Forrester Research Inc (FORR) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the 2011 Third Quarter Forrester Research Incorporated Earnings Call. My name is Mataska and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Karyl Levinson, Vice President, Corporate Communications. Please proceed, ma'am.

Thank you, and good morning. Thank you for joining today's 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, Mike will follow George to discuss our financials, we will then open the call to Q&A. A replay of this call will be available until November 3, 2011, and can be accessed by dialing 888-286-8010 or, internationally, 617-801-6888. Please reference the passcode 57396003.

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 welcome everyone to the call. I'll cover five topics this morning; number one, Forrester's three business imperatives; two, forecasting the tech economy; three, an update on our performance in social media; four, an acquisitions update, and five an executive team change.

I will start by reviewing our three business imperatives, which are advancing our role-based strategy, growing the sales force and increasing the syndicated portion of our revenue.

Now, I will begin with our role-based strategy. Many of the good trends that I have spoken about on past calls like the increasing relevancy of research driving from roles and the growth in our role-based communities continues. But Forrester is now moving into a new phase in which we are focusing on how clients in different roles will work together. Executives do not attack projects like cloud computing or digital marketing alone. The work is done in concert with a wide range of other executives in a variety of roles. Internally, I call this sophisticated roles. A great example in the third quarter was our first CIO, CMO Forum. These two executives are culturally and temperamentally mismatched. But companies cannot build a digital strategy if marketing and business technology do not cooperate. But this is a difficult but very necessary alliance.

CIOs and CMOs from a number of companies include Aetna, Discover Card, IBM and Signa spent time at the forum working on building higher efficacy relationships, seeking new ways that the two disciplines can bring higher value to their companies. And two points here -- one, roles at Forrester are becoming more nuanced and better able to address real world situations; and two sophisticated roles further differentiates Forrester from its competitors.

Turning now to the expansion of the sales force, each year our goal is to expand the sales force by 15% to 20%. At the end of the third quarter, our sales force was up 16% year-to-date. Sales attrition continues to run at historically low levels and the hiring environment remains attractive. While we have been successfully in attracting great sales talent at Forrester, more work is needed in ramping and developing new sales people and increasing sales productivity. Much management attention and time is currently devoted to resolving these issues.

Our third business imperative is to increase the percentage of our business that is syndicated, a metric that we call Q. It is more efficient for us to produce syndicated renewable products. Our long term goal therefore is 70% Q.

While it was an inconsistent bookings quarter, I am pleased to report that syndicated revenue finished at 71% for the quarter exceeding our plans. We are on track to exceed our 2011 Q goal of 67%.

Now, as I typically do, I would like to spend a few minutes reviewing the tech economy.

While the world wide economy remains uneven, the tech market continues to grow. Our latest not yet published forecast for global tech market growth, this is adjusted for exchange rate fluctuations is 7.8% growth in 2011 and 6% growth in 2012. The fastest growing segments of the market will be software and IT consulting and systems integration services. With computer and communications equipment purchases slowing as CIOs moderate capital expenditure.

The US Tech market which is still the largest regional market will grow 7.6% this year moving to 6.8% in 2012. Western and Central Europe will see the biggest drop next year, with the tech market measure in local currencies slowing from 5.2% growth in 2011 to negative 1% growth in 2012. Asia Pacific will do well, with Japan recovering from the affects of the earthquake and tsunami and joining China, India, Australia and South Korea in posting regional growth rates in local currencies of 8.2% in 2011 and 8.4% in 2012. Latin American, Eastern Europe, Middle East and Africa will have the strongest growth, so they remain the smallest regional tech markets.

Like to talk next about the Forrester's expanding social profile. Forrester now has a dedicated community for each of the 19 roles. Our clients in prospects are able to converse with peers and analysts in a space dedicated to the key problems and issues in their job.

As of this morning, here are few examples of the work been performed in our communities; CIOs are exchanging advice on how to integrate iPads in the enterprise. CMOs are conversing on how to transform into thought leaders in their organizations; and enterprise architecture talking about how to best communicate the technology strategy to the business. I can offer some first hand experiences and the usefulness of our communities over -- of the past few months I've posed questions to several roles and received valuable data that I was able to use in my speeches and blog posts.

Use of Forrester's communities continues to grow. There are now 30,000 members, up 16% in Q3. These members started 460 discussions over the last three months, and authored 1,600 posts. Our other main social outlet, the Forrester blog platform continues to be a magnet for clients as well. Across all roles, blogs generated 460,000 page views in Q3. And as a reminder, Forrester engages in social for three reasons -- one, to bring more value to clients; two, to sharpen our research; and three, to generate leads.

I would now like to give an update on Forrester's most recent acquisition and this is Springboard. In May of this year, we acquired Springboard Research, a company with offices in Delhi, Singapore, and Beijing. That provides analysis of technology markets in Asia-Pacific. I am happy to report that Springboard in its first quarter exceeded its operating targets. Springboard employees have integrated quickly and are delivering outstanding results.

I visited with our new team in Beijing last month, and that group led by Bryan Wang our country leader in China, has already met with a number of Forrester clients. Bryan's team is in very high demand. The former Springboard is quickly becoming a platform for Forrester's growth of clients and roles in India, China, and greater Asia.

A quick note on our executive team, Steve Peltzman former CIO at the Museum of Modern Art in New York City recently joined Forrester as its first Chief Business Technology Officer. Steve will be shifting the Company away from IT towards the more client-centered and agile business technology. I am very excited to have Steve leading Forrester on this voyage.

So, to conclude, despite economic turmoil and uncertainty, Forrester continues to grow both revenue and earnings. Renewal rates measured in clients and dollar's continued to perform at the upper-end of our historic range. We are expanding our social profile, widening our coverage in the fast growing economies of India, China, and Asia. And we are up shifting into sophisticated roles.

Thank you very much. And now I like to pass the call over to our CFO, Mike Doyle.

Thanks, George. I will now begin my review of financial performance for Forrester's third quarter results, balance sheet at September 30, our third quarter metrics and the outlook for the fourth 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, acquisition and integration costs and net gains from investments. Also, we continue to utilize an effective tax rate at 40% for pro forma purposes. The actual effective tax rate for the third quarter of 2011 is approximately 43%.

For the third quarter, Forrester met revenue guidance and exceeded its quarterly guidance for both pro forma operating margin and earnings per share. Our key customer metrics continue to perform at the upper end of our historical ranges and our most recent acquisition Springboard Research did exceptionally well in our first full quarter of ownership.

In addition, our balance sheet remains strong and we have completed the transition to our new Headquarters in Cambridge, which completes the last of four significant facility moves in the last 12 months. While our overall performance during the quarter was strong, we did see softness in some market segments we serve and we remain conservative on our outlook and guide our management actions accordingly.

Now let me turn to a more detailed review for our third quarter result. Forrester's third quarter revenue increased 17% to $69.8 million from $59.8 million in the third quarter of last year. Revenue growth has continued to accelerate in each quarter of 2011. Third quarter research services revenue increased 15% to $49.2 million from $42.9 million last year. Research Services revenue represented 71% of total revenue for the quarter. Third quarter advisory services and other revenue increased 22% to $20.5 million from $16.9 million in the third quarter of 2010 and represented 29% of total of revenue for the quarter.

Our international revenue mix was 29% for the period ending September 30, 2011, which is up 2% versus prior year primarily due to the impact of exchange rates. Operating expenses for the third quarter were $57 million, up 11% from $51.5 million in the third quarter of 2010, as a result of higher compensation due to increased headcount primarily in research and sales and increased depreciation expenses associated with our new office locations in San Francisco and Cambridge. These increases were partially offset by reduced variable incentive compensation. While operating performance was strong for the quarter, our internal targets are typically aggressive and our performance fell short of our internal expectations.

Total company headcount increase by 191 or 19% as of September 30, 2011 compared to the year ago period, included in the 19% growth are 55 employees from Springboard Research, the company Forrester acquired during the second quarter of this year. Most of these employees are focused on research.

Operating income was $12.8 million or 18% of revenue compared with $8.3 million or 14% of revenue in the third quarter of 2010. Favorable year-over-year performance was driven by strong revenue performance and rigorous expense management and reduced incentive compensation.

Other income for the quarter was $378,000, up from a loss of $945,000 in the third quarter of 2010. The increase is primarily due to significantly lower foreign exchange losses of $200,000 in the quarter compared with $1.5 million in the third quarter of 2010.

The interest rate environment continues to be challenging as global interest rates remain at all time low levels and opportunities to invest our cash safely have been restricted. We continue to maintain a policy of investing our cash in safe investments and many of the investment vehicles we utilized in the past like certain state and municipal tax rebonds, no longer meet our investment criteria. The impact of lower interest rates and foreign exchange losses year-over-year is approximately $0.03 per share.

Net income for the third quarter was $7.9 million and earnings per share was $0.34 on diluted weighted average shares outstanding of $23.1 million, compared with net income of $4.4 million and earnings per share of $0.19 on $23.1 million diluted weighted average shares outstanding in the third quarter of last year.

I would like to take you to the activity behind our revenue and review the results of each of our products starting with Research. In the third quarter, 356 new research documents were added to RoleView. The top three research roles are the technology marketing professional with 6,100 members, market insights professional with 5,314 members and enterprise architect professionals with 4,285 members. We hosted 59 teleconferences in the third quarter with a total attendance of 2,530.

Forrester Leadership Boards, our peer offering for seniors executives, continues to improve, achieving year-over-year revenue growth of 17% in the third quarter. Business Technology Leadership Boards now have a total of 1,041 members. Technology Industry Boards, now have a total membership of 293. And finally the Marketing Strategy Boards have a total membership of 548.

At the end of the third quarter, Forrester Leadership Boards had 1,882 members, up 15% from September 30, 2010. In our data business, we continue to add and renew an impressive list of clients including the addition of 20 new [1B+] companies in the third quarter, including Allianz, General Mills, British Gas, RealNetworks and PNC.

Consulting revenue for the third quarter of 2011 grew 16% compared to the year-ago period and reflects our continued focus on the needs of our clients in their roles.

In events, although the third quarter is typically one of the slower quarters for our event business, we hosted four role-based events compared to only one in the third quarter of 2010. In the third quarter of 2011, we hosted three business technology role-based events, Application Development and Delivery Forum North America, Business Process Forum North America, and Content and Collaboration Forum North America. These three events were co-located enable our clients to participate in all three events.

Additionally, as George mentioned we hosted the CIO, CMO form, a cross-functional event from our business technology and marketing and strategy role offerings.

In the fourth quarter of 2011, we are hosting two marketing and strategy role-based events, Consumer Forum North America and Marketing and Strategy Forum in EMEA. We are also hosting five business technology role-based events, Sourcing and Vendor Management Forum in both North America and EMEA, Infrastructure and Operations Forum North America and Security Forum North America and Business Process Summit EMEA.

And now I'll review Forrester's third 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 is already been recognized or has yet to be recognized. And it was $211 million at September 30, 2011, an increase of 10% from the third quarter of 2010.

At September 30, 2011 Forrester's retention rate for client companies was 81%, which is in line with the June 30, 2011 figures. And our dollar retention rate during the same time period was 91% unchanged from the previous quarter. Both metrics remain at all time highs.

Our enrichment rate was 104% for the period ended September 30, 2011, a 1 point increase from June 30, 2011. 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 that close early or slip into the next quarter. The rolling 12-month methodology captures the proper trend information.

At the end of the third quarter, our total for client companies was 2,703, up 2% from the previous quarter and up 6% versus the same quarter last year. Client count, unlike our retention and enrichment metrics, is a point-in-time metric at the end of each quarter. As of September 30, 2011, there are three roles per client, which is a slight decrease compared to the second quarter of 2011.

Our headcount at the end of the third quarter, Forrester had a total staff of 1,222, up from 1,211 at June 30, 2011, as we continue to invest in our sales and research staffs. Current headcount includes a research staff of 458, and a sales staff of 440, which reflects a slight increase of our sales headcount on June 30, and a 16% increase over our sales headcount at year-end 2010.

Turning to Forrester's nine-month results, total revenue for the nine-month period ending September 30, 2011 increased 14% to $209 million from $183.6 million last year.

Research services revenue as of September 30, increased by $18.1 million or 15% to $141 million from $123.1 million last year. Research services represented 68% of total year-to-date revenue.

Year-to-date advisory services increased $7.3 million or 12% to $67.8 million from $60.5 million for the same period last year, reflecting the growth in both our consulting and event business.

Operating income for the nine-month period was $33.4 million or 16% of revenue compared with operating income of $30.1 million or $16.4% of revenue in the first nine months of 2010.

Net income for the nine-month period during September 30 was $20.2 million compared to $18.9 million last year. Earnings per share was $0.87 on diluted weighted average shares outstanding of 23.2 million compared with $0.82 and 23 million weighted average shares outstanding last year.

I'd now like to review the balance sheet. Our total cash in marketable securities at September 30 were $222.2 million, up $6.1 million from our year-end 2010 balances. We generated $46.5 million in cash from operations during the first nine months of 2011, which is up $8.8 million or 23% from prior-year. We received $7 million in cash from options exercised and the employee stock purchase plan in the first nine months of the year.

During the first nine months of 2011, we repurchased 527,000 shares at a total cost of $18.4 million versus $14 million in the first nine months of 2010. Accounts receivable at September 30 was $43.2 million compared to $39.2 million as of September 30, 2010.

Our days sales outstanding at September 30 was 57 days, down from 60 days at September 30, 2010. And accounts receivable over 90 days was 8% at September 30, 2011, which is in line with September 30 of 2010.

Our capital spending for the third quarter of 2011 was $7.1 million compared to $3.8 million during the third quarter of 2010. Capital spending for the first nine months of 2011 was approximately $33.2 million versus $6.2 million in the first nine months of 2010.

The increase primarily reflects investments in leasehold improvements associated with office relocations, primarily our new headquarters building in Cambridge. During the third quarter of 2011, we completed the build out of our new corporate headquarters. The Cambridge project was the last of four major office relocations we've undertaken since last summer. These moves increased our office capacity by 60% and gives us adequate space for future growth.

Deferred revenue at September 30, 2011 was $117.5 million, up 12% over September 30, 2010. Deferred revenue plus future AR, a key indicator of future performance, grew 11% year-over-year. Our future accounts receivable balances are amounts to be invoiced in the future for clients with multi-year deals or scheduled payment terms. Although the year-on-year performance increased there was a sequential quarterly decrease of 8 points.

As I mentioned earlier, we've begun to see softness in some segments we service. We attribute some of this uncertainty surrounding the global economy as well as a slower ramp of our newer sales hires.

The last topic I'd like to cover today is our business outlook for the fourth quarter and full year 2011. In summary, we had another strong quarter and our year-to-date results are very positive. The balance sheet remains healthy and our customer metrics are positive. The integration of our Springboard Research acquisition has gone well and we've completed our major headquarters move.

However, during the quarter we saw softness in some segments of the markets we serve. We believe this primarily reflects uncertainty with a global economic environment and a slower than anticipated ramp of our new sales hires contributed to this as well. As a result we have taken a more conservative posture with our guidance to the upcoming quarter. However, it is still our belief that tech spending will continue to grow faster than the overall economy and if Forrester is well positioned to benefit with relevant product and service offerings for our clients.

As a remainder our guidance excludes the following. Amortization of intangible assets, which we expect to be approximately $700,000 for the fourth quarter and approximately $2.6 million for the full year 2011; stock based compensation expense of $1.3 million to $1.5 million for the fourth quarter and approximately $4.4 million to $4.6 million for the full year of 2011; duplicate lease costs of approximately $3.9 million for the full year of 2011; acquisition and integration costs of approximately $1 million for the full year 2011, and investment gains and losses.

For the fourth quarter of 2011, we are aiming to achieve total revenues of approximately $74 million to $78 million. This range reflects a 10% to 16% improvement versus prior year; pro forma operating margins in the range of 16.5% to 18.5%. The pro forma income tax rates of 40%, and pro forma diluted earnings per share of approximately $0.33 to $0.37.

At this time, we are revising our pro forma full year guidance, with total revenues of approximately $283 million to $287 million. This reflects an increase between 13% and 14% versus prior year; pro forma operating margins of 16% to 17%; other income, net of foreign exchange losses approximately 300,000; pro forma income tax rate of 40% and pro forma diluted earnings per share of $1.20 to $1.24.

We've provided guidance on a GAAP basis for the fourth 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 Operating Officer, to join George and me for the Q&A portion of the call.

(Operator Instructions) Your first question today comes from the line of Bill Sutherland with Northland Capital Markets. Please proceed.

Thank you and good morning.

Hey Bill.

Hey Bill.

Hey. On the softness that you're starting to see just looking for a little more color there and curious if it's -- you mentioned that the IT spend you still had confidence there that it would be better than the economy. Is it more of a marketing and strategy focus issue?

Hey Bill, it's Charles. The environment that we saw in the quarter was perhaps best described as choppy, but there was great variability and performance both on a segment and a geographic basis. So, the results sort of defy a simple explanation. In other words, we can't just say, it was one geography or one segment, it wasn't just IT versus M&S or North America versus Europe. There was inconsistency in both. There are probably a couple of things going on here. First, we are still seeing some friction in the buying process. So, the buyers continue to have many layers of approvals. Some customers have curtailed spending limits and that makes enrichment, more difficult. On the other hand, the renewal rates have held up very well, which is a good indication we think of the value of the product.

Second thing going on, is that as George mentioned, while we have been able to attract and retain very good sales talent, we haven't yet met our own internal expectations in terms of ramp time to full productivity. That's an area of continuing focus for us here in Q4 as well as into 2012.

And Charles where are you kind of in that gap between the ramp time that you are -- you would like to see and --

What we are seeing in the expectations?

Yes.

Yes. It's -- so, we had hoped for a ramp of no more than let's say about six months of ramp time. I would say, at this point, we are seeing more or like 9 to 12 months. And so that's the gap that we are working on.

The full productivity your hoping to do six eventually?

We are.

That's impressive. So, is there any evidence in conference registrations that suggest any hesitation there?

In Q3 I would say it was pretty solid. There -- maybe at the tail end of Q3 there were some uncertainty, you'll start to see that pop up in some of the attendance figures, people saying, hey I love the content, but I'm not yet ready to be able to travel. So, there is certainly some of that going on, but, you know, stay tuned we will have to see how the rest of the year evolves.

Early feedback Bill from Q4 looks actually not bad.

Okay. Okay. And the sales cycle, is that -- I mean, that's been improving right up until --

It has.

Last quarter, right? Okay. I think a reversal --

Correct. And I'd say, it sounds like it was largely unchanged in the quarter, Bill. The difference that we probably was in the conversion rates at the end of the quarter.

Okay. All right. I have a couple of follow-up questions. I think I'll just save those for Mike offline. Mike, if you can give me a ring.

Sure, not a problem, Bill. Okay. Thanks, everybody.

Thank you.

Thanks, Bill.

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

Thanks, good morning. George, if you could just -- kind of if you were to dig one level deeper and not say, technology versus margin and what not, are there any types of consistencies in terms of where you saw the choppiness even if it's Southern Europe sub-geography or something like that to give us a little bit more of a sense of where you're seeing some of these issues?

Well, I think Charles stated very clearly that it was somewhat kind of confusing to us, because there seem to be no pattern to this. There were few groups in Europe that did pretty well. Some groups in Europe that did not do well. There were some groups in the US that did not well and some of that that did okay. So it was -- I saw no real pattern here. I am looking Charles here. I don't think he did as well.

No, I think it defies simple explanation, I mean, the one geography that did really quite well for us was Asia-Pacific, largely on the back of the Springboard acquisition, but that team was well in excess of its plan for the quarter. But as George mentioned, if you look at North America and you look across Western Europe, you had some teams that absolutely crushed it and other teams that came nowhere close. And so, it's that variability that causes us to just be a little bit conservative as we look forward.

I think it was a psychologically difficult summer for the world. I mean, you had the debt meltdown in the US. We're going to reclassify the debt et cetera, that mess and then the European, all the European bad news over the summer and though it just -- it was a lot more selling friction in the quarter as it went forward. And I think that's how it was manifested.

Yes, Dan, I mean, as I parsed the numbers and you try and look for something as you can draw to. And I am with Charles. You just get conflicting signals. And I think to some degree if you look at just -- some of the earnings results in the last few week, you are seeing the same thing. You are seeing people in the same space, some companies doing exceptionally well and others not doing so well. I think what caused us to pause in the aggregate was -- you see the deferred revenue numbers which like a 12% that's very healthy and a lot of companies would like that. But it's not where we wanted to be nowhere we expect it to be. I think enrichment, well, it's bumping up. At this point, we assume it would be higher. So we would assume we get more enrichment on the deals that we have. And to Charles' point, I think we were disappointed on conversion on some accounts.

So, I'm with George. I wish we could draw sweeping conclusions and say, well, it's Europe, but it's not. And that it's just some segments, but it's not. So I think from that standpoint, we're just being conservative at this point in terms of how we look at it. And I think we'll try and keep working it. And again, hopefully we'll see more clarity. But I think it's going to end up being choppy going forward. I think our own internal economists were still looking at growth. I reinforce George's point, tech spending is going to grow and it's going to grow next year and we're going to grow with it, so --

And Dan it's not just the world, I mean it was us as well, I mean, our ramp issues and also productivity and sales.

Yes. I guess, you look back the last three quarters in terms of year-over-year growth on agreement value -- you're kind of -- you're hovering right around that 10% range, is that kind of where we're at in terms of the ramp with the key, constraint being the sales force productivity. If you ramp that up and get that to six months as a few points of growth and you get back towards where you want to be, is that the right way to think about it?

Yes. The faster we get those sales folks productive in terms of the new heads and then the more productivity we can ring out of the existing sales force, the faster you will see AV and in our mind more importantly, you'll see the deferred revenue growth.

Okay. And Mike on the expense side, we look sequentially with expenses stepping down, was that essentially all on the incentives comp control just making up for some expenses that will run a little hotter in the first half?

Yes. I mean, that's no question, that's the bulk of it. I mean, we did not -- and again, I've shared with you before our model everyone in Forrester is on variable compensation, so if we miss what, our internal targets which normally are aggressive then effectively there is a fair amount of leverage down and that's in fact what happened this quarter, Dan in a meaningful way. So that is the primary driver when you look at it.

Okay. So when we look forward to the fourth quarter, we've got another -- looks like expense ramp embedded in there. Is that what the expenses would have looked like on the previous planning in getting some kind of reversals of that or help me understand some of the drivers of expenses in the fourth quarter?

Well, fourth quarter, you got a couple of things going on. There is -- first of all, we are now into the new building and in the depreciation cycle and things like that. So I look at depreciation and amortization and overall rent expenses taking us up. You have some of that that comp piece. It's also our biggest quarter from a selling standpoint. So there's a lot of activity that's flowing into the fourth quarter that's going to drive that up. So I would say a combination of sort of our new facilities expenses, it's compensation that's going to drive up and just overall activity levels.

Okay, great. And then, last one from me. Started back on the [cash flow again] after the Springboard acquisition, with the kind of lack of return to help there on cash, how are you guys thinking about potentially doing another dividend or are you still taking a look at some potentially sizeable acquisitions out there that you want to hold on to the cash flow and have a nice war chest?

Yes. I think that, first off, just I'll reiterate that themes that we've always say, the best use of our cash has always been internal investments and M&A. I mean, we got a great return when we bring on new analysts and new sales folks. We got a great return on our acquisitions Springboard, a case in point. So that's still where we're going with our cash first. And that part hasn't changed. I think the Board has had active discussions if we do have excess cash, what do we do with it and I think that's frankly an item that's still under consideration with the Board.

On the M&A front, still -- I think it still looks like a buyer's market to me. I mean, Springboard was, I thought a very good price for us and there are other deals out there like Springboard, maybe not quite that attractive, but still very attractive, Dan. So we continue to be very busy on that front, I'll leave it that way. So the capital structure discussion absolutely ongoing, but it's internal investment, mergers and acquisitions benefits excess cash capital structure. So it's still an ongoing dialogue.

And then just a follow-up on the acquisition pipeline how you guys are thinking about that? Is it more opportunities to expand kind of within the current set of roles, or are there some other roles out there that you're eyeing that may have some properties that you could start getting interested in and keep expanding that base?

I would say, probably in this order. It is to fortify existing role; that will be number one. Two, is to expand geographically, that's essentially because Springboard really did both of those for us. The third one then would be additional roles above 19. As we talked before, we don't need more roles to grow this company at fast rate, but we're always we would be open to certainly examine and think about, listen, analyze that possibility, but that'll be the third priority.

Great, thanks guys.

Thanks, Dan.

Thanks, Dan.

Thank you,

(Operator Instructions) Your next question comes from the line of Robert Riggs with William Blair. Please proceed.

Hi, thanks for taking my question. Just want to circle back again on the sales force. Year-to-date up 16% is within your target, but for the quarter, did you hire as many people as you intended to? And then maybe as a quick follow-up to that, you had noted a focus on kind of developing hiring mid-level sales managers, where we are at in that process?

Sure. It's Charles. So in terms of whether we met our internal targets for a number of people hired, the answer is, yes. The pattern you'll typically see here is that we will add more sales people in the beginning of the year, predominantly in Q1 and then trickling into Q2 and that's a slower burn for the rest of the year. So we did meet those numbers. In terms of who we hired, again, a little hard to characterize in the abstract. Certainly, we're hiring more experienced talent in some regions for some clients, but also less experienced talent for other clients such as small tech vendors and so forth. So I mean, is there a question behind the question with respect to that one?

No, I would just say, I think recent conversations kind of focus on getting kind of those mid-level sales managers that was a focus in terms of bringing people in.

Yes. I think at the management level that's true.

Okay.

It used to be true.

Got you. And then on driving or hire there has been a focus on trying to do that, any update in terms of things you are doing there to make some progress with that in terms of incentives, training programs, things like that?

Yes, I think a lot of us -- all three of us have some to say here. I think that what we would like to do better is to put multiple sales team into single accounts, so yes we may have an account which is strong on the BT roles, but not strong in the M&S roles and where we've been I think too slow in moving M&S sales team into that account. So, that's I mean I talked about where we're focusing our time and thinking and brain cells these days that would be another one and that I think ultimately will drive our hire.

Well said, George.

Okay.

Great. Thank you.

Thanks, Robert.

Thanks, Robert.

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

Yes. Good morning, guys. I am curious, have your price increases continue to hold up fairly well and is there any second thoughts in terms of maybe being too aggressive in certain segments?

Hey Vince, it's Charles. As we discussed on the Q2 call, we did institute a price increase effective in July. And as you may recall rather than across the board increase, we took our pricing by segment and geography as we felt appropriate. Most of those increases were in the kind of 2% to 6% range. The most significant increases I should note came for those clients who were the beneficiaries of the Springboard acquisition. So for those clients they saw a more material increase but that's more content for more money kind of conversation. I would say overall both have resonated well, both are sort of the typical annual increase as well as the Springboard led increases, have not met with material resistance in the market. Obviously, as I had highlighted earlier there were some challenge with enrichment on the basis of people not being able to spend more, not having the budget to spend more, but in so far as the price increases in many cases what we saw was that even if they didn't increase their spend, they got fewer seats for it, so that price increase is sticking.

Okay. That's good to hear. On the sales force issue, what was your historical ramp experience with the sales people; was it the six months or is that more aggressively you've done historically?

No, that's more aggressive than we have yet been able to achieve. So that's the target that we're marching towards. But what we're seeing today is more typical of history.

Okay. And George, you mentioned 67% is your Q goal. Did that -- has that gone down from earlier in the year, I thought it was 70% previously?

70% ultimately.

That -- we basically -- it really hasn't, I mean, when we look at Springboard that sort of bringing that in dropped our aggregate a bit. So the target was adjusted but it was adjusted earlier in the year. So, for the most part it's still -- if you look at apples-to-apples where we pull out the effect of Springboard we are effectively still targeting the same Q percent.

And Vince, we are going to beat that 67%.

70% is the long-term number Vince that we've been marching towards.

Right.

Springboard to -- George and Mike's point was dilutive to that in the sense that it's highly, it was highly non-syndicated. However, we think the opportunity is to syndicate that which is what we're doing with the price increase. So, I think it is not going to have a material impact on our march towards 70% and as George said we are feeling pretty confident on the numbers there.

Yes. We had a very good year in Q.

Okay. Thanks for answering my questions, guys. Thanks.

Thank you.

Thanks, Vince.

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

Hi. Thanks for taking my question. Not sure if this is for Mike or Charles. The $3 million sequential decrease in cost of services, I am just -- and that's certainly driving the gross margin there. You gave us the research headcount for the end of the quarter. Was that down sequentially?

Let's see. Give us one sec here, Brian.

While they are looking at the research headcount, I mean we typically -- historically have dipped on cost of services just the last few years. It's just a natural trend downward in each of Q2 to Q3 from, you see it in '09, you see it in 2010, you see it again in this year. So, I think that's just sort of a natural dip because you have effectively what you're doing is, our commissions are deferred like our revenue and so they typically mirror revenue. So when you unfold that, when you clear the balance sheet account out which you have is commission sort of follow revenue, so that's what's going on between Q2 and Q3.

The specific question Brian with respect to research is -- it was up sequentially, 8 heads, I believe.

Okay, great. And on renewal rates, renewal rates have been at historical highs for a while now. And I know you guys are talking about a choppy economic environment, friction in the buying process, lots of sort of cautious language here I am just curious, but what your thoughts are with respect to renewal rates going forward? Do you think they can remain at historical highs in this environment?

It's a fair question. I mean, I don't anticipate at this point, I mean I am still with George that the tech economy is going to grow. And so if you compare that to '09, for example when we actually had a decline in tech spending and a full blown recession, there our retentions rates dipped about 5 points if you recall. I don't think that's going to happen. Could we see it drift a couple of points? Yes, I think that's a really possibility, Brian, just because we're going to have noise, but at this point I don't see them dipping dramatically like that 5 or 6 point kind of a movement. I just don't see that happening because I don't think the macro fundamental justify that. I think we're going to still see tech growth and we're going to get our fair share of that. I think we're still going to grow. So, I think there is always possibility for noise, but I just don't see them dipping dramatically.

I think the possible exception to the story could be Europe I mean, if Europe does truly go to negative one next year I think you could see some challenges of renewal rates in Europe.

Yes. But I mean just to highlight where we are, as you pointed out we're above the historic band in which we've typically operated. So, would it surprise me if we came down a couple of points right into the heart of that historic band that wouldn't surprise me not guaranteed, but I wouldn't be surprised to see that.

Okay, it makes sense. And as you start to maybe think about your planning process for 2012, it looks like you're going to come in towards the lower end sort of your annual sales force expansion targets for this year. Would you expect sort of that to come in for the low end of that target again next year in terms of sales force expansion, I know it's still early but--?

Well, Brian, let me give you a little bit -- it's Charles -- let me give you a little bit of sneak peek and all of this of course subject to change, but what we're really thinking about for next year is how we can better utilize the resources that we have. That is to drive further productivity out of these hires that we brought on board. We think it's good talent. We've been able to retain that talent as I said earlier. So, it is entirely possible that we may fall at the low end or even below that 15% to 20% growth next year, which should not necessarily telegraph to you slower growth for the company because again we maybe emphasizing more productivity measures.

Got it. Thanks very much.

Thanks, Brian.

(Operator Instructions) Your next question is a follow-up from the line of Bill Sutherland with Northland Capital Markets. Please proceed.

Thanks. Hey George, I wanted just to talk a little bit more about the implications of hiring Steve Peltz. You mentioned that in his role is to shift Forrester, so tell me exactly what you are thinking?

About Steve Peltzman?

Yes

Yes. I think that -- well, this is an hour long speech which I am not going to give now, but it's really this, the move from IT, the old way of thinking about technology in the company to what we call BT or business technology. And it is a world, Bill, that is agile, faster more, this is very interesting for technology very client centric, when I say client centric, I mean not the internal clients, but rather the clients of Forrester it is very business centric. So when we -- as we are very aggressive and ambitious, we want to move really fast. We want to make sure the technology will keep up with us or could in fact be ahead of us.

Steve is a very interesting -- he was a very interesting candidate for us. The job search went on for months and he was somebody at MoMA who really was out in front of online ticketing. He is out in front of social. He was out in front of the website. He wasn't being dragged there by the people at MoMA, he was taking MoMA to those places and he did it by the way, coming from a non-profit, albeit it's a very large non-profit with a lot of money, but he did this with not massive budgets. So, he is somebody who is thinking and we already see that he has been here about a month. He is already thinking how to do this very efficiently, very low cost and to make us move faster as a company to bring better tools to our analyst, make them more efficient, faster. He is going to shake us up and I think that's exactly why we have brought him here to drive technology to be about the business and not just about information.

So George, if I understand you correctly then his role is largely internal as opposed to developing subject matter for your clients?

The answer is, yes, but he is going to be the active member in our CIO counsel. He also will have -- I think he will have an outside profile. As he becomes -- he is one of the first CBTOs in the world as he develops that job I want him to be outside in the world talking about it because that helps the branding of Forrester.

Right.

He will be more external than our former CIO.

Okay. Thanks a lot.

Thanks, Bill.

Thanks, Bill.

Ladies and gentlemen, that does conclude our Q&A portion of today's call. I would now like to turn it back to Ms. Karyl Levinson for any closing remarks.

Thank you very much again for joining us and enjoy the rest of the day. Good bye.

Ladies and gentlemen that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.