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 from August 30 2015. The replay can be accessed by dialing 888 286-8010, the 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's website at www.gartner.com. For approximately 90 days.
On the call today is Gartner's chief executive officer, Jean Hall, 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 in including those contained in the company's 2014 annual report on Form 10 k and quoted 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 Jean Hall. Please go ahead, sir.
Thank you, and good morning, everyone. Welcome to our Q2 2015 earnings call. For our services. We have the right strategy in place to capture the opportunity heados and our business is doing great. Wherever we expect you to be at this point in the year and all of our underlying metrics are strong.
As on prior calls, our old view of our key operating metrics on an FX neutral basis. That's the best way to understand the underlying health of our business. For the second quarter of 2015, contract value again grew grew size. And this quarter was no exception. The continued successful execution of our proven strategy was central to our success.
We continue to accelerated FX neutral CV growth for the 6th 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 at one point for the same quarter 2014. Well 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.
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 4 months of backlog.
Our events business also had a very strong performance during the second quarter. We had 26 events in Q2 and across those events, we hosted more than 17,000 attendees. For Q2 20 team. 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 Nuvera, which strengthens our offerings
in the small company space.
We also continue to deliver value back to our shareholders purchase.
For the
1st 6 months of the year, we repurchased $441,000,000 of our shares. The primary reason our business is so successful is our goal. At the heart of it, it partners a people business. We're attracting the best talent in the industry in strategic locations around the world and get 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 hands. The insights are 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 progress through 2015. We had tremendous value to our clients, whether they are growing or patient 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 reach in every industry and every company size. We remain committed to enhancing shareholder value through investing in our business, strategic acquisitions and share repurchases. We are better, stronger, faster as a company, and I expect to see robust growth for years to come. With that, I'll hand the call over to Craig.
Thank you, Jean, and good morning, everyone. As Jean just discussed, Gartner carried the strong start to 2015 into the second quarter delivering 15% growth in contract And 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 percent for the 2nd straight quarter. This is the 6th 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% and 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 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 year. As a global business, it is worth noting the continued strength of the U. S.
Dollar once again impacted our reported results. Just about every currency we operate in is weaker against the U. S. Dollar when compared to last year. 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 2nd quarter 2014, and matching our gross contribution margin target for the Research segment. Contract value grew to $1,595,000,000, 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 3rd quarter in a row of this historical high. This is up one point versus the 2nd quarter last year. WALT retention is also at an all time high, ending at 106% in the quarter, a one point uptick over last year's end quarter.
This was the 7th 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 4 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 We have increased our prices by 3% to 6% every year since 2005. We implemented a price increase during the fourth quarter of 2014 and we expect to do so again 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 9956 client enterprises, up 9% over last year's second quarter. Our average spend for enterprise continues to increase on an FX neutral basis, again, reflecting our ability to grow our contract value by driving growth 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 for account executives. We look at it on a rolling 4 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 $205,000,000 in FX neutral terms. Using our Q2 2014 ending sales headcount of 1787 as our beginning of period denominator, yields NCVI per AE of $115,000 on a rolling 4 quarter basis.
Again, that's a 18% improvement over second quarter last year when the comparable figure was $101,000 at constant currency rates. To sum up, we achieving 15% year Looking forward, we have 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 Events 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 3 events being moved out of Q2 and into Q3 8. During the quarter, we held 26 events with over with 17,107 attendees compared to 28 events with 16,594 attendees in the second quarter of 2014. In Q2, we launched new event for digital marketing 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 The gross contribution margin for events increased roughly 3 percentage points from the second quarter a year ago to 53%. On a year to date basis, we improved gross contribution margin by approximately 3 points to 48%. Moving on to Consult On a reported basis, revenues in consulting decreased 6% in the 2nd 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 2 point decline over the second quarter of last year. Across the entire consulting business, we continue to see strong demand for our services and investing in managing partners is allowing us 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 $97,000,000. Backlog was impacted by FX rates and still represents a healthy 4 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 and A increased by $19,000,000 year over year during the second quarter, primarily driven by the growth in our sales force. As of June 30th, we had 2000 and 70 direct quota bearing sales associates, an increase of 2.83 or 16% from a year ago. For the full sales capacity and recruiting and training capabilities. Moving on to earnings. We delivered a solid quarter of earnings growth.
Normalized EBITDA was $110,000,000 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 a penny higher than the 2 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 2nd quarter. The FX impact on our earnings and EPS was similar to the FX impact on normalized EBITDA.
Turning now to cash. 1st half operating cash flow decreased by 2 percent to $149,000,000 from first half last year. Largely due to a stronger US 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 $117,000,000. Year to date, we have repurchased $441,000,000 of our shares. Share repurchases and strategic acquisitions are our primary uses of capital. We recently announced that we had purchased Barcelona based Nuvera E Business. This small acquisition occurred in July, so it does not impact Q2 results.
Nuvera operates a site called GetApp, which is complimentary 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, but it should be noted that this acquisition in despite the pace of share repurchases. As of June 30th, we had gross debt of $715,000,000 and cash of $358,000,000. With 94% of our cash balance located outside of the U.
S. This now represents a net debt position of $357,000,000. 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 30, we had $776,000,000 available on our revolver. We continue to look for attractive acquisition opportunities a potential use of cash.
As of June 30th, we had $1,200,000,000 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 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 12% to 15%, FX neutral research revenue growth of 14% to 16%, FX neutral normalized EBITDA growth of 10% to 17%.
Our GAAP EPS guidance also remains unchanged at $2.11 to $2.30 per share. Our guidance for EPS excluding acquisition and integration charges is to be between $2.27 $2.46 per share. FX neutral growth of approximately 7% to 16% over 2014. For the third quarter, we expect GAAP EPS to be in the range of $0.36 to $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 Finally, with 15% growth in contract value in the second quarter of 2015, we remain 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.
Thank you. If your question has been answered or you wish to withdraw the question, press star followed by 2. Press 1 to begin and standby 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 math given you just kind of give 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. And I understand all the kind of forward looking metrics look great and consistent with your trends. But can you help us is there something happening in terms of the phasing of is this year that makes that year over year improvement particularly significant in Q4.
Thanks, Tim. Good morning. So there's really 2 things going on. 1 is Q4 is our largest quarter, both from a revenue and from an earnings perspective. And 2015, Q4 will be no different than past Q4 is.
I think what we're seeing is 2 things. One is we've got great strength as we head into the balance of the year. And 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 first half of the year, and we'd expect it to return to historical trends in the second half. And so we get what looks like to be a bump from that, but it's actually just a return back to normal.
Okay. That's helpful. And then I guess the gross margin for the research business, like you've been seeing declines for a couple of quarters there in reverse to the positive side. This quarter? Is there something that changed or something more positive happening underneath there?
Tim, I think we managed to a long term target of 70% gross margin on the research business. Were 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 and we expect to deliver roughly in that range over the long term.
Okay. Thank you.
Your next question comes from the line of Jeff Mueller 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. But if I look at the last couple of quarters, I think it's declined slightly on a sequential basis Obviously, only we we can only see the, you know, the LTM metric. You guys have better visibility into quarterly trends.
So the question is what gives you confidence in the increase and where are you guys at with, rolling out some of the programs are initially piloted more broadly?
Thanks, Jeff. I'll take the first part of the question and Jean 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 4 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.
And so what gives us confidence is for the last three quarters, we've seen really nice year over year improvements on that rolling 4th quarter sales productivity?
It's Jean. And the improvements as you related to are being given by the underlying changes we're making improving recruiting. So we have a series of programs that are designed to make we really recruit people to have the perfect fit for Gartner. Those are getting better all the time. We're not scanning still.
The second thing we're doing is sure we have great training programs. Again, those have gotten better all the time and we have continued improvements. And then an improved set tools that drive sales productivity as well. And as you've noted, we've had part of our is continuous improvement and continuous innovation in all these areas. We have, 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 will be rolled out next year that will continue to sales productivity. So as Craig said, it's the underlying changes we're making that are driving sales productivity. And because of the improvement 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. And then is it too early to get a read into symposium registrations in the major markets, U. S, Europe, etcetera? And especially how our CIO registrations trending if it's not too early?
So, yeah, it's not too early. And what I'd say is our the trending is where we would expect it to be for that business. So we're trending exactly where we'd expect it to be.
Okay. Thank you.
Your next question is from the line of Antonia 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 Nuvera acquisition. It seems you're starting to develop more of a presence here catering to smaller and midsize businesses, which is a bit of a shift from your traditional focus on larger enterprises. And now that it's been a year or over a year with software advice, you've got 2 acquisitions in space.
I'm wondering if you can share any updated thoughts and views on the market opportunity here and the competitive landscape.
So, great question, Ansh. So, first, in our traditional business, we have sold at least one seat to 10,000 out of 10,000 enterprises that we target. And we think that there's a north of $58,000,000,000 opportunity. And our business today as you know is 1,600,000,000 in that market. So there is huge incredible growth opportunities in our traditional business and we're going to continue going aggressively after that.
Having said that, that's 110,000 largest companies enterprises in the 95 countries we're in. There's tens of millions of small businesses that 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. Nuvera is in the it's a similar kind of business. They have a they're slightly differentiated and 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. And then another question, shifting gears a little consulting, the headcount growth in consulting at 12%. It seems to be about the fastest growth we seen in about 5 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, Ante. It's Craig. 2 prime things driving the headcount growth. One is our continued growth and investment in managing partners. And so as you just heard, we're now at 1 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. And we had typically treated those consultants as subcontractors when we did the acquisition, they came on to our books. And so actually a significant portion of our growth on a year over year basis. Relate to just that acquisition. The good news when we look at the consulting business going forward is given that investment in managing partner, given the quality of our backlog and also given the way the pipeline looks, we've had some confidence in bringing in additional people to basically fulfill on that backlog.
And so we're very pleased with where we are from a consulting perspective, backlog and revenue. And expect to hit our full year guidance in that business.
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 and A pipeline. You obviously mentioned a lot of your cash that's 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. And there are assets outside the U. S. As well and we're looking in both markets.
So you shouldn't take it as we're focused on 1 or the other. We're focused on both. And there's great opportunities on both.
Okay. Fair enough. And one of your peers you reported yesterday kind of discussed a lot of difficulty in hiring and you guys are obviously talking about 15% to 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?
So, Gartner is we're a leader in the technology industry. It's a very cool industry to be in. We are by any metric, if you include glass door, etcetera, 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.
The we don't have trouble hiring people. In fact, you saw this quarter actually our sales hiring accelerated this quarter. In addition to that, we don't just track numbers of people. We actually look have, track, metrics that indicate it fit that we of the people we hire. When might call it quality, we think about it as the fit of the quality of fit of it that we hire.
And not only did our growth rate accelerate, but the actual through pace are the best ever. That keeps getting better over time. And so we are because Gartner is such a great place to work with, We're in a great industry. We're it's a great recruiting organization. We're able to attract great people and, at an accelerating rate.
In terms of attrition, attrition is in the normal range, in the range it's been in the past.
Thanks. And 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.
Is from the line of Andre Benjamin from Goldman Sachs. Please go ahead.
First in in research, I was wondering if you're seeing any new competitive threats, any style of 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? And 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?
So, we live in a very competitive marketplace. There are lots of competitors. There are new and all the time. That has been true forever. And, we don't we don't stand idly by.
We, of course, track competitors We also have talked about many times in the past. Part of a core element of our strategy is continuous improvement and continuous innovation. We, every year, introduce new products. We don't rely We basically 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. So 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 respect for them. We innovate to stay ahead and we're committed to continue to do that.
And helping now that you've hit the goal that you had previously laid out of a 100 managing partners. Should we expect the growth in that number partners to slow. And I guess that account has grown. Are there any innovations in consulting with calling out that you expect to drive new growth or is it simply a matter of blocking and tackling with more bodies to drive business?
Yes, Andre, on the 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. And so you shouldn't think of 100 as the the finish line by any stretch of the imagination.
We will continue to to to grow the Managing Partner business. To continue to support and drive growth on a long term basis.
And 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. And that business, the service lines we have evolve continuously to reflect the changes in the marketplace. And one of the things that we do in consulting is they build their service lines based on what's most important from our research station. And so by knowing what's most important to clients on things like digital best practices, that consultants think can apply that in the consulting And so you shouldn't think that it's 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.
At your next question comes from the line of Joseph Voresi from Johnny. 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, is very healthy, but how do we what should we expect going forward? I mean, is this something that you think you can continue to build on if you do think you can continue to build on it, how do we what are sort of the cheap drivers from this point forward?
Hey, it's Jean. So the two things that drive contract value are our sales productivity and the number of sales people we have. And 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 to make them those firms and others to drive sales productivity. And in fact, as Craig mentioned, we're seeing sales productivity improve, and that's because it so that's the first thing growth. The second one is the actual size of our sales force.
And as I mentioned before, as Craig mentioned, we've actually accelerated the growth rate in our sales as well. So both of those two things are the kind of forward looking metrics you'd expect to indicate that we can continue to grow sales over time. So you continue to reverse contract over time, in fact, at an ever kind of increasing rate.
And 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% plus headcount growth what that equates to in terms of contract value growth. And so that's why we've said long term, our target is 15% to 20% from a research contract value growth perspective. Again, it's that combination of growing sales headcount and continued improvements to sales productivity. Sure.
Guess, what what I was trying to focus on was that it seems like you you rolled out the new training, aspect of the Salesforce to a number of different regions and you got a nice little kick on contract value growth. So outside of the standard, two metrics that you pointed out, I was wondering if there was anything else that you were currently working on that you thought might bring you to that next level. Is there anything else that, that you could point to?
So, Joe, there's, in terms of sales productivity, we have, many programs, 2 numerous to name right here. And some are, have been rolled out. Some are in pilot and some are being developed. And they all fall into the 3 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 out around the world. I'm sorry, we just finished rolling around the So you wouldn't actually have seen the full impact of that. And 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. And then thirdly, again, we have a set of we're continually improving our tool sets as well. And again, we have another we have a major new improvement for sales to particularly for new salespeople that were at the beginning of the roll up for, as an example, we'll continue with.
And then again, when that's rolled out, we'll have another thing behind that. We kind of the way one way to think about is we have version 2, version 3, version 4, version 5. We don't ever kind of just well, we got to version 2 over done. And that's how we want to drive sales productivity over time.
Okay. And then the last question for me, obviously, we've started to max out on the margin profile in the research business. And you've been taking on some acquisitions, which would obviously and create some level of dilution. So maybe you could just talk about how you feel about the margin profile over longer period of time. Is there still room for expansion?
I know there's might be just a little bit. And then how do you balance that versus some of the acquisitions that you're looking at? Thank you.
Thanks, Joe. The way what we're really, really laser focused on is accelerating our growth in in research, which is our most profitable business, has the the best flow through and really drives significant improvements to gross contribution margins. And so we are 100 percent laser focused on as we just talked about improving and accelerating research contract value growth, which then translates into research both in 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 up side there. But we are very focused on making sure that the investments we put into the business, whether it be new sales people, new tools, better recruiting, better trading, are actually supporting and driving long term sustainable, really accelerated growth in research contract value.
Your next
question comes
from the line of Peter Appert from Piper Jaffray. Please go ahead.
Thanks. Good morning. So, Craig, just sticking on the margin leverage question for a second. You had 4 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?
Connect, 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. So 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. So 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. And there is a margin expectation built into that guidance That's what we're managing to. And that's where we are on a year to date basis. But again, 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 would that suggest, Craig, that you'd be not to put words in your mouth here, but maybe more optimistic about the offers margin upside to 16 as you carry forward these productivity gains you've seen in the past year?
So, Peter, we're 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. And then this is a little bit nitpicky, but you talked about contract value growth accelerating 15%. And the number you reported last quarter 15. So is it just some sort of rounding thing?
If you took it out an extra decimal point, there is acceleration.
Okay, great. And then, can you talk at all about the, how you're thinking about the pace of buyback activity? You've been obviously pretty aggressive here in the in the first half? Does it suggest maybe you're you're accelerating, you know, the the pace of buybacks, kind of laid out initially?
Yes. So we on a year to date basis, we've repurchased $441,000,000 of our shares this year. Last quarter, when we announced that $1,200,000,000 authorization, what we said was we expect that to last us two and a half to three years. That that's basically the guidance around share repurchases.
Right. But you're pacing well ahead of that, you know, obviously, in terms of completing it in 2 to 3 years so that the your responses, no, that you're not changing your expectation around pacing, which might imply lower repurchase activity in the second half.
So, Peter, what what I say is we're not changing the statement around 2.5 to 3 years on the $1,200,000,000 authorization. As always, conditions may dictate slower, faster, what have you, but our what we're basically reiterating is that $1,200,000,000 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 Gunnar Anthony from 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 capability. Is it safe to assume or to think that maybe you guys might, move to the higher end of your kind of long term fifteen 20% sales headcount hiring range?
It's Jean. So the, we would clearly rather be at
the high end of that range and at
the lowest of that range. We said the range because as we talked about the pace of hiring depends on the readiness we have of our manage of our first level managers to be able to absorb all the new people. And so we'd much rather be at the high end of that range. And that's certainly our objective.
Okay. And great. And just to clarify, the 36 to 38 q3 EPS guidance. That is for GAAP and then there's a $0.04 acquisition charge. Is that is that the way to think about it?
That that is accurate. Yes.
Okay. And then lastly, just to follow-up, the 14% comp and currency research revenue growth, was there any comp solution from M And A? And if so, could you quantify that?
So we had software advice for the full quarter last year and the full quarter this year. So the comp is actually accurate. So no no no benefit from M And A.
Great. Thanks so much.
And your next question comes from the line of Jeff Siba from BMO Capital Markets. Please go ahead.
The I hate to go back to the margin issue, but in looking at third quarter, not sure if my math is right, but it looks like we're gonna another quarter of margins being down over year. And that was despite the fact that you had said the contract optimization issue will be less of an issue in the quarter. And I think you've shifted, or at least from a calendar perspective, we've got 3 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?
And if so, why? Thanks.
So, Jeff, what I'd 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 get see roughly flat margins on a full year basis is what our guidance roughly implies. Again, things going to move around from quarter to quarter. The expectation for Q3, there's obviously more stuff going on than just to events moving or 3 events moving out of Q2 and into Q3. But I would focus in on that full year margin number.
Okay, fair enough. If I could just go back to the 2nd 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?
So, Geoff, 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 2 point dip in utilization rate, which we talked about, which would obviously also impact that annualized for revenue revenue per billable headcount.
So would that number have been off on an FX neutral basis?
That number would have been slightly down an FX neutral basis. I'm sorry?
Thank you for the color.
You got it.
And your next question is from the line of Bill Warmington from Wells Fargo. Please go ahead.
Software advice and Nuvera. On these, I don't know if you wanna call them a self-service or definitely a lower labor based content model as you look out, how large percentage of revenue do you think they could be? And ultimately, what do you think that's gonna do in terms of your potential to take the margins up above where they are now?
So these are small businesses. They're great businesses but they're small businesses. So, the we don't see it having a big impact now. And then, Kraale, if you want to talk about it.
I mean, we're in this business and we've bought these businesses because we think they can be meaningful businesses. But as Jean just mentioned, very small right now, nascent, if you will, but we'll be focused on growing them. The key for us, as Jean, I think mentioned earlier, is we still have this enormous market opportunity on the organic business. So even if we grow these new businesses at an accelerated rate, it is our absolute expect that the core business will also continue to grow at an accelerated rate. And so maybe becomes a slightly bigger piece, but of a much larger over the long term.
Yeah. It would seem like the opportunity there would be to basically build a a larger portfolio of these types of businesses over time, is is is that part of the plan, or you you think you're just gonna keep them to kind of relatively small all percentage of total?
So, again, we think that there's tens of 1,000,000 of small businesses. We want to serve those just like we do the larger businesses. I'm ready to grow it at the rate that makes sense to grow it to serve that marketplace.
Got it.
Alright. Thank you very much.
I would now like to turn the call back over to Jean Hall for closing remarks.
Thanks. Thanks to all of you for joining us today. Let me summarize some of the key points of the call. So first, we are doing great as a company. We're where we would expect to be at this point of the year and all of our underlying metrics are strong.
Continue to invest and improve recruiting capability, training tools that drive sales productivity. Our FX neutral CV growth accelerated modestly. We remain committed to enhance these shareholder value through best in our business, strategic acquisitions and share repurchases, and we're getting better, stronger, faster all the time. I expect to see robust growth for years
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.