高德納諮詢公司 (IT) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Gartner's Inc earnings conference call for the second quarter 2010.

A replay of this call will be available through September 10, 2010.

The replay can be accessed by dialing 888-286-8010 for domestic calls and 617-801-6888 for international calls and by entering the passcode 49947394.

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

Please go ahead, sir.

Good morning, everyone, and thank you all for joining us.

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

Before we discuss our results, 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 First Call system.

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

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

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

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

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

Actual results may differ materially from those expressed or 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 2009.

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 2010 financial results.

At June 30, 2010, contract value, which is a key leading indicator for Gartner's research business, was $872.2 million.

Year-over-year contract value was up 19% as reported and 14% excluding the impact of foreign exchange.

Revenue was $314.2 million for the second quarter.

Year-over-year revenue was up 16%, both as reported and excluding the impact of foreign exchange.

Diluted income per share, excluding acquisition adjustments, increased 33% year-over-year to $0.24, and diluted income per share increased 11% year-over-year to $0.20.

Normalized EBITDA increased 22% year-over-year to $53.7 million, and net income increased 17% year-over-year to $20.1 million.

During the second quarter, the Company generated cash provided by operating activities of $69.6 million, up 46% year-over-year including the negative impact of $2.6 million in cash acquisition and integration charges.

Capital expenditures were $4.3 million.

The Company deployed its cash principally to repurchase 1.64 million shares of its common stock, for a total cost of $39.9 million, and to reduce its total net debt by $26.5 million.

As of June 30, 2010, the Company had total debt of $357 million and cash of $122.4 million.

In addition to announcing second quarter earnings, the Company updated its financial outlook for full-year 2010.

Specifically, it increased its outlook for revenue and earnings and reiterated its outlook for cash flow.

And finally, the Company announced that its Board of Directors has approved a new $500 million share repurchase program.

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.

Second quarter 2010 was a great quarter for Gartner.

Each of our three businesses delivered double-digit revenue growth, excluding the impact of foreign exchange, and earnings exceeded expectations.

Contract value growth continues to accelerate year-over-year.

Our events business, which was hardest hit by the recession last year, has rebounded and is outperforming our expectations.

And both consulting's backlog growth and productivity metrics were the strongest they have been since prior to the recession.

We're continuing to see robust and accelerating demand for our services.

As a result, we've raised our projections for full year 2010 revenue growth and earnings growth.

We are solidly on track to deliver double digit revenue and earnings growth, both in 2010 and over the long-term.

Let me begin by discussing our key business metrics, which have continued to strengthen.

I'll then turn to our margins, which are stronger than expected, and our cash deployment priorities.

I'll finish with a discussion about why I'm so excited about our growth opportunities for 2010 and over the long-term.

And then turn the call over to Chris, who will discuss our second quarter performance and our financial outlook in more detail.

Our business trends have now shown sequential improvement for five consecutive quarters, and many of our key business metrics are back to pre-recession levels.

The positive momentum in our businesses has been driven both by the success of our initiatives to improve sales effectiveness and drive higher client retention and a selling environment that has strengthened significantly when compared to last year.

Let me highlight some key points.

In research, we generated the highest ever new business for any second quarter in Gartner's history, up 35% versus second quarter last year.

At the same time, client retention improved 4 percentage points year-over-year to 81%, and wallet retention improved 7 percentage points year-over-year to 93%.

This was the first year-over-year improvement in client and wallet retention since prior to the recession and reflects both the success of our initiatives to improve retention and the stronger spending environment.

Our higher new business and retention, coupled with the acquisitions of AMR and Burton, enabled us to grow contract value by 19% year-over-year as reported, or 14% excluding the impact of foreign exchange, to a record level of $872 million.

The majority of our contract valued growth continues to come from volume, but we also benefited from increased pricing.

The annual price increase of approximately 3% that we implemented last November has continued to hold as expected, with no material pushback from clients.

The acquisitions of Burton and AMR also contributed to our contract value growth, accounting for about 7 points of the year-over-year growth during the second quarter.

Despite only six months of ownership, both these acquisitions are proving highly successful.

In fact, during the first half 2010, we grew AMR's and Burton's combined contract value by approximately 6%.

We're seeing strong demand for both Burton's products and for AMR's products for supply-chain managers.

We expect the growth of both Burton and AMR to substantially accelerate later this year and in 2011, as our sales force becomes better trained and more experienced selling these products.

These acquisitions should meaningfully contribute to earnings in 2011, and we remain confident that they will both be home runs over the long-term.

So, in research, our sales force has seen strong and accelerating demand for our services.

And we typically generate the majority of our contract value growth during the second half of the year, and we're solidly on track to grow our January 1 contract value of approximately $855 million by at least 10% organically for the full year.

As a result of our deferred revenue business model, we expect this growth to translate into strong organic revenue growth in 2011.

Turning to consulting, our key metrics for this business showed their strongest year-over-year improvement since 2008.

Backlog grew 15%, driven by improving demand for our unique consulting services worldwide.

Utilization improved 3 percentage points to 71%, and revenue per billable headcount grew 8% year-over-year, reflecting our effective management of consulting headcount to maximize profitability.

We are solidly on track to exceed our original growth targets for this business for the full year 2010.

Finally, in events, growth substantially accelerated during the second quarter and significantly outperformed our expectations.

For events held in the second quarter that were also held in 2009, revenue per event, attendees per event, and exhibitors per event each increased in excess of 20% year-over-year, the strongest increase in years.

These improvements have been driven by our efforts to enhance sales effectiveness and customer experience at our events, coupled with continued easing of corporate travel restrictions and increased marketing spend by technology providers as the economy has strengthened.

Our events business is on target to deliver double-digit revenue growth in 2010.

Turning to profits, our strong revenue growth, coupled with the operating leverage of our businesses and our initiatives to improve operational effectiveness have enabled us to exceed margin and earnings expectations for both the first quarter and second quarter this year.

During the second quarter, our income per share, excluding acquisition adjustments, increased 33% year-over-year, and normalized EBITDA increased 22%.

Our reported income per share was impacted by $0.04 in items related to the acquisitions of AMR and Burton, yet still increased 11% year-over-year.

I am particularly pleased that we achieved these levels of growth despite the internal operating costs from the inclusion of AMR and Burton.

As a result of our outperformance during the second quarter and positive business outlook for the remainder of the year, we've once again raised our outlook for revenue, margins, and earnings for full year 2010, as Chris will discuss.

The midpoint of our new guidance ranges for revenue, normalized EBITDA, imply margin expansion of approximately 1.1 percentage points, and the high-end implies 1.4 percentage points, which is above our long-term target.

So, you can see that our strong top-line performance, coupled with the operating leverage of our businesses, is delivering accelerated profit growth for our shareholders.

Now, turning to cash flow, as those of you who follow Gartner know, we benefit from a business model that generates strong cash from operations and has only moderate capital expenditure requirements, so we consistently deliver free cash flow significantly in excess of our net income over the full year.

Indeed, for 2010, we expect to generate free cash flow of $160 million to $175 million.

Our top priorities for our cash flow are to invest in our businesses, both organically and through strategic acquisitions, and to return capital to shareholders through our share repurchase program.

During the first half of the year we deployed over $75 million to repurchase more than 3% of our shares outstanding, while at the same time investing to expand our research and sales capabilities and improve our products and services.

Given our strong cash flow and balance sheet, we are well positioned to continue to invest in our businesses and to return cash to shareholders, both this year and over the long-term.

As a result, I'm pleased to announce that our board has approved an additional $500 million for share repurchase, as discussed in the earnings press release.

Before I close, I'd like to reiterate why I am so excited about Gartner's prospects for double-digit revenue and contract value growth in 2010 and over the long-term.

First, IT is and always will be a complex and continuously evolving industry.

And IT professionals will always need thought leadership and insight to run effective and cost-efficient IT programs.

Gartner is the premier brand in the IT research and advisory services industry.

We are the best and the most cost-effective resource that IT professionals can turn to for help with the critical business decisions that they must make virtually every single day.

And aside for the best products and brand, we're also fortunate to benefit from a vast untapped market opportunity for our services.

If you heard us discuss before, there are hundreds of thousands of IT and supply-chain practitioners who could be potentially Gartner clients, but have never been educated on the value we can provide.

Including Burton and AMR, we estimate our potential market opportunity for research at over $33 billion.

Thus we are well-positioned to accelerate our growth rate over time as we expand our sales capabilities and improve productivity.

So, to summarize, there's four key points I'd like for you to take away from today's call.

First, our key business metrics are continuing to strengthen, and our revenue growth is accelerating.

Our initiatives to improve sales effectiveness and drive higher client retention are yielding positive results, the selling environment is as strong as we've seen since prior to the recession, and our acquisitions of Burton and AMR are proving highly successful.

As a result, we've increased out 2010 outlook for revenue growth.

Second, our initiatives to improve operational effectiveness, coupled with a positive operating leverage inherent in our businesses, is enabling us to deliver higher margins than we anticipated.

As a result, we've increased our 2010 outlook for earnings growth for two quarters in a row.

Third, we will continue to generate free cash flow substantially above our net income.

We are thoughtfully deploying our cash flow, both to invest in our businesses and to return capital to our shareholders through our share repurchase program.

And fourth, we benefit from the enviable position of having the leading brand in IT and supply-chain research, a strong value proposition for our clients, a vast untapped market opportunity, and a great business model.

As a result, we are well-positioned to generate double-digit growth in revenue and earnings during both 2010 and over the long-term.

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

Thanks, Gene, and good morning, everyone.

Our second quarter results demonstrate that Gartner has returned to solid double-digit revenue and earnings growth, consistent with both our long-term expectations and the trend we'd established prior to the downturn.

Our revenue growth has continued to accelerate, and all three of our businesses are performing -- are outperforming the expectations we'd established at the beginning of the year.

This topline performance, coupled with the positive operating leverage of our businesses and the impact of our initiatives to optimize costs last year, is driving our strong margin and earnings results for the first half of this year.

We are seeing strong demand for our services and expect to see continued sequential growth as we move through the rest of 2010.

As a result, we've raised our revenue and earnings projections and are on target to deliver double-digit revenue, earnings, and contract value growth for the full year.

Let me start today with a review of our business segment results for the second quarter and finish with a discussion of our outlook for the full year 2010.

In research, revenue for the second quarter was up 14% as reported and 13% excluding the impact of foreign exchange.

Approximately 40% of this growth was due to the acquisitions of AMR and Burton.

We maintained gross margins unchanged year-over-year at 65%, despite the incremental operating costs from the AMR and Burton businesses, including the addition of their 80 analysts.

As Gene discussed, the business metrics that drive future revenue growth in our research business continued to improve during the second quarter.

As a result of the success of our initiatives to improve sales effectiveness, a more robust selling environment, and the acquisitions of AMR and Burton, we grew contract value year-over-year by 19% as reported, or 14% excluding the impact of foreign exchange, to a record level of $872 million.

This growth was driven by record second quarter new business, strong growth in client organizations, and higher client and wallet retention.

And once again, our growth in contract value is extremely broad-based, with all geographies, client sizes, and industry segments delivering strong FX neutral growth year-over-year.

New business increased 35% year-over-year, and was a new record for any second quarter in Gartner's history.

Consistent with the trend over the past few years, new business was balanced between sales to new clients and sales of additional services and upgrades to existing clients.

From a product perspective, our role-based offerings and executive programs continue to drive our new business and contract value growth, with contract value for each reaching new record levels.

As of June 30, Gartner for IT Leaders, our role-based products for the end-user market, accounted for $213 million of contract value, up 13% year-over-year as reported, or 8% including, excuse me, excluding the impact of foreign exchange.

Gartner for Business Leaders, our role-based products for the technology market, represented $133 million of contract value, up 29% year-over-year as reported, or 26% excluding the impact of foreign exchange.

And Executive programs, our role-based products for CIOs, ended the quarter with contract value of $228 million, up 22% year-over-year as reported, or 17% excluding the impact of foreign exchange.

AMR and Burton also significantly contributed to contract value growth in the first half.

At quarter end, their combined contract value was approximately $54 million, up 6% from the start of the year.

We are very pleased with this result, given that these acquisitions closed in December, and we're still in the early stages of training our sales force on these new products.

We expect their growth to substantially accelerate throughout this year and into next year and to meaningfully contribute to earnings in 2011, at or above the guidance we gave at Investor Day in March.

We continue to believe these are outstanding acquisitions.

From a client perspective, our retention rates continue to improve, and the clients we retain our increasing their spend on Gartner research.

Client retention increased to 81%, up 4 points year-over-year and 1 point sequentially, and wallet retention increased to 93%, up 7 points year-over-year and 4 points sequentially.

This was the first year-over-year increase in both client and wallet retention since prior to the downturn and was driven both by the success of our initiatives to improve retention and the more robust spending environment.

As those of you who follow Gartner know, these metrics are reported on a four quarter rolling basis in order to eliminate any seasonality, for the increase in our reported retention rates reflect significant improvements in the retention of both the clients and dollars that were up for renewal in the second quarter on a standalone basis.

Aside from retaining more of our existing clients, we're adding more new clients and growing our overall client base.

During the second quarter, we added 376 enterprises as new clients, up 27% year-over-year.

And as a result, we ended the quarter with 10,888 client organizations, up 10% versus June 30 of last year.

In summary, our research segment is outperforming our original expectations for 2010 and is clearly returned to its long-term trend of accelerating double-digit growth.

As Gene discussed, we're seeing strong demand from clients, and sales productivity is continuing to improve.

We expect continued acceleration in revenue and contract value growth as the year progresses, and we remain confident in our ability to deliver double-digit contract value growth this year and 15% to 20% annual revenue growth in this business over the long-term.

Moving on to consulting.

Growth in this business also accelerated in the second quarter, with revenue up 10% excluding the impact of foreign exchange and 9% as reported.

We saw particular strength in our higher margin contract optimization business, as companies are actively making investments in technology and need our contract optimization services more than ever to ensure they get the best possible contract terms.

We were able to generate strong revenue growth in consulting, despite billable headcount being 4% lower year-over-year, through our successful efforts to maximize consultant productivity.

We achieved second quarter utilization of 71%, up 3 points year-over-year, and annual revenue per billable headcount of $430,000, up 8% year-over-year.

Our solid revenue growth, coupled with increasing productivity, enabled us to deliver a 42% contribution margin in this segment, up 2 percentage points year-over-year and above our long-term target.

More importantly, we saw substantial acceleration in consulting bookings during the quarter, as demand for our unique services strengthened worldwide.

Backlog, which is our key indicator of future growth for consulting, grew 15% year-over-year to $93.6 million, the highest level of growth since prior to the recession.

As a result, we expect to exceed our original expectations for full year revenue growth in this business on an FX neutral basis.

Turning now to events.

We saw substantial improvement in our events business during the second quarter, with revenue up 75% year-over-year, both as reported and excluding the impact of foreign exchange.

We held 21 events with 9,697 attendees as compared to 14 events with 5,108 attendees during the second quarter last year.

The 21 events consisted of six events that were held in the second quarter last year, 10 events that were moved from other quarters last year and five new launches.

For the 16 events that were also held last year, revenue per event, attendees per event, and exhibitors per event each increased in excess of 20% year-over-year.

So, while the timing of our events calendar did significantly contribute to our revenue increase, we also delivered substantially accelerated growth on a same-event basis, well ahead of our expectations.

This growth was driven by the success of our efforts to increase client retention by enhancing the client experience and value that our events provide, as well as a resumption of more normal spending on corporate travel and increasing marketing spends by technology companies.

On the cost side, we continue to make progress at quickly returning the margins of our events business to historical levels.

For the first half, we increased events gross contribution margin by 7 percentage points year-over-year to 39%.

You may recall that our events business was the most impacted by the recession last year, and it has rebounded faster than expected and so is now significantly outperforming our original 2010 expectations.

As a result, we've increased our full year revenue outlook for this segment both as reported and FX neutral.

Moving down the income statement, SG&A increased by $15 million year-over-year during the second quarter.

The majority of this increase was sales and marketing expense due primarily to growth in our sales force and the SG&A attributable to AMR and Burton.

Despite this increase, SG&A as a percent of revenue decreased by 1.2 percentage points versus the second quarter last year.

This is due to our successful efforts to eliminate duplicate overhead at AMR and Burton, tight controls on G&A across the entire Company, and improving sales force productivity.

As of June 30, we had 1,013 quota bearing sales associates, up 9% year-over-year.

Included in this number are the 60 experienced sales associates that joined us through the AMR and Burton acquisitions.

We will continue to invest in our sales force and remain on track to achieve our 2010 growth target of 15%.

Moving to earnings.

We achieved results ahead of our expectations for the second quarter, due to the strong revenue performance, coupled with better than anticipated margins.

Normalized EBITDA was $53.7 million, up 22% year-over-year, and diluted income per share, excluding acquisition adjustments, was $0.24, up 33% year-over-year.

Our GAAP diluted income per share was $0.20, up 11% year-over-year, despite being impacted by $0.04 per share in costs associated with the AMR and Burton acquisitions, $0.03 per share of which were non-cash.

Turning now to cash, during the second quarter, we generated strong cash from operating activities, up 46% year-over-year to $69.6 million, despite $2.6 million in cash charges related to the AMR and Burton acquisitions.

We required only $4.3 million for capital expenditures and generated free cash flow substantially greater than our net income, primarily due to the positive working capital characteristics of our research business.

During the second quarter, we deployed our cash flow principally to return capital to shareholders through our share repurchase program.

We repurchased 1.64 million shares, at a total cost of $39.9 million.

In addition, we reduced our debt by $26.5 million, ending the quarter with a strong balance sheet and cash position with net debt of $234.6 million.

Our current credit facility runs through January, 2012 and provides us with $108 million of available borrowing capacity as of June 30.

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

We will continue to look for acquisition opportunities that are attractive as a potential use of cash.

We also believe that repurchasing our stock remains a compelling use of our capital.

As Gene mentioned, we repurchased 3% of our shares outstanding during the first half of the year, and our Board has approved a new share repurchase program of $500 million.

The new authorization will allow us to continue ongoing share repurchases over the next few years consistent with our approach since 2005.

Now, let me turn to our business outlook for the remainder of 2010.

Our business performance has shown continued improvement for the past four quarters, and that improvement accelerated during the first half of 2010.

We outperformed our earnings and cash flow expectations in the first quarter and raised our full year outlook as a result.

In the second quarter, we outperformed both earnings and revenue expectations, importantly contract value is ahead of our expectation, contributing to these results.

We continue to see strong and accelerating demand for our services and expect trends to continue to strengthen throughout the remainder of the year, and as a result, we've raised our revenue and earnings projections for the full year 2010 and reiterated our cash flow projections.

Starting with revenue, we've increased our FX neutral growth expectations for both the total Company and each of our three business segments.

We now expect full year 2010 total revenues to grow 10% to 13% FX neutral, 2 points higher than our prior expectation.

By segment we now expect -- research revenue to grow 12% to 14% FX neutral, more than 1 point higher than our prior expectation; consulting revenue to grow 5% to 10% FX neutral, more than 1 point higher than our prior expectation; and events revenue to grow 11% to 15% FX neutral, more than 8 points higher than our prior expectation.

On a reported basis, which reflects the impact of foreign exchange, we now expect our revenue growth to be roughly in line with our FX neutral revenue growth, due to the strengthening of the US dollar this year.

Further details on our revenue expectations for the full year are contained in our press release issued yesterday evening.

Moving to earnings.

We've increased our outlook for normalized EBITDA by an additional $5 million at both the low and high end of the range, after having increased it by $7 million after the first quarter.

We now expect normalized EBITDA for the full year 2010 to be between $220 million and $235 million, an increase of 15% to 23% over 2009.

Normalized EBITDA excludes the cost associated with stock-based compensation expense, which we continue to expect to be approximately $29 million to $30 million.

The $5 million increase in normalized EBITDA flows through as a $0.03 increase to our outlook for diluted income per share, excluding acquisition adjustments.

We now expect income per share, excluding acquisition adjustments, to range from $0.99 to $1.11, up 14% to 28% versus 2009 as reported.

Note that including the $0.05 increase we gave after the first quarter, we've now increased our full year 2010 earnings outlook by $0.08 per share versus the original expectation issued in February.

Year-over-year comparisons for both GAAP income per share and income per share excluding acquisition and integration charges are negatively impacted by $0.05 per share of tax benefits received in 2009 that are not expected to recur in 2010.

Excluding the impact of the nonrecurring tax benefits recorded in 2009, income per share excluding acquisition adjustments is now expected to grow 21% to 35% in 2010.

The integrations of AMR and Burton are costing less than originally anticipated, and, as a result, we now expect total acquisition and integration adjustments to impact income per share by only $0.13 in 2010 versus our prior estimate of $0.15.

As a result of this reduction, coupled with the increased outlook for our operations, we've increased our projection for full year 2010 GAAP diluted income per share by another $0.05 to a range of $0.86 to $0.98 per share.

We continue to expect cash provided by operating activities to range from $167 million to $187 million for the full year, which includes $8 million of cash acquisition charges.

And free cash flow at a range from $160 million to $175 million, thus we expect to grow our free cash flow by 9% to 19% in 2010 and generate free cash flow per share of approximately $1.60 to $1.75, substantially above our income per share.

Please see our earnings release for more details on our 2010 financial outlook.

So to summarize, Gartner had a great second quarter.

Our initiatives to improve sales effectiveness and drive higher client retention continued to yield positive results, demand for our services is strong and accelerating, and our acquisitions in Burton and AMR are proving highly successful.

As a result, our key business metrics continued to strengthen, and we generated double-digit FX neutral revenue growth in each of our three businesses.

Our initiatives to improve operational effectiveness, coupled with a positive operating leverage inherent in our businesses, is enabling us to deliver stronger margin expansion than we originally anticipated.

We are generating substantial cash flow and deploying it to both invest in our businesses and return capital to shareholders through our share repurchase program.

As a result of our strong first half results and outlook for the remainder of the year, we've raised our revenue and earnings expectations for the full year and are on track to deliver double-digit revenue and earnings growth.

And finally, we're also on track to deliver organic double-digit growth in contract value for 2010 versus January 1 level of approximately $855 million.

The double-digit growth in contract value in 2010 we expect to establish a solid foundation for further acceleration in revenue and earnings growth in 2011.

We are well positioned for double-digit revenue and earnings growth and increasing returns to our shareholders over the long-term.

And with that, we'll open the call for your questions.

Operator?

(Operator Instructions) And our first question comes from the line of Peter Appert of Piper Jaffray, please proceed.

Thanks, good morning.

Gene, this might be an impossible question but I'm wondering if you can parse what's driving the acceleration in revenue growth.

How much is a function of sales force expansion, how much is just a function of the macro environment being better, and this is all in the context of trying to understand how much the strategic changes you've implemented are driving these results and how much is just the backdrop of a better macro environment.

Thanks.

Peter, Gene.

Good morning.

Basically, as you said, it's difficult to segment all of those.

We do track, as you know, all the metrics and things like retention, new business growth and we do type the programs we have and so I'd say it's really a combination of all three of the factors you mentioned.

So first, most importantly, I think a lot of the changes we put in place are really kicking in and making that tremendous impact.

The selling environment has improved, but it's not a easy, as you see in the macro economy, it is not an easy selling environment out there and so I think one of the reasons our sales results have been so strong it is just the changes we've made have really adapted to that.

And then, our sales headcount is up modestly, as you know, and so that is a piece of it as well, but I think the primary -- if I sort of put it in kind of rank order, I'd say first is the changes that we made to the business, which we continue to do to improve productivity and effectiveness.

And then secondly, the sales headcount we've expanded, which again, somewhat modestly, and then lastly I do think the economy is better than it was, but it's still not a perfect economy out there as you see in the broader market.

Great.

Thanks, Gene, takes helpful.

And the margin leverage you guys have been demonstrating has been pretty impressive and I'm wondering if it causes you to rethink your longer term expectations in terms of the 20%, the low 20% number.

Hi, Peter, it's Chris.

As we've said a number of times, our expectation is that we expect over the next few years to drive it to 20 and low 20s and we absolutely still believe that's completely achievable.

You can see from the results, we're continuing to see the leverage in the model really play out as we grow, particularly the research business and as the other two businesses get back to the historic levels we saw prior to the downturn.

What we've been saying and I think we still believe is that as we get our margins into that low 20s range that will give us the opportunity to take a step back and find the right balance between ongoing investment in the business to continue to see double-digit growth with how much we can continue to flow through the business.

So as we've said repeatedly, I think that low 20s number's our intermediate target, then we can take a look from there.

So certainly still believe all that's achievable.

Certainly still believe we can take it beyond where that is and as we get closer we will have better insights.

Okay, that's great.

Thank you.

Just a couple other things.

The consulting business, given the substantial improvements you've seen there, any thoughts to expanding the number of consultants, having brought it down pretty substantially over the last couple of years?

Yes, Peter, it is a great point.

In that business we basically earn a margin on each person in the consulting business.

As our backlog builds up we'll need to build our staffing up.

Just as we took it down last year in response to kind of the tough economy, as the business strengthens we will need to bring our headcount up there, but we're doing it only as we see we have the backlog and so that's why you are seeing the kind of great economics from the business.

Got it.

And then just last thing.

I'll let someone else ask some questions.

In terms of the stock buyback strategy, Chris, how agressive -- can you give us any thoughts in terms of how aggressively you will pursue it.

With $500 million you have got some fair flexibility to step on the accelerator, I guess, on the near-term basis if you want to.

Yes, thanks, Peter.

As you know and hopefully everybody knows from following us we have been pretty aggressive with share repurchases for the past kind of five, six years and we expect to continue to do that.

So I think as Gene mentioned, our two primary uses of cash will be acquisitions where they make sense.

As you know we're very selective and thoughtful about where we do those, so if we see an attractive acquisition candidate that is going to deliver a strong return for the Company, has a strong business case we'll deploy capital there.

And baring that we think that the next best thing to use our capital on is continue to return it to shareholders through share repurchase versus just building up cash balances.

So we will continue as we have to be, I think, aggressive there.

I think we've shown and demonstrated that and I don't think you will see any real change in our expectations for that.

Great, thanks very much.

Your next question comes from the line of Dave Lewis at JPMorgan, please proceed.

Hi, guys, good morning.

Just two or three quick ones for me.

Can you just give us a sense for the pulse from the sales force in research over the course of Q2 and maybe a case for what you've seen very early in August just given the volatility.

Clearly results are very good and the outlook is impressive, but I'm just trying to dig deeper into what you're hearing from your salespeople.

Hi, Dave, it's Gene.

That's a great question.

I actually spent a few days with our sales people from around the world.

We had an around the world meeting of our sales managers in July.

So I got a sense to really get a feel for how they feel about what's going on in the marketplace all around the world.

And their level of excitement and enthusiasm is extremely high.

If you look at it it's as high as I've ever seen it and so we have, I think, a very talented sales team and they are extremely excited about what's going on in the marketplace and how our offerings are doing in the marketplace.

That's great.

And I guess a related question to that, Gene, can you give us a sense for inquiries.

I know that was at a pretty elevated level last year.

I know that is a leading indicator, can be a leading indicator towards research uptake, but where are inquiries right now to your research analyst.

Great question, Dave.

If you look at -- we track how our clients use inquiries, re-documents, all that kind of stuff.

And the level of inquiry usage has continued to rise, which I think as you said is a great sign.

As people -- people, when they do an inquiry they get tremendous value from it and so we like to see them using it because they get a lot of value, their renewal rates go up, they tell their friends about it and we get more new sales.

It's a very, it's a really positive cycle that you get into there.

So, yes, our inquiry rates continue to rise.

Terrific.

And with Burton and AMR, Gene or Chris, can you give us a sense for the customer up sells, are you seeing interest in industries or client sizes that you did not expect.

In terms of both of them I think the uptake is pretty much what we expected.

So if you look at like AMR, because it's focused on supply-chain, the big interest there is among manufacturing companies, consumer products companies, healthcare companies where supply-chains are really important.

And if anything I've seen, we've seen what I've observed with any remark anything there is more interest among clients and more enthusiasm among our sales force than we had expected at this point and so that's a terrific story.

With Burton I'd say it's basically just what we've expected throughout.

It's selling well, the sales force -- it's our traditional IT core market.

It fit a -- by having a product for the broad IT organization, we didn't really have a good product for that group before.

Burton is the best in the world for that and our sales force recognizes it and has done well.

Thanks, guys.

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

Thanks, thanks for taking the questions.

Did you, Chris, have sales associates at 6/30 for us.

Yes, Bill, we had 1,013 quota bearing sales associates as of June 30th.

Okay and what are the plans for adding to in the second half.

As we've said from the beginning of the year our expectations are to grow our sales force 15%, including, included in that number would be the 60 salespeople we brought on from AMR and Burton.

So our expectation was that the first half of the year the bulk of the growth would be driven through the acquisition headcount as we integrate them and get them settled into the business and then we'd focus on adding to the sales force from there.

So, we're still on track to add 15% for the full year.

Okay great.

And then in events, the new events you had this quarter were there any from Burton or AMR.

Yes, I think each of those had one of event each, which were very strong events prior to the acquisition, remained very strong events.

So the two of those were added to our portfolio.

And then if you, as we look at the back half of the year for events in terms of number of events against the numbers you had in the back half of last year, can you give us a sense of that?

So for the full year we are going to have 54, 55 events, I think it's 55 is the actual number.

Through the first half of the year we've had 30 events so far.

The first half of last year we had, I think, 26, I believe were the kind of numbers..

We still have a very strong events portfolio for the back half of the year and, as you know, our symposium series occurs in the fourth quarter, which is our largest set of events and those are still on track to be performing as we expect the events portfolio to do as it's done in the first half of the year.

Okay.

So it's the same kind of phasing.

Great.

And then last what were the ending shares and did you do any repurchase in July, well there is two different questions there, but yes, the ending share count at 6/30.

Ending share count.

Give us a second and I will grab that for you.

We were not buying shares in July, it was a closed window and our plan had essentially been used and so we just put the new authorization in place and, as we always do, will continue to be in the market, as I talked about earlier.

So that's from a share repurchase point of view and from an ending share count perspective.

Bill, let me get back to you on that.

I have the weighted average, but let me get back to you for the actual ending share count.

So we'll get that answer before the end of the call or get back to you.

Thanks a lot, guys.

(Operator Instructions) And your next question comes from the line of Jeff Houston of William Blair, please proceed.

Good morning, Jeff Houston in for Laura Lederman.

To start out with a few questions.

You mentioned last year's 3% price increase has gone rather well with customers, what type of increase are you planning for this November?

Hi, Jeff, its Gene.

So basically, we've not sort of finalized what we are going to do in November, but as we told you in the past our kind of -- over many years our plan has been to increase prices 3% to 5% each year.

The -- I'm sorry, I meant 3% to 6% each year.

And so basically you can expect that it will be somewhere in that kind of a range when we do the increase this year.

Plan the timing to be as usual, but haven't set the exact amount yet.

Okay.

And next question, with client retention rates and dollar wallet retention rates being rather high, do you expect them to remain at this level or do you -- are you targeting a higher level in the years to come.

So our client retention is at a very high level and we'd expect it to modestly increase.

Our wallet retention we would expect to keep going up over time.

Do you have set targets for those?

We don't have set targets per se, but we kind of can see running room in where we are today.

All right.

Then last question, wondered if you could talk about the strength in the quarter by vertical market and also by region, particularly within EMEA.

As you turn it through the quarter how was business over there and then also within the different vertical markets?

Hi, Jeff, its Chris.

All of our geographic segments, all of our industry segments all had really nice growth year-over-year.

Almost all of them, in fact, double digits.

So we had an extremely broad-based growth and contract value.

There was no one area that really stood out dramatically and none that really kind of looked significantly lower than the others, including Europe.

So Europe also had a very strong year-over-year growth, pretty much as I said, across the board every industry, all client sizes.

So as we look and dissect our contract value growth it was extremely broad-base.

Just to add a little color to that, one of the things we're seeing is that institutions around the world and whether they are in financial distress or whether they're growing rapidly, all see IT as central to the business initiatives they are taking.

So companies that are in distress we're seeing them having big IT projects to help cut costs and things like that.

Companies that are growth we see them using IT to introduce new products, find new services to clients so it's very, very broad-based, where everyone sees these IT initiatives being central and when people see IT as being central to what they're doing in their business it's great news for us.

All right, that's helpful.

Thank you.

Your next question comes from the line of Dan Leben of Robert W Baird, please proceed.

Great, thanks, guys.

Most of my questions have been answered, just one real quick one.

Could you talk about the, I believe it was, four new events that you launched this quarter.

Could you talk about the performance there and kind of the metrics you look at to understand whether they're going to be successful events going forward?

Sure, Dan.

In terms of our event launches, in fact, all of the events we held, including the new launches, performed extremely well.

Obviously, as we've talked about in the past, new launches have slightly less margin than existing launches as you build the base of attendees.

But we're very and have always been very good at selecting where to launch new events and essentially what we tend to do when we launch new events is take an existing strong event that we hold somewhere, whether that's the US or elsewhere, and expand it geographically.

And so we usually have a very good track record of knowing that that event will be successful.

So our initial events that we launched this year, I think, performed at or above our expectations generally and two of those events were also held previously, one was Burton and one was AMR.

So of the four two of them were already previously established events that we think we can continue to grow and improve over time as we bring it into the Gartner portfolio.

So that's kind of the view of our events launches this year.

Okay and then just a follow-up to the previous question asking about Europe.

Could you talk about the tone from clients, outside of the actual performance what the tone was there and kind of what their mindset is.

Yes, it's Gene.

In fact the sale managers' meeting we held was actual held in Europe and so I -- if fact I visit clients while I was there as well.

And both from clients and from our sales people there's an attitude of they are conscious, obviously, of the sovereign debt problems.

It is not affecting the fact that they have initiatives in their business or their institution to undertake and so it's like -- from our clients with regard to IT its noise.

It's not affecting their spending or their decisions with us at all.

So, again, it's very different than what you read in the press.

You read in the press it's kind of this big deal.

With our clients and their interests in Europe, we're seeing that people are -- it's just the same as in the US or in Asia that business people have initiatives to do in their businesses, IT is central to it, and they're continuing on with those initiatives and running their business.

Okay, thanks, Gene.

Your next question comes from the line of Peter Seuss of Lincoln Square Capital, please proceed.

Hi, guys, good morning.

Thank you.

Just one quick question.

Just in the event's business if you can provide some color on what type of incremental margin we should see in this business on a longer term basis, just noting that this quarter the revenue doubled sequentially but the margin was only up 60 basis points.

Hi, the events business, the incremental margins on our events business are kind of approximately 50% over the long-term and the reason for that is there are some fixed costs of the facility, the venue, but then there are some incremental costs, primarily food and beverage and other things that have to be incurred as you bring additional people on to an event.

What you are actually seeing in 2010 is as we have substantially started to see the return of both attendees and exhibitors, covering that fixed cost we've seen our margins recover pretty quickly back to where they were prior to the downturn.

So you saw about a 7 point improvement in the margin on a year-to-date basis, so it's really quickly getting back to where we'd expect.

So over the long-term we expect to get the business back to the kind of 48%, 50% range on the overall contribution margin that we saw prior to the downturn.

Okay, thank you.

Just one other thing I would follow-up on, Bill, your question earlier on ending shares.

The ending basic share count as of June 30th was just over 95 million shares and we had just over 3 million dilutive shares, so we had about 98 million fully diluted shares for the quarter in that range.

And there are no further questions at this time, I'd like to turn the call back to Gene Hall for closing remarks.

Thank you.

I like to thank everybody for joining us today and we look forward to sharing results with you the next quarter.

We thank you for your participation.

The conference is now ended.