Q2 2022 Gartner Inc Earnings Call
Good morning, everyone welcome to the Gardner second quarter 2022 earnings call. At this time all participants are in a listen only mode. After comments by Gene Hall, Garners, Chief Executive Officer, and Craig Safian Partners' Chief financial.
Sure there'll be a question and answer session.
Ask a question during the session you will need to press star one on your telephone please.
Be advised that today's conference is being recorded.
You require further assistance press star zero.
This call will include a discussion of second quarter 2022 financial results and Gartner has updated outlook for 2022 as disclosed in today's earnings release and earnings supplement, but posted to our website investor deck <unk> Dot com.
On the call unless stated otherwise all references to EBITDA are for adjusted EBITDA with the adjustments as described in our earnings release and supplement our growth rates in Gene's comments are FX neutral unless stated otherwise.
All references to share counts or for fully diluted weighted average share counts unless stated otherwise.
Reconciliations for all non-GAAP numbers, we use are available in the Investor Relations section of the Gartner Dot Com website.
Finally, our contract values and associated growth rates, we discuss are based on 22 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 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'll turn the call over to Gardner, Chief Executive Officer Gene Hall.
Morning, Thanks for joining us Gartner had a strong performance in the second quarter, we delivered double digit growth in contract value revenue EBITDA and EPS and.
And we continue to return excess capital to our shareholders through our buyback programs.
Research continues to be our largest and most profitable segments Gartner.
Gartner research provides actual objective insight to executives and their teams across all major enterprise functions in every industry around the world.
Our expert guidance and tools enable faster smarter decisions and stronger performance on our clients' mission critical priorities.
We continue to have a vast market opportunity across all sectors sizes, and geographies and we're delivering more value than ever.
The rate of change in the world is the fastest I've ever seen against this backdrop Gartner continues to get even more agile, we're generating new insights to address timely and pressing issues such as leveraging emerging technologies optimizing costs, attracting and retaining talent in a hybrid world melting cyber security risks and more.
We deliver incredible value, whether our clients are thriving struggling or somewhere in between as a result demand for our services remains strong.
Q2 research revenue grew 17% in the second quarter total contract value growth was 15%.
Attention remained very strong and new business was near all time highs.
We're also growing our sales teams global technology sales headcount was up 9% and global business sales head count was up 17% year over year.
Global technology sales or GTS serves leaders and their teams with N.
GTS contract value grew 14%.
Global business sales or GBS serves leaders and their teams beyond.
This includes HR supply chain finance marketing sales legal and more GB.
GBS contract value grew 23%.
Across every function.
<unk> supply chain marketing sales, HR finance and more leaders and their teams benefit from our incredible value proposition.
As a result, the enterprises, we support see measurable progress on their mission critical priorities.
Leveraging the extraordinary value of our research insights our cartridges business brings the power of Gartner July for an engaged and highly qualified audience during.
During Q2, we delivered our first in person destination conferences since the start of the pandemic. These conferences covered key finance and supply chain in Europe , Australia, and the U S.
Attendee feedback has been resoundingly positive.
Deeply valued the opportunity to connect engaged and learn in person.
Bookings continue at a strong pace for both exhibitors and attendees critical.
Gartner consulting is an extension of Gartner research consulting helps clients execute their most strategic technology initiatives through deeper extended project based work.
<unk> had a strong quarter with revenue up 20% bookings.
Bookings were also strong driving backlog up 45% in.
In closing we saw strong growth across the business, we continued to generate significant free cash flow well in excess of net income we've returned excess capital to shareholders, which reduced our shares outstanding.
Going ahead, we are well positioned for strong double digit topline growth.
Our underlying margins are in the low twenties.
All above pre pandemic levels, and we expect them to modestly increase overtime.
And we continue to generate free cash flow well in excess of earnings, which we will deploy to further drive shareholder value.
With that I'll hand, the call over to our Chief Financial Officer, Craig Safian, Craig. Thank.
Thank you gene and good morning second quarter results were strong with double digit growth in contract value revenue and adjusted EPS with results above our expectations. We are again, increasing our 2022 guidance. The improved outlook reflects the better than expected second quarter top line results strong demand for second half conferences and a successful.
Balance between cost discipline and investing for future growth.
Second quarter revenue was $1.4 billion up 18% year over year as reported and 22% FX neutral. In addition, total contribution margin was 69% down 70 basis points versus the prior year as cost return towards normal.
EBITDA was $389 million up 10% year over year and up 14% FX neutral adjusted EPS was $2.85 up 27% and free cash flow in the quarter was $395 million adjusting for insurance proceeds received last year free cash flow was down 2% year over year for the quarter and up five.
Sent on a rolling four quarter basis.
Research revenue in the second quarter grew 14% year over year as reported and 17% on an FX neutral basis, driven by our strong contract value growth.
Second quarter research contribution margin was 74% about in line with 2021.
The normal contribution margins reflect improved operational effectiveness increased scale continued temporary avoidance of travel expenses and continuing to catch up on head count to support the research business.
Contract value or CV was $4 $3 billion at the end of the second quarter up 15% versus the prior year.
As we discussed previously CV reflects our decision to exit the Russian market, which contributed about $13 million in the second quarter 2021 number.
This reduced the headline growth by about 40 basis points.
Quarterly net contract value increase or N. CVI was $97 million quarterly N. C. V is a helpful way to measure contract value performance in the quarter, even though there is notable seasonality in this metric.
The sequential increase in CV of $97 million was driven by the combination of continued strong retention rates and near record new business of close to $250 million. We saw broad based CV growth across all of our practices. Our technology practice grew 14% and all of our business practices grew at double digit growth.
Rates with many of them growing more than 20% year over year.
From an industry perspective, retail media and manufacturing, let our CV growth.
Global technology sales contract value was $3 $4 billion at the end of the second quarter up 14% versus the prior year GTS had quarterly N C V. I, a $60 million driven by strong retention and near record levels of new business for a second quarter.
Wallet retention for GTS was 107% for the quarter up about 530 basis points year over year at near record levels.
<unk>, new business was down 1% versus last year up against a very tough compare.
Two year compound annual growth rate was about 16%.
GTS quota bearing head count was up 9% year over year, we are on track to get to double digit growth by the end of 2022 as we have successfully brought turnover down and our investments in recruiting are delivering results. We will continue to invest in our sales team to drive long term sustained double digit growth, while also delivering strong margins a reg.
<unk> full set of GTS metrics can be found in the appendix of our earnings supplement.
Global business sales contract value was $936 million at the end of the second quarter up 23% year over year, which is above the high end of our medium term outlook of 12% to 16% GBS CV increased $37 million from the first quarter.
Wallet retention for GBS was 115% for the quarter of about five percentage points year over year.
GBS, new business was up 3% compared to last year, reflecting robust growth across the full portfolio and against the very strong compare the two year compound annual growth rate for new business was 35%.
GBS quota bearing head count increased 17% year over year head count we hire in 2022 will help to position us for sustained double digit growth in the future as with GTS. Our regular full set of GBS metrics can be found in the appendix of our earnings supplement.
Conferences revenue for the second quarter was $114 million ahead of our expectations as attendees and exhibitors enthusiastically returned to in person contribution margin in the quarter was 65%.
We held six in person conferences and eight virtual conferences in the quarter, we held the vantiv meetings at both virtual and in person formats. We plan to run 19 in person conferences for the balance of the year.
Second quarter consulting revenues increased by 14% year over year to $121 million on an FX neutral basis revenues were up 20%.
Consulting contribution margin was 42% in the second quarter up 120 basis points versus the prior year with better than expected revenue higher utilization rates and a mixed benefit from strong growth in contract optimization labor.
Labor based revenues were $95 million up 11% versus Q2 of last year and up 18% on an FX neutral basis.
Backlog at June 30th was $152 million, increasing 45% year over year on an FX neutral basis with another strong bookings quarter in.
The inclusion of multi year contracts that changed we described last quarter contributed about 12 percentage points the year over year growth rate.
Our contract optimization business was up 28% as reported and 31% on an FX neutral basis versus prior year as we have detailed in the past. This part of the consulting segment is highly variable.
Solid dated cost of services increased 21% year over year in the second quarter as reported and 25% on an FX neutral basis. The biggest driver of the increase was higher head count to support our continued strong growth and the return to in person destination conferences.
SG&A increased 24% year over year in the second quarter as reported and 27% on an FX neutral basis SG&A increase in the quarter as a result of increased hiring in sales and G&A functions higher Commission expense following strong CV growth in 2021 and a 12 million dollar one time real estate charge.
We expect SG&A expenses to increase as a percentage of revenue over the near term as our catch up hiring continues.
EBITDA for the second quarter was $389 million up 10% year over year on a reported basis and up 14% FX neutral second quarter EBITDA upside to our guidance reflected revenue exceeding our forecast and expenses at the low end of our expectations.
Appreciation in the quarter of $23 million was down modestly versus 2021.
Net interest expense, excluding deferred financing costs in the quarter. It was $29 million up $2 million versus the second quarter of 2021 due to an increase in total debt balances.
The Q2 adjusted tax rate, which we use for the calculation of adjusted net income was 25, 7% for the quarter the tax rate for the items used to adjust net income was 25% for the quarter <unk>.
Adjusted EPS in Q2 was $2 85 growth of 27% year over year the average share.
Share count for the second quarter was 81 million shares.
This is a reduction of about $5 6 million shares or about six 5% year over year, we exited the second quarter with about 80 million shares outstanding on an unweighted basis.
Operating cash flow for the quarter was $416 million adjusting for the insurance proceeds we received in the second quarter of 2021 operating cash flow was down 2% compared to last year Capex for the quarter was $21 million up 76% year over year as a result of an increase in capitalized software laptops and other infrastructure.
Free cash flow for the quarter was $395 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 differences being cash interest cash taxes and modest capex, partially offset by strong working capital Cashin flows adjusting for the insurance proceeds we received last year free cash flow as a percent of revenue or free cash flow.
Margin was 21% on a rolling four quarter basis on the same basis free cash flow was 81% of EBITDA and 146% of GAAP net income.
At the end of the second quarter, we had $360 million of cash.
Our June 30th 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 in 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 $930 million of stock through the first half of this year, we had about $700 million remaining on our authorization at the end of June we expect the board to continue to refresh the repurchase authorization as needed going forward.
Since the end of 2020 through the end of this June we have reduced our shares outstanding by 9 million shares. This is a reduction of 11% as we continue to repurchase shares we expect our capital base will shrink this.
This is accretive to earnings per share and combined with growing profits also delivers increasing returns on invested capital over time.
Our medium term outlook is for double digit revenue growth.
While margins have been very strong the past two years, we are continuing to catch up hiring and to resume travel spending we estimate.
Our underlying margins to be in the low twenties, well above pre pandemic levels and we expect them to increase modestly over time we.
We will give 2023 specific guidance in February consistent with our usual practice.
Strong top line growth modest margin expansion low capital intensity and working capital as a source of cash will allow us to deliver strong free cash flow now and in the future we are.
We're increasing our full year guidance to reflect strong Q2 performance and an improved outlook for the second half despite incremental FX headwinds.
We now expect an FX impact to our revenue growth rates of about 370 basis points for the full year. This is up from 260 basis points based on rates when we guided in may.
As we discussed the last two quarters 2021 research performance benefited from several factors, including GBH tenure mix and CVI phasing within the quarters and 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 will continue to be challenging as we move through the year.
We continue to take a measured approach based on historical trends and patterns, which we have reflected in the updated guidance.
For conferences, we assume we will be able to run all the in person conferences as planned.
Consistent with our commentary of the past couple of quarters, our 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've previously indicated we also have higher commission expense during 2022.
Due to the very good selling performance we delivered in 2021. Finally, we continued 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 4.5 dollars $75 billion, which is <unk>.
Effects neutral growth of about 15% the FX neutral growth is up about 120 basis points from our prior guidance due to strong in CVI performance in the second quarter we.
We expect conferences revenue of at least $335 million.
Which is growth of about 63% FX neutral.
We expect consulting revenue of at least $440 million, which is growth of about 11% FX neutral.
As an outlook for consolidated revenue of at least $535 billion, which is FX neutral growth of almost 17%.
The FX neutral growth is up about 290 basis points from our prior guidance due to strong performance in the second quarter.
Without the strengthening U S. Dollar since may our revenue guidance would have been about $138 million than previous guidance.
Now expect full year EBITDA of at least one point to three 5 billion up $100 million from our prior guidance and an increase in our margin outlook as well.
Without the strengthening U S. Dollar since may our EBITDA guidance would have been about $120 million higher than previous guidance. We now expect 2022, adjusted EPS of at least $8 85.
For 2022, we now expect free cash flow of at least $985 million. Our guidance is based on 81 million shares outstanding which reflects year to date repurchases.
All the details of our full year guidance are included on our Investor Relations site. Finally for the third quarter of 2022, we expect to deliver at least $255 million of EBITDA.
Our strong performance in 2022 continued in the second quarter with momentum across the business.
Contract value growth was very strong at 15% adjusted EPS grew 27% fueled by the significant reduction in shares over the past year, we repurchased around $930 million in stock. This year through June and remain committed to returning excess capital to our shareholders.
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 in G&A leverage we can modestly expand margins, we can grow free cash flow at least as fast as EBITDA because of our modest cap.
Ex 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.
One one on your telephone.
Please stand by while we compile the Q&A roster.
Our first question from Jeff Mueller with Baird. Your line is now open.
Yes. Thanks, just first a clarifying question on the underlying margin. So when you say low twenties could that include like 'twenty, one or 'twenty, two youre, not saying like low 20 Dot X percent and.
If.
We will have a recession at some point would you expect to be able to at least maintain those underlying margin through a recession.
Again as well.
Hey, good morning, Jeff Thanks for the questions in terms of the underlying margin no. It wasn't locked in on 20.0 at low twenties.
Yes, as we've looked at the business over the last few years.
We've learned a lot through the pandemic et cetera.
So we're now comfortable that the underlying margins of the business are in the low twenty's and again, we can grow the top line double digit double digit growth rates into the future and we can modestly expand margins from that point as well.
In terms of the resounding yes.
Yes, I was just going to say, including maintain at least that margin in a recession. Yes. So that was the second part of the question. So the way.
We are thinking about running the business is again, we believe.
That there still is a huge untapped market opportunity. We believe one of the way that we go capture that untapped market opportunity is by continuing to grow the sales force and again, making sure. We've got the right insights and the right number of analysts and advisors et cetera.
If there were to be recessionary impact on the business, we will toggle the investment growth rates in each of those areas to ensure that we could deliver those underlying margins and also ensure that we could drive modest margin expansion into the future as well.
Got it and then I think there'll be an anticipatory of the car.
Inventory around the new business, giving us the two year CAGR and such but.
Just any comments on what youre seeing in real time from a macro perspective.
Whether it's pipeline build in conversion in June and July are.
The topics of client content demand just any other business.
Kind of metrics just given the quote unquote near record what we are I guess used to fresh records from the growth company that Gartner has.
Hey, Jeff It's gene so.
The selling environment has been quite state.
Stable and good compared to Q1.
Yeah, and as you said, we had near record new business levels were near record retention levels are conferences bookings for both exhibitors and attendees was very strong.
That's been reflected in our guidance going forward.
Our consulting business had one of the best we've ever had with revenues up 20% backlog up 45%.
There's kind of nothing if you look under the covers that lead you to believe.
Q2, there isn't anything other than selling breakfast quite robust and Jeff I would just add.
Echo having read briefly you reported earlier this morning.
The compares are super tough in Q2, and they remain pretty tough throughout the balance of the year.
Still grow in CVA and a great growth rate you heard some of the other metrics around our underlying businesses and conferences and consulting as well so.
Very tough compares for the balance of this year, but still feel good about the momentum of the business.
Got it thank you.
Sure.
Thank you.
Our next question comes from Heather <unk> with Bank of America. Your line is now open.
Okay.
Hi, Thank you for taking my question.
I guess on the topic you are in terms of what happens in a downturn can you talk a bit more about how your business today is.
More resilience in the downturn when you look back to.
Hey, guys other periods of macro decline, maybe COVID-19 crisis, or even going further back the financial crisis.
And kind of how you feel about the sales line going into something potentially happening near term.
G. So we're very cognizant always of the environment around us and we try to make sure that were as a business prepared for kind of where the world is growing and clearly being concerned about the macroeconomic downturn one of those things and first thing is at any given point in time, we have.
This is a growing clients, they're shrinking clients in between so we always have clients that are struggling or we've seen a macroeconomic downturn is just more of those clients, but we do it all the time.
Well as I mentioned earlier, we constantly adjust to try and make sure. We are prepared for whatever economic environment cost and we do this in a number of ways. One of them is we actually do surveys of our clients to understand kind of where their mindset is what they are concerned about in fact in July we did a survey of more than 150, chief financial officers of our clients.
What was on their mind and therefore, how she responds.
Three priorities one was securing talent are still seeing that it's hard to hire talent and are concerned about the wages for the talent.
The second one is they want to keep accelerating digital either the downturn in fact, we ask the CFO what are they going to join the downturn, 69% said they are going to continue to increase spending on technology to downturn, 28% said they are going to maintain it and 3% other going to decrease it. So does continue to invest in technology for the economics of the business continues.
Our third priority was to manage spending on things like operations real estate travel so pay to hire people in.
Our wages as well as to do these investments in digital so what we're doing is we're taking our research content and lineup with those kinds of priorities helping.
Helping clients, making sure that our talent management of inflation, making sure that can continue to accelerate the digital impact on their business and thirdly, most importantly, maybe helping them to manage spend you know thats a big part of our business all the time and we recently updated our what we call cost optimization work, we can help them.
So we've updated our research based on and I gave you. The CFO survey, we do surveys all C level executives understand what their individual priorities are with an update on our research to make sure. It's on those both consumer of topics and then in fact in July Windsor and trained all of our salespeople and our service people in terms of what is the most important issues today with lifestyle.
Things I, just mentioned and Hauser research change so that we can match those needs.
And we will continue to do that going forward and so this wasn't kind of one time thing we do once we do this on an ongoing basis. So part of our strategy is to make sure. Our content is always on the topics people.
Important now clearly one of those things is going to be how to manage cost and we will help them with that but then making sure that all of our sales and service people are equipped to have conversations with senior executives.
<unk> on how we can help them with those priorities.
Agility is a core part of our business. We also just structural things in our business like the <unk>.
Multiyear contracts we have.
Quite high.
Our strategy to grow that over time, and so it's those two things, making sure our content is growing our sales to preferred.
So the underlying structural factors, we can control are also there.
If you look over time, we perform better and better each downturn and so.
We're certainly aware of that might be a downturn right.
Right.
Great. Thanks, Thanks for answering that and then another player I guess.
Phase III you mentioned.
Longer contract cycles are you seeing anything like that in your market.
So I'd say, we haven't seen longer contract.
Contracting cycles, I would say, we see escalations, it's more likely that a contract could be reviewed by our CFO and it was a year ago, we train our salespeople should that that's likely to happen and to be prepared for it and devote prepare our media clients who might be like a cheap HR executive a chief information officer, but they.
They might have to go to their CFO and review it and make sure. They have what we call our CFO ready package.
Thank you. Thank you for answering my question.
Thank you.
Our next question comes from George Tong with Goldman Sachs. Your line is now open.
Hi, Thanks, good morning.
Performance in GBS was noticeably stronger than GTS. If you look at CV growth. It was 23% GBS, 14% GPS and the head count growth was faster at 17% GPS compared to 9% of GPS does this difference in growth between the two businesses reflect prior.
<unk> internally.
Or does it reflect.
Customer demand that might be different between GTS and GBS.
Yes, Hey, George.
I think it reflects the investments that we've made more than anything else. So.
If you go back.
Go back five years ago, we began investing pretty heavily in areas outside of it. So I think marketing supply chain finance HR legal.
Sales those are areas that have traditionally been strong for us for a couple of them that had missed one we upped our investment significantly both buying CEB in an App you bought CEB investments and what we're seeing an accelerated growth rate in GBS now is the outcome of those investments which has invested upfront.
There is a lot of discussion about that at the time and we increased sales capacity increased research capacity service capacity developed a lot of content and we're seeing the benefits of those and so I think thats. The first piece. The second piece is one of the major factors for our business clearly with this huge market opportunity is growing our sales headcount and while we increased sales productivity.
Increases in productivity growing sales headcount as essential and so the fact that we've grown our GBS sales head count faster over time.
We grew this quarter, but if you look at like over the last since 19 front.
GBS sales head count a compound growth rate of about 60% a year Im sorry about.
Sure.
5%, a year and that has which is faster than gcs are about flat and so that's allowed me growth to be a lot higher in GBS. So those two things the combination of the investments in growth and Salesforce is whats really powered but Patrick CV growth.
And the other and the other thing I'd add George is just as we look out over the medium term, we believe given the market opportunity and our ability to go capture that market, both GTS and GBS to be consistent 12% to 16% growers and so yes, GBS is growing a little bit ahead of that right now.
We remain very very very confident that both GTS and GBS can continue to grow at very strong double digit growth rates.
Got it that's helpful.
Last quarter, you increased your normalized EBITDA margin target from 19% to 20% to 20% and now you're seeing underlying margins will be in the low 20. So just going back to clarify are you increasing your underlying margin target over the medium term or are you reiterating it from the prior quarter.
Yes, it's a great question. So let me attempt to clarify because it is a very important question. So number one I would say just as context.
We can grow our topline and double digit growth rates and modestly expand margins over time.
And yes.
There is operating leverage in the business set another one so those are kind of two key points.
When we were discussing the 20% normalized margin, we were really looking back to 2021 and attempting.
Give a view on if things had been quote unquote more normal what are.
Operator, our EBITDA margins, what would they have been in 'twenty one when.
What we are now providing us more of a go forward view around what do we believe the operating margins are that we can run the business at <unk>.
We've.
We have move that higher over time to your point.
Because we've gotten increased visibility into better ways to run our business and so what is the new normal for travel expenses what is the new normal.
Or the amount of real estate, we need.
It looked like when in person conferences come back into the portfolio and what does it look like as we catch up on head count and then continue to grow and invest to support and sustain future growth and so the way to think about that low twenty's number is yes, it's an update but it's also a view towards.
What do we think the underlying margins of the business are that we can modestly expand on growth.
Got it that's helpful color. Thank you.
Thank you.
Our next question comes from Toni Kaplan with Morgan Stanley . Your line is now open.
Hey, This is Greg Harrison on for Tony Thanks for taking my question Congrats on the strong quarter.
Just wanted to talk about margin you ramped up hiring in the quarter a lot margins went up and understand a lot of those probably werent.
And the expense base, yet, but just really Greg if you could kind of help US bridge on how you get to the margin in the back half given that sort of.
Implied step down yes.
Yes.
So you've hit on a number of the items that will impact the margins in the second half of the year. So we.
We're very aggressive about hiring in the first half and we expect to remain as aggressive in the second half as we continue to catch up from hiring from 'twenty, one and we also make sure that we're investing appropriately for the future. So that's a big piece that goes into that the cost the cost base for the second half of the year.
On the second Big thing is resumption of travel.
And some of that is tied to us returning to in person destination conferences, but a lot of it is just normal.
We run a global teams and we want our leaders in front of that.
Those global teams and so we will see that ramp up in the second half of the year as well.
Third thing is.
Our normal comp adjustment period happened April one so I only have one quarter of that in the first half of the year. We obviously have two quarters of that in the.
In the second half of the year and so those are the three biggies as you'd think about bridging.
The expenses in the fourth line.
With the return to in person destination conferences, obviously, theres a lot of variable costs in delivering those inverse.
Great. Thanks for the color there and I guess just.
A quick follow up on pricing I think last quarter, Greg you talked about getting more this year given the inflationary environment I guess.
The broad macro is a little bit different than it was three months ago or are you still expecting sort of above normal pricing measure.
Yes, I think Greg the way to think about it is we want to make sure that we are matching our price increases with our with wage inflation or contemplation. The bulk of our costs are people related. So we feel good that we are matching.
Our price increases with what we're seeing on.
On our wages.
Okay. Thank you.
Thank you.
Our next question comes from Andrew Nicholas with William Blair. Your line is now open.
Hi, good morning.
I wanted to ask a question first on the head count growth really really solid quarter over quarter increase there I think in your prepared remarks, you touched on it briefly but I was hoping you could spend a bit more time on.
Attrition attrition trends, how thats kind of coming in relative to your expectations and the successful recruiting efforts just a little bit more color there because it does sound like you're still pretty happy.
Happy with where that's trending and your goals for the full year.
Andrew quite question. So the first in terms of our attrition.
We want to we want to retain our great associates Patricia.
Attrition like many companies went up over the last couple of years, we worked hard to understand the causes are and making sure that we address that.
We are.
Perfect turnover has actually gone down now to kind of know what we would call normal levels.
And so we're very happy with that turnover. In addition to that we have a very strong recruiting together truly world class recruiting team and our recruiting team's been doing a great job and of course, we have a great employee value proposition as well.
Three things lower turnover, great employee value proposition of Cracker pretty team that's allowed us to get our net associate head count growth back up to where it needs to support the growth in our business.
Great. Thank you and then for my follow up I wanted to ask about strength in the U S versus internationally, obviously it seems like there is pretty broad based growth.
Crossed the practices and across the industries, but is there any difference in CV growth or higher kind of able to sell in EMEA. For example, given the geopolitical uncertainty or anything to call out there in the quarter.
Yes, yes.
But I'd say theres nothing theres nothing.
Just Matt if you look at Europe Europe is proceeding along there are some countries that are doing very well. There are some countries that are typical of what we've seen and that is kind of flat and savings for the rest of the world.
So nothing really remarkable in terms of.
U S versus different geographic reach yes, Andrew when we say broad based growth. It is broad based so we look at it across our top 10 geographies, they're all growing at a nice growth rates.
<unk> industry cuts, yes, they are all growing.
Yes, nice growth rates and so yes, there are always pockets where.
There may be a little bit of.
A challenge for us, but generally those are either like super micro challenges or our own operational challenges.
But the growth is it remains a pretty broad base.
In fact, the biggest indicator Bourbon growing not growing is where our head count of our sales head count has grown faster or slower.
Makes sense. Thank you.
Thank you. Our next question comes from Seth Weber with Wells Fargo. Your line is now open.
Hey, good morning, everybody. Thanks for taking the question.
I wanted to just ask another question on the expense side.
I appreciate that travel <unk> and stuff like that is ramping up in the second half of the year do you think that the run rate by the end of the second year will kind of gets you back to par.
Or do you think there'll still be some kind of catch up headwinds into next year. Thanks.
Yes. Good morning, it's a good question so.
Yes, I think the second half of the year will be more indicative of quote unquote normal travel star.
Starting off the year this year, given where we were at <unk>. It was a little light in the first three or four months of the year and has started to pick back up.
And so yes second half is probably more indicative I think the way we're thinking about it is as compared to the last quarter quote normal year back in 2019, where we expect to spend probably at.
At least 50% less than we did in.
In 2019, and again, we just think that the company and our associate base has embraced.
And thrived operating virtually we still do need to travel, but we don't need to travel.
At the same volume that we gave back in 2019.
Got it. Thank you and then just as a follow up.
I was I was really surprised at the strength in some of the areas like the non subscription revenue.
And then the consulting backlog up 45%.
It was there anything unusual there or is that just reflective of kind of what you were talking about earlier.
The model is just more more recession resistant or resilient.
We might expect.
And just any comment on those two line items.
Yes, I think it just reflects that our clients have challenges that they need help with and that our content and when you lose a contract was through consulting conferences. Our research is really helpful and helping them solve a problem. So I think it is indicative of we haven't really value proposition just kind of what's going on.
Okay, and just the non subscription revenue.
Is that do you feel like Thats, a kind of a sustainable level or would you.
Correct that to come off a little bit here going forward, yes.
It is.
We had a really strong year on that line last year. So tough compares there, which again we did model in <unk>.
Our initial guidance and our updated guidance as well, but to Jim's point.
Products and offerings, we have there offer a very strong and compelling value proposition in good times or rougher times and so we still expect it to be a nice strong grower for us, but again super tough compare against a 'twenty one performance.
Got it okay. Thanks, guys I appreciate it.
Thank you. Our next question comes from Jeff Silber with BMO capital markets. Your line is now open.
Hi, This is Ryan on for Jeff I, just had a quick question on the labor supply side.
Is it still a tight to find potential employees as it was three months ago.
Great question, Ryan what I read in the press, but I see a lot of other companies as a lot of challenges by going to the CFO survey one of the biggest concerns that cfos have is their ability to hire talent, we've actually found.
We've had no trouble hiring talent.
Our again, our employee value proposition is very strong we have a great brand with associates and so we've had no trouble hiring people at all and Thats reflected in the.
The <unk> results that you saw.
Got it and then just a follow up on the prior question should we look to non subscription revenues as a leading indicator if we're heading into a downturn.
No I don't I don't think so.
A relatively small line.
It can be a little volatile.
Again, I think as we look across I would look broadly across the business for for leading indicators not one of the smallest revenue lines that we actually have out there. So.
I would guide you to.
Look a consultant to look at conferences and look at our research CV growth as the leading indicators.
Got it thank you.
Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is now open.
Good morning, this is brendan on for Manav.
Just wanted to ask obviously some of your competitors for talent at least.
Freezing hiring and you might have an opportunity to catch up on head count in the next few quarters.
The labor market I guess, it gets a bit more friendly.
So for GTS specifically.
Obviously things are start started.
Started to improve this quarter is this a level, where you would grow 10% off of or are you think you can really catch up for the next couple of over the next few quarters.
Different thats great question.
Our business grew really rapidly last year, and we're rapidly we've expected and we had a lot of hiring to catch up on including in GTS and so we want to get that catch up hiring so that we can properly service our clients and also we'll be prepared to sell more clients and overtime, we expect to grow our GTS sales force.
By the way I think 3% to five percentage points slower than RCD front. So CV growth was 15% you'd expect to see over time, our target would be head count growth of 12, 10% to 12% growth.
And Brent and the way to think about that is that sort of the normal algorithm for how we want to make sure that we are investing for both current needs and future sustained growth. Obviously this year to gene's point, we arent doing a lot of catching up so you'll see those growth rates, a little bit higher potentially obviously with <unk>.
Yes.
For 2017, and we're fully expecting both GTS and GBS to end the year with a strong double digit quota bearing head count growth.
Okay, Okay and just.
Another question here, but moving over to.
To the conferences.
Is the guidance I am curious really is it just like better attendance than you expected.
Alright.
All full is that kind of is that what it is or is there something else driving that higher.
Hey, Brennan so the first piece of it is that we're seeing very very robust demand for conferences exhibitors.
Exhibitors are.
<unk>.
Find it a great way to meet.
Prospects for them.
And the attendees fund tremendous value as well, which we're finding just very strong demand for our conferences continuing on and then I'll, let Craig talk about how big this budget guidance.
So.
Yes, I think Brendan obviously, the second quarter were our first.
In person destination conferences in a few years.
And so we were pretty cautious about our expectations around the number of exhibitors and number of attendees that we'd want to come would be able to come.
And as you heard in our comments I think both groups enthusiastically returned in the second quarter and as Jim mentioned earlier.
Earlier, our bookings leading through our Q3 events and even the advanced bookings on Q4 conferences look very strong as well and so the update the outlook is really just around some caution upfront because we haven't delivered anything in person.
Yeah, essentially three almost three years.
And we saw an enthusiastic return.
From both revenue streams attendees and exhibitors.
Alright, thank you.
Thank you as a reminder to ask a question at this time. Please press star one line.
Our next question comes from Hamzah <unk> with Jefferies. Your line is open.
Hi, Good morning, this is actually Stephanie on for Hamzah.
I was hoping you could talk a little bit about.
The tenure or the <unk> GT GBS sales force today versus pre pandemic, how much tenure can add productivity and right now if you read the GTS sales force productivity is kind of back to those pre pandemic levels. Thank you.
Thanks, Kevin Great question. So tenure is an important determinant of productivity.
<unk> hired new sales person it takes some time to fully get up to speed.
So our more tenured sales versus more productive we're very focused on both hiring people to just be quickly as well as having internal training and other systems that help wholesale new salespeople go even faster.
Look at it because we hired.
Fewer people during the pandemic.
Average tenure of our sales force last year was pretty high.
The highest it's been in recent memory as we've ramped up our hiring.
Q2 is more towards a normal 10 year level as we keep hiring we expect that to drop a bit as we go through the rest of the year and enter into 2023.
Great. Thank you and then kind of switching gears can you talk a bit about the M&A environment.
How's the pipeline looking today and kind of where you're focused at that.
Hey, Stephanie good morning, yes from an M&A perspective, obviously.
We've got a team that is actively out there looking at opportunities and staying in touch with you now.
200 companies that actually tracking well more than that.
I think our strategy as we've articulated is none.
Number one we're an organic growth company and we believe we can achieve our medium term objectives of that double digit growth and modest margin expansion organically. So it does not require M&A to get there.
That said, we do like to do M&A work and fill a gap or catalyze us or add an asset or capability or things like that so I think as we look at the.
The radar screen, we're looking at things that can catalyze us or filling gaps or add assets to our portfolio that can help us over the long term.
They're obviously over the last two or three quarters, just like the equity markets has been a recalibration around valuations I'm not sure every seller has completely re calibrated yet either.
But again, we'll continue to be on the lookout for strong strategic value enhancing tuck in opportunities that again can either catalyze growth filling a gap or had important assets for us.
Great. Thank you so much.
Thank you and I'm currently showing no further questions at this time I'd like to turn the call back over to Gene Hall for closing remarks.
Well summarize today's call for the second quarter, we drove strong performances across the business across every geography every industry in every major function, we deliver incredible value.
We have strong demand for services.
<unk> untapped market opportunity.
We can drive sustained double digit topline growth.
As we invest for the future we continue to return significant levels of excess capital to our shareholders with our strong second quarter results, we increased our 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.
Yes.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
[music].