高德納諮詢公司 (IT) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Gartner's earnings conference call for the fourth quarter and full year 2011.

A replay of this call will be available through March 7, 2012.

The replay can be accessed by dialing 1-888-286-8010 for domestic calls, and 617-801-6888 for international calls and by entering the pass code 57406329.

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

I will now turn the conference over to Brian Shipman, Gartner's Group Vice President of Investor Relations for opening remarks and introductions.

Please go ahead sir.

Thank you, and good morning, everyone.

Welcome to Gartner's fourth quarter and full year 2011 earnings conference call.

With me today is our Chief Executive Officer, Gene Hall, and our Chief Financial Officer, Chris Lafond.

This call will begin with a discussion of Q4 and full year 2011 financial results disclosed in today's press release.

We will also discuss our outlook for the Company, including our newly issued guidance for 2012, followed by an opportunity for you to ask questions.

I'd like to mind everyone that the press release is available on our website.

That URL is www.gartner.com.

Before we begin, we need to remind you that certain statements made on this call may constitute forward-looking statements.

Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the Company's 2010 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as and other filings with the SEC.

I would encourage all of you to review the risk factors listed in these documents.

The Company undertakes no obligation to update any of its forward-looking statements.

I would also like to take the opportunity to remind everyone that we will be hosting our annual Investor Day on Thursday, February 16, in New York City, and registration is required in advance.

If you haven't done so already, please make sure you contact my assistant, Germaine Scott, at 203-316-3411 to register for the event, and she will provide you with the logistics.

With that, I would like to hand the call over to Gartner's Chief Financial Officer, Chris Lafond.

Chris?

Thanks, Brian.

Good morning, everyone.

We ended 2011 with double-digit growth in revenue, earnings, and cash flow.

Our results again demonstrated a continued successful execution of our strategy, our ability to consistently deliver on the long-term financial objectives we have communicated over the past several years, and our overall importance of the strategic IT initiatives of our clients.

We saw a continuation of the strong trends in our key business projects that we delivered during the first three quarters of the year.

Year-over-year contract value growth remains strong and retention rates ended at or near all-time highs.

Consulting backlog grew 8% since the end of Q3, and both attendees and exhibitors at our Events increased by double-digits year-over-year.

Demand for our services was robust across all of our business segments in the fourth quarter.

Our strong topline performance and effective execution in capitalizing on the operating leverage in our business, allowed us to once again expand both our growth contribution and EBITDA margins.

As a result, we delivered significant growth in earnings, both in Q4 and for the full year.

In the fourth quarter, normalized EBITDA increased 17% year-over-year, and our GAAP diluted earnings per share was up 24%.

For the full year, we delivered normalized EBITDA of $279 million, up 21% from 2010.

GAAP diluted earnings per share were $1.39, up 45% from last year.

With the strong finish to 2011, we are well-positioned for continued growth in 2012.

I will now provide a review of our three business segments for the fourth quarter and full year, and then conclude with a discussion of our outlook for 2012.

Starting with Research, fourth quarter Research revenue was up 14% to $263 million, with negligible impact from foreign exchange in the quarter.

For the full year, Research revenue grew 17% to over $1 billion.

On an FX neutral basis, Research revenue grew 14% for the full year in 2011.

The margin of this segment increased 220 basis points year-over-year to 66.9% in the fourth quarter, as our strong execution continues to capitalize on the operating leverage in this business.

For the full year, the contribution margin in our Research business grew by 210 basis points to 67.4%.

All of our key Research business metrics remain very strong in the fourth quarter.

Contract value grew a record level of $1.116 billion, a growth of 14% year-over-year.

As was the case throughout 2011, our growth in contract value in Q4 was extremely broad-based with all geographies, client sizes, and industry segments, delivering strong growth year-over-year.

New business again increased year-over-year continuing the trend we've seen since late 2009.

The new business mix was balanced between sales to new clients, and sales and additional services and upgrades to existing clients.

While our contract value growth continues to benefit from our discipline of annual price increases and no discounting, approximately 85% of our contract value growth came from volume, with the balance coming from price increases.

This volume growth reflects our success in continuing to grow the business by penetrating our vast market opportunity with both new and existing clients.

As a result, we ended the quarter with 12,427 client organizations, up 7% year-over-year.

As for pricing, we consistently increased our prices by 3% to 6% per year on an annual basis since 2005, and we expect to do so again in 2012.

Our client retention ended the quarter at 82%, and we have maintained client retention near record highs for six quarters in a row.

In addition to retaining our Research clients at an impressive rate, the clients we retained continued to increase their spending with Gartner.

Wallet retention increased almost 200 basis points year-over-year to 99%.

Wallet retention is higher than client retention due to a combination of increased spending by retained clients and the fact that we retained a higher percentage of our larger clients.

As we've discussed in the past, retention metrics are reported on a four quarter rolling basis, in order to eliminate any seasonality.

In summary, our Research segment continued its strong performance in the fourth quarter.

We grew our contract value by $140 million on an FX neutral basis year-over-year.

We continue to see high levels of demand from clients and we expect continued acceleration in revenue and contract value growth over time.

We remain confident in our ability to deliver 15% to 20% annual revenue growth in this business over the long-term.

Turning now to Events.

Events revenue in the fourth quarter increased 22% year-over-year on a reported basis, and 23% excluding the impact of foreign exchange.

During the fourth quarter, we held 12 Events with 20,500 attendees, compared to 12 Events with 18,484 attendees in the fourth quarter of 2010.

Total attendees at our Events during Q4 on a same Events basis were up 11% year-over-year, and exhibitors were up 25%.

For the full year, revenue for our Events business increased 21% year-over-year on an FX neutral basis.

At the 60 Events held in 2011 versus the 56 Events held in 2010, attendees were up 15%, and exhibitors were up 19% year-over-year.

On a same Events basis in 2011, attendees were up 12%, and exhibitors were up 17%.

For the full year 2011, the Events gross contribution margin was 45% versus 46% in 2010.

With our strong revenue growth in 2011, we took the opportunity to make selective investments to further strengthen our Events portfolio.

Moving on to Consulting, revenues in our Consulting business were essentially flat in the fourth quarter, with a negligible impact in foreign exchange.

For the full year, Consulting revenue grew 2% to $308 million, and were flat excluding foreign exchange.

Backlog, the key leading indicator of future revenue growth for our Consulting business, ended the quarter at $101 million, which represents over 8% growth sequentially and a healthy four months of backlog.

Additionally, our pipeline looks equally solid, again, as we begin the new year.

Billable headcount of 481 was up 2% from fourth quarter of 2010.

This reflects our focus on matching resources to demand we saw earlier in 2011.

Fourth quarter utilization was over 68%, up 730 basis points from the prior quarter.

Revenue for billable head count remained above $400,000 per year, ending the quarter $454,000.

Moving down the rest of the income statement, during the fourth quarter, our total gross contribution margin increased by 1 percentage point year-over-year to 58%.

For the full year, our total gross contribution margin increased 140 basis points to 59%.

These increases were due primarily to the successful execution of our strategy to capitalize on the high incremental margins and operating leverage inherent in our Research business.

SG&A increased by $16 million year-over-year during the fourth quarter.

The increase was primarily attributable to growth in our sales force.

As of December 31, we have 1,268 [quota bearing] sales associates, as compared to 1,049 a year ago.

For the full year, we added 219 salespeople, which represents a 21% growth, and was slightly above our long-term target for growing our sales force by 15% to 20% per year.

Our strong recruiting pipeline of quality potential candidates allowed us to begin hiring for 2012 during the end of Q4.

Finally, G&A was essentially flat year-over-year in absolute dollars and dropped 160 basis points as a percent of revenue in Q4.

For the full year G&A was up about 4% year-over-year, but again drop 150 basis points as a percent of revenue.

We continue to tightly control G&A costs across the entire Company in the fourth quarter and for the full year.

Moving on to earnings.

We delivered another strong quarter or solid earnings growth.

Normalized EBITDA was $85 million in the fourth quarter, up 17% year-over-year.

GAAP diluted earnings per share was $0.46, up 24% year-over-year.

Our normalized EBITDA margin increased 80 basis points to 19.8%.

As expected, our Q4 2011 GAAP diluted earnings per share includes minimal non cash amortization costs associated with AMR and Burton.

This trend continues to reflect our commitment to improving margins, while also investing in the growth of our business.

For the full year, normalized EBITDA was $279 million, up 21% year-over-year, and GAAP diluted earnings per share was $1.39, up 45% year-over-year.

Diluted EPS for the full year 2011, including acquisition -- included acquisition-related charges of $0.04 per share, compared to $0.14 per share in 2010.

Our normalized EBITDA margin increased 110 basis points to 19%, consistent with our annual goal for 50 to 150 basis points of normalized EBITDA margin expansion.

Turning now to cash, our strong performance for the full year translated into an increase in cash flow, mainly driven by cash from operations, which increased by 24% to $256 million.

This number included certain landlord reimbursements for capital spending on our facilities.

Excluding those, cash from operations increased by 18% year-over-year.

Over the long-term, we continue to expect to generate free cash flow substantially greater than our net income, given our tight cash management and the negative working capital characteristics of our Research business.

During the fourth quarter, we utilized our cash to return capital to shareholders through our share repurchase program.

We repurchased over 2 million shares at a total cost of almost $71 million, including our repurchase of ValueAct's remaining shares on December 13.

We ended the quarter with a strong balance sheet and cash position with net debt of $57 million.

Our current credit facility runs through December 2015, and at this time, provides us with over $375 million of remaining borrowing capacity.

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

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

In absence of appropriate acquisition opportunities, we believe that repurchasing our shares remains a compelling use of our capital, and we have $293 million remaining under our Board authorization.

Now let me turn to our business outlook for 2012.

Based on the strong business trends we experienced in 2011, and the expectation of a reasonable economic environment in 2012, we believe our businesses are well-positioned for another year of strong growth.

For the full year 2012, we expect total revenues will grow by 9% to 12% to approximately $1.6 million to $1.65 billion on a reported basis.

Excluding the impact of foreign exchange, we expect total revenue growth of 11% to 15%.

Projected revenues by segment can be found in our press release, but I would note that we expect growth in each of our three segments during 2012, with Research revenue expected to be up 12% to 14%, Consulting revenue up 1% to 7%, and Events revenue up 8% to 14%.

I would point out that this guidance includes a 2 point to 3 point negative impact from foreign exchange.

On an FX neutral basis, our projected growth rate for each segment are as follows.

In Research, we expect 14% to 16% revenue growth.

As you know, Research revenue is primarily driven by the prior year's contract value growth.

In Consulting, we expect revenue growth to be between 3% and 10%, which would return this segment to our long-term expectation.

Finally, in Events, we expect FX neutral revenue growth of 10% to 17%.

This would be another strong year for Events with revenue growth above our long-term targets for the third straight year.

In terms of foreign exchange impacts on revenues, our guidance is based on the spot rate in early January.

We've made no attempt in our guidance to anticipate any strengthening or weakening of the dollar from the actual foreign exchange rates in early January.

Moving down the income statement, we expect normalized EBITDA for the full year 2012 to be between $315 million to $335 million, an increase of 13% to 20% over 2011.

We expect our normalized EBITDA margin to again increase between 50 and 150 basis points in the coming year.

In 2012, we expect the cost associated with stock-based compensation expense to be approximately $35 million to $36 million.

Total depreciation and amortization should be approximately $29 million to $30 million, inclusive of the amortization of acquisition intangible assets.

The intangible amortization associated with the acquisitions of AMR and Burton will equate to approximate $0.02 per share for 2012.

We expect interest expense of approximately $10 million to $11 million, and other expense of $2 million to $3 million.

We're projecting an annual effective tax rate of between 32% and 33%.Our guidance is based on average fully diluted shares outstanding of between 97 million and 98 million shares for the year.

Note that our tax rate may vary from quarter to quarter due to the timing of discrete items.

Our GAAP earnings guidance for 2012 is for EPS to be between $1.63 and $1.79 per share.

We also, expect to grow our cash flow as we drive growth in our Research business.

In 2012 we expect cash from operations of $285 million to $305 million, capital expenditures of $46 million to $48 million, and free cash flow of $239 million to $257 million.

Thus, we expect to grow our free cash flow by 12% to 20% in 2012 and generate free cash flow per share of $2.41 to $2.62, substantially above our income per share.

I'd like to note that cash from operations includes $16 million to be received as a tenant improvement allowance in connection with the previously disclosed lease arrangements on our Stamford headquarters.

The $16 million in the related costs of these improvements are also reflected in our capital expenditures, despite being reimbursed by the landlord.

These amounts are not expected to have any impact on free cash flow during the life of the renovation project, which should end in late 2012, and are not expected to recur.

While our policy is to provide annual, but not quarterly guidance, I'd like to provide some additional information to allow for an understanding of the seasonality and other factors that will impact our revenue and earnings on a quarterly basis.

Full year Research revenue will be fairly evenly distributed across each quarter of 2012, with approximately 24% of the full year revenue in Q1.

Consulting revenue will be lowest in Q1, with 23% of the full year revenue, and highest in Q4 with 28%.

For Events, more than 50% of the full year revenue will be recognized in Q4 because our Fall Symposium Series is held that quarter.

At this point, we plan to hold 62 to 65 Events in 2012, as compared to 60 in 2011.

The phasing of our Events calendar will be similar to 2011, Q1 and Q3 each representing approximately 10% of the full year revenue for this segment.

Given the seasonality of our Events and Consulting businesses, we expect earnings per share in each of Q1 and Q3 to be roughly 20% of the full year EPS respectively.

We also expect to earn roughly 35% of the annual EPS in Q4, again primarily due to the timing of our Events.

Finally, I'd like to spend a moment on the impact of foreign exchange as it relates to our reported contract value.

As we have communicated to you in the past, Research contract value is reported on an FX neutral basis throughout each year.

We do this so you can understand the true organic growth in our Research segment.

In January of each year, we restate the opening contract value at current foreign exchange rates.

As a result of the strengthening of the US dollar in 2011, contract value at January 1, 2012 is approximately $8 million lower than the $1.116 billion reported on December 31.

As a result, $1.108 billion is the base-line figure you should use for comparison purpose when judging contract value growth in 2012.

So to summarize, we delivered great results for both the fourth quarter and the full year 2011.

Demand for our services is strong, and as a result, we generated double-digit revenue growth, and our key business metrics remain strong throughout 2011.

Our initiatives to improve operational effectiveness, coupled with the positive operating leverage inherent in our businesses delivered strong margin expansion, and we generated substantial cash flow.

As always, we are actively exploring strategic alternatives for deploying our cash.

We will continue to invest in our business and return capital shareholders through our share repurchase program, and we expect to repurchase shares throughout the 2012.

Finally, with double-digit growth in contract value in 2011, we established a solid foundation for delivering another strong year of revenue and earnings growth in 2012.

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

Now, I will turn the call over to Gene, who will share his thoughts on the outlook for the coming year.

Gene?

Good morning, everyone.

As Chris has discussed, we achieved strong 2011 performance.

Our 2011 results continued the positive trend of growth that we've delivered since early 2009, with the successful and consistent execution of our strategy.

We had strong growth across all geographies, all client sizes, and all industry segments.

IT is one of the most important drivers of growth in competitive advantage for virtually every institution in the world, but IT is also complex and continuously evolving.

As a result, IT professionals need expert assistance and insight to help them make their critical business decisions that they face virtually every day.

This includes advice on managing IT for business success, as well as how to best purchase the $3.8 trillion that they are expected to buy during 2012.

The same is true for supply chain professionals.

Gartner is the best and most cost-effective resource that IT and supply chain professionals can turn to for that help.

Our assistance often makes the difference between success and failure for our clients.

At the same time, we benefit from having a vast untapped market opportunity for our services, which we estimate at $45 billion.

There are hundreds of thousands of IT and supply chain professionals who could potentially be Gartner clients but have never been educated on the values that we can provide.

We have the right strategy to capture this opportunity.

As some of you know, the fundamentals to our strategy are to create extraordinary Research insight, to build strong sales capability, to deliver high value differentiated offerings, to provide world-class service, and to continually improve our operational effectiveness.

This consistent strategy is driving our growth and will allow us to maintain sustained double-digit growth over time.

During the fourth quarter, more than 5,000 CIOs attended our Symposium Events, and I had the opportunity to meet with many of our clients there.

These technology leaders are looking for solutions for mobile, for social, for cloud, for big data, and of course, for traditional areas, such as cost optimization.

These leaders are driving the performance of their organizations, and they see Gartner as central to their success.

As a result, attendance at our Events has been growing, as well as the value clients see in Gartner.

During January, I had the opportunity to meet with our sales leaders from around the world at our 2012 kickoff meeting.

Our sales leaders representing clients from all geographies, all industries, and all sizes, had an incredible level of enthusiasm.

They are excited about Gartner, the value we provide our clients, and our vast market opportunity.

I've never been more confident in or excited about our prospects for accelerated and sustained growth than I am today.

Gartner is the strongest Company it has ever been.

The Gartner brand is in a class by itself.

Our products, services, and people are superior to the competition, and we have a great business model.

We delivered double-digit growth in 2011, and we are poised for even greater success in 2012 and beyond.

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

First, our business performance was strong during Q4 and throughout 2011, providing great momentum as we enter 2012.

The selling environment was great, and we delivered double-digit contract value growth.

Our Research business added more net new organizations than ever before.

Our Events attendance was up 13%, and the quality of our attendees has never been better.

In Consulting, we generated strong backlog across all geographies and industries.

With the continued focus on our proven strategy, we will continue our positive momentum for the coming year and beyond.

Second, our business model is attractive, with high renewal rates, strong cash flow, and great incremental margins.

Third, we are well-positioned to accelerate the growth of our Research business and achieve 15% to 20% annual growth in that segment over the long-term.

As well as growth in our Events and Consulting businesses, consistent with our long-term targets.

We have the leading brand in IT and supply chain Research, a strong value proposition for our clients, great operational capabilities, and a vast untapped market opportunity.

We are in a strong position to continue generating double-digit revenue growth and expanding margins during 2012 and over the long-term.

With that, we will now take questions.

(Operator Instructions) Your first question comes from the line of Peter Appert with Piper Jaffray.

Please proceed.

So Gene, can you talk a little bit more about the 15% to 20% long-term revenue growth target within Research?

Obviously you haven't been in that range or haven't been in the high end of that range, certainly, for a while.

And what gets you to the higher end of that range?

Peter, it is Gene.

I think what gets us to the higher end of the range is focusing on increasing sales force productivity.

And then also making sure that we grow our sales force in the range that we talked about.

It's those two things.

The market opportunity is clearly there, and our operational performance is clearly there, and so it is really focused on that sales productivity and the growth of our sales force.

As you know, the sales force -- sales productivity is the one of the big focuses that we have.

And as you saw, we actually, in terms of sales force growth, grew a little bit higher last year, a little bit over the top end of our range last year, as we saw a lot of really good talent that we bring on board a little early for 2012.

Does that flow through then in 2000 -- the logical follow through is would you then not expect to see an acceleration of Research revenue growth in 2012?

Peter, as you know, the way our revenue recognition works is that salespeople sell a contract, and then we recognize that revenue ratably over the course of the contract.

At a simple level, the way I think about it is, what we sell and -- the contract value in 2011 turns into revenues in 2012.

What we sell in 2012 turns, in terms of contract value, turns into revenues in 2013.

So the Research revenues for 2012 are based on the contract value growth in 2011.

So what we sell in contract value during will really affect the Research revenues in 2013.

Right.

So therefore, logically, we might expect to see an acceleration in contract value growth in '12, would that be fair?

We'd certainly like to see that.

Okay.

How about in terms of the hiring plans for 2012.

Same level, same percentage growth rate that we saw last year?

Again, we are expecting during 2012 to have our sales force grow in the 15% to 20% range.

It is the exact same target as we had last year.

Okay.

But not committing to be at the higher end of the range?

No.

Okay.

And then, Chris, this will be the last question.

More to do on the G&A line, you've had a lot of success in terms of holding those costs and getting the margin leverage from that, so I guess how much more is there to do on that front?

And beyond that, where does the margin leverage going forward come from?

Yes, Peter, good question.

I think as you've seen over the years, we've done a good job of being able to maintain, in some cases, the absolute dollars we spend, but certainly in every case, as a percent of revenue, continue to come down.

Our expectation for the foreseeable future is that G&A costs will grow slower than overall revenue, so as a percent of revenue, you will continue to see G&A continue to fall.

So we still think there's ample opportunity to do that over the next few years, and you should continue to see similar trends you've seen over the past few years.

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

Please proceed.

First question is with the events business, could you guys provide a little more detail on what's driving the strong growth there?

And is there an opportunity, or is there any chance for the upsell there into Research business it could pick up going forward?

I know about 50% of those clients, or attendees, do not have a Research subscription, but what are your thoughts there?

It is Gene.

Basically what's driving the growth in our Events business is two things.

One is the fundamental value proposition that we have at Gartner, which is IT people and supply chain people have these fundamental issues.

And I mentioned some of the things earlier today, like things like how do I deal with mobile computing?

What do I do with cloud computing?

How does social computing apply to my business?

Can I use big data and business intelligence?

As well as there's always a focus on cost reduction and things like that.

And the same thing is true of supply chain.

So, you have people that have these problems they want -- they need to solve, they are being charged by the business to solve, and they need help.

And they see Gartner as a great source of that help, an they see Events as a source of that help, just like they see Research and Consulting.

So that's one piece that's driving our Events business growth is just market need.

The second one is that we are executing very well.

We basically have done a great job in terms of marketing our Events business to prospects.

So it's a combination of this need that's out there with our clients, and the fact they see we have a strong value proposition with them, and then we've been executing very well in terms of getting those clients to our events.

I will add to that too, we have been excellent in getting them to the events.

And when they're actually at the events, we've never had -- we track, we ask people to score how we are doing with them.

And the value that clients place on our events has never been higher.

It has been going up year after year, and 2011 is the highest it has ever been.

Not only are we getting them there, but they're seeing great value.

That ties into your last point, which is, is this an upsell opportunity?

Absolutely.

As you mentioned, there's a sizable fraction of our, the event clients who are not Gartner Research clients, but they come to our event, they learn more about Gartner.

And it is a great opportunity when they learn more about Gartner to sell them research services as well.

Thanks a lot, Gene, and last one for me.

Can you comment on the legacy Burton and now Gartner supply chain business?

Would you be able to tell us if they are outperforming the legacy business?

An the second half of the question on supply chain, since that business has expanded the market opportunity significantly, I believe when it was acquired, you had about one-third of your sales reps that had relationships in the adjacent CI office.

How should we think about penetration there in terms of the growth opportunity going forward?

Thanks, Gene.

Yes, so after we acquired AMR, we launched a new set of products that are more consistent with what we do in our IT space.

Those products have been extremely well received, and basically the content of the legacy products that are happy with them are doing great, and we're happy with that.

But in terms of future growth, we're really focused on these new products, which are doing very, very well.

Overall, that business is doing great.

It is growing really nicely.

In terms of penetration, it is -- has a very, very small, tiny penetration in terms of total market opportunity.

We have a real huge opportunity there, and it is getting terrific growth.

And if anything, we see that growth accelerating.

Your next question comes from the line of Robert Riggs with William Blair.

Please proceed.

Just a follow-up on the sales force.

It sounds like you're able to hire a little more people than you had anticipated, that there's a lot of good talent out there.

Is attrition trending as expected, and have you made any changes in programs either on-boarding retention to drive that sales force productivity higher?

Great question.

Basically, as you said, what we are seeing is a lot of great talent out there, and we've been very successful in attracting that talent to Gartner, which is why we are a little ahead of our plan in sales hiring.

And we've actually -- if people are going out the door hiring more, you cannot get ahead of the game.

So we've actually had very good retention.

It has been very consistent over the years in terms of our salespeople.

Now, we're working on that.

We continue to work on getting that down, because we want to retain salespeople.

And so even though we think we have very good retention today, we'd like to -- we think we can get that even better, which would just help in terms of our hiring and the tenure of our sales force.

So we're working the issue, and we have done things, like you've said.

So we do have good on-boarding [productivity].

We have great recruiting programs to identify people that are we think are highly likely to be successful in our environment, and then strong on-boarding and development programs for those folks once they get on board.

In fact, I think our on-boarding and professional development programs are as good or better than any other Company I've ever seen.

In fact, we get that feedback routinely when our salespeople come on board.

Great, that's helpful.

And then for the Consulting business, you've been working through this managing partner strategy for a while now.

Could you give us an update, for that piece of the business?

Are you finding the people that you want there, and is that going in line with expectations?

Thanks.

Great question.

As you pointed out in Consulting, one of our major initiatives in Consulting is to have a team of managing partners that drive that business.

We started basically within none of those people several years ago and we've been adding them.

We're up to approximately 70 of those managing partners today, and that has been a tremendously successful program.

We've been able to identify great people.

Those people come on board, and their productivity has been exactly what we'd expect.

In fact, once we get a full complement of those managing partners on board, that will really help the overall performance of the Consulting business.

And so our real challenge is just to -- we went from zero to now 70, and we need to get to quite a few more before we are at the full capacity there.

Your next question comes from the line of William Bird with Lazard.

Please proceed.

Gene, I was wondering if you could just talk about what you are seeing in Europe right now?

Great question.

As Chris and I both mentioned, we saw strong double-digit growth across all of our geographies, all of our industries, and all client sizes.

So that's what we are seeing.

And have you seen any change in the tone of business as you've rolled into 2012?

No.

Basically, as you can see from our guidance, we are very enthusiastic about the prospects for 2012.

That applies everywhere.

What were your diluted shares at year-end?

And given the guidance, it seems like 97 and 98 million shares, are you just assuming that you build cash and it is not deployed?

Bill, it is Chris.

Diluted shares for the fourth quarter were about 97 million.

What we've traditionally said over time is that at a bare minimum, we buy shares back to offset the impact of our equity programs and we will continue to do that at a minimum.

We, as you know, will continue to generate significant cash, and we look to two things for that cash.

One would be acquisitions, where they make sense, and as you know, we are pretty thoughtful about acquisitions and we will continue to be that way, but if we find them, we will use them there.

And if not, we will continue to buy shares back in the open market.

So the guidance we gave is to remain roughly where we are.

But should we get more aggressive, that number could come down over time.

So just to clarify, the 97 million, I know that was your weighted average, was that also the quarter-end number?

The final shares outstanding, hold on one second, Bill, and I will get that for you.

Why don't we go to another question, Chris, when we get that number, we'll --

Okay, just a follow on, Gene, how do you think about prospective growth in research client organizations and how you deploy the sales force in effect?

So there is huge growth opportunity in client organizations.

We think there is more than 100,000 actual client organizations out there, and we have a tiny fraction of those today.

We think there's growth in both number of organizations like you saw in 2011.

We also think that there's a huge opportunity to penetrate the existing organizations much deeper as well.

So we have growth opportunity everywhere we look.

Thank you.

We are still looking at those shares.

Bill, we might have to get back to on that share count for the end of the quarter.

No problem, thank you.

Your next question comes from the line of Bill Sutherland with Northland Capital Markets.

Please proceed.

Most of my questions have been asked.

I'm curious about your outlook on Consulting and your confidence of a little pick up in momentum there based -- I see the backlog obviously strong, but it was suddenly strong at the end of '10, so I'm just wondering if there's anything in addition just to the backlog trend that would give you confidence with the Consulting guidance for the year?

Thanks.

Hi, Bill, it is Gene.

I guess I would say two things, one is that we are looking at what's going on operationally in the business, and we feel very comfortable with the guidance we gave in terms of operationally.

The second thing is a point we mentioned earlier about managing partners.

We've been -- we added a number of managing partners through the year last year.

We feel like those -- again, as we look at it, the productivity of those people has been very good.

We'll track the people and get them up to speed.

If we extrapolate into 2012, the performance that we would expect from the people we brought on board in 2011, we see we have performance right in the range that we had in our guidance.

And Gene, a follow-up.

I know you don't want to say there's an endpoint as far as the number of managing partners as a percent of your total headcount there, but are you a quarter of the way there, or is 70 halfway?

No, just to give you flavor for it, we have about 70 today, and we are looking for something like 110 to 120 eventually.

We've still got a ways to go, which is why you see the mid to low single-digit growth in Consulting expectations.

Great, thanks.

And one last one on Events, on the new events are there anything -- is that just a total add or are there any being dropped?

And roughly, size wise, where do these fit in the spectrum?

Thanks.

Hi, Bill, it is Chris.

There's a couple of them that will be dropped, so there's probably a net five in, a couple out that gets you that three delta.

If you think about where we are positioned now with the portfolio, we have a pretty solid portfolio in many of the mature markets like the US, but we still have plenty of opportunities to launch more around the world, and that's the strategy we will have over time is to continue to launch existing events in other parts of the world.

Your next question comes from the line of Brian Karimzad with Goldman Sachs.

Please proceed.

On the sales force ramp, can Eugene give us a sense for when a great sales person starts on day one, how many quarters do you expect for them to ramp before they become accretive to the overall productivity?

Then I have a follow-up for Chris.

So the way you can think about our sales force is when we hire somebody in their first year they don't -- they have less-than-average productivity.

Their second year, they have average productivity.

So their selling is up to average by the time they are in their second full year.

Again, that then gets reflected in contract value, which then the next year actually turns into revenue.

So, if we hire somebody today, once again, their first year will be below average productivity.

Their second year is average productivity.

That would be next year.

And that turns to contract value in that year.

And in the third year, it actually translates into revenue for the business.

Because of the pro-rated [reconnection of] revenue that we use, it takes a while after you sell it.

But we feel really good about the fact that we get our people, we hire new people, they do sell in the first year, but their full average productivity by the time they are in the second full year.

Okay, so theoretically, if you started hitting that high teens growth rate in sales force third quarter, it wouldn't be until third or fourth quarter this year that you would see that start to flow through in contract value growth?

That would be consistent with what I just described, yes.

That's a good way to think about it.

Okay.

And then Chris, on the free cash flow for '11, you finished the year with the operating metrics toward the high end of your outlook.

The free cash flow came in a bit closer to the low end.

Can you just walk through what the delta was?

Just on free cash flow, when you look at free cash flow overall, a couple of things.

The cash taxes and the timing of cash taxes affects that a bit.

What we've had over the past few years is if you look back over four or five years, very little cash taxes, in some cases refunds, and slowly that's creeping up in terms of becoming a cash taxpayer.

Certainly nowhere near at the level that the -- that we have on the face of the P&L.

So our effective tax rate is obviously much higher than our cash tax rate.

Significantly higher.

But having said that, it creeped up a little bit.

That's probably the vast majority of the real delta that we see.

The other thing that we've talked about over time that you will continue to see in our cash flow is that over the past four or five years, we've done a really good job of continuing to improve the effectiveness of our cash collection efforts.

And we've gotten a lot of benefit out of that over the past few years.

We are starting to see that stabilize now.

We are in a very nice high-level in terms of how quickly we collect cash, and so we're not seeing the continued one-time benefits of improving.

We are starting to see it get to a normal run rate.

So those two things are starting to affect the cash flow a little bit in terms of how much additional year-over-year growth we get.

But as I mentioned earlier, we are still expecting good strong cash flow growth, well in the double digits, and again, significantly higher than net income over time.

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

Baird.

Please proceed.

Gene, could you talk in the fourth quarter within the Consulting business, what you saw within the contact optimization portion versus the other parts of Consulting?

Yes, Dan.

Great question.

Basically, in fourth quarter of '10, we had an extremely strong -- that contract optimization business was extremely strong in fourth-quarter 2010.

In fourth-quarter 2011, we had a strong quarter, but relative to the extremely strong performance in 2010, didn't look quite as good.

Great.

So when you look out to the forecast for next year with the utilization coming up nicely in the fourth quarter, is the high end of the guidance range on Consulting, is that essentially normalizing utilization at these types of levels, might be a little higher with a little bit of headcount growth?

Help us understand the dynamics within the range, what the possible outcomes are?

Utilization would be at the high end if -- what you said is exactly right, which is as we -- if the revenues are at the high end, utilization will be at the high end as well in Consulting.

Dan, it's Chris.

Just another comment on that.

The range in Consulting, as we talk about every year is also a factor of our contract optimization business.

As you know, that business tends to be a little more lumpy, and there's things that happened that don't recur, et cetera.

So at the various ranges of the guidance, there's that business, but as Gene mentioned, there's the range around the utilization as well.

Your next question comes from the line of Manav Patnaik with Barclays Capital.

Please proceed.

Manav, your line is open.

So on the sales force growth, expectations of 15% to 20%, I just want to try and tie that in with -- obviously all that is organic growth.

I want to tie that in with what your pipeline looks like on the M&A front.

Just trying to understand where the opportunities are in that pipeline that you see.

And are there any good opportunities there to acquire companies that already have the sales force with the productivity in place?

So it is a great question.

Basically first, we believe we can sustainably grow our sales force organically in the 15% to 20% range.

Any acquisitions we did would be above and beyond that.

So there's both great organic growth opportunities.

In terms of the M&A front, we actively track many companies, and we think there a lot of opportunities out there.

It has to be the right company at the right price with the right fit, and so -- and those have happened in the last few years.

We've had three.

In fact, we had two in one month because it happened to be at the right time when we did AMR and Burton.

Basically, as we said, one of the uses of our cash, that we are interested in, is acquisitions, but only if the price is right and the fit is right.

Okay, and obviously you guys have already shown you have managed to grow the sales force pretty nicely in the double-digit range within that long-term guidance.

Can you just help us understand, again, the profile of who these salespeople are, and where you are hiring them from, just to try to get a little more comfort on the ability to continue to hire 15% to 20% additional sales force year-over-year?

So basically, what we are looking for are basic sales skills.

It doesn't take technology, it basically takes great sales skills.

There's a, essentially, limited market of people that have great sales skills out there.

And we found, if anything, we are getting better actually at both identifying the right people and attracting them to Gartner.

Our recruiting organization is really terrific and has done a great job with that.

We don't see -- there is such a vast army of sales people around the world that have great sales skills, and Gartner is such a great place to be if you're a sales person, that we have no doubt in our ability to continue to grow our sales force in the 15% to 20% a year for, essentially forever.

I guess what has the churn been like on the sales force?

What is the rate, relative to historical, that you seeing today?

Great question.

Basically, our churn in the sales -- the attrition of the sales force has been virtually unchanged over the last few years.

It has been very steady -- even with the change in the economy, it has been very steady.

Gartner is a very attractive place for sales people to be, so we don't really -- people want to be here as your sales person.

Lastly, housekeeping question, I apologize if you said before, what's the tax rate implied in the guidance of '12?

32% to 33% is what we have in the range of our guidance.

There are no further questions at this time.

I would now like to call over to Brian Shipman for closing remarks.

Before I make a remark, Chris wanted to clarify one question.

Just to follow up on Bill's question on the share count, so let me just share a few data points.

Our basic weighted average share count at the end of Q4 was 94.7 million.

Our basic ending share count in absolute terms was 93.3 million.

And our weighted average, diluted weighted average, was 97 million.

So that should give you a sense of shares as we ended the quarter.

And how that will look as we begin 2012.

Just another point on shares, remember that we do issue shares for our equity programs during Q1.

And as we talked about, we continue to repurchase shares in the open market.

All right, thanks, Chris.

And one last plug here for our Investor Day on February 16 in New York City, registration is required in advance.

If you haven't done so already, either contact me directly, or my assistant, Jermaine Scott.

Her number is (203) 316-3411.

We look forward to seeing you next week in New York.

Take care.

Ladies and gentlemen, that does conclude today's conference.

Thank you for your participation.

You may now disconnect and have a great day.