高德納諮詢公司 (IT) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Meta Group first quarter conference call.

(OPERATOR INSRUCTIONS)

I would like to now turn the conference over to Mr. Peter Ward, Vice President of Corporate Communications. Please go ahead, sir.

Thanks and thank everyone for joining us this afternoon for Meta Group's first quarter 2004 earnings conference call.

Before we get started, I'd like to remind you that this call contains forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, including forward-looking statements regarding the expected future results associated with our acquisitions, integration of our international operations, and the future impact of cost reductions in the organization.

And these statements are neither promises nor guarantees, but involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements and including, without limitation, risks relating to the integration of our acquired operations, success in international markets, success of our marketing efforts, efficiencies associated with our cost reduction efforts, and other risks detailed in the company's filings with the SEC, including those discussed in the company's annual report filed with the SEC on Form 10K for the year-ended December 31, 2003.

Leading the call today for Meta Group's management team is Fred Amoroso, Chief Executive Officer, and John Riley, Chief Financial Officer.

At this time I will turn the call over to Mr. Fred Amoroso.

Mr. Fred Amoroso, that's pretty good. Thanks. Thanks, Pete, and welcome to all of you who joined us for Meta Group's first quarter 2004 earnings call. I'll start with a brief introduction to the quarter and then I'll highlight some of the specific and significant accomplishments that we've made. John Riley will then review our financials in more depth. I'll provide more details on some of the initiatives that we have underway, as well as the traction we're seeing from these initiatives. We'll then open up the call for Q&A.

First, we are pleased with our revenue growth in the quarter. Revenue increased 16% to 32.6 million versus 28.2 million in the first quarter of 2003. We did, however, report a net loss of 1.5 million in the quarter compared to net income of 111 thousand in the year ago period, largely due to higher year-over-year operating expenses associated with the integration of our recently acquired international subsidiaries, although we did see a sequential reduction in our overall expenses. While I was disappointed with the loss, I was pleased with the improved operating results from our international operations, however, and I will discuss that in more detail later on.

Our net cash position improved to 22.3 million, up from 14.1 million in the fourth quarter of 2003, and the net cash position was 25.7 million in the year ago period. The change from March 2003 to March 2004 reflects net cash payments of 2.9 million to fund the acquisition of the company's distributors from EMEA. We experienced continued positive momentum in both Strategic Consulting and Research and Advisory Services in the quarter, up 24 and 15% year-over-year respectively, largely in our international operations. Customer retention also continued to improve and we experienced a 3% year-over-year increase in contract value. Overall, we continued to drive a number of initiatives in the quarter which we believe are critical to enhancing our status as trusted advisors to leading global organizations and which we believe will help to ensure our long-term success. In light of this, we're pleased with the progress in the quarter and we believe we're well positioned for profitable growth in 2004. I'll provide more details on these developments later in the call, but right now I'd like to turn the call over to John to discuss the financial results with you in more detail. John?

Thanks, Fred. As indicated in today's press release, the company announced the first quarter net loss of $1.5 million, or 11 cents per fully diluted share. This compares with the first quarter 2003 net income of $111 thousand, or 1 cent per fully diluted share. Total revenues for the first quarter were 32.6 million, up almost 16% from the year ago period. As you know, we manage our business along three geographic regions, the Americas, EMEA, and Asia Pacific. Revenues from our international operations represent approximately 40% of total revenues in the first quarter this year compared with 25% a year ago. This expected shift in our business is a byproduct of our distributor acquisitions.

Advisory Services revenue was 21.2 million, up 15% from the year ago period of 18.4 million. The increase in revenues was principally due to an incremental revenue gain of $1.7 million due to the 2003 acquisition of EMEA's distributors, as well as a $1 million favorable impact from foreign exchange rates on revenues from our ongoing operations.

Strategic Consulting revenues of 9.3 million were 24% higher than the 7.5 million in the first quarter of last year. This increase was principally due to an incremental revenue gain of $1.3 million due to the 2003 acquisition of EMEA's distributors, as well as a $900 thousand favorable impact of foreign currency exchange on revenues from our ongoing operations. These revenue increases were partially offset by $400 thousand of reduced consulting revenues in the Americas.

Published Research Products revenue was 1.5 million, 17% lower than the 1.8 million in the prior year, principally due to lower demand in the Americas, partially offset by increased revenues from the 2003 of certain EMEA distributors. Total operating expenses of 34.2 million increased 20.8% compared 28.3 million in the first quarter of 2003. $4.5 million of this increase is attributable to the distributors acquired in EMEA in 2003, $1.8 million is due to the impact of foreign currency exchange rates, offset by $500 thousand of cost reductions in our ongoing operations.

Cost of services and fulfillment, including reimbursable expenses, was 17.2 million, a 17% increase from the 14.7 million a year ago, and is primarily attributable to incremental costs of 3.1 million associated with the EMEA distributors acquired in 2003, and a $900 thousand impact of foreign exchange rates on the cost from ongoing operations. These increases were partially offset by decreases in salaries, outside consulting fees and other expenses totally 1.6 million in the ongoing operations. Gross margin as a percentage of total revenues was 47.2% as compared to 47.6% a year ago.

Selling and marketing expenses were 10.5 million, an increase of 3.4 million, or 45.8% from a year ago level of 7.2 million. This increase was due to 1.1 million in incremental costs associated with the EMEA distributors acquired in 2003, $600 thousand from the impact of foreign exchange rates on our costs from ongoing operations, and $1.7 million of higher selling and marketing costs in the Americas and overseas.

G&A expenses for the first quarter were 5.3 million, an increase of $200 thousand from a year ago. This increase was due to $300 thousand in incremental costs associated with the EMEA distributors that we acquired in 2003, $300 thousand from the impact of foreign exchange rates on the costs from our ongoing operations, offset by $400 thousand of lower G&A costs from ongoing operations in the Americas.

Other income was $47 thousand during the first quarter as compared to $350 thousand last year. Last year had included a nonrecurring gain of $315 thousand on the final settlement of the company's investment in Spikes Cavell, which took place in Q1 of 2003.

I'll now provide some comments on the balance sheet and cash flows. Our net cash position, defined as cash including restricted balances less notes payable, decreased 3.4 million to 22.3 million as of the end of the first quarter compared to 25.7 million a year ago. Sequentially, the net cash position increased $8.2 million from 14.1 million at December 31, 2003. During the first quarter the company generated approximately $7.7 million in cash from operations compared to $11 million in the year ago period. The $3.3 million decline in operating cash flow was due to lowered operating results, as well as the decline in working capital exclusive of cash.

Total accounts receivable at the end of the quarter was 29.3 million, down 3.6% from last year. Days sales outstanding were 81 days compared with 97 days in the year ago period. After adjusting for those receivables related to multi-year contracts with future payment terms, DSOs were 73 days compared with 57 days one year ago. Year-over-year, deferred revenues have decreased 3.5% to 49.6 million from 51.4 million, primarily due to a change in the billing of multi-year contracts. Sequentially, however, deferred revenues were up 1.8 million.

Capital expenditures for the first quarter amounted to $353 thousand compared with $276 thousand a year ago, with the increase primarily due to investments in software as we continue to invest in our infrastructure on a global basis.

I'll now turn the call back over to Fred.

Thanks, John. In our fourth quarter 2003 earnings call I referred to 2003 as an important period of investment for Meta Group. Many of you heard me speak about the research and advisory services market being in transition.

As information technology content, the content part becomes more and more commoditized. You've also heard me speak about Meta Group's focus on building higher value relationships with our customers as we continue to extend the traditional IT research provider model and are specializing on providing bottom line pragmatic advice to our clients. CIOs are now required to provide significantly more value to the businesses in terms of revenue opportunities or business transformation, all in the face of cost controls, accelerated timeframes for achievement, increased risk management challenges, the technology complexity, and increased demands from the business. This requires increased accuracy and timeliness in their decision-making, as well as the ability to create better strategies with more effective execution and implementation. It is precisely these client demands and market changes that have fundamentally driven Meta Group's transformation into a trusted advisor role.

To better position us to provide this capability, we spent 2003 investing in three primary areas, improving our brand through our advertising campaign, improving our customer access and global consistency through the acquisition of our key distributors, and improving our infrastructure to enable us to more effectively manage and operate a global enterprise.

As discussed in the Q4 earnings call, these investments were critical for us to drive the company forward and we're still working on it. For example, this quarter the impact of our acquisitions on our revenue was $3.6 million net of royalties already received, as John mentioned. But we also acquired $4.5 million in operating expense from these acquisitions. We are continuing to work diligently on improving the performance of these entities as well as all of our core operations.

Now let me comment on some of our recent acquisitions. We fundamentally believe that to truly develop higher value relationships with our global customers, we must have tight linkages across all of our worldwide businesses. It is critical that our international operations have the same access to our strong research engine and fulfillment methods and that there is strong leadership in place to drive these entities to profitability. Overall, we were successful in reducing our expenses in our core operations by $500 thousand year-over-year and sequentially we also improved the operating results of our acquired entities by similarly $500 thousand as well. Clearly, we're making progress and we will continue to focus on these expenses across all of our international operations.

So in terms of our distributor acquisition strategy, we believe we are nearing the end of this activity. We have remaining distributors in South Africa, Israel and Argentina, and (inaudible) entities in Japan and Hungary, which we will continue to assess on an ongoing basis.

In the first quarter we were again pleased with the penetration we achieved into a number of key global accounts, companies where we really maximized our global footprint and developed trusted advisor relationships with them. We extended an important relationship with Singapore Power, helping them through the deregulation process. Other examples include IBM Australia, SAQ in Canada, General Motors in Europe, American Express, Sears and Nationwide Life. These are but some of the companies that continue to look for us for higher value services and reflect the continued need for the blended offerings that we provide.

We also continued our long tradition of providing impactful events that focus on the key technology issues most relevant to our clients. As in the past, these events draw senior level attendees, CIOs and their direct reports, principally from many of our clients.

Our 15th annual metamorphosis event has been very well received around the globe since our first event in March. We also continue to drive revenue through vendor sponsorships of our events. This is something that we had not done prior to 2002, and the world's leading technology vendors are continuing to see the value in their representation at these events.

One of the other actions that we took to deliver improved results to our shareholders was to conduct an analysis of our bonus compensation model. As a result, we recently realigned our bonus program for annual savings of approximately $1.5 million worldwide at a fully funded level by reducing our bonuses across the various levels of the management team.

As we mentioned in the last call, we will measure ourselves relative to our progress towards profitable results. I'm not pleased that we had a loss in this quarter, although I do want to tell you it was in our plan. We've also identified our long-term business model so that we want to drive a 10% debit number. The target is based on a cost of services and fulfillment of 48% to produce a gross margin of 52%, a sales and marketing expense of 27%, a G&A expense of 12%, and a depreciation amortization expense of 3%. Comparatively, our Q1 results were 53% cost of services fulfillment with a 47% gross margin, a 32% selling and marketing expense, and a 16% G&A compared to 18% G&A last quarter. Overall, while seasonality can affect these ratios on a sequential basis, we are measuring ourselves against these models as we move forward.

As you may have seen in our proxy statement, we are undertaking an initiative to revise our existing equity compensation program, which will expire in October of 2005. In an effort to avoid shareholder dilution, we want to be sure that we are granting employee options prudently and responsibly. I fundamentally disagree with issuing options broadly throughout the organization without regard to performance or independent of retention strategy for key performers. However, I do consider that equity compensation is an important tool for retaining key talent and that is driving our request for revision.

Similarly, with all of the discussions that we've had around expensing of stock options and the development of newer forms of equity compensation such as performance based stock options, restricted stocks (inaudible) and others, it is important for us to take advantage of these new forms of compensation that were not available to us in our existing plan. So as part of the new program, we're requesting options on a year-by-year basis that is commensurate with our needs. We want to move away from the lump sum allocation system that is currently in place and as we had previously requested. Again, we believe that it is important to avoid dilution of shareholder value.

In last quarter's call, I asked you to begin measuring us in our quest to achieve profitable growth, to really look at the traction we're gaining in our transformation to a more trusted advisor role. I'm certainly disappointed we had a loss in the quarter but as I stated earlier, it was in our plan. Overall, I'm pleased with the progress we made. Our industry is changing and I believe we're positioning ourselves and making the appropriate investments to lead this transformation. Our acquisition strategy is a key component of our long-term strategy and we made great strides in the first quarter to move our acquired entities toward profitability and, as I stated earlier, we're continuing to make progress in reducing our overall core operating expenses. We're continuing to build a great company and as a result of these efforts, we currently expect to return to profitability in the second quarter of this year.

With that, I'd like to open up the call to Q&A.

JR?

Ladies and gentlemen, at this time we will begin the question and answer session.

(OPERATOR INSTRUCTIONS)

So one of the things that I did want to provide some color while we're waiting for the question is just a couple of things that maybe didn't come out apparently immediately in some of the discussion. One of the things that the company did about three or four years ago was change the sales calendar year which traditionally had been from January through December. And in one year, I think it was around 2000, they extended the sales calendar year into the end of January.

So in effect, the company ran a sales year of February through January and that was misaligned with our current calendar business planning. So in this year what we did is we changed that and we went back to a calendar year ending December 31st that caused us to have January of this year be starting off the year as opposed to drive toward quota attainment and accelerate us.

One of the things that obviously we - that occurred as part of that is this year was slower than last year in sales as a natural byproduct of that. In fact, though, in February, March and April, we have seen significant improvement in sales activity where that is actually becoming much more the norm to hitting the plan that we had put in place.

Second thing is that you saw a $1.7 million increase in operating expenses in sales on a year-to-year basis. There are two major components to that. One is obviously the associated component of the acquisitions, but there's also $700 thousand in training that as we look to move toward the trusted advisor model, the training of our sales team on more value selling, solution selling, was a key component of our transformation and we've made an investment in our sales team.

There are also a couple of things. We had a couple of $100 thousand increase in commissions payment in this quarter due to December strong results. And the other net is actually we had a reduction in sales expense, $400 thousand a year ago, that adds up to that 1.7 million.

So with that JR, are there any questions?

(OPERATOR INSTRUCTIONS).

Our first question comes from Mr. Mike Nerry from Nerry Asset Management. Please go ahead with your question.

Hello, Mike.

Hey, Fred. I didn't want to interrupt you while you were giving out all that good information, so I didn't want to jump in there too soon. Couple of questions. What do you think cap ex will be for the year?

Well, I'll tell you what John is getting the cap ex planned for the year, I'll tell you what we did. It was 353 thousand, I think, in the Q1. About 250 thousand of that was actually associated with software. There were two components of that software. The first component was just for helping develop our core infrastructure and our (inaudible) systems. But there was actually about another $100 thousand, or maybe slightly less, for software that went into supporting the Web content associated with a part of our research content database that we had previously outsourced.

We were spending about $12 thousand a month having somebody else host that for us and we actually thought we could do it cheaper. So we bought some Persius (ph) software and are hosting it ourselves now. That will help improve our operating results overall.

The balance of less than 50 or $60 thousand was due to just minor leasehold improvements and some ongoing operations, normal operations. Do you have a number for the year?

Yes. Mike, as you know, in the past we've spent in the neighborhood of about $1 million on capital expenditures. We'll be closer to 1.75 million this year, principally as a result of decisions we made to refresh our laptops, to continue to make the investment for both our analysts and our sales force, to have the equipment to support the customers, and we'll be financing those through capital (inaudible) a bit more than we've done in the past.

OK. And John, in terms of the disclosure you gave on the different line items, I thought that was fantastic. I really appreciate that as an investor. And also, the targets that you're setting forward in terms of the type of margins you're trying to get to over time, that's fantastic to be able to measure yourselves against that. The challenge, of course, for you is that you have to do it while trying to improve your product and integrate all these acquisitions and things like that. But that's what makes your job so fun, right?

Well, it is. And look, Mike, honestly what we wanted to do is we wanted to be clear as to what we were driving ourselves towards. We've held these margins as what we think the right ongoing operation activity for the business is. It's hopefully why this is a great investment and, as I said from the very beginning, that I've been here and certainly that John has been here. Obviously there's some changes that we have to make to get us there, but it's important for you - for us actually and hopefully for you - so that you understand where we're going and what we're trying to drive to and we'll have, I'm sure, some great successes and we'll have some challenges in getting there. But this is what we're absolutely driving to.

Well, in that respect, you know your revenue performance has been much better than your competitors for some time now and you're now - you know, we'll see where this year ends up, but you're probably going to be a little larger than Forester (ph) once again, even with the Gig (ph) acquisition.

I think we actually were this quarter.

Yes. What's interesting is their market value less cash is now 260 million and yours is 51, so assuming you're able to get eventually to these margins that you're talking about, there's still a tremendous amount of difference between those two numbers.

Mike, we haven't been lost on that topic.

Right. Well, I appreciate everything you're doing and I think you're making great progress. The acquisitions are huge and you're really transforming the company. Are you getting the systems in place now that you need to manage these acquisitions and how is that coming along?

I'll turn part of it over to John to talk about our planning software, but candidly, a lot of these - a lot of the software in the infrastructure that we put in place we've been working on throughout 2003. Why don't you just talk about the planning environment? And I shudder to think you could probably disclose that we were reporting on Implan (ph) and what Implan was before. But we're off of that, so nobody has to get nervous.

Thanks, Fred. You may have heard us talk a year ago on some of the calls about an investment - investments that we made in software, including financial systems software. What Fred's referring to is what we used for planning a year ago, was what we finally referred to as Implan. But we essentially built an Excel model to deal with planning and forecasting and we were largely relying on Excel to drive consolidation and analysis of our results.

In the second half of last year we spent a fair amount of time and made an investment in putting in a package that allows us to transition to having a more automated view that allows us to drive our financial results from our general ledger systems directly into our financial reporting package that gives us greater visibility into our costs on a country-by-country and line-by-line basis worldwide. And we used that same software as the foundation of our planning exercise that gives us greater clarity into what's going on and greater ability to see things and to analyze things across the business on a more readily accessible and readily analyzable level.

OK. So you're...

Mike, I've got to ask a question. I'm a sales guy at heart and I've got to ask for the order. So relative to the stock plan et cetera, and I know you - I don't know what number this is, if this is the sixth quarterly call or whatever - you've brought up options in probably four of them.

Yes.

Are we being prudent in the way we're trying to exercise our diligence in asking for the new plan?

You've done a lot better job than all of your competitors. I think they're going to have a real tough transition when they're forced to expense options. You know one of the problems with options - having options at all is they're really hard to estimate their value and you're going to be forced to guess at them. And because of the volatility in your stock, they're going to be - they're going to count as being a higher value than maybe they really are. I haven't looked at the specific details of the plan in detail yet, so I can't really comment on that. So I need to take a look at it.

When you get it and you look at it, Mike, do me a favor and give me a call. I'd be very, very pleased to talk you through it and give you insights.

I will. Thanks.

Thank you. OK, JR?

Thank you. Our next question comes from Mr. Ben DeLorenzo (ph) from (inaudible) Capital Management. Please go ahead with your question.

Hello, Ben.

Thank you very much. I just have a few housekeeping items first before my questions. One is, what was your headcount in the quarter and what was the utilization rate?

Well, utilization rate is something that we don't measure across the entire headcount. Headcount in the quarter was, I believe, about 715 people on a worldwide basis. Utilization is not something that we measure across all of the headcount.

OK. All right, that's helpful anyway. And can you repeat again what the contract value was for the end of the quarter?

I don't think I actually mentioned contract value at the end of the quarter. It was up 3% on a year-over-year basis, but the contract value, the absolute value, was $72 million.

72 million, OK. All right, that's very helpful. And then the other question is what revenue - what quarterly revenue level do you need to hit your model targets?

Well, it's a good question. Honestly, it's a combination of both revenue and expenses and so I haven't done the work by back-ending that way. So one of the things that I want to provide clarity to is a good portion of what we've done over the last year is reduce operating expenses. As a matter of fact, we reduced operating expenses in our distributors just over the last quarter of about a half a million. So it's actually a combination of continued revenue growth, but also driving more efficiencies by reducing our operating expenses. I just don't have that number. We haven't modeled it that way.

OK. The other question that I had was maybe you could talk a little about your view of IT spending growth this year and how would that impact some of the assumptions that we're making here? Because a lot of the growth that we're seeing now, the assumption is that IT spending is going to be pretty flat or modestly up this year. I was wondering what your view on that was.

Well, IT spending is expected to be - the survey that we have done is expected to be up. I think if you did the surveys at the end of last year we were expecting something in excess of about a 4% growth, a 3 or 4% growth. We're seeing as we go out in the year that that is moderating somewhat. So an expectation of a flat spending or maybe slightly up is right. There was a long time where companies over the last couple of years had not replenished some of their infrastructure that they needed to do, and so that's driving some of the improvement in spending this year. We're not seeing huge new projects develop as perhaps they had in much more robust times. So that's important.

But I will tell you that one of the things that, as the surveys that we have done would show, is that CEOs are now turning their attention in what we hope to be a better 2004 economy to drive revenue growth and, as part of that revenue growth, there is an expectation on IT to deliver and help transform in either the terms of new products or new capabilities. And so that is what is creating when I made my comments that the CIOs are now faced with more and more requests and responses that they have to deliver to the business in what is increasingly a technology complex environment with higher risk associated with security and other activities.

And I will tell you that I have not met a customer, literally around the world, and I don't care if you're dealing with Australia which has got a 3.5% GDP growth, the Nordic countries which has positive GDP growth, or anyplace where the CIOs are not all, absolutely all, talking in addition to cost containment. So cost containment is still one of the primary issues that companies are dealing with. And that gives us an opportunity because we have a great capability, not only around security and the other things they're dealing with, we've invested in our industry capability, which can help companies transform. But we also have tremendous programs and infrastructure and operations excellence, et cetera, to help companies become more efficient.

OK, that's really helpful. And my last question is I was impressed with your cash generation and the bounce in your cash account, which is really good. But I looked at your working capital and it's negative and it's been negative for a while, but I'm not as concerned about it because of your deferred - a lot of it is your deferred revenue base is so big. How do you view that? Is there a plan to get yourself working capital positive?

I'm going to let John speak to the working capital. I'll just speak to the cash generally. So on a cash basis, look, our business is somewhat seasonal as we work on renewals. The fourth quarter is typically a heavy renewal period and so our cash infusion is typically high in this part of the year. Deferred revenue actually went up, I think, almost a couple of million dollars on a year-over-year basis if I remember correctly from the numbers. So we feel pretty good. We're projecting actually reasonably comfort in our cash position as well.

The other thing that you need to keep track of in cash is we spent about $5.4 million acquiring the distributors on a net cash basis less what we got back. That was about $2.9 million. So actually if you take that into account, we had an improvement in cash on a year-over-year basis as well.

Want to comment on the working capital?

Yes, Ben, let me address the working capital. Given the nature that we - so much of our business is the retainer services business where we have a deferred revenue model. It's not unusual for us to see negative working capital as a result of those deferred revenues.

All right. Well, thank you very much.

You're welcome.

Thank you. Our next question comes from Mr. David Lee (ph) from Porter. Please go ahead with your question.

Congratulations on the quarter. How are you?

Good. How are you doing?

Good, thanks. Just a couple of questions. I'm late for the call. Can you just talk about the increasing revenue by division and maybe give out the metrics on an operating income basis for Advisory, Strategic, and Published Research? Also again, (inaudible) the increase in sales and marketing year-over-year and increasing cost?

OK, let me handle them in reverse order and John can pull up the margins by business entity. We will give it to you. If not, we'll work it subsequent. But so there was $1.7 million of operating increase in expenses in sales and marketing, not attributable to the acquisition. In that 1.7 million, 700 thousand was in training programs that we conducted in the quarter, literally on a worldwide basis, to provide our sales team with value selling techniques, processes and capabilities to help us drive more into solution selling and value selling rather than product type selling, thinking that this is just a research subscription sales model. OK? So that's a big investment that we made in the quarter.

Additionally, on a year-over-year basis there was $400 thousand of accrual reversal in - that we made in last year that artificially lowered what last year's numbers were. And then there was a $200 thousand increase in commissions expense this year due to over-achievement of our team in December of '03.

All right.

So I don't have the numbers. They're not just available to us on a margin basis for the different elements, but let me speak to the general revenue flow. Research...

We actually have that in here. Don't we have that in the number? Research revenues were up a couple percent.

Research revenues increased - we were finished at 21.2 million, up from 18.3, so a couple of points there. In terms of the mix of our business, the Research and Advisory Services revenue still continue to represent 65% of our total revenue base. Strategic Consulting grew approximately 2% to become 28, just over 28.5% of our total revenues compared to 26 a year ago. And Published Research Products dropped from about 6% of our total revenues down to - I'm sorry, 6.4% of our total revenues down to 4.6%.

So Pubs revenue - Publications revenue had a couple of components to it. Some of it is actually product related. We had in last year the IT staffing guide that we were actually able to bring to market in March of last year and fit into the first quarter, and this year we missed March and it's gone out in April. So that's one of the anomalies in the Publication revenue.

On the - Research revenue is actually pretty good. The Consulting revenue was very strong internationally and we actually were a little flat in our U.S. operations in Consulting, to give you some color by geography.

OK. What about Advisory Service. Where - did that go up again?

Was that up 2%?

It went from 18 to 21 to 15%. Yes, the...

I'm sorry, I'm sorry.

...Advisory Services, the greatest factor leading to that was an increase of about $1.7 million as a result of the distributors in EMEA that we acquired later on in 2003.

OK, great. Can you once again talk a little about the cash flow from operations components? Which part is working capital, what's earnings, what's D&A, the breakdown?

In terms of looking at the cash flow from operations versus investing versus financing activities?

Right.

Well, we didn't acquire anything in Q1 to the best of my knowledge.

That's correct.

But we did acquire the Middle East operations, but that was subsequent to the close of business in Q1. We acquired our operations in oil of UAE, Saudi, Egypt, India, and I'm missing one, Kuwait. So we have those in our team now and actually they're doing great. Things are very, very robust there and we're - as we speak, next week we'll be doing our metamorphosis there.

OK.

I don't think we acquired anything in Q1, though.

Oh, I'm sorry, the cash - I'm asking the operating cash flow components.

Right. In terms of that, David, the operating cash flow for the quarter is we generated $7.7 million of cash flow from operations, we spent 353 thousand in investing activities, and we had $224 thousand of cash generated from financing activities for a total increase in cash and cash equivalents of 8.2 million for the quarter.

And once again you say your long-term target is (inaudible) for the expenses, for the revenue and for I remember 10% EBIT margin.

The long-term target for us was a target cost of services and fulfillment of 48% for a gross margin of 52, sales and marketing expense of 27, G&A expense of 12, D&A of 3, and a 10% EBIT.

Right. OK, that's it for me. Thanks.

Thank you.

Thank you. Management, at this time there are no further questions. Do you have any further comments?

Well, we appreciate everybody's participation in the call. We appreciate your questions and, more importantly for those that are investors, we appreciate your confidence in the company and investment and obviously the long-term prognosis of what we're trying to do and the confidence in the management team and our overall team to get there. I do believe we have a great group of people in Meta Group and I'm privileged to be able to have us work on this transformation and lead as we define new standards of customer value in this business. So thank you all and we look forward to talking with you in the next call. Thank you.

Ladies and gentlemen, this concludes the Meta Group first quarter conference call. We appreciate your participation on today's teleconference. If you would like to listen to a reply of today's teleconference, please dial 303-590-3000 or 1-800-405-2236 and enter the access number of 578048. Again, those numbers are 303-590-3000 or 1-800-405-2236 and enter the access number of 578048.

We appreciate your participation on today's teleconference. You may now disconnect.