高德納諮詢公司 (IT) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen and welcome to Gartner, Inc.

earnings conference call for the third quarter of 2007.

A replay of this call will be available through November 30, 2007.

(Operator Instructions) I will now turn the conference over to Mr.

Henry Diamond, Group Vice President of Investor Relations and Corporate Finance for opening remarks and introductions.

Please go ahead, sir.

Good morning, everyone and thank you for joining us.

On the call with me today are our CEO, Gene Hall and our CFO, Chris Lafond.

Before we discuss our results for the quarter, I would like to remind everyone of four things.

First, the re-broadcast, reproduction and retransmission of this conference call or webcast without the express written consent of Gartner are strictly prohibited.

Second, if you do did not receive a copy of our press release, it is available on our website at website at www.gartner.com or on the first call systems.

Third, the company will be making statements about its future results and other forward-looking statements during this call.

Statements about future results made during the call, constitute forward-looking statements within the meaningsof the Private Securities Litigation Reform Act of 1995.

These statements are based on current expectations and the current economic environment.

Forward-looking statements and projections are inherently subject to significant economic, competitive, and other uncertainties and contingencies, which are beyond the control of management.

The company cautions that these statements are not guarantees of future performance.

Actual results may differ materially from those expressed or employed in the forward-looking statements.

Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are specified in the company's filings with the SEC including in it is an annual report on Form 10-K for Fiscal Year 2006.

Finally, during the call, the company will be using certain non-GAAP financial measures as defined under SEC rules.

We're required that we have provided a reconciliation of those measures and most directly comparable GAAP measures in the tables and press release.

Before I turn the call over to our CEO, let me briefly review the major points from today's press release.

First, GAAP EPS for the third quarter was $0.11 per share, an increased of 38% versus the third quarter last year.

Research contract value, which is a key leading indicator for our business increased 18% year-over-year to a record $704.7 million and total revenue grew 13% to $273.1 million.

Net income increased 30% year-over-year to $12.5 million and Normalized EBITDA increased 21% to $36.3 million.

Turning to cash flow, the company generated $38.8 million of operating cash flow during the third quarter, spent $6.2 million on capital expenditures and repurchased 1.6 million shares of its stock for $36 million in cash.

As of September 30th, the company had total debt of $367 million and cash on the balance sheet of $117.7 million.

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

Thank you, Hank.

Thanks, Hank.

Good morning, everyone.

Thanks for joining.

Those of you who have been following the company know our strategies, to accelerate the growth of our research business and at the same time maintain the growth of profitability of consults and events businesses.

We focused on research for two reasons.

First, research has tremendous growth opportunities since information technology is a complex and difficult task for all organizations.

And secondly, the economics of our research business are attractive with strong margins and high operating leverage.

We're growing our research business through five key initiatives, producing extraordinary research contents, delivering highly differentiated and innovative products, providing world-class service, enhancing our sales capability and improving operation effectiveness.

Let me review some examples of the significant progress we made on each of these during the third quarter.

Our research content covers the critical topics needed by IT professionals in all organizations.

For example, we have significant content on Green IT, a topic that is critical today, but was of limited interest only two years ago.

We continue innovative and highly different offerings.

For example, during the third quarter, we rolled out Gartner for IT Executives, our new offerings for CIOs.

Now, our new product offering has had a major impact on our growth and that new client enterprises and research contract value during 2007.

We are still in the early stages of upgrading our client base to the new products and this continuing transition will help drive growth in the coming years.

Our client service continues to improve as well.

For example, we reduced the lead time required to schedule a call for our meeting with an analyst, which is now, down more than 50% this year.

As a result of this and other improvements, our client satisfaction rates are up and this is how to drive our improved retention rates whis Chris will discuss in greater detail.

We continue to enhance our sales capability with growth and productivity continuing to increase according to plan.

We have introduced improved recruiting training programs and as a result, productivity of our sales associates continues to improve.

Finally, our focus on operational effectiveness continues to bear fruit as reflected in our higher gross margins during the quarter.

For example, we have significantly improved the effectiveness of our client services staff through our redesigns business processes.

The impact of our research strategy is best demonstrated by the growth in our contract value and research revenues, both of which were up 18% year-over-year.

Our consulting and events businesses continue to deliver year-over-year growth.

In the third quarter, consulting revenue increased 6% over last year.

We are successfully managing that business to improve productivity by focusing on the largest most profitable accounts and geographies and also by strengthening our senior consultant capabilities.

Our events business generated double-digit revenue growth during the third quarter, including the edition of five new events which helped drive 11% attendee growth.

As we talked about on the second quarter call, we filled the vacancy in the exhibitor sales leadership position and that business is making progress.

Nevertheless, growth has been slower than our expectations and we have identified a number of opportunities for improvement.

Including the composition of our events portfolio.

We're in the process of implementing these changes over time and early indications are encouraging.

For example, on-site exhibitor renewal rates at our recent ITxpo in Orlando were very strong.

To summarize, our overall results are in line with our financial road map and we expect to continue to generate a strong annual double-digit revenue and earnings growth and increasing margins over the next few years.

With that, I'll turn it over to Chris for additional business share highlight and financial details.

Thanks, Gene.

And good morning, everyone.

We are successfully executing on our long-term strategy and the financial road map we have established with the objectives of accelerating growth, expanding margins and improving both profitability and cash flow.

Our performance for the first three quarters of 2007 has continued proof of this success.

As Gene just discussed, we are executing on the five-key objectives of our strategy, which will allow us to capture the significant market opportunity for our research products.

We will continue to invest in these areas to ensure we deliver strong year-over-year research sales and margin performance.

In the third quarter, research revenue increased 18% in contribution margin expanded by three points from 2006.

On an FX neutral basis, this revenue growth is already at the high end of our financial road map range of 12 to 16%.

A target that we originally expected to achieve by 2009.

Coupled with year-over-year contract value growth of 18% or more in the first three quarters of 2007, we are confident to continue on this path.

Our outlook for the full-year highlights the strength of our business model.

With our current guidance for 2007, we expect to deliver at least 10% revenue growth, 24% EBITDA growth, 32% EPS growth and 27% operating cash flow growth.

We are maximizing the leverage inherent in our research business to grow EBITDA at a faster pace than revenue and we are capitalizing on our strong cash flow and balance sheet to grow EPS faster than EBITDA.

The strength of our earnings growth allows for the accelerated investment on the five-key initiatives.

As I discussed with investor day in March, the decision is speed up investment to grow the reseach business is based on delivering strong research sales and margin performance during the year.

Importantly, we have made these investments while not changing our full-year EBITDA guidance for 2007 because of the incremental revenue and profitability the investments generate.

Now, let me highlight the performance of each of our business units beginning with research.

Research, our largest segment and primary growth engine continues to perform above our original expectations for the year.

Research contract value, the key-leading indicator for our business and a strong predictor of future revenues achieved a record 705 million on September 30,this was an 18% year-over-year increase and our third consecutive quarter of high teens contract value growth.

The strong results reflect the execution of the five-point strategy I mentioned earlier.

Two important components of research growth strategy are to provide extraordinary research and to create highly differentiated offerings.

The client reaction to our roll base products exemplifies the impact both of the initiatives are having.

We have had good initial success and upgrading our existing customer base and attracting new clients to our role-based products.

These products are Gartner for IT Leaders for endusers, Gartner for Business Leaders for technology providers and Gartner for IT Executives, our newest role-based product for CIOs that we launched in the third quarter.

Gartner for IT Leaders continues its early sales success and is a key contributor to our contract value of growth.

While we normally do not provide the breakdown of contract value at the product level, Gartner for IT Leaders accounted for over 130 million of contract value on September 30 or about 20% of our total.

This is up over 70% from December 31 last year and I will remind you these products were launched beginning in early 2006.

Gartner for Business Leaders is off to a similar start generating over 35 million in contract value in less than 12 months in the market.

Our role-based products are clearly a significant contributor to generating new business.

During the third quarter, these products drove 30% of the growth in net new client enterprises.

Growth was consistent across all regions and client segments.

Importantly, new clients are significant portions of the growth and contract value, which demonstrates the healthy market opportunity and demand for our research.

Overall, new business in the third quarter was up 17% over last year on an FX neutral basis.

Research revenue growth was also driven by the success of our executive programs business, which offers premium products for CIOs and Senior IT Executives.

The contract value for executive programs which has reported as part of total contract value was 177 million at September 30.

This represents a year-over-year increase of 19% as reported or 14% on an FX neutral basis.

As I mentioned earlier in July, we introduced Gartner for IT Executives, our new suite of role-based products for CIOs.

To date, we have launched this product for two roles and expect to introduce a number of others over the coming year.

Early client feedback and sales results are very encouraging.

The improvements we have made to deliver world-class service have been very well-received by existing clients as reflected in improved retention rates.

During the third quarter, client retention increased to 82%, up from 81% last year and importantly, wallet retention was 102% up from 93% last year.

For the third consecutive quarter, wallet retention has exceeded 100%.

Evidence that our existing clients continue to increase their spending on Gartner Research.

Our new products and Gartner for IT Leaders in particular are achieving higher retention rate than our legacy products which has contributed to the strong results.

Improving our sales capability is another important component of our strategy.

We continue to improve the effectiveness of the sales organization through investments and sales force automation tools, marketing programs and training.

And we continue to add to our capacity with quota bearing headcount now at 798.

Despite the increase investments for making products and services, we delivered growth contribution margin expansion of three percentage points year-over-year in the research segment.

This highlights our focus on operational effectiveness, specifically, how we effectively manage and prioritize expenses to capture the operating leverage in our research business to fund investments.

Overall, the segment is performing better than our original expectations and as a result, we have again increased the 2007 revenue guidance for that business as I will discuss in more detail later.

We have clearly established a strong foundation for continued growth in the research business.

Now, moving on to our consulting business in the third quarter, consulting revenue increased by 6% to $73.8 million over the same period last year.

Revenue in this segment is now up 2% on a year-to-date bases over last year, despite billable headcount of 469, which is down close to 9% from last year.

As a result of our second quarter decision to exit consulting operations in the Asia-Pacific region.

On last quarter's earnings call, we said that our strategy to improve productivity and invest for future profitable growth is working and we expect year-over-year revenue growth to resume in the second half of the year.

That is exactly what happened.

Our important productivity metrics continue to show year-over-year improvement.

Utilization was up 3 percentage points to 64%, which helped drive a gross margin increase of 1 percentage point to 38% in the quarter.

At the start of the year, we expect to consult and grow between 4 and 7% and our current guidance for that segment is in the middle of this range.

Turning to our event segment, I'll focus on results for the nine months of the year since quarterly results are skewed by the timing of our events calendar.

So, looking at the first nine months of 2007, we attracted over 27,500 attendees to our event, an increase of 11% over the same period last year.

Our continued growth in attendees highlights are effective portfolio management by launching new events in hot topic areas and eliminating events where interest is waning.

We held 61 events so far, this year so far versus 56 in the same period last year and now expect to hold 78 events for the full-year versus 74 events last year.

We generated solid revenue growth of 10% through September, although this is modestly below our expectations due primarily to lower exhibitor sales.

While exhibitor revenues were below expectations, they were up modestly over last year.

As Gene mentioned, we have identified opportunities for improvement and have plans in place to capture them.

Our updated 2007 guidance for events reflects a reduction of approximately 9 million in revenue for the full-year.

Moving down the income statement, SG&A increased by 15.8 million or 16% year-over-year in the third quarter.

With a continued investment of in our sales organization.

The cost of this investment includes not only direct headcount costs but incremental recruiting, training, TNE, marketing programs, facilities and other variable costs.

Approximately, 3 million or 20% of this increase was due to foreign exchange.

We continue to effectively manage our G&A expense.

G&A has declined one point versus last year per the 9-month period and two points for Q3 as a percent of revenue.

Further highlighting the impact of our programs to improve operational effectiveness.

Excluding the impact of foreign exchange and non-cash equity comp expense, the results are even better.

We remain focused on capturing opportunities to control corporate costs and lower our G&A as a percent of revenue.

Now, let me turn to our balance sheet and cash flow.

Operating cash flow increased 10% to $82 million for the nine months of 2007, versus $75 million last year.

The 2007 results include the $10 million cash impact of one-time charges announced in Q2.

During the quarter, we repurchased 1.6 million shares of our stock at a cost of $36 million under the $200 million share repurchase program announced in February.

Since announcing this program, we have repurchased 2.9 million shares at a total cost of $65.7 million and we ended the quarter with approximately 109 million fully diluted shares outstanding.

I will now review our updated guidance for 2007.

We have slightly increased the low end of guidance for total revenue and now expect total revenue to grow 10 to 12% over last year to approximately $1,171,000,000 to $1,187,000,000, updated projected revenues by segment can be found in our press release.

We now expect that Normalized EBITDA will be at or near the low end of our guidance rate of 193 to 203 million.

Normalized EBITDA excludes certain items including non-cash equity comp expense, which we estimate to be between $25 and $27 million.

Similarly, GAAP EPS is expected to be at or near the low end of our guidance of $66 to $0.73 per share.

Note that our GAAP EPS guidance include the $0.04 per share impact of the one-time charge taken in Q2.

We continue to expect operating cash flow of between $135 and $150 million and capital expenditures are expected to be approximately $25 million.

This results in operating cash flow of between $1.24 and $1.38 per share for the full-year 2007.

In closing, let me summarize the highlights of our year-to-date performance.

Our strategy to accelerate growth and with the research segment is working.

We continue to perform above our original expectations both in revenue growth and margin expansion.

And as a result, we have again increased our revenue guidance for that segment for the remainder of the year.

Consulting strategy to improve productivity and profitability is also -- we expect it year-over-year revenue growth to resume in the second half of the year and this is exactly what happened.

We are effectively managing our events portfolio by eliminating less profitable events and launching successful new events.

And this has resulted in year-to-date attendee growth of 11%.

We have identified opportunities for improvement in the segment that will allow us to continue the strong performance the segment has delivered over the past few year.

And with that, we will now open the call for your questions.

Operator.

[ Operator Instructions ] Our first question comes from the line of Peter Appert with Goldman Sachs.

Please proceed.

Good morning, thank you.

Chris, on the issue of the SG&A expenses, it's been running up sort of in the mid-teens right here this year as you have accelerated the sales force expansion.

Would you expect that -- that is a growth rate we should be looking for on an ongoing basis?

Hi, Peter.

Thanks for the question.

Yeah, on SG&A, one of the things that we have said is that we will continue our investment in sales capability, including all of the things that I talked about around that investment.

So, we should expect that we will continue that investment.

Keep in mind that foreign exchange was a significant portion of the Delta year-over-year this year, so that is a piece of the year-over-year change.

But again, on an ongoing basis with the continued execution of our strategy, you should expect to continue to grow at that kind of a level.

Okay, and also in terms of the accelerated sales force expansion, you have implemented this year as we think about '08.

Same pace of increase on the size of the sales force?

Yup.

I think we have said, you know, around 20% increase.

And that is, you know, no change to that direction that we provided.

Okay.

And I guess the real issue, Gene, is the -- you're seeing positive leverage here in terms of margin improvement and maybe not -- quite as much as you had seen in earlier periods in the context of the higher sales force expense.

So, does it imply you're seeing some reduced marginal leverage from the sales force expansion at this point?

Hey, Peter.

It's Gene.

First, the -- in terms of our sales for productivity itself, sales for productivity has continued to improve.

If you look at and the way we - one way to look at it is in terms of the growth per sales person.

And if you look at that, you will see it's been steadily improving and we expected it to continue with just that.

So, that's the actual sales productivity piece for that is going quite well.

In terms of, Chris, do you want to talk about the margin of the business?

Yeah.

Peter, just one thing I would comment on your point there, if you look at the research segment and in fact, if you look at our segment performance for the quarter, you will still see in that segment we're delivering over 25% or 75% incremental, right, so the bulk of the incremental revenues in the quarter on a year-over-year basis are going through the contribution margin and in fact, on a quarterly basis, the margin in that segment is up 3 points over the prior year.

Right.

So, I think overall, in the segment we're absolutely continuing to deliver the kinds of results and returns that we expected and we've made the contrast decision to invest that in some of the programs, the five programs Gene talked about.

Uh-huh.

That's great.

Thank you.

And then, one last thing.

I think this question is answered in terms of the contract volume growth, but one of the questions that you hear back from investors is just concern about the cyclicality of your business and the complex of macroeconomic conditions, obviously the contract volume growth is pretty encouraging.

Do you see anything or hear anything back from sales people that would give you a pause in terms of momentum and revenue growth going forward?

Hey, Peter, it's Gene.

At this point, we have seen no indication of any slowdown, back from our sales force in either actual results or things that are in the pipeline.

And so -- the way we think about it is the amount of money that our clients spend with us is a very small portion.

Any of our clients.

A very small proportion of their budgets.

So for in an IT organization, people might -- a good client might spend a 10th of a percent of their IT budget with us.

Uh-huh.

There is not a lot of opportunity for cost savings with us.

And on top of that, we're in fact, actually very vicious.

On top of that, about, -- probably 2/3 of the work we do is related to cost reduction with our clients, helping them improve their cost structure and so there is -- we actually in tough times, we can help them and so we are not seeing any softness.

We wouldn't be a big cost saving for them and in fact, we can help them save money.

We will focus on that.

Great, thanks very much.

Our next question comes from the line of Laura Lederman with William Blair & Co.

Please proceed.

Yes, good morning.

Following up on Peter's question, I would like to drill down a little bit more on profitability growth versus revenue growth and I realize that if you look at other contribution margin for the research business, it went up, but to my understanding, it doesn't include related to all the sales cost.

So, you know, why drill the sales for 20% why not drill down a little bit less and trade off maybe a little bit of the revenue growth for more profit growth.

Just kind of talk about that theoretically would be really great.

Hi, Laura, it's Gene.

When we look at the economics of what we're investing in the sales force versus the profit contribution we get when they, you know, for what they selling, it's a very attractive equation and that is why we continue to invest at it.

It basically, you know, gives us accelerating profit growth, which is what you're seeing in our research business.

Kind of the net effect is very positive and that's why we're doing it, Laura.

It's not like, if you invest you make less money.

You actually if you invest in the sales, you make more money by doing.

Because the high incremental profitability.

And Laura, the one thing that I would say there is just to comment if you had to, look at the overall performance of the business, you know, one of the places that we have adjusted our guidance and we saw weaknesses, we talked about in the the event segment.

So, if you really look at the research contribution and the investment we're making, we feel very comfortable as Gene said, the economics there, so we don't think there are any issues there around that tradeoff or making the kind of tradeoff decisions we're making.

If you look there, it's absolutely flowing through at the levels we expected it to.

Going back to event, can you talk a little bit about, I understand that the sales management on the ITxpo was where it should be, but that had always been sectionary of growth and I guess I can understand why a change of management would impact all the ability to sell those trade tricks.

Has there been any thought if to okay the ITxpo has grown too much.

I mean they're the size of the several football field.

So, it has look at potentially as part of the problem being that the thing has gotten so big that the net value for the customer is somewhat less in terms of having all these vendors after vendor, several football fields first?

Hey, Laura, it's Gene.

If you look at the growth in our events business, we have some events that are -- we have events at different points in the life cycles and the ones you're talking about that have really large ITxpo exhibitions are like our symposium events, which are relatively mature events.

We get very good vendor interest in those because the audience is literally hundreds of CIOs there, which they can't get access to anywhere else.

And so they were very interested in that .

And if you look at our growth event, they tend to be smaller events and they're not acres, there's smaller more targeted events.

So, for example, just with data center managers as an example and if you have any product aimed at data centers, you can be much more targeted there and there again the show floors would be much smaller than in the very large symposium-type events.

And so we don't think that it has to do with the attractiveness of the ITxpo as an approach for the technology comes in intact.

Actually, just this research is very cost-effective for our end-users.

We actually think the ITxpo is extremely cost effective marketing and sales vehicle for technology companies as a percent of the revenues and so forth.

You know, the slower growth we experience there, we think it's really just a matter of our operational challenges that we have been working through and so the -- and again, the business itself is healthy.

A number of attendees growing, has been growing 11% quarter-over-quarter and through the year.

That is what the exhibitors wanted.

They want to see those attendees and it's a very attractive attendee base.

As I've said, in many of these events, there's hundreds of CIOs there.

They can't reach the market any other way, anywhere near as

So, the weakness has not been at the ITxpo at any of the symposium, it's been at smaller events since or has there been weakness in the ITxpo at the symposiums around the world to another .

Where exactly is

Laura, it's really a -- it's not concentrated in a specific event category.

Again, as we talked earlier we had a couple of problems.

One is we have a lot of empty sales territories and so where we had the empty during first and we didn't sell as much.

We've got new sales, people in many of those terrritories and they're going to be less effective.

But over time, they 'll wrap up to speed.

So, it's more I think, operational as opposed to the specific kind of event.

All right.

Another quick numbers question, Core Research, what it is grow in the quarter?

In other words, none of the executive programs or research for actually -- research itself growth?

But so, Laura, if you look at total contract value of 705 million, about 528 of that is Core Research and the other one, 77 is executive programs.

Core Research year-over-year grew 18%, which was 15% FX neutral.

Executive programs grew 19%, which was about 49% FX neutral.

So, good growth across both of the businesses quite frankly, good growth across pretty much every one of the client segments, every geography and across the product portfolio.

At the risk of beating a dead horse here, this is the final question for me on the sales headcount, can you show us a little bit maybe the productivity numbers.

If you just go 35,000 and think about yes, you guys were understaffed on the sales side and adding 20% on top of 20% on top of 20%, sooner or later that starts to not make sense from sort of a high-level standpoint that how could you have been that undercover that you could keep that in 20% of the year.

May be can you talk about specific sales metrics or something to help us get our head around that.

So Laura, let me focus on the research sales force, which is where we're focused on.

The kind of growth rate that you're talking about.

In research sales, our research product line is of value to literally every organization, meaning company, government entity, non-profit entity of any size around the entire world.

And so it would take us a lot more sales people to come close to covering that kind of market.

Today, we have, I've talked about this in the past, we have $80 billion companies that we don't call on.

We don't have enough sales people.

$80 billion are revenue companies and, you know, we have large, you know, large IT users, billions of dollars of IT budget that we split between, I have a sales person covering multiples of those.

We don't have enough sales people and so the, you know, we're confident that because there are so many uncovered opportunities that we can, we need more sales to cover them.

At least give you an anecdote.

I was meeting last week with a large client that is headquartered in Dallas and has a lot of developers in Houston.

And the -- we added a sales first and have been calling them the headquarters location.

We added a sales person in Houston and the CIO of the company was very thankful, he came and thanked me and said, " This is really great because now actually, we can get access to your services.

Before, you were only selling to corporate guys and we have not surprisingly sold more to that company because we never calling on them.

And so it's kind of a simplematter of -- there is a lot of organizations out there that we can't call on today because we don't have enough sales people.

Actually I have a quick followup, sorry, for Chris, which is ending deferred balance.

Deferred revenue.

Hang on a second, Laura, let me grab the balance sheet and give you that number.

It is 300 -- sorry, $402 million for the period ending September 30.

Thank you.

Our next question comes from the line of Frederick Searby with J.P.

Morgan.

Please proceed.

Yeah.

Thank you.

A couple of questions.

One is, Gene, specifically, if can you just talk about how you balance and think of the risk, if there is a downturn that you're not overstaffing, what would be the economics of trying to right size-- if things do materially worsened.

I know they look fairly rosy from your standpoint right now.

And then secondly, if you could talk about what noble ways you found or what you're doing to expand existing sales force productivity with some of your legacy sales people as opposed to just hiring people.

Thank you.

Sure.

Hi, Fred.

So -- in the event of a downturn, one of the things we're really keeping our eyes focused on is sales force productivity.

Because we have talked about how we're making big investments there and if we saw is that our sales productivity was not working as well as we would like, we would slow down the hiring and with normal turnover, we could make it that that was 0 or whatever rate we wanted.

Because if you think of sales for turnover being between 15 to 20% a year.

It's easy to sort of chain -- even if the turnover slowed down a little bit.

Because it's performance-driven.

We can sort of regulate that pretty precisely and we track that very, very closely looking at the sales productivity.

The question earlier, so long as the sales for productivity we have, then economic payback is very high and that is what is kind of driving our growth rate.

There are others in the business that we look to and kind of the normal ways in terms of if we saw a downturn and you have seen -- we controlled costs tightly and we would just continue to do that.

The kind of things you see, we kind of made it an institutional capability and that is why you see our G&A costs as Chris was saying, decline as a percent of revenue.

So, that is the answer in terms of right sizing and we definitely have our eye on it and are watching it very closely.

In terms of improving the productivity of the existing sales people, there is a whole range of things we have done.

First, you know, it's -- if you have great research and you have great products, that in itself helps the productivity of existing sales people compared to, you know, if don't have those things.

That has really helped improve the productivity.

In addition to that, we have revamped our training programs, so we have greatly strengthened our training programs and a real emphasis on doing that.

And then another piece of it is that we have made the entire organization very sales focused in terms of supporting the sales effort and there are things that different people in the organization can do that actually help the sales cycle and improve our sales effectiveness.

And so those are the kinds of things we're doing that have an impact in improving overall sales force effectiveness.

Okay.

All right.

Thank you.

Our next question comes from the line of Eric Wyman with Schwerin Boyle Capital Management.

Please proceed.

Hi, can you review what percent of your consulting businesses conserve to discretionary spending.

Thanks.

Hi, Eric, it's Gene.

I guess what I would say is our consulting business, I think, I consider all discreationary in the sense that it's not compliance-oriented generally.

On the other hand, it's like research in one sense which, is we're a very small player in the consulting business and we have very targeted offerings.

Some of which are very helpful during a downturn.

So, for example, we have our contract optimization services which, is all about getting, saving tens of millions of dollars on purchased items.

Our bench marking product line, which is our second largest broad finding consulting is all about, you know, probably the majority of work there is about how do you get lower costs.

While it's literally discretionary, can people decide to turn it off because there is no compliance, absolutely.

If you want to look for kind of the cost reduction opportunities and so forth, it's a great source for that and there are also, I have to say, there are ongoing projects where we often do also project management for projects that are four, five years long.

It would be unlikely that people would stop us, you know, stop us.

It's a small amount of money and it's relative across the project.

Think a 10th of a percent across the project and we're helping make sure the whole project is successful.

Okay, one last question.

When you sell your CIO product, do you run into a censure?

Do they have a CIO productn.

The -- to my knowledge, extensure does not have a product that is exactly like ours.

They obviously offered advice to CIOss and in some sense, we compete with them that way, but they don't have a product that lines up the offering syndicated research to CIOs, to my knowledge.

All right, thanks.

[ Operator Instructions ] Our next question comes from the line of Sam Hoffman with ADAR.

Please proceed.

Good morning.

Did you guys actually give the number of sales force at the end of the quarter in.

Yes, Sam.

798 sales people at the end of the quarter.

Okay, my next question is -- Chris, did you say that new business grew at 17% excluding foreign exchange or including it?

17% for the quarter, new business excludes the impact of foreign exchange.

Okay.

How do you decide new business and what percentage of the 704 million of contract value is new business?

You know, Sam, if you think about the growth and contract value, growth and contract value is coming in in a relatively this -- relatively balanced way.

A combination of new clients and existing clients, so new business can come from both.

And we're also seeing relative balance between those and we're also seeing pretty good balance across the geographies and across both our client segments and product areas.

So, as you think about the kind of the new business mix, -- the way you think about new business is thinking about kind of our current retention rates to get to the kind of revenue growth we have, you know, we have to drive all of that new business to make up, first of all, for the 82% client retention, so there is some new business in that 102% wallet retention number we have.

So, since -- so that is kind of how you think about new business and the mix is pretty evenly balanced around both new and existing clients.

Okay, and on the debts I guess you said -- can be used once up 11% and the number of events is actually up as well and yet revenue is only up 10%.

Are you not increasing prices on the events?

Why should revenue not grow faster than the number of attendees?

There is, when you think of the events segment, there are two components to the revenue stream.

You have the exhibiting companies and you have the attendees.

As we talked about the exhibitors are performing a bit lower than the expectations we established, causing part of it.

If you think about the pricing in our events business, we have actually seen really good pricing as well.

Pricing on attendees is actually up, you know, a bit year-over-year.

We don't think there is a lot of room to move that dramatically, but think kind of 3 to 5% range is a reasonable explanation to see where we are this year.

Similarly, are exhibitors we're seeing continued good pricing, you know, as Gene mentioned earlier, we have great audience demographics, we have great events in terms of attendees and exhibitors want to be there and so we are not and have not had to reduce our pricing to attract exhibiting companies.

So you're seeing increase in the pricing there.

Okay and my last question is, are you still committed to free cash flow of $175 million that we used for 2009, given, I guess, the margins this year?

Sam, we're still committed to the road map we have established and not made changes to that.

If you look at our cash flow performance this year, we still expect 135 to 170 million of operating cash flow and about 25 million of -- sorry, did I say, 135 to 150 is the range.

Sorry.

With $25 million of capital expenditures.

So that will give you kind of the $110-plus million at the low end of the range and, you know, we're certainly tracking well to that.

There is no reason for us to expect nor do we think that anything has changed in our longer-term road map around expectations on cash flow.

We expect to continue to effectively manage that, you know, capital that we have there and I would say, we feel good about our cash situation.

Okay.

Thank you.

Sure.

(Operator Instructions) Sir, I show no further questions at this time.

Gene, I want to thank you for participating on the call today.

Look forward to talking with you next forward.

This concludes today's presentation.

You may now disconnect and have a great day.