Brian Shipman - Group Vice President of Investor Relations Eugene A. Hall - Chief Executive Officer and Director Christopher J. Lafond - Chief Financial Officer, Principal Accounting Officer and Executive Vice President.

Peter P. Appert - Piper Jaffray Companies, Research Division Anjaneya Singh - Crédit Suisse AG, Research Division Timothy McHugh - William Blair & Company L.L.C., Research Division Gary E. Bisbee - RBC Capital Markets, LLC, Research Division William A.

Warmington - Wells Fargo Securities, LLC, Research Division Ryan Ripp - Barclays Capital, Research Division Jeffrey M. Silber - BMO Capital Markets U.S. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division Joseph D.

Foresi - Janney Montgomery Scott LLC, Research Division Andre Benjamin - Goldman Sachs Group Inc., Research Division Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division.

Good morning, ladies and gentlemen, and welcome to the Gartner's Earnings Conference Call for First Quarter 2014. A replay of this call will be available through June 1, 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 20760215.

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 First Quarter 2014 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 Q1 2014 financial results as disclosed in today's press release.

We will also discuss our recent acquisition of Software Advice. After our prepared remarks, you will have the opportunity to ask questions. I'd like to remind everyone that the press release is available on our website at 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 2013 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?.

Thank you, Brian, and good morning, everyone. Welcome to our Q1 2014 earnings call. Well 2014 is off to a good start. The continued successful execution of our proven strategy drove another quarter of double-digit growth in revenue, EBITDA, earnings per share, and contract value.

As we discussed with you last quarter, we're deploying our capital strategically. In the first quarter, we made a great strategic acquisition of Software Advice. In addition, we repurchased almost $200 million of shares and expect to spend at least $400 million in 2014.

I'll share a few performance highlights from each of our businesses and talk briefly about our recent acquisition of Software Advice. I'll will then turn the call over to Chris to share more details. Research is our largest and most profitable segment. And our Research contract value grew 13%, FX neutral.

As has been the case for few years, we drove double-digit contract value growth in every region and client size and in almost every industry segment. We expect contract value growth to accelerate in 2014, as we continue to execute on our growth strategy. We also achieved strong retention rates.

For the first quarter of 2014, enterprise client retention was at 84%, which is consistent with this time last year. And enterprise wallet retention was 104%, which is 1 point down from Q1 2013. In Consulting, we drove a terrific performance for the quarter, led by our Contract Optimization business and strong sales bookings.

Consulting revenues increased 16% compared to Q1 2013, and backlog was up 14%, achieving its highest level since 2008. Our Events business also delivered great performance. Our Q1 results were impacted by the shift of 4 events held in Q1 last year to the second quarter of this year.

On a same-events basis, growth was strong, with a revenue increase of 17%, year-over-year. These results continue to illustrate the ongoing success of our strategy and the tremendous value we bring to our clients. I'll now turn to our recent acquisition of Software Advice.

As we discussed in the past, we continually track a range of potential acquisition candidates. We're extremely disciplined and selective around acquisitions and we will continue to be. During Q1, we had a great strategic acquisition of Software Advice.

Our traditional Research business is targeted at serving the 108,000 largest enterprises in the world. And these enterprises makeup our global market opportunity of about $47 billion. But smaller enterprises also need help in dealing with technology challenges. In fact, there are millions of small businesses in the U.S. alone.

These represent a huge additional market that we have not previously addressed. Software Advice is a market leader in providing technology advice to enterprises that are smaller than those targeted by our traditional Research business.

To bring this to life, image you manage a small medical practice that needs to establish an electronic medical record system. Most likely, you had no full-time IT staff. You need to identify and assess potential suppliers, decide which one to go with and then transition to the new system.

Getting this right is critical to the success of your medical practice. You need help with these important decisions. Software Advice addresses this market. They advise these smaller enterprises on what technologies are best for their specific situation, providing tremendous value to these clients.

For the past few years, Software Advice has been growing at a compound annual growth rate of more than 50% per year. Last year, revenues were more than $15 million and the company is profitable. Software Advice is a great acquisition, it's a strong strategic [indiscernible] with Gartner, while expanding our market opportunity.

We continue to manage an active pipeline of acquisition candidates, and we will remain as diligent, disciplined and selective as we have been in the past. I said this before, and it remains just as true today. These are remarkable times for technology.

Technology is transforming the world and driving change in every enterprise and every industry in the world on a scale of [indiscernible]. IT is transforming how we work and what we do, and Gartner is at the heart of it.

Every company whether for-profit, not-for-profit, large, medium or small, any government agency is a perfect -- is a potential client. That gives us a vast untapped market opportunity for our services. Gartner is the best source of help for enterprise leaders launching critical initiatives within the technology revolution.

Our systems often make the difference between success and failure for our clients, and we are relevant whether an institution is growing or facing economic challenges. The successful execution of the right strategy drives our consistent performance.

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

This time-tested strategy will allow us to maintain sustained double-digit growth into the future. I'm 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, with a great business model. And we're relevant to virtually every enterprise in the world.

In summary, I'd like to leave you with 2 key takeaways from today's call. First, the strong execution of our consistent winning strategy allowed us to, once again, deliver double-digit contract value growth.

And with our share repurchase plan and the acquisition of Software Advice and our expanding market opportunity, we continue to be well-positioned to achieve sustained double-digit growth in our key metrics over the long-term. With that, I'll hand the call over to Chris..

the impact on cash flow and our balance sheet; the impact to operating results; and lastly, the impact to GAAP earnings per share. First, with respect to the cash flow statement and balance sheet. As you will see in our 10-Q, we paid $103 million at closing to acquire 100% of the outstanding shares of Software Advice.

We also funded $13.5 million of escrow, which is -- which we negotiated as protection against future potential losses. The escrow amount is considered restricted cash and recorded in other assets on our balance sheet. From an operating perspective, the impact of Software Advice on our Q1 operating results is not material since we closed on March 7.

For the full year, Software Advice will add modestly to our Research segment. As a result, we've raised our guidance for the Research revenue by $20 million at both the low-end and high-end of our previous range to reflect the impact of integrating Software Advice into our operations.

We now expect Research revenue to be between $1.435 billion and $1.455 billion. I would like to note that contracts with clients of Software Advice products will not be included our contract value figures.

Currently, Software Advice services are delivered on a transactional basis versus an annual subscription basis, as with Gartner's Research services. There are also a number of items that will impact GAAP earnings per share for both the quarter and the full year.

First, as you would expect, we incurred transaction fees in connection with the acquisition. We also had put in place retention bonuses for much of the Software Advice team. The combination of these 2 items will impact 2014 by about $3 million.

Second, as with all of our prior acquisitions, there is a noncash intangible amortization which will run through the P&L for several years post acquisition. In 2014, we expect these amounts to be roughly $4 million. And then lastly, there are amounts related to the acquisition that are being held back until certain employment conditions are met.

These amounts will be accrued ratably as expense over the service periods of the relevant employees. We anticipate that just under $17 million will accrue to the 2014 P&L. If the employment conditions are not met, the expenses that have been previously accrued will be reversed.

In total, we expect approximately $24 million of acquisition and integration charges in 2014 related to the Software Advice transaction. Additionally, there will be roughly $3.5 million of intangible amortization related to our past deals, which was included in all of our previous guidance.

These amounts will be in included primarily on 2 lines on the face of the P&L. Intangible amortization will flow through the amortization line, while everything else will appear on the acquisition and integration charges line. This is consistent with how we've handled acquisitions in the past and how we will handle any future transactions.

Lastly, I'd like to note that these charges are excluded from our normalized EBITDA calculation, and our guidance for normalized EBITDA remains unchanged.

We do not expect a material impact on normalized EBITDA from Software Advice in 2014, as we will make certain investments to allow this business to scale, thus ensuring strong growth into the future. However, we expect a more meaningful contribution to Gartner's normalized EBITDA in future years.

We will also now be providing guidance for both GAAP EPS and normalized EPS, excluding acquisition and integration charges, to help you better understand our true operating results.

Our normalized EPS guidance of $2.15 to $2.32 per share is slightly ahead of the EPS guidance we gave you in February, as we have not broken out acquisition-related expenses stemming from past acquisitions, as the impact was nominal at only $0.02 to $0.03 per share.

However, we now expect GAAP EPS to be between $1.96 and $2.13 per share, reflecting the acquisition-related charges I just detailed from Software Advice and from prior transactions. For further information you can review our most recent 10-Q, which contains the above information as well as additional details related to the acquisition.

The other minor change to our guidance relates to our share count and interest expense. Because we were able to repurchase almost $200 million worth of shares in Q1, we can now revise down our full year weighted average share count assumptions to be between 91.5 million and 92 million shares.

We still expect that on December 31, 2014, we will have less than 90 million shares outstanding. We are also increasing our interest expense assumption modestly to $10.5 million, primarily to reflect borrowing to fund the Software Advice acquisition. All other guidance we detailed in February remains unchanged.

As we discussed with you on our Q4 earnings call and at our recent Investor Day, to provide additional visibility and transparency, we're going to provide quarterly EPS guidance for the upcoming quarters.

We expect EPS, excluding acquisition and integration charges, to be between $0.50 -- sorry, between $0.56 and $0.60 per share in the second quarter of 2014. Acquisition and integration charges are expected to be approximately $0.06 in Q2. Based on everything we see today, we're comfortable with the midpoint of this EPS guidance range.

So to summarize and before taking your questions, we delivered solid results for the seasonally light first quarter of 2014. Demand for our services is strong, and as a result, we generated double-digit revenue growth. And our key business metrics remained strong in the first quarter.

Our initiatives to improve operational effectiveness, coupled with the positive operating leverage inherent in our businesses, delivered solid earnings and cash flow growth for Q1. 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 an accelerated share repurchase program going forward. Finally, with double-digit growth in contract value in the first quarter of 2014, we established a solid foundation for delivering another year of strong revenue and earnings growth for the full year.

We're well positioned for double-digit revenue and earnings growth and increasing returns to our shareholders over the long term. Now I'll turn the call back over to the operator, and we will be happy to take your questions.

Operator?.

[Operator Instructions] Your first question will come from the line of Peter Appert from Piper Jaffray..

So Gene, given how strong the start was for the year, both in terms of the Research revenue and the contract value, I guess I'm a little surprised that you were not more optimistic in terms of the guidance.

What's driving your thinking on that?.

Peter, it's Chris. Thanks for the question. Obviously, we're only 3 months into the year. And if you look at our performance, we feel very confident with what we're seeing across our business. I would note a couple of things. We had expected to see acceleration in our Research business.

And so we're tracking right where we had hoped at this point in the year. Our Events business is tracking, probably, marginally better than we thought, but it's still early in the year and a lot of our big events have not happened. Q1 is obviously a light Events quarter. And in Consulting, our business was primarily driven by Contract Optimization.

As we've talked about many times, that business tends to be somewhat lumpy quarter-to-quarter. So we still expect that business to remain in that $30 million to $40 million range that we talked about for the full year.

So as we sit here today, we still feel very comfortable with the guidance we gave and that's why the guidance is what it is at this point in the year..

Okay.

And Chris, does the sales -- is the plan to accelerate sales force hiring as the year progresses? Or is the first quarter a good indication of how you think the full year goes?.

So Peter, it's Gene. So the plan for sales force hiring is basically as to grow it in the 15% to 20% range for the year. We were in that range in Q1, we expect to be in that same range for the full year..

Okay.

So no indication whether you're going to be at the high or low end of the range?.

No..

Okay. And then one last thing. On the Software Advice acquisition, could you talk about how you see this product being leveraged by Gartner? I would assume your sales organization really doesn't have the capability to sell this product since it is to smaller organizations.

So how do you get leverage from this and can -- while you're talking about that can you also just sort of comment on how you thought about the purchase price? Because it seems like a pretty rich valuation for a small business..

So Peter, in terms of the business, what it does is, as I mentioned on my comments, Gartner has targeted the 108,000 largest enterprises in the world. And our business model isn't optimized to serve business of small events. It's optimized to serve those 108,000. In the U.S. alone, there are millions of small businesses.

They have the same kind of IT problems that large businesses do as well. And we have seen that as being a great market opportunity. It fits squarely with what we naturally do. Software Advice has the business model that's designed to address that.

And in particular, what they do is they look at the specific needs of each segment in that -- in these markets. So I used an example of electronic medical records. Electronic medical records actually for small medical practices is not one market. There is different electronic medical record systems depending on which medical specialty you are.

And so what they drove [ph] is a very good approach for determining what are the options for each of these kinds of markets that small companies are in, which tend to be very specific to the nature of that small company, even though there is -- there could be in any one segment, tens of thousands or even millions of small companies that work [ph] in that segment.

In terms of the other part of the question, Chris will answer..

Peter, with regard to valuation, as you know, we have been extremely selective and thoughtful with regard to executing acquisitions over the years. Software Advice is no different. Valuation has always been extremely important to us in terms of when we choose to do deals. So we are very thoughtful about doing things at the right valuation.

And that will drive shareholder value. And again, we believe that's the case here. If you look at the valuation that we paid, we feel it's absolutely in line with what we're seeing in the marketplace today for similar assets and it's an extremely reasonable valuation. And we are very happy with the acquisition..

And your next question will come from the line of Hamzah Mazari from Crédit Suisse..

This is Anj Singh dialing in for Hamzah. My first question is just on SG&A. We see that it's up quite a bit year-over-year.

Can you tell us what's driving that? And perhaps, how the sales and marketing portions are trending versus the G&A?.

Yes, just on SG&A, that the increases I talked about a few minutes ago, is driven by the continued increase in our sales force. Our sales headcount is up 16% year-over-year. G&A is actually down as a percent of revenue. And so we continue to really tightly manage G&A cost. And so G&A continues to come down as a percent of revenue.

So the driver of our SG&A cost is our continued investment in the sales force..

Okay.

And one follow up, can you give us a sense of how your business is doing in Europe? And how that environment may have changed from last quarter, if at all?.

Yes. It's Gene. So the -- our business in Europe is doing great. As I mentioned before, we have seen double-digit growth in all of our geographic regions, including Europe..

Your next question will come from the line of Tim McHugh from William Blair & Company..

First, I was going ask, the contribution margin for Research, I think you've talked a little bit about once you start approaching 70%, then it will be tougher to continue to drive that upward, but it looked like it was up pretty significantly still this quarter.

Is there something underlying that or -- that made this quarter unusual in terms of the upside? Or perhaps, are you finding ways to -- that makes you think you can extend beyond that previous kind of hurdle rate you had before?.

Tim, it's Chris. No we still believe 70% is the right number on a full year basis. There is some seasonality to our margin in that segment. In particular, fourth quarter tends to be lowest, first quarter tends to be highest.

And that's because, in the fourth quarter, our analysts are traveling to symposiums, doing a lot of client meetings as we close up the year to close deals. So we would expect it to be a little higher to begin the year, little lower at the end of the year, and still be right around that 70% number.

So we don't have any thought today that 70% is still not the right place to be for that segment..

Okay.

And then on Software Advice, the margins, I understand you said you're, I guess, investing and that's accelerating, what would the -- is that just adding salespeople ahead of growth? And just to make sure I understood the comments, did you expect you can get similar margins to the core business? Or I guess how would you compare it? And how long will it take you to get there?.

Yes, so just a couple of things on that. The investments we're making are kind of across the business.

So as you would imagine, in a smaller company like Software Advice, as much as we like the business and it's a very well-run business, in order to scale it, we believe we have to make investments in their technology platforms, in their operations of the business.

So there's number of places we're going to make some investments to make sure that we can scale that business over the long term and grow it geographically as well. In addition, from a margin perspective, we fully expect that this will be a nice positive contributor to our business.

And over the long term, it's going to be a really nice margin enhancement to the overall company..

And then one last numbers one, you mentioned the Events, you had 40% growth on I think it was the Events that moved out of the first quarter into the second.

Was that just the same events that -- the revenue growth for those 3 events?.

Yes, so we had 4 events moved, 3 of them have already been held in the month of April. Those 3 events, as I mentioned, were very large, relatively large mature events, so they had a pretty significant impact in the Q1 2013 results. And since we've held them now, we saw similar great performance.

In fact, as I said, those same 3 events, just those 3 were up about 40%. So from a same-events perspective, really strong performance on the 3 we've held..

Your next question will come from the line of Gary Bisbee from RBC Capital Markets..

Can you explain the Software Advice revenue model a little more.

I guess, I understand you said it's transactional and not subscription-based, but is that something you'll look to change? And within that transactional, how recurring is that, how stable and predictable? So is this different from the core business in Research?.

Gary, its Gene. So it is different in the core business. Typically -- again, you go back to my small medical practice. They typically buy things -- they typically have -- they tend to buy their software and their IT technology from the outside as opposed to kind of building it themselves. And in tends to be episodic.

So you don't -- they don't buy a new electronic medical record kind of every month, every quarter, even every year. And so what happens is that the way our economics work is, it's more related to when they have specific transactions as opposed to they pay an upfront fee for a year of service.

So when they need to do a deal, that's kind of when we get paid as part of that. And the -- and so it's very -- it's not a kind -- a 1-year contract, it's related more to the -- it's transactional.

And on the other side of it, though, is unlike our larger -- our traditional business, there are many millions of these companies at any given point in time, and so we think that it's likely to -- that will smooth out a lot of the individual transactions as opposed to a business that doesn't have that kind of nature to it..

And then, how do they go to market or sell or find clients and how do we think about -- you said a 50% revenue CAGR, I guess, $20 million for the year, that's only 10 months, shows that's pretty good growth versus that $15 million you said for last year that I figured.

Any sense how we think about the impact on the growth and maybe how penetrated the opportunity is?.

So the market opportunity is enormous. They have a very tiny portion of the market. And they are almost wholly in the U.S. today, and they only have a tiny portion of the U.S. market. So the opportunity for growth is huge there. And we think it can have -- be able grow at a higher rate than our traditional business for a long period of time..

Okay. And then just one last question. Do we get an update on the sales productivity? It -- I may calculate it slightly differently than you do, but it's looks like it fell again in Q1. I know you were talking about at the Investor Day flat to maybe improving this year.

And as a second part of that, any change in those 2 positive metrics you mentioned a quarter ago, the retention of sales force overall improving and the cohort of new people from last year doing somewhat better versus prior cohort?.

Great, Gary. It's Chris. Yes, sales productivity is essentially flat from last year when you look at it in the first quarter. However, if you look at just a standalone quarter, Q1 this year is better than last year's Q1. So we are certainly seeing -- when you look at just individual standalone quarters, we're seeing some nice improvement there.

And it's flat to Q4. So -- I'm sorry, flat to Q4, sorry, not to Q1 of last year, my apologies, I was talking about sequential. And -- but standalone, if you look at Q1 versus Q1, we saw an increase.

So where we are today, it's effectively what we said in our guidance, which was we did not expect in our guidance to see any dramatic increase in sales productivity, it would remain flattish and that's kind of roughly where we are.

So we're continuing to do lots of things and expect that what we're seeing in Q1 hopefully will continue to show benefit for the rest of the year, and start to see that increase from here. And our turnover has had steady improvement. Sales turnover has had steady improvement on [ph]..

Your next question will come from the line of Bill Warmington from Wells Fargo..

I wanted to ask if you're seeing a change for the better in client's willingness to spend on new products? And if so, what's behind that?.

Bill, it's Chris. A couple of things I would say there. If you look at average spend per organization, it continues to increase. It's up just over $100,000, which continues to improve. I think that's up almost 7% from the first quarter of last year and up a couple of percentage points from the fourth quarter.

So as we talk about all the time, we're seeing that mix coming from -- about 20% of that increase is really due to pricing and the other 80% is real volume. So we're continuing to penetrate the clients, continuing to sell more into those clients. So that trend has been the trend we've been on for quite sometime and it is continuing..

I'm trying to parse whether -- does the cyclical from the secular, whether if some of it's coming from an improving economy, or if some of it's coming from sort of an inflection point in terms of the client base seeing an increase in value or having an increase in need, giving a pickup in the velocity of the change in technology?.

Yes, it's not the economic environment that has caused any change. And I'd sort of say if look at what's going on, the economic environment is not giving us any additional demand. The 2 things that are driving our increasing demand is -- one is, all the initiatives we have on sales productivity.

And the second one is, what I talked about in our remarks, which is just what's going on the technology world general where it's affecting every business, every industry. And it's becoming more pervasive all the time. And so we have this underlying change that's going on in every enterprise, where technology is becoming more important.

So they see the need for it and we're the best there is to do it. Then we couple that with our focus on making sure salespeople are as productive as they can be..

So one housekeeping question, the share count exiting Q1, fully diluted?.

Fully diluted share count exiting Q1, just give me a second. For the quarter, we had 93,209,000, that's the average for the quarter. We are actually -- let me just give you the exact number. It's down a couple of million, probably, below that. But we'll get you the exact -- we'll get an exact number for that..

We'll go to the next question and circle back with that share count number..

And your next question will come from the line of Manav Patnaik from Barclays..

This is actually Ryan filling in for Manav. Just to follow-up on Gary's question, I just want to make sure I wrote that down right on the sales productivity metrics.

So essentially flat from fourth quarter, and then this Q1 was better than last year on a standalone basis, did I hear that right?.

Yes, that's correct..

Okay. And then, turning to Software Advice, I know you said the market opportunity is enormous.

Is there any way to quantify that kind of similar to how you breakout the core research model just in terms of total size or number of enterprises or anything along those lines?.

Yes, it's Gene. We have not done that yet..

Okay. And that's -- we should think of them as wholly U.S.

so far, and then there's the plan to kind of bring them internationally as kind of in line with your -- with the current business model?.

Yes..

So again, in the U.S. alone, they have tiny penetration. And they are overwhelmingly U.S. And because we are global company, one of the ways we'd expect to leverage them is in fact to build their business globally. What they do is just as relevant everywhere in the world..

Okay. And you mentioned, you're seeing similar valuations for deals of this nature.

So if we -- going forward, is this kind of the valuation we should expect on deals for this year?.

Well, from a valuation perspective, as I talked about, we are very thoughtful about all of the deals we do, depending on the company, depending on the marketplace and depending on the growth rate of the business. So there's a whole bunch of different factors that are going to weigh in to valuation on individual transactions.

So I wouldn't necessarily say one transaction is the market. We believe this transaction was done at a very -- a very good valuation, and we'll look at each one independently..

Okay, perfect. And just one more, if I could, on the buybacks.

Is there anything that moves that $400 million for the year higher, whether it be lack of M&A or anything that you see that would move that number up?.

We will continue to look, as we always do, at all uses of cash. As we talked about at the beginning of this year, we will feel very strong with our current cash position, the strength in our business and the continued growth in our business, as well as our balance sheet, that at least $400 million makes sense.

And we'll look at that as we go through the rest of the year. And I just wanted to come back and circle back on the question that, the basic shares outstanding at the end of the quarter were 90.2 million, but we will clarify the weighted shares outstanding as of the end of the quarter..

Your next question will come from the line of Jeff Silber from BMO Capital Markets..

In prior quarters, you called out some trends in your government business, I was wondering if we'd do that for this quarter..

It's Gene. So our public sector business overall grew at high-single-digit rates. In terms of the U.S. federal government, there is really no change in the situation we talked about for the past few quarters..

And how about governments abroad?.

Again, the same thing, I think if you looked at the public sector overall, it's pretty much what you see. There is no change..

Okay, great. I just wanted to circle back to the Software Advice acquisition, I'm not sure if you've answered this question about your go-to-market strategy. Is this going to be sold under a separate sales force? Are you going to keep the name, are you going to change the name? Any color there will be great..

So, they have a different sales force. It's a different distribution channel. And in terms of the name, we're deciding how we're going to handle branding. For now, we're -- for now, we have retained Software Advice but we'll figure in the future -- we're still determining what we'll do in the future..

Okay, great. And then just one on one that you had mentioned that the price you paid was reasonable based on other deals. Are you looking at any revenue multiple, a price-per-employee multiple? I'm just curious what metrics you used to make that statement..

When we look at transactions, depending on the transaction, we look at multiple -- we look at a variety of different valuation multiples. We do look at revenue, we do look at earnings, we do look at cash flow, we look at a variety of them, and it's growth rate and other things.

So we're looking at all of those when we look at valuation and feel very comfortable that this is a very good valuation for our business and for shareholders..

Your next question will come from the line of Jeff Meuler from Baird..

First on the Software Advice acquisition and, I guess, more on the small business, medium-sized business market opportunity.

Should we view this as kind of a platform acquisition that you use to attack that opportunity? Or should we view it more as the first of several potential acquisitions as you increase more focus on that part of the market?.

So Jeff, it's Gene. So Software Advice we think is the market leader in -- in doing the kind of work we do with small businesses, and so we see that as a core acquisition..

Okay. And then on Consulting, I get that Contract Optimization is lumpy and that drove a lot of the upside in the quarter, but the backlog was also strong.

Can you talk about where the demand for -- what types of services you have the strongest demand for, any geographies? Anything along those lines in terms of what's the driving the strength in the backlog?.

It's been -- if you look at the strength in the backlog, it was pretty balanced, actually geographically. So we have really good strength around the world. And so from that perspective, very balanced. As you know, we're very focused on the kinds of activities that we do at our core Consulting and benchmark businesses.

And we saw real strength across the portfolio. So I wouldn't say there's any specific place that drove that. It was just a very nicely balanced performance across the Consulting business..

Okay. And then, I think you talked about the Research contract value outlook a little bit differently in terms of the language that you used this quarter versus last quarter.

I think, Gene said expect to accelerate in 2014? Just to be clear, are we still talking about -- you expect it to be in the 13% to 14% range for 2014? Or are you saying you expect it to accelerate further from here, so maybe the range is now 14% to 15% or is it just 14% or how should I interpret that?.

Now as we sit here today, I think we're still reflecting what we talked about on the last call, which is we still expect to be in the 13% to 14% range. We've accelerated the 13% and we still believe that we have the opportunity to get to that 14% range this year..

Your next question will come from the line of Joseph Foresi from Janney..

I guess I'm going to try to focus in on what I had a question on, was sort of what changed and drove the uptick in the quarter? Consulting seems to be more discretionary, it seems like that picked up. It's sounds like Europe got a little bit better and there's really no change on the government business.

So was this more execution or, to the prior question, is this economically driven and only the economy getting better as this changes in IT? I'm just trying to get a feel for sort of what you would point to?.

Yes, again it's not the economy getting better, it's basically I think the fact that technology is becoming more important so people need help with that, technology changes. And it's also execution. Let me just comment on Consulting, specifically.

As many of you know, our strategy in Consulting has been to build a cadre of managing partners and we've been working on that. And I think one of the things that has really that -- as we analyze the results for Q1, we have strong bookings there. It's really being driven by the strategy of having managing partners to drive that business.

And so that's as an example of the kind of -- how our operational changes are really driving the improvement..

Okay.

And then, on the contract value uptick to maybe the 13%, 14% range, that kind of holding or improving in the back half of the year, is that still based on sales force productivity, and some of the new hires coming on, as we talked about at the Analyst Day?.

Yes, its really going to change from Analyst Day, which is we're assuming we have flat sales productivity. It doesn't improve. And if you just look at with flat sales productivity, if we don't have improving sales productivity, we still get an acceleration in our contract value growth rate..

Got it.

And just can I assume that sales productivity is still higher for some of the -- I think you talked about some of the new hires, the sales force productivity was -- had been ahead of what you were expecting?.

Yes. So as we have -- we've been very focused on improving the performance of new hires. And in fact -- and we track it very closely, and the performance of new hires is improving..

And then, the last question for me just on the pricing front.

Was it easier to get prices this year than in prior years? Or is it just the same sort of environment that you've seen before?.

I would say the same. We -- as we've talked about repeatedly, we put that 3% to 6% in place. We've been able to do that every year. I wouldn’t say there's any dramatic difference this year versus last year..

Your next question will come from the line of Andre Benjamin from Goldman Sachs..

My first question is, do you have any updated thoughts on your long-term leverage target? Is there still a willingness to increase leverage to 3x or so? Or has does that changed with the business environment? And if it hasn't changed, any timeframe around how you're thinking about that given that it's going to need help [ph] for a while?.

Andre, its Chris. As we've talked about many times, we feel very comfortable that this company could easily handle, on an ongoing basis, 2x to 3x debt-to-EBITDA on an ongoing basis. And could handle above that for certain transactions that make sense, because we know that with our cash-flow-generating ability they'll come down pretty quickly.

So no change in terms of how we think about the long-term leverage that we can handle and that we would like to get to. As we talked about at Investor Day, the acceleration in share repurchase, as well as the acquisition pipeline we feel we have, will help get us there.

And we don't have a specific timeframe, but we're going to continue to work through the year and execute as we have in Q1. And we will be able to provide updates as we go through the year..

Then on the productivity front, I know you've called out some areas, in particular, in the past, where you've had some challenges, like Europe.

Any update, in particular, on progress in the areas that you've called out in the past? Have you seen those progress or is it just more of the same given the economy hasn't changed much?.

Yes, I'd say -- I mean, I talked about the public sector earlier, in essence we've seen no change. I'd say, in other things we're seeing modest improvement as we focus operationally..

And your next question will come from the line of Jerry Herman from Stifel..

First question about the sales force. Gene, you referenced better retention in the sales force.

Could you give some metrics on that in terms of how much it has in fact improved? And also a part of that question, can you talk -- you referenced your onboarding process or getting the newer staff people to master it [ph] more quickly? Can you talk about their retention rate from most cohorts?.

So we've been very focused on hiring people that are a good fit with Gartner, because we know if we have -- they'll be more successful, they'll stay longer, it's a win-win for everybody. And our retention has been improving modestly over the last 2 to 3 years.

So it isn't just -- it's part of the trend and its every year it's gotten a little bit better. We're staying on that same trend with getting a little bit better each year. And so the -- it's an important metric.

And I think it's getting better because we're -- we keep -- we, as an institution, keep getting better if we hire people that are really good fit with our kind of environment..

Great. And then just a question about Software Advice.

I know there has been a lot of it today for small business, but it seems like that business model would inherently have lower margins than your core Research product? And in fact, it almost seems like it better resembles a Consulting model, is -- am I missing something there? Or should we -- does it in fact look more like a Consulting model?.

So it does not look like a Consulting model. We don't think about it as a Consulting model at all. And we think, over the long-term, it will have very attractive margins..

As high as research?.

So Jerry, its Chris. When you look at that business, obviously, we're making some investments now and we will see. As that business scales, we will be able to give you more insight as we get farther along that path, but we certainly do not expect it to be a Consulting model. We expect it to be more like a Research business.

And we'll be able to come back to you as we move ahead here..

And your next question is a follow-up from the line of Gary Bisbee from RBC Capital Markets..

Just one quick one on the -- Chris, your comments around the financials for this acquisition. I -- you lost me on a part of it. Can you just repeat what you said about there was some performance bonus or something that you're accruing? But if some numbers weren't hit -- what I missed was what the magnitude of that was, #1.

And #2, what line on the P&L you said that would flow through?.

Sure, let me just go back and share with you what I talked about there. So when you look at what we did, there were some amounts that we have held back until certain employment conditions are met. And the amounts that -- those amounts will be accrued ratably and expensed over the service period of those employees.

So over a couple of year period, which is the appropriate accounting for this particular transaction. And we anticipate that just under $17 million will accrue to the 2014 P&L for that amount. And then there'll be some in 2015 as well, a little bit higher, but -- and a little bit into 2016, just because of the timing of the transaction.

So -- and if those conditions are not met, we wont pay those out. And we'll reverse those charges, but we're going to be accruing them and then the cash will go out the door when they hit those particular -- and it will all be in the line called acquisition and integration charges. So you'll see it in that line item..

So help me understand that a little more.

I mean it sounds to me like it's compensation rather than something that would be excluded from the normalized -- your adjusted earnings and EBITDA?.

No, actually this just happens to be the accounting treatment for the transaction. So it's all part of the purchase price. How we decided to protect ourselves and to protect against either not achieving the kind of results we thought we'd achieve, we held these amounts back. And from an accounting perspective, it's treated this way.

It is not compensation expense. It's part of the deal and the transaction. However, from an accounting perspective -- from an accounting perspective, we treat it as if it was compensation in the P&L, however that's not what it is in terms of the deal itself..

So -- but you treat it as if it's comp, but it's in the line you're excluding. Is that -- those -- that last statement doesn't make sense to me..

It is in the acquisition and integration line because it is a deal cost. From an accounting perspective, we are required to treat it the way we're treating it and ratably expense it over the period of performance, which is over a 2-year period..

And your next question is a follow-up from the line of Jeff Silber from BMO Capital Markets..

Sorry, just to follow-up on that.

So just to clarify, this going to be a cost in addition to the $102 million that I see on our cash flow statement for the first quarter?.

Correct. So we paid out a $102 million in cash in Q1. There's an escrow amount that's held back and then there is this holdback as well, so there's holdback amounts t that have not been paid out yet in cash..

Okay.

And can you just again clarify what are the total holdback amounts, both in escrow and this holdback that you're talking about?.

Approximately $32 million in total..

Okay.

If I were looking at the total deal price in theory, it's $102 million that you've already paid out and another $32 million on top of that potentially?.

Correct..

I will now turn the call back over to Brian Shipman for your closing remarks..

Great. This is Chris. Just one thing to clarify, there was a couple of questions on the share counts. So just for your modeling, where we ended Q1 was basic shares outstanding of about 90.2 million, and then fully diluted is about 91.7 million. So that's kind of where as of Q1 ending.

As I've said, we fully expect by the end of year to be below 90 million fully diluted shares outstanding..

Okay. And thank you, everyone, for being with us on today's Q1 2014 earnings call. If you have any further questions, please don't hesitate to contact us. We'll speak to you again on our 2Q conference call in early August. Thank you..

And ladies and gentlemen, this concludes your presentation. You may now disconnect, enjoy your day..