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Gartner Inc  (NYSE:IT)
Q1 2019 Earnings Call
May. 07, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Gartner First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, David Cohen, GVP of Investor Relations, you may begin.

David Cohen -- Group Vice President, Investor Relations

Thank you, Gigi, and good morning everyone. We appreciate your joining us today for Gartner's first quarter 2019 earnings call. With me today are Gene Hall, Chief Executive Officer, and Craig Safian, Chief Financial Officer. This call will include a discussion of first quarter 2019 financial results and our current outlook for 2019 as disclosed in today's press release.

In addition to today's press release, we have provided a detailed review of our financials and business metrics and earnings supplement for investors and analysts. We have posted the press release and the earning supplement on our website investor.gartner.com. Following comments by Gene and Craig, we will open up the call for your questions. We ask that you limit your questions to one and a followup.

On the call, unless stated otherwise, all references to revenue and contribution margin are for adjusted revenue and adjusted contribution margin, which exclude the deferred revenue purchase accounting adjustment and the 2018 divestitures. All references to EBITDA are for adjusted EBITDA with the adjustments as described in our earnings release and excluding the 2018 divestitures. All cash flow numbers, unless stated otherwise, are as reported with no adjustments related to the 2018 divestitures. All growth rates in Gene's comments are FX-neutral unless stated otherwise.

In our discussion of global business sales or GBS, we will refer to the GXL products, these are the products for business leaders across the enterprise, Gartner for marketing leaders is GML, Gartner for finance leaders is GFL and so. In aggregate, we refer to these products for business leaders as GXL.

Reconciliations for all non-GAAP numbers, we use are available in the Investor Relations section of the gartner.com website. Finally, all contract values and associated growth rates we discuss are based on 2019 foreign exchange rates. As set forth in more detail in today's earnings release, certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the Company's 2018 Annual Report on Form 10-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC. I encourage all of you to review the risk factors listed in these documents.

Now, I will turn the call over to Gartner's Chief Executive Officer, Gene Hall.

Eugene A. Hall -- Chief Executive Officer

Good morning and thanks for joining us, we delivered another robust performance in the first quarter of 2019. Total revenues were up 11% fueled by double-digit growth in each of our business segments; research, conferences and consulting. We continue to make a significant global impact. We helped more than 15,000 enterprise clients in more than 100 countries around the world with their mission critical priorities, while providing great jobs for more than 15,000 associates globally. Research, our largest and most profitable segment is the core of our value proposition. Our research business was up 11% over this time last year. As described in our recent Investor Day, we have the Gartner formula for sustained double-digit growth that drives success in our research business. It consists of indispensable insights, exceptional talent, sales excellence, and enabling infrastructure.

For each of these elements, we drive relentless, globally consistent execution of best practices and continuous improvement and innovation. Global technology sales or GTS serves leaders and teams within IT. This group represents more than 80% of our total research contract value. GTS contract value growth accelerated and was more than 14% year-over-year. Sales productivity once again improved. We then delivered double-digit growth in every region across every size company and in virtually every industry. Global business sales or GBS serves leaders and their teams beyond IT and represents about 20% of our total research contract value. This includes supply chain and marketing, which we addressed for several years, as well as other major enterprise roles including HR, finance, legal, sales and more. Each of these roles is a sustained need for our services as IT and demand continues to grow.

Our new GXL product line gained momentum. GXL products provide greater value to clients because they are tailored to the clients' individual needs. This in turn results in higher prices per user and stronger retention. Beyond better pricing and retention, GXL products provide exponentially more growth opportunities, because we can sell these high-value products throughout our client organizations. At our Investor Day, we shared the growth trends of the individual GXL products. Our GXL products continue to accelerate in line with these trends. For Q1 2019, GXL contract value grew 76% year-over-year and new business was up 84%. As expected, legacy products contract value declined. Total GBS contract value improved modestly sequentially as growth in GXL just offset the decline in legacy contract value. We continue to expect double-digit contract value growth in GBS by the end of the year. Overall, our research segment continues to deliver strong results. Our conferences segment also delivered a terrific performance in Q1 with a double-digit revenue growth of 17%. Gartner conferences combine the outstanding value of our research with the immersive experience of live interactions, making every conference we produce the most important gathering for the executives we serve, and we continue to invest in our conference portfolio. In GTS, we are expanding our flagship conference, Gartner IT Symposium. This year, we'll hold an IT Symposium Conference in Canada. In GBS, we're building out a conference portfolio to align with the GBS roles we serve. In early April, we held our Gartner Marketing Symposium. The program featured expanded content coverage including a dedicated track for B2B marketers and one for emerging customer and market insights. The results for this conference surpassed expectations. Total attendees were up more than 40% to about 1,700 attendees. We also plan to launch an Executive Summit to support the finance function within the year, and we'll continue to expand our GBS conferences over time. In addition to that, we'll continue with the investments in the (inaudible) business. Our consulting segment also achieved double-digit growth in Q1 with revenues up 16%. Gartner consulting is an extension of Gartner research and provides clients a deeper level of involvement through extended project-based work to help them execute their most strategic initiatives.

Our growth in the quarter was a combination of strength in our labor-based business and in our contract optimization business. I recently met with many of our top-performing sales people from around the world. This includes sales people from GTS, GBS and conferences. I continue to be inspired by their energy and passion for serving our clients. They have best in class selling skills and they continue to impress and implement the Gartner formula for sustained double-digit growth. Our future of Gartner remains bright. We provide incredible value by helping our more than 15,000 enterprise clients with their most important initiatives. Our business model allows us to drive strong double-digit growth in all our key metrics, including cash flow, and we have an incredibly team across the business.

With this foundation, we're on track to achieve sustained double-digit growth in revenues, earnings and cash flow for years to come. With that, I'd like to hand the call over to Craig to give you an in-depth view of the quarter, Craig?

Craig Safian -- Executive Vice President and Chief Financial Officer

Thank you, Gene and good morning everyone. Demand for our services remains robust around the world, and in the first quarter, we again delivered strong financial results across our three operating segments. As our 2019 outlook demonstrates, we continue to expect to deliver double-digit FX-neutral revenue and EBITDA growth with strong free cash flow generation. First quarter revenue was $970 million, up 8% on a reported basis and 11% on an FX-neutral basis. The product retirements we discussed last quarter impacted top line growth rate by about 1 full point. In addition, contribution margin was 64% up about 100 basis points from the prior year. EBITDA was $142 million, down 2% year-over-year and up 0.5% FX-neutral, consistent with our expectations as discussed last quarter. Adjusted EPS was $0.58 and free cash flow in the quarter was $35 million.

Our research business had another excellent quarter. Research revenue grew 8% in the first quarter and 11% on an FX-neutral basis. First quarter gross contribution margin was 70%. Total contract value was $3.1 billion at March 31, growth of 11.2% versus the prior year. We always report contract value growth in FX-neutral terms and we have updated all historical metrics at 2019 FX rates in our earning supplement.

I'll now review the details of our performance for both GTS and GBS. In the first quarter, GTS contract value increased 14% versus the prior year, accelerating its growth rate both sequentially and year-over-year. GTS had contract value of $2.5 billion on March 31, representing just over 80% of our total contract value. Client retention for GTS remains strong at 82%. Wallet retention for GTS was 105% for the quarter, up 130 basis points year-over-year and the highest we've reported for GTS. The combination of the client and wallet retention rates show how our client spend more with us each and every year. GTS new business grew 12% versus the first quarter of last year. New business is coming from a mix of new enterprises and growth in existing enterprises through sales of additional services and upgrades. We ended the first quarter with 12,821 GTS clients, up 4% compared to Q1 2018. The average contract value for enterprise also continues to grow. It now stands at $198,000 per enterprise GTS, up 10% year-over-year. As we discussed at Investor Day, we continue to invest in GTS. The investments in headcount growth and improving productivity are driving the GTS acceleration you have seen over the course of 2018 and into the first quarter of 2019. For GTS, the year-over-year net contract value increase or NCVI divided (ph) by the beginning period quota bearing headcount was $115,000 per salesperson, up 9% versus the first quarter of last year. This is the sxith consecutive quarter of year-over-year productivity improvement.

Turning to Global Business Sales, GBS contract value was $595 million at the end of the first quarter or about 20% of our total contract value. CV declined 0.3% year-over-year, but slightly increased sequentially from the fourth quarter of 2018. Many of our GBS metrics are affected by the discontinuation in 2018 of sales of the largest legacy products. As we described last quarter, the discontinuations were based on a purposeful strategy that allows our sales teams to focus on GXL products going forward. GXL products continue to gain share and are an important part of our strategy. Looking at total contract value from the GXL products, we drove an FX-neutral increase of 76% year-over-year from $118 million to $208 million, continuing the growth we saw in the back half of 2018. Similar to last quarter on page 11, we've provided a bridge from fourth quarter 2018 to first quarter 2019 CV for GBS and the corresponding bridge from the prior year. We sold $24 million of GXL products new business in Q1, $11 million more than we did in the prior year quarter. While Q1 is generally a seasonally lighter quarter for new business, GXL new business increased by 84% over the prior year quarter. We continue to make great progress with our GXL products across each of the functions GBS serves. More than half of the GXL new business in the quarter came from newly launched products. GXL CV now makes up 35% of our total GBS contract value, up 15 percentage points from Q1 of last year. While legacy GBS CV attrition is close to 30%, GXL attrition is around 20%, almost at GTS levels. On a blended basis, that's about 27%. We will reduce attrition levels through improving client engagement. We are driving increased client engagement through an expansion of our service teams and growing adoption of individualized content and service. For the stand-alone quarter, we saw an improvement in the attrition rates for GBS. For contracts that were up for renewal in the first quarter, attrition improved by almost 200 basis points over the prior year quarter. Again, this is a result of the increased engagement we've discussed in all of our other retention programs starting to have an impact. We continue to expect to achieve double-digit CV growth in GBS by the end of this year. As we described last quarter and at our Investor Day, there are multiple paths to achieving double-digit CV growth by the end of 2019. The combination of our improving attrition and corresponding retention rates and continued ramping of GXL new business are the metrics that will get us there. In both GTS and GBS, the first quarter is typically our seasonally lightest quarter for new business and as we discussed last quarter, the new business compares get easier as we move through the year. Our pipeline is building and the team has more experience every day.

In conferences, revenues increased by 13% year-over-year in Q1 to $52 million. FX-neutral growth was 17%. First quarter gross contribution margin was 36%, up by 120 basis points compared to the year ago quarter. We had 12 destination conferences in the first quarter, on a same conference FX-neutral basis, revenues were up 17% with a 6% increase in attendees. The first quarter is a seasonally small quarter, but the results were very strong. First quarter consulting revenues increased by 12% to $93 million. FX-neutral growth was 16%. Consulting gross contribution margin was 31% in the first quarter. Labor-based revenues were $79 million, up 7% versus Q1 of last year or 11% on an FX-neutral basis. Labor-based billable headcount of 739 was up 6%. Utilization was 69%. Backlog ended the quarter at $108 million, up 7% year-over-year on an FX-neutral basis. We have updated our reporting of backlog to be FX-neutral, consistent with our practice for research contract value. The updated historical data is in the earning supplement.

Our 2019 pipeline remains strong. The contract optimization services revenues were up over 60% versus the prior year quarter. As we've detailed in the past, this part of the consulting segment is highly variable. SG&A increased 13% year-over-year in the first quarter or 17% on an FX-neutral basis. We continue to grow sales capacity and the enabling infrastructure to support our strategy of delivering sustained double-digit growth over the long-term. The enabling infrastructure includes investments in human resources functions like recruiting and in real estate to support our increased number of associates around the world. As we discussed at Investor Day, our largest dollar investments are in GTS, where we have seen acceleration in contract value and productivity. We are investing to increase territories, to reduce open roles and to drive improvements to the sales productivity. Our continuing investments in GCS, the conferences sales team, have been driving faster growth in that segment. We are investing to increase territories, to reduce open territories and to drive productivity. GBS Investments are also continuing and we expect to see acceleration in this year and going forward.

At the end of the first quarter, we had 3,917 quota-bearing associates in research. This includes 3049 in GTS and 868 in GBS, a growth of 11% and 21% respectively. We expect GBS headcount growth to moderate by the end of the year to approximately 14% to 16%. Adjusted EBITDA for the first quarter was $142 million, down 2% on a reported basis and up 0.5% on an FX-neutral basis. EBITDA was affected by about 5 percentage points or a $6 million impact due to the product retirements. Taking that into consideration, the underlying FX-neutral, EBITDA growth was about 5% in the quarter. The first quarter is the smallest revenue quarter of the year, which contrasts with the expense base that is less seasonal. Depreciation was up about $3 million from last year as additional office space went into service. Amortization was flat sequentially after taking an expected step down in the fourth quarter as some of the acquisition intangibles reached their 18-month life. Integration expenses were down year-over-year as we've moved past the biggest part of the integration work. Interest expense in the quarter was $25 million, down from $35 million in the first quarter of 2018. The lower interest expense resulted from paying down roughly $700 million in debt over the past year.

The Q1 adjusted tax rate which we use for the calculation of adjusted net income was 19.8% for the quarter. First quarter is typically a seasonally low quarter for the tax rate primarily due to equity related excess tax benefits. The tax rate for the items used to adjust net income was 28.5% in the quarter. We still expect our adjusted tax rate to be about 25.5% for the full year, but it may have more quarterly variance this year. As you can see in the disclosure in our 10-Q subsequent to the end of the quarter, there was an inter-company sale of some intellectual property that will have a material favorable impact on the second quarter adjusted tax rate. Our 2Q EPS guidance includes an adjusted tax rate of 13%, our full year EPS guidance contemplated, 2Q (ph) benefit. Adjusted EPS in Q1 was $0.58 with upside relative to our expectations from below the line items including a lower-than-expected tax rate. In Q1, operating cash flow was $36 million, compared to $3 million last year. The increase in operating cash flow was driven by lower interest expense and lower payments for acquisition and integration and other non-recurring items. Q1 2019 CapEx was $20 million and Q1 cash acquisition and integration payments and other non-recurring items were approximately $20 million as well. This yields Q1 free cash flow of $35 million, which is up 30% versus the prior year quarter. It's worth noting that Q1 of the prior year included free cash flow associated with our divested businesses. Excluding free cash flow from the divested businesses, our first quarter free cash flow would have been up over 100%. On a rolling four quarter basis, our free cash flow conversion was 130% of adjusted net income excluding divested operations.

Turning to the balance sheet, we adopted the new lease accounting standard ASC 842 as of January 1, 2019. The impact of this new standard is the recognition on our balance sheet of right-of-use assets of $634 million and an operating lease liability of $836 million. $769 million of the operating lease liabilities recorded as a long-term liability with the balance recorded as a current liability. There was no material impact on our income statement from the adoption of the standard. Our March 31 debt balance was about $2.3 billion. Our debt remains 95% fixed rate. Adjusting EBITDA for the divestitures, our gross leverage ratio is now about 3.4 times EBITDA. We repurchased about $45 million of stock in the quarter. We will continue to be price sensitive and opportunistic as we return capital to shareholders. We have about $870 million remaining on our repurchase authorization. Our capital allocation strategy remains the same. We deploy our free cash flow and balance sheet flexibility by returning capital to our shareholders through our buyback programs, and through strategic value enhancing M&A.

Turning to the outlook for 2019; revenue, adjusted EBITDA, free cash flow and EPS guidance all remain the same. As I mentioned when discussing the tax rate, we expect that our tax rate for the second quarter will be around 13%. Our full year guidance already reflected a lower 2Q rate. As you think about modeling the rest of the year, we expect mostly typical seasonality for the quarterly phasing. The EBITDA compares is particularly challenging in the third quarter. And lastly, our guidance reflects FX rates as of April 30, the dollar strengthened over the course of 2018 and FX is causing a roughly two-point negative impact to our projected 2018 full year growth rates across revenues, adjusted EBITDA, adjusted EPS and free cash flows.

The highlights of our full year 2019 guidance are as follows. We expect revenues of approximately $4.2 billion to $4.3 billion, that is FX-neutral growth of 10% to 13%. In addition to the non-core businesses that we divested over the course of 2018, there were some additional products from the CEB acquisition that we viewed as non-core. We retired these which is impacting our 2019 total revenue growth rate by about 75 basis points. This is almost $30 million, about 2/3 of which drops to EBITDA. We expect adjusted EBITDA of $720 million to $765 million, FX-neutral growth of 7% to 13%. Again, EBITDA growth this year is impacted by about three points from the product retirements we discussed previously. Excluding the product retirements, 2018 EBITDA would have been around $667 million. We expect an adjusted tax rate of around 25.5% for 2019. Please note that if you are adding back from GAAP net income, the rate for the tax effect on the add backs is also about 25.5%. We expect 2019 adjusted EPS of between $3.82 and $4.19 per share, FX-neutral growth of approximately 7% to 15%. For 2019, we expect free cash flow of $455 million to $485 million, that is projected FX-neutral growth of 11% to 19% versus our normalized 2018 free cash flow. All the details of our full year guidance are included on our Investor Relations site. Finally, for the second quarter, we expect adjusted EPS of about $1.15 to $1.20 per share. We've had a great start to the year with strength across all of our operating segments and improvements in most of our key operating measures. Notably, GTS contract value continued to accelerate and sales of our new GXL products in GBS continue to rise. Our conferences and consulting businesses both had strong quarters. Free cash flow was up versus last year and conversion was stable. 2019 is trending well so far. We are applying the Gartner formula across the combined business to drive sustained long-term double-digit growth to revenue, EBITDA and free cash flow.

With that, I'll turn the call back over to the operator, and we'll be happy to take your questions, operator?

Questions and Answers:

Operator

(Operator Instructions) And our first question is from Tim McHugh from William Blair. Your line is now open.

Timothy McHugh -- William Blair & Company -- Analyst

Hi. Yes, hello. I just want to ask on the -- I guess the productivity on the GTS -- sorry, GBS side. I guess, and your comment is that the momentum is still improving, but if I just look at overall new business sales, it feels like there is, I guess it wasn't quite as strong as I would have expected. So is it, I guess, you're seeing more of a drop off on the legacy side or help us think about, I guess, the per person maybe productivity of a new business sales on the GPS side as the new GXL products ramp? Thanks.

Eugene A. Hall -- Chief Executive Officer

Hi, Tim. It's Gene. So first our -- the overall strategy we have, as you know in GBS, expand the sales force, get higher productivity as people learn -- go up the learning curve, get higher retention because GXL products are high retaining products over time. We also want to expand on the legacy products, improve their retention as well over time, which we expect to happen. In terms of Q1, Q1 in terms of new business is always our seasonally lightest quarter. I'll give you a flavor for what happens. We do a large share of promotions for people between Q4 and Q1, the promotions are higher performers, and eventually (ph) what happens is, they close out their pipeline in Q4 knowing that they're going to have a new job in Q1. They're not building a pipeline for Q1, someone else then comes in, who has a zero pipeline, who is also a new person and has much lower productivity with the combination of the zero pipeline and the fact that they are new to the company, and again they are replacing the higher performers. So as a business, our Q1 is always the lightest quarter for new business and across the business, including in GTS. And there's -- I take one example, there's other factors as well, that's the kind of the -- it is operational stuff that's driving it.

Craig Safian -- Executive Vice President and Chief Financial Officer

The other thing I'd add, Tim, just real quickly is, when you look at productivity remember, it is -- it's a combination of the new business productivity and the retention or attrition depending on which side of the equation you're looking at. As I mentioned in my remarks, for the contracts that came up for renewal over the course of Q1 2018, we saw roughly 200-basis point improvement in retention and again as we've talked about with full year benefit of our retention programs and our real focus on that, we expect to continue to drive retention improvements over the balance of the year as well.

Timothy McHugh -- William Blair & Company -- Analyst

Maybe on that topic then, can you help us reconcile the client count metrics? I guess the client retention metrics on the GBS side and I think a little bit off on the GTS side this quarter.

Eugene A. Hall -- Chief Executive Officer

Yes, the one thing I would say about the client counts, and this is why we tend to focus more on the wallet retention numbers than the client retention numbers is we typically do have return or higher return (ph) among our smaller lower spending clients. I think that is what happened with the GTS numbers for sure, but we continue to actually add a good number of new enterprises. The mix of new business from new enterprises was pretty consistent with what we've seen historically. And we're actually -- the enterprises that we keep, we're getting them to spend more and more with us each and every quarter. On the GBS side, again, we're working through the transition of getting everyone up to speed on GXL, there is a modest amount of migration going on, but the real focus for the bulk of the sales force is really finding new buying centers within both existing GBS enterprises and new GBS enterprises and selling them GXL.

Timothy McHugh -- William Blair & Company -- Analyst

Okay, thank you.

Operator

Thank you. Our next question is from Manav Patnaik from Barclays. Your line is now open.

Manav Patnaik -- Barclays -- Analyst

Thank you very much. So I guess in the Q, I think you said that you saw double-digit growth across three quarters of the industry segments. I was just curious, what are the -- what are the areas we're not seeing that, and I guess is it just post double-digits? What are the headwinds there?

Craig Safian -- Executive Vice President and Chief Financial Officer

Hi, Manav, I think what we've said historically and it's really no different than what we've seen in the past several or even dozen quarters is we saw doubled -- in GTS, we saw double-digit contract value growth in every region and every company size and in virtually every industry. There are maybe one or two smaller industries that did not double-digit growth. But again, it's no different than what we've seen in previous quarters.

Manav Patnaik -- Barclays -- Analyst

Okay, got it. And then just on the GXL products, I mean, what is the pipeline there look like in terms of additional GXLs or I guess version 2s or whatever you call it based on the client feedback and so forth you are getting?

Eugene A. Hall -- Chief Executive Officer

Yes, so it's Gene. Our GXL product line is doing really nicely. That's why you saw the kind of new business growth we saw in Q1, and as we go forward through the year, as I mentioned earlier, we would expect that pipeline to continue to build.

Craig Safian -- Executive Vice President and Chief Financial Officer

The other thing I'd add Manav is just like everything we do, we're constantly iterating and evolving and improving the product set. And so even though we've launched the new GXL products, we don't stand still and just hang, we're always looking to make sure we're consistently improving the product set.

Manav Patnaik -- Barclays -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question is from Gary Bisbee from Bank of America. Your line is now open.

Gary Bisbee -- BofA Merrill Lynch -- Analyst

Hey guys, good morning. So, I guess, the first question, GTS sales productivity continues to move up and if I just survey the last 12 years annually, it's never risen 2 years in a row, and so, I guess, I wonder and I am not suggesting it won't continue to do well. But given that history, what are you doing different today or what conviction do you have that there's more room to go with sales productivity in the technology business?

Eugene A. Hall -- Chief Executive Officer

Yes, hey, it's Gene, Gary. So the -- we are committed to continuous improvement and continuous innovation across our business, and over time we introduce innovations in all aspects of our sales processes. It ranges from what Craig said, which is making sure the products are better every year. So obviously the products are better, they're easier to sell, and on top of that you have better retention. And then as you know, we focused on tools, training, et cetera, and processes, and those things are continuously improving as well. So if you get down to it, those are the things, the combination of constant improving products, constant improving sales tools, constant improving sales training, recruiting, also we mentioned -- we are getting better every year at finding people that are better fit for the company as well. And so it is a combination of all that stuff that is driving productivity, and so we have -- we are committed to continuing to drive productivity up over time.

Gary Bisbee -- BofA Merrill Lynch -- Analyst

And then just more of a macro question, when I look back over the history, there have been a few times where you have seen a little bit of softening in the CV growth when either macroeconomic or sort of end market challenges made it a little tougher to sell, there has been some slowdown in global growth and yet the business continues to fire incredibly well in the technology franchise, so is it -- do you think that's more just your execution or is there anything about demand in technology and how much -- the velocity of change in technology that's also contributing to the performance?

Eugene A. Hall -- Chief Executive Officer

Yes, I don't think it's the velocity of change in technology that -- that's -- that would be sort of a more minor factor I think. One of the things that we've learned is that at any given point in time, some of our clients are doing well and some of our clients are in distress and we have specific programs where we go and help clients that are distressed. They're not the same programs as clients that are in growth are doing well. And again if I look across our client base we're in 100 countries, we're in every industry with every size client, there's always some people in trouble. And I can give you specific countries where we did really, really well last year even though the economy was shrinking. And so the -- we have a real focus on making sure we can do well through the actual programs we run with our clients individually during well or not, and whether they are in a good macroeconomic situation or not.

Gary Bisbee -- BofA Merrill Lynch -- Analyst

Thank you.

Operator

Thank you. Our next question is from Jeff Meuler from Baird. Your line is now open.

Mickey Fritz -- Robert W. Baird & Co. -- Analyst

Yeah, thanks, good morning. This is Mickey who is on for Jeff. Just going back to the GBS enterprise count, I realize the wallet retention metric is more important, but just is there anything you're hearing about the product or pricing changes that maybe aren't resonating with some of the smaller legacy clients? Or is that really just kind of an outsized impact from the products being discontinued or an internal focus on some larger client opportunities if anything you can add there?

Eugene A. Hall -- Chief Executive Officer

Yeah, so just to build on Craig's point earlier, the client count is really driven by small companies and there is more volatility. With small companies, they are much more likely to get acquired, they are much more likely go out of business and so in any given quarter, the kind of swings that happen were driven by how many of those companies went out of business or got acquired, et cetera. So it's -- and that's true by the way of GTS as well -- GBS in terms of swing in client counts. If you think about like at the extreme, the S&P 500 companies that we serve, we're likely to keep the -- likely (inaudible) to keep serving year after year after year is very high. Gene's Pizza, probably if it buys Gartner services, I may get acquired with a business lot more frequently than S&P 500 companies. So that's really what's driving the client count.

Mickey Fritz -- Robert W. Baird & Co. -- Analyst

Okay, that's helpful and as a follow up on the CV trends and outlook over the rest of the year. Can you guys talk about how Q1 compared to your internal expectations and just given that sales force growth remains above the full-year target initiatives and you should have some easing (ph) comps, are you kind of confident that the Q1 should be the low watermark for the year?

Craig Safian -- Executive Vice President and Chief Financial Officer

Hey, Mick, it's Craig. I think when we look at the Q1 performance across the board, whether we're talking revenue, profit, booking, CV, we kind of came in around where we expect it to, again recognizing that Q1 is generally our latest quarter from a new business perspective, from a conferences perspective, et cetera. So I would say we came in right around our expectations. I think in terms of thinking about the balance of the year, as we discussed on our last earnings call and at Investor Day, particularly within GBS, the compares do get a little easier as we go through the year, just based on the phase out of the legacy new business that we sold over the course of 2018, and so the most -- the bulk of that was sold in the first half of the year with a real step down as we fully launched and rolled out the new GXL products in the second half of the year. So that's the one place where we could argue or I would argue that the compare gets a little bit easier. I think on the rest of the business we performed really, really well last year and our expectation is that we continue to keep pace and/or accelerate our performance across the rest of our businesses.

Operator

Thank you. Our next question is from Toni Kaplan from Morgan Stanley. Your line is now open.

Toni Kaplan -- Morgan Stanley & Co. -- Analyst

Thank you, good morning. Using your framework last quarter showing the 8% CV growth given the same productivity rates, I tried to calculate it for LTM this quarter and assuming I have the inputs right, it looks a little bit closer to 6%. And so just, I guess, does that sound consistent with sort of what you're seeing and does that make you any less confident in the double-digit target? Or is it just that you're expecting the comps get easier, and so that's what makes you felt good about it?

Eugene A. Hall -- Chief Executive Officer

Hey, good morning, Toni. So I think your math is right, so as you look at the extrapolation of new business productivity on an LTM basis, it did step down in the first quarter, we expect it to step back up over the next few quarters. Again, as the sales force gets more seasoning, more tenured, and gets really rolling from a productivity -- new business productivity perspective, particularly around GXL, as you'll remember from that chart and discussion, there are two levers, the attrition lever and the new business productivity lever. And again as I mentioned, we're seeing nice improvement in -- on the attrition side, and so again there were multiple paths to get to that double-digit contract value growth. We remain as confident coming out of Q1 as we were going into Q1 and again there are multiple ways to get there through various combinations of attrition improvement and new business productivity.

Toni Kaplan -- Morgan Stanley & Co. -- Analyst

Okay, terrific, and is there anything you could call out in terms of trends, in terms of tenure of sales people, basically are you keeping the GBS sales people that you want to be keeping, is there sort of any -- like any sort of retention trends in the sales people that would be helpful? Thanks.

Eugene A. Hall -- Chief Executive Officer

Great question. Because sales peoples productivity goes up very rapidly with tenure. We want to retain people. As in GBS, we have retention that is on par with GTS, and in fact our GBS retention is better this year than it was last year. So that will be another tailwind we'll have for the year is we'll have a richer mix of more tenured people.

Toni Kaplan -- Morgan Stanley & Co. -- Analyst

Thanks a lot.

Operator

Thank you.Our next question is from Bill Warmington from Wells Fargo. Your line is now open.

Bill Warmington -- Wells Fargo Securities, LLC -- Analyst

Good morning, everyone. So we're a little over a third of the way through Q2 and I wanted to ask whether Q2 was actually going to be the inflection point for the GBS contract value growth. It would seem that, that would need to be the case if you're targeting double-digit by the end of the year, but I just wanted to confirm, that's the way you guys are expecting it? Or was it actually going to be Q3?

Eugene A. Hall -- Chief Executive Officer

Hey, good morning, Bill, we don't give quarterly guidance on CV and/or inflection points, but again the way I would describe it is as I said earlier, the Q1 compare with the toughest, the Q2 compare is the next toughest, the Q3 compare is then the next toughest and then the Q4 compare would then be the -- I cringe using the word, but the easiest. So again, the way we're looking at it is really not on a quarter-by-quarter basis. As we've discussed, we are laying the foundation for future sustained and accelerated double-digit growth. We remain committed and we firmly believe we will get there by the end of the year.

Bill Warmington -- Wells Fargo Securities, LLC -- Analyst

And then as my follow-up question, the GXL new products that are driving the 84% year-over-year new business growth, I know you target a number of different multiples there; HR, legal, accounting sales, in which vertical are you seeing the most traction, in which vertical you're seeing the lease traction?

Eugene A. Hall -- Chief Executive Officer

Bill, that's actually, we're seeing good traction across the verticals. We showed a chart on Investor Day that showed, again, six of the verticals, how we were doing, and each one continues to accelerate, so I'd sort of say there's not one we see as the problem trail (ph), actually they're all doing really well in terms of the acceleration -- acceleration in GXL sales.

Bill Warmington -- Wells Fargo Securities, LLC -- Analyst

Got it, thank you for the help.

Operator

Thank you. Our next question is from Jeff Silber from BMO Capital Markets. Your line is now open.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Thank you so much. I know you mentioned that this is a relatively seasonally light quarter for new business, but if I could focus just on the GBS new business, are you seeing cross-selling to existing GTS customers, are these new customers for you? Can you give us a little bit of color on it? I appreciate it.

Eugene A. Hall -- Chief Executive Officer

So, it's a very good question, Jeff. So we do have cross selling, obviously we have a lot of relationships, 12,000 (inaudible) GTS clients doing cross-sell through. We do cross-cell. With GBS though the opportunity is so vast and we're so under-penetrated that is, that's not the most important factor, so we are helpful, our sales force is doing that and we facilitated -- we are trying to facilitate it internally, but it's just the products are attractive and there is so much open market opportunity. That's not the kind of most important factor.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Okay, and I know your business has nothing to do with the stock market, but we saw kind of a wide swing in sentiment between what the market was expecting overall in the fourth quarter and what the market seems to be expecting this last quarter. Did you see any change of tone in any of your customers, because of that?

Eugene A. Hall -- Chief Executive Officer

Are you thinking from a macroeconomic viewpoint, Jeff?

Jeffrey Silber -- BMO Capital Markets -- Analyst

Yes, exactly.

Eugene A. Hall -- Chief Executive Officer

Yes. So as Craig said in his remarks, I would characterize our -- the selling environment the same as it's been all last year -- Q1 was the same as it was in Q4. And those were the same as we saw all last year and in fact for some time actually I'd say. There is some -- there are some countries that are not doing that great. But there's always some countries that are not doing that great. And I'd say for the big economies, they're kind of moving along at a -- what I call a normal pace.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Okay. Appreciate the color. Thanks so much.

Operator

Thank you. Our next question is from Joseph Foresi from Cantor Fitzgerald. Your line is now open.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Hi, in GBS, is this a matter of selling more of the new and less of the old and some better comps. I'm just trying to get a sense there and then also are you selling new products to new clients or new products to old clients. I am just trying to give a sense of how that works at all?

Eugene A. Hall -- Chief Executive Officer

So, on the first piece -- on the second piece, if a client has legacy product and they're happy with it, we look them to stay and be happy with it. We have very good margins on our product and we want to do that. And so, our real focus is not on upgrading, but on selling to new clients, could be new clients in the same enterprise. So could be a different division of the company, but it's really the folks are selling new clients. As Craig mentioned in his remarks, there are some upgrades, but that's not our primary focus.

Craig Safian -- Executive Vice President and Chief Financial Officer

And Joe, it's Craig. The way to think about it, again, if you look at page 11 in the earning supplement from this quarter or from last quarter when we review the full year 2018. I'd say that there are two primary levers here; one is continuing to focus on driving engagement, which translates into higher retention rates or lower attrition rates, and then two is the ramp of GXL new business more than outpacing the declines in legacy new business. We are still selling some what we call legacy new business in certain small areas where we have not launched the corresponding GXL C, that's kind of at a stable level now and we expect that to continue into the future until we replace them potentially with GXL products, but it's kind of all about the ramp of GXL new business combined with better retention.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Got it. And then just as a follow-up. I understand the metrics associated with productivity and retention and the new products versus the old products, so that all makes sense on paper, but is there anything different that you could call out from a visibility standpoint in GBS that gives you added, I guess, confidence in the double digits. I'm sure the Street is curious as to why you're holding to it. So I'm just wondering if there's any difference around the visibility from a sales perspective on the process around it? Thanks.

Eugene A. Hall -- Chief Executive Officer

So, it's a combination of things. So first, we've added significant capacity and we know that those sales people will gain tenure and will sell more. Secondly, we know that even of all the people who are still going through learning curve and they'll sell more and our pipeline reflects that. So, again, if you prepare the pipeline for Q2 versus pipeline for Q1, it is significantly better, just kind of selling pipeline. And the second piece is like Craig said, which is, we know that GXL products have significantly higher retention and so as that mix continues, we sell more GXL, that mix continues to get richer with more GXL products and Craig mentioned, it's about 10 points higher retention or 10 points lower attrition than the legacy products for the deals that renewed in Q1, and we expect that to continue. So as we get more and more proportion of GXL products that have significantly higher retention and we get our sales -- a larger sales force with more tenure as we extrapolate that out, we see that it looks -- that's why we are confident that we are on a good track.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Thank you.

Operator

Thank you. Our next question is from Peter Appert from Piper Jaffray. Your line is now open.

Peter P. Appert -- Piper Jaffray & Co. -- Analyst

Thank you. Good morning. So, Craig, just expanding but on your earlier comments in terms of the evolution in the GBS product, if you stop selling or you are de-emphasizing selling the legacy GBS product, does that imply then that the legacy GBS contract value continues to decline at the recent rate?

Craig Safian -- Executive Vice President and Chief Financial Officer

Yes. Does, Peter. So that -- yes, essentially what we've been tracking and trying to provide some visibility around is the mix. And so as I -- I think I mentioned in my prepared remarks, today we sit with 35% of our GBS contract value is in GXL and that's about 15 percentage points higher than it was Q1 of last year. And we expect soon over the next several quarters for GXL to be a bigger portion of the portfolio, that's a combination of accelerated GXL growth and continued declines in the legacy contract value.

Peter P. Appert -- Piper Jaffray & Co. -- Analyst

And does the legacy business then go to zero at some point?

Craig Safian -- Executive Vice President and Chief Financial Officer

So, I don't think the legacy goes all the way to zero. There are still a handful of smaller functions that we serve with the legacy product set and it's a valuable product and the buyers or end users in our client set really, really like and value these products. Overtime there's a potential that we could launch a GXL type product in those areas, but again that's not where the largest opportunity is. The only thing I'll say is our strategy and Gene alluded to this earlier, is we -- if clients are happy with their legacy and they want to keep renewing and keep paying us, we generally are fine with that as a strategy. And so I think it's unlikely it goes all the way to zero. But again as I mentioned, it will continue to drift downward as we replace a lot of it with the new GXL new business.

Peter P. Appert -- Piper Jaffray & Co. -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question is from George Tong from Goldman Sachs. Your line is now open.

George Tong -- Goldman Sachs -- Analyst

Hi. Thanks, good morning. I'd like to dive deeper into GBS sales productivity. The productivity of your GBS segment was negative 2,000 in net contract value increase per year ago sales headcount, I know, 1Q is your lightest quarter for new business and you're retiring legacy products. But can you elaborate on why productivity is coming in negative given it takes 12 to 18 months for new sales hires to ramp and most of the GBS sales force was layered in a year ago?

Eugene A. Hall -- Chief Executive Officer

Hi. Good morning, George. Yes, it's actually, I mean, the primary factor that drove that decline is essentially the phase out of selling legacy new business. So, in Q1 of last year, the bulk of our sales force was still selling legacy leadership councils, we phased that out to the point where as of the beginning of Q3, we are only selling legacy leadership councils in the smaller businesses. I just mentioned that we don't have a corresponding GXL product and we essentially lost that strong new business quarter in the rolling 4 quarter NCVI and replaced it with this first quarter where we had really strong GXL new business, but not enough to offset the decline, as you can see again on that Slide 11 of the decline in the legacy new business. And so you again as we look at it again, we're not playing the one quarter game here. As we look at it over the long term, to get to the double-digit growth we talked about, we will absolutely have to have and will deliver very positive productivity for the full year again, you can do the math on what that would need to be. But again, I think it's just -- it's a one quarter impact where we have the toughest compare, and as we progress through the year, as I mentioned the compares get easier, and we expect to see the GXL new business continue to ramp.

George Tong -- Goldman Sachs -- Analyst

Got it. That's helpful. Your GXL new business activity in the quarter was $24 million, but if you compare that to legacy product attrition that was $23 million. Can you discuss what factors over the next several quarters will help you to excel on new business trends outperform legacy attrition besides just using comps?

Eugene A. Hall -- Chief Executive Officer

Yes, we expect new business to accelerate for all the reasons we've been talking on the call. So the fact that we had more sales people with more tenure and more used to selling GBS products. And so we expect new business to accelerate. And then secondly, we expect retention to get better or attrition to get better, less attrition for two reasons, one is that, we have -- each quarter that goes on, we have more GXL products and GXL products as Craig mentioned have a higher retention rates, and secondly, for even the legacy products, we're putting in place retention programs to improve that retention as well. And so it may never be as good as GXL, but we think we can still make substantial improvements in legacy product retention. So, it's the combination of new business accelerating and retention getting better as well.

George Tong -- Goldman Sachs -- Analyst

Thank you.

Operator

Thank you. At this time, I'm showing no further questions, I would like to turn the call back over to Gene Hall, CEO, for closing remarks.

Eugene A. Hall -- Chief Executive Officer

Well, summarizing today's call, we delivered another robust performance in the first quarter of 2019, fueled by double-digit growth in each of our business segments; research, conferences and consulting. We continue to make significant global impact. We helped more than 15,000 enterprise clients in more than 100 countries around the world with their mission critical priorities, while providing great jobs for more than 15,000 talented associates globally. The Gartner formula for sustained double-digit growth underpins our success in our research business and our business model allows us to drive strong double-digit growth in all our key metrics including cash flow. Our future at Gartner remains bright. Thanks for joining us today and we look forward to updating you again next quarter.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, you may now disconnect.

Duration: 57 minutes

Call participants:

David Cohen -- Group Vice President, Investor Relations

Eugene A. Hall -- Chief Executive Officer

Craig Safian -- Executive Vice President and Chief Financial Officer

Timothy McHugh -- William Blair & Company -- Analyst

Manav Patnaik -- Barclays -- Analyst

Gary Bisbee -- BofA Merrill Lynch -- Analyst

Mickey Fritz -- Robert W. Baird & Co. -- Analyst

Toni Kaplan -- Morgan Stanley & Co. -- Analyst

Bill Warmington -- Wells Fargo Securities, LLC -- Analyst

Jeffrey Silber -- BMO Capital Markets -- Analyst

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Peter P. Appert -- Piper Jaffray & Co. -- Analyst

George Tong -- Goldman Sachs -- Analyst

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