Eugene Hall - CEO Craig Safian - CFO and SVP.

Timothy McHugh - William Blair & Company Jeff Meuler - Robert W. Baird & Company, Inc. Anjaneya Singh - Credit Suisse Andre Benjamin - Goldman Sachs Joseph Foresi - Janney Montgomery Scott Peter Appert - Piper Jaffray & Co. Jeff Silber - BMO Capital Markets Bill Warmington - Wells Fargo Securities, LLC.

Good morning, ladies and gentlemen, and welcome to Gartner’s Earning Conference Call for the Second Quarter of 2015. A replay of this call will be available through August 30, 2015. 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 85723528.

This call is being simultaneously webcast and will be archived on Gartner’s website at www.gartner.com for approximately 90 days. On the call today is Gartner’s Chief Executive Officer, Gene Hall; and Chief Financial Officer, Craig Safian.

Before beginning, please be aware 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 2014 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 these forward-looking statements. I will now turn the call over to Gene Hall. Please go ahead, sir..

Thank you, and good morning, everyone. Welcome to our Q2 2015 earnings call. The technology revolution continues to drive demand for our services. We have right strategy in place to capture the opportunity ahead of us and our business is doing great. We are where we expect to be at this point in the year and all of our underlying metrics are strong.

As on prior calls, I will review our key operating metrics on an FX neutral basis, since that's the best way to understand the underlying health of our business. For the second quarter of 2015, contract value again grew 15% and total company revenues grew 12%.

We've consistently delivered double-digit contract value growth in every region, every industry and every company size and this quarter no exception. The continued successful execution of our proven strategy was central to our success. We continue to get bigger, stronger, faster every quarter, year after year.

Across our three businesses, research, our largest and most profitable segment, accelerated FX neutral CV growth for the sixth consecutive quarter to 15% and revenues grew 14% in the second quarter of 2015. Retention was strong.

For second quarter of 2015, client retention remained at our all-time high of 85% which is up one point for the same quarter in 2014. Wallet retention also remained at an all-time high of 106% which is up a point over Q2, 2014. For the second quarter, sales productivity was up 13% compared to Q2, 2014.

We continue to invest in improved recruiting capabilities, training and tools and this in turn allows us to drive sales productivity improvement overtime. In addition during Q 2, 2015 sales headcount growth accelerated to 16%.

Our consulting business was up 2% as a result of solid performances from our labor based practice and our contract optimization practice. We continue to maintain a healthy four months of backlog. Our events business also did very strong performance during the second quarter.

We held 26 events in Q2 and across those events we hosted more than 17,000 attendees. For Q2 2015 on a same even basis, revenue was up19% year-over-year. Strategic after space we also continue to deliver value back to our shareholders purchase. For the first six months of the year we repurchased $441 million of our shares.

The primary reason our business is so successful is our people. At the heart of it, Gartner is a people business. We’re attracting the best talent in industry in strategic locations around the world and getting them up to speed quickly. We recently gathered our global sales leadership team together.

They were incredibly exciting about the technology revolution. They see the huge opportunity we have before us and I know the value would live with our clients. The insights to created of our industry leading analyst we’ve like to deliver and the overall client experience with Gartner has never been better. We’ll continue our great momentum.

As we have progressed through 2015. We have tremendous clients whether they're growing or facing economic challenges. We know how to be successful in any economic environment. Retention rates are all time highs and we have double digit growth in every region, every industry every company site.

We remain committed to enhancing shareholder values through investing who invest in business, strategic acquisitions and share repurchases. We are better, stronger, faster as a company and I expect to see robust growth for years to come. With that I will hand the call over to Craig. .

retention, CV growth and sales productivity continue to improve or are at/or near all-time highs. We will continue to invest in our business both organically and through acquisitions and return capital to shareholders through our share repurchase program going forward.

Finally, with 15% growth in contract value in the second quarter of 2015, we remain well-positioned to deliver another solid year of revenue and earnings growth for the full year 2015. Now I will turn the call back over to the operator, and we will be happy you to take your questions.

Operator?.

[Operator Instructions] Your first question comes from Timothy McHugh from William Blair. Please go ahead. .

Thank you. I guess, just -- I haven't had had time to crunch the math, you just kind of give the color about Q3. But the implication of that would be you need to see some fairly strong margin improvement in Q4 probably I guess to get you in line with your range.

And I understand, you know, all of the kind of forward-looking metrics look great and consistent with your trends. But can you help us, is there something happening in terms of the phasing of expenses this year that makes that year-over-year improvement particularly significant in Q4. .

Thanks, Tim. Good morning. So there's really two things going on. One is Q4 is historically our largest quarter both from a revenue and from an earnings perspective and 2015 Q4 will be no different than past Q4. I think what we are seeing is two things.

One is we have got great strength as we head into the balance of the year and we do expect, you know, to deliver to our full year guidance.

The other thing is as we have talked about in the past, the return to normal trends for our contract optimization business actually depressed margins in the first half of the year, and we expect it to return to historical trends in the second half. And so we get what looks like to be a bump from that, but it is actually just a return back to normal. .

Okay, that's helpful. Then, the gross margin for the research business, you had been seeing declines for a couple of quarters there and a reverse to the positive side this quarter.

Is there something that changed or something more positive happening underneath there?.

You know, Tim, I think we managed to a long term target of 70% gross contribution margin on the research business. We're in fact right at 70%. We are actually up a point year-over-year. I think what you see quarter-to-quarter is a little bit of noise. We are managing to that 70% level and we expect to deliver roughly in that range over the long term. .

Okay. Thank you. .

Your next question comes from the line of Jeff Meuler from Baird. Please go ahead. .

Good morning. On research productivity, I know it continues to increase or sales productivity now continues to increase year over year and you are talking about it continuing to go higher still. But if I look at the last couple of quarters, I think it has declined slightly on a sequential basis. Obviously we can only see the LTL metric.

You have better visibility into quarterly trends.

What gives you confidence in the increase and where are you at with rolling out some of the programs that were initially piloted more broadly?.

Thanks, Jeff. I will take the first part of the question and Gene will take the second part of the question. The way we look at sales productivity, we actually think best way to look at progress, because we do it on a rolling four quarter basis, is to look at it on a year-over-year basis.

That eliminates the seasonality and also, with Q3 and Q4 generally being our larger quarters, it is harder to move the needle in the smaller quarters like Q1 and Q2. And so what gives us confidence is for the last three quarters, we have seen really nice year-over-year improvements on that rolling four quarter sales productivity. .

It is Gene. And the improvements as you related to are being are driven by the underlying changes we are making improving recruiting. So we have a series of programs that are designed to make sure we really recruit people to have the perfect fit for Gartner. Those are getting better all the time. We are not standing still.

The second thing we are doing is making sure we have great training programs. Again those have gotten better all the time. We have continued improvement. And then, an improved set of tools that drives sales productivity as well. And you've noted, we've had -- part of our strategy is continuous improvement and continuous innovation in all these areas.

We have had some things in pilot that are now being rolled out and they are doing great. Other things in pilot now that will be rolled out next year, that will continue to driver sales productivity.

So as Craig said, it’s the underlying changes we are making that drive the sales productivity and because of the improvement -- the continuing improvements that we have and expect to have next year in recruiting, training and tools, we expect the sales productivity improvements to continue to grow over time. .

Is it too early to get a read into symposium registration in the major markets US, Europe, et cetera and especially how our CIO registrations trending if it is not too early?.

It is not too early and when I would say it's our -- the trending is where we would expect it to be for that business. So we are trending exactly where we would expect it to be. .

Okay. Thank you. .

Your next question is from the line of Anjaneya Singh from Credit Suisse. Please go ahead. .

Good morning. Thanks for taking my questions. First off, I was wondering if you can talk a little bit about your Nubera acquisition. It seems you're starting to develop more of a presence here catering to smaller and mid-size businesses which is a bit of a shift from your traditional focus on larger enterprises.

Now that it has been a year or over a year with software advice, you have got two acquisitions in this space, can you share any updated thoughts and views on the market opportunity here and the competitive landscape?.

So, great question Anj. So first in our traditional business, we have sold at least one seat out of 110,000 enterprise that is we target and we think that there's a north of $58 billion opportunity and our business today as you know is 1.6 billion in that market.

So, there is huge -- incredible growth opportunities in our traditional business and we're going to continue going aggressively after that. Having said that, that's 110,000 largest companies, enterprises in the 95 countries we are in.

There's tens of millions of small businesses that are great opportunities as well where our traditional business is not best way to serve them. We bought Software Advice last year which has very innovative and great way to serve that model. Nubera is in the -- is a similar kind of business.

They're slightly differentiated and we think complimentary to Software Advice to help serve those tens of millions of small businesses that they have the right model to serve which our traditional business is more tuned to serving those top 110,000. .

Got it. And then another question-- shifting gears a little bit to consulting, the head count growth in consulting at 12% it seems to be about the fastest growth we have seen in about five years.

I'm wondering if you can talk about what you are seeing in your business that's driving that and when we may expect to see that translate to consulting revenue..

Sure, Anj. It is Craig. Two prime things driven the headcount growth. One is our continued growth in investments in managing partners and so as you just heard we are now at 100 managing partners which is up 15% year-over-year.

The second thing which is a little bit of an apples and oranges thing is last year we acquired one of our sales agents and we had typically treated those consultants as subcontractors. When we did the acquisition, they came on to our books and so actually significant portion of our growth on year-over-year basis relates to just that acquisition.

The good news when you look at the consulting business going forward is given that investments in managing partners, given the quality of our backlog and also given the way the pipeline looks, we have had some confidence in bringing in additional people to basically fulfill on that backlog.

And so we are very pleased with where we are from a consulting perspective, backlog and revenue and we expect to hit our full year guidance in that business. .

Okay. Great. Thank you. .

The next question comes from the line of Manav Patnaik from Barclays. Please go ahead. .

This is [Ryan] [ph] filling in for Manav.

Just a question on the M&A pipeline, given you mentioned a lot of your cash sits overseas, should we be thinking that most of the deals would be focused on the international space or there are still assets in the US that you find attractive?.

There are asset the U.S. and the assets outside of U.S. as well and we are looking at both markets. So you shouldn't take it as we are focused on one or other. We are focused on both. And there's great opportunities on both. .

Fair enough. And one of your peers reported yesterday kind of discussed a lot of difficulty in hiring and you are obviously talking about 15% to 16%.

With the labor markets getting significantly better than they were a year ago, what gives you the confidence that you are finding the right people and could you talk attrition a little bit?.

So, Gartner is - , we are a leader in the technology industry. It is a very cool industry to be in. We are by any metric, if you can class store et cetera, a great place to work and have a great reputation in the marketplace.

Because of this tremendous reputation we have and also because we have a world-class recruiting organization, the -- we don’t have trouble hiring people. In fact you saw this quarter actually our sales hiring accelerated this quarter.

In addition to that, we don't just track a number of people, we actually look have track metrics indicate that fit that we -- of the people we hire. One might call it quality. We think of as the fit of the people we hire.

And not only did our growth rate accelerate, but the actual forward-looking metrics on the fit of the people we are hiring now we just brought in at this 600 pace are the best ever. That keeps getting better over time.

And so we are -- because Gartner is such a great place to work with, in a great industry, we are -- have a great recruiting organization, we are able to attract great people and at an accelerating rate. In terms of at attrition, our attrition is in the normal range, in range it has been in the past. .

Thanks and just one quick one for Craig--the number of events for this year, are they still around 65?.

Yes. That is correct. .

Okay. Thank you. .

Your next question is from the line of Andre Benjamin from Goldman Sachs. Please go ahead. .

Thank you, good morning. First in research, I was wondering if you are seeing any new competitive threats? Any established smaller players launching new products, improving their quality or potentially paying up to try to take some associates from you.

If you are, what are you doing to combat that? If you are not, why do you think that is given the size of the tam that's in front of you --you would think more people would be trying to be competitive and go after it.

We live in a very competitive marketplace. There are lots of competitors. There are new innovators all the time. That has been true forever and we don't, you know, we don't stand idly by. We track competitors, we also play part many times in the past. Part of – a core element of our strategy is continuous improvement and continuous innovation.

We every year introduce new products. We don't rely rest of the worlds we basically --because innovation is central to our strategy we are constantly improving getting better, stronger, faster every year with new products that are appealing to the most important things in the marketplace today.

So while we have today a very competitive marketplace with a lot of innovators and we always have, and we have always done very well because we are aware of this, we respect for them. We innovate to stay ahead and we are committed to continue to do that. .

And consulting, now that you have hit the goal that you had previously laid out of 100 managing partners, should we expect the growth in that number of partners to slow? As the count has grown, are there any innovations in consulting worth calling out that you expect to drive new growth or simply a matter of blocking and tackling with more bodies to drive business?.

Andre on the managing partner front, so we are very pleased that we have reached 100. That's actually not the long-term target for us. As our consulting business continues to grow, we will continue to bring on more managing partners to support and drive that business.

And so you shouldn't think of 100 as the finish line by any stretch of the imagination. We will continue to grow the managing partner business to continue to support and drive growth on a long-term basis. .

And regarding to second part of your question, in our consulting business we have the same strategy of continuous improvement and continuous innovation as we do across the entire business. And that business, you know the service is based on what’s most important from our research organization.

So, by knowing what's important to client on things like digital best practices the consultants then can apply that in the consulting space and so you shouldn't think that its, we are just adding more managing partners. Actually service lines are quite dynamic and innovate over time. And that's what is driving the success of that business. .

Thank you. .

Your next question comes from the line of Joseph Foresi from Janney. Please go ahead. .

Hi. I was wondering if you could talk about contract-value growth here for a second.

You have obviously moved up to this 15% level which is very healthy but what should we expect going forward? Is this something that you think you can continue to build on? If you do think you can continue to build on it, what are the chief drivers from this point forward?.

It’s Gene. So the two things that drive contract value are our sales productivity and the number of sales people we have. And as I have talked about before, in terms of sales productivity we have a number of programs in place and we continue to innovative on those -- those programs and others other to drive sales productivity.

And in fact, as Craig mentioned, we are seeing sales productivity improve and that’s because of this. That's the first thing that drives contract value growth. The second one is the actual size of sales force. And as I mentioned before -- as Craig mentioned, we have accelerated the growth rate in our sales force as well.

So both of those two things are the kind of forward-looking metrics you would expect to indicate that we can continue to grow our sales force over time, so continue to grow contract value over time, in fact at an ever kind of increasing rate. .

And Joe, if you go back to our Investor Day materials, it was actually flat. That lays out the way we think about it in simple terms which is modest improvements in sales productivity coupled with 15 or 15 plus percent head growth, what that equates to in terms of contract value growth.

And so that's why we have said long-term our target is 15 to 20% from a research contract value growth perspective and again its that combination of growing sales headcount and continued improvement to sales productivity. .

I guess what I was trying to focus on was it seems like you rolled out the new training aspect of the sales force to a number of different regions and you got a nice little kick on contract-value growth.

So, outside of the standard two metrics that you pointed out, I was wondering if there was anything else that you were currently working on that you thought might bring you to that next level? Is there anything else that you could point to?.

So, Joe, there's -- in terms of sales productivity, we have many programs too numerous to name right here and some are -- have been rolled out, some are in pilot and some are being developed.

And they all fall into the three categories I talked about, either improved recruiting, meaning our ability to target the people that have the skills to be most successfully at Gartner and have highest productivity. We are getting better at that time all the time. The second thing you mentioned is training.

In fact, we had major improvement to our training which we are in the process, we’re not quite finished rolling it around the world. I'm sorry we just finished rolling around the world, so you wouldn't actually seen the full impact of that.

And of course because that's rolled out we have other improvements in training behind that and we will have training improvements behind that as well. And then thirdly, again we have a set of -- we are continually improving our tool sets as well.

And again we another -- we have a major new improvement for sales tools particularly for new sales people that were at the beginning of the roll out for as an example we will continue with. And again, when that's rolled out we will have another thing behind that.

One way to think about it is we have version two, version three, version four, version five. We don’t ever kind of just say, well we've got to version two and we are done and that's how we want to drive sales productivity over time. .

Okay. Then the last question for me, obviously we have started to max out on the margin profile and the research business. You have been taking on some acquisitions which would obviously, create some level of dilution. Maybe you could talk about you how you feel about the margin profile over a longer period of time.

Is there still room for expansion, there might be just a little bit? How do you balance that versus some of the acquisitions that you are looking at?.

Thanks, Joe. The way -- what we are really, really laser focused on is accelerating our growth rates in research which is our most profitable business. It has the best flow through and really drives significant improvements to gross contribution margins.

And so we are 100% laser focused on, as we just talked about, improving and accelerating research contract value growth which then translates into research revenue growth and total company revenue growth.

As we accelerate and drive research contract value into the 16%, 17%, you know, potentially 18%, 19% range, there is absolutely margin potential and upside there.

But we are very focused on making sure that the investments we put into the business whether it is new sales people, new tools, better recruiting, better training are actually supporting and driving long-term sustainable really accelerated growth and research contract value. .

Your next question comes from the line of Peter Abbott from Piper Jaffrey. Please go ahead. .

Thanks, good morning. Craig, just sticking on the margin leverage question for a second-- you had four consecutive quarters of some pretty impressive productivity gain. I am just wondering why that isn't flowing through to better margins.

What's the disconnect?.

So no real disconnect, Peter. We have improved our sales productivity and we are at roughly 15% contract value growth. As we have talked about in past, the margin unlocks or there's more margin potential unlocking as we accelerate research contract value at an even greater rate, so that's number one.

Number two there's always going to be a lag in terms of the productivity and research contract value actually converting into revenue and profit on a roll forward basis. So I think it is the combination of those two things.

When we think about the business again, we reiterated, reaffirmed our guidance for the full year and there's a margin expectation built into that guidance. That’s what we are managing to and you know, that’s where we are on a year to date basis.

But again, as I mentioned to Joe on the last question, we are really laser focused on how do we continue to accelerate sales productivity so that we can accelerate research contract value growth. .

Would that suggest, Craig, that you would be not put words in your mouth here but more optimistic about the potential for some margin upside in 2016 as you carry forward these productivity gains you have seen in the past year?.

So Peter, we’re obviously we’re talking about 2015. We have talked about guidance for 2015. We are not at a point where we are discussing 2016 yet. .

Got it. And then this is a little bit nitpicky, but you talked about contract-value growth accelerating 15%. And the number you reported last quarter was 15.

So is it just some sort of rounding thing?.

If you took it out an extra decimal point, there is acceleration. .

Okay, great. Can you talk at all about how you're thinking about the pace of buyback activity? You have been, obviously, pretty aggressive here in the first half.

Does it suggest you are accelerating the pace of buybacks versus what you laid out initially?.

So, you know, on a year to date basis, we have repurchased $441 million of our shares this year. Last quarter when we announced that $1.2 billion authorization, what we said was we expect that to last us 2.5 to 3 years. That's basically the guidance around share repurchases. .

Right. Well, you are pacing well ahead of that, obviously, in terms of completing it in two to three years.

So your response is-- no, you are not changing your expectation around pacing which can might imply slower repurchase activity in the second half?.

So, Peter, what I would say is we are not changing the statement around two and a half to three years $1.2 billion authorization. As always, business conditions may dictate slower, faster, what have you? But our -- what we are reiterating is that $1.2 billion authorization should last us roughly two and a half year to three years. .

Okay. Thanks. .

Your next question comes from line of Gary Bisbee from RBC Capital Markets. Please go ahead. .

Good morning. This is [Gunter Anthony] [ph] in for Gary.

Thinking beyond this year with the some of gains in productivity and positive comments around hiring, pipeline and some of your improved training capabilities, is it safe to assume or to think that you might move to the higher end of your long-term 15% to 20% sales headcount hiring range?.

It is Gene. So the -- we would clearly rather be at the high end of that range than at the low end of the range. We set the range because as we talked about the -- the pace of hiring depend on the readiness we have -- of our first level managers be able to absorb all the new people. And so we had much rather be at the high end of that range.

And that's certainly our objective. .

Okay, great. Just to clarify the 36 to 38 Q3 EPS guidance that's for GAAP and there there's a $0.04 acquisition charge.

Is that the way to think about it?.

That's accurate, yes. .

Okay.

And then lastly just to follow up, the 14% constant currency research revenue growth, was there any contribution from M&A, if so could you quantify that?.

We had software advice for the full quarter last year and the full quarter this year. So the comp is actually accurate. So no benefit from M&A. .

Great. Thanks so much. .

Your next question comes from the line of Jeff Silber from BMO Capital Markets. Please go ahead. .

I hate to go back to the margin issue, but in looking at third quarter--not sure if my math is right, but it looks like we're going to have another quarter of margins being down over year and that was despite the fact that you had said the contract optimization issue hopefully will be less of an issue in the quarter.

And I think you shifted, or at least up from a calendar perspective we have got three more events this year shifting from Q2 to Q3. Can you just confirm that? Are you expecting margins to be down year over year again in the third quarter.

And, if so, why?.

So, Jeff, what I would tell you is things move around from quarter-to-quarter on a year-over-year basis. I would focus on the full year where, you know, if you take different ranges of the guidance, you can kind of get, you know, see roughly flat margins on the full year basis, is what our guidance roughly implies.

Again, things are going to move around from quarter-to-quarter. The expectation for Q3 there's obviously more stuff going on than just two events moving or three events moving out of Q2 and into Q3. But I would focus in on that full year margin number. .

Okay, fair enough. If I could just go back to the second-quarter consulting results, you mentioned average analyze revenue for billable headcount being down about 10% or so. I'm assuming FX has an impact and contract optimization, I think would have an impact, as well.

Was there anything else going on in there to cause that decline?.

So Jeff the contract optimization wouldn't be baked into that number. FX will have a pretty significant impact on that number as our consulting business is very global with a significant portion of the revenues being generated in currencies outside of the U.S. dollar.

The other piece there is there was a, you know, a 2 point dip in utilization rate which we talked about, which would obviously also impact that annualized revenue for per billable headcount. .

So would that number have been up on a FX neutral basis?.

That number would have been slightly down on a FX neutral basis, largely driven by….

All right. Thanks so much for the color..

And your next question is from the line of Bill Warmington from Wells Fargo. Please go ahead. .

Good morning, everyone. So I have got a question for you on a couple of the acquisitions that you have done in terms of software advice and Nubera. One these, I don't know if you want to call them self-service or definitely a lower labor base content model.

As you look out, how large of a percentage of revenue do you think they could be? And ultimately what do you think that's going to do in terms of your potential to take the margins up above where they are now?.

All right. So these are small businesses. They're great businesses but they're small businesses. So we don't see it having a big impact now.

And Craig you want to talk about the future?.

I mean, you know, we are in this business and we have bought these businesses because we think they can be meaningful businesses but as Gene just mentioned very small nascent, if you will, but we will be focused on growing them.

The key for us, as Gene, I think mentioned earlier, is we still have this enormous market opportunity on the organic business.

So even if we grow these new businesses at an accelerated rate, it is our absolute expectation that the core business will also continue to grow at an accelerated rate and so maybe becomes a bigger piece, but of a larger pie over the long-term. .

It would seem like the opportunity there would to be to basically build a larger portfolio of these types of businesses over time.

Is that part of the plan, or are you just going to keep them to a relatively small percentage of total?.

So again we think there's tens of millions of small businesses, we to serve those businesses just like we do the larger businesses and really grow it at the rate that makes sense to grow it, to serve that marketplace. .

Got it. All right. Thank you very much. .

I would now like to turn the call back over to Gene Hall for closing remarks. .

Thanks all of you for joining us today. Let me summarize some of the key points of the call. So first, we are doing great as a company. We are where we expect to be at this point of the year and all of our underlying metrics are strong. We continue to invest and improve recruiting capability, training tools that drive sales productivity.

Our FX natural CV growth accelerated modesty. We may committed to enhance these shareholder value through investing in our business, strategic acquisitions and share repurchases and we are getting better, stronger, faster all the time. I expect to see robust growth for years to come.

We look forward to updating you again at our next quarterly earnings call. Thank you..

Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Thank you very much and have a very good day..