高德納諮詢公司 (IT) 2009 Q3 法說會逐字稿

Good morning and welcome to the Gartner, Inc.'s earnings conference call for the third quarter of 2009.

(Operator instructions).

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 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 consent of Gartner are strictly prohibited.

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

Third, the Company will be making statements about 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 the 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 the with the SEC, including in its annual report on form 10-K for fiscal year 2008.

Finally, during the call the Company will be used certain nap 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 third quarter 2009 financial results.

EPS from continuing operations were $0.21.

Net income was $20.1 million, and normalized EBITDA was $40.8 million.

EPS and net income were positively impacted by the timing of non-cash tax benefits totaling $4.7 million or $0.05 per share, which are not expected to recur.

At September 30, 2009, Research Contract Value was $742.9 million, up 1% versus June 30th, 2009.

Year over year, Contract Value was 4% lower, excluding the impact of foreign exchange.

Total revenue was $267.5 million for the quarter.

Excluding the impact of foreign exchange, revenue was down 7% year over year.

The Company generated cash from operations of $55.1 million during the third quarter 2009, versus $55.6 million during third quarter 2008.

It invested $2.7 million on capital expenditures, versus $5.3 million in third quarter 2008.

During the first nine months of the year, Gartner deployed its cash principally to repay $151.3 million of debt.

As of September 30, 2009, the Company had total debt of $265 million and cash of $112.8 million.

Finally, in addition to announcing third quarter earnings, the Company increased its outlook for cash from operations and reiterated its outlook for revenue, normalized EBITDA and EPS from continuing operations 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.

On our second quarter conference call we told you our key business metrics had started to improve.

These metrics continued to improve during the third quarter.

Thus, we have now seen two consecutive quarters of material improvement in many of the business trends that ultimately drive growth.

This confirms the optimism we shared last quarter about our expectations for the remainder of the year.

The initiatives we put in place to increase sales effectiveness and client retention, coupled with a stable spending environment, enabled us to generate these significant improvements, and led to sequential growth in Contract Value, a key leading indicator for growth in our Research business.

Now although many corporate budgets have been reduced versus last year, IT professionals now have clarity on their budget targets and are beginning to make investments.

This has led to a substantially improved selling environment for our services, compared to earlier in the year.

Enterprises continued to spend over $3 trillion annually on IT and they need Gartner more than ever to help them make the critical decisions that are necessary to run effective and cost efficient IT programs.

This was evident at our flagship fall symposium event held last week.

This was attended by almost 6,000 IT professionals, including close to 1,700 CIOs.

Is this is the largest number of CIOs ever to attend our symposium.

All of these leaders invested time and money to attend the event, because they view Gartner's insight as crucial to their strategic planning and IT operations.

Let me now discuss the positive trends we are seeing in each of our businesses.

I'll begin with Research.

During the third quarter, sales productivity as measured by net increase in Contract Value improved substantially versus the second quarter, and was positive for the first time this year.

The operational actions that we have taken to adapt to this environment are increasing the effectiveness of our sales force, and with stabilizing sales cycles the confidence and optimism of our sales force continues to strengthen as compared to earlier in the year.

New business was up 35% sequentially over the second quarter.

I'm particularly pleased that this is also 6% higher than the third quarter of 2008.

This was the first quarter in 2009 that new business increased over the prior year.

We added 408 new enterprises as clients.

That is up 36% from the second quarter, and 16% higher than the same period last year.

This demonstrates the continued effectiveness of our sales force in capturing our market opportunity.

Client retention on a third quarter stand alone basis was 10 points higher than in the second quarter.

Wallet retention for contracts that were up for renewal in the third quarter increased back above 90%.

And the price increase that we put in place last November has continued to hold.

We are implementing our annual price increase of approximately 3%, effective November 1 in part to reflect the value of various enhancements that we have made to our Research services.

Well, taken together, these successes drove a $7 million sequential increase in Contract Value during the third quarter.

Importantly, Contract Value from our key role-based products, Gartner for IT Leaders and Gartner for Business Leaders, continued to grow both sequentially and year over year.

And in addition, Contract Value for our executive programs grew sequentially for the first time this year.

We believe that our Research business is now back on a trajectory of growth.

As a result, we expect retention and new business trends to continue to improve in the fourth quarter, and sequential Contract Value growth to accelerate.

The fourth quarter is seasonally important for new business, and our Contract Value at year end will be a key indicator of how much our Research revenue will grow in 2010.

We are in the early stages of our return to accelerated growth, and we remain confident that over the long-term, we can achieve our Research revenue growth target of 15% to 20% per year.

So why am I so optimistic?

Well I'll repeat what you have heard me say many times before.

First, Gartner is the premium brand in IT advisory services, and our base of 1,200 analyst and his 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 that will always be a critical business function, regardless of the economic environment.

And third, we have a vast, untapped market opportunity, both to sell our Research to new clients, as well as to further penetrate the existing clients.

Turning to Events, the trends in this business are also improving sequentially, although at a slower are slower pace than Research.

Corporate travel restrictions remain extremely tight, but we are seeing some easing for senior IT professionals for the first time since the recession began.

Our efforts to improve sales effectiveness and customer experience are gaining traction.

As a result, although the number after attendees and exhibitors at our events during the third quarter was down year over year, as expected, the trend was substantially better than in the second quarter.

Moreover, the quality of attendees at our events has never been better.

As I mentioned, the number of CIOs attending our flagship fall symposium event last week was close to 50% higher than last year, reaching almost 1,700.

This drawing interest demonstrates we offer a value proposition that is compelling to the most senior executives in IT organizations, even in times where every expense is under scrutiny.

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

Thus, we expect that our Events business will return to the levels of growth it had experienced for many years prior to the economic downturn.

Over the long term, we continue to expect to grow revenues in our Events business by 5% to 10% per year.

Finally, in Consulting, we have also started to see trends improve, although also at a slower pace than Research, as expected.

Backlog grew 4% sequentially during the third quarter, the first sequential improvement there year.

As in the second quarter, demand for our services was particularly solid in the US.

Our Consulting services remain valued by clients in the current environment because of our unique platform which is research-driven, independent objective, and benchmark-informed.

We expect our Consulting business to return to growth in 2010 and over the long-term we remain confident in our target of 3% to 8% growth per year.

So the three points I'd like you all to take away from our call today -- first, as Chris will discuss, our third quarter and year to date revenue and earnings were in line with our expectations, and our focus on controlling costs continues to result in significant year over year savings.

We generated better than expected cash from operations, and in fact, grew our free cash flow year over year during the third quarter.

Second, we are seeing meaningful improvement in our business trends.

These improvements are being driven both by the success for our initiatives to increase sales effectiveness and driver retention, and a better selling environment.

And third, we expect revenue growth and margin expansion to renew -- to resume in 2010 and to accelerate in 2011.

Over the long-term, we are confident that Gartner can generate double digit revenue and earnings growth due to our premiere, industry-leading brand, services that are critical tools for IT professionals, and a vast, untapped market opportunity.

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

Thanks, Gene.

And good morning.

In the third quarter in year to date, our businesses continued to perform solidly in line with our expectations given the challenging economic environment.

Through the first nine months of the year, we have held Research revenue almost flat on an FX-neutral basis, and Consulting revenues solidly met 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, and the impact of travel restriction.

Our focus on cost control and working capital management has enabled us to maintain solid profit margins and generate cash from operations at or above the high-end of our original expectations.

Most importantly, as Gene discussed, the improvement in the key business metrics that drive future revenue growth which began in the second quarter, further accelerated in the third.

And as a result we expect to return to revenue and earnings growth in 2010.

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

In Research, third quarter revenue met our expectations.

For the first nine months of 2009, revenue was essentially flat, to last year on an FX neutral basis despite the challenging economic environment.

Our tight cost controls and ability to maintain pricing levels enabled us to continue to deliver higher growth contribution margins versus last year.

The margin in this segment was 66%, for both the third quarter and year to date.

Up one point from last year for the quarter, and two points for the first nine months of the year.

More importantly, the improvements in the trends in our Research business, which began last quarter, accelerated this quarter.

This these include sequential growth in Contract Value, accelerated sales to new client enterprises, greater new business, and approved retention rates.

We have now experienced two consecutive quarters of significant broad-based sequential improvement.

All of this gives us confidence that Contract Value will continue to grow sequentially in the fourth quarter.

The selling environment continued to strengthen during the quarter.

The better environment, coupled with the success of our initiatives to improve sales effectiveness drove a $7 million or 1% sequential increase in Contract Value versus the second quarter.

This was the first sequential increase in Contract Value this year.

Recall that our moderate slow-down in growth was across all industry segments and that in the second quarter most segments improved except for financial services and technology.

In the third quarter, our results were broad-based with all industries, geographies, and client sizes showing improvement.

From a product perspective our role-based offerings and executive programs continued to perform extremely well, the Contract Value growing both sequentially and year over year.

As of September 30, Gartner for IT Leaders our role-based products for the end user market accounted for $192 million of Contract Value, up 2% sequentially and 8% year over year, excluding the impact of foreign exchange.

Gartner for Business Leaders our role-based products for the technology market represented $108 million of Contract Value, up 4% sequentially and 22% year over year.

And Executive Programs our role-based products for CIOs ended the quarter with a Contract Value of $193 million, up 3% sequentially, and 1% year over year.

From a client perspective sales to new enterprises continued to accelerate.

We added 408 enterprises as new clients in the third quarter, up 36% from the second quarter, and up 16% versus the same period last year.

These positive trends in new client additions and retention enabled us to expand our total base of client organization sequentially for the first time this year to approximately 10,000.

These results highlight our continued success in penetrating the untapped market opportunity for our Research services, even in the current tough environment.

The volume of new business also grew substantially in the third quarter, increasing 35% sequentially and 6% year over year.

This was the first year over year increase in new business this year.

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.

Turning to retention, during the third quarter we also saw continuation of the positive sequential trend.

Reported client retention remained unchanged sequentially at 77%, and wallet retention was 85%, both the highest in the industry.

As we have discussed in the past, client and wallet retention figures are reported on a four quarter rolling basis in order to eliminate any quarterly seasonality.

So these stabilizing trends sequentially in retention reflect a significant improvement in the retention of both the clients and dollars that were up for renewal in Q3 as compared to Q2.

Client retention on a third quarter stand alone basis was 10 points higher than what we experienced in the second quarter.

Wallet retention for contracts that were up for renewal in the third quarter increased back above 90%.

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

Based on the trends in all of our key metrics, our Research business has returned to grow.

Sales cycles have shortened, retention and other trends are improving, and we expect Contract Value growth to accelerate in the fourth quarter and 2010.

Last quarter, we told you we thought Contract Value had bottomed and we expected growth in the back half of the year and that's exactly what's happening.

Moving on to Consulting, trends in this business are also improving, but in the quite as quickly as in Research.

Revenue during the third quarter and first nine months of the year was solidly within our expectations given the economic environment.

As a result of our actions to adjust capacity, we have been able to maintain solid productivity and margins.

Utilization for the first nine months of 2009 was 68%, and growth contribution margin was close to 38%, both within two percentage points of our long-term targets.

As a key indicate tore of future growth, backlog has strengthened, growing 4% sequentially in the third quarter, the first sequential increase this year.

At September 30, backlog was $85 million, or a solid four months, the highest it's been all year.

As we saw in the second quarter, demand for our Consulting services was particularly solid in the US, while demand in Europe continues to lag as the economies there do not appear to be improving quite as quickly.

Turning now to Events, our Events business is performing in line with our expectations.

Year over year trends in both attendee and exhibitor participation have stabilized and begun to improve.

We are encouraged by early signs of easing of travel restrictions, particularly for the most senior IT executives.

The year over year attendance comparisons for events held in the third quarter were substantially better than for those held in the second quarter.

Similarly, exhibitor participation is also improving, as marketing spend by technology companies is starting to return.

At the same time, we continue to maximize the profitability of this business in the current environment by holding fewer events and eliminating less profitable ones.

In the third quarter, Events gross contribution, margin was 37% as compared to 31% last year.

At our flagship US symposium event held earlier in October, we attracted almost 6,000 attendees, similar to last year's attendance.

Close to 1,700 of these were CIOs, which is up almost 50% from last year.

Clearly, the most senior IT leaders continue to see tremendous value in attending our events.

Moving down the income statement, the combination of lower expenses related to Events, given the reduction of events held and our tight focus on cost controls across the entire Company enabled us to decrease cost of service by approximately 15% in the first nine months of the year versus the same period last year.

As a result, our total gross contribution margin increased two percentage points year over year to 57%.

Similarly we decreased SG&A expense by 11%, versus the first nine months of 2008, despite growing our sales force during this period by about 5%.

As of September 30, we had 952 quota-bearing sales associates.

In the third quarter alone we reduced SG&A by 10% year over year, and maintained flat spending versus the second quarter.

The year over year reduction in spending was from tight expense management some in both sales and marketing, and G&A.

You will also note that we had a $5 million or $0.05 per share benefit in the third quarter from the timing of certain non-recurring, non-cash tax items which resulted from a tax rate of 10.3% for the quarter.

Turning now to cash -- cash flow during the third quarter was very strong as a result of solid profits and favorable working capital management.

For the third quarter 2009, operating cash flow was $55 million, almost unchanged versus third quarter of 2008.

And at the same time, we reduced capital expenditures year over year by 50% to $2.7 million, which contributed to higher free cash flow over last year.

Through the third quarter we generated cash from operations of $118 million, and as a result increased our full year guidance to $125 million to $135 million.

This continues to be substantially above our net income given the working capital characteristics of our Research business.

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

During the first nine months of the year, we deployed our cash to reduce the outstanding balance in our credit facility by $151 million in order to further strengthen our balance sheet and reduce interest expense.

As of September 30 we had total debt of $265 million, cash of $113 million.

Our current credit facility runs through January 2012, and it currently provides us with $250 million of available borrowing capacity.

We have ample cash flow and liquidity and 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 compelling use of our capital, and we have approximately $79 million remaining under our existing authorization.

Now let me move on to our financial outlook.

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

Our revenues and profits are turning in line with our expectations for the full year, and therefore today we reiterated all of our guidance for revenue, normalized EBITDA and EPS.

And, as I just mentioned we now expect cash from operations to be between $125 million and $135 million for the year.

For our Research business, while Contract Value grew sequentially in the third quarter and we expect further acceleration in the fourth, please keep in mind that this will have minimal impact on our 2009 results, as Contract Value converts to revenue over the subsequent 12 months after it is booked.

As a result, we continue to expect Research revenue to be roughly flat for the full year on an FX neutral basis.

We expect revenue growth to resume in 2010 and over the long-term we still expect to grow revenues at 15% to 20% per year, per our long-term financial roadmap.

In Consulting, backlog improved sequentially during the third quarter but remains lower than this time last year.

We remain comfortable with our 2009 guidance and expect revenue growth to resume in 2010.

Over the long-term, we still expect to grow the business 3% to 8% per year.

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

We remain comfortable with our 2009 guidance, and expect growth to resume in 2010 as well.

Over the long term we still expect revenue to grow at a rate consistent with you our long-term target at 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 market opportunity and long-term growth prospects, we have made target investments in our sales force and analyst team and we will also continue key product development efforts, including enhancing existing, and launching new products.

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

We are seeing meaningful improvements in the business metrics that drive future revenue growth, particularly in our Research business.

Due to both the success of our initiatives to improve sales effectiveness and an improving economic environment.

Our businesses are performing in line with our expectations, given the current environment, and we are taking all the right actions to both manage our cost structure in the short-term while at the same time investing for growth in 2010.

With our premiere brand, services that are critical to our clients, and a vast market opportunity, we are confident in our ability to generate double digit revenue growth, double digit earnings growth, and increasing returns to our shareholders over the long-term.

With that we'll open our call up for questions.

Operator?

(Operator instructions).

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

Please proceed.

Good morning, thank you for taking our questions.

Wanted to look a little bit into Q4, what you are seeing so far in the month of October, and also how back unloaded is Q4?

Does that come down to the last week or last few weeks?

And what percentage now is it of booking?

And when you talk about sequential increase in CV, is it a couple percentage points?

If you could kind of help us put some thoughts around that?

Thank you.

Hey Laura it's Chris.

How are you?

Thanks for the question.

With regard to Q4, we haven't even finished October yet.

So I think it's a little early.

The points we've made today show that we feel pretty comfortable that as we have moved out of Q1 through Q2 into Q3, we've seen continuous improvement during that period of time, since we got through Q2.

We feel pretty positive about the trends we saw that I just talked about across all aspects, particularly of Research, but also in the other parts of the business.

I think across all three segments we saw really nice sequential improvements in many of the key things that give us confidence in the fact that we can return to growth was we talked about as we get into 2010.

I think in terms of sequential improvements in Q4, we certainly expect it to accelerate.

I think it is a little too early to say exactly where it will land.

But, as we talked about on the last call our expectation was -- in fact, we did a little better in the third quarter -- we said we would be flat to slightly up.

So we felt really good about where we ended CV in Q4 -- excuse me, Q3, and we certainly expect to accelerate from there.

Switching to real quickly to some general market questions.

What type of budget flush do you guys expect in Q4, and also what is your feeling for IT budget increase in 2010?

Thanks.

It's Gene.

We could get some lift from IT from budget flush.

But that doesn't generally drive our budget -- our sales.

Basically, we don't think that's an important element in driving our sales.

It would be a very small piece of it.

It people are trying to flush their budget they are looking for bigger ticket items than our contracts.

I know that but I was just curious since you guys have a good pulse on what's going on in the general market, what your thoughts are on the budget flush in general for Q4.

I think across the tech industry there is opportunity for budget flush in Q4.

I agree with you on that.

What about the general environment for 2010, when you look at IT spending what are your thoughts there?

More general than relating to -- obviously it impacts Gartner, but I'm asking for a view of not only Gartner but generally for next year and what your analysts are saying for IT spend?

We'll send you a report on what their forecasting is for next year on IT.

Thank you I'll pass on and come back later in the queue.

Our next question comes from the line of Peter Appert with Piper Jaffray.

Please proceed.

Thanks.

Christie's expense control efforts have been noteworthy here in the text of the challenging environment.

I'm wondering if, as you think about the expense budget for 2010, are some of the savings in 2009 deferrals that are then going to have to come back?

I'm trying to think about the implications for margin next year as revenue growth reaccelerates.

Thanks.

Peter it's a great question.

I would say two things.

I think there are certainly a number of things we've done that won't reoccur.

You know so we have been very diligent about looking for opportunities to improve our operations.

We have made some targeted system investments over the last few years to improve our operations and effectiveness and so we certainly think there are some things that go away, particularly some of the changes we have made in G&A.

A lot of the things we've been doing in G&A are long-term sustainable changes to the cost.

I would say that as we grow revenues, across the business, some things will have to come back.

We certainly cut some things out that we think need to come back.

However, I wouldn't say that that will impact our margins as we move forward.

We certainly don't expect it as we begin growing again in 2010 and beyond, that you'll see margin degradation.

In fact, I think you'll see margin expansion.

We feel very confident that even by having to add back some expenses that are necessary over the long-term that we could defer for a year or 18 months, that will not impact our ability to continue on the path we have been on, which is continue to expand margins.

Great.

Thank you.

Gene, I see that in the quarter you added some sales people for the first time this year.

More additions likely in the fourth quarter?

And how are you thinking about the sales force expansion in 2010 -- do you think we get back to 15% growth?

So Peter it -- great question.

We are adding sales people where we see a specific opportunity to add them.

So it's not kind of an add a lot of people.

And I think it's too early to say what we are going to do in 2010.

But there certainly is a lot of room for productivity improvement, even with our existing sales force.

If you look at the productivity levels we have back in 2007, we would like to get up to and then exceed those values, over time.

And I think that there is a huge opportunity for productivity improvement to translate into very good growth, even without adding sales headcount.

So I'm hearing therefore that maybe in 2010 it's still relatively moderate expansion in sales force, more about the productivity?

Yeah actually I said it's too early to say what we are going to do in 2010.

I just said there is an opportunity in productivity as well.

I was just trying to put with words in your mouth, basically.

And then the last thing, Gene, you mentioned just sort of in passing, the new products, can you give us any granularity or any insight in terms of things we should be looking in terms of -- from a product standpoint that could move the needle from a revenue standpoint over the next year or so?

I guess the way I think about it Peter, it is kind of continuous improvement.

So the-- as opposed to some big bang, we have made a lot of continuous improvement across our product line that enhances the experience for each individual client.

So I'll give you an example.

We've is added a great ability to customize the experience for each client as an example.

And so, it's things like that, but it is more -- collective sense -- I mean a combination of continuous improvements.

That we think collectively are quite important, but continuous improvements.

Right, got it.

Great.

Thank you.

Next question comes from the line of Dave Lewis with JPMorgan.

Please proceed.

Guys, good morning.

I just wanted to see if you guys have any comments on IT symposium -- the upcoming events the next week or two, if there is any early read there on headcount or vendor participation that you can comment on?

I'm referring to France or Australia.

Hi Dave, it's Chris.

Thanks for the question.

As you know, we normally tend not to talk too much about events before they happen.

But we did spend a lot of time talking about what happened at symposium in Orlando, which we are really happy with.

The attendance base was essentially flat to the prior year, but really importantly our focus on driving more of the senior people into that event was more successful.

So we had a 50% increase in the number of CIOs that attended.

All in all from an attendance perspective, as well as exhibitor perspective, I think we felt pretty good about what we saw at our fall symposium in Orlando.

As you rightly point out we have over the next few weeks our Orlando -- our European symposium and our symposiums in Tokyo and Sidney.

Overall attendance, if I was going to give you some color on our events, is that we have seen I think a marked improvement sequentially.

So we certainly haven't started to see attendance increase year over year yet, but I think in terms of sequentially the comparisons to the prior year are getting better.

So we are starting to see stabilization and feeling like things are improving.

So, like any event in the last couple of weeks, particularly in this environment, there is still a lot of registrations that occur.

So I'd be a little premature to tell you how some of those things are going to finally wind up until we see them, but the net of it is we are feeling really good about what we are seeing in the trends as we begin the fourth quarter.

Thanks, Chris.

This is my last one here.

I was wondering, Gene, could you give a little more color on the sales productivity?

I know you guys have made great strides there.

I know there is a number -- numerous examples that are contributing to the improvement there.

One of them that you guys have cited if the past is increasing -- or monitoring the usage of participation by the Research customers.

But what else would you point to that has been successful over the course of this year?

And what else are you thinking about going forward that you can comment on?

Thank you.

Yeah, the -- I think the thing that has been driving our sales productivity is that we have been focused on making sure we recruit people that have the right skills.

We systematically look at who are the best performers, and make sure as we add new people that, in fact we are recruiting people that have the skills that are highly likely to make them successful.

We have gotten much better in doing that over time.

In addition, we have spent a lot of effort in training in terms of making sure that we understand what the best practices are among our best people and that we get all you are people to know what those are and use those best practices.

So I'd say the key things that we've been focused are the optimizing recruiting and go optimizing training.

Terrific.

Is there anything going forward that hasn't been ruled out yet?

That you think can help it -- what other ideas do you have out there that you can comment on?

Yes again, I guess I would add one other thing, which is first you shouldn't have it as though we've reached the ultimate pinnacle in recruiting and training.

We believe philosophically as an organization in continuous improvement and we will continue to work on those.

In addition, we do focus on what tools we need for our sales force that will help that productivity as well.

The sales force automation type tools, we continue to improve those as well.

So it is really those three categories.

And we have improvements that we expect to see through the end of this year and end of next year that we have slated in all three of those categories.

Thanks, guys.

Next question comes from the line of Dan Leben with Robert W.

Baird.

Thanks, good morning.

Could you talk a little bit in terms of what you saw sequentially in terms of the improving environment around any specific vertical markets that may have been stronger than others?

Yes, Dan it's Chris.

I think if you look at our third quarter results, it was pretty broad-based in terms of sequential improvements.

So pretty much every industry segment, every geography, every client size showed pretty meaningful sequential improvement from where we were about the second quarter.

So if you think about Q1, we saw a pretty broad-based weakness across everything.

Q2 we saw improvements in almost every sector except financial services and tech, and then we went into the fourth -- excuse me, third quarter and essentially every single way we kind of slice and dice the data showed improvements across the board.

So we feel pretty good that it was pretty broad-based.

Okay.

So saying it another way.

Even the segments that got better in the second quarter got better, so it is kind of tech and financial services are maybe one step behind in terms of the ramp up?

I would say even the things that improved in the you know second quarter did improve sequentially in the third.

Yeah it's Gene.

The ones that were weak in the second quarter actually were as strong as everything else the in the third quarter.

In other words, it would be wrong to say that for our business they would be lagging behind in the third quarter.

I guess a better way to put it is they had caught up and now every place is doing pretty well.

Okay.

Great.

Help me understand that on the Consulting business, some of the seasonality there, obviously very good sequential performance relative to historical levels.

Help us understand some of the drivers there and if there's any use of pre-purchased units or that type of thing.

Let me try to give you some color on Consulting.

I think what we said at the beginning of the year when we said our original guidance, and we are still trending in the relevant range of that guidance, was that in 2008 we had particular strength in our Contract optimization business, particularly the in the back half of the year in fourth quarter in particular, that we can't didn't think would recur at that really high level.

I think we still think the same thing.

It is still trending exactly in line with the expectations we had.

If you look back at 2008 you would have seen a really strong fourth quarter in Consulting.

I think we are still going to have a nice solid fourth quarter, but it is certainly not going to compare to the strength we had.

I think that was the expectation we had at the beginning of the year and it is still what we were kind of expecting.

From a seasonality perspective, normally third quarter tends to be a little bit of a lighter quarter just because of summer holidays and other things.

But the real seasonality tends to come doubt out of our contract optimization business, which tends to be a little bit lumpy and varies each year.

It doesn't necessarily follow the same pattern.

How did the contract optimization perform this quarter?

It performed in line with our expectations, fairly consistent with the prior year.

Okay one last guidance clarification for me the $0.05 tax benefit -- was that baked into guidance or should we exclude that when we are thinking about the earnings guidance?

The reason we didn't change the overall guidance we are still in the that range we have established.

Obviously it was a fairly wide range.

The $0.05 was a one-time benefit that we had.

It is not expected to recur going forward.

So we still feel like we are in the range had given even with that incremental $0.05 benefit.

Great.

Thanks, guys.

Our final question comes from the line of Bill Sutherland with Boenning & Scattergood.

Thanks, most have been asked, of course.

One clarification, Chris.

Did you mention the expected net adds to sales in Q4?

We did not.

I guess if you look at where we are now, we have added a little bit of sales headcount this year.

I think it is consistent with what we said at the beginning of the year, which is we'd have a roughly flat headcount.

I think if you look at Q2 we were 933, I think it bumped up to about 952, maybe, as of the end of September.

As Gene said, it is very selective.

It wasn't a big program in push that we have suddenly started adding sales people again.

I think it is a little too early.

We wanted to see the fourth quarter results come in and we'll make the decisions on our 2010 plan.

I wouldn't expect there will be anything really significant there in terms of sales force adds in the fourth quarter.

Okay and then, one other headcount question, in Consulting I know you are trying to balance that with utilization.

What is the plan for Q4 as you look at the book of business?

Headcount is flat?

I would say roughly flat.

We are sitting at about 450-ish billable consultants right now.

I would say, give or take a little bit, it would be around that number.

Right.

Thanks again.

Sure.

There are for further questions in queue at this time.

At this time I would like to send the call back over to Mr.

Diamond for closing remarks.

It is actually Gene.

But I just want to thank you guys for joining us today and we look forward to talking with you at -- reviewing Q4 next quarter.

Thanks.