Good morning, ladies and gentlemen, and welcome to the Gartner's earning conference call for the first quarter of 2015. A replay of this call will be available through May 14, 2015. The replay can be accessed by dialing AAA to a 68010 for domestic calls, and 617-801-638 for international calls. And by entering the passcode, 16, 88, 86, 45. This call is being simultaneously webcast and will be archived on Gartner's website at www.gartner.com for approximately 90 days.
On this call today is Gartner's Chief Executive Officer, Gene Hall, and Chief Financial Officer, Craig Safian. Before beginning, please be aware that certain statements made on this call may constitute forward looking statements. Forward looking statements can vary materially from the actual results and are subject to a of risks and uncertainties, including those contained in the company's 2014 annual report on Form 10 K and quarterly reports on Form Ten q as well as the other filings with the SEC. I would encourage all of you to review the risk factors listed in these documents. The company undertakes no obligation to update any of these forward looking statements.
Will now turn the conference over
Thank you, and good morning, everyone. Welcome to our first earnings call for 2015. What we're doing great as a company, we are where we expected to be at this point in the year and all of our underlying metrics are strong. I'll review all of our operating metrics on an FX neutral basis. For the first quarter of 2015, contract value accelerated to 15% and total company revenues grew 12%.
We achieved double digit contract value growth in every region, every industry and every company size. The continued successful execution of our proven continued into 2015, and we continue to get bigger, stronger, faster every year. Across our three businesses, research, our largest and most profitable segment grew both revenues and contract value 15% in the first quarter 2015. Continuing our 2019 quarter trend of double digit contract was at 85%, up one point for the same quarter in 2014. Enterprise wallet retention was 106%, which is up two points over Q1 2014.
Our retention metrics remain at all time highs. Sales productivity remained strong For Q1, sales productivity was up 12% compared to Q1 2014. We continue to invest in opportunities that will drive further advancements in this area. Our labor based consulting was up 5% while our contract optimization returned to historic norms as expected, which was down compared to the exceptional quarter. In Q1 twenty fifteen, which drove a revenue increase of 11% year over year and a 10 D growth of 20%.
As with other global companies, the strengthening U. S. Dollar impacted our reported results, which Craig will detail in a moment. We continue to deliver value back to our share holders for share repurchase. Year to date, we repurchased over $400,000,000 in outstanding shares.
And with the previous authorization fully exhausted, we're excited to announce a new share repurchase authorization of 1,200,000,000 dollars. Another reason our business is so successful is our people. At the heart of it, Gartner's a people business. We're tracking the best talent in the industry in strategic locations around the world and getting them up to speed quickly. Originally spent a few days meeting with our top performing sales associates for around the world.
And they have never been more excited about the technology revolution and our opportunity. Our sales associates consistently report that our clients value our services with their growing or facing budget cuts. We continue to invest Our industry leading analysts, coupled with the world class products and services and strong sales capabilities, have driven our consistently strong results. We ended 2014 in a great position and we can we carried that momentum into 2015. I couldn't be more excited about Gartner.
The insights we create, the advice we deliver and the overall experience for our customers has never been better. We had tremendous value to our clients, whether they're growing or facing economic challenges, and we know how to be successful in any economic environment. Retention rates remain at all time highs. We had double digit growth in every region, every industry and every company size, and our operating metrics have never been better. Remain committed to enhancing shareholder value through investment in our business, strategic acquisitions and share repurchases.
We are better stronger, faster as a company and I expect to see robust growth for years to come. With that, I'd like to hand the call over to Craig.
Thank you, Jean and good morning, everyone. Gartner's first quarter continued the growth and momentum we experienced over the course of 2014 with accelerating growth in contract value and ongoing improvements to our retention metrics. Our performance in Q1 puts us where we expected to be and we are reiterating our previously issued full year guidance, which I'll discuss in detail a few minutes. Our Q1 performance highlights are as follows: FX neutral contract value growth once again accelerated achieving 15% growth for neutral basis. As we expected, consulting revenues were impacted by lower contract optimization revenues and declined by 3% on an FX basis for the quarter.
Demand for our services was robust across all of our business segments in the first quarter. Our business continues to deliver strong growth quarter after quarter, year after year. We are engaged on our client's most important initiatives and projects, The consistency of our strong retention metrics demonstrates counts, we are finding new IT supply chain and marketing professionals to sell to every day. We remain confident that we will continue to deliver consistent revenue growth and strong financial performance over the long term. And we continue to drive shareholder value through our repurchase program.
In the first quarter, we spent $324,000,000 on share repurchases and as of earlier this week, we had spent well over $400,000,000 year to date fully utilizing our $800,000,000 authorization. As a result, we announced in today's earnings release that our Board of Directors authorized a new $1,200,000,000 share repurchase program. I will now provide a review of our 3 business segments for the first quarter and we'll end with the details of our outlook for the second quarter and remainder of 2015 before taking your questions. But before doing so, I do want to note that the strengthening U. S.
Dollar has continued to impact our reported results. Just about every currency we operate in is weaker against US dollar when compared to last year. I will address the impact of foreign exchange in each business segment as I speak about them. Starting with our research business, Research revenue grew 9% on an as reported basis and 15% on an FX neutral basis in the first quarter. Acquisitions from 2014 added approximately two points to our organic growth rate percent in the first quarter, matching our growth contribution margin target for this segment.
The other key research business metrics also remain strong. Contract value grew to $1,562,000,000, a growth rate of 11% year over year on a reported basis and 15% on an FX neutral basis. This reflects continued acceleration from the last several quarters when our FX neutral contract value growth range between 12% 14%. As has been true in just about every quarter over the past several years, our growth in contract value in Q1 was faced with every region, every client size, and every industry segment growing at double digit rates. As we discussed at Investor Day, we revalue our contract value each year based upon then prevailing FX rates.
We do this to provide better transparency and FX neutral comparability for this important measure. Our December 2014 ending contract value at current year FX rates was $1,550,000,000. In our Q1 2014 CV was $1,363,000,000. Contract value growth was driven by improvements to both our retention rates and our new business. Client retention ended the quarter at 85% up a point versus the same quarter last year and maintaining the historical high we achieved team.
While retention ended at 106% in the first quarter, a 2 point uptick over last year's first quarter, This was the 6th consecutive intention due to increased spending by retained clients and the fact that we retain a higher percentage of our larger clients. Eliminate seasonality, our retention metrics again increased significantly year over clients and sales of additional services and upgrades to existing clients. Our contract value growth also continues to benefit from our discipline of annual price increases and no discounting. We have increased our prices by 3 to 6% every year since 2 1005, and we will do it again in 2015. We also continue to creating our vast market opportunity with both new and existing client enterprises.
As a result, we ended the quarter with 9837 client enterprises, up 8% over last year's first quarter. Our average spend for enterprise continues to increase on an FX neutral basis, again, reflecting our ability We have also continued to see improvements to our sales productivity. Our year over year comparisons have been impacted by foreign exchange So we will provide you with the FX neutral results for comparability as well. As we have detailed in the past, we calculate sales productivity increase what we call NCVI per account executive. We look at it on a rolling 4 quarter basis to eliminate seasonality and we use opening sales headcount as the period denominator.
Over the last 12 months, we grew our contract value by $199,000,000 in FX neutral terms. Using our Q1 2014 ending sales headcount of 1698 as our beginning period denominator yields NCVI per AE of $117,000 on a rolling 4 quarter basis. A 12% improvement over first quarter last year when the comparable figure was $104,000. Our Q1 2015 productivity roughly flat to Q4 2014 on an FX neutral basis. To sum up, we delivered another strong quarter in our Research contract value growth accelerated to 15% as we expected.
We continue to see strong demand from clients. Our retention rates remain at all time highs. And we anticipate continued acceleration in productivity, contract value and revenue growth over the long term. Turning now to events. The first quarter is a historically late quarter for our events business and the FX impact to this segment was magnified by the fact that 8 of the nine events held in the quarter occurred outside of the US and generated revenues and currencies impacted by the strengthened US dollar.
A com. During the quarter, we held 9 events with 4065 attendees compared to 8 events with 3300 and 94 attendees the first quarter of 2014. On a same event and FX neutral basis, events revenues grew 9% with 3800 and 5 attendees, a 12% increase compared to first quarter last year. The gross contribution margin for events of 18% for Q1 decreased roughly three percentage points from the first quarter a year ago, again, reflecting the FX impact of having 8 of the nine events outside of the U. S.
And the fact that it is a very small events quarter. The underlying metrics of our events business remains strong and the business is well positioned to deliver another year of FX neutral double digit revenue growth in 2015. Moving on to consulting. On a reported basis, revenues in consulting decreased 9% in the first quarter as we expected. This result was driven by a combination of FX impact, and the return to historical norms in our contract optimization business.
In the quarter, on an FX neutral basis, our labor based business grew by 5% while total consulting revenues decreased 3%, reflecting the impact of the return to more normal trending in our contract optimization business. The underlying operating metrics of 547 was up 7% from the first quarter of 2014. 1st quarter utilization was 67%. A 3 point improvement over first quarter of last year. And annualized revenue per billable headcount ended the quarter at $404,000, a 1% FX new improvement over Q1 of last year.
As we have discussed in the past, our contract optimization practice has more variability than the other parts of our consulting us. In Q1 2015, we returned to our historical norms, which impacted the year over year comparison metrics on both revenues and gross contribution for consulting. Across the entire consulting business, we continue to see strong demand for our services and our strategy of investing and managing partner is allowing us to capture that demand. Backlog, the key leading indicator of future revenue growth for our consulting business ended the quarter at $101,000,000. Backlog was line, we believe the consulting business remains well positioned for 2015.
Moving down the income statement. SG and A increased by $25,000,000 year over year 31st, we had 1900 and 33 quota bearing sales associates, an increase of 235 or 14% from a year ago. For the full year, higher as a percent of revenues due to Q1 being one of our seasonally smaller revenue quarters as well as continued investments in our sales capacity and recruiting year over year on a reported basis. Normalized EBITDA excluding the impact of FX increased 3% in the quarter It is important to note that our Q1 EBITDA was affected by 2 primary items, both of which we included in our guidance. First, the roughly 8 point impact from a stronger US dollar.
And second, as I just mentioned, Q1 of 2004 18 was an exceptionally strong quarter for our contract optimization business. As expected, that business returned to more historical norms in current quarter. Within the guidance range we provided to you in February. Our Q1 2015 GAAP diluted earnings per share includes $0.05 in amortization and other costs associated with our acquisitions. Excluding acquisition related charges, our normal our normalized EPS was $0.37 in the first quarter.
As you would expect, FX and the anticipated return to historical norms in our contract optimization business impacted our EPS results as well. Our first quarter EPS figures were impacted by foreign exchange in 2 primary ways: first, the impact on EBITDA that I just mentioned and second, the impact on our tax rate for the quarter. As we have discussed in the past, our tax rate is sensitive to the mix of geographic earnings, with a stronger U. S. Dollar the proportional mix of geographic earnings from higher tax jurisdictions caused the effective tax rate to increase.
Our tax rate for Q1 is within the guidance range we discussed last quarter. Turning now 2015 versus $16,000,000 in the same period a year ago, largely due to a stronger U. S. Dollar and higher incentive and tax payments in the first quarter. The first quarter is seasonally the lightest of the year for operating cash flow, and we still expect to achieve the guidance we set for the full year.
During the first quarter, we continued to utilize our cash to return value back to shareholders through our through share repurchases. In the quarter, we repurchased over 4,100,000 shares and we used approximately $324,000,000 of cash for share repurchases. Through this week, we have spent well over $400,000,000 fully utilizing our 800,000,000 authorization. We are pleased continue to deliver value back to our shareholders in a consistent and effective way. We ended the quarter with a strong balance sheet and cash position despite the more aggressive phase of share repurchases.
As of March 31, we had gross debt of 665,000,000 dollars and cash of $282,000,000 with 96% of our cash balance located outside of the U. S. Importantly, this now represents in December 2014. This runs through 2019 and gives us ample liquidity to continue to grow our business and execute initiatives that drive shareholder value. As of use of cash.
As you saw in our press release, our guidance remains unchanged from February. Q1 is a lighter quarter for us, but our performance was as expected, which allows to reiterate our previously issued guidance. Our 2015 guidance still expects total revenues of $2,150,000,000 to $2,205,000,000. This is FX neutral growth of 12% to 15%. Projected revenues by segment on an as reported basis can be found in our press release.
On an FX neutral basis, our guidance remains as follows. Research revenue to be up 14% to 16% versus the prior year. Consulting revenue to be flat to up 6 percent over 2014. This guidance again assumes that the contract optimization practice within consulting returns to its historical levels of revenue, which is negatively impacting consulting guidance. We expect the labor based portion of consulting to grow in the mid single digits.
And events revenue to be up 11% to 18% over 2014. We still expect EBITDA growth of 10% to 17% over 2014 on an FX neutral basis. Our GAAP EPS guidance remains $2.11 to $2.30 per share. While we now anticipate a lower share count from our accelerated repurchase activity in Q1 in Q2, we also expect higher interest and other costs. While the accelerated pace of repurchases, including incremental interest expense, benefits our 2015 outlook, our projected EPS remained within our original guidance range, which is why we have reiterated our EPS guidance as well.
As a reminder, GAAP EPS includes $0.16 to $0.17 per share of acquisition related charges for the full year of 2015. Our guidance for EPS excluding acquisition and integration charges is to be between $2.27 $2.46 per share. FX neutral growth approximately 7% to 16% over 2014. For the upcoming second quarter, we expect GAAP EPS of $0.56 to $0.60 including $0.04 per share of acquisition and integration charges. Our Q2 guide is impacted by foreign exchange rates, a higher projected tax rate, and the return to trend for our contract optimization business.
Since we gave our original guidance in early February, the U S. Dollar has continued to strengthen. Our current guidance takes into account the most recent foreign exchange rates. So before taking your questions, let me summarize. We delivered strong results for the seasonally light first quarter of 2015.
Demand for our services is robust. And as a result, our research contract value growth rate accelerated again up to 15%. Our business metrics remain strong. And in fact, many, most notably retention, CV growth, and sales productivity continue to improve or are at or near all time highs. And we continue to actively explore strategic alternatives for deploying our cash.
Going forward, we will continue to invest in our business organically and through acquisitions and return capital to shareholders through our newly authorized $1,200,000,000 share repurchase program. Finally, with double digit growth in contract value in the first quarter of 2015, we remain well positioned to deliver another strong year of revenue and earnings growth. Now I'll turn the call back over to the operator, and we'll be happy to take your questions. Operator?
You. Your first question comes from the line of Tim McHugh from William Blair. Please proceed.
Yes. Thank you. I guess first on sales force productivity, I think your original guidance was had assumed kind of flat to I think you said marginally up. You seem to be off obviously to a good start in Q1.
Can you
update, I guess, how it's trending relative to your annual expectations and Is that still how you're thinking about the year and maybe dive into, I guess, where you saw productivity improve or what the driver was of that?
Sure. Thanks, Tim. On the productivity front, we're up 12% on an FX neutral basis versus Q1 of last year. We're essentially flat to where we ended the year, ended 2014. And so it's consistent with what we had laid out at Investor Day in terms of an expectation of roughly flat productivity.
That being said, as you can imagine, we're working very, very hard to make sure can continue to improve that productivity on a go forward basis.
Okay. And then the buyback you've been aggressive the last few years, but you stepped up the pace certainly to a much bigger level, I guess, early this year. Can you talk what changed? What made you get that much more aggressive, on the buyback?
Tim, we've had a strategy that we've talked about where acquisitions, being first priority, buyback being second priority, for us from a capital deployment perspective. You know, we mentioned that our target for 2015 was to extinguish the, the share repurchase authorization or the remaining share repurchase authorization that we had heading into the year. Based on everything we were looking at based on our cash flow generation based on our balance sheet, flexibility, and and, you know, capacity under the revolver, we determined that, it would be a good thing to accelerate over the first quarter and a half of the year. And so we've essentially hit our full year target, as of earlier this week.
Do you have a So I guess how should we think about the rest of the year then? Let's say, do you have a new full year target, I guess, that we should have in mind?
So the way we are thinking about it, Tim, is with the new $1,200,000,000 authorization, we believe that will last us between 2.5 to 3 years. And as always, we will, look at the market in terms of what's out there from an acquisition perspective or other ways for deploy capital. But all of the things being equal, we believe that we'll use the $1,200,000,000 over the next two and a half to 3 years.
Okay. Thank you.
Hey, your next question comes from the line of Jeffrey Mueller from R. W. Baird. Please proceed.
Yeah, good morning. So I know sometimes us analysts think that Salesforce head fund growth is just a sell on a model and it's much more complicated than that in terms of a bottoms up bill. But it sounds like pretty much every KPI is favorable right now. And Salesforce had 10 growth. I think it was 14%.
You're expecting 15% for the year, which would still be towards the lower end of the targeted long term range. So I guess, Jean, what's the current bottleneck to growing it even faster sir?
Hi, Jeff. So the, as you pointed out, our sales force, the target range for our sales force growth is 15% to 20 we determined where we are in that range basically by looking bottoms up which sales managers have the capacity in their particular territories and their experience level to handle that growth. And we're very confident we're gonna range of 15% to 20% this year.
Well, let me just start, but you're going to be towards the lower end of the range. And I think your retention among your sales is good. And I think that you have training programs that you've been working on. So I guess at what point do you think that maybe you drift towards the midpoint or higher of the range? What's the current bottleneck on the management training or capacity or recruitment or whatever it is?
So like everything in our business, we aim to have continual improvement in it and acceleration. The things that determine that the level of sales force is the, obviously recruiting capacity. We think we're in good shape there. The amount of experience and tenure our management team, which as you said, we have very low turnover among our managers. It's just doing an assessment individually.
Their individual territories kind of where that adds up. Again, as we look at that, the development of our managers, we see that accelerating over time.
Got it. And then Craig, just for modeling purposes, within consulting on a quarterly basis, which quarters are the tough comps for contract optimization? Is it Q1 and Q3? Which were the quarters that you had a stronger overall consulting growth in or, any other quarters to call out for a tough CLCOM.
Yeah, it's actually Q1 and Q2. Jeff are the 2 tough quarters from a comparability perspective. Q3 and Q4 our expectation is we'll be roughly in line with what we did last year.
Okay. And then the Q2 EPS guidance you gave 56 to 60. Just to verify, is that a GAAP number or is that an adjusted EPS number?
My apologies. For not being cleared. That is a GAAP number, which includes roughly $0.04 of acquisition integration charges.
That's helpful. Thank you guys.
Thank you.
Thank you. Your next question comes from the line of Antonio Singh from Credit Suisse. Please proceed.
Hi. Thanks for taking my questions. I guess first off, the growth rate in the consulting billable headcount, it seems to be the highest we've seen nearly this to show up in your consulting revenue growth?
Hey, Ant, how are you? So yeah, the growth in billable headcount was, a little higher than typically seen some of that is driven by the managing partner growth, which we've talked about as a strategic imperative for us. That that was up 14% year over year. What's allowed us to go a little bit faster on the billable headcount growth is the combination of the quality of the backlog and the quality of the forward looking pipeline. We generally only hire when we have visibility and we've had better better visibility in that business, which largely stems from the the the benefits we're getting from the managing partner investment.
And so as we get better ability, a higher quality backlog, etcetera, rolling forward, that allows us to invest in growing the global headcount with more confidence.
Got it. That's helpful. Also, you guys used to give out a client organizations number there a reason why you didn't provide that this quarter? And if you could just help us understand how much of your growth is coming from new lines versus existing client penetration? Is it still roughly fifty-fifty?
If you could just update us on that.
Sure. So on your first question, on the client organization number. As we talked about last year, we believe that number of client enterprises is actually a better way and more transparent way to provide what's actually happening with our client count where, you know, a company equals an enterprise, whereas in client organizations, it was buying centers where a company could have multiple buying centers. And so over the last year, we provided both metrics. But, we we said on a go forward basis, going to focus just on the enterprise number, which again we believe is a better number.
And then also our retention metrics are now tied to enterprise number as well. Your second question again, I'm sorry, Jan, if
you could just help us.
Yeah. Yeah. So the way to think about, the new business, mix is it's historically been this way and it looked this way in the quarter as well. Comes it falls about a third, a third, a third, a third. So a third of it comes from upgrades, and new services to existing clients.
A third comes from further penetration, within existing clients and a third comes from net new logos.
Okay. Thank you.
Thank you. Your next question comes from the line of Joseph Foresi from Janney Montgomery Scott. Please proceed.
Hi. I was wondering, could you give us some idea of how I know we went through sort of the Salesforce training and you'd set up a facility, but how much has that been extended into other regions? Do you have a sense of what percentage of new employees are now going through the Salesforce training program?
Yeah. Joe, it's great questions, Jean. The that Salesforce training program that we talked about is, important in driving Salesforce productivity. And to your point, we've now rolled it out to where all of our new sales people globally are getting that new training program. And we have we're quite optimistic.
Great. So I mean, so just, I mean, just on that question, how long do you think it takes? I mean, what how long do you think it takes to be sort of having a full turn on the sales force. So everyone's gone through the program at least once. Is that a 12, 18 month period?
So we don't take our experienced sales people back through that program. Our Salesforce turnover is actually pretty good. We don't lose sales people. We lose sales people probably at a very competitive rate. And so because we're only taking new salespeople through it, it'll take some time before everybody, has that has gone through that.
And we have separate things we do with our existing sales that will improve their productivity. So this the whole point is that this program itself is oriented towards when we hire new people, they sure they get up to you as quickly as possible and that they actually wind up with higher average productivity over the course of their career.
Got it. Okay. And then it sounds like new sales is a big contributor to the contract value growth. Can we get an idea of what those new sales are what the consistency of those new sales are? In other words, are those more geared towards some of the newer technologies that are out there?
And are those clients any different than your standard clients?
So the new enterprises that we're selling really aren't any different than our existing enterprises. As we've talked about at Investor Day, we see about 110,000 enterprises that we can target that we do target actually. And of those only about 10,000 clients today. And so our mission is every year to add few hundred more of those enterprises. And as Craig pointed out, that's a portion of our growth.
We also then have another portion of our growth, which is selling more to our existing enterprises and we're very successful with that as well.
Okay. And then the last one for me, we're talking about contract optimization. Again, I think you mentioned in your prepared remarks that it returns to historical norms. Can you just remind us what norms are and how long this could make how long it would take for all this to make its way into the numbers and
what we should be expecting there? Yes. So, it's really based on last year, it's really a Q1 and Q2 phenomenon. So we will, we'll feel the impact of the and historical norms, most notably in Q1 and Q2. And again, if you think about it, it is most notable in Q1.
And then a little bit more in, in, in Q2. And then basically, Q3 and Q4 look like it's looked the last several years And so as we think about what the results look like for this quarter as well as our guidance for Q2, there's an impact related to the return to historical norms, Q3, Q4, no impact really.
Your next question comes from the line of Manav Patnaik from Barclays. Please proceed.
Thank you. Good morning, gentlemen. The first question is around the M and A pipeline just in terms of can you update us what you're seeing there? I mean, clearly, you've been a lot more aggressive with the buybacks, which is great, but that, you know, sign that they're really on a lot of deals, in the horizon? And can you just remind us what the acquisition contribution for the quarter was as well, please?
Hey, Manav. So the, we have at any given time, we track 100 or more companies. We're continuing to do that. Our acquisition pipeline looks very robust and it's very consistent with what we've seen in the past. And that's our number one choice for deployment of capital.
And we feel like that the repurchase you know, if you look at our cash flow plus our balance sheet, we feel like we can do all the acquisitions we need and still do the repurchases that, you've seen in the repurchase do going forward. So you shouldn't take that we see a less acquisition pipeline because of our aggressive purchases earlier this year.
And then on your the second part of your question, Manav, so as we said, acquisitions had a 2 point benefit on the research line, and it would be about a 1 point benefit on the total revenue line.
Okay. And then just on the back to the productivity, I guess you pointed out it was flat sequentially. So, but you're still obviously, you know, dining for much better than flat production by the end of the year. Can you just help us understand the sensitivity around if that improves obviously better than flat, how margins should be impacted?
Yes, sure. As we talked about at Investor Day, flat productivity got us the roughly 14% close to 15% CV growth, modest improvements in overall average productivity can accelerate our CV growth a little bit more than that. From a margin perspective, you really see the margin flow through in the subsequent year. And so we wouldn't expect, margin benefit in 2015 from continued acceleration in sales activity, you would expect to see it in 2016 and beyond.
Okay. And then in 2016, let's say you have the same initiatives. Does that to offset that sort of margin improvement with the new sales investment? Like, I guess, will we see it if you continue the space it's what I was getting at.
Yeah. No. It's it's it's a good question. The the power of our model and the leverage involved in our model says we can get research contract value growing 16, 17% per year. That being the the largest portion of our revenue and our highest margin business.
The power of the economics of the float through on that will allow margin to go through and we'll be able to make investments as well to continue to drive the business.
Thank you. Your next question comes from the line of Peter Appert from Piper Jaffray. Please proceed. We seem to have lost Peter do apologize. The next question comes from the line of Andre Benjamin from Goldman Sachs.
And I just seem to be a technical problem. I do apologize. The next question comes from Jason Anderson from Stifel.
Okay. Just one thing, and just if I'm looking at this correctly, did client enterprises decline sequentially? And if so, do they is there anything going on there? It wouldn't seem to jive with your retention number, but I'm just curious if there's anything there.
Yeah. So if you look back historically, you will see often there is a modest decline in Q1 1. Again, it's generally our lightest new business quarter. And, decline is not troubling at all. And the thing I'd focus in on is the 8% year over year enterprise growth.
Great. And then I guess when we think about your client retention, you talk about it being at all time highs. But you continue to improve it. Is there a, I guess, a theoretical ceiling here? I mean, obviously everyone love 100%, but that's not realistic, but is there a ceiling you might be approaching from a client enterprise retention standpoint?
It's Jean. So, we think we can get our retention several points higher than it is today. As we look as we analyze kind of why we have turnover, we have programs that are designed to address those. So we think we have plenty of of headroom still left retention and we're working on that. We expect retention to continue to improve over time.
Great. Thanks for that.
The next question comes in from Peter Appert from Piper Jaffray. Please proceed.
Yes, you've got John Crowder on for Peter. Just real quick question, you guys outlined the overall impact of FX to EBITDA and margins on an overall basis. Wondering if you highlight maybe the impact that was on the research segment this last quarter?
Yeah. On research, it was a pretty modest impact think on an FX neutral basis, our research margins would have been precisely flat, and we had a modest down to for the quarter. So it was less magnified on the research line, more magnified on some other lines.
Okay, great. And then you also highlighted I think on the guidance that, the impact of the lower share count would be offset by higher interest and other expenses. Just wondering if you could kind of give us your updated thoughts on both of those in terms of where they end up for the full year?
Yeah. So on the, on that comment, we're actually, obviously, buying back shares is an accretive activity for us. And so with the accelerated pace of repurchases through the 1st quarter and a half, even including the incremental interest expense, it does benefit our EPS line. Our view was our forecast still fell within the guidance range, which is why we haven't updated the guidance range. But the, pace of share repurchase absolutely benefits EPS in this year and even more so going forward.
Okay, great. Thank you.
Your next question comes from the line of Andre Benjamin from Goldman Sachs. Please proceed.
Actually been answered, but I had one small one on the M and A contribution of 2%, primarily from software advice. So if I run the math on that, if I did it right, about $7,000,000. So not up that much versus when you bought the asset. I was wondering if you have any updated thoughts on what the run rate for that business could be, say, 2 years out and if there are any new initiatives to accelerate growth in that channel?
So Andrei, software advice is performing just what we expected. We expected it to be a business that's a high growing business It's growing quite a bit faster than our traditional IT business and we expect that to continue for substantial period of time. See you. So, and, again, we expect that growth rate to be to continue to be high, which means the dollar value would grow over time.
I mean, the other thing worth mentioning, Andre, is just that on the year over year comparisons, we own software advice for 3 weeks in the first quarter of last year and for the full quarter this year. And so that may be impacting your view on the year over year growth a little bit as
Thank you.
Your next question comes from the line of Jeff Silber from BMO. Please proceed.
Hi, thanks. Good morning. It's Henry Chen. Just I had a question on your sales force, growth for the year. I was wondering if you could provide any color on on if there's any change in where any particular regions or industries where you can add more sales count?
So, it's Dean. Can we add our we're planning to grow in every region and every industry and every size client. The rates are a little higher, a little lower depending on the what we think the capability of of the individual management teams are to absorb higher little bit lower growth rates. All of them, we expect to grow and grow at very good rates, but some will grow, a little bit faster than others. And again, It's not driven by it's in a particular industry or geography.
It's driven by when we look at the individual sales manager, you know, what's their capacity to absorb extra growth. And just as an example, you might have a manager that's got, you know, if they have 10 direct reports, 10 A East, 10 salespeople, and 5 of them are new, we would say that's probably as much as they can handle. If you have somebody who's got 8 salespeople and 7 of their experience, we'd add we'd give them more capability. And and also depends on the experience of the sales manager to how long they've actually been working as a manager in their roles. And so it's not driven by geography in tree.
It's driven by what's the tenure of the manager and what's the composition of the actual team that they have. So we do it kind of bottoms up.
Okay. All right. And in light of the share repurchase, any update on how we should think about your target average levels?
So as we've talked about in the past, we recognize We we know what an optimal capital structure should look like. We recognize that that leverage is a part of it. As we talked about it at Investor Day, We recognize that optimal leverage is in the 1.5 to 2 times range. And we are, you know, we're on a path to to get there. You know, on a net debt basis, we now sit at roughly one times.
And on a gross debt basis, obviously, you know, closer to 1a half. And so we are effectively deploying our capital. We are putting leverage on the balance sheet and we will continue to do that when we see things that can drive older value.
Your next question comes from the line of Gary from RBC Capital Markets. Please proceed.
Hi guys, good morning. At the at the Investor Day, you laid out a helpful model about out changes in sales productivity flat to up a bit to up a lot would impact your financials over the next 5 years. But you didn't really provide us what a reasonable expectation for the trend line would be in that 5 years. And I guess just when I look at it in the 10 years you've been doing this model, you've never had consistent year over year, over year improvement in sales productivity. So what is a good expectation?
And since you haven't done it in the past, why would one believe that you would be able to do that going forward
So the, it's Gene Gary. Actually, our sales productivity, if you look kind of like to like, has been improving steadily over time. There's been countervailing forces that we've talked about at various points. So for example, there's U. S.
Government sequestration that went on, which affected part of public sector business. Obviously, there was the downturn in 2008. So there's been some things like that that have affected our business, over time. If you look at kind of like for like, we've seen kind of a steady improvement in Salesforce productivity since we got out of the recession. And as and again, as we look to the future, as a company, we're getting better programs in place all the time in terms of, the 3 areas I've talked about.
Our people that are better fit, are training them, having better training programs and then providing better tools. Those things those three areas are all getting better every year. And as we look at the impact on them, we believe those will continue to improve sales force productivity.
The other thing I'd mentioned, Gary, and again, in the Investor Day materials, it's there, is because of the size of the sales force, even modest improvements in productivity have a pretty significant impact. So a 5K improvement in productivity spread across 2000 sales people is meaningful, you know, 2, 5, 2, 2 years in a row of 5 k improvement, more meaningful. And so based on what Jean described in terms of looking below the covers of what's really going on, plus what we've done over the past, 12 months or last five quarters in actuality, we have great confidence that sales productivity can improve into the future.
Okay, great. Thanks. And then the follow-up, I want to go back to the buybacks. I appreciate the comment on leverage, but you've clearly for 2 years now, Ben, debt financing the buybacks, particularly with the valuation of stock and it gone up so much. It's less accretive than it was.
And with the new buyback and saying 2 and to 3 years. It seems like this pattern of having to debt finance it because you're using more than your U. S.-based free cash flow for buybacks will continue. I also, I think you've only hedged, you know, less than a third of the debt on interest rates. It just feels to me, get in badly, you know, rates go up or something happens and and and the pace of this does can't continue without taking more risk in potentially impacting the valuations.
How do you think about that? Are are you indeed comfortable continuing to debt finance the buybacks over the next few years? And and how do you think about rates rising and what that could mean? Thank you.
Yeah. I mean, 2 things I'd say, Gary. 1 is the the pace of share buyback is roughly in line with our corporate free cash flow, on an annual basis. And and has been, for the last several years, it's actually been below our our free cash flow. And just in the last But only 6%
of that's in the US, right? Only 60% of free cash flows in the US.
That that that is that is correct. So, there are lots of different things we can look at here. You know, with our new credit facility that we put in place, had very attractive terms, and gives us room to grow into as well. We are also locking in certain portions of that debt from an interest rate perspective so that there isn't a potential slippage on on the on the interest expense on the upside. And look, and, you know, we will continue to monitor both our capital structure, whether or not buybacks how much buybacks are accretive to our shareholders, etcetera.
And, you know, we will not get out over our steep tips on this one for sure. We're watching it very closely, but it's our belief that, again, optimal capital structure is in the, you know, 1a half times leverage range. And that are 2 primary uses of our cash flow, both domestically and globally, are strategic acquisitions and share repurchases.
Gary, we also we have we have great confidence that our, our business is gonna grow at attractive double digit rates, ongoing in the future. So if you say you're gonna double digit rates for an extended period of time. And this has been true in the past. Any of the repurchases we've done are going to be great. And that's the kind of business we have.
Thank you. Thank
you. Your next question comes from the line of Bill Warmington from Wells Fargo. Please proceed.
Good morning, everyone. So one question for you on the sales force hiring side, just whether you're seeing improving labor markets, as helping or, neutral. And then if you would have any comments in terms of any geographies that stand out in terms of where the hiring is getting a little easier or a little tougher?
So, it's Jean. So the labor markets are clearly improving around the world. We see that. However, Gartner is an incredibly attractive place to work for anybody who wants to be in the technology world. We are a premier employer, very attractive.
And so even as the markets around the world have improved, doesn't affect our ability to hire. You know, we we, because of our tractors as a company, etcetera, that hasn't really affected us at all. And we do feel sort of by geography, the same things true around the world that the you know, our the labor our ability to recruit is about the same as it's been any time over the last 3 or 4 years.
So you're perpetually oversubscribed basically?
Well, we obviously, we work hard to find the right people, but the, again, the improving labor works is not the issue because we are such an attractive place to be.
Got it. And then one question just on the acceleration in the contract value. On a constant currency basis. Now that you've hit the 15% level, is would it be fair for us to think about that continue to be at that level consistently, or should we expect some ups and downs around that? Anyway, and then if if you are going to be able to hit it sustainably, what gives you comfort on that?
Thanks, Jean. So, we believe we can grow our sales force 15 to 20 percent a year. So even at the low end of that range, gross sales for 15% a year over time, that means our CV, our contract going to grow 15% a year. And we think we can do better than that in the Salesforce. We think we will.
And then secondly, we also think that we can simultaneously improve sales productivity modestly each year. And as Craig put on Investor Day, if you grow this even if you have flat growth in the sales force, being only 15% a year and improving productivity, that accelerated CV growth, we actually think we can do both. So we're quite sick about that over time, our contract value growth could accelerate.
Thank you. There are no further questions waiting. So I would now like to turn the call over to Jean for closing remarks.
Thank you all for joining us today. To summarize the key points of today's call, first, we're doing great as a company. We're expected to be at this point of the year and all of our underlying metrics are strong. Our contract value growth rate accelerated and rolling 4 quarter sales productivity is 12% for Q1 compared to Q1 2014. We remain committed to enhancing shareholder value through investment in our business strategic acquisitions and share repurchases.
And we're getting better, stronger, faster all the time. I expect to see robust growth for years to com. We look forward to updating you again our next quarterly earnings call. Thank you for joining us today.
This concludes the presentation. You may now disconnect and good day.