高德納諮詢公司 (IT) 2017 Q2 法說會逐字稿

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, and 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.

Now 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 report 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 provide 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 will just 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 of 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 services is negatively impacted if a company doesn't use artificial intelligence, and so on for every function of the business. And 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 business. 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 these businesses performed in Q2. Consistent with our previous earnings calls and because of ongoing currency fluctuations globally, I'm going to 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 continued 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 partners strategy and maintain 4 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. The Q2 was a strong quarter operationally for traditional Gartner business and we're committed to maintaining 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% to 94%. Revenues for the talent assessment segment fell 6%. We believe that the decline in revenues was due, primarily, to a sales force regularization 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 2 companies to concentrate the changes that are likely to be the most disrupted 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 have 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 began 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 have 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 it is a distraction from discussing value with them. So we are 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 experienced events leader for the Evanta business.

CEB has integrated many aspects of the Talent Assessment businesses with the CEB Research business. We believe that 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 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.

And 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 a 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, who 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 purposely 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, so the traditional CEB sales team will need to develop their skills of selling without discounting, and we have plans in place to address these risks. But 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, so over the long term, we are confident that these changes will 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 2 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 setup Talent Assessment as a standalone business. And that's just in the first 120 days. And we're just getting started.

With that, I'll turn it 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'll 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 4 reportable segments, Research, Consulting, Events as well as Talent Assessment & 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 2 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 the -- change to the research segment is that we've 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 1- or 2-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.

Finally, we have added a new reportable segment, Talent Assessment & Other, which we'll often call TA & Other. This segment is made up of CEB's Talent Assessment business plus the remaining 20% of CEB's 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 & 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 in our 4 reportable segments for the 4 quarters of 2016 as well as Q1 2017. This information, along with an in-depth overview of our Q2 performance, is available in the 2 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 want to 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 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 a 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. Therefore, 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 4-quarter basis, with 3 quarters of standalone Gartner and 1 quarter of Gartner plus CEB, our reported free cash flow conversion was 118% of adjusted net income. However, if we calculate free cash flow conversion on a rolling 4-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 business such us 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 2-point impact on the traditional Gartner Research adjusted revenue growth for the quarter.

Our other traditional Gartner Research business metrics also remained 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 of 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 a 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 remained 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. And 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 for 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 4 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 4-quarter productivity for 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 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, global headcount of 667 was up 7% and 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 our 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 & Other. Adjusted revenue in the TA & 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 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-on-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-on-year basis, as Gene mentioned, we have already started to grow sales headcount and we'll leverage our proven best practices around recruiting, training and tools to drive accelerated CEB growth and improved 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're 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 nonrecurring 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% to 34% and approximately 32% to 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. Therefore, 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 than 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 5, we have repaid more than $160 million by the end of Q2, with the 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 4.1x 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 times gross leverage within the first 2 to 3 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. In addition, we have also updated our segment guidance to reflect our new reporting structure, which incorporates the CEB acquisition. And I'll also remind you that our full year guidance includes 12 months of Gartner plus 9 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-teens 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 reflects 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; and for TA & 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 $50 million. This modest reduction to the midpoint of our adjusted EBITDA guidance is driven by 2 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 for with the CEB integration, we are confident of the incremental benefits this will yield going forward. The other and smaller change to our -- is to our outlook to 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 noncash 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 have 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% to 34% and for adjusted earnings of approximately 32% to 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 to 90.5 million shares for the full year of 2017.

Turning to our Q3 guidance. For the third quarter of 2017, we expect GAAP EPS of between negative $0.67 and negative $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 of 2017.

To provide some additional color on expected seasonal trends, third quarter is typically a seasonally light events quarter for 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. And the deal was immediately accretive to our bottom line.

As Gene mentioned, the integration is going exceptionally well. We've 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 that CEB sales force to accelerate our ability to capture the vast market opportunity that exists. And 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?

(Operator Instructions) And our first question from some the line of Jeff Meuler with Baird.

So 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 in execution, and you've identified that and are making the changes?

Jeff, it's Gene. Yes, so that's a very fair characterization. Both businesses are very 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. And so it's a terrific business, very complementary. CEB did not have -- 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. And so 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 going to be a great source of future growth. But again, it's a business we do very well and we're excited about it. Talent Assessment is a 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 huge growth area because every company is going to be using analytics to hire. And our Talent Assessment business is the market leader in that space. And there's some businesses that should be integrated with research and some should be separate. CEB had made a decision to try and integrate it, and we don't think it worked that great. We've set up a similar business, got a great leader for it. And in fact, as I mentioned, the bookings actually is on a good track. So the revenues were a little disappointing, but that's obviously for bookings in the past. The bookings, actually, we're 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, good. And then 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, so that's the other, I guess, change, if I'm characterizing that correctly? Can you give us a 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?

So the overall integration with CEB is going extraordinarily well. It's going -- when you plan these things before the deal, you plan a certain way, things are going well. So as I mentioned, organizationally, we're essentially 100% integrated. And 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 down already because they're excited about being part of the sales driven company and also the new offerings, et cetera. And in addition to that, we've started ramping up hiring of salespeople at a faster rate than we might have thought beforehand just because things have gone quite well. And so what I said in my remarks is that we expect to enter 2018 with double-digit growth in the CEB traditional sales force area.

And Jeff, it's Craig. The additional color I'd add is we always contemplated in our longer-term -- 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, the integration was going exceptionally well. We're able to actually get new products out in the market sooner than we thought. And so 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. And then are you willing to start providing of any sense of how you're thinking about the TAM for the CEB business at this point?

So we're not going to put any quantification on it yet. We'll probably do that at Investor Day early next year. But the way -- one way to think about it is we believe that -- so 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. So like in a lot of companies, 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. And so as we look at it, a lot of the new functions that we're getting with CEB had the potential to be as big or even bigger than the IT market. Other functions are smaller, so like legal, for example, wouldn't have as many people or as big a budget, so it would definitely be smaller. So I think there are a number of functions which we think have very huge -- actually, all of them have huge opportunities. Some are typical of IT or even bigger, and some will be a little bit smaller. And then we'll size that more precisely next year at Investor Day is kind of our intention.

And our next question comes from the line of Gary Bisbee with RBC.

Craig, I guess the first question, so 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 level of profitability next quarter?

Yes, Gary. I think it's actually really a seasonality thing in terms of the calendar of the events schedule. So if you think about our business, spending is pretty consistent on a quarter-over-quarter basis, given the bulk of our spending relates to people on board. We've always had a skew 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 Evanta business is predominantly a Q2 and Q4 revenue generator, and in Q1 and Q3, there's essentially no revenues, but we are carrying costs related to the team that delivers those events. And so I think essentially, it's just we are now just a little bit more heavily weighted in Q4 given the Evanta business. And 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, so we actually expect to deliver nice growth in Events contribution in Q4 as well. So it's really those 2 factors.

Okay, great. And then, Gene, you acknowledged the potential for some, I think you had called them speed bumps within the CEB segment as you push through all these positive changes. Is that -- can you give us a sense as to is that largely sales related and would that impact Research? Or could -- or where would that come and how -- any way to size what that would be, I guess, is what I'm getting at.

So 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. So we want to implement those things at CEB. And we expect that it's going to 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 -- so far we have not hit speed bumps, but it's prudent to believe that as you make these changes, that there could be some speed bumps that you hit along the way. It could be anywhere in the business, but I think the one that would be most likely would be in sales where again, the salespeople have to develop new skills along the lines in particular in 2 areas. One is Gartner sells seat-based products. By the way, we went into this transition when we first went Gartner was enterprise agreements, and so we know this transition from enterprise to seat-based. But it does require different skills in terms of how you talk to clients and explain the value. And then secondly, the whole array 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. But that's not how most companies operate, including the way CEB did. And so I think those 2 areas could impact sales. Haven't seen anything yet, but we think it certainly could happen.

And Gary, specifically, it would be an impact probably most acutely on new business. 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. And as you saw, we actually saw a modest uptick in the wallet retention rate for CEB. So the speed bump potential, and again these aren't huge speed bumps, these are probably smaller speed bumps, but it is really on the new business side.

We're (inaudible) the other thing I'd say, Gary, in terms of the risk is the sales force, the CEB sales force, we've taken these changes. They totally understand why we wanted the changes, why it gives them more -- better market opportunity, and are, I think, quite enthusiastic about the changes. And so -- but we do things -- despite all the things sort of looking very positive, we do think it's prudent that something -- we could have some speed bumps. And (inaudible) also on retention, we're quite optimistic.

That makes sense. And then just one last quick one. On that retention point, I think you highlighted this from the beginning as one of the biggest opportunities. Have you put in your "model?" Or is that something that we should think takes longer to really begin? I realized 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?

So we started putting that model. In fact and 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. And so 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 again, as get 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.

And our next question comes from the line of Tim McHugh with William Blair.

I was wondering if -- you mentioned some of the change to the outlook for guidance. It was kind 2 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?

Yes, sure, 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. So think in the 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 team so that we can actually deliver over the long term in those 2 businesses as well. But think roughly 60%, 70% on the acceleration investment, balance on fortifying the TA and Evanta businesses.

Okay. And the accelerated investment, I know you -- it's early to think about 2018 at this point, I guess, but is this a pull forward in spending from 2017 or from 2018 to 2017? Or is this a pull forward, I guess, in the context of a kind of a medium-term increased investment outlook? Just trying to think of, did we get back some of the spending we're looking at here in 2018? Or is this a couple years now before we kind of recoup and get back to maybe the margin levels that you otherwise would have expected?

So Tim, 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. So probably, the biggest one related to actually starting to grow the sales force, again, where CEB Research sales had been flattish, the number of headcount over the last several years. And so 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 pulled forward the investment or actually, 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, while there'll still be new salespeople who inherently have lower productivity, they will actually yield some benefit in 2018. But again, you know the cycle of how when we hire new salespeople in year 1, they're less productive; in year 2, they're a little bit more productive; and then by the year 3, they typically look like a fully tenured salesperson. So in essence, we pulled forward the training and the hiring and recruiting and training so that we can start the journey a little bit sooner than we had originally contemplated.

Okay. And then just one last one, if I could. From an operating metrics standpoint, I just want to, 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? And then what should we expect from the kind of the operating metrics standpoint? Are we going to get sales headcount and so forth separately for Gartner versus CEB? And same thing with wallet retention and so forth?

Yes. It's a great question, Tim. The -- what I can tell you is, 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. So 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, 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, there are some shifts in terms of CEB had a technology -- business selling to CIOs and technology professionals. We've already integrated that into the Gartner technology sales force. And we had a supply chain and marketing sales organization and we're integrating that into the what was the traditional CEB sales force. So 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 reflect how we've actually integrated and are running the business.

And our next question comes from the line of Manav Patnaik with Barclays.

Gene, the first question I had, you've always been positive and bullish about this deal. But I guess, some of that choice of words today were pretty forceful in terms of tremendous value, quantum leap, aggressive approach, et cetera, et cetera. So I was wondering this early into the integration, was it just that you found a lot of the easy loopholes that you didn't think you would find to fix CEB? Or broadly maybe you can help understand that -- those choice of words?

Yes, great question. So 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 again, 4 months ago. So it wasn't that long ago. And we did a lot of work beforehand -- actually over -- or as you know, over a decade with customer research, in terms of researching from outside. But having done that, you don't know until after the acquisition how enthusiastic associates are going to be. You don't kind of the internal data, like we talked about how we calculate client retention versus how they calculate was little bit different. And so while beforehand, we were quite enthusiastic and obviously, believed it created a tremendous amount of value. What we found as we've closed the deal and gotten access to the inside information and actually talked to the associates, we've found that it's actually even better than we thought it was going to be. And so that's why you -- and the second thing because of that is that we're going faster than we had laid out 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 and advisory organizations between Gartner and CEB. And 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 (inaudible) say, if we do the same retention programs with CEB clients, we should get the same results in retention, same high, great results for retention as we've gotten with Gartner. And so we didn't have all that data beforehand. And while the indicators were very positive, 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 want to grow the sales force. One of the things with growing the sales force is we had to make sure there was management capacity in order to actually have higher growth. We didn't know that before we bought CEB. Now we actually understood where there's management capacity and have 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 where we're going to put the salespeople, who's going to manage them, where we're going to get the hiring from. That's stuff that we just couldn't know ahead of time and so we had to be more -- take a more cautious approach before we actually had the internal facts.

Okay, fine. That makes sense. And then just on the Talent Assessment or TA side of the stuff, I think since CEB acquired it, 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, but you have a lot of other stuff going on in there, so -- in your company rather. I mean, maybe what can you do with TA? Is that going to be a focus area? Maybe just some more color there.

So again, where we start from is the TA business, it's -- the market itself is a great place to be because again, in fact, we use analytics ostensibly internally Gartner (inaudible) really well, and we believe, as I said over the next decade, every company will be using analytics to hire. And CEB, our Talent Assessment business is that market leader, so the sort of intrinsic there really well. There were a number of internal operational problems that they had. So for example, open sales territories. When I -- that was one problem. Obviously you don't sell much in the open sales territories. The other one is significantly delayed, think years of new product introductions that now have been introduced. Client retention programs, really you do same kind of retention programs, you can do the same thing in Talent Assessment as we have in our Research business. And so there are a number of operational improvements that we see that we believe this business over time will be a great business. And in fact, I'm encouraged by the fact that our bookings actually, I wouldn't call 1% growth in bookings good, but it's better than what they'd had previously. And I'm quite optimistic, as we fill territories, as we introduce new products and we put retention programs in place, this business has great potential.

Okay. And then just last question, maybe new products and stuff that you mentioned around CEB. I mean, are those being marketed just to the traditional CEB customers? Or could we see some of these products being highlighted, I guess, symposiums, whatever in terms of the cross-sell?

So it's both. So we've already introduced these. These are in the market today. So I'll use IT for example. So CEB had a set of -- had research and a research and advisory team focused on only CIOs and obviously, Gartner did as well. When we look at it, the specific offering -- in fact, this is another area that we've been very pleased is that the specific offerings, even in an area like IT are highly complementary. Where CEB had many more things like case studies that -- and user generated benchmarks that actually Gartner clients have been asking us for, for years. And so we've actually put all of the CEB research and advisory resources together with the Gartner and created a new product that has a separate brand and in fact, will be offered to all of our -- we're going to 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. If you then go to places like HR, we've taken CEB's great research, which they -- in HR, which is 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 an HR tool for companies to use that's typically chosen and run by the HR department. So in any event, so obviously, Gartner had a lot more expertise in the technology side in HR. CEB had all the world's 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. So the IT product that 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. And so these products are actually, they're seat-based and they actually have researched -- all of them have research from both companies, so it's better than anything that was available previously.

And our next question comes from the line of Anj Singh with Crédit Suisse.

First off, I was hoping you could share some thoughts on the improvement you guys have shown in the early days of CEB CV growth and wallet retention. It seems like there's some stabilization that's going on, maybe that re-tooling of contract structure, even sales force is driving this. But is there any noise that we should be aware of about this improvement in early days? Just trying to get a sense of whether this trajectory is somewhat permanent in your view? Or could the speed bumps referenced cause them to worsen again in the (inaudible)?

So 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 that I just mentioned, improve retention programs, 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 going to drive double-digit growth in CEB's business. And it's going to 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, as an example, maybe we'll have -- we'll train the CEB sales team on certain aspects and we'll have to go back and retrain them again or something like that. So to me, there's no doubt that actually we'll get to a great place. But having not done it yet and having a lot of change simultaneously, we're certainly prudent in thinking that there could be some things that we have to -- that we'll figure out. And by the way, we do this all the time. We find problems, we go address them, fix it and get on with it.

And Anj, it's Craig. I think the way to think about the potential trajectory around wallet retention, there are really 2 primary drivers there. Number one is what you typically think about around retention, which is making sure that clients are getting consistent value over the life of the contract and renewing year-after-year after year-after-year. And again, we have best practices around how to do that, and we're already, as we mentioned earlier, rolling out 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. And with a enterprise type licensing model, that's difficult to do and 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 2 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. And then for the second question, I was wondering if you can speak sales force productivity ex L2. It's a really strong improvement year-over-year. So any further elaboration of 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? And perhaps any thoughts on how you see sales force productivity being created as you integrate CEB?

So the sales force productivity is being driven by the things you mentioned, which is we track the quality -- the 3 categories, broadly, as you know, are recruiting, training and tools. We track the quality of people we're hiring. And 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. And a year ago, we were hiring better people than we were 2 years ago. And so the fact that we're hiring people that are a better fit for 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 how to help new people become productive very quickly. We've enhanced training, focused on those things with training coaching. And then 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 3 of those are actually working the way that we have designed them and expected them to work. And that's the primary thing that is driving our prudent sales productivity. Having said that, to your point, we are lapping some problems from last year in terms of certain segments weren't doing as well. But I can assure you that today's environment, not every segment is doing great. We have -- what I'd characterize as normal environment is you have some things that are doing great, some things are okay, some things that you've got to work on, we're in that environment today. And so the -- well sort of (inaudible) 80% of it is probably -- just qualitatively, 80% is kind of due to all the changes and then 20% is some of the industries that were in bad shape a year ago are not quite as bad now, although there are still some bad industries.

And the other thing I'd mention, Anj, and I think you know this from conversations with us over the years is, 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 going to 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 that impact retention as well. And so we're moving in the right direction and we're going to keep driving it because we know that ultimately, improving our sales productivity will accelerate our contract value and research revenue growth.

Yes, we have initiatives underway today in all 4 of those areas, recruiting, training, tools and retention, to take the next leap next year.

And our final question comes from the line of Jeff Silber with BMO.

It's Henry Chien for Jeff. 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 a focus on growth and product development at this point?

Andrew (sic) [Henry] it's Craig. On the margin side, if you think about from a business perspective, if you go segment-by-segment, our view is that CEB Research products will run at roughly the same gross margin and incremental gross margin target that we run the traditional Gartner business at. So think in the 70% range. I think same thing on the Events side. We haven't really changed the margin profile all that much. And again, we're trying to drive significant growth in both of those businesses. And so I'd expect margins, maybe on Research, to improve a little bit as we're tracking a little bit behind the 70% over time. But 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 piece of the pie over time. On SG&A, obviously, on the G&A side, we're focused on harvesting cost synergies from the deal. And as Gene and I both mentioned, we are aggressively going after those. And 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 integration and platform integrations and things like that. But on the sales side and 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. And 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 starting to look like a fully tenured salesperson. So we're going to 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.

Got it. Okay. No, that's helpful. And then 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?

So it's Gene. So basically, in the areas that I mentioned, we've already introduced new seat-based products. And other than things that -- deals that were already in the pipeline, all new sales will be on those seat-based products. So you think about -- so new sales in the areas that I mentioned before, HR, finance, et cetera, are going to 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 going to be -- keep taking their money. And so we'll keep renewing those. So you think about it as that there's 2 pieces of our business, the legacy business, where for happy clients that want to renew, we're going to keep letting them do that. We're happy to do that with them. That business has great margins, and we're really happy with that. The clients are happy. New products will be for new sales, could be 2 -- and upgrades. So clients may choose to upgrade as well, but we're not going to force anybody to upgrade. And so we'll have -- 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, as Gene mentioned, the new seat-based products include the best of both. So 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. And so 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 from over a decade ago, clients will over time, migrate over, upgrade over to the new products because they're better. And they have 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 want to keep renewing and keep paying us, we're happy to let them keep doing that.

And I'll now turn the call over to Gene Hall for closing remarks.

So 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 2 organizations. During Q2, the performance of 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, have launched new products, introduced new commercial terms, accelerated sales force hiring, and set up Talent Assessment as a standalone business. And 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. To you all, have a great day.