Forrester Research Inc (FORR) 2006 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Forrester Research fourth quarter 2006 financial results conference call. [OPERATOR INSTRUCTIONS] It's now my pleasure to introduce your host, Phyllis Paparazzo, Director of Investor Relations for Forrester Research. Thank you. Ms. Paparazzo, you may begin.

Good morning, and thank you for joining our fourth quarter 2006 and year-end conference call. With me today are George Colony, Forrester's Chairman of the Board, Chief Executive Officer, and Acting Chief Financial Officer, Paul Burmeister, Senior Financial Advisor to the CEO, and Charles Rutstein, Forrester's Chief Operating Officer.

A replay of this call will be available until Wednesday, February 28th, and can be accessed by dialing 877-660-6853. Please reference the confirmation ID 227356 and the confirmation account 242. This call is also available via web cast 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 operations being 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 within 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 to turn the call over to Paul Burmeister.

Thanks, Phyllis, and good morning. Over the next several minutes, I'll review Forrester's preliminary fourth quarter and full-year results, the balance sheet at December 31st, our fourth quarter metrics, and the outlook for our business in Q1 and full-year 2007.

Before I begin, as we have previously disclosed, the Audit Committee of the Board of Directors is overseeing a voluntary investigation of certain practices related to the granting of stock options. That investigation is ongoing. We do not know the time frame for completion of the investigation nor do we know what the financial impact of the investigation is likely to be.

Our financial presentation today expressly excludes any historical impact of the investigation and any future guidance we provide also expressly excludes any impact of the costs associated with conducting the investigation or any possible accounting restatements associated with the investigation.

If the ongoing investigation were to result in a restatement of our financial statements, any stock based compensation charges incurred as a result of the investigation would be non-cash and would have the likely effect of reducing reported income from continuing operations, reported net income or net loss, and stockholders' equity. Additional balance sheet accounts may also be affected.

Please note that the preliminary income statement numbers I'm reporting for Q4 are proforma and exclude the following items. Amortization of intangibles, $462,000, net realized gain on sale of securities and non-marketable investments, $90,000, and non-cash stock based compensation expense, $2.5 million.

We continue to book an effective tax rate of 37% for proforma purposes. The actual effective tax rate for 2006 is approximately 43%.

The fourth quarter results for 2005 have been adjusted to reflect the reclassification of the ultimate business as discontinued operations after the completed sale during the third quarter of 2006.

Forrester's proforma fourth quarter results met the guidance provided on our third quarter conference call. Fourth quarter revenue increased 20% to $48.9 million from 40.7 million in the fourth quarter last year.

Net income increased 53% to $7.3 million and earnings per share was up 41% to $0.31 per share on diluted weighted average shares outstanding of 23.8 million, compared with net income of $4.8 million and earnings per share of $0.22 on 21.9 million shares outstanding in the fourth quarter of last year. We beat the fourth quarter consensus for earnings per share by $0.03.

Now for more detail on our revenue. Fourth quarter research services revenue increased 19% to $30.6 million from $25.6 million last year. Research services revenue comprised 63% of total revenue for the quarter, in line with our expectations. Fourth quarter advisory services and other revenue increased 22% to $18.4 million from $15.1 million in the fourth quarter of 2005, and comprised 37% of total revenue for the quarter.

For 2007 we expect research services revenue to comprise 63 to 65% of total revenue and advisory and other revenue to comprise 35 to 37% of total revenues. International revenues were 29% for the fourth quarter compared to 30% in the fourth quarter of last year. We expect international revenues to comprise 28 to 30% of total revenues in 2007.

Operating expenses for the fourth quarter were $39.1 million, up 14% from $34.1 million in the fourth quarter of last year. Operating income was $9.8 million or 20% of revenue compared with $6.5 million or 16% of revenue last year and was ahead of our guidance for the quarter.

Now turning to full-year results. 2006 total revenue increased 20% to $181.5 million from $151.4 million last year.

Net income increased 47% to $22.3 million from $15.1 million last year, and earnings per share for the full-year increased 41% to $0.97 on diluted weighted average shares outstanding of 23.0 million compared with $0.69 on 21.9 million shares last year.

Operating income for 2006 was $29.7 million or 16.4% of revenue compared with operating income of $20.2 million or 13.4% of revenue for the same period last year.

Now I'd like to review the balance sheet. Our balance sheet remains strong, our cash and marketable securities at December 31st, totaled $207.8 million. We generated $44.2 million in cash from operations during 2006. For 2007 we expect to generate approximately $45 million to $50 million in cash from operations.

During the year we used $12.3 million of cash to purchase 472,000 shares on the open market pursuant to our stock buyback program. We will not be repurchasing shares until the investigation into our options granting practices has been concluded. At that time we will resume our practice of repurchasing when it's accretive to earnings.

Accounts receivable at December 31st was $59.7 million, compared to $52.2 million a year ago. Our future accounts receivable balance, which represents amounts to be invoiced in the future for clients with multiple year deals or scheduled payment terms, increased 50% to $42 million at December 31, '06, from $27.9 million a year earlier.

Our days sales outstanding as of December 31, was 67 days, down from 71 days last year and accounts receivable over 90 days was at 6% compared to 7% a year earlier. Net property and equipment decreased to $5.6 million at December 31st from $5.7 million a year earlier.

Our capital spending for the year was $3.3 million. Our capital spending plan for 2007 is $3.5 million.

Deferred revenue at December 31st was $99.8 million, up 15% over December 31st, 2005. If you include future accounts receivable, total deferred revenue grew 26% during that period. Double-digit growth in deferred revenue and future accounts receivable is a positive leading indicator for future years.

And now I'll review some additional metrics. Agreement value, the total value of all of our contracts for research and advisory services in place without regard to the amount of revenue that has already been recognized or has yet to be recognized was $172.8 million at December 31st, an 18.5% increase from last year.

For 2006, Forrester's retention rate for client companies was 79% and our dollar retention rate was 86%. Both retention rates are calculated on a 12 month rolling basis and are in our target range. Our enrichment rate was 112% for 2006.

At the end of the fourth quarter, our total number of client companies was 2,312, up 305 over the year, and exceeding our target of gaining 250 to 300 net new clients for the full-year. For 2007 we expect to add 300 to 350 new clients.

For head count at the end of the year, Forrester had a total staff of 779, up 13% from 693 a year earlier. Current head count includes a research staff of 291, which is up 13% from a year ago, and sales staff of 270, up 18%.

The last topic I'd like to cover today is our business outlook for Q1 and the full-year 2007. Once again, this outlook expressly excludes the impact of the ongoing investigation. Any impact of the costs associated with conducting the investigation or any possible accounting restatements resulting from the investigation are excluded.

Our proforma guidance for Q1 and full-year 2007 excludes the following. Amortization of intangible assets, which we expect to be approximately $400,000 for Q1 and 1.3 million for full-year 2007, gains or losses or impairments on sales of marketable securities or non-marketable investments, non-cash stock based compensation expense of $2.5 million to $3 million for the first quarter and $10 million to $11 million for the full-year.

For Q1, we're aiming to achieve total revenues of approximately $44 million to $46 million, and operating margin of 7 to 9%. Interest income of approximately $1.8 million. We expect to apply a proforma income tax rate of 39% and we expect to achieve proforma diluted earnings per share of approximately $0.12 to $0.15 .

We are setting full-year guidance as follows. Total revenues of approximately $207 million to $212 million, a proforma operating margin of approximately 16.5 to 17.5%. Interest income of approximately $7 million.

We will continue to apply a proforma income tax rate of 39%. And we expect to achieve proforma diluted earnings per share of $1.02 to $1.06.

We have provided guidance on a GAAP basis for Q1 and full-year 2007 in our press release and 8-K.

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

Thank you, Paul. And thank you to everyone for joining today's call.

I will summarize the fourth quarter and full-year 2006. I will then update you on our plans for 2007. And after my remarks we will take questions.

To summarize our fourth quarter financials, total revenues increased 20% to 48.9. On a GAAP basis Forrester reported net income of 5.5 million or $0.23 per diluted share, and on a proforma basis net income was 7.3 million or $0.31 per diluted share.

For the full-year 2006, total revenues increased 19.9% to 181.5 million. On a GAAP reported basis, Forrester reported net income of 16.2 million or $0.70 per diluted share. And on a proforma basis, net income was 22.3 million or $0.97 per diluted share.

The Company continues to add clients, we ended the quarter with 2,312 client companies. A net increase of 39 clients from Q3 and a net increase of 305 clients from year-end 2005. New 1B plus client companies signing on in Q4 included American Life Insurance, Bank of Ireland, Georgia-Pacific Corporation, Olympus America, Telemundo Group and Stop and Shop.

I would now like to review progress for each of our products starting with research. Continuing the trend we established in the first half of the year, sales of WholeView 2 remained strong. Overall, WholeView 2's revenue growth was 13% year-over-year.

In Q4, 377 new research documents were added to WholeView 2. The three research documents most used by our clients in the quarter were IT Operations and Systems Management, The Next Five Years. This was a trends piece in the computing systems area.

The Top 10 Ways to Improve Your Website Experience. And this was a best practices guide from the customer experience research group.

And finally, U.S. IT Spending Benchmarks for 2006. And this was a best practices guide from our IT spending and budgeting research group.

5,074 WholeView 2 clients attended 83 research conference calls in Q4. The most highly attended teleconference of the quarter addressed applications development and it was entitled, "The Root of the Problem, Poor Requirements", and it was attended by 269 clients.

Turning now to Forrester leadership boards, this business has exceeded -- this business exceeded our plans in Q4, as it has done all year. The CIO Group, our board of technology leaders, now has 254 members. The technology council is now the total of 256 members. The analyst relations and technology marketing councils added members for a total of 209. Our three marketing focus boards for CMOs, direct marketing professionals, and interactive marketing executives, ended the quarter with 122 board members. So, at the end of Q4, the total Forrester leadership board membership reached 841. For the full-year 2006, revenue in our board's business expanded 48%.

Turning now to our data business. Revenue for Forrester's Technographics Data and Services, we call this TD&S, grew 25% year-over-year. TD&S gathers and analyzes data on consumers from 15 countries in Asia, Europe, and North America, constituting 70% of the world's GDP.

For North America in Consumer Technographics, we added 15 1B plus companies including Lenovo, Motorola, and the Royal Bank of Canada. Hispanic Consumer Technographics added Telemundo, ESPN, AOL, and WPP, among others. And finally, Asia Pacific Consumer Technographics added global clients including Cisco, Motorola, AMD, Ajax, that's the European financial services firm, and HP.

Turning to Forrester's consulting business for Q4. World wide consulting revenue grew 14% over Q4 2005. And consulting grew 16% for the full-year 2006.

As we talked about on the Q3 conference call, the events business continues to perform at high levels. We held three events in Q4, the financial services forum EMEA in North America and consumer forum and the consumer marketing forum EMEA. Events had a strong year expanding from 3.6% of company revenue in 2005 to 4.9% in 2006.

I now want to turn to our plans for 2007.

Throughout the history of the Company, we've always looked for better ways to bring value to our clients. This drove us to be the first research company on the web with E research 1.0 back in 1996, to launch Technographics, our primary consumer research suite back in 1998, to offer WholeView and to be the only technology research company with a money back guarantee.

Keeping with our history of innovation, Forrester is intensifying its focus on the responsibilities and titles of our clients. What we call roles.

This strategy builds on the success we have had with Forrester leadership boards, by bringing a role focus to all aspects of our business -- research, data, consulting and events. We believe that being role based will yield the highest value for our clients.

Forrester is now focused on three client groups -- IT professionals, marketing and strategy professionals, and professionals in the technology industry.

These three client groups address 17 roles, 8 in IT, 5 in marketing and strategy, and 4 in the technology industry. An 18th role encompasses all of these, we call this the generalist role.

Now, you may be confused as to what a role is. Examples of roles would be enterprise architect in the IT space, interactive marketer in marketing and strategy, or analyst relations professional in the technology industry.

Forrester's strategy is supported by a new organizational structure which was put in place on January 1. As CEO, I will focus on strategy and external audiences. Charles Rutstein, Chief Operating Officer, will concentrate on execution of the strategy. Three managing directors operate the three client groups. Julie Meringer in IT, Dennis Van Lingen in marketing and strategy, and Mark Nemec in technology industry.

The three client groups will operate globally, a change to our former structure which was geographical. The client groups contain full sales, research, marketing, consulting and FLB staff.

All of our products including research, boards, data consulting and events are now specifically targeted at the 18 roles.

The Company's course indicated research product was changed on February 5th, from WholeView 2 to RoleView. RoleView provides enhanced relevance to our clients based on, number one, separate sites for each role, containing the research relevant to that role. Number 2, new role specific tools including work books, quick benchmarks, presentations and vendor product catalogs. And finally, peer-to-peer access and knowledge sharing that taps the collective experience and wisdom of the professional communities.

The effort to move the Company to role based has been ongoing for many quarters, development of the sites began over a year ago. Over 1,500 clients have been in beta test in the new sites for over six months. And as of yesterday, over 11,000 Forrester clients have made the transition to the new sites.

Client feedback has been positive. Clients tell us that they value faster, easier access to relevant content, best practices revealed by role, helping them avoid mistakes, and finally a quick understanding of technologies relevant to their role, keeping them current in their jobs.

Being role based helps Forrester. If I had to summarize in two words, they would be higher relevancy. Our research will be more on point and therefore of more value to our clients. Our sales force will develop expertise in a set of roles, increasing its productivity and efficacy. Our analysts will be fluent and immersed in the challenges of our clients, increasing their knowledge and effectiveness. And finally, roles translate well world wide, accelerating Forrester's business outside the U.S.

We believe that over time, role base will drive our financial performance through higher renewal rates, engendered by higher relevancy, wider enrichment of existing relationships, given the range of the 18 roles, and finally, faster close rates on prospects, driven by a clear and simple value proposition.

So to conclude, we are pleased with our financial performance in the fourth quarter and year end 2006. We are excited about the added relevancy, alignment, and simplicity of our role based direction and believe that it will have the highest -- it will yield high value to our clients and enhanced business performance to Forrester over the next 3 to 5 years.

We'll be visiting investors in the first quarter and we hope to see many of you out on the road. Thank you for listening to the call. I have asked Charles Rutstein, our COO, to join us for Q&A, and now we will take questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Laura Lederman with William Blair.

Yes, good morning. Just a few questions. For the 18 role, does that give you the ability to raise pricing over time, and also, how does it differ from Gartner's research for IT leaders? Also, I want to look a little bit at Q1, where the EPS is flat up over last year in revenues up only 8 to 13% from where it is flowing. And I guess on a similar base for full-year 07 why the cash flow would uninfluenced by that? Thanks.

Laura, that was three questions.

Yes.

You'll get three answers. On pricing, as you know, we've had three price increases over the last 2 years, we're going to let the dust settle here on Role View and the role-based strategy. We're doing a lot of analysis right now, and any price changes would be approximately at mid-year. So that's -- I guess to answer your first question, we don't have enough information yet, we're going to analyze the first 6 months and then make a decision. So that's the answer on pricing, I'm going to give the floor over to Charles to talk about the other --

You had a question? Hi Laura. So the question on Gartner for IT leaders, Gartner among others, has a role-based offering, I think the distinction as we see it, that for us it is a single unifying principal. It's one that pervades the company, we go to market singularly in this way, which yields great clarity for people across the organization, that means sales people as George said, specialize in selling to a particular audience, they get better at it. Analysts write to a particular audience, a much narrower audience and get better at it. It's also a universal theme, globally for us. Which means that a CIO in London, or in Paris, or in Tokyo, has many of the same things in common, that helps us to globalize our business.

This is Paul Bermeister, talking about first quarter revenue growth and earnings per share. We anticipate a shift in 2007 toward syndicated revenues, so a higher percentage of our revenue coming from syndicated versus non-syndicated. What that does though is push more of the actual recognition of that revenue out into later periods and on into next year. So there is some first quarter impact from that. Then the additional impact has to do with the transition to the role-based organization, and the organization shifting gears to the new structure. And that carries down to earnings per share, particularly in the first quarter, when we have some transition expenses associated with bringing the new role-based organization into play.

Follow up on that, why wouldn't that transition of the sales force negatively impact revenue generation in Q2? I realize you recognize revenue prorata of elect of the contract, I understand that, but why wouldn't that impact what you can recognize in quarter in Q2.

I think what you're -- I'm not going to have a precise answer for you here, but it's really about, it's events related, Laura. The seasonality of events. Know what events in which quarter? You're talking about why it's going to impact negatively Q2? Because we have our big events in Q2.

Okay. Good point. And finally, the cash flow, why relatively flat in the low-end of guidance.

Well, I think we said that it would come in 10 to 20% ahead of last year, is my recollection of what I -- what my number was. So it is flat, I guess it's still very healthy cash flow. It's just not growing directly in line with revenue. Okay, so I'm sorry, we said cash flow for '06 of 44, guidance of 45 to 50 for next year, so --

10% --

Over 10% on revenue increases about 18%?

I think some of this is driven by the syndicated as well.

Yes.

Yes, by the syndicated shift.

With syndicated you get the cash all up front, they don't pay prorata like you recognize the revenue.

Yes. We get a lot of people looking at numbers right here, Laura.

Let me do a little bit more thinking about that and get back to you.

Well, when mathematically, it's only a 2% increase in free cash flow, from 44.2 to 45 so that's not 10%, it's 2%, anyway --

No, but the high end of the range is 50 is above 10%.

Right, but the low end is essentially flat. Anyway.

We'll get back to you, Laura.

Thank you.

Good question. Can I answer your questions out there.

Our next question is from Dom LaCava with Canaccord Adams.

Good morning everybody.

Hey Dom. How are you?

I'm doing all right. I'd still like a little more color on Q1 as to why EPS comes down, I realize there's going to be a transition, but how will that break up between G & A and selling and marketing. I heard a couple things in there as far as [rejiggering] the sales force, is it going to be costly to retrain or refocus sales? And then, also, what else in G & A can we be thinking about? That's pretty significant --

Oh, okay. Real specific non-repeatable? I mean, non-repeatable in future quarters, we invested in bringing every employee of Forrester from around the world to Cambridge for a kickoff meeting a couple weeks ago, there a very, very successful meeting, we had people who had talked to each other on the phone, but never met. Had the opportunity to meet, I think it was an important part of introducing the role-based structure to Forrester, and the cost of doing that for 800 people, as you can imagine, is not insignificant. And that accounts for, effectively, a couple cents per share of earnings in the first quarter, that's not a repeatable expense.

Okay.

That's the major factor, there, Dom.

But in terms of retraining of the sales force, things like that, we don't see that as being a major investment.

Okay. I'll look at that a little bit -- in a little bit more detail. Moving on to the leadership boards, obviously you had nice growth there, a 48% growth, what are the expectations for '07 as far as growth? And there's data point out of a competitor, Corporate Executive Board as far as seeing a down tick in their outlook. How do you position your product versus their product and what are the growth expectations?

It's a long -- a long answer here Dom. I think the differentiation really is that if you look at our portfolio, we are -- we sell, of course, leadership boards, but we're also role-based now with -- in consulting, in events, in data, and in research. So we see -- in looking at Corporate Executive, we see ourselves as having a much broader portfolio than that company. And taking role base to other businesses and not just to boards.

Okay. And what's the growth expectation for '07?

Yes, Dom. It's Charles. The revenue growth rate we're expecting '06 to '07 is approximately 75% year-to-year. That business as you probably know, tends to accelerate once it gets to a certain scale. The very first member in any new leadership board, for example, is the hardest one to get. Once you've reached the scale that we now have, we're continuing to see nice acceleration on it.

Okay and that includes -- okay, so that's a pretty impressive number, does that include expansion of 1 to 3 new leadership boards that were mentioned before?

That's correct. I think can you count on at least one new launch and as many as three new launches this year.

We're not disclosing the specifics at this time.

Anything in Q1?

I don't think we're ready to talk about that, no.

Okay. That's fair enough. And then what are the total number of planned events for '07?

I think it's 11.

Okay. And then looking at the operating margin, it looks -- and I know that this is just sort of an expected year for investment as far as the harvest versus sow, it looks like operating margins are flat. Can we point to that Q1, one-time, type of situation, is that pretty much how to look at the overall operating margin for the year.

Yes, that's certainly a big part of it. The Q1 impact carries over to the full-year. And also the shift toward syndicated revenue has an impact on operating margin as well.

Just to give you approximate insurance indicated. As you know we were thinking that 35 was a good balance for us. We're looking to tune that to 67.33. As approximate targets.

Okay. So if you had mentioned 70.30, and I guess we're just heading in that direction going toward 70.30?

That would be a great thing.

Okay. And then attrition, how has that been turning? I know you were operating it at levels that were higher than your norm. What did you see in Q4 and what are you seeing so far for '07?

For 2006 our attrition, voluntary attrition was under 20%. Just under 20%.

Okay.

We don't see that accelerating in '07.

However, it -- just to give you some color. You --

I think it's fair to say that we saw a deceleration of attrition in Q4, we saw a spike kind of midyear, we talked about that on prior calls. So there was a deceleration, I think, as Paul said, we certainly don't expect to see any acceleration from the full-year number, and it would be my hope that that's going to come in lower next year.

Okay.

Just -- I guess we can talk about it now. We couldn't talk about it last year, but I think some of the acceleration of attrition at least in research was driven by the change in strategy. There were some analysts who just -- they didn't like where we're headed and decided to move out. So that's now, we can now explain that to you.

Okay. And you're seeing that kind of iron itself out? I mean, is that -- can we expect that to continue or is this just a natural shaking out of -- I guess what you're saying is a natural shaking out of a change in strategy?

I think that's certainly true. There was -- you know, this is a one-time momentous event for us as a company. There's no question as George said, that that shook some people out of the company. The other side to this equation, of course, is our ability to attract and hire new analysts and we've been doing that at an aggressive clip. We did so in Q4 and are continuing to do so in Q1. We're hiring quickly, and I have to tell you that the quality is very, very high.

Okay. Okay. And then lastly, I guess, a little bit on the CFO search, just qualitatively. You know, what you're looking for in terms of a new CFO, and Paul how you're working with George in that CFO search, and what are the qualifications specifically that you're looking for in a new CFO?

I think we're looking for, obviously, they're all the basics, including public company. I would like someone with M & A experience, obviously, when we're running this much cash, you know we've talked about it in the past. The money can go two places -- one of two places, be it buybacks or we are going to be acquiring other companies. So I think, some excellent M & A background would be a big help here. But someone with wisdom. These are difficult times, and someone who's gone through some wars -- I think it's important that we have that at this point. And you may want to the talk Paul a little about your role in the CFO search.

Sure. Well, I'm really here to advise George, who is many things, but he's not a CFO. So in his role as acting CFO, I can help him. And what I can bring, I think, is the experience to guide George in that selection process, and help him to understand that balance that any candidate is going to bring to the role of maturity and wisdom and experience and ultimately I view my responsibility in that as making sure that Forrester winds up with the right CFO for the next 10 years of its history.

Got it. Okay. Thanks guys.

Thanks Dom.

[OPERATOR INSTRUCTIONS] Our next question is from Sandra Notardonato with Robert W. Baird.

Hi. Thanks for taking my question, I was wondering George or maybe, Charles, if you could provide some perspective on the year that you made the transition to WholeView, what was the impact entering the year in Q1, in other words, are we seeing the same type of impact here as we transition to the role-based leadership type? Or the role-based product offering?

Hi, Sandy, completely different world, that was in 2002, and it was deep in the tech recession, just completely different environment. So I don't really -- I haven't actually harkened back to that to look for financial comparisons here.

Okay.

I think maybe a better comparison would be Gig and Forrester coming together.

Okay.

So if you look at 2004, that was really,as you know, we were quite ambitious, we were not ramping as, quite to the ratements that we were looking for in 2004. And it took a while to shake it out. Essentially. So I think that's really more analogous.

Right. And in 2004 if I look at the results, both, from Q4 to Q1. Actually in 2004 and in 2005. There was a sequential decline of about 10 to 11% in each one of those years, are we -- is this quarter, this upcoming quarter Q1 versus Q4 of '06, the sequential decline similar to what we saw in those years?In other words, is there some seasonality here as well that we should be focussed on?

In generalities, they're quite analogous. And there is some seasonality going on here. As you might imagine we spent January and lots of February in transition mode. We had everyone in the company here for a week, we were spending a lot of time focussed on getting ready, rather than doing business, so I think that's what's driving us.

Okay.

Charles may have some thoughts here too.

I think that's right, I mean, I think if we contrast the WholeView and role view changes, you'll find that role view is just a lot more invasive to the company, we're changing a lot more about the organization. We're changing a lot more of the job design and the functions that people do every day. And so, you know, as George said it does feel materially different.

Okay. And so the bookings then in Q1 to Q4 is going to be much more accelerated here in 2007, but the retention rates, do you anticipate the retention rate still within the historical range? In the first quarter?

Do you mean moving bookings from Q1 to Q4?

Correct. I'm trying to get a sense of --

It's not much accelerated but looking at the numbers, it is -- it is -- it's appreciable.

Okay.

I mean, yes.

And so in this first quarter, what percentage of the business needs to be renewed in order to make the number for 2007?

I'm not sure how to answer the question, except as you know, it goes 20, 20, 20, 40.

And that hasn't changed?

That hasn't changed. I mean incrementally. Very small.

Okay. In your guidance for Q1. Is there any change in terms of what you're expecting on client or dollar or enrichment rate retention?

I would say no. I would say that -- given that we've been in beta test for now over 6 months, 1500 clients, and now over 11,000 are now in the site. I have to tell you the feedback is great.

Okay.

We're getting. I mean, I'm looking at Charles here, but we're getting just terrific feedback. One of my favorite bits of feedback, Sandy, was we had a client who is in the S&RM site, S&RM is the security and risk management, who said, "God, it's great, you have all this new content. " And in fact, there wasn't any new content. We simply had re-tagged the content so it was now revealed to them.

Okay.

So we get feedback like that. It's just simpler to use, simpler to access.

How many more clients need to be transitioned?

Through the year, I'm going to -- I think it's 65,000 total?

65,000. Okay. A couple other questions on that -- on how you're pricing. Can you tell me what the pricing model looks like for Role View versus WholeView.

The pricing model is similar, it's a fee-based model. And -- for the moment, as George said, we have not revisited the pricing, so the price today for RoleView is the same price we've been selling WholeView at. And as George said, we will look at that over time.

Okay. A couple of other questions.

Oh and Sandy. Sorry to interrupt. One important distinction here is we are not slicing.

Right.

Okay, so if you're an S&RM client you're in the S&RM site, you're able to see all the other research as you were in WholeView.

Okay. So you're getting the same price for essentially -- actually, you're seeing more -- or it's organized differently.

I would argue more value. But you're able to see all of our research, we're not limiting clients.

Okay. Gartner mentioned that they are looking at potentially raising prices 3 to 5%. I know that you're not in discussion to do that currently. Probably going to be something that you review at the middle of the year.

Yes.

What would preclude you from raising prices?

I think it's really a calculation of the value perceived by the client. In an understanding, you know, in a very deep way of how they're using it, how much value they're perceiving and actually receiving from us, it's really understanding that side of it. I tend to be less competitively focussed when it comes to pricing and more focussed on the client.

Okay. And then another one of your competitors, Corporate Executive Board indicated a lengthening of the sales cycle in Q4 and actually some business deferred from Q4 to Q1. Did you see any of that in the renewal process for your fourth quarter.

No.

Okay. Last question. I guess this would be for Paul. Tax rate from 37.5 from what we saw in 2006 going to 39% in 2007, did you mention the reason for that?

No, I didn't mention the reason, but what we're trying to do is 35% for proforma purposes in 2005. And in 2006 we're looking at a GAAP tax rate somewhere on the order of 43%, so what we're trying to do is move the proforma rate closer to what we think the long term GAAP rate is going to be.

Oh, I see. Okay, that makes sense. And actually, I do have one other question. Do you have any costs associated with the options backdating, investigation in the fourth quarter, show up in G&A?

The very small amount. Does somebody have a -- we have some noise on the phone here.

I think it's my phone. I apologize.

Okay. All right. Well, I can answer the question. We had about $240,000 of expenses that showed up in the fourth quarter, G&A. Associated with the investigation. And we are excluding all costs associated with the investigation from our 2007 guidance.

Okay, so that will show up in the -- that will be -- it's -- you will discuss what those costs are and show that in the GAAP numbers, though?

I'm sorry?

You're not including that in the proforma guidance, but you will include it when you provide your -- is it in GAAP or it's not in any of the numbers right now.

It is in GAAP.

It is in GAAP.

And it will be, of course, disclosed in future GAAP reporting.

Okay.

But we're not going to discuss the components of that.

Okay. Great, thank you very much.

I can answer the -- I think I can answer the cash flow question that came up earlier. I think there are really two components to that. One is that we're seeing more and more acceptance by customers of multi-year deals, and for those multi-year deals which lock our customers in for a longer period of time, that's a plus, the cash flow impact is that those are invoiced quarterly. So some of that cash flow moves out into subsequent periods, another thing is that we had very, very low day sales outstanding at year end and our model for this year just didn't assume that we would be as successful in keeping that number low. So there are a couple of components going on with cash flow.

Yes and just to clarify, Paul talked about locking in for a long period of time, as you know no one -- no client is locked in, we have a money back guaranty at any time.

Sorry.

We have a long term relationship. Cementing the relationship.

There you go. Thank you.

I'm showing no further questions in cue at this time.

Thank you very much for being on the call.

We look forward to seeing everyone on the road this quarter. And definitely give us a call if you have any questions or need any further clarification on what was discussed in the call today.

Thank you very much.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.