Forrester Research, Inc.

I'll now hand the call over to George Colony.

[Audio Gap]

new way that Forrester is restructuring its research portfolio clients. We are moving away from the archaic model, which relies on disconnected standalone reports with programmatic approach which gives clients in-depth guidance around the [indiscernible] project and decisions.

PlayBook [indiscernible] on the agenda and is not just research but for consulting events, data and leadership boards. We then connect in the client experience across all of our products.

Roles created a quicker path development, and PlayBook now shortened that path, ensuring that all Forrester's work has high value for our clients.

When CIOs, enterprise architects or customer experience professionals come to Forrester, PlayBooks will ensure that they get a 360-degree look at their options and a clear path to their decisions. PlayBooks will present all the Forrester's content in a clear taxonomy, guiding clients through the life cycle of their business problem.

All of our role research teams are now working to produce the most relevant PlayBooks for their clients. All roles will had a completed PlayBook by the third quarter of this year, and all of our content will be in PlayBook form by the end of 2013.

In parallel with a research redesign, we have also improved the delivery of that content with the launch of the new forrester.com in the first quarter. The digital connection is critical to our business.

We interact with clients on a minute-to-minute basis through our site. The new forrester.com gives a more interactive experience than its predecessor, and it is designed to work seamlessly across a range of mobile devices.

Clients at our forum for CMOs, which we held last week in Los Angeles, raised about 3 aspects of the new experience. Number one, its simplicity; two, the ability to navigate quickly to relevant analysis, be it a blog post, a tweet, a graphic or a dataset; and three, the real-time updating of all role sites.

The new forrester.com is built on a flexible, adaptable architecture that will mail the quick addition of new features, products and content as they are developed.

Early returns have exceeded our expectations. Site traffic hit all-time highs in early April, and we're also seeing uptick in the frequency of return visitors.

And from history, we know that higher engagement translates into improved renewal and enrichment rates. The new forrester.com has also accelerated the growth of our social equipment.

The site facilities the interaction and collaboration between our analysts and clients. There are now 48,000 members of forester's world communities, and that's a growth of 47% over Q4 2011.

Traffic in those communities spiked in Q1 as a result of the new website. In Q4, 2011, there were 240 discussions started across all the communities.

In Q1, there were 1,500. Communities are now integrated into our site experience.

Every time a client rates have caught us [ph] on a report, a discussion is automatically launched. As a result, analysts and clients are actively exchanging ideas about our research, PlayBooks and data.

PlayBooks and the new Forrester.com continue to accentuate and strengthen the company's role-based strategy. There is more to come here, and I'll keep you updated as the year progresses.

I would now like to turn to the second imperative, expanding the sales force. I told to you last quarter about the sales reorganization that was planned in 2011 and went live on January 1.

Under the new structure, single sales reps had responsibility for all roles within individual accounts. There are 3 reasons why we made this change.

One, clients prefer it; two, its simplicity will enable the sales force to scale at faster rates; and three, it highlights Forrester's ability to help marketing and technology executives collaborate.

In addition, it makes sales more efficient, eliminating internal competition and unnecessary coordination between teams. We've eliminated overlapping territories and made it easier for clients to do business with Forrester.

We believe that these changes will increase productivity and lower the company's cost of sales.

As you know, we typically expand the sales force 15% to 20% per year. In 2012, we will increase procuring [ph] reps 8% to 10% as we ramp our current sales staff in the new structure.

That number grew by 3% in the first quarter. Beyond 2012, the company plans to return to a sales headcount growth of 15% to 20%.

Our third business imperative is to increase the percentage of our business that is syndicated, and we call this metric Q . To echo my remarks from above, the expectation is that PlayBooks and the forrester.com will enhance the value and accessibility of Forrester's research, data and leadership board content, and this will ultimately drive Q.

As investors know, it is more efficient and profitable for the company to produce and sell syndicated, renewable products, which is why the company pursues a long-term goal of 70% Q. I'm happy to report that we achieved a 71% syndicated quotient in the quarter.

This is a good start, and we expect to meet the Q goal for 2012.

I'd like to close with a few thoughts about Forrester's differentiation. As you all know, the behavior of business and consumer buyers is in a state of change, and that's driven by shifts in the global economy and in technology.

Forrester's unique value proposition addresses this dynamic. We help you make better decisions in a world where technology is radically changing your customers.

Now what's unique in Forrester's value proposition is the word customers. Forrester's surveyed 330,000 consumers, 50,000 businesses and thousands of vendors every year.

And to put this in perspective, our consumer sampling represents 57% of the world's population and 75% of global GDP. Forrester's differentiation lies in its ability to understand the changing needs of our clients, customers and then translate that into actionable business advice.

For example, in the age of social media, we all know that companies are looking to leverage their presence on Facebook and Twitter. But a question remains unanswered for CMOs and interactive marketers.

What is the value of each social interaction? Our clients come to us every day wondering what the utility of a Tweet or just how much a Facebook fan is actually worth.

Using our deep consumer data and a logistic regression analysis, Forrester is now able to quantify their value of social content for individual companies. Our data enables us to talk about the likelihood that Facebook fans and non-fans will purchase, consider and recommend brands.

An interactive marketer at Best Buy can tell his boss -- by the way, this is real data I'm about to give you -- that a Best Buy Facebook fan has a 79% likelihood of buying there this year. The Coca-Cola CMO now notes that a Facebook fan has an 83% chance to recommend their brand to a friend, and that's twice as likely as non-fans.

As the interacted marketer and CMO plan their Facebook strategy, this data will influence and guide their decisions.

Forrester is the only firm that serves the entire spectrum of roles in large companies, from the front office to the back office. And this positions the company for continues success in 2012 and in the long term.

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

Thanks, George. I will now begin my review of the financial performance for Forrester's first quarter results, the balance sheet at March 31, our first quarter metrics and the outlook for the second quarter and full year 2012.

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, duplicate lease costs, reorganization costs, acquisition and integration costs and net gains from investments. Also for 2012, we utilize an effective tax rate of 39% for pro forma purposes.

The actual effective tax rate for the first quarter of 2012 is approximately 38%.

For the first quarter, Forrester met revenue guidance and exceeded its quarterly guidance for pro forma operating margin and earnings per share. Our key customer metrics continue to perform at high levels, and our balance sheet remains strong with first quarter cash flow from operations increasing 8% versus prior year.

We achieved these positive results during a particularly active quarter for Forrester.

As George mentioned in his opening comments, we have launched our new website, reorganized our sales organization to further enhance our client relationships and begun work on improving our products, with PlayBooks being the most significant initiative. Our sales team generated positive growth despite the challenges of a reorganization and macroeconomic headwinds in our European markets.

Now let me turn to a more detailed review of our first quarter results. Forrester's first quarter revenue increased 7% to $70.3 million from $65.7 million in the first quarter of last year.

First quarter research services revenue increased 12% to $49.8 million from $44.5 million last year. Research services revenue represented 71% of total revenue for the quarter.

First quarter advisory services and other revenue decreased 3% to $20.5 million from $21.2 million in the first quarter of 2011 and represented 29% total revenue for the quarter. This decline in revenue was due entirely to us hosting 4 less events in the current quarter and shifting them to the second quarter of this year.

International revenue mix was 29% for the period ending March 31, 2012, which is down from 30% in 2011.

Operating expenses for the first quarter were $62.4 million, up 8% from $57.6 million in the first quarter of 2011 as a result of higher compensation due to increased headcount, primarily in research and sales. First quarter of 2012 also includes increased rent and depreciation expenses associated with our new website along with the year-over-year impact of our move to new office locations in San Francisco and Cambridge during 2011.

Total company headcount increased by 84 or 8% as of March 31, 2012 as compared to the first quarter of 2011.

Operating income was $7.9 million or 11% of revenue compared with $8.2 million or 12% of revenue in the first quarter of 2011. The change in year-over-year performance was primarily due to the increased headcount, rents and depreciation expenses.

Other income for the quarter was $409,000, up from a loss of $109,000 in the first quarter of 2011. The increase is primarily due to significantly lower foreign exchange losses.

Net income for the first quarter was $5.1 million and earnings per share was $0.22 on diluted weighted average shares outstanding of $23.2 million compared with net income of $4.8 million and earnings per share of $0.21 on 23.3 million diluted weighted average shares outstanding in the first quarter of last year.

I'd now like to take you through the activity behind our revenue and review the result for each of our products, starting with Research. In the first quarter, 280 new Research documents were added to RoleView.

The top 3 research roles are the technology and marketing professional, with 6,520 members; marketing insights professional, with 5,725 members; and the analyst relations professionals, with 4,821 members. We hosted 53 teleconferences in the first quarter with a total of attendance of 2,156.

Forrester leadership boards, our peer offering for senior executives, continues to improve, achieving year-over-year revenue growth of 16% in the first quarter. The Business Technology Leadership boards now have a total of 1,081 members.

The Marketing and Strategy boards have a total membership of 597 and finally, the Technology Industry boards now have a total membership of 290. At the end of the first quarter, the Forrester leadership board had 1,968 members, up 12% from March 31, 2011.

In our data business, we continue to add and renew an impressive list of clients with the addition of 16 new B+ companies in the first quarter, including Fidelity in the U.K., Young & Rubicam, Bain & Company and Michaels Stores.

Our consulting revenue increased 3% for the first quarter of 2012. Our Events business continues to be a vital part of our role-based strategy.

As mentioned during the fourth quarter call, we are repositioning our events in 2012 to more closely align with our role-based strategy. In addition, we are shifting the timing of our events during the year.

In the first quarter of 2012, we hosted 1 role-based best event, the Technology Sales Enablement forum in North America, as compared to 5 events in the first quarter of 2011. In the second quarter of 2012, we are hosting 15 role-based events for Business Technology and Marketing and Strategy professionals.

7 of these events will be held in Europe, while 8 will be held in the U.S. Many of these events will be co-located in the same venue to allow our clients the flexibility to attend multiple events if they desire and allow Forrester to be more efficient in delivering the event experience to our clients.

I'll now review Forrester's first quarter metrics and provide more perspective on the operating results for the quarter. Agreement value.

This represents the total value of all contracts for research and advisory services in place without regard to the amount of revenue that is already been recognized, and it was $221 million at March 31, 2012, an increase of 10% from the first quarter of 2011.

At March 31, 2012, Forrester's retention rate for client companies was 80%, which is in line with the December 31, 2011 metric. And our dollar retention rate during the same time period was 90%, also in line with the previous quarter.

Our enrichment rate was 99% for the period ending March 31 versus 101% at December 31, 2011. We calculate client and dollar retention rates and enrichment rates on a rolling 12-month basis due to the fluctuations which can occur between quarters with deals that close early or slip into the next quarter.

The rolling 12-month methodology captures the proper trend information.

At the end of the first quarter, our total for client companies was 2,725, up 5% 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 March 31, 2012, there are 2.9 rolls per client, in line with December 31, 2011.

For headcount at the end of the first quarter Forrester had a total staff of 1,204 versus 1,208 at December 31, 2011. Current headcount includes a research staff of 445 and a sales staff of 439.

Now I'd like to review the balance sheet. Our total cash and marketable securities at March 31 were $252.9 million, up 25.3 million from our yearend 2011 balances.

We generated $34.9 million in cash from operations for the first quarter, which is up $2.7 million or 8% from the prior year. We received $2 million in cash from options exercised and the employee stock purchase plan during the quarter.

During the first quarter of 2012, we repurchased 237,000 shares at a total cost of $7.7 million. In the first quarter of 2011, we repurchased $8.6 million worth of our shares.

We also paid our first dividend from the quarterly dividend program approved by our board in February, which amounted to $3.2 million or $0.14 per share.

Accounts receivable at March 31, 2012 was $52.2 million compared to $48.3 million as of March 31, 2011. Our days sales outstanding at March 31, 2012 was 68 days, up from 66 days at March 31, 2011.

And accounts receivable over 90 days was 9% at March 31, 2012, up from 8% at March 31, 2011.

Our capital spending for the first quarter of 2012 was $2.4 million compared to $10.7 million during the first quarter of 2011. The 2011 capital spending reflects the investments in leasehold improvements associated with the office relocations, primarily our new headquarters building in Cambridge.

Additionally, the prior-year spending includes the investment related to our new website and other customer-facing technologies.

Deferred revenue at March 31, 2012 was $151.7 million, up 10% over March 31, 2011. Deferred revenue plus future AR, a key indicator of future performance, grew 11% year-over-year.

Our future accounts receivable balances are amounts to be invoiced in the future for client with multiyear deals or scheduled payments terms.

our new website and the sales force realignment. And we began work on product enhancements with our PlayBook initiative.

Our guidance for the first quarter reflected the potential impact of this activity on our performance. Given this level of activity, I am pleased we achieved our revenue guidance and exceeded our operating income and EPS guidance for the quarter.

Operating cash flow was extremely strong, and the balance sheet remains healthy. The initiatives we implemented during the first quarter and the financial strength of the business position us well to accelerate our performance as the year progresses.

The amortization of intangible assets, which we expect to be approximately $600,000 for the second quarter and approximately $2.4 million for the full year 2012. Stock-based compensation expense of $1 million to $1.2 million for the second quarter and approximately $4.5 million to $5 million for the full year 2012.

Reorganization costs of $100,000 to $200,000 for the second quarter and $1.4 million to $1.5 million for the full year 2012. And investment gains and losses are excluded.

For the second quarter 2012, we're aiming to achieve total revenues of approximately $78.5 million to $81.5 million. This range reflects a 7% to 11% improvement versus prior year.

Revenue in the second quarter also reflects the repositioning of our 2012 events, pro forma operating margins in the range of 14.5% to 16.5%, a pro forma income tax rate of 39% and pro forma diluted earnings per share of approximately $0.30 to $0.34.

total revenues of approximately $308 million to $316 million, this reflects an increase of between 9% and 11% versus prior year; pro forma operating margin of 14% to 15%; other income of approximately $800,000; a pro forma income tax rate of 39%; and pro forma diluted earnings per share of $1.16 to $1.22. We have provided guidance on a GAAP basis for the second quarter and full year 2012 in our press release and 8-K filed this morning.

Thanks very much, and I would now ask Charles Rutstein, Forrester's Chief Operating Officer, to join George and me for the Q&A portion of the call.

Good morning. Thanks for taking my question.

I just want to touch on the sales force and in terms of their new hires ramp into productivity. I think before the sales force realignment initiative, it was around 9 months to get a new hire to a fuller rate of productivity, with your target being 6 months.

Now that a particular salesperson is covering all the roles that you have, what kind of your expectation for that time?

Hey, Robert, it's Charles. So the expectation in the short run is about the same.

So in the longer run of course, we're hoping to shorten that to some degree if possible, but we're feeling our way here, given the change in the sales force and all the stuff that's under way. So that same kind of benchmark is a good place to put it for now.

Okay, great. And then you gave the R metric as 2.9 as it stands today and with the sales force initiative, the opportunity to drive penetration and, I think, existing client.

How should we think about that ending up outside 2012 and progressing as we move to 2013? Do you have kind of targets that you're shooting for there?

So, Robert, Charles again. Obviously, the intention is to get that number to go up.

So as you've seen over the last several quarters, we can grow the company reasonably aggressively, even without losing that metric. That metric, in some ways, helps to eliminate our opportunity, how deeply we can go into these accounts.

We serve roughly 17 roles today, and we've penetrated less than 3. So you can see a lot of headroom there.

That being said, we're adding to client count, of course. Many of those new clients come in at a lower number, so that drags the overall average down.

It's not necessary for us to grow that metric, to grow the company aggressively, but on the other hand, we would like to see deeper penetration in those accounts.

This is a George here, Robert. I'd say with the sales reorganization, you now have fewer accounts per sales rep, in many cases.

The only way that they are going to enrich those accounts is to drive our hires. So I think that the sales reorg is really going to help here.

Okay, great. And then last one from me.

Could you just give us an update in terms of the attrition of the sales force that you've seen over the last, the last 3 months?

Sure, Robert, Charles. So the attrition was up modestly in Q1, and frankly, we expected that.

I think you can't make a change of the magnitude that we made without expecting that. We had a large number, over half, of our accounts change hands and they're now in the hands of the salespeople, people have new bosses, et cetera, et cetera, et cetera.

So we did see a little bit of a spike. We expect that number to level out for the rest of the year, now that people are off to their races, they know their territories, they know their comp plan and the uncertainty has been taken away.

So it's something that we are keeping our eye on but are not particularly concerned about at this point.

Hi. This is Tom Jackson filling in for Dan.

I just wanted to ask you specifically about the enrichment rate. We saw kind of a sequential downtick there, so if you could kind of give a little bit more color around that, that would be great.

Sure, Tom. This is Mike.

yes, I mean, what happened there, we -- frankly, we have one large renewal that is still in flight, and they renewed -- the account renewed partially. So the effect is that the way we calculate that, it shows a dramatic drop in enrichment on that one large account, and that skewed the metric.

Okay.

Essentially it would have been, as I did the calculations, about flat. And that in and of itself, as we've said before, we'd like to see that move upwards as well, to some degree, the same discussion that George and Charles had on are [ph] will effect enrichment in a positive way.

Fewer accounts, folks are going to have to -- our sales force is going to be growing accounts in a more aggressive way in order to make their numbers, so...

Okay. So we should see somewhat of a bounce-back kind of in the second quarter there if it goes though the latter half of that contract?

yes, it should bring us back level. Again, it's a rolling metric, so it'll -- our goal, obviously, is that that's going to move upwards and trend upwards in a meaningful way over the next 4 to 6 quarters.

But, yes, it should do that.

Okay. Perfect, thanks.

Thanks for your color there. And then another one, we saw some nice acceleration in the agreement value growth rate.

Can you just provide a little bit more color on the drivers behind that? And was there any impact from the sales organization during this quarter there?

yes, I think on AV, again, I think you guys not might be want be [ph]. I think it's an interesting metric.

I tend to prefer deferred revenue. It's a bit more consistent way.

So I think that it was just, from my perspective, just sort of a normal movement in AV if I look at the history. Yes, it accelerated a bit off of Q4, and it's up a bit relative to a year ago, but not meaningful.

And I don't think yet the sales reorganization has had an impact on it. I do expect over time that it will.

I'm a firm believer in what we've done from a selling standpoint, and I like where our sales leaders are taking this group. But, I think the movement is just, frankly, a little bit of positive noise at this point.

Perfect. And then last one for me.

Can you just comment on the overall selling environment? Did you see any particular areas geography-wise or any verticals outperform or underperform in the quarter?

yes. Tom, its Charles.

No major difference sequentially since Q4, I would say. To the degree that there was a change, it was continued choppiness in Europe in particular.

Of course, we all know about the macro situation going on there and the uncertainty. And we defiantly see that in some of the length of the sales cycles and the amount of enrichment, to Mike's point.

It may have ticked down a little bit in Europe in the quarter, but in the overall global picture, probably not a meaningful change.

Okay. Thank you very much.

Tom, this is George here. If you look forward in the year not just for Forrester, but for everyone, but depending on the election in France and also there is a political situation in The Netherlands, that could have a lot of impact on the economy of Europe over the next year.

I think that if you see the Sarkozy lose the election in France, you're going to have -- now you're going to have troubles between France and Germany. As Sarkozy [indiscernible] really kept Europe as on track as it could be, and that could be a problem if Sarkozy were to lose that election.

So we're obviously watching this carefully, but the whole world is.

George, you may have covered this, but I think we had some technical difficulties and I missed I think the first half of your prepared remarks. It's about the launch of the new website.

Did you talk specifically about when that new website was launched?

It was launched in early March, March 10-ish. Again, with my notes, to see what you might have missed here.

We have our all-time-high visits in the April, and return visits are way up because of this site. So...

So just looking at the new site, this is the first time that I'm seeing a la carte pricing for individual research documents. Is that...

We've had them for 10 years.

Okay.

yes. We -- it's called Click and Buy.

It's been available since maybe 2003?

It's just more visible now on the new website.

Okay. With the increased visibility of the a la carte pricing, I'm wondering how that -- what your expectations are in terms of how that might impact subscription renewal rates and also revenue recognition.

I mean, because if we expect that -- those sort of one-time purchases to go up, I imagine that's rolled into research revenue, which we typically think of as recurring.

yes. Brian, this is Charles.

I get the question that you're asking. I mean, this has never been a meaningful portion of revenue, even though, to George's point, we've done it for 10 years.

We don't expect to see any change in that in the early days in the site here. We haven't seen a new change in that.

Customers like the flexibility of buying the annual agreement, because then they're not limited in the amount of research they can consume, they don't have to pay on a one-off basis, many companies don't have budget to pay on a one-off basis, they budget annually. So I don't think you are going to see any change in buyer behavior here.

Okay. And then also any new thinking around capital structure?

I know you have -- you've initiated the regular dividend here, but you seem to be building cash quite quickly again.

yes, I know you're not complaining that we are building cash. This is Mike.

But I think what the Board is going to do is -- it's a regular topic with them, and I think that it will be something that the Board will reflect on after we get done with our strategic planning reviews and M&A reviews in the latter part of the year and make a determination that -- really try and size how much excess cash they seem to have and then, from there, what's the best use of it. So it's early in the year, and I think that the Board's discussions are probably going to occur in the second half of 2012 as they look at what we present to them in the form of different M&A activities and other internal investments.

Hey, Charles, on the sales force reorg, was it also done on a complete basis in Europe? Or internationally, I should...

It was, Bill, with a global change. The only region that remained largely unchanged was the Asia Pacific region, which is, of course, a very small percentage of the business, and it's something that we are incubating a little separately.

Right, right. And so when you look at the full year headcount plan in sales force, is it pretty linear as you look at your plan so that you would be by Q4 at a headcount growth level that's closer to your long-term goal?

Well, I mean, I think what you are likely to see here, Bill, is a traditional pattern that you see from us, which is that we start hiring more aggressively in the fall. We think about ramping up for the following year.

So you'll probably see only modest movement here in the next quarter or 2, and then you should see more of a pop very late in the year.

Right, okay.

As you know, Bill, we typically make an assessment in the fourth -- at the beginning of the fourth quarter as to whether we should get ahead of hiring for next year.

Right, right. Then on Q, the cross book, the magic barrier in the first quarter.

So are you rethinking a target there, George, or...?

Well, that was just on a quarterly basis ,'s not on yearly basis. Actually, our goal for the year is the low 70s.

And we are going making good progress this year, but we will not reach 70 for the year. Is that right?

Yes, and I think -- don't let him put a new target on us, Bill, because it's aggressive enough as it is. I think that some of the function of Q in first quarter as we shifted events out of Q1 into Q2.

Right. I'm just realizing that.

We got a little bit higher percentage than we might otherwise get, but I don't think we're yet ready to reset the targets. Subsequently they'll be a little bit lower in Q2.

Okay. And then is -- just trying to think about PlayBook a little more and how that impacts business as it develops.

So will it be just part of a standard subscription? Or will you have different levels?

Just trying to understand that.

Hey, Bill, Charles. So in the short run here, it'll be part of the normal subscription.

It's basically a change to the way that we produce the content and the way that we display it to customers. But there will not be an incremental charge for it.

And there is a broader question to be asked about whether there is a more advantageous pricing and packaging model available to us. We're doing a lot of work on that right now, actually, and we'll probably talk to that in some future calls.

You mean as the content becomes more social and that sort of thing?

Well, I don't think we want to give away too much at this point, Bill, but we are thinking deeply about not only the short run, but the long term. In the short run, as always, we will look at pricing in the existing packaging structure.

This summer, we generally do that in the summertime, and then we'll probably talk about that specifically on the Q2 call.

Great.

But we are thinking far beyond that. We are thinking about the new ways that our customers consume information and ways that we can more effectively deliver that to them and differentiate ourselves from the market.

Right, right.

Hey, Bill, George here. You may have missed this.

I think it was garbled at the beginning of the call, but...

Right.

I'm going to read though my remarks again. So with PlayBooks, we're moving away from the archaic model, which relied on disconnected, standalone report to a programmatic approach to give the client enough guidance around those critical project decisions.

So this is really about getting out of this single-report focus. Analysts might make me imagine that they have people.

They don't. And it is moving away from that to a -- to all researchers, in fact, feels around specific issues and some specific projects, and it's highly programmatic, and, therefore, increasing relevancy across all of our research.

That's really the point behind PlayBooks.

Right, right. Okay.

Okay. Thanks very much, everyone, for joining us on call this morning, and we look forward to being out on the road and meeting with investors during the quarter, and we'll see you again on the second quarter call.

Thank you.

Thanks, everyone.