Forrester Research Inc (FORR) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Q4 and full year 2009 Forrester Research earnings conference call. I will be your Operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Carol Levinson, Vice President, Corporate Communications. Please proceed.

Good morning. Thank you for joining our fourth quarter and full year 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 for the full year. 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 February 17th, 2010, and can be accessed by dialing (888) 286-8010. Please reference the passcode 87109261. This call is also available via webcast, and will be archived in the Investor section at www.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 expects, 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, Carol.

I will now begin my review of the financial performance for Forrester's fourth quarter and full year results, select balance items at December 1st, our fourth quarter metrics, and the outlook for the first quarter and full year of 2010.

As highlighted in our press release this morning, we are finalizing adjustments to tax accounts in our balance sheet, and the fully consolidated financial statements will be included in our 2009 Annual Report on Form 10-K. We do not expect any adjustments to affect our reported pro forma operating results. Please note that the income statement numbers I'm reporting are pro forma and exclude the following items -- 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 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 2009 is approximately 42%.

For the fourth quarter, Forrester met or exceeded it's quarterly guidance for revenue, pro forma operating margin and earnings per share. We are pleased with the continued improvement in our operating performance, which reflects healthy renewal activity in the fourth quarter, our largest renewal quarter, and excellent operating discipline resulting in strong bottom line performance.

We continue to see signs of an improving economy, both with improved customer retention metrics and client count growth. That said, most of our customers continue to approach their business with cautious optimism, which is reflected in our softer enrichment rates. I will discuss this further when I review metrics later in my presentation.

I am also delighted to announce that the integration of Strategic Oxygen, acquired on December 1st, is progressing as planned. The results discussed below are inclusive of Strategic Oxygen activity for one month.

Now, let me turn to a detailed review of our fourth quarter results. Forrester's fourth quarter revenue decreased 2% to $61.5 million from $62.9 million in the fourth quarter last year, due primarily to booking softness through the first three quarters of 2009, softer events and consulting performance, which is partially offset by a positive impact of foreign exchange rates. Fourth quarter research services revenue declined 1% to $40.8 million from $41.2 million last year. Research services revenue was 66% of total revenue for the quarter, versus 65% in the fourth quarter of last year. Fourth quarter advisory services and other revenue declined 5% to $20.7 million from $21.7 million in the fourth quarter of 2008, and represented 34% of total revenue for the quarter. International revenues were 31% for the fourth quarter, up from 29% in the fourth quarter of last year, primarily due to the impact of foreign exchange rates.

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 fourth quarter, 439 new research documents were added to role view. The top three research roles are the enterprise architecture professionals, with 4,359 clients; application development and program management professionals, with 4,073 clients; and business process and applications professionals, with 3,539 clients. We hosted 72 teleconferences in the fourth quarter, with a total in attendance of approximately 1,900 people.

Forrester Leadership Boards, our peer offering for Senior Executives has turned the corner, achieving year-over-year revenue growth of 6% in the fourth quarter of 2009. The six boards, focused on IT roles, now having a total of 939 members. Technology industry boards now have a total membership of 298. Finally, the marketing and strategy boards have a total membership of 323. At the end of the fourth quarter, the Forrester Leadership Boards had 1,560 members, a decrease of 1% from September 30th, 2009.

In our data business, we continue to add and renew an impressive list of clients, including the addition of 13 new 1B Plus companies in the fourth quarter, including Discovery, France Telecom, Fifth Third Bank, and T. Rowe Price.

The demand for our consulting services declined 6% from the previous year, mostly due to our increased focus on our syndicated business. Our events business showed modest strengthening in both sponsorship and attendee sales. We hosted three IT role-based events in the fourth quarter, Services and Sourcing Forum North America; Business Technology Forum, North America, and Services and Sourcing Forum, EMEA; and two M&S role-based events, Consumer Forum, North America; and Marketing Forum, EMEA. In the first quarter of 2010, we are hosting five IT role-based events -- Enterprise Architecture Forum in both North America and EMEA; an Infrastructure Operations Forum in both North America and EMEA; and a Security Forum in EMEA.

Fourth quarter expenses and operating income. Operating expenses for the fourth quarter were $48.4 million, in line with the fourth quarter of 2008. Operating income was $13.1 million, or 21.3% of revenue, compared with $14.5 million, or 23.1% of revenue last year. Despite challenging bookings in the early quarters of 2009, Q4 pro forma operating margin came in above guidance, due to continued spending discipline and timing of our new sales hires. Other income for the quarter was $115,000, down 24%. The decrease is primarily due to lower interest income, reflecting lower global interest rates, as well the net foreign exchange loss associated with inter-company payables and receivables.

Net income for the fourth quarter was $7.9 million, and earnings per share was $0.35 on diluted, weighted average shares outstanding of $22.7 million, compared with net income of $9 million and earnings per share of $0.38 on $23.4 million weighted average shares outstanding in the fourth quarter of last year. The decrease in net income reflects the year-on-year decline of revenue, the impact of lower interest income, and a higher pro forma tax rate in 2009.

Turning to Forrester's full year results, total revenue for the 12-month period ending December 31st, 2009, decreased 3% to $233.4 million from $240.9 million last year. Excluding the adverse impact of foreign exchange, revenue would have decreased only 1% for 2009. For the full year of 2009, research service revenues increased by $2.4 million, or 2%, to $157.7 million. Research services revenue was 67.6% of total year-to-date revenue, up from 64.5% for the full year 2008. The 3-point increase in our syndicated business is in line with our targeted increase for the year.

Operating income for the full year was $46.3 million, or 19.8% of revenue, compared with operating income of $45.6 million, or 18.9% of revenue in 2008. Net income for the full year decreased 7% to $29.1 million from $31.1 million last year, and earnings per share for 2009 decreased 4% to $1.27 on diluted weighted average shares outstanding of $22.9 million, compared with $1.32 and $23.6 million weighted average shares outstanding last year.

Now I would like to review the balance sheet. Our balance sheet remains strong. Our total cash and marketable securities at December 31st were $259.8 million, down $100,000 from our year-end 2008 balances, and down $20.4 million from our September 30th balances. The decrease in cash position from September 30th is due to the reclassification of funds associated with tenant improvements in our new corporate headquarters, and the acquisition of Strategic Oxygen. The funds for tenant improvements are deposited and earn interest for Forrester. However, they are committed to our new building, and therefore not available for general use.

The portion of our marketable securities relating to auction rate securities continues to be classified as both a long term and short term asset on the balance sheet. Auction rate securities related to investments with UBS will be redeemed at par in July of 2010, and therefore classified as short term. The balance remaining with CSFB of approximately $10 million is held as long term on our balance sheet. This is a result of the current liquidity issues in the auction rate marketplace.

We generated $43 million in cash from operations for the full year 2009, which is down only $600,000 from prior year, and is better than expected, due primarily to strong cash collections. We have also received $748,000 in cash from options exercised and the employee stock purchase plan for the full year 2009. During the full year of 2009, we repurchased 927,000 shares at a total cost of $20.4 million. We will continue to be active with the buy back, and currently have $58.8 million remaining on our repurchase authorization.

Accounts receivable at December 31, 2009, was $67.4 million, compared to $64.2 million as of December 31, 2008. Our days sales outstanding at December 31st was 102 days, up from 95 days on December 31, 2008. And our accounts receivable over 90 days was 4% at December 31, 2009, an improvement over our prior year of 6%, and ahead of our targeted range. Our capital spending for the full year 2009 was $3.6 million, which is below our targeted full year spending of $4.5 million. Deferred revenue at December 31st was $117.9 million, up 4% over December 31st of last year, and up 26% over September 30, 2009. Our future accounts receivable balances are amounts to be invoice in the future for clients with multi-year deals or scheduled payment terms. Deferred revenue plus future AR grew 2% year-over-year and 33% quarter-over-quarter.

I will now review Forrester's fourth 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 $194.8 million at December 31st, a sequential increase over September 30th of 6%. At December 31st, Forrester's retention rate for client companies was 74%, an increase of 2 points from September 30, 2009, and our dollar retention rate during the same time period was 86%, an increase of 4 points quarter-over-quarter.

Our enrichment rate was 96% for the 12-month period ending December 31st, which is down one point from our September 30, 2009 number. Client and dollar retention rates and enrichment rates are calculated on a rolling 12-month basis. At the end of the fourth quarter, our total for client companies was 2,519, up 14 from September 30, 2009. Our client and dollar retention metrics, coupled with our deferred revenue performance, suggests that business continues to improve. As of December 31st there are 3.2 roles per client, in line with our reported 3.2 roles per client as of September 30, 2009.

For head count, at the end of the fourth quarter, Forrester had a total staff of 947, which includes eight Strategic Oxygen employees, down from 960 as of September 30, 2009, as we continue to replace turnover selectively. Currently, head count includes a research staff of 362 and a sales staff of 315, which is flat from September 30, 2009 .

The last topic I would like to cover today is our business outlook for the first quarter and full year 2010. At our call in February of last year, we gave guidance for 2009, facing an uncertain and difficult economic situation. In addition, we committed to remain focused on a role-based strategy, building our sales platform, and continuing to build our mix of syndicated business.

One year later, I am happy to report we met or exceeded each of our financial targets for the year. We accomplished this by staying focused on our clients, and effectively managing expenses, and eliminating discretionary spending, which allowed us to perform at or above our pro forma operating margin and EPS guidance levels. Our balance sheet is in excellent shape, as we ended the year with $259.8 million in cash and marketable securities, which is more than $11 per share, with no debt. This will continue to allow to be opportunistic in this market, pursuing acquisitions, new business and continued share repurchases. More importantly, we made significant progress on our role-based strategy, building our sales platform and increasing the mix of syndicated business. George will describe this in more detail in his comments. On the strategic front, we completed the acquisition of Strategic Oxygen, a great addition to Forrester.

Now let's look towards 2010. Our pro forma guidance for Q1 and full year 2010 reflects our view that the economic conditions are improving, and therefore increased investment in our business is appropriate. During 2010, we will increase our sales force between 15% and 20%. We will resume merit increases for our employees, as well as increased spending on customer-facing technology. In addition, we assume that the current low interest rate environment will continue, which, given our large cash balances, will continue to impact our interest income year-over-year. Our current guidance reflects these assumptions, but we will, as always, update you quarterly on our guidance, and adjust if we believe our business outlook is changing.

As a reminder, our guidance excludes the following -- amortization of intangible assets, which we expect to be approximately $900,000 for the first quarter, and approximately $3.6 million for the full year 2010; noncash stock-based compensation expense of between $1 million to $1.2 million for the first quarter, and between $5 million and $6 million in the full year 2010; and gains and impairments on sales of marketable securities and non-marketable investments.

For the first quarter, we are aiming to achieve total revenues of approximately $57.5 million to $59.5 million. This range reflects a 2% to 5% improvement versus prior year. Operating margins of between 13.5% to 15.5%; other income of approximately $250,000; a pro forma income tax rate of 40%; and pro forma diluted earnings per share of approximately $0.21 to $0.25.

Our pro forma full year guidance is as follows -- total revenues of approximately $240 million to $248 million, which reflects an increase of between 3% and 6% versus prior year; a pro forma operating margin of approximately 14.5% to 15.5%; other income of approximately $1 million; a pro forma income tax rate of 40%; and pro forma diluted earnings per share of between $0.97 to $1.03. We have provided guidance on a GAAP basis for the first quarter and full year in our press release and 8-K filed this morning.

Thanks you, and I will now turn the floor over to

Thanks, Mike, and I would like to welcome everywhere to Forrester's 2009 Q4 investor call -- investor conference call.

I my remarks, I will cover four topics. One, the state of Forrester at year-end 2009; two, the state of the economy and projected tech spending; three, the Company's three business imperatives; and finally, acquisitions.

Turning first to the state of the Company. As I look back on a 2009 and ahead to 2010, I am pleased to report that we have successfully managed through the recession, and we are poised to accelerate growth as the economy continues to recover. In comparison with the previous recession, the Company has maintained stability throughout the current economic cycle. Revenues have been down slightly, but operating margin has remained in our long-term targeted range. I attributed these results to our role-based focus, which has kept relevancy for clients high, helping them as they plan their way through the slowdown. Increasing relevancy resulted in quarter-to-quarter improvements in new business win rates and renewal rates, as 2009 progressed. On a look-forward basis, I can report that the Company has never had a more energetic or energized start to the year. Between the launch of the role manager organization, which I will talk about in a few moments, and a new integrated approach to sales, we have hit the ground at a full sprint.

As a backdrop to Forrester's 2010 will be the economic recovery, one that we believe will believe will be characterized by gradual, slow improvement. I was at the World Economic Forum in Davos two weeks ago. Many of the CEOs that I met with reported that they have seen gradual improvement in their businesses from Q3 to Q4, and most are now reporting optimism for calendar 2010.

These views are buttressed Forrester's most recent forecast of technology spending. We believe that global tech spending will increase 5.6% in local currencies and 8% in U.S. dollars. Canada and Europe, two of Forrester's largest markets, will lead in tech spending increases. Technology spending in the U.S. is forecasted to increase 6.6% in 2010. Globally, software and computer hardware will glow faster than 8%, with communications equipment and IT outsourcing services lagging the average. Now, all this means that the roles that Forrester serves will be increasing their activity and spending in 2010 and beyond.

As I've done in past conference calls, I would like to give an update on Forrester's three business imperatives, and they are, one, refinement of the role-based strategy; two, growing our sales platform; and three, increasing the quotient of business that is syndicated.

Looking first at the role-based transition. The Company took three major steps to deepen it's role strategy in 2009. One, we sharpened our product packaging. Two, we extended our technology to better serve roles. And three, we reorganized to place more focus on roles. As I outlined on the second quarter conference call, we repackaged role view into three discrete products at mid-year. And now I'm pleased to report that after two quarters, repackaging has been well received by clients, and it now positions Forrester to aggressively increase the number of roles per account that receive our research.

We are using technology to increase our clients' experience and value. At the beginning of the third quarter, Forrester Leadership Boards launched online communities for 17 roles. These communities enable members to share ideas, best practices and research on a continuous basis. This community will continue to be augmented as we move through 2010.

Finally, we made organizational changes in the fourth quarter to further sharpen the focus on roles. We have replaced our product-centered organization with a role-centered organization. We are now roles first, products second; ensuring that every aspect of our work is designed and created with one thing in mind, making our clients successful. Our organization now mirrors how our clients see the world, concentrating our attention on their challenges, projects and decisions. So all three of these changes, packaging, technology and organization, reflect our continual effort to be ever more outside-in, laser-focused on our clients.

I would now like to turn to our second operational imperative, which is adding salespeople. While sales head count was flat in Q4 2009, we extended a substantial number of job offers in the quarter. Our plan is to grow the sales force by between 15% to 20% in 2010, and we are off to a great start. The additions to sales head count will occur primarily in the first half of the year, impacting bookings growth in the second half of 2010 and into 2011. As 2009 progressed, retention of salespeople increased. Continuing this trend is a priority for Greg Nelson, Forrester's new Head of Worldwide Sales.

Finally, as Mike has reported, the percentage of our business that is syndicated, what we call [cue], rose to 68% in 2009, an increase of 3 points in the year. Increasing cue widens the portfolio widens the portfolio of our contracts that are renewable, ultimately increasing the profitability of the Company. As you know, in 2008 we changed sales compensation to increase incentives for the sales of syndicated products. This has been one of the primary factors in the expansion of cue. For 2010, we will continue to build toward our ultimate goal of 70% cue.

I would like to finish up now with a few thoughts on acquisitions. I consider 2009 to be one of our most successful years on the acquisition front. While the Company made only one acquisition in the year, it was the deals that we did not do that stand out. As I have noted before, there are three hurdles that all acquisitions must clear before we move ahead. Firstly, the acquisition must make financial sense; be accretive to the Company's EPS within 12 to 24 months. Secondly, the acquisition must strengthen our role-based strategy. And finally, the acquired company should help Forrester grow at our planned or higher rates; in other words, be accretive to our revenue growth.

The art of the deal from our standpoint rests on these three pillars. While Forrester has strong cash flow and a strong cash position, we will not deviate from our acquisition and methodology and philosophy. At times not doing a deal can be a more powerful move than doing the deal. The acquisition of Strategic Oxygen from the Monitor Group in the fourth quarter was a small but meaningful addition. SO was a profitable operation, and its product is purely syndicated. SO clearly fits with a role, in this case the technology product management and marketing professional. SO business is expanding at fast rates, aligned with Forrester's growth plans. Finally, SO's services are unique in the market, helping to further differentiate Forrester from its competitors.

So to conclude, as the Company improves -- excuse me, as the economy improves, we are shifting the sights of the Company toward growth. We are investing in our packaging, technology and organization, intensifying our quest to drive relevancy. We are confident that demand for our products and services will improve, as IT and marketing spending increases in 2010. And we believe that we can continue to discover acquisition opportunities that meet our buying criteria.

Please visit us if you are in Cambridge, and Mike and I hope to see you out on the road during the 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.

(Operator Instructions)

Operator?

Yes, ma'am.

We are waiting for questions.

And your first question comes from the line of Sam Hoffman with Lincoln Square. Please proceed.

Good morning. I just wanted to get a little bit more color on the sales force retention in the quarter and turnover, and then your objectives for 2010?

Sure. Hey, it is Charles. As George mentioned, the trend line on the sales force turnover was good all the way through the back half of the year. We saw sequentially improving retention rates as we went through there. I can't remember if it was George or Mike who mentioned the growth that we are expecting for this year. We are targeting that at somewhere between 15% and 20%, mostly clustered in the first half of the year. What you will see, I guess, is a sharp movement up in the first quarter, and then probably trailing a little bit into the second quarter. Largely, that is because of what happens -- when you try and hire great salespeople from elsewhere, by and large they are above the plans -- their quotas where they are, and so they don't like to make a move in December, so many of them wanted to defer their offers to start here in January. That has happened and so I think, as George said, we are off to a very good start there.

Can you give any statistics on your percentage retention objectives for the year? Of existing sales force?

Sam, we haven't given external guidance for some of the metrics. We typically just stay focused on financial metrics. It is a fair comment to say we obviously expected to improve year-over-year, for a number of reasons. Obviously, we are going into what we think is a better economy. We think the opportunities for our sales organization with our 2010 compensation plan are quite good. Performance will be rewarded, and the economic environment is better to be selling in. I think we've made the large changes to our sales organization structure. So that also will help as a consistency and direction for that's in place and has been in place since the latter part of 2009. So I think, you know, a couple of those factors should see real improvement, but we don't give guidance on our targets that the point.

Sam, George, here. What I would say is that Greg Nelson, taking over worldwide sales, has already brought in some very good leadership into the sales organization. We think better leadership is going to mean lower attrition in the year and beyond.

Okay. Second question is, can you comment on the prospects for acquisitions going forward? I guess listening to the Gartner call, they feel that they did a couple of really good deals for them in terms of the synergies that it brought their business. I guess the question is, how competitive do you think the acquisition market is going to be in 2010, in terms of supply of acquisitions to be bought and competition for them?

What I would say, Sam, is I think it will be -- I don't want to coin a phrase here, but the year of the acquisition. Not for us, but for everyone. Because you have a couple of factors at work here. One is that there will likely be a tax change for capital gains in 2011, so I think there's going to be a hurry-up to move deals in 2010. You also have a number of private equity firms that own companies, and carried interest will likely go from 15% to 50% in 2011, so they will want to move deals in 2010. So that's just the exogenous variables at work here.

But I will tell you, from our standpoint we have the longest list we have ever had. We are extremely busy. Obviously, as I said in my remarks, we're going to hew to our philosophy and our methodology, but we are quite excited by the prospects out there.

Terrific. And finally, on the margin, in the past you said you have been conservative in your margin guidance. But understanding that this year, you are obviously making some investments that will benefit the Company in 2011 and beyond, so would you say that this year's margin guidance is still conservative, or kind of more fair?

I think this year's margin guidance reflects a couple of things, Sam. First is, to your observation, the way our model works, as you know, the balance sheet leads in and then leads out. So with bookings activity soft in 2009, revenue growth is not what ours typically is, which is 15%-plus. So you have that coupled with, as we come out of the recession, a need to invest in people, primarily. The combination of those two factors typically compresses margin in that first year out of a recession. When we get beyond that, I think 2011, both the Executive team, certainly, and its own belief in what is happening with the business, we will be back to historical rates.

It is our view that this year is the recovery year as we invest back in the business, and that 2011 and beyond are back towards more consistent longer-term margin rates that people have come to expect. So is this year conservative? I think this year is a reflection of the reality of coming out of a recession, which is a combination of softer revenue numbers and increased investment in the business.

Terrific. Thank you.

Thank you, Sam.

The next question comes from the line of Bill Sutherland with Boenning. Please proceed.

Thanks, good morning, everybody.

Hey, Bill.

Given the nature of the year, I am assuming that quarterly phasing is basically a sequential sort of improvement trend?

The way -- you know, you will have some normal seasonality as events spike up and down during is quarters, Bill, so that will create some noise I think on the revenue line, and consulting also has a little bit of flow. I would say in general what we would look for would be sort of sequential improvement in things like deferred revenue, things like enrichment, you know we expect that will start marching forward.

As you know, all the activity shows in the balance sheet first, and then sort of works its way through to the P&L. But I think that is going to be the case. We are, as George mentioned, hiring in the first half of the year, so we will also see sort of expenses growing as we go quarter-to-quarter, but then you will also begin to see, as these sales folks ramp, booking activity, which will show itself in AV, will show itself in deferred revenue, will show itself in cash flow. So --

Right. Do you have events by quarter, the numbers in each quarter?

We don't, but what we can do, I can put them out -- I can put them out on the site, Bill. We can lay out what our 2010 activity level will be.

Okay. Looking at the sales pick-up and the enrichment direction, is it fair to say that you did a little better with new clients in terms of the Q4 bookings?

I'll give an observation, and I will let Charles maybe give some color. New business for us in general, we have been pleasantly surprised in the second half of the year. We've had good performance. So, yes, I think that's a fair statement. Again, we have been happy with what is going on, on the new business front, and we are very happy with our existing business on the renewal front in the fourth quarter, which as you know is our biggest quarter. To see client retention and dollar retention move the way they did, which is -- that's existing clients, that also boded really well for us going into the year. So we are happy with both, new business as well as our existing business.

Okay. Pricing plans for 2010? You mentioned, I think, on another call, the segmented pricing. How did that pan out? Last year, I mean?

Hey, Bill, it is Charles. So as George mentioned, we changed the packaging structure and we announced that in Q2 of last year. That, of course, has implications for pricing. The big win is that we now get the flexibility to differentially price by client segment. That allows us to extract the appropriate value by segment, and it also is going to be a big factor in integrating future acquisitions.

So I would in the back half of the year, as George alluded to, that went exactly according to plan, so almost bang on exactly what we expected. As we think about price changes in 2010, we will follow the same protocol that we always have, looking at the same three factors -- product demand, the value we deliver, and the competitive environment. We typically do that in the summertime, and we will continue to do that. The difference that you may see is that we are now able, as I said, to differently price by segment. So it will unlikely be -- it is unlikely that it would be a flat price increase across the board, but rather more attuned to the segments.

And you said, Charles, three segments?

The three segments, that's right. Our IT business, our marketing and strategy business, and our technology industry business.

Okay. So you didn't actually communicate publicly, though, what you did in each segment as far as price?

That's correct.

Okay.

Another factor on pricing is that, although they weren't a major factor, but two small competitors were eliminated during the year, AMR and Burton. So that will be a small factor as we go through our methodology on pricing.

To me -- this is Charles. Generally, the pricing environment feels very healthy right now.

Okay. Good. On the role front, or I guess just product development, George, you sort of alluded to something being -- you know, how did you phrase it, the repackaging, I am sorry, that you hoped would -- expect will increase, role-per-client. Can you give us a little color on that, please?

One of the ideas behind repackaging was that we now have discrete teams of salespeople, multiple discrete teams of salespeople going into single accounts, Bill. So in the past, we had one team going into Federal Express. Now we have two teams, one going to sell to the marketing and strategy roles, seven roles, and another team entering FedEx's to sell directly to the IT roles, those eight roles. So we believe that as the year progresses, and these multiple teams do their work, we will see an important impact on the roles-per-client, because we are now reaching more roles in those accounts.

Okay. I get it.

Yes.

Last one. I guess as you talk about the acquisition environment, it seems like that may at the top of your cash priority list, but I just wanted to double check that with you? Thanks.

I would say the answer is yes. Thank you, Bill.

Okay. Thank you, guys.

Thank you, Bill.

Your next question comes from the line of Jeff Keane with William Blair. Please proceed.

Hey, guys. Can you talk about how many acquisition targets there are out there, and what size they are?

To George's point, we have a list that probably extends to -- if you took the full list, probably anywhere from 30 to 45 companies, that can range as small as, you know, $5 million in revenues to as large as upwards of $50 million in revenue, I would say. So that should give you some sense. Keep in mind, we're looking at acquisition candidates across all three of our client groups, so it is also a pretty diverse group of businesses.

Could you also mention what the Strategic Oxygen revenue contribution for 2010 should be, and also what the FX impact on revenue would be?

We have not broken out Strategic Oxygen. It's not, frankly, material to our overall revenue and operating results for 2010. We think it is strategically important, we think it's an interesting business that we can do a lot with.

In terms of FX, right now what we are looking at, for the first quarter we expect that it's going to potentially trim as much as 1 point, 1 to 2 points in the first quarter. For the full year right now, and I will tell you given all that is going on, particularly in the Euro market, we are not predicting anything, we are assuming for our planning purposes that it will be about a push, flat year-over-year, but clearly there will be noise. If I knew what was going to happen with what they're, I think, referring to in a rather derogatory way the PIGS, which is Portugal, Italy, Greece and Spain, I don't know what the impact of that is going to be. I think in the near term, it is creating a lot of noise in the Euro. I saw an article last night that there is a heavy shorting on the Euro right now, so Q1 could be noisy, but I do think it's going to stabilize for the year. That's how we're viewing it, and again that's one we will continue to watch. And I don't profess, Jeff, to be a foreign exchange expert at all.

How much of the 2010 increased investment is coming straight from sales and marketing?

I would say it is certainly the single-biggest line item, from a spending perspective. So if you think about, I would say, total increases for both head count additions in sales, as well as merit increases and the like in sales, that is almost 3 points of our margin erosion, if you will, and that's investment, okay, in the business.

Can you talk about other areas outside of sales and marketing that you are increasing your investment?

Sure. Last year we did not give merit increases to our employee base, so for those non-sales-related folks, the merit increases and the associated benefit increases are almost 1.5 points. Then we talked about technology, customer base and technology, we have about a 1-point impact on margin as a result of increased technology spending. So those are the big buckets; sales first, then what I would call merit and benefit increases across the board for the rest of the employee base, and then the technology spend.

All great things to spend money on, for the future of the Company.

Thank you.

You're welcome.

Your next question comes from the line of Dan Leben with Robert W. Baird. Please proceed.

Great, good morning. When you are looking at the dollar retention and client retention rates, I know you guys don't want to talk specifically about where the numbers were in the fourth quarter, but directionally, have we gotten back pretty close to historical levels or is there still room for some additional improvement?

Dan, it's Mike. I think we are moving back to our historical levels, both in client and dollar retention. I will give you a caveat there, just because my boss is staring at me. He has never been satisfied with where we were historically, and I think he's always stated he would like to see our client retention rates grow from 75% to closer to 80%, and he would like to see dollar go to 90%. So those are our aspirational goals, and we're continuing to try and march towards those. But, we were very encouraged, Dan, to your observation, that both client and dollar retention returned closer to our historical numbers.

Well, George, you have to get to those historical rates, first, I guess.

Yes, exactly. Happy to get there as step one, I'll put it that way.

And when we are thinking about the model in 2010, how should we think about the mix of research and the piece in the cue? Is another 3 points too much to expect this year, or is that the type of goal you guys are shooting towards?

I think the 3 points is way too much to think about. We have -- we've got a lot of noise, and there will be a lot of stabilization. I think a couple of things are going to happen. First, you know, I think we'll see some improvement, as you would expect, in our consulting and events business. So that is going to come back into the fold. That is a good thing, by the way. So, that helps, right? And we are also contending with a normal booking softness for the first part of the year on the syndicated side. So a combination of those things, Dan.

I think we also have events strengthening the year.

Right. So I think, when you look at those, 3 points, just isn't going to happen. 3 points, by the way, would actually put us above our target of 70%, and not that we don't want to exceed George's targets, that is obviously our goal, I just don't see it happening in 2010. I think you've got a lot of improvement as the economy recovers, as our business recovers. So I think it's going to be something less than 3 points. If I think about it, even a point I would probably be thrilled with.

Okay, great. Then could you just follow-up a little bit on the infrastructure and technology investments you are making, kind of what the goals are here, what you are trying to bring to clients, and then any opportunities for additional revenues and sales because of those?

I am going to be sort of non-specific, but I will give you the general view. That is as we look at specifically the community for FLB, we are looking to bring a better experience for the FLB members. We had FLB down in Florida last year, and one of the clients said, you know, I love these meetings, the Board is terrific, but I wish I could be with my peers on a continuous basis. If I have a question, I want to get to them immediately. So we will be spending in the community space for the year, and we'll -- as an example, we have an iPhone app coming, and there is other social technology we are working on. So we are very busy under the covers on the technology front. We want to continually improve the experience for our clients, especially in their roles.

Thanks, that's helpful. And then last one for me is, just help us thinking about these incremental investments, how they're going to flow through the year, assuming that with the offers for hiring out in the fourth quarter, that we are going to see a bump in the first quarter that's in the guidance, but do they continue to ramp up as we go through the year?

They do. I think that clearly the objective would be for most of the sales increases to come on board in the first half of the year rather than the second half. That would be our goal, to the point George made. So that's what you should look for, Dan, on the sales front, which is our biggest dollar increase, if you will. The merit increases tend to sort of stagger their way across. Sales was done earlier, and then the normal employee base typically comes mid-year, in July, July 1. So that is more second half. The benefit kind of comes across the board during the course of the year, more as a flat line, and technology will be sort of spread as we go by quarter. So that is the way to think about it. Disproportionately weighted towards the front half, but some will occur really throughout the year.

Great. Thanks, guys.

Thank you.

The next question comes from the line of Brian Murphy with Sidoti & Company. Please proceed.

Thanks for taking my question. Just a quick follow-up on the investments in customer-facing technology. Are these going to be -- is this going to be sort of proprietary custom development that you guys are doing, or are these investments in sort of a standardized package from a vendor?

I would say you will see both from us. Our community technology is based on the communities -- are based on the [Jive] technology, with some custom programming around it. So, if it is cheaper to buy and more effective to buy than make, we will do that. So, it will be a combination of the two.

Okay. Can you give us maybe just a little more color on how that is differentiating your product now, and how you expect that to differentiate the product, maybe a year or two down the road?

I can't get specific, but I would just say the vision is that our technology is the best in the industry, and is highly targeted at the role experience. So, I mean, it is quite a differentiated experience for the client they can't get anywhere else. That is kind of our goal, to build a technology experience which no-one -- the client can't get anywhere else. We internally refer to this as Value 360. We want to give 360 degrees of value to our clients through technology.

Great, thank you. And one more quick question on the sales force. i think you guys have been focusing a little bit on sales force productivity. How do you feel about sales force productivity now, and how are you striking a balance between sales force productivity and the rapid ramp up of the sales force going forward?

Hey, Brian. It is Charles. I will start and let Mike fill in. So I would say in the back half of the year, we were actually pleased with sales productivity that we saw. It was at or maybe a shade above our expectations. I think we've set realistic plans for the coming year; realistic means some rather material improvements in productivity, getting us back to some of the historic levels that we saw pre-recession, but all of that is baked into the plan and into the guidance. As I said, a lot of that is dependant on getting those heads on board in the right time frame. As I said, it is looking pretty good on that front right now. Anything to add, Mike?

Yes, one observation I would make, Brian, is that -- I agree with Charles. I mean, it was encouraging to see the second half of the year performance. I did not expect an uptick this year, just given the way the year was progressing. So to get something out of that was encouraging. Also really, for the first time, this year's target setting for the sales organization, we had productivity embedded in there. So we have -- for our existing reps, we actually have productivity embedded in their targets. And we have the function of the new sales leader, Greg Nelson, and his focus on putting one disciplined approach and process to sales.

I think that, you know, I am encouraged by what we are seeing already, and then we'll see how this year plays out. It will be difficult to see, just because we are adding so many new heads, obviously, that will mask the overall productivity numbers, and we will try to figure out if there's a way to give you color as the year progresses, so you can see what's going on with the existing reps versus new reps, so that you can maybe better understand if we are making some real progress here.

Sounds good. Thank you very much.

The next question comes from the line of Vincent Colicchio with Noble Financial. Please proceed.

Mike, a question on the upside on the quarter. Was it general conservatism, or could you give us some color in terms of where the upside was versus management's plan?

Yes, I think -- a couple of things. I would say the big driver from a profit standpoint, when you look at it, Vince, was we -- to Charles's point, we actually had hoped to hire salespeople a little bit sooner. It was flat for the quarter, but I think our aspiration was to actually be up. And what we probably didn't anticipate fully was that people were going to hang in there in their old jobs to get their year-end commissions/bonus check, and therefore it pushed some of that hiring into the first quarter. So there was an element of our forecast that assumed some sales hiring, which would have been pure expense, pure recruiting costs, that just didn't happen, and is now embedded in our guidance for the first quarter of this year. So that was a piece of it. And there was an element of conservatism, as has there has been all year with us, and I know we get a little bit of a poke from you guys on that, and it's probably fair. But it's just been an interesting and difficult year to try to project. So a little bit of conservatism, a little bit of timing on the sales head count, were the two primary drivers.

Is there any color you can provide in terms of vertical markets showing the strongest demand in the quarter?

Hey, Vince, this is Charles. No. There were no real highlights or lowlights there. I would say we saw strength -- Mike talked about the renewal rates. We saw strength there across the board, as well as in new business. So that was gratifying, actually, to see that broad-based strength.

The only color I can give you there, Vince, is being at the World Economic Forum two weeks ago, everyone is very surprised with the bounce back in financial services, even in Europe, and I think we're seeing that in our business somewhat as well. We thought that it would be a smoking hole in the ground, but it's really -- as the year progressed, it recovered.

Okay. Thanks, guys.

With no further questions in the queue, I would now like to turn the call back to Carol Levinson for closing remarks.

Thank you very much, and thank you very much for joining us on the call. Have a great day.

Thank you, ladies and gentlemen, for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a wonderful day.