Forrester Research Inc (FORR) 2012 Q3 法說會逐字稿

Good morning. Thank you for joining today's call. With me today are George Colony, Forrester's Chairman of the Board and CEO; [Kelley Hippler], Acting Chief Sales 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 22, 2012, and can be accessed by dialing 1-888-843-7419 or internationally at 1-630-652-3042. Please reference the passcode 507-7393 pound.

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 George Colony.

Thank you for joining the call. Before Mike gives his financial overview I would like to update you on the state of Forrester's business through the third quarter.

As I referenced on the first- and second-quarter calls we are moving the Company through a series of transitions in leadership, in sales, in the way that we deliver research to clients, in technology, and in the ways that we operate globally.

While these moves are resulting in short-term disruptions in the business, I believe that they will put the Company in the best position for long-term growth.

Now it is customary for me to use the quarterly conference call to update you on our three business imperatives. For this call I'm going to depart from my typical outline and instead give you details on the transitions I have mentioned above.

I would like to start about by talking about leadership transitions at the Company. As you know, I have added three strong executives over the last year -- Steve Peltzman as Chief Business Technology Officer, Ellen Daley as head of the Business Technology Client Group, and Tom Pohlmann as Chief Marketing and Strategy Officer.

While Steve joined us from the outside, Ellen and Tom have 20 years of Forrester experience between them. These executives have brought change, progress and renewed energy to our efforts.

Two weeks ago we announced that Mike Morhardt will be joining the Company as Chief Sales Officer and his start date is November 12. Mike has spent his career selling research services, including 14 years at Gartner Group. As we scale our sales team from 450 to 1,000, we believe that Mike's experience, process focus and leadership make him the right person to navigate that avoids. The goal is to build a world-class sales organization at Forrester and we have confidence that Mike can lead that effort.

Charles Rutstein, who are many of you are familiar with from our quarterly conference calls, will be leaving the Company's post of COO. I'm returning to lead day-to-day operations at the Company, something I'm excited and energized to be doing.

The presence of a highly operational CSO in Mike Morhardt, a proven CFO in Mike Doyle and very capable marketing and strategy executive in Tom Pohlmann will enable the Company to move forward without a COO, a position that is being eliminated. This streamlined structure will engender faster decision-making and a simpler operational model.

I feel very good about the newly constituted executive team and believe that we have the right leadership to take the Company through this transitional phase and back to more robust growth.

I would now like to talk for a few minutes about our sales transition. Aside from the appointment of a new sales leader, we had made four other important changes in sales this year -- structure, technology, compensation and process, and I want to spend a few moments on each of these.

As I outlined on the Q1 conference call, sales was restructured for 2012. Under the new organization single sales reps have responsibility for all roles at individual accounts. There are three reasons why we made this change. Number one, clients prefer it. Two, its simplicity enables the sales force to scale at faster rates. And, three, it highlights Forrester's ability to help marketing and technology executives collaborate.

This was the right move to make, but adaptation to the change has taken longer than we had anticipated. In the transition 60% of accounts received new sales reps, and building relationships have taken quarters, not months, to complete. This problem has slowly attenuated as the year has progressed.

Another effect of the restructuring was that sales reps who formerly specialized in selling to a specific set of roles have taken longer than expected to understand and reach the new roles in their portfolio. Increased exposure to those roles and improved training is gradually diminishing this factor.

We did expect attrition in sales to increase due to the new structure, but we underestimated the scale of departures. I can report that the rate of sales attrition did decline in Q3 and we expect this trend to continue through the end of the year.

The technology used by sales has also changed with Forrester migrating to a new cloud-based CRM system in the third quarter. Yes, there has been a learning curve for salespeople and sales management, but the ease of use, improved access to client records, and enhanced collaborative powers of the system will help Mike Morhardt and his sales leaders improve sales productivity. And, just as importantly, our new CRM will build closer cooperation between the sales force and research teams.

Compensation of sales changed in 2012. Now in retrospect we invoked too much change too fast in how we paid salespeople and this was a contributing factor to attrition. As the year has progressed we have modified the comp plan and we now believe that we have a compensation framework that can carry into 2013 and beyond.

The final transition in sales in 2012 has been moving the sales force to use a codified process. Previous to this year different sales groups used disparate approaches for forecasting, building pipelines, prospecting and closing accounts. Subsequently, sales was more art than science. While the move to standard process is not yet complete, this change will ultimately make it easier to hire, train and ramp new salespeople.

Yes, thing the transitions we made in sales were painful at times, but they have laid the groundwork for a more global, effective and competitive sales force, much better able to serve our clients. While Mike will have a lot of work to do, much of the heavy lifting in sales, structure, technology, compensation and process is now in place.

I would now like to to switch gears and analyze our transitions in the ways that we deliver research. For the past few quarters I have been updating you on Playbooks and this is Forrester's new method of organizing our reports, tools and consulting to increase client relevancy. Playbooks guide our clients step-by-step through the lifecycle of their most important initiatives, helping them make key decisions along that path.

Ultimately each role that Forrester serves will have between 4 to 6 Playbooks. The reports and tools in these Playbooks will be continually updated, ensuring that no research in the hands of clients -- and this includes ways which evaluate vendor offerings, will ever be out of date.

In Q3 Forrester's research teams were to build out the collection of Playbooks. We now have 27 complete Playbooks live on our website with 15 to 20 more expected by year-end.

Playbooks are a unique offering and they are resonating with clients. The Director of Digital Strategy for a large US airline is using one of our Playbooks to define the company's digital strategy across its website, mobile apps and kiosks. She values the step-by-step guidance of our Playbook and loves the fact that there are parallel Playbooks for other roles in marketing, enabling her broader team to construct a strategy along the same framework.

In addition, Playbooks are helping her marketing organization collaborate with IT executives at the airline. As we have talked about before, Forrester is the only company that draws marketing and IT together throughout its research. Large corporations are most successful when the back office and the front office are on the same page, and that is what Playbooks do.

Now while the transition to Playbooks is the right strategy the added effort required by the research staff in the startup phase has drawn time away from consulting; one of the reasons that consulting revenue was challenged in the third quarter. Once Playbooks move beyond this initial stage we believe that the consulting/research balance will return.

A fourth transition is our move to new technologies. The new Forrester.com continues to mature. In the third quarter there were 780,000 unique visitors to the site. 88% of clients are returning to the site within 14 days of their last visit, and they're more active when they are on the site. 9 out of 10 client visits now result in a document download, and that is up from 7 out of 10 last quarter and 3 out of 10 on the old Forrester.con.

Our social footprint continues to grow at fast rates. There are now 88,000 members of Forrester communities, and that is up 23% from Q2 and 223% year-on-year. Our blog platform continues to grow as well. There were 570,000 page views of Forrester blogs in Q3, and that is up 25% year-over-year.

This growing social footprint helps us to do three things better. One, to engage nonclients with the goal of ultimately moving them to client status. Two, to connect clients to other clients, increasing value and therefore increasing renewal rates. And, finally, to widen exposure to Forrester's advice.

The final transition I would like to talk about is our global effort. Last year Forrester announced the acquisition of Springboard Research, a company that provides analysis of technology markets in the Asia-Pacific region. Springboard expanded our research coverage in one of the world's fastest-growing tech markets. Springboard's offices are in Delhi, Singapore and Beijing.

A goal of integration was to retain a majority of the research staff, and I'm happy to report that retention in year one was at 85%, exceeding our targets. In addition, 100% of the key staff have stayed with the company. In addition to the retained base of original Springboard personnel, we have expanded total headcount in Asia-Pacific by 50% since the acquisition.

We held our first events for CIOs in Singapore, Sydney and Delhi this past quarter to a combined audience of more than 400 executives. Clients told us the content was relative, thought-provoking, and they appreciated our differentiated role-based approach. Our Asian events business will expand in 2013.

So to conclude, all of these transitions are the right thing to do for the long-term health and growth of Forrester. As the largest investor in the Company I do wish that these changes had been less disruptive to our short-term bookings and revenue. And some may question why we took on these transitions against a tableau of macroeconomic headwinds. However, I have confidence that the decisions to proactively change leadership, sales, research, technology and a global footprint will ultimately deliver higher value to our customers and higher value to our investors. We are on the right track, albeit at a slower pace than we had planned.

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

Thank you, George. I will now begin my review of financial performance for Forrester's third-quarter results, the balance sheet at September 30, our third-quarter metrics, and the outlook for the fourth quarter of 2012.

Please note that the incoming statement numbers I am reporting are pro forma and exclude the following items -- amortization of intangibles, stock-based compensation expense, duplicate lease costs, reorganization costs, acquisition and integration costs, and net gains from investments.

Also, for 2012 we will utilize an effective tax rate of 39% for pro forma purposes. The actual effective tax rate for the first three quarters of 2012 is approximately 13%, as we recognized a $5.5 million deferred tax benefit this quarter based on the settlement of a tax audit at one of our foreign subsidiaries.

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 retention metrics continue to perform at healthy levels and our balance sheet remains strong with cash and marketable securities increasing 5% from December 31, 2011.

As George mentioned in his comments, we have embarked on a number of initiatives and organizational changes designed to improve efficiencies, accelerate growth, and better serve our clients. We reorganized our sales force to better align sales efforts with client buying behavior. We reorganized our client group structure to remove complexity from the buying process and increase client engagement.

We pivoted our research products to map key client initiatives and issues in the form of Playbooks. And we have made deep investments in technology, both customer-facing through our new website and internal through our new CRM systems.

We believe that these changes will result in long-term productivity gains across the business, and it will improve client engagement and satisfaction, translating into business results through robust topline growth and operating margin expansion in the long term. However, we are experiencing short-term operating challenges this year from the volume and velocity of changes.

On the sales front this manifested itself in the form of higher than expected attrition and lower than expected productivity. Attrition has slowed in the third quarter and we have accelerated hiring to continue to grow our sales force. However, we are now seeing the impact of prior quarters' attrition in the form of lower productivity from our less tenured reps. In addition, we continue to experience lower productivity from our European region, which is largely a reflection of the macroeconomic pressure.

On the research front we focus a significant attention on the important task of packaging our content into compelling, integrated solutions we call Playbooks. Although we are confident this is critical to driving the success of our clients, we also know that it placed increased demand on our analysts in the third quarter. This had the effect of decreasing our consulting productivity in the quarter. We are continuing to invest in driving advisory service productivity as well as in ensuring continued reduction in analyst attrition.

These necessary changes have impacted recent performance, but set us up for profitable growth moving forward. Our core business metrics remain healthy and our brand remains the premier and trusted source for business and marketing leaders worldwide.

Now let me turn to a more detailed review of our third-quarter results. Forrester's third-quarter revenue decreased 2% to $68.5 million from $69.8 million in the third quarter of last year. Net of foreign exchange revenue would have been flat to the third quarter of 2011. Although our research services products showed growth in the quarter our advisory services and events business showed decline.

Our third-quarter research services revenue increased 2% to $50.3 million from $49.2 million last year, and represented 73% of total revenue for the quarter. We continue to see growth in our largest syndicated products, RoleView and Leadership Board.

Third-quarter advisory services and other revenue decreased 11% to $18.2 million from $20.5 million in the third quarter of 2011 and represented 27% of total revenue for the quarter. Approximately half of this decrease is attributable to planned declines associated with more targeted events we ran in Q3 and moving certain events into Q4. The remainder is primarily attributable to shortfalls in consulting productivity.

Our international revenue mix was 28% for the period ending September 30, 2012, which is down from 29% in 2011 due to foreign exchange rates.

I would now like to take you through the activity behind our revenue starting with research. As George mentioned, we rolled out 11 Playbooks in the third quarter bringing the total year-to-date through three quarters to 25. We plan to continue expanding the number of Playbooks available to our clients with the goal of more than 40 by year-end, placing us halfway towards our ultimate target.

In the third quarter 308 new research documents were added to RoleView and we hosted 42 webinars with a total attendance of 1,315. At the end of the quarter the top three research roles were Market Insights with 4,168 members, Technology and Marketing with 3,845 members, and Applications Development and Delivery with 3,719 members.

Forrester Leadership Boards, our peer offering for senior executives, continues to improve, achieving year-over-year revenue growth of 6% in the third quarter. At the end of the third quarter the Forrester Leadership Boards had 1,973 members, up 5% from September 30, 2011.

Our data business continues to be a critical part of our value proposition. Our continually refreshed data covers more than 75% of the global GDP. This gives both our B2C and B2B clients current and actionable insights on 1,400 brands and 300 attributes. It also gives our analysts the most accurate and timely facts they need to drive their research forward.

We continue to add and renew an impressive list of accounts with the addition of 24 new 1B plus companies in the third quarter, including National Bank of Canada, Rolex and the Cox Media Group.

In our consulting business we saw growth in the total pool of business booked but not delivered. Despite that we saw consulting revenue decline 6% for the third quarter of 2012. Attrition in our research organization has contributed to some of the decline in revenue. Activity associated with our Playbooks contributed as well. And we attribute the balance of the decline to the internal realignment between our sales and delivery organizations. We continue to focus attention on our consulting productivity and structure moving forward.

Our events business in the third quarter of 2012, we hosted three role-based events for business technology professionals in Asia-Pacific. It is important to note that, unlike our more established events, these gatherings were intended as brand building efforts for CIOs in this critical growth region. As such, they were intentionally smaller in scale and not focused on driving short-term events revenue. We succeeded in attracting 359 business technology leaders across the three events and met our financial objectives.

In the fourth quarter of 2012 we are hosting eight role-based events for business technology and M&S and co-located at five locations in the US and the UK.

I will now highlight the expense and income portions of the income statement. Operating expenses for the third quarter were $59.3 million, up 4% from $57 million in the third quarter of 2011 due predominantly to increases associated with higher travel and entertainment expenses and higher depreciation expense associated with technology and real estate investments.

Total Company headcount decreased less than 1% as of September 30, 2012, as compared to the third quarter of 2011. As of September 30, we had a total staff of 1,218, including a research staff of 440 and a sales staff of 446.

Operating income was $9.2 million or 13.4% of revenue compared with $12.8 million or 18.3% of revenue in the third quarter of 2011. Other income for the quarter was approximately $400,000 which is consistent with the third quarter of 2011.

Net income for the third quarter was $5.8 million and earnings per share was $0.26 on diluted weighted average shares outstanding of 22.9 million compared with net income of $7.9 million and earnings per share of $0.34 on 23.1 million diluted weighted average shares outstanding in the third quarter of last year.

And now I will 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 has already been recognized. As of September 30, 2012 agreement value was $221.6 million, an increase of 5% from the third quarter of 2011.

For client metrics, as a reminder we streamlined and improved our client count methodology beginning in the second quarter of this year. Our refined system counts as a single client the various divisions and subsidiaries of a corporate parent and eliminate duplicate references to the same corporation. The system also aggregates separate instrumentalities of federal, state and provincial governments which differs from our past practice for government entities. The change resulted in the combination of entities that were previously treated as separate clients.

As a reminder, it did not change the overall trends, and we provided revised historical numbers in our second-quarter 10-Q filing.

At the end of the third quarter our total for client companies was 2,498, essentially unchanged 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, 2012 Forrester's retention rate for client companies was 78%, which is down 1% from June 30, 2012. And our dollar retention rate during the same time period was 91%, unchanged from the prior quarter and at historically high levels.

Our enrichment rate was 96% for the period ended September 30, 2012 versus 98% at June 30, 2012. We calculate client and dollar retention rates and enrichment rate 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. As of September 30, 2012 there were 2.6 roles per client, down from 2.7 on June 30, 2012.

Now I would like to review the balance sheet. Our total cash and marketable securities at September 30 were $238.4 million, up $10.8 million from our year-end 2011 balances. We generated $43.2 million in cash from operations during the first nine months of 2012, which is down from $46.5 million from the prior year primarily due to an increase in the amount of cash taxes paid in 2012.

We received $8.5 million in cash from options exercised in our employee stock purchase plan in the first nine months of the year. During the first nine months of 2012 we repurchased 820,000 shares at a total cost of $26.2 million. In the first nine months of 2011 we repurchased 527,000 shares at a total cost of $18.4 million.

We also paid our third quarterly dividend, which amounted to $3.1 million or $0.14 per share in the quarter. Year to date we have paid $9.5 million in dividends.

Accounts receivable at September 30, 2012 was $44.1 million compared to $43.2 million as of September 30, 2011. Our days sales outstanding at September 30, 2012 was 59 days, up from 57 days at September 30, 2011. And Accounts receivable over 90 days was 12% at September 30, 2012, up from 8% at September 30, 2011.

Our capital spending for the third quarter of 2012 was $1.6 million compared to $7.1 million during the third quarter of 2011. Capital spending for the first nine months of 2012 was approximately $4.8 million versus $33.2 million in the first nine months of 2011.

The 2011 capital spending reflects the investments in our leasehold improvements associated with office relocations, primarily our new headquarters building in Cambridge. Additionally, the prior year's spending includes the investment related to our new website and other customer-facing technology.

Deferred revenue at September 30, 2012 was $124.9 million, up 6% over September 30, 2011. Deferred revenue plus future AR, a key indicator of future performance, grew 8% year-over-year. Our future AR balances are amounts to be invoiced in the future for clients with multiyear deals or scheduled payment terms.

Before I discuss the outlook for the balance of the year I would like to talk about our capital structure and our plans to leverage our balance sheet. We believe the long-term prospects for this industry and the Company are extremely healthy. As such, our first priority continues to remain our organic investment. We expect to grow sales capacity at 15% in 2013, positioning us for growth moving forward. In addition, we will continue to focus on productivity improvements across all aspects of the Company.

Finally, we will complete the rollout of Playbooks and our enhanced attendee experience at events. We believe these efforts will be critical to the long-term success of Forrester and the 17 roles we serve.

In addition to organic investment we continue active exploration of inorganic opportunities. We have a strong pipeline of high-potential acquisition candidates, but as we have said before, we believe in the importance of strategic fit and sensible valuations.

At present, we believe our balance sheet is more than sufficient to support our short- and medium-term organic and inorganic efforts. The fundamentals of our business are strong, and combined with structural changes we have put in place this year to ensure long-term growth, we believe our share price is undervalued based on recent performance.

We intend to repurchase up to $100 million of our shares by the end of 2013, subject to market conditions, business opportunities and unanticipated events. To support this buyback our Board of Directors has authorized an additional $50 million for the stock repurchase program, bringing the total current authorization to $100 million. We plan to begin aggressively buying back shares immediately.

Before I provide more detailed guidance on the fourth quarter and full year of 2012, I wanted to make a few comments about 2013. We typically don't provide a perspective on the upcoming year until February; however, I wanted to provide some insight into our outlook.

We talked a lot about the changes that have occurred during 2012, and their impact on performance. We are beginning to see real progress on these initiatives. However, with attrition and the soft bookings year-to-date, we will see the impact on revenue in 2013.

You should expect revenue growth that is in the single-digit growth range with some margin compression as we invest in additional sales reps and analysts. As we progress through the year, the most visible measure of financial success will be on the balance sheet with growing deferred revenue. We will provide more detail on our 2013 outlook in our next call.

Now I would like to review our business outlook for the fourth quarter of 2012. As I discussed at the beginning of the call, we have implemented a number of significant initiatives and organizational changes. Productivity gains expected from these changes have taken longer than expected to materialize. Coupled with abnormally high attrition in the first half of the year, this has resulted in third-quarter sales and consulting performance falling short of our targets on top of a softer than expected first half of the year.

As a result, we expect revenue in the fourth quarter to be lower than planned. Although we are within revenue guidance for the third quarter, we did fall in the low-end and the accumulative impact of that, combined with lower fourth-quarter projections, results in the full-year revenue being 1% to 2% below revised guidance we provided last quarter.

Recognizing this new revenue projection, we continue to manage our expense profile for the fourth quarter. We have tightly managed discretionary spending for the second half of 2012. We do not expect a material change in our operating margin for the year. We are, however, continuing to invest in expanding and improving the effectiveness of our sales organization.

As a reminder, our guidance exclude the following -- amortization of intangible assets, which we expect to be approximately $600,000 for the fourth quarter and approximately $2.4 million for full year 2012; stock-based compensation expense of $1.4 million to $1.5 million for the fourth quarter and approximately $5.3 million to $5.4 million for the full-year 2012; reorganization costs of $1.4 million for the full year 2012; and investment gains and losses.

For the fourth quarter 2012 we are aiming to achieve total revenues of approximately $72 million to $76 million. This range reflects a minus 4% to plus 2% change versus prior year. Pro forma operating margin of 12.5% to 14.5%. Pro forma income tax rate of 39%, and pro forma diluted earnings per share of approximately $0.24 to $0.29.

At this time we are revising our pro forma full-year revenue and EPS guidance. We are targeting total revenues of approximately $290 million to $294 million, pro forma operating margin of 13.5% to 14.5%, other income of approximately $1 million, a pro forma income tax rate of 39%, and pro forma diluted earnings per share of $1.07 to $1.12. We provided guidance on a GAAP basis for the fourth quarter and full-year 2012 in our press release and 8-K filed this morning.

Thanks very much, and I'm going to ask Kelley Hippler, one of Forrester's senior and most successful sales leaders, to join George and I for the Q&A portion of the call. Kelley has 14 plus years with Forrester, and currently runs of our emerging sales team, in addition to being acting CSO, which targets accounts with less than $1 billion in revenue.

I will now turn the call back over to Ellen, our operator, to begin our Q&A.

(Operator Instructions). Timothy McHugh, William Blair & Co.

First I wanted to ask about the weakness in the consulting business. I was just trying to understand your comments. It sounded like the volume of business booked was up, but you just couldn't deliver on that. So I'm trying to understand if the volume was up, how much of the impact, or at least of the booked business, was macro related versus how much was related to some of the challenge with the research analysts being busy working on Playbook and things like that?

It is Mike. Yes, I would say that it is primarily -- I think the challenges are in a couple places. One would be our analyst headcount is below where we had targeted, right? So we have had analyst attrition that -- you know, both analyst and sales attrition began to subside in Q3, but from a planned headcount standpoint we are still below where we expected to be. So literally the capacity to deliver is a little constrained.

Then for our existing analysts I think that they are incredibly busy, but they are being pulled with Playbooks and that is stretching their time a bit. So that is certainly impacting. We are seeing some macro -- I would say primarily in Europe -- that is affecting us. And that seems to be the case both in consulting and in our normal syndicated businesses.

So more of the macro, I would say, outside the US, but within the US I think it is more primarily a combination of existing analyst productivity due to Playbooks, and just the sheer numbers of analysts being lower than what we had targeted.

Is the macro environment worse than it was say 3 to 6 months ago or is it more of the same of what you have seen?

In Europe I would say it is just more of the same. I think it has been a soft environment all year, and it has been difficult. I think it has been a difficult environment to sell over there.

We have not observed a change in the domestic market, in the US domestic market, despite all these earnings messages that are coming out right now from companies. But we did not observe any major change. Do you have any comments here, Kelley?

No, I would second that, George.

Okay, and as we think to your comment towards next year, the margins, specifically, I guess, I was going to ask about it, was that a full-year comment or was that more related to the first part of the year? I am just curious. And then I am assuming the big issue is if revenue is not up, but you're going to accelerate sales force growth that that is going to depress the margins. But any more color on what you were talking about.

Again, the comments were relative to the full year. I think what will happen, if you think about with the way the model will end up working, is that I think that revenue will build as the year progresses. Because what is happening now is we are hiring salespeople. We are getting them back in, and they're going to ramp.

And then figure 6 plus months to ramp, so they will start looking business. That revenue we will start to see, but you're going to start to see it beginning really in Q2 and then rolling out, and we will continue our hiring process. So revenue will grow relative to prior year over time, but I think for the full year it is going to be a single digit number. So that would suggest, obviously, first half softer than second half.

And we will continue to invest in the sales force, so what is going to happen is you're going to have headcount continuing to be added as we build out the business. And, honestly, this was not where we expected to be in the model. I think we expected this year to be the rebuild year and that next year we would lever up. I think the thing that hurt us is the high levels of attrition.

So what is happening is we are having to hire a lot more and later than we ever anticipated, and therefore it is impacting our 13 numbers. Which is why have said that I think success for us is going to be looking at balance sheet numbers like deferred revenue; a steady, growing headcount on the sales front and the analyst front. And that, to me, is going to signal that we are doing absolutely all the right things. And you will see the revenue and the P&L progress in a meaningful way as the year progresses.

And we will obviously go in more detail in February, but I wanted to, if nothing else, shade the conversation so you get some sense as to how we are thinking about next year.

Okay, great. And my last question would just be the repurchase authorization, can you talk about how aggressive you plan to be on that, and within that context the limitations on, I guess, on the trading -- that the trading volume puts on you? Can you -- just buying day to day in the market, can you really -- can you buy $100 million of stock in the next year, and I guess is that the intention?

Yes. I think first of all, yes, it is our intention, absent, as I said, material changes. Material can be things like a great acquisition comes along and we decide that should preempt and would be a better investment than even buying back shares. That certainly would be one. If we believe float becomes materially smaller then we would obviously have to rethink it.

What our feeling is, Tim, is that we are going to be out there. We will be buying in the regular market, but we also have the ability to buy blocks. And we will be looking for block activity. If there are folks who want to rotate out we certainly want to be there to absorb it.

We believe our shares are undervalued, but we understand there might be some shareholders who aren't going to be patient. And I think it is the Board feeling that at this pricing level this is -- it is a great buy and so we will be ready to buy in blocks.

So to some degree if we can't buy all of it, that is a good sign. That means people are holding onto their shares, and they believe in the long-term piece of the business. And, frankly, I would take that, probably as a positive. And then we will look to actively deploy that cash in other ways, perhaps, to reward shareholder value.

And as the year progresses and as the quarters progress we will be updating you on the activity. Obviously, it will be visible in the balance sheet. You will be able to see what we can buy. And we will try on a very timely basis to keep you folks abreast of everything we are doing.

Okay, great. Thank you.

Dan Leben, Robert W. Baird & Company.

George, could you talk a little bit more about the comp plan changes that you talked about making and what changed in the quarter? Help us understand both the impact to the expense base, but also how you were able to help stem the tide on the attrition.

I'm going to actually pass the answer over to Mike. He is very close to this.

I am going to give you my take on the specifics and then I think Kelley can give you some color, particularly in terms of how they are being received by the sales organization.

So I think to the points George made early, we took an approach on comp in the beginning of the year that I think conceptually was -- headed us in the right direction -- this concept of base versus growth and rewarding growth more than base. But some of the I would say material changes we made, particularly more recently, get around to when do we begin rewarding reps? Do we reward beginning on dollar one? That is not how we started the year. So we looked at that.

And I think the plan we rolled out also was too complex. It had a series of linkages in it that we unbundled and made simpler. And I think the result is, and the feedback we are getting from the reps, is that these are meaningful changes. I better understand how I make my money. There is a clearer path to reward. And when it is simpler and easier to that we think it is going to drive business.

So we got simpler. We focused more on dollar one. We still have leverage on growth, you still make more money if you sell more syndicated. The basic core concepts are in place, but I think we took away some of the complexity, and I think made it easier for reps to see how they make money and find a way to reward sooner. So that is sort of the overview.

I will let Kelley talk to the color in terms of how it is being received, because we have made a number of changes Q2, Q3, but some meaningful ones in Q4 as well.

This is Kelley. And to Mike's point, I think that the salesforce understands and is in line with the philosophy that was rolled out earlier this year, where we want to be driving a sales compensation plan that incents growth.

And I think that the additional improvements that have been made over the course of the last quarter have been very well received. It is certainly a contributing factor to the decline that we have seen in attrition and to help motivate us in the fourth quarter and beyond.

Is there any kind of net change in the overall sales expense from the changes or how should we think about that?

What was the question again? I didn't catch it.

I am just trying to think about the comp plan changes. How is that going to show up in the financials in terms of the overall sales expense? Do we see more growth in the lower growth levels or help me understand how that is going to play out on a macro basis.

A fair question. So, yes, there is a little bit more cost associated with it. I don't think it is meaningful. It actually falls within what we would have deemed to be our targeted ranges, so I don't think the dollars are meaningful.

As I look at the cost piece, where we really suffered from a cost standpoint was losing reps, because then we had to bring in folks and they have to ramp. So to me this is a better trade-off. I think the changes in the comp plan net net are going to result in lower costs because attrition is going to come down.

So I think the dollar trade-off is actually a pretty easy one. And as I look at it, we don't need much of an improvement in attrition to get a payback on these comp changes. So I'm very comfortable from a cost standpoint that these things are the right thing to do, and actually are not going to adversely impact the overall P&L in any meaningful way.

All right, and then just to follow up on Tim's question around the consulting side of the business. Are you at the point now where you are actually having to turn down some engagements just because there are not the availability or are you able to book these and keep them in backlog and we will see them fourth quarter and more in 2013?

I give you my view and Kelley can give hers. I don't -- I have not heard of anything where we are turning down engagements. I don't think that is an issue. I think that we can manage our way through this, and I am comfortable to be able to do that. But we have not turned down an engagements. Kelley, are you aware of any?

No, none that I'm aware of.

The pool is large enough to support the revenue.

Okay, great. And then last one, just on the dividend, if we do get meaningful tax law changes any thoughts about what is the right mix between repurchase dividend, et cetera?

I would say we did talk about it at the Board meeting, and I think, clearly we would -- the Board plans to look at where we sit. Obviously, we have declared our dividend for this quarter, and that will get paid out. And then when the Board meets in February they will have a decision to make about what we do with the dividend going forward.

And I don't think there is a clear answer there because one of the Board members made the right observation that many companies have been paying dividends when dividend tax rates were a whole lot higher, so the question is -- and a number of people hold our shares. Half of it is probably in 401(k)s, so it is -- we will have to evaluate that when we get to that point.

Share repurchase activity at $100 million is a pretty big piece. So if we -- just to give you a perspective, we have paid a little under $10 million to date in dividends. If we were to modify that in any way it doesn't -- it is not like it adds a huge pool of money back into the repurchase. So I think those become really two separate events, and that is how I would think about them right now.

Great, thanks, everyone.

Brian Murphy, Sidoti & Company.

I was hoping to get some color on conference attendance. I don't know if you -- or how many events you have had in October, but maybe give us some color on actual attendance or forecasted attendance, what that looks like for 4Q events.

Forecast attendance, the events we have that are scheduled are a little bit smaller for fourth quarter, so I don't think we -- I don't know of any appreciable difference there. In terms of event attendance to date, our events business off a bit, off a bit, but not significant, right? So it was definitely a delta for us during the course of this quarter.

But I think it tends to be still mixed by event too. We have some events that continue to be incredibly popular and well attended and some that are a little bit softer. So I don't think there is any meaningful trend yet. We typically look at that -- I think George historically has labeled that one of the canaries in the coal mine as you think about our business, but I don't think there is a clear picture that is emerging yet.

No, I would say not appreciably up, but not appreciably down. I was just at the Orlando event, which was 5B key roles, and that event was very well attended. FOBs were, I think, at the highest point they have been at as far as attendance goes. The CXP event, which I think I talked about on the Q2 call was the largest event Forrester has ever held. So I think it is inconclusive at this point. It is not really down. It is sort of in the middle.

I would make a comment, because we referenced it briefly. We are looking at our events business and that is more of a strategic look, not an operational sort of fix it look. It is really trying to take our events to the next level. And that is something that I think George has been pushing to say, how do we take events to this next place? So more to come on that, but we plan to look at them in a more strategic way and think about taking them to a different place.

In the world of TEDx, in the world of TED, in the world of South by Southwest and the World Economic Forum our forums I think look a little bit long in the tooth. And so Cliff Condon has taken over events over the last several months and we are going to be really changing the way we do them, what is on the stage. There is a renewal of events that I would call it kind of phase 3 of events, which we will be undertaking next year. So we will be improving the events as an experience for the clients.

Okay, great, thanks for all that. Also, Mike, I know you changed the methodology on how you count clients. But that client count has been stuck in the 2,500 range for the past five years. And I think in aggregate the salesforce is probably up 50% over that time. I mean, on the historical numbers if you made the adjustments I'm guessing it would just be a single-digit percentage modification.

So I am just wondering how to think -- does that say anything about the number of addressable clients for you guys? And as you think about scaling the salesforce from 450 to 1,000 I'm wondering what you think the client count looks like with the 1,000 reps.

It is a really good question. A couple of things. When we went to the new structure this year we consciously said that in other than the vendor world we were no longer pursuing clients less than $500 million in revenue. So that is a conscious shift. So by default what we are trying to do is concentrate our efforts very much in larger companies. And that is a smaller universe when it is all done, but the idea was to penetrate and grow within those companies.

And so that is a by design piece. I think it is fair to say, and I will let Kelley give some color, we have a lot of opportunities just within the clients that we have today. It is not to say we aren't still going to add a lot. We have a new business team, they are actually out adding clients. And with small companies too -- small vendors -- there is a natural level of churn that creates some noise in client count.

But there is no question, I think as we go forward and we move to 1,000 reps it is not -- I don't think it is a doubling of our clients. It is really going to be a growth within the clients that we have in a meaningful way as well as adding more.

And, Kelley, I will -- I don't know what your thoughts are, but you're closer to it than I am.

Sure, absolutely. So just to add to that, I do think that we have tried to refocus a lot of our energies into driving up the spend within some of the accounts that we have. That was a key driver behind the move to segments. And we do expect to get there over the fullness of time.

We do have a new business team that is focused, to Mike's point, on the net new logos of clients that are above $1 billion, which are in a specified target market that we have, but those tend to have longer sales cycles as we move forward. So that is a contributing factor to why the needle hasn't moved much on the client count front. But we will continue to focus on both growing the spend at our existing clients and bringing on more net new logos as we move forward.

If you look at the potential market, some of our larger competitors, their client count, as you know, in the 10,000, 11,000 range. So we are -- we have a lot of problems, but this is not one of them. There are many, many companies were still who are still to be clients of Forrester.

Okay, great. And, Mike, with deferred revenue up, it is fair to say that bookings picked up a little bit in the September quarter?

No, I would say -- I would say no. I think they actually -- I think deferred revenue because it runs out a bit -- I think syndicated bookings were okay. So I think consulting bookings, I think we are seeing a little bit of a lag there. So it was not from our perspective, I would tell you, we weren't happy with the quarter. Again, we are not -- I think being down even in single-digit land on deferred revenue is not great. So we are not super thrilled with the quarter, so we didn't see an uptick quarter-over-quarter from Q2 to Q3.

Okay. And, George, you referenced some pretty impressive metrics in terms of better engagement on Forrester.com in terms of document downloads, et cetera. I am curious if you have -- if you have seen any improvement in the metrics a little further down the funnel, maybe on the conversion side?

I would say that when we went very social, and I talked about the social numbers are pretty impressive, we did that to -- ultimately to gain more clients, to create more leads. I would say that we are seeing some of that, but not as much as we want to see.

I think there is a linkage between our social content and our content behind the pay wall could be better. There is -- Tom Pohlmann, our new Chief Marketing and Strategy Officer, is very focused here. He has actually just hired a number two, Jeff Ernst, who is a technical marketer, who is spending lots of time on trying to understand exactly how we're going to get higher conversion rates from social over declines. So what I would say a lot of potential here, not as tapped as it will be in the future.

One comment I would make, just in general, this has been the year really of learning. Just as the sales folks had to master all roles, the analysts have to master all salespeople.

In the old world they had a smaller subset of sales folks to work with, now they have a whole lot. So there is a transition in terms of how we operate, to George's point, where we have made a number of improvements at the front end where clients are coming in, and we're working our way through the backend to take that into something that is very actionable. So once we get this process really nailed down it is going to be interesting in a very good way in terms of what the potential is.

Okay, thanks very much.

Vincent Colicchio, Noble Financial.

George, I am curious, have you seen any competitive response to the introduction of Playbooks?

No.

Okay, this is one is for you, Mike. Did you -- did I hear you say that operating margin will decline next year?

Yes, I think that we could see some compression. I am not going to get into how much. Again, I don't think it is dramatic, but -- because we haven't finalized our plan and we haven't made a lot of final decisions. But I just look at trying to give you a macro view of how we think about next year and think about how revenue is going to rollout, and also looking at sales investments we plan to make and analyst investments and some remaining technology investments.

It is my view that it is a potential that margin could compress a bit from where we are today in the near term, and then obviously expand as we move out. And again, thinking about the year it is going to be more pronounced in first half, and then the second half of the year should progress and get better.

So, again, those are -- I wanted to talk in generalities. Normally I don't like to talk about the upcoming year until we are into it in the beginning of February, but I think it is appropriate given all that went on just so that people really understand that this whole cycle of attrition has a very real impact. And we are starting to come out of that now and that is a good thing and we are starting to move forward, but it is just that the nature of the dynamics of how this business works, particularly with the bulk of our revenue being syndicated and deferred. So as people come out and start booking business it spreads out over the 12-month tail.

Okay, and George, another one for you. I think I heard you say that you lost more senior salespeople than expected over the past year, which impacted productivity. Did that trend continue in the quarter?

No, that trend was down in Q3, and we expect it will be down in Q4.

Okay, that is all I have. Thanks, guys.

Bill Sutherland, Northland Capital.

What kind of level is analyst attrition running at, Mike, relative to where you normally see it?

It is -- without getting too specific, overall research attrition is -- typically runs us, I would say, mid- to high-teens and we are breaking the 20% barrier. And so -- and that is overall research ranks. Now embedded in there is usually -- and it is very much in this case, typically higher numbers with our research associates, our most junior people. And those folks tend to run higher, and analysts tend to run lower. Analysts right now are on an annualized basis running below a 20%.

So we are not too far out of range, but I think in a year where some of our analysts are off-line working Playbooks it is exacerbated though. And so any little incremental bit, coupled with the Playbook activity, we really feel it. And so I think that is what is pressuring a bit. And so I put it out there just because we are really -- we are watching it closely.

Again, I don't think the numbers are terrible. The downside to analysts is it a good news/bad news. We tends to hire really, really good people, but it tends to take longer to hire analysts than does the sales folks. It is not that our sales folks are bad; our sales folks are great, and the ones we have been hiring are our great. It is just the analysts recruiting cycle is longer than the sales recruiting cycle. So that is why I look at it and I highlight it. Again, I don't think it is terrible, but it is different than what our run rates have been.

Okay, can you give us a little more feel for the difference -- I now attrition in sales has been more of an issue -- I think it has been more of an issue in Europe, and complicated by obviously the headwinds and economy over there. So are you closer to normal attrition in North America than in Europe?

I think it is subsiding. I would say -- a couple of things too -- when we built our plan in 2011 going into 2012 we actually hired -- we had, for the most part, an across-the-board hiring plan that was almost equal as a percentage basis by region. And in hindsight, given what happened and has been happening in the macro, we would have been better served probably putting fewer new reps in Europe and putting more in North America and Asia Pacific.

So we definitely feel that pain. So it is a resource allocation issue that will rebalance and we are rebalancing as the years progress, so that is a big piece of it.

So as we have seen some attrition we are hiring some back fill, but we are not adding net new in Europe right now. We are going to wait and see how that situation progresses.

So, yes, it has been a little better, and I think that it continues to get better in North America and that is encouraging. And, again, we are continuing to watch it. I am not yet ready to say this is a permanent trend, but I do believe it is going to subside in Q4.

There could be some noise in Q1 as there always is, as people roll into the new year, hiring picks up, but by and large I think we are moving in the right direction. And I feel like all the things we are doing are sending the right signals to the selling organization that we want to make the necessary changes and keep people on board and make things happen.

And maybe this is for Kim. As you think about where the sales force is in terms of coming up the learning curve on the new CRM, is it going to be pretty much everyone there by this quarter?

This is Kelley. I would say that -- I would suspect that by early Q1 we should be fully leveraging a lot of the tools and capabilities. Because Q4 is our busiest selling season we have tried to focus our efforts and energies on those core functionalities that are needed to get the job done right now. And I think that there are other things around collaboration, as George mentioned earlier in the call, that will help us see an uptick in productivity once we get into 2013.

The good news is a lot of my reps are younger than I am so they are picking it up more quickly than some of the sales managers.

I know how you feel. (laughter).

A little note here. Mike Morhardt is coming out of two salesforce environments, so -- and so he is very familiar with the tool, the processes, and he will be a great advocate for the use of the tool.

And, actually, the timing might be right too, because I think Mike is going to come in with ideas about what he wants to do with the tool, so I think if we get a foundation complete, to Kelley's point, than a lot of the enhancements that Mike has got a very good from strong view about where he wants to go and I think that is going to be -- it will work out quite well when it is all said and done.

The last one, may be for you, George. I think the key differentiator for Forrester certainly is -- well, one of them is certainly the focus in marketing strategy. It really stands out there as a consulting firm. And how are you thinking about maintaining or maybe even expanding on that competitive advantage looking ahead?

We are shifting the strategy somewhat on the sales side in the sales process, where we are now entering companies in the marketing -- where the marketing strategy role is being called on first. And we call this leading with the customer.

Essentially, our unique value proposition is that in a world where the technology is changing your customers, we can help you make better decisions. And every company, I don't care whether you sell pills or tires or insurance your customer is behaving in a very different way.

So we are fundamentally changing the way we sell. And entering the marketing strategy role first and then moving to the BT roles second, and we call that leading with the customer.

So it is an obvious advantage we have. And by the way, it is also a highly resonant advantage that we have. As you know, Ginni Rometty takeover as CEO of IBM, and the first conference that she -- that IBM put together and the first one that she spoke at was a conference for marketing executives and not for IT executives. And, in fact, we had -- Forrester analysts spoke at that event for IBM.

And so it is -- we think it is a great advantage. It is one that we are going to leverage, and Tom Pohlmann as the new head of Marketing and Strategy is pushing this very, very strongly. And we already -- as an example that I actually gave you on Playbooks, was a marketing executive at an airline. And again, I will just reiterate what she said she loved about it was it connected her to the IT executives at the airline and that made her job easier.

So has the Playbook rollout been disproportionate in the marketing and strategy roles?

It has been about equal, both BT and market. You need Playbooks on both sides, so it has been about equal for the two sets of roles.

Okay, thanks everybody.

(Operator Instructions). We have no further questions at this time. I will now turn the call back over to Mike Doyle for any closing remarks.

Great, thanks very much. First of all, thanks everybody for joining the call, we do appreciate it. And George and I will be out on the road, and we look forward to seeing many of you in the very, very near future. So thanks very much and have a great weekend.

Thank you, ladies and gentlemen. This concludes Forrester Research Q3 2012 earnings conference call. Thank you for participating. You may now disconnect.