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Executives

Karyl Levinson – Vice President of Corporate Communications

Mike Doyle – Chief Financial Officer

George Colony – Chief Executive Officer

Charles Rutstein – Chief Operating Officer

Analysts

Laura Lederman – William Blair & Company

Andrew Lutz BlackRock

William Sutherland – Boenning & Scattergood Inc.

Brian Murphy – Sidoti & Company

Vincent Colicchio - Noble Financial

Forrester Research Inc. (FORR) Q4 2008 Earnings Call February 11, 2009 11:00 AM ET

Operator

Good day ladies and gentlemen and welcome to the Fourth Quarter 2008 Forrester Research Earnings Conference Call. My name is [Carmera] and I'll be your coordinator for today. At this time, all participants are in listen only mode. We will be facilitating a question and answer session towards the end of this conference.

(Operator Instructions) As a reminder ladies and gentlemen, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Karyl Levinson, Vice President of Corporate Communications.

Karyl Levinson

Good morning and thank you for joining our Fourth Quarter and Full Year 2008 Call. With me today are George Colony, Forrester's Chairman of the Board and CEO, Charles Rutstein, Forrester's Chief Operating Officer, and Mike Doyle, Forrester's Chief Financial Officer.

Mike will open the call and provide detail on our financial results for the quarter. George will follow Mike and provide a strategic update on the business and our role-based strategy. After George completes his review, we'll open the call to Q&A.

A replay of this call will be available until February 18, 2009, and can be accessed by dialing 888-286-8010. Please reference the pass code 40138075. This call is also available via webcast and it will be archived in the investor section at forrester.com.

Before we begin, I'd like to remind you that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as, expect, believe, anticipate, 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 the actual results to differ are discussed in our reports and filings with the Securities and Exchange Commission. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

I'll now hand the call over to Mike Doyle.

Mike Doyle

Thanks Karyl. I will now begin my review of the financial performance for Forrester's fourth quarter and full year results, the balance sheet at December 31st, our fourth quarter metrics, and the outlook for the first quarter and full year 2009.

Please note that the income statement numbers I'm reporting are pro forma, and exclude the following items, amortization of intangibles, non-cash stock-based compensation expense, professional fees related to the stock option investigation, and restatement of the company's historical financial statements, and net realized gains from securities and non-marketable investments.

Also, we continue to book an effective tax rate at 39% for pro forma purposes. The actual effective tax rate for 2008 is approximately 35%.

For the fourth quarter, Forrester met its pro forma guidance for earnings per share, exceeded our operating margin guidance, and fell slightly short of our revenue guidance for the quarter. This performance came in what was an extremely difficult quarter for the global economy, which adversely impacted many of our customers.

Our positive performance on many fronts continues to demonstrate the success of our role-based strategy. That said, our softness in revenue indicates we're not completely immune to the effects of a global economic down-turn.

With today's release, we're reporting fourth quarter 2008 revenues of $62.9 million and pro forma operating margin of 23%. Revenue increased 8% versus prior year, including the impact of foreign exchange. Operating margin performance was two points above the upper end of our guidance and 2 points above prior year.

Pro forma earnings per share came in at $0.38 per share, within our guidance and up 3% versus a year ago. For the full year ended December 31, 2008 we are reporting revenues of $240.9 million, up 14% from the same period a year ago.

Pro forma operating margin increased one and a half points to 19% for the 12-month period ended December 31, from 17.4% during 2007. Pro forma earnings per share were at $1.32, an increase of $0.16 from 2007.

Now, let me turn to a more detailed review of our fourth quarter results. Forrester’s fourth quarter revenue increased 8% to $62.9 million from $58.4 million in the fourth quarter last year, with approximately 4% of the growth attributable to Jupiter, offsetting a 3% decline attributable to exchange rates.

Fourth quarter research services revenue increased 18% to $41.2 million from $34.9 million last year. Research services revenue comprised 65% of total revenue for the quarter versus 60% in the fourth quarter of 2007.

We are pleased with the healthy increase in our research services revenue, which is in line with our objective of driving a higher percentage of our total revenue from research services, what we call “Q,” during 2008.

Fourth quarter advisory services and other revenue declined 8% to $21.7 million from $23.6 million in the fourth quarter of 2007, and represented 35% of total revenue for the quarter. International revenues were 29% for the fourth quarter, unchanged from 29% in Q4 of last year.

Now, I'd like to take you through the activity behind our revenue and review progress for each of our products, starting with research. In the fourth quarter, 453 new research documents were added to Role View.

The top three research roles were Applications Development and Program Management Professionals, with 5,986 clients, Enterprise Architecture Professionals, with 5,876 clients, and Business Process and Applications Professionals, with 5,337 clients. We hosted 96 teleconferences in the fourth quarter, with a total attendance of 4,894 participants. All 19 roles were represented.

Forrester leadership boards, our peer offering for senior executives, continues to grow in a tough economy, achieving year-over-year revenue growth of 42% in the fourth quarter of 2008. The six boards, focused on IT roles, now have a total of 918 members. Our Technology Industry boards now have a total membership of 352 and finally, the Marketing and Strategy boards have a total membership of 282.

At the end of the fourth quarter, the Forrester leadership boards had 1,552 members, an increase of 6% from September 30, 2008, and in our data business, we continue to add and renew an impressive list of clients. We added or renewed 57 1B plus companies in Q4, including Wal-Mart, US Bank, MetLife and Barclays.

Demand for our consulting services, as I previously mentioned, declined from the previous year by 8% in part due to our increased focus on our syndicated business, but primarily driven by the global economic slowdown. Many projects that were discretionary were deferred or eliminated. Our events business softened in the fourth quarter, reflecting the broader economic trends, with many of our clients reducing traveling – travel spending.

That said, our event attendance, while down from expectations, was still at levels that the events were both profitable for Forrester and rated highly by attendees. We hosted two IT role-based and three [M&S] role based events in the fourth quarter. For 2009, we plan to increase the number of events from 12 to 14 to continue to support the role-based needs of our clients.

Operating expenses for the fourth quarter were $48.4 million, up 4% from $46.3 million in the fourth quarter of last year. Operating income was $14.5 million or 23% of revenue, compared with $12.1 million or 21% of revenue last year. The improved margin performance year-over-year reflects tight expense controls, which began in Q3 in anticipation of a slowing economy. Other income for the quarter was $152,000.

For Q4 2008, other income reflects a net foreign exchange loss of approximately $1.4 million, resulting primarily from the re-measurement of certain inter-company payables and receivables. Previously, the re-measurement of these payables and receivables had been recorded in other comprehensive income as part of accumulative translation adjustment. Of the net $1.4 million, $1.9 million is related to periods prior to fiscal 2008.

Net income increased 3% to $9 million and earnings per share were up 3% to $0.38 per share on diluted weighted average shares outstanding of $23.4 million, compared with net income of $8.7 million and earnings per share of $0.37 on $23.7 million weighted average shares outstanding in Q4 of last year.

Looking at Forrester’s full year results, total revenue for the 12-month period ending December 31, 2008, increased 14% to $240.9 million from $212.1 million last year. Excluding the impact of foreign exchange, revenue would have increased 13.5% for 2008.

For the full year 2008, research services revenue increased by $24.2 million or 18.4% to $155.3 million. Research Services revenue was 64% of total year to date revenue, up from 62% in the same period 2007. The two point increase in our syndicated business is in line with our targeted increase for the year.

Operating income for the full year was $45.6 million or 19% of revenue, compared with operating income of $36.8 million or 17% of revenue in 2007. Debt income for the full year increased 13% to $31.1 million from $27.6 million last year and earnings per share for 2008 increased 14% to $1.32 on diluted weighted average shares outstanding of $23.6 million, compared with $1.16 and $23.7 million weighted average shares outstanding last year.

Now, I’d like to review the balance sheet. Our balance sheet remains strong. Our total cash and marketable securities at December 31st were $259.9 million, up $11 million from our year-end 2007 balances and up $5.9 million from September 30th. The portion of our marketable securities relating to auction rate securities continues to be classified as a long-term asset on the balance sheet. This is a result of the current liquidity issues in the auction rate marketplace.

We generated $43.6 million in cash from operations for the full year 2008, which is up $6.2 million or 17% from prior year, due primarily to net income improvement and strong cash collections. We have also received $18.6 million in cash from options exercised and the employee stock purchase plan for the full year 2008.

During the full year of 2008, we repurchased 1.1 million shares at a total cost of $30.4 million and will continue to be active with the buy back. We currently have $29.1 million remaining on a repurchase authorization.

Accounts receivable at December 31, 2008 was $64.2 million compared to $69.9 million as of December 31, 2007. Our days sales outstanding at December 31 was 95 days, down from 107 days last December, and accounts receivable over 90 days was at 6% at December 31, 2008, consistent with the prior year at 6% and in line with our targeted range.

Our capital spending for the full year 2008 was $3.7 million, which is slightly below our targeted full year spending of $4 million. Deferred revenue at December 31 was $113.8 million, up 2% over December 31, 2007. Absent Jupiter, deferred revenue would have declined 2%. Our future A/R balances are amounts to be invoiced in the future for clients with multi-year deals or scheduled payment terms.

Deferred revenue, plus future A/R, grew 2% year-over-year, with three points attributable to Jupiter. The decline in deferred revenue plus future A/R is reflective of the overall economic decline in the fourth quarter, which impacted renewal and enrichment activity with existing clients, as well as new business activity.

And now, I will review Forrester’s fourth quarter metrics. Aggregated value, this represents the total value of all contracts for research and advisory services in place, without regard to the amount of revenue that has already been recognized or is yet to be recognized and was $222.5 million at December 31, a 13% increase from last year, of which six points is attributable to Jupiter.

At December 31 Forrester’s retention rate for client companies was 73%, a decline of four points from Q3 and our dollar retention rate during the same time period was 84%, a decline of three points in Q3. Our enrichment rate was 101% for the 12 month period ending December 31, 2008, which is down seven points for Q3. Client and dollar retention rates and enrichment rates are calculated on a rolling 12 month basis.

While these metrics declined somewhat during the quarter, they held up extremely well given the economic turbulence. At the end of the fourth quarter, our total for client companies was 2,643 up a 175 from 2007 year end, but down 75 from the third quarter.

One hundred and thirty eight of those clients are attributable to Jupiter. As of December 31st, there are 3.1 rolls per client down from 3.5 rolls as of September 30, 2008. This decline is due to clients renewing but reducing the scope of their agreements, which is reflected in our enrichment rates.

In addition, it reflects the plan transition of some of our larger clients out of enterprise licenses to seek base contracts. For headcount at the end of the fourth quarter, Forrester had a total staff 1,048, up from 903 at December 31, 2007.

Current headcount includes a research staff of 409, up 73 from December 31, 2007, and sales staff of 353, up 45 from December 31, 2007. The last topic I’d like to cover today is our business outlook for the first quarter and full year 2009.

In summary, we made significant progress during 2008; we had an excellent first half of 2008 with strong revenues and earnings. We began to see indications of softness during the third quarter and adjusted our business model appropriately, reducing hiring activity and eliminating discretionary spending.

Our final 2008 results reflect that effort, with both revenue and earnings per share up 14%. On the strategic front, we completed the acquisition of Jupiter Research, a great addition of Forrester.

We have made significant progress on our role-based strategy, which George will discuss later in this call. We ended the year with $259.9 million in cash and marketable securities, which is slightly more than $11.00 per share with no debt.

In addition, we announced earlier this week the difficult decision to eliminate approximately 50 people representing approximately 5% of our work force. We believe this action, coupled with the strength of our balance sheet, prepares us for the economic challenges we will face in 2009 and allow us to be opportunistic in our M&A activities and continue our share repurchase.

Now let’s look towards 2009. Our pro forma guidance for the first quarter and full year 2009 reflects our view that the economic conditions that prevailed during the fourth quarter of 2008 will continue for all of 2009.

In addition, it assumes that the current low interest rate environment will continue, which given our large cash balances, will adversely impact our interest income year-over-year. We currently estimate the decline in interest income to equate to approximately $0.08 per share for 2009.

Our current guidance reflects these assumptions, but we will as always update you quarterly on our guidance and adjust if we believe our business outlook is changing.

As a reminder our guidance excludes the following; amortization of intangible assets, which we expect to be approximately $600,000 for the first quarter and approximately $1.7 million for the full year 2009, a non-cash stock-based compensation expense of $1 million to $1.3 for the first quarter and $4.5 to 5.5 million for the 2009, costs associated with the reduction in work force of $2.5 to $3 million and any associated facilities related costs, costs associated with the stock option investigation and restatement of our historical financial statements, and gains and impairments on sales of marketable securities and non-marketable investments.

For the first quarter we’re aiming to achieve total revenues of approximately $52 to $56 million. This range reflects a 5% decline to a positive 2% versus prior year. Foreign exchange adversely impacts our year-over-year comparisons.

On a foreign exchange neutral basis, revenues would range from down 1% to up 6% versus prior year, operating margins in the range of 10 to 13%, other income of approximately $800,000, a pro forma income rate of 40%, and pro forma diluted earnings per share of approximately $0.15 to $0.19.

Our pro forma full year guidance is as follows; total revenues of approximately $215 to $235 million, this reflects a decline of between 2 and 11% versus prior year. On a foreign exchange neutral basis, revenues are between flat and down 8% versus prior year, pro forma operating margins of approximately 15 to 17%, other income of approximately $3 million, pro forma income tax rate of 40% and pro forma diluted earning share of between $0.88 to $1.11.

We’ve provided guidance on a GAAP basis for the first quarter and full year 2009 in our press release and 8-K file this morning. Thank you and I’ll now turn the floor over to George.

George Colony

Thanks Mike and I’d like to welcome everyone to Forrester’s Q4 investor conference call. In my remarks I will address three topics; number one, Forrester's prospects during the recession, two, Forrester’s three business imperatives, and finally three, an update on the acquisition of Jupiter Research.

Turning first to Forrester and the economy; as Mike has referenced our business was not immune to the global economic slowdown in Q4 and as shown in our guidance, we are expecting the recession to persist through 2009.

I would love to claim that we can overcome the exigencies of the overall economy, but the fact remains that two thirds of our business comes from 1B plus companies and it is their budgeting that to a great extent governs our prospects.

In addition, we are loosely tied to the tech economy, Forrester’s’ latest forecast shows the global decline in tech spending when expressed in U.S. dollars. However, we do expect a modest growth of approximately 3% in local currency.

In the 2001 recession, there was significant structural changes in the tech economy Y2K expenditures ended and the dotcom bubble popped. In this recession, Forrester does not expect wide swaths of the tech market to be eliminated, as was the case in 2001 to 2003.

While susceptible to the macro economy, I believe that Forrester’s better position this time around. In fact I see six strengths that we take into this recession that we did not have in 2001. Number one, role-based, our strategy is keeping us relative and client focused. This should help us renew clients and sign on new companies.

The executives in our 19 roles will wake up every morning and go to work right through the recession, and we’ll be there to help them manage through their challenges.

This morning I looked through our recent reports and found three that highlighted this relevancy. Number one, for Application of Development of Professionals, a report entitled, “Five Steps to Building a Recession Proof Packaged Application Strategy”.

For IT Infrastructure and Operations Professionals, a report entitled, “Why IT Leasing Makes Sense in the Economic Meltdown," and for Direct Marketing Professionals, “Winning E-mail Subscribers in a Down Economy”.

Our second strength is our balance sheet, which is stronger than it was in 2001. Number three, we have fewer competitors, therefore, we expect less pricing pressure than in the last down turn. Four, we are more diversified.

Since the 2001 recession, we have added Project Consulting and the Boards Business to our portfolio. This will enable the company to tap into a wider range of revenue streams. Five, we have seven more years of maturity for our international businesses.

Management has improved outside of the U.S., teams are stronger, the Forrester brand is more embedded. In Q4 the strongest sales performance came from teams based in the U.K., Europe and our global markets group. And finally number six, we’ve got experience navigating recessions.

We know how to scale back the size of our events while retaining quality, we have a lot of familiarity with expense control, and we know how to prepare for recovery. I feel much better about our business and our team than I did back on 2001.

We all wish this recession would abate, but if we’ve got to go through it, I don’t think we could be better positioned.

I would now like to give an update on Forrester’s three business imperatives and they are, number one, completing the build out of our role-based strategy, two, growing our sales platform, and three, increasing the quotient on our business that is syndicated.

Turning first to our progress in role-based, we have now completed our second year in the role-based strategy. The company has nearly concluded the strategy's build-up stage, and is poised in 2010 to move into the more dynamic, break-through stage.

As I have mentioned on previous calls, the move to role-based is not a two or three year transition. It will take five to seven years for all of the benefits of this change to accrue to the company. As the ever-impatient CEO, I wish that we were moving faster, but even I have to admit that we have made amazing progress in the last 24 months.

Now I'm not going to delve into the details, but our internal role report card, which evaluates the strategy across all parts of the company every quarter, was at a B+ in Q4, and that's up from a B- in Q1. A final element of the build-up stage is in the process of being launched, and we will talk about this change on the Q1 conference call in April.

Forrester's second business imperative is to increase sales headcount 15 to 20% per year. As Mike has already noted, sales headcount increased by 15% in 2008, despite the deteriorating economy late in the year.

Sales attrition did improve to 25% in 2008, down from 31% in 2007, and we are making efforts to lower this number even further in 2009. As we look forward to 2009, we are planning to keep headcount and sales flat for the year. As we backfill for attrition, we expect to tap into a very talent-rich pool of prospects.

Forrester's third business imperative is to increase queue, or the quotient of Forrester's business that is syndicated. Our goal is to gain two points of queue per year, for the next three or four years, was an ultimate goal of queue at 70%.

Role-based is yielding higher quality, relevant research, and that is moving the company to a higher percentage of syndicated sales. In addition, sales competition plans continue to be modified to reward, for syndicated bookings. These moves paid off in 2008, with queue moving up two points, to 64%, and our plan in 2009 is to move queue up by another two points.

I'd like to update on the Jupiter acquisition. It has now been six months since Forrester acquired Jupiter Research. As I reported on the Q3 call, this has turned out to be an excellent fit, in culture, people, clients, methodologies and process. Jupiter clients have been retained at Forrester rates, and the attrition of Jupiter employees has been substantially lower than our plan.

An important milestone was crossed on January 17th, when Jupiter's website was decommissioned, and Jupiter's research archive was successfully integrated with forrester.com. Forrester and Jupiter clients now have the same web experience, with all reports searchable and categorized by the appropriate role.

All Jupiter Research staff are now working in role teams, and the sales team has been integrated with marketing and strategy client group sales. Financially, Jupiter is now fully incorporated with the M&S – that's a marketing strategy – 2009 plan, which means the move that we will provide no comparative data on a go-forward basis.

So to conclude, while the economy presents many challenges, Forrester is about as well positioned as we could be, entering this period. To paraphrase Rahm Emanuel, where we use quotations, we do not intend to let this crisis go to waste.

We will specifically be focused on three areas of opportunity; number one, M&A, taking advantage of our strong balance sheet and the low pricing of acquisition targets, to add new roles or new content to our existing roles, two, buying back our stock, taking advantage of a lower share price, and finally number three, innovation.

We intend to accelerate our efforts to invent new products, process, services and events that could propel our role-based strategy into the break-through stage, in 2010.

This was our posture during the recession of 2001 to 2003. As you remember, in that time, we bought Giga Information Group, greatly expanding our research coverage in IT, and we launched into the Project Consulting and Boards businesses. These were important drivers of our post-recession growth.

Mike and I will be traveling this quarter to visit with investors and hope to see you on one of these trips. We'll be at the CSFD conference in Arizona on the 23rd and 24th of February, Mike will be presenting at that the Baird Conference in Boston on the 25th of February.

Thank you for listening to the call. I would now like to welcome Charles Rutstein, Forrester's COO, to join Mike and me for questions. We will now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) And the first question comes from the line of Laura Lederman William Blair.

Laura Lederman – William Blair & Company

I like that new last name. I like [Lieberman]. Anyway –

George Colony

Someday you'll get it right, Laura.

Laura Lederman – William Blair & Company

Thanks for taking my question. A few thoughts, one is if you look at your guidance, what is assumed for wallet retention, dollar retention at the high and the low end? I'm trying to understand the assumptions behind the guidance. And, also, can you give us a sense of cash flow and kind of how that will look in 2009, as well? And then I just have a few more.

Mike Doyle

Yes, I think Laura, the general assumption here is that for client and dollar retention, I think we dipped in Q4. I think we'll be able to sustain reasonably in those ranges that we're in right now.

Again, that's assuming the 2009 plays out as Q4 2008, and as it relates to cash flow, clearly we have a wide range on our revenue and earnings target. So, what we're looking at is cash flow, operating cash flow, probably in the range of $20 to $30 million. I know that's broad, we'll try and refine that as the year progresses, and that compares to the roughly $43 million in cash operating cash flow this year.

Laura Lederman – William Blair & Company

Can you just talk a little bit about how the respective businesses are holding up – core research versus the boards, versus consulting, versus events, versus data – just a sense of what's behind the two revenue lines and how each of the businesses is holding up?

Charles Rutstein

Sure Laura, so I'll give you a high level commentary. As you might expect, the events business has been softer than it has been historically. That's largely tied to people's travel budgets being down. The overall syndicated business, which includes the research, the core research product itself, as well as the leadership boards product, as well as some of the data products, as you saw in the results, are growing faster than the company overall.

That is they're making up a larger portion of the bookings and therefore, the revenue. So, we're seeing strength there. I think that derives from two places, number one, from, as George mentioned, the increasing relevance of that content, and two, from the sales incentives that we have in place.

The mirror image is probably true on the consulting side where we're seeing slower than company grow trades that is making up a smaller share of the business. I think that comes, again, probably from two factors, number one, those sales incentives working in the opposite direction, but also to some lessened demand in the quarter for it.

Some projects that would happen at the margin, some companies who might have been thinking about a website redesign or something like that, are probably deferring those projects.

Laura Lederman – William Blair & Company

What about some color on core research versus boards, because a lot of the growth boards have been so strong? Has that slowed down? I realize that corporate executive board has issues of its own, but wanted to understand how that business is doing, versus the core IT research.

Charles Rutstein

Sure. The leadership board's business continues to grow at a faster rate than the core research. Both are growing at rates which are slower, of course, than they did in the past. Part of that is probably due to the scale that we're starting to reach in the boards business, as you know we were growing that business, 40, 50, 60% year-on-year, and that continue forever. Part of that though, is also due to the slowing of growth in the business overall.

So, I think that the fundamental dynamics, which underlie it Laura, which is to say we're seeing increasing interest in the boards products, they are role-based and therefore the relevancy is very high. There is continuing tradeoff between those two in favor of boards. That works in our favor, because, of course, those products are higher priced, and those dynamics haven't changed.

Mike Doyle

One other comment Laura that I would make is that once we clear through this recession, I think that in aggregate, overall research will revert back to our long-term targeted rates, of the 15 to 20% growth.

Laura Lederman – William Blair & Company

One final question, and then I'll pass it on. I realize your not breaking out Jupiter separately, but can you still give us a sense of how much that adds to growth in the first half of next year, so we can kind of get an Apples to Apples sense of I guess growth for '09 and for Q1 if you take out Jupiter.

Charles Rutstein

I think for the first half, Laura, I think you should that it's adding about three points to our growth numbers for the first half.

Laura Lederman – William Blair & Company

Thanks a lot I appreciate it. Good job in a bad environment guys.

Mike Doyle

Okay, thanks Laura. Appreciate it.

Operator

And the next question comes from the line of Andrew Lutz BlackRock.

Andrew Lutz - BlackRock

Hey guys how are you?

George Colony

Hey, Andrew how are you?

Andrew Lutz - BlackRock

Good, of the 20 to 30 in cash flow how much of that is typically going to be collected in Q1? About half?

Mike Doyle

It's usually half. In this case it could be a little bit more than half Andrew, so typically we get anywhere's from 20 say to 25 in the first quarter of the year, so we probably will see that down a bit and we've also, because of the reduction in force, we will see some outflow of severance payments in the first quarter as well.

Andrew Lutz - BlackRock

Okay.

Mike Doyle

But still that said, it's still going to be more than half probably is going to come in the first quarter.

Andrew Lutz - BlackRock

So at the end of Q1, we'll have something north of $12.00 a share of cash on the balance sheet?

Mike Doyle

That's probably about right.

Andrew Lutz - BlackRock

Okay.

George Colony

Again that's and usually first quarter because it's so tight between quiet periods, share repurchase activity on a dollar basis won't be quite as large.

Andrew Lutz - BlackRock

And where would you what kind of parameters would you buy shares up to? Where does it cease to become accretive?

Mike Doyle

Well, at these levels it's certainly accretive. We were buyers of the stock in the high 20s this past year, so from our perspective and particularly in this low interest environment, it's accretive up to we've never given our up end targets and we won't, but in this market Andrew, I don’t suspect we're going to bump into the upper end frankly during the course of 2009.

Charles Rutstein

We will be I am sure, happy buyers all the way through the year, being voracious buyers.

Mike Doyle

Yes I think so.

Andrew Lutz - BlackRock

Okay, and the last question, just wanted to sort of understand how low the bar is set here, in terms of expectations for revenue and earnings. Did you guys feel like you took expectations down to a level, that if you continue to see the trends that you saw in December throughout the rest of '09 you can continue to hit that guidance?

George Colony

I think that the model that we have for the economy for the year Andrew, is one that reflects Q4 and we don't see any recovery in 2009. Hopefully we're wrong about that but I think that what you're seeing is our guidance reflecting the conditions in Q4 persisting through the year.

Andrew Lutz - BlackRock

So essentially, when you back out the cash you've got a $5.00 or $6.00 stock, with a $1.00 of earnings power?

Mike Doyle

Right, that's exactly right.

Andrew Lutz - BlackRock

Okay.

Mike Doyle

Really our view is that we're even in this tough market we're probably undervalued, but that's right.

Andrew Lutz - BlackRock

Okay. All right, thanks guys.

George Colony

Thanks Andrew.

Operator

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

Brian Murphy - Sidoti & Company

Hi, Brian Murphy, Sidoti & Company, thanks for take my question. Mike, I think you mentioned that some customers are renewing, but maybe reducing the scope of their agreements and maybe moving from Enterprise to seat-based agreements, could you just give us a little bit more color on that in terms of how that might fit into any discounting that you're seeing out there?

And also, maybe if you could just give us some more color on why you think you might see less pricing pressure this time around than in the last downturn, thanks.

Mike Doyle

Is it there's a lot in the question and I am going to turn it a piece of it to Charles and a piece to George. Just one overall comment though before Charles gets started, relative to just discounting and terms in general; I was actually quite pleased that both from discounting and payment terms, we actually saw no change, no material change in our activity there.

Even though I would have expected that we would have had more discounting pressure, I think that credit to the sales organization we showed good discipline in the marketplace in the fourth quarter, plus the nature of our client base because it's a lot of 1B plus, we didn’t get huge pressure on the terms front, so.

Charles Rutstein

We walked away from some bad deals, actually.

Mike Doyle

Right, so I think that we're doing the right things there and I'll let Charles tackle a couple of the other pieces relative to the retention and enrichment activities.

Charles Rutstein

Sure, so Brian, I think there are a couple of dynamics that you've put your finger on here, one is under our control the other is less under our control. The one that's under out control is the one that Mike alluded to with unlimited deals or Enterprise deals.

We have made an express intention to change our posture on those in the last 12 months or so. We've raised the bar considerably on the amount of money you have to spend with us in order to have one of those agreements and in so doing, have reduced the number of such agreements pretty materially.

So that is good for us. It gives us much more upside in those accounts over the longer term. A latter dynamic is the less enrichment that you see and in some cases the trade down in accounts, companies in particular who are in industries who have been most effected by this in financial services and automotive

As Mike said, we were actually relatively happy with the retention of those clients, in some cases those clients traded down to a smaller number of seats in the quarter.

Mike Doyle

And in reference to pricing in this recession, last time we went through the '01 to '03 recession, we had two additional public competitors, one was Medigroup, absorbed now by Gartner and the other was Giga, now absorbed by Forrester so there is there are fewer and more rational competitors in the marketplace, therefore we think pricing will be pretty much maintained through this recession.

Brian Murphy - Sidoti & Company

Okay and in your guidance, are you assuming sort of roughly the same seasonality?

Mike Doyle

Yes, we are Brian in terms of yes, we expect the business to play out the same way it has in past years.

Operator

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

Vincent Colicchio - Noble Financial

Vince Colicchio, that was a good try, question on sales cycles. You're about halfway through the March quarter. Was it basically flat change with the December quarter? No material change there?

Mike Doyle

Vince I am not sure we're going to comment on the current quarter. I mean I can give you a little bit of color on the Q4 if that would be helpful?

Vincent Colicchio - Noble Financial

Sure.

Mike Doyle

So perhaps it's no surprise and I'm sure you've heard from others, there were longer sales cycles in the quarter, more approval necessary in order to get deals done, that in turn requires running the business differently.

It means driving more activity, generating more leads to big to build bigger pipelines, just to get to the same target numbers. So those dynamics that we talked about on the previous call in Q3 were certainly in place in Q4 as well.

Vincent Colicchio - Noble Financial

Okay. My other questions were answered, thank you.

Mike Doyle

Thank you very much, Vincent.

George Colony

Thanks.

Operator

(Operator Instructions) The next question comes from the line of William Sutherland Boenning & Scattergood.

William Sutherland - Boenning & Scattergood Inc.

Hey everybody.

Mike Doyle

Hey, Bill.

William Sutherland - Boenning & Scattergood Inc.

The I was a little surprised to see the event business being expanded in '09? I guess you were happy given the environment with the attendance and the ratings, but is this to fill product gaps? Is that the main reason for it or?

George Colony

I think the reasons are two fold Bill. Number one is a strategic reason, as you said to fill out the portfolio of events for the roles that we serve. There is also, of course, an underlying financial story. The best way to think about that is that we make a commitment well, well in advance on these events and so you can think about that as a sunk cost.

You have a choice at that point as to whether hold the event or not in this environment. If you choose not to hold the event obviously you eat a big cost. We believe that in all of our models, even declines from where we are, we still think we can make money on those events.

Now we may make less money than we had originally thought when we booked those events a year or more in advance, but we still think they are positive contributions to the earnings line.

William Sutherland - Boenning & Scattergood Inc.

Okay.

Charles Rutstein

In the last recession, Bill, we became quite astute at scaling the events to be smaller and more intimate and that actually works even better now in the role based world, because every one of those events is coming from the birds of a feather essentially and they do tend to work quite well, even in small sizes.

William Sutherland - Boenning & Scattergood Inc.

Okay the I was just looking at the mix of revenue potentially in '09 based on the guidance and if your research is relatively flat, or maybe because of currency down a bit, your queue will probably go up more than two points. Is that a possibility, or is there something in advisory that I'm not understanding?

Mike Doyle

I think your observation is correct, Bill. I mean we target two points. I think that's been stated objective, actually from probably the end of 2007, but if things play out and the guidance breaks the way we expect, we should be north of two points on syndicated mix improvement.

William Sutherland - Boenning & Scattergood Inc.

So and I actually wanted to ask a follow up on that, because if I was curious, to what degree as you look at your Q4 performance, that operating leverage improvement was mostly mix shift, and how much of it was you guys moving the levers and controlling things?

Charles Rutstein

Bill, I think it's a combination of the two. Obviously, we see leverage out of that mix shift as you would expect, but we also put the brakes, as Mike alluded to, on quite a bit of both discretionary spending in the quarter, as well as slowing down the expected ramp, right. We expected to hire a lot more people than we chose to do in the fourth quarter. So it's a combination of those things.

William Sutherland - Boenning & Scattergood Inc.

Both in sales and research, Charles?

Charles Rutstein

Across both, that's right, Bill.

William Sutherland - Boenning & Scattergood Inc.

And so the plan for '09 then, is just to fill in as sales attrition curves, as opposed to any net increase?

Charles Rutstein

That's correct. We're targeting roughly flat sales headcount for the year at this point.

William Sutherland - Boenning & Scattergood Inc.

Okay, great. Well, thanks for the Q&A.

Operator

And we have further questions at this time. I would like to turn the call back over to Ms. Karyl Levinson.

Karyl Levinson

Thank you very much for your time today. Enjoy the rest of the day. Good bye.

Operator

This concludes the presentation for today ladies and gentlemen. You may now disconnect. Have a wonderful day.

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Source: Forrester Research Inc. Q4 2008 Earnings Call Transcript
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