Forrester Research Inc (FORR) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you very much for your patience, and welcome to the third quarter 2009 Forrester Research earnings conference call. My name is Bill, and I will be your conference coordinator for today. (Operator Instructions). I would now like to turn the presentation over to your host for today's conference call, Ms. Karyl Levinson, Vice President of Corporate Communications. Please proceed.

Good morning. Thank you for joining our third quarter 2009 call. With me today are George Colony, Forrester's Chairman of the Board and CEO, Charles Rutstein, Forrester's Chief Operating Officer, 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 November 5th, 2009, and can be accessed by dialing 888-286-8010. Please reference the pass code 23843290. 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 third quarter 2009 results, the balance sheet at September 30th, our third quarter metrics, and the outlook for the fourth 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 force 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 and losses 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 third quarter of 2009 was approximately 44%.

For the third quarter of 2009, Forrester exceeded its quarterly guidance for revenue, pro forma operating margin, and EPS. We were able to achieve this performance despite continuing challenges in the global economy, which had an adverse impact on many of our customers. We are pleased with our performance, which continues to reflect opportunistic selling and excellent operating discipline resulting in strong bottom line performance.

We are beginning to see signs of an improving economy. That said, most of our customers are approaching their business with cautious optimism. We see evidence of this in our improving customer retention metrics and growth and client count but soft enrichment rates. I will discuss this further when I review metrics later in my presentation.

Now, let me turn to a more detailed review of our third quarter results. Revenue. Forrester's third quarter revenue decreased by 9% to $53.9 million from $59.5 million in the third quarter of last year, due primarily to booking softness in the first half of 2009, softer events performance which was due in part to the movement of an event to Q4, and the adverse impact of foreign exchange rates.

Third quarter research services revenue declined 4% to $38.9 million from $40.3 million last year. Research services revenues comprised 72% of total revenue for the quarter versus 68% in the third quarter of 2008. Year-to-date research services comprised 68% of total revenue versus 64% for the same period last year.

Third quarter advisory services and other revenue declined 22% to $15 million from $19.2 million in Q3 of 2008 and represented 28% of the total revenue for the quarter. This reflects an expected softening of the events business, the overall global economic slowdown, and our strategic decision to focus on our syndicated business.

International revenues declined at a slower rate than the US and was 30% for the third quarter of 2009, up from 28% in the third 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 as a result, in research we added 473 new research documents to RoleView in the third quarter. The top three research roles, the enterprise architecture professionals with approximately 4,359 clients, application development and program management professionals with approximately 4,073 clients, and IT infrastructure and operations professionals with 3,549 clients.

We hosted 80 teleconferences in the third quarter with a total attendance of 2,247.

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 970 members, the technology industry boards have a total membership of 303, and finally, the marketing and strategy boards have a total membership of 302. At the end of the third quarter the Forrester Leadership Boards had 1,575 members, up 3% from June 30, 2009.

In our data business we continue to add and renew an impressive list of clients. We added or renewed 12 1B+ companies in the third quarter, including JP Morgan, Tesco, HSBC, Amazon, and Kohler.

The demand for our consulting services declined from the previous year by 20%, in part due to our increased focus on our syndicated business, but primarily driven by the global economic slowdown.

Our events 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.

For the quarter we hosted one IT role-based event, the Security Forum in North America. For the fourth quarter, we are hosting three IT role-based events, Services and Sourcing Forum in North America, Business Technology Forum which took place last year in the third quarter, and a Services and Sourcing Forum for EMEA.

We are also hosting two M&S role-based events, Consumer Forum North America and Marketing Forum EMEA. Our M&S role-based events show early indications of recovery, and our IT events are beginning to stabilize. We expect the events business to remain challenging but profitable for the remainder of the year.

Now let me move to a review of our operating expenses and income. Operating expenses for the third quarter were $44.1 million, down 10% from $48.9 million in the third quarter of last year. The operating expense decrease was a result of delaying nonessential new hires and backfills, suspension of merit increases, reduced discretionary travel and events related, and expenses due to recruiting costs. Our operating management teams continue to demonstrate excellent spending discipline.

Operating income was $9.8 million or 18.2% of revenue, compared with $10.6 million or 17.9% of revenue last year. The dollar decline in margin versus prior year is due primarily to the lower revenue partially offset by reduced operating expenses. The improved margin performance year-over-year on a percentage basis reflects the Company's continued focus on our higher margin syndicated businesses combined with disciplined cost management.

Other income for the quarter was $460,000, down 68% from the third quarter of last year. The decrease is primarily due to lower interest income reflecting lower global interest rates, as well as net foreign exchange loss associated with our intercompany payables and receivables.

Net income for the third quarter was $6.2 million and earnings per share was $0.27 on diluted weighted average shares outstanding of 22.8 million compared with net income of $7.4 million and earnings per share of $0.31 on $23.8 million weighted average shares outstanding in the third quarter of last year. Net income decline reflects the impact of lower interest income and a higher effective tax rate.

Turning to Forrester's nine-month results, total revenue for the nine-month period ending September 30, 2009, declined 3% to $171.9 million from $178 million last year. For year-to-date September 2009, research services revenue increased by $2.8 million or 2.5% to $117 million. Research services revenue was 68% 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 approximately 67%, three points higher than 2008, which is still 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 nine-month period was $33.2 million or 19.3% of revenue compared with operating income of $31.1 million or 17.5% of revenue in 2008. This is slightly above our long-term operating margin goal and is primarily due to tight expense controls in this difficult economic environment.

Net income on a year-to-date basis declined 4% to $21.2 million from $22.2 million last year, and earnings per share for 2009 decreased 2% to $0.92 on diluted weighted average shares outstanding of $23 million compared with $0.94 and $23.7 million weighted average shares outstanding last year.

Now I'd like to review the balance sheet. Total cash and marketable securities at September 30th was $280.2 million, up approximately $20 million from our year-end 2008 balances. We have no debt, and our balance sheet remains strong. We historically have classified the portion of our marketable securities related to auction rate securities as a long-term asset on the balance sheet.

During the quarter, we reclassified approximately 75% of that balance to short-term marketable securities to reflect the option we have giving us the opportunity to redeem these securities at par in the middle of 2010. This leaves us with approximately $10 million in auction rate securities that are classified as long term.

We generated $36.5 million in cash from operations through September of 2009, which is down $3.9 million or 10% from the prior year due to decreased cash receipts resulting from lower bookings activities, payments associated with the reorganization costs, and an increase in estimated tax payments partially offset by reduced operating costs. We have also received $1.8 million in cash from (inaudible) exercise and the employee stock purchase plan in the first nine months of the year.

During the first nine months of 2009 we repurchased 723,000 shares at a total cost of $15.2 million. We will continue to be active with the buyback at selected price points.

Accounts receivable at September 30, 2009 was $36.4 million compared to $37.4 million as of September 30, 2008. Our days sales outstanding at September 30 was 74 days, no change from last September 30, 2008. Accounts receivable over 90 days was 9% at September 30, 2009, which improved from the prior year, which was at 12% and is in line with our targeted range.

Both DSO and accounts receivable over 90 days improved versus the first half of 2009, and overall we are pleased with our performance in this area given the difficult economic conditions.

Net property and equipment increased slightly versus September 30, 2008, to $7 million. Our capital spending for the first nine months of 2009 was approximately $3.4 million.

Deferred revenue at September 30 was $93.5 million, down 5% over September 30, 2008. The rate of decline has slowed versus the first and second quarters of this year, which declined 7% and 9%, respectively.

Our future AR balances represent the amounts to be invoiced in the future for clients with multi-year deals or scheduled payment terms. Deferred revenue plus future AR declined 10% year-over-year and 6% quarter-over-quarter.

And now I'll review Forrester's third 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 $183.5 million at September 30th, a 15% decline from last year.

At September 30t, Forrester's retention rate for client companies was 72%, up one point from June 30, 2009. Our dollar retention rate during the same time period was 82%, a one-point increase from the second quarter of 2009.

Our enrichment rate was 97% for the 12-month period ending September 30, 2009, which is down two points from the second quarter.

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 2,505, up 12 from the end of the second quarter 2009. This is the first sequential increase in client count since the third quarter of last year.

Our customer retention and enrichment metrics coupled with our deferred revenue performance suggests that while our business is improving, customers remain cautious. Our enrichment rates reflect that. While customers are renewing, they are doing so at lower levels, which is reflected in our deferred revenue performance.

As of September 30th, there are 3.2 roles per client in line with our reported 3.2 roles per client at the end of the second quarter.

Our headcount at the end of the third quarter, we had a total staff of 960, down from 974 at the end of the second quarter 2009. As we continue to replace turnover selectively, our current headcount includes a research staff of 372 and a sales staff of 315.

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

Our customer metrics suggest our business is beginning to move in a positive direction, albeit slowly. We have tightened our guidance for the balance of the year, moving our revenue guidance to the upper-end of our previous guidance and raising our operating margin and EPS guidance above previous levels.

We typically provide guidance for the upcoming year during our fourth-quarter call, and that's still our plan. We do, however, want to provide a framework for thinking about 2010.

Because the bulk of our revenue is syndicated in nature, there is a lag effect for when it is realized on the P&L. The economy and its commensurate impact on our business through the first three quarters of this year is clearly reflected in our deferred revenue numbers. Therefore, achieving double-digit revenue growth next year is not practical without deviating significantly from our focus on syndicated research.

We will be adding sales resources in the balance of this year and in the next year as the economy and our business grows. This is the right business decision, which you will see reflected in our balance sheet as deferred revenue grows during the course of 2010.

That said, reduced revenue coupled with sales headcount increases will put pressure on operating margins next year causing us to deviate from our targeted margin levels of 17% to 19%. Again, this is the right business decision and the natural flow of our P&L and balance sheet post a recessionary environment.

Now let's go to our guidance for the balance of the year. Our pro forma guidance for the fourth quarter and full year 2009 continues to reflect our view that the economic conditions will continue to be sluggish for the balance of the year.

As a reminder, our guidance excludes the following -- amortization of intangible assets, which we expect to be approximately $300,000 for the fourth quarter and approximately $2.1 million for the full year 2009, and noncash stock-based compensation expense of between $1.2 million and $1.4 million in the fourth quarter and $6.1 million to $6.3 million for the full year 2009, gains and impairments on sales of marketable securities and nonmarketable investments, $3.1 million of reorganization costs which we recorded in the first quarter of 2009.

For the fourth quarter we are aiming to achieve total revenues of approximately $58 million to $61 million. This range reflects a decline of 3% to 8% versus the prior year. At this point in time, foreign exchange we expect to adversely impact our year-over-year comparisons. On an FX neutral basis revenues would range down from 1% to 6% versus prior year.

We expect operating margins in the range of 16% to 18%. Other income, which includes interest income and the impact of foreign exchange, will be approximately $500,000. A pro forma income tax rate of 40% and pro forma diluted earnings per share of approximately $0.26 to $0.30.

Our pro forma full-year guidance is as follows -- total revenues of approximately $230 million to $233 million. This reflects a decline of between 3% and 5% versus prior year. On an FX neutral basis, revenues are between a down 1% to down 3% versus the prior year.

Pro forma operating margins of approximately 18% to 19%, other income of approximately $2.7 million, pro forma income tax rate of 40%, and pro forma diluted earnings per share of between $1.18 to $1.22.

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

Thank you, and I'll now turn the floor over to George.

Thank you, Mike. And thank you for listening to Forrester' Q3 Investor conference call.

I will address three topics this morning. Number one, the condition of the economy. Two, the Company's three business imperatives. And finally, three, acquisitions.

Turning first to the economy, on a purely impressionistic basis, I would say that the economy in the United States is stabilizing and showing signs of turn around. And the GDP numbers released this morning confirm this.

Clients are cautiously optimistic, are showing more readiness to buy, and are planning for increased budgets in 2010.

I was in Europe last week and I'd say that recovery there is six months behind the United States.

Forrester believes that tech spending will be down 11% worldwide in 2009 despite recovery in the fourth quarter. However, we believe that the tech market will grow by 4% in 2010.

So while our IT roles, such as the CIO, have had reduced profiles and activity this year, we expect the number of decisions they make to increase in the fourth quarter and in 2010.

Another number that we track closely is marketing spending. Forrester analysts have projected that large companies will reduce that budget by 20% in 2009. The impact on Forrester, however, is uneven. More traditional marketing roles, such as the CMO, are in full out cost-cutting mode. But newer roles, such as interactive marketing professionals and e-business channel professionals, are actually seeing their budgets increase during the year as companies transition to new marketing channels.

So Forrester's projecting that 2010 will be a year of shallow economic recovery with both marketing and IT spending increasing at modest rates. We do not expect 2008 levels of spending to be reached again until 2011.

Another thing I've done on past conference calls, I would like to give an update on Forrester's three business imperatives. And they are, number one, continued refinement of the role-based strategy. Two, growing our sales platform. And three, increasing the quotient of business that is syndicated.

I'd like to look first at the role-based transition. With every passing quarter, the Company transforms more of its DNA to being focused on roles. And I saw progress on several fronts in the third quarter.

Firstly, our events have morphed from their old topic focus to being directly targeted at specific roles. While events have had fewer attendees this year, relevancy and client satisfaction have improved. And this is reflected in our continued profitability events despite the economy.

The eight-point jump in our average net promoter score, and this is our customer satisfaction metric for events, is further evidence that roles are injecting greater relevancy.

Last week I was at our forum for Sourcing and Vendor Management Professionals in London. While attendance was limited by tight travel budgets, the targeted design of the forum resulted in net promoter scores that well exceeded our 2008 scores.

On a second front, our research has made major strides towards roles. And here are a few examples that embody that trend. From the marketing and strategy client group, there were two reports in the quarter. The first is how chief customer experience officers can gain active executive support. This is a report directly addressed at the customer experience professional. And a second report for M&S, recession realities improve interactive marketing.

And another example comes from the IT client group. What Symantec technology means to application development professionals? Research is taking an ever-more sophisticated approach to our clients in their roles.

As an example, many clients are looking for information analysis around vertical markets. More than 50% of Forrester's research staff has direct industry knowledge. The vertical markets with the highest coverage by analysts are financial services, media and entertainment, consumer technology, retail, government, travel, healthcare, and manufacturing.

Forrester goes to market by roles, but it applies wide expertise, including industry knowledge to help clients in their roles make the best decisions. So while the move to roles remains a work in progress, I'm glad to report that even in tight economic times, we continue to make important strides forward.

I would now like to turn to our second business imperative, and that's expending our sales force by 15% to 20% per year. As I talked about on the Q2 call, our plan has been to keep sales headcount roughly flat for the year with a return to growth in 2010.

I can report, however, that the company will be hiring 10 to 20 sales people in the fourth quarter of this year to get a jump on the plan for 2010.

Our final imperative is to grow our quotient of business that is syndicated, and this is what we call Q. We are looking to shift two points higher in Q every year with an ultimate goal of Q at 70%. As Mike has noted, Q grew four points in Q3, and the Company will add approximately three points of Q for calendar 2009. We continue to refine sales compensation plans to ensure that we attain our long-term goal of 70% Q.

Now I would like to now finish up with a few thoughts on acquisitions. While I have no acquisitions to announce today, I wanted to talk about two factors that are stimulating M&A activity. Factor one is the recession. Potential acquisition targets that were reluctant to talk to us in 2007 are showing signs of financial stress as a result of the economic slowdown. This has opened up opportunities for deals.

A second factor is a concern on the part of sellers that capital gains taxes, at least in the United States, will increase in 2010. So owners are eager to pursue deals, which could close in 2009. So while we may have nothing to announce in Q4, I can say that our development office will be very busy in November and December evaluation and analyzing potential deals.

So to conclude, the economy is showing initial signs of thawing, roles are moving forward, we are preparing the Company for growth in 2010, and our M&A activity is intensifying.

All of this said, the Company continues to watch expenses carefully as a means of ensuring present and future profitability. I welcome investors to visit the Company in Cambridge, and Mike and I hope to see you out on the road sometime this quarter.

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.

Thank you very much, sir. (Operator Instructions). Our first question comes from the line of Laura Lederman of William Blair. Please proceed.

Yes, good morning, guys. Nice quarter, and thank you for taking my questions.

Just a few quick questions. One is, earlier in the year it sounded like you thought that there would be acquisitions by year-end, and it sounds now like things have potentially slipped. Is it that prices are too expensive out there, or talk a little bit about the acquisition environment?

And also, when you look at currency, how much impact did it have on the quarter? And I have a few quick questions after that. Thanks.

Laura, George here. Pricing is, I would say, very attractive at this moment. And I think it will likely stay there for the next couple of quarters. Some of these targets are, to be frank, running out of money, so that is making -- and also this capital gains issue is creating more incentive. So I think it's going to be a terrific time.

Nothing may happen, right? We may do no deals at all, but we are extremely busy at the moment. Good pricing.

And Laura, this is Mike. Relative to your question on foreign exchange, in terms of its impact to revenue, year-over-year for the quarter was about two percentage points of our decline is attributed to foreign exchange.

That's helpful. Moving on, when you look at the environment out there stabilizing or getting a little bit better, is it large companies? Is it medium companies? Which vertical markets? Can you give us a sense of where the stabilization is occurring and maybe where it's not occurring?

Yes, we'll sort of all answer the question. I would say it is happening, from my vantage point, at the larger companies. I think financial services obviously is that you have stabilization versus a year ago. And I think you -- there are some rays of light casting themselves onto the retail market and obviously to manufacturing.

With consumer buying so low for a year, there's a replenishment factor definitely at work here in manufacturing. So those are -- I'd say large companies. And again, I think Europe is about six months behind us. I think that the numbers show this, but Europe is -- I think the optimism there tends to be a little bit lower than it is here at this point.

Do you have any other views, Charles?

No. Does that help, Laura?

Yes. Final question, which was EPS in the quarter was so much above plan. Was that modeling conservative on your part, or the above plan revenues that came from the research line? Because it was so much above that I just want to understand what was better than expected.

Yes, I think there were a couple of pieces that are involved, Laura, which you hit on probably all of them. You know, this year in particular, I think we've been more conservative in how we model and give guidance just because in this environment it's been a little bit more difficult to predict. That would be number one.

I think expenses for us continue to be lower. Part of that is just a function of -- some of it's timing as it relates to replacement of turnovers which I think helped us a little bit in the quarter. You know, headcount is obviously one of our biggest expenses. The other is just we continue to be on top of the expense side of the equation.

So I think that certainly helped us. So as I look at that -- and then you know some revenue upside. Certainly that all falls down to the bottom line for us. So to be above the upper end of the range from a revenue perspective, that all falls through as well. So, those are the three buckets.

I think we have shown a great expense discipline all the way through this thing.

Yes, throughout the year.

And really, actually, final final question is when you mention that IT spending, you expect it to increase in Q4, by how much?

Yes, I don't have that on the tip of my fingers, Laura. We can send you that report. It's from Andy Bartels.

Cool.

Yes. And he's up 4.5% next year for the full year.

Thanks a lot, guys. I appreciate it.

We'll get it for you. Thanks, Laura.

Thank you.

Thank you very much, ma'am. Ladies and gentlemen, your next question comes from the line of Dan Leeman of Robert W. Baird. Please proceed.

Great, thanks. Just looking at kind of the headcount reduction sequentially versus the expense reduction. And maybe it's just in the quarter and timing issues, but headcount only down about 1% but expense run rate down almost 10%. Just trying to figure out what the delta here is. Is there some of that cost that's going to come back that are things that you've delayed and we have to pick up for it at some point in the future, or are there some more other permanent type cost reductions in there?

I think that -- a couple of things, Dan. I think we get some favorability. It's always difficult to predict commission mix, right? So that can be volatile for us and can move around as it does with any company. So I think we are conservative in how we look at it and how we project, and so I think we get a little bit of a benefit there.

Even though an aggregate, I think, we've seen more of our reps move into hitting and exceeding their numbers through the first nine months then we did through the first six months. So, we're seeing the right kind of movement, but I think we've been conservative in terms of how we project that.

And then T&E, we are getting a little bit of a benefit just because -- I think we had projected our rates using plan-type rates, and the reality of it is in this environment is hotel rooms, airfares, a whole variety of things are down significantly. So for both our analysts throughout in the field and our sales representatives, we're seeing a real benefit there.

So I don't think we have anything coming back our way that's going to bump back up in the fourth quarter. I think these are things that we're just reaping a little bit of the benefits of a soft economy on the T&E side. I think commissions we continue to model conservatively, and we're seeing a little bit of a benefit there.

I think next year expenses will bump back up. Plus you have a factor of quarter-over-quarter you've got events that were much larger in Q2, and in Q3, frankly, we had one event. So you have that piece, and that will turn around and spike back up in the fourth quarter.

Okay. Fair enough. And then can you just talk about -- you guys filed the 8-K with the details around the new headquarters arrangements. Can you talk about the impact of that -- when that will roll into the financials?

Sure, Dan. We won't see that impact until 2011, and that will be primarily a fourth-quarter impact in 2011. Our lease here in Cambridge in our offices today runs through I think September of 2011. So figure a modest impact in Q3 and then the bulk of it in Q4 of 2011.

Okay. And then will we see any CapEx leading up to that in 2010, or is that all in 2011?

It will all be 2011 because basically all of those costs will be hung up on the balance sheet. And again, this is a build to suit, so we're leasing, we're not buying. But we will have our own tenant improvements. But those will build over time, and then you'll see the impact from a depreciation and amortization standpoint beginning in the fourth quarter of 2011.

Okay, great. And then Laura asked about IT budgets. What about on the marketing side? What are the expectations for 2010? And if you could go just one level deeper, if you could talk a little bit about the expectations around kind of overall marketing versus the digital areas that are really kind of more impactful for your business?

Yes. So we have not -- there has been no formal forecast for marketing spending for next year. I mean, it's obviously improving, but I have no formal number for you. If you look at the nontraditional marketing versus the traditional marketing, there's a very big gap there. For the nontraditional marketing, in fact we saw some budget increases even this year; budget increases of between 2% and 5% as an example for e-business or for website design or website hosting.

In fact, we had our consumer forum, which ended last night in Chicago, which was sold out. And that is attended primarily by the nontraditional marketers, e-business marketers, and the interactive marketers, et cetera. So, I -- again, we have no formal numbers for next year, but I think you're going to see marketing generally come back next year, but you're going to see nontraditional marketing, obviously given all the challenges of media, et cetera, will go at 3 to 4 to 5 times the rate of traditional marketing.

Yes, I think that's largely what people expect. I was at a trade show where you heard the same things, that the only guys growing this year were ones in the digital area. I guess more -- are you getting any sense from clients when you're talking to them, when they're starting to go through their budget cycles, what they're thinking about in terms of the kind of traditional versus the new media?

Don't know as yet.

Okay.

We'll likely report that on the Q4 call.

Great. Thanks, guys.

Okay. Thanks, Dan.

Thank you very much, sir. Ladies and gentlemen, your next question comes from the line of Bill DiTullio of Boenning & Scattergood. Please proceed.

Good morning, guys. Thanks for taking my question. My first question, just looking at Q4 guidance and looking at the relationship between research revenue and deferred revenue, what is the level of correlation there? Is there a high correlation between the two?

Yes, Bill. I think -- there is, obviously, to some degree, because the deferred revenue is sort of the cumulative effect of our bookings, principally on the syndicated side. So there is -- it's not a one-to-one relationship but it's reasonably close.

Okay. So, I mean, by my calculation for Q4, I would have research revenue being down about 8% and deferred revenue down about 5%? Does that seem about right?

We don't give guidance on deferred revenue, so we're not going to start now, Bill.

Okay. I'm sorry. Yes, I guess I was looking at Q3. And then, my other question was, can you give any developments on the role-based initiatives that you discussed at your Investor Day?

Which ones?

I guess you had talked about moving to a breakthrough mode, kind of for the mac review.

Yes, and I think I talked on that day that there are three big changes for us which are upcoming. One is changing the way we do research, changing the way that we sell to be more role-based, and the third is to organize to be more closely role-based. And I'm not going to -- won't say anything right now about any of the three, but just I will say that all three are in flight. And watch this space.

Okay. Great. Thank you.

Yes.

Thank you very much, sir. (Operator Instructions). At this time, our next question comes from the line of Brian Murphy of Sidoti & Company. Please proceed.

Hi. Thanks for taking my question. I don't know if this is for George or for Mike. I just want to dig in a little bit more on the guidance and the revenue mix, and I think you've touched on this already from a couple of different angles. But when I just think about research revenue as a percentage of sales exiting the year at about 67%, I'm just trying to reconcile that with client retentions picking up, agreement values stabilizing, new business seems to be picking up. You've got Q well over 70% for the September quarter.

So just backing into a Q4 research revenue number, that would imply sort of either a pretty sharp sequential decline or a pretty sharp pickup in advisory services revenue. So I guess the question is are you being conservative around renewal rates for research subscriptions in Q4 or do you see a significant sort of pickup in the advisory of revenue in Q4?

Yes, I think -- there are a couple of things that are going to go on here, Brian. First is, and again since we don't give specific guidance on the segments, we aren't going to give you a lot of detail. But as I mentioned even in Laura's question, we tend to -- our modeling and our projections have been somewhat conservative.

You do have a seasonality issue as you go into Q4. You can get budget flush on the advisory side, so that can tend to skew the percentage mix in the fourth quarter. So that typically happens. It's difficult to predict, particularly this year, just as it was last year, what's going to happen.

I mean, I think we're all in agreement the sentiment that George articulated that people are being cautiously optimistic. So that said, it's difficult to predict exactly how much budget flush you get in the form of advisory in the fourth quarter.

So I think that helps probably distort the percentage mix a little bit in the fourth quarter, Brian.

Okay. So year-over-year, do you think you have more visibility into advisory revenue for Q4? And I'm just wondering if you expect renewal rates to be higher year-over-year in the fourth quarter this year?

You know, two things. One, we don't guide to that, right? So, I don't want to get into that. And I think that, as you know, we're coming into our busiest quarter. I mean, 40% of our business activity occurs in the fourth quarter. So, I still am with George. I think our customers are cautiously optimistic. I'm very pleased that we're seeing a firming and a movement up in retention, both on a dollar and a client basis, so that's good news for us.

And we're certainly encouraged by that and would like to see that move its way into the fourth quarter, but we haven't provided guidance around that yet.

Sounds good. Thanks very much.

Yes.

Thank you very much, sir. (Operator Instructions). Our next question comes from the line of Vincent Colicchio of Noble Financial. Please proceed.

Nice quarter, guys. I'm late on the call so I apologize if these were already asked. A couple questions on the competitive environment. I know at the Analyst Day a few months ago, George, you were talking about some competitors were under pressure. Have any of them gone away? Could you give us kind of an update there? And also have pricing pressures abated?

I don't recollect the conversation, but is anyone going away? No one is going away. I would say that there has been a lot more stress on the smaller players in the business. I'm not referring to CEB or Gartner Group here, but for the smaller players it's been a much more difficult recession than it has been for the bigger players like ourselves.

As far as Gartner and CEB, I think it's been just business as usual in the quarter.

Okay. My other questions were answered. Thanks.

Thanks, Vincent.

Thank you very much, sir. That concludes our Q&A session for today. I would like to turn the call back over to Karyl for her closing remarks.

Thank you very much for joining us on the call today and enjoy the rest of your day.

Thank you very much, ma'am. Thank you, ladies and gentlemen, for your participation in today's conference call. This concludes your presentation for today. You may now disconnect. Have a good day.