up 24% year over year, which is above the high end of our medium term outlook of 12% to 16% GBS CV increased $34 million from the fourth quarter, while retention for GBS was 115% for the quarter.
Up about 11 percentage points year over year.
GBS, new business was up 18% compared to last year, reflecting robust growth across the full portfolio and against a strong compare GBS quota bearing head count increased sequentially and is up 15% year over year, we remain on track to grow GBS head count at double digit rates in 2022.
As with G. T S irregular full set of GBS metrics can be found in the appendix of our earnings supplement.
Conferences revenue for the first quarter was $10 million in line with our expectations. The first quarter is always a seasonally small quarter and we pushed several conferences to later in the year to increase the likelihood of running them in person contribution margin in the quarter was negative 28% given the seasonality in revenue and normal quarterly costs.
We held five virtual conferences in the quarter, we held the VAT the meetings in both virtual and in person formats. As we look to the rest of the year. We plan to run 24 in person conferences, we will continue to run a mix of in person and virtual conferences as a part of our go forward strategy for the business I will detail our updated annual outlook for conferences sure.
Italy.
First quarter consulting revenues increased by 17% year over year to $116 million on an FX neutral basis revenues were up 20% consulting contribution margin was 44% in the first quarter up almost five percentage points versus the prior year with better than expected revenue in a mixed benefit from strong growth in contract optimization.
Labor based revenues were $96 million up 14% versus Q1 of last year and up 18% on an FX neutral basis backlog at March 31 was $147 million, increasing 30% year over year on an FX neutral basis with another strong bookings quarter, we revised our backlog methodology to include the <unk>.
Expected revenue from the out years of multi year agreements. This change contributed about seven percentage points the backlog growth rate in the quarter.
Our contract optimization business was up 29% as reported and 30% on an FX neutral basis versus the prior year as we have detailed in the past. This part of the consulting segment is highly valuable.
Consolidated cost of services increased 13% year over year in the first quarter as reported and 14% on an FX neutral basis. The biggest driver of the increase was higher head count to support our continued strong growth SG&A increased 27% year over year in the first quarter as reported and 29% on an FX neutral basis SG&A increased in the quarter.
As a result of a $24 million nonrecurring real estate charge higher Commission expense following strong CV growth in 2021 and increased hiring in sales and G&A functions.
SG&A without the facilities related charge would have increased 22% year over year and would have been 47% of revenue in the quarter. We expect SG&A expenses to increase over time as our hiring continues.
EBITDA for the first quarter was $329 million up 3% year over year on a reported basis and up 5% FX neutral.
First quarter EBITDA upside to our guidance, primarily reflected revenue exceeding our forecast depreciation.
Depreciation in the quarter of $23 million was down modestly versus 2021.
Net interest expense, excluding deferred financing costs in the quarter was $30 million up $5 million versus the first quarter of 2021 due to an increase in total debt balances. The Q1 adjusted tax rate, which we use for the calculation of adjusted net income was 23% for the quarter the tax rate for the items used to adjust that income was 20.
4% for the quarter.
Adjusted EPS in Q1 was $2.33 growth of 17% year over year.
The weighted average fully diluted share count for the first quarter was 83 million.
This is a reduction of more than 6 million shares or about 7% year over year, we exited the first quarter with about 82 million fully diluted shares.
Operating cash flow for the quarter was $168 million up 7% compared to last year Capex for the quarter was $17 million up 38% year over year as a result of an increase in capitalized software.
Cash flow for the quarter was $150 million free cash flow growth continues to be an important part of our business model with modest capex needs and upfront client payments as many of you know we generate free cash flow well in excess of net income our conversion from EBITDA is very strong with the differences being cash interest cash taxes.
And modest Capex, partially offset by strong working capital cash inflows.
<unk> for the insurance proceeds we received last year free cash flow as a percent of revenue or free cash flow margin was 22% on a rolling four quarter basis on the same basis free cash flow was 84% of EBITDA and 159% of GAAP net income.
At the end of the first quarter, we had $456 million of cash our March 31 debt balance was $2.5 billion. Our reported gross debt to trailing 12 month EBITDA was under two times, our expected free cash flow generation unused revolver and excess cash remaining on the balance sheet provides ample liquidity to deliver on our capital allocation.
Strategy of share repurchases and strategic tuck in M&A.
We repurchased around $450 million of stock during the first quarter and about $630 million through the end of April last week. The board increased the repurchase authorization by $500 million, bringing us to a total of about $1 billion available for open market buybacks. We expect the board to continue to refresh the repurchase authorization as need.
And going forward.
Since the end of 'twenty 'twenty through the end of this April we've reduced our shares outstanding by 8 million shares. This is a reduction of 9% from the end of 2020.
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 increasing our full year guidance to reflect strong Q1 performance and the return of in person conferences.
We also updated guidance to reflect a stronger U S. Dollar we now expect an FX impact to our revenue growth rates of about 260 basis points for the full year. This is up from 150 basis points based on rates when we guided in February .
As we detailed last quarter 2021 research performance benefited from several factors, including GBH tenure mix and CVI phasing within the quarters and the year record retention rates and strong non subscription growth. We continue to assume that those benefits do not persist at the same levels through 2022. The growth compares also.
Get harder as we move through the year, we were taking a balanced approach based on historical trends and patterns, which we reflected in the updated guidance.
We are updating our guidance for the incremental revenue from 24 planned in person conferences with significantly more visibility into the second quarter. We will continue to update our outlook as we have more visibility.
For our local one day event or events, we expect to run most of them in person, while continuing to run some virtually.
We expect about one third of our full year conferences revenue in the second quarter. This year.
Consistent with our commentary last quarter, our base level assumptions for consolidated expenses continued to reflect significant head count increases during the year to support current and future growth, we have modeled higher labor costs and teeny well above 2021 levels. As we previously indicated we will also have higher commissions during 2022 due to the very good.
Selling performance, we delivered in 2021 finally, we continue to invest in our tech both client facing and internal applications as part of our innovation and continuous improvement programs. Our updated guidance for 2022 is as follows we expect research revenue of at least $4.575 billion, which is FX neutral.
Growth of about 14% the FX neutral growth is up about 160 basis points from our prior guidance due to strong and CVI performance in the first quarter, we expect.
Conferences revenue of at least $270 million, which is growth of about 30% FX neutral, we expect consulting revenue of at least $430 million, which was growth of about 7% FX neutral. The result is an outlook for consolidated revenue of at least five point to $75 billion, which is FX neutral growth of 14%.
FX neutral growth is up about 330 basis points from our prior guidance due to strong performance in the first quarter and the shift to in person conferences without the strengthening U S. Dollar since February our revenue guidance would have been about $155 million higher than previous guidance.
We now expect full year EBITDA of at least $1.135 billion up $100 million from our prior guidance and an increase in our margin outlook as well without the strengthening U S. Dollar since February our EBITDA guidance would have been about $110 million higher than previous guidance.
We now expect 2022, adjusted EPS of at least $7.80 for 'twenty 'twenty. Two we now expect free cash flow of at least $930 million. Our guidance is based on 82 million fully diluted weighted average shares outstanding which reflects the repurchases made through the end of April .
All the details of our full year guidance are included on our Investor Relations site.
Finally for the second quarter of 2022, we expect to deliver at least $300 million of EBITDA.
We had a strong start to the year with momentum across the business contract value continued to accelerate E. P. S grew mid teens fueled by the significant reduction of shares over the past year, we repurchased roughly $630 million in stock. This year through April and remain committed to returning excess capital to our shareholders looking.
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 over time, and G&A leverage we can modestly expand margins from the normalized 2021 level, 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 and we'll continue to deploy our capital on share repurchases, which will lower the share count over time and on strategic value enhancing tuck in M&A with that I'll turn the call back over to the operator, and we'll be happy to take your questions operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please stand by while we compile the Q&A roster.
Our first question comes from Jeff Mueller with Baird. Your line is open.
Yeah. Thank you.
And great quarter.
So you already gave me 15 talking points on this but I'm going to ask about it anyway, just the quota bearing sales head count being flat.
So.
Just so I understand.
Reconciling what you gave us to that metric so the.
Turnover is seasonally higher in Q1, but turnover for quota bearing head count is actually getting better year over year and then Q1 is also seasonally high for promotions and given the planned growth theres more promotions this year than there were last year, but.
Hiring is performing to plan and is actually the best since before the pandemic are those the right reconciliation points to explain while a keyboard to still flat sequentially.
Yes.
Jim So.
Pat is going to plan.
And we're on track for the year at double digit champion our head count.
The as you mentioned.
Have a more oceans at the January then we finished the year we've done this for long periods.
A core part of our ongoing Chi.
So we'd be promote keep January to your point.
We'd be edge our backlog.
The backlog pins, because the pandemic than we'd had in the.
You know.
Bruce years pre pandemic might work.
So that's cool.
Pins beans bigger drain on quota bearing head count.
Okay.
I don't know if you can hear me okay.
Yes, Jeff Let me just repeat what Jim said, we're just having a little bit of trouble.
So.
Viewpoints.
Uh huh.
Bruce.
Correct.
I don't know if it's just me I'm also having trouble hearing you.
Alright.
So hopefully now you can hear me.
Yes.
Okay great.
Yes.
We'll work through the problem.
But what he was saying is we've seen improving attrition.
Really starting in the second half of last year and continuing through this year, which is very very positive.
We do almost all of our promotions in the beginning of the year in January .
And so because of the really strong growth in bounceback in GTS, we had more promotions than we normally.
In the first quarter, and obviously, we feel that and generally with our best performing frontline associates as the next step in the promotional ladder that yes.
Yes that our frontline sellers Te.
As gene and I, both mentioned in our prepared remarks, very strong recruitment and hiring across the organization and in particular.
In GTS and then the one other thing I would add and had a modest impact but was also the exiting of Russia had a small impact on the sequential GBH reported number as well.
Got it very helpful. And then on conferences, so I can understand kind of the business performance and the assumptions for the Q2 conferences that you have better line of sight to I heard that at least some of them look like record attendance or sold out attendance.
Are those conferences are you monetizing them above the pre pandemic level at this point and the full year guidance being below the pre pandemic level is about the risk adjusting the conferences are assumptions for later in the year plus fewer conferences just one.
During our conference monetization of those that are happening with good line of sight relative to pre pandemic.
Yes, Jeff It's a great question and Jim follow on here as well so.
Few thoughts there so as we noted.
We are transitioning 24.
That had previously been planned as virtual to Ryan in person over the balance of the year and clearly we have more visibility into ones that are running next week as gene noted than ones that are running in in the fourth quarter from a monetization perspective, just a couple of thoughts there. So one is.
We're planning on having fewer in some cases fewer attendees.
Each of the conferences that we had historically to be mindful of being able to social distance.
Feel like we are packing everyone in shoulder to shoulder given the environment.
And so in some cases, we will have fewer attendees than we had in pre pandemic in some cases at the conferences I've been building, we'll have more attendees than we had prepaid.
So the revenues will not bounce back immediately to pre pandemic levels predominantly.
As we want to make sure that we can.
Keep people safe healthy and feeling safe and healthy at the conferences Bye Bye just moderating.
The attendance.
Got it thank you.
Thank you. Our next question comes from Tony <unk> with Morgan Stanley . Your line is open.
Thanks, so much.
I wanted to ask about pricing how.
Are you able to increase prices more of this year compared to prior years, just given the inflationary environment and have customers been generally understanding about it if that's the case.
Tony Thanks for the question.
So we are being a little more aggressive on pricing this year and the way, we're basically thinking about it.
Is.
As we are dealing with and have modeled then more wage inflation cost inflation on our people we are making sure that we at least match that from a pricing perspective, so that we can.
Protect our margins and I would say generally speaking.
So far this year, our clients are understanding of the price increases again as we've talked about in the past.
Our.
The spending with us at most of our clients represent a pretty small ticket item.
A modest price increase our clients are generally understanding and of course, we've been significantly improving our products and insights along the way as well.
Great.
I wanted to also ask about the EBITDA margin guidance.
The Martin CAD, 21, and a half for the year.
From 20% and I think the results in the quarter and the FX impact.
Based on my estimates such as cellular about half theories, but maybe you could have had different forecast than that.
But.
Outside of you know the first quarter.
FX that really drove sort of that the higher margin for the year that'd be helpful. Thanks.
Yeah of course Thats great question.
The way to think about it is probably two or three things so.
We're one.
<unk>.
And CVI performance in the first quarter exceeding our.
Expectation that obviously that benefited Q1, but it also flows through into the balance of the year and generally flows through pretty nicely from an incremental margin perspective.
Second thing is obviously, the pivot to in person conferences and that incremental $70 million of revenue.
Yes, it does flow through with some.
The incremental margins there and then third there are some SG&A savings predominantly G&A savings that we're able to dial through P&L as well most notably we did take as you would know.
Charge for real estate in the quarter and we filed in the.
2022, <unk> expense benefit from that from that facility. So it's really a combination of those three things that are driving both.
The revenue and EBITDA side and translating into at modestly higher EBITDA margins for the full year.
Terrific. Thanks again, congrats on the quarter.
Thank you. Our next question comes from <unk> Tong with Goldman Sachs. Your line is open.
Hi, Thanks, good morning.
T S in GBS productivity, both increased pretty significantly in the quarter can you elaborate on the factors driving improvement in productivity and how much further improvement you see in both of the segments.
Hey, it's gene I'll try again.
My wife words this time.
So basically we're very focused on improving productivity for both GTS and GBS.
Inquiry for one time, and we have a lot of programs, we've talked about from time to time on improving that productivity.
It includes things like our recruiting programs our training programs the tools, we give our salespeople and our processes and what you are seeing anything it also includes.
Our content to make a draw on the most important issues and I think all of those things are coming together driving great productivity. In addition to that because of our slower growth in head count last year, we have a higher average tenure than we would have kind of normal times call. It pre pandemic times.
So those are the key factors to drive productivity operational changes, we're making and modestly higher tenure compared with pre pandemic times.
Got it that's helpful.
And then you're guiding to double digit growth in head count. This year can you elaborate on how much head count growth youre expecting in GPS compared to GBS over the remainder of this year.
Yeah, we're expecting both to grow at double digit rates because of the faster contract value growth. We've seen from GBS, we'd expect that double digit head count to be modestly higher than GTS.
Very helpful. Thank you.
Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is open.
Hi, Good morning. This is actually Trevor Romeo in for Andrew. Thanks, So much for taking the questions first I was kind of just wondering if you'd call out.
Any drivers of the consulting strength with 20% FX neutral growth in what looked like record backlog.
Any new kind of service offerings or changes that clients have been particularly receptive to there.
Hey, Trevor we always make improvements to our processes that we've been making substantial improvements truck unsold processes, but it is fundamentally the strategy. We have which is consulting is an extension of our research business and we are helping clients through the same difficult issues that we do in our research business, but let's let's work with clients in a more in depth way for those clients that prefer that and so it is.
Really combination of operational changes with fundamental demand.
Okay great.
Sorry, Jeff I would just add the growth in the quarter was both across labor base and contract optimization. So.
14% year over year reported growth on our labor based revenue.
9%.
Reported growth.
On the contract optimization business.
Yep understood. Thank you and then.
Just kind of a follow up on the margin outlook.
It looks like now 2022, the guide implies about 21, 22% margins has your thinking around kind of a normalized margin run rate for the business going forward kind of also increased is this kind of a good baseline to build on.
Hey, Trevor Great question so.
The implied margin of the outlook right now is about 21, 5%.
The way we continue to think about it is our normalized margin is around 20 as we think about it we are still seeing some benefits and we are still catching up to <unk>.
Some extent on a number of items, whether it be head count.
Travel and a few other things and so the way to think about.
The normalized margins moving forward is around 20%.
Okay, great. Thank you very much very helpful.
Thank you. Our next question comes from Jeff Silber with BMO capital markets. Your line is open.
Hi, Good morning. This is Ryan on for Jeff just had a follow up question on the conferences given the move to in person conferences. This year, how does that affect the financial model from both a margin percentage and margin dollar basis.
Hey, good morning.
So yes as you saw we're we flowed through an incremental $70 million of revenues and it's important to remember that we're pivoting from virtual where there was revenue expectations in person, where there was just a higher revenue expectations. So it's not going from zero to something thats going from.
You have a smaller number based on a virtual conference to a larger number.
Just on a on an in person conference.
As I mentioned earlier I forget whose question. It was just about Jeff's question about the <unk>.
Scale of the conferences, we are running them at a little bit lower scale than we had pre pandemic and so our expectation on the margin flow through.
As high as it would've been pre pandemic.
Said.
The margin.
Dollar flow through is obviously more than it would be.
We've been running virtual and so the way to think about it is we're probably in the.
20% to 30% incremental margin flow through.
On.
The.
On the shift from virtual two in person conferences.
Is that hurts the margin percentage, but is obviously helpful in terms of generating.
<unk> nicely more margin dollars for us flowing through to the bottom line.
Got it. Thank you and then just a modeling question when should we think about.
Normalized <unk> expense case returning.
This year.
Yes.
It is slowly building Q.
Q1, given the environment and given the fact that we werent running.
Any conferences or anything.
In person conferences was very late.
Would expect second half of the year to look more like a quote unquote normal.
That said, though we are still.
Rebuilding our.
Conferences portfolio and so as we roll into years beyond 2022, there may be more travel associated with.
Delivering those.
But second half of the year, we expect to be back at a semi normal rate of travel, but again I think we won't get back to true normal travel levels until our copper portfolio.
That's fully come back.
Thank you as a reminder to ask a question at this time. Please press Star then one on your Touchstone telephone. Our next question comes from Heather <unk> with Bank of America. Your line is open.
Hi, Thank you.
Just a follow up question on the normalized margin outlook, we talked about you still think it's 20%.
Given that you exceeded plan, thus far the here.
And raised your guidance I'm curious then when you think about the 150 basis points of margin improvement in your guide how much of that is it go forward sustainable benefit.
And how much of it I guess, how much shifted into next year and just curious given that you'd be plan why why your margin outlook today at 20%.
Hey, good morning Heather.
I think it's a few things.
So one given the really strong growth that we delivered last year, we are still.
To an extent catching up on all the people we need on staff too.
It's really deliver to our clients and drive future growth and so while we're hiring at a furious pace as gene highlighted and we are on our operational plan. We are still playing catch up in some areas and so.
That will be a little bit.
<unk>.
Some of the bridge between the 21 five in the normalized level of 'twenty, We just talked about one of the other levers which is travel.
Which again has not fully come back yet we actually were under plan in travel.
<unk> expense in the first quarter, we do expect it to build but yes. It discussed it's not back to full quote unquote normal type levels yet.
And we will get there over time those are probably the two biggest ones and then I'll.
Obviously also making sure that we are making all the right investments so that we can drive.
Repeatable sustained top line double digit growth.
Again that means growing GTS and GBS also double digit growth rates and continuing to do that.
And I think those are the three big factors as we think about the current guide and then the normalized level of margins.
Got it and in your second comment I guess brings maintain my follow up question.
As we think of the rest of the year. If you were to exceed on your sales plan.
In the past about what your.
And lastly on the gross margin side is I'm curious how much how should we think about.
Incremental investment for kind of any sale.
They might do with your progresses.
Yes, I mean I think we.
We are we built a real solid operational plan beginning of the year that had the sales hiring and expert hiring and service hiring that we need to deliver on 22 and also to make sure that we're.
We're set up to continue to drive really strong growth rates into 'twenty three and beyond.
If CV growth is a little faster than we had expected there would probably be incremental sellers incremental experts and incremental service people again to make sure that we keep our clients really really happy and keep delivering great value and can continue to grow so as we move through.
The year I would say right now we feel good about our investment plans and hiring players.
If the performance is starting to look higher or lower than.
Our current expectation, we will obviously adjust as necessary. So if we see stronger growth, we would probably do more hiring if we see software growth we would.
Yes, potentially slow down a little bit, but from where we sit today, we feel like we've got a really strong hiring plan that will allow us to deliver on 22 and also set us up for continuing to grow into the future.
Great. Thank you for your help.
Thank you and I'm currently showing no further questions at this time I would like to turn the call back over to Gene Hall for closing remarks.
So summarizing today's call. We started 2022 with strong performances, we have great momentum across the business.
With our clients are experiencing good times or bad and regardless of role we can deliver incredible value to enterprise leaders and their teams.
We have strong demand for our services.
Vast untapped market opportunity we generate.
Significant free cash flow in excess of net income.
Looking ahead, we're well positioned to drive strong topline growth with modest margin expansion.
As we invest for future growth will continue to return significant levels of excess capital to our shareholders. This reduces our shares outstanding and increased returns on capital over time.
With a strong and with our strong results, we are increasing our 2000 2022 guidance.
Thanks for joining us today, and we look forward to updating you again next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
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