Good morning, ladies and gentlemen, and welcome to Gartner's earnings conference call for the second quarter 2015. A replay of this call will be available through August 30th, 2015. The replay can be accessed by dialing 888-286-8010 for domestic calls and 617-801-6888 for international calls, and by entering the passcode 85723528. This call is being simultaneously webcast and will be archived on gartner.com for approximately 90 days. On the call today is Gartner's Chief Executive Officer, Gene Hall, and Chief Financial Officer, Craig Safian. Before beginning, please be aware that certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's 2014 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC.
I would encourage all of you to review the risk factors listed in these documents. The company undertakes no obligation to update any of its forward-looking statements. I will now turn the call over to Gene Hall. Please go ahead, sir.
Thank you, and good morning, everyone. Welcome to our Q2 2015 earnings call. The technology revolution continues to drive demand for our services. We have the right strategy in place to capture the opportunity ahead of us, and our business is doing great. We are where we expected to be at this point in the year, and all of our underlying metrics are strong. As on prior calls, I will review our key operating metrics on an FX neutral basis, since that's the best way to understand the underlying health of our business. For the second quarter of 2015, contract value again grew 15%, and total company revenues grew 12%. We've consistently delivered double-digit contract value growth in every region, every industry, and every company size, and this quarter was no exception. The continued successful execution of our proven strategy was central to our success.
We continue to get bigger, stronger, faster every quarter, year after year. Across our three businesses, research, our largest and most profitable segment, accelerated FX neutral CV growth for the sixth consecutive quarter to 15%, and revenues grew 14% in the second quarter of 2015. Retention was strong. For the second quarter of 2015, client retention remained at our all-time high of 85%, which is up one point from the same quarter in 2014. Wallet retention also remained at an all-time high of 106%, which is up a point over Q2 2014. For the second quarter, sales productivity was up 13% compared to Q2 2014. We continue to invest in improved recruiting capabilities, training, and tools, and this, in turn, allows us to drive sales productivity improvements over time. In addition, during Q2 2015, sales headcount growth accelerated to 16%.
Our consulting business was up 2% as a result of solid performances from our labor-based practice and our contract optimization practice. We continue to maintain a healthy four months of backlog. Our events business also had a very strong performance during the second quarter. We held 26 events in Q2, and across those events, we hosted more than 17,000 attendees. For Q2 2015, on a same event basis, revenue was up 19% year-over-year. Strategic acquisitions remain a priority use of our capital. On July 1st, we announced the acquisition of Nubera, which strengthens our offerings in the small company space. We also continue to deliver value back to our shareholders purchase. For the first six months of the year, we repurchased $441 million of our shares. The primary reason our business is so successful is our people. At the heart of it, Gartner is a people business.
We're attracting the best talent in the industry in strategic locations around the world and getting them up to speed quickly. We recently gathered our global sales leadership team together. They remain incredibly excited about the technology revolution. They see the huge opportunity we have before us, and they know the value we deliver to our clients. The insights created by our industry-leading analysts, the advice we deliver, and the overall client experience with Gartner has never been better. We're continuing our great momentum as we've progressed through 2015. We have tremendous faith our clients, whether they are growing or facing economic challenges, and we know how to be successful in any economic environment. Retention rates remain at all-time highs, and we have double-digit growth in every region, every industry, and every company size.
We remain committed to enhancing shareholder values through investment in our business, strategic acquisitions, and share repurchases. We are better, stronger, faster as a company, I expect to see robust growth for years to come. With that, I'll hand the call over to Craig.
Thank you, Gene, and good morning, everyone. As Gene just discussed, Gartner carried the strong start to 2015 into the second quarter, delivering 15% growth in contract value and maintaining all-time highs in retention metrics. Our performance in the first half of the year puts us right where we expected to be, accordingly, we are reiterating our full year guidance. Our financial highlights for the second quarter on an FX neutral basis include contract value growth of 15% for the second straight quarter. This is the sixth consecutive quarter of contract value growth improvement. Events revenue increased by 19% year-over-year on a same event basis. Year-over-year consulting revenues increased by 2%, normalized EBITDA was up 12% versus the prior year.
We continue to see robust demand for our services across all of our business segments. Our strong top-line performance and effective execution in capitalizing on the operating leverage in our business allowed us to once again expand our gross contribution margin. Our business continues to deliver double-digit growth quarter after quarter, year after year. We are engaged on our clients' most important initiatives and projects. The consistency of our strong retention metrics demonstrates the value and importance our clients receive from our products and services. In both existing and prospect accounts, we are finding new IT supply chain and digital marketing professionals to sell to every day. We are confident we will continue to deliver consistent revenue growth and strong financial performance over the near and long term.
I will first provide a review of our business results for the second quarter and end with the details of our outlook for the third quarter and remainder of 2015 before taking your questions. As a global business, it is worth noting the continued strength of the US dollar once again impacted our reported results. Just about every currency we operate in is weaker against the US dollar when compared to last year. I will comment on the impact of foreign exchange in each business segment as I speak about them. Starting with our research business. Research revenue grew 8% on an as-reported basis and 14% on an FX-neutral basis in the second quarter. The gross contribution margin for research was 70%, up one point compared to second quarter 2014 and matching our gross contribution margin target for the research segment.
All of our other research business metrics remain very strong. Contract value grew to $1.595 billion, a growth rate of 11% year-over-year on a reported basis and 15% on an FX-neutral basis. Our growth in contract value was extremely broad-based, with every region, every client size, and every industry segment growing at double-digit rates. The acceleration in our contract value growth was driven by improvements to both our retention rates and our new business. Client retention was 85%, the third quarter in a row of this historical high. This is up one point versus the second quarter last year. Wallet retention is also at an all-time high, ending at 106% in the quarter, a one-point uptick over last year's second quarter. This was the seventh consecutive quarter of sequential improvement in wallet retention.
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. Once again, new business significantly increased year-over-year, up 17% over last year's second 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 continues to benefit from our discipline of annual price increases and no discounting. We have increased our prices by 3%-6% every year since 2005. We implemented a price increase during the fourth quarter of 2014, and we expect to do so again later this year.
Our new business growth reflects our success in growing the business by penetrating our vast market opportunity with both new and existing client enterprises. As a result, we ended the quarter with 9,956 client enterprises, up 9% over last year's second quarter. Our average spend per enterprise continues to increase on an FX-neutral basis, again reflecting our ability to grow our contract value by driving growth in both new and existing enterprises. Sales productivity continues to improve as well. We're up 13% 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 Q2 2014 ending sales headcount of 1,787 as our beginning-of-period denominator yields NCVI per AE of $115,000 on a rolling four-quarter basis. Again, that's a 13% improvement over second quarter last year, when the comparable figure was $101,000 at constant currency rates. To sum up, we delivered another strong quarter in our research business. Contract value growth again accelerated, achieving 15% year-over-year growth. We continue to see strong demand from clients, and our retention rates remain at all-time highs. Looking forward, we have a very strong pipeline. Our headcount growth has accelerated. The programs we have in place to drive productivity around recruiting, training, and tools are working. We anticipate continuing to improve sales productivity, which positively impacts CV growth and research revenue growth over the long term. Turning now to events.
For the quarter, our event segment continued to deliver strong year-over-year revenue growth. On an FX-neutral basis, events revenues increased 15% year-over-year. This was achieved despite three events being moved out of Q2 and into Q3. During the quarter, we held 26 events with 17,107 attendees, compared to 28 events with 16,594 attendees in the second quarter of 2014. In Q2, we launched a new event for digital marketing leaders, which exceeded our expectations. On a same event and FX-neutral basis, events revenues grew 19%, with 16,554 attendees, a 7% increase compared to second quarter last year. For the first half, events revenue was up 14% over the prior year, with 35 events versus 36 events in the same period last year. The gross contribution margin for events increased roughly three percentage points from the second quarter a year ago to 53%.
On a year-to-date basis, we improved gross contribution margin by approximately three points to 48%. Moving on to consulting. On a reported basis, revenues in consulting decreased 6% in the second quarter and were up 2% FX-neutral. In the quarter, on an FX-neutral basis, our labor-based business grew by 1%. We also saw higher demands for contract optimization in the quarter than we had forecasted. 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. The underlying operating metrics of our consulting business are also strong. On the labor-based side, billable headcount of 564 was up 12% from this point in 2014. Second quarter annualized revenue per billable headcount ended at $409,000, and utilization was 68%, a two-point decline over the second quarter of last year.
Across the entire consulting business, we continue to see strong demand for our services, investing in managing partners is allowing us to capture that demand. We now have 100 managing partners, a 15% increase over second quarter 2014. Backlog, the key leading indicator of future revenue growth for our consulting business, ended the quarter at $97 million. Backlog was impacted by FX rates and still represents a healthy four months of forward coverage. With the current backlog and visibility we have into the pipeline, we believe the consulting business remains well positioned for 2015. Moving down the income statement, SG&A increased by $19 million year-over-year during the second quarter, primarily driven by the growth in our sales force. As of June 30th, we had 2,070 direct quota-bearing sales associates, an increase of 283 or 16% from a year ago.
For the full year, we expect to grow the sales force by 15%-16%. In the second 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 earnings, we delivered a solid quarter of earnings growth. Normalized EBITDA was $110 million in the second quarter, up 5% year-over-year on a reported basis and 12% on an FX neutral basis. GAAP diluted earnings per share were $0.61, up 5% year-over-year and $0.01 higher than the Q2 guidance range we provided on our last earnings call. Our Q2 2015 GAAP diluted earnings per share include $0.04 in amortization and other costs associated with our acquisitions. Excluding acquisition-related charges, our EPS grew 2% to $0.65 in the second quarter.
The FX impact on our earnings and EPS was similar to the FX impact on normalized EBITDA. Turning now to cash, first half operating cash flow decreased by 2% to $149 million from first half last year, largely due to a stronger U.S. dollar and higher incentive and tax payments. We continue to expect to achieve the guidance we set for the full year. During the second quarter, we continued to utilize our cash to return value back to shareholders through share repurchases. In the quarter, we had share repurchases of $117 million. Year-to-date, we have repurchased $441 million of our shares. Share repurchases and strategic acquisitions are our primary uses of capital. We recently announced that we had purchased Barcelona-based Nubera eBusiness. This small acquisition occurred in July, so it does not impact Q2 results.
Nubera operates a site called GetApp, which is complementary to Software Advice and maps to one of our core value propositions, helping people in businesses of all sizes make the right technology decisions. We were able to use foreign cash to fund the purchase. Terms of the deal have not been disclosed, it should be noted that this acquisition was substantially smaller than the Software Advice acquisition last year. We ended the quarter with a strong balance sheet and cash position, despite the pace of share repurchases. As of June 30th, we had gross debt of $715 million and cash of $358 million, with 94% of our cash balance located outside of the U.S. This now represents a net debt position of $357 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 June 30th, we had $776 million available on our revolver. We continue to look for attractive acquisition opportunities as a potential use of cash. We also continue to believe that repurchasing our shares remains a compelling use of our capital. As of June 30th, we had $1.2 billion available under our share repurchase authorization. Turning now to guidance. Given our performance on a year-to-date basis and the fact that we have performed as expected, we are reiterating our revenue, normalized EBITDA, free cash flow, GAAP EPS, and normalized EPS guidance. All the details of our guidance are contained in our press release. Highlights of our guidance include FX neutral total revenue growth of 12%-15%, FX neutral research revenue growth of 14%-16%, FX neutral normalized EBITDA growth of 10%-17%. Our GAAP EPS guidance also remains unchanged at $2.11-$2.30 per share.
Our guidance for EPS excluding acquisition integration charges is to be between $2.27 and $2.46 per share, FX-neutral growth of approximately 7%-16% over 2014. For the third quarter, we expect GAAP EPS to be in the range of $0.36-$0.38 per share. Acquisition and integration charges for Q3 are expected to be approximately $0.04 per share. The third quarter is historically one of our smaller revenue and earnings quarters. This will be true again in 2015. So before taking your questions, let me summarize. We delivered another strong quarter in Q2. Demand for our services is robust, and as a result, our research contract value growth rate again was 15%. Our key business metrics remain strong, and in fact, many, most notably retention, CV growth, and sales productivity, continue to improve or are at or near all-time highs.
We will continue to invest in our business, both organically and through acquisitions, and return capital to shareholders through our share repurchase program going forward. Finally, with 15% growth in contract value in the second quarter of 2015, we remain well-positioned to deliver another solid year of revenue and earnings growth for the full year of 2015. Now I'll turn the call back over to the operator, and we'll be happy to take your questions. Operator?
Thank you. Ladies and gentlemen, if you wish to ask your question, please press star followed by one on your touch-tone telephone. If your question has been answered or you wish to withdraw the question, press star followed by two. Press one to begin, and stand by for your first question, which comes from the line of Timothy McHugh from William Blair. Please go ahead.
Thank you. I guess just, I haven't had time to crunch the math, given you just kind of gave the color about Q3, but the implication of that would be that you need to see some fairly strong margin improvement in Q4, probably, I guess, to get you in line with your range. I understand all the kind of forward-looking metrics look great and consistent with your trends. Can you help us? Is there something happening in terms of the phasing of expenses this year that makes that year-over-year improvement particularly significant in Q4?
Thanks, Tim. Good morning. There's really two things going on. One is Q4 is historically our largest quarter, both from a revenue and from an earnings perspective. 2015 Q4 will be no different than past Q4s. I think what we're seeing is two things. One is we've got great strength as we head into the balance of the year. We do expect to deliver to our full-year guidance. The other thing is, as we've talked about in the past, the return to normal trends for our contract optimization business actually depressed margins in the first half of the year. We expect it to return to historical trends in the second half. We get what looks like to be a bump from that. It's actually just a return back to normal.
Okay. That's helpful. I guess the gross margin for the research business, you've been seeing declines for a couple of quarters there and it reversed to the positive side this quarter. Is there something that changed or something more positive happening underneath there?
Tim, I think, we manage to a long-term target of 70% gross contribution margin on the research business. We're in fact, right at 70%. We're actually up a point year-over-year. I think what you see quarter-to-quarter is a little bit of noise. We're managing to that 70% level. We expect to deliver roughly in that range over the long term.
Okay. Thank you.
Your next question comes from the line of Jeffrey Meuler from Baird. Please go ahead.
Yeah, good morning. On research productivity, I know it continues to increase, or sales productivity, I know it continues to increase year-over-year, and you guys are talking about it continuing to go higher still. If I look at the last couple of quarters, I think it's declined slightly on a sequential basis. Obviously, we can only see the LTM metric. You guys have better visibility into quarterly trends. The question is: what gives you confidence in the increase, and where are you guys at with rolling out some of the programs that were initially piloted more broadly?
Thanks, Jeff. I'll take the first part of the question, and Gene will take the second part of the question. The way we look at sales productivity, we actually think the best way to look at progress, because we do it on a rolling four-quarter basis, is to look at it on a year-over-year basis. That eliminates the seasonality, and also, with Q3 and Q4 generally being our larger quarters, it's harder to move the needle in the smaller quarters like Q1, Q2. What gives us confidence is for the last three quarters, we've seen really nice year-over-year improvements on that rolling four-quarter sales productivity.
It's Gene. The improvements, as you relate to, are being given by the underlying changes we're making, improving recruiting. We have a series of programs that are designed to make sure we really recruit people that have the perfect fit for Gartner. Those are getting better all the time. We're not standing still. The second thing we're doing is making sure we have great training programs. Again, those have gotten better all the time, and we have continued improvements, and then an improved set of tools that drive sales productivity as well. As you've noted, part of our strategy is continuous improvement and continuous innovation in all these areas. We have had some things in pilot that are now being rolled out, and they're doing great. We have other things in pilot now that'll be rolled out next year that will continue to drive sales productivity.
As Craig said, it's the underlying changes we're making that are driving sales productivity. Because of the continuing improvements that we have and expect to have next year in recruiting, training, and tools, we expect the sales productivity improvement to continue to grow over time.
Okay. Is it too early to get a read into Symposium registrations in the major markets, U.S., Europe, et cetera, and especially how are CIO registrations trending, if it's not too early?
Yeah, it's not too early. What I'd say is the trending is where we would expect it to be for that business. We're trending exactly where we'd expect it to be.
Okay, thank you.
Your next question is from the line of Anjaneya Singh from Credit Suisse. Please go ahead.
Hi, good morning. Thanks for taking my questions. First off, I was wondering if you can talk a little bit about your Nubera acquisition. It seems you're starting to develop more of a presence here catering to smaller and mid-sized businesses, which is a bit of a shift from your traditional focus on larger enterprises. Now that it's been a year or over a year with Software Advice, you've got two acquisitions in this space. I'm wondering if you can share any updated thoughts and views on the market opportunity here, and the competitive landscape.
Great question, Anj. First, in our traditional business, we have sold at least one seat to 10,000 out of 110,000 enterprises that we target, and we think that there's a north of $58 billion opportunity, and our business today, as you know, is $1.6 billion in that market. There is huge, incredible growth opportunities in our traditional business, and we're going to continue going aggressively after that. Having said that's the 110,000 largest companies, enterprises in the 95 countries we're in. There's tens of millions of small businesses that are great opportunities as well, where our traditional business is not the best way to serve them. We bought Software Advice last year, which has a very innovative and great way to serve that model. Nubera is a similar kind of business.
They're slightly differentiated. We think very complementary to Software Advice to help serve those tens of millions of small businesses that they have the right model to serve, which our traditional business is more tuned to serving those top 110,000.
Got it. Another question, shifting gears a little bit to consulting. The headcount growth in consulting at 12%, it seems to be about the fastest growth we've seen in about five years. I'm wondering if you can talk about what you're seeing in your business that's driving that, and when we may expect to see that translate to consulting revenue.
Sure, Anj. It's Craig. Two prime things driving the headcount growth. One is our continued growth and investment in managing partners. As you just heard, we're now at 100 managing partners, which is up 15% year-over-year. The second thing, which is a little bit of an apples and oranges thing, is last year we acquired one of our sales agents. We had typically treated those consultants as subcontractors. When we did the acquisition, they came onto our books. Actually, a significant portion of our growth on a year-over-year basis relates to just that acquisition. The good news when we look at the consulting business going forward is, given that investment in managing partners, given the quality of our backlog, also given the way the pipeline looks, we've had some confidence in bringing in additional people to basically fulfill on that backlog.
We're very pleased with where we are from a consulting perspective, backlog, and revenue. We expect to hit our full-year guidance in that business.
Okay, great. Thank you.
Your next question comes from the line of Manav Patnaik from Barclays. Please go ahead.
Hi, this is Ryan filling in for Manav. Just a question on the M&A pipeline. You obviously mentioned a lot of your cash sits overseas. Should we be thinking that most of the deals would be focused on the international space, or are there still assets in the U.S. that you find attractive?
There are assets in the U.S., there are assets outside the U.S. as well. We're looking in both markets. You shouldn't take it as we're focused on one or the other. We're focused on both, there's great opportunities on both.
Okay, fair enough. One of your peers who reported yesterday kind of discussed a lot of difficulty in hiring, and you guys are obviously talking about 15%-16%. With the labor markets getting significantly better than they were a year ago, what gives you the confidence that you're finding the right people, and maybe could you talk about attrition a little bit?
Gartner, we're a leader in the technology industry. It's a very cool industry to be in. We are, by any metric, if you look at Glassdoor, et cetera, a great place to work, and we have a great reputation in the marketplace. Because of this tremendous reputation we have, and also because we have a world-class recruiting organization, we don't have trouble hiring people. In fact, you just saw this quarter, actually, our sales hiring accelerated this quarter. In addition to that, we don't just track numbers of people. We actually track metrics that indicate the fit of the people we hire. One might call it quality, but we think about it as the fit of the people we hire.
Not only did our growth rate accelerate, but the actual forward-looking metrics on the fit of the people we're hiring now that we just brought in at this accelerated pace are the best ever. That keeps getting better over time. Because Gartner is such a great place to work, we're in a great industry, and have a great recruiting organization, we're able to attract great people and at an accelerating rate. In terms of attrition, our attrition is in the normal range, in the range it's been in the past.
Thanks. Just one quick one for Craig. The number of events for this year, are they still around 65?
Yes, that is correct.
Okay, thank you.
Your next is from the line of Andre Benjamin from Goldman Sachs. Please go ahead.
Thank you. Good morning. First in research, I was wondering if you're seeing any new competitive threats, any established smaller players launching new products, improving their quality, or potentially paying up to try to take some associates from you. If you are, what are you doing to combat that? If you're not, why do you think that is, given the size of the TAM that's in front of you? You would think more people would be trying to be competitive and go after it.
We live in a very competitive marketplace. There are lots of competitors. There are new innovators all the time. That has been true forever, and we don't stand idly by. We, of course, track competitors. We also, as I've talked about many times in the past, a core element of our strategy is continuous improvement and continuous innovation. We, every year, introduce new products, and we don't rest on our laurels. Because innovation is central to our strategy, we are constantly improving, getting better, stronger, faster every year, with new products that are appealing to the most important things in the marketplace today.
While we have today a very competitive marketplace with a lot of innovators, and we always have, and we've always done very well because we are aware of this, we have respect for them, we innovate to stay ahead, and we're committed to continuing to do that.
In consulting, now that you've hit the goal that you had previously laid out of 100 managing partners, should we expect the growth in that number of partners to slow? I guess, as the count has grown, are there any innovations in consulting worth calling out that you expect to drive new growth? Is it simply a matter of blocking and tackling with more bodies to drive business?
Yeah, Andre, on the managing partner front, so we're very pleased that we've reached 100. That's actually not the long-term target for us. As our consulting business continues to grow, we'll continue to bring on more managing partners to support and drive that business. You shouldn't think of 100 as the finish line by any stretch of the imagination. We will continue to grow the managing partner business to continue to support and drive growth on a long-term basis.
With regard to the second part of your question, in our consulting business, we have the same strategy of continuous improvement and continuous innovation as we do across the entire business. In that business, the service lines we have evolve continuously to reflect the changes in the marketplace. One of the things that we do in consulting is, they build their service lines based on what's most important from our research organization. By knowing what's most important to clients on things like digital best practices, the consultants then can apply that in the consulting space. You shouldn't think that we're just adding more managing partners. Actually, our service lines are quite dynamic and innovate over time, and that's what's driving the success of that business.
Thank you.
Your next question comes from the line of Joseph Foresi from Janney. Please go ahead.
Hi. I was wondering if we could talk about contract value growth here for a second. You've obviously moved up to this 15% level, which is very healthy, but what should we expect going forward? Is this something that you think you can continue to build on? If you do think you can continue to build on it, what are sort of the chief drivers from this point forward?
Hey, it's Gene. The two things that drive contract value are our sales productivity and the number of salespeople we have. As I've talked about before, in terms of sales productivity, we have a number of programs in place, and we continue to innovate on those programs and others to drive sales productivity. In fact, as Craig mentioned, we're seeing sales productivity improve, and that's because of it. That's the first thing that drives contract value growth. The second one is the actual size of our sales force. As I mentioned before, as Craig mentioned, we've actually accelerated the growth rate in our sales force as well. Both of those two things are the kind of forward-looking metrics you'd expect to indicate that we can continue to grow our contracts over time. In fact, at an ever-increasing rate.
Joe, if you go back to our investor day materials, there's actually a slide that lays out the way we think about it in simple terms, which is modest improvements in sales productivity coupled with 15 or 15%+ head count growth, what that equates to in terms of contract value growth. That's why we've said long-term our target is 15%-20% from a research contract value growth perspective. Again, it's that combination of growing sales headcount and continued improvements to sales productivity.
Sure. I guess what I was trying to focus on was that it seems like you rolled out the new training aspect of the sales force to a number of different regions, and you got a nice little kick on contract value growth. Outside of the standard two metrics that you pointed out, I was wondering if there was anything else that you are currently working on that you thought might bring you to that next level. Is there anything else that you could point to?
Joe, in terms of sales productivity, we have
Many programs, too numerous to name right here. Some have been rolled out, some are in pilot, and some are being developed. They all fall into the three categories I talked about, either improved recruiting, meaning our ability to target the people that have the skills to be most successful at Gartner and the highest productivity. We're getting better at that all the time. The second thing you mentioned is training. In fact, we had a major improvement to our training, which we are in the process. We're not quite finished rolling it out around the world. I'm sorry. We just finished rolling around the world. You wouldn't actually have seen the full impact of that. Of course, because that's rolled out, we have other improvements in training behind that, and we'll have training improvements behind that as well.
Thirdly, again, we're continually improving our tool sets as well. Again, we have a major new improvement for sales tools, particularly for new salespeople, that we're at the beginning of the rollout for, as an example, we'll continue with. Again, when that's rolled out, we'll have another thing behind that. One way to think about it is we have version 2, version 3, version 4, version 5. We don't ever just say, "Well, we got to version 2, we're done." That's how we want to drive sales productivity over time.
Okay. The last question from me. Obviously, we've started to max out on the margin profile in the research business. You've been taking on some acquisitions, which would obviously create some level of dilution. Maybe you could just talk about how you feel about the margin profile over a longer period of time. Is there still room for expansion? I know this might be just a little bit. How do you balance that versus some of the acquisitions that you're looking at? Thank you.
Yeah. Thanks, Joe. What we're really laser-focused on is accelerating our growth rates in research, which is our most profitable business, has the best flow-through, and really drives significant improvements to gross contribution margins. We are 100% laser-focused on, as we just talked about, improving and accelerating research contract value growth, which translates into research growth and total company revenue growth. As we accelerate and drive research contract value into the 16%, 17%, potentially 18%, 19% range, there is absolutely margin potential and upside there. We are very focused on making sure that the investments we put into the business, whether it be new salespeople, new tools, better recruiting, better training, are actually supporting and driving long-term, sustainable, really accelerated growth in research contract value.
Thank you.
Your next question comes from the line of Peter Appert from Piper Jaffray. Please go ahead.
Thanks. Good morning. Craig, just sticking on the margin leverage question for a second. You've had four consecutive quarters of some pretty impressive productivity gains. I'm just wondering why that isn't flowing through to better margins. What's the disconnect?
No real disconnect, Peter. We've improved our sales productivity, and we are at roughly 15% contract value growth. As we've talked about in the past, the margin unlocks, or there's more margin potential unlocking as we accelerate research contract value at an even greater rate. That's number 1. Number 2, there's always going to be a lag in terms of the productivity and research contract value actually converting into revenue and profit on a roll-forward basis. I think it's the combination of those two things. When we think about the business, again, we reiterated, reaffirmed our guidance for the full year. There is a margin expectation built into that guidance. That's what we're managing to. That's where we are on a year-to-date basis.
As I mentioned to Joe on the last question, we are really laser-focused on how do we continue to accelerate sales productivity so that we can accelerate research contract value growth.
Would that suggest, Craig, that you'd be, not to put words in your mouth here, but maybe more optimistic about the potential for some margin upside in 2016 as you carry forward these productivity gains you've seen in the past year?
Peter, obviously we're talking about 2015. We've talked about guidance for 2015, and we're not at a point where we're discussing 2016 yet.
Got it. Then this is a little bit nitpicky, you talked about contract value growth accelerating 15%, and the number you reported last quarter was 15, is it just some sort of rounding thing?
If you took it out an extra decimal point, there is acceleration.
Okay, great. Then can you talk at all about how you think about the pace of buyback activity? You've been obviously pretty aggressive here in the first half. Does it suggest maybe you're accelerating the pace of buybacks you laid out initially?
On a year-to-date basis, we've repurchased $441 million of our shares this year. Last quarter, when we announced that $1.2 billion authorization, what we said was we expect that to last us two and a half to three years.
That's basically the guidance around share repurchases.
Right. You're pacing well ahead of that, obviously, in terms of completing it in 2 to 3 years. Your response is no. You're not changing your expectation around pacing, which might imply lower repurchase activity in the second half?
Peter, what I'd say is we're not changing the statement around two and a half to three years on the $1.2 billion authorization. As always, Business conditions may dictate slower, faster, what have you. What we are basically reiterating is that $1.2 billion authorization should last us roughly two and a half to three years. Got it. Okay, thanks.
Your next question comes from the line of Gary Bisbee from RBC Capital Markets. Please go ahead.
Hi, good morning. This is Gary Bisbee in for Gary. Thinking beyond this year, with some of the gains in productivity and the positive comments around the hiring pipeline and some of your improved training capabilities, is it safe to assume or to think that maybe you guys might move to the higher end of your kind of long-term 15%-20% sales headcount hiring range?
It's Gene. We would clearly rather be at the high end of that range than at the low end of that range. We said the range because as we talked about, the pace of hiring depends on the readiness we have of our first-level managers to be able to absorb all the new people. We'd much rather be at the high end of that range. That's certainly our objective.
Okay, great. Just to clarify, the 36-38 Q3 EPS guidance, that is for GAAP, then there's a $0.04 acquisition charge. Is that the way to think about it?
That is accurate, yes.
Okay. Lastly, just to follow up, the 14% constant currency research revenue growth, was there any contribution from M&A? If so, could you help quantify that?
We had Software Advice for the full quarter last year and the full quarter this year. The comp is actually accurate. No benefit from M&A.
Great. Thanks so much.
Your next question comes from the line of Jeff Silber from BMO Capital Markets. Please go ahead.
Close enough. I hate to go back to the margin issue, in looking at third quarter, I'm not sure if my math is right, it looks like we're going to have another quarter of margins being down year-over-year, that was despite the fact that you had said the contract optimization issue hopefully will be less of an issue in the quarter. I think you shifted, or at least from a calendar perspective, we've got three more events this year shifting from 2Q to 3Q. Can you just confirm that? Are you expecting margins to be down year-over-year again in the third quarter, if so, why? Thanks.
Jeff, what I'd tell you is things move around from quarter to quarter on a year-over-year basis. I'd focus in on the full year, where if you take different ranges of the guidance, you can kind of see roughly flat margins on the full year basis is what our guidance roughly implies. Again, things are going to move around from quarter to quarter. The expectation for Q3, there's obviously more stuff going on than just two events moving or three events moving out of Q2 and into Q3. I would focus in on that full year margin number.
Okay, fair enough. If I could just go back to the second quarter consulting results. You mentioned average annualized revenue per billable headcount being down about 10% or so. I'm assuming FX has an impact and contract optimization, I think, would have an impact as well. Was there anything else going on in there to cause that decline?
Jeff, the contract optimization wouldn't be baked into that number. FX will have a pretty significant impact on that number as our consulting business is very global with a significant portion of its revenues being generated in currencies outside the U.S. dollar. The other piece there is there was a two-point dip in the utilization rate, which we talked about, which would obviously also impact that annualized revenue per billable headcount.
Would that number have been up on an FX neutral basis?
That number would have been slightly down on an FX neutral basis.
All right. Thanks so much for the color.
Largely driven by I'm sorry?
Thank you for the color.
You got it.
Your next question is from the line of Bill Warmington from Wells Fargo. Please go ahead.
Good morning, everyone. I've got a question for you on a couple of the acquisitions that you've done in terms of Software Advice and Nubera. These, I don't know if you want to call them a self-service or definitely a lower labor-based content model. As you look out, how large a percentage of revenue do you think they could be? Ultimately, what do you think that's going to do in terms of your potential to take the margins up above where they are now?
These are small businesses. They're great businesses, but they're small businesses. We don't see it having a big impact now. Then, Craig, if you want to talk about the future.
We're in this business, and we've bought these businesses because we think they can be meaningful businesses. As Gene just mentioned, very small right now, nascent, if you will, but we'll be focused on growing them. The key for us, as Gene I think mentioned earlier, is we still have this enormous market opportunity on the organic business. Even if we grow these new businesses at an accelerated rate, it is our absolute expectation that the core business will also continue to grow at an accelerated rate. Maybe becomes a slightly bigger piece but of a much larger pie over the long term.
It would seem like the opportunity there would be to basically build a larger portfolio of these types of businesses over time. Is that part of the plan, or you think you're just going to keep them to kind of relatively small percentage of total?
Again, we think that there's tens of millions of small businesses. We want to serve those businesses just like we do the larger businesses, we're going to grow it at the rate that makes sense to grow it to serve that marketplace.
Got it. All right. Thank you very much.
I would now like to turn the call back over to Gene Hall for closing remarks.
Thanks to all of you for joining us today. Let me summarize some of the key points of the call. First, we are doing great as a company. We're where we expect to be at this point of the year, and all of our underlying metrics are strong. We continue to invest in improved recruiting capability, training tools that drive sales productivity. Our FX neutral CV growth accelerated modestly. 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. Thank you.
Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Thank you very much, and have a very good day.