Good day, ladies and gentlemen, and welcome to the Quarter Four 2012 Gartner Earnings Conference Call. My name is Patrick, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Brian Shipman, Group Vice President of Investor Relations. Please proceed, sir.

Thank you, and good morning, everyone. Welcome to Gartner’s Fourth Quarter and Full Year 2012 Earnings Call. With me today is our Chief Executive Officer, Gene Hall; and our Chief Financial Officer, Chris Lafond. This call will include a discussion of Q4 and full year 2012 financial results, as well as our initial guidance for 2013 as disclosed in today's press release. After our prepared remarks, you'll have the opportunity to ask questions. I'd like to remind everyone that the press release is available on our website, and 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 our 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. Finally, I'd like to remind everyone that we'll be hosting our Annual Investor Day next Thursday, February 14, in New York City. If you would like to attend, please e-mail my assistant, Germaine Scott. Her email address is germaine.scott@gartner.com. With that, I would like to hand the call over to Gartner’s Chief Executive Officer, Gene Hall. Gene?

Good morning, everyone. During 2012, the continued effective execution of our proven strategy resulted in another year of double-digit growth in our key financial metrics. And our key business metrics remained at or near record levels, establishing a strong foundation for another great year in 2013. During 2012, as we've consistently done in the past, we delivered double-digit growth in contract value, revenue, earnings and cash flow. Chris will talk to the details of our financial results in a few minutes but let me touch on a few highlights. For the full year in Research, our largest and most profitable segment, we added 878 net new client organizations, which is more than any quarter in our history, and we delivered 14% growth in contract value. For the fourth quarter in Research, we had double-digit growth in contract value across all major geographies. We ended the quarter with 83% client retention, which remains at our all-time high. We had solid backlog growth in our Consulting segment and consistently strong demand throughout the year for our core consulting and benchmarking services. Our Q4 Consulting results were impacted by weaker than expected performance of our Contract Optimization business, and Chris will provide more details about that in a moment. Events had another year of strong growth, with fourth quarter revenues up 21% over the same period last year. During the fourth quarter, more than 6,000 CIOs attended our symposium events. There's no other gathering in the world like our symposium series. I had the opportunity to meet with many of our clients at these events around the world, and these leaders are driving the performance of their organizations and they consistently see Gartner as central to their success. These results continue to illustrate the continued success of our strategy and the tremendous value…

Thanks, Gene, and good morning, everyone. We ended 2012 with double-digit growth in revenue, earnings and free cash flow. Our results continue to demonstrate the successful execution of our strategy and our ability to consistently deliver on the financial objectives we've communicated over the past several years. In the fourth quarter, we continued to see the strong trends in our key business metrics that we delivered during the first 3 quarters of the year. Year-over-year contract value growth remained strong, and retention rates ended at or near all-time highs. Our benchmark and core Consulting businesses grew 6% on an FX neutral basis for the full year, and our Events business increased by more than 20% year-over-year for the third consecutive year. Demand for our services was robust across all of our primary business segments in the fourth quarter. Our strong top line performance and effective execution in capitalizing on the operating leverage in our business allowed us to once again expand both our gross contribution and EBITDA margins. As a result, we delivered significant growth in earnings both in Q4 and for the full year. In the fourth quarter, normalized EBITDA increased 14% year-over-year, and our GAAP diluted earnings per share was up 33%. For the full year, we delivered normalized EBITDA of $315 million, up 13% from 2011. This growth in normalized EBITDA was notable, given that in our Consulting segment, the Contract Optimization business underperformed our expectations in 2012 and resulted in a negative impact to EBITDA of $8 million. I will talk more about this in a moment. GAAP diluted earnings per share was up 24% from last year to $1.73. With a strong finish to 2012, we're well positioned for continued growth in 2013. Now, I'll provide a review of our 3 business segments for the…

[Operator Instructions] Your first question comes from the line of Mr. Eric Boyer with Wells Fargo.

Gene, can you just comment on the IT spending environment in terms of your offerings today compared to where we were last year at this time?

Eric, so there's 2 separate issues. I'm not sure if I understand the question. So the overall IT spending environment, we're expecting IT spending in FX neutral terms around the world to grow about 3.9% during 2013. And so that's one, if you're asking about the -- how much people are spending on IT goods and services, that would be it. That doesn't cover our spending and what they're spending on Gartner-type services. Does that answer your question?

Well, I was just wondering about the demand for your type of your product compared to where you were last year as far as budgets and just how difficult of a selling agreement is today compared to last year.

Yes, it's -- the selling environment is the same. Basically, our selling is limited by the amount of sales capacity we have. There's essentially unlimited demand. It's a matter of how fast we can get to clients and educate them on the value of our services. And so in essence, the selling environment that we see is exactly as it was last year. Last year, at this time, we had -- and throughout the year had kind of infinite demand, and we have the same situation today.

So with the sales force growth assumption of 15%, I mean, is that just really due to the productivity being a little bit lower than where you had hoped to be just because of the microenvironment? Is that how we should think about it?

So we basically would -- I have said in the past, would continue this, which is as we -- we like to grow our sales force 15% to 20% a year. We're going to grow at the lower end when we see sales productivity not advancing as fast as we'd like and the higher end when we see the productivity there. And so you can interpret that we'll be kind of at the 15% end because we think there's an opportunity to continue to improve sales productivity and we want to focus on that at this point. Again, during the year, if that changes and we see productivity tick up, we'd accelerate our hiring during the year.

And then just finally, I noticed you talked about double-digit growth across geographies. Is that the same for your vertical breakout as well?

So we had double-digit growth, as you mentioned, across all the geographies around the world. We had double-digit growth across virtually every industry segment, and the couple of segments that weren't were just below. So they rounded down as opposed to rounded up, perhaps, to double digit. So it's not like one fell off and went -- was mid-single digit or something like that. It's just slightly below double digit, a couple of segments..

Any detail on which ones, those were government, I assume, maybe?

I take it as noise basically because, as I said, last quarter they were above. This quarter, they were below.

Your next question comes from the line of Peter Appert with Piper Jaffray.

Gene, can you talk a little bit about, please, what you're doing to drive sales force productivity?

Sure, Peter. It's my favorite subject. We are -- basically, there's 3 areas we're working on. The first is recruiting, making sure we recruit people that are really well-suited to be successful at Gartner. And because we have associates around the world, obviously, it's not as simple as just recruiting for the right kind of person in just the U.S. or just New York City. And so the first piece is recruiting. The second piece is training, and training both for our new hires, as well as for our experienced people. With our rapid sales force growth, we've got to be prepared to give managers great training to equip them, as we have many new managers with our growth, with the promotions people get. And obviously, there's so many new people coming onboard. We've also have a lot of innovation in our offerings and what's going on in the technology world, and so we need to keep our salespeople up on that. That's another important part of the training. And then lastly, it's productivity enhancing tools. And so we, basically, continually have a set of -- continually enhance the set of tools that we give our salespeople to help them be more productive, things like what are the most important topics that our clients are going to care about, and automating certain parts of the selling process so that it doesn't take a salesperson's time. And in fact, it's an automated part of the process. So those are really the 3 areas that we're focused on.

Okay. So you added 21% to the sales force last year. Should I take it that basically maybe the onboarding was just -- I don't want to say a little rougher, but just not quite as -- didn't come in as hoped in 2012? And was that the key reason for reduced productivity this year, it's a reflection of the higher level of hiring last year?

No. I think, basically, what's going on with the productivity is that clients get a lot of value in our services whether they're growing, whether they're shrinking. When they are shrinking, the selling cycle is a little harder than it is than if they're growing. So I think the primary thing that affected our sales productivity is if you look again like in Europe, as I mentioned on my comments, on my prepared comments, the economy actually shrank in Europe, and we grew at double digit there. Now if it hadn't been such terrible -- so many companies in so much trouble, then I think our sales productivity would have ticked up quite a bit. But again, if you look at the global macroeconomic environment, there were many -- a higher portion of the companies or institutions that were facing big budget cuts, those selling environments are a little bit tougher. And again, we're very successful there. But it's a little bit tougher and it, I think, had a bit of an impact. That's why our sales productivity didn't grow as we would have liked it to.

Okay, that's fair. And then just not to obsess too much on this, but the guidance on research revenue growth of 13% to 14% in fiscal '13, to the extent that you end the year with 14% CV growth, it would seem simplistically to imply that you're not necessarily anticipating, at least in the guidance, improved productivity in '13. Is that fair?

Yes, Peter. It's Chris. I just commented, I think, during my remarks that the assumption in our guidance is that sales productivity remains at 2012 levels. As Gene said, we also do not anticipate the economic environment changing. So with those 2 factors, we thought it was prudent to assume in our guidance that it would stay roughly where we are today in both of those -- with both of those.

Okay, fair enough. Then last thing, Chris. So on margin leverage, just some color in terms of how we should think about the ability to continue to drive margin improvement.

So I think you need to look at it in the multiple pieces, Peter. So if you start with the 3 businesses, as we talk about all the time, we have great incremental margins in all 3 businesses. 70% in Research, as you know, we're at 68%, so we still have a little bit of room there for expansion. But we've moved that from 58% to where we are today. So we've made some big movements over the last few years, and now we're hitting and approaching our 70% number, still a little bit of room there for improvement. The Events business, incrementally around 50%, and we still have a little bit of room there. And Consulting ultimately at 40%, and we still have a little bit of room there. So you still see a little bit of room on the top line, and also you get the continued mix shift. So Research has been shifting and went from below 60% to now over 70% of revenues. So we've moved that significantly, and that shift will still give us a little bit certainly starting to approach a number were, while it could still grow, not as fast as we saw in the past. That's kind of what's happening on the gross margin side. When you go below the line, we still believe we'll get G&A, infrastructure, expansion opportunities. So I think if you're looking at our expectations for 2013, we're still expecting G&A to be a lower percentage of revenue. And then the big driver moving forward is sales productivity. So over time, we expect that as sales productivity improves, we start to see the S as a percent of revenue start to flatten and come down. As you know, that's been inching up as we've expanded our sales force. So those are the main drivers of margin expansion in EBITDA. We still feel extraordinarily comfortable that we'll continue to deliver margin expansion over time.

I think you've said in the past, Chris, I may have this range wrong, 50 to 150 basis points a year. Is that still operative?

Yes, we still believe 50 to 150 basis points is absolutely realistic. And you're going to get more towards the high end as you get real sales productivity expansion, and you'll be more at the low end as sales productivity stays flatter. And that's what you're seeing kind of in our guidance.

Your next question comes from the line of Tim McHugh with William Blair & Company. Timothy McHugh - William Blair & Company L.L.C., Research Division: You talked about sales productivity. Obviously, it was flat for the year. But can you give us any color in terms of vintage of when the salespeople came in or by region or by vertical in terms of areas that were stronger or weaker? And I'm assuming it wasn't all exactly flat.

Yes, it was pretty much consistent across the board, so no big differences in terms of one area. I think, any of the differences were pretty minor and I'd put in the category of noise as opposed to something significant. Timothy McHugh - William Blair & Company L.L.C., Research Division: Okay. And the Contract Optimization business, I understand you gave -- it's usually in a fairly narrow range but it was the low end of that range this year. Is there any reason? I mean, can you point to where there -- was there turnover? Was projects just pushed out? What drove, I guess, you to the low end of the normal range?

Yes, so -- it's Gene. So that business is a business -- and we've talked about in the past, it's a fairly lumpy business, meaning there's a few deals that decide whether -- how that business a few meaning on the order of they might do 100 deals a year, something like that. And so the -- if you have a few more deals or few less deals, that's what swings that business. And it -- the way it works is it's on a contingency fee basis so -- most of the business. So what happens is that a client negotiates a deal, we come in and we can help them, and they buy, get it cheaper, then we make -- we get paid in that business. If we help them and they don't buy, we don't get paid. And so that's what the nature of the business is. So we can do a lot of work with the clients. And if they actually decide not to purchase from the vendor that we work on, because it's contingency fee basis, we don't get paid. So by its intrinsic nature, it's not kind of a recurring revenue or a smooth business, it's very lumpy. And it was at the -- we had a couple of years -- in last 3 or 4 years, it's been the higher end of lumpy. And the last year, unfortunately, was the lower end of lumpy. Timothy McHugh - William Blair & Company L.L.C., Research Division: Okay. And did you say earlier, Chris, an $8 million swing to EBITDA from that?

Yes. So what I mentioned was, if you look back in 2011, we did about 40 -- a little over $40 million of revenue for Contract Optimization. This year, we did just about $30 million, and it is extraordinarily profitable. And I think 80% of that flows through, so you're talking about an $8 million year-over-year change to EBITDA. And that, by itself, is one of the biggest drivers of the year-over-year EBITDA delta that people were looking at versus consensus, I believe. Timothy McHugh - William Blair & Company L.L.C., Research Division: So a bounce back in that business, you should see the contribution margin from Consulting improve next year?

Yes, so if it bounces back -- so as I also talked about in my remarks, we're not expecting it to grow. We expect it to be exactly where it is this year. Should that be different, you'll see incremental revenue and an 80% flow-through of that incremental revenue. So it will bounce right back through to profitability should it recover.

Your next question comes from the line of Kelly Flynn with Crédit Suisse. Kelly A. Flynn - Crédit Suisse AG, Research Division: First question relates to Europe. I know you spoke to a pretty broad-based strength there. But can you talk about whether or not you're seeing any signs of stabilization or sort of macro-related improving sentiment in any countries? Any reason for incremental optimism there?

So, as I mentioned, we had great performance in Europe, double-digit growth in -- overall in most of the countries, including some of the most challenged countries. We're not seeing -- in terms of our business, we're not seeing any change this year compared to last year, so we're expecting great growth again in Europe this year. And I really can't -- couldn't comment on -- so our clients are vying for position just like they did last year. I don't really see any change in the overall macroeconomic environment just from our perspective on it. Kelly A. Flynn - Crédit Suisse AG, Research Division: Okay. And related to international, can you talk in terms of, let's say, 5 years out, I mean, which are the international markets, all over and not just Europe, in which you see the most opportunity for growth?

So we're in 85 countries today, and we expect to be -- we're not planning to add more countries. It would be on a very selective basis if we did. And in essence, all those countries have tremendous growth opportunities, and the -- we're pretty much growing at good double-digit rates in virtually all of them. I mean, again, there could be some exceptions around in 85, but they all have kind of -- our level of penetration is very little in all of them. I mean, even in the U.S., as we've talked about, we have a very low level of penetration of our opportunities, even in the U.S., where we've had the longest presence. And so we don't have -- when we look out to 5 years, we see -- we should have -- we certainly have the opportunity for great double-digit growth in every one of those 85 countries. Kelly A. Flynn - Crédit Suisse AG, Research Division: Okay, great. And then last question related to Consulting. I think you've been pretty clear and helpful on Contract Optimization, but I just want to make sure I understand. Is there anything else going on in Consulting that was disappointing this quarter? Or is it all related to the Optimization business?

Kelly, it's Chris. Not with all related to that. So I think if you look at the core Consulting business, that business actually grew 6% for us in 2012, which is great. It's much faster than actually it's been growing in the past, up towards the higher end of our range. So when you look at Consulting, if you look at backlog, if you look at margin expansion and utilization, all of those things in that core business, which, again, is 90% of the Consulting business, had a really nice strong performance, and the whole delta is driven out of this one area. That just happens to be such a high incremental margin. So we feel great about the rest of that business.

[Operator Instructions] Your next question comes from the line of Brian Karimzad with Goldman Sachs.

I guess, first one for Chris. The free cash flow conversion from the adjusted EBITDA in the '13 guidance, it looks like it's round 74%, 75%. And if I look back historically, maybe I'm running the numbers wrong, you guys typically do 75% to 80% range. So can you walk us through why we're not closer to the midpoint of what you have historically done?

Sure, Brian. There's probably a couple of things there. So if you look at 2 things, cash taxes and CapEx. CapEx has increased slightly. As you know, we're pretty low in terms of CapEx. We -- over the last couple of years, I think last year when you net out the reimbursements from our landlord, we spent, I think, $29 million in '11, $31 million in '12. And next year, it's inching up to $34 million. So you have a little bit more. We think that's absolutely the right investments to make in our business for all the things we're talking about, whether that's sales productivity or other things that will drive the business. So we still think that's a relatively low percentage for a company of our size, but that's inching up a bit. And as we've told you over time, cash taxes has inched up a bit. So those 2 things are the drivers. There's nothing other than that, that's fundamentally changed in terms of our cash flow dynamics.

Okay. And then just on the long-term revenue target. I mean, something that has been a bit frustrating in this info services space have been these long-term targets that companies set on revenue growth that, frankly, represent numbers that haven't been seen since 2007 and before. For example, on the research side, I think the last time you did 15% plus x currency growth was 2007. And I guess, for the guidance this year, you're making an assumption macro doesn't change. For us, let's say, we're taking a 3-year horizon and, let's say, that macro just kind of stays how it's been for another 3 years in your kind of industrialized markets, what's your sense on the cap of that research revenue growth? How much of it was kind of banking on having a 2007 type level of macro environment?

It's Gene. Basically, we -- as I mentioned in my remarks, we think there's lots of room to improve our sales productivity, and that's kind of at the heart of what's going on. So it's less about the macro environment. It's really about our improving sales productivity, and we think that there's plenty of room in sales productivity. We think we know what to do to do it, and we have programs to do it. So if you look at our 3-year time period, we're expecting sales productivity will continue to go up, and that will result in accelerating growth over time.

I think it's important to note, when we set our long-term, 15% to 20% for Research and all of our long-term objectives, we did not assume that the world was always in spectacular 2007 economic environment. We expect in normal economic times, and as Gene said, we're doing lots of things to work on sales productivity. So I don't think you should read into our numbers that it has to be a perfect economic environment for us to achieve those kind of numbers. We don't believe that.

Okay. So most of the productivity then issue is kind of an internal process type thing? It's not tougher selling environment in Europe and facing cuts?

As I mentioned earlier, when clients have budget cuts, it's harder to sell than when clients are growing and have lots of money. We can be very successful in the environment we are. But it does -- I think what happened last year is that in a stable economic environment, our sales productivity would have increased. But because the global economy decelerated, kind of it offset our -- the improvements that we had in the pipeline there. And so again, we're going to make improvements. And hopefully, the global economy will at least remain stable and won't decelerate any further.

At this time, there are no additional audio questions. Speaker, you may proceed.

It's Gene. I want to thank everybody for joining us today. And I want to make sure that I invite you again to our Investor Day, which is next Thursday, 14th of February. No better way to spend Valentine's Day than at a Gartner investor conference. We look forward to seeing you then.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a good day.