高德納諮詢公司 (IT) 2006 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to Gartner Incorporated's earnings conference call for the first quarter of 2006.

Our speakers today will be Gene Hall, Gartner's Chief Executive Officer, and Chris Lafond, Gartner's Chief Financial Officer.

Following their remarks, we will open the lines for Q&A.

A replay of this call will be available through June 2, 2006.

The replay can be accessed by dialing 888-286-8010 for domestic calls, and 617-801-6888 for international calls, and by entering the pass code 48153213.

This call is being simultaneously webcast, and will be archived on Gartner's website at investor.gartner.com.

And as a reminder, this call cannot be taped or otherwise duplicated without the Company's prior consent.

The Company would like to remind everyone of the cautionary language about forward-looking statements and projections contained in its press release and periodic filings with the SEC.

The same language applies to any forward-looking statements made by Gartner management during today's call.

The Company cautions you that these statements are just predictions, and that actual events or results may differ materially.

The Company encourages you to read its SEC filings, including its 10K for the period ended December 31, 2005, which discuss important factors that could cause actual results to differ from those made in any forward-looking statements.

These filings can also be found on Gartner's website and other financial information sites, including www.SEC.gov.

Please note that throughout the call, the speakers will refer to financial measures including normalized EBITDA and normalized EPS.

Please refer to the press release and the footnotes of the financial statements for full definitions of those terms.

Now, I would like to turn the call over to Mr. Hall, please proceed.

Thank you, operator, good morning, everyone, and thank you are for joining the call.

I'm going to begin this morning with a quick overview of our results for the quarter, and a brief update of the progress we've made against our strategic initiatives.

Chris will then follow-up with a more detailed discussion of our overall result and the performance of each of our business segments as well as review our guidance for the rest of the year.

We'll then open the call you up for your questions.

At Investor Day earlier this year, we told you that Gartner had an extremely attractive business model that produces high incremental profitability.

The results of this quarter clearly demonstrate that.

Our first quarter revenues increased 16% over the first quarter of '05, our EBITDA for the quarter more than doubled from a year ago.

Our research contract values up 9 percent from last year, and we had organic revenue growth in all three of our business segments, research, consulting and events.

We're firmly on track to exceed the guidance we provided in February, and accordingly we are raising full year 2006 guidance as Chris will detail for you.

One of our highest priorities is to increase our sales capacity and coverage.

We added 129 direct quota varying sales associates since last January, and 22 sales associates since December and at the same time, we reduced the number of non-quota bearing sales staff.

We've also improved the time it takes to fill open territories due to enhanced internal recruiting processes.

Additionally, we increased the continuity of our sales associates with their clients, which will improve our overall sales effectiveness.

Let me now turn to accomplishments by business segment.

Revenues from the research segment are up 10% from the same period last year, at Investor Day, we told you a vital initiative for 2006 was to continue the growth in the research business.

One key element is the introduction of innovative products.

At Investor Day, we introduced a new product line called Gartner for IT Leaders.

This product line provides the most relevant research for specific IT roles every day, and has additional content compared to our traditional research product.

In early February, we launched the first two of these products, Infrastructure Operations, and Security and Risk Management.

Initial feedback from our sales organization has been very positive because of the high value to clients of these products.

Similarly, the reaction from prospects and our clients has been positive, and sales of these products were on track during Q1.

Given the positive feedback and the early momentum we are experiencing, I'm excited to be--that we're going to be introducing the next three products in May, Business Intelligence and Information Management, Sourcing and Vendor Relationships, and Enterprise Architecture.

The executive programs portion of our research business continues to grow, with contract value up 15% from the prior year, a portion of the growth in this business is related to the continued migration of our clients into our premium executive program service called Signature.

We have over 3,500 members, an increase of 500 over last year.

Now, our executive programs is by far the largest membership network of senior IT executives and continues to be a valuable strategic asset to Gartner.

Our consulting segment continues to have accelerating performance with improvements in growth, margins and in utilization.

We introduced our core strategy last year of ensuring geographic scale, negotiating larger high value engagements, and focusing on clients who value our services the most, and these are clearly having a big impact on the performance of the segment.

Our VMPs business continued its growth trajectory with the same VMP revenues for Q1 up 17% compared to last year, ensure events are focused on the most critical topics facing IT leaders, we replicate these topics around the world, and are continually strengthening our sales and marketing capabilities in this segment.

Summarizing our overall strategies to be client focused, to continuously improve our operation effectiveness and to ensure that we have the best people in every role.

Our first quarter results indicate this growth strategy is working across the business.

I'll now turn it over to Chris who will take you through the details of our financials.

Thanks, Gene, and good morning, everyone.

During our March Investor Day presentation, we reiterated our focus on executing a strategy to accelerate growth.

The successful execution of our strategy allows us to take maximum advantage of our strong business model.

High incremental profit margins drive significant earnings strength as we accelerate revenue growth.

Our first quarter results prove the strategy is working.

The financial performance is strong and is significantly improved from the trend of the past few years.

For the first quarter, we delivered GAAP EPS of $0.07 as compared to a loss of $0.13 in the first quarter of 2005.

For normalized EPS we reported $0.11 versus $0.03 last year.

These result and our confidence in the business allow us to increase full-year guidance to between $0.44 and $0.48 per GAAP EPS.

Our expectation for the full year is a significant increase over the $0.02 per share loss in 2005, and is a 20% increase over the initial guidance for the year.

I will talk more about our detailed guidance in a few moments.

Now let me turn to the details of our first quarter revenue performance.

Total revenue was $231 million, a 16% increase from the first quarter of 2005.

Our 3 major segments delivered solid, top-line growth with Research up 10%, Consulting up 19% and Events of 80%.

Net income was $7.8 million, or $0.07 per share.

This included the following pre-tax items: A $2.5 million non-cash charge related to stock-based compensation under FAS 123R, $3.4 million of non-cash amortization of intangible assets acquired with the purchase the META.

And $1.5 million in META integration charges.

We expect this will be the last quarter for these integration charges as the integration of META is essentially complete.

Normalized EBITDA for the first quarter of 2006 was $28.7 million.

This is more than double the $13 million in the first quarter of 2005.

Normalized EPS for the first quarter, excluding above charges was $0.11 compared to $0.03 last year.

Turning to the details of our P&L for the quarter, the increasing cost of service versus the same period last year was driven by the addition of over 130 META associates, and the cost associated with the adoption of FAS 123R.

SG&A increased with the continued investment in our sales organization.

As Gene mentioned in his comments, we now have 572 direct quota bearing sales associates, an increase of 29% from the beginning of 2005.

From a G&A perspective, our costs declined year-over-year.

We continued to execute on our goal of leveraging our infrastructure and reducing G&A as a percent of revenue.

This result reflects improved operational effectiveness across all parts of the Company.

At Investor Day, we reiterated our commitment to a strategy that significantly improves our EBITDA and segment contribution margins.

This quarter shows we are continuing to deliver against that three year financial road map.

In the first quarter, EBITDA margins increased to 12.1% from 6.5% in Q1 of 2005.

This result is driven by improvement in each of our three major segments with our overall segment contribution margin up 2 points to 55% from 53% in the first quarter of 2005.

Coupled with the G&A leverage I just mentioned.

Continuing down the P&L, depreciation is down 7% from the same period last year, reflecting our focus on discipline capital spending on projects that support our strategic initiatives.

Recall that in 2005, our capital spending was reduced by 11% from the prior year, to $22.4 million.

We continue to expect capital expenditures of between $20 and $25 million for 2006.

The change in amortization of intangibles versus 2005 relates to the valuation of intangible assets acquired through META, including intellectual property, databases, and customer lists.

The total value assigned to these amortizable assets was $26 million, when we acquired META on April 1 of 2005.

The majority of this non-cash amortization will be completed by the third quarter of 2006.

Net interest expense in the fourth quarter was $4.4 million, reflecting the interest on the $243 million borrowed against our credit facility.

Additionally, we now include the interest accretion associated with our lease reserves and interest expense, versus other expense.

This change has no impact on EPS, EBITDA, or cash flow.

Our normalized tax rate for the first quarter of 2006 was 28%.

This rate reflects the successful integration of META into our tax structure, and the return to growth of our research business.

Now I'll highlight the results for each of our business units beginning with Research.

Our contract value ended at $561 million, an increase of 9% from the same quarter last year.

If we exclude META and foreign exchange, organic growth and contract value was approximately 5%.

Our core research contract value increased 7% from March March 2005, with 2% of this growth coming organically.

This continues the growth trend in Core Research established in 2005.

Contract Value for executive programs which is also reported as part of the research segment was $140 million at the end of the first quarter, and is up 15% year-over-year.

We ended the quarter with over 3,500 members in our various executive programs, continuing our position as the largest CIO network in the industry.

Client and wallet retention were 79% and 88% respectively.

Overall research contribution margin was 62% in the first quarter, this compares to 62% for the same quarter last year and 59% for the full year of 2005.

We have now stable stabilized our research margins and are beginning to see the leverage in our business model as Core Research grows.

Turning to Events, revenue from events was $14.5 million for the first quarter, compared to $8 million in the same period last year.

We've held six events with over 4,000 attendees, compared to five events with 2,500 attendees last year.

Our ongoing events experienced continued growth in revenue, driven by healthy increases in both attendees and exhibitors, while also improving profit margins.

As we mentioned at Investor Day, the outlook for our Events Business remains strong, and we are on track to deliver double digit revenue growth for the full year.

Moving on to our Consulting Business, revenue was $76 million in the first quarter, a 19% increase over last year.

This performance highlights the success in executing on our strategy to reduce the cost of sale through a focused account strategy, sell larger deal through integrated solutions, and improve operations and efficiency through revenue management, resource management, and knowledge management.

As discussed at Investor Day, we made it clear that our focus in 2006 was to leverage and utilize our industry leading consulting resources and intellectual capital effectively, so it's important to note that we delivered this revenue growth without adding to our staff.

Billable head count ended the quarter at 507, versus 509 as of March 2005 and down from 525 in December.

Utilization averaged 68% during the quarter compared to 63% a year ago.

The annualized revenue per billable consultant is well above $400,000, our average engagement size now exceeds $162,000 and we ended quarter with a backlog of $110 million an increase of 2% over the same quarter of 2005.

All of this drove our consulting contribution margin to 45% in the first quarter, up 9 points from 36% last year.

I'll now turn to our balance sheet and cash flow.

Our operating cash flow for the quarter was $6 million, our first quarter cash flow was impacted by the timing of 2005 bonus payments, and year-end commissions and the payment of previously expensed restructuring and META integration charges.

We still expect cash flow from operations to be between $95 and $110 million for the full year up from $27 million in 2005.

In addition during the quarter, we repurchased 1,175,000 shares of our stock at a cost of $16 million.

As of March 31st, we have repurchased a total of 2,010,000 shares at a cost of $27.3 million under the $100 million share repurchase program announced in October.

We ended quarter with slightly less than 116 million fully diluted shares outstanding.

And finally, our revised guidance for 2006.

We now expect total revenues to grow by 5% to 8% percent over last year to approximately $1,000,000,034 to $1,000,000,065 for the full year.

Projected revenues by segment are as follows: Research revenue of approximately $550 to $560 million, a 5% to 7% increase from 2005;

Consulting revenue of approximately $310 to $320 million, a 3% to 6% increase;

Events revenue of approximately $167 to $172 million, a 10% to 14% increase, and other revenue of between $8 and $12 million dollars.

We are also increasing our EBITDA guidance for the full year, by $10 million over the guidance previously provided.

We now expect normalized EBITDA for the full year 2006 to be $145 to $152 million, an increase of between 38% and 45% over 2005.

This excludes the non-cash expense associated with the adoption of of FAS 123R.

With research revenue now growing, we benefit from the international tax structure we have in place, and as a result, we've reduced our effective tax rate guidance to 31% to 32%.

Finally, we are expecting an average fully diluted share count of between 116 and 118 million shares for the year.

Given this guidance, GAAP EPS for 2006 is expected to be between $0.44 and $0.48 per share, as compared with a loss of $0.02 in 2005.

Normalized EPS is expected to be between $0.58 and $0.62 per share, a 62% to 74% increase over 2005.

For consistency purposes, normalized EPS exclude three items.

The amortization of intangibles related to the acquisition of META, integration charges associated with the acquisition of META, and the impact of FAS 123R.

These three items impact earnings by approximately $0.14 per share.

In February 2005 we established a three year financial road map.

We reiterated our commitment to that road map in March at our annual Investor Day and our first quarter performance demonstrates our strategy is working.

We remain confidence in our ability to achieve these objectives.

With that, we'll open up the call for your questions.

[OPERATOR INSTRUCTIONS]

Our first question comes from the line of Laura Lederman from William Blair.

Good morning, a few questions.

One is can you talk a little bit about the price increase that you took and what impact it's having?

I notice that on an apples-to-apples basis Research CV was up 5%.

Can you talk about how much of that came from the price increase, and how much of that is just from general new business?

Thank you.

Hey, Laura.

It's Gene.

Basically we implemented this price increase, and it takes time for the price increase to filter through the base, because we have multi-year contracts, and also even on the single year contracts it takes the full year to go through.

And so the--we've been seeing clients being very--seen the value in our product, so the price increase has been very well accepted, and I guess I'll turn it to Chris in terms of the quantitative perspective on it.

Hey Laura, the contract value increase you mentioned, if you look at year-over-year increase in CV, organically it's up 5%, inside of that organic growth is a combination of things, obviously some of the impact of the price increases that we put in place, as well as we are seeing continued strength in developing and driving new business so we don't normally break out of the two of those, but I can tell you that the combination of those both is having an impact and we are seeing some of the benefit of the price increases put in place last year, and it's starting to have an impact on our CV balance.

Now the CV organic growth you had of 5%, are you expecting to remain at 5% or to accelerate?

In other words, implied in your full year guidance number is what organic CV growth going forward?

We normally don't provide CV guidance, Laura, but what I will tell you is obviously, as you just mentioned, we feel very confident in the year as we did provide an increased guidance for the full year, so we are very comfortable with what what we are seeing early on in the year, and normally if you look at our seasonality, what you normally see in the first quarter is slightly weaker or a slight dip in contract value, and then you see a lot of ramp-up happen towards the back half of the year, and you see that as the sales guide normally at the end of the year, will really sail through their pipeline.

We rebuild that in the first part of the year, and then in the third and fourth quarter, you see the real ramp in CV, I think what you will continue to see from a trend perspective is that the normal pattern and that's what you should expect from the pattern of CV as we get through, and into the end of 2006.

You raised the EBITDA guidance and revenue, kind of remain the same, so it's obviously profitability, not higher revenues, if I'm understanding your guidance correctly, so where is the profitability higher than what you had thought?

Is that mainly in the consulting side?

In other words, if you look where you set your original guidance for the full year, EBITDA versus where it stands today, where is that improvement and profitability coming from?

Sure, good question.

A couple things, number one, we did increase revenue guidance on the research segment by about, sorry, on the consulting segment by about $10 million on the high and low end, so again, just to be clear, we increased guidance on the revenue line for the Consulting segment, the Research segment stayed the same, the Events segment stayed the same, a slight increase in other, but really, the bulk of the revenue growth at about $10 million is coming out of Consulting, so that's the first part on the revenue side.

On EBITDA side, we're actually seeing strength across the entire product portfolio, all of our business segments.

Certainly the strength that I just mentioned in Consulting at the margins we are seeing in the first quarter as well as the continued strength in revenue gives us confidence there, but we truly are seeing it across the rest of the portfolio as well, we mentioned in my comments in the first quarter our Events business continued to see improved profitability on our ongoing events as we continue to see good strength in adding both attendees and exhibitors to our existing events.

We're seeing healthy performances we expected to as we start to see growth in our Research business.

The profitability there starts to come through.

So, we're feeling good across all the segments.

Final question then I'll pass it on.

If you look at the sales headcount today, how much is it up percentage wise, when you entered Q1 this year versus when you entered Q1 the year before?

I'm trying to get an apples-to-apples entering Q1, how much was sales headcount up year-over-year.

Let me give you a couple rough numbers, we were--we ended this year, or ended this quarter at 572, at December we had 550, so we've added about 22 people since just December.

Prior to acquiring META, we are probably in the 520 to 530 range in billable headcount, and then we acquired META, and added about 80 people there.

So that's roughly the numbers you're talking about.

Let me check one other thing to make sure I have--we ended 2004 at about 445 or so people, and then so that's the trend line that you can see, and as we talked about last year, we added 80 people with META, and then we added some additional people throughout last year, so that gets us to the 572, kind of that we are at today.

But year end December '04--

Year end December was --

445, thanks.

Got it.

Thank you, your next question comes from the line of Robert Skloff, from Sidoti & Company, please proceed.

Hi, just kind of building upon those last two questions, do you see room for further price increases as the first one, and then Gene, if you could talk a little about why research contract value would be down a little in the first quarter, could we just kind of go over that a little bit more, and then I have two small housekeeping questions after that?

Yeah, hi, Robert, it's Gene.

Basically for the price increases, we expect our overall price will continue to, actually two pieces to it.

One is our overall actual realized price will continue to increase as the price increases we've already put in place filter through the base, and in fact, we have much higher prices on new business now than we had on business we negotiated some time ago, so as we sell more clients, they'll spend more.

In addition, as we renegotiate contracts, those prices are going up too, and especially as we add these new products which really give us an opportunity to migrate clients from a product that was less expensively priced to one that's fully priced to value, so I think we expect to continue to see that.

In addition, we intend to have annual price increases that are like any other professional services company would have on the price side.

So I expect we will continue to see benefit from that.

Real quick, Gene.

Along the magnitude of what, 3% to 5% a year?

Does that seem about right?

Basically, our kind of list price, we don't have a list price per se, but kind of our benchmark pricing, we see we are going up 3% to 5% a year, but our new products,we have priced very differently than our--than many of the contracts we've negotiated in the past, and they are very high value products, so there's a big price increase associated with these new high value products, so as we think of bigger and bigger portion of our sales will be on those products.

The one I'm referring to in particular is a thing causes Gartner for IT Leaders, which again is off to a great start, provides tremendous value to clients, and we are getting great pricing off of it as a result, so as that grows in share, we think that will really help a lot.

Great.

And I'll let Chris answer the question about the CV.

I just answering your question, the kind of quarterly seasonality, let me just provide a little more clarity around the sequential trending in CV, we talked about at both our last earnings call and Investor Day that we value contract value once a year, and so we told everybody that we expected a dip in contract value in the first quarter simply because of the foreign exchange impact, so that was at pretty significant part of the change you saw from December to this March's result.

We also normally see a little bit of seasonality in the fact that we have such a large fourth quarter bookings and renewals that in the fourth quarter we usually see a bit of a decline as our sales guys normally drain the pipeline and they start to rebuild that, so a normal seasonal pattern has been for us to see the first quarter decline after the fourth quarter push and then so this year, you had that compounded a little bit by the significant movement in foreign exchange, and so as a result, that's what you normally see, what I would continue to reiterate is that we feel very strong for a couple of reasons.

Number one, as you saw, we increased guidance, and number two, we are as a company, and we have factored this into our forecast, but also as a company, we tend to be naturally hedged so movements in foreign exchange don't have significant impact on our earnings, so also wanted to make sure people understand that they should not be concerned as we see FX movement there should be any issues that people see with ongoing earnings or results and as you can see from our guidance, we still very comfortable there.

Okay, and the very last question just relates to debt.

What's the forecast for the end of the year?

We will continue to pay down our credit facility, we do have some containments that we have, will probably down below 200 by the end of the year.

We are at 243 now, probably be around 180, based on the payments schedule we kind of have in place today, so that's roughly what you should assume in terms of cash flow going to pay down our debt.

Great, thank you.

Sure.

Thank you, and the next question comes from the line of Ken Cornish (ph.) Premiere Capitals, please proceed.

Hi, congratulations on the nice quarter.

Hey, Ken.

I'm going to ask the contract value question a little differently, could you just explain the methodology to us once again.

It is a point to point methodology such that I should look at, for instance, the euro at December 31, 2004, versus the euro at December 31, 2005 and the difference between those two points is what's causing the degradation in the contract value?

Yeah, just to be clear, we establish a fixed foreign exchange peg rate for the entire year to report our CV off of and we only change it once a year, we do that after we report fourth quarter and before we report first quarter results for the following year.

We do that as we talked about at Investor Day and on our earnings call so that people can see the true business performance of our contract value, not the result of foreign exchange movements, so as a result what you see in the first quarter is CV move either up or down, depending on where the change in foreign exchange moves, and so you are roughly going to be right--we pick a rate that's normally around the year-end timeframe so the December kind of time frame for the next year.

So if you did that, you could get a rough approximation for the impact that foreign exchange would have.

The only other point I would also make is the other reason we do it, as those of you that have been watching foreign exchange, it has swung pretty wildly even over the last kind of month and month and a half.

So right now if we were valued back to the current rates, we'd actually see a pretty sizable increase back of a chunk of that and our just view is that it's better to offer us to show a fixed peg rate on performance rather than seeing those swings happen on a quarterly basis.

Totally understood, and last quarter on the conference call, you gave a 3% rate, you said it would be impacted by 3% downward.

Is that the same amount?

Yeah, roughly foreign exchange roughly had about a 3% impact, and as I just commented to Rob's question, our normal seasonality would also impact the remaining balance, so as we talked about, we feel very comfortable where we are, we are on track for what we expect to do for the year, so we are very comfortable with the first quarter performance.

And a question on the EXP contract value, that I imagine would also have an impact from the foreign currency.

Is there a substitution effect, the Gartner for IT Leaders initiation of that program?

Is that pulling out of EXP and into the Core Research contract value.

Hey, Ken, it's Gene, basically, no, they are targeted at completely different client sets, so EXP is really targeted towards CIO's, or that kind of a role.

A general management IT leader, whereas the Gartner for IT Leaders, it's taking that concept which has been really successful, and doing for the functional IT leaders, so for example, like architects, or operations people, and so we've identified eight of those roles and we are rolling each quarter this year, we will roll out two or three a quarter of those roles.

So we actually see it as being a big growth opportunity for us to make each of those rolls grow as fast and as successfully as we've done with the XP, in fact, we modeled it very much after the EXP, but it is again, it's designed, just as EXP is, really designed for and targeted to a CIO, these are designed and targeted for each of these eight roles, and it really opens up a new market us because our old research product basically is not specialized for any particular role, and so it's harder to get as much value out of it as these new things, and in addition to that, they have been designed where it's easier to use than our traditional research product, and they have new content compared to our new research product.

So they really have a lot of advantages, and we see it as being--it should not cannibalize executive programs or slow that growth at all.

Okay, and my last question is on the cash flow, there was a big use of working capital in Q4 of '05, and we again used working capital this quarter, so I was wondering how that shakes out over the full year?

Good question.

A couple of things, first is when you think about the first quarter, we certainly, as I pointed out, we had significant bonus payments, significant commission payments as well as the continued run-out of charges that we previous took last year, both around META and for special charges around restructurings, and the combination of all those is well over $60 million probably close to $70 million in payments.

So simply those coming off the table have a big impact as I mentioned, we still feel very comfortable in the full year cash flow guidance that we've put out.

The fourth quarter of last year was also similarly affected by the charges from META, some other restructuring charges that we took, so we feel comfortable that as we've gotten through those, and you'll see by the way, which we're proud of in the first quarter, we committed to those charges not happening in the future, and you'll see we have no line item on our P&L for other our special charges this quarter.

Sounds good.

Thank you very much.

Thanks, Ken.

Your next question come from the line of Steve Cole from Matador Capital, please proceed.

Good morning.

Had a couple of quick ones for you.

Just turning to Gartner for IT Leaders for a second, Gene, you talked about, this is one of the, I guess the great things about the Gartner story, the ability to move price up and add capabilities to it.

I'm wondering if you could maybe give a little bit more color on what percentage of the content that you guys are providing was Gartner content versus other content, and how do you see that next changing, number one?

And number 2, could you just work through the relationships so somebody is buying this Gartner under the new infrastructure products or architecture products.

How does that actually work?

Are they paying X now for a core research membership and then they drop that membership and get the new membership price or could you work through how that mechanism works and whatever color you can bring and why you are as excited as you seem to be, and how things are going in the first quarter?

Sure, Steve, basically, on the Gartner content versus other, the--it is overwhelmingly Gartner content, in other words, we may provide, for example, a link to an industry body or something like that, but the intent is for it to be overwhelming Gartner content.

Now having said that, we have added some different kind of content in particular things that our clients have asked for, such as things that are more how-to oriented as an example.

So there's contents on there that's new that people have been asking for, and again it's been very well received.

In terms of how they pay for it, we've structured a pricing program for it, and we have clients that we've given very large discounts to for our traditional research product.

Anyone going with these new products pays the new price, there's not--so if you used to get a 90% discount, when you get the new product, you get the same price as everyone else for the new product.

And so when people are changing, so--just to be clear, if we had a brand new client buying Gartner for IT Leaders, they would pay the same price as a client that has been an existing client that may have a heavy discount on our traditional research product, so we are moving everybody basically to this new pricing program which we think fully reflects the value of the product, and we think we've kind of--that will be an improvement for us.

Do you expect, Gene, everybody to be off the that--if we look out a couple of years will there be that Core Research product as we know it today?

Or will that be migrated over to these other products as you roll out more rolls?

The--it's early to say, because we introduced the product in February, but I believe these products are so attractive that you look at--there will be some point in time, and I don't whether it's three years or five years, when it will migrate over, because even today, they are incredibly attractive, and we are continuing to invest in these products, as an illustration, we released the products this year, every quarter, we are enhancing those products, whatever you bought last quarter is actually better the next quarter.

For these Gartner for IT Leaders, and we think that over a period of time, it will just be complete no brainer for people to upgrade to those products, and again the price and scheme of what our clients can afford, these prices are very modest and the value is very very high.

I don't know exactly what time frame, but I would think over three to five years I would expect that we'd have a big--the vast majority of our clients on these products.

And I guess I have to ask this one, in terms of discounting so that bump-up, I presume you don't have too many people at 90% discounts around from the core product, but can you give us a sense on what pick-up you have built in?

It sounds like your going to have some sort of automatic--there will be a natural spread that you'll be able to pick up?

Is that right, Gene?

Again, what we are doing, I would break it up into two component parts.

One is, actually three parts.

First, this new product line is not available for all the roles in IT department today, and so even if we wanted to make 100% of our sales on this new product, we couldn't, because if we don't have--if you happen to be--as an example, the Enterprise Architecture product coming out shortly, during the first quarter, we couldn't sell it to you, so we obviously didn't get that impact.

So one piece of it is that as we roll these things out we'll have a bigger ability to influence it.

Second piece is that it impacts new business more than our base, and so I think you'll see the prices of new business being very attractive compared to our historical rates, and then as we renew clients over time, we will migrate them to these new products, but it won't all happen in one day, or one renewal.

I think what we will find is that the first renewal, a few people will take these, the next one more, and so forth as we get there.

So my view is actually is it gives us really a great source of of ongoing growth for quite a while.

And last question, just for Chris, is the $70 million number, Chris, is that just Q1 on these items or is that for the year?

I guess I was concerned the working capital adjustments.

And second part of that is, as we start we see research picking up, we should see cash flows starting to pick up as well I would think, is that right?

Yeah, your point is right, but the numbers that I laid out were all cash out the door in Q1, and you are exactly right in terms of our cash flow model, as we really grow research for people to not be familiar, we do a majority of our billings for research up front, and so as we really begin to grow, and you start to see us ramp core research, the cash flow impact of that is very positive compared to how quickly it flows to the P&L.

Thank you very much.

Good quarter.

OPERATOR: Your next question comes from the line of Sandra Notardonato from Robert Baird.

Thank you.

I was wondering if you can you give the total number of seats this quarter sold per account, and if you have a trend line on that, that would be helpful as well?

Hi, Sandra, it's Chris, how are you?

Hi.

That is actually not a metric that we have reported.

We tend to focus on the CV number for a couple of reasons, because it incorporates all aspect of everything we are talking about from price increases to launching of the new products, to the retention rates, so there's lots of different pieces of that, as well as the fact that we have lots of different products and the size of those things.

So we tend not to kind of look at it from the account perspective, and it also, again, each account size there's very different swings, so we have some accounts that have a small number of seats and some accounts that have hundreds of seats, some accounts that have one, so the average is a bit challenging.

What I would tell you is one number that we have talked about in the past is our average contract value for research then for clients.

That has continued to increase.

Last year it was in the $58,000 range, I think it's moved into the low $60,000 ranges.

I think, I'll see if I can grab that number real quick.

The net of it is it is moving up, it's moving up as a result of 60, it's now up to 60, 61, so it is continuing to move up, and we are getting an increase in that average research per client if you look at it at that perspective.

Again, keep in mind we have clients that have hundred of millions of dollars to spend, and clients that have $20,000 to spend.

Anything else on that, Sandra, that we can clarify?

Operator?

I'm sorry, technical difficulties, we have no other calls in queue.

Great, I want to thank everybody for participating on the call today, and we look forward to talking to you next quarter.

Thank you, ladies and gentlemen, for our participation, you may now disconnect the line.