Forrester Research Inc (FORR) 2006 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Forrester Research second quarter 2006 financial results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Warren Hadley, Chief Financial Officer for Forrester Research. Thank you, Mr. Hadley. You may begin.

Good morning and thank you for joining our second quarter 2006 conference call. I am Warren Hadley, Chief Financial Officer, and I am here with George Colony, Chairman and Chief Executive Officer. Kim Maxwell, our Investor Relations Director, has left Forrester after nearly seven years of working with our analysts and investors, to further develop her career in the IR field. We wish her luck and will miss her knowledge of our business and industry.

A replay of this call will be available until Wednesday, August 9th, and can be accessed by dialing 877-660-6853. Please reference the confirmation ID 206817 and account number 242. This call is also available via Webcast and will be archived in the investors 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 operations 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.

I will now begin our review of Q2, which will include an update on Forrester's second-quarter results, the balance sheet at June 30th, our second-quarter metrics, and the outlook for our business for the remainder of 2006.

Please note that the income statement numbers I am reporting are pro forma and exclude the following items -- amortization of intangibles, 472,000 in Q2; non-cash stock-based compensation expense, 1.8 million in Q2; and net realized gains on sales of securities and nonmarketable investments, 8000 in Q2. Also, we continue to book an effective tax rate of 37% for pro forma purposes. The anticipated actual effective tax rate for the year is approximately 50%.

I'm pleased to report that Forrester's second-quarter results exceeded guidance we provided on our first-quarter conference call. Forrester's second-quarter revenue increased 24%, to 48.5 million from 39.2 million in the second quarter last year, and was above guidance, primarily due to three sold-out events held in the second quarter.

Net income increased 76% to 6.2 million, and earnings per share were up 73% to $0.26 on diluted weighted average shares outstanding of 22.8 million, compared with net income of 3.4 million and earnings per share of $0.15 on 21.8 million shares outstanding in Q2 of last year.

Second-quarter research services revenue increased 19%, to 28.3 million from 23.8 million last year. Research services revenue comprised 58% of total revenue for the quarter, in line with our expectations.

Second-quarter advisory services and other revenue increased 31%, to 20.2 million from 15.4 million in Q2 of 2005, and comprised 42% of total revenue for the quarter. The increase in advisory services and other revenue was due to continued demand for our advisory services and, as previously mentioned, the three events held during Q2. For 2006 we expect advisory services and other revenue to comprise approximately 35 to 40% of total revenue.

International revenues were 29% for the second quarter compared to 31% in Q2 last year. We expect international revenues to comprise 28 to 32% of total revenue in 2006, as business continues to grow faster in the U.S. than in Europe and Asia-Pacific.

Operating expenses for the second quarter were 40.4 million, up 16% from 34.8 million in Q2 last year. Operating income was 8.1 million, or 17% of revenue, compared with 4.4 million, or 11% of revenue last year. Operating income was also ahead of guidance, again, primarily due to the three sold-out events we held this quarter.

Turning to Forrester's year-to-date results, total revenue through June 30th increased 23%, to 89.7 million from 73 million in the same period last year. Net income increased 56%, to 9.2 million from 5.9 million last year, and earnings per share for the six months ended June 30th increased 52%, to $0.41, on diluted weighted average shares outstanding of 22.3 million, compared with $0.27 and 21.8 million shares last year.

Operating income for the six months ended June 30th was 12.4 million, or 14% of revenue, compared with operating income of 7.6 million, or 10% 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 30th were 182.1 million, up 49.9 million from year end. We generated 27 million in cash from operations through June 30th and are now expecting 32 to 36 million in cash flow from operations for the full year.

We have also received 27 million in cash from options exercised in the first six months of the year. We did not buy back any shares in Q2, but reviewed our buyback analysis with the Board, and will be actively buying back shares in Q3 and Q4. We have 23.5 million remaining on the 50 million stock buyback authorized last year.

Our capital spending for the quarter was 1.4 million, bringing year-to-date CapEx to 1.7 million, and our capital spending plan for 2006 is 3.5 million.

Accounts receivable at June 30th was 32.2 million, compared to 28.1 million as of June 30, 2005. Our future AR balance, which are amounts to be invoiced in the future for clients with two-year deals or scheduled payment terms, increased 21%, to 26.7 million at June 30th from 22 million at June 30, 2005.

Our days sales outstanding at June 30th was 79 days, up from 71 days last year, and AR over 90 was at 16% on June 30th, up from 10% last year. The increase in AR over 90 is primarily due to several large payments received after quarter end and increased volume of business in Southern Europe, where payments typically come in slower.

Deferred revenue at June 30th was 80.3 million, up 15% over June 30, 2005. If you include future accounts receivable, deferred revenue grew 16% during that period. This growth rate is slightly behind plan, and that is due to a slowdown in consulting sales in Q2.

Now I will review Forrester's second-quarter metrics. Agreement value -- 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 -- was 154.4 million at June 30th, a 19% increase from last year.

Forrester's retention rate for client companies was 78% and our dollar retention rate was 86% at June 30th. Both rates are calculated on a 12-month rolling basis and both are within our target ranges. Our enrichment rate was 110% for the 12-month period ended June 30th.

At the end of the second quarter, our total for client companies was 2194, up 187 from year end. We now expect to add 250 to 300 net new client companies for the year.

For headcount, at the end of the second quarter, Forrester had a total staff of 752, up 16% from 649 at June 30, 2005. Current headcount includes a research staff of 285, up 26% from a year ago, and a sales staff of 255, up 17% from a year ago.

The last topic I would like to cover today is our business outlook for the remainder of 2006. We are pleased with the results in the first half of 2006 and remain cautiously optimistic as we head into the second half of the year.

As a result of our performance in the first half of the year, we are raising full-year guidance for revenue and EPS and fine-tuning our operating margin guidance. We see 2006 as taking a big step toward our long-term goals of achieving 15 to 20% long-term revenue growth and an operating margin in the 17 to 19% range.

Our pro forma guidance for Q3 and full year 2006 excludes the following -- amortization of intangible assets, which we expect to be approximately 500,000 for Q3 and 2.1 million for full year 2006; non-cash stock-based compensation of 2.0 to 2.5 million for Q3 and 7 to 9 million for the full year; and any gains and impairments on sales and marketable securities and nonmarketable investments.

For Q3 we're aiming to achieve total revenues of approximately 44 to 46 million, an operating margin of 14 to 16%, interest income of approximately 1.5 million, a pro forma income tax rate of 37%, and pro forma diluted earnings per share of approximately $0.21 to $0.23.

Our full-year guidance is being revised, as we now anticipate total revenues of approximately 182 to 187 million, a pro forma operating margin of approximately 15%, interest income of approximately 5 million, a pro forma income tax rate of 37%, and pro forma diluted earnings per share of $0.86 to $0.92. We have provided guidance on a GAAP basis for Q3 and full year 2006 in our press release and 8-K filed earlier this morning.

Thank you. I'll now turn the floor over to George.

Thanks, Warren, and good morning. I will summarize our business in the second quarter, after which Warren and I will take questions.

As we have reported, our Q2 revenue grew 24% and pro forma earnings EPS grew 73%. As reflected in our revised guidance, we remain committed to delivering strong results for the full year.

We continue to welcome new clients to the Forrester fold. We ended the quarter with 2194 client companies, a net increase of 187 clients from year-end 2005. Our yearly plan was to add 200 client companies. Our revised goal is to end the year at between 250 and 300 net new clients.

New $1B+ client companies signing on in Q2 included Cintas Corporation, Deutsche Postbank AG, Estee Lauder, Erste Bank Hungary, Herman Miller, [Clos] Corporation and The Walgreen Company.

Turning to a review of each of our products, and I'd like to start first with research, continuing with the Q1 trend, sales of WholeView 2 remained strong. The Company is well on its way to achieving its goal of 12% growth for WholeView 2 in 2006.

WholeView 2 is benefiting from high-quality additions to the research portfolio, and a few examples of the top-rated research in Q2 includes --

Firstly, TechPotential. This is a proprietary methodology for predicting the success or failure of consumer electronics products; as an example, Apple's iPod.

The Future of Enterprise software, concluding that software buyers will benefit from further consolidation in enterprise systems.

The Forrester Wave on Enterprise Search platforms, which concluded that two small vendors, Endeca and Autonomy, will hold off Google, IBM and Microsoft in the short-term in that business.

And finally, Reinventing the Marketing Organization. This is a report recommending that marketing efforts reorient around customer segments rather than products or channels.

The Boards business continued to expand. The CIO Group, our board of technology leaders, now has 210 members. Technology Council now has a total of 168 members. The Analyst Relations and Vendor Marketing Councils added members for a total of 149. Our three marketing-focused boards for CMOs, database marketing professionals and interactive marketing executives ended the quarter with 66 board members. At the end of Q2, the total Forrester Leadership Board membership reached 593. For the full year 2006, we continue to anticipate that revenue at our Boards business will grow approximately 40%.

Turning to Forrester's data business, I wanted to give an update on two of our newest data products -- the Hispanic-American Technology Adoption Study, and the Asia-Pacific Consumer Technology Adoption Study.

Hispanic Techno focuses on Spanish-speaking consumers in North America. Forrester has surveyed over 6000 consumers, yielding data on technology behaviors, use of Spanish-language Websites, use of the Internet for purchasing, and online financial behavior of North American Hispanic consumers. Following our launch at the beginning of the year, we presently have 22 member clients, on track to attain our goal of 30 by year end.

The Asia-Pacific Consumer Technology Adoption Study launched in Q2. The first survey wave covered 6000 consumers across five countries -- India, China, Japan, South Korea and Australia. This means that Forrester's consumer surveys now cover two-thirds of the world's GDP. The first report focused on broadband adoption, concluding that Coastal China now has higher adoption of broadband then the U.S. Upcoming research will cover a range of topics, including wireless, online financial behavior, social networking and online retail behavior. Asia-Pacific CTAS has six charter members at quarter end.

Now I would like to turn to consulting. As Warren indicated, consulting bookings did not reach plan in Q2, and there were two reasons for this.

Number one was deal size. Our consulting business has traditionally focused on midrange engagements of between $40,000 and $70,000. This year we have migrated to larger deals well above $100,000, thus increasing our risk and extending sales cycles.

The second reason was the lengthening in sales cycles driven by Sarb-Ox compliance, increasing legal and contractual timeframes for the buyer. We are moving back toward a higher mix in midrange deals, and we are working to streamline the contract process around consulting.

Our events business was an important part of the financial story of Q2, and I think Warren indicated that. Generally speaking, the event environment is robust, driven by -- number one, high demand on the part of vendors for sponsorships; and two, high demand on the part of Forrester's clients for new learnings around actionable topics like services-oriented architectures and security best practices.

Our two largest forums, the IT Forum Americas and IT Forum Europe, were both sold-out events, with attendance increasing 44% in the Americas and 13% in Europe. The Financial Services Forum held in New York City had an attendance increase of 15% over 2005, and it was also sold out. Sponsorship revenues for all events in Q2 increased 62% over Q2 of 2005.

So to conclude, we are pleased with our financial performance in the second quarter. 2006 is shaping up to be a good year for the Company. Warren and I will be visiting investors in the third quarter. We hope to see many of you in our travels.

Thank you for listening to the call. We will now take questions.

(OPERATOR INSTRUCTIONS). Laura Lederman, William Blair.

Very nice quarter. Can we talk a little bit about the pricing increases you instituted over a year ago? How much of the growth that you're seeing this year is from those? And also, your thought as to the ability to add additional pricing increases over time. And then I'll follow up with some other questions.

As you know, last year we implemented approximately a 10% price increase across the board early in Q2, and I think we are seeing the impact of that certainly flow through to this year. We're very happy with the enrichment rate at 110% right now. That's the highest it's been in several quarters, going back several years in fact. So I think the price increase overall, certainly on the syndicated side, is sticking. As far as going forward, I'll let George take that.

We had a 5% increase this year in consulting, and that might have in fact influenced some of the softness we saw in sales in the quarter for consulting. So I think we're kind of right on the line here as far as pricing goes. We're getting some pushback, actually not about our pricing, but about some of our competitors' pricing being a little bit high at this point. I think we're really close to fair pricing in the marketplace right now.

Can you talk a little bit about the pushback you're seeing on the competitors' pricing, and what type of pushback, and why that's occurring?

I think it's around pricing, but it's also about keeping clients -- making clients [hue] to the strict contractual obligations of how many clients (indiscernible) be able to call in for inquiry and can actually use the services. There's a tightening going on in the business around pricing, but also around contractual obligation.

Totally different question. The advisory services and other keeps growing faster than I think you guys want, and it seems as though the ability to bring that down for the full year to the ratio you want as a percentage of full-year revenue seems like it might be tough. Can you talk about that a little bit?

Our goal for the year, as you know, is 65/35. Q2, we're well above that on the non-syndicated side, and that really is a result of just a terrific quarter on the event (multiple speakers)

We're above on the syndicated.

On ratio we're above on the non-syndicated side. We're at 42% for the quarter, which we expect, because Q2 is a large events quarter (multiple speakers). There are three events, and two of them really are marquee events here in the U.S. and Europe. So for the full year, we may not end up at 65/35. I believe we'll end up between 60 and 65% syndicated, probably 62, 63%, with a good look forward to 2007 being at least 65% at that point.

We're feeling pretty good about this for this year.

Great. A follow-up on the events. Why is the demand strong now? Do you think it's the economy? Do you think it's the right topic? And separately, a related question. There have been a number of companies -- not you, of course -- that have missed their targets, and their sense is that maybe the economy is slowing a little bit. What are you seeing on a higher macroeconomic level?

We'll talk about events first, then macroeconomics. I would say two-thirds of the event success is coming from just the right topics, and basically just hitting very -- highly relevant focuses of the events themselves.

A third of it for us is coming from execution. We have two terrific people running events for us, and they are just executing beautifully, keeping expenses low, ensuring that we have the right speakers at the right time. So it's two-thirds the marketplace and one-third us.

The macroeconomics, as you know, we probably have the best data on the world on IT spending. (indiscernible) IT spending up this year 7.5 to 8%, somewhere in that range. We have not seen any faltering in Q2 in tech spending. I think you know that we predicted that in 2007 -- late in 2007 we expected a worldwide recession, but a very faint recession, and one that would take GDP (indiscernible) somewhere in the area of the 1.5 to 2% range. But generally, we don't see any weakening this year in macroeconomics.

Domenic Lacava, Canaccord Adams.

Great quarter. Going to the Leadership Boards, how much can we look at the increase this quarter from new seats versus pricing? And are you still looking to -- I know the plan was not to add any this year. Is that still the case? I know there was talk on the last call about ramping to 15, 20 boards by '08. I was wondering if you could talk about that a little.

On the FLB, on the Forrester Leadership Board side, we're looking to grow that about 40% for the year. And a lot of that is going to come from new seats. The retention rate (multiple speakers)

Most of it will come from new seats.

Most of it will come from new seats (multiple speakers) when you look at it, all of it will come from new seats, because you're looking at -- we're not going to retain 100% Forrester Leadership Boards; probably in the high 70s, like a regular business. So it really is primarily going to come from new seats.

The addressable market (indiscernible) we've talked about this in the past, we currently have around 600 members. Of the current boards that we sell, there are potential -- there are 37,000 potential members (multiple speakers). So we're very, very, very underpenetrated here, and very, very undercovered. So we think it's (indiscernible) new business and that continues to flow very well for us.

So there's no plan to launch any other new boards at this point in 2006, although we are thinking about it for 2007 as we do our planning process, which kicked off about a month ago.

So this is the plan within the next year, is still to expand to the 15 to 20 range?

Exactly.

In terms of guidance, looks like you had $0.06 of upside in the June quarter, and it looks like the upward revision in the EPS guidance may be a bit conservative, given the upside. Is there anything around that that we should be looking at?

It's a little bit -- we tend to be conservative and we're a little bit cautiously optimistic about the second half of the year. And to maintain the 15 to 20% long-term growth rate out there for '07 and beyond, we feel like we may need to hire some salespeople this year to get them on board and trained and ready to go before the year begins.

We're already budgeting for next year, and we really would like to make some investments in Q3 and Q4 to get us ready for (multiple speakers)

So typically, I know in the past there's been hiring in Q4 and Q1. You're thinking maybe you need to kind of move that up a little into Q3, more so than in the past?

That's right.

Okay. I know you don't provide 2007 guidance per se, but in terms of the harvest versus sow analogy, is it a safe bet to assume that 2007 is shaping up to be kind of a sowing year after 2006?

I think that's very appropriate. I think you're going to see us do some kind of cool new things next year. Of course we're deep [in the] planning right now, but I think that's a good characterization for next year.

I guess you already touched upon it a little bit, but I was just playing around with the numbers as far as syndicated versus non-syndicated in the September quarter. I know you kind of broadly spoke about 2006. Any directional insight as far as where we could see that mix that go in September?

For Q3, I'd say in the 63 to 66% range.

Okay. Just returning to the sales force, I know there's been a little talk about reducing discounting and implementing new compensation incentives. Does this vary by product, I guess, is my question? How does the old discounting approach differ from the new? Just a little more insight on how to frame -- how the discounting has been trending. Just a little more color on that.

The discounting rules are pretty much across the board. What I would tell you is that some of the incentive changes that we've made are product-specific, so, to push the syndicated products a little bit higher than (multiple speakers) and they are having traction (multiple speakers) first half of the year.

I'm looking at an e-mail I got from our head of sales in the Americas, who said that he has reduced discounting by 10 points -- 10 percentage points year to year. So, we're making very good progress on lowering discounts.

I guess my last question for now; I'll get back in the queue. Around international, it looks like it ticked down a little bit. Are there events targets or acquisitions out there, even in the pipeline, that would be event-focused internationally? I'm not sure what your coverage is right now as far as Leadership Boards with international clients at this point.

I'm not going to reveal to you our plans, but I will say that definitely on the horizon and within our sights are companies who will be doing events on an international basis. So you're on the right track.

And also the Leadership Boards, I guess -- I'm not sure if there's a competitor out there internationally that would compete on the Leadership Boards.

There are very small spot boards with 150 to 170 members in specific countries, but no general players.

That might be a good opportunity (multiple speakers).

Andrew Thut, BlackRock.

Just a couple of follow-ups on uses of cash. You guys had said previously that buybacks were only accretive to 22, and the BOARD decided to go ahead and buy back stock above those levels anyway.

We updated our analysis, and it turns out it's now accretive all the way up to about 30 or so as we look out to 2007 and forecast the P&L and (indiscernible) and take into consideration (multiple speakers) and interest rates. So that's certainly a factor. Also, we do have $182 million of cash on hand today. And we think the back half of this year would be a good time to -- I don't think we'll get all of the remainder of the buyback done, but get a lot of it done.

Just trying to tag onto that acquisition question, it sort of sounded like you guys had a pretty good game plan in mind for what you wanted to do on the acquisition front, but the valuations weren't agreeable. And certainly the market's corrected the last couple of months. Are you finding that some of those prospects are coming into range?

Yes. Well, I don't want to get too specific here, but I would say we are extremely active on this front, which means doing a lot of analysis, a lot of looking, a lot of examining. But, Andrew, as you know, we're also very selective. So, very active, but also very selective at the same time. I'd say that you're right, that pricing has declined somewhat, maybe 5% of that range, which is encouraging for us.

Okay. So more likely that we'll start seeing some activity on that front by the end of the year?

No. I'm not going to commit to that. Certainly if it's the right deal, we'll do it.

One point of clarification. Why have you decided to invest in salespeople earlier than you normally have if the economy is still chugging along? Are you finding it harder to sell? What's the thought process there?

We're looking -- salespeople take -- [it depends] on the person, of course -- between four and six months to ramp to get to full productivity. Business is good. We feel we have a very good strategy and we have a ton of opportunity. We're very -- I think we're under-distributed. There are many companies we haven't called on yet in the world. And so that all being said, we see opportunity for us in '07, '08, and we just want to start to hire for those opportunities earlier than -- rather than doing it in the first quarter of '07, we want to do it in Q3 and '04. It's really mainly going after the opportunity.

And if we're able to do that successfully, it tends to take a little bit of the risk out of the plan for 2007. If you already have an extra eight, 10, 12 (multiple speakers) people on board ready to go on January 1.

Last question. Deferred revenue grew 20% last quarter, 15% this quarter. Is that -- is the weakness in consulting, or the pullback in consulting incorporated in that?

A combination of two factors -- one, a little bit of the weakness in consulting, as George mentioned in his talk; but then also, a big dropout of the events revenue coming up. So we're selling a lot of those events seats and sponsorships, so it's going in there as deferred revenue as of March 31, and a lot of that revenue is coming out in the second quarter. (multiple speakers) a little bit of seasonality in there as well.

(OPERATOR INSTRUCTIONS). Sandra Notardonato, Robert W. Baird.

Let me be the first to say that it's kind of sad that Kim is gone, but we wish her the best of luck, of course.

We agree completely.

Absolutely.

First question. I'm a little confused on the term cautiously optimistic that you use not only in your press release, but on the call here. I hear you saying that the opportunity is very strong, you want to hire more salespeople, you don't see any faltering in Q2. So, is this a function of your inherent conservatism, or is there something that I'm missing?

I think it's a combination of the conservatism, as well as we just talked about the consulting miss in Q2; we've got to get that fixed and back on track for the second half of the year. So how quickly are we going to be able to do that may have a little bit of a factor into the back half of the year as well.

That fix may be operative in Q4, but maybe not in Q3.

Can we talk a little bit more in detail on what happened in consulting? Was it a concerted effort that was made to go after larger deals and the smaller deals were somewhat ignored? Can you just share a little bit more detail?

I think we drifted toward larger deals. We hired some salespeople who made kind of a rational economic decision that they will hunt elephants instead of deer, and they simply drifted in that direction. These sales cycles can be 90 days or 120 days in some cases. So we are pulling that back. We've done a tremendous amount of analysis around the deal size, time to close and profitability. We really -- we're now returning to a conclusion that Charles Rutstein made almost two years ago, that real profitability is between 40 and 70,000, and also speed to close is much higher in those deal sizes. That means you have more transactions, that means salespeople have to move, there's more motion for the salespeople, but that's really our sweet spot. So it's going to take us probably a quarter to get back to that sweet spot.

Do you have the right people, then, in place, or are you going to have to make some adjustments there?

There's some people changes inherent; not big people changes, but around the edges.

Another question. It looks like the dollar retention rate this quarter, if I'm not mistaken, was down a little bit. Is that right?

That's correct. It was down just about 2 percentage points.

Is there anything to read into there, or is it maybe seasonality, just --

There is a reasonably good explanation. We had a couple of deals that got delayed, pushed out from June renewal until July. So, given our strict cutoff, they were not technically in as of June 30th.

And they were very large deals.

And they were very large deals, several hundred thousand dollars worth of deals. That did have an impact on the number. I feel comfortable that had those deals not been held off, we would be looking at 87 to 88% for sure.

Great. And the enrichment rate was up nicely sequentially. Are we still targeting 115% for the year?

Yes, that's where we would like to be at the end of the year. I feel comfortable that we'll be double digits, and certainly would like to get up to 115%.

A comment that was made on the investments in the second half of the year -- do you see those investments more in the third quarter, and how should we be modeling the operating margin? You gave us the margin for the year; just wanted to make sure that I understand how to look at it for Q3 and Q4.

For Q3, the operating margin guidance there is 14 to 16%. We didn't give out any guidance for Q4. We're looking at 15% for the year. So we will start with some of that investment in Q3. In fact, I think we've already started to plan for it. And the action and execution will happen in the next couple of weeks, [certainly] couple of months.

Is it possible, though, that we see a sequential decline in operating margin in Q3, and then ramp back up in Q4, for a full year of 15%? Is that a reasonable way to look at it, or should I keep it -- or should we keep it a little flatter?

Given that we're at 17% in Q2, we're definitely going to be looking at more than likely a sequential decrease (multiple speakers) 14 to 16. And again, the reason is we have three events, and two of them are our flagship events, one in the U.S. and one in Europe. And the other is a (indiscernible) it's the Finance Forum, which has been around for several years, so pretty mature. In Q3 we only have two events. One of them is a new event and the other one is a relatively younger event. So they won't have as big of an impact on the revenue line or the profit line.

To follow up Andrew's comment on the buyback, was there anything else going on in Q2 outside of the share price that resulted in you not being active?

No, it was really the share price, and just wanted to get back to the Board with a fuller analysis, because we hadn't -- we talk about it every quarter, but we don't do a full-blown analysis every quarter, if you will. So we thought the time was right to do that.

Interest rates were increasing during the same period.

So it's not that you were looking at an acquisition or something like that that prevented you from buying back stock?

No.

That was a great quarter. Thank you very much.

Domenic Lacava, Canaccord Adams.

Just a follow-up on kind of the events business. You started to touch on it. It seems like it's maybe a little bit smaller in Q3, as you would expect. What was the contribution from events in Q2, and how should we be looking at that as far as Q3 comes? I know one is a new event. I'm just trying to anticipate, as the events roll around, how we should be thinking of those in terms of attendance versus last year.

Q2 just kind of -- it really -- momentum got going in late March and April, and it continued. So it ended up contributing nicely to the bottom line. We beat our plan on the revenue side in excess of $1 million. And I'd say 85 to 90% of that flows straight through to the bottom line, which is a big reason for the margin being at 17% and the EPS being where it's at. So in Q3, given, again, that we've got two events instead of three, and they're both smaller than the events that we held in the second quarter, at this point I wouldn't expect the same type of result.

Okay. So it's, obviously, going to be going down. That's it. Thanks, guys.

Laura Lederman, William Blair.

Following up on the acquisitions, would you do one that was dilutive?

No, probably not.

Another follow-up question. When you talk about consulting, and the bookings being weak because of the bigger deal size -- I think, George, you also mentioned earlier that there's been some pushback on the consulting pricing. Would you lower the pricing? In other words, what are the ways to get that back on track?

Possibly. We would look to lower some -- potentially lower the price. That may be (technical difficulty) we could -- we are actually examining that right now. There's a third factor there, Laura, and that is around Sarbanes-Oxley. The process has become hellish with the purchasers of consulting -- the contracts and the legalities. And again, that's exacerbated with a higher contract size. But what we're doing is we're improving our process around legal and also contract approval, to try and speed that up for the clients.

Kind of a strange question. You guys have a very visible business, and tend to always beat on revenues and a little bit beat on earnings. Does this issue of consulting make the Q3 numbers a greater risk than we'd normally see in a Q3, or normally see? I've covered you guys since the IPO, and it's been phenomenally, except in the bad markets, visible. So I'm trying to understand what this whole consulting thing means to (multiple speakers)

I think it means a little bit of a miss in Q2, and we've got a chance to get it back on track for Q3 and Q4. If we don't, I think the bigger risk is with 2007, not 2006. There may be some mild risk in the back half of the year, but it would mainly be deals that we'd be booking in the back half of the year that we'd carry and be done in 2007.

We have a good backlog of consulting, actually, at this point. So as far as revenue goes, that's not really at risk. It's really about 2007, probably Q2, Q3 2007, if that makes sense.

Following up on the whole Sarbanes-Oxley thing, it's been in place for a long time. Is it strictly the larger deal size? I'm trying to understand why Sarbanes-Oxley is so much of a bigger problem now, given that it's been in place for longer than one quarter.

Warren may have a better answer, but I'll ramble here a little bit and just say that [I think] Sarbanes-Oxley is rolling downhill. So it started deep in finance, and now it's rolling out to the purchasing side. And that's really taken 18 months to get there. But now it is there in force.

And now meeting up with, again, the larger contracts. The bigger the deal, the more compliance there is around it, or the more controls there are around them.

I must (indiscernible) I think that Sarbanes-Oxley is something we all are working through, we're all processing, and we're all going to improve our process, to the point where this is all going to, again, speed up again.

We show no further questions in the queue at this time. I would like to turn the floor back over to our speakers for any closing remarks.

Thank you for attending our Q2 conference call. We will be presenting at the Canaccord Adams 26th Annual Summer Seminar in August of this year, and hope to see many of you there or on the road later this quarter. Thank you again.

Thank you very much.

This concludes today's teleconference. Thank you for your participation.