Forrester Research Inc (FORR) 2009 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second quarter 2009 Forrester Research earnings conference call. My name is Ericka, and I'll be your coordinator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Ms. Karyl Levinson, Vice President of Corporate Communications. Please proceed.

Good morning and thank you for joining our second quarter 2009 call. With me today are George Colony, Forrester's Chairman of the Board and CEO, Charles Rutstein, Forrester's Chief Operating Office, 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 will open the call to Q&A. A replay of this call will be available until August 6, 2009, and can be accessed by dialing 888-286-8010. Please reference the pass code 50137947. This call is also available via web cast and will be archived in the investor section at Forrester.com.

Before we begin, I would like to remind you that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expect, believes, anticipates, 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 forth 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 will now hand the call over to Mike Doyle.

Thanks, Karyl. I will now begin my review of the financial performance for Forrester's second quarter 2009 results, the balance sheet at June 30, our second quarter metrics, and the outlook for the third quarter and full year 2009.

Please note that the income statement numbers I'm reporting are pro forma and exclude the following items -- the amortization of intangibles, noncash stock-based compensation expense, reorganization costs associated with the previously announced reduction in Forrester and facilities consolidation costs, professional fees related to the stock option investigation and restatement of the Company's historical financial statements, and net realized gains from securities and nonmarketable investments.

Also, we continue to book an effective tax rate at 40% for pro forma purposes. The actual effective tax rate for the second quarter of 2009 was approximately 48%.

For the second quarter of 2009, Forrester exceeded its quarterly guidance for pro forma operating margin and earnings per share and met its guidance for revenue. We were able to achieve this performance despite continuing challenges in the global economy, which had an adverse impact on many of our customers.

That said, softness in some of our metrics, deferred revenue and enrichment in particular, indicates we are not completely immune to the affects of a global economic downturn and remain cautious about the third quarter and full year 2009.

For the second quarter and first half of 2009, we experienced a decline in deferred revenue and enrichment in both quarters, which will have an impact on future revenue.

While we continue to renew existing customers at better rates than previous down turns, it is not surprising that our ability to enrich existing customers has declined from a year ago.

As a business, we continue to remain focused on prudent expense management, innovating for our clients, and accelerating the role-based strategy. In doing so, we will be well positioned when the economy begins to move upwards.

Now, let me turn to a more detailed review of our second quarter results. Forrester's second quarter revenue decreased by 3% to $61.6 million from $63.5 million in the second quarter of last year, in part due to softer events performance and the adverse impact of foreign exchange rates.

Second quarter research services revenue increased 3% to $39 million from $37.9 million last year. Research services revenue comprised 63% of total revenue for the quarter versus 60% in the second quarter of 2008. Year-to-date research services comprised 66% of total revenue versus 62% for the same period last year.

Second quarter advisory services and other revenue declined 12% to $22.6 million from $25.6 million in the second quarter of 2008 and represented 37% of the total revenue for the quarter. This reflects an expected softening of the events business, a decline in the demand for our advisory and consulting services due to the global economic slowdown, and our strategic decision to focus on growing our syndicated business.

Our international revenues declined at a slower rate than the U.S. and represented 30% for the second quarter of 2009, up from 29% in the second quarter of 2008.

I would now like to take you through the activity behind our revenue and review the progress for each of our products.

Despite the economic slowdown, we remained focused on our role-based strategy, and a result, and as a result, in research we added 476 new research documents to RoleView in the second quarter. The top three research roles are the enterprise architecture professionals with 4,129 clients, application development and program management professionals with 3,832 clients, and IT infrastructure and operations professionals with 3,430 clients.

We replaced the direct marketing professional role with a customer intelligence professional role and added a new role, the technology sales enablement professional role. George will discuss this in greater detail later in the call.

We hosted 98 teleconferences in the second quarter with a total attendance of 3,008.

Forrester Leadership Boards. As expected, the FLB had a challenging quarter given the difficult global economy. The six boards focused on IT roles have a total of 928 members. The technology industry boards have a total membership of 345, and, finally, the marketing and strategy boards have a total membership of 251. At the end of the second quarter the Forrester Leadership Boards had 1,524 members, down 2% from March 31, 2009.

In our data business we continue to add and renew an impressive list of clients. We added or renewed eight 1B+ companies in the second quarter, including Assurant, Home Depot, Electronic Arts, and Travelers.

The demand for our consulting services declined from the previous year by 8%, in part due to our increased focus on our syndicated business, but primarily driven by the global economic slowdown. Many projects are discretionary and have been deferred.

In our events business, this business showed softening due to economic factors, both in sponsorship and attendee sales. However, they continue to be profitable and a vital part of our role-based strategy.

We hosted three IT role based events in the second quarter; Security Forum EMEA, IT Forum North America, and IT Forum EMEA. And we had two marketing and strategy role based events; Marketing Forum North America and Customer Experience Forum North America.

Attendance at the first four of our events was below prior year but at targeted levels. Our Customer Experience Forum ended the quarter exceeded planned performance for both attendees and sponsors. For the third quarter, we will be hosting one IT role based event, Security Forum North America. We expect our event business to remain challenged for the balance of the year but also very profitable for Forrester.

For the second quarter expenses and operating income -- operating expenses for the second quarter were $47.4 million, down 7% from $51.1 million in the second quarter of last year. The operating expense decrease was a result of a decrease in sales commissions and bonuses associated with lower performance, reduced discretionary travel and events related expenses, and recruiting costs. Our operating management teams continue to demonstrate excellent spending discipline.

Operating income was $14.2 million or 23% of revenue, compared with $12.4 million or 20% of revenue last year. The improved margin performance year-over-year reflects continued Company focus on our higher margin syndicated business combined with continued cost management.

Other income for the quarter was $453,000, down 73% from the second quarter of 2008. This decrease reflects a net foreign exchange loss of $743,000 associated with intercompany payables and receivables in addition to a lower interest rate environment in the second quarter of 2009 as compared to the same period in 2008.

Net income for the second quarter was $8.8 million and earnings per share was $0.38 on diluted weighted average shares outstanding of 22.9 million compared with net income of $8.6 million and earnings per share of $0.37 on $23.6 million weighted average shares outstanding in the second quarter of last year.

Turning to Forrester's six-month results, total revenue for the six-month period ending June 30, 2009, declined slightly to $118 million from $118.4 million last year. For year-to-date 2009, research services revenue increased by $4.3 million or 6% to $78.1 million. Research services revenue was 66% of total year-to-date revenue, four points higher than the same period last year.

We are expecting research services revenue to end 2009 at 66%, two points higher than 2008, which is in line with our objective of driving a higher percentage of our total revenue from research services, which we refer to as Q.

Operating income for the six-month period was $23.3 million, or 19.8% of revenue compared with operating income of $20.5 million or 17.3% of revenue in 2008. This is slightly above our long-term operating margin goal due to tight expense controls in this difficult economic environment.

Net income on a year-to-date basis increased 2% to $15 million from $14.8 million last year, and earnings per share for 2009 increased 3% to $0.65 on diluted weighted average shares outstanding of $23 million compared with $0.63 and $23.6 million weighted average shares outstanding last year.

Now, I'd like to review the balance sheet, with total cash and marketable securities at June 30 at $277 million, up approximately $17 million from year-end 2008 balances. We have no debt, and our balance sheet remains strong. We continue to classify the portion of our marketable securities relating to auction rate securities as a long-term asset on the balance sheet.

We generated $29.4 million in cash from operations during the first half of 2009, which is down $8.1 million or 22% from the prior year due to decreased cash receipts resulting from lower bookings activity, payments associated with the reorganization costs, and an increase in estimated tax payments.

During the first half of 2009 we repurchased 497,000 shares at a total cost of $10 million. We will continue to be active with the buyback at selected price points.

Accounts receivable at June 30, 2009 was $36.3 million compared to $44.9 million as of June 30, 2008. Our days sales outstanding at June 30 was 77 days, down from 79 days last June 30, 2008. Accounts receivable over 90 days was 9% at June 30 of this year, which improved from the prior year at 13% and in line with our targeted range.

Both DSO and accounts receivable over 90 days improved versus the first quarter of this year. DSO for the second quarter of 77 days was down from 83 days in the first quarter. Accounts receivable over 90 for the second quarter was 9%, down from 12% in the first quarter of this year.

Overall we are pleased with our performance in this area, particularly given the difficult economic situation.

Net property and equipment increased by 11% versus June 30, 2008, to $7.3 million and is primarily due to leasehold improvements associated with our Cambridge Headquarters. Our capital spending for the first half of 2009 was approximately $2.9 million.

Deferred revenue at June 30 was $98.1 million, down 9% over June 30, 2008. As you know, we consider deferred revenue to be one of the best leading indicators of our business, and the decline reflects some of the challenges we are encountering in the marketplace.

Our future AR balances are amounts to be invoiced in the future for clients with multiyear deals or scheduled payment terms. Deferred revenue plus future AR declined 11% year-over-year.

As we referenced in our earnings release this morning, given the nature of our business model this decline in our deferred revenue will be reflected in our revenue numbers as the year progresses.

And now I'll review Forrester's second quarter metrics. Agreement value; this represents the total value of all contracts for research and advisory services in place without regard to the amount of revenue that has already been recognized or is yet to be recognized, and was $185.5 million at the end of June this year, a 7% decline from last year.

At June 30, Forrester's retention rate for client companies was 71%, down two points from March 31, 2009. Our dollar retention rate during the same time period was 81%, a two-point decline from the first quarter of this year.

Our enrichment rate was 99% for the 12-month period ended June 30, 2009, which is down two points from the first quarter of this year.

Client and dollar retention rates and enrichment rates are calculated on a rolling 12-month basis.

At the end of the second quarter, our total for client companies was 2,493, down 150 from 2008 year end. The decline is primarily attributable to the loss of small technology vendors, not large enterprise clients.

The impact of reduced client count, enrichment, and retention is reflected in our deferred revenue declines. In this difficult economic environment, client losses, primarily smaller customers, are not offset completely by new business activity. Our larger customers are feeling the effects of the downturn. While renewal rates are much better than the last economic downturn, they are renewing flat to down, which is affecting enrichment rates.

As of June 30, there are 3.2 roles per client in line with our reported 3.2 roles per client as of March 31, 2009.

For headcount, at the end of the second quarter, Forrester had a total staff of 974, down from 993 at the end of the first quarter of this year. As we continue to replace turnover selectively, our current headcount includes a research staff of 381 and sales staff of 322.

The last topic I'd like to cover today is our business outlook for the third quarter and full year 2009. In summary, we've effectively managed our expenses and eliminated discretionary spending during the first half of 2009, allowing us to perform at or above our pro forma operating margin and earnings per share guidance.

Our balance sheet is in excellent shape, which will allow us to be opportunistic in this market, pursuing acquisitions, new business, and continued share repurchase.

We continue to remain focused on our role-based strategy and have begun implementing the next key component of this strategy, repackaging, which George will describe in further detail in his remarks.

In the near term our business remains challenged by the current economic environment as evidenced by our declining deferred revenue and other metrics, and we remain cautious in our outlook for the third quarter and the remainder of the year.

Our pro forma guidance for the third quarter and full year 2009 continues to reflect our view that the economic conditions that prevailed during the last few quarters will continue throughout 2009.

As a reminder, our guidance excludes the following -- amortization of intangible assets, which we expect to be approximately $500,000 for the third quarter and approximately $2.1 million for full year 2009, and noncash stock-based compensation expense of $1.1 million to $1.6 million for the third quarter and $5.5 million to $6.5 million for the full year 2009.

Costs associated with the stock option investigation and restatement of our historical financial statements, gains and impairments on sales of marketable securities and nonmarketable investments, and $3.1 million of reorganization costs, which were recorded in the first quarter of 2009.

For the third quarter, we're aiming to achieve total revenues of approximately $50 million to $53 million. This range reflects an 11% to 16% decline versus prior year. Foreign exchange adversely impacts our year-over-year comparisons.

On an FX neutral basis revenues would range from down 7% to 12% versus prior year. We look for operating margins to be in the range of 9% to 11%. Other income, which includes interest income and the impact of foreign exchange, will be approximately $800,000, our pro forma income tax rate will be 40%, and pro forma diluted earnings per share of approximately $0.13 to $0.17.

Our pro forma full-year guidance is as follows -- total revenues of approximately $220 million to $233 million. This reflects a decline of between 3% and 9% versus prior year. On an FX neutral basis, revenues are between down 1% to down 6% versus prior year.

We expect pro forma operating margins to be approximately 15% to 17%. We anticipate other income of approximately $3 million and a pro forma income tax rate of 40%. We anticipate pro forma diluted earnings per share of $1.00 to $1.11, which reflects a tightening of the range to the upper end of our previous guidance.

We have provided guidance on a GAAP basis for the third quarter and full year 2009 in our press release and 8-K filed this morning.

Thanks very much, and now I'll turn the floor over to George.

Thank you, Mike. And I'd like to welcome everyone to Forrester' Q2 Investor conference call.

In my remarks I will address five topics. One, Forrester's tech spending projections. Two, Forrester events. Three, progress on RoleView changes. Four, the company's three business imperatives. And finally, the appointment of a Chief Sales Officer for the Company

Turning first to Forrester's projections on tech spending. Worldwide tech spending is predicted to fall by 4.5% in local currency in 2009 with a predicted rebound into positive territory in 2010.

Forrester analysts believe that tech spending will grow faster than GDP next year as it heads off into what we call the fourth wave, a period of sustained growth driven by a portfolio of technology changes.

During this five- to eight-year period, we are forecasting that tech spending will outgrow the general economy.

In the short term, cuts in tech spending and slower GDP growth are impacting Forrester's business as evidenced in Mike's remarks. The Company is methodically navigating through this period, keeping expenses tightly controlled, pushing forward with roles, and planting innovation seeds that can sprout as we move into recovery.

While this year will be challenging from a booking standpoint and 2010 will be challenging on a revenue basis, management remains confident that the Company's long-term opportunity, reaching the 4 million executives in our 20 roles, will ultimately return us to historical growth rates.

I would like to review specific aspects of our business, starting with events. As we have discussed on recent calls, Forrester decided to stick with its events plan for 2009, and Q2 was a test of that decision. As Mike has noted, we held five events in the quarter with two of them, IT Forum U.S. and IT Forum Europe, the largest of the year.

Attendance was down at the first four forums of the quarter on a year-to-year basis, but they were on plan. We saw a pickup late in the quarter as the event for Customer Experience Professionals was sold out.

The decision to keep events intact for the year was a good one despite the smaller numbers. All events for the quarter were profitable, and the contact with existing and prospective clients will help drive future business.

Turning now to repackaging, in the first quarter call I described how RoleView has been split into three products -- IT RoleView, focused on our eight IT roles, Marketing and Strategy RoleView, focused on seven M&S roles, and Technology Industry RoleView, sold to five roles in technology providers. We now have three sales groups, each selling a discrete research product to a unique set of roles.

The second quarter was the first in this new product structure. We undertook this change for five reasons. One, higher relevancy. Two, to enable clients to pay for just what they need. Three, specialization of the sales force. Four, to increase the number of roles per client. And finally, five, a higher return from M&A activity. Early client feedback has been positive.

The insurance aspects of the change, courtesy inquiries and courtesy views, have given clients confidence that they can stay centered on their role research while being able to widen their searches if necessary. I will keep you updated on the impact of repackaging as the year progresses.

I would now like to give you an update on Forrester's three business imperatives. And they are, one, completing the build out of the role-based strategy. Two, growing our sales platform. And three, increasing the quotient of business that is syndicated.

I'd now like to give an update on Forrester's three business imperatives, and they are -- number one, completing the build out of our role based strategy, two, growing our sales platform, and, three, increasing the quotient of our business that is syndicated.

Turning first to our progress in role-based, if you attended or listened to the Forrester Investor Day held in Cambridge in June, you heard me talk about the move from buildup to breakthrough.

We are nearing the time when the preliminary work on roles, our buildup stage, will enable the Company to pivot into a more dynamic stage of breakthrough where the success we bring to clients expands. As we prepare to move from buildup to breakthrough, the Company continues to sharpen its role offerings.

In Q2 we added a new role within the technology industry space. This role is called the technology sales enablement professional. Now this role is critical within tech companies. It supports sales force strategies, structure, go-to-market, competitive intelligence, and positioning.

In response to client feedback, we have replaced the direct marketing professional role in marketing and strategy with the customer intelligence professional. This marketing role dedicates its time to obtaining a complete and accurate picture of customers and then driving the overall marketing strategy across channels and lines of business.

All of Forrester's clients care about increasing their revenue, and both of these roles involve themselves directly in that endeavor.

We have instituted what we call role deep dives, in-depth research on each of the 20 roles. The deep dives sharpen the success imperatives of each role, further driving relevancy. And we expect to conduct this process yearly for all roles.

Turning to the growth in the sales platform, our goal is to increase the size of the sales force by 15% per year as a means of tapping the Company's large market opportunity. We reached this goal in 2008. In 2009, however, in response to the economy, the sales force will not expand.

Now given lower productivity in that sales force for 2009, the Company will be able to expand bookings in 2010 through a combination of higher productivity and some increased headcount. This likely means that we will not return to our target of 15% sales force expansion until 2011.

Our final business imperative is to increase the quotient of our business that is syndicated, what we call Q. As Mike has mentioned, the Company is on a long-term voyage of moving Q from 62% to 70%. We added two points in 2008, ending the year at 64%. We are on target to add two points, as Mike has mentioned, in 2009.

Now before I conclude, I wanted to let you know about a change on Forrester's executive team. As of today, Greg Nelson has been appointed to be Forrester's Chief Sales Officer. All of the sales force will report to Greg with Greg reporting to Charles Rutstein, Forrester's COO. Formerly, the three sales forces reported to the client group managing directors.

Greg has been with Forrester for 11 years, formerly running the Dallas sales office and most recently leading IT sales in Europe. He has the track record, vision, energy, and trust to drive high performance from the Company's sales people. We feel very lucky to have such a strong candidate for the CSO job in our midst.

Greg has three charters. One, to standardize our sales process, a necessary ingredient if we are to scale the Company beyond $500 million in size. Two, to continue to evolve the sales force towards selling to roles. And three, to build stronger sales leadership across all parts of the business.

Greg's appointment and the creation of the CSO position has been considered for many months. This move is a result of a long-term planning process.

So to conclude, yes, the economy remains challenging, but Forrester will stay focused on its mission to become more role-based and therefore more relevant to our clients. We will continue to navigate this recession with strong expense control, innovation, and a persistent, dedicated effort to help our clients be successful even in difficult economic times.

The Company has never been busier on the M&A front, finding, evaluating, and negotiating with potential acquisitions. Pricing has reached a very attractive level, and this has added more impetus to our activities in M&A.

We hope to see many of you when we are out on the road this quarter, and we welcome you to visit our offices in Cambridge.

Thank you for listening to the call. I would now like to welcome Charles Rutstein, Forrester's COO, to join Mike and me for questions. We will now take questions.

(Operator Instructions)

And our first question comes from the line of Jeffrey Keene with William Blair. Please proceed.

Hi guys. Great earnings quarter.

I did have a question. Did the environment actually get tougher out there this quarter?

Hi, it's Charles. I think the answer is probably not tougher but probably not better. We did see the same sorts of dynamics that we saw in previous quarters, longer sale cycles to be certain, more difficult approval cycles, the rise of central purchasing, and so forth. So, I would say a challenging environment, but not necessarily a different environment.

And then as far as Q3 revenue guidance goes, it looks like there is quite a bit of a sequential decline. Is that going to be across both your research services and advisory, or is it more coming from the advisory part of the business?

Jeff, it's Mike Doyle. It's really -- it's going to be split pretty close to -- well, at this point versus a year ago I think advisory and events, which sort of are lumped into that bucket of other revenue, is going to be down more so than our research services. So, that's -- we expect that to be the case for the third quarter which is similar to what it's been in the previous quarters.

But Jeff there is seasonality here in the third quarter. There is only one event versus five events.

Right. Year-over-year comparisons though will still look similar, which is research will be certainly down less than the advisory and events.

Then one final question was what was the contribution from Jupiter this quarter?

You know, we stopped breaking that out. They basically -- we merged the two, and at this point in time we've actually had -- a number of our deals are now combined into one. As we go through the renewal cycle, we're now into what amounts to the -- well beginning actually what amounts in the fourth quarter if you will from when we acquired Jupiter Perspective, and a lot of the renewals have been blended into a combined force during Jupiter renewals.

Great. Thanks guys.

Thank you.

Thanks Jeff.

Our next question comes from the line of Dan Levine with Robert W. Baird. Please proceed.

Good morning. This is Mick Dobray for Dan Levine. A couple of questions.

First, what was the overall FX impact in the quarter? Could you quantify that please?

In terms of revenues, we're saying it's about three points year-over-year, Mick. And then the down below items that we identified, there is a foreign exchange impact that relates to effectively inner company loans. You know, the balance sheet, impact of payables and receivables, which is a different number. But overall in the top line we estimate it to be about three points.

Okay. Now, my only other question was if you could give us a little more color on the advisory services in Q3 and 4, but that's kind of following up on a previous question already, so I don't know if you could add to that?

No, in this environment, it's interesting and still difficult to predict. I think when we talk about remaining cautious, that is certainly one of the elements we remain cautious about just because it's always difficult to predict when those projects that might have been deferred are going to come back in and effectively be active, if you will. So, that's why we still have advisory down more so relative to research in the upcoming quarters.

Okay, thank you.

Thanks, Mick.

(Operator Instructions) Our next question comes from the line of Brian Murphy with Sidoti. Please proceed.

Hi. Thanks for taking my question. Mike, the consolidated gross margin was up year-over-year. I know you're getting a boost there from a positive makeshift, but could you just talk a little bit about the pricing environment?

I think it's safe to say the pricing environment is difficult. This is the first quarter for us, Brian, where we are rolling out our repackaging. And so in effect, if you look back to prior quarters, we haven't had a price increase in some time now. So, it's a difficult environment to roll it out. I think we've said all along that this is something that we've baked into our projections, though, so we don't see any deviation from what we expected which was we didn't expect any upside to our guidance as a result of that.

And I think it's still safe to say that that is going to be the case for Q3 and Q4 as we come up on renewals in the new repackaged environment. So that said, I think I've been happy with the progress. I've been happy with renewal retention as it surrounds that because you're concerned always when you make a pricing change, in this case as it relates to repackaging, that there'll be an adverse impact in those areas. And that, we have not seen, so that is very encouraging.

So, frankly we are quite happy with how the sales force has performed with this in this the initial quarter of the rollout.

Okay. And the sales headcount down a bit sequentially to 322. Where do you expect to finish the year in terms of sales headcount?

Do you want to talk about that, Charles?

Sure, I sure can. Hey Brian, it's Charles. The sales headcount should be roughly flat in the year. I think what you may be seeing in the quarter is just a little variation as some positions open up and then get backfilled. So I wouldn't expect any meaningful change in the year. As George said, we're going to be off of our long-term goal here of growing that sales platform by about 15%. We probably won't return to that, fully, to those levels until 2011. In 2010, though, you should see some net increase in headcount there.

Okay. And the research headcount is down just a little bit as well. Is it pretty much the same on that front?

That's right. Normal volatility there that you see just in the timing of when people leave or get backfilled.

Okay. You guys have been doing a great job with expense controls. Can we assume that given that you are going to try to keep the headcount flat here that you guys are a little bit sort of tapped out, so to speak, on that front?

I think that's fair. I think our expectation to the balance of the year is obviously a continued focus on it, but actually where I would love to see an expense blip is that we pay higher commissions because the economy rebounds. So, if I get that trade off, Brian, I'm really happy.

But I would say yes. I don't think there's anything big that we can carve out between now and the balance of the year. I think our focus is we've got a good team in place on the research and the sales side, and we want them focused on what is coming up on our busiest time of the year.

Okay.

Brian, if I could just -- George here. I would expect that we're going to have a very, very anemic recovery here probably in the fourth quarter and then continuing on into next year.

That being said, we want all hands on deck at this point. All the people we've hired and trained, we want them here, and we are going to be pushing very hard in Q3 and Q4 to make our numbers.

I understand. And, Mike, maybe just a quick update on potential uses of cash?

I think George alluded to-- we think the M&A market is loosening nicely in the appropriate way. That said, as you know with these things, it's always difficult to figure out how quickly you can get through the courting process and come to right levels of agreement.

So I expect we will have activity there before the end of the year, but always difficult to predict. We will continue to buy back stock at selective price points. So we will certainly be watching the marketplace, but we plan to be in there repurchasing shares.

Our capital spending is nominal, so I think that we've got some minor things planned between now and the end of the year. So it's principally M&A activity and share repurchase.

Got it. And if I could just ask one more, George, I know you gave us an update on the IT spending forecast. I mean there seems to be indications out there that that seems to be firming up a little bit. I mean, would you say that the outlook is improving?

I would say yes. If you look at our estimates for Q3, Q4, Q1, and Q2, it shows a gradual improvement through the end of this year and then a much faster spending growth for -- actually through the first half of next year.

If you look at tech spending being down 4.5% in local currency. Just a contrast here, in 2001 tech spending was down in local currency 6%. In 2002, tech spending was down another 6%. So this is not as deep a recession in tech as it was in 2001 and 2002.

Got it. And I'm just trying to parse some of the things that you're saying here. Mike, I think in your guidance, you mentioned that you're assuming that economic conditions will sort of remain the same as we've seen them over the past few quarters, and they've been terrible. But yet at the same time it seems like the IT spending outlook is improving. I mean is it fair to say that your guidance could be on the conservative side?

I think-- it's fair to point out the differences here that-- and you should parse them because George talks about where we think tech spending and the economy is going to go. We've remained cautious in our financial guidance if you will, Brian. So if it is, it is slightly conservative I suspect. You can argue that we might be.

That said, I think what you've got to keep in mind is that, given the nature of our business, as the economy picks up, hopefully our bookings pick up. That's not going to impact the P&L in the near term. So our P&L guidance, I think, is reasonable given the environment we're in.

I'm hopeful, as are George and Charles, that in fact the economic recovery does sort of start picking up particularly in tech and we're the recipients, because what that should mean is we'll begin to see some movement upwards in deferred revenue, which is what you folks see. The impact to this year's P&L I think is nominal in that situation. So I think from a financial standpoint, I'm comfortable with where we are.

Yes, you could argue we continue to be at the upper end of our ranges on margins and EPS, and I certainly hope that continues for the balance of the year. But any uplift right now is going to be good for us in 2010.

So, George's theme, which I want to echo, of we are bookings-challenged this year and therefore deferred revenue with the idea that next year we'll be hopefully bookings and deferred revenue rich. But the revenue that's on the books will be different because of the impact of what has happened in the current year.

Makes sense. Thanks very much.

Thanks Brian.

Thanks Brian.

(Operator Instructions) Our next question comes from the line of Vincent Colicchio with Noble Financial. Please proceed.

Hey George. Can you help us think about looking at past cycles and maybe the last one is not a good example, but how long it takes for your deferred revenue to improve once the economy starts to grow again, and presumably that's the fourth quarter of this year?

Vince, it's Mike Doyle. I think I'll tackle that.

I think when you looked at what occurred sort of in the 2001 timeframe, I think George was right. I think it was a couple of years before Forrester fully recovered at that point. This we believe to be very different.

So, from our perspective, we expect that you're going to see some variable movement in deferred revenue certainly in 2010. Will it be back to sort of this high double digits that we had, which is 15%, 16%, 17%? Certainly I hope by the second half of 2010 we're starting to bump up against those, but I think it's going to ramp back.

It's going to come back, from our view, much quicker than it did back in the 2001-2002 timeframe for Forrester, though. I think that George is correct to identify what happened with tech spending back then absolutely impacted what happened to Forrester, and it was a two-year recovery. I don't think that's going to be the case here.

There was a McKenzie study that came out recently, Vince, that looked at different industries going into the recession and who was going to lead out. They're predicting, and I think we would concur with this, that tech will lead the way out.

If you look at 2001 to 2003, you had two hangovers there which had to be slept off. One was Y2K and the other one was the dot com meltdown. You also had very little change in tech in that period.

We are living in a very different world now where you had pretty tight tech expenditure discipline before this recession started. And you also have a lot of change happening in tech right now. Mobility, social, virtualization, there is SOA, service-oriented architecture. There is a lot of action and motion in the tech business right now.

And what IBM is doing with the instrumentation of what I call physical to digital, connection of the physical world to the digital world. So it is a far more dynamic environment than we had in 2001 to 2003. And that will mean that tech spending will return faster.

Okay. And it looks like on the international side, Mike, you did relatively well. Could you give some color? There?

I think we didn't decline as much. So it was down internationally, year-over-year, just not at the same rate as the U.S. So I think it's all relative so to speak, right? So I think that is the appropriate place to look at it is looking at it year-over-year.

Charles, did you want to add any color to that?

No. There's just a 1% delta in the mix, which is probably normal rounding anyway.

George, should we expect any more changes with roles or are we kind of pretty much set right now?

I think what you're seeing here -- remember our 20 roles represent north of four million executives worldwide that we can address. So our opportunity is large. It's four million executives and $9 billion.

What you're seeing from us now is some really sharpening of the roles, adjustment of the roles, responding to client's feedback. But we can grow this business very fast and to a large size with 20 roles.

Okay. Thanks, guys.

Thanks.

Thanks, Vince.

There are no further questions. I will now turn the call over to Karyl Levinson for closing remarks.

Thank you very much for your time today, and enjoy the rest of your day. Bye.

Thank you for your participation in today's conference. This concludes the presentation. Everyone have a great day.