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Executives

Eugene Hall – Chief Executive Officer

Christopher Lafond – Chief Financial Officer

Brian Shipman – Vice President, Investor Relations

Analysts

Peter Appert – Piper Jaffray

William Bird – Lazard

Robert Riggs – William Blair

Manav Patnaik – Barclays

Kelly Flynn – Credit Suisse

Dan Leben – Robert W. Baird

Brian Karimzad – Goldman Sachs

Gartner Inc. (IT) Q1 2012 Earnings Call May 3, 2012 8:30 AM ET

Operator

Good morning ladies and gentlemen and welcome to Garner’s Earnings Conference Call for the First Quarter 2012. A replay of this call will be available through June 4, 2012. The replay can be accessed by dialing 888-286-8010 for domestic calls and 617-801-6888 for international calls and by entering the pass code 92101447. 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.

Brian Shipman

Thank you and good morning everyone. Welcome to Gartner’s First Quarter 2012 Earnings call. With me today is our Chief Executive Officer, Gene Hall, and our Chief Financial Officer, Chris Lafond. This call will begin with a discussion of Q1 2012 financial results disclosed in today’s press release, followed by an opportunity for you to ask questions. I’d like to remind everyone that the press release is available on our website. That URL is www.gartner.com.

Before we begin, we need to remind you that certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the Company’s 2011 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC. I would encourage all of you to review the risk factors listed in these documents. The Company undertakes no obligation to update any of its forward-looking statements.

With that, I’d like to hand the call over to Gartner’s Chief Executive Officer, Gene Hall. Gene?

Eugene Hall

Good morning everyone. Welcome to our first earnings call for 2012. We had a great first quarter and our business is performing extraordinarily well. We continue to experience the strong growth trends we saw in 2011 and our business accelerated in all three segments. As you’ll hear in more detail from Chris, Gartner is in the strongest position we’ve ever been. Research, our largest and most profitable segment, continues to grow at double-digit growth rates. Consulting had its strongest quarter in years and events continued to exceed our long-term growth targets.

Normalized EBITDA was up 11% and diluted earnings per share was up 24% over first quarter 2011. These results demonstrate the strength achieved through successful execution of our consistent strategy. Our sales capabilities were the strongest we’ve ever had. The productivity of our new hires is on a great trajectory and we’re bringing in strong talent. We continue to invest in our sales force and benefit from great sales leadership.

I recently spent several days at a meeting with several hundred of our top performing sales associates. They are excited about Gartner. They know we deliver a huge value to our clients and they also know the importance and relevance of our insights within our client organizations is growing. Why? Because IT is one of the most important drivers of growth and competitive advantage for virtually every institution in the world, and IT is complex and continuously evolving.

Whether an organization is looking to leverage technology to achieve rapid growth or whether they are looking to manage costs, Gartner is the best resource these professionals can turn to for help, and our assistance often makes the difference between success and failure for our clients. Because of this, we benefit from a vast untapped market opportunity for our services which, as I stated before, we estimate at $47 billion.

There are hundreds of thousands of IT and supply chain professionals who could potentially be Gartner clients but had never been educated on the value we can provide. The same is true of our events business, which continues to deliver extraordinary performance.

We have the right strategy to capture this opportunity. As some of you know, the fundamentals of our strategy are to create extraordinary research insights, to build strong sales capability, to deliver high value differentiated offerings, to provide world-class service, and to continually improve our operational effectiveness. This consistent strategy is driving our growth and will allow us to maintain sustained double-digit growth over time. I remain confident in and excited about our prospects for sustained accelerated growth. The Gartner brand is in a class by itself. Our products, services and people are superior to the competition and we have a successful and attractive business model.

We delivered another successive quarter of strong growth and we’re well poised to achieve strong results in 2012 and beyond. As you’ll hear from Chris in a minute, we demonstrated growth across all three of our business segments as well as in normalized EBITDA and diluted EPS. Our business model is attractive with high renewal rates, great cash flow, and incremental margins, and we have the right strategy to achieve our goals. Finally, we’re well positioned to achieve our long-term targets with the leading brand in IT and supply chain research, a strong value proposition for our clients, great operational capabilities, and a vast untapped market opportunity.

With that, I’ll hand the call over to Chris so he can comment in detail on our performance.

Christopher Lafond

Thanks, Gene. Good morning everyone. 2012 is off to a strong start. In the first quarter, we once again achieved double-digit growth in revenue, earnings, and cash flow. Each of our three segments delivered strong results and contributed meaningfully to our overall Q1 performance. In research, year-over-year contract value growth remains strong at 14% and retention rates ended at or near all-time highs. In consulting, year-over-year revenue growth of 6% was at the high end of our long-term expectations, and in events both the attendees and exhibitors increased by double digits year-over-year, resulting in 31% year-over-year revenue growth.

Demand for our services was robust across all three business segments in the first 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 growth contribution margin which is now at 61%, up from 59% in Q1 2011. As a result, we delivered significant growth in earnings in Q1. In the first quarter, normalized EBITDA increased 11% year-over-year and our GAAP diluted earnings per share were up 24%. With this strong start, we are well positioned for continued growth for the remainder of 2012.

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

I’ll now review the results of our three business segments in more detail and then we’ll take your questions. Let me begin with research. First quarter research revenue was up 13% to 275 million with a negligible impact from foreign exchange in the quarter. The margin in this segment increased 110 basis points year-over-year to 68.7% as our strong execution continues to capitalize on the operating leverage inherent in this business. All of our key research business metrics remained very strong in the first quarter. Contract value grew to a record level of 1.111 billion, a growth rate of 14% year-over-year on an FX-neutral basis. Our growth in contract value in Q1 remained extremely broad based with all geographies, client sizes, and industry segments delivering strong year-over-year growth.

New business again increased from last year, continuing the trends we’ve seen since late 2009. The new business mix was balanced between sales to new clients and sales of additional services and upgrades to existing clients. While our contract value growth continues to benefit from our discipline of annual price increases and no discounting, approximately 85% of our contract value growth came from volume with the balance coming from price increases. This volume growth reflects our success in continuing to grow the business by penetrating our vast market opportunity with both new and existing clients, and as a result we ended the quarter with 12,303 client organizations, up 6% year-over-year; and as for pricing, we’ve consistently increased our prices by 3 to 6% per year on an annual basis since 2005, and that remains our plan again in 2012.

We’ve maintained client retention near record highs for the past two years, and our client retention rate ended the quarter at 82%. In addition to retaining our research clients at an impressive rate, the clients we retain continue to increase their spending with Gartner and as a result, wallet retention also remains strong at 99%. Wallet retention is higher than client retention due a combination of increased spending by retained clients and the fact that we retained a higher percentage of our largest 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.

In summary, our research segment continued its strong performance in the first quarter. We grew our contract value by $134 million on an FX-neutral basis year-over-year. We continued to see strong demand from clients, and we expect continued acceleration in revenue and contract value growth over time. We remain confident in our ability to deliver 15 to 20% annual revenue growth in this business over the long term.

Turning now to events, our events business continued to deliver exceptionally strong year-over-year growth. Events revenue in the first quarter increased 29% year-over-year on a reported basis and 31% excluding the impact of foreign exchange. During the first quarter, we held 13 events with 5,707 attendees, compared to 11 events with 4,337 attendees in the first quarter of 2011. On a same events basis, total attendees at our events during Q1 were up 13% year-over-year and exhibitors were up 12%, in line with the guidance we provided to you for the full year 2012.

We are seeing strength in every geography and across the entire portfolio. Our events business is well positioned to deliver continued growth throughout 2012 and beyond.

Moving now to consulting, revenues in our consulting business grew 6% in the first quarter, again with a negligible impact from foreign exchange. Backlog, the key leading indicator of future revenue growth for consulting, ended the quarter at 95.5 million or a healthy four months of backlog. This is 10% higher than at the end of the first quarter of 2011 and the largest year-over-year increase in a Q1 since 2008. Our pipeline looks equally solid as we enter the second quarter.

Billable headcount of 476 was down 1% from the first quarter of 2011. Utilization for Q1 was over 70%, up 260 basis points from the first quarter a year ago, and revenue from billable headcount remained above $400,000 per year, ending the quarter at 437,000. With a strong first quarter, a four-month existing backlog, and a strong future pipeline, the consulting business is on track to deliver a strong performance in 2012.

Moving down the income statement, during the first quarter our total gross contribution margin increased by 134 basis points year-over-year to 61%. This increase was driven by margin improvements in all three of our segments as we expanded margins while significantly growing each segment; and in particular, the successful execution of our strategy continues to capitalize on the high incremental margins and operating leverage inherent in our research business.

SG&A increased by 21 million year-over-year during the first quarter. The increase was primarily attributable to the continued growth in our sales force. As of March 31, we had 1,288 quota-bearing sales associates as compared to 1,091 a year ago, which represents 18% growth year-over-year, and this is in line with our long-term target for growing our sales force by 15 to 20% per year. As we discussed during our last earnings call, our aggressive hiring in Q4 put us in a great position to start the year, and we continue to see a strong recruiting pipeline with high quality potential candidates.

Moving on to earnings, we delivered another strong quarter of solid earnings growth. Normalized EBITDA was 71 million in the first quarter, up 11% year-over-year, and GAAP diluted earnings per share were $0.36, up 24% year-over-year. Our normalized EBITDA margin was 19.3%, and all of this is consistent with the phase-in guidance we laid out at our investor day in February.

Now turning to cash, our strong performance in the first quarter translated into significant year-over-year increase in cash from operations, which was 18 million as compared to negative 25 million in Q1 of 2011. Q1 is our seasonally lowest quarter for operating cash flow given the timing of our annual bonus and commission payments and other factors. Over the long term, we continue to expect to generate free cash flow substantially greater than our net income, given our tight cash management and the negative working capital characteristics of our research business.

During the first quarter, we utilized our cash to return capital to shareholders through our share repurchase program. We repurchased almost 2 million shares at a total cost of over $77 million. We also announced our intention to acquire Ideas International for roughly 20 million, which we expect will close in the second quarter.

We ended the quarter with a strong balance sheet and cash position with net debt of $101 million. Our current credit facility runs through December 2015 and at this time provides us with almost 330 million of remaining borrowing capacity. We have ample cash flow and liquidity to continue to grow our business and execute initiatives that drive increased shareholder value. We continue to look for attractive acquisition opportunities as a potential use of cash. In the absence of appropriate acquisition opportunities, we believe that repurchasing our shares remains a compelling use of capital, and we have 237 million remaining under our Board authorization.

Let me close with our business outlook for 2012. Our business remains well positioned for another year of strong growth in revenues and earnings. The first quarter modestly exceeded our original expectations with particularly strong performances in both consulting and events. Coupled with our continued careful expense management, we once again delivered double-digit growth in earnings. We remain confident in the guidance we provided at the start of the year, given this strong start.

So to summarize, we delivered great results in the first quarter of 2012 and demand for our services is strong. We generated double-digit revenue growth and our key business metrics remain solid in the first quarter of 2012. Our initiatives to improve operational effectiveness coupled with the positive operating leverage inherent in our businesses delivered strong operating margins, and we continued to generate substantial operating cash flow. As always, we’re actively exploring strategic alternatives for deploying our cash. We will continue to invest in our business and return capital to our shareholders through our share repurchase program, and we expect to repurchase shares throughout 2012.

Finally, with double-digit growth in contract value in the first quarter, we established a solid foundation for delivering a strong year of revenue and earnings growth in 2012. We remain well positioned to continue our consistent delivery of double-digit revenue and earnings growth and increasing returns to our shareholders over the long term.

We will now be happy to take your questions. Operator?

Question and Answer Session

Operator

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touchtone telephone. If your question has been answered or you wish to withdraw your question, press star followed by two. Press star, one to begin, and please stand by for your first question.

Your first question comes from the line of Peter Appert, Piper Jaffray. Thank you.

Peter Appert – Piper Jaffray

Thanks, good morning. So Chris or Gene, I know you don’t give guidance, obviously, on contract value; but I was hoping you might give us a little color in terms of what your expectations are in terms of what that number should look like over the balance of 2012. I ask this, obviously, in the context of the sales force growth you had last year, when we start to see the impact from that in terms of the CV number. Thanks.

Eugene Hall

Hey Peter, it’s Gene. Great question. So as we’ve talked about before, the way sales force growth works basically is when we hire salespeople, we bring them on board, train them. They then have their first year of sales, which they’re not as effective as in their second year. The second year, they’re up to full productivity in sales, and then that turns into contract value during that second year which then turns into revenue, really, during their third year. And so if you look at our hiring from last year, which was intended to be more back-end loaded through the year – we hired more aggressively toward the second half of the year – you’d start to see the impact of contract value really—from those guys, the big impact is going to be in 2013, not in 2012.

And Chris, you want to add anything to that?

Christopher Lafond

No. Peter, I think the only other thing I would add to that, as you know, we track and monitor sales productivity consistently, and so as we add sales resources, we do it with a knowledge that they are coming up to speed. The new hires are coming up to speed nicely for us. We feel really good about sales productivity, and so we’re not looking for one quarter as vindication for a certain strategy of continuing to hire. We think that over the long term, we are going to be seeing continued growth in our sales force because all of the metrics say that as we do that, what Gene just laid out will continue to materialize. We’ll continue to see them come up to speed, and over that period of time as they get up to speed, we’ll see that revenue growth and contract value growth ramp. So we’re very, very confident in the guidance that we give and our ability to drive that research business in the 15 to 20% range as we continue executing the strategy.

Peter Appert – Piper Jaffray

And did you think 15 to 20% is a reasonable number for 2012?

Christopher Lafond

Well, we’ve given guidance already, Peter, on the revenue line, and so obviously as we’ve talked about at the fourth quarter last year, the 2012 revenue growth is a function of the contract value we delivered in 2011, and so that’s why we’ve given the guidance we’ve given for this year – because for the most part, the growth in contract value this year, as you know, tends to be more towards the back end of the year, which will really affect 2013. So we don’t give guidance on contract value growth, but we give revenue growth and so as Gene said, we will expect over time to certainly see it ramping as the sales force gets up to speed as continue hiring at the pace we’re hiring.

Peter Appert – Piper Jaffray

Okay, fair enough. And then you were obviously at the high end, or slightly above the high end, in terms of the sales force expansion last year. Will this year look the same?

Christopher Lafond

Well, what we’ve said over time is we expect to be in the 15 to 20% range. As we talked about at the end of last year, we saw a great quality of candidates that came in. We hired a little bit ahead and really filled some of the open positions that we had hoped to hire early in Q1 of 2012, at the end of 2011. So actually, we’re in a much better position starting this year and getting people up to speed early in the year, so hopefully we’ll have a stronger back half of the year with more people early on. So I still expect us to be in the 15 to 20% range, and that’s where we would expect to be over time.

Peter Appert – Piper Jaffray

Got it, okay. One last thing – Chris, EBITDA margin flat year-to-year around 19.3%. Anything to read into that in terms of your longer term expectation that you can grow the margins, I think it’s 100 to 150 BPs a year?

Christopher Lafond

No, not at all. I think that as we talked about at the end of last quarter, we certainly hired pretty aggressively the sales force. We knew that would impact Q1 in terms of we had a lot more people on board in sales in Q1 than we did at the prior year. We still feel very comfortable over time to drive that margin up at the 50 to 150 basis points per year, and as we’ve talked about many times, getting that into the mid-20s is exactly where we still expect to be able to drive the business.

Peter Appert – Piper Jaffray

Great, thank you.

Operator

Thank you. Your next question comes from the line of William Bird, Lazard. Please go ahead.

William Bird – Lazard

Good morning. On the topic of sales force growth, was there any particular reason why the sequential sales force growth was somewhat low at 1.5%? You’ve been throttling at 4 to 5. Just wondering if there was any market factor or any other explanation. Thank you.

Eugene Hall

Hey, it’s Gene. No, there was no market factor. What happened basically was we have a terrific recruiting team, built a pipeline of people. We had a very strong pipeline in Q4. We just closed people more. We hired more people in Q4 from that pipeline that we expected we were going to hire in Q1, so I think basically it’s just we hired a little ahead of where we thought we would be in the pipeline. So there’s no reason, and I think, again as Chris, we fully expect our sales force growth this year to be again in the 15 to 20% range. We were just fortunate enough to be a little ahead.

William Bird – Lazard

And then on productivity, are there any other factors just beyond the on-boarding dilution that might be weighing on productivity?

Eugene Hall

So actually on productivity, we take our productivity and disaggregate it between experienced people and new people, and what we’re seeing basically is that in our experienced people, the productivity is doing great and actually we’ve been seeing with each class of new hires we’ve been hiring that in fact the productivity has been increasing over time. But obviously if you have more of those new hires who in their first year, as I mentioned, have lower productivity, that can take the overall number—it dilutes the overall number a little bit, as you pointed out.

William Bird – Lazard

And then just finally, I was just wondering if you could touch on Europe. How are trends holding up there?

Eugene Hall

So we’ve had great growth across all geographies, including Europe. No big issues.

William Bird – Lazard

I might have missed it – did you give a growth number of Europe?

Christopher Lafond

Hey Bill, it’s Chris. No, we don’t—we’ve not broken that out. We don’t break out growth by geography. What I will tell you is if you look across all three businesses, our events are doing great in Europe. Consulting is actually particularly strong in Europe and we’ve got great backlog growth there, and when you look at research and the CV growth year-over-year, it is extremely balanced, including across the various parts of the world, and Europe continuing to grow double digit as well. So we’ve seen great growth in all three of our segments in Europe.

William Bird – Lazard

Great, thank you.

Operator

Thank you, and your next question comes from the line of Robert Riggs, William Blair. Thank you.

Robert Riggs – William Blair

Good morning. Thanks for taking my question. Gene, you mentioned recently attending an event with some of your top salespeople. What were some of the common themes or maybe requests from them in terms of additional tools, resources that would maybe help them be more productive?

Eugene Hall

That’s a great question, Robert. Yeah, I was at an event with several hundred of our top salespeople, so it was a great opportunity to kind of network and understand their perspective on how we’re doing. They had an incredible level of enthusiasm, as you can imagine, because of the kind of unlimited market opportunity that we have and the great market position we have, so it’s always interesting to go and talk to them.

We have a strategy of continuing to add tools to our sales force over time, as you pointed out, to help improve the productivity of our salespeople over time. We solicit their input all the time as a part of developing that, as so as you point out, they always have some ideas about how to improve those tools, not just for this particular forum but we do it on a systematic basis as well. But you know, they have great tools as it is. It’s those things that kind of add another 5% in terms of the tool capability as opposed to there’s a big gaping hole somewhere, something like that. And again, we get input there but we do it actually in a more systematic fashion with focus groups and work analysis and stuff like that as well. But they have a great set of tools.

Robert Riggs – William Blair

Great. And then, consulting was strong in the quarter. Was there a particular bucket of work that exceeded expectations, and then maybe if you could just give us an update on the managing partner strategy, how that’s progressing in terms of availability of people, bringing people on there.

Eugene Hall

It’s a great question. So our consulting business, we’ve worked hard over the last couple of years to really get the right strategy in place, and as you pointed out, a big part of that strategy is building a cadre of managing partners. In addition to that, it involves focusing our service lines on the areas that have the highest demand, and both those strategies have been working extraordinarily well as we’ve gotten them in place.

In terms of the actual numbers, I’ll let Chris answer that.

Christopher Lafond

Yeah, hey Rob. It’s Chris. What I would tell you is we’ve increased roughly 10% probably in the MP ranks, so as we’ve talked about over time, this is a multi-year investment. We’ve been making that investment while delivering continued great improvements in that business, improving and expanding margins. So we’re now getting close to 80 managing partners in that business, and we still have some more to go there to fully cover, but we feel really good about the progress.

Robert Riggs – William Blair

Great, thanks guys.

Operator

Thank you, and your next question comes from Manav Patnaik, Barclays. Please go ahead.

Manav Patnaik – Barclays

Hey, good morning gentlemen. A few quick questions – on the SG&A line, can you give us a sense of what the non—I guess the (audio interference), the other cost?

Christopher Lafond

I would say the non-sales related costs effectively are probably growing in the 3ish to 4%-ish range. You know, most of the G&A functions we’re managing and are growing more in that range. We certainly have a few investments in HR to support the growth in other areas, so we have a couple of pockets of places that are probably growing a little faster than that, but the vast majority of the year-over-year growth in the SG&A line is really coming from the continued investment in our sales force.

Manav Patnaik – Barclays

Okay. And can you maybe help us understand the—I guess the number of client organizations was down sequentially, and I was just trying to understand if there is a seasonal dynamic to that, or what happened there?

Christopher Lafond

There is a seasonal dynamic. If you look at past years, you’ll see that oftentimes there’s a little bit of a dip in Q1. As you know, Q1 tends to be our lowest quarter of new business and new enterprise growth, and it tends to be more focused on retention as we go through the year and then we have a lot more new enterprises and new businesses coming in towards the back half of the year. So it is a normal kind of seasonal pattern. As you look year-over-year, we’re still penetrating new organizations, adding new enterprises, so we feel very comfortable with what we’re seeing in terms of our ability to continue to grow the business and penetrate new clients.

Manav Patnaik – Barclays

And what percentage of renewals—I think you had mentioned last time it is in the fourth quarter, first quarter?

Christopher Lafond

It’s relatively balanced. It goes anywhere from probably 22 to 23% in our smallest quarter up to 26, 27%. So every quarter, you’re seeing close to 25% of our business come up for renewal, so you’re getting a good picture of renewal activity with our retention rates every quarter.

Manav Patnaik – Barclays

Okay, and last question – I guess based on your seasonal—or sorry, quarterly phase-in guidance that you provided for EPS, if 19% was what you said for the first quarter, that would imply that the 36 takes you above your guidance range. Are there any changes, I guess, to that?

Christopher Lafond

No, we’re not seeing any changes, as I talked about. We were modestly above where we expected to be in Q1 primarily because of stronger performances in both consulting and events, and at this point given where we are, we’re not expecting any changes to our full-year guidance. We have some hiring a little below our original expectations. We certainly expect that to pick back up and hire to the levels of the demand we’re seeing and the revenue; so as you noticed, for example, consulting headcount was down slightly. Our plan is for that to grow as we continue to see growth in backlog, so you’ll continue to see expense there. So we right now don’t see any changes to full year and where we expect to be.

Manav Patnaik – Barclays

Okay, fair enough. Good job, guys.

Christopher Lafond

Thank you.

Operator

Thank you, and your next question comes from Kelly Flynn, CS. Thank you.

Kelly Flynn – Credit Suisse

Thanks. Quick question about the financial services industry exposure – can you give a rough estimate of how much of your revenue comes from that sector, and maybe speak to how experience in that sector is tracking versus other sectors; and more broadly, any kind of industry pockets of strength versus weakness globally?

Christopher Lafond

Hey Kelly, it’s Chris. A couple things I would say – first is our overall mix of business is roughly equates to the overall economy. So when you look at our business mix, we’re not really overweight or underweight in various industries. We’re really balance in terms of how the overall economy looks, and that’s how you should think about our business. So we don’t necessarily break out individual industries by percentage, but in general we are not dramatically different than the overall economy, so that’s one point.

The second point is when you look at our contract value growth, no matter how you slice it and dice it, even by industry, almost every industry sector has double-digit growth. There’s a couple that are high single digit, so we’re very balanced. Everything is growing nicely around the world, including financial services, including public sector. So everything we look at from an industry perspective, I wouldn’t point out pockets that are exceptionally strong and I don’t need to point out pockets that are exceptionally weak, because everything is pretty well balanced, to be honest.

Kelly Flynn – Credit Suisse

Okay, great. Can I just ask a quick follow-up to Peter Appert’s line of questioning? I think, Chris, you made a specific comment in your remarks – I think it was you, Chris – you said expecting continued CV acceleration over time. I just want to make sure I’m understanding that properly – I mean, are you basically saying 2013, given the sales force growth, should be a year of acceleration, or are you trying to say it should accelerate from here?

Christopher Lafond

It’s a great question. Obviously we don’t give contract value guidance, but what we’ve talked about and what we continue to say is that we are adding sales capacity in the 15 to 20% range. As Gene talked about, it takes some time for them to get up to speed. As they get up to speed, we certainly expect that our growth will continue to accelerate over time. So we didn’t make any specific statements about it being in 2013 or certain periods of time because we don’t give that guidance, but we certainly do expect continued growth and continued acceleration with the hiring we’re doing.

Kelly Flynn – Credit Suisse

Okay, thank you.

Operator

Thank you, and your next question comes from Dan Leben, Robert W. Baird. Thank you.

Dan Leben – Robert W. Baird

Great, thanks. Good morning. Just a follow-up on the sales theme – help us think about what you’re seeing now in terms of turnover levels, and how that needs to trend to stay in line with the (inaudible) guidance.

Eugene Hall

Hey, it’s Gene. So the turnover among our salespeople has been consistent for several years. There’s no material difference in turnover, even as the economy has in some places gotten hotter. Our turnover has been very stable. Gartner is a great place to work if you’re a salesperson because we have a great brand name, we have this incredible market opportunity, and there’s plenty of money-making opportunities for salespeople as well. So if you’re a salesperson, it’s a great place to be. We don’t have any trouble retaining our salespeople.

Dan Leben – Robert W. Baird

Great. And then when you’re putting those people in the field, could you talk about any particular areas where you see more low-hanging fruit than others, either by vertical or geography?

Eugene Hall

You know, as Chris said earlier, our business pretty much reflects the GDP in each of the markets we’re in, and we’re in 85 countries. We’re in all size ranges of clients, either from the very largest companies in the world to very small companies, and as we’ve added salespeople, we’ve added them across all of the geographies, across all of the industries, across all size ranges. There’s kind of a practical operational reason for that, which is that as we grow our sales force in the 15 to 20% range and then we have normal turnover of that sales force, we have a lot of new people in the sales force. If we grew one area at 50% and another at zero, the 50% growth area has even more new people in it and operationally it’s just more difficult to manage. So really, our strategy is to grow—you know, we see low-hanging fruit across every industry, across every geography and every size range, so we’re really growing our sales force across each of those. And there may be specific operational reasons, like they’re a little faster or a little slower in one of those, but in general it’s pretty well distributed.

Dan Leben – Robert W. Baird

Great. And then last one from me – utilization up to 70%. How are you thinking about a target for that metric as you start to ramp up the hiring? Is it somewhere in the low 70s where you want to measure that to?

Christopher Lafond

You know, as we’ve talked about, Dan, over time, keeping to consistently around 70% has been our objective. There are certainly opportunities as we continue to execute our strategy to maybe bring that up a bit, but we certainly target to stay at 70 and slightly above that, and if we can stay there we feel very comfortable that we can keep delivering on that 40% margin. So ultimately, getting to 40% consistently requires us to stay around that 70% number consistently, so that’s what we’re trying to drive to.

Dan Leben – Robert W. Baird

Great, thanks guys.

Operator

Thank you, and your next question comes from Brian Karimzad, Goldman Sachs. Thank you.

Brian Karimzad – Goldman Sachs

Hi. I wonder if you guys can clarify a bit more the growth within verticals, geographies, and client sizes? So when you reported last, you were fairly emphatic that every single one of the verticals, geographies and client sizes was growing research contract value double digits. It sounds like a couple of the verticals has slipped down below that. Can you give us color on whether the geographies and the client sizes, each of those within there, are all at double digits? And then if a couple of the verticals slipped down below double digits, what accelerated to keep the total CV growth stable?

Christopher Lafond

Hey Brian, it’s Chris. What I would say is it’s noise around the edges when we look at it; so as I said, we do have some things high single digit, we have some things that are certainly higher double digit. So it’s no different than usual. Every time we look at our results, every quarter, there’s things that move around a little bit plus or minus, so when we looked at the trend lines, we didn’t see anything here that jumped out at us as worth kind of describing, either as a high or a low point. So for us, we think it’s trending exactly as we’ve seen over the last few quarters with extremely balanced, and I wouldn’t say anything dramatically accelerated and nothing dramatically decelerated. We feel very comfortable where everything is right now.

Brian Karimzad – Goldman Sachs

Okay. And just out of curiosity, are those two verticals that were below double, were those financial and government, or was it something else?

Christopher Lafond

As I said, we’re not going to go into the details of that, Brian. I think at this point, as I said, we feel really comfortable there’s no change in trend. We feel really good about the balanced perspective we have, and there’s nothing there that I think warrants highlighting.

Brian Karimzad – Goldman Sachs

Okay. And then on the sales force turnover, it sounds like on an absolute basis you haven’t seen anything change, but any difference in mix on the type of salesperson who is leaving, outperformers versus underperformers?

Christopher Lafond

No, absolutely not. Again, we do track exactly who is leaving. We do exit interviews with the vast majority as well to understand why they are leaving in detail, and we use that to feed that back into the organization for both recruiting and how we manage. There’s no change at all, basically, in terms of why people leave.

Brian Karimzad – Goldman Sachs

Okay, thanks.

Operator

Thank you, and that’s all the time we have for Q&A. Now I’d like to turn the call over to Brian Shipman. Thank you.

Brian Shipman

Thanks everyone for listening and we’ll speak to you next quarter.

Operator

Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect.

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