高德納諮詢公司 (IT) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to Gartner's Incorporated earnings conference call for the second quarter of 2009.

A replay of this call will be available through September 4th, 2009.

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 85128418.

This call is being simultaneously Webcast and will be archive 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 for joining us.

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

Before we discuss our results I would 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 FirstCall 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 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 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 2008.

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 highlights of our second quarter 2009 financial results.

Starting with earnings, EPS from Continuing Operations were $0.18, net income was $17.2 million and normalized EBITDA was $44 million.

At June 30th, 2009, research contract value was $736 million.

Excluding the impact of foreign exchange, contract value was 3% lower versus June 30th last year.

Revenue was $270 million for the quarter.

Excluding the impact of foreign exchange, revenue was down 16% year-over-year, principally due to lower events and consulting revenue.

Research segment revenue was down 1% year-over-year, excluding the impact of foreign exchange.

The Company generated cash from operations of $47.7 million during the quarter, and invested $3.9 million on capital expenditures.

During the first half of the year, Gartner deployed its cash principally to repay almost $100 million of debt.

As of June 30th, 2009, the Company had total debt of $316.5 million and cash of $97 million.

Finally, in addition to announcing second quarter earnings, the Company reiterated its most recent financial outlook for full year 2009.

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.

Well, there are three key points that I'd like you all to take away from our call today.

First, the revenue trends in our businesses are in line with expectations.

The expectations we shared with you last quarter.

And our focus on controlling costs continues to result in significant year-over-year savings.

As a result, we have reiterated our financial outlook for the full year.

Second, our efforts to adapt to the economic environment by executing initiatives to improve operational and sales effectiveness are starting to generate positive results.

Importantly, we are seeing business trends improve and expect contract value to grow sequentially in the second half of the year, primarily in the fourth quarter.

And third, we are well-positioned to quickly return to growth once the global economic environment normalizes and we remain confident in our long-term outlook for double-digit revenue and earnings growth.

Let me now address each of these points in more detail.

Starting at point one, our businesses are performing in line with our expectations and as a result, we have reiterated our financial outlook for the full year.

In research, with which is our largest and most profitable business, and the principal engine of our long-term growth, we maintained second quarter revenue close to flat on an FX neutral basis year-over-year, despite the challenging economic environment.

Both our client and wallet retention rates remain the highest in the industry, and we are now doing business with over 300 enterprises that we were not working with as of March 31st.

Importantly, contract value from our key role-based products, Gartner for IT leaders and Gartner for Business Leaders, in aggregate, continued to grow both sequentially and year-over-year.

The performance of our research business demonstrates that clients, particularly senior IT decision makers, value our research as much as ever for advice during these difficult times.

Indeed, research client inquiries, a statistic we track to measure how much our clients are actually using their Gartner subscriptions, increased 28% year-over-year during the first half of 2009.

And, when we look at the statistic for CIOs specifically, it was up 40%.

Consulting, revenue for the second quarter and the first half of the year was within our expectations given the economic environment.

Demand for our consulting services was particularly solid in the US.

Demand in Europe is lagging the US as economies there do not appear to be recovering as quickly as in the US.

Backlog ended the the second quarter at around four months, consistent with where we ended 2008 and the first quarter.

I am particularly pleased that as a result of the actions we took earlier in the year to manage costs, we maintained utilization at 70% and gross contribution margin close to 40% for the first half of the year.

These are the long-term targets for these key consulting metrics.

Finally, events also continues to perform as we expected in this environment.

As part of our previously announced plan to reduce the number of events held in 2009 versus last year, we held significantly fewer events in the second quarter as compared to the same quarter in 2008.

We also moved a number of events from the second quarter last year into the third quarter this year.

These planned changes in the calendar had a significant impact on the year-over-year revenue comparison for this segment.

While tight corporate travel restrictions continue to impact the ability of clients to attend our events, attendance at ongoing events has stabilized and is trending as we expected.

In fact, we saw improvement in attendee trends from May to June and on the exhibitor side we began to see improvement in the trend of participation of events held during the second quarter.

Turning to the second point, the environment appears to have stabilized.

We have started to see many of the business trends that ultimately drive growth materially improve, which makes us optimistic about our performance during the back half of the year.

These improvements are being driven by two factors.

First, clients now have greater clarity on their budgets, and than in the first quarter, which has resulted in a better selling environment.

Second, the operational enhancements that we have made to improve performance in the current environment are starting to yield positive results.

For example, as discussed in our last call, we have armed our sales force with the tools to demonstrate the positive returns that our services generate, which of course makes it a more attractive investment for our clients.

These actions and others are increasing the effectiveness of our sales force and as a result, we've seen sales cycles stabilize, which will ultimately drive better retention and higher new business over time.

Let me point you to some specific data points in each of our businesses.

Starting with research, new business was up 12% sequentially over the first quarter.

Retention for contracts that came up for renewal in the second quarter also improved sequentially.

We added 305 new enterprises as clients, up 25% from the first quarter.

While the slowdown in business we saw in the first quarter was broad-based, it is now more limited to the financial services and technology industries.

Pricing has remained stable despite a difficult spending environment.

And finally, sales productivity materially improved in the second quarter, versus the first quarter, and should continue to improve in the back half of the year.

As a result of these positive trends, we expect contract value to grow sequentially in the back half of the year.

And as you know, contract value is a key leading indicator for the growth of our research business.

Turning to events, attendee and exhibiter trends improved during the second quarter, the first improvement in many months.

Year-to-date, 600 CIOs have registered to attend our flagship fall symposium event and that's up 40% versus this time last year, and the event is still more than two months away.

This strong interest demonstrates our events are more valued than ever by senior IT leaders, even in the current economic environment.

And finally, consistent with our accomplishments in research, we have achieved productivity improvements in our events sales efforts which we expect will continue in the second half of the year.

So overall, many of the important metrics that drive our events business improved sequentially in the second quarter.

Finally, in consulting, backlog ended the second quarter at around four months, which is where it ended both the fourth quarter of 2008 and the first quarter of this year.

Demand for our services was particularly solid in the US.

Turning to the final point, we remain confident about our long-term prospects and are well positioned to resume growth quickly as the economy returns to more normal levels.

Our results since 2005 give us confidence that we have the right strategy and have built a strong foundation to deliver double-digit growth in revenue and earnings over the long term.

Nothing we are seeing in the current economic environment has caused us to change our view of the growth opportunities for any of our businesses.

Many of the strengths that will allow us to succeed in 2009 also provide the foundation for a quick return to growth as the economy improves.

First, Gartner is the premium brand in IT advisory services, and our base of 1200 analysts and consultants are the thought leaders in the industry.

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

And third, we benefit from having a vast untapped market opportunity to sell our research to enterprises that have never before used Gartner's services, as well as to sell additional services to our current base of client enterprises.

We are still in the first inning of penetrating this opportunity by growing our sales coverage.

There are almost 80,000 enterprises that potentially could use Gartner research.

Yet, we only have sales executives assigned to a minority of these, and only 9% are currently clients.

The actions we are taking now position us to return to growth quickly as the economy improves.

Our efforts to improve sales capabilities over the past few years will result in a more tenured and highly trained sales team as we move through 2009.

We know how to effectively recruit and train new sales executives and can rapidly return to sales force expansion as soon as we see improvement in sales productivity.

In our events business, it's clear that we offer a strong value proposition that is relevant to the most senior executives in IT organizations.

Even in times where every expense is under intense scrutiny.

There are no other IT events that offer the same quality content, interaction with technology providers, and opportunities to network with peers.

We expect that our events business can quickly return to the levels of growth it had had experienced for many years prior to the current economic downturn.

And in consulting, our performance has proved that clients see the value in our offerings.

With our research-driven, independent objective and benchmark informed consulting platform, we are differentiated from the competition and will quickly return to growth once the environment improves.

So to sum things up, our businesses are performing in line with our 2009 expectations and are well positioned to achieve our full year 2009 guidance.

Our services remain highly valued by our clients and we're taking all the right steps to improve sales effectiveness, control costs and invest for the long term.

Based on recent business trends, and the increasing optimism of our sales force, we believe that our second half results will show sequential improvement in many of our important metrics, including contract value growth.

Most importantly, with our premier brand, services that remain critical to IT professionals and vast market opportunity, we remain excited about our prospects for sustained double-digit revenue and earnings growth over the long term.

With that, I'll turn it over to Chris for additional details on our results and our 2009 outlook.

Thanks, Gene and good morning.

Each of our three business segments is performing in line with our expectations we discussed with you last quarter.

Revenues are trending as we expected in the current environment and costs have been reduced with both tight controls and continued efforts to improve operational efficiency.

For the first half, research revenue increased 1% on an FX neutral basis, and consulting revenue was solidly in line with our expectations.

Events revenue was also as expected, given the decision we made at the end of 2008 to reduce the number of events held during 2009.

Our focus on cost control enabled us to maintain solid profit margins and continue to generate free cash flow for shares substantially in excess of our earnings per share.

Most importantly, as Gene mentioned, many of the metrics that we look at internally and that ultimately drive growth substantially improved in the second quarter, and as a result, we believe that contract value will grow sequentially in the back half of the year, primarily in the fourth quarter.

Let me now discuss each of our three business segments in more detail.

In research, our tight cost controls and ability to maintain pricing enabled us to continue to deliver higher gross margins versus last year in this segment, which were up 3 percentage points year-over-year to 66% for the first six months of 2009.

Total contract value decreased 3% on an FX neutral basis versus second quarter 2008.

Unlike in the first quarter, when the modest slowdown in growth and retention was broad-based, we saw the second quarter results focus more on the industry segment heavily impacted by the economic downturn.

Particularly financial services and technology.

Importantly, we saw improving trends in the research business during the quarter, which we expect will drive contract value growth in the back half of the year.

These include accelerated sales to new client enterprises, higher new business, and better wallet retention.

From a client perspective, sales to new enterprises increased sequentially as we added 305 enterprises as new clients in the second quarter, up 25% from the first quarter.

Our ability to sell to new client enterprises even in the current environment is an example of how we continue to penetrate the untapped market opportunity for our research services, as you have heard us discuss many times before.

The dollar volume of new business sold increased 12% in the second quarter versus the first quarter.

Consistent with the trend over the past few years, new business was divided about equally between sales to new clients and sales of additional subscriptions and upgrades to existing clients.

Our role-based offerings continue to generate strong double-digit contract value growth year-over-year, driven by both sales to new clients and migrations of existing clients.

As of June 30th, Gartner for IT Leaders, our role-based product for the end-user market accounted for $188 million of contract value, up 11% year-over-year excluding the impact of foreign exchange.

Gartner for Business Leaders, our role-based products for the technology market, represented $103 million of contract value, up 34% year-over-year excluding the impact of foreign exchange.

Our executive program offerings for CIOs also continued to grow year-over-year with contract value of $187 million on June 30th.

Both our client and wallet retention rates remain the highest in the industry at 77%, and 86% respectively.

We continue to retain our larger clients with greater contract value as reflected in the fact that wallet retention remains higher than client retention.

Small enterprises were the main impact to client retention during the quarter.

Wallet retention trends improved from the first to second quarter.

We have historically reported retention rates on a four quarter rolling basis to eliminate any quarterly seasonality.

For contracts that were up for renewal in the second quarter, our retention rate improved, when compared to contracts up for renewal in the first quarter.

We expect retention rates to continue to improve sequentially, but reported retention may lag and therefore not reflect the sequential improving trend given our four quarter rolling methodology.

Overall, the positive trends in research business demonstrate two things.

First, the environment for spending on our service is improving as clients now have greater clarity on their budgets than in the first quarter.

And second, that our efforts to adapt to the economic environment by executing sales effectiveness initiatives are taking hold.

Sales cycles have stabilized and we saw meaningful improvement in sales force productivity in the second quarter.

As Gene discussed, and as a result, we believe that contract value bottoms in the second quarter and we expect growth in the back half of the year.

Moving on to consulting.

Revenue during the second quarter was solidly within our expectations, given the economic environment, our backlog levels entering the year and our decision to reduce billable headcount in January.

The year-over-year comparison is against a particularly strong second quarter of 2008, which was up 13% over 2007, and one of our strongest consulting quarters in the past few years.

Billable headcount was 459 on June 30th, down from almost 500 on December 31st.

As a result of our actions to adjust capacity, we've been able to maintain solid productivity and margins during the first half of the year.

Utilization for the first half of the year was 70% and gross contribution margin was close to 40%.

Both of these metrics are consistent with the long-term targets despite the challenging environment.

We ended the second quarter with approximately four months of backlog, consistent with where we ended 2008 and the first quarter.

In line with our expectations for the first half of the year.

As Gene mentioned, demand for consulting was particularly solid in the US during the second quarter, while demand in Europe is lagging as the economies there do not appear to be stabilizing as quickly.

Turning now to events.

Our events business is performing in line with our expectations given our decision to significantly reduce the number of events to be held during the year.

The impact of continuing travel restrictions at many companies, and lower marketing budgets for technology vendors.

The elimination of events and changes in the events calendar represented 80% of the year-over-year revenue decline in this segment.

As part of our previously announced plan to reduce the number of events held in 2009 versus 2008, we held only 14 events in the second quarter 2009 versus 25 in the same period last year.

This included the elimination of two large spring symposium events.

The impact of holding fewer events is most significant in the second quarter versus any other quarter this year, as the reduction in both the number of events and the corresponding revenue is by far the largest.

In addition to discontinuing ten events, we also held one fewer event due to a change in the events calendar.

As five events were moved out of the quarter this year, and four events were moved in.

The events that were moved out of the second quarter were substantially larger than those that were moved into the quarter.

The performance of the remaining events was in line with our expectations, given the ongoing impact of travel restrictions affecting potential attendees and lower marketing budgets at technology companies.

We attracted over 5100 attendees at our events in the second quarter, reflecting the fact that IT professionals continue to highly value the actionable insight they receive from events.

In order to maximize the profitability of the event segment, we eliminated the events that were expected to have the lowest margin, and while there are fixed costs in holding an event, we've been extremely diligent in managing the variable costs to maximize profitability of each event that we do hold each year.

In assessing the year-over-year trends at our ongoing events in the second quarter, attendance is in line with both our expectations and the trends we saw in the first quarter.

Exhibitor participation trends showed an improvement from the first quarter.

In particular, events held in June delivered substantial improvement in year-over-year participation for both attendees and exhibitors, versus those held earlier in the quarter and during Q1.

While still too early to be certain given the heavy fourth quarter events calendar, our events business appears to have stabilized and is starting to improve.

Moving on down to the income statement, the combination of lower expenses related to events, given the reduction in the number of events held, and our tight focus on cost controls across the entire Company enabled us to decrease cost of service by approximately 25% in the second quarter versus same period last year.

As a result, our total gross contribution margin increased 2 percentage points year-over-year to 57%, despite lower revenues.

Similarly, we decreased SG&A expense by 14% versus the second quarter last year, despite the fact that we grew our sales force during this period by 96 quota bearing associates.

As of June 30, we had 933 quota bearing sales associates, versus 930 at the end of March.

We also maintained SG&A expense flat sequentially versus the first quarter.

Year over year reduction in spending came from both sales and marketing and G&A expenses.

Turning to cash.

For the second quarter, 2009, operating cash flow was $47.7 million, consistent with our expectations.

Our cash collection effectiveness continues to improve even in this environment.

Our accounts receivable aging position continues to remain extremely strong, with the total over 90 days past due amount at 4%, the lowest level in many years.

We're on track to achieve our full year guidance for cash flow from operations of $100 million to $125 million, which is substantially above our net income, given the working capital characteristics of our research business.

The impact of our tight expense controls across the Company is also reflected in the year-over-year reduction of capital expenditures in the second quarter by 28% to $3.9 million.

We expect capital expenditures to be at the lower end of our guidance range of 15 to $20 million for the full year, down from $24 million in 2008.

We are reviewing every item of spend for opportunities to reduce costs in this environment.

During the first half of the year, we deployed our cash to reduce the outstanding balance on our credit facility by almost $100 million in order to reduce our interest expense.

As of June 30th, our balance sheet and liquidity position is strong with total debt of $316.5 million and cash of $97 million.

Our current credit facility runs through January 2012 and provides us with $253 million of available borrowing capacity.

We have ample cash flow and liquidity to continue to grow our business and execute initiatives that drive shareholder value.

Over the long term, we continue to believe that repurchasing our stock remains a good use of our capital and we have approximately $79 million remaining under our existing authorization.

In the near term, we're prudently managing a strong balance sheet and liquidity position in light of the uncertain economic environment and credit markets.

Now on to our financial outlook for 2009.

Our results for the second quarter were in line with our expectations and today we reiterated all of our revenue, normalized EBITDA, EPS and cash flow guidance for the full year 2009.

The details of our guidance can be found in our press release issued today, but let me discuss a few of the highlights.

For our research business, we continue to retain the majority of our clients and to sign new business with both new and existing clients.

Moreover, as we discussed, many of of our key research metrics are improving, and we expect contract value to grow in the back half of the year.

While our guidance assumed that contract value would improve during the second half, please keep in mind that this will have minimal impact on our 2009 results.

And we continue to expect research revenues to be roughly flat for the full year on an FX-neutral basis.

Over the long term, we still expect to grow research revenues at 15 to 20% per year, per our long-term financial road map.

In consulting, we ended the second quarter with backlog at about the same four month level we saw at year end 2008.

We remain comfortable with our guidance for this segment and over the long term still expect to grow this business 3 to 8% per year.

For our events business, attendee and exhibitor volumes are trending as expected, and we're starting to see signs of meaningful improvement.

We remain comfortable with our current guidance for this segment and over the long term still expect revenue to grow at a rate consistent with our long-term target of 5 to 10% annually.

With regard to expenses, we have taken numerous actions to reduce and control costs in 2009 while still selectively investing for long-term growth.

With our confidence in the vast March coat opportunity and long-term growth prospects, we've maintained the size of our sales force and analyst team and we will continue key product development efforts including enhancing existing and launching new products.

Before I turn the call over to Q&A, let me summarize.

Our businesses are performing in line with our expectations given the economic environment and we're starting to see meaningful improvement in many of the metrics that drive future growth.

We're taking all of the right actions to both manage our cost structure in the short term, while at the same time, investing in accelerating growth once the economy returns to more normal levels.

With our premier brands, services that are critical to our clients, and vast market opportunity, we're confident in our ability to generate double-digit revenue growth, double-digit earnings growth, and increasing return to our shareholders over the long term.

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

Operator?

(Operator Instructions).

We will pause for a moment to compile a list.

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

Yes.

Nice quarter, considering the difficult environment.

A question on IT spending and your thoughts on how that would impact in you Q4.

Are you internally as you forecast the economy looking for a budget flush at all in Q4 in terms of IT spending and if that were to occur, would that be of help to you?

Thank you that's just question one.

I've got a few more.

Hey, Laura, it is Gene.

We're not looking for a budget flush and certainly haven't built anything like that into our plans.

So it's -- I don't think we're forecasting anything like that either.

We're kind of thinking that it's going to be a slow improvement as opposed to there's going to be a sudden rush at the end of the year.

Okay.

Shifting to the next question, you mentioned that Europe business remains weaker in the consulting space.

Could you give us a sense of where things are stronger and weaker if you look at Europe as a whole?

So Laura, it's Gene again.

So if I look at consulting in Europe, we would say that the softness that we see there is broad-based.

It's not limited a particular country.

It's really broad-based across Europe.

Also, I know that you held the line on pricing this last quarter.

Can you talk a little bit about the competitive environment outside of you and is pricing remaining relatively stable?

Yes, we've had no pushback on pricing.

Basically, pricing's been very stable.

That has not been an issue for us.

The bigger issue for us is as I said, when people have -- if they lay off people, it used to be our clients.

There's a lot of scrutiny that goes on so the -- as it gets escalated, more CFO reviews, the kind of stuff we talked about in the past, but I would say the actual pricing environment, it's all about understanding the value as opposed to trying to get a little cheaper.

Final question.

On the acquisition front I know that Forster has commented that they want to be acquisitive and are looking at several properties, hopefully by the end of the year.

Do you see that as a use of cash or is that less likely for you?

We always look at potential acquisitions and if we see something that we think is a good fit, we would certainly go forward with it.

Thank you.

I'll pass it on and thank you for taking my questions.

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

Please proceed.

Hey, guys.

Good morning.

I was wondering if you guys can just touch on sales force growth and you cited that you would consider building the sales force when productivity starts improving and you decided -- we're seeing some improvement in sales productivity.

What would be the earliest right now where we could see sales force return -- growth returning to above 10%, 15%?

Hey, Dave.

It's Gene.

So we're looking at sales force growth continuously and where we see opportunities, where there's particular areas either geographically or with other market segments, we're already adding salespeople.

We've been doing that through this year and we're just keeping a tight look at that and where we see opportunities or where we think we can get the right kind of growth, we're going to continue to add.

Given what's happened with sales productivity over the last year, we think there's also a huge opportunity in increasing the productivity of the guys we have now and so we're disproportionately focused on that right at the moment but once we get that up to the levels we saw last year we would certainly be going even faster on sales force headcount growth.

I guess it's too early to talk about next year in terms of what your thinking is right now?

Yes.

So we don't -- we have not made any -- we don't want to comment on what we're planning for next year at this point.

Okay.

Thanks.

And Chris, can you comment on share repurchase and at what point you might feel more comfortable stepping back into the market more aggressively?

Yes, Dave.

As you know, we've been pretty aggressive with share repurchases over the past few years.

It is something that we believe is a good use of capital.

We still have $79 million left on our authorization.

As you can see, we've been very careful and we've talked about very careful this year in terms of the economic environment and until we see really good stabilization in the business, good stabilization in the environment, and also being careful in terms of liquidity with the current credit market.

So we keep all those things in mind.

We're constantly looking at where to deploy the cash, as Gene said, the two big things we talked about repeatedly in terms of use of cash would be acquisitions and share repurchase and those are the two things that we are still continuing to look at.

Okay.

And last one from me and then I'll pass it along.

You cited that CIO attendance is up for end-of-the-year IT Expo Symposium.

Historically you cited that September is the first month that you had pretty good read on how that's looking.

I guess the first question, two part question would be, what percentage of CIOs make up that conference attendance and how are we looking for events in 4Q?

What visibility do you have right now?

Yes, thanks, Dave.

Yes, a couple things.

I think as you rightly point out, a good number of attendees tend to register much closer to events.

That's always been the case.

In this environment, it tends to be even a little closer, given people are watching expenses pretty closely.

So as we get closer and closer, that's why we get better visibility as we get closer to an event, particularly for symposium which in the US happens in October, in Europe happens in November.

As we get into the September, October time frame, we have a lot more clarity.

In terms of CIO participation it's probably in the 10 to 15% range in general of the total attendee base, roughly.

That's where it's been historically.

We're really pleased that at this point as Gene mentioned it's running -- registration is running much higher for the CIO than we've seen in the past which is a great indication of the value that most senior people see in continuing to attend our events even in the current environment.

It's hard to say whether that percentage will be more or less than last year once all the registrations come in but at this point we're really pleased with what we're seeing in terms of registration and as I mentioned, what we're seeing in the events that happened at the very end of June, starting to see even better improvement in overall attendee on a year-over-year basis from a trend perspective.

We're feeling really good about what we're seeing in events rights now.

Great.

Thanks, guys.

Your next question comes from the line of Dan Leben of Robert W.

Baird.

Great.

Thank you.

Just on the contract value growth expectations to grow it sequentially in the back half, are you also expecting the year-over-year rate to decline to start lessening as we get into the back half?

Hey, Dan.

It's Chris.

Yes, thanks for the question.

The answer is yes.

We're obviously expecting -- the reason we're expecting contract value to grow in the back half of the year is one, all the metrics that we talked about are starting to show signs of improvement.

Second is that we tend to have much higher new business growth in the back half of the year, particularly in the fourth quarter.

That's a normal seasonal trend where new business tends to really ramp up in the back half of the year and also if you look at the retention of the contract value that's expiring through the year, actually the most contract value was actually expiring and up for renewal in Q2.

And the second most in Q1.

So we start to have a little less renewal activity, which allows more focus in new business in the back half of the year.

So that's the expectation that we have, both sequentially and then we should start to see it ramp accordingly in the back half of the year.

Okay.

So just -- without giving specific numbers, I know you guys don't want to but if you were to look at just the Q2 retention rates, clients and wall et cetera, were those levels above the rolling 12 months rates is that part of the reason for the optimism.

On the wallet number which is obviously the key one because that really drives contract value growth, the sequential change was positive.

So second quarter wallet retention on a standalone, if you just look at the contracts that came up for renewal in Q2, the retention rate on those from a wallet perspective was higher than the contract value that was up for renewal in Q1.

Which is a great indicator for us and we feel really good about it and it was a pretty significant movement in that number from the standalone quarter.

Okay.

I guess I'm just trying to get a sense of with that improvement in the second quarter, if we were to get this to continue throughout the year, just trying to get a sense of when we would actually see it in the metrics you report on a rolling basis.

It probably still as I mentioned not show up in Q3.

I think you still may see it declining in the quarterly metrics and possibly even into Q4 but that one is -- it all depends on the actual performance as we get into the third and fourth quarter.

But you'll probably start to see it into the fourth quarter, into the early part of next year.

Okay.

Great.

Thanks, guys.

Sure.

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

Hi, thanks for taking my question.

Chris, I know you mentioned that you're seeing some sort of positive trends in the events business but just looking at events attendees in the second quarter down 63% in the aggregate versus last year, I know typically half of events attendees are not research subscribers so I imagine events are a pretty important source of lead generation for research subscriptions for you guys.

My question is, how might a decline in event leads impact second half research bookings?

It's Gene, Brian.

Great question.

Actually, most of our research leads do not come from our events business.

The vast majority of our leads come through other sources, either our sales force or marketing programs that we have.

It's a very small number that actually come through events so we don't expect that to be an issue for us at all.

And just one other thing, Brian, that I would mention is one of the reasons you're seeing the decline in the attendees is that we did cancel a number of events so on a like to like basis, certainly not a 60% decline in the attendees.

We had spring symposiums which were large events and so the rest of the ongoing events were trending where we thought.

Certainly down from the prior year, but trending where we thought.

Another follow-up question, just on the optics of some of your reporting metrics, wallet retention fell faster than client retention again this quarter.

Gene, I think last quarter you said that this was probably due to layoffs.

So my question is in order to start to see an improvement in wallet retention, do you think we need to see this headcount start to come back?

So just on one point here, on the client retention, when we talk about a client, it's an organization.

It's a client organization.

So it's not about the individuals.

If you look at the -- I think that as we look at our clients, their kind of budgets and plans have stabilized and that's one of the two things that we think has made a difference in our improvement in Q2 and that we see continuing, in fact improving in Q3 and Q4.

So the first piece is clients know what their budgets are.

They know what the staffing plans are.

So that lets them be better able to buy.

And the second thing is we made a bunch of operational improvements with sales where we are better prepared for this environment.

A specific example is when we do a proposal now, we assume it's going to go to the CFO for approval.

Which we didn't assume a year ago and so now when we do proposals, we anticipate that and that has increased our ability to close those deals because now we know we're going to the CFO prepared for it and build that out front.

Those are the two things that I think are kind of driving our thoughts in the second half.

Okay.

And Gene, I think you called out financial services and technology as sorts of areas of weakness.

When you're looking for the uptick in contract value in the second half, do you expect that improvement to come from those segments or would you expect it to come from somewhere else?

So we are very broadly diversified, very broad based.

We're in sort of every industry and as you know, we have a substantial amount of business in many of the geographies around the world.

And so as we look at future growth, we expect it to be broad based and the point we're making there is not that those things accounted for -- that those two industries accounted for our overall performance but that they were worse than the other industries and that was a change from Q1.

If you're with me.

Meaning Q1 we saw everything was kind of weak.

In Q2, those are the two areas that we saw continuing weak.

The other industries we saw actually being pretty stable and because we're so broad based and not concentrated in a single industry, we don't see that as an issue.

Okay.

Thanks very much.

Your next question comes from the line of George Tong of Piper Jaffray.

Good morning.

Chris and Gene, the operating results this quarter benefited from rather tight cost controls.

Would you say these cost cuts are sustainable and how much of these costs do you expect will return when revenue growth improves?

You have to look at each segment separately to answer that question.

First, there's a lot of things we're doing that are sustainable.

If you go through each of the segment, for example in events, as the events business returns to growth some of that expense comes back in terms of the variable cost of delivering an event to the attendees that are there.

If we decide to have more events again that will increase the expense on the events side.

We certainly have taken some things that are sustainable but there's a number of things that are driven by the fact that the volumes are down.

Consulting, similar to events, which is we've taken some costs out related to resources and as we see backlog build, and the business begin to grow and utilization levels where they should be, we will add back resources as appropriate.

And in the short term we'll manage resources to map to the demand.

And again, certainly we've taken some actions there but there's a good percentage of those things that are variable with demand.

Across the rest of the organization, if you look at where a lot of our cost reductions have come, particularly in the G&A side, there's a lot of things there that are very sustainable.

We've been making some real changes to our business operations, to the way to run things and so we believe that a lot of the G&A savings are absolutely sustainable.

So I think it's a mix, depending on business, but there's a lot of sustainable things that we've been doing.

Got it.

And can you discuss particular catalysts you see that will benefit client and wallet retention rates in the second half of the year?

Is it a continuation of trends we saw this quarter?

Are there new developments you foresee?

Yes, George.

Basically, the reason we see retention improving is the two things I mentioned earlier.

Which is one is clients, existing clients, when they have more certainty over their budgets, obviously they can renew at better rates, and then secondly, the changes we've made in terms of how our sales force works with clients is making it.

So it's driving those renewal rates being higher is the fact that clients have more certainty on their budgets and our sales people are approaching it with a different approach than we used before the downturn.

Got it.

I talked about this in my remarks.

That the -- in addition to being prepared to go to the CFO, we also focus on what is the economic impact of our services on our clients which goes over very well.

Right.

Great.

Thanks.

That's all I have.

Your next question comes from the line of Bill Sutherland from Boenning & Scattergood.

Did you already speak to the client decision cycle as it's currently looking and perhaps the impact that's having on sales productivity?

It's a great question.

So basically our client decision cycles have what I would characterize them as stabilized.

Because people have more certainty in what their budgets are, and what their initiatives are, what's important to their organizations, that the length of time required to close a deal is better than when people don't know what their priorities are and don't know what their budgets are.

That combined with are the two things that are driving our decision cycles to be stable or improving.

So you've never quantified those, have you, as far as kind of where they've ranged in this downturn from where they kind of were normally, the client turnaround?

We don't characterize those quantitatively.

Okay.

Chris, deferred revenues at June 30, did you put that number out?

Yes, deferred revenue on June 30 was $378.5 million.

Okay.

Then did you all talk about consulting in terms of the three kind of different focuses and a little color on how they're doing?

So Bill, as you know, we have three segments.

We have our benchmarking segment, contract optimization and what we call core consulting.

Contract optimization through the first half has actually continued to perform pretty well.

Had a particularly strong first quarter, not quite as strong in the second quarter but all in all for the first half I think has been remaining a pretty good value proposition for clients so it's done fairly well.

Benchmarking has continued to be kind of trending where we expect it to be, certainly no stronger, but kind of trending where we expected.

On the core consulting side we're seeing particular strength in the US, as Gene mentioned, so the US consulting demand is really solid.

In Europe, demand is lagging a bit in the US as the economies there have certainly lagged the stabilizing that we're seeing in the US.

So that's kind of what we're seeing across the three.

I would say all in all, consulting is performing pretty much right in line with our expectations and as we thought in the beginning of the year that contract optimization and benchmarking would be reasonably good value propositions, that's kind of what we're seeing in the numbers.

So when you say core is better in the US, do you mean quarter-over-quarter or just kind of trending stable quarter 2 to quarter 1?

If you look quarter-over-quarter, you're starting to see sequential improvements there.

The trend line is improving there.

I think the demand is feeling better in the second quarter.

So all in all, I think that's kind of how it's looking.

And then last, Gene, this is kind of a question that's I guess kind of a what if.

I'm thinking about events on a go forward basis and whether you eventually in a better cycle do shift back to the traditional array of events or whether you rethink that group, particularly given the advances in technology and the various kinds of collaboration in conferencing approaches, just kind of curious if you guys are kind of thinking about events longer term in any new way?

Thanks.

Great question.

And our events business -- so first, we remain very enthusiastic about our events business.

We do think it is terrific for a whole variety of reasons.

It allows us to deliver our research in a way that many people want to consume it.

It gives us great visibility.

We get terrific press from it and helps build our brand.

We remain very enthusiastic.

We are -- we each year carefully look at the strategy for each of our businesses including events and there are clearly changes that we are making to our events business on a go forward basis that we think will improve the growth and the overall success of that business on a go forward basis.

And we look at electronic things.

That's certainly one of the things that we have looked at as a part of that strategic review.

I'd like to not talk about specifics for competitive reasons but we definitely are thinking about it.

Okay.

Thanks, guys.

Your next question comes from the line of Sam Hoffman of Lincoln Square.

Good morning.

I had a few questions.

First, on research.

Gene, you had talked about the fact that pricing is fairly stable currently.

Can you talk about your objectives for price increases going forward?

I think traditionally you've increased price sometime around the latter half of the year.

Hey, Sam.

It's Gene.

So our pricing strategy is to over the long term, we think we can raise prices 3 to 7% a year.

And so that remains unchanged.

We implemented a pricing increase this year at the lower end of that range and reflecting the economy and again as I mentioned in my comments, that we've -- that has gone over fine with clients.

Okay.

My second question is a follow-up on what someone else had asked about consulting.

Chris, you had mentioned that you had the capability to ramp up consultants when demand was there and I guess so far this year, you're down 8% in terms of the number of consulting staff that you have.

Do you have the ability to really ramp that up quickly and if the demand were there, would you ramp it up to kind of get back to the level of consulting revenue that you were at in 2008 or is kind of the plan to just stick to the 3 to 8% growth from here?

As we said, Sam, a couple of things, is that we think over the long term 3 to 8% is the right range of growth for that business.

I think we've done a very good job of being able to match demand with consulting resources, both on the down side and we've not had issues on the upside.

I think our consulting business, we tend to be able to attract people to our consulting business.

We've not had a problem with that.

As we've seen this year, you know, our backlog has stayed around four months.

We like to be in the four to five month range so we're clearly at the low end of that as we talked about repeatedly this year and so until we really see that stabilize and start to move up, we don't think we need to add any resources at this point.

So I think what your expectation should be over the long term is that this is a 3 to 8% growth part of our portfolio and that's kind of what we're driving to over the long term.

Okay.

And then on events, can you comment on your objectives for margin in that business?

The events business, up until the end of last year and this year has been very stable.

It's been in the 48 to 50% gross contribution margin range.

We think that's about the most you can squeeze out of that, running the events as effectively as we do.

We certainly believe that as the attendees and exhibitors come back to the levels we've seen in the past, which we certainly expect to happen over time, that we will get back to that kind of level.

So I would say that's where we expect it to be, I wouldn't say you're going to see a lot more squeezed out of it from there but that's where I think long-term or longer term we would expect it to get back to.

And what is that for next -- like this year and next year?

Well, this year as we talked about, we're not talking about 2010 yet.

It's a little too early to talk about 2010.

But for 2009, as we talked about, we were going to see pressure on the margin line in events and the reason for that is we have decided to reduce lots of events.

We're holding 54 this year versus 70 last year.

We tried to peel out of portfolio the ones that we felt were going to be the most challenged in terms of attendees and profitability.

So we took those out of the portfolio.

And the rest of the events, we did expect to have both attendees and exhibitors down on a year-over-year basis so as a result, while there are some variable costs there are absolutely some fixed costs related to holding an event so we wouldn't be able to cover all the same fixed costs with a smaller base of revenue on the attendees and exhibitors so we expected it to be under some pressure for the remainder of the year.

Okay.

Two more quick ones.

On debt to EBITDA, what are your objectives for debt to EBITDA?

Because right now, I think you're at about two to one and including the cash on your balance sheet, you might be at about 1.4 to one, debt to EBITDA.

So what are your objectives for that metric?

We have talked about a number of times and I think is still valid is that we feel comfortable taking on more debt if there's a reason to do that.

So if we felt there was a transaction either acquisition or share repurchases, both of those we've done in the past and both of those we've taken on additional debt in the short term to do that.

We're not uncomfortable having higher levels of debt.

We've had debt in the 3 to slightly above 3 times debt to EBITDA range.

So if the right opportunity appears for us that will drive shareholder value, we would certainly take on more debt.

Right now it seems that -- I mean, barring an extremely attractive acquisition, you're going to continue to reduce that ratio?

What we've done in the short term, Sam, to manage our interest expense in the current environment is to pay down some of our revolver balances and we also have normal term payments on our debt, so we'll continue to make the normal term payments and that's where we are today.

Okay.

And finally, Gene, what is your inclination to allow incremental revenue to flow to the bottom line in research, capitalizing on what hopefully will be more productivity of the sales force, a better, more tenured sales force and a better economy, versus growing the sales force at a 15 to 20% rate?

Because I guess in a normal economy, I think you were supposed to earn somewhere in the $1.20 to $1.40 type of range, around this time, and obviously things are -- have been pretty impossible over the last year, but are you kind of inclined to get back to that range as a priority or have you kind of lowered the bar from an earnings perspective and would just intend to kind of grow from where you are from an earnings perspective, if not from a sales perspective?

Yes, Sam.

Basically, the -- we've laid out what our long-term objective is in terms of sales force growth.

We're not going to talk about 2010 but you know what our long-term objectives are for sales force growth, 10 to 15% and we do -- I'm sorry, 15 to 20%, sorry about that.

And then the research business, you've seen what we've done with margins in research business in terms of flow-through.

We think it's a very attractive business in terms of flowing through margins.

Long-term our strategy is the same as it has always been in terms of sales force expansion and flow-through research margins.

Would you say in the near term your priority is more to get back to the earnings run rate that you probably had looked to achieve in the near term or is it just to go off the slower base and try to go from there?

So, I guess two things I would say about that.

One is we've given guidance for this year and we don't want to talk about next year yet.

Premature to talk about next year yet.

Those are the kind of two components of it, Sam.

Okay.

Thank you.

Your final question comes from the line of Brian Murphy, Sidoti & Company.

My question was answered.

Thank you.

I would now like to turn the call back over to your presenters for today's conference call.

Please proceed.

It's Gene.

I would like to thank you guys for joining us today and we look forward to talking with you next quarter.

Ladies and gentlemen, that concludes the presentation.

Thank you for your participation.

You may now disconnect.

Have a great day.