Forrester Research, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter earnings report. The company is a global research and advisory firm with Research, Consulting, and Events segments.
Financial and operating performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $494.3 million | $449.0 million | +10% |
| Research revenue | $325.3 million | $301.5 million | +8% |
| Consulting revenue | $156.1 million | $137.3 million | +14% |
| Events revenue | $12.9 million | $10.1 million | +27% |
| Operating income | $38.6 million | $16.2 million | +139% |
| Operating margin | 7.8% | 3.6% | +4.2 percentage points |
| Net income | $24.8 million | $10.0 million | +149% |
| Diluted EPS | $1.28 | $0.53 | +$0.75 |
| Operating cash flow | $107.1 million | $47.8 million | +$59.3 million |
- Revenue mix was 65.8% Research, 31.6% Consulting, and 2.6% Events. Research and Consulting growth reflected higher contract value and demand; Events growth primarily reflected higher sponsorship revenue.
- Cost of services and fulfillment rose 12% to $201.8 million; selling and marketing rose 3% to $170.9 million; general and administrative rose 15% to $58.1 million. Lower amortization and acquisition/integration costs helped operating income improve.
- Income tax expense was $8.3 million and the effective tax rate was 25.1%, versus 22.8% in 2020. Interest expense declined to $4.2 million from $5.3 million.
- Cash and cash equivalents were $115.8 million; marketable investments were $18.5 million; accounts receivable were $87.0 million; and deferred revenue was $213.7 million at year-end. Cash and cash equivalents included $69.1 million held outside the U.S.
- Debt was $75.0 million, all under the revolving facility; $74.2 million of borrowing capacity remained available. Capital expenditures were $10.7 million. Investing activities used $29.3 million and financing activities used $49.1 million.
- Contract value (CV), the company’s key recurring-research metric, increased 15% to $345.8 million. Client retention was 78%, wallet retention 102%, and client count 3,005, up from 72%, 86%, and 2,808, respectively.
Material changes versus the prior period
- Total revenue recovered from a 3% decline in 2020 and exceeded FY2019 revenue of $461.7 million. Net income improved from $10.0 million in 2020 and a $9.6 million loss in 2019.
- Operating cash flow more than doubled, primarily because of improved collections and higher contract bookings reflected in accounts receivable and deferred revenue, as well as lower use of working capital.
- Events remained substantially below pre-pandemic levels: revenue was $12.9 million in 2021 versus $27.0 million in 2019, despite growth from 2020’s $10.1 million.
- In December 2021, the company amended its credit agreement: it replaced the term loan with a $150 million revolving facility, extended maturity to December 2026, and revised pricing and financial covenants. The company repaid $25 million of revolver borrowings in December.
- Forrester launched Forrester Decisions in 2021 and shifted its key performance focus and sales incentives toward CV products. The company also reclassified subscription-product advisory components into Research revenue; prior-period segment revenue categories were adjusted, with no change to total revenue.
Outlook, risks, contingencies, and unusual items
- Management expects 2022 operating cash flow to decrease from 2021, primarily due to higher incentive-compensation payments and reduced cash generated from accounts receivable and deferred revenue. It estimated 2022 intangible amortization of approximately $13.2 million and interest expense of approximately $2.5 million. The filing does not provide clear numerical revenue or earnings guidance.
- Forrester planned hybrid events in 2022, subject to local conditions. COVID-19 continued to affect Events; the pace of in-person event recovery remains uncertain.
- Management stated that cash and operating cash flows should meet working-capital, financing, and capital expenditure needs for at least the next 12 months and known longer-term requirements. It reported compliance with debt covenants at year-end and expected continued compliance over the next 12 months.
- Credit-facility covenants include leverage, minimum interest coverage, and annual capital expenditure limits. The debt is floating-rate, partly offset by an interest-rate swap; approximately $35.9 million was unhedged at year-end. A 25-basis-point rate change on that unhedged portion was estimated to change annual pretax interest expense by about $0.1 million.
- Principal risks include subscription renewals and demand, consulting demand, competition, economic and technology-spending conditions, talent retention, product development, international operations and currency exposure, cybersecurity and privacy compliance, and the possibility that worsening pandemic or economic conditions could pressure results or covenant compliance. The filing also notes potential economic effects from the Russia-Ukraine conflict, despite no material company operations or client relationships there.
- Operating lease payments totaled $90.6 million undiscounted, with $16.6 million due in 2022; estimated sublease receipts were $2.1 million over the disclosed schedule. Ordinary-course legal proceedings may arise, but the filing identifies no specific material proceeding or quantified litigation contingency.
- The quarterly dividend program remained suspended. The board had authorized $585.0 million of repurchases; approximately $90.1 million remained available at year-end. The company repurchased $20.1 million of shares in 2021.
- The auditor issued unqualified opinions on the financial statements and internal control. Revenue recognition—identification of distinct performance obligations—was identified as a critical audit matter. No goodwill impairment was recorded in 2021.
Important facts for investors to verify
- Whether CV growth, wallet retention, and client retention remain strong, and how the Forrester Decisions rollout affects renewals and monetization.
- Whether consulting growth can continue while segment expenses rose faster than segment revenue in 2021, and whether Events recover toward pre-pandemic revenue levels.
- The drivers and sustainability of the 2021 operating cash flow increase, including advance billings, collections, and deferred revenue; compare actual 2022 cash flow with management’s expected decline.
- Debt covenant headroom, variable-rate exposure, and use of the remaining revolver capacity, particularly under weaker demand or higher interest rates.
- Whether share repurchases, operating leases, and other cash commitments remain consistent with liquidity needs and the suspended dividend policy.
- Revenue-recognition judgments, goodwill and intangible-asset assumptions, foreign cash repatriation implications, and developments in legal, privacy, cybersecurity, and geopolitical risks.