Forrester Research Inc (FORR) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth quarter and full year 2010 Forrester Research earnings conference call. My name is Alicia and I'll be your operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to introduce Ms. Karyl Levinson, Vice President of Corporate Communications. Please proceed, ma'am.

Thank you, and good morning. Thank you for joining our fourth quarter and full year 2010 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. George will open the call and provide a strategic update on the business and our role-based strategy. Mike will follow George and provide detail on our financial results for the quarter. After Mike completes his review, we'll open the call to Q&A. A replay of this call will be available until February 17, 2011 and can be accessed by dialing 888-286-8010. Please reference the pass code 63314715. This call is also available via webcast and will be archived in the investor section at forrester.com.

Before we begin, I'd like to remind you 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'll now hand the call over to George Colony.

Thank you, Karyl. And I'd like to personally welcome to Forrester's year end conference call. I'll cover five topics this morning. Number one, Forrester's three-business imperatives; two, Forrester's differentiation; three, the economy and tech spending; four, our journey from build-up to break through; and finally five, acquisitions.

I'd like to update you first on the long-term operational priorities of the Company. Our three business comparatives. As they are, number one, driving the roll based strategy forward; two, increasing the size of the sales force; and three, increasing the percentage of Forrester's business that is syndicated. Looking first at role-based. As I mentioned on the Q3 call, the Company is in the midst of launching roll-based online communities. Sites enabled clients and nonclients within specific rolls to engage in on going discussions. Eighteen of the nineteen roles we serve now have their own dedicated online communities; 5,000 members joined in the fourth quarter, bringing the total population up to 18,000. During the quarter 409 new discussions were initiated cross 18 roles. Our role focused blog platforms continue to thrive as well, generating nearly 500,000 page views in Q4.

We are accelerating Forrester's social efforts for three reasons. Number one, to engage nonclients with the goal of ultimately moving them to client status; two, to connect clients-to-clients, increasing value and therefore increasing renewal rates; and three, to widen exposure to Forrester's advice. At the end of the day, our social activities are focused on increasing new business win rates and increasing renewal rates. The Company's second business imperative is to expand the sales force 15% to 20% per year. There are approximately 2.8 million executives worldwide in the 19 roles that we address. Expanding our channel enables the Company to reach more of these potential clients.

In 2010 we cut sales attrition in half. It moved from 30% in 2009 to 15% in 2010. We saw, as a result, increased sales productivity, a trend that we believe will continue in 2011. The sales force grew 20% in 2010, a result of low attrition rates and increased hiring in the fourth quarter. We intend to be in our target growth range of 15% to 20% in 2011.

The Company's third business imperative is to increase the percentage of our business that it syndicated and we call this metric Q. Forrester's long-term goal is to achieve 70% Q. While syndicated grew strongly during the year, non-syndicated revenue and consulting and events grew faster driven by a recovering economy. This meant that Q stayed at 67% in 2010. Our plan for 2011 is to move Q to 68%.

A key element in Forrester's future growth is differentiation and I wanted to say a few words on this topic. Last quarter I talked about the five ways Forrester is different from its competitors. Number one, a singular focus on roles; two, breadth of roles from IT roles to marketing roles to strategy roles; three, data; four, social media leadership; and finally, five, a focus on how companies are moving from IT to BT, that is how they are applying technology to their business.

I'd like to focus for a moment on number three, Forrester's unique data offerings. The Company's data products serve a wide range of roles. Forrester surveys 75% of the world's economy, revealing buying patterns and behaviors about consumers and large companies. One of our newest data offerings is forecast view. Built to inform the decisions of the seven marketing and strategy roles. It's 40 global forecasts projected growth of emerging technologies such as online alternative payments and mobile media and application spending. Forecast view data is derived from proprietary consumer and vendor research. Clients use this data to benchmark their performance and build their tactical and strategic plans. So, yes, Forrester's famous for its big ideas and forward-looking research but all of this work is grounded in primary data. And that is one important element of our differentiation.

Turning now to the economy, late in Q4 Forrester published it's US and Global IT outlook and it remains optimistic about technology spending. We are projecting 7.5% IT market growth in the US in 2011. And 9.4% growth in 2012. The global IT market will grow 7.1% in 2011 and 8.7% in 2012. The fastest growing segments of the IT market this year will be computer equipment and IT consulting and system integration services, both expanding at 7.4%. Software continues to be the largest component of the IT market globally, growing 7.1% this year. The IT markets as a whole is predicted to account for $1.7 trillion in spending in 2011. Growth in IT spending will outpace GDP growth. We're forecasting 2.3% nominal GDP growth in the US in 2011. We predict slower growth for Japan and countries in the European Union, each growing at or below 2.1%. Our forecast has developing Asian economies, including China, India and Indonesia, growing the fastest, each by more than 8% in 2011.

I'd like to talk for a few moments about Forrester's journey from build-up to break-through. Four years ago Forrester embarked on its role-based strategy. We viewed these years as a period of build-up as we worked to ensure that roles permeate every part of our business. We continue to make investments during build-up to ensure we can achieve break-through over the next three years. And these investments include, number one, the sales force expansion I've already alluded to; two, new office locations. In 2010 and 2011, Forrester's moving its locations in London, San Francisco, New York and Cambridge. These moves set the stage for substantial Company growth. And a final investment is on a new online client experience. At midyear Forrester will move its clients to fully redesigned web and app Internet technologies. This experience will offer faster access to our research on a role specific basis.

Which brings me to my final topic which is acquisitions and I have no new news to report here except to note that we remain as busy as ever vetting and pursuing opportunities. Our list of targets remains extensive with international opportunities ramping up as the year ended.

So to conclude, Forrester enjoyed a successful year in 2010. Renewal rates finished the year at all time highs. The Company's stock price rose 36% and the Company's financial strength enabled it to offer a special dividend of $3 per share. I was at the world economic forum in Davos two weeks ago and I came away very impressed with the strength of the Forrester brand. Our research is respected worldwide and the Company's forward-looking analysis was particularly resident with CEO's and other world leaders. As one tech CEO commented, Forrester tells me what is over the next hill. You do that better than anyone else. I'd now like to turn the call over to Mike Doyle who will give a review of Forrester's financial performance. Mike.

Thanks, George. I will now begin my review of financial performance for Forrester's fourth quarter and full year results. The balance sheet ended December 31, our fourth quarter metrics and the outlook for the first quarter and full year 2011. Please note that the income statement numbers I'm reporting are pro-forma and exclude the following items; amortization of intangibles, stock-based compensation expense, duplicate lease costs, reorganization costs in 2009, acquisition-related costs and credits, net gains and losses from investments. Also we continue to utilize an effective tax rate at 40% for pro-forma purposes. The actual affective tax rate for the fourth quarter of 2010 is approximately 45%.

For the fourth quarter, Forrester was the at the upper end of our quarterly guidance for revenue, pro-forma operating margin and EPS. The fourth quarter was a fitting cap to an excellent year as we rebounded strongly from the 2009 recession. In addition to strong financial performance, we had significant improvement on key customer metrics with both client and dollar retention reaching all-time highs.

Now let me turn to a more detailed review of our fourth quarter results. Forrester's fourth quarter revenue increased 9% and actually 10% on an FX-neutral basis to $67.1 million from $61.5 million in the fourth quarter last year. Given our deferred revenue recognition model, we are continuing to see the positive revenue effects of our strong bookings performance. In addition, consulting delivery continues to remain strong. Fourth quarter research services revenue increased 12% to $45.4 million from $40.8 million last year. Research services revenue represented 68% of total revenue for the quarter, a 2 point increase over the year-ago period. Fourth quarter advisory services and other revenue increased 5% to $21.7 million from $20.7 million in the fourth quarter of 2009 and represented 32% of total revenue for the quarter. International revenue mix was 28% for the fourth quarter, 2010, compared to 31% in the fourth quarter last year due to the impact of foreign exchange rates and faster growth in our North America markets. Operating expenses for the fourth quarter were $57.2 million, up 18% from $48.4 million in the fourth quarter of 2009, as a result of higher compensation due to increased headcount primarily in research, and strong operating performance resulting in higher commission payouts. Total Company headcount increased by 131 or 14% as of December 31, 2010, compared to the year-ago period.

Operating income was $9.9 million or 14.8% of revenue compared with $13.1 million or 21% of revenue in the fourth quarter of 2009. Growth in fourth quarter revenue is offset by increased operating expenses as we continue to increase head count to keep pace with customer demand and to invest for 2011. Other income for the quarter was a negative $29,000, down from $115,000 of income in the fourth quarter of 2009. The decrease is primarily due to lower interest income reflecting lower global interest rates as well as a net foreign exchange loss associated with intercompany payables and receivables. Net income for the fourth quarter was $5.9 million and earnings per share was $0.26 on diluted weighted average shares outstanding of 23.1 million, compared with net income of $7.9 million and earnings per share of $0.35 on 22.7 million weighted average shares outstanding in the fourth quarter of last year.

I would now like to take you through the activity behind our revenue and review the results for each of our products starting with research. In the fourth quarter, 306 new research documents were added to role view. The top three research roles are market research professional with 5,399 members; technology product, management and marketing professional, with 4,980 members; and the enterprise architecture professional with 3,818 members. We hosted 61 teleconferences in the fourth quarter with a total attendance of 2,513. Forrester Leadership Boards, our peer offering for senior executives continues to improve, achieving year-over-year revenue growth of 8% in the fourth quarter. The IT Leadership Boards now have a total of 967 members. The technology industry boards now have a total of 286 members. And finally, the marketing and the strategy boards have a total membership of 452. At the end of the fourth quarter, the Forrester Leadership Boards had 1,705 members, up 9% from December 31, 2009. In our data business, we continue to add and renew an impressive list of clients, including the addition of 17 new 1B plus companies in the fourth quarter, including Bristol-Myers Squibb, Kimberly-Clark, Lloyds TSB, Marks & Spencer, Nextel, Reebok and Facebook.

Consulting revenue for the fourth quarter of 2010 was in line with a year ago and met our expectations. Our events business continues to rebound nicely from 2009 with the strengthening economy positively impacting corporate travel budgets and driving improved event attendance. We had an extremely busy quarter, hosting seven events, including five IT role-based events; The CIO forum, North America; Business Process and Application Delivery Forum, North America; Content and Collaboration Forum, North America; and Sourcing and Vendor Management Forum in both North America and EMEA. We hosted two M&S role-based events. Consumer Forum, North America, and Marketing and Strategy form, EMEA. In first quarter of 2011 we are hosting four IT role-based events; Enterprise Architecture Forum in both North America and EMEA as well as Infrastructure and Operations Forum EMEA -- and the Security Form in EMEA. We will also be launching Technology Sales Enablement Forum in North America as we continue to diversify our role-based portfolio of events.

And now I'll review Forrester's fourth quarter metrics to provide more perspective on the operating results for the quarter. 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 $202.7 million at December 31, 2010, an increase of 4% from the fourth quarter of 2009. At December 31, 2010, Forrester's retention rate for client companies was 80%, in line with September 30, 2010, and our dollar retention during the same time period was 91%, a 2 point increase from the previous quarter. As I mentioned earlier, both metrics have reached all-time highs. Our enrichment rate was 104% for the rolling 12-month period ending December 31, 2010, which is up 2 points from September 30, 2010. We calculate client and dollar retention rates and enrichment rates on a rolling 12 month basis due to the fluctuations which can occur between quarters with deals with that -- close early or slip into the next quarter. The rolling 12-month methodology captures the proper trend information.

At the end of the fourth quarter our total for client companies was 2,575, up 2% from September 30, 2010. Clients count, unlike our retention and enrichment metrics, is a point in time metric at the end of each quarter. As of December 31, 2010, there are 3.0 roles per client which is down from 3.1 in the third quarter of 2010. For head count at the end of the fourth quarter, Forrester had a total staff of 1,078, up from 1,031 at September 30, 2010, as we continue to invest in growing our sales and research staffs. Current headcount includes a research staff of 394 and sales staff of 378. Sales attrition, an important driver of sales productivity, was approximately 50% below the year ending 2009 rate. We saw this positively impact sales productivity in 2010 and expect it will continue to drive improved sales productivity in 2011.

Turning to Forrester's full-year results. Total revenue for the 12-month period ending December 31, 2010, increased 7% to $250.7 million from $233.4 million last year. Year-to-date research services revenue increased by $10.8 million or 7% to $168.5 million. Research services represented 67% of total year-to-date revenue. Full year 2010 advisory services increased $6.6 million or 9% to $82.2 million from $75.6 million in the same period last year, reflecting the increase in consulting and event revenue due to the improving economy. Operating income for the 12-month period was $40 million or 16% of revenue compared with operating income of $46.3 million or 19.8% of revenue in the 12 months ending December 31, 2009. The 2010 results reflect additional investment in sales and research personnel and client facing technology as our business activity increases. Net income for the 12-month period ending December 31, 2010, was $24.8 million, compared to $29.1 million last year. Earnings per share were $1.07 on diluted weighted average shares outstanding of 23.1 million compared with $1.27 and 22.9 million weighted average shares outstanding last year.

I'd now like to review the balance sheet. Our total cash and marketable securities at December 31, were $216 million, down $43.8 million from our year end 2009 balances as a result of the special dividend paid in December. As mentioned during our last call in October, our Board of Directors authorized a $3 per share special dividend payment which resulted in a total dividend payout of approximately $68 million. We generated $38.7 million in cash from operations during the 12 months of 2010, a decrease of $4.4 million or 10% from prior year, primarily due to the timing of our tax payments versus a year ago. We have received $26 million in cash from options exercised and the employee stock purchase plan during the course of 2010. During the full year of 2010, we repurchased 660,000 shares at a total cost of $21.4 million, versus $20.4 million during the full year of 2009. Accounts receivable at December 31, 2010, was $73.6 million, compared to $67.4 million as of December 31, 2009. Our day sales outstanding at December 31, 2010, was 101 days which was in line with day sales outstanding at December 31, 2009, and in line with our expectations. In accounts receivable over 90 days was 4% at December 31, 2010, in line with the year-ago period. Our capital spending for the full year 2010 was $13.4 million, compared with $4.3 million during the full year of 2009. The increase reflects investment in computer equipment and leasehold improvements as we moved our London and New York offices, along with the investment in a new corporate headquarters in Cambridge. During 2010 and 2011 we will have moved offices in four major locations, representing 75% of our office space. These moves will increase our office capacity by 60%, and give us adequate space for future growth. Deferred revenue at December 31, was $132 million, up 12% over December 31, 2009. Deferred revenue plus future AR grew 15% year-over-year. Our future AR balances are amounts to be invoiced in the future for clients with multi-year deals or scheduled payment terms. The strong year-over-year increase reflects improved business activity as our business continues to rebound strongly from 2009 levels and is our best indicator of future performance.

The last topic I'd like to cover today is the business outlook for the first quarter and full year 2011. In summary, sales performance and continued investment in our hiring high-quality personnel during 2010 allowed us to meet our revenue, pro-forma, operating margin, and EPS guidance. This investment in people will continue in 2011 as we expect strong demand for Forrester's products and services to continue. In addition, performances in our key customer retention and enrichment metrics are exceeding historical performance levels, reinforcing our belief that 2011 will be another good year for Forrester. In addition to investing in personnel, we will continue to invest in our infrastructure including customer facing and sales enabling technology as well as completing the buildout of our new headquarters in Cambridge and our West Coast office in San Francisco. These investments will enable greater customer interaction and improved client service as well as give us significant capacity to grow. Our investments in office space represent a significant capital outlay for 2010 and 2011 and our rent costs will increase. While these investments compressed margin in the near-term, our operating leverage, excluding rent, is increasing and will continue to increase. As we move forward to 2012 and beyond, this will accelerate as rent and depreciation level off in 2013.

As a reminder, our guidance excludes the following -- amortization of intangible assets, which we expect to be approximately $450,000 for the first quarter, and approximately $1.8 million for the full year 2011; stock-based compensation expense of $1 million to $1.2 million in the first quarter and approximately $4.6 million to $5 million for the full year 2011; duplicate lease costs of $1.5 million for the first quarter of 2011 and approximately $3.3 million to $3.8 million for the full year 2011. Duplicate lease costs for 2011 primarily represents a non-cash accounting charge for the time period we have access to our new Cambridge headquarters for construction purposes up until the time that we occupy the facility for operations. In addition, our pro-forma excludes gains and losses on investments. For the first quarter of 2011 we're aiming to achieve total revenues of approximately $63 million to $65 million. This range reflects a 6% to 10% improvement versus prior year, pro-forma operating margins of 10% to 12%, a pro-forma income tax rate of 40%, and pro-forma diluted earnings per share of approximately $0.17 to $0.21. Our pro-forma full year 2011 guidance is as follows -- revenues of approximately $282 million to $288 million, this reflecting an increase of between 12% and 15% versus prior year; pro-forma operating margin of 16% to 17%; other income of approximately $1 million; pro-forma income tax rate of 40% and pro-forma diluted earnings per share of $1.22 to $1.28. We provided guidance on a GAAP basis for the first quarter and full year 2011 in our press release and 8-K filed this morning. Thanks very much and I would now ask Charles Rutstein, Forrester's Chief Financial Officer, to join George and me for the Q&A section of the call.

(OPERATOR INSTRUCTIONS) And the first question comes from the line of Bill Sutherland with Boenning & Scattergood. Please go ahead.

Thanks for taking the questions. Mike, just a couple for you first off. What -- embedded in the guidance, what is the level of depreciation?

The Delta on rent and depreciation for 2011, which the change year-over-year is about $0.10, Bill -- impact, adverse impact to EPS.

Okay. So what is the -- not to get too much into detail here, but the number of years that we should look at that level?

Well, as you know, Bill, while the rent will go for all of our space -- obviously the various terms of the lease is 15 in Cambridge and most of the other ones are 10, Bill, the depreciation portion of it, on a blended basis, probably runs about somewhere between 9 years and 10 years.

Okay. And that $0.10, Mike, is the higher lease and depreciation impact?

It is. It's a combination of the two, Bill. And the bulk of it you'll see in the second half of the year because those costs, particularly for Cambridge, begin to impact us in August when we move in. And then the remainder -- there is a smaller amount that reflects London and New York from 2010 that have a full-year impact in 2011 as well as the West Coast office which we expect to move in there in approximately -- toward the second -- end of the second quarter.

Okay. In the revenue guidance, obviously pick-up after Q1 if you just look at the full year -- do you expect that to be kind of linear across the year, just based on the build-up in deferred revenue and future AR?

I think that it's probably going to -- it will -- this will obviously be the low end for the year for a couple of reasons. To your point, you have a deferred revenue factor. In addition, our advisory revenue and other is roughly about the same as it was a year ago. I think we had a lift from projects that were deferred in 2009 that reflected itself in the first quarter of '10. I think going forward it -- you'll see a nice tick-up in Q2 and then Q3, Q4 -- as of right now probably about the same, just to give you a sense of how we think we're splitting it -- growth year-over-year, Bill.

That's growth, right?

Yes, that is growth, Bill. Sorry.

No, that's fine. And then just thinking -- I know that M&S has been the fastest growing of the role-based products and I'm just kind of curious -- how much of a spread is it? Are we talking several points?

In terms of rate of growth?

Yes, rate of growth difference between those roles and the IT roles?

Yes, I'll let Charles jumped in and give you a perspective there.

Yes. Hi, Bill, it's Charles. There is a meaningful difference there -- several points plus, let's say, of difference in the growth there.

Any new roles, Charles, planned for '11?

No, there are none planned for '11. And George outlined the number of target executives in the 19 roles that we currently serve. We think there is ample opportunity there to meet and exceed the numbers.

When you have millions to go, you don't need new roles, Bill.

That's true. And Charles, as you take on all of the new sales people -- I guess is there a way that you can give us some color on how you're applying them in terms of either according to roles or according to geography? Anything you want to tell us there?

Yes. Sure. So the growth in the sales force, Bill, as George alluded to, was 20% less than we expected it to be in the 15% to 20% range for this year. That will come -- in terms of timing, that will come again I think a little bit more heavily weighted toward the front of the year than the back, just as you saw last year. In terms of where we're going to place them, there is no particular geographic bias to it. So expect to see roughly the same balance. With respect to the customer segments, it largely matches the growth rates that you see in those segments that we break out. So for example, you'll see a bigger investment in M&S than you would see in IT for example.

Okay. And on the event side, you guys do not talk about that growth specifically. I'm assuming it's back up into double digits -- is the first part of the question. The second is, do you plan more events in '11? I think you had a total of 8, 12, 17 in '10?

I think -- do you want to tackle that, Charles?

Whatever you like.

The answer to the first question, Bill, is yes. We're back to double-digit growth there in that business. With respect to the number of events, I think it ticks up just slightly here in 2011. We have one new event, for example, this quarter the Tech Sales Enablement event which is a brand new event for us. So it's not a meaningful change year-to-year but a little bit here and there.

Okay. Great guys, thanks a lot.

Thank you, Bill.

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

Great, thanks. Good morning. Just first off, when you think about adding to the 20% to the headcount, how should we see this playing out in terms of sales effectiveness in the metrics? Should we really focus on number of new clients, improvement in the retention rates? How are we going to see that manifest itself in terms of the growth drivers?

It's always difficult to predict. I think this past year we absolutely saw it in what I considered, Dan, to be a really healthy rebound in client and retention, both on an absolute basis and in dollar basis as well. So, I think that -- and that was the focus coming out of the recession was let's go back and chase them. I think we'll continue to see a growth in new clients. I think you also would want to include enrichment on that as well. That's been, again, steadily moving up. So I think you're going to see it across all fronts. I think you'll see both retention numbers are probably -- I don't know if they can get all that much higher. I think we're at really neat levels. I think enrichment will continue to improve, new client growth will be there. I'll let Charles put a little bit more color on some of that.

Sure, Dan. The obvious place you'll see it too is in the deferred revenue on the balance sheet -- and differed revenue in particular plus the future AR as we look at longer term deals. So that's one. Two, you've got retention rates at all-time highs in our history as a public Company. I suspect you won't see those move materially higher this year. We would hope to see the enrichment rate continue to stay healthy though, as Mike says, we go deeper into those accounts. Moreover, as we grow the business, a number of those new heads are dedicated to new business. So if you see those retention rates stay high -- the client retention rates stay high and the new business teams are successful, you see an ongoing tick up in that client count as well.

And a little more color here, Dan, that is that I would say that as you add to the sales count you will see R rising -- R is, roles per account.Because, as you know, we're now putting multiple sales teams into single accounts. So, that will -- as an example you may have an account which is heavily IT focused -- IT roles -- we'll put a second sales team into that account selling to M&S roles and then drive that R number higher. So you'll also see it there.

Great. And then could you just talk about at the mid-point of your guidance for the year and with the Q at 68% next year, it looks like about 15% growth in research. Help us get comfortable with how we get there with deferred revenue right now at 12%. The future AR is great, but is that necessarily telling us -- is that the right stat to look at for 2011?

Yes, I think it is. I think deferred revenue plus future AR, we ended at a 15% number. And I think -- so you -- I think we ended strong. I think clearly the way -- a full year number is not only leverage off of what we did in '10 but obviously continuing to have strong bookings performance in the first half of 2011. Because, as you know, with the deferred revenue model, the bulk of our revenue is what we close out the year -- previous year at and what we do in the first half of 2011. So I would agree with Charles, one of the metrics to watch -- to continue to watch is deferred revenue year-over-year plus future AR. As that continues to grow, that will give you greater confidence about where we're going to come out from a revenue standpoint.

And just to be clear, Dan -- this is Charles -- that the future AR bit is not just multi-year deals but it's also the other payment terms which may well be within this year.

Okay. Great. That's helpful. And then last one for me. Just on agreement values -- the FX adjustment we're going to have at the beginning of the year as well as now that we've lapped the multi-year contracts coming out, should we see this number accelerating into that mid-teen type growth rate?

It should. The number for the fourth quarter, for example, on AB, when you do the -- sort of taking out the multi-year deal -- so you got apples-to-apples to prior year we were up 10% in AV. And we are starting to wind down that period where we recorded it one way historically and then we went to the elimination of the multi-year because we think that's a better look at the AV number. So yes, you should see it start more closely approximating that at double digit number. And it's never perfect correlation with deferred revenue and our belief is deferred plus future AR is still the better metric forward-looking. But, yes, you should see that I think more closely approximate those numbers.

And then the FX adjustment?

FX adjustment this year -- for the most part we left the pound where it was. I think from a euro standpoint we assume there's going to be slight erosion in the euro versus this past year. So, our assumption again should be -- you'll see, I think, probably somewhere in the neighborhood of about a 3% to 4% on the euro. So, again, we're not assuming a big FX impact on our business and from a bottom-line standpoint, again, we still have a natural hedge because we have our folks spread throughout the globe so we've got an offset in expenses. So, I'm not looking for big swings but at the same time I'll tell you, I'm not in the FX prediction business, Dan. So, we'll try to give you color as the results come in each quarter and if in fact we anticipate that there's going to be more volatility then, obviously, we'd probably give more color to our forecast.

Great. Thanks, guys.

Thank you.

Thanks, Dan.

Your next question comes from the line of Vincent Calicchio with Noble Financial. Please proceed.

I have a question on pricing. I'm curious if the price increases put in place last year continue to hold? And if you have any early thoughts on potential price increase for this year?

Yes, hi, Vince, this is Charles. So with respect to the first question, you'll recall that we did sort of a small price increase toward the tail end of last summer. It was not an across the board thing. It was by customer segment so it's a little hard to characterize in the general case. But we definitely saw that price stick in the market. We have seen very little pushback on the price increase. Moreover, our sales teams have gotten more disciplined about reducing the discounts that are offered to customers. And I expect that trend to continue as well. With respect to the price increases for this coming year, for 2011, it will be no different than past years. We'll undertake that look in the summertime -- looking at the same factors, demand, the value that we're delivering and the competitive environment. So insofar as we make a change there, we would probably announce that on the Q2 earnings call.

Okay. And a question for you, Mike. I don't know if I heard you correctly or not on consulting revenue. Was that flat year-over-year? Is that correct?

In the first quarter, for this year, kind of approximately flat to a year ago. And what happened -- you remember first quarter a year ago we actually had a nice uptick with a lot of things that had been deferred in the recession that we had a nice bounce up from that standpoint. But I think year-over-year we're looking at about flat in that category for the first quarter.

The other thing you're looking at there, Vince, this is Charles, is if the physics of the people that we've hired here and toward the end of Q4 and hiring at the beginning of Q1. As those people ramp, of course, we'll see more productivity out of them but you won't see as much here in the first quarter.

Yes, I would expect with discretionary spending, improving, that we'd see the consulting business pick up. Is that -- should we see that in the latter three quarters?

Well the dynamic there, I think, has less to do with the man in the marketplace and more to do with our supply -- our ability to deliver that consulting which is largely tapped out. As you know, we try and focus on the Q side, the syndicated side of our business, and in doing so we're restricting the amount of consulting that we will sell into the marketplace by capping that supply. So, as the supply continues to scale, as those people come up to speed, you'll see increases in that line. I don't know if you want to add anything, Mike.

I think that's right. You definitely will, Vince. We anticipate growing. We have growth in the advisory business for 2011 so that is definitely the game plan. So yes, you will see it in subsequent quarters. Q1 will be the low -- in terms of growth year-over-year will be the low point for us.

All right, thanks, guys.

Thanks.

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

Hi. Thanks for taking my question. I'm just wondering how to think about the gross margin going into 2011. I think cost of services was up sort of low double digits in 2010. Can we expect that growth in cost of services to moderate a bit in 2011?

Yes, I think there is a lot happening, Brian, in 2011. I think in the question Bill had -- I think we have $0.10 of an impact on EPS that's related to rent and depreciation for Cambridge. There is another $0.03 associated -- that we have associated with investments in -- continuing investments in technology and some other strategy-related items. Those are more one-time. Those disappear after this year. So, when we put the targets together and we put our plan together this year, we continue to see more leverage in cost of sale. So that's goodness. And all of that is -- a chunk of that is being offset by these items I'm talking about which is rent and depreciation and the like. So, I think this year is sort of, I think, the transition year for big investments. Some of those have a tail to them, right? Because rent and depreciation will get the full year effect in 2012. But on a cash basis, our EBITDA basis, you'll begin to see some real leverage on the cash side in 2012. Because our expectation is to continue to leverage the cost of sale. So, also we plan to continue to leverage G&A as we get beyond 2011 and some of these initiatives get behind us. So, I think this year the margin is compressed for those reasons. The investment is necessary and unfortunately real estate, as you know, it's sort of a step function. And for us, a lot of our step function hit in '10 and '11 with New York, London, Paris -- I'm sorry, not Paris -- New York, London, the West Coast and Cambridge all happening. And once we sort of get those in place and running, then those run out for a period of 10 to15 years and we'll lever really nicely off of that.

Sounds good. And, George, one for you. The sequential growth in your online community seems like a pretty sharp ramp. Was that -- did that growth surprise you at all?

I think that -- I think we generally believe we would be at about 10,000 for the year or so. It was -- I think the uptick has been a good surprise for us. And, by the way, it continues. The ramp is staying very steep. And I think we're also pleased with the number of conversations being initiated and the number of posts. So, a little bit of color here, we also have a set of communities which are just dedicated to the FLB's, to the Forrester leadership boards. There's actually two layers of communities for the FLB's only and then [Q&As] which are available to the general public. But we're very pleased there.

Okay. Thanks very much.

This conclude today's question-and-answer session. I would now hand the call back over to Ms. Karyl Levinson. Please proceed.

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

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect. Have a good day.