Gartner, Inc. (IT)
Q2 2011 Earnings Call
August 2, 2011 8:30 a.m. ET
Brian Shipman - Group Vice President of Investor Relations
Gene Hall - CEO
Christopher Lafond - Executive Vice President & CFO
Peter Appert - Piper Jaffray & Co.
David Lewis – J.P. Morgan
Daniel Leben - Robert W. Baird & Co.
Robert Riggs - William Blair & Company
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Thank you and good morning, everyone. Welcome to Gartner’s second quarter 2011 earnings conference 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 the quarterly financial results disclosed in today’s press release as well as an update of our increased revenue guidance 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 web address 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 2010 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 those documents.
The company undertakes no obligation to update any of its forward-looking statements. With that I’d like to hand the call over to Gartner’s Chief Executive Officer, Gene Hall. Gene?
Good morning, everyone. Thanks for joining us. Our second quarter results for 2011 continued the trend of accelerated growth that we have delivered through the successful and consistent execution of our strategy for growth. The fundamentals of our strategy are, first, to create extraordinary research insight. To built strong sales capability. To deliver high value offerings. To provide world call service. And to continuously improve our operational effectiveness. This strategy has been successful across our businesses and across all geographies.
In the second quarter of 2011, growth in research contract value was the fastest since early 2007. Our contract value ended at the highest level ever reported in Gartner’s history, up 16% year-over-year, excluding the impact of foreign exchange, to over $1 billion. The 16% year-over-year increase in research contract value was driven by both record second quarter new business and strong and client and wallet retention. New business was the highest of any second quarter in Gartner’s history and wallet retention once again reached 100%.
This growth was achieved despite a mixed global economic environment. Our events business performed extremely well in the second quarter, a strong year-over-year increases in attendees and in revenue. In consulting, the strong pipeline we discussed last year converted to 9% – sorry, last quarter converted to 9% sequential improvement in backlog in Q2. We are confident this business will perform in line with expectations for the full course of the year.
Continued positive momentum in our growth has been driven by the success of our initiatives to improve sales force productivity, drive higher client retention, and penetrate new clients. IT and supply chain management remain the best way for companies to improve in any macroeconomic environment. These areas are and will continue to be complex and continuously evolving.
IT and supply chain professionals need expert assistance and insight to help them make critical business decisions that they face virtually every day. Gartner is the best and most cost effective resource they can turn to for that help. And often makes the difference between success and failure in any economic environment. Our strong contract value growth and high retention rates continue to be a testament to this fact. I have never been more confident in or excited about our prospects for continued accelerated growth than I am today.
We have vast untapped market opportunity for our service, which we estimate at over $45 billion for research alone. There are hundreds of thousands of IT and supply chain practitioners who could potentially be Gartner clients, but have never been educated on the value we can provide. The Gartner brand is in a class by itself. Our products and services lead the market and we have a great business model. Gartner is the strongest company it’s ever been. With that I’ll turn it over to Chris for additional details on our results and financial outlook.
Thanks, Gene, and good morning everyone. The continued successful execution of our strategy resulted in another quarter of double-digit year-over-year growth in revenue, earnings and cash flow in the second quarter of 2011. Our results once again demonstrated our ability to consistently deliver on the long term financial objectives we established and communicated over the last few months since our Investor Day in February.
Let me start today with a review of our business segment results for the second quarter and finish with a discussion of our outlook for the remainder of 2011. In research, second quarter revenue was up 20% as reported and 14% excluding the impact of foreign exchange. The gross margin in this segment increased 2 points year-over-year to 67.3% as we successfully capitalized on the operating leverage we generate as revenues grow. Our research business clearly accelerated in the second quarter. With the success of our initiatives to improve sales capacity and effectiveness, we grew contract value year-over-year by 16% excluding the impact of foreign exchange to a record level of $1.7 billion. Recall that contract value related to our acquisitions of AMR and Burton was included in the reported contract value in Q2 2010, and so this performance is a true reflection of the growth in our business.