高德納諮詢公司 (IT) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Gartner earnings conference call for the third quarter 2010.

A replay of this call will be available through December 4th, 2010.

(Operator Instructions).

I will now turn the conference over to Hank Diamond, Gartner's Group Vice President, 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 re-broadcast, 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 at our website at www.gartner.com or on the first call system.

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

Statements about future results made during the call constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995.

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

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

The Company cautions 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 and in its most recent quarterly report on Form 10-Q.

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 third quarter 2010 financial results.

At September 30, 2010, contract value, which is a key leading indicator for Gartner's research business was $905.5 million.

Year-over-year contract value was up 22% as reported and 18% excluding the impact of foreign exchange.

Revenue was $296.1 million for the third quarter.

Year-over-year revenue was up 12% excluding the impact of foreign exchange and 11% as reported.

Normalized EBITDA was $51.1 million, up 25%year-over-year.

Diluted income per share excluding acquisition adjustments was $0.23, up 44% year-over-year excluding the impact of nonrecurring tax benefits recorded in the prior year's third quarter.

Net income was 21 -- was $20.1 million, unchanged year-over-year, and diluted income per share was $0.20 as compared to $0.21 for the prior year's third quarter.

During the third quarter, the Company generated cash provided by operating activities of $64.8 million, up 18% year-over-year, including the negative impact of $.8 million in cash acquisition and integration charges.

Capital expenditures were $4.5 million.

Finally, in addition to announcing third quarter earnings the Company updated its financial outlook for full year 2010.

Specifically, it increased both the low and high end of its outlook ranges for total revenue and cash flow and increased the low end of its outlook range for earnings.

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.

Our third quarter results continued the trend of accelerating growth that we delivered every quarter this year.

Research contract value returned to double digit organic growth for the first time since prior to the recession and exceeded $900 million for the first time in Gartner's history.

Our Events business continues to rebound strongly and significantly outperform our expectations.

And Consulting growth is performing in line with our expectations for the full year.

The positive momentum in our growth has been driven primarily by the success of our initiatives to improve sales force productivity and drive higher client retention.

We're solidly on track to deliver double digit contract value, revenue and earnings growth both in 2010 and over the long term.

I'll begin by discussing the highlights of our third quarter results and current business trends.

I'll then turn to our exciting prospects for strong organic growth in 2011 and over the long term.

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

Our business trends have now shown sequential improvement for six consecutive quarters.

In fact, many of our key business metrics are back to pre-recession levels and some have reached new highs.

Let me highlight some key points.

In Research, our strong contract value growth was driven by both record third quarter new business and significantly improved retention.

New business was up 23% versus third quarter last year and was the highest of any third quarter in Gartner's history.

Client retention improved by five percentage points year-over-year to 82%, equaling its pre-recession high.

And wallet retention improved 10 percentage points year-over-year to 95%.

The acquisitions of Burton and AMR, which are now fully integrated, were also important contributors to our contract value growth.

Year to date through September, we have grown AMR and Burton's combined contract value by approximately 9%.

Demand for these products is strong and we expect to grow both Burton and AMR to substantially accelerate as our sales force becomes more experienced with selling these products.

These acquisitions are already meaningfully contributing to earnings in 2010, at or above the high end of our original plan.

Our strong new business and retention, coupled with the acquisitions of AMR and Burton, enable us to grow contract value by 22% year-over-year and 4% sequentially to a record level of $905.5 million.

Importantly, we generated double digit organic contract value growth for the first time since prior to the recession, delivering year-over-year contract value growth of 11% excluding the acquisitions and the impact of foreign exchange.

I'm particularly pleased that over 85% of our contract value growth came from volume, which is the highest percentage in many years.

This volume growth reflects our success at continuing to penetrate our vast market opportunity by both adding new clients and selling incremental subscriptions to existing clients.

In addition to sales of new subscriptions, our contract value growth also continues to benefit from our discipline of increased pricing and no discounting.

The annual price increase of approximately 3% that we implemented last year has held as expected, reflecting client's recognition of the great value proposition that our research provides.

As per our usual practice we just announced a new price increase averaging 3% effective November 1.

Over the long term, we continue to expect to increase our list prices by 3% to 6% per year, commensurate with enhancements to our products and services, the inflation rate and other factors.

So to summarize Research, our sales force continues to generate strong and accelerating demand for our services.

The actions we took last year to increase sale effectiveness are yielding benefits this year in the form of greater sales force productivity and higher retention.

We're solidly on track to deliver double digit organic, FX neutral contract value growth for the full year 2010.

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

Let me now turn to our Events business, which has continued to substantially outperform our expectations.

Growth in this business is substantially accelerated, beginning the second quarter of this year and that momentum continued into the third quarter.

For events held in the third quarter that were also held in 2009, revenue per event increased 17% year-over-year reflecting solid growth in both the attendees and exhibitors.

The strong rebound in our Events business this year, has been driven by our efforts to enhance sales effectiveness and costumer experience at our events, coupled with continued easing of corporate travel restrictions and increased marketing spend by technology providers as the economy has strengthened.

And the positive momentum at our events has continued in the fourth quarter, which is seasonally the largest for this business.

This is most evident at our flagship U.S.

Symposium event held in Orlando last month, which attracted record attendees of almost 7,000, up 25% versus last year and over 180 exhibitors up 73% versus last year.

Nearly 1,700 of these attendees were CIOs, up 18% versus last year.

This record attendance by the senior most IT decision makers, during what is still an uncertain economical environment, is a credit to the tremendous value clients receive from attending our events and interacting with our research analysts.

Indeed both IT professionals, vendors and Gartner sales associates who attended the Symposium, universally noted that the level of enthusiasm, excitement and engagement at the event was the highest in memory.

As a result of these strong trends, we have once again raised our 2010 outlook for our Events business and we now expect it to deliver revenue growth of 15% to 20% for the full year.

Finally, our Consulting business is performing in line with our expectations for the full year with strong year-over-year improvement in our key business metrics.

Backlog at September 30, was up modestly versus the second quarter and increased 11% year-over-year driven by improved demand for our unique consulting services worldwide.

Utilization improved one percentage point and revenue per bill-able head count increased 5% year-over-year, reflecting our effective management of consulting head count to maximize profitability.

We're on track to meet our growth targets for this business for the full year 2010.

Turning to profits, our double digit revenue growth coupled with the operating leverage of our businesses and initiatives to improve operational effectiveness are enabling us to deliver even stronger earnings in cash flow growth this year.

I'm particularly pleased at receiving this level of growth despite the incremental operating cost from the inclusion of AMR and Burton.

As a result of our performance year to date and the positive business outlook for the remainder of the year, we've increased full year 2010 outlook for cash flow and increased the low end of our outlook for earnings.

As Chris will discuss in more detail for full year 2010, we now expect to generate income per share excluding acquisition adjustments of a $1.02 to $1.11 per share and free cash flow of $170 to $183 million.

Our top priorities for our cash flow continue to be 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 nine months of the year, we deployed over $76 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're well positioned to continue to invest in our businesses and to return cash to shareholders both this year and over the long term.

The specific timing and amounts of share repurchased will vary quarter-to-quarter as we assess our strategic alternatives for deploying our cash.

So our results for the first nine months of 2010 clearly demonstrate, Gartner has returned to its long term trend of double digit revenue and earnings growth.

All three of our businesses are exceeding our original growth targets.

The actions we took to respond to the recession in late 2008 and 2009 have made us a stronger more efficient company as we have returned to growth this year and enabled us to deliver higher operating margins.

As a result, we've been able to increase our 2010 financial outlook three times so far.

But our success in 2010 is only beginning.

Keep in mind that we've achieved this level of growth in an economic environment that remains challenging and uncertain.

We accomplished this through the success of our initiatives to enhance the value -- to enhance the value that our services provide the clients and by increasing our sales force productivity.

These initiatives are ongoing and we expect as we continue to grow our sales force and increase its productivity, the growth of our research business will accelerate consistent with our long term target of 15% to 20% per year.

As you've heard me say many times before, IT is and always will be a complex and continuously evolving industry.

And IT professionals expert assistance insight (technical difficulties) critical business decisions they face virtually every day.

Gartner is the best and most cost effective resource that they can turn to for that help and can often make the difference between success and failure in any economic environment.

Our strong contract value growth and high retention rates this year are a testament to this fact.

At the same time, we benefit from having a vast, untapped market opportunity for our services.

There are hundreds of thousands of IT and supply chain practitioners who could potentially be Gartner clients but have never been educated in the value we can provide.

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

Thus, we're well positioned to accelerate our growth over time as we expand our sales capabilities and improve productivity.

In fact, I've never been more confident in and excited about our prospects for accelerated growth as I am today.

Gartner's the strongest company it's ever been and we're poised to have a great finish to 2010 and even greater success in 2011 and beyond.

So to summarize, there are three key points I'd like to take away from today's call.

First, our business performance is continuing to improve and exceed our expectations for the full year.

Our initiatives to improve sales effectiveness and drive higher client retention are yielding positive results.

The selling environment has strengthened significantly versus last year.

Our acquisitions of Burton and AMR are proving highly successful and we're solidly back to delivering double digit organic contract value growth.

As a result, we increased our 2010 financial outlook for three-quarters in a row and are on track to deliver double digit revenue and earnings growth for the full year.

Second, we will continue to generate free cash flow substantially in excess of our net income over the long term.

Our priorities for deploying that cash continue to be -- continue to be both to invest in our businesses and to return capital to our shareholders through our share repurchase program.

And third, we're well positioned to accelerate the growth of our research business and achieve 15% to 20% annual revenue growth in that segment over the long term, as well as growth in our Events Consulting business consistent with our long term target.

We benefit from the enviable position of having a leading brand in IT and supply chain research, a strong 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 revenue growth and expanding margins both in 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.

During the third quarter we generated double digit revenue growth and saw continued improvement in our key business metrics, continuing the positive trend that began in the third quarter last year.

Contract value growth accelerated, retention continued to improve and consulting backlog and same event attendees increased double digits year-over-year.

Our strong top line performance coupled with the positive operating leverage of our businesses and our ongoing initiatives to optimize costs drove strong operating margins and cash flow.

We continue to see robust demand for our services in the fourth quarter and have once again raised our 2010 financial outlook.

Gartner's on target to deliver double digit revenue, earnings and contract value growth for the full year and over the long term.

Let me now turn to review of our business segment results for the third quarter and then discuss our outlook for the remainder of 2010.

In Research, revenue for the third quarter grew 17% excluding the impact of foreign exchange.

Approximately six points of this growth was attributable to AMR and Burton.

We delivered gross margins of 65% which is in line with our expectations and within one point of our third quarter last year.

This is despite the incremental operating costs from the AMR and Burton businesses which primarily include the addition of their 80 analysts.

As Gene discussed, the business metrics for future revenue growth in our Research business continued to improve substantially during the third quarter.

As a result of the success of our initiatives to improve sales effectiveness, coupled with the acquisitions of AMR and Burton, we grew contract value year-over-year by 22% as reported or 18% excluding the impact of foreign exchange to a record level of $906 million.

Excluding AMR and Burton, contract value grew 11% year-over-year FX neutral.

We have now returned to double digit organic growth in our research segment.

As in Q2, our growth in contract value was broad based with all geographies, client sizes and industry segments delivering strong FX neutral year-over-year growth.

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

New business in Q3 increased 23% year-over-year and 22% sequentially and was the highest for any third 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 new business and contract value growth with contract value for each reaching new highs.

As of September 30, Gartner for IT Leaders, our role based products for the end user market, accounted for $217 million of contract value up 13% year-over-year as reported or 8% excluding the impact of foreign exchange.

Gartner for Business Leaders, our role based products for the technology market, represented $145 million of contract value up 34% year-over-year as reported or 31% excluding the impact of foreign exchange.

And Executive Programs, our role based products for CIOs, ended the quarter with contract value of $242 million, up 26% year-over-year as reported or 20% excluding the impact of foreign exchange.

We now have almost 4,000 Executive Programs members up 14% from last year.

AMR and Burton also significantly contributed to contract value growth in the third quarter.

Their combined contract value was approximately $56 million on September 30, up 9% from the start of the year.

These businesses are now fully integrated and are contributing to 2010 earnings at or above the high end of our original target.

They are proving to be outstanding acquisitions and we expect their growth to substantially accelerate over time.

From a client perspective, our retention rates continue to improve significantly.

Client retention is now back to its prerecession high of 82% up five percentage points year-over-year and wallet retention improved 10 percentage points year-over-year to 95% reflecting the clients we retain continue to increase their spend on Gartner research.

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

During the third quarter we added 435 enterprises as new clients up 11% year-over-year.

With our success of penetrating these new enterprises combined with higher retention of our existing clients we ended the quarter with 11,053 client organizations up 11% versus September 30, last year.

In summary, our Research segment continues to outperform our expectations for 2010 and is solidly returned to accelerating double digit organic growth that we delivered prior to the recession.

As Gene discussed, we are seeing strong demand from clients and sales productivity continues to improve.

We expect continued acceleration in revenue and contract value growth over the long term and remain confident in our ability to deliver 15% to 20% annual revenue growth in this business over the long term.

Moving now to Events, the strong performance in our Events business that began in the second quarter continued in the third.

Total attendees increased 10% year-over-year to 5,954 at the 14 events held during the third quarter as compared to the 15 events held last year.

Of the 14 events held in the third quarter this year, eight were held in the third quarter last year, four were moved in from other quarters, and two were acquired from AMR and Burton.

For the 12 events that were also held at any time last year, revenue per event increased 17% year-over-year driven by both strong growth in attendees per event and exhibitors per event.

When we look at the first nine months of the year, revenue for our Events business increased 22% year-over-year FX neutral.

We are quickly returning the margins of our Events business to historic levels.

For the first nine months of 2010, we increased Events gross contribution margin by five percentage points year-over-year to 39%.

The strong rebound in our Events business year to date has been driven by a number of factors.

The value that our events provide, our success in increasing retention by enhancing the client experience, the resumption of spending on corporate travel and increasing marketing spend by technology companies.

As Gene mentioned, the strength in our Events business that we saw in the second and third quarters has continued into the fourth, with record attendance at our flagship Symposium event held in Orlando last month.

As a result, we have again raised our 2010 revenue growth outlook for this segment.

The strong performance in our Events business gives us confidence to resume launching new events and while we've not finalized the schedule for 2011 we expect to hold approximately 60 to 65 events next year.

Turning now to consulting, this business is performing in line with our expectations for the full year 2010.

For the third quarter revenue increased 2% FX neutral and for the first nine months of the year revenues up 3% FX neutral.

Importantly, we ended the quarter with back log $94 million up 11% year-over-year and modestly versus the second quarter.

Backlog is our key indicator for future growth for consulting and its strength reflects the continued demand for our unique consulting services worldwide.

As a result, we expect continued year-over-year growth in the fourth quarter per our full year revenue guidance for this segment.

On the cost side, we continued to maximize consultant productivity.

Year to date through September 30, we achieved utilization of 69% up one point year-over-year and annual revenue per bill-able head count of $426,000 up 6% year-over-year.

Our solid revenue growth coupled with increased productivity delivered 40% gross contribution margin for the first nine months of the year up two percentage points year-over-year and in line with our long term target.

Moving down the income statement, SG&A increased by $12 million year-over-year during the third quarter.

The majority of this increase related to higher 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 remained flat year-over-year as we were able to both improve sales force productivity and decrease G&A as a percent of revenue by 1.5 percentage points.

The reduction in G&A, as a percent of revenue, was due to our successful efforts to eliminate duplicative overhead at AMR and Burton combined with tight controls on G&A expenses across the entire company.

As of September 30, we had 1,027 quarter bearing sales associates up 9% year to date.

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

We will continue to invest our sales force in the fourth quarter and remain on track to grow the sales force by approximately 15% during 2010.

Moving to earnings, our double digit revenue growth, the positive operating level of our businesses and the impact of our ongoing initiatives to optimize costs enabled us to deliver higher operating margins and even stronger earnings growth for the third quarter.

Normalized EBITDA was $51.1 million up 25% year-to-date -- year-over-year, excuse me, and diluted income per share excluding acquisition adjustments was $0.23 up 44% year-over-year when we exclude the $0.05 nonrecurring tax benefit recorded in the third quarter last year.

Our GAAP diluted income per share was $0.20 versus $0.21 last year.

Excluding impact of the nonrecurring tax benefit from the third quarter of 2009 our GAAP diluted income per share would have been up 25% year-over-year.

Turning now to cash.

During the third quarter our cash flow exceeded our expectations, we generated cash from operating activity of $64.8 million up 18% year-over-year including the impact of $800,000 in cash charges related to the AMR and Burton acquisitions and we deployed $4.5 million on capital expenditures.

Year-to-date through September, we delivered $126.4 million in cash from operating activities and spent $12.2 million on capital expenditures.

We continue to generate free cash flow substantially greater than net income, primarily due to the positive working capital characteristics of our research business.

During the first nine months of the year we deployed our cash flow principally to return capital to our shareholders through our share repurchase program.

We repurchased 3.2 million shares of our common stock for a total cost of $76.5 million.

At the same time we reduced our net debt by $60.8 million ending the third quarter with a strong balance sheet and cash position with net debt of only $151.6 million.

We continue to look for attractive acquisition opportunities a potential use of our cash.

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

The timing and amounts of our share repurchases will vary quarter to quarter as we assess strategic alternatives for deploying cash.

We expect to resume share repurchases in Q4.

Our current credit facility runs through January 2012 and provides us with $142 million of available borrowing capacity as of September 30.

In light of the strong credit markets and historically low interest rates, we're exploring the possibility of refinancing the current credit facility prior to January 2012.

As we disclosed in our 10Q for the quarter filed last evening.

Should we choose to refinance during Q4 we will likely incur a non-cash charge of between $0.02 to $0.03 per share related to certain interest rate hedges and unamortized deferred financing costs.

These costs would have been expensed during 2011, but accounting rules require acceleration upon refinancing.

While any potential non-cash charges related to a refinancing are not specifically included in our 2010 guidance, we expect to remain comfortably within our range even if these potential charges occur.

We currently have ample cash flow and liquidity to execute initiatives that drive shareholder value over the long term and any decision to refinance will further strengthen our available borrowing capacity.

Now let me turn to our business outlook for the full year 2010.

Our business performance continually improved for the past six quarters and that improvement is accelerated through the first three-quarters of 2010.

We out performed 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 our earnings and revenue expectations and now given our strong performance in the third, as well, we are once again raising our financial outlook for the full year.

You can find the details of our financial outlook in our press release issued last evening but let me share some key points.

We now expect full year 2010 total revenue to grow 12% to 14% as reported and 11% to 13% FX neutral.

At a segment level, we increase both the low and high end of our Events revenue outlook range by $5 million, increased the low end of our Research revenue outlook range by $10 million, and maintained our previous consultant revenue outlook range.

We are trending towards the upper half of our outlook range in both Research and Events and the lower half of our outlook range for Consulting.

Moving to earnings, we have increased the low end of our outlook range for normalized EBITDA for additional $5 million after having increased it by $12 million during the first half of the year.

We now expect normalized EBITDA for the full year 2010 to be between $225 million and $235 million an increase of 18% to 23% over 2009.

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

The $5 million increase in normalized EBITDA flows through as a $0.03 increase to the low end of our outlook ranges for both GAAP diluted income per share and diluted income per share excluding acquisition adjustments.

We now expect income per share, excluding acquisition adjustments, to range from a $1.02 to 1.11 and GAAP income per share to range from $0.89 to $0.98.

Excluding the impact of $0.05 per share in nonrecurring tax benefit recorded in the third quarter 2009, income per share excluding acquisitions adjustments is now expected to grow 24% to 35% in 2010.

We've also increased our outlook range for cash from operating activities and now expect cash provided from operating activities to range from $180 million to $195 million for the full year 2010, which includes $8 million of cash acquisition charges and now free cash flow to range from $170 million to $183 million, thus we expect to grow our free cash flow by 16% to 25% in 2010 and generate free cash flow per share of approximately $1.70 to $1.83, substantially above our income per share.

As I mentioned, our earnings release has the full details on all of our 2010 financial outlook.

So to summarize, we've delivered great results both in the third quarter and year to date.

Our initiatives to improve sales effectiveness and drive higher client retention continue to yield positive results, demand for our services is strong and accelerating and our acquisitions of Burton and AMR have proven highly successful.

As a result, our key business metrics continue to strengthen substantially and we generated double digit revenue growth.

Our initiatives to improve operational effectiveness coupled with the positive operating leverage inherent in our business delivered stronger margin expansion than we originally anticipated.

We are generating substantial cash flow and continue actively exploring strategic alternatives for deploying it.

We will continue to invest in our business and return capital share holders through our share repurchase program and we expect to repurchase shares during Q4.

As a result of our strong third quarter results and outlook for the remainder of the year, we have once again raised our revenue, earnings and cash flow expectations for the full year and we're on track to deliver solid double digit revenue and earnings growth.

Finally, we're on track to deliver organic double digit growth and contract value for 2010.

With double digit growth and 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, 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).

The first question comes from Peter Appert with Piper Jaffray.

Please proceed.

Good morning.

Gene, I understand that the Consulting business can be kind of lumpy.

But were there any specific things you can call out in terms of why the revenue growth there in the third quarter looked a little bit soft and what gives you confidence then that you are going to see, even at the low end of the range, a pretty big percentage gain here in the fourth quarter?

Hi, Peter, it's Chris.

Thanks for the question.

As you know, there's a couple of things that cause seasonality in the consulting business.

First, third quarter tends to be our lightest.

If you look back over time third quarter does tend to be by far the lightest because of summer vacations and other things like that.

So that's one aspect.

Number two, our contract optimization business also tends to be fairly lumpy and moves from quarter to quarter.

And then there are just certain deals that sometimes move from third quarter to fourth quarter.

So when we look at all of those things and assess our results in Q3, we still feel very confident in what we're seeing.

We still have a really solid strong pipeline.

Backlog is still up 11% year-over-year and has kind of increased slightly from last quarter.

All of those things give us confidence that we're still in a good place and still can achieve and expect to achieve our outlook for the year.

That's great.

Thank you.

And then maybe for Gene, you talk about the 3% to 6% price increase intentions going forward, you're doing it at the low end of the range this year, which I understand the macro environment is still a little bit dicey.

But I'm thinking in the context of what looks to be pretty strong momentum in the Core Research business, why not maybe you're not a little bit more aggressive from a pricing stand point this year?

Peter, it is Gene.

Great question.

So on average, we've sort of increased 3%.

We actually have products that are in very high demand where we've increased prices substantially more than that.

So it kind of varies with what we see in the particular product areas, that's the first piece.

So actually there are some products that we've raised prices considerably.

The second thing is that --- and sort of on an overall basis, the economy is still pretty shaky out there and we feel like -- kind of the base price increase of 3% reflects a good view of the overall kind of economic situation.

And then again as things -- as we see what happens next year, we'll revisit it.

Okay.

Fair enough.

And then last thing, just in terms of the sales force expansion plan, the intention to be up 15% for the year would require pretty significant hiring in the fourth quarter.

And I'm wondering, is it just harder to hire people or the kinds of people you want to add to the organization in the context of the economy or any particular reason why it seems to be maybe a little more back end loaded this year than in the past?

The -- it was a little bit -- this is Gene, Peter.

It was a little bit more back end loaded because we wanted to be cautious in seeing how our sales productivity went and how the economy was going.

And so it was just a matter of kind of spacing our plan so that we did it in a prudent way.

So we're not seeing -- having any trouble hiring people.

We're not having trouble seeing great people.

In fact, we've hired terrific people.

What we've seen is the productivity of our new hires is as high or higher than it's ever been because there's a big focus on that.

And so we're very confident in our ability to hire aggressively.

Got it.

And 15 is still a good number for next year and going forward as well, I assume?

Our long term target is 15 %to 20% growth.

We haven't set forth a specific plan for 2011, but you can expect it to be within our long term target of 15% to 20%.

I'm sorry, I was saying specifically to sales force expansion the --.

Yes, yes.

No, our sales growth expansion, again we're -- or long term target is 15% to 20% sales force expansion per year as well.

Got it.

Great.

Thanks, Gene.

And the next question comes from Laura Lederman with William Blair.

Please proceed.

Hi guys.

This [Matt Fau] in for Laura.

I had a quick question for you on the FX headwind's that you face this quarter.

What are the main areas that these came from and how are these --- are these exposures hedged or what's driving this?

First, the FX Delta was actually relatively small this quarter and we expect it to be relatively small next quarter.

What we have always talked about regarding foreign exchange is that we tend to be relatively naturally hedged.

We have revenues expenses, relatively equally balanced around the world.

And so if you look back in time and continue even to look at our results, the foreign exchange impact to earnings is negligible.

Our biggest currencies tend to be the Pound, the Euro, the Australia dollar, the Japanese Yen, those tend to be our largest currencies, but again naturally hedged and we don't expect any real issues with that.

We do hedge major transactions.

We do not hedge translation, we do not hedge our overall results.

So if we know certain transactions are moving between currencies, we will hedge those so we do have -- but again, that's not a significant amount, either.

So hopefully that answers the question.

Great.

Thank you.

And the next question comes from Dave Lewis at JPMorgan.

Please proceed.

Hi guys, good morning.

First question I have is, can you talk a little bit about CIO penetration, perhaps, Gene, you can -- you can describe how you've built the participation of CIOs since you became CIO in the Company, I believe it started with the Executive programs but how has that grown in the past two years and what is the opportunity to continue to increase CIO participation going forward?

Hi, Dave, it's Gene.

We have, as you have pointed out, a sizeable CIO business.

But it's still -- we think we're probably less than 10% penetrated in the potential market there.

And so we see our CIO business as being able to continue to grow at the kind of rates that we've given for our long term revenue growth just as the rest of the business.

That's very strong.

CIOs love our product and, so there's no reason we shouldn't see the long-term growth continue in the same way we've done.

Great thanks, Gene.

Chris and Gene, can you also give us an indication of some of the conversations you've had with executive level people at the Symposium.

Is there any conversations that are different this time around versus last year or the year before?

I mean clearly budgets are not as tight as they were last year.

But I'm just curious to hear what executives are saying to you, in the past month at the Symposium?

So great question.

As you point out, we had a record number of CIOs at our Symposium this year.

And there is -- there is an interesting tone going on, which is, the way I think about it is, last -- if I look at first quarter of 2009 at the extreme, there was a lot of -- and tremendous amount of uncertainty within CIOs in terms of -- even whether they had jobs, what their budget was if they had a budget they were not allowed to spend it.

Now what I see -- and this is universal.

I talk to CIOs around the world, U.S.

and Asia, Europe, businesses and other enterprises are seeing -- have changes they want to make in the business to improve their business.

Could be new product growth.

If their business is in trouble, could be cost cutting.

And universally these enterprises around the world are seeing IT as being central to making those improvements.

So one thing we're seeing is these CIO's are coming in saying that my enterprise has these three priorities and I need help in getting them because they're central to the future success of my enterprise.

And so I've never seen such clarity with CIOs in terms of both what their business initiatives are and clarity within their enterprises on how central IT is to implement and execute those -- those initiatives.

It's really striking because again, IT's always been important.

If you talk --- even when I talk to CEOs see the same thing.

There's more of a realization, universally of how critical IT is for any initiative in enterprises and more clarity on what initiatives they need to be taking, than I've seen in a long time.

That's great and thanks, Gene.

And then the last one for me is Burton and AMR, is there any change to how you guys are packaging them or pricing them to your customers or is it consistent with the commentary six months ago?

Can you hear me?

Please stand by.

Hello

I'm here.

This is Dave Lewis, if I'm still on the line.

Hey, Dave, it's Gene.

We got cut off, we are back on-line, we got cut off in the middle of your question there so if you could repeat it for us.

Sure.

Of course.

The question was, is there any change to how your pricing or packaging of Burton and AMR to your customers?

Yes.

So we're doing exactly what we had planned to do originally and so we've taken the products that -- we repackaged the products for both AMR and Burton to reflect how we want to sell them and can maximize it with Gartner.

But it's -- there's been no change from what we had planned to do six months ago to -- we just executed what we said and those new products doing great.

In both cases, we established the packaging and the pricing -- so you can imagine the pricing's higher.

The packaging, we think is improved considerably as well.

We've hired a bunch of new analysts and have gotten great reception in the marketplace from both products.

That's great.

Thanks, Gene.

(Operator Instructions).

The next question comes from Dan Leben with Robert W.

Baird.

Please proceed.

Thank you.

Good morning.

Gene, if you could talk a little bit about sales productivity.

Contract value at 11% organic growth versus the long term target still below that range.

Is this just kind of the lag effect of lower hiring in 2009 and trying to lap that comp and when you get everybody up and running, we will be back there?

We're actually very happy with our sales productivity, it's growing nicely.

As you've pointed out it takes a while to build momentum, but if I look at kind of, first our new hire productivity, new hire productivity is the highest it's been and is, if anything, exceeding what we thought it would be.

But I look at our experienced hires productivity growth also that is growing at a very great --- at a very good clip as well and if anything has exceeded our expectations.

With both new hires and experienced hires we're seeing great sales productivity growth, it's not an accident, we've had a lot of focus on both of those in terms of programs to really get our sales productivity up.

And as we get through a full four quarter cycle we expect we are going to see great sales --- great sales force productivity.

Great.

And then can you just comment on what you're seeing out in the market for acquisitions in terms of both availability and pricing?

Yes.

What we're seeing is a lot of acquisition opportunities around the marketplace.

We -- as we always have, by the way, there's nothing different in terms of how we look at -- we always are interested in acquisitions.

There's a lot of things out there and I think pricing goes all over the map from reasonable to unreasonable and -- as it probably always does.

Any changes in seller's expectation as the economy's firmed a little bit and results have gotten better?

I haven't seen any change in seller expectations.

Meaning that there's still a range -- this range of you have sellers that are expecting more than we think it's worth and you have sellers that are very reasonably priced as well, so it's a matter of the right price with the right strategic fit.

Great.

And last can you help us understand what the typical kind of third quarter to fourth quarter seasonality would look like in consulting just to kind of adjust for summer vacations and all the factors you mentioned previously?

How should we think about fourth quarter relative to third quarter in a historical context, not necessarily for this year?

Hi, Dan, it's Chris.

Yes, as I mentioned historically what you often see, and in fact if you look back at the past few years, you see third quarter being the weakest and then you see fairly significant improvements each third quarter to fourth quarter.

And obviously the range varies significantly.

It depends on our contact optimization business.

Some years we've had obviously huge fourth quarters other years not quite as large.

But we've seen, $40 million, $50 million, $60 million movements.

We've seen pretty significant movements if you look back at the last four or five-year trend.

That is kind of the historic.

What I would say is, we still feel very comfortable with the guidance we've given.

We still believe we're going to be in that range as I mentioned in my comments, we're currently trending towards the low end of the range so that's kind of where you should expect based on everything we are seeing today, where we expect that business will end.

The reason we have the range we have is that the contract optimization business does have very short sales cycles and very quick ability to convert that into revenue.

And so there is still a relatively wide range of expectations which is why we have the range we have.

Great.

Thanks, guys.

This concludes the question and answer session today.

I'll turn the call over to Gene Hall for closing remarks.

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

Thank you for joining today's conference call.

That concludes the presentation.

You may now disconnect and have a great day.