高德納諮詢公司 (IT) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to Gartner, Inc.

earnings Conference Call for the third quarter 2008.

A replay of this call will be available through November 30, 2008.

The replay can be accessed by dialing 888-286-8010 for domestic calls and 617-801-6888 for international calls, and by entering the passcode 74355682.

This call is being simultaneously webcast and will be archived on the Gartner's website at www.gartner.com for approximately 90 days.

I will now turn the conference over to Mr.

Hank 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 all for joining us.

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

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

First, the rebroadcast reproduction and retransmission of this Conference Call or Webcast without the express written consent of Gartner are strictly prohibited.

Second, if you did not receive a copy of our Press Release, it is available on our website at www.Gartner.Com or on the First Call system.

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 meaning of 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 these statements are not guarantees of future performance.

Actual results may differ materially from those expressed or implied 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 its Annual Report on Form 10-K for Fiscal Year 2007.

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

Where required we have provided a reconciliation of those measures to the most direct comparable GAAP measures in the tables and the Press Release.

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

First, diluted EPS from Continuing Operations for the third quarter was $0.19 a share, up 90% versus the third quarter last year.

Research contract value which is a key leading indicator for our business increased 15% year-over-year to a record $812 million and total revenue grew 11% to $298 million.

Excluding the impact of foreign exchange, research contract value was up 12% year-over-year and total revenue increased 9% year-over-year.

Net income increased 50% year-over-year to $19 million and normalized EBITDA increased 33% to $47 million.

Turning to the cash flow statement and Balance Sheet, operating cash flow for the third quarter increased 43% to $56 million, and Capital Expenditures totaled $5 million.

During the quarter, the Company repurchased approximately 1 million shares of its stock for $25 million.

As of September 30, the Company had total debt of $425 million and cash of $145 million.

Turning to Gartner's financial outlook for full year 2008 the Company increased its guidance for EPS from Continuing Operations, reiterated its most recent guidance for normalized EBITDA and cash flow from Operations, and trimmed its guidance for revenue.

The reduction to revenue guidance is due solely to lower operating expectations for Gartner's events business and lower foreign exchange benefits across all three of its businesses.

Chris will give you more details but to highlight we now project full year 2008 revenue growth in the range of 7% to 9% and EPS from Continuing Operations growth in the range of 36% to 52%.

We continue to target normalized EBITDA growth of 10% to 15% and operating cash flow of between $155 million and $170 million.

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

Thanks, Hank.

Good morning everyone and thanks for joining us.

During the third quarter, Gartner continued to deliver double digit revenue and earnings growth.

Our results were driven by 16% revenue growth in our research business and 9% revenue growth in our consulting business, coupled with higher margins in both of these businesses.

Research and consulting both continue to perform solidly within our expectations despite the weak economic environment.

While our events business was impacted by the operational issues we had previously discussed, together with an increase in travel restrictions by some client organizations.

In our research business, contract value growth on an FX neutral basis was 12% in the third quarter.

This growth was broad based across all industry sectors including Financial Services.

Almost 3/4 of our research contract value growth continued to come from new client Enterprises and volume versus price, reflecting that demand for incremental subscriptions to our research remains strong.

Indeed, despite the economic environment, we added 115 new Enterprises as clients in the third quarter, growing our base of client Enterprises by 2% versus the Second Quarter, and over the trailing 12 months, we've grown our client Enterprises by 8%.

We also continue to be successful at both renewing and growing our business with existing clients as demonstrated by our strong wallet and client retention rates which remain stable at 100% and 81% respectively during the third quarter.

In consulting, backlog was up modestly year-over-year and all of our productivity metrics improved substantially.

In particular, we've seen very good demand for our benchmarking and contract optimization services which specifically help our clients to lower costs.

Turning to events.

On our last earnings call I told you that this business was performing at the low end of our expectations primarily due to operational issues that began last year and resulted from changes we made to our exhibitor sales and ticket Marketing strategies.

I also told you that we were starting to see some vendors be more thoughtful in terms of the number of events at which they exhibit and attendees registering closer to the date of the event.

We're executing on initiatives to address the operational issues and events which are starting to make some positive progress.

Unfortunately this progress has been out weighed by the macro trend that have significantly worsened over the past several weeks.

Many companies have implemented travel restrictions in light of the worsening economic environment which impacted the ability of both attendees and vendors to come to our events.

As a result we're reducing our outlook for the events business for full year 2008 and expect growing this business will remain challenging until these travel restrictions are relaxed.

We do, however, remain confident that our long term target for this business of 5% to 10% annual revenue growth is achievable, although this will clearly take some time and be somewhat dependent on the economic environment.

I want to address our ability to grow our research and consulting businesses going forward, given the current challenging economy.

Although no business will be immune if we have a prolonged recession we do believe our research and consulting businesses are extremely well positioned for continued growth even in a challenging economic environment.

Let me explain why.

First, our research is focused on helping IT leaders make the operational and strategic decisions that are required to run effective and cost efficient IT programs.

These are critical business functions even in a difficult economy.

Our research helps our clients to save significant amounts of money on their IT costs and therefore we can be even more valuable to clients in a less robust tech spending environment.

Moreover, Gartner Research typically represents a miniscule percentage of our clients IT budgets which typically run in the millions or even billions of dollars.

The value to our clients of our research is high, the cost is low, and to eliminate Gartner Research is not an effective way for our clients to meet IT budget cuts.

Similarly in our consulting business we have unique assets such as benchmarking and contract optimization which help our clients save costs and operate more efficiency, efficiently in a difficult economic environment.

Thus we believe Gartner Consulting is part of the solution for our clients rather than a cost to cut.

It's for all these reasons we believe our businesses are not tied to growth in tech spending or the tech innovation cycle.

Second, we benefit from having a vast untapped market opportunity to sell our research to Enterprises that have never before used Gartner Services.

As well as to sell additional services to our current base of client Enterprises.

We are still in the early innings of penetrating this opportunity by growing our sales coverage.

In fact, we've identified almost 80,000 Enterprises that potentially could use Gartner Research yet we only have sales associates assigned to a minority of these and only 9% are actual clients.

So to summarize, for the first nine months of 2008, we generated revenue growth of 13%, normalized EBITDA growth of 33%, EPS from Continuing Operations growth of 112% and operating cash flow of $137 million, which is substantially greater than our net income.

We also returned $176 million of cash to our shareholders through share repurchase and have continued to buyback an additional $21 million of our stock in October.

Our research and consulting businesses are performing solidly within expectations despite the difficult economic environment, while events was impacted by both travel restrictions and operational issues that are being addressed.

Looking ahead we remain very excited about our products and market opportunity, but cautious on the economy.

Despite the challenging economic environment we believe we are well positioned to achieve our 2008 guidance and to grow both our total revenue and earnings in 2009.

With that I'll turn it over to Chris for additional details on our results and 2008 outlook.

Thanks, Gene, and good morning.

I'll start today with a review of our results for the third quarter and finish with an update on our full year outlook.

Our Third Quarter performance continued the trends we delivered in the first half with double digit year-over-year growth in revenue, in research and expanding profit margins.

We have seen continued demand for our products and services in the current environment because organizations have a critical need to reduce costs and effectively manage their IT organizations and investments even in this economic environment.

Our research segment continues to perform solidly within our most recent guidance for 2008 excluding the impact of foreign exchange.

The strong growth in contract value we delivered in 2007 and the first half of 2008 converted to 14% year-over-year FX neutral research revenue growth in the third quarter.

The operating leverage inherent in our research business together with our ongoing focus on productivity improvement and expense Management drove a 2 percentage point increase in gross contribution margin over last year to 67%.

For the first nine months of the year research revenue increased 15% on an FX neutral basis and gross contribution margin increased 3 percentage points to 66%.

Despite the economic environment contract value which is our leading indicator for future rate [assurance] revenue growth grew 15% year-over-year in the third quarter and 2% sequentially to a record level of $812 million as of September 30.

On an FX neutral basis year-over-year growth was 12%.

Our growth in contract value continues to come from gaining new clients, selling additional research subscriptions to our existing clients and to a lesser degree, higher effective selling prices.

Importantly, this growth continues to be very broad based.

In Q3 contract value increased both year-over-year and sequentially across all client sizes, geographies, and industries including the Financial Services industry, and the majority of our contract value growth, or about 70% of it has been from new business volume as opposed to price increases.

From a client mix perspective, the majority of our contract value growth has been from sales to new client Enterprises with the remainder from incremental sales and upgrades to existing client Enterprises.

During the third quarter we grew the number of client Enterprises by 2% sequentially adding 115 net new Enterprises as clients and over the trailing 12 months, client Enterprises are up 8% with 478 new Enterprises added since Third Quarter 2007.

As these results highlight the continued growth of our sales capabilities enabled us to further penetrate our untapped market opportunity during the third quarter.

Our role based offerings continue to be an important driver of research growth.

As of September 30, Gartner for IT leaders, our role based products for the end-user market accounted for $119 million of contract value up 44% year-over-year and Gartner for Business Leaders our role based products for the technology market represented $91 million of contract value, up 147% year-over-year.

Collectively these two products were up 67% year-over-year and accounted for 35% of our total contract value.

We expect continued growth in these products from both new clients and migrations of existing clients for the foreseeable future.

Our executive programs offerings for CIOs also continued to deliver consistent year-over-year growth with contract value up 16% to $205 million at September 30.

Our ability to retain and grow our relationship with existing clients is reflected in our retention rates.

Wallet retention has remained at or above 100% for the past seven consecutive quarters and client retention is a solid 81%.

Our continued strong retention metrics demonstrate the success of our role based products, the improvements to client service and the other actions we're taking to insure that our clients are receiving maximum value from their research subscriptions.

As you can see from all of these metrics, our research business continues the strong performance consistent with our expectations at the start of the year.

And demand for our various research products has remained solid across all client sizes, industries and geographies.

As a result, on an FX neutral basis we continue to expect this business to perform solidly within the guidance we gave last quarter as I will discuss in more detail later.

Now moving on to consulting.

Our consulting business also continues to perform well and solidly within our original 2008 guidance excluding the impact of foreign exchange.

During Third Quarter 2008, consulting revenue increased 7% on an FX neutral basis as in the first half of the year, we continue to see particular strength in our contract optimization and benchmarking practices both of which help clients optimize cost.

Our core consulting practice also grew as expected despite the difficult economic environment.

Consulting revenue growth was generated by a combination of continued improvements in productivity and growth in Billable headcount which increased 5% over last year to 494 people.

Our focus on larger more profitable engagements with fewer key clients and our investments in senior level Managing Partners who have both Business Development and delivery responsibilities continued to yield positive results as seen by all of our key productivity metrics.

Utilization during the seasonally lower Third Quarter was 69% up 5 points year-over-year and during the first nine months of the year was over 72% up 4 points year-over-year and ahead of our full year target of 70%.

Our average billing rate also increased in the quarter and together these improvements drove a 12% year-over-year increase in our annual revenue per Billable headcount which was $437,000 in the third quarter.

These productivity improvements in the consulting segment contributed to the gross contribution margin increase of 3 percentage points year-over-year to 41%.

For the first nine months of the year consulting revenue was up 4% on an FX neutral basis and gross margin was 41% up 2 percentage points year-over-year.

As of September 30, backlog ended at $110 million up 1.4% year-over-year.

We have seen continued demand for our consulting services despite the weak economic environment because we are highly differentiated from the competition.

Our consulting services are independent, research driven, and most importantly in the current environment focused on helping clients optimize or reduce their IT costs.

As all of these metrics highlight our consulting business continues to perform in line with our expectations at the start of the year.

Demand for our consulting services is demonstrated by our backlog and as a result on an FX neutral basis we continue to expect this business to perform solidly within the guidance we gave last quarter.

Turning now to our event segment.

I'll focus my comments on the nine months results as the quarterly comparisons are highly impacted by the timing of the events calendar.

For the first nine months of 2008, events revenue decreased 2% as reported and 7% on an FX neutral basis.

These results primarily reflect a change in the mix of events between new launches and ongoing events and lower exhibitor revenue from our ongoing events.

We held 53 events in the nine months ended September 30, 2008, compared with 50 events in the prior year period.

42 of these events were ongoing events held in the prior year.

We continue to thoughtfully manage our portfolio by eliminating four events and launching 10 new events during the first nine months of this year.

New launch events are normally considerably smaller in terms of revenue and attendees and established events while also delivering lower margins in the first year.

And in addition three events held in Q3 2007 were moved to Q4 2008.

As a result of all these changes to the portfolio attendance was 25,281 for the first nine months of this year compared to 27,526 in the comparable period last year.

As we discussed at our last earnings call during the first half of the year we experienced some exhibitors being more thoughtful in assessing the events at which they exhibit and attendees registering closer to the date of events.

These trends continued in the third quarter and in addition we have seen an increase in travel restrictions at our clients companies in the past few weeks.

Despite this environment we have already attracted over 25,000 attendees to our events this year with our focus on delivering compelling, relevant and immediately actionable content.

And we're making progress on addressing the operational issues that have contributed to our performance in this segment, as can be seen in the improved on site renewal rates for exhibiting companies at our Q3 events and the significant increase in CIOs that attended our recent US symposium in Orlando, and that plan to attend our European symposium that begins next week.

The economic headwinds I mentioned earlier are impacting the speed at which we will see significant improvements and as a result we have reduced our FX neutral events revenue guidance for the full year 2008.

Our long term growth target expectations for this business of 5% to 10% annual revenue growth have not changed.

Moving down the Income Statement, during the third quarter SG&A increased by $17 million or 15% year-over-year.

Approximately $2 million of this increase was due to the impact of foreign exchange.

The growth in SG&A primarily reflects the continued investment in our Sales and Marketing organization.

As discussed in our last earnings call we continued our investment in productively growing our sales force during the third quarter adding 37 net new sales associates, bringing our total to 874 at September 30 up 8% year-to-date.

And we plan to continue our sales force growth plans during the Fourth Quarter.

While we're investing in Sales and Marketing we're also actively focused on controlling G&A which remained flat as a percent of revenue in the third quarter 2008 versus the third quarter 2007.

Turning now to cash, operating cash flow for the third quarter was $56 million up 43% year-over-year and we spent $5 million on Capital Expenditures.

For the first nine months of 2008 operating cash flow was $137 million and CapEx was $18 million.

We are well positioned to achieve our full year 2008 operating cash flow projection of between $155 million and $170 million and CapEx target of $25 million and $27 million.

This represents operating cash flow per share of between $1.57 and $1.72 for the full year.

We are generating both operating free cash flow per share substantially in excess of our earnings per share.

Throughout 2008, we have deployed our cash primarily to repurchase our stock and year-to-date through September 30.

We spent $176 million in cash to repurchase 8.4 million shares.

As a result of these share repurchases, our fully diluted shares outstanding in the third quarter 2008 were down 10% from the third quarter of 2007.

We have continued to repurchase in Q4 with an additional $21 million spent in October.

Particularly in the current environment we continually evaluate the balance between maintaining the appropriate level of liquidity and options for deploying our cash.

Let me now move on to the details of our outlook for the full year.

During 2008, we have consciously managed the business to improve the quarterly mix of earnings in part due to the uncertain economic environment.

Over 50% of our 2007 full year EPS was earned in the Fourth Quarter while this year it will be approximately 1/3 based on the mid point of our updated guidance.

As we have repeatedly explained we believe smoothing the seasonality of our earnings by tightly managing expenses was a prudent business decision and provided flexibility to make investments as our performance allowed.

As a result, we're able to reconfirm our normalized EBITDA guidance for the full year.

As I mentioned earlier excluding the impact of foreign exchange, our revenue guidance for the research and consulting segments remains unchanged and events has been reduced to reflect the change in the environment particularly with regard to increased corporate travel restrictions.

On an FX neutral basis research revenue is expected to grow between 13% and 14%, consulting 0% to 3% and events decline 6% to 8% for the full year.

This would result in total FX neutral revenue growth of 6% to 8% for the full year 2008.

The US dollar has strengthened significantly in recent weeks and we've adjusted our guidance for revenue across all three segments to reflect the current foreign exchange rates.

We are now projecting full year 2008 total revenues of $1.255 billion to $1.275 billion an increase of 7% to 9% versus 2007.

Details by segment can be found in our Press Release.

To be clear, our guidance assumes FX rates from earlier this week, so continued volatility in the foreign exchange Markets could cause our actual revenue results to differ from this guidance.

But we currently believe this should have minimal impact on earnings given our mix of revenue expense in various currencies.

Moving to our earnings guidance we continue to expect that normalized EBITDA should range between $209 million and $219 million for the full year 2008, an increase of 10% to 15% over 2007.

Diluted EPS from Continuing Operations should range between $0.90 and $1 per share, an increase of between 36% and 52% over last year.

This is an increase from our previous guidance of $0.02 per share both the high and low ends of the range as a result of lower expected stock based compensation and interest expense.

The impact of foreign exchange on our revised revenues has minimal impact to our EBITDA, EPS, and cash flow.

In closing, for the first nine months of this year and during the third quarter we continued to deliver on our financial objectives.

We remain optimistic about our business fundamentals and growth opportunities in 2008, 2009 and over the long term.

While the current economic environment is clearly uncertain, we believe our businesses are well positioned due to the market opportunity, value proposition, and the critical role that our services play in helping IT professionals run efficient and cost effective IT programs and Operations.

We continue to experience demand for our research and consulting services in the third quarter but we remain cautious and we will prudently manage our business to insure that we maximize growth, profitability and shareholder value during difficult economic environments.

With that, we will open the call for questions.

Operator?

(Operator Instructions).

Your first question comes from the line of Peter Appert of Goldman Sachs.

You may proceed.

Thank you.

Gene and Chris, you've addressed this to some extent in the call but I was hoping you might dig a little deeper into the issue of just in the context of how strong the momentum has looked over the last couple quarters, the guidance for the Fourth Quarter, apart from the revenue, just even the EBITDA guidance seems somewhat conservative so how do you strengthen the momentum in the third quarter with more conservative Fourth Quarter guidance?

Hi, Peter.

It's Chris.

It's a couple things, if you look at our guidance, a couple of two or three key things I'd comment on.

Number one is as we've said earlier throughout the year, we've made a conscious decision to manage our expenses very tightly, so as you see from our results for the first part of the year, we have brought earnings in much earlier this year than last year so that's number one, so that was a conscious decision on our part.

We are continuing to make investments in the third and Fourth Quarter including sales expansion, including Marketing programs, including other areas that will help continue to drive improvements in productivity or salesforce.

Those are the key things that we are continuing to focus on, I believe are the right investments to make both for the remainder of this year and into next year and beyond.

Number two, we've obviously reduced our expectations for the event segment and so that certainly has impacts not only on the top line but it does flow through to earnings as well, so there's certainly an impact of the challenges we face from the environment perspective and the challenging travel restrictions we're seeing so that would be the second piece and the third piece is if you look at last year, we had a particularly strong Fourth Quarter in our contract optimization business and consulting as we talked about on last years call, and this year, we've done a much better job of managing the consulting business to be more evenly managed throughout the year and so the combination of those three things is what's giving you the results you see in our full year and then extrapolating into Fourth Quarter.

Okay, good.

That's very helpful.

Thanks Chris.

And then on the salesforce expansion, you'd mentioned last quarter the possibility of stepping up the pace of hiring.

It doesn't, I mean you obviously hired people here sequentially, but year to year growth rate still low versus what the targets you've laid out previously.

Does that step up in the Fourth Quarter and then what do you think about for '09?

Hi, Peter, it's Gene.

So basically, we were very conservative in the first, in the Second Quarter in particular because we wanted to see what the economic environment looked like.

We are, we've accelerated that hiring into the back of this year so that we're better positioned for next year.

We're not going to achieve, our long term target is something like 20% growth.

We're not going to get quite that high this year but we will continue hiring through the Fourth Quarter.

Do you think you get back to 20% in '09 or do you stay more conservative near term?

I think it's too early to say what we will do in '09.

Okay.

And then the symposium, well two things sort of related.

Just some flavor on momentum through the quarter.

I think you highlighted that maybe things were a little slower towards the end of the quarter, beginning of October, so do you see in both the events business and the research business some evidence that maybe things did slow towards the end of the quarter and maybe slowing continues in the Fourth Quarter?

So it's Gene, Peter.

I'd say the two are different stories, in events, in September, a number of companies put in travel restrictions that weren't in place before that, and so even people that were planning to buy tickets or had bought tickets had to not go forward with those plans and so that's impacted it and again, keep in mind what Chris said which is we still had 25,000 or so people attend our event so there's an impact but it's not like half as many people are coming or something like that.

And so that's what's going with events.

Other than the operational [issues] which we've had for the last year or so, the new news there is just these travel restrictions which have been, and the impact has been incorporated in the guidance that Chris gave in terms of Fourth Quarter.

In terms of our research and consulting, the same thing.

We have seen continuing strong demand for those businesses.

The only change we see in the marketplace there has been that it may take an extra sign off or two to get that business done as opposed to today compared to what it would have been a year ago, and so the demand is clearly there.

We're getting the business done, but it may take an extra signature or two.

Things for example, go to the CFO that wouldn't have gone to the CFO before, and again, the demand remains strong, for both research and consulting.

Got it, great.

And just the last thing.

How about symposium specifically, how did the attendance look there on a year to year basis?

Hi, Peter, it's Chris.

Overall, attendance at our US symposium which we held just recently was roughly flat with the prior year.

What I mentioned in my comments was that what we're particularly pleased about was there was a significant increase in the number of CIOs so we continue to attract a really high quality audience.

We continue to attract that level of person because of the quality of our content.

So that's kind of roughly what we saw at Orlando.

CIOs just if you guys want kind of the rough number was up about 30% year-over-year, so it was not a small increase.

It was a significant increase and well over kind of 700 CIOs in attendance so we're continuing to be pleased with that.

Great.

Okay, thanks a lot.

Great work on the margins.

Thanks Peter.

And your next question comes from the line of Laura Lederman of William Blair.

Yes, thank you for taking my questions.

Just to follow-up on what Peter asked about the end of September, you mentioned that the consulting I guess and research businesses that it is taking longer to get a signature, you might need two.

Does that mean that some deals slipped?

Was there kind of a change in terms of sales cycling in Q3 at all in terms of deals slipping and taking longer?

I'm just trying to get a little more clarity on that.

Hi, Laura, it's Gene.

I'd say that we haven't seen a lot of deals slipping between quarters.

I'd say more again, it just takes a bit more work on our salesforce part to get those done so there is the exchange in the marketplace but I think it's more that our salesforce is having to work harder to go get things done.

Alright, talking a little bit about currency.

Can you give us, I realize you aren't giving guidance in '09 just kind of a high level view of how much of a currency headwind and current levels would be on '09, if exchange rates were not to change and stay at current levels.

Well let me just give you some color around the mix of our business so you can, again we're not trying to project 2009 foreign exchange.

In fact as I said in my comments we aren't even trying to project what's going to happen for the rest of the year.

It has been so incredibly volatile that we simply picked where we are today or where we were actually earlier this week which has already changed, but our business mix is -- there's probably three or four currencies that are the biggest currencies for us.

US dollar is probably 60ish percent of the revenue or the billings, British Pound, Euro, and Australia dollar.

Those would be the bigger ones, and many of those have increased or the dollar strengthened pretty significantly against those, whether that continues or doesn't continue, but what you can see in our Fourth Quarter is that strengthening has required us to make some pretty significant adjustments to our actual reported or actual expected revenues, so from a bottom line point of view, because we have expenses fairly well balanced around the world the impact flowing through the bottom line ends up being minimal, so that's kind of a flavor but again, there has been a pretty significant strengthening of the dollar which as you can see from our change in guidance had a pretty big impact in just a few weeks since the last time we talked.

Alright, if you -- moving on to something different, talk a little bit about pricing and one of the differences in the market over the last couple two years versus it historically, was that pricing has been very stable and in fact going up.

Can you talk a little bit about the customers and their pushback if any on paying higher prices and moving to the new more expensive products, just pricing in general.

Hi, Laura, it's Gene.

So we have continued our pricing policy which as you may recall is for all of our new products there's no discounting and even on the legacy products we honor, basically there's no discounting of the legacy products for new clients although if somebody has an agreement that historically has been heavily discounted we'll keep that.

We don't give additional discounts off that so in essence that's our pricing strategy.

We have maintained that strategy and we have not had pushback on pricing.

And in addition to that, we have an annual price increase November 1 and we are planning as usual with that price increase November 1, clients have already been informed about it and from our salespeople and clients we've gotten no pushback on that.

That's good to hear.

Shifting to a slightly different gear, you guys seem to be much better than other forecasters in terms of looking at IT spend in the economy.

Can you talk a little bit about what you think will happen in terms of Q4 budget flush, what you expect the growth rate to be in IT spending in Q4 and also a little bit of your thoughts on '09 as well.

You do a much better job than any of the other forecasters on that.

So, well thank you.

Basically, we survey our clients regularly.

We've surveyed them in the last couple of weeks, again on this point, and in this, we triangulate this as you know looking at what's going on with what we see with demand because when people are buying they talk to our analysts as well, and triangulating all that stuff between what we see in demand, what clients are telling us directly, we see IT spending continuing to grow in the low single digit range both for the Fourth Quarter and for next year.

Great.

And one final question which is what percentage of consulting comes from contract optimization services and benchmarking and I realize there is per quarter but just like on a full year basis how much comes [from those] too?

Contract optimization is in the 10ish percent range of the overall business and benchmarking probably 20 to 25 depending on the quarter.

Thank you so much.

And your next question comes from the line of Brian Murphy of Sidoti & Company.

You may proceed.

Hi, thanks for taking my question.

Chris, I just wanted to follow-up on the currency question.

Did you say that currency has not been having a material impact on your margins?

Yes, if you look at the change that we just made to our guidance, essentially the impact of foreign exchange on both the top line and expenses is roughly offsetting itself and it's all because of the mix of revenues and expenses we have, so as I mentioned a minute ago, there's a few currencies that are our biggest currencies on revenue on the expense side, we have slightly more in British Pounds than in some of the other European currencies just because that's where our European headquarters and many of our bigger base of our analysts are, so that's why when you look forward and we project forward we feel pretty comfortable that it has an immaterial impact on the Fourth Quarter results.

Or the Fourth Quarter guidance change.

Okay, thanks.

And just looking at the sequential change in deferred revenue, just looking back over five years, that's the lowest sort of increase that I've seen.

Is there anything to make of that?

No, I think nothing at all.

We haven't seen any real dramatic changes.

Obviously, our revenue growth as well as our contract value growth so contract value growth which ultimately converts into that deferred revenue number, we haven't seen any real dramatic changes in terms of our billing cycles or any other things around how that would be reflected so no, I would not read into that in any way that there's any other slowing or changing in the business.

Obviously, foreign exchange has an impact as we change, so our Balance Sheet is impacted by foreign exchange.

I don't have off the top of my head how much of that foreign exchange was due to that, but that would be the only thing that would be out of the normal trend lines that we've seen in any part of the business that would affect deferred revenue.

I see, thank you very much.

(Operator Instructions).

Your next question comes from the line of Dave Lewis of JPMorgan.

You may proceed.

Hi, guys, good morning.

You've done a great job on the cost line.

I was just wondering, Chris, could you dig a little deeper into the items that are contributing to keeping that number down both in 3Q and 4Q obviously currency is contributing to the 4Q implied guidance for cost but it's beyond, it looks beyond more than just discretionary ratcheting back of salesforce growth and Marketing spend.

You hinted at it in some of your comments but can you just elaborate on some of the things you guys are doing to keep the costs down?

Yes.

I think it's pretty broad based across the whole business, so for example, start with research, you're seeing we're getting pretty significant leverage in that business, if you did the incremental revenue flow through we probably are in the 80 plus percent flow through, through the gross margin line through the entire first part of the year including through the third quarter.

I think that team and research has done an amazingly good job of looking at Analyst productivity, improving that productivity, focusing in the areas where we have the biggest impact with our clients and rationalizing areas where we can, so that part we've done it.

I think on the consulting side you see all of the leverage that we've received out of driving significant improvements in utilization.

We're now driving up the consistently staying above or around that 70% utilization number that we have been targeting for the last few years so I think that organization also has really done a good job of driving utilization improvements that have a big impact on our cost structure.

On the G&A side, as we talked about over the last few years and it has continued is we are extremely diligent in terms of where we add those costs.

We've continued to leverage that organization pretty significantly, added very little incremental resources there so across the whole G&A function I think we've continued to be pretty aggressive.

So kind of in a long winded answer to your question, there's a lot we've been doing across the whole business to drive the kind of cost savings results you've seen in the numbers.

Okay, great.

My last question is the average research contract I believe in terms of length I believe it's about 1.2 years, 1.3 years.

Is that still accurate or has that shifted at all?

If you think about our contracts, just so people have clarity, as you know, and as we've said before, our minimum contract is 12 months in length.

We do multi-year contracts that could be two to three years.

Today, between 30% and 40% of our contracts at any point in time are multi-year so if you do the straight math you're probably getting right around the number you got to at 1.2 years, 1.3 years and the answer is that it's stayed pretty steady.

It hasn't really changed at all in the last quarter or this year.

Okay, great.

Thanks guys.

Sure, thanks.

And your next question comes from the line of Bill Sutherland of Boenning & Scattergood You may proceed.

Thanks, good morning.

I wondered, Chris, if you have any updated information on your targeted improvements in sales productivity.

So if you think about from a sales productivity perspective, if you look at the numbers we have delivered throughout the year, you'll see that we have not had a significant improvement in productivity this year given the current economic headwinds that we're facing in the business in terms of lengthening sales cycles a little bit and the harder time that it takes to get deals done, so that is certainly having a bit of an impact on the overall productivity of our salesforce.

We still believe and are still driving investments to improve that productivity so as I mentioned a few minutes ago, the reason we're continuing to make investments both in the third quarter and going forward into the Fourth Quarter is we think there are still lots of things we can do to drive that that we think over the longer term and as the economy begins to improve that we'll have significant impacts there and we'll continue to drive it up.

So we're still taking the actions.

We're still driving towards the improvements that we think we can get at that, and we watch it as I've said many times like a hawk.

We have lots of metrics we look at in terms of productivity whether a sales rep is in there for six months, first year, second, third year, and almost any other way you can imagine so we're very much focused on that, and we're still comfortable with where it's heading in this environment and that's why we continue to add sales capacity.

And the attrition number is still at a good level?

Yes, Gene, Bill.

The salesforce attrition is running just where it always has been and we're very happy with it, in fact if anything, as a share of the total, we've had more performance Management used as a chance to up right our salespeople but the overall number has been right where it's been over the last couple years.

Great.

On the pricing front, I know you've been focused on reducing the amount of discounts.

Is there still a ways to go there?

Yes, it's Gene.

So basically as I mentioned earlier, our pricing strategy is all of the new products are not discounted at all.

So it works great because every client knows they're getting a fair deal.

We focus -- the discussion's on the value of the product, not it should be 10% cheaper or 20% cheaper, whatever, and so we have a very clear pricing strategy which is new clients, all of the new products are at the same price to each client and all of the new clients, even the legacy products at the same price and over time what we're doing is upgrading clients from the highly discounted products that would be a legacy kind of a contract up to these new products that are all list price and we continue those upgrades in these environment.

Clients see the value and make those decisions and that over time will eliminate the remaining segments that are still discounted and to give you clarity we still have a long way to go in upgrading, to give you a flavor, the numbers are something like we've upgraded already 1/4 to 1/3 of our legacy product base.

We still have a lot, the rest to go.

Depends on which product you're talking about.

Okay, great.

Oh, the number of events for this quarter versus last year?

The number of events for the quarter was 16 versus 18 last year, year-to-date 53 versus 50 last year.

And for Q4, Chris?

Q4 I think we're expecting the full year to be about 70 events so that would give you about 17 I think total events in the fourth quarter if I'm not mistaken..

It should be right around that range.

Okay, and then lastly about what proportion of your research bookings occur in Q4?

If you look at our overall contract value, skew by quarter, about 29% of our contract value comes up for renewal in the Fourth Quarter so it's a little more than the rest of the year but not extraordinarily different.

So that's the skew mix that we have.

If you look at it by industry segment it's pretty balanced across.

No unusual difference in terms of the kinds of companies that come up for renewal.

Okay, great.

Thanks Chris.

Sure.

You have no further questions at this time.

I would now like to turn the call back over to Mr.

Gene Hall for closing remarks.

I want to thank you for joining us today on this call and we look forward to talking to you again next quarter.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.