Good morning, ladies and gentlemen, and welcome to the Gartner Earnings Conference Call for Q3 2016. A replay of this call will be available through November 10, 2016. The replay can be accessed by dialing 8558592056 for domestic calls in 404537340 for international calls by entering the passcode 2009356. This call is being simultaneously webcast and will be archived guidance website at www.gartner.com for approximately 7 days. I will now turn the conference over to Sherif Bakar, Gartner's Group Vice President of Investor Relations.
For opening remarks and introductions. Please go ahead,
2016 earnings call. With me today in Stanford is our Chief Executive Officer, Gene Hall and our Chief Financial Officer, Craig Safian. This call will include a discussion of Q3 2016 financial results as disclosed in today's press release as well as our updated outlook for 2016. After our prepared remarks, is available on forward looking statements. Forward looking statements can vary materially from actual results and are subject to a number of risks and certainties, including those contained in the company's 2015 annual report on Form 10 K and 2016 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. And with that, I'd like to hand the call over to Gartner's Chief Executive Officer, Gene Hall.
Jean? Good morning, everyone. Welcome to our quarterly quarters. Exchange rates continue to be volatile. Oil and other commodity prices are still suffering.
In the U S, the S and P 500 has had its 5th consecutive quarter of weak or negative earnings growth. In Europe, the S and P 350 is expected of negative earnings growth this year. In any of our markets, we always We know how to regions, industries, and client aired and more nimble and amid macroeconomic challenges. And we're doing great as a company. I'll share a few highlights from our Q3 results.
As on prior calls, I'll review these metrics on an FX neutral basis. Because we do business in more than 90 countries around the world, FX neutral is the best way to understand the underlying health of our business. For the third quarter of 2016, total company revenues grew 15% we delivered double digit growth in our key metrics. Research, which is our largest and most profitable segment achieved its 2nd consecutive quarter of 17 percent revenue growth. These results continue to be driven by double digit contract value growth and contributions from our recent acquisitions.
Contract value grew at 13% year over year with double digit growth in every region and across virtually every client size and industry. New business growth was very strong in the quarter with the number of enterprises up 6%. Clant retention and wallet retention were 83% and 104% near all time highs. This led to a sequential improvement in sales productivity from Our Consulting segment achieved 6% revenue growth over the same quarter last year. Exceeding our operational target.
Our Events segment continues to achieve strong growth while amplifying the Kartner brand. For the third quarter of 2016, Event revenues were up 14%. We hosted about 7500 attendees across the 15 events we held in the 3rd quarter. But we're now in the 4th quarter, which is when we run the majority of our Symposium IT XMO conference series. Symposium ITX was our flagship event for CIOs and senior IT executives.
This series is hosted in eight locations around the world and can be 1000 of CIOs who share experiences and gain valuable insights that help them achieve their mission critical priorities. I just returned from our U. S.-based event in Orlando, Florida, where for the 3rd year in a row, we achieved sold out status. Even more importantly, about 40% of our attendees were CIOs. Now these CIOs know that while it's exciting time to be a technology leader, it isn't easy.
There's cloud computing, mobility, the internet of things, algorithms, ecosystems, Technology in its many forms is affecting virtually every aspect of our society. Enterprises know they need help. And Gartner is the best and most cost effective source for that health. Our clients use our independent objective, facts based insights to make critical technology decisions. The CIOs I met with were inspired and better equipped exceeding the digital business as a result of the insights we deliver to them at Symposium.
And as a result, our sales organization is supercharged. As I mentioned at the beginning of this call, the global macroeconomic environment has been challenging for the past few quarters, affecting our clients. A significant point in time, we have clients who are thriving, others who are in distress and everything in between. Over the past few quarters, seeing more clients in distress. We continuously innovate and make session, we've trained our teams to sell and succeed whether clients are thriving or in distress.
We're better than ever at adapting to shifts in the macroeconomic environment. And we're seeing positive impact from these innovations. Here's a few examples from Q3. The Brazilian economy remains in a recession. We doubled down best practices in Brazil and have returned to double digit growth there.
Australia has been hard hit by commodity prices, yet we achieved more than 20% year on year growth, again, by focusing on operational execution. China is another great example the outlook for China's economic growth remains uncertain, yet we drove more than 20% year on year growth in China. In the energy and utilities industry, which is hard hit by falling low prices, our contract value growth rate improved by more than 500 basis points sequentially. Our business gathered momentum throughout Q3 culminating in an extraordinarily robust September. In addition, we saw significant strengthening in our leading indicators.
For example, our sales pipeline was up 20% year over year. Based on the operational performance of the innovations we've introduced, our momentum coming out of Q3 and the strengthening of our lean indicators, we expect to see contract value growth accelerate during Q4. We also expect sales productivity to improve sequentially over Q3. We see this We've introduced improvements innovations to provide tremendous value to our clients, whether they're thriving or in distress. These changes, but double digit growth in our major metrics during Q3.
Our business gathered momentum throughout Q3 culminating in an extraordinarily strong September. We entered Q4 with strong leading indicators. Based on the operational performance of the innovations we introduced, our momentum coming out of 3 and the strengthening of our leading indicators, we expect to see contract value growth accelerate during Q4, and we also expect sales productivity to improve sequentially over Q3. Our full year and long term outlook is strong. And as always, we remain committed to enhancing shareholder value investment in our business, strategic acquisitions and share repurchases.
With that, I'll hand the call over to Craig.
Thank you, Jean, and good morning, everyone. Gartner's 3rd quarter performance continues our long term trend of double digit growth. Despite ongoing challenges in the economic environment, we continue to see strong demand for our products and services. And as Jean mentioned, our forward looking indicators our vast market opportunity. Our focus on strong operational execution and our exceptional business model allows us consistently deliver double digit revenue, earnings and free cash flow growth.
Our year to date performance and updated guidance for the full year indicate that we remain on track to continue our quarter 2016 included contract value growth of 13% and research revenue growth of 17%. Events revenue growth of 11% on a same event basis, consulting revenue growth of 6%, normalized EBITDA growth of 10% and diluted EPS excluding acquisition adjustments of $0.58 per share. This compares to $0.45 per share in the third quarter of 2015 and our guidance range of $0.47 to $0.51. In addition, our exceptional business model continues to create free cash flow conversion was 141 percent of normalized net income. I'll now discuss our 3rd quarter business segment performance in P and L in-depth before turning to our balance sheet and cash flow dynamics.
I'll also address our early adoption of the FASB's accounting standards update number 2016-nine for stock compensation and its impact to our financial statements. I will close with remarks on our updated outlook for the full year we will then be happy to reported and 17% on an FX neutral basis in the third quarter. Excluding the impact of our newest acquisitions and foreign exchange, research revenues were up organically by 12%. Our recently acquired businesses continue to perform strongly. The gross contribution margin for research was 69%, the same level compared to the third quarter of 2015.
All of our other research business metrics remain strong, either stabilizing or improving on a sequential basis. Total contract value was $1,815,000,000 as of the end of Q3. FX neutral growth of 13% versus the prior year. For reference in comparison, our Q3 2015 total contract value at current year FX rates was $1,604,000,000. We have a highly diversified business.
We serve clients in and we serve the largest enterprises in the world down to the smallest businesses. This diversified client base is a strength. As it helps us to mitigate challenges in any one region, any one industry or any one size of client. As a result, our growth in contract value continues to be broad based. Every region and virtually every client size and industry segment grew at double digit rates.
On last quarter's call, I mentioned that we were seeing a higher proportion of our clients experiencing financial challenges, which impacted retention and productivity. The operating environment our client's most critical priorities means we know how to operate successfully. We provide great value to our clients, whether they are in growth mode or are facing financial on amplifying how we can help them leverage technology to reduce costs and meet their key business objectives. As Gene mentioned, client retention was 83% in Q3, stable on a sequential basis, and down one point from near all time highs in the third quarter of 2015. While retention ended at 104% for the quarter, also stable sequentially and down two points year on year from near all time highs.
New business growth was particularly strong in Q3. Increasing by 19% year on year. Consistent with previous quarters, new business is driven by a combination of sales to new clients and sales trading our vast market opportunity with both new and existing client enterprises. We ended the 3rd quarter with 10,673 Enterprise clients, up 6% compared to Q3 2015. And as always, we continue to benefit from our consistent price increases and discipline around pricing.
Pricing. We plan to implement The average spend for enterprise also continues to grow. It now stands at $170,000 per enterprise, up 7% versus prior year on an FX basis. This increase in average spend reflects our ability to drive CV growth through both new and existing enterprises. Turning to sales productivity.
As we have detailed in the past, we calculate sales productivity as the net contract value increase what we call NCVI for account executives. We look at it on a rolling 4 quarter basis to eliminate seasonality and we use opening sales headcount the period denominator. Over the last 12 months, we grew our contract value by $211,000,000 in FX neutral terms. Using our Q3 2015 ending sales headcount of 2011 as our beginning of period denominator, yields NCVI per AE of $100,000 on a rolling 4th quarter basis or a 13% decline over the third quarter last year when the comparable figure was $115,000 increase in sales productivity from Q2, our first sequential increase since the third quarter of 2015. As always, we remain highly focused on improving our sales productivity and remain confident that the initiatives we have implemented drive productivity will positively impact the results over both short and long term.
To sum up, we delivered a solid quarter in research with 13% contract value growth. On a sequential basis, our key metrics are stable or improving. And importantly, sales productivity improved sequentially versus Q2. And as mentioned earlier, we ended the quarter with our strongest ever sales pipeline and expect that this pipeline and our focus on execution will result in total contract value growth accelerating and sales productivity improving sequentially in Moving to events. Total revenues increased 14% on an FX neutral basis in Q3.
On a same event and FX neutral basis, events revenues increased 11% year on year in third quarter. We held 15 events in Q3. While this is the same number as last year's third quarter, we had a number of event shifts attendees were up 3% versus last year, a On a same events basis, we had a 7% increase in attendees. Events Q3 gross contribution margin was 43%, up by more than 300 basis points compared to the third quarter of 2015. Turning to consulting.
Consulting had another strong quarter in Q3 generating a 6% year on year FX neutral increase in revenues. The labor based business was up 5% versus Q3 of last year on an FX neutral basis with broad based growth. Addition, the contract optimization practice increased to double digit rates in Q3 versus the year ago quarter. On the labor base side, billable headcount of 6.30 was up 7% from the year ago quarter and 3rd quarter annualized revenue per billable headcount ended at $362,000, which was down slightly year on year on an FX neutral basis. Our ongoing investment in managing partners continues to drive demand for our services.
We had 115 managing partners at the end of Q3, a 10% increase over the year ago quarter. Ended the quarter at $104,000,000, down 2% year on year on an FX neutral basis. Last year's consulting backlog benefited from a very large contract booking in a non target geography, which was a significant driver of backlog improvement in the year ago quarter. Excluding this one contract, consulting backlog increased by 5% year on year. This represents over 4 months of forward backlog, which exceeds our operational target for this measure.
Moving SG and A increased by 14% year over year in third quarter, primarily driven by the growth in our sales force. As of the end of Q3, we had 2331 direct quota bearing sales associates, an increase of 220 or 10% from a year Our strategic priority continues to and to drive long term earnings and cash flow growth for our shareholders. As where we allocate sales resources, all the way down to the team level. We do not take a one size fits all approach and we'll continue to make adjustments where appropriate. For example, if we are seeing strong CV growth and good productivity trends in a team or region, then we would plan to increase headcount faster than the average in those areas.
Similarly, if we were to Based on this bottoms up view, we have slowed our sales headcount growth modestly. For the full year, we expect sales headcount growth of roughly 11% to 12%. Moving on to EBITDA and earnings. Normalized EBITDA was $91,000,000 in the 3rd quarter up 14% year on year at reported rates and up 10% on an FX neutral basis. Through Q3 year to date, normalized EBITDA is up 15% versus the prior year on reported basis and up 14% at FX neutral rates.
Moving down the income statement. Depreciation, amortization and acquisition and integration charges all increased year over year, reflecting higher capital spending to support our growth, as well as the impact of During third quarter, we elected to early adopt the FASB's ASU 20sixteen-nine, which changes the accounting for stock based awards. Among other items, the update requires companies to recognize excess tax benefits that arise from stock based awards in the income statement. Previously, these benefits were recorded in stockholders' equity. There is also a corresponding impact to the cash flow statement as the benefit is recorded as an operating cash flow as opposed to the previous of basis back to the beginning of the year.
And as a result, we have restated our tax expense, net income, earnings per share, operating cash flow and accumulated earnings You can find the details of these changes for Q1 and Q2. On a year to date basis, the early adoption of ASU 20sixteen-nine has benefited our GAAP EPS by approximately $0.11. This benefit predominantly relates to the first half of the year, a $0.01 positive impact on our Q3 EPS. Our updated guidance has these changes baked in. Our GAAP tax rate for the quarter 36%.
The decrease is predominantly due to favorable Q3 period items as well as the timing of certain tax costs that are expected to be realized later this full year normalized tax rate guidance of approximately 35 percent for similar reasons. GAAP diluted earnings per share was $0.36 in Q3. Our GAAP EPS included roughly $0.22 worth of acquisition and integration charges. Higher than the approximately acquisition of SCM World and charges related to the integration of an overseas sales agent. EPS, excluding acquisition and integration charges, was $0.58 per share in Q3, up 29% versus Q3 of 2015.
The lower Q3 normalized tax rate positively benefited our EPS, excluding acquisition and integration charges by approximately $0.05. Turning now to cash. In Q3, operating cash flow was $120,000,000 up 3% on a year on year basis. Year to date operating cash flow is $282,000,000, up 6% versus the prior year. We define free cash flow as operating cash flow less capital expenditures with cash acquisition and integration payments added back.
In the third quarter, free cash flow was $122,000,000 compared to $107,000,000 in Q3 2015. An increase of 14% year over year. Year to date free cash flow was $270,000,000, up 11% over the prior year. Managing our business to subscription based business model, we continue to generate free cash flow well in excess of net income on a rolling 4 quarter basis. At the end of Q3, this equated to a rolling 4 quarter free cash flow of $344,000,000.
This represents a net income to free cash flow conversion of 141 percent. We ended the quarter with a strong balance sheet, cash position and liquidity profile. As of September 30, we had gross debt of $745,000,000 when combined with our cash balance of 4 $66,000,000, it represents a net debt position of $279,000,000 or about 0.7 times normalized EBITDA. Our current $1,800,000,000 credit facility runs through 2021. As of September 30, we had 1 $49,000,000,000 of revolver capacity.
That and our ongoing free cash flow generation gives us ample liquidity to continue to grow our business and execute initiatives that drive shareholder value. Strategic acquisition and share repurchases continued to be the primary remains executing on value creating acquisition opportunities. Our M and A pipeline remains strong Since 2014, we have deployed approximately $350,000,000 on strategic value enhancing acquisitions. Most recently, we acquired SCM World, which expands our capability in serving supply chain leaders. We remain disciplined in our acquisition approach and we continue to believe we can drive significant value for our shareholders by deploying our capital on strategic acquisitions.
Absent acquisition opportunities, we have consistently used our free cash flow and available capital to return capital to shareholders through share repurchase programs. During the third quarter, we repurchased just under $1,000,000 of our stock. Since 2014, we have spent $1,000,000,000 share repurchases. We have approximately Turning now to guidance as we have consistently done on our Q3 earnings call, we are updating and tightening our guidance ranges. The details of our guidance are contained in our press release.
I will also provide color to support the updates to our annual Also at this point, our projected reported and FX neutral growth rates have essentially converged. But as per our usual practice, I'll provide FX neutral growth rates
unless
deliver full year 2016 revenues of $2,430,000,000 to $2,465,000,000. This represents growth of 13% to 15% and we have raised the lower end of our previous total revenue guidance by $30,000,000. The top end of our is now projected to deliver $1,820,000,000 annual growth. We have raised both the top and bottom ends of our research revenue guidance to reflect the strength we have seen in this business. We now expect consulting revenues of $340,000,000 to $350,000,000 or 4% to 7% growth.
We have raised the bottom end of our prior guidance by $5,000,000. For Events revenues, we now expect $275,000,000 to $280,000,000 or 8% to 10% growth. We have trimmed the top end of our prior guidance by $10,000,000. We now expect normalized EBITDA of $455,000,000 to $475,000,000 for 2016 or 10% to 15% annual growth. We've tightened this range from both ends by $5,000,000 each.
For GAAP and adjusted EPS calculations, We now expect is approximately $39,000,000. The increase is primarily driven by our most recent acquisition. For tax, we now expect a 34 percent annual tax rate on a GAAP basis and 32% on a normalized basis. These projected rates are lower than our This implies a Q4 GAAP tax rate of approximately 40% 38% on a normalized basis. Putting this all together, we are updating our GAAP EPS guidance for 2016 and now expect $2.29 to $2.45 share for the and increasing by $0.01 at the top.
Charges.
Our GAAP EPS guidance now includes approximately $0.60 per share of acquisition and integration charges. Excluding the $0.60, our updated EPS guidance excluding acquisition and integration charges is $2.89 to 3 $0.05 per share or 21 percent to 28 percent annual growth, an increase of approximately $0.22 to the low end and $0.16 to the high end of our First, the aforementioned early adoption of ASU 20sixteen-nine contributes approximately $0.12. With the balance made up of modestly lower forecasted expenses related to equity compensation, depreciation and other expenses. For 2016, we now expect cash from operations of $370,000,000 to $390,000,000. Gross capital expenditures of approximately $49,000,000 and cash acquisition and integration payments of $31,000,000.
This yields a free cash flow range of $352,000,000 to $372,000,000. This is a $5,000,000 operating and free cash Our updated free cash flow outlook equates to 11% to 16% growth when compared to full year 2015. In closing, Gartner delivered another strong quarter in Q3 and our updated guidance for 2016 points to a continuation of our trend double digit growth in revenues, earnings and cash flow. For our core research business, we see improving momentum and a number of our key metrics showed sequential stability or improvements. The initiatives we have put in place to support our growth in a challenging market environment are working and we entered Q4 with very strong forward looking indicators.
All these factors demonstrate that we can have strong finish to 2016 with sequential acceleration in contract value growth and sales productivity. Moreover, we will continue to focus
Thank And our first question comes from the line of Peter Appert with Piper Jaffray. Your line is now open.
Hi, good morning. It's Steven Morrison for Peter. I have a 2 part question. So one, can you please talk more about the trend in the individual geographies and secondly, can you talk more about the recent acquisition and what's your appetite for future M and A?
In Geographics, Jack. In terms of the geographic trend, as Book Gene and I mentioned, we are seeing broad based growth. I think what's really nice for us is some of the places where we had seen challenges. We've seen that turnaround based on our doubling down on best practices and real focus on execution. And so as Jean mentioned, Brazil returned to double digit growth the energy and utility sector improves about 500 basis points sequentially in contract value growth.
And again, we continue to see broad based growth across just about every region we deal in.
And this is Jean. I'll take the acquisition question. So we acquired a company called, splicing world, SCM World. And as you may know, so we have a business where we serve IT professionals, which is our largest business with syndicated research. We have 2 other syndicated research businesses.
One is where we serve marketing professionals, another one where we serve supply chain specials. Both of those are great businesses for us that are much smaller than IT, but are faster growing and have huge market opportunity. The acquisition of SCM World basically is in support of that supply chain business. It's a really terrific company that serves the is focused on serving the largest companies in supply chain. It was complimentary to our the business we had, which was more focused on middle market.
And so it basically gives us an additional base for future growth.
And what about your future appetite of M and A? Any updates on that?
So the, we look at M And A through 3 lenses. First, either deals that either augment or accelerate our core IT business So for example, the past we bought Meta Group, Burton Group And Ideas International. 2nd, transactions led us into adjacent markets, We bought AMR research more recently software device to Verint Kapterra and of course SCM world that we just talked about. And third, we've done what we call it tech acquisition, where we're purchasing talents and technology to improve operational capabilities. And our acquisition of Cinex and their natural language processing and machine learning expertise Belumet category.
And so that's how we think about acquisitions.
And our next question comes from the line of Gary Bisbee with RBC. Your line is now open.
Yes, hey, good morning, guys. I guess the a first question, can you provide a little more color on what exactly is driven improvement during the quarter. You said doubling down on best practices in some difficult markets and a couple of other one liner is describing it, but what does that really mean? Could you maybe give us a concrete example? What's a best practice that wasn't already being done that has led to this performance?
And I it's especially impressive against slower headcount growth. So how do we just think about that? Thank you.
Yes, Gary, good question. So the, we, one of our core elements of our strategy is constant improvements our operational processes and strategy and continuous innovation as well. And so we try to innovate across every part of our business. A few quarters ago, when we saw that the market was getting tougher, we decided that we need to really focus on making sure we could were really good at helping companies in distress. So we the first thing we did is developed, additional research that is focused on if you're in distress, how do you handle that?
So that for companies in distress, we're part of the solution, not part of the problem. We're helping them actually with whatever the problem whatever cause they're distressed, we're helping them solve it as opposed to part of the problem. And so the first piece is actually updating our research. We then actually trained all of our sales and service people on that research and actually certified every one of them, all of them, so that they were able to deal with clients. Any time a client said, Hey, got these financial problems.
Can you help us out? All of our sales and all of our search people do exactly what to do and exactly how to utilize that research. And so it really gets down to the sort of usual things we do, which is recruiting great sales people, giving them great training, if this was an example of the kind of training, and they've been great tools, again, we had tools to help them understand what the client's mission critical priorities are and what the right research is to apply to those particular mission critical priorities. And those are the things that operational improved it. We put these things in place starting 3rd fourth quarter of last year.
And then it took through to get people trained and certified took the 1st 6 months of this year. And so now we're really seeing the fruition of that coming to bear. And again, I'd see this not as kind of like just 1 quarter, but this is kind of it strengthens us on a go forward basis, and we're going to continue innovating as well. So, this is kind of how we run our business and why we've been able to have such great double digit growth over such a sustained period of time.
That's really helpful. Thanks. I guess one follow-up for Craig. So you outlined acquisitions and then buybacks as the priorities. Help me understand then the way been virtually no buybacks in the last 6 months and you've actually paid down debt.
Is should we read anything into that or why have you decided to particularly this quarter with things getting better, it sounds like to not buy back any stock and to reduce debt by $90,000,000. Thank you.
Good morning, Gary. Thanks for the question. Again, I think it goes back to what Jean described a little bit earlier. So in terms of our capital structure strategy and the way we think about things, first off, we continue to believe we can grow the business organically at double digit rates into the future. On top of that, we do believe that strategic acquisitions can drive significant value for our shareholders.
And so that remains our number one priority. Absent those acquisitions, we do look to return capital to shareholders through our share repurchase program. While the activity has been a little bit light or lighter than historical, I mean, what I would tell you is since 2014, as I mentioned, we repurchased just about $1,000,000,000 worth of our stock. If you go back further than that, it's an even larger number. And so been very aggressive over our history around both deploying our capital on strategic value enhancing acquisitions as well returning capital to shareholders through share repurchase programs.
The other thing I mentioned is we do have, as I talked about, a significant amount of capacity, our cash flow, revolver capacity, etcetera, and a $1,100,000,000 authorization. So we do believe on a go forward basis, We'll continue to look at our 1st priority, great acquisitions that enhance shareholder value. And then second priority, absent that returning capital to shareholders.
Okay. Thank you.
And our next question comes from the line of Tim McHugh with William Blair.
Hey, good morning. It's Steven Sheldon in for Tim. Thanks for taking my questions. First, I wanted to ask about Salesforce growth. It sounds like you're seeing solid underlying momentum, but that you're being more strategic about where you're hiring.
Can you maybe talk some about whether where you've either accelerated or decelerated the pace of hiring over the last few quarters?
Yes, hi, it's Jean. So, as we've talked about in the past, the way that we decide how many sales people to hire is not setting a top corporate level target and then pass it all down. It's looking at each individual sales territory, in particular, each area management, each first level manager and assessing how that manager is doing both individually and in their market. And then based on the assessing their operational capability, either accelerating or in some cases, maybe slowing down the rate of growth. We're growing, so you can think about us growing virtually everywhere.
And some places are growing in the single digit ranges. Other places are growing at 25% or even a little bit more, even on sizable groups, around the world. And so it basically just depends on, again, at a manager level, what do we think the operational ability is to absorb additional sales headcount. And of course, that's because we have this incredible market opportunity that we want to go after what constraints us from capturing that market opportunity is just the amount of sales capacity we have in aggregate.
Okay, And then one more. You talked some about improving trends in Brazil and strong growth in Australia and China. I guess, are there any remaining pockets of weakness that you're seeing from either a regional or an industry perspective?
Wouldn't say that unlike we had maybe 6 months ago, we don't really have any areas that are broadly like countries or geographies or industries again, if you went back a few months ago, oil and gas was more problematic for us. As I mentioned on the call, our CV growth rate in energy and utilities now is up 500 basis points just sequentially over the quarter. And so if I look at both geographies and, industries and size of companies, we're really seeing growth everywhere. And Some is faster than others, but really very solid great growth in each of all of those areas.
Great. Thank you.
And our next question comes from the line of Manav Patnaik with Barclays. Your line is now open.
Hi, all this is Ryan filling in for Manav. I guess just to get back to the sales force hiring, obviously it's slowed a little bit in the last two quarters and now you're seeing actually a little bit of a bump in productivity and some improvement in CV. Is it Is there any way you're kind of reexamining whether you know growing at more of this 10% range is maybe a smarter way to kind of ramp the productivity going forward? Is there a blueprint for future growth at all embedded in what we've seen in the last two quarters?
So good question. So we of course look at what's the impact of growth rate on the quality of hiring things like that. And it that's not the case, meaning that we can hire at 15% a year and have great quality people, we can hire 10% have equally great quality people. And so the real issue is just again, what's the operational capabilities? It's more about operational capability that determines how fast we're going to hire.
And again, because you as we saw the first half of the year, our CV growth rate ticked down slightly. We were being very careful again, like I said, at the area manager level saying, where are the places we see operational challenges and slowing to you a little bit there. Today, again, we're seeing broad based strength. And so I think you can translate what that means in terms of headcount but its operational capability as opposed to does the rate of hiring effect, the quality or productivity.
Got it. And then just to follow-up on some of the best practices you've been talking about. So it sounds like training some of the sales force to kind of recognize more financial distress but I guess that almost sounds more consulting base. I guess, are there new products that are out there from the research side that are helping them or is it just a different approach to the sales strategy on these clients?
So, we our research Actually every part of our business is continually changing. We introduce innovations all the time. And so I gave a specific example, but if you look at like our research content, it is we make sure what's most valued our clients changes all the time and we have teams of of analysts that are focused on making sure research is focused on the most important areas with analysts. Then beyond that, on the product side, we have product innovation is happening all the time. And so it's too numerous to list on this call.
So in each of our projectors, we have product innovations. In fact, just kind of as a one that we did talk about is SDM world, which basically gave us a very good innovation in terms of serving the largest supply chain in the training. Training is not it's not kind of you should interpret this as like there was just one change and it had an impact that we're done. We do this all the time and adapt to the world, change of the world. And then tools, we know that of all people we know in technology, that taking the incredible things you can do in technology today with things like machine learning, artificial intelligence, natural language processing, we're integrating those into our processes to support our associates, whether it be in sales, whether it be in service, to make them the most effective they can be.
Ryan, the one other thing I'd add is it does point to and accentuate just the breadth and depth of what we have from an offering perspective across our research portfolio. And sometimes it's just a matter of highlighting for our clients an area that they may not have focused on previously or may not have known we had. And so there's an element of that as well, which is if you're running cost reduction play, we actually have a lot of analysts and a lot of research that can help you do that. If you're running the digital play we can help you there. If you're running the cloud play, we can help you there.
So it's really points to the breadth and depth of our offerings that we can run the plays required based on what the clients need at that time or what their financial situation is.
Got it. Helpful. Thank you.
And our next question comes from the line of Jeff Meuler with Baird. Your line is now open.
Yes, thank you. Good morning. I guess a follow-up on the sales headcount. Should we think of it as a dynamic process continue to do this bottom up build. So if you continue to see improvement in some of the regions that were weaker and continue to see productivity improvement, it could reaccelerate from 11 to 12 as we get into 2017, not that you're planning on running the business at this level, more intermediate term.
Is that a way to think about it or?
Think that's a very accurate way to think about it, which is, again, based on the operational capability we see, that we expect, overall, our sales force headcount is going to grow in the 10% to 15% range. Going to be based on the operational capability at the manager level.
And Jeff, the one other thing I'd add is our conviction in the market opportunity has not wavered 1 bit. And so any modulation is really around assessing things at the ground level and ensuring that we are deploying additional resources in places that can drive productivity profitably. And so it's tweaking on the margin there, again, we remain absolutely convicted around the market opportunity. And again, believe we can grow the sales force to capture that market opportunity over the mid to long term.
Okay. And then, the events full year guidance reducing the top end of the range heading into symposium season, the commentary on Orlando was positive, but just what's driving the reduction in guidance? And are there any particular symposium that are more pressured? And is it ad rates or is it CIO attendance? Thanks.
Yes. Hey, it's Jean. So first, we're still expecting, full year, if you look at our guidance we're still expecting the world's double digit growth. Our Orlando Symposium, we mentioned largest event was pulled out for the 3rd year in a row. We also, last year had a very strong events quarter, which creates a strong kind of a tough comparison point, not to say that we don't like tough comparisons, but it does create a tough comparison point.
And then, the other things going in Q4 is that there's 3 particular events. Now again, remember, we hold more than 60 events here. There's 3 particular events. They were on 2 different continents, that had a little underperformed relative to what we would have expected for operational reasons. And so in one case of one of these events, and again, they still had they still performed well, just not as well as we would have liked.
One of them, we had an exhibitor sales issue where we didn't get that exactly right. Another one, we had an attendee marketing issue. Didn't get that exactly right. And then the third one, we consolidated 3 events into 1. And 1+1+1 didn't equal 3.
And so we kind of had 3 specific events happen to all come in Q4. Normally, these will be spread through the year. And that affects our Q4 results.
Got it. Thank you.
And our next question comes from the line of Ayn Shing with Credit Suisse. Your line is now open. Hi, this is Rasha Masat for Arne Singh. And this is just a housekeeping question regarding the net value increase for this quarter, if I missed it, how much is it? And how much is it down year to year?
To the net contract value increase on a year over year basis, FX neutral was $211,000,000. And we were at 13% growth, which was stable from Q2.
And our next question comes from the line of Joseph Voresi with Cantor Fitzgerald. Your line is now open.
Hey, good morning. This is Mike Reid on for Jill. Thanks for taking the question. I had a question. The client additions look to improve pretty good sequentially.
Should we think about it improving this way going forward, or is that just kind of have a normal ebb and flow with no seasonality, or how should we think about that?
Hey, Mike, good morning. We obviously, we grow our contract value through a combination of driving additional penetration in our existing accounts. And we gave you some color around the average spend for enterprise. In our wallet retention metrics that illustrate that. On top of that, because of the enormous market opportunity, we do believe that we can consistently find net new logos to bring into the fold as well.
And so it may deviate a little bit from quarter to quarter. But over time, if you look back, we've typically driven between 6% 8% growth in our enterprises each and every year. And that would be our expectation rolling forward as well.
Okay. And then just a quick question on the tax rule. So you said that had $0.11 benefit so far this year? And then the guidance was for $0.12 full year for that?
That is correct. Yes.
And our next question comes from the line of Jeff Silber with the BMO. Your line is now open.
Hi, thanks. It's Henry Chien calling for Jeff. Morning. So just was curious if we could get an update on some of the new initiatives that you've rolled out over the past year or so in terms of the supply chain and digital marketing. If we could just get an update on those initiatives and how much of that if possible is contributing to some of the acceleration in growth?
Thanks.
So, Jean, so in supply chain, again, the biggest initiative we've had is the acquisition of SCM World, which, as I said, really gives us a great offering set for the largest companies in the world. And so you combine kind of our sales capability with that great delivery capability, it really will help accelerate growth that business. The supply chain business is accretive to our growth. It's been growing faster than average. And so it's driving our growth rate up.
It's a huge market. We have an even we have a small penetration in the IT world. In the supply chain world, we have an even smaller penetration. So a huge enormous growth opportunity far into the future for us there. You asked about digital marketing, our digital marketing business also is terrific.
The digital marketing business is focused on helping smaller companies. We call it small and midsize companies. With their IT issues just like we've been doing in the larger enterprise space over time. And we do that through a software device, Captera, and get out that software device capture and get out brands. And it's about again, just like the larger companies, it's helping them solve the IT problems they have.
In particular, when they want to select pieces of software, find right piece of software for each of those businesses in the small and midsize business area.
Got it. Okay. And just as a follow-up, So it sounds like growth has been pretty measured and has been a solid over this past quarter. Just thinking in terms of mid to long term high level Is this the kind of growth that you want to accelerate over the next say 2, 3 years if these type of trends continue? Thanks.
Hey, Henry, just to clarify, are you talking about sales headcount growth?
Yes, sales headcount growth in terms of how you're investing, but just in terms of high level. Growth? Is this kind of the level that you would hopefully expect to accelerate or are you trying to keep it at a measured after this level for the time being?
Thanks. Yes. So, we would like to have our sales force grow as fast as we can to go capture our market opportunity. We sell new clients. It's very profitable for us.
And so we want to grow as fast as we can do it operationally. And so we've kind of targeted the kind of 10% to 15% headcount range as what we think is the what we could do operationally today And so clearly, we're aiming for 15% if we can do it. And again, operation, we figure out ways to get it even faster than that. We want to do that as well.
Got it. Okay. That's helpful. Thanks so much.
And our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is now open.
Good morning guys. This is Patrick in for Tony. I wanted to ask about consulting. It looks like growth was relatively in line with last quarter, but obviously off of an easier comp, and it looked like utilization and backlog ticked down sequentially. Have you seen clients holding off on new projects ahead of maybe a volatile election season or is there anything else to call out there?
And then I'd appreciate if you could add some color on the decline we saw in consulting margins as well.
Good morning, Patrick. It's Craig. On the consulting business, actually, the business is in a very strong position for us and we feel really good about where we are. There's a couple of factors that are impacting the backlog. And if you which I discussed in my prepared remarks, but essentially Q3 of last year, we had a very large booking in a non target fee that was in our Q3 ending backlog.
And we've basically almost run through that project at this point in terms of recognizing the revenue of that backlog. And we didn't have another large booking in non target geography in Q3 of this year. So if you strip that out, our backlog is actually up 5% year over year. And the really important measure for us is looking at our forward revenue coverage And as I mentioned, we have over 4 months of backlog coverage covering our forward revenue and our internal target is around 4 So we're actually a little bit above our own internal target there. So we continue to see great demand.
We have not seen a slowdown in of the decision making. Again, our consulting projects are really oriented around supporting and driving our clients mission critical priorities. And so in tough times or in good times, they still need that help. And Gartner Consulting is there to help So again, we feel very good about where the consulting business is and actually think we're entering Q4 in a position of strength.
Thanks, Craig. Anything to add on on margins? They look like they declined, obviously, year over year. Anything to call out there?
Yeah, the only thing I'd call out, Patrick, is we continue to invest in managing partners and the which is essentially a combination of a sales and delivery resource. The consulting P and L bears or at the gross margin level bears the full cost of those managing partners. As we mentioned, we're up about 15% on managing partners. On a year over year basis. And again, we're making a long term investment bet on them that they will continue to help us drive consistent performance, consistent backlog growth and consistent revenue burn and recurring revenue with our largest client so that's the primary driver of that small margin decrease.
Awesome. Thanks guys.
And I am showing no further questions at this time. I would now like to turn the call back over to Mr. Jane Hall for any closing remarks.
So thank you. To summarize the key points of today's call, we've introduced improvements innovations that provide tremendous clients, whether they're thriving or in distress. We're seeing the positive operational impact of these changes with double digit growth in our major metrics during Q3. Our business gathered momentum throughout Q3 culminating in extraordinarily strong September. We entered Q4 with strong leading indicators.
And based on the operational performance of the innovations we introduced, our momentum coming out Q3 and the strengthening of our leading indicators, we expect to see contract value growth accelerate during Q4, and we also expect sales productivity to improve sequentially over Q3. As I said before, we see this as an inflection point in the performance of our business. We're well on track to deliver another year of double digit growth in contract value, revenue and earnings, coupled with strong cash flow conversion. Our long term outlook remains equally strong and as always, remain committed to enhancing shareholder value through investment in our business, strategic acquisitions and share repurchases. Thanks for joining us today, and we look forward to updating you again early next year.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.