高德納諮詢公司 (IT) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to that Gartner earnings conference call for the fourth-quarter and full-year 2013.

A replay of this call will be available through March 6, 2014.

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 79188357.

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

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

Please go ahead, sir.

Thank you, and good morning, everyone.

Welcome to Gartner's fourth-quarter and full-year 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 Q4 and full-year 2013 financial results, as disclosed in today's press release.

We will also go through our initial outlook for 2014.

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 at 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 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.

I would also like to remind everyone on the call that we are hosting our annual investor day next Thursday, February 13, in New York City.

If you would like to attend, please contact my assistant, Germaine Scott, at 203-316-3411, and she will be happy to register you and provide you with the logistics.

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

Gene?

Thank you, Brian, and good morning, everyone.

On today's call, I will cover three things.

I will begin with an overview of our 2013 full-year results.

I will then discuss some of the leading indicators we see for our Business and for sales productivity.

I will share why I am incredibly optimistic about the year ahead.

Then I will turn the call over to Chris Lafond, who will provide you with additional details about our full-year and Q4 financial results for 2013, as well as our guidance for 2014.

Our business performance was strong in 2013.

We've had a consistent proven growth strategy for more than eight years now.

The effective execution of that strategy has resulted in another year of double-digit growth in our key financial metrics.

For the full-year 2013, contract value was $1.4 billion, up 12% year over year on an FX-neutral basis.

Revenues were $1.8 billion, up 11% year over year on an FX-neutral basis.

Earnings per share were $1.93, up 12% year over year.

And normalized EBITDA was $345.4 million, up 10% year over year.

These results create a strong foundation for us as we move into 2014.

In research, our largest and most profitable segment, we closed 2013 strong, delivering double-digit contract value growth across every major region, in virtually every industry and client size.

Contract value was up 12% on an FX-neutral basis.

We ended the year with client and wallet retention rates at 82% and 98%, with wallet retention showing a 1-point improvement over Q3 2013.

We are well positioned to accelerate contract value growth in 2014.

We are beginning 2014 with a 16% growth in our sales force compared to this time last year, and we will continue to invest in this area.

We have the foundation for strengthening sales productivity this year because of improvements in our ability to recruit talented sales people and improvements in sales training.

With these changes, we achieved higher productivity from our 2013 new hires, and expect this to continue as they gain experience.

Retention of our salespeople has improved about 2 points, increasing the number of experienced salespeople; and, of course, we had a strong Q4.

The combination of these factors is why we are optimistic that we can grow our research business in the 13% to 14% range during 2014.

And as contract value growth accelerates, we also expect operating leverage to drive margin expansion.

Let me now turn to our consulting business.

We saw consistent demand throughout the year for our core consulting and benchmark services.

For the full-year 2013, consulting revenues grew 4% on an FX-neutral basis.

The key indicator for future performance, backlog, ended the year at $106 million, representing 10% growth over the third quarter of 2013.

Our events business delivered yet another record-breaking year, with 15% growth in revenues, excluding the impact of foreign exchange.

Revenues from exhibitors were up 17% on a same-events basis, and attendee revenue grew 12% on a same-events basis.

As I mentioned, Chris will provide detailed results for our three business segments in a moment.

While the selling environment has not improved, and nor do we expect it to any time soon, we've improved sales hiring and continued the effective execution of our proven strategy for growth.

Our Q4 performance, along with a few leading indicators, makes me incredibly optimistic about the year head.

In summary, I would like to leave you three takeaways from today's call.

First, our business performance was strong during Q4 and throughout 2013, providing a great foundation for 2014.

Second, our sales headcount growth, along with our ability to attract and retain better, more qualified people, and bring them to productivity faster, is the best it has ever been.

And finally, we expect to accelerate our contract value growth rate by 100 to 200 basis points in 2014, and we are well positioned to achieve sustained double-digit growth in all of our key financial metrics, as we've done in the past several years.

Now I'll turn the call over to Chris.

Thanks, Gene.

Good morning, everyone.

We ended 2013 with double-digit growth in revenue, earnings, and free cash flow, continuing the trend of consistent strong financial performance.

We continue to successfully execute on our strategy, and deliver on the financial objectives we've established and communicated to you over the past several years.

Year-over-year contract value growth remained strong at 12%, and retention rates ended at or near all-time highs.

Our consulting business grew 4% on an FX-neutral basis for the full year.

And our events business increased by 15% year over year on an FX-neutral basis, once again exceeding our long-term expectations for this segment.

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

Even as companies around the world face the uncertainties of the current macroeconomic 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, supply-chain, and marketing professionals we work with.

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

I'll now provide a review of our three business segments for the fourth quarter and full year, and then I will finish with a discussion of our outlook for 2014.

Starting with research: Research revenue was up 11% on an as-reported basis in the fourth quarter -- improved 12% to $1.271 billion for the full year.

Excluding the impact of foreign exchange, research revenues grew 12% for both fourth quarter and full year.

Contribution margin in this segment increased 165 basis points to 69% in the fourth quarter, and increased 109 basis points to 69.2% for the full year, as we once again capitalized on the operating leverage of this business.

All of our key research business metrics remained strong in the fourth quarter.

Contract value grew to a record level of $1.423 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 Q4 was extremely broad-based with almost every region, industry segment, and client size growing at double-digit rates.

New business again increased year over year.

The new business mix remains 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 this 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.

And as a result, we ended the quarter with 14,099 client organizations, up 6% over last year's fourth quarter.

Our client retention rate ended the quarter at 82%, and we've maintained client retention rates between 82% and 83% for 14 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 98% in the fourth 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 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, but it's important to note that our wallet retention increased 1 point from the third quarter.

And, on a stand-alone quarter basis, wallet retention increased significantly in Q4 to over 100% when compared with Q3.

Despite these few challenging areas, our research business remained strong with double-digit contract value growth in almost every region, client size, and industry during Q4.

In fact, excluding the US federal government business, the rest of the Americas contract value grew by 15% year over year.

Similarly, excluding the few same problem areas we outlined last quarter, global contract value grew by 14% in 2013.

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

Assuming these areas don't weaken further, we believe we can accelerate our contract value growth rate to between 13% and 14% in 2014.

In summary, we delivered another strong quarter in our research business.

We grew our contract value by $153 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 and revenue growth over the long term.

We remain confident in our continued 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 we have delivered for the past four years.

In the fourth quarter, events revenue increased 10% year over year on a both reported and FX-neutral basis.

During the fourth quarter, we held 11 events with 20,786 attendees, compared to 14 events with 22,548 attendees in the fourth quarter of 2012.

On a same-events basis, events revenue was up 15% year over year in the fourth quarter.

For the full-year 2013, events revenue increased 14% on an as-reported basis and 15% on an FX-neutral basis, as we held 64 events, 3 more than 2013 -- excuse me, 3 more than 2012.

Attendee revenue increased 11% and exhibitor revenue increased 17% for the full year.

The gross contribution margin of 53% for Q4 increased roughly 2 percentage points from the fourth quarter a year ago, and our full-year contribution margin of 46% was unchanged from the prior year.

Our events business remains well positioned to deliver another strong year in 2014.

Moving on to consulting, revenues in consulting increased 4% on a reported basis in the fourth quarter, and increased 5% on an FX-neutral basis.

For the full year, consulting results were in line with our long-term targets and our guidance for the year.

Revenue growth for the full year in consulting was 3% on an as-reported basis and 4% 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.

Billable headcount of 509 was up 1% from the fourth quarter of 2012.

Fourth-quarter utilization was 65%, and revenue per billable headcount ended the quarter at $430,000.

Let me spend a moment on contract optimization.

We've told you in the past, this part of our consulting segment can fluctuate from quarter to quarter and year to year.

And contract optimization represents about 10% of our consulting segment.

We expect contract optimization revenue to range from approximately $30 million to $40 million annually.

It ended 2013 at the high end of that range, after [ending] at the low end in 2012.

We're seeing steady demand for our consulting services.

Backlog, the key leading indicator of future revenue growth for consulting, ended the quarter at $106 million.

This represents 10% growth over the prior quarter, and a healthy four months of backlog, which is our target for this Business.

With the current backlog, and visibility we have into the pipeline, the consulting business is positioned to deliver solid results in the coming year.

Moving down the income statement, SG&A increased by $27 million year over year during the fourth quarter, primarily driven by growth in our sales force.

For the full year, SG&A increased 12%, again, reflecting an acceleration of our sales investment from the prior year.

As of December 31, we had 1,643 quota-bearing sales associates, an increase of 226 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 continues to decline as a percent of revenue.

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

Normalized EBITDA was $106 million in the fourth quarter, up 9% year over year.

And GAAP diluted earnings per share were $0.65, up 7% year over year.

As expected, our Q4 2013 GAAP diluted earnings per share included $0.01 in amortization and other costs associated with our acquisitions, including IDEAS International.

For the full-year 2013, normalized EBITDA grew 10% to $354.4 million (sic - see Press Release "$345.4 million"), and GAAP diluted earnings per share were $1.93, up 12% year over year.

Our full-year 2013 GAAP diluted earnings per share included $0.04 in amortization and other costs associated with our acquisitions, including IDEAS International.

I would note that our EPS growth rates were impacted by unusually low tax rates in 2012.

For the fourth quarter, our tax rate was 29% in 2013 versus 24.5% in the fourth quarter of 2012.

In the full year, our tax rate was 31.4% in 2013 versus 29.6% in 2012.

Turning to cash, full-year operating cash flow increased by 13% to $316 million from the same period in 2012.

Free cash flow for the year was $280 million, an increase of 18%, and in line with our guidance for 2013.

We continue to deliver free cash flow of approximately 1.5 times net income.

Over the long term, we continue to expect to generate free cash flow at this level, despite our tight cash management and the negative working capital characteristics of our research business.

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

For the full year, we repurchased over 3.4 million shares at a total cost of approximately $197 million.

We ended the year with a strong balance sheet and cash position, with net cash of $219 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 also believe that repurchasing our shares remains a compelling use of our capital.

Today we announced that our Board of Directors approved a new $800-million share repurchase authorization, which replaces our previous $500-million program that had been largely exhausted.

With this new larger authorization, our intention is to accelerate our share repurchase activity going forward.

Absent other significant opportunities to deploy cash, we expect to utilize the bulk of this new authorization over the next two years, which would effectively double the pace of our 2013 repurchase activity.

We believe [we would] accomplish this more accelerated share repurchase activity while also maintaining capital for attractive M&A opportunities, given our high cash flow profile.

One of our financial priorities is to take advantage of our cash flow and liquidity to optimize our capital structure, and this accelerated share repurchase strategy is a step towards achieving that goal.

Now let me turn to our business outlook for 2014.

Based on the solid business trends we experienced in 2013, we believe our businesses are well positioned for another year of strong growth.

Our guidance for 2014 is based on the following assumptions: the current macroeconomic environment continues through the year; our sales productivity remains flat or improves marginally from 2013 levels; our sales force grows approximately 15%.

And with regard to foreign exchange, our guidance is based on the spot rates in early January.

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

For the full-year 2014, we expect total revenues will grow by 9% to 11% to approximately $1.94 billion to $1.985 billion on an as-reported basis.

We expect our results to have a marginal negative impact from foreign exchange during 2014, given where rates currently stand.

And as a result, we expect revenues to grow marginally faster in each of our business units on an FX-neutral basis in 2014 as compared to the as-reported numbers.

The impact is expected to be approximately 50 basis points, given the rates today.

Projected revenues by segment on an as-reported basis can be found in our press release.

On an FX-neutral basis, research revenue expected to be up 12% to 13%; consulting revenue up 1% to 5%; and events revenue up 8% to 13%.

At this point, we plan to hold 62 to 64 events in 2014, as compared to 64 in 2013.

Moving down the income statement, we expect normalized EBITDA for the full-year 2014 to be between $375 million and $400 million, an increase of 10% to 17% over 2013 on an FX-neutral basis.

Given what we know today, we see the midpoint of that EBITDA range as the most likely outcome for the year.

In 2014, we expect the costs associated with stock-based compensation plans to be approximately $37 million to $39 million.

Total depreciation and amortization should be between $35 million and $37 million, inclusive of the amortization of acquisition intangible assets.

We expect interest expense of approximately $9 million, and other expense of $1 million to $2 million.

We're projecting an annual effective tax rate of approximately 32.5%, and our guidance is based on an average fully diluted shares outstanding of approximately 93 million shares for the year.

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

Our GAAP earnings guidance for 2014 is for EPS to be between $2.12 and $2.30 per share.

Similar to what I said with respect to EBITDA, given what we know today, we expect to be towards the middle of that EPS range.

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

In 2014, we expect cash from operations of $336 million to $358 million, capital expenditures of $36 million to $38 million, and free cash flow of $300 million to $320 million.

Thus, we expect to generate free cash flow per share of $3.23 to $3.45 in 2014.

As in prior year, our free cash flow should again approximate 150% of our net earnings levels in 2014.

Now I'd like to provide some additional information to allow for an understanding of the seasonality and other factors that will impact our revenue and earnings on a quarterly basis.

In 2014, our EPS phasing by quarter will reflect an even more pronounced seasonality than our reported results from 2013.

The first quarter will again be the seasonally lightest quarter of the year.

In 2014, we are planning to shift four events and roughly $10 million of revenue out of Q1 into Q2.

As a result, we expect GAAP EPS to be between $0.35 and $0.37 in the first quarter.

Also reflecting that shift, Q2 events revenue and earnings will be a bit heavier than in previous years.

I'd also like to remind you that our third quarter is also a seasonally light quarter, again, due to our events calendar on our consulting business.

As in years past, the fourth quarter is our seasonally heaviest, with more than 50% of the full-year events revenue in that quarter because our Fall symposium series is held in Q4.

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

As we've communicated to you in the past, research contract value is reported on an FX-neutral basis throughout each year.

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

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

As a result of changes in FX rates since January of 2013, contract value at January 1, 2014, is approximately $21 million lower than the $1.423 billion reported on December 31.

As a result, $1.402 billion is the baseline figure you should use for comparison purposes when judging contract value growth in 2014 on an FX-neutral basis.

So, to summarize, we delivered solid results for both the fourth-quarter and full-year 2013.

Demand for our services is strong, and as a result we generated double-digit revenue growth, and our key business metrics remained strong throughout 2013.

Our initiatives to improve operational effectiveness, coupled with positive operating leverage inherent in our businesses, delivered solid earnings and cash flow growth for the full year.

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

We'll continue to invest in our Business and return capital to shareholders through an accelerated share repurchase program going forward.

Finally, with double-digit growth in contract value in 2013, we established a solid foundation for delivering another year of revenue and earnings growth in 2014.

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

Now I will turn the call back over to the operator, and we will be happy to take your questions.

Operator?

(Operator Instructions )

Timothy McHugh, William Blair.

First, I guess, Gene.

Just your comment about looking at the numbers, do you expect sales productivity to be relatively flat.

But just at a high level, you're talking about 15% sales force growth, you were just at 16%.

So when you say 13% to 14% sales -- or contract value growth, I guess what is the difference there?

Is that roughly flat in your view, or it still seems like it would be down a little bit?

Great question.

Basically just to kind of recap.

Our sales force headcount growth, year over year we ended with 16% more people at the end of 2013 than we did at the end of 2012.

And so that's an acceleration from what we had experienced the previous year as well.

With that -- what drives our contract value growth is the number of salespeople you have, and then the productivity of those salespeople.

So if we look at it, we've had the number of salespeople up, there's a richer mix of newer salespeople because we accelerated the number of new people, who on average sell a little less than experienced, the tenured experienced salespeople.

And you put it all in the mix, we look at the growth.

We [package that in] with the productivity we are expecting, and were expecting something like 13% to 14% contract value growth driven by, again, the combination of the 16% headcount growth with the growth in -- with the relatively flat sales productivity.

So when you're saying flat sales productivity, you're looking at the mixture of the salespeople, and basis of given a certain tenure of the sales person, it would flat with what you would expect?

Yes.

Basically, we're just to sort of summarize.

We're expecting roughly flat sales productivity year over year.

We are not assuming any big improvement.

Now, we're working on improvements and we're optimistic on that, as I talked about, but we don't assume that when we talked about 13% to 14%.

The 13% to 14% contract value growth is not predicated on a big improvement in sales productivity.

Right.

I guess just, and then an update in terms of, I think it was about a 1, 1.5 years ago, you rejiggered the approach to adding the salespeople.

What is your view on how that is taking hold?

And then maybe somewhat different question.

A broader one is, there is a number of questions I think I continue to get and others continue to get just on sales force productivity, and it's kind of trended down a little bit over the last couple of years.

And so can you talk a little bit about your view on whether or not it's becoming harder to get each dollar of sale, Or this is truly just a timing thing and you feel confident long term that it is unchanged?

In general, it's not getting harder to get each dollar sale.

Last year we had, Chris talked about this in his remarks.

If you look at last year, if you take out a small set of problem areas, actually our growth, our CD growth rate accelerated.

And we would have been up total average, you include those problem areas, it makes sense.

But then under the covers, what's going on is we had some things that we're relatively -- we haven't experienced those every year.

It kind of happened last year, and even with that, we have roughly flat sales productivity.

So if you exclude those areas, our productivity actually improved.

And it's because of the things that you are talking about.

So improved recruiting, improved training, a focus on retaining salespeople so that we have a richer mix of tenured salespeople.

That's kind of what's driving our real sales productivity.

Okay, and then just Chris, can I ask one question on the repurchases?

You used the phrase accelerated pace, is that an accelerated pace meaning you're going to buy back more, or are you talking about truly an accelerated share repurchase plan, a more formal set of plans?

No, we are not looking at an accelerated buyback.

What we're looking at is increasing.

So how quickly, or how much we're spending on share repurchase.

So if you look last year, 2013, we spent approximately $200 million.

Our new authorization is $800 million, as I said in my remarks.

We expect to spend that $800 million.

Barring any other significant uses of cash that come up, we would expect to spend that over the next two years.

So that's almost double the pace of activity.

Our approach will be to continue to buy in the open market on a quarterly basis, and you should expect us to be in the market doing that quite regularly.

Okay, great.

Thank you.

Hamzah Mazari, Credit Suisse.

Thank you.

Just a follow-up question on sales force productivity.

Could you give us a sense of how far behind Europe is in sales force productivity versus the US?

Is it 1 year, is 1.5 years?

And maybe just update us on some of the operational issues last quarter, whether those -- what the update there is.

Thanks.

It's Gene.

If you look at Europe, there's not kind of one answer, meaning that there's some countries that are among the best in the world in sales productivity in Europe, and there's some areas that are not as good as that.

And you can't look at Europe and say what's their total productivity.

We look at it by each of the selling teams, and they're often oriented along with the countries.

So some are really good and some are not quite so good.

In the areas that -- at any given point in time--

No, it's okay.

At any given point in time we're in Gartner, we have sales teams around the world that some are doing better, some are doing a little worse.

The ones that are having issues, we know what to do to fix them.

We go in and we work on it, and we get those teams to better have productivity.

And that's what we see in terms of Europe as well.

Okay, very helpful.

Last question.

When you look at net new business and existing business contribution 50% each to revenue growth, does that mix change long term as your salesforce becomes more tenured, or does that sort of stay consistent?

How should one think about going out and getting more new business?

As we've talked about, we have loads of opportunity in every place we go.

Today we get contributions from new clients, we get clients new to Gartner from clients that are -- have been existing clients we sell more to, and there's huge opportunities on both of those dimensions.

While the mix changes a little bit quarter to quarter or whatever, for many years to come we see growth in both of those categories being sort of comparable.

So no change.

What I would add to that, it's Chris, just the facts on the existing clients, just the average research client today spend approximately $100,000 with Gartner.

That's only three or four seats.

In terms of being able to continue to penetrate existing clients, there's still plenty of opportunity.

The vast majority of our clients are buying 1 and 5 seats.

So still plenty of opportunity to penetrate existing.

As Gene said, still plenty of opportunities.

We talk about all the time in terms of companies we're not working with today.

For many years running we've had a pretty consistent balance of around half of our new business coming from new clients and half from existing, and we see no reason that will change.

Great.

Thank you very much.

Jerry Herman, Stifel.

Thanks.

Good morning, everybody.

Chris, I wanted to ask you about the SG&A commentary again, given the move in that line item.

You mentioned sales force activity, but it still seems to be bloated, and I'm wondering if you can add some additional color there?

And if there were any other year-end adjustments that impacted that line item?

Thanks, Jerry.

No.

It really is, when you look at SG&A, SG&A is about two thirds sales and marketing and one third G&A.

The G&A piece continues to come down as a percent of revenue, so no change in that trend.

We're continuing to manage expenses very tightly there.

The G&A line is continue to do exactly what we have been doing and expect it to do.

On the sale side, as we talked about, we had accelerated our sales hiring to 16%.

That was only growing 12% last year.

We actually added them throughout the year earlier in the year.

So you're seeing more of the impacts.

If you look back at 2012, more people came towards the back end.

This year they came in more evenly.

So you had the combination of accelerating growth and the timing of hires impacting that, which is why the S part of SG&A has gone up at the level it has.

We, as we just talked about, feel very comfortable with what we're seeing in many parts of the world around sales productivity, and that's where are making our sales investments.

We feel like we're putting people in the right places that are going to have the biggest impact.

But given where sales productivity is and that it's been flat to slightly down, that has put a little pressure on the S part of the SG&A line as a percent of revenue.

Okay.

And then second question really relates to sort of the general operating leverage in the business overall, and your previous commentary about margin progression, I think you guys have talked about 50 to 150 basis points.

As I look at last year, it looks like you were actually below that, and as I looked at your guidance for this year, at least on an EBITDA margin basis, it looks like relatively minor movement in the EBITDA margin, I think I'm coming up with about 30 basis points year over year.

Is there anything else that's going on, either timing or structurally, that's dampening that leverage?

We still expect -- no, we still expect that range, 50 to 150 basis points.

Just a couple things that we commented on in the last quarter and continue to comment is if you look at where the leverage has come from in the past, we have done a great job on the gross margin line.

So the Research business, as an example, has moved from below 60% to close to our target of 70%.

You're getting very close to where we think that's the max for that segment.

In terms of getting more leverage out of improving the margin there, you get less there.

So we think that the way we get 50 to 150 is shifting from getting it more on the gross margin line to getting more of it from continued expansion of sales productivity on the sales line.

We absolutely believe that, and I think if you look at our guidance range next year from high end to low end, we are in the middle of that 50 to 150 range, roughly at the high end.

And so we certainly expect as we see and expect sales productivity to improve over time with the things that we're doing that we will continue to see expansion of our operating margins and EBITDA margins as a result of that.

Great.

Thanks.

I'll turn it over.

Joseph Foresi, Janney Capital Markets.

Hi.

I wonder if we could just review what the problem areas are, and just get a sense of what their impact is to the numbers in 2013?

Hello, Joe.

It's Chris.

What we talked about last time was, obviously one big area was US fed.

And what we talked about is that in the Americas, if you take out the US fed business, that business is growing 15%ish.

That has a pretty significant impact because of the challenges there.

Just in terms of, do expect that to change?

That's been a great market for us.

It will continue in the future to be a great market for us.

We still have a great amount of business with the US federal government.

They happen to be in a period of change and turmoil right now.

We don't expect that to change significantly in 2014, so our expectations are that will continue to be a tough selling environment, and we don't expect to get any improvement there.

Other than that, in the Americas we're having fantastic growth and acceleration in contract value growth from where we were, if you exclude that.

We also talked about some governments around Europe.

Similarly, if you take that out, Europe is actually accelerated as well and as approaching overall in Europe 14% growth if you take that out.

So similar kind of thing.

We are not expecting those environments to change.

Governments around the world, we expect still to be under pressure and be tough selling environments, and when those governments at the national levels around the world change, we feel like we have an opportunity for that to really help us drive even further acceleration in contract value growth.

We did talk about some other problem areas that's always there's a problem here or there around the world.

Nothing's ever perfect, and those are more internal than external.

And we feel like we are addressing those and feel very comfortable as we move into 2014 that any issues we had internally have been dealt with and addressed.

So I'm just trying to get a sense for the commentary around contract value acceleration.

Based on that, based on what you just said, we are not expecting any change in US fed or some of the government business in Europe.

Is the contract value acceleration based solely on sales force productivity, or is there any change in the demand environment that's also being included in that?

Hi, Joseph.

It's Gene.

It's really based on the fact that we come into the year with 16% headcount growth, and as I mentioned in my remarks, the productivity of those people we hired last year actually is higher in their first period of time.

And so if you look at the trend, we expect that we have more people, and those newer people are going to have higher productivity than our newer people have had in the past, on average.

It's a combination of those two things.

Okay.

So it's productivity.

Has there been any -- last question from me, I guess, just finishing up on the demand environment/ Has there been any change, any uptick or change in the demand environment, or do you -- is your expectation for next year for that to be flat with no real change in any of these problem areas?

We are assuming the selling environment will remain the same in 2014 as it did in 2013.

No improvements in the selling environments.

Got it, okay.

Thank you.

Jeff Meuler, of Baird.

Good morning, guys.

I guess just first, a lot of the metrics you guys give us are trailing 12 metrics, and I just want to make sure that I'm interpreting what you're saying correctly, Gene.

If you look at, on a quarterly basis, not a trailing 12 basis, have you already seen the positive inflection, the acceleration in terms of whether you look at new business sold, wallet retention, client retention, et cetera?

It's a great question.

If you look at Q4 by itself, most of the metrics improve.

So sales productivity actually improved in Q4 if you look at it by itself.

If you look at the retention metrics, they actually improved if you look at just Q4 by itself.

To your point, we actually saw an inflection point in Q4, and it's driven by the factors that I talked about earlier, which is that we have more people, those new people have higher productivity, we have lower sales (inaudible), and all that stuff was driving this inflection point where all the kind of underlying leading indicators had a nice uptick in Q4.

Okay.

And then I think you got a couple of questions on this, I'm still not quite clear on the answer.

But in terms of the delta between the headcount growth being 16%, currently 15% you're expecting for the year and what you're guiding to for Research contract value growth, 13% to 14% in 2014.

When you're saying that productivity is going to be flat to up, are you saying productivity for the year ones is going to be flat to up, for the year twos is going to be flat to up, for the year threes is going to flat to up, or are you saying that across the whole base it's going to be flat to up?

Let me just start by what we're targeting when we say sales productive.

We're talking about the net contract value growth versus what we actually pay for people, or versus the number of people.

So if you look at the net contract value growth per person, we're expecting that to be flat to up for next year.

And as we entered Q4, we actually saw that up a little bit in Q4.

So it's contract value growth per person as opposed to total contract value per person.

Got it.

Perfect.

And then just finally, Chris, on the buyback, I just want to make sure that I heard you right.

I think you said something, a share count that's pretty similar to where you probably exited the year in terms of what's baked into the guidance.

So it sounds like maybe you built a little bit of the share count into the guidance, but way less than the $400 million that you're expecting to spend, is that correct?

No.

I don't think so.

I think our expectation is that, as I said, for the $800 million program, we're going to be fairly aggressive and accelerate beyond what we have been doing almost at twice the pace.

Obviously that comes in throughout the whole year.

So it doesn't all happen early.

So you need to feather that in based on that.

We would expect to be in the market relatively evenly.

And as a result, we would expect it to be in the range of shares that I gave you.

Could it come in a little lower?

Maybe, depending on how quickly we buy shares back, but I would say that's a reasonable place to be based on all the modeling we have done.

You did say 93 million shares for the full year and the Q4 average share count was 93.9 and you were buying during Q4.

So I'm assuming the exit share count is lower than the 93.9.

Are all those numbers correct?

Yes, you got them right.

Okay.

Thank you.

Peter Appert, Piper Jaffray.

Yes, you've got John Crowther on for Peter.

Just following up on the last question on productivity, and I apologize if you may have mentioned this earlier.

But sort of wondering what your pace of sales hiring is going to be in 2014?

As you talked about 2013 was a little bit more front-end loaded.

And then following up on that, on the productivity sector comments you said that productivity in Q4 was actually up year over year.

Just wondering again, is there going to be a little bit of seasonality to productivity driven by the pace of sales force hiring?

So the first question, our long-term goals is to hire 15% to 20% per year in terms of adding to the sales force, and we expect to be in that range for 2014.

In terms of the variability, if you look at the net contract value growth per person in a standalone quarter, we saw more net contract value growth.

It varies by quarter, so if you calculated that way of course it will change by quarter.

There's some seasonality, which is why we look at a rolling four quarters to normalize it there.

Okay.

I guess I'm trying to understand, maybe give a little bit of a reminder here of the sort of pacing of productivity of new hires, especially given a little bit of the commentary earlier about efforts to improve that productivity of those people.

So we have been shifting hiring earlier in the year.

As Chris mentioned earlier, in 2013 we hired throughout the year, but much earlier than we did in 2012.

And then in 2014 we are also planning to be a little more frontloaded than to hire evenly throughout the year in terms of the sales force growth.

The guys we hired last year, once you hire somebody, then they go to training, and then they get in territory, and it takes a little while before they get their first sale.

So as you can imagine, as you hire new sales people, they get more productive over time.

So their first full year they have one level of productivity, second full year it is substantially better, and third full year it's still even better that.

So the people that we hired in 2013, because that was more frontloaded in the year, we come into 2014 with both more people and also those new hires that we had have had a little more tenure than the ones that we came into 2013 with, all of which is why we're kind of optimistic on our results for 2014, contract value growth for 2014.

Okay.

Thank you.

Manav Patnaik, Barclays

Hi, this is actually Gregg calling on for Manav.

I was just wondering with the accelerated buybacks if you could give some color on what that means for other capital allocation options, whether it's the M&A environment or a potential dividend in the future?

So couple of things.

First of all, we are in a great position from a cash perspective.

We have over $400 million of cash, we have over $500 million of liquidity in our credit facility.

So we have -- and we generate well in excess of $300 million a year in cash every year.

We have more than ample ability to accelerate our share repurchases from where we have been, and give us the continued flexibility for acquisition.

So we're not limiting our ability to do acquisitions.

We still think there are plenty of opportunities and continue to look aggressively there, because our balance sheet is strong, because our cash flow profile's improved, we are taking the opportunity to accelerate and still give us the same flexibility.

As we've talked about many times, the two things that we think are the best use of cash are share repurchases and acquisitions.

But over time we will continue to look for other opportunities, and we are open to other things as we continue to strengthen our balance sheet and drive further cash flow.

At this point, those are the two things that we feel are the most attractive from a shareholder value perspective.

Okay.

And then on the Events business, maybe a little bit on whether you see anything from corporate restrictions on travel and how that may be affecting that business?

Event, you're talking Events?

Yes.

From an Events perspective, as you've seen over the last couple of years, we have continued to see great attendance growth at all of our events globally.

Despite the economic environments, all of our events we everywhere in the world.

Our fourth-quarter events, almost every event was up year over year in attendance.

We have not seen any impact significantly.

The one place we did see some impact was in the federal government business where some of those travel restrictions did impact some attendance, but overall I would say it's not a significant issue for what we have seen in our performance in 2013.

That's helpful.

Thank you.

Gary Bisbee, RBC Capital.

Good morning.

This is Gunnar Hansen in for Gary.

Just in terms of the recent productivity improvement, especially among some of the more recent hires.

I was wondering if there's a reason why you're being a little bit conservative on the pace of sales hiring, particularly at the lower end of your long-term range?

As we mentioned, last year we hired at 16%, which is well within the 15% to 20%, and we're planning this year to be in that same range.

We're kind of in the range of what we have aspired to be in.

Okay.

I just didn't know now if the more recent improvements in productivity among those assisted any further pace of hiring.

I guess in terms of the recent challenges you guys had in France, any kind of update on that?

We are in more than 90 countries around the world, and again, any given point in time we are going to have an operation in one or two of them, and the -- it's operational things that we know what to do about.

It's not something, if I compare it to national government issues, that was more an internal operations things and we have that at any given point somewhere.

We know to do to fix it.

So we're not concerned about that.

Okay, great.

And just in terms of the use of cash, particularly with the acquisitions on the horizon there, has it been more of a lack of attractive assets, lack of sellers, or a pricing issue for you guys?

As you know, a couple of things.

Number one, we're pretty thoughtful on acquisitions.

We can continue to do and deliver the kind of results we have organically.

So we do not need to acquire companies to deliver the results.

So we're very thoughtful on acquisition.

We're very thoughtful abut spending shareholder money on acquisitions at the right place.

So for us there's no lack of attractive candidates.

It all comes down to the appropriate valuation, and obviously many things in our space are privately held, and when they are available for sale by the owners, and we are always looking and continue to do that, and we see no change in the marketplace for opportunities.

Great.

Thanks so much.

Jeff Silber, BMO Capital Markets.

Thanks so much.

I'm not going to ask about sales force productivity.

( Laughter ) Actually, you're talking about your global exposure.

I know there's been a lot of concern about emerging markets exposure.

I don't know exactly how you guys define emerging markets, but maybe you can give us a little bit more color about what you're doing in some of those areas?

Sure.

I think when you look overall at our business, emerging markets are a relatively small piece today.

As we've talked about in the past, a few places, India, China, Brazil, some of those places have done extremely well for us and are still growing at or above the average for our business.

And by the way yes, has there been a deceleration?

Brazil has decelerated from extremely high pace, but is still running at a pace that's above our average contract value growth rate.

We feel very good about the places we are operating in from an emerging markets' point of view.

And we continue to see really nice healthy growth out of those areas.

And I don't view them today as a drag against our overall growth rates.

All right.

That's great to hear.

Just a question about the guidance.

In trying to get to your normalized EBITDA numbers, what kind of gross margin should we be modeling, and if we can get color by the different divisions, that would be great.

If you look at the three segments, Research is approaching what we think is our long-term target of 70%.

And our Consulting business over time should move to 40%, and we're kind of sitting at 36%-ish now.

So there's a little bit more room for that to expand.

It's not going to do that overnight, but we would expect that to move this year a little bit closer towards that 36% number.

Events, we think is about a 50% number overall, depending on the number of launches and where we launch those.

But we would fully expect that to start to, or continue to move in that direction.

And you saw a little bit that movement in Q4.

You should think 70/40/50 is the long term for those three segments, Research, Consulting, and Events.

We're approaching that in Research, a little more room in both of the other segments.

All right, great.

That's helpful.

Thanks so much.

I would now like to turn the call over to Brian Shipman for closing remark.

Thank you everyone for being with us today on the Q4 2013 earnings call.

If you have any further questions, please don't hesitate to contact us.

And we look forward to seeing you next week in New York at Investor Day.

Thanks.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Thank you.