高德納諮詢公司 (IT) 2012 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Gartner's earnings conference call for the second quarter 2012.

A replay of this call will be available through September 3, 2012.

The replay can be accessed by dialing (888) 286-8010 for domestic calls and (617) 801-6888 for international calls and by entering the passcode 27832693.

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

I would like to turn the call over to Mr. Brian Shipman, Group VP of Investor Relations.

Please proceed, Sir.

Thank you, and good morning, everyone.

Welcome to Gartner's second-quarter 2012 earnings 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 Q2 2012 financial results disclosed in today's press release, followed by an opportunity for you to ask questions.

I would like to remind 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 2011 annual report on Form 10-K and quarterly reports on Form 10-Q as well as in 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.

With that, I would like to hand the call over to Gartner's Chief Executive Officer, Gene Hall.

Gene?

Good morning, everyone.

Welcome to our quarterly earnings call.

For the second quarter of 2012, Gartner once again delivered strong results.

On an FX neutral basis, we showed growth across all three of our business segments.

Research, our largest and most profitable segment, continued to grow at double-digit rates.

Consulting had another solid quarter performance, and Events continued to exceed our long-term growth targets.

Normalized EBITDA was up 16% quarter over quarter, and diluted earnings per share was up 34% over second quarter 2011.

As you are aware, we are looking at a tough world economy, with economic uncertainty coming from all major geographies.

Here in the US, unemployment continues to be a challenge.

In Europe, the debt crisis remains threatening.

In Asia, growth has slowed.

Despite this environment, Gartner consistently delivered excellent results across all our businesses.

We have achieved double-digit results across all geographies and industries for the past several quarters.

And we expect this trend to continue.

Our results demonstrate the strength and successful execution of our strategy for growth.

Our strategy enables us to continue to capture our substantial market opportunity, which, as I've stated in the past, we estimate to be at $47 billion.

The fundamentals of 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.

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

Whether an organization is looking to leverage technology to achieve rapid growth or looking to manage costs, Gartner is the best resource to turn to for help, and our results show it.

The Gartner brand is in a class by itself.

Our products, services, and people are superior to the competition; and we have a successful and attractive business model with high renewal rates, great cash flow, and incremental margins.

I remain confident in and excited about our prospects for sustained double-digit growth over the long term.

With that, I'll hand the call to Chris, who can comment on detail on second-quarter results.

Thanks, Gene, and good morning, everyone.

We delivered another very strong quarter in Q2.

On an FX neutral basis, we once achieved double-digit growth in revenue, earnings, and cash flow.

In Research, year-over-year contract value growth remains strong at 14% on an FX neutral basis, and retention rates ended at or near all-time highs.

In Events, our revenues were up 16%, FX neutral, and accelerated in Q2 from Q1 on a same-events basis.

And in Consulting, our Benchmark and Core Consulting businesses grew a combined 9% year over year, FX neutral, while our Contract Optimization business was lower year over year as a few deals moved into Q3.

Demand for our services was robust across all three business segments in the second quarter.

Our strong top-line performance and effective execution in capitalizing on the operating leverage in our business allowed us to once again expand our gross contribution margin, which is now at 60%, up from 59% in Q2 of 2011.

As a result, we delivered significant growth in earnings in Q2.

In the second quarter, normalized EBITDA increased 16% year over year, and our GAAP diluted earnings per share were up 34%.

With this strong start we are well positioned for continued growth for the remainder of 2012.

These results again demonstrate the continued successful execution of our strategy, our ability to consistently deliver on the long-term financial objectives we have established over the past few years, and the overall value we bring to the strategic IT initiatives of our clients.

I will now review the results of our three business segments in more detail before taking your questions.

I will begin with Research.

Second-quarter Research revenue was up 11%, to $278 million.

Excluding the impact of foreign exchange, Research revenue growth was 14% in the quarter.

The margin in this segment increased from 67% to 68% as our strong execution continues to capitalize on the operating leverage inherent in this business.

All of our key Research business metrics improved or remained very strong in the second quarter.

Contract value grew to a record level of $1.141 billion, a growth of 14% year over year on an FX neutral basis.

Our growth in contract value in Q2 remained broad-based, with all geographies and industry segments delivering strong double-digit growth year over year.

New business again increased from last year, continuing the trend we have seen since late 2009.

The new business mix was balanced between sales to new clients and sales of 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 83% of contract value growth came from volume.

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 12,474 client organizations, up 7% year over year.

And, as for pricing, we have consistently increased our prices by 3% to 6% per year on an annual basis since 2005, and that remains our plan again in 2012.

We have maintained client retention near record highs for the past two years, and our client retention rate ended the quarter at 83%.

In addition to retaining our Research clients at an impressive rate, the clients we retained continue to increase their spending with Gartner, and, as a result, wallet retention also remained strong at 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, our retention metrics are reported on a four-quarter rolling basis in order to eliminate any seasonality.

So, in summary, our Research segment continued its strong performance in the second quarter.

We grew contract value by $141 million on an FX neutral basis year over year.

We continue to see strong 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, our Events business continues to deliver exceptionally strong year-over-year growth.

Events revenue in the second quarter increased 13% year over year on a reported basis and 16% excluding the impact of foreign exchange.

During the second quarter, we held 21 events with 12,540 attendees, compared to 21 events with 11,295 attendees in the second quarter of 2011.

On a same-events basis, Events revenue accelerated in the second quarter from the first quarter of this year, with total attendees up 12% year over year and exhibitors up 13%, both in line with guidance we provided to you for the full year 2012.

We are seeing strength in every geography and across the entire Events portfolio.

Our Events business is well positioned to deliver continued growth through 2012 and beyond.

Moving on to Consulting, revenues in our Consulting business grew 1% in the second quarter, on an FX neutral basis, but declined 1% on a reported basis.

Our Benchmark and Core Consulting businesses delivered strong results, up a combined 9%, FX neutral, year over year in Q2.

Our Q2 Consulting segment results were impacted by our Contract Optimization business, which can vary from quarter to quarter given the nature of that business.

As I mentioned earlier, a few large deals moved from Q2 into Q3.

Backlog, the key leading indicator of future revenue growth for Consulting, ended the quarter at $93.1 million, or a healthy four months of backlog.

Our pipeline remains solid as we enter the third quarter.

Billable headcount of 481 was down 2% in the second quarter 2011 and up slightly from last quarter.

Utilization for Q2 was over 67%, up 360 basis points from the second quarter a year ago.

And revenue per billable headcount remained above $400,000 per year, ending the quarter at $425,000.

With a solid second quarter, a four-month existing backlog, and a strong future pipeline, the Consulting business is on track to deliver results in line with our guidance for the full year.

Moving down the rest of the income statement, during the second quarter our gross contribution margin increased by 114 basis points year over year to 60%.

This increase was driven by margin improvement in our Research and Events segments.

In particular, the successful execution of our strategy continues to capitalize on the high incremental margins and operating leverage inherent in our Research business.

SG&A increased by $12 million year over year during the second quarter.

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

As of June 30, we had 1,356 quota-bearing sales associates, as compared to 1,146 a year ago, which represents an 18% growth year over year, in line with our long-term target for growing our sales force by 15% to 20% per year.

Moving on to earnings, we delivered another strong quarter of solid earnings growth.

Normalized EBITDA was $79 million in the second quarter, up 16% year over year, and GAAP diluted earnings per share were $0.43, up 34% year over year.

Note that GAAP diluted earnings per share in Q2 were negatively impacted by $0.02 of acquisition-related charges.

Our normalized EBITDA margin was 19.9%.

All of this is consistent with the phase-in guidance we laid out at our Investor Day in February.

Turning now to cash, our strong performance so far this year translated into a significant year-over-year increase in cash from operations, which was $99 million for the first half of 2012 as compared to $64 million in the first half of 2011.

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 second quarter, we utilized our cash to complete the acquisition of Ideas International for a net purchase price of $10 million, as well as continuing to return capital to shareholders through our share repurchase program.

Our share repurchases for the first half of 2012 were over 2 million shares at a total cost of almost $85 million, which nearly matched the level of share repurchases in the first half of 2011.

We ended the quarter with a strong balance sheet and cash position, with net debt of $50 million.

Our current credit facility runs through December 2015, and, at this time, provides us with almost $362 million of available 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, and, in the absence of appropriate acquisition opportunities, we believe that repurchasing our shares remains a compelling use of our capital.

And, we have $231 million remaining under our Board authorization.

Now, I will close with a business outlook for 2012.

Our business remains well positioned for another year of strong growth in revenue and earnings.

At the midpoint of the year, we are on track to deliver the results we communicated back in February.

The second quarter modestly exceeded our original expectations for EBITDA and EPS.

As a result, we remain confident in the guidance we provided at the start of the year.

Looking ahead to the second half of 2012, I would point out that our full-year GAAP EPS guidance remains unchanged, despite our expectations that acquisition and integration charges related to the recently acquired Ideas International will impact EPS by roughly $0.03 per share on an after-tax basis.

So, to summarize, we delivered great results for the second quarter of 2012, and demand for our services is strong.

We generated double-digit revenue growth, and our key business metrics remain strong in the first quarter -- in the second quarter of 2012.

Our initiatives to improve operational effectiveness, coupled with positive operating leverage inherent in our businesses, delivered strong operating margins, and we continue to generate substantial operating cash flow.

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

Finally, with double-digit growth in contract value in the second quarter, we established a solid foundation for delivering a strong year of revenue and [earnings growth] this year.

We remain well positioned to continue our consistent delivery of double-digit revenue and earnings growth and increasing returns to our shareholders over the long term.

We will now be happy to take your questions.

Operator?

(Operator Instructions)

Peter Appert, Piper Jaffray.

Gene, I know you typically don't give guidance on contract value, but, given the stepped up pace of sales force hiring, I'm wondering if you're feeling more confident about the second half of the year.

Or maybe even more broadly, can you just talk about what you see in terms of visibility in the backlog or contract value pipeline?

So, I'm actually feeling great about the second-half of the year and on into 2013.

We did add a lot of salespeople toward the end of 2011.

And those salespeople have gone through their training, and they're getting their initial territories.

And so I really expect they'd be hitting traction in both the second half and obviously through 2013.

If I look at our pipeline, the pipeline looks terrific in terms of deals, as Chris said.

Well, we have great growth in all geographies and all industries.

Our pipeline continues to look that way across the board.

So I'm quite optimistic about both the second half as well as going into 2013.

Great.

Thanks, Gene.

Chris, so the margin performance is pretty impressive here in the second quarter, particularly after the margin was basically flatish in the first quarter.

Can you talk about the implications of stepped up sales force expansion in terms of should we be thinking about more modest margin improvement in the second half?

Thanks, Peter.

The way to think about the margin expansion for us comes in a couple places.

As you know, we talk often about the incremental margins in each of the three businesses.

So on the Research side we believe we have a roughly 70% incremental margin.

So for every dollar we sell about $0.70 will flow through the gross margin line.

Today that business is at about a 68% margin so there's still room for that to continue to expand up towards that 70% number.

Consulting, we think over the long-term is 40%, and we're not quite there yet.

And Events is between 48% and 50%, and we are starting to get pretty close to that number.

So there is certainly still some room in each of the three segments as we continue to grow -- and the mix shift as well.

So as we continue to grow Research faster than the others, you continue to see margin expansion simply because of that mix shift.

So those are all the drivers that happened on the gross profit line.

As you go below and look at the SG&A line, SG&A has been relatively stable.

As you know, we are investing in sales as we talked about.

We continue to manage G&A.

G&A continues to comes down as a percent of revenue.

That will continue to be a source of margin expansion as well.

We still think there's plenty of opportunity.

I think we've done a really good job of expanding the sales force over the past six or seven years while also expanding margin, and I think we can continue to do that 50 to 150 basis point expansion as we continue to move ahead.

Got it.

Thank you.

Then just last thing, Gene or Chris, any comments in terms of sales force productivity and leverage you are seeing for that?

Gene, you sort of mention that in my earlier my question?

Yes, so basically on sales force productivity, there's two things going on.

One is, for our tenured salespeople, we continue to work very hard to drive that sales productivity.

We see that rising over time.

Obviously, as we had more new sales people, that changes the mix.

In the first year or so, our new salespeople have lower productivity.

And so, if we have a richer mix of new salespeople in their first year, obviously, that impacts the average productivity.

Got it.

Okay.

Thank you.

William Bird, Lazard.

Nice results, guys.

Just a follow on related to contract value.

Just given the macro context and some of the seasoning that is going on in the sales force, when would you expect contract value growth to get back in the 15% plus range?

It's Gene.

We're not [PMS] drilled.

We don't forecast contract value, but, as I mentioned, I think we expect to see -- we've got a great pipeline.

As we see the large number of people we added in the latter part of last year getting up to speed, we'd expect an acceleration over time.

So, I think we are talking in the second half into 2013.

At this stage, given the macro volatility, have you seen any of that translate to business on the ground?

The thing that -- it's -- clearly I talk macro environment everywhere, but the thing -- IT is really important for every institution, as I mentioned in my talk.

What we see impact our performance more than anything else is our execution as opposed to the macroeconomic factors.

As I mentioned, and Chris also mentioned, we had double-digit growth in every geography and in every industry segment, again this quarter, even though the economic environment is not that great.

Again, if we look beneath that to the individual sales teams that do well versus don't do well, it is really driven by our operational performance and not the economic environment.

IT is a great way to save costs in an institution, and, when people have those kinds of issues, we help them with that.

So it's really applicable -- our services are really applicable in any kind of environment.

And just final question, on Events, what are you seeing in advanced bookings for exhibitors and attendees?

Hey, Bill, its Chris.

As you know, we monitor that very closely.

If you look at our, for example, upcoming fall symposiums, the advanced exhibitors are looking great, well ahead of last year so continuing to look really strong.

If you look back at all the events we've had so far this year, all of the -- almost every event we've had is up year over year both in attendees and exhibitors so we've had really strong performance.

Everything we see so far continues to suggest that will continue, so we've seen no indication of anything other than that.

Thank you.

Manav Patnaik, Barclays.

Just to expand on the sales productivity area, can you maybe give us some color on what the productivity looks by region?

Is Europe, because of the economic situation there, maybe slightly less than US and Asia?

Or just some characteristics around the different regions?

Yes.

It's Gene.

So, our sales productivity varies on a number of factors not just geography.

It's things like are they selling to large companies versus small companies versus midsize companies?

Is it a market where we've got a very large contract value base or one that we've entered relatively recently?

So, for example, some places in China we might have entered more recently and not had as big a contract value base, so not as many renewals.

All those things affect it.

You have to look at all those.

But if I were to kind of summarize above that to sort of say what's going on by geography, to get back to your original question, is there's no major driver that says, gee, we're getting -- things are doing worse because the economic environment somewhere is worse.

And, in fact, if you look in Europe just as an example, their performance year over year was among the best in our entire -- if you look across all the regions despite the economic environment.

As I mentioned, we had double digit growth everywhere in Europe, in fact was year over year was one of the stronger performers.

So it's really again driven by our operational execution not by the market -- not so much by the market environment.

Got it.

And then, you grew sales 18% year over year this quarter.

I guess, just to try to get an update on sort of the hiring environment, and I know there's people out there looking for jobs, but in terms of the quality and attrition rates, maybe an update on that?

Our attrition rates are right where they've been.

Our sales force attrition has not changed materially.

So that's going great, and, in fact, we are very focused on actually lowering it because we like to have people stay longer, particularly making sure we hire people that are a really good fit with Gartner.

Last question, for the Ideas acquisition, was there contribution to revenue, contract value, etc, this quarter, and maybe should we expect anything in the next two?

Its Chris.

The ideas acquisition, as you know, is a very, very small organizations so there's really no material impact to revenue EBITDA, CV.

The only place that there was anything even remotely material was the $0.02 of acquisition related charges that we talked about.

That number will be $0.03 for the full year so we've already taken a bulk of that.

And for the rest of the year it should not be material to results at all.

All right.

Great.

Thanks a lot guys.

Tim McHugh, William Blair

I wanted to circle back to the contribution margin for Research.

I know there's inherent leverage in the business, but it's been -- it's kind of particularly strong this quarter.

Was their anything that you are seeing in terms of the efficiency of the Research organization or something else that explains it or really just normal operating leverage?

No, nothing unusual, no one-time thing.

I would just say it's normal ongoing operation of the business.

I think, as we continue to grow the Research business, we know how to manage those costs.

We know how to take advantage of the leverage in that business so I wouldn't say there's anything unique or different.

There are periods of time where we have timing of different things that bounce between quarters, so you may see a particular quarter a little stronger, but, overall, I think for the full year, we still expect that we will see nice expansion in that segment.

Okay.

And then, just on the uses of cash, you talked about buying back stock.

It was a little lower this quarter than the prior few quarters.

Is that because you are looking for acquisitions, and you're waiting to see if things are happening, or is it just the normal timing.

And I guess what does that mean for the second half in terms of uses?

Yes.

I think there's just normal timing between quarters.

I think, if you look at the half, we are basically right where we expect to be in terms of our share repurchase program.

And, yes, we were looking -- we always look at acquisitions and continue to look at acquisitions.

We obviously used some money for one this quarter.

But I would expect that you will continue to see us be in the market on a regular basis, and it could be lumpy every quarter, but overall we will continue to be in the market.

Okay and my last one.

The number of organizations, the growth rate picked up there most their must better than I thought.

Was that fairly evenly spread, or were there particular regions or markets that drove that?

It's pretty well balanced.

When you look at our overall contract value growth and you look at the overall growth in CV by either by geography, industry, it is extremely well balanced across all that.

So I would not point out any individual place stronger or weaker than anywhere else, so I would say continues to be very balanced.

Okay.

Thanks.

Bill Sutherland, Northland

It wanted to be clear, Chris, on the trend in Contract Optimization revenue, that's just a push out correct?

You don't see -- it's not like a headwind that you are dealing with?

No not at all.

If you look at our Consulting business, as I talked about on the call, our Core Consulting and Benchmark businesses has had a really strong year over year performance, so continuing the strength was saw in Q1.

So those were both up a combined 9%, FX neutral.

Contract Optimization can be a little bit lumpy, as the nature of that business depends on when clients choose to do particular IT purchase transactions.

And so we completed some work on a few deals that we already see coming into Q3, so those have just slipped from Q2 to Q3.

So we still feel very confident the guidance we've given and the business is performing exactly as we'd expected.

Bill, this is Gene.

I'll just give a little color on that.

The way that business works is we do the work helping the client, and we get paid when they actually sign the contract.

And so we had a huge deal that we actually, as Chris said, completed work in -- actually, during Q2.

But they signed the contract in the first couple weeks of Q3.

So we don't get paid until then.

And our expectation is that those deals will just enhance Q3 business with that segment.

Makes sense.

I just thought since it's tied to client purchases in that might be a place where the economy is having some impact, so I wanted to be clear on that.

Actually, if anything -- one thought on that -- if anything it's the opposite.

There's $3.1 trillion or $3.2 trillion of IT purchases.

We cover a teeny portion of that.

That business is a in very high demand because people are very -- in places where people are under cost pressures, that's a great way to save money.

So if anything I think there is -- when times are tough is when that business shines the best.

Makes sense.

I wondered if you all, I was looking to see if you released this in the past, talked about churn, customer churn, in terms of either voluntary like deciding to end the service or involuntary related to corporate activity and if that's shifting at all?

Hey Bill, its Chris.

I would say if you look at our client retention rates, our client retention rates are at essentially all-time highs.

I think we are at 83% this quarter, which is up from where we were by another point.

As we always talked about, our longer-term goal we believe we are driving toward the 90% number there.

We think there is certainly some activity that is related to acquisitions, bankruptcies, etc.

So there is some percentage of accounts we can't necessarily control because of those things.

I would not say there is any meaningful shift in anything we have seen.

I think our retention rates continue to improve and continue to improve with all the activities we are taking to work on that.

So 90% is kind of like the natural ceiling potential?

Where we are today, we certainly have set a target to get to 90%, and, as we get there, as we always do with you guys, we will share with you what we think we can do is we get to those numbers.

So, we are always got astride to be better than where we are today.

Just to add, just to add we are quite optimistic that we continue to increase that retention as Chris said over time.

Great.

Last one from me, on the Research contract terms, what proportion our annual and what proportion are multi year?

As you know the minimum contract length for the most part is one year.

We have about a third of our contracts are multi year at any point in time.

And, when you look at contract value, the only thing in contract value it's all annualized.

So, even if we have multi year contracts, you are only seeing one year's worth of CV in that number.

So the multi year does not affect our CV number.

Thanks Chris.

(inaudible), Credit Suisse

This is Kelly Flynn on Andrea's line.

Just a couple questions.

Sorry to go back to this.

I think this is the third time on the back half contract value thoughts.

But I think in response to Bill's question, Gene, you said you are very confident.

You mentioned something about the second half and into 2013 with respect to acceleration.

Could not quite hear exactly what you said there.

I'm not sure what you mean.

We are obviously trying to figure out if you expect contract value growth to accelerate in the second half, or is this a 2013 issue?

If you could just kind of go back to that comment and clarify it, that would be helpful.

Thanks.

Sure, Kelly.

We don't forecast contract value growth so we are not going to give a forecast for what the number is going to be.

But what I'm saying basically is that we have capacity in place, we are executing well, and we think we will continue to execute well.

And, as a result, I'm quite optimistic that over time our contract value growth would accelerate.

Okay.

All right.

Fair enough.

For the sales force growth, I know you said 15% to 20% for the year, which is consistent with past comments.

Should we expect that to come in toward the lower end of the 15% to 20% in the back half, given what you've done in the first half?

Again, I think we are -- we gave the 15% to 20% based on our operational performance.

So we look for areas where we see the best opportunities to add salespeople, and there's a rate at which people can productively come on board.

And we kind of gauge based on looking at actually our operational ability to assimilate new people.

And we think the floor of that is 15%.

We can easily do 15%, and we think right now the maximum is 20%.

So it's not like we have a fixed number we are aiming towards, more that we do it on an operational -- what makes sense operationally.

Okay, great.

Just a third one back sales force productivity, I think I backed into how you guys calculate it with some help from Brian about the NCVI per sales person, net contract value increase per sales person.

I'm just wondering, that looks like the decline widened a little bit in the quarter year over year.

Can you help us understand how should we think about that metric, the net contract value increase per sales person, should that increase sequentially in the third quarter?

Should the decline narrow?

Can you give us any help on how we can measure improvements in that metric in our model?

Hi, Kelly, its Chris.

Great question.

And so, as you know, we certainly accelerated and had a lot of hiring of new people in the first part of this year.

When you look at sales productivity, we certainly had a much richer mix of new people versus existing people.

So that certainly has an impact as you look quarter-to-quarter on how that productivity measure trends so we -- our trend continues to move ahead.

Sp productivity is moving as we expected it to move.

We certainly expect, as we get into the back half of the year, that of all of those people become fully trained, get more productive and we start to see that productivity increase we go through the year.

And then, obviously, it will depend on how many more salespeople we add towards the back half of the year or early next year.

So there is a number of factors that will affect that, and it's a question of when those people come on board, what that mix looks like.

As we talk about all the time, I think the key thing for everyone to remember is growing your sales force 15% to 20% percent with normal sales force turnover in the 15% 17% range you're going to 35%-ish of your sales force in their first year.

That's a big number to manage to manage, and that will move over time depending on when we bring those people in, and that will impact the quarterly productivity numbers.

So I think, for us, the key is to keep watching to make sure that, as we look at the details below it, in terms of the productivity of new people, productivity as people go through there tenure, that we feel those things are moving in the right direction, and that's exactly what we feel today.

Okay.

Thanks so much.

That was helpful.

Brian Karimzad, Goldman Sachs

On that net new sales person you are putting on the ground, can you get more specific on what types of opportunities and framework of opportunities you are putting against --them against versus the existing sales force?

And then on the training side, to the extent you need to make adjustment there, are you ready if you need to to put some more expense behind accelerating some efforts there in making sure productivity gets up to speed in the short-term and to get '13 on track?

It's Gene.

On the opportunity side, we have identified today 108,000 institutions as potential clients, of which only 27,000 are actually assigned to a sales territory today.

And so as we add new salespeople, we have plenty and plenty of opportunities that we know.

Where we are today is we don't have enough salespeople yet.

So when we bring salespeople on we do one of two things.

We take some of those new territories, some of that roughly 70,000 institutions that are not yet assigned to a salesperson.

The other thing we do is, as Chris mentioned, we have normal sales force turnover so, when somebody leaves us, we obviously replace them with another salesperson and they get that.

So it's a combination of it could be replacing an existing sales territory, or we could be bringing in a whole new territory and that happens in the US, it happens in Europe, and it happens in Asia all three of those.

With respect to training, we have a huge -- we know that we want to have core sales force 15% or 20% per year, and we're going to have order of magnitude 15% to turnover which is, again, normal turnover.

So as Chris said, we are going to have 30% or 35% people in their first year every year.

So recruiting and training our huge focus for us.

We have taken our training program from very basic five years ago to being what people -- we have people in our sales force when they go through our training program say is the best training program they've ever seen.

Were not stopping there.

We know to your point how important this is, and so we will continue to [in half] those [supportments] over time and It's a source of continuing investment.

It's not static in anyway whatsoever.

Same thing for recruiting, by the way.

We are always focused on how do we identify people that are most likely to be successful, and how do we get better and better over time so that our sales force turnover is lower and our initial productivity is higher.

Okay.

Chris, for those of us keeping the box score, if we wanted to include the acquisition, the Idea acquisition, in our ACD number, it looks like it was about a $9 million-dollar revenue run rate last year.

Is that a fair amount to pop in there as soon as we back it out?

Their revenue is not all Research revenue.

They have some consulting and other revenues so what I would say, as we talked about earlier, it is not material to the results.

So I wouldn't -- it's not going to move the needle either way.

Okay.

Thank you.

Dan Leben, Robert W. Baird

Gene, you talked about sales productivity having some variances between the sizes of customers.

Can you talk about what you are seeing there and any trends within the different customers sizes?

No, I think basically it is the same trends we have seen.

There's nothing new there.

Basically, the -- and I think that's true about the customer size and by geography.

Some geographies sales are selling more by telephones -- and so no material change in that at all.

Okay.

Can you just give an indication for the magnitude of the Contract Optimization we should think about being additive to the third quarter, those bigger deals that slipped?

Hey, it's Chris.

When you look at the Contract Optimization business, if you look at it standalone, remember Contract Optimization is kind of 10% or 15% percent of the overall consulting business so that's the kind of magnitude.

That business was down probably 20% to 25% year over year.

So there's probably $3 million to $4 million of media impact of things we think will slip -- did slip and we are already seeing coming into Q3.

Great.

Thanks.

Last one from me, on the consulting backlog, down a little bit sequentially, and could you talk a little bit about is there in the FX impact in the backlog as well as overall trends down a couple quarters in a row from a really strong court number the fourth quarter?

Yes, just a couple points on backlog.

The first thing that's really important to note is the months of backlog.

So we're still trending at around four months, which is exactly where we want to be.

So we feel really good about the months of backlog that we have.

FX is a pretty minimal impact to the backlog so I would not say that that was a driver.

If you look back we had a particularly strong Q1 in Europe with backlog so we certainly expected to work some of that backlog down.

And so, from where we are today, we feel very confident that the backlog is where it should be, and it's supporting what we think we should be delivering in the back half of the year.

Great.

Thanks guys.

Eric Boyer, Wells Fargo.

Can you remind us what the tax rate assumption was for the year and what you are now expecting for 2012?

Yes, the tax or the effective tax rate of 32% to 33%, and we still expect to be in that range.

It was a little lower this quarter because we had some credits that were booked this quarter related to our Stamford headquarters and some credits we received from the State of Connecticut.

But, overall, we will be still in that 32% to 33% range.

And then just on the sales force growth, could you talk about the areas where you are focused the most in terms of verticals and geographies?

It's Gene We are growing our sales force basically everywhere in geographies, everywhere in size companies and everywhere in industries because there are opportunities in all those spaces.

And it is operationally, so, for example, we don't want to grow one team 50% -- if we are going to average 15% to 20%, we don't want to grow one team 70% or 80% and one team 5% because the team that's growing 70% or 80% would be very hard operationally to manage.

So we try to keep all of the industries and all of the verticals and all of the geographies growing in kind of a range.

And that range could be higher than -- than I'm talking higher than 20% in some very fast-growing particular markets.

And it could be a little bit lower if we see if there's an area where we think operationally the team needs to make some changes before we get a lot of headcount.

But if you think about we are growing in all of the geographies, all of the industries and all sized clients.

Can you give a sense for some of those fastest growing markets you just talk about?

Yes, it won't surprise you it is places that are the faster growing economies in the world, so, for example, in some parts of Asia would be at the higher end of those ranges as opposed to the lower ranges.

We've grown very -- People's Republic of China, for example, we have grown faster than the 20% that we talked about there.

Okay.

And then, are you seeing any change in the pace of opportunity adding to sales pipeline for either Research or Consulting?

No.

Basically we have a very robust pipeline, and as -- we track this very systematically in terms of opportunities, and it looks very robust.

And then the length of the sales cycle -- any changes there other than that one piece of the Consulting business you talked about?

I would say no, no changes in the selling cycle.

One of the things we've gotten very good at in this economy is where clients have cost problems they need to deal with, budget problems they need to deal with.

We know how to talk with them and how to make sure we are helping with them being front and center a part of the solution.

And so even in areas where there are big budget concerns things like that, we are pretty good at addressing those.

So no change in the selling cycle we are seeing.

All right.

Thanks a lot.

Bill Sutherland, Northland Capital Markets

Chris, just a quick follow-up because I think I may have missed your commentary about FX impact in the second half of the year either revenue or CVs.

It's Chris.

Effectively, we don't try to forecast foreign exchange.

W never have, so, basically, we look at where the exchange rates are today and we look forward.

And so all of our current assumptions assume FX is kind of where it is today.

if it moves dramatically, we will come back and tell you what the impact is.

If you look at where we are through the first half, in the second quarter we kind of had 3 to 4 point impact on top line.

Similar impact on expense so not a huge impact on the bottom line, but we'll see where it goes for the remainder of the year.

So, I guess I meant, given rates where they are today, what would it do to the second half?

We just re-confirmed our guidance that we put out so right now we still believe with a foreign exchange at the level they are today, we will still be in the range of the guidance that we gave at the beginning of the year.

Okay.

Thanks Chris.

Thank you.

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