Forrester Research, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual report; quarterly figures below are for the fourth quarter where noted. Forrester provides research, data, advisory, consulting, and event services to business and technology clients.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 | Change |
|---|---|---|---|
| Revenue | $337.7 million | $326.1 million | +4% |
| Research services revenue | $216.5 million | $215.2 million | +1% |
| Advisory services and events revenue | $121.2 million | $110.9 million | +9% |
| Operating income / margin | $27.5 million / 8.2% | $30.8 million / 9.4% | Income down 10% |
| Net income | $15.1 million | $17.7 million | Down 14% |
| Diluted EPS | $0.83 | $0.97 | Down $0.14 |
| Cash from operations | $37.5 million | $44.5 million | Down $7.0 million |
Revenue growth was led by advisory, consulting, and events; research revenue was nearly flat, with growth in Research and Connect offset by declining Analytics revenue. Operating expenses rose 5%, faster than revenue, chiefly reflecting higher compensation and benefits. Cost of services and fulfillment increased to 40.5% of revenue from 39.3%; net margin was 4.5%, versus 5.4%.
At year-end, cash and cash equivalents were $79.8 million and marketable investments were $54.3 million, totaling $134.1 million. Working capital was $41.8 million. Total liabilities were $204.0 million, including $145.2 million of deferred revenue; the filing reports no credit line and does not identify debt as a material funding source. Management said cash, investments, and operating cash flow should cover the next 12 months. Operating lease commitments totaled $81.7 million.
Material changes and capital allocation
- Deferred revenue increased 8% to $145.2 million; agreement value rose 2% to $242.9 million.
- Client retention improved to 76% from 75%; dollar retention rose to 88% from 87%; enrichment increased to 96% from 93%. Client count fell 1% to 2,409.
- Project Consulting revenue grew 18%; research services grew 1%. The company reported that Analytics subscription revenue declined.
- Operating cash flow decreased from $44.5 million to $37.5 million, partly because receivables increased and cash generated from changes in receivables and deferred revenue was lower.
- Forrester spent $40.0 million on share repurchases and paid $13.6 million in dividends in 2017. It declared quarterly dividends of $0.19 per share in 2017; in February 2018, the board raised the quarterly dividend to $0.20 and authorized an additional $50 million of repurchases.
Outlook, commentary, and risks
- Management forecast 2018 revenue growth of 4%–7% (3%–6% excluding estimated currency effects), operating margin of 7.5%–8.5%, and an effective tax rate of approximately 31%.
- Management expected research revenue growth to accelerate slightly in 2018, while advisory and events growth would moderate, partly because of unusually high fourth-quarter 2017 delivery. Sales headcount was expected to increase approximately 1%–3%; capital expenditures were forecast at $5–$7 million.
- The 2017 operating margin decline reflects expense growth exceeding revenue growth. The customer engagement model rollout was substantially completed in North America, with expansion to Europe and Asia Pacific planned for 2018; management said implementation costs have been material and benefits are not assured.
- The Tax Cuts and Jobs Act resulted in $1.6 million of additional 2017 tax expense: $1.2 million from remeasuring deferred tax balances and $0.4 million from the transition tax on $22.6 million of foreign earnings. These amounts were provisional and could be adjusted.
- Key risks include membership renewals and demand, project-based consulting variability, competition and free online information, economic and technology-spending conditions, talent retention, international and foreign-exchange exposure, cybersecurity and privacy obligations (including GDPR effective May 25, 2018), and uncertainty in tax estimates. The CEO owned approximately 43% of shares, giving him significant influence over stockholder matters.
- The company reported no material legal proceedings. The auditor gave an unqualified opinion on the financial statements and internal control; management also assessed internal control as effective.
Fourth-quarter snapshot
Q4 2017 revenue was $90.4 million versus $83.4 million in Q4 2016. Operating income was $7.5 million versus $9.0 million, and net income was $2.1 million versus $5.8 million. The filing identifies the Tax Act charge and an above-normal level of advisory and consulting delivery in Q4; verify the quarterly effects and drivers against the complete financial statements.
Important facts for investors to verify
- Whether deferred revenue, agreement value, and retention improvements translate into sustained revenue growth, especially given the decline in Analytics.
- Whether 2018 revenue and operating-margin guidance was achieved, and how compensation, sales staffing, and customer-model rollout affected margins.
- Final tax effects of the Tax Act and the expected effective tax rate, including any revisions to provisional amounts.
- Cash conversion, receivables, and working-capital trends alongside planned repurchases, dividends, and lease commitments.
- Exposure to international markets, currency changes, privacy regulation, cybersecurity risks, and the CEO’s concentrated ownership.