Forrester Research, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Dollar figures are in millions unless stated otherwise. Forrester sells research subscriptions and related services, consulting, and events.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $148.2 (+15%) | $128.7 | $273.2 (+13%) | $242.5 |
| Operating income | $20.7 | $13.1 | $27.2 | $20.6 |
| Operating margin | 14.0% | 10.2% | 9.9% | 8.5% |
| Net income | $13.9 | $8.3 | $18.0 | $12.3 |
| Diluted EPS | $0.72 | $0.43 | $0.94 | $0.64 |
Q2 net margin was 9.4%, compared with 6.5% a year earlier; six-month net margin was 6.6%, compared with 5.1%. Six-month operating cash flow was $34.8, down from $70.1. Capital expenditures were $2.7. Cash, cash equivalents, and marketable investments totaled $122.6 at June 30; the company reported $78.7 of cash held outside the U.S.
Revenue by category in Q2: Research $89.4 (+10%); Consulting $39.3 (-4%); Events $19.5 (+191%). Six-month changes were +12%, -2%, and +191%, respectively. Revenue growth excluding foreign-currency effects was 17% for Q2 and 14% for the first half.
Liquidity, debt, and capital allocation
At June 30, cash and cash equivalents were $103.2, marketable investments $19.4, and revolving-credit borrowings $50.0, down from $75.0 at year-end. The company had $99.2 of available borrowing capacity under its $150.0 revolving facility. The facility matures in December 2026; Forrester was compliant with its covenants and expected to remain compliant for the next 12 months. The company stated that cash and operating cash flows should meet working-capital, capital-expenditure, and known long-term requirements.
First-half financing cash use was $38.3, including $25.0 of debt repayments and $15.1 of share repurchases. Approximately $75.0 remained authorized for repurchases at June 30. The company’s current ratio was approximately 0.80, based on reported current assets of $222.5 and current liabilities of $277.0.
Changes, outlook, and risks
- Contract value, a key recurring-research metric, rose 10% year over year to $349.4. Client retention was 76% versus 77%; wallet retention was 99% versus 96%; client count was 2,928 versus 2,940.
- Management attributed research growth to demand and higher contract value. Consulting revenue was pressured as research analysts devoted more effort to developing and delivering contract-value products. Events revenue benefited from increased sponsorship and paid attendance as in-person events returned; 2022 events were held in hybrid format.
- Management said retention metrics had weakened sequentially from March, citing longer sales cycles, lower conversion rates, and sales-capacity constraints. Operating costs increased, including event costs associated with in-person attendance and compensation related to higher headcount.
- The company anticipated a full-year 2022 effective tax rate of approximately 31%. The filing provides no specific full-year revenue or earnings guidance. Management cautioned that interim results may not indicate full-year performance.
- Risks highlighted include adverse economic conditions and reduced technology spending, subscription renewal and consulting demand, event demand and COVID-19 disruption, hiring and retention of qualified staff, competition, foreign-exchange exposure, debt and covenant requirements, cybersecurity and privacy matters, and ordinary-course legal proceedings. Foreign-currency translation reduced first-half comprehensive income by $5.8.
Most important facts to verify
- Whether contract-value growth and research renewals continue, given lower client retention and reported sales-cycle and conversion challenges.
- Whether operating cash generation improves from the prior-year period, and how working-capital movements affect cash flow.
- Whether hybrid and in-person events sustain revenue growth while containing the associated fulfillment costs.
- Debt, covenant headroom, and planned use of the remaining share-repurchase authorization.
- Exposure to foreign exchange, economic conditions, COVID-19 effects, and the $78.7 of cash held outside the U.S.; repatriation could incur taxes.