Forrester Research Inc (FORR) 2014 Q4 法說會逐字稿

Good afternoon. Thank you for joining today's call. With me today is George Colony, Forrester's Chairman of the Board and CEO; Michael Morhardt, Forrester's Chief Sales Officer; and Mike Doyle, Forrester's Chief Financial Officer. George will open the call, Mike Morhardt will follow George to discuss sales. Mike Doyle will then follow Mike Morhardt to discuss our financials. We'll then open the call to Q&A.

A replay of this call will be available until March 13, 2015 and can be accessed by dialing 1-888-843-7419, or internationally at 1-630-652-3042. Please reference the passcode 9233923-pound.

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 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 involves risks and uncertainties that could cause forward-looking 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 the 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, further events or otherwise. I'll now hand the call over to George Colony.

Good afternoon and thanks for joining Forrester's Q4 and full-year 2014 conference call. In my segment of the call, I will give a state of the year summary, outlining the Company's 2014 performance and looking ahead to plans for 2015. Following my remarks, Mike Morhardt, Forrester's CSO, will summarize our progress in building a larger and more productive sales organization. And Mike Doyle, Forrester's CFO, will then give a financial review of the fourth quarter and full year 2014. Mike, Mike and I will then take questions.

I am pleased to report that Forrester attained its earnings and revenue guidance for 2014. Our sales team made plan for the year and we are looking forward to continued improvements in our performance for 2015, building on or momentum.

Since the beginning of 2013, we have been transforming Forrester, both strategically and operationally. We have invested in people, technology and new products, and I'd like to use this time to summarize where we stand in each of our initiatives.

I have talked extensively in past calls about Forrester's strategic shift around the Age of the Customer. To summarize, in the summer of 2013 the Executive team and the Forrester Board made the decision to focus the Company's products on helping clients succeed in the emerging era of empowered customers. This change is highly challenging for our clients and Forrester helps on three levels.

One, Forrester's data enables clients to better understand their customers. Two, we guide marketing and strategy executives on how to win and retain those customers. And three, we lead technology management clients to create the systems to serve those customers. Most importantly, we do one, two and three in concert for clients and this is when we have the greatest impact on their businesses.

How is the strategy being received? In 2013, we calculated that approximately $8.5 million in 2014 renewals were at risk, primarily in the technology management space. I'm happy to report that our retention rate in fact improved 2 points on a dollar basis year over year.

While our transition is not fully completed, our focus on helping clients with the emerging challenges of BT are highly relevant. At the Wall Street Journal CIO Conference, which I spoke at in San Diego last week, I had coffee with a CIO who used Forrester years ago but is not currently a client.

And he asked me, what are you guys doing now? When I described our strategy, he had a quick reaction. Wow, what you're doing is very different from the other companies I get advice from. Your research would be a very big help to me and to the marketing executives at my company as we strive to win and retain customers.

Now admittedly the Business Technology market is smaller than the IT business. We estimate that total technology management expenditures in the US in 2015 will be $1.1 trillion, with 75% going to IT and 25% to BT. But the BT business segment is growing at twice the rate of IT and it is underserved with research relative to the IT market.

We estimate that only 10% of CIOs have built mature BT agendas and that represents a large and growing market space that Forrester uniquely serves. Uncertainty in BT eclipses that of IT creating more demand for research and guidance.

I want to say a few words about Consulting. As you know, we have been on a two-year journey to move project consulting out of the hands of analysts and into a specialized project consulting team. This group has now grown to 134 people. We have encountered two challenges on this voyage.

Firstly, we have had to prove to our clients that dedicated consultants can yield high quality work commensurate with what was provided by analysts. In the transition, we have moderated this dynamic by keeping analysts involved in some large projects as subject matter experts.

In addition, we have slowed down the transition of work from analysts to consultants in response to the market. We had expected to be in a 50/50 equilibrium by early 2015. We now expect to achieve this goal by the end of the year.

The second challenge was maintaining high utilization of consultants. We had originally organized consultants by the roles they served. But this resulted in uneven utilization. As we move into 2015, Victoria Bough, the Head of Consulting, has organized teams by three solutions, customer experience, Business Technology and digital business. These spaces represent pressing challenges for our clients and we expect this change to improve utilization and Consulting deal flow.

We launched the dedicated project consulting group to achieve two goals. One, better research. And two, better consulting. By focusing analysts back on research production, we believe that research output would increase and research quality would improve. That happened in 2014 with a number of reports created by research increasing 48%, and the number of Forrester waves increasing 13%. Readership of research and customer satisfaction of Researching and Consulting increased in 2014.

Mike Morhardt will give his update on sales shortly, but I wanted to say a few words about this part of our business. Mike has now completed his second year as Head of Sales of the Company. He has made many positive changes to the way that Forrester sells. From a high level, his impact has been most acutely felt in three areas, leadership, methodology and strategy.

Mike has been able to attract and retain strong leaders to run large segments of the sales force. John Besteman, who runs Forrester West, and Jon McNerney, who has taken the helm in Europe, are examples of the quality of leader that Mike's been able to bring into the business. In the largest segments of the sales force, America East, America West and Premier Accounts, Mike's designated leaders beat their plans in 2014 and have demonstrated the ability to shift into higher growth.

Secondly, Mike has built a strong methodology in sales, running the play as Mike is fond of saying. This method is trained, perfected and driven by a strong sales operations group which Mike has built over the last two years.

Finally, Mike has expertly navigated the change in Forrester's go-to-market strategy, leading his sales teams to embrace the Age of the Customer and to revel in our difference in the marketplace. Mike certified his entire sales force on the Age of the Customer, a major reason why the sales team achieved plan in 2014.

We still have work to do in sales primarily around improving cross-sell, decreasing the cost of sales and improving the productivity of sales which in 2014 still lagged historical productivity levels for the Company. But the groundwork that he laid in 2013 and 2014 positions sales to take on these challenges in 2015 and beyond.

Want to spend a few moments discussing products. Mike Doyle will give numbers on the performance of individual products, so I'm not going to go into detail here, but I do have two overall observations. Firstly, the move to dedicated product management has vastly improved our line of sight clearly designating responsibility for specific products.

Now this may sound obvious, but remember that prior to 2014, there was no product organization at the Company. Responsibility for improving and managing products was unclear at best and opaque at worst. So this has been a major operational improvement over the last 15 months.

Secondly, the product organization is clearly chartered with launching at least one new syndicated product per year. In 2014, this product was the Forrester Customer Experience Index, a metric which measures the value, ease, enjoyability and loyalty of 920 brand experiences worldwide. Unlike other metrics such as Net Promoter, CEx Index yields direct actual advice on how companies can improve their customer experience relative to competitors and the wider marketplace.

If you consider Forrester's charter of helping clients be customer obsessed, the CEx Index moves us from theory to real continually updated facts about how companies are actually performing. We expect the CEx Index to be incorporated into how our clients operate. An early example is a large European insurance Company that is considering using the CEx Index as a compensation metric for executives. The Forrester CEx Index got off to a fast start in the fourth quarter of 2014 and we expect quick expansion of the product next year, this year.

Turning now to 2015. As reported in today's press release, the Company has reduced its headcount by 50 people, approximately 4% of our worldwide headcount. We took this action for two reasons. Number one, to align resources to our new strategy. And two, to increase Company efficiency.

As I've explained earlier, we continue to perfect our organization, engagement model and product model to most effectively drive our strategy of helping clients win, serve and retain customers. We want to ensure that we have the right workforce to accomplish those goals.

Additionally, we are planning to grow our operating margin in 2015 and this means that we must be as efficient and streamlined as possible. In 2015 we will grow bookings, revenue, operating margin and earnings per share. We will also grow headcount. We are planning to end 2015 with headcount up 7% worldwide.

Turning now to capital structure. In 2014, Forrester bought back approximately 2 million shares at a cost of $73.2 million. Our weighted shares outstanding is now 18.2 million shares. Our cash balance now stands at approximately $100 million, the target that we set 18 months ago. Our Board authorized another $25 million for the buyback program, and we expect to opportunistically buy our shares during 2015.

So to conclude, the voyage that we began in 2013 is beginning to yield results. We achieved our bookings goal for 2014. Our strategy is resonating in the marketplace. Research production is up dramatically, Consulting quality is improving and our newest products are gaining traction.

We have much more work to do and we will certainly have set backs on this voyage, but we are headed in the right direction. We have momentum. Thank you for listening to my remarks. I'm now going to turn the call over to Mike Morhardt, Forrester's Head of Sales. Mike.

Thanks, George. In Q4 and throughout 2014, the sales organization continued to demonstrate strong progress to our goal of consistent double-digit bookings growth. The Age of the Customer as a go-to-market strategy is resonating with our clients and prospects which gives us great confidence in the size of our market opportunity. We saw good signs across many of the sales teams and the metrics we track.

From a sales perspective, as George mentioned, the global sales organization achieved their plan for 2014. Our three largest groups, North America East, North America West and the Premier Account groups, our global account organization, all hit plan and grew for the year. They represent roughly 70% of our plan and showed strong performance throughout 2014.

Our international business development team made up of our partners also hit plan and showed strong year-over-year performance. Our new business team, after a slow start to the year, grew by -- grew year over year after a strong Q4. And they are fully staffed going into 2015.

As I mentioned in our last call, we hired a new sales leader as George mentioned in Europe, Jon McNerney. He hit the ground running, and while Europe did not hit plan, they did grow year over year by mid single digits. Jon has quickly made changes to the leadership team in Europe and I'm of confident they will be back on track in 2015.

In Asia-Pac, we saw slowdown in growth in several of the key markets that we serve. The issues were isolated to a couple of key geographies like China. We also saw some process issues with our Consulting business. The pipelines have improved in China and we have changed several of the processes that were slowing us down in the Consulting business.

From a metrics perspective, we also saw continued improvement. As George mentioned, client retention was up 2% from 84% to 86%. Discounting was down for the eighth straight quarter. Sales attrition was down significantly in Q4 but flat for the year. The percentage of reps hitting plan came in 11 points higher than 2013. And sales productivity improved slightly, and as George mentioned, we are laser focused on specific productivity drivers to accelerate our gains.

In order to capitalize on demand for our products and services, we are continuing our sales expansion efforts. We ended 2014 up 9% in quota bearing headcount. Our goal is to grow by 10% in 2015 and potentially accelerate that expansion if the opportunity presents itself. We are continuing to expand the sales organization geographically which supports our goal of getting our reps closer to their clients and their prospects.

We also believe that we are underpenetrated in most of our accounts and by adding new salespeople, we are able to drop the average number of accounts per rep which leads to better client retention, better cross-sell and a stronger overall account growth.

We will also be building out an inside sales organization to focus on our smaller accounts. This lower cost channel will serve our smaller clients with less potential. This will free up our field based teams to focus on better penetrating through cross-sell within our larger client organizations. Q4 represented continued progress and momentum for the sales organization.

In 2015, our sales strategy is not changing. We will continue to drive for improved productivity, focused on improving client retention rates and expand our sales organization through our localization strategy as well as an inside sales model. With that, I'll turn it over to Mike Doyle for the financial update.

Great. Thanks very much, Mike. I'll now begin my review of Forrester's financial performance for the fourth quarter of 2014 including a look at our financial results, the balance sheet at December 31, our fourth quarter metrics and the outlook for the first quarter and full year 2015.

Please note that the income statement numbers I'm reporting are pro forma and they exclude the following items. Amortization of intangibles, stock-based compensation expense, reorganization costs and net losses from investments. Also for 2014, we're utilizing an effective tax rate of 38% for pro forma purposes. The actual effective tax rate for the full year was approximately 41%.

For the fourth quarter and full year, Forrester met revenue and pro forma op margins and achieved the top end of EPS guidance. The fourth quarter culminates a year of significant progress for Forrester in a number of key areas. In February last year, we laid out an ambitious agenda both strategically and operationally.

George and Mike shared with you the significant progress we've made with the Age of the Customer strategy and the improvements in our research, product, consulting and sales organization. This progress had a direct and positive impact on our financial results for 2014. All of the financial targets we set pack back in February of 2014 for revenue, operating margin, EPS and returning value to shareholders were achieved.

Now, let me turn to more detailed review of our fourth quarter and full-year results. Forrester's fourth-quarter revenue increased by 4% to $80.7 million from $77.5 million in the fourth quarter of 2013. The volatility in global currencies in the latter part of 2014 resulted in 2 points of negative impact to overall revenue growth for the quarter.

Fourth quarter Research Services revenue increased 5% to $53.8 million from $51.4 million last year, and represented 67% total revenue for the quarter. Fueled by our research and data offerings, we continue to see acceleration of revenue growth in our syndicated business but it's tempered somewhat by poor performance in some of our more mature leadership board councils.

Fourth-quarter Advisory services and Event revenue increased 3% to $26.9 million from $26.1 million in the fourth quarter of 2013 and represented 33% of total revenue for the quarter. Growth in Consulting and Advisory revenue was delivered by our research analysts and consultants, was partially offset by decline in our Events business. As noted during our third quarter call, the build out of our Consulting organization is complete and overall headcount and revenue growth have begun to moderate in this segment of our business.

The international revenue mix was 25% for the period ending December 31, 2014, compared to 27% in the same quarter of last year. The majority of this decline is attributable to the strengthening US dollar although growth in our domestic revenue continues to outpace our international revenue growth on an FX neutral basis.

I would now like to take you through our activity behind our revenue starting with Research. Forrester had 67 live play books at the end of the fourth quarter. Additionally, 555 new research documents were added to RoleView and we hosted 31 webinars for the total live attendance of 873 in the fourth quarter, not including the increasing proportion of clients that now download a recording of the webinar for future playback.

As of December 31, 2014, the top three research roles were the CIO with 8,313 members, application development and delivery with 6,236 members, enterprise architecture with 4,589 members. The Forrester leadership boards, our peer offering for senior executives, experienced a slight revenue decline on a year-over-year basis in the fourth quarter.

We did however see double-digit membership growth in 7 of our 15 councils. With today's reorganization announcement, we are streamlining councils to better match demand and allow investment in those councils with higher growth potential.

As of December 31, 2014, Forrester leadership boards had a total of 1,636 members, down 7% compared to the same time last year, with declines in both Business Technology and Marketing and Strategy.

Our data business continues to be a critical part of our value proposition. We survey over 400,000 consumers in 21 countries, representing 80% of global GDP. And over 60,000 businesses in 10 countries representing 66% of global IT spending.

This data provides our B2C and B2B clients with actionable insights on issues ranging from enhancing social media strategies to developing and deepening brand equity to aligning sales and marketing with customer demand. It also gives our analysts the most accurate and timely facts they need to drive their research forward. On a year-over-year basis, revenue increased by 18% for the fourth quarter, driven by custom data cuts and non-syndicated fulfillment of consumer technographics.

In our Advisory and Consulting business, total revenue for the fourth quarter increased 4% compared to the prior year. Mentioned to you that during our third quarter call that results within our Consulting practices were mixed, and this has extended into the fourth quarter. We're busy applying the lessons learned including shifting resources to where we see the most heat, streamlining our leadership and updating our business model to ensure we're taking full advantage of the opportunities that exist in the marketplace.

It should be noted that for the fourth consecutive quarter, our Consulting organization roughly doubled its output compared to the same period last year. This result continues to align with and support our strategy to free up more of our analyst time to create and deliver even more world class research content and client support.

In our Events business, we hosted five forums in the fourth quarter of 2014. In Chicago, the forum for application and development professionals as well as the forum for e-business and channel strategy professionals. In California, the forum for CMOs and CIOs and the forum for customer experience professionals west. And in the UK the forum for customer experience professionals EMEA.

Events revenue declined on a year-over-year basis by 14% in the fourth quarter driven by a decline in sponsorship bookings. Sales leadership turnover in this segment of our business hampered progress in 2014. We have hired a new leader for that group and are strengthening selling organization with a commitment to getting back to growth in 2015.

I'll now highlight the expense and income portions of the income statement. Operating expenses for the fourth quarter were $71.6 million, up 1% from $71 million the prior year. Cost of services and fulfillment increased by 3% compared to the fourth quarter of 2013 due to the staffing of our consulting and product organizations, merit increases and were partially offset by lower headcount in our research group and lower incentive bonuses.

Selling and marketing expenses increased by 7% due mainly to the growth of our sales force, higher commission expense as our reps continue to achieve better results compared to last year, and merit increases. General and administrative costs decreased by 20% due to the reductions in professional services, consulting fees as well as external recruiting fees.

Overall head count increased by 5% as of December 31, 2014 compared to the same period last year. At the end of the fourth quarter, we had a total staff of 1,351, including a Research and Consulting staff of 518 and a sales staff of 510.

Research and Consulting headcount was up 9% versus prior year and up 1% compared to September 30, 2014. Total sales headcount increased by 5% versus prior year and up 3% as compared to September 30, 2014. Sales rep headcount increased by 9% compared to the fourth quarter of 2013, while fully ramped sales rep headcount grew by 11% over the same period.

Operating income was $9.1 million, or 11.2% of revenue, compared with $6.5 million, or 8.4% of revenue in the fourth quarter of 2013. Other income for the quarter was $217,000, up from $32,000 in the fourth quarter of 2013.

Net income for the fourth quarter was $5.7 million, and earnings per share was $0.31 on diluted weighted average shares outstanding of 18.5 million, compared with net income of $4 million and earnings per share of $0.20 on 20.3 million diluted weighted average shares outstanding in the fourth quarter of last year.

And now I'm going to review Forrester's fourth-quarter metrics to provide more perspective on the operating results for the quarter. Agreement value. This represents the total value of all contracts for Research and Advisory services in place without regard to the amount of revenue that has already been recognized.

As of December 31, 2014, agreement value was $231.7 million, an increase of 7% from the fourth quarter of 2013. As of December 31, 2014, our total for client companies was 2,431, down 21 from September 30, 2014, and down 40 compared to the fourth quarter of 2013. Client count, unlike our retention and enrichment he metrics, is a point in time metric at the end of each quarter.

Forrester's retention rate for client companies was 76% as of December 31, 2014, unchanged from the prior quarter and up 3 points compared to last year. Our dollar retention rate declined by 1% or 1 point to 88% compared to the prior quarter, but improved by 2 points compared to last year. Our enrichment rate was 97% for the period ending December 31, 2014, unchanged compared to the prior quarter and compared to December 31, 2013.

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 appropriate trend information. As of December 31, 2014, there were 2.4 roles per client, unchanged compared to the prior quarter and prior year.

Now I'd like to review the balance sheet. Our total cash and marketable securities at December 31 was $104.5 million, down $50.6 million from $155.1 million at year end 2013. With the reduction due to the success of our share repurchase program which totaled $73.2 million of stock repurchased during 2014.

Cash from operations was $900,000 for the quarter as compared to a negative $1.6 million in the fourth quarter of last year. We received $2.2 million in cash from options exercised for the quarter, as compared to $2.9 million in the fourth quarter of last year. We also paid a dividend in the fourth quarter which amounted to $2.9 million, or $0.16 per share.

Accounts receivable at December 31, 2014 was $67.4 million compared to $77.5 million as of December 31, 2013. Our days sales outstanding at December 31, 2014 was 77 days, compared to 92 days at December 31, 2013. And accounts receivable over 90 days was 3% at December 31, 2014, compared to 4% at December 31, 2013.

Deferred revenue at December 31, 2014 was $144.6 million, down 5% compared to December 31, 2013. Deferred revenue plus future accounts receivable was down 6% compared to the prior year. Our future accounts receivable balances are amounts to be invoiced in the future for clients with multi year deals with scheduled payment terms.

The year-over-year decrease in deferred revenue plus future AR was due primarily to two factors. First, changes in foreign currency rates caused a 2 point reduction. And second, which is more strategic, was a purposeful shift of the renewal of approximately $10 million of contracts from December 2014 into the first quarter of 2015 through the use of 13 month of contracts back in December of 2013. This shift had the effect of reducing the growth rate of deferred revenue and future accounts receivable by approximately 4 points at the end of 2014.

Let me talk about capital structure. Over the last two years, we have aggressively looked to return value to shareholders. We targeted cash on the balance sheet of approximately $100 million using our excess cash for share repurchase and dividends.

In 2013 and 2014 we have repurchased approximately 5.2 million shares at a cost of $191.4 million. We began our quarterly dividend in 2011, and have increased our payout $0.04 per year every year. The net result of these actions has been increased share price and reduced cash on our balance sheet to $104.5 million.

So to recap, in closing, we've had a productive year. Let me highlight just a few of our major accomplishments. We've completed the staffing and restructuring of our product research and consulting organizations. Successfully rolled out our Age of the Customer strategy and embedded it in the fabric of our sales, research, marketing and product offerings.

Continued our investment in the sales organization, technology that will enhance the customer experience and improve productivity and in new products. We met our financial targets for 2014 and achieved our targeted capital structure objective of returning value to shareholders through share repurchase and dividends. Established the foundation for Forrester to grow bookings, revenue, margin and earnings per share in 2015 while still investing in our sales organization, technology and data products.

Now let me take you through the specifics of our guidance for the first quarter and full year 2015. Before I get into the details, I would like to discuss a couple of things. First, let me discuss the impact of foreign exchange on our guidance for 2015. Clearly, the foreign currency markets have entered a period of extreme volatility. Forrester currently has approximately 26% of its business outside the US. This volatility will have an impact on Forrester's revenue and earnings per share performance.

Accordingly, we have based our outlook with the expectation that the major currencies we are exposed to outside the US will decline from 2014 averages by the following. We expect the euro to decline between 10% and 15%. The pound sterling between 7% and 12%. Canadian dollar between 7% and 12%. And the Australian dollar between 10% to 15%.

The outlook that I will go through reflects the views of these currencies and has an adverse impact on revenue and earnings per share guidance for 2015 of approximately $7 million for revenue, and approximately $0.08 on earnings per share. We are not, however, foreign exchange experts. So we will keep you updated each quarter as to major changes in our outlook for these currencies and we will update our guidance accordingly.

The second item is following on George's earlier point about building momentum in our business. We typically don't go two years out on guidance but we did want to give you our preliminary view and thinking about 2016. This is FX neutral and is very preliminary.

We expect that 2016 would have revenues that break double-digit growth in the 10% to 11% range. We would expect to add between 300 and 400 basis points in margin, and look for EPS in the range of $1.45 to $1.60. Again, this is preliminary but we wanted our investors to understand how we're thinking about 2016.

Now let's get to the specifics on 2015. As a reminder, our guidance excludes the following. Amortization of intangibles assets which we expect to be approximately $300,000 for the first quarter and approximately $1 million for full year 2015. Stock-based compensation expense of between $2.1 million to $2.3 million for the first quarter and between $9 million and $9.5 million for the full year 2015. Reorganization costs of between $3.2 million to $3.7million for the first quarter and $3.5 million to $4 million for the full year 2015 and any investment gains and losses.

Forrester is providing first quarter 2015 financial guidance as follows. Total revenues of approximately $74.5 million to $77.5 million. Pro forma operating margin of approximately 5% to 7%. Pro forma effective tax rate of 38%. And pro forma diluted earnings per share of approximately $0.13 to $0.17.

Our full-year 2015 guidance is as follows. Total revenues of approximately $325 million to $333 million. Pro forma operating margins of approximately 9.5% to 10.5%. Pro forma effective tax rate of 38%. And pro forma diluted earnings per share of approximately $1.05 to $1.13.

We provided guidance on a GAAP basis for the first quarter and full year 2015 in our press release and 8-K filed today. Thanks very much, and I'm now going to turn the call over to the Operator for the Q&A portion of the call.

(Operator Instructions)

And our first question comes from Timothy McHugh.

Want to ask more about the Consulting business and the comments that you made there. One, how low is utilization and how does that compare to your expectations?

And secondly to when you talk about having to shift some people around versus how you had them organized prior around roles, how much of the consultant force is being shifted?

And lastly, how easy is it to shift people around to the extent that you hired them for supposedly being able to consult or have some expertise around certain roles?

Yes, Tim, it's Mike Doyle. So I think first of all, we went into this year as we were building out the organization, utilization in a traditional way you'd say gee, we'd expect a consulting force to be utilized approximately 70%. But obviously we were building in people coming on, people had to ramp up and also we were feeling our way. We have some consultants frankly who went beyond 70% utilization in the areas frankly that were very, very hot.

And I think one of the challenges we ran into, Tim, was that candidly we probably over hired in some areas and fell short in others. And so what we saw during the year was having to flex analysts back into project consulting to pick up some of that work, and look at the analysts who frankly where we over hired and see if they were in areas that were approximate to other roles that we were seeing that are much hotter, could they migrate over.

So I would say that it's difficult to point to, I think some areas we had analysts who were probably 20% underutilized and others as I said who were exceeding capacity and working well beyond what we had expected. So I don't think -- and I think we will this year, but I don't think it would be fair or useful to give you an aggregate utilization for the year because we had so many analysts coming in during the year, ramping and utilizing. So the full year utilization numbers hook a little strange.

So how we looked at it internally was once we had someone fully ramped, are they exceeding a 70% number, or about at a 70% number or are they not. And I would say that as we got into the year, we were probably seeing a little more than half who were hitting that 70%. And a good chunk that were falling either ranging them a little to a lot short and we tried to rotate accordingly and fill the void in demand because it's clear that demand is there with analyst activity.

And in today's action reflects basically a look at those folks who we didn't believe could migrate over to the hot areas, and I think we've now right-sized and balanced the organization where we're going to get very healthy utilization. Our targets are and our utilization targets and how we planned that business are very similar to our peers in the space. They look nearly identical.

And then we'll be adding to that organization as the business grows. So I feel good about where we are. And I think it was a year of learning for us, Tim. So --

This is George here, Tim. I think it was less of a crisis and more really a market adjustment and organizational adjustment. And so I think this was -- we saw this coming that we were going to have to make a major adjustment at the end of the second year if we did that.

And is it right-sized then for 2015 or when you talk about 2016 seeing profitability go up, is that a big swing factor where you're expecting that to correct in 2016?

I think it's right-sized for 2015 and then I think what we're going to see is as we build out our plan for 2016, we're going to be adding heads in Consulting. As demand continues to grow, we'll continue to grow that business. I will say though as you get into 2016 you're going to see faster growth in our syndicated business than you do in our Consulting and Advisory businesses.

But we're going to continue to hire consultants just as we'll continue to hire analysts because demand for our business is going to grow. We don't think that it's capped at where it should be right now. But you won't see the big spike up for example that we saw this year as we were building out the organization where we add a significant number of heads. I think you're going to see much slower rates of headcount growth in Consulting going forward. And the same in Research, I think it's going to grow as we see demand and we'll add heads accordingly.

And the internal sales team, how much of that is a lower cost to serve existing customers versus really more focused on maybe serving customers that you didn't serve as much in the past?

A little bit of both, Tim. So we have various sized clients. These clients were populated across all the various sales teams. We've centralized these organizations that are lower in their average revenue. We have a specific set of products that we sell them which are not discounted and we serve that with some of our junior sales teams as they come up through the ranks.

So it's a combination of existing clients that we have taken away from some of the field-based teams to help their effectiveness and also as we attract new clients and target new markets, this inside sales team is a great tool for that for smaller, again, smaller clients.

Okay. And then lastly, Mike, I missed a little bit of what you said at the end. But I heard a comment in there somewhere about opportunistically looking for repurchases in 2015. And it seems like you didn't buy at least a lot of stock in Q4 at least relative to what you were -- the pace you were on earlier in the year. Are we at a point where you're not going to be as aggressive as you were during the prior two years?

I think that's probably a fair statement, Tim. We're going to be opportunistic. The past couple of years we've been frankly in the market very regularly and we'll continue to be in to buy shares opportunistically. We've gotten our balance sheet to a level that we wanted to achieve which is we brought it -- our cash balances down dramatically.

And so that would by default suggest that our activity is going to turn less to repurchase. I think it's going to look more at internal investment and acquisition as we go forward. I think we are -- we're ready for that sort of thing and actually we think we were this year.

But our cash balances are at a good place. We'll continue to buy opportunistically if our share prices present that opportunity. We certainly don't want or expect share count to grow. So at a minimum we're looking to keep it so that it's flat would be our target, Tim. And look more towards acquisition and internal investment as uses for cash and uses for leverage in the business, meaning go out and borrow for the right acquisition.

Okay, great. Thanks.

And our next question comes from Bill Sutherland from Emerging Growth Equities.

So Mike Morhardt, start with you on -- I was curious what you think when you said you could potentially be growing the account reps faster than 10%. That's your target. What are the gating factors? What are you looking to see before you step on the accelerator more?

Well a big part of that is how we're doing against our bookings plan. So if things are tracking and we're seeing -- we have confidence about the size of our market and our ability to go after it. We are building out strong territories as George mentioned. We have now an ops team that helps build out these territories that we think can be productive pretty quickly and we're seeing improved productivity in the reps that are 1 year to 18 months.

So it gives us a lot of confidence that if we get to end of the first quarter, end of the second quarter and all systems are green, then I approach George and Mike and ask to see if we can accelerate this. As Mike mentioned, our ramped headcount got up to 11% this year. I'd like to be in double digits and definitely for this year and with the potential to accelerate as we get into the second half.

Bill, this is an example. Last year when we were in the February call, at that point in time we talked about Mike adding 6% net to his quota carrying reps. And we ended at 9%. We're going to be opportunistic. That's one of the reasons why we wanted to give a little bit of a picture for 2016.

We are really and truly about, and George has been pushing it hard internally, that getting momentum back in the business, getting us back to healthy double-digit top line revenue numbers, very healthy margins. And I think as we see opportunity and as Mike's team is progressing, we're going to continue to add headcount in that area.

The ramped reps are at a level now where we can make an educated connection between bookings growth and the sales force expansion, or is it still a little bit of a lag that we should take into account?

There's a little bit of a lag. But I think as you look at ramped headcount, where there's a couple of different levers there. There's making sure that our attrition stabilizes and drops. There's making sure that we're ramping these folks effectively and creating the right territories.

But yes, you can -- there's always going to be a lag if we're hiring 10%, 12%, we may not pick up all of that in the form of just sales expansion. That's why we're looking to improve productivity as well through price increases and through other productivity drivers. So there'll be a lag but not a dramatic one.

So Mike Doyle, on the deferred revenue and future AR, so it would have been flat adjusted for FX and the renewal shift, is that correct?

Yes, that's right, Bill. It was an interesting quarter. And what we said, it's a preferable metric over AV, although agreement value is probably a better indicator of how we were doing.

When Mike, since he's come on board, has consciously looked to as best he can better level what's going on within the quarter with deals being booked. So he started this push back in 2013. And he also by the way in the fourth quarter of this year moved out another 8.8. So he had a similar arrangement that's going to impact next year's numbers. But it offsets because you're getting a comeback into 2015.

So this is a conscious decision on Mike's part to try and move AV and it had a very real impact. Otherwise, deferred revenue and future AR would have been flat year over year.

But I'm just -- the question's asking as well the lack of growth in that line and what that's about? If you can give us --

I think there's some noise there, Bill. Because as I look at our internal numbers, I tend to see AV as a better indicator directionally of where we're heading and what happened from a bookings standpoint. And normally I tend to -- AV can be -- can create some of its own noise but in this instance and this quarter deferred revenue did.

And even probably have a flip in deferred revenue Q1 of 2015 this quarter versus last year that's going to have odd noise going the other way. So we'll try a as best we can to parse that out in each call.

In Events, was -- and in the quarter, was attendance down as well as sponsorship?

Attendance figures were actually good, Bill. It's sponsorships that were off. And so I think that we had some sales turnover that absolutely impacted sponsorship sales in the back half. And I think we've brought in a new sales leader. She comes from an event background. I think she's going to do a great job.

We're also looking to upgrade the sales talent there and that activity's been going on, so I think that part's good. So I think seat sales were good which means we're going to get -- we'll get sponsors back. I think it's more sponsorship. I think a sponsorship sale and Mike Morhardt comes from better background on this than I am. But a different sale and you need some people that are more senior, so I think we're trying to attract that kind of talent.

As long as the attendees are there, the sponsors will show.

That's exactly what I was thinking. And then George, couple things. You mentioned -- you made a comment in the Consulting section of your remarks about 50/50 equilibrium as a goal. Is that meaning analyst to consultant on a given project? Is that what you're referring to?

There's nuance here which I did not get into. As you remember Bill, we do two types of consulting what we call advisory consulting which is the one or two days or speeches that we typically sell with RoleView and then we do project consulting.

I see what you're doing, okay.

Yes and so at the end of the day, when this is -- when we completed the transition, the 50% is advisory consulting being performed by analysts. And that's be the way higher priced. It is -- tends very, very short. It's fly to San Francisco and give a speech type work. And then the project is something will be performed by the project consulting team. So we will end up at a 50/50 split.

And the reason it's happening a bit later than you hoped is related to what?

I think it's really -- I talked about this before. It's really an organizationally and the market signals and organizational signals I think were just -- we had some imprecision there in Q3 and Q4.

What's really great about this is that we've shown a lot of agility in our ability to have analysts perform more consulting and to slow the transition down. They really stepped up in Q4, analysts, back into the consulting fold. So we're doing this. The great thing is we have a lot of knobs to turn and some good levers to pull and we're showing a lot of agility here. So this is not a crisis, this is just a little bit of a slower transition.

Okay. That's it from me. Thanks, guys.

Our next question comes from Vincent Colicchio from Noble Financial.

Yes, Mike Doyle, I'm curious how the European business performed relative to plan in the quarter. And I know in recent quarters you guys have said that the economic backdrop is not bad enough that it should stop us from improving in Europe. Do you think that's still the case for 2015?

Yes, look, and I'll let Mike Morhardt give some color after me. I think that's absolutely still the case. I think where we made leadership changes in region, we're looking at those regions that have performed incredibly well despite what are not the best economic headwinds to sell into. I think that we still have a lot of opportunity and I think the new sales leader there is already demonstrating that.

So where we've had -- we made leadership changes, we're seeing improvement, we've made other leadership changes that I think are going to bear fruit in 2015. So now I'm still feeling like we're going to get to our numbers in Europe. And I'm not saying it's easy because I'm sure we have some European folks from the sales team who are going to listen to the call and think yes this is the CFO talking, it's always easy.

But I do think we're going to get to our numbers. I think there's a lot of good things going on there right now. So Asia-Pac on the other hand to Mike's point earlier, those macro headwinds absolutely slowed us down in the second half. But that's not the case in Europe. There's opportunity there for us.

I've spent a lot of time in Europe in the last quarter, two quarters, and what I would say is Europe is about, and the Age of the Customer dynamics, they're about a year behind us. So if you imagine 15% of US CIOs are [barely] beat the agenda, it's probably somewhere near 5% to 7% in Europe.

But for us, that really represents an opportunity. The interest there is as high as it is in the US. I'd say a little bit lower in Asia. But so they're probably about a year behind us but the interest is very, very intense in Europe around Age of the Customer.

And Vince, one -- so from a European sales team performance perspective we did see good mid single digits year-over-year performance which is a good sign. And so we started to see the team ramp up as we got into the second half of the year. We made some leadership changes in Q4. Some additional ones as we ran into the first part of this year and the team is ramped up and ready to go. There are definitely some macroeconomic components to it but our opportunity is huge there. We're not backing off of what we can think -- what we think we can do from a growth perspective.

And then Mike Doyle, what level of Q should we be thinking about for 2015 and 2016 respectively?

I think we will probably have another point decline in Q for 2015, Vince, as -- because essentially what's happening now, we have a large fully ramped consulting organization so we're going to continue to sell that. And then I think you're going to see the reversal. I think in 2016 you're going to see Q go back the other way.

We have not walked away from our target of about 70% of our business coming from syndicated. So I think you'll see a swing back the other way, probably another point going back or two in 2016. This should be the bottoming out year for Q and then we're going to start marching back toward 70%.

Okay. My other questions were asked. Thanks.

And I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Michael Doyle for closing remarks.

Great, thanks very much. I appreciate everyone joining the call. George and I will be out on the road in the course of the quarter. We want to talk to as many people as we can. We think we've got a lot going on in a good way. So we will be scheduling time and be out to see folks. So thanks again for attending the call and we'll see you soon.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating, you may now disconnect.