Forrester Research Inc (FORR) 2007 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Forrester Research third quarter 2007 financial results conference call. (OPERATORS INSTRUCTIONS)

It is now my pleasure to introduce your host, George Colony, Chairman and CEO of Forrester Research. Thank you, Mr. Colony. You may begin.

Good morning, and welcome to Forrester's Q3 2007 conference call. My name is George Colony and I'm Chairman and CEO of Forrester. Starting off the call this morning is Mike Doyle, Forrester's newly arrived CFO. Mike has large company experience at Pepsi and Dunn and Brad Street among other companies, and he joins us after working as a CFO at Easy Link, a publicly traded tech company. Mike has had major impact in the six weeks that he has been at Forrester. He will be a great asset to the company and to our investors. So, I would now like to introduce Mike Doyle.

Thanks very much, George. Good morning and thank you for joining our third quarter 2007 call. With me today are George Colony, Forrester's Chairman of the Board and Chief Executive Officer, and Charles Rutstein, Forrester's Chief Operating Officer. I will open the call and provide details on the financial results for the quarter. George will follow me and provide a strategic update on the business and our role-based strategy. After George completes his review, we will open up the call to Q&A. As a note to those on the call, we issued a corrected press release this morning which detached a revised statement of cash flows. The statement included in yesterday's release had a mathematical formula error in the 2006 cash flow. The P&L and balance sheet were unaffected by this change, and our 10-Q filings contained the correct statements. A replay of this call will be available until December 4 and can be accessed by dialing 201-612-7415. Please reference the confirmation I.D. 262397 and the confirmation account number 242. This call is also available via web cast and will be archived in the investor section at forrester.com.

Before we begin I would like to remind that you 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 my review of the financial performance for Forrester's third quarter and year to date results. The balance sheet at September 30, our third quarter metrics, and the outlook for our business for the remainder of 2007, but before I get started with the details, I would like to comment on a couple of important items. When we started 2007, Forrester established three major objectives. First, complete the option investigation and restate the financial results. Second, move the company to a role-based strategy to enhance our client experience. And finally, deliver 2007 revenues in the range of 207 to 212 million, pro forma operating margin in the range of 16.5 to 17.5%, and pro forma diluted earnings per share of between $1.02 and $1.06. I'm pleased to report we are on target with our progress against all of these objectives. In the last 24 hours, we filed our quarterly statements for each of the first three quarters of 2007 which, coupled with the filing of our 2006 10-K on November 5, put us back in compliance with both the NASDAQ and the SEC. Our internal options investigation is complete, and the necessary internal control changes have been implemented.

We are making good progress on our role-based strategy which George will talk about in greater detail in a few minutes. I will detail our outlook later in my comments, but we expect to deliver revenue and pro forma operating margin within the targeted ranges and our pro forma EPS above our original target. Overall, through the first three quarters of 2007, we have made good progress against some pretty ambitious goals and challenging circumstances. Now, let me turn to the third quarter results. Please note that the income statement numbers I'm reporting are pro forma and exclude the following items: Amortization of intangibles, costs related to the stock option investigation, and restatement of the company's historical financial statements, and gains or impairment charges related to nonmarketable investments. Also, we continue to book an effective tax rate of 39% for pro forma purposes. The anticipated actual effective tax rate for 2007 is approximately 32%. In our previous call, we provided no guidance for the quarterly results, so our comparisons will be to prior year only.

Let me get started with revenue. Forrester's third quarter revenue increased 16% to 51 million from 44 million in the third quarter of last year. Net income increased 10.6% to 6.7 million and earnings per share were up 7.7% to $0.28 on diluted weighted average shares outstanding of 23.7 million. This compares with net income of 6 million and earnings per share of $0.26 on 23.4 million shares outstanding in the third quarter of last year. Third quarter research services revenue increased 11% to 32.9 million from 29.7 million last year. Research services revenue comprised 64% of total revenue for the quarter. This percentage of syndicated business, which we call Q, is an important driver of our profitability. Over the next several quarters, we intend to increase the Q percentage. George will talk more about our plans in this area during his presentation.

The third quarter advisory services and other revenue increased 26% to 18 million from 14 million in the third quarter of 2006, and represented 36% of total revenue for the quarter. The increase in advisory services and other revenue is primarily due to continued demand for our advisory services. For 2007, we expect advisory and other revenue to constitute approximately 37 to 38% of total revenues. International revenues were 29% for the third quarter compared to 28% in the third quarter of last year. We expect international revenues to represent 29% of total revenues in 2007, which is up slightly from a year ago, primarily reflecting the appreciation of the Euro and pound against the U.S. dollar.

Now I would like to provide a little perspective on our products. And review our progress in each of those areas. First, research. In the third quarter, 489 new research documents were added to role view. 51,625 clients have now chosen a role. The top three roles are application development and program management professionals with 5300 clients. Strategy professionals with a little over 5000 clients. And enterprise architecture professionals with 4,937 clients. We hosted 84 teleconferences in the third quarter with a total attendance of 4,936 participants. All 17 roles were represented.

Forrester leadership awards, our peer offering for senior executives, continues to perform well. The five boards focused on I.T. roles now has a total of 612 members. Technology industry boards include the analyst relations and technology marketing counsels with a total membership of 236. Finally, the marketing and strategy boards, which include the CMO group, the database marketing counsel, and the interactive marketing counsel, now have a total membership of 158. At the end of the third quarter, the Forrester leadership boards had 1,006 members. The FLB business is on track to attain revenue growth of between 70 to 72% in 2007. In our data business, we continue to add to an impressive list of clients. The North American consumer technographics added or renewed 13 one billion plus companies including Anheuser-Busch, Microsoft, and Wal Mart. Our European consumer technographics added or renewed six $1billion companies, including British Airway, L'Oreal and BMP Paribus. Our Hispanic technographics added search new client force a total of 34, including E-Bay and Inter-public.

The demand for our consulting services remained robust in the third quarter. During the quarter, consulting sales were seasonably strong, which bodes well for future revenue recognition. And our events business continues to be strong, with substantial growth in both sponsorship and attendee sales. We hosted two I.T. role-based events in the third quarter, the security forum and the tech leadership forum. In the fourth quarter, we will be holding two marketing and strategy events and two I.T. role-based events. In marketing and strategy, we have the consumer forum for North America and the consumer marketing and financial services forum for EMEA. The I.T. roles, services and sourcing forum in North America, and services and sourcing forum for EMEA.

Now, let me move back to the P&L. Operating expenses for the third quarter were 42.4 million, up 17% from 36.1 million in Q3 of last year. The operating expense increase was primarily driven by higher net head count in both sales and research. This was the result of lower-than-anticipated attrition combined with increased hiring of sales and research analysts bringing these groups close to targeted levels. This investment in revenue producing resources will pay dividends in 2008 as we train and ramp these employees. Operating income was 8.8 million, or 17% of revenue, compared with 7.9 million, or 18% of revenue last year. The slight decline in margin year-over-year reflects the lower mix of syndicated revenues which generate higher margins than advisory services, and the net addition of sales and research head count in the third quarter.

Turning to Forrester's year to date results. Total revenue through September 30 increased 16% to 153.6 million from 132.5 million in the same period last year. Net income increased 25% to 18.8 million from 15 million last year. And earnings per share for the nine months ended September 30, increased 20% to $0.79 on diluted weighted average shares outstanding of 23.7 million compared with $0.66 and 22.7 million shares last year. Operating income for the nine months ended September 30 was 24.7 million or 16% of revenue compared with operating income of 19.9 million or 15% 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 September 30 are $239.4 million, up 31.6 million from our year-end 2006 balances. We generated a healthy 29.2 million in cash from operations year to date which is down 19% from prior year due to costs related to the stock option investigation and restatement of historical financial statements, foreign tax payments, and increased DSO reducing our cash collections performance. Our accounts receivable at September 30 was 35.7 million compared to 29.9 million as of September 30, 2006. Our day sales outstanding at September 30 was 77 days, up from 70 days last September 30. And our accounts receivable over 90 days was 16% at September 30, up from 13% last year. The increase in accounts receivable over 90 is primarily the result of an increase in consulting projects in process.

Net property and equipment increased 6.6 million at September 30 from 5.6 million at the end of 2006. Our capital spending for the quarter was 965,000, bringing year to date CapEx to 3.8 million. Deferred revenue at September 30 was 85.2 million, up 13.7% over September 30, 2006. Our future AR balance, which are amounts to be invoiced in the future, for clients with multi-year deals or scheduled payment terms, increased 17%, to 33.6 million at September 30 of this year from 28.8 million at September 30 last year. We view deferred revenue and future AR as good leading indicators of expected business performance. If you include future accounts receivable, the deferred revenue grew 14.6% for the third quarter of this year versus last year.

I will now review third quarter metrics providing both third quarter and year to date performance where applicable. First, agreement value. This represents the total value of all contracts for research and advisory services in place without regard to the amount of revenue that has already been recognized or is yet to be recognized. And this was 177.5 million at September 30, an 11.9% increase from last year. At September 30, Forrester's retention rate for client companies with 72% and our dollar retention rate during the same period was 84%. Our enrichment rate was 105% for the 12-month period ending September 30. This decline in performance reflects sales attrition in the first half of 2007, and sales execution issues in Europe and Asia. We have taken steps to improve performance in these areas with additional staffing in the U.S. and organizational changes internationally. At the end of the third quarter, our total for client companies was 2,407, up 43 from the prior quarter and 95 from year-end 2006.

For head count, at the end of the third quarter, Forrester had a total staff of 905, up from 779 at year-end. Current head count includes a research staff of 331, up 33 from year-end, and a sales staff of 317, up 47 from year end. A substantial portion of our head count increase occurred in the third quarter. The last topic I would like to cover today is our business outlook for the fourth quarter and full year 2007. In summary, we have made substantial progress in the first nine months of the year. We've completed the restatement of our historical financials, regaining compliance with the NASDAQ and the SEC. This, coupled with the strength of our balance sheet, allows us to pursue strategic alternatives for our cash for the right opportunities. We are also progressing well with our role-based strategy.

I would like to make an observation based both on my prior experience and my analysis of the Forrester business in the short time I've been CFO. This is a healthy business. Generating double digit revenue and earnings growth. We certainly have opportunities to improve margin and sales execution and we have plans in place. The market opportunity is substantial, and we are well positioned to continue growing this business both organically and through acquisition. In addition, we have the ability to improve shareholder returns through the strategic buyback of our shares. I'm pleased to announce that the board has approved an additional $50 million for this purpose. For the balance of this year, we are planning on meeting or exceeding the financial targets we outlined in February of this year. Our pro forma guidance for the fourth quarter and full year 2007 excludes the following: Amortization of intangible assets, which we expect to be approximately 300,000 for the fourth quarter and $1.3 million for the full year 2007 and gains and impairments on sales of marketable securities and nonmarketable investments, and costs related to the stock option investigation and restatement.

For the fourth quarter, we're aiming to achieve total revenues of approximately 54 to 56 million an operating margin of between 16.5 and 18.5%, interest income of approximately 2.1 million, a pro forma income tax rate of 39%, and pro forma diluted earnings per share of approximately $0.30 to $0.32. Our pro forma full-year guidance is as follows: Total revenues of approximately 207 to 210 million, a pro forma operating margin of approximately 16 to 17%, interest income of approximately 8.2 million, a pro forma income tax rate of 39%, and pro forma diluted earnings per share of between $1.09 and $1.12. We have provided guidance on a GAAP basis for the fourth quarter and full year 2007 in our press release and 8-K filed yesterday. Thanks very much and I will turn the floor over to George.

Thanks, Mike, and I would like to thank the listeners again for joining the conference call. My remarks are in four parts. Number one, an update on the buildout of our role-based strategy. I will be doing a business overview. Comments on technology spending. And then finally update on our acquisition plans.

Turning first to role-based, 2007 has been a year of putting the role-based foundation in place at Forrester. Let me be clear about what this entails. We are now going to market by eight I.T. roles, five marketing and strategy roles, and four technology industry roles. We see the world through the eyes of those 17 executives. Whatever they need to be successful, we will research. We are making major changes in our sales, research and marketing DNA, and those changes continue at pace. If I had to estimate, I would say that our transformation is approximately 60% complete. Now, why are we doing this and what are we looking to gain?

Our new strategy will yield, number one, greater relevancy, two, enhanced differentiation and, three, deeper client relationships. In the long run, these advantages will result in higher renewal rates and increased new business win rates. And I will look at relevancy first. Our intimate understandings of the problems, challenges and aspirations will substantially increase our relevancy for clients. We saw this two weeks ago at our event for sourcing and vendor management professionals held in Orlando, Florida. Attendees and speakers were aligned along the success imperatives of one role, the sourcing professional. Yielding the highest event scores of the year. Sponsors of the event were particularly pleased because their targeted products fit perfectly with the sourcing role. Relevance drove success at this event.

Our devotion to roles across all parts of our business will differentiate Forrester, yielding competitive advantage. All roles all the time will stand in contrast to competitors who are minoring in roles or restricting roles to boards only. In contrast, Forrester is changing 100% of its DNA to be role-based. While bringing this focus to all parts of our business, research, events, consulting, data, and boards. Deeper client relationships will derive from our coverage of the 17 roles. At companies like Federal Express or General Motors, we have historically worked with one primary contract, the CIO. In those two companies, we now have access to executives in 12 additional roles, representing hundreds of potential new clients. So why are we building out roles? To create a company with higher relevancy, differentiation, and deeper client relationships and these are means to higher revenue and margin growth.

Now, how large is our potential market as we become role-based? Within $1 billion plus organization and the other market segments that Forrester sells to, we conservatively estimate a worldwide addressable market at 4 million executives and $9 billion. To date, Forrester has penetrated less than 5% of this addressable market. Being fully role-based significantly broadened the company's opportunity. Now, to address this large market, we are focusing on three operational imperatives. Number one, completing the buildout of role-based, what we actually call internally, R. Two, growing our sales platform. And, three, increasing the quotient of syndicated business, what we call Q. There are many operational efforts around roles but I wanted to highlight a few here. The first, our organization now consists of three worldwide role-focused operating groups. This is how we operate. I.T., marketing and strategy, and technology industry. Research teams are focused on specific roles, increasing the relevancy and value of our research output. And finally, our sales force is now specialized around cohorts of roles. We will be introducing a metric in early 2008 that will enable investors to track our quarter to quarter progress on building out roles.

Our secondary focus is expanding the size and productivity of our sales force. Our plan is to expand our head count and sales by 15 to 20% annually over the next several years while simultaneously increasing sales productivity by approximately 5% per year. Expansion of the sales platform becomes particularly important as we sell to individual client accounts with multiple sales people. Our final imperative is to grow the company's syndicated business, what we call Q, and our long-term goal is to move Q from 62 to 65%, to 70% of our business. We have three initiatives to drive Q. Number one, rolling out Q biased sales commission plans in 2008. Two, creating incentive plans that reward research teams for intensified syndicated work. And three, continuous innovation and refinement of our syndicated products, role view, Forrester leadership boards and data. As an example, the company has recently launched three new leadership boards and it will be introducing two to three additional boards in 2008.

Successful executing on these operational imperatives will accelerate our revenue and margin growth. I would like to say a few words about technology spending and I know this is a topic on the minds of many investors at the moment. Forrester published its Q3 2007 U.S. I.T. spending summary on September 27. This report projects that I.T. spending in the U.S. will grow at 5% in 2007. Spending in 2008 is modeled to grow at 6.5%, led by software and communications equipment. If there is a recession in 2008, growth would be reduced to 3 to 3.5%. Now, today, I can tell you that Forrester has not felt any effects from the sub prime market challenges and we believe that role-based and our portfolio products will provide a level of hedging in the eventuality of a recession.

Turning now to acquisitions. As you know, our cash will be used to buy back our stock at appropriate price points and also to acquire other companies. Acquisitions have been on hold as we have completed our restatement. Now we are back compliance, the company's acquisition efforts will intensify. So, in summary, we are focused on three operational imperatives. Building out roles, growing our sales platform, and increasing the quotient of syndicated business. We will get periodic updates on our progress in these 3 areas. We hope to see many of you as we visit with investors in the fourth quarter. We will be traveling to Chicago, Milwaukee, Montreal, and Boston in December. Please let us know if you would like to get together. I want to thank you all for listening to the call and I would now like to welcome Charles Rutstein, Forrester's COO, to join Mike and me for questions. We will now take questions.

Thank you. (OPERATORS INSTRUCTIONS) Our first question is coming from Laura Lederman with William Blair. Please state your question.

Hi. Nice to see the numbers out. A few quick questions. You mentioned that you've not seen any impact of a weakening economy on your business. But what are the I.T. directors and the CFOs you talked to saying? Because I know you spend a lot of time personally, as do a lot of your other executives, chatting with Marquis directors. What are they saying about the health of their own businesses?

The report, Laura, good morning, the report coming out of September incorporates large data actually from the CIOs themselves. So on a quantitative basis, that is reflected in those -- in a bump in the number for 2008. And I will just tell you that in my travels, I'm on the road a lot right now, I'm hearing generally the budgets are staying on target and not reducing. If you have any other views on this Charles?

I think what we are hearing at the moment is sort of a quiet confidence maybe is the way I would say it. Nobody is panicking at this point. And nobody is slashing budgets that we have seen.

Okay. Shifting gears a little bit. I think two quarters ago you lowered the guidance for new customer additions for this year to 150 to 250, down from 3. Year to date, it has been 95. What is your best feel on what you think the customer additions can be for the full year?

If you look at -- Laura, last year, we added about 60 in Q4. So I would imagine that we're going to get into the low end of our range there. That would be my best estimate at this point.

I think that is probably a good guess.

Yes, I would concur. The initial piece of activity would indicate is consistent, Laura, with last year so I agree with George. I think we will be at the lower end of what we put out in July.

Okay. And another question, which is if you look at the renewal rate, which came down a little bit, and you look at the lower customer counts, and I realize you're not giving us formal guidance for '08, but can you talk a little bit about what '08 revenue growth would be less than equal to this year? Just if you could just provide any thoughts in broad brush strokes?

Well, it's your point, Laura. We are going to put out guidance for 2008 with our call in early February. But at this stage of the game, we haven't put anything out. So I think we will probably be a little ahead of ourselves if we did that now.

We're in the business to grow, Laura.

Right.

And when you -- the final question from me and then I will pass it on. If you look at that cam that you talked about due to role based of 9 billion, it seems to me that you would be creating or competing with a lot broader of a market than Gardner and AMR and Yankee and everything, so who would you be competing for with dollars if you look at that 9 billion tam?

This goes back to really the reason -- one of the reasons we went to role based 2-1/2 years ago. What we found is with this type of strategy, Laura, we could tap into budgets like the development budgets and development and training budgets, and that is a conservatively $18 billion business in the United States, executive training and budget and development. So we actually have begun to see ourselves leaking over to this other budget at this point, so that's why this number widens out. This is not just tech research any more.

Another couple of thoughts there for you, Laura. It is is Charles. The development budgets I think certainly -- there are certainly some consulting budgets that would get tapped. We would be in competition with them. There are even some perhaps more subtle ones. Executive coaching budgets. As we begin to help these executives with their careers. I think it is a wide swath of professional services that comes into the lens.

All right. I'll come back in the queue. I'll pass it on. Thank you.

Thank you.

Our next question is coming from Andrew [Sutt] with Black Rock. Please state your question.

Hi, guys. Nice quarter.

Thanks.

Must be excited to have all of that behind you.

Yes, we are.

Free cash flow for the year is what? And is projected to be what? And what would that have been Xing out the restatement and the legal bills?

We didn't provide a full-year guidance on cash flow. So --

That's why I'm asking.

Right. I know. [ Laughter ] So we haven't put anything out. And it is not our intent. Just to give you a perspective, the options investigation to date is all in and the costs associated with the restatement is approximately 3.6 million through nine months, so to give you some flavor, I think that is obviously not all of what we anticipate from a cost standpoint. We will have activity in the fourth quarter. We don't expect it is going to be at the same rate obviously as what we've experienced historically.

Okay. And why aren't you giving free cash flow guidance?

We opted not to at this point in time. I think from our perspective, to your point, we had a lot going on and we've been putting a lot of things together, so we've not put something out.

Okay. Sales force turnover, what was that annualized in the quarter?

For the quarter -- hang on, just a second, Andrew. We've got that.

While Charles is looking for that, on a year to date basis our turnover in aggregate for the company in attrition was approximately 16%.

Attrition was high are in the first two quarters, Andrew.

I was just going to say without the core numbers here, Andrew, what we saw was a sequential decline, in fact a dramatic decline in Q3 for that number.

Okay.

We saw, I would say ahead of historic pace in Q1 and Q2, below historic pace in Q3. That coupled with ahead of historic pace hiring. Those two factors combined give you the net increase in the sales staff that we talked about.

Okay. So we run back down under 15% annualized in sales force attrition?

In the quarter, certainly below that.

Okay. Good. That's pretty encouraging.

We feel that we're very well set up for 2008.

I was going to say, Andrew, it is Charles, I don't remember a year when we were this fully staffed for the coming year. Again, the lack of attrition that we saw in Q3 coupled with very strong attraction of new sales people, I think we are about 11% up quarter on quarter. That sets us up better than any year I can remember.

And things seem like they're stabilized on that front going into an important renewal season.

Absolutely.

Buybacks, you said you had another 50 authorized so what is the total authorized right now?

It is approximately 64 million. I think we have actually 13.8 million left on the last authorization, and then you add to it the 50 million that the board just authorized in October.

Okay.

So we have almost 64 million, Andrew.

I mean I would like to see you guys buy back stock as aggressively as possible. I can't -- in terms of looking at acquisitions, I can't think of a better value than your stock here.

Yes, I think George would concur. I think we certainly, at these levels, we believe that it is underpriced. So we will be working that through over the next few weeks and laying out our strategy and how we're going to attack that.

We're very happy to be back in the market. Let's put it that way. It is frustrating not to be in the market. We will have to be back in.

Thank you.

(OPERATORS INSTRUCTIONS) We have a follow-up question coming from Laura Lederman with William Blair.

Hi, guys. A few additional questions. When you talk about the transition to role-based being 60% done, are you simply referring to the customer shifting or is that a broader metric somehow?

I would say -- I will speak in broad terms and maybe Charles can be more specific. I would say that is the transition and research, moving the research from it being a topic and vertical focus to being role focused, so that's one. Second is the sales transition, which I think we are actually further than 60% of the way there. The third, Laura, and I don't want to foreshadow too much here, is changes to the web site which will be upcoming in the next two or three months. So, those are the major ones. I think research is really the big change.

As you know, Laura, this has been an invasive change in our business. We have changed the operating structure of the business. How we structure the company on a global basis. New leaders across the company in each of these client groups stepping up. New ways of selling, new ways of servicing clients. I think that 60% broadly speaking is across that whole swath with individual pieces being a little further or a little behind.

When I talk about DNA change, I'm serious about that. This is a very detailed, all aspects of the business change, which we're undergoing at this point and, by the way, it will be very well worth it at the end of the day.

And final question from me, which is getting the subscription businesses to grow to a larger percentage of revenues than advisory services and others. I know that has been a goal of yours for some time. The new mechanisms that you're using to try to achieve that, have you tried those before? Because we've had this discussion for several years and the advisory services continues to zoom ahead so --

I will say something and then Charles will say something as well. My belief here, Laura, is that as the research becomes more role-based, I hate to keep hammering this nail but I will, the relevancy will increase, and therefore the value will increase, in good times and in bad times. And I think that is going to be a very -- that is a critical aspect of driving Q. If we can get roles, as I say around here, if we get roles right, we will get Q right and we will drive the plant.

Let me provide a little more transparency for you, Laura. It is Charles. We have never undertaken the changes that we're going to undertake in 2008. Let me give you a little bit of history. In 2006, we saw a nice increase actually in the syndicated percentage. And we saw that on the heels of a compensation change for sales where we started paying additional dollars to them when they were selling syndicated products over 100%. Given the increase that we saw last year, we opted to keep that sales comp plan in place for 2007.

Now, it has not continued as you've seen to drive that number as high as we would like. Therefore, we're going to go further in 2008 rather than compensating people just on dollars over 100% for syndicated, we will be compensating them more on syndicated, starting from dollar one. We've never done that in the past. Does that make sense?

Yes. What impact does it have on the operating margin or is the profitability of that high enough that it offsets any additional quota you're paying to do that?

It is not additional quota that we're paying to do that, Laura. We're simply shifting around the available dollars. It should be additive to the margin.

Okay. Thanks so much guys.

Thank you, Laura.

(OPERATORS INSTRUCTIONS) Gentlemen, we have no further questions. I would like to turn the floor back over to management for any closing remarks.

We're all set. Thank you for joining the call. Hope to see you on the road in the near future. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. We thank you for your participation.