Good morning, ladies and gentlemen, and welcome to Gartner's earnings conference call for the third quarter 2015. A replay of this call will be available through December the 5th, 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 4563 2822. 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, Eugene 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 its forward-looking statements. I will now turn the conference over to Eugene Hall. Please go ahead, sir.
Thank you, and good morning, everyone. Welcome to our Q3 2015 earnings call. Our business continues to deliver robust results, with demand for our services being driven by the digital industrial economy. Having completed the third quarter of the year, our underlying metrics are strong. We continue to capture the opportunity ahead of us with the successful execution of our proven strategy for growth. As I've done in the past, I'll review our key operating metrics on an FX-neutral basis, since that's the best way to understand the overall health of our business. For the third quarter of 2015, we delivered double-digit growth in contract value, revenues and earnings per share. Total company revenues were up 13% and EBITDA was 17% higher than this time last year. Research, our largest and most profitable segment, delivered our 23rd consecutive quarter of double-digit CV growth.
For Q3 2015, we drove double-digit contract value growth in every region, across every client size, and in every industry segment. During the quarter, we achieved another new milestone in Research, with more than 10,000 enterprises as our clients. We continue to invest in improved recruiting capabilities, training, and tools, which in turn allow us to drive sales productivity improvements over time. Growing sales capability and capacity is a mission-critical priority for us. For Q3 2015, we grew sales headcount by 16%. Sales productivity improved compared to this time last year. In Consulting, one of our core strategies is to increase the number of Managing Partners. We ended the quarter with 105 Managing Partners, up 22% over last year. We maintain a healthy four months of backlog. Our Events business continues to deliver robust double-digit growth.
On a same-events basis, we drove a revenue increase of 22% year-over-year. We continue to deploy our capital strategically with acquisitions and share repurchases as our priority use of capital. We announced two acquisitions last quarter, Nubera and Capterra. Both businesses strengthen our offerings in the small business space. Year to date, we've purchased $453 million of our shares. Craig will give you more detail on all our business results in a moment. We're currently in the middle of our flagship conference series, Symposium/ITxpo. Gartner Symposium is the world's most important gathering of CIOs and senior IT executives. We host this series in eight locations around the world, including South Africa, Brazil, Dubai, India, Japan, Australia, Spain, and Orlando, Florida. This event series convenes thousands of CIOs who share experiences and gain valuable insights that help them achieve their mission-critical priorities.
In addition to being the most important gathering of CIOs, it's also the largest gathering of technology leaders in the world. There's truly nothing else like it on the planet. I just returned from the events we held in Florida and Australia. While on site at both events, I met with a number of CIOs and enterprise leaders from a diverse array of industries. These leaders are experiencing firsthand the effects of digital business. They're looking to Gartner for answers to tough challenges, cybersecurity, disruption, business transformation, and Gartner delivers. The CIOs I met with said they felt inspired and better equipped to succeed in digital business as a result of our insights. Symposium/ITxpo is one of the best ways clients and prospects alike can experience the breadth and depth of what Gartner has to offer.
While at these events, I also had the opportunity to speak with a large number of our salespeople from all around the world. Whether new or experienced, all of them had incredible excitement and enthusiasm about the event, the value we deliver to our clients, and our incredible market opportunity. One of the primary reasons our events business and our overall business has been so successful is our people. Gartner is a people business. Over the past several years, we've made significant investments in our people. We added analysts around the world. We invested in recruiting and in training. We improved our customer service processes. We invested heavily in improving sales productivity. These investments are paying off. The insights we create, the advice we deliver, and the overall experience for our customers has never been better. We're not slowing down.
We'll continue to improve and innovate across every area of our business. We know how to be successful in any economic environment. We're relevant whether an institution is growing or facing economic challenges. We continue to deliver double-digit results through the tremendous value we deliver to our clients. I remain confident in and excited about Gartner. Technology continues to change the world, and Gartner is the heart of technology. Gartner is the single best source for enterprises to get the insight they need to understand where and how to successfully harness technology to achieve their mission-critical priorities. We have more impact on end users and technology providers than any other company in the world. We're getting better, stronger, faster every day. We have a vast market opportunity, a powerful value proposition, a winning strategy, and an exceptional business model.
Gartner is a stellar growth company with outstanding prospects for accelerated and sustained growth for years to come. With that, I'll hand the call over to Craig.
Thank you, Gene, good morning, everyone. Gartner continued its strong operational and financial performance in the third quarter, delivering double-digit growth in contract value, revenue, and EBITDA on an FX-neutral basis, and remains poised to do the same for the full year 2015. I will discuss each business segment's performance in depth shortly, but for the quarter, our year-over-year performance on an FX-neutral basis was as follows. Contract value increased 14%, with research revenue growing 16%. Events revenues increased 22% on a same-event basis. Consulting revenues declined by 3%. Normalized EBITDA increased 17%. We continue to see robust demand for our services across all of our business segments, and our business has delivered consistent double-digit growth quarter after quarter, year after year. We are engaged on our clients' most important initiatives and projects. Our strong retention metrics demonstrate the value our clients receive from our products and services.
We are making great progress in capturing our market opportunity, finding new IT, supply chain, and digital marketing professionals to sell to every day. We are further penetrating existing accounts and winning new enterprise accounts. We remain confident that we will continue to deliver consistent revenue growth and strong financial performance over the near and long term. I will first discuss the performance of each of our three business segments for the third quarter, give color around our P&L and balance sheet, discuss our recent acquisitions, and finally share our outlook for the fourth quarter and the full year 2015. We will open up the call for questions. As a global business, it is worth noting that the strengthening U.S. dollar has continued to impact our reported results. Just about every currency we operate in is weaker against the U.S. dollar when compared to last year.
While the decline in the euro has leveled off, a few additional currencies, most notably the Brazilian real, Canadian dollar, and Australian dollar, have recently seen further weakness against the U.S. dollar. I will comment on the impact of foreign exchange on each of our business segments as I discuss them. Beginning with research. Research revenue grew 8% on an as-reported basis and 16% on an FX-neutral basis in the third quarter. Our recently announced acquisitions had a less than one point impact on our revenue growth for the quarter. The gross contribution margin for research was 69%, up 70 basis points compared to third quarter 2014. On a year-to-date basis, the gross contribution margin remained at 70%, matching our target for this segment. All of our other research business metrics remain very strong.
Contract value grew to $1.643 billion, a growth rate of 11% year-over-year on a reported basis and 14% on an FX neutral basis. As Gene previously mentioned, our growth in contract value was broad-based, with every region, every client size, and every industry segment growing at double-digit rates. We continue to drive contract value growth through strong retention rates and consistent growth in new business. Client retention was 84%, roughly the same as third quarter 2014. Wallet retention ended at 106% for the quarter, maintaining its historical high and representing a one-point improvement over the third quarter of last year. Wallet retention is higher than client retention due to a combination of increased spending by retained clients and the fact that we retain a higher percentage of our larger clients.
As we have discussed in the past, our retention metrics are reported on a four-quarter rolling basis in order to eliminate any seasonality. New business increased year-over-year, up 8% from last year's third quarter. The new business mix is consistent with prior quarters and remains balanced between sales to new clients and sales of additional services and upgrades to existing clients. Our contract value growth also benefits from our discipline of annual price increases and no discounting. We have increased our prices by at least 3% every year since 2005. We recently implemented a price increase on October 1st that averaged just north of 3%. Our new business growth reflects our success in penetrating our vast market opportunity with both new and existing client enterprises.
As a result, for the first time, we crossed the 10,000 enterprise mark, ending the quarter with 10,093 client enterprises, up 9% over last year's third quarter. The average spend per enterprise continues to grow on an FX neutral basis, again, reflecting our ability to increase our contract value by driving growth in both new and existing enterprises. Sales productivity improved once again. We are up 5% on an FX neutral basis as compared to last year. As we have detailed in the past, we calculate sales productivity as the net contract value increase, what we call NCVI, per account executive. We look at it on a rolling four-quarter basis to eliminate seasonality, and we use opening sales headcount as the period denominator. Over the last 12 months, we grew our contract value by $205 million in FX neutral terms.
Using our Q3 2014 ending sales headcount of 1,820 as the beginning of period denominator yields NCVI per AE of $113,000 on a rolling four-quarter basis. Again, that's a 5% improvement over third quarter last year, when the comparable figure was $107,000 per account executive at constant currency rates. To sum up our research business, we delivered another strong quarter, with retention rates at or near historical highs and contract value growth of 14%. Most importantly, we continue to see very strong demand for our research products and services. Looking forward, our pipeline is very strong and our headcount growth has accelerated. The programs we have in place to drive productivity around recruiting, training, and tools are working. We anticipate ongoing improvements to sales productivity, which positively impacts CV growth, and subsequently, research revenue growth over the long term. Moving to events.
For the quarter, our events segment delivered exceptional results. On an FX neutral basis, events revenues increased 38% year-over-year. We held three more events in this quarter than the same quarter last year. As I noted earlier, on a same event basis, revenues were up 22% year-over-year. During the quarter, we held 15 events with 7,215 attendees, compared to 12 events with 5,606 attendees in the third quarter of 2014. Q3 is a seasonally light quarter for events, as symposium season begins early in Q4. On a same event and FX neutral basis, events revenues grew 22% with 6,451 attendees, a 9% increase compared to third quarter last year. On a year-to-date basis, events revenue is up 19% over the prior year, with 49 events versus 47 events in the same period last year.
The gross contribution margin for events increased roughly nine percentage points from the third quarter a year ago to 39%. On a year-to-date basis, we improved gross contribution margin by approximately four points to 46%. Turning now to consulting. On an as-reported basis, revenues in consulting decreased 9% in the third quarter and decreased 3% FX neutral. In the quarter, on an FX neutral basis, our labor-based business was up slightly over last year. Consulting was largely impacted in the quarter by our Contract Optimization practice. As we've discussed in the past, our Contract Optimization practice has a higher degree of variability than the other parts of our consulting business, which can significantly impact the results of this segment, either positively or negatively.
Across the entire consulting business, we continue to see strong demand for our services, and our ongoing investment in Managing Partners is allowing us to capture that demand. We now have 105 Managing Partners, a 22% increase over third quarter 2014. The underlying operating metrics of our consulting business also remain strong. On the labor-based side, billable headcount of 588 was up 10% from this point in 2014. Third quarter annualized revenue per billable headcount ended at $371,000. The decline in revenue per billable head was driven mostly by FX, with the balance split between modestly lower utilization and a richer mix of less senior consultants who bill at lower rates. Backlog, the key leading indicator of future revenue growth for our consulting business, ended the quarter at $110 million, up 5% over this time last year on an FX neutral basis.
With the current backlog and visibility we have into the pipeline, we believe the consulting business will finish 2015 with solid results. Moving down the income statement. SG&A increased by $19 million year-over-year during the third quarter, primarily driven by the growth in our sales force. As of September 30th, we had 2,111 direct quota-bearing sales associates, an increase of 291 or 16% from a year ago. For the full year, we expect to grow the sales force by 15%-16%. In the third quarter, SG&A was higher as a percentage of revenues due to continued investments in our sales capacity and recruiting and training capabilities. Moving on to EBITDA and earnings. We delivered another solid quarter of earnings growth. Normalized EBITDA was $80 million in the third quarter, up 7% year-over-year on a reported basis and up 17% on an FX neutral basis.
Our Q3 EPS results include a $0.04 benefit from the sale of tax credits. The benefit arose out of a favorable state tax audit settlement. This result meant we had tax credits that would have been unutilized, so we were able to sell the credits and record the benefit to our P&L on the other income line. We do not expect this to be a recurring event. Our effective tax rate for the third quarter was 41.4%. On a year-to-date basis, the effective tax rate is 37.4%. These rates are trending higher than our guidance for two primary reasons. First, a significant amount of the expenses we are incurring related to our recent acquisitions are not tax-deductible. Second, our mix of earnings continues to shift towards higher tax jurisdictions, primarily due to the stronger U.S. dollar.
When we look at a normalized tax rate or the tax rate that corresponds with our EPS, excluding acquisition and integration charges, we see that the rate for Q3 and Q3 year-to-date was 38.2% and 36.5% respectively. These are the tax rates to apply to our pre-tax income, excluding acquisition and integration charges to model out earnings per share. These rates are modestly higher than our initial guidance due to mix of earnings. On a year-over-year basis, the increase in our tax rate is driven by foreign tax credit benefits that occurred in 2014 that are not repeating in 2015. As I said earlier, the year-over-year rate is also impacted by the non-deductibility of acquisition charges and mix of earnings, which again is driven by the stronger U.S. dollar. GAAP diluted earnings per share was $0.36 in the third quarter 2015.
GAAP EPS includes the $0.04 benefit from the sale of tax credits I just mentioned. Our GAAP EPS also includes roughly $0.09 worth of acquisition and integration charges. $0.05 of which relates to two acquisitions we closed in the third quarter. EPS, excluding acquisition and integration charges, was $0.45 per share in Q3. This figure also includes the $0.04 benefit related to the sale of expiring tax credits. If you recall, our third quarter EPS guidance, excluding acquisition and integration charges, was to be between $0.40 and $0.42 per share. If we exclude the $0.04 benefit from the sale of credits, our EPS, excluding acquisition and integration charges, was $0.41 per share for the third quarter. Turning now to cash.
Year-to-date operating cash flow decreased by 4% to $266 million compared to this point last year, largely due to a stronger U.S. dollar, higher acquisition-related incentive payments, and higher cash taxes. We still expect to deliver free cash flow well in excess of net income yet again in 2015. Share repurchases and strategic acquisitions are our primary uses of our free cash flow and available capital. First, let's cover acquisitions. In the third quarter, we spent $196 million, net of cash acquired, on two strategic acquisitions, U.S.-based Capterra and Barcelona-based Nubera, whose primary asset is GetApp. While the companies acquired are both small relative to our core business, they serve an important market need and are right in our sweet spot in terms of their value propositions, helping users of IT make better technology decisions. The two transactions also complement the Software Advice deal from last year.
I'd also note that we utilized overseas cash for the Nubera acquisition. These two deals were structured with additional cash consideration payable related to the ongoing employment of certain key executives and company bonus programs that will potentially be paid over the next 3 years. We'll recognize these additional cash payments as acquisition expense, and they will be amortized over the next 2 to 3 years. As with prior deals, these expenses will be excluded from our normalized EPS. During the third quarter, we also utilized our cash to return value back to our shareholders through share repurchases. In the quarter, we had share repurchases of $12 million. Year-to-date, we have repurchased $453 million of our shares. We ended the quarter with a strong balance sheet and cash position, including the acquisitions and share repurchases. As of September 30th, we had gross debt of $840 million.
We have $700 million of interest rate swaps in place, which effectively lock in our interest rates through September 2019 on this portion of our debt. Our cash balance as of September 30th was $371 million, with 94% of our cash balance located outside of the U.S. The combination of our debt and cash positions represents a net debt position of $469 million. Our current credit facility runs through 2019 and gives us ample liquidity to continue to grow our business and execute initiatives that drive shareholder value. As of September 30th, we had an additional $646 million of revolver capacity. We continue to look for other attractive acquisition opportunities as a potential use of cash. We also believe that repurchasing our shares remains a compelling use of our capital. As of June 30th, we had $1.18 billion available under our share repurchase authorization. Turning now to guidance.
Based upon our year-to-date results, the impact of recent acquisitions, our outlook for Q4, and current foreign exchange rates, we are adjusting our outlook and also tightening the ranges of our previously issued guidance. As you know, our normal business trends do show seasonality. Our fourth quarter is typically our largest events quarter, a large consulting quarter, and our largest contract value growth quarter. All the figures that I am going to go through are contained in our press release, but I wanted to provide color around the guidance ranges. First, from a revenue perspective, we now expect the following annual revenue figures and corresponding FX neutral growth rates. Research revenues of $1.580 billion-$1.595 billion, 15%-16% annual growth. We modestly tighten the top end of guidance due to the stronger U.S. dollar against our major currencies.
The impact of the stronger dollar was partially offset by the inclusion of our recently announced acquisitions. Consulting revenues of $325 million-$340 million, negative 1% to positive 3% year-over-year growth. We've reduced the bottom end of guidance by $5 million and the top end by $10 million. Consulting guidance was impacted by foreign exchange and modestly by operational performance. Events revenues of $245 million-$255 million, 14%-18% year-over-year growth. We are raising the bottom end of guidance by $5 million due to our over-performance in this segment, which is offsetting the drag from the FX Rate . On total revenues, there was no change to the bottom end and a $15 million tightening to the top end of prior guidance. Again, the tightening growth to $2.190 billion, or 12%-14% annual growth on an FX neutral basis.
For EBITDA, we now expect to deliver between $405 million and $420 million for 2015, 11%-15% growth on an FX neutral basis. This reflects a $10 million tightening of the top end of our guidance. The stronger US dollar was offset partially by the inclusion of our newly acquired businesses. Like any multinational corporation, the continued strengthening of the US dollar continues to negatively impact the results and outlook on a reported basis. However, the FX neutral growth rates are in line with our original guidance. We are updating our GAAP EPS guidance to reflect the impacts from our Q3 acquisitions. We now expect GAAP EPS of between $1.97 to $2.07 per share. GAAP EPS now includes $0.32 per share of acquisition and integration charges, representing an increase of $0.16 per share for our two most recent acquisitions.
Earnings per share, excluding acquisition and integration charges, is expected to be $2.29, 9%-13% FX neutral growth. We have raised the bottom end of this guidance by $0.02 and tightened the top end down by $0.07. These adjustments reflect the impact of the tax credit sale and the inclusion of the acquired businesses, offset by the stronger US dollar. For cash flow, we are updating our guidance to reflect the impact of the stronger US dollar, higher acquisition charges, and higher levels of capital spending to support our growth. We now expect cash flow from operations of $337 million to $352 million, cash acquisition-related charges of $16 million, and gross capital expenditures of roughly $48 million. That yields a new free cash flow range of $305 million to $320 million, or $3.60 to $3.78 of free cash flow per share.
Again, the updates to our guidance are predominantly to reflect the impact of the strengthened US dollar. Additionally, we've updated to account for the impacts from our two recent acquisitions. The FX neutral growth rates for our business are in line with our previous guidance ranges. In summary, we delivered another strong quarter in Q3. Demand for our services is robust, and as a result, our research contract value grew 14%, and total revenue grew 13% at constant currency rates. Our key business metrics remain strong and 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. We move into Q4 with significant momentum and remain well-positioned to deliver another solid year of revenue and earnings growth for the full year 2015.
Now I'll turn the call back over to the operator. We'll be happy to take your questions. Operator?
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touch-tone telephone. If your question has been answered or you wish to withdraw your question, press star followed by two. Press star, one to begin. Please stand by for your first question. Your first question comes from the line of Jeffrey Meuler of Baird. Please go ahead.
Thank you. On the research contract value growth obviously continues to be broad-based growth, there was a little bit of deceleration. Any pockets of weakness to call out or what's your thoughts on that?
Yeah. Hey, Jeff, it's Gene. I wouldn't say it's pockets of weakness. I'd put it more in the category of noise. I'll give you an example of that drove it. One of our countries was growing in the mid 30% year-over-year CV growth, and it slowed to 20. Another region, and both these are large for us, was growing 40%, and it slowed to 23%. Again, I took those more as noise as opposed to there's some dramatic slowing.
Got it. That's helpful. On consulting, is the weakness relative to plan all concentrated in CO, or was labor-based also below plan?
Hey, Jeff, it's Craig. In the quarter, it was predominantly Contract Optimization. That said, we were a little bit below our forecast on labor-based. Essentially, our strategy around adding Managing Partners is to drive deep, long-lasting, large consulting relationships with our clients. In the third quarter, we actually had 2 very large programs come to an end, and normally we're able to reassign all those consultants that are working those long, dense engagements. We had a little bit of a disruption here, which impacted the labor-based revenue in the third quarter. That said, rolling forward, we had a really strong bookings quarter and our backlog looks very strong for the labor-based business as well. Broadly speaking, Contract Optimization was the primary culprit. A little bit of softness on labor-based, but labor-based was more of a timing thing, and we feel good looking forward.
Got it. Thank you, guys.
Thank you. Our next question comes from the line of Timothy McHugh of William Blair & Co. Please proceed.
Thanks. First, just on the margins, you talked about productivity continuing to be strong on the research side. The updated guidance for this year, just at a midpoint where we're basically looking at margins down 10 basis points. One is, when should we start to see the productivity flow through to the margin line? Secondarily, I know you said it's seasonally stronger in the fourth quarter for margins, but the year-over-year improvement required is much better than you saw early in the year. Any timing factors that give us reason to expect better margin improvement in the fourth quarter?
Sure, Tim. Good morning. On the first part of the question, the way that we look at it and the way to think about it and model it through, we've seen a nice year-over-year improvements in productivity consistently for the last few quarters. That said, we're still growing headcount at a faster rate than the productivity is turning into contract value growth. The reason we're doing that is because of that $58 billion market opportunity that we're going after, we're continuing to add headcount to go after that market opportunity. That said, when we bring on lots of new people and more people in their first year, et cetera, and we've had discussions around first-year productivity is significantly lower than second-year productivity, which is lower than what it looks like once they're fully tenured. That's essentially what's causing that drag, if you will, on the margins.
That said, if you look at our guidance, again, the midpoint may be 10 basis points down. The message from us is the guidance outlook calls for roughly flat margins, maybe 10 basis points down, maybe flat, maybe 10 basis points up, depending on how the quarter transpires from a reporting perspective, which has been consistent with what we've delivered over the last three or four years.
Okay, I guess, the comment on Q4 versus what we've seen so far this year. Is there a reason?
Yeah. It's a great question. As you'll recall, the first two quarters were really impacted by the grow-over related to our Contract Optimization business, which because of the size of the grow-over, actually caused a fairly big drag on the margins in the first half of the year, and subsequently on the year-to-date numbers for the third quarter as well. In the fourth quarter, we don't have that grow-over problem, and we typically have a very strong events quarter, really strong contract value growth quarter, et cetera. That's why we're confident with the levels of growth required and the margin expansion required for the fourth quarter.
Just one for the model. The acquisitions you made, I know you said less than a point of contribution this quarter, but I guess I think that was probably a partial quarter. How should we think about the revenue and margin impact of those?
It'll have a less than two-point impact on the fourth quarter total revenue. Again, these are small acquisitions. Even less impact on the EBITDA margins. Again, when we baked it into the guidance, it's baked in there. It was offset by the stronger dollar, both on the revenue lines and on the EBITDA lines. The way to think about it is less than 2% impact on total revenue in the fourth quarter.
Thank you.
Thank you for your question. Your next question comes from the line of Anjaneya Singh of Credit Suisse. Please go ahead.
Hi, this is actually Mark Marron in for Anj. Thanks for taking my question. Diving a little deeper into an earlier question. On the sales force productivity growth decelerating slightly, though off a tougher comp. Just looking a year ago, headcount growth was a little slower than usual. I would think that that would be a tailwind to productivity growth this quarter. Just wondering if you could give us some of the puts and takes there. I guess along those lines, how should we think about the potential headwind on productivity going forward from accelerating headcount growth?
Hey, Mark. On the productivity trend, again, down a little bit sequentially, but up nicely, up 5% on a year-over-year basis. Again, we look at it both ways. We actually think the year-over-year is a good way to look at it because it does take out some of the noise of movement and headcount growth from quarter to quarter. We're pleased with the continued and consistent year-over-year improvements in sales productivity the way we measure it. In terms of the grow-overs and the tailwind or headwind or however you want to describe it, the way to think about it is as we tick up or tick down, and again, we're within two points. We're talking about 14% growth and 16% growth on a 2,000 person basis. You're talking about the difference of roughly 40 people one way or the other.
It's not a huge swing, even though it looks that way from a percentage basis. As we tick up, we do have a slightly richer mix of new hires, which are inherently less productive. We're delivering 5% year-over-year productivity growth while having a richer mix of first-year AEs. Again, the way it works with us is the first-year AEs, it really is an investment, because they are lower productivity. As they rise in tenure, they really start to drive significant growth, and as it rolls through the system. That's the way we think about the productivity and the growth. The second question was around future headwinds. I don't know if, Gene, if you want to tackle that one.
Yeah. Basically, Mark, we're committed to continually improving our recruiting, continually improving our training, giving our sales force new tools, as we've talked about. Again, we think over time those things will enhance sales productivity, which is why we're doing it. We're on a strong drive to improve our sales productivity over time. Instead of headwinds, I see kind of the opposite, which is that because of the changes we're making, we expect that sales productivity will improve over time.
Got it. That's helpful. Just another quick one. In consulting, we saw the decline in average annualized revenue per billable headcount accelerate slightly. Can you just help us understand what's happening there and how we should think about that going forward? Is that just a function of additional MPs versus the ramp time, et cetera, or is there something more there?
The way to look at that one, Mark, is more than half of the decline is actually foreign exchange. We do have a very healthy business, particularly over in Europe with our consulting. With the euro and the pound doing what it's done, that's obviously having the most significant impact. Beyond that, there are really two primary factors. One is a slight downtick in utilization. We were at 63% in the quarter, down about two points from last year. That obviously impacts the annualized revenue per billable. Again, that's more related to what I described earlier around some of those larger projects coming to an end and us not getting those consultants reassigned on new projects right away, which they are now.
The second biggest factor, which has actually been a strategic focus for us as well, is while we're accelerating the growth of our managing partners, the top of the pyramid, we've actually been very aggressive about filling in the bottom of the pyramid as well. The more junior level consultants that actually are on the ground delivering the hunk of the value. If you look at roughly 60% of the decline from foreign exchange, another 20% from the lower utilization rate, the balance is actually from a shift in mix. We've got significantly more lower level consultants who we actually make great margins on out there billing, which drags down the bill rate a little bit, but is actually very healthy for margins.
Got it. That's helpful. Thank you.
Thank you. Next question comes from the line of Manav Patnaik of Barclays. Please proceed.
Yeah, good morning, guys. I just want to touch on the acquisitions a bit. It sounds like minimal impact to revenue and EBITDA, but the $196 million net of cash acquired price seems a little high. I was just wondering if you could give us some color on the size of those assets individually. Also, I think you mentioned that the incentive payments to the management of those guys over the years would be recognized as an acquisition expense and excluded from amortization. Just wondering why, if that's just paying the team.
Hey, Manav. As you know, we've traditionally targeted companies that had at least $10 million in IT spending, and we've estimated 110,000 of those companies. There are tens of millions of smaller businesses, and these three businesses, two of which we acquired this quarter in addition to Software Advice, those three businesses provide the same kind of services that we provide to larger companies to these tens of millions of smaller companies. The reason we did these acquisitions obviously wasn't for this quarter or even next year, but we think over the next five years, this will be a great growth business for us. It fits very well with what we do as a business, which is our specialty is advising clients on what products and services to buy and how to get the most out of their technology investments. Of course, you want to-
Yeah. Manav, just on the accounting side of it, we had the same accounting treatment related to the Software Advice deal where there were what we'll call holdbacks for the management team that they have to earn by being on board and contributing to the business over a couple year period. When we structure the deals, they are akin to consideration. However, from a GAAP accounting perspective, we treat them as operating expense. Because it is really, in our mind, more like consideration for the acquisition, that's why we normalize it out from an expense perspective on a go forward basis.
Just to touch on, since most of your cash is now overseas, is there any inherent limitation there in terms of either buying domestic companies or I guess you just have to use your revolver to do buyback? Just wondering if we should think of that as a limitation by any means.
Yeah. The overseas cash balance obviously
Cannot be utilized for every business initiative or shareholder-enhancing initiative we want to undertake. That said, with the Nubera acquisition as an example, we were actually able to use that foreign cash to do the acquisition. On a go-forward basis, the combination of that cash overseas, the great free cash flow generation we have both here and overseas, plus the $646 million available on our current revolver, and on top of that, we actually have a $500 million expansion feature in our credit facility. We feel like the combination of those three or four things allow us to be well-positioned to pursue whatever shareholder-enhancing initiatives we want to.
All right. Thank you, guys.
Thank you. Your next question comes from the line of Toni Kaplan of Morgan Stanley. Please proceed.
Hi. Good morning. How are your discussions going with clients as they plan their 2016 budgets, and have you seen any change in tone as the year has gone on?
Hey, it's Gene. No, I'd say basically as clients are planning their 2016 budgets, they've been focused on the same issues. They've been focused on what we're calling bimodal IT, which is building up things for the digital economy, at the same time, keeping their existing business running. They're worried about cybersecurity and having to deal with cybersecurity. Those are the kinds of things that they're focused on, and it hasn't changed through the year.
Okay. Great. Just given the two new acquisitions in the small and medium-sized space, just wondering if you could talk about sort of the initial receptivity among clients in that area, especially, you've had Software Advice for a little while now. Just wanted to get your sense of how big the opportunity could be and just how the reaction is going to sort of your bulking up in that area. Thanks.
The small companies have the same kind of problems with IT that big companies do. These companies that we're targeting actually, in general, do not have an IT department. Things like, think about a small funeral home or an electrician that has four or five electricians that work for them or someone like that. There's huge opportunities for them to use IT in their business. The changes in technology have made it so that there's more and more opportunities every day, things like Amazon Web Services and all of the software tools that are available now, particularly open-source tools. There's an explosion of innovation in software, particularly hosted software, that applies to these small businesses. These small businesses, they're not experts in IT, and they need help figuring out what's best for their particular business and their particular situation.
That's what these three businesses we've bought do. The clients love them because they need the help to kind of figure out these tough IT decisions. They're just like large companies, except they don't have an IT department.
Okay. Just lastly, are these businesses more transactional than a typical research subscription model that you have in the larger business?
Yes, they are more transactional as opposed to a subscription model.
Thank you.
Thank you for your question. Your next question comes from the line of Peter Appert of Piper Jaffray. Please go ahead.
Hi, good morning. This is actually Steven filling in for Peter Appert. I have a question in regards to the events segment. The event business has been a very strong performer in Q3 and for the past quarter. How big is the opportunity here, and what drives the continuing growth?
Hey, it's Gene. Our events business has the same enormous opportunity that we have in all of our research business. Basically, we have opportunities on two dimensions with our events business. The first is to grow. The existing event portfolio we have has lots of room for growth. We don't see any of the event types that we have today having any growth restrictions. In addition to that, there will be new events we can add as well. For example, over time, I expect we're going to add more Symposium events around the world. We've got both growth from our existing events, which we think is unconstrained for the foreseeable future, and then adding whole new events, particularly in geographies where we don't have all the events today.
I see. In terms of the macroeconomic in Europe, it remains challenging. Can you elaborate what are you seeing in major markets?
As I mentioned before, in every geography, in every industry, we've had double-digit growth again. Even when the economic situation is tough, people have IT problems. IT is often one of the solutions to those problems, and we're the best source to go to. We see robust growth in every geography and every industry around the world.
Okay, great. That's all I have. Thank you.
Thank you very much. Your next question comes from the line of Gary Bisbee of RBC Capital Markets. Please go ahead.
Hey, guys. Good morning. A couple of questions. Craig, I'll start with something you said. I think I heard you say new business was up 8%. Is that a bookings number? If so, I don't remember you consistently providing that in the past. What's the context we should put around that? That's quite a bit below contract value growth. Is there something that that's indicative of?
Hey, Gary. No, it's actually something that we do provide generally each quarter. It's not the bookings number. It's actually exclusive of the renewal activity. It's essentially the growth bookings that we have each quarter. Again, can vary from quarter to quarter a little bit in terms of how much we're actually renewing and how much we're actually selling in terms of growth. As you'd imagine, Q4 tends to be by far our largest growth quarter. We feel good where we are from a new business perspective, both for the quarter and on a year-to-date basis.
The way to think about that is 8% is the new bookings. You've got, on the renewal base, some pricing and likely some people buying more than they did a year ago. You add that all up, you get the 14. Is that right?
Well, no
the right way to think about it?
The 8% is actually a year-over-year growth measure, so it's not a.
Okay
It's not a proportion of the current year bookings. It's the year-over-year growth.
Okay. All right. Then just on events, having recently been at your event in Florida, and it seems to be bigger and grander every year. Is there a risk with events like that they just get too big for their own good? I guess I ask from the perspective of, if you had 9% growth in same event attendees, but 22% revenue. I realize there's some pricing, but it seems like you're also getting outsized growth from the exhibitors. Is there some point at which the benefit to them declines as you jam more of them in there or raise the price? Do you think we're not anywhere near that, given the value you're providing to them?
There's another factor going on, Gary, which is that we're shifting the mix to sell to more senior people. If you look at the event you went to, the proportion of people that are CIOs there has been growing at a very high rate, and that's purposeful. That's by design. Symposium is targeted at CIOs and that level of leaders. We're increasing the mix of senior people. As we target more senior people, the pricing is higher as well. As we change the events, we target at senior people, we invite more of them, and the pricing goes along with it. It's not just sort of the exhibitor piece. There's actually a mix shift going on where we've been targeting the more senior people, who frankly, it's part of a broader strategy, which they have more decision-making authority in their organizations.
They come to our events, understand Gartner, it's good for our entire business.
Got you. Thanks. Just a clean up one on the FX. I know you've talked about 40% or 50% of revenue being overseas, but can you just give us an update? What's the general mix of euro and pound, which after next quarter, are a lot less of a drag, but versus the Canadian dollar, EM and Aussie dollar, which really weakened quite a bit and probably remain a drag for several quarters into next year?
Yeah. Gary, we haven't gone into real great detail there. What I'll tell you is euro and pound are by far the two largest exposures we have globally. That said, we've got a great business in Canada, a great business in Australia, and a great business in Brazil that have been growing consistently and rapidly over the last several years. While they're not nearly as big as the euro or pound, they are in that top five or six currency exposures for us. They do have an impact. As you mentioned, the euro and the pound, and maybe this is a little bit of a hopeful comment, have mostly stabilized for the most part. The euro is still down 3%-ish from when we gave our initial guidance, but the Brazilian real is down 50% since we gave our initial guidance.
The good news is the two larger currencies have mostly stabilized. These other currencies are big enough businesses for us that they do move the needle a little bit. We'll continue to focus in on how we're doing from an FX neutral perspective and provide all the transparency possible so that you can see what's actually happening underneath the covers. You're right on the euro and pound perspective. It should look a little bit better on a reported basis rolling forward.
The right assumption probably at this point, given what you've told us, is there's likely to be a noticeable, if not material drag in the first half of 2016, just based on these ones that have really started weakening recently.
On a reported basis, that is true. On an FX neutral basis, we'd expect to continue.
Great. Yep.
where we've been going.
Understood. Thank you.
Thank you for your question. Your next question comes from the line of Jeff Silber of BMO. Please go ahead.
Hey, good morning. It's Henry Chen calling in for Jeff. I just had a question on the planned sales force increase. I don't know if you'd be able to quantify this at all, but I was curious to know how long, given the trends in sales force productivity and the gains you're seeing in enterprise contract value. I was just wondering if you might be able to give us a sense of when sales force trends, we should see an impact on revenue growth.
Henry, the way we think about it, again, the contract value growth feeds the revenue growth. With our sales productivity gains, we're in that 14%-15% revenue growth range. If you recall, go back several quarters, we had lower productivity, and we were delivering 12%-13% contract value growth. The gains we had last year and into this year have allowed us to be delivering 14%-15% CV growth and 14%-15%
Research revenue growth. On a go-forward basis, as we stated, we are very focused on continuing to improve productivity and continuing to grow the sales force. The combination of those two things will convert into higher levels of contract value growth, and then subsequently, higher levels of research revenue growth.
Okay. Got it. Is there a lag time that is different from that we've seen in prior quarters or is that-
No, the historical lag, if you will, between contract value conversion to revenue conversion is consistent with what we've always seen.
Got it. Okay. That's helpful. How much of your sales growth is related to growing the small to medium-size opportunity that you're seeing?
Henry, the businesses that we just acquired and Software Advice, we wouldn't include in that group. We handle those separately because they handle it in a different way. The sales force increase that we talk about is in our traditional business where we're targeting those 110,000 companies. Within that, there are large, medium, and smaller businesses, but they're all above the size of the acquisitions. Directionally, it's kind of the same split. We're still investing in large companies, we're still investing in small companies and medium-plus companies in that original 110,000 base.
Got it. Okay, great. Thank you.
Thank you very much indeed for your questions, ladies and gentlemen. I would now like to turn the call over to Mr. Eugene Hall for the closing remarks.
I want to thank all of you for joining us today. To summarize the key points for today's call, we are doing great as a company, and our underlying metrics are strong. We continue to invest in improved recruiting capability, training tools that drive sales productivity over time. We once again delivered double-digit growth in every region, across every client size and in every industry segment. We remain committed to enhancing shareholder value through investment in our business, strategic acquisitions, and share repurchases. We're 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. Thanks for joining us today.
Thank you for joining in today's conference, ladies and gentlemen. This concludes the presentation. You may now disconnect. Good day.