Good morning, ladies and gentlemen, and welcome to the Gartner's Earnings Conference Call for Second Quarter 2017. A replay of this call will be available through September 7, 2017. The replay can be accessed by dialing 888-286-8010 for domestic calls, and 617-801-6888 for international calls, by entering the passcode 50953420. This call is being simultaneously webcast and will be archived on Gartner's website at www.gartner.com for approximately 30 days. I will now turn the conference over to Sherief Bakr, Gartner's Group Vice President of Investor Relations for opening remarks and introductions. Please go ahead, sir.
Thank you, Jasmine. Good morning, everyone. Welcome to Gartner's second quarter 2017 earnings call. I'm Sherief Bakr, Head of Investor Relations at Gartner. With me today in Stamford is our Chief Executive Officer, Gene Hall, and our Chief Financial Officer, Craig Safian. This call will include a discussion of Q2 2017 financial results as disclosed in today's press release, as well as our updated outlook for 2017. After our prepared remarks, you will have an opportunity to ask questions. In addition to today's press release, we have provided an accompanying presentation as a reference point for investors and analysts. Both the press release and the presentation are available on our website, investor.gartner.com. Before we begin, I'd like to remind you that 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 2016 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as other filings with the SEC. I would encourage all of you to review these risk factors listed in these documents. With that, I'd like to hand the call over to Gartner's Chief Executive Officer, Gene Hall. Gene
Good morning, and welcome to our Q2 earnings call. We delivered another great quarter of double-digit growth in the second quarter of 2017. I continue to be extremely excited about our business, our prospects for growth, and our strategy to drive value to our investors over the long term. Let me begin by reiterating why the combination of Gartner and CEB will create tremendous value. First, our clients need to make critical decisions in a very volatile environment. There's slow macroeconomic growth, volatile commodity prices and exchange rates, political uncertainties such as Brexit. Enterprises around the world address these critical issues with cross-functional teams. The combination of CEB and Gartner lets us help clients address these issues with every function in the business. In addition, virtually every company in the world is facing technology-based disruption.
No CEO can be competent without understanding how this impacts their company and their industry. The combination of Gartner's technology expertise plus CEB's business expertise gives us an unprecedented ability to help clients navigate these rapids. Beyond the impact on whole industries, technology is becoming critical in every function of the business. HR can't hire the best people if they don't use analytics. Customer service is negatively impacted if a company doesn't use artificial intelligence, and so on for every function in the business. The pace of technology-driven change is only accelerating. The combination of Gartner plus CEB allows us to help clients fully use technology in every business function. Finally, Gartner and CEB both had best practices in running their businesses. By combining the best of both operational practices, we will be better than either company was alone.
The combination of Gartner plus CEB will provide a quantum leap in our own ability to help clients and in our operational practices. The combination of CEB and Gartner has other benefits as well. CEB's Evanta events business provides clients with high-value local events that are highly complementary to traditional Gartner destination events such as Symposium. The combination of CEB and Gartner also brings CEB's talent assessment business. Over the next decade and beyond, we expect analytics to become a critical factor in virtually all hiring situations, and CEB is the market leader in this critical space. Let's now turn to how the business has performed in Q2. Consistent with our previous earnings calls, and because of ongoing currency fluctuations globally, I'm gonna talk about our results in FX-neutral terms. During Q2, the traditional Gartner business accelerated.
In the second quarter of 2017, total company revenues increased by 15%. Traditional Gartner contract value growth was also 15%. We achieved double-digit contract value growth in every region, across every size company, and in virtually every industry. Traditional Gartner client retention was at 83%, which is consistent with the second quarter of 2016. Wallet retention was 105%, which is a point above the same quarter last year. Both retention metrics are near all-time highs. Increasing sales productivity has been and remains a top priority for us. Over the past few years, we've put in a number of programs to improve sales productivity. In Q2, we saw the impact of those programs, with sales productivity improving by 11% organically over the prior year.
In traditional Gartner consulting, we continue to deepen our research relationships with our largest clients and deliver great value. For Q2 2017, our consulting business grew 8%. We continue to grow our managing partner strategy and maintain four months of backlog, which is in line with our operational targets. Our traditional Gartner Events revenues grew 13% in the second quarter of 2017. We hosted 25 events with more than 18,000 attendees, compared to roughly 15,000 attendees across the same number of events last year. Q2 was a strong quarter operationally, the traditional Gartner business, and we're committed to maintain this momentum as we integrate with CEB. Performance of the traditional CEB business was slightly improved during Q2. Contract value in the traditional CEB research business grew 1%, which is an improvement over the past several quarters.
Wallet retention also improved from 93% - 94%. Revenues for the talent assessment segment fell 6%. We believe the decline in revenues was due primarily to a sales force reorganization CEB made earlier this year, which integrated talent assessment sales with CEB research sales. Talent assessment bookings were up modestly year-over-year, as we've quickly identified improvement opportunities. The Gartner CEB post-merger integration is going great. We've taken an aggressive approach to integrating the two companies to concentrate the changes that are likely to be the most disruptive in 2017. This will allow us to have a smoother 2018 and beyond. As you may know, we closed the deal in early April. We have already largely completed organizational integration. The Gartner and CEB research and advisory teams are integrated. The staff functions, such as HR and finance, are integrated.
We've rationalized and integrated the Gartner and CEB sales teams. One of our biggest growth opportunities is introducing new products. We've already introduced several new products to offer substantially more value to functional business leaders in HR, finance, sales, legal, and IT, and additional products will follow in the coming months. Retention is critical in any subscription business, so we've begun building service teams to ensure high retention of the new products as well as existing CEB clients. We're committed to achieving double-digit contract value growth in the traditional CEB functional areas, such as HR and finance. We've grown our sales recruiting teams and have already hired a significant number of new entry-level salespeople. With aggressive recruiting plans in place, we plan to enter 2018 with a double-digit growth in the traditional CEB sales force. We've also changed CEB's traditional commercial terms.
CEB's traditional research offerings were generally enterprise agreements, which offered unrestricted access to everyone within the organization. Enterprise agreements offer less value to clients than seat-based offerings. As a result, all of our new offerings are seat based. Over time, all the traditional CEB products will be replaced by seat-based products. In the interim, existing CEB products will be sold with limitations rather than as enterprise agreements. CEB often gave clients discounts as an incentive to close business. At Gartner, we found that offering discounts doesn't offer much value to clients and is a distraction from discussing value with them, so we're phasing out discounting for new clients. We've integrated the company's event businesses. The CEB destination events have been integrated with the Gartner events business, and we are building exhibitor and ticket sales forces to fully monetize these great events.
We've brought in an experienced events leader for the Evanta business. CEB has integrated many aspects of the talent assessment business with the CEB research business. We believe the talent assessment business will be much more successful as a standalone business, analogous to the way we run Gartner events and Gartner consulting businesses. As a result, we have unintegrated talent assessment business and established it as a standalone business. We've hired a strong general manager for the business who's a senior leader in the SHL talent assessment business before it was acquired by CEB. While we're combining Gartner and CEB to accelerate growth, there are significant synergies. We've achieved approximately $40 million in projected run rate savings within the first 120 days. As I said previously, we plan to fund some of the investments I described earlier using a portion of these synergies.
Of course, there's more work to be done. Specifically, the systems that support the business need to be harmonized and/or integrated, and we'll capture significant additional run rate savings over the next couple of years. We've built a very aggressive integration plan, and progress to date has been great. For example, turnover in the traditional CEB sales force has dropped by about 10 percentage points, a significant and important improvement. This sales force is extremely enthusiastic for the exciting new products. We found the quality of research insights produced by traditional CEB to be even more exceptional than we'd initially assessed. We've also found people throughout the organization are extraordinarily talented, capable, and committed to providing great service to clients. The leadership changes in the Evanta and talent assessment businesses have been well received by associates in those business segments.
As I mentioned earlier, we've purposefully chosen to move rapidly with integrating CEB and Gartner. We've done this to get the full benefits from integration sooner and to get disruptions we may face completed during 2017. We've also designed the integration program to minimize the impact on the performance of the traditional Gartner business. The strong Q2 results in our traditional Gartner business reflect this approach. The changes I discussed earlier disproportionately impact the traditional CEB organization. For example, the traditional CEB sales force will need to develop new skills as they begin selling seat-based products rather than enterprise agreements. Clients often expect discounts in any product they buy. The traditional CEB sales team will need to develop their skills selling without discounting. We have plans in place to address these risks.
Given the magnitude and pace of change, we could hit some speed bumps with the traditional CEB segments during the second half of 2017. Most of the changes are based on well-proven Gartner operational practices. Over the long term, we are confident these changes result in strong, sustained double-digit growth in the traditional CEB business areas, just as they have for the traditional Gartner business. Summarizing, the combination of CEB and Gartner will create a quantum leap in capability and sustained extraordinary growth over the long term. We'll be able to address the mission-critical priorities for every function across the enterprise with leading insights from the best of the two organizations. During Q2, the performance of the traditional Gartner business continued to accelerate. CEB growth accelerated, retention strengthened, and sales productivity improved at double-digit rates. In addition, the traditional CEB business saw modest improvements.
We developed a very aggressive integration plan, it's going great. We've already integrated our organizations, launched new products, introduced new commercial terms, accelerated sales force hiring, and set up talent assessment as a standalone business. That's just in the first 120 days. We're just getting started. With that, I'll turn it over to Craig Safian, our Chief Financial Officer.
Thank you, Gene, and good morning, everyone. In addition to discussing our quarterly performance and updated annual outlook, I will spend some time this morning walking you through our new reportable segments and other disclosure highlights as a result of the CEB acquisition. Starting with our reporting segments. As you will have seen from today's press release, we now have four reportable segments: Research, Consulting, Events, as well as Talent Assessment and Other. Starting with Research. Research continues to be our largest and most profitable segment, representing approximately 72% of our combined full year 2016 company revenues, and approximately 80% of total gross contribution. Research comprises the previously disclosed Gartner Research segment with two additions. First, approximately 80% of the revenues of what was reported as the CEB segment.
These revenues relate to core CEB subscription-based research products and services, which we'll refer to primarily as BPDS. The other, and significantly smaller change, is a change to the research segment, is that we have also included results related to strategic advisory services, or SAS. These revenues make up about 1% of research revenues, but were previously included in our consulting segment. SAS revenues are principally generated from one or two-day research analyst engagements requested by our largest clients, for which they pay an additional amount relative to their subscription service. Correspondingly, consulting, which represents slightly more than 9% of our full year 2016 combined company revenues and 4% of total gross contribution, now no longer includes the SAS revenues that I just mentioned. Moving to events, where we have added CEB's events business to the Gartner events business.
CEB's events revenues were predominantly comprised of the Evanta asset that was acquired in May 2016. On a full year 2016 basis, events represented approximately 9% of our combined revenues and 8% of total gross contribution. We have added a new reportable segment, Talent Assessment and Other, which we'll often call TA and Other. This segment is made up of CEB's Talent Assessment business, plus the remaining 20% of CEB segment revenues that are not included in our core research segment. These revenues are related to ancillary CEB research products and services such as training, workforce surveys, and leadership academies. TA and Other represented approximately 9% of our combined 2016 revenues and 8% of total gross contribution.
For modeling and comparability purposes, we are also providing historical revenues, adjusted revenues, and contribution margin for the combined company and our four reportable segments for the four quarters of 2016, as well as Q1 2017. This information, along with an in-depth overview of our Q2 performance, is available in the two documents we have furnished to accompany this call, both located on our investor relations website. While we have folded CEB into our reportable segments and added a new one, we are committed to providing the financial community with the appropriate level of transparency to be able to track the performance of the core CEB research business. In addition, we wanna provide transparency to be able to continue to track the performance of the traditional Gartner business.
On last quarter's call, I mentioned that we were in the process of harmonizing calculation methodologies to make key CEB metrics comparable and aligned with Gartner metrics. As an example, for the traditional Gartner business, our total contract value metric represents the annualized value of all our subscription-based contracts. While CEB did report contract value, we have now recast that measure to be aligned with how we've traditionally done it with the Gartner business. In doing so, we have excluded certain CEB products and services that do not meet the criteria of our CV definition. You'll find the historical details of the recast contract value on slide 19 in our earnings presentation. Similarly, we have harmonized how we calculate wallet retention to also be consistent with how we calculate retention at Gartner.
I will come back and discuss the trends of these metrics in a few minutes as a part of my quarterly segment review. We will also discuss our top-line results using both GAAP revenue and adjusted revenue. The only difference is that adjusted revenue excludes the deferred revenue fair value adjustment that is required as a part of purchase accounting. Turning to our Q2 performance. Our year-over-year financial performance for the quarter included total combined company adjusted revenue growth of 9%, driven by 13% growth for the traditional Gartner business and a 3% decline for the acquired CEB business. Combined adjusted EBITDA of $185 million and combined adjusted diluted EPS of $0.88 per share, above the top end of our guidance range for the quarter.
Please note that our second quarter 2017 GAAP revenues of $844 million includes an approximately $91 million deferred revenue adjustment. On an adjusted basis, our revenue for the quarter was $935 million. Our exceptional business model continues to create a consistently high level of free cash flow conversion. On a rolling four-quarter basis, with three quarters of standalone Gartner and one quarter of Gartner plus CEB, our reported free cash flow conversion was 118% of adjusted net income. If we calculate free cash flow conversion on a rolling four-quarter basis for the combined company, our free cash flow conversion would have been 126% through Q2.
I'll now discuss our second quarter combined business segment and P&L in depth, highlighting the performance of the traditional Gartner and acquired CEB business where appropriate, before turning to our balance sheet and cash flow dynamics. I will then close with remarks on our updated 2017 guidance, which incorporates our new reportable segments. We will then be happy to take your questions. Please note that my segment discussion will focus on the adjusted revenue and adjusted contribution margin performance in Q2, therefore adding back the deferred revenue fair value adjustment I just mentioned. Please also note that we've included a lot of this information in the presentations on our IR website. Beginning with research. On a combined basis, adjusted research revenue grew 11% in the second quarter.
The adjusted gross contribution margin for research was 68% or a 130 basis point decline compared to the second quarter of 2016 on a comparable basis. This modest decline is primarily due to our newer acquired businesses, such as Capterra, SCM World, and L2, having lower gross contribution margins than our traditional business. Adjusted revenues for the traditional Gartner research business increased by 15% in the second quarter. Acquisitions, primarily L2 and SCM World, had a slightly less than two-point impact on the traditional Gartner research adjusted revenue growth for the quarter. Our other traditional Gartner research business metrics also remain very strong, with accelerating contract value growth, accelerating sales productivity, and improvements in our retention metrics.
Total contract value was almost $2 billion as of the end of Q2, FX neutral growth of 15% versus the prior year, and an acceleration from the growth we delivered last quarter. For reference and comparison, our Q2 2016 total contract value at current year FX rates was $1.73 billion. On an organic basis, excluding the contribution of L2, which we acquired in March 2017, total contract value growth for traditional Gartner research would have been 14% on an FX neutral basis. Also an acceleration from the growth we delivered last quarter. We continue to drive contract value growth through strong retention rates and consistent growth in new business.
From a traditional Gartner research perspective, client retention was 83%, up 40 basis points from the second quarter of 2016 and up slightly on a sequential basis. Wallet retention ended at 105% for the quarter, up by almost 1 point year-on-year and 50 basis points on a sequential basis. Both of our retention figures are close to our all-time highs. New business growth for traditional Gartner research remains strong, up 14% year-on-year in Q2. The new business mix is consistent with prior quarters and remains balanced between new clients and sales of additional services and upgrades to existing clients. As always, we also benefit from our consistent price increases. Our new business growth reflects our success in penetrating our vast market opportunity with both new and existing client enterprises.
We ended the first quarter with 11,164 enterprise clients, up 7% compared to Q2 2016. The average spend per enterprise also continues to grow. It now stands at $179,000 per enterprise, up 8% versus prior year on an FX neutral basis. This increase in average spend reflects our ability to drive CV growth through both new and existing enterprises. Turning to sales productivity for the traditional Gartner Research sales force. Over the last rolling four quarters, we delivered $265 million of FX neutral net contract value increase, or NCVI.
When divided by our beginning-of-period headcount, which was 2,297 quota-bearing heads, our rolling four-quarter productivity per account executive was $116,000. Excluding the impact of the L2 acquisition, sales productivity was up 11% year-on-year and 5% sequentially. As always, we remain highly focused on improving our sales productivity and remain confident that the initiatives we have implemented to drive productivity will positively impact the results over both the short and long term. Turning to the performance of CEB research in the quarter. CEB adjusted research revenues declined by 1% year-on-year in Q2, an improvement from the 4% year-on-year decline in Q1. CEB's other research metrics also improved in the quarter.
Contract value converted to Gartner's methodology was $578 million, a 1% year-on-year increase on an FX neutral basis compared to a 1% decline in the first quarter. In addition, wallet retention, also using Gartner's methodology, ended the quarter at 94%, an increase of 80 basis points compared to the year ago quarter. Moving to events. As I mentioned at the start of my comments, our events segment now includes the former CEB events business, which is essentially the Evanta asset that CEB acquired in 2016, as well as CEB's destination events, which include the ReimagineHR and CEB Sales and Marketing Summits. The traditional Gartner events business, as you know, holds more than 60 large destination events, such as our Symposium series for CIOs.
Evanta holds approximately 200 smaller community-led events that don't require the attendees to travel. On a combined basis, adjusted events revenues increased by 10% year-on-year in Q2. Events' second quarter adjusted gross contribution margin was 56%, down by approximately 200 basis points compared to the year-ago quarter. While CEB events revenue was approximately flat on a year-on-year basis, the traditional Gartner events business had a very strong quarter in Q2 with a 13% year-on-year increase in same event revenue, a more than 100 basis point year-on-year improvement in contribution margin, and an 18% increase in same event attendees. Turning to consulting. On a comparable basis, second quarter consulting revenues increased by 6% on a reported basis and 8% FX neutral, driven by strong performance in our contract optimization business.
On the labor-based side, billable headcount of 667 was up 7%. We had 128 managing partners at the end of Q2, a 14% increase over the year-ago quarter. Backlog, the key leading indicator of future revenue growth for a consulting business, ended the quarter at $91 million, down 1% year-on-year on an FX-neutral basis. Consistent with our new segment presentation, please note that our consulting backlog no longer includes the backlog associated with SAS. Consulting gross contribution margin increased by 160 basis points year-on-year, primarily due to the strong performance of the contract optimization business. Turning to TA and Other. Adjusted revenue in the TA and Other segment declined by 6% compared to the year-ago quarter. This was primarily due to a continuation of recent trends at TA.
In addition, and as Gene Hall commented, we moved quickly to address some of TA's legacy organizational issues, which we believe will drive improved performance going forward. Encouragingly, we did see some improved momentum towards the end of the quarter and ended Q2 with higher year-over-year bookings for the quarter. Moving down the income statement. On a combined basis, SG&A increased by 10% year-over-year in the second quarter. Our sales force continues to be our largest investment, and as of the end of the second quarter, the traditional Gartner business had 2,574 quota-bearing sales associates. This is an increase of 277 or 12% from a year ago, and we continue to plan for approximately 13% sales headcount growth for the traditional Gartner business in 2017.
The acquisition of CEB adds more than 500 quota-bearing research sales associates. While this is essentially flat on a year-over-year basis, as Gene mentioned, we have already started to grow sales headcount and will leverage our proven best practices around recruiting, training, and tools to drive accelerated CV growth and improve productivity. As a growth company, and now as a much larger growth company, we also continue to invest in areas such as recruiting, technology, facilities, and other areas to support our strategy of delivering sustained double-digit growth over the long term. At the same time, we are making good progress on cost synergies related to the CEB acquisition, specifically in G&A functions.
Given the investments we have already made and plan to make through the balance of the year to drive accelerated growth in CEB's contract value, we continue to expect very modest net synergy flow through in 2017. We remain on track to deliver on our 2018 cost synergy target and are working very diligently to harvest as much of the $50 million as possible in 2018. Moving down the income statement. Depreciation charges increased year-over-year in the quarter, predominantly reflecting the addition of CEB, while amortization and integration charges were up significantly, again related to the transaction. Our GAAP tax rate for the quarter was 35.4%.
Adjusting for acquisition and non-recurring charges, our adjusted tax rate for the quarter was 30.9%. The lower-than-expected adjusted tax rate positively impacted our Q2 adjusted EPS by approximately $0.04. This was primarily due to the timing of certain tax costs that are expected to be realized in the remainder of the year. We continue to expect our full-year GAAP tax rate to be approximately 33%-34% and approximately 32%-33% on an adjusted basis. GAAP diluted earnings per share was negative $1.03 in the second quarter. Our GAAP EPS figure also includes $1.91 of non-GAAP adjustments. On an adjusted basis, our EPS in Q2 was $0.88, or $0.03 above the high end of our guidance range, helped by the lower adjusted tax rate I just referenced.
Normalizing for this, our adjusted EPS would have been approximately $0.84 in the quarter. Turning now to cash. In Q2, operating cash flow was $112 million compared to $148 million for the standalone Gartner business in the year ago quarter. As I commented last quarter, CEB has historically had different cash flow seasonality to Gartner, where CEB's strongest cash flow quarter has been Q1, followed by its weakest quarter in Q2. On a combined basis, operating cash flow increased by 1% in Q2. It is also important to note that our Q2 operating cash flow includes significant acquisition and integration payments, which we adjust out for our free cash flow calculation.
Pivoting to free cash flow, Q2 2017 CapEx was $31 million, and Q2 cash acquisition and integration payments were $48 million compared to less than $1 million in Q2 2016. This yields Q2 free cash flow of $129 million, approximately 50% higher when compared to combined company free cash flow in Q2 2016. The timing of our contract value growth is a key driver of our quarterly free cash flow performance, and our strong research results from March and across Q2 have begun converting to free cash flow. Turning to the balance sheet. We had a busy quarter related to the CEB acquisition, which closed in early April. If you recall, on last quarter's call, I focused my comments on our post-close balance sheet rather than the end-of-March snapshot.
Relative to the approximately $3.6 billion of gross debt we had as of April 5th, we have repaid more than $160 million by the end of Q2, with a quarter-ending gross debt level of approximately $3.5 billion. From a net debt perspective, we had approximately $2.9 billion at the end of Q2, which translates to approximately 4.1 x leverage on a pro forma combined last 12 months of adjusted EBITDA. Given the favorable cash flow characteristics of the combined company, we remain firmly on schedule to delever to approximately 3 x gross leverage within the first two to three years of closing the acquisition. Turning to guidance. Slide 13 of the presentation provides you with our updated outlook for 2017. As is our practice, our EPS guidance is on both a GAAP and adjusted basis.
At a high level, our combined adjusted revenue outlook is unchanged, while we have tightened our full-year adjusted EBITDA, cash flow, and EPS outlook ranges. We have also updated our segment guidance to reflect our new reporting structure, which incorporates the CEB acquisition. I'll also remind you that our full-year guidance includes 12 months of Gartner plus nine months of CEB results. Starting with revenue. For 2017, we continue to expect combined company adjusted revenue of between $3.4 billion and $3.5 billion. This is comprised of the following. For research, we expect combined adjusted revenues of between $2.57 billion and $2.62 billion. For the traditional Gartner research business, we expect to continue our trend of mid-teen revenue growth in 2017. This is obviously supported by the very strong contract value growth we just reported.
For consulting, we expect revenues of between $319 million and $334 million, which essentially reflect the shift in SAS revenue from the consulting segment to the research segment. For events, we expect adjusted revenues of between $328 million and $347 million. For the traditional Gartner events business, we continue to expect double-digit adjusted revenue growth in 2017. For TA and other, we expect adjusted revenue of between $214 million and $226 million. Again, these are adjusted revenue ranges. You will find the reconciliation of our adjusted revenue guidance ranges to GAAP revenue on slide 14 of the presentation. Turning to adjusted EBITDA. As mentioned, we have narrowed our expected adjusted EBITDA range for 2017, trimming the high end of our previous guidance range by $15 million.
This modest reduction to the midpoint of our adjusted EBITDA guidance is driven by two factors. First, the vast majority of our change is due to our decision to accelerate certain frontline investments in areas that will fuel CEB's growth for the future. Given the rapid progress we have made so far with the CEB integration, we are confident of the incremental benefits this will yield going forward. The other and smaller change is to our outlook for the Evanta and Talent assessment businesses, where we have had to focus on fortifying the structures we have acquired to set them up for future growth. As I commented last quarter, our GAAP 2017 earnings per share is expected to be significantly impacted by acquisition and integration charges, of which the vast majority are non-cash in nature.
Slide 15 of the presentation reconciles the per share difference between our updated GAAP and adjusted EPS guidance ranges. We now expect the after-tax impact of these adjustments to total approximately $4.26 at the midpoint of our guidance. Putting this all together, we now expect full year 2017 adjusted EPS of between $3.32 and $3.49 per share. Slide 17 details the key assumptions below EBITDA that we've used to calculate our updated adjusted EPS outlook. Given that our below-the-line assumptions are essentially unchanged, I won't take you through them in detail. For our tax rate, we continue to project an annual effective rate for GAAP of approximately 33%-34% and for adjusted earnings of approximately 32%-33%.
In addition, our tax rate may also vary from quarter to quarter due to the projected geographic mix of earnings, the impact of ASU 2016-09 related to stock-based awards, as well as the timing of certain items. Finally, our EPS guidance is based on a weighted average fully diluted share count of approximately 89.5 million-90.5 million shares for the full year 2017. Turning to our Q3 guidance. For the third quarter of 2017, we expect GAAP EPS of between $-0.67 and $-0.72. This includes approximately $1.20 per share of non-GAAP adjustments, predominantly related to acquisition charges. Therefore, on an adjusted basis, we expect adjusted EPS of between $0.48 and $0.52 per share for the third quarter 2017.
To provide some additional color on expected seasonal trends, third quarter is typically a seasonally light events quarter from both a traditional Gartner and CEB events perspective, followed by a seasonally strong Q4, where we typically generate half of our annual events revenue. In closing, we had a strong start to the year, and we expect this performance to continue throughout the balance of 2017. Our research business delivered another quarter of mid-teens growth and contract value growth was 15%. We also saw acceleration in our CV growth, sales productivity, and retention measures. Our events business is on track to deliver double-digit growth in 2017, and consulting delivered another quarter of growth following a very strong year ago quarter.
From a standalone Gartner perspective, our 2017 revenue and adjusted EBITDA outlook is largely unchanged, and we expect to continue our trend of double-digit growth. The addition of CEB further strengthens our ability to capture the vast market opportunity ahead of us as we are now able to address the mission-critical priorities of virtually all functional business leaders across every industry and size of enterprise worldwide. The deal was immediately accretive to our bottom line. As Gene mentioned, the integration is going exceptionally well. We set aggressive timelines, and we are achieving or beating them. This has given us the confidence to accelerate a number of investments, such as growing the CEB sales force, to accelerate our ability to capture the vast market opportunity that exists. It's important to note, we've done all of that while driving acceleration of performance in the traditional Gartner business.
Now I'll turn the call back over to the operator, and we'll be happy to take your questions. Operator?
Ladies and gentlemen, if you have a question, please press star one on your phone. If your question has been answered or you wish to cancel your question, please press star two. Please press star one to begin. Our first question comes from the line of Jeff Meuler with Baird. Please proceed.
Yeah. Thank you. Sounds like a lot of good things going on, and a lot of positives from the CEB. I guess the one negative surprise was the Evanta and Talent Assessment business, but it's nothing to do with the value prop of the business relative to expectations. It's just, like some other things at CEB, how it was operated and execution, and you've identified that and are making the changes?
Hey, Jeff. It's Gene. Yeah. That's a very fair characterization. You know, both businesses are terrific. I'll take Evanta first. Evanta is a business that we do very well. In fact, when CEB bought it, we would have liked to have bought it. It's a terrific business, very complementary. CEB did not have, you know, we have probably the world's leading events business. CEB was not really in the events business and didn't run it as effectively as it could have, we think. In any event, we've got a great leader for the business. We've made a bunch of operational changes, and we think that's gonna be a great source of future growth. Yeah, it's a business we knew very well anyway, we're very excited about that.
Talent Assessment, similar story, which is, as I said in my remarks, talent assessment is an area that we think if you look out over the next decade and beyond, it's a huge growth area because every company is gonna be using analytics to hire. You know, our Talent Assessment business is the market leader in that space. You know, there's some businesses that should be integrated with research and some that'll be separate. CEB had made the decision to try and integrate it, we don't think it worked that great. We've set up a standalone business, got a great leader for it. In fact, as I mentioned, you know, the bookings actually is on a good track.
The revenues were a little disappointing, but that's obviously from bookings in the past. Bookings actually were on a good track, and we're quite optimistic about the business. Just another example there is there are a lot of open sales territories.
Which obviously you don't sell as much in open sales territories. We'll fix those kinds of problems.
Okay. On the, I guess you're ahead of plan for the integration, so you have the footing in place to start to accelerate the investments and especially the sales force growth sooner than expected at CEB. That's the other, I guess, change, if I'm characterizing that correctly. Can you give us any sense, I think you said exit with 10% growth at the CEB sales force headcount. Was there any prior expectation just in terms of sizing up how much you're accelerating things?
The overall integration with CEB is going extraordinarily well. It's going, you know, when you plan these things before the deal, you plan a certain way. Things have gone very well. As I mentioned, organizationally, we're essentially 100% integrated. The most important, the biggest opportunity is we've already introduced new integrated products, which we're quite excited about, and the sales force is quite excited about. We've gotten sales force turnover in the CEB sales force now already because they're excited about being part of a sales-driven company and also new offerings, et cetera. In addition to that, we've started ramping up hiring of salespeople at a faster rate than we might have thought beforehand, just 'cause things have gone quite well.
What I said in my remarks is that we expect to enter 2018 with double-digit growth in the CEB traditional sales force area.
Jeff, it's Craig. You know, the additional color I'd add is we always contemplated in our longer term, you know, midterm and longer term business case, absolutely growing the CEB sales force over time, given the size of the market opportunity. I think given everything we've seen in the first 120 days, it gave us the confidence to actually pull that forward, because as Gene mentioned, you know, the integration was going exceptionally well. We were able to actually get new products out in market sooner than we thought. Given all of that, we decided to pull forward essentially the investment in growing that CEB sales force.
Okay. That all makes a lot of sense. Are you willing to start providing any sense of how you're thinking about the TAM for the CEB business at this point?
We're not gonna put any quantification on it yet. We'll do, you know, we'll probably do that at Investor Day early next year. One way to think about it is we believe that if you look at the functions in a typical enterprise, things like IT, HR, sales, et cetera, there are some functions that are comparable sized with, in terms of number of people, budget in the organization as IT or maybe even bigger. Like in a lot of companies, you know, you know, the sales force and the sales spending could be as big or bigger than the IT budget. HR is often comparable to the IT budget.
As we look at it, a lot of the new functions that we're getting with CEB have the potential to be, you know, as big or even bigger than the IT market. Other functions are smaller. Like legal, for example, typically wouldn't have as many people or as big a budget, so it would definitely be smaller. I think there are a number of functions which we think have very huge opportunities. Actually, all of them have huge opportunities. Some are typical of IT or even bigger, and some will be a little bit smaller. Again, we'll size that more precisely, next year at Investor Day is kind of our intention.
Okay. Thank you.
Our next question comes from the line of Gary Bisbee with RBC. Please proceed.
Hey, guys. Good morning. Craig, I guess the first question, The Q3 guidance is quite a bit below what we were expecting. Can you give us any incremental color on the cadence of spending or other factors that would be impacting, you know, the level of profitability next quarter?
Yeah. Good morning, Gary. You know, I think it's actually really a seasonality thing in terms of the calendar of the event schedule. If you think about our business, spending is pretty consistent on a quarter-over-quarter basis, given, you know, the bulk of our spending relates to people on board. We've always had a SKU that showed Q1 and Q3 as our lightest profit quarters, and that's really driven by our events calendar with Q2 and Q4 being bigger event revenue quarters. We've only compounded that with the CEB acquisition, where the events of business is predominantly a Q2 and Q4 revenue generator. In Q1 and Q3, there's essentially no revenues, but we are carrying costs related to, you know, the team that delivers those events.
I think, you know, essentially, it's just we are now just a little bit more heavily weighted in Q4, given the events of business. The other thing I'd mention is last year's Q4, we did not perform as we wanted to on the events business. As I mentioned in my prepared remarks, we're actually back on track on our events business. We actually expect to deliver nice growth in events contribution in Q4 as well. It's really those two factors.
Okay, great. You know, Gene, you acknowledged the potential for some, I think you called them speed bumps within the CEB segment as you push through all these positive changes. Can you give us a sense as to, you know, is that largely sales related, and would that impact research, or could, you know, or how, where would that come and how, you know, any way to size what that would be, I guess, is what I'm getting at. Thanks.
You know, as you mentioned, we're making a lot of operational changes, which are really proven practices that we've done at Gartner and have really been key to the great double-digit growth we've had over such a long period of time. We wanna implement those things at CEB, and we expect that it's gonna have the same results at CEB. It'll get us that kind of double-digit growth rate. As you mentioned, I said there might be, you know, so far we've not hit speed bumps, but it's certainly prudent to believe that as you make these changes, that there could be some speed bumps that you hit along the way.
You know, it could be anywhere in the business, but I think the one that would be, you know, most likely would be in sales, where, again, the salespeople have to develop new skills along the lines, in particular in two areas. One is Gartner sells seat-based products. By the way, we was in this transition when I first joined Gartner, it was enterprise agreements. We know how to transition from enterprise to seat-based, but it does require different skills in terms of how you talk to clients and explain the value. Then, secondly, you know, the whole area of discounting, where we've established a policy our clients understand, we don't discount, let's focus on the value that you're getting from the product. That's not how most companies operate, including the way CEB did.
I think those two areas could impact sales. Haven't seen anything yet, but we think it certainly could happen.
Gary, you know, specifically, it would be an impact, probably most acutely on new business. You know, from a retention perspective, we're working with our clients, we're making sure they're engaged and getting value, and we'll continue to renew them. As you saw, we actually, you know, saw a modest uptick in the wallet retention rate for CEB. The speed bump potential, and again, these aren't huge speed bumps. These are probably smaller speed bumps. Is really on the new business side.
We're-
Okay.
The other thing I'd say, Gary, on it, in terms of the risk is the sales force, the CEB sales force, we've taken these changes. They totally understand why we wanna make these changes, why it gives them more better market opportunity, and are, I think, quite enthusiastic about the changes. you know, we do think it's just despite all the things sort of looking very positive, we do think it's prudent that something, you know, we could have some speed bumps.
Yeah.
Also on retention, we're quite optimistic.
That makes sense. Just one last quick one. On that retention point, I think you've highlighted this from the beginning as one of the biggest opportunities. Have you know, have you put in your quote-unquote model or is that something that we should think takes longer to really begin? I realize it'll take a while to show up in the numbers, but is that one of the things you've been able to do quickly? Thank you.
We've started putting that model in place. We've also discovered some great news with it, which is when CEB clients have the same level of engagement as Gartner clients, they have the same retention rates. We have a lot of confidence that as we put these programs in place, that there's no reason CEB retention shouldn't be as good as Gartner retention. We've already started doing those and, you know, again, as you can tell, we've started seeing those results. We're not done. There's still a lot of work to be done, but we're well on the path.
Thank you.
Our next question comes from the line of Tim McHugh with William Blair. Please proceed.
Yes, thanks. I was wondering if you mentioned some of the change to the outlook for guidance. It was kind of two dimensions. A little bit of it was Evanta and SHL and some of the, I forget how you phrased it, but changes you made there. I guess, can you quantify that aspect of it versus the other part? How much of the change in outlook is from each?
Sure. Hey, good morning, Tim. The way to think about it is I think the majority of the change relates to us accelerating investments that we believe will drive great long-term value. Think in the, you know, 60%-70% of the change, balance related to some softness on TA and Evanta revenues, and also, quite frankly, investing with the right leadership and filling out the teams so that we can actually deliver over the long term in those two businesses as well. Think, you know, roughly 60%-70% on the acceleration investment, balance on fortifying the TA and Evanta businesses.
Okay. The accelerated investment, I know it's early to think about 2018 at this point, I guess. Is this a pull forward in spending from 2017 or from 2018 to 2017? Is this a pull forward, I guess, in the context of a kind of a medium-term increase in investment outlook? Just trying to think of do we get back some of the spending we're looking at in here in 2018? Is this a couple years now before we kinda recoup and get back to maybe the margin levels that you otherwise would have expected?
Tim, I, you know, I think that the way to think about it is the acceleration on the investment are some of the things that Gene mentioned in his prepared remarks. Probably the biggest one related to actually starting to grow the sales force again, where CEB research sales had been flat-ish, the number of headcount over the last several years. Again, we always contemplated as a part of our business case that because of that market opportunity we talked about a little bit earlier, that we would be consistently growing the CEB sales force over time.
The reason why we've pulled forward the investment, the better way to articulate it is we've started the investment a little bit earlier than we had originally contemplated, is that, number one, integration was going really, really well, and we saw the opportunity to do that. Number two, if we get them on board and trained over the course of 2017, you know, while there'll still be new salespeople who inherently have lower productivity, they will actually yield some benefit in 2018. Again, you know the cycle of how when we hire new salespeople in year one, they're less productive, in year two, they're a little bit more productive, and then by the, you know, year three, they typically look like, a fully tenured salesperson.
In essence, we've pulled forward the training and the hire recruiting and training so that we can start the journey a little bit sooner than we had originally contemplated.
Okay. Then just last one, if I could. From an operating metric standpoint, I just wanna, I guess, understand what you were saying, Craig. Are you going to give us, at least for a little while here, the CEB versus the Gartner, legacy Gartner contributions to these new segments? Or is this kind of the last quarter where we see that? Then what should we expect from the kind of the operating metric standpoint? Are we going to get sales headcounts and so forth separately, for Gartner versus CEB? Same thing with wallet retention and so forth.
It's a great question, Tim. The what I can tell you is, you know, through the end of 2017, we will break out contract value growth and wallet retention for the traditional Gartner business and the traditional CEB business. It's harder to do the breakouts on revenues, segment expense and contribution margin. We'll try and focus on the key operating measures so that we can show you progress both on the traditional Gartner side and on the traditional CEB side. As Gene mentioned, you know, we are fully integrating across the board, and that makes pulling and parsing some of this a little bit more difficult.
As we head into 2018, you know, there are some shifts in terms of CEB had a technology, a business selling to, you know, CIOs and technology professionals. We've already integrated that into the Gartner technology sales force. We had a supply chain and marketing sales organization, and we're integrating that into the, what was the traditional CEB sales force. The fidelity gets a little hard to track. That said, we'll figure out the right way to provide transparency and progress on what was the traditional Gartner business, maybe with a few tweaks based on those integration adjustments I mentioned, and on the traditional CEB business, again, with a couple tweaks to re-reflect how we've actually integrated and are running the business.
Okay, thank you.
Our next question comes from the line of Manav Patnaik with Barclays. Please proceed.
Yeah, thank you. Good morning, gentlemen. Gene, the first question I had, you know, you've always been positive and bullish about this deal, but I guess, you know, some of the choice of words today were pretty forceful in terms of, you know, tremendous value, quantum leap, aggressive approach, et cetera, et cetera. I was just wondering this early into the integration, you know, was it just that you found, you know, a lot of the easy loopholes that you didn't think you would find to fix at CEB? Or broadly, maybe you can just help, you know, understand those choice of words.
Yeah, great question. You know, CEB, before we bought them, was a public company, and as such, didn't give us a lot of access to their people or their internal information. We essentially had no access until after we closed, which was, you know, again, four months ago. It wasn't that long ago. We did a lot of work beforehand, actually over, or as you know, over a decade, you know, with customer research in terms of research you can get on the outside. Having done that, you don't know until after the acquisition how enthusiastic associates are gonna be. You don't know kind of the internal data, like, you know, we talked about how we calculate client retention versus how they calculate. It was a little bit different.
While beforehand we were quite enthusiastic and obviously believed to create a tremendous amount of value, what we found after, you know, as we've closed the deal and gotten access to the inside information and actually talked to the associates, we found that it's actually even better than we thought it was gonna be. That's why the second thing because of that is, that we're going faster than we had laid out, you know, originally before we had all the inside information that we have now. It's the combination of things like the sales force's enthusiasm for the new products and for being a part of Gartner, and the operational improvements from combining the research advisory organizations between Gartner and CEB.
The fact that things like I mentioned a moment ago, that all the facts, the internal facts that we now have that we didn't have beforehand to say, if we do the same retention programs with CEB clients, we should get the same results in retention, same high, great results retention, as we've gotten with Gartner. We didn't have all that data beforehand and, while the indicators were very positive, you know, we found this particular case that things were even better than we thought. We've also developed specific operational plans. I'll give you an example. We wanna grow the sales force. One of the things to grow the sales force is we had to make sure there was manager capacity in order to actually have higher growth. We didn't know that before we bought CEB.
We actually understood where there's manager capacity, and I've identified, as I mentioned earlier, that we believe we can get double-digit growth in the sales force. Enter 2018 with double-digit growth in the sales force. We know who we're gonna put in the sales field, who's gonna manage them, where we're gonna get the hiring from. That's stuff that we just couldn't know ahead of time, we had to, you know, be more, take a more cautious approach before we actually had the internal facts.
Okay, fine. That makes sense. Just on the talent assessment or TA side of the stuff, you know, I think since CEB acquired it's sort of been disappointing for us to see that performance not get any better. I mean, you talked about HR analytics being something over the next decade that, you know, you have a lot of other stuff going on in there, in your company rather. I mean, maybe what can you do with TA? Is that gonna be a focus area? Maybe just some more color there.
Again, where we start from is the TA business.
Maybe just some more color there.
Again, the TA business. It's the market itself is a great place to be because again, in fact, we use analytics extensively internally at Gartner, so we do this really well. We believe, as I said, over the next decade, every company will be using analytics to hire. CEB, you know, our talent assessment business is that market leader. The sort of intrinsics there are really well. There were a number of internal operational problems that they had. For example, open sales territories. You know, that was one problem. Obviously, you don't sell much if you have open sales territories. Another one is, you know, significantly delayed, I think years, of new product introductions that now have been introduced.
You know, client retention programs, really the same kind of retention programs. You can do the same thing in talent assessment as we have in our research business. There are a number of operational improvements that we see that we believe this business over time will be a great business. In fact, I'm encouraged by the fact that, you know, that our bookings actually, I wouldn't call 1% growth in bookings good, but it's better than the, you know, what they'd had previously. I'm quite optimistic as we fill territories, as we introduce the new products, as we put retention programs in place, this business has great potential.
Okay. Just last question, maybe these new products and stuff, that you mentioned around CEB, I mean, are those being marketed just to the traditional CEB customers? Or, you know, could we see some of these products being highlighted at your Symposiums or whatever in terms of cross-sell?
It's both. We've already introduced these. These are in the market today. I'll use IT, for example. CEB had a set of research and a research and advisory team that focused on selling to CIOs, and obviously, Gartner did as well. When we look at it, the specific offerings, even an area like IT, are highly complementary. Where CEB had many more things like case studies that end- user-generated benchmarks that actually Gartner clients been asking us for years.
We've actually put all of the CEB resources and advisory resources together with the Gartner and created a new product that, you know, has a separate brand, and in fact, will be offered to all of our You know, we're gonna go back and try to upgrade all our existing Gartner clients, and of course, it'll be for sale to all the new Gartner clients. That's on the IT side. Go to places like HR, we've taken CEB's great research, which in HR, which is it's the world's, you know, they're the just like we are in IT, they are in HR, but they weren't as good as the technology. Well, Gartner had a bunch of technology research that relates to HR people. Things like, should you use Workday? How do you implement it?
Things like Workday is a, you know, an HR tool for companies to use, that's typically chosen and run by the HR department. In any event, obviously Gartner had a lot more expertise in the technology side in HR. CEB had the world's best business expertise in HR. We've actually put all that together in a combined offering that's better than either company had before. That's in the market today. The IT product I mentioned before is in the market today, so is the HR product, and we've done the same thing for finance and other areas of the business, the areas that I mentioned earlier. These products are actually, they're seat-based, and they actually have research, all of them have research from both companies, so it's better than anything that was available previously.
Got it. Thanks a lot, guys. Appreciate the time and details.
Our next question comes from the line of Anj Singh with Credit Suisse. Please proceed.
Hi, good morning. Thanks for taking my questions. First off, I was hoping you could share some thoughts on the improvement you guys have shown in the early days of CEB growth, and wallet retention. It seems like there's some signalization that's going on, maybe, you know, that retooling of contract structures and sales forces driving this. Is there any noise that we should be aware of around this improvement in the early days? Just trying to get a sense of whether this trajectory is somewhat permanent in your view, or could the speed bumps reference cause them to worsen again in the early days?
I guess, Anj, it's Gene. The way I would characterize it is that, the changes we're making on things like the products, the best of both products I just mentioned, improved retention programs, how the way we manage the sales force, those are all things that are like proven practices that they're going to work over time. They're gonna drive double-digit growth in CEB's business. It's gonna have great margins, just like Gartner does. Getting from here to there, all I'm saying is it's possible that it'll take like, You know, as an example, maybe we'll train the CEB sales teams on certain aspects, and we'll have to go back and retrain them again or something like that.
To me, there's no doubt that actually we'll get to a great place. Having not done it yet and having a lot of change simultaneously, we're certainly prudent in thinking that, you know, there could be some things that we have to that we'll figure out. By the way, we do this all the time. When we find problems, we go address them, fix it, and get on with it.
Anj, it's Craig. You know, I think the way to think about the potential trajectory around wallet retention, there are really two primary drivers there. Number one is what you typically think about around retention, which is, you know, making sure the clients are getting consistent value over the life of the contract and renewing year after year. Again, we have best practices around how to do that, and we're already, as we mentioned earlier, rolling out, you know, portions or all of those best practices across the way we service the CEB research clients. The other way we drive wallet retention at Gartner is by further penetrating existing buying centers and existing enterprises. With a enterprise, type licensing model, that's difficult to do. That's also one of the reasons why it's so important that we're shifting to seat-based.
Because over the long term, that will allow us to actually further penetrate organizations as well, and that will flow through into the wallet retention metric over time. Again, that's not going to happen overnight, but if you think about those two levers are the way that we can get wallet retention looking and feeling like the Gartner wallet retention over time.
Okay, got it. That's helpful. Then for the second question, I was wondering if you can speak to the sales force productivity, XL2. You know, it's really strong improvement year-over-year. Any further elaboration on which training programs are driving this? Is there any benefit from lapping some of the energy and utilities related drag you guys had referenced last year? Perhaps any thoughts on how you see sales force productivity being reported as you integrate CEB? Thanks.
The sales force productivity is being driven by the things you mentioned, which is, you know, we track the quality of, you know, the three categories broadly, as you know, are recruiting, training, and tools. We track the quality of people we're hiring. You know, if we look at metrics like, time to first sale, how much people sell in their first year, things like that, as well as the metrics when we're in the hiring process that are predictive, all those things tell us that we are actually hiring better people now than we were a year ago. A year ago, we're hiring better people than we were two years ago.
The fact that we're hiring people that are a better fit with what we do is actually one of the things driving it. On top of that, we've continued to enhance our training program as we learn more about, you know, how to help new people become productive very quickly. We've enhanced training and focused on those things with training and coaching. As I mentioned, we have these quite advanced artificial intelligence-based tools that help salespeople prioritize what they should be doing every single day. All three of those are actually, you know, working the way that we have designed them and expected them to work. You know, that's the primary thing that is driving our improved sales productivity.
Having said that, to your point, we are lapping some problems from you know, from last year in terms of, you know, certain segments weren't doing as well. I can assure you that today's environment, not every segment is doing great. We have, you know, You know, what I care for as a normal environment is you have some things that are doing great, some things are okay, and some things you gotta work on. We're in that environment today. While, you know, sort of 80% of it is probably, you know, just qualitatively 80% is kind of due to all the changes, 20% is some of the industries that were in bad shape a year ago are not quite as bad now. There's still some bad industries.
You know, the other thing I'd mention, Anj, I think you know this from, you know, conversations with us, over the years, there's no finish line for us in terms of productivity. We're pleased that we've seen some improvement. We're not done. We're gonna keep trying to hire better people and improve that year over year over year, and get them trained up better and improve the tools and improve the products and improve the research, you know, that impact retention as well. You know, we're moving in the right direction, we're gonna keep driving it, because we know that ultimately improving our sales productivity will accelerate our contract value and research revenue growth.
We have initiatives underway today in all four of those areas, recruiting, training, tools, and retention, you know, to take the next leap, you know, over the you know, next year.
Super helpful. Thanks a lot.
Our final question comes from the line of Jeffrey Silber with BMO. Please proceed.
Hey, good morning. It's Henry Chien for Jeff Silber. Thanks for taking the question. I was wondering if you guys would be able to share any updated thoughts on in terms of the margin structure of the combined company now that you've had a few months to integrate the company, whether it's a timeline or any potential synergies that you're seeing there, or is it more of a focus on growth and product development at this point?
Good morning, Henry. It's Craig. You know, on the margin side, you know, if you think about from a business perspective, if you go segment by segment, you know, our view is that the CEB research products will run at roughly the same gross margin and incremental gross margin targets that we run the traditional Gartner business at. Think, you know, in the 70% range. I think same thing on the event side. We haven't really changed the margin profile all that much. You know, again, we're trying to drive significant growth in both of those businesses.
I'd expect margins, you know, maybe on research to improve a little bit as we're tracking a little bit behind the 70% over time, but, you know, essentially kind of tracking where we are. The one thing I would say, though, on the gross margin is as we continue to shift the mix, so as research continues to be our largest by far and fastest-growing segment, we do get some gross margin leverage from continuing to have a bigger and bigger piece of the research being a bigger and bigger piece of the pie over time. On SG&A, you know, obviously on the G&A side, we're focused on harvesting cost synergies from the deal. As Gene and I both mentioned, we are aggressively going after those.
Some of them will be able to flow through in 2018. Some of them will take a little bit longer just given timing of systems integrations and platform integrations, and things like that. On the sales side, you know, given the size of the market opportunity, we expect to continue to invest in growing the CEB sales force to drive accelerated contract value growth on the traditional CEB business. You know, as we've seen on the traditional Gartner business, that is an investment upfront as first year productivity is low, as we talked about earlier. Second year productivity, a little bit better. Third year productivity is starting to look like a fully tenured salesperson.
We're gonna utilize the gross margin leverage we talked about earlier to continue to fund growth in both the Gartner sales force, again, given the size of the market opportunity and the traditional CEB sales force to go capture that market opportunity over the long term.
Mm-hmm. Got it. Okay. No, that's helpful. Just in terms of the timeline for the shift over to the seat-based pricing model, and in general, the release of the new products, I was wondering if you had a timeline there for the CEB side.
It's Gene. Basically, in the areas that I mentioned, we've already introduced new seat-based products.
Other than things that deals that were already in the pipeline, all new sales will be on those seat-based products. You can think about new sales in the, in the areas that I mentioned before, HR, finance, et cetera, are gonna be seat-based. Existing clients, we will let renew whatever the agreements they have, enterprise agreements, discounted, whatever it is, so long as they keep paying us, we're gonna keep taking their money. We'll keep renewing those. You can think about it as that there's two pieces of our business, the legacy business, where for happy clients that wanna renew, we're gonna keep letting them do that, and we're happy to do that with them. That business has great margins, and we're really happy with that. The clients are happy.
The new products will be for new sales, could be an upgrade. Clients may choose to upgrade as well, but we're not going to force anybody to upgrade. We'll have You know, I expect we'll actually have some of the legacy products for a long period of time, just because some clients like that and will be happy with it, and we're not going to force them away. On the other hand, you can expect very quickly all the new sales will be on the seat-based products. The one other thing I'd add to that is the, you know, as Gene mentioned, the new seat-based products include the best of both.
You know, in his example on HR, it's the great core CEB research and deliverables and assets combined with the relevant Gartner technology research that's really valuable to HR professionals. The legacy products won't have that. They'll be the legacy products. you know, as we continue to innovate and improve those seat-based products, I think over time, and this is what we saw on the Gartner journey, you know, from over a decade ago, clients will, over time, migrate over or upgrade over to the new products because they're better, and they have, you know, more value, and they'll get more value out of them.
That said, we still have clients who are on legacy stuff, and again, as Gene mentioned, if they're happy and they wanna keep renewing and keep paying us, we're happy to let them keep doing that.
Got it. Okay, great. Thanks so much, guys.
Now I'll turn the call over to Gene Hall for closing remarks.
To summarize the key points from today's call, first, the combination of CEB and Gartner creates a quantum leap in capability and sustained extraordinary growth over the long term. We'll be able to address the mission-critical priorities for every function across the enterprise with leading insights from the best of both of the two organizations. During Q2, the performance of the traditional Gartner business continued to accelerate. CEB growth accelerated, retention strengthened, and sales productivity improved at double-digit rates. In addition, the traditional CEB business saw modest improvements. We developed a very aggressive integration plan, and it's going great. We've already integrated our organizations, launched new products, introduced new commercial terms, accelerated sales force hiring, and set up the talent assessment as a standalone business. That's just in the first 120 days.
We're doing great as a combined company, and our long-term outlook remains equally strong. Thanks for joining us today, and we look forward to updating you again next quarter.
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Till you all have a great day.