Forrester Research Inc (FORR) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Forrester Research second quarter 2005 financial results conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [OPERATOR INSTRUCTIONS] I is now my pleasure to introduce your host, Ms. Kim Maxwell, Director of Investor Relations for Forrester Research. Thank you, Miss Maxwell, you may begin.

Good morning and thank you for joining our second quarter 2005 conference call. With me today are George Colony, Chairman and Chief Executive Officer, Warren Hadley, Chief Financial Officer and Brian Carden, Chief Strategy and Marketing Officer. A replay of this call will be available until Wednesday August 10 and can be accessed by dialing 877-660-6853. Please reference the confirmation ID 160435 and the confirmation account 242. This call will also be available via Webcast and 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 expects, believes, anticipates, intends, plans, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on the Company's current plans and expectations and involve risks and uncertainties that could cause future activities and results of provisions to be materially different from those set forth in the forward-looking statements. Some of the important factors that could cause actual future activities and 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. Now I would like the turn the call over to Warren.

Thanks, Kim, and good morning. Over the next several is minutes I will review Forrester's second quarter results, the balance sheet of June 30, our second quarter metrics and the outlook for our business in third the quarter of 2005. Please note that the income statement numbers and reporting are pro forma and exclude the following items; Amortization of intangibles, reorganization costs and realized gains on sales of securities and non-marketable investments. Also we continue to book an effective tax rate at 35% for pro forma purposes. The anticipated actual effective tax rate for 2005 is approximately 39%.

I am pleased to report that Forrester's second quarter results met guidance we provided on our first quarter conference call. Forrester's second quarter revenue increased 12% to 39.2 million from 34.9 million in the second quarter of last year. Net income increased 13% to 3.4 million and earnings per share were up 15% to $0.15 on diluted weighted average shares of outstanding of 21.8 million, compared with net income of 3 million and earnings per share of $0.13 on 22.6 million shares outstanding in Q2 of last year. Second quarter research services revenue increased 3% to 23.8 million from 23 million last year. Research services revenue comprised 61% of total revenue for the quarter, in line with our expectations.

Second quarter advisory services and other revenue increased 30% to 15.4 million from 11.9 million in Q2 of 2004 and comprised 39% of total revenue for the quarter. The increase in advisory services and other revenue is due primarily to continued strong demand for our advisory and consulting services. For 2005 we expect advisory and other revenue to comprise approximately 35% of total revenues. International revenues were 31% for the second quarter, compared to 32% in Q2 last year. We expect international revenues to comprise 30% to 33% of total revenues in 2005 as business has been growing faster in the U.S. than in Europe and Asia Pacific over the past several quarters. Operating expenses for the second quarter were 34.8 million up 12% from 31 million in Q2 last year.

Operating income was 4.4 million or 11% of revenue compared with 3.9 million or 11% of revenue last year in line with our guidance for the quarter. As mentioned earlier in the year, as we invest in our business for double-digit top line growth, our operating margin will ramp more steeply throughout the fiscal year, peaking in the fourth quarter. Turning to Forrester's year-to-date results; total revenues for June 30, increased 10% to 73 million from 66.7 million in the same period last year. Net income increased 7% to 5.9 million from 5.5 million last year. And earnings per share for the six months ended June 30 increased 13% to $0.27 on diluted weighted average shares outstanding of 21.8 million, compared with $0.24 and 22.7 million shares last year. Operating income for the six months ended June 30 was 7.6 million or 10% of revenue, compared with operating income of 7 million or 11% of revenue for the same period last year.

Now, I would like to review the balance sheet. Our balance sheet remains strong. Our cash and marketable securities at June 30 were 131.8 million. We generated 16.5 million in cash from operations year-to-date, on target with our guidance of generating 20 to 25 million in cash flows from operations for the full year. During the second quarter we used 6.4 million of cash to purchase shares on the open market pursuant to our stock buyback program. We have spent 11.2 million year to date on the stock buyback program and will continue to be active with the buyback in Q3.

Accounts receivable at June 30 was 28.1 million compared to 26.1 million as of June 30, 2004. Our future AR balance, which are amounts to be invoiced in the future for clients with two year deals or scheduled payment terms was 22 million at June 30 compared to 17.1 million at June 30, 2004. Our days sales outstanding at June 30, was 71 days, down from 75 days last June 30. And AR over 90 was 10% at June 30, down from 12% last year. The decrease in AR over 90 is primarily due to improvement in collections of our business in southern Europe where payments typically come in slower.

Net property and equipment increased to 6.6 million at June 30 from 6.4 million at the end of 2004. Our capital spending for the quarter was 400,000 bringing year-to-date CapEx to 1.9 million. Our capital spending plan for 2005 is 3 million. Deferred revenue at June 30 was 70 million, up 10% over June 30 2004. And if you include future accounts receivable, deferred revenue grew 14% during that period. We are pleased with this growth rate as this metric is the best leading indicator of our business.

And now I will review Forrester's second quarter metrics. Agreement value, the total of all contracts for research and advisory service in place, without regard to the amount of revenue that has already been recognized or is yet to be recognized was 130 million at June 30, a 9% increase from last year. At June 30, Forrester retention rate for client companies was 76% and our dollar retention rate was 86%. Both rates are calculated on a 12 month rolling basis and both are within our target ranges.

Our enrichment rate was 104% for the twelve month period ended June 30. At the end of the second quarter our total for client companies was 1,906, up 40 from year end and in line with our target of adding approximately 100 net new clients for the full year. For headcount at the end of the quarter, Forrester had a total staff of 649 up from 593 at year end. Current headcount includes a research staff of 227, up 25 from year end and sales staff of 218, up 23 from year end.

The last topic I would like to cover today is our business outlook. In summary, the first half of the year has gone according to go plan for operating profit and margin. However, our investments made during the past year in new products and sales are yielding top line growth stronger than planned during the period. As a result we are raising guidance for full year revenue and EPS. We are also honing in on a specific operating margin of approximately 13% for the year, which will allow us to continue to invest in top line growth and reach our long-term growth targets of 15% to 20% as early as next year. This growth coupled with the leverage in our business model should allow for operating margin expansion of 1 to 2 percentage points per year for the next couple of years.

With that, I will now provide guidance for Q3 and full year 2005. Our pro forma guidance for Q3 and full year 2005 excludes the following; Amortization of intangible assets, which we expect to be approximately 800,000 for Q3 and 3.6 million for full year 2005. And gains in impairments on sales of marketable securities and non-marketable investments. For Q3, we're aiming to achieve total revenues of approximately 37 to 39 million and operating margin of 12% to 14%, interest income of approximately 750,000, a pro forma income tax rate of 35%, and pro forma diluted earnings per share of approximately $0.16 to $0.18.

Our full year guidance is being revised as we now anticipate total revenues of approximately 152 to 156 million, a pro forma operating margin of approximately 13%, interest income of approximately 3 million, a pro forma income tax rate of 35% and pro forma diluted earnings per share of $0.65 to $0.69. We have provided guidance on a GAAP basis for Q3 and full year 2005 in our press release and 8-K filed earlier this morning. Thank you. I will now turn the floor over to George.

Thanks Warren and good morning everyone. I will summarize the second quarter 2005 and after my remarks Brian Carden, Forrester's Chief Strategy and Marketing Officer, will give an overview of our industry and Forrester's competitive positioning. As Warren has reported to you our second quarter revenue grew 12% and earnings per share were up 15%. Our performance during the first half of 2005 exceeded our expectations and we're very pleased to be raising our full year guidance.

We had important wins in Q2. Now business continued to improve in the quarter. B+ new client companies included Banta Corporation, Federated Investors, HealthNow, HiMark Inc., Linux International, Richland(ph) North America, Pyramid Destiny USA and Seagate Technology. Our internal efforts to focus on B+ companies is paying off with a net 16 B+ companies joining Forrester in Q2.

Turning to a review of each of our products starting with research services; Our sales and marking efforts to reinvigorate WholeView 2 have started to yield results. In Q2, we exceeded our internal WholeView 2 sales plan. We now have two Forrester executives, one from the corporate team and one in the Americas operating group that are managing the business of WholeView 2. Three other moves are helping WholeView 2. Number one, client choice, enabling Forrester's clients to active actively guide the content of WholeView 2 is increasing relevancy. Number two, there are now 16 unique newsletters that summarize our research and we call these First Looks. We have found high correlation between First Look readership and renewal. There are 283,000 subscriptions to First Look. And finally number three there is a concerted effort within sales to expand the site licensing of WholeView 2.

Turning to Oval. The Oval program continues to expand. The CIO group, our network and technology leaders, now has 173 members. Technology councils these are our boards for technology titles below the CIO, now have a total of 149 members. The A list relations in marketing council added members for a total of 122. In 2004 we launched three new programs for marketing executives; the the CMO group, the database marketing council and the e-mail marketing council. We ended the quarter with 56 marketing Oval members. So, at the end of Q2 the total Oval membership for the eight programs reached 500.

And now, I will look at data business. Consumer technographics, this is the largest and longest running survey on technology's impact on consumer behavior, continues to grow. Clients signing on in the second quarter came from a wide range of industries including healthcare, financial services, media, tech, airline, entertainment and consumer electronics. We remain cautiously optimistic about the ultimate consumer panel as we renewed key accounts during Q2 and now have eight of the twelve major credit card issuers at clients.

Demand for our consulting services remained strong in Q2. Average contract size for consulting projects increased from $60,000 to $80,000. Total economic impact, this is our customized methodology that helps IT professionals make cost effective tech decisions, had another strong quarter. We booked 12 deals in Q2 and held four TEI boot camps attended by 110 executives.

The events business grew in the second quarter. We had year-over-year attendance increases in our three second quarter events. More than 1,000 people attended GigaWorld North America in Dallas. The event featured key notes from Banc of America, FedEx, IBM, SAP and Sun. GigaWorld Europe was also a success with 600 attendees. The event was held in Prague and featured industry leaders from DaimlerChrysler, Virgin, the BBC and Avaya. Finally the Finance Forum was held in New York City. Speakers included executives from TD Waterhouse, IBM and Wachovia Corporation.

So, to conclude, Forrester's business is healthy and growing at mid-year with solid prospects for the second half of 2005. Our portfolio of research data, consulting and community is driving with cross-selling with existing clients and it is resonating with new clients. Now, I would like to introduce Brian Carden, Forrester's Chief Strategy and Marketing Officer. And Brian will give an update on changes in our industry. Brian.

Thanks, George. Good morning. I am Brian Carden, Chief Strategy and Marketing Officer at Forrester. I have been at Forrester for about 2.5 years. I have a background in both publishing and strategy consulting. I was Chief Marketing Officer at Reed Care in the United States and a strategy consultant for many years with Braxton Associates, the strategy consulting division of Deloitte.

I want to provide some context to Forrester's performance, particularly on the state of the technology research industry and our competitive position. The technology research industry is showing signs of consistent recovery and growth. IT expenditures are growing. Forrester forecasts 10% growth for U.S. IT spending 2005, with slightly slower growth in Europe. Recent U.S. Department of Customers data reported 11% growth year-over-year in Q1.

There continue to be many complex and confusing technology issues facing companies. Here are just a few. The ongoing digitization of business and government, offshoring, security, the phenomena of blogging, podcasting, viral marketing, other forms of social computing, identity theft and many others. As you know, our industry is in the business of advising companies on how to deal with technology change. Experience has shown that with complexity and confusion come greater demand for our services. If history is any lesson, the combination of growing IT expenditures and growing complexity bode well for for Forrester and our industry.

The industry also continues to consolidate. Forrester bought Giga in 2003. Gartner bought META Group in 2005. So what are the implications of consolidation? First, there are fewer places to go for an independent expert opinion. And two, the potential exists for an increase in the pricing power of the remaining larger players. Let's turn to Forrester's performance in the first half of 2005 where we have seen solid some results, as Warren and George reported; year-over-year revenue and EPS growth, rising renewal rates, strong client activity. Given the current industry environment, growth and consolidation, Forrester has moved proactively in 2005 to capitalize on it.

Let me briefly summarize our key moves. One, pricing. In February Forrester raised prices by about 10%. Our analysis based on the first five months of the price increase shows that this price increase has stuck. That is in aggregate our customers have accepted it as commensurate with the value they receive from us. Number two, more sales reps. We believe that our product is undersold in the marketplace. We are only 15% penetrated among B+ companies, so there's lots of opportunity. But we need feet on the street. In the second half of 2004 we added more than 30 new sales reps. By 2005 these new reps were trained, fully up to speed and productive. We continue to hire in more sales reps to improve our marketplace coverage.

Number three, money back guarantee. We rolled out a money back guarantee across all clients and prospects in 2005 after testing it in the second half of 2004. Forrester's service commitment, backed by our money back guarantee is quite simple. Forrester commits to provide consistent, quick, high quality service to every client. By taking the risk out of buying Forrester, through the money back guarantee, we have seen two important effects. Number one, sales cycle times are shortened. And two we are seeing higher levels of new business.

Number four, client choice. George talked about client choice and I want to give you a little bit more information about it. In order to make our research as relevant as possible we instituted client choice a process allowing clients to vote from a varied selection of research topics. The winning vote is then addressed by Forrester analysts and published within 30 days making it both relevant and timely. Client choice research represents about 10% of what we write.

Number five, the Wave. Selecting the right technology vendor is a huge challenge, not to mention a multi-million dollar decision for our clients. The Forrester Wave is an objective methodology to evaluate competing products, services and suppliers, as well as the means of clearly presenting the findings of the evaluations. In early 2005, we competed a major upgrade of Forrester Wave and committed to quadrupling the output from about 20 in 2004 to 80 in 2005. The upgrade and the expansion of the Wave significantly improves Forrester's competitiveness and addresses an important client need. So far, the marketplace has been exceptionally receptive of new Wave. They especially like its analytical rigor and transparency.

And number six, the Miss META Find Forrester campaign. Two weeks ago announced we announced the launch of an online marketing campaign directed at forma META Group clients who are reviewing their alternative in this time of industry consolidation. Understandably, with the disappearance of META many technology research buyers are concerned about having choices. We want to get the word out that we want their business. And that they should consider Forrester for its relevance, objectivity and high level of service. Even prior to the launch just of the campaign just two weeks ago, we were seeing new business come our way from META clients. During the second quarter, Forrester won more than ten new business deals, specifically because of the META acquisition. On the renewal side, we were able to enrich many clients due to the availability of META budget dollars. This will be an ongoing process throughout the remainder of this year, as their clients and our shared clients come up for renewal.

So in summary, we believe Forrester is in a favorable market environment. The market is growing, there is ongoing confusion about emerging technologies and the industry has consolidated leaving fewer - - leaving buyers with fewer choices. We are taking action to capitalize on these marketplace dynamics. Thank you. Back to you Kim.

Thanks Brian. Warren and I will be presenting at the Adams Harkness Conference next week. We also plan to be on the road visiting investors during the quarter and hope to see many of you. Thank you for listening to our call. We will now take questions.

[OPERATOR INSTRUCTIONS] Our first question is coming from Laura Lederman, of William Blair. Please state your question.

Thanks. Good quarter, a few questions. One, I know that you implemented a price increase, I believe it was in April. Can you talk about a little bit how sticky that's been? And then that's the first question. And the second is, the core research services are still growing rather modestly and the advisor and other is growing dramatically. So - - yet you don't expect advisor to increase that much as a percentage of revenue. So, I guess - - not so articulately put is, is that demand seems to be much more on the advisory than the core research. And what do you do about that over time and do you expect that to shift? Thanks.

Okay Laura, this is Brian. I'll handle the first part there, the stickiness of the price increase and then I'll pass it over to George for the core research, where we are with it. We were very pleased that the price increase of 10% stuck. Warren and the finance team review how - - the ability of the marketplace to absorb the price increase. And the 10% price increase, in aggregate, was fully absorbed by the marketplace. Which makes us feel very confident that we're providing lots of value there. We will continue to review that for the rest of the year. But based on the five months we reviewed so far, the price increase has been fully implemented and has stuck. And we also, as we usually do, in Q4 review any pricing decisions for 2006, in Q4 of this year.

On the second question Laura, as I said in my remarks, WholeView 2 had a pretty good quarter. That being said, it's growing in low single-digits. The syndicated/nonsyndicated balance of the business is really being made up for by Oval, which of course is syndicated, and elements of the data business, which are also syndicated. So, although consulting is growing, the other new syndicated products are growing as fast.

All right. Final question, competition obviously it's just and Gartner. Could you talk a little about Gartner and what you see them doing in terms of price? And also just, I realize it is early days with the take away META program, but can you talk about what you're seeing in terms of early successes? Thank you.

Can you be more specific Laura on the - - are you asking about Gartner's pricing power?

Yes, in other words, you raised your prices 10%. What are you seeing them doing in competitive situations? Thanks, George.

As you probably know they're also raising prices at this point. I wish I had more information here. For me, Laura it is almost impressionistic, how may field guys run into my office and say "gee, Gartner's really aggressive, look what they're doing." I didn't see that much in the quarter. And the data coming back from our sales people is not showing Gartner to be highly aggressive at this point. I think and maybe some other thoughts in the room here. But I think that they're really still sorting themselves out at this point. Sorting themselves out with a new CEO and sorting themselves out with the acquisition. That all being said, I am looking forward to a much, smarter, much more focused company in Gartner over the next six months. I don't know if that helps you at all.

Thank you very much. I will pass the baton.

Thanks Laura, appreciate it.

Our next question is coming from Rob Skloff of Sidoti & Co. Please state your question.

Good morning. Just wanted to get a sense revenue growth was very strong in the advisory business. There were three, I think events in the quarter.

Yes.

How does that compare to last year? And is there any particular reason this quarter - - it looks like the second half of the year is going to be a little less strong than the second quarter. I wanted to see if that was in fact the case? I say that's the first question.

We had three events in Q2. That compares to four events last year in Q2. So, the revenues for events were roughly flat from year to year.

Okay. Warren, is there any reason - - from your guidance of 35% for this advisory business it look like the second half of the year would be slowing growth. Is that am I is that correct?

No, one is fewer events. We had three events in Q2, it's a big event quarter for us. And then as we continue to pick up momentum from Oval and data, are two relatively new businesses that are on the syndicated side, that should help propel growth overall. And on the syndicated side our research services side.

Okay. Great and then just kind of delving a little deeper in this pricing, when was the last price increase? Other than obviously your February 1.

The last time we - - we haven't had a price increase since we changed our pricing structure and that was back in 2002 when we went from lenses, if you will, to our WholeView.

That was really - - that was probably the last time you increased prices.

Exactly. And then we bought Giga, there was a price increase but that was really more for the Giga clients than the Forrester clients.

Okay. Now, is this - - I don't know what you can give away. But is this the type of thing that you'll reassess? Could you end up having price increases every year or every year-and-a-half or is it hard to say?

It is possible. We may not - - we want to look at it very analytically and to see where there are pockets of strength and growth. And so we are going to review this every year. And it is possible we would raise prices in some areas but not in others. So, we're going to take a more micro approach to this. But we're seeing at least in the first half of this year, more strength, more business coming our way. And the marketplace, as we said, has more complex issues, larger budgets and we think it is a good environment to review pricing periodically. That said, I think internally we also have more discipline, to Laura's question, about the stickiness of our pricing. That our sales force has done a very good job of clearly explaining that you get more for more. A 10% price increase but we added Wave, we have more coverage in research areas. So, the overall quantity and quality we think of our research has improved, which is commensurate with the 10% price increase. This is not just about raising prices, this is about getting more for more.

Understood. The last question, Warren in your new earnings per share guidance, does that include any share repurchase at all?

We will continue to buy back shares in the second half of year. I run an analysis of what I expect WASO to be. But that's really a multi-layered factor of what that's going to be based on; share price, number of options exercised and number of shares that we're able to buy back. So, and I expect it to be somewhere between 22 and 22.5 million for the second half of the year. Another WASO, I know how that is.

Okay. Just to make sure within the $0.65 to $0.69 EPS estimate, is that on today's share count or is that what you're factoring?

That's on a share count estimate of about 22 to 22.5 million shares outstanding.

Okay. Great. Thank you.

Thanks, Rob.

Our next question is coming from Don Macaba(ph) of Adams Harkness.

Hi, guys, how are you doing? I guess just another follow up on the 39% advisory and other. And obviously the 35% internal goal, so can we expect - - I guess we expect that to come down in the second half of the year. Is it fair to say that the 39% was a spike? And if so, how will it break out between Q3 and Q4 as best you can tell?

The 39% in Q2 is a little bit spike due to the number of events that we had in the quarter. We're holding steady about 35%. We expect for the full year to be 34.5, to 35.5 in that range certainly. The break out, I don't have the exact numbers here but for Q3, should be in the 30% to 35%. And Q4 will probably be in the 35% to 40% for advisory services and other because we're holding more events in the fourth quarter than in Q3.

Okay.

So, it is really driven by the timing of the events essentially.

Right, right.

The inconsistencies with that number is in quarter to quarter.

Sure. And then I guess my next question is around the money back guarantee. Still kind of early, I guess, but are you seeing any- - is there any update on cancelations or expectations going forward and how are you actually building that into your internal forecast as far as kind of a percentage of sales you expect to be - - ?

Sure. I would say it's still early. We've seen very few - - I believe the number is two cancelations so far and they've both been very, very small amounts. I don't have the exact reasons here. And even if we did I think it would be a too small of a sample size really to have a clear understanding. We'll continue to monitor the money back guarantee program throughout the end of the year. But I don't expect it to have any real impact from a negative standpoint for the rest of the year.

Okay.

Than what we've seen so far in the first five months.

Fair enough. I guess the last question, then, is I think the number was 10, you mentioned as far as 10 new business deals that you saw directly as a result from the META acquisition and the campaign. Can you talk about - - can you characterize those new deals and size, vertical, that type of thing?

Well, we can't. We can say it is sort of the circumstances surrounding them. There was some sense that clients told us in moving over that they wanted a higher level of service and access to analysts. And we think we have a service model that really serves their needs. I think META was very comparable sized to Forrester and a lot of the META clients are looking for a home that is more responsive to their needs and that they will be able to deal directly with analysts. And so we're not able to characterize what those ten deals are right now. But they're not atypical deals. There were META clients who were dissatisfied with moving over to Gartner and we're very pleased to land them.

Okay. But fairly sizable or any comments on size?

I believe it is across the board. It's mostly new business for us, so it is - - most of it would be coming in at a new business price point, so 27K, for a WholeView etc. I don't have the exact details. But I can get that and follow up with you if you would like.

Great. Thanks, guys.

Thanks.

Our next question is coming from Charles Trafton of Americas Growth Capital. Please state your question.

Thanks. You guys started talking about longer term operating margins in '06 in the 15 to 20 range. Did I catch that right in the prepared comments?

Let me make sure this is clear. We're talking about - - we'll we've always been talking about long-term growth rates top line revenue, 15% to 20% range. And I guess what we're saying now is that we believe we're going to be there in 2006. From an operating margin perspective, we're honing on 13% for 2005 with a goal of generating a point or two increase over that number for each year for the next couple of years.

Okay. So, that wasn't a margin number, that was a revenue growth number.

Revenue growth number of 15% to 20% and then margin going up a point or two per year for the next couple of years.

The 10 clients META clients that you guys spoke about; if I could hit on the question Don asked but in a little different way. Were any of the new 16 B+ plus clients this quarter those 10 META clients, was there any overlap between those two?

I don't have the details here I can check that when I get back this afternoon.

Did you start the switch from META program when you started to realize you were getting some of those 10? Or did those - -?

Yes, good question. The 10 were prior. We just launched the get META campaign July 11, so all of these ten deals happened prior to get META campaign.

Were in Q2.

Exactly.

Yes.

Did you start formulating that campaign when you said "we're getting a lot of these guys let's make a formal campaign"?

We started formulating a campaign in Q1 figuring out the right response to the acquisition of META.

Right, right. Warren, does the money back guarantee change revenue recognition at all now that you're on the hook for a longer period of time?

No, because essentially all we would ever be on the hook for is the deferred revenue portion of the contract.

So do you book some sort of - -

Reserve.

a reserve?

No, we don't. And if we get to the point where we're looking at history and there is a large number of these coming in we certainly will. But at this point the volume has just been way too low.

So, the deferred revenue is a gross number?

Yes, correct.

I was thinking maybe if it was net it would even look stronger on a compare.

That's right. And if we get to the point where, again, we're seeing a lot of that, which I don't expect, we would certainly figure out how to book a reserve or what the right amount would be on deferred revenue for that.

Charles, if you look at the literature on money back guarantee these are - - we have very small numbers here, 0.5%.

Right.

And we believe that would fold right into our D-books essentially.

Okay. The 16 net new B+ you got this quarter, what is that compared to a year ago do you know offhand?

Not offhand direct - - Q2 versus Q2 of last year. Although, I know last year we were having trouble in the B+ and we're making it - - up 25 so far year-to-date.

So, I can speak in generalities, Charles, we have a very strong internal push for more B+'s. They have a lot of metrics on people and also on teams and actually an entire executive team around B+'s. And actually we're showing many better traction this year than we did last year. Last year was essentially flat.

We were gaining low single digits quarter to quarter, so we were up 4 one quarter, 6 another quarter. It was not anything like this.

And much of this Charles, is around reposting the sales force away from sub-$500 million companies and focusing them on B+'s.

Clearly it's been a focus. It is good to see momentum.

Yes.

Thank you.

Gentlemen, I am showing no further questions at this time.

Great. Thanks for listening to our call. We hope so see many of you on the road this quarter.

Thank you very much.

This does conclude today's teleconference. Thank you all for your participation. You may disconnect your lines at this time.