高德納諮詢公司 (IT) 2013 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Gartner's Earnings Conference Call for the Third-Quarter 2013.

A replay of this call will be available through December 8, 2013.

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 21291407, followed by the hash key.

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 call over to Brian Shipman, Gartner's Vice President of Investor Relations, for opening remarks and introductions.

Please go ahead, sir.

Thank you, and good morning, everyone.

Welcome to Gartner's third-quarter 2013 earnings call.

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

This call will include a discussion of Q3 2013 financial results, as disclosed in today's press release.

After our prepared remarks, you will have an opportunity to ask questions.

I would like to remind everyone that the press release is available on our website, and that URL is 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 2012 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'd like to hand the call over to Gartner's Chief Executive Officer, Gene Hall.

Gene?

Good morning, everyone.

Welcome to our earnings call for the third quarter of 2013, with another quarter of double-digit growth in contract value and our key financial metrics.

Our business is performing well and results demonstrate the continued effective execution of our proven strategy.

Research, our largest and most profitable segment, continues to deliver double-digit growth.

We have robust demand for our services across all regions, industries, and client sizes.

We had 12% contract value growth during Q3 with few challenges in very specific areas, which moderately impacted our overall contract value growth rate.

Chris will share more details in a moment.

We understand where these issues are and we're making changes to address them, which we would expect will accelerate our contract value growth rate.

Even with these challenges, we, again, achieved double-digit growth in every region, in every client size, and in virtually every industry, including the public sector.

Our Events segment had another terrific quarter and continues to achieve strong, double-digit growth in revenues, attendees, and exhibitors at our events around the world.

Our Consulting segment remains on track to deliver within the guidance we gave you last quarter.

I just returned from two of our Symposium/ITxpo events; one in Orlando, Florida and the other in Australia.

Symposium/ITxpo is our flagship conference series and we host eight of these conferences each year in different locations around the globe.

Across all of these events, we're seeing record level attendance and revenues.

Symposium/ITxpo is the world's most important gathering of CIOs and Senior IT Executives.

There's nothing else like it on the planet.

In Orlando, which is the largest of this series, we hosted nearly 2,700 CIOs and that's up more than 17% over last year.

While in Orlando, I met with a number of CIOs and enterprise leaders from a diverse array of industries -- manufacturing, retail, banking and financial services, even technology clients.

These leaders are incredibly excited about the impact of IT on their enterprises and the critical role Gartner plays in achieving their enterprise's objectives.

I also had the opportunity to speak with a large number of our salespeople at these events.

They are incredibly enthusiastic about the Gartner brand and market opportunity; as much as I've ever seen them.

Gartner is the best source of help for enterprise leaders launching critical initiatives within the technology revolution.

We know how to be successful in any economic environment and we're relevant, whether an institution is growing or facing economic challenges.

We continue to deliver double-digit results through our key operating metrics due to the tremendous value we deliver to our clients.

I remain confident in and excited about Gartner.

The Gartner brand is in a class by itself; our products, services, and people are superior to the competition, we have a great business model, and we're relevant to virtually every company and government agency in the world.

With that, I'd like to hand the call over to Chris.

Thanks, Gene, and good morning, everyone.

During the third quarter, we continued to successfully execute on our strategy to deliver consistent double-digit growth in contract value, revenue, earnings, and cash flow over the long-term.

This growth was led by capturing more of the significant market opportunity that remains for our research business.

We continue to see strong trends in our key business metrics and demand for our services remains solid across our three business segments.

Even as companies face the uncertainties of the current economic environment, our business continues to grow at double-digit rates quarter after quarter.

This is because our products and services provide great value to the IT and supply chain professionals we work with.

We're engaged on their most important initiatives and projects; this is why we continue to deliver consistent revenue growth and strong financial performance over the long-term.

Let me now review each of our business segments for the third quarter.

Starting with Research.

Research revenue was up 11% to $317 million on an as-reported basis in the third quarter.

Excluding the impact of foreign exchange, research revenues grew 12% compared to the prior year.

The contribution margin in this segment increased 147 basis points to 69.6% in the third quarter, as we once again capitalized on the operating leverage of this business.

All of our key Research business metrics remained strong in the third quarter.

Contract value grew to a record level of $1.327 billion; a growth rate of 13% year-over-year on a reported basis and 12% on an FX neutral basis.

As has been the case for the past several years, our growth in contract value in Q3 was extremely broad-based with every region and client size growing at double-digit rates and almost every industry segment, including the public sector globally also grew at double-digit rates.

New business, again, increased year over year, and 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 80% of our contract value growth came from volume, with the balance from price increases.

We've consistently increased our prices by 3% to 6% per year, on an annual basis, since 2005.

We recently implemented a price increase during the fourth quarter of 2013 and we expect to do so again next year.

Our 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 13,422 client organizations; up 6% over last year's third quarter.

Our client retention rate ended the quarter at 82% and we've maintained client retention between 82% and 83% for 13 straight quarters.

In addition to retaining our Research clients at an impressive rate, the clients we retain continue to increase their spending with Gartner and [wallet] retention ended at 97% in the third quarter.

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

It's important to note that both client and wallet retention rates remained the same levels we reported in Q2.

On a stand-alone quarter basis, wallet retention improved by approximately 2 points in Q3 as compared to Q2.

As we mentioned last quarter, we expected our retention rates to remain at these high levels, despite a few challenging pockets in Europe and in the public sector.

Let me spend a moment providing some additional color on these few challenging areas.

It should not surprise you that a few governments around the world, including the US federal government, modestly affected our overall growth.

Nor should it surprise you that Europe remains a difficult selling environment and is growing slower on average than the rest of our businesses around the world.

For example, our business in France slowed to single-digit growth, due primarily to some internal operational challenges that we're addressing.

Despite these few challenging areas, our Research business remains strong with double-digit contract value growth in every major geography, client size, and almost every industry during Q3.

In fact, excluding the US federal government business, the rest of the Americas grew contract value by 15% year-over-year, which is an acceleration from Q2.

On a global basis, excluding a couple of governments and our business in France, global contract value grew by 14%.

As we discussed during our last call, contract value growth in 2013 has been impacted by these few challenging areas.

With our continued strong performance in almost every part of the Research business, we're confident that we will see acceleration on our overall growth rate in contract value as these pockets recover.

On a final note with research, I'd like to touch on sales productivity, which remains one of our focus areas.

As with contract value in the third quarter, sales productivity has been pressured by the specific challenges I just mentioned.

Most of our sales teams and regions continue to perform very well with productivity flat to increasing.

As we've talked about in the past, we also continue to make operational improvements to improve our overall sales productivity, regardless of the economic environments where we operate.

We fully expect to see increasing sales productivity over time.

In summary, we delivered another strong quarter in our Research segment.

We grew contract value by $145 million on an FX neutral basis year over year.

We continue to see strong demand from clients and we continue to expect acceleration in contract value revenue growth.

We remain confident in our ability to deliver double-digit annual revenue growth in this business over the long-term.

Turning now to Events, our Events segment continued the trend of extremely strong year-over-year revenue growth that we've delivered for the past three years.

In the third quarter, Events revenue increased 29% year over year on a reported basis and 31% on an FX neutral basis.

During the third quarter, we held 16 events with 6,353 attendees compared to 14 events with 5,566 attendees in the third quarter of 2012.

On a same events basis, Events revenue was up 10% year over year.

Gross contribution margin of 30% for Q3 increased roughly 6 percentage points from the third quarter a year ago.

Looking ahead, we see strong demand for both attendee and exhibitor participation during our largest events quarter of the year.

For the past few weeks, we've held six of our Symposium events around the world and next week, we'll hold our final of the year in Barcelona.

Some of you attended our Symposium/ITxpo in Orlando last month and saw firsthand the strength of this series of events.

Our Events business remains solidly on track to deliver another strong year.

Moving on to Consulting, revenues in Consulting declined 2% on a reported basis in the third quarter, and declined 1% on an FX neutral basis.

Our strategy continues to be to focus our Consulting services on a select group of our largest clients who request our differentiated benchmarking, contract optimization, and other strategic services.

While our Consulting business has also been impacted by the global public sector challenges this year, on a year-to-date basis, revenues were up 3% FX neutral in this segment and we remain on track to deliver in the range of our full-year revenue guidance.

Billable headcount of 516 was up 3% from the third quarter of 2012.

Third-quarter utilization was 58% and revenue for billable headcount ended the quarter at $374,000.

Most importantly, for the remainder of the year, we're seeing steady demand for our consulting services.

Backlog, the key leading indicator of future revenue growth for our consulting business, ended the quarter at $96.5 million; this represents 3% growth over the prior quarter and a healthy four months of backlog, which is our target for this business.

Additionally, our pipeline is solid as we enter the final quarter of the year.

With the current backlog and visibility we have into the pipeline, the Consulting business is positioned to deliver results in line with our long-term objectives.

Moving down the income statement, SG&A increased by $16 million year over year during the third quarter, primarily driven by growth in our sales force.

As of September 30, we have 1,605 quarter [bearing] sales associates, an increase of 208 sales associates from a year ago.

We continue to tightly control G&A costs across the entire Company.

We believe this expense item will provide us with a source of operating leverage in the future, as G&A will continue to decline as a percentage of revenue.

Moving on to earnings, we delivered another quarter of solid earnings growth with normalized EBITDA at $75 million in the third quarter, up 10% year over year, and GAAP diluted earnings per share was $0.40, up 21% year over year.

As expected, our Q3 2013 GAAP diluted earnings per share included $0.01 per share in amortization and other costs associated with our acquisitions, including Ideas International.

Turning to cash, year-to-date operating cash flow increased by 16% to $242 million over the same period in 2012.

We continue to expect the same level of free cash flow for the year that we indicated in our previously issued guidance.

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 research business.

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

We repurchased over 1 million shares at a total cost of approximately $59 million.

We ended the quarter with a strong balance sheet and cash position with net cash of $170 million.

Our credit facility runs through March of 2018 and at this time, provides us with about $550 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.

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

We have $84 million remaining under our Board authorization.

Now let me turn to our business outlook for the remainder of 2013.

With our Q3 results in line with our overall expectations, there are no changes to the guidance we discussed in our second quarter conference call.

As always, the details of that guidance are contained in today's press release.

To summarize, we delivered another strong quarter of great results.

Demand for our services is solid and as a result, we generated double-digit revenue growth and our key business metrics remained strong in the third quarter.

Our initiatives to improve operational effectiveness, coupled with the positive operating leverage inherent in our business, delivered solid earnings growth 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 to shareholders through our share purchase program.

We expect to repurchase shares throughout the remainder of 2013 and beyond.

Finally, with double-digit growth in contract value in the third quarter, we've built a solid foundation for delivering strong revenue and earnings growth for the remainder of 2013.

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

With that, I'll turn the call back over to the operator and we'll take your questions.

Operator?

(Operator Instructions)

Joseph Foresi, Janney Capital Markets.

I wonder if you could talk about how you're feeling about sales productivity at this point and your forecast or how many salespeople you plan on hiring before the end of the year?

Joe, it's Chris.

Thanks for the question.

I'll answer the second one first.

We have been guiding, as always, in the 15% to 20% range.

This year, we said we would be around 15%.

We're trending to that and that's where we would expect to end the year, so about 15% growth in our sales force.

With regard to sales productivity, as I mentioned, we're actually seeing some really good results in the vast majority of our sales force.

In fact, we're seeing some incremental improvements in certain pockets.

We've seen a number of things stay relatively flat.

As I mentioned, there's a few places that we're seeing pressure that are causing us some challenges from a sales productivity perspective.

As I mentioned, some of the governments around the world, France.

If you strip those out, we feel like sales productivity is pretty stable.

We certainly would like to see it higher, as we've talked about many times.

We're continuing to do many things to move in the right direction.

We certainly believe that what we're seeing today across most of the field and as we see these few pockets recover that we'll see improving sales productivity from here.

Okay.

Maybe you could talk a little bit -- we've heard or picked up some data points that Europe is getting incrementally better on the margin.

Maybe you could just talk about what you're seeing there as far as demand's concerned?

Joe, it's Gene.

Overall, in Europe, we're seeing good demand for our services.

As Chris mentioned, there's two particular areas that have been a little bit challenging for us, which is France, which we believe is an operational issue and then, one of the federal governments is going through similar things as what's going on in the US government.

It's difficult to do business with them.

Other than that, we're actually seeing quite good new business growth and very good retention in Europe.

Okay.

On the government side of the business, maybe you could frame your exposure, where you're seeing the pockets of weakness and what's built into present guidance?

Thanks.

Let me just, for a second, decide what's going on.

Every government's not a problem.

As we mentioned, we have double-digit growth in the public sector overall.

There are a couple of specific problems and what's going on there is the US government is a great example where they've change their practices.

In addition to having sequestration, which has just made things even more complicated, it's a period of time you can't even meet with people, that makes it very tough to sell new business, much less renew our existing business.

That's kind of what's going on.

As we look forward - Chris, you can talk about that.

Joe, I would say just a couple of things.

Overall, public sector, when we talk about public sector, what we've talked about from a sizing point of view and public sector includes all of the governments around the world, state and local governments, all public enterprises, universities, health care systems, et cetera, it's in the 15% to 20% range, so that's kind of the sizing.

As we talked about earlier, public sector, in total, is actually up double-digits, so we're doing quite well across the overall public sector.

It really is just a handful of areas that are giving us some real challenges and as we said earlier, shouldn't be surprised if the US federal government, as Gene talked about, is one of those areas.

Our expectation for the remainder of the year is we continue to see the performance that we've had in those areas.

We didn't expect that the US government would suddenly improve anytime soon.

That's what we're thinking as we look forward in our guidance.

Okay.

Thank you.

Tim McHugh, William Blair.

First, you mentioned France, so the follow-up question is how big is it, roughly, even relative to your exposure in Europe?

It's not significant.

When you look at it, yes, it's one of the larger countries, obviously, in Europe.

It's obviously one of the bigger areas for us, but in total magnitude, it's not really significant in terms of overall percentage.

But having said that, relatively small movements in some of these larger countries can make an impact and can impact, overall, that rate of contract value growth.

When you take a few things like the governments, we've talked about France, those few things have really moved the needle and taken us from 14% growth, if you strip those out, as I said, we're at 14% growth.

You're talking, certainly, under $50 million and much less than that in terms of where France is.

Contract value.

As Chris said in his remarks, France basically had good double-digit growth and it slowed to take a good growth.

It is not even going negative or anything like that.

But it's slowed enough and it's big enough to where it had that combined with the two governments we mentioned is what results in the net deceleration.

From the comments, it sounded like the government situations, quite honestly, were somewhat outside your control, whereas you felt like France was more operational, I believe you said.

Is that --?

That's a very good characterization.

France is really operational issues that -- we're very, very good operationally.

Occasionally, we have operational problems.

France is one of those and that will get fixed, we think, pretty quickly.

The two federal governments we mentioned are -- it's in the press everyday in terms of what's going on with the federal governments.

You're right, those are two different issues between France and then the two federal governments we mentioned.

Can you help me understand what operational issues would -- is it leadership, sales, turnover?

What type of issues?

We have a selling process and we have a renewal process.

When we follow that process well, it works great.

When we don't follow that process quite as well, it doesn't work so well.

We just did have issues where we didn't follow the processes that we know work well.

It's a simple as that.

We're obviously very focused on it and we believe France will be quickly back on a good track.

Okay.

The uptick that you described in the US growth excluding the government, is there anything underlying that if you looked by company size or vertical or even how you've added salespeople, that's driving it?

We have strong growth across all of the sectors, so it's not any one particular sector.

We're adding salespeople across all of those sectors.

To put it in perspective, we don't want to have one sector grow 50% in number of salespeople and another grow zero, because you can't handle it operationally.

You can think about it with our sales force growth being, as a percent of the range, 15%, it's evenly spread.

There might be some at 20% and some at 10%, but it's evenly spread.

If you look at demand, it's kind of evenly spread as well.

Okay, great.

Thank you.

Jeff Meuler, Baird.

The 14% growth that you guys cited, ex-France, ex-the two -- was that ex-the two governments or is ex all public sector?

What was that ex?

It's not excluding all public sector, it's just excluding a couple of governments around the world that were particularly challenged and France.

We really just had a few pockets, as we talked about, so if you just take those out, you're at 14%.

What would that growth rate on a same type basis have been in the last two quarters?

Just wondering, is that holding steady around 14% and the overall deceleration is being driven by those pockets of weakness or are you starting to see acceleration excluding those pockets of weakness?

What I would say is, it's pretty stable.

As we said last quarter, we really just had a few pockets that were causing us to dip a bit and that's still exactly the case.

Everything else in the world is stable and a few places slightly improving.

As I talked about in my comments, the Americas actually accelerated a bit from Q3 to Q2 and we actually said the same thing last quarter.

The Americas is actually on a path of slight acceleration, overall, excluding the US government sector.

Okay.

Then can you remind us what percentage of new business sold in the Research business is sold in Q4?

If you look at overall contract value, it's pretty balanced.

Our overall contract value mix is not dramatically different quarter-by-quarter.

It varies from about 28%-maybe of the renewals come up in Q4, so there's a little bit of variation, but it's all around a quarter.

Q4 tends to be our larger new business quarter for sure with our sales force into their accelerators and their comp plan drives that.

Okay.

I think you, obviously, you took out about 1% of the stock in this quarter via repurchases.

You've said it remains a compelling use of capital, but also said actively exploring strategic alternatives.

Would you guys consider a leveraged recap?

What would it take for you to be even more aggressive on the share repurchases given the shape that your balance sheet's in and what type of free cash flow you throw off?

What we have said over time is, we do believe that we have the ability to take on significantly more debt.

As always, we are looking at a number of things.

We've told you many times that acquisitions remain something that's really important to us and think can drive significant shareholder value.

The acquisitions we've done have been great uses of cash and we've been able to take that content that we acquire, put it into our sales channel, and drive pretty significant performance improvement over what the companies were doing on their own.

We see great leverage out of doing that and that's why we continue to look for those opportunities.

We would have no problem with the right acquisition to take on significantly more debt.

We will continue to be aggressive in our share repurchase program as well.

Would you consider taking on debt up to one or two turns of EBITDA, say, to do a share repurchase or would you consider only consider levering up for an acquisition?

(Inaudible)

We have no problem taking on debt for any transaction that we think drives shareholder value.

We would certainly take on debt well above 3 times debt-to-EBITDA because we can bring it down relatively quickly.

Okay.

Thank you.

Peter Appert, Piper Jaffray.

I will preface my question by saying the revenue growth numbers are obviously pretty impressive in context of the macro environment, but we always want more, obviously, as evidenced by the questioning.

My question is, the US government impact, can you sense or can you determine whether the purchases are deferred or is the US government actually downsizing in terms of its purchase levels and therefore we should anticipate permanently reduced revenue from that channel?

Peter, it's Gene.

What we sell to the federal government is an itty-bitty, miniscule part of what they buy, even in our field.

There is huge opportunities there.

The issue -- what's going on there is -- there's two things that have gone on in the last couple of quarters, which is, they've changed the process by which they buy things and made it -- which is, we have to adapt to that new process, so that's one thing that's happening.

We know what those changes are.

We believe, over time, it's going to continue to be a great market for us.

Because we understand what those changes are, they still have a great need for our services, the value of our services, but as they've changed processes, we have to change with them and adapt and it takes a little bit of time.

The second thing, obviously, is that sequestration just stopped everything dead in the water for a while, even beyond the period where the government was actually shut down.

Obviously, it takes a while to get it started back up again and figure out what was where.

The combination of changing buying processes and sequestration made it a tough environment.

Having said that, there's no lack of opportunity for us to grow in the federal government.

It's a huge market, we have barely penetrated our opportunity there.

They need and value our services.

In fact, we have -- what's interesting about it, Peter, is if you look at the people actually in IT in the federal government, there is strong robust demand.

The issue is getting it through the procurement processes that have changed where our IT people that ultimately use the services are figuring out how to do that.

We're figuring out how to do it and frankly, even the procurement people within the government are trying to sort out exactly how these change processes are going to work.

There is totally robust demand.

We're working with the clients that are dying to use our services, the IT people who are dying to use our services, to work our way through the new processes and are confident that, over the long-term, it's been a great market for us and we continue to believe it's going to continue to be a great market for us.

Okay, that's great.

Thank you.

Chris, the guidance gives you a pretty wide range here in the fourth quarter in terms of the possibilities.

Can you talk a little bit about what the over/unders are in terms of what gets you to the higher or lower end of the range here, going into the end of the year?

I would just make a couple of comments on guidance.

I think if you look at each of the three segments, I think, for a $1.3 billion-plus research business, we have pretty tight guidance on that revenue range.

That one is, as you can imagine, pretty easy to predict barring foreign exchange and a few other things.

That one's going to be a pretty tight range, which is why it is what it is.

Consulting, as we talk about all the time, there's variability in our contract optimization business, depending upon when our large clients do these large transactions.

We think, especially in Q4, we think that business can bounce around as clients are doing their year-end purchases, so that leaves us a little bit of variability.

On the Events side, we're certainly having an incredibly strong year.

We're finishing up and this happens to be our largest Events period.

Even though we're going into Q4, it happens to be our largest period.

It's the period where we have potentially more variability, as you know, in the Events business, people sign up for events closer to the date of the event, so there's kind of a hockey stick curve there.

That's why we have the ranges we have on the revenue side and those are really the big variability.

We don't see anything other than those things that cause us any reason to be concerned.

Okay.

Chris, did you give the year-to-year change in attendance for ITxpo or your big event?

For Symposium, sorry.

Also, what was the magnitude of the price increase in the fourth quarter?

I'll answer the price increase first, then go back to Events.

We do 3% to 6% has been the range.

We're at the lower end of that, again.

We've been at the lower end of that now for the last few quarters, given the current economic environment around the world.

It's our objective to increase prices, but do things in thoughtful way and that's why we landed where we landed and we will continue to do that.

We expect to do that again in 2014 and beyond.

That's our continued strategy.

With regard to Events, our Events attendees have been up really nicely and exhibitors up really nicely through the third quarter.

We didn't talk, specifically, about all of the attendees at all of our Symposiums, but we've had -- because we're going through those now, we finished a bunch of them and have one more coming up in Barcelona next week.

Attendance has been great.

Exhibitors have been great.

I've seen great attendance there.

We're still well on track to what we expected.

Obviously, you should not expect our fourth quarter numbers to be up quite as much as the full year, because they're the bigger events.

Our Symposium events are bigger and you're not going to see 20%-plus growth there.

You should not be concerned when you see that level of growth be a little less than you saw for the rest of the year and they're more mature events.

What has been great is we've seen great CIO participation.

We've seen significant increases in CIO participation at all of the events.

We feel really good about our attendees and what we're seeing there.

You're up against a pretty tough comp, because I'm remembering last year's attendance was very strong as well.

Do you expect to be up in total attendance this year?

I think, yes, we absolutely do across the board, across the Symposium.

From the CIO perspective, we're approaching 15% to 20% in the CIO attendees at all of our events, so that part's doing great.

The overall attendees are up in those conferences as well.

Thank you.

Jerry Herman, Stifel Nicolaus.

Not to beat up the government situation too much, you're probably sick of talking about it, but just wondering if the contract value will decelerate before it in fact, accelerate given some of those headwinds?

If it is enough to tip it in the sequential softening?

Jerry, it's Chris.

It's hard to predict exactly what's going to happen, to be honest.

However, one thing I can tell you is that September is the big buying year-end for the government, it's a big buying period, so we've gone through a lot of renewals.

We'd like to think that we're not going to see continued deceleration there as a result of that.

As I said, we are seeing really good performance across the rest of the business.

We're seeing acceleration in some other areas.

We certainly are hoping not to see further deceleration as a result of that, but the governments right now are fairly unpredictable.

That's how we look at it right now.

In consulting, the optimization business government-oriented?

No, actually, not at all, really.

It is pretty much all commercial business.

It's a success fee-based business, so we get paid a portion of how much we save.

Many governments are forbidden to use that type of arrangement and so it has very little government business.

Makes sense.

On the competitive landscape, obviously, there's secular trends in the technology research area.

Talk about your feelings about your market share and any other competitive landscape changes that you've seen?

We have many kinds of competition.

I don't think there's been any change in the competition.

We're highly differentiated from everybody else is who's out in the marketplace.

We have a very strong brand and frankly, because so differentiated, there's been no change in competition.

That's not an issue for us at all.

It's no different than it's been last year, the year before, or the year before that.

Chris, you mentioned price increases and you said the last few quarters, you've been at 3% to 6%.

I'm trying to be sure I understand the timing of your price increases.

Are they, in fact, are they annual or do you do multiple price increases during the course of the year?

Or is it just because of the contracts are essentially annual that you have such activity every quarter?

If I said quarterly, I meant each of the last few years.

We do annual increases.

We don't do them quarterly.

Obviously, every client comes up for renewal during different periods of time, so we see the impact of that throughout the year, but we actually make the change once a year in the fourth quarter.

Great.

Thanks, guys.

Manav Patnaik, Barclays Capital.

Can you just give us what the sales headcount number was this quarter?

Also big picture, I'm just trying to understand internally, you talked about a lot of productivity initiatives that you had ongoing.

How should we think about the timing that you have targeted for in trying to see those results and when we should expect that to help contract value grow 3 times (inaudible).

Manav, this is Chris.

The sales headcount ended -- or quarter bearing sales headcount ended at 1,605.

That's up about 15% year-over-year and that's the expectation we have for the year in total, growing at 15% year-over-year.

With regard to sales productivity, one of the things that I think we've tried to talk about, and Gene can add some comments as well, is that we are constantly making change.

It's not like we have one thing that we think is going to happen in Q2.

We're doing a lot of things all the time.

It's a constant set of (inaudible - technical difficulty).

We expect, all the time, to be putting things into place to improving things we're operating on, to execute things that will have a continuous improvement in our sales productivity.

In the context of the large market that you guys have sized before, how long should we expect the 15%, 20% net sales growth to keep occurring?

Is there a target sales force size that you guys have in mind?

We do look at this.

It's a great question.

The way our estimate on it is, if we did not introduce any new products, which we will, but if we did not introduce any new products, we could go 20% a year for the next 20 years with the market opportunity we've already identified.

Okay.

Aside from that, we'll introduce new products.

We introduced a product to marketing space, that doesn't include that product in the marketing space, as an example, that we introduced earlier this year.

But that growth is dependent on the feet on the street, is that correct?

Yes, the thing that constrains us from that growth is how many salespeople we have.

The demand's out there and again, that's if we had no new products.

We don't lack for growth opportunity.

It's a matter of how many salespeople we have.

Okay, thanks a lot, guys.

Andre Benjamin, Goldman Sachs.

Any color that you could provide in terms of the spending levels for new clients that you're signing up versus existing clients would be very helpful.

Is the rate of spending, on an apples to apples, with the existing clients going up or down?

With the upselling, are you seeing more success selling them new products or signing up new roles at the same client?

Andre, it's Chris.

Overall, average Research spend right now is about $97,000, almost $100,000 per client, the average research client; and that's all clients, new, existing, across the whole portfolio.

That has been going up.

That's up about 4% since the end of the year and up almost 7% and as you would expect with price increase and other upsell, that's the expectation.

That's very consistent in terms of what we've done year-over-year.

The average is going up.

The new client spend is below that.

It's probably about half of that, roughly, and that has been going up as well.

You're seeing a very consistent movement, both in new clients, existing clients, and it's moving up pretty consistently.

Would you say, with the existing clients, is the upsell typically adding roles or have you been finding that your CIOs are taking on more of the products that you offer them?

A combination of both.

Sometimes we'll see a CIO upgrade their own seat, sometimes we'll see them add seats.

As you know, we have products that start with the CIO and work all the way through the entire IT organization.

As we continue to penetrate organizations that you can see that those new products being sold across the entire organization including to the CIO, him or herself.

But you wouldn't rank one as having a bigger impact versus the other?

No, it's pretty balanced.

I think when you look at over overall contract value growth and growth in existing clients, it's a combination of all of that.

I wouldn't say there's one that overrides the other.

It's pretty well-balanced.

Lastly, on the goal of expanding margins over the multi-year period, any updated thoughts on that target?

On things that you can control, are there any investments outside of the sales force that we should be aware of that are levers that can allow you to either expand or contract with meeting that goal?

I think we have a pretty clear economic model that we have talked about over time.

If you look at our Research business, on the Research side of the house we expect a 70% incremental margin and we're pretty well delivering on that.

We're pretty close to that, as you saw in this quarter.

There's no significantly different investments there that will drive that number differently.

Could we certainly invest less in our Research business?

Yes, and we could drive margin on that.

We think that would be a bad long-term decision and not investing in enough research analyst and product enhancements for our clients.

I think you should expect that business to stay where it is.

In our Events business, we know how to launch and run events.

We're pretty thoughtful about how we do that.

I don't think there's anything unique or different they're going on in terms of significant new or different investment.

Similarly, with consulting, we've continued to invest in the managing partners.

The reason you've seen the margin performance in that business is, we believe that's a long-term strategy, continuing to add managing partners to allow the Consulting business to both sell and deliver and reduce the reliance on our field sales force so they can focus more on our higher margin research business.

We'll continue to make that investment in the Consulting business.

I would say on the gross margin side, those of the major things that you should think about.

Below the line, we continue to believe that long-term sales force expansion of 15% to 20% is exactly the right level; both because of our market opportunity and with our operational ability to hire that many people, which we can do effectively.

Really, from a margin and a leverage perspective, we expect that as sales productivity improves that's going to give us really nice operating leverage and continue to allow us to be in that 50 to 150 basis point margin expansion range that we've delivered pretty consistently for quite some time.

Thank you.

Jeff Silber, BMO Capital Markets.

Just wanted to follow-up on the questions on the Consulting side, you mentioned the investments in managing partners.

Is that the reason that utilization has dropped and are you still adding billable headcount as well?

Billable headcount is actually up year-over-year.

It's up about 3%.

A chunk of that is the managing partners, so that is a portion of that hiring.

Certainly, adding managing partners has a bit of an impact on utilization, without a doubt, as they are not is billable as consultants on the front line.

But we had, as we mentioned on the call, that business that has also been impacted a little bit by the federal government sector.

We have a nice practice in that area and so we're getting impacted there.

There's a number of things there that are impacting that utilization a bit, but absolutely, managing partners does contribute to that.

Does the Consulting segment have a little bit more public sector exposure than your other segments?

Yes.

I wouldn't say hugely different globally.

In the US, certainly a bit more, and globally, a bit more.

Yes, it is a little bit more weighted there.

Okay, great.

You talked about the opportunities in your Research business in terms of continuing to add sales force.

I'm just wondering, is it getting more difficult to find salespeople?

I know the economy's not that robust, but the hiring market seems to be improving.

It's Gene.

We don't have any trouble hiring salespeople.

First, Gartner is viewed among people that want to sell in technology as being a great place to be.

We have a great brand.

They know that we have very strong offerings.

There are various things, like Glassdoor or LinkedIn, where we're rated one of the top employers.

We don't have trouble attracting people at all, is the first thing.

Second thing is, if you look at the world of technology salespeople, the demand we have is really miniscule compared to all the technology salespeople in any of the markets that we're in.

There's a very gigantic pool, of which we are a teeny portion, and on top of it, we are very attractive place to be for salespeople.

We don't have any trouble at all, both attracting great salespeople.

All right.

Thanks for the color.

Gary Bisbee, [Gartner].

To go back to the challenged areas, I'm sorry to continue to beat on that, but why do you think these things popped up now?

Is the US federal government, because you're into the new fiscal year and maybe you thought the purse strings would loosen up a little bit, but now you know it hasn't?

In France, it feels like the data's getting a little better.

Why aren't these issues that popped up earlier, do you think?

It is Gene.

They're two separate issues.

In the federal government, they, again, as I mentioned before, they have recently, this is not over the last three years, they have recently changed their procurement practices and that's fundamentally -- that, in combination with the sequestration, are what's fundamentally driving the issues with the federal government.

They've change how they buy.

The number of framework agreements, they have these things that you buy on called framework agreements, the number you have to deal with, things like that.

Operationally, the way you sell and the way they buy has changed and it takes a little while for people to adapt to that.

Frankly, they're doing the same thing on their side.

Just one other point, too, on the federal government is, their year-end is in September.

There's a disproportionate number of contracts that come up for renewal and/or new sales that happen in September, as opposed to the rest of the year.

That would have affected our Q3, as opposed to Q1, Q2, and Q4.

The federal government, that's the situation there.

As I mentioned earlier, we think we understand what's going on there.

The people that actually use our services are dying to buy, there's tremendous demand, it's just making sure that we and they adapt to these changed procurement processes.

Again, I'm very optimistic that we'll have great results with the federal government over the next few years.

France is a totally different issue, which is just, as I mentioned, we're very good operationally, but we're not perfect.

We had some operational issues in France where we didn't follow what we know are the right kinds of processes.

We've identified those problems.

It won't take a week to fix, but France has been a great grower for us.

Again, even with these issues, France went from great double-digit growth to single-digit growth.

It's not like they went negative or something.

If you're growing great and you slow, it [doesn't] impact our overall growth rate.

We know what the issues are in France.

We're going to get France back up to double-digit growth.

I don't have any concerns about that at all.

They're two separate issues between the federal government and from France.

Okay, great.

The Events business has really had a terrific year.

I know you're not talking about 2014, yet, but can you just talk to us about how you will, from a strategy perspective, continue to expand this business?

Is there anything you can say about how you've gained new attendees to get us comfortable at these big events can actually grow on top of another great year here and that there is more room in the calendar to add more events?

It's Gene.

Our strategy in our Events business is to grow in two ways.

One is by launching new events and we launch new events every year.

We launched some this year, we'll launch some next year.

For example, this year, we launched a Symposium in Dubai.

That Symposium in Dubai is in it's first year.

Then what happens is, after we launch these events, we'll have a Dubai Symposium again next year.

We expect that we'll have really robust growth in, to use that as an example, in that Dubai event next year.

We're expecting high double-digit, very robust double-digit growth year-over-year in that event, in both attendees and exhibitors.

That's really the essence of our strategy is, launch new events and there are plenty of opportunities to launch events around the world.

We're in 85 countries.

We don't have events anywhere near that number.

We've got loads of places that we can launch new events, including places like the US and Europe, that you might think were more mature.

Secondly, we have plenty of growth at those events and even in the events where we're very tight space-wise, we have ideas of how to address those issues.

As an example, in Orlando, where we hold our US Symposium/ITxpo, we've added, we've built temporary space there and we're also working with the owners of the properties to figure out ways to expand the available space we have there.

We're not concerned at all about being able to grow, either by launching new events, there's probably more than 100 events that we could launch that we know about today.

This year, we will have 63 to 65 events, so there's loads of growth there.

Within each of those, there's plenty of room for growth as well.

Okay.

How far would you consider broadening what you do or broadening the scope of areas you research to entertain attractive M&A opportunities?

You've obviously been very selective and I think that's terrific.

But are there any new areas you'd look at or would you consider broadening the platform at all?

We're very interested in acquisitions.

We have a person who focuses full-time on looking at potential deals.

At any given point in time, there's something like 100 companies that we track that we are interested in buying.

But, for us to buy, it has to be the right pricing and the right other kinds of terms and those things happen from time to time and when they do, we move quickly.

Okay.

Great.

Thanks for the color.

Thank you.

That concludes the Q&A session.

I'd now like to hand back over to Brian for any closing comments.

Thank you.

Thank you, everyone, for participating this morning and we will speak you on our Q4 conference call in February.

Thank you very much, ladies and gentlemen.

That now concludes your conference call for today.

You may now disconnect.

Thanks very much.