Forrester Research Inc (FORR) 2008 Q3 法說會逐字稿

Good day, Ladies and Gentlemen. Welcome to the Third Quarter 2008 Forrester Research earnings Conference Call. At this time all participants are in a listen only mode. We'll facilitate a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS).

I'd like to turn the presentation over to Ms. Carol Levinson, Vice President of Corporate Communications. Please proceed, ma'am.

Thank you and good morning. Thank you for joining our Third Quarter 2008 call. With me today are George Colony, Forrester's Chairman of the Board and CEO, Charles Rutstein, Forrester's COO and Mike Doyle, Forrester's Chief Financial Officer. Mike will open the call and provide detail on our financial results for the quarter. George will follow Mike and provide a strategic update on the business and our role based strategy. After George completes his review we'll open the call to Q & A.

A replay of this call will be available until November 5, 2008, and can be accessed by dialing 888-286-8010. Please reference the passcode 70702977. This call is also available via webcast and will be archived in the investor section at Forrester.Com.

Before we begin I'd like to remind you this call will contain forward-looking statements within the means of the Private Litigation of act 1995. Words such as expect, believe, anticipate, intends, plans, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on the Company's current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set fourth in the forward-looking statements. Some of the important factors that could cause actual results to differ are discussed in our reports and filings with the Securities and Exchange Commission. The Company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. I'll now hand the call over to Mike Doyle.

Thanks, Karyl. I'll now begin my review of the financial performance for Forrester's Third Quarter and year-to-date results. The Balance Sheet at September 30, our Third Quarter metrics and the outlook for the Fourth Quarter and full year 2008. Please note the Income Statement numbers I'm reporting are pro forma, and exclude the following items; amortization of intangibles, non-cash stock based compensation expense, professional fees related to the stock option investigation and restatement of the Company's historical financial statements, and net realized gains and securities in non-marketable investments. Also, we continue to book an effective tax rate at 39% for pro forma purposes. The anticipated effective tax rate for 2008 is approximately 39%.

I'm pleased to announce that Forrester achieved solid Third Quarter performance and met the financial targets set out on our Second Quarter Conference Call despite some challenging economic conditions. I'm also pleased to announce the integration of Jupiter Research acquired on July 31 is progressing as planned. The results discussed below are inclusive of Jupiter activity for two months. With today's release, we were reporting Third Quarter 2008 revenues of $59.5 million and pro forma operating margin of 17.9%. Revenue increased 16% versus prior year with 1% of attributable foreign exchange and was within our previous guidance. Operating margin performance was just above the upper end of our guidance and one point above prior year. Pro forma earnings per share came in at $0.31 per share at the upper end of our guidance and up 11% versus year ago. For the nine months ended September 30, 2008, we were reporting revenues of $177.9 million, up 16% from the same period a year ago. Pro forma operating margin increased 1.5 points to 17.5% for the nine month period ended September 30, 2008 from 16% during 2007. Pro forma earnings per share were $0.94, an increase of $0.15 from 2007.

Now let me turn to a more detailed review of our Third Quarter results. Forrester's Third Quarter revenue increased 16% to $59.5 million from $51.1 million in the third quarter last year, with approximately three points of growth attributable to Jupiter and one point of growth attributable to exchange rates. Third Quarter research services revenue increased 22% to $40.3 million from $32.9 million last year. Research services revenue comprised 68% of total revenue for the quarter versus 64% in the third quarter of 2007. We are pleased with the healthy increase in our research services revenue, which is in line with our objective of driving a higher percentage of our total revenue from research services what we call Q during 2008.

Third Quarter advisory services and other revenue increased 5% to $19.2 million from $18.2 million in the third quarter of 2007 and represented 32% of total revenue for the quarter. International revenues were 28% for the third quarter compared to 29% in the third quarter last year, as business continues to grow faster domestically than in Europe and in Asia Pacific.

I would now like to take you through the activity behind our revenue and review progress for each of our products starting with research. In the third quarter, 442 new research documents were added to role view. The top three research roles are application development and program management professionals, enterprise architect professionals, and business process and applications professionals. We hosted 88 teleconferences in the third quarter with a total attendance of 5,250 participants, all 19 roles were represented.

Forrester Leadership Boards are peer offering for Senior Executives continues to perform well achieving year-over-year revenue growth of 50% in the third quarter of 2008. The six boards focused on IT roles now have a total of 862 members. Technology Industry Boards including the market research, analyst relations and technology marketing counselors with a total member shift of 354. Finally the Marketing and strategy Boards which include the CMO Group, the database Marketing council, and the interactive Marketing council now have a total membership of 248. At the end of the Third Quarter, the Forrester Leadership Boards had 1464 members, an increase of 84 from June 30, 2008.

In our data business, we continue to add and renew an impressive list of clients. We added or renewed 31 OneBplus companies in the third quarter including Sovereign Bank, Compass bank shares, MetLife, Microsoft, Onmicomm and Cisco. Demand for our consulting services slowed from the previous years in part due to our increased focus on syndicated business. IT projects focused on RFP reviews and contract negotiation support, vendor selection and assessment, disaster recovery and business continuity planning assessments. Marketing and strategy projects focused on post-strategy projects for interactive Marketing professionals, Direct Marketing vendor selection projects for Direct Marketing professionals, and website transformation projects for customer experienced professionals. And tech industry projects centered on total economic impact studies and social media strategy.

Our events business continues to grow in both sponsorship and attendee sales. We hosted two IT events in the third quarter, Security Forum , and Business and Technology Leadership Forum. In the Fourth Quarter 2008, we will be hosting two IT events, Services and Sourcing forum EMEA and Services and Sourcing form US, and we'll be hosting three M& S role based events: Consumer forum in the US and our co-located consumer Marketing Forum EMEA and Financial Services form EMEA.

Looking at Third Quarter expense and operating income, operating expenses for the third quarter were $48.9 million, up 15% from $42.4 million in the third quarter of last year. The operating expense increased in part driven by the acquisition of Jupiter Research and higher net headcount in research. Operating income was $10.6 million or 18% of revenue compared with $8.8 million or 17% of revenue last year. The improved margin performance year-over-year reflects the leveraging of our expense base as revenues are growing faster than expenses. Net income increased 10% to $7.4 million and earnings per share were up 11% to $0.31 on diluted weighted average shares outstanding of $23.8 million compared with net income of 6.7 million and earnings per share of $0.28 on $23.7 million weighted average shares outstanding in the third quarter of last year.

Turning to Forrester's nine month results, total revenue for the nine month period ending September 30, 2008, increased 16% to $177.9 million from $153.6 million last year. For year-to-date 2008, research services revenue increased by $17.8 million or 18.5% to $114 million. Research services revenue was 64% of total year-to-date revenue up from 63% in the same period in 2007. Operating income for the nine month period was $31.1 million or 17.5% of revenue, compared with operating income of $24.7 million or 16% of revenue in 2007. This is in line with our long term goal of continuing to expand operating margin while growing revenues at the rate of 15% to 20%. Net income on a year-to-date basis increased 18% to $14.2 million from $12 million last year and earnings per share for 2008 increased 19% to $0.94 on diluted weighted average shares outstanding of 23.7 million compared to $0.79 a Sharon 23.7 million weighted average shares outstanding.

Now I'd like to review the Balance Sheet. Our Balance Sheet remains strong. Our cash and marketable securities at September 30 were $254 million, up $5.1 million from our year-end 2007 balances but down $24.6 million from June 30 primarily attributable to purchase of Jupiter during the third quarter. A portion of our marketable securities relating to auction rate securities has been reclassified as a long term asset on the Balance Sheet. This is a result of the current liquidity issues in the auction rate marketplace. We fully expect these securities to redeem at par value. During the third quarter, we redeemed $3.9 million of these securities at par, which leaves $45.9 million remaining in our portfolio. We generated $40.4 million in cash from Operations through September 30, 2008, which is up $11.2 million from the prior year, due primarily to net income improvements and strong cash collections. We have also received $17.2 million in cash from options exercise and employee stock purchase plan in the first nine months of the year. During the first nine months of 2008, we repurchased 902,000 shares at a total cost of $26.1 million and will continue to be active with the buyback at selected price points.

Accounts Receivable at September 30 was $37.4 million compared to $35.7 million as of September 30, 2007. Our Day Sales Outstanding at September 30 was 74 days down from 77 days last September. And Accounts Receivable over 90 days was 12% at September 30 , 2008, down from the prior years 16% and in line with our targeted range both DSO and Accounts Receivable over 90 days improved versus the first half of this year. Our capital spending for the first nine months of 2008 was approximately $2.7 million and we're on target for our full year spending of $4 million.

Deferred revenue at September 30 was $98.1 million up 15.1 % over September 30, 2007, with four points of the increase attributable to Jupiter. Our future Accounts Receivable balances are amounts to be invoiced in the future for clients are multi-year deals or scheduled payment terms. Deferred revenue plus future AR grew 15.4% year-over-year with four points attributable to Jupiter. The increase is reflective in part to favorable mix shift towards our syndicated business.

Now I'll review Forrester's Third Quarter metrics. Agreement value represents the total value of all contracts for research and advisory services in place without regard to the amount of revenue that is already been recognized or is yet to be recognized, and was $216.2 million at September 30, a 21.8% increase from last year of which eight points is attributable to Jupiter. At September 30, Forrester's retention rate for client companies was 77% and our dollar retention rate during the same time period was 87%. Our enrichment rate was 108% for the 12 month period ended September 30. Client and dollar retention rates and enrichment rates are calculated on a rolling 12 month basis. At the end of the Third Quarter, our total for client companies was 2,718, up 250 from year-end and 174 from the Second Quarter. 130 of those clients are attributable to Jupiter. As of September 30, there are 3.5 roles per client up from 3.2 roles per client as of June 30.

For headcount at the end of the Third Quarter, Forrester had a total staff of 1068, 79 of which are Jupiter employees, up from 776 at September 30, 2007. Current headcount includes a research staff of 411, up 80 from September 30 of last year, 41 of those are Jupiter employees and sales staff of 363 up 46 from September 30, 19 of which are Jupiter.

The last topic I'd like to cover today is our business outlook for the Fourth Quarter and full year 2008. In summary, we are pleased with our first nine months performance. In particular, the success of driving our research revenue and the acquisition and integration of the Jupiter business. With the turmoil in the financial Markets we believe we are well positioned with no debt and $254 million in cash and securities to be opportunistic in the marketplace both with new customer opportunities and potential acquisitions. Our pro forma guidance for the Fourth Quarter and full year reflects our early plans for integrating the Jupiter Research business and incorporates Jupiter business results effective August

Guidance excludes the following - Amortization of intangible assets, which we expect to be approximately $500,000 for the Fourth Quarter and approximately $1 million for full year 2008, and non-cash stock based compensation expense of between $1.2 million and $1.5 million for the Fourth Quarter and $5.1 million to $5.5 million for the full year 2008, costs associated with the stock option investigation and restatement of our historical financial statements, and gains and impairments on sales of marketable securities and unmarketable investments.

For the Fourth Quarter we're aiming to achieve total revenues of approximately $64 million to $70 million and operating margin of between 18% to 21%. Other income of approximately $1.5 million, a pro forma income tax rate of 39%, and pro forma diluted earnings per share of approximately $0.35 to $0.39. Our pro forma full year guidance is as follows: Total revenues of approximately $242 million to $248 million, pro forma operating margin of approximately 17.5% to 18.5%, interest income of approximately $6.6 million, pro forma income tax rate of 39%, and pro forma diluted earnings per share of between $1.29 to $1.33. We have provided guidance on a GAAP basis for the Fourth Quarter and full year 2008 in our Press Release and 8-K filed this morning. Thanks and I'll turn the

Thanks Mike and welcome to Forrester's Q3 investor Conference Call. In my remarks, I will address three topics. 1) the economy and Forrester's positioning, 2) Forrester 's three business imperatives and 3) an update on the acquisition of Jupiter Research.

Turning first to the economy. We do not believe that technology Forrester's primary market space will be as hard hit in this recession as it was in 2001-2003. Now why is that? The tech industry had a long way to fall in 2001. Spending was out of control. Y2K efforts were over, and the dot com era had ended. The result was a deep tech recession much more severe than the secular economic slowdown. This time around, we think the environment is quite different. Tech spending has become much more disciplined in large companies, return on investment analysis is required for large projects and CFOs scrutinize all large tech expenditures.

In the seven intervening years, technology has become much more pervasive. Cell phone usage has doubled and broadband penetration has increased fivefold in the United States. This means large companies must continue to spend money on websites, web Marketing, social computing and eCommerce to connect to customers. Finally, new technologies many of which save money are on the agendas of large corporations. These include green IT, pod computing, virtualization and social computing.

Now, this said there's no doubt that large companies will be spending less as they move into recession, and where does this leave Forrester? The Company is prepared for a changing economy. Since January of 2008, Charles Rutstein, Forrester's COO has been working with his team to plan for a variety of contingencies. Our business is driven by relevancy. Since the Second Quarter we have been diligently working to generate new research, conference calls, leadership Board meetings and events that are aimed at helping our clients effectively move through these times. We are living and breathing roles and this has enabled the research team to identify and respond to the new challenges faced by our clients. And here are a few examples from research: For the consumer market research professional there's a new report, "Ten Ways to Recession-Proof Market Research", for CIO's a report "In a Down Economy Can Green IT Save Your Business Money?" and for IT infrastructure and Operations professionals a report "Combating the Rising Cost of Telecommunications in Today's Economy". Clearly, Forrester can be relevant in good times and also in bad.

Before I move on, I want to, before I move on I'd like to leave you with two final thoughts about Forrester and the economy. Firstly, this Company has been through many economic changes in the past, including the 1987 Stock Market crash , the 1992 recession, and of course the dot com crash. We have experienced helping large companies come to grips with uncertain times and we have experienced managing our business in uncertain times.

Secondly, I can say that we are very glad to be role based as this economic storm approaches. In past recessions Forrester was focused on topics and vertical markets. In recessions topics can evaporate and I remember back to 2001 when it happened with the topic eBusiness, and specific vertical markets can be hit very hard but roles don't go away. The 19 executives that Forrester focuses on will wake up every morning and go to work and Forrester will help they'll as they attack their new challenges and fight to be successful. It's always good to be client focused but in bad times it gives you the greatest chance to increase value and retain clients. Will our business be challenged? Undoubtedly. But we face these times with the right strategy and experienced team and a roster of clients drawn from the largest companies in the world.

I'd like to switch gears now and turn to Forrester's three business imperatives. Number one, completing the buildout of our role based strategy, two, growing our sales platform, and three, increasing the quotient of our business that is syndicated. And then I want to review roles first. Q3 was the Company's seventh quarter in the role based strategy. As I reported on the Q2 call we are progressing towards roles at our planned rate. This strategy will play out over years, not months or quarters and we're off to a very good start. I am particularly proud of the progress we have made in research. Our 19 research teams are settling into the task of making each of our 19 roles successful. Guaranteeing relevance for each role is moving from art to science. We continuously survey each role to insure our research agenda addresses their most pressing challenges, problems and issues and some earlier results from this process are the economy centered research efforts that are referenced above.

Sales is also successfully transitioning to roles. The salesforce of each client group are specialized to specific sets of roles. IT sales focuses on eight roles, marketing and strategy on seven and Technology Industry sales group on four roles. As of January 2009, multiple Forrester sales teams will be calling on all Forrester accounts, and this is the final step in transitioning sales to be fully role based. This move effectively triples our sales territory. It means that we can reach our full compliment of roles in all of the 2700 client organizations that we work with. We believe salesforce specialization will ultimately increase sales productivity.

Forrester's second business imperative is to increase the sales headcount 15% to 20% per year. Year-over-year the salesforce has increased by 15% and year-to-date it is up 17%. While we are still not happy with the rate of sales attrition we did see a small drop in the third quarter versus 2007. All this puts us on target for 2008 and also sets the ground work for our 2009 plan. Forrester's third business imperative is to increase Q or the quotient of Forrester's business that is syndicated. Our goal is to gain two points of Q per year for the next three to four years, with an ultimate goal of Q at 70%. The Company is driving Q through two means. Number one, higher relevancy of research to role based resulting in higher value to clients and two, a sales compensation plan that offers special incentives for Q sales. I am pleased to report that the Company is on target to expand Q revenue by 1.5 to 2 points in calendar 2008.

Turning now to the Jupiter acquisition, while Forrester and Jupiter have been together for only two months I can report the deal shows promise on a number of levels. Financially, Forrester, excuse me, Jupiter performed according to plan in its first two months with Forrester. On the research front, Jupiter analysts and Forrester analysts are already collaborating and as an example of this the Forrester Jupiter team issued a jointly developed forecast for holiday eCommerce sales. Forrester welcomed 130 net new clients from Jupiter in the third quarter and I was with the Head of Market research at one of the largest cable companies in America two weeks ago and he uses both Forrester and Jupiter Research and he's looking forward to renewing and enriching both contracts. He saw the two products as being highly complimentary. I have visited nearly all Jupiter employees and I am glad to report the cultural match is very very close. I was in the Jupiter San Francisco office several weeks ago and it felt very much like an energetic group of long time Forresterites, ambitious, smart and client focused with lots of cultural alignment. Finally two important metrics stand out, attrition of Jupiter people and clients since the acquisition have been minimal.

Now I want to say a few words about M & A. In these difficult Financial Times Company's with cash have an advantage over those seeking alternative means of Financing. We believe there will be more acquisition opportunities for Forrester as prices drop and the value of our cash as transaction currency increases. Our M & A efforts will expand, not contract in the months ahead.

So to conclude, yes the economy is challenging but we have a strategy that will keep our value and relevancy high as economic climate shifts. The Company has weathered many storms in the past and we will persevere. Mike and I will be traveling this quarter to visit with the investors and hope to see you on one of these trips. Thank you for listening to the call. I'd now like to welcome Charles Rutstein, Forrester's COO to join Mike and me for questions. We will

(OPERATOR INSTRUCTIONS). Your first question comes from the line of Laura Lederman with William Blair. Please proceed.

Yes, good morning. Thank you for taking my questions and congratulations on a good quarter in a difficult environment. I wanted to start off by asking about any signs of economic weakness that you detected, any vertical markets, any geographies we're hearing from the Microsoft and the SAPs of the world, obviously they're a lot larger than you are and selling different products and services than you do, but do you detect any signs at all even in the end of September where things got so strange for a lot of companies?

Hi, Laura, it's Charles. A couple comments I'll give you generally here. First off we did not see material differences in any of the segments in which we play, nor any of the vertical industries in which we play, so despite what we saw in the news what all of us read there was no material difference in the performance, for example, in the Financial Services sector for us versus others.

I will say it is a more challenging environment from a sales perspective. We continue to see longer sales cycles than we saw certainly a year ago. We see a requirement for more signatures than we saw a year ago. We're seeking to run the business to accommodate that need building larger pipelines with larger coverage, for example, but ultimately what we're seeking to do of course is drive relevance as George noted both in good times and in bad so the research that we're writing hopefully is meeting with receptive ears.

You mentioned that the sales cycles are longer versus a year ago. What about sequentially?

I think only modest change if any in the quarter, Laura, versus Q2.

Okay, moving along, can you talk a little bit about pricing? You mentioned sales cycles a little longer. Are customers anymore price sensitive or are they pretty much, in other words what I'm trying to get at is discounting?

Yeah, I would say discount rates have not materially moved either, either sequentially or year on year. You may recall Laura that we did not do a price increase at mid year this year. We are in the midst of perhaps one of the biggest looks at pricing and packaging that we've done in many years and as we've said on the last call we anticipate making some changes there in 2009. We are focused on discounting which I think is at the heart of your question and I think we're making good progress there.

Can you talk a little bit about the changes you're thinking of making in pricing and packaging and would that change if the economy remains weak in '09 and on that view, any updated thoughts on IT spending and what you guys are looking for in '09 and what type of economic scenario that's predicated upon?

Big question, Laura.

Sorry.

This is George. Hi, Laura, how are you? On the pricing front, obviously, we're not going to bring a price increase into a economic storm. It's just not going to happen. So we will be very smart. We're doing lots of analysis presently but we're going to make the call early 2009 as to where those prices will come down.

So what type when you talk about major changes and packaging and pricing can you give us a sense of that?

Well Laura, we're doing I would say a very deep look at it. That may or may not in fact result in major changes in the packaging or anything else. As George said, we're cognizant of the environment in which we operate here, so we'll be prudent about the changes which we make. All I want to suggest to you at this point though is that the amount of analysis that we're doing the rigor with which we're doing it is greater than probably at any point in the past.

And George, any thoughts on IT spending for '09 and also what type of GNP that's predicated on and related question, you guys expect a budget flush in Q4?

That always happens. It may be less so this quarter but it always happens. We observed that for many years, so let me give you Andy Bar tell's numbers which he is our economy that follows tech spending. He had it up in 2008 5%, he had tech spending up in 2009 6%. Now it looks a little bit deceptive. If you look at it on a quarterly basis he's showing weakness in Q4 of '08, Q1 of '09 and Q2 of '09 potentially leading over into Q3 of '09 so while it goes 5% or 6%, it's 2% in those three quarters. So the curve bends down pretty radically here but then bends back up we think middle of next year or end of next year.

Final question for me and then I'll pass it on. If you look at '09 and I realize you aren't giving guidance for '09, would it look sort of similar to '08 in terms of growth in that sort of thing because it seems as though most investors are calling don't care about '08 anymore. They really care about valuing and what we think the numbers look like in '09 so I realize it puts you in an uncomfortable position but whatever you're willing to give us would be great.

It's Mike. From our perspective we obviously give full year guidance at our year-end call which will give us full flavor on that and obviously a lot predicated on what happens at the Fourth Quarter so at this stage it's premature for us to give any financial perspective on 2009.

I thought I'd try.

[LAUGHTER]. Good try. Thanks Laura.

Thank you, guys.

Your next question comes from the line of Bill Sutherland with Boenning & Scattergood. Please proceed.

[LAUGHTER]. Close enough, hi, everybody. Mike, can you speak to the FX impact in Q3 in terms of I guess did you speak to it in terms of points of revenue growth?

We did. We pick up a point on the quarter, Bill, and when you look at our guidance for the Fourth Quarter we're actually anticipate it sort of going the other way because as now there's been a lot of movement in foreign exchange particularly with the Euro and the pound in the last obviously in the last 30 days, and so we're anticipating that and we factored that into our guidance that it will actually move the other way in the Fourth Quarter for us.

So a negative point of revenue growth?

Yeah, that's right.

Okay. And if obviously rates stay where they are, then we should sort of assume that going into next year, all things else equal?

Yes. I'm the last guy to try and project foreign exchange rates at this stage of the game.

I'm just saying given your mix, yeah, okay.

Yeah. I think that's right. If you look at our mix, within the US outside the US, Bill, I think that that's going to be reasonably stable. It has been the last few years so foreign exchange will impact accordingly and next year if we have that same kind of movement.

I noticed for two quarters at least now you've had just a little bit faster growth domestically than international. Is that result of delivered focus do you think?

Hi, Bill. It's Charles. No, I don't think so. I think that's just a little bit of fluctuation in the numbers and how some of the numbers round. I think Mike's point is right. We aren't going to see any material change here in the foreseeable future.

Okay. What percentage of your bookings occur in Q4 and renewals?

It's approximately 40% of our bookings activity is Fourth Quarter, so it's for us obviously significant which again which is why when we talk 2009 it's difficult to get our arms around what we think that might be.

And in a normal year, a more normal year, would you put your pricing in after the bulk of the bookings or do you do it in anticipation of the Q4 booking cycle?

It's historically been in mid Summer, it's been typically in July when we take pricing up and so this year, and actually, a discussion around pricing strategy occurred prior to all of this economic turmoil, this was something that had been on the strategic agenda for us for some time so we normally do it mid year. We postponed it because we were in the middle of this review which was planned so typically it's been mid year.

It's also not altogether unusual, Bill, to do January increase for example, this year, we did a January increase on user group, on data, and some of the other things.

Great. Just a couple more. On the salesforce attrition, you said you were going to work to further improve it. What kind of steps do you think will be most meaningful at this point to improve that further?

So I think those probably come, Bill, it's Charles again, in two categories. If you look at the attrition that we are seeing, about half of it is performance based today and so while I'm happy with the edge that our sales leaders are showing if we can make investments to get more people to plan then obviously the need for performance based terminations declines so we're making investments there mostly in development and training on sales skills. The other bit that I think we can affect is about 25% of the total and that's the voluntary attrition and there of course , that's about making the job more attractive to people so they stay in that job for a longer period of time. The remaining portion about 25% of the turnover is stuff that I would classify as sort of out of our control, it's people retiring, people relocating, and that

This is George, Bill. As we look at this issue internally we are very focused on middle management in sales and improving that over the next 12-18 months, like we're spending some pretty significant development dollars in that space.

Okay. And last, George, you mentioned that you're very pleased with how the clients are dealing with the complimentary of your research and Jupiters. What happens when you fully integrate Jupiter and it just becomes a Forrester line? Do you think it will still that the client will still want both pieces?

Hi, Bill it's Charles. Yeah, I think the answer is yes, of course. That's a core part of why we did the deal. Jupiter covered a number of things that people in our roles need that we did not cover, and so the complimentary nature of that is apparent right off the bat. The forecasting that they did once again very complimentary to our own and so as we create the packaging for those two sets of intellectual property to come together into what we give to our clients, I think we're actually maybe surprised on the upside at how complimentary it is.

It's one plus one equals two. We saw a number of clients actually enrich into the Forrester contracts in Q3. Of course, that was the theory behind the acquisition is that we saw them as complimentary and in fact that's being borne out.

And last, George, the tech spending numbers that you guys put out is that US or worldwide?

Those are US. The worldwide numbers are coming out I think in another couple weeks.

Okay. Thanks, everybody.

Okay, thanks, Bill.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Brian Murphy with Sidoti. Please proceed.

Hi, thanks for taking my question. Mike, I guess with the addition of Jupiter you picked up 19 sales heads there, which are pretty much in line with your growth target for the salesforce. Just backing that out it looks like you added an additional sales hit organically. Would you be adding, do you expect to have net adds to the salesforce over the next couple quarters?

I think, yeah, our game plan is to continue, we haven't pulled back on the targeted growth in sales the 15-20%. I think we had an opportunity and we picked up some great sales folks with Jupiter and I think we're looking to leverage what we picked up there as we integrate that into the M& S group so in aggregate we're still looking to be at the 15 plus range for the full year and going forward.

Just going forward, just thinking about growing the salesforce, is that mostly going to come through acquisition ?

I think it will be a blend. This is Charles, so I think that number that Mike is giving that 15-20% is a good number that will come both organic and potentially with the right deal through M & A.

I don't think, we would not plan to make the 15-20% through acquisitions. I think it will be primarily organic growth.

Okay, great. And just to follow-up on the question about product integration. Did you guys, did you put out a time frame for that?

We have not given a specific time frame but we're rolling it into that same packaging and pricing analysis that I spoke about earlier and so we'll probably be announcing that early next year.

Got it. I understand. And I think you guys referenced your consulting business slowing a bit. Is that more due to the environment or internal focus?

I think that's really internal focus. We set a goal for ourselves this year of moving one to two points of the revenue from non-syndicated consulting to the core syndicated business, the research and FLB and data businesses. Of course we're doing that in part as George mentioned by creating incentives for the salesforce to sell those products and in fact that's worked out just as we had planned. So that's the shift that we are seeing.

Okay, so that's sort of mid single digit growth from the service line. Is that sort of a good run rate to think about going forward ?

Well part of that depends on the overall 09 numbers.

Yeah, so it's premature to talk about 2009 so I think the balance of the year, it's probably reasonable, although we were surprised in a good way last year with consulting in the Fourth Quarter so --

As you're thinking about the model I think it's fair to say we will seek to grow the syndicated line faster, the research services line faster and the other line will trail slightly.

I think on this topic, Brian, we are going to this recession unlike '01, '02, '03 with a wider portfolio of products. Consulting is an important component in the product set to have going into a recession. We think that it doesn't totally hedge us but it will help balance the portfolio.

It's also a little hard as you think about your model for the Fourth Quarter it is a little hard to take out the seasonality effects. Consulting is seasonally stronger in Q4 as well.

Got it and you guys mentioned that you're projecting tech spending to be sort of back end loaded next year. Would you expect your business to be more back end loaded than usual?

Not necessarily, we haven't drawn a correlation to tech spending and Forrester performance so I think I don't anticipate that our mix of closing deals and bookings is going to change dramatically. I think that's all George was talking about was pretty much Andy's projections for how tech spending itself will flow. Ours doesn't necessarily mirror that pattern.

Okay, great. And just one more. I'm new to this story. Historically what percentage of your growth has come from price increases?

We've talked about historically it's ranged from 3-5% and that's been the case for probably the last three years in terms of the data I've looked at.

Okay, thanks very much.

Thanks, Brian.

Thank you.

Your next question comes from the line of Joel Oslow with OSI. Please proceed.

Hello guys how are you?

Hi, Joe.

Concerning the 15-20% salesforce adds, I know you don't want to get into 09 much but could you talk about is this something that would be layered in as you see successor as the economy strengthens or how would you look about layering that relative to just the economics that we could be seeing in the next 12-18 months?

Sure, Joel. This is Mike. The way we look at it and what we've stated before is and we want get into specific 2009 items but we've always said that if in fact we ran into a real economic headwind that one of the tools that we have is the ability to flex that hiring. We have the ability to slow it down. If we believe that in fact things have slowed to a point or the ability to accelerate it. We made a conscience decision at the end of last year when it was somewhat uncertain about how the economy was going to perform in the first half of 2009, we made a conscience decision to put our foot on the accelerator and hire because we believed that frankly it wasn't going to happen that soon and it proved itself out, if in fact things are slowing and we see that, and that's the beauty of our model we can see a little bit further out with the syndicated model will in fact slowdown hiring if we believe that's appropriate or we will accelerate it if we believe the opportunities are there.

And then on the pricing study that you're doing is this being driven by customer feedback or is it more internal questions that you want to have answered before you progress it?

I would say it's both of those, Joe. This is Charles. It's both of those and much much more. We have a tremendous amount of client input that has gone into it across geographies and across our client groups but also of course we're thinking about where we want Forrester 's business to be over the long haul.

And Joe this is George. I think that it will also reflect two years being two years into role based and adjustments we want to make based around the business model driven, the role based business model.

Okay, thank you.

Thanks.

Your next question is a follow-up question from the line of Laura Lederman with William Blair.

Hi, guys. Just two quick ones. Can you talk a little bit about where the salesforce attrition is? I seem to remember it's in like the low 20s. Is my memory too high?

No, I think your memory is right on, Laura, and we are, it's down from a year ago to George's point but it is still sitting in the mid 20s which from our perspective is not where we would like to be. Again it's an improvement but we think we have a tremendous amount of opportunities in that area still.

Where would you like it to be?

I think I'd say with any high performing organization, I think if we can get it down around 20 over the course of the next year, we would be happy. When you're in a high performing organization there's a certain natural level of attrition that occurs as a result of performance management so I don't ever expect that we will be single digits at all. I think 20 would be a good target for us next year.

And final question which is a little bit more discussion on the acquisitions. Have you seen the prices already come down? Would you do big ones, little ones? I'm not quite sure what's out there and would they be in all three areas in terms of data and vendors?

I think again, as we talked about in past calls there's a couple north of 50 million, there's a couple around 50 million and a lot of little guys. I think that no one likes to adjust the price given the economic conditions but I can definitely feel the softness creeping in here. There's that factor and the other factor is the capitalization of these firms. As you know, Jupiter OMCG a Private Equity firm and their lines of credit were being heavily tightened and that really helped us make the deal at the end of the day, so those two factors, I can already feel a little bit of that creeping in , Laura. Okay,

Okay, thanks, Laura.

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