Forrester Research, Inc. — FY 2023 Form 10-K
Reporting period: Year ended December 31, 2023, compared primarily with FY 2022. Forrester is a global research and advisory firm with Research, Consulting, and Events businesses. Its recurring research-related contract value (CV) is a key operating metric.
Financial performance and position
| Metric | FY 2023 / year-end | FY 2022 / prior year-end | Change |
|---|---|---|---|
| Revenue | $480.8 million | $537.8 million | Down 11% |
| Research revenue | $334.4 million | $354.5 million | Down 6% |
| Consulting revenue | $118.2 million | $152.6 million | Down 23% |
| Events revenue | $28.2 million | $30.7 million | Down 8% |
| Operating income | $6.8 million | $32.7 million | Operating margin 1.4% vs. 6.1% |
| Net income | $3.1 million | $21.8 million | Net margin 0.6% vs. 4.1% |
| Diluted EPS | $0.16 | $1.14 | Down from prior year |
| Cash from operations | $21.7 million | $39.4 million | Down $17.8 million |
| Cash, cash equivalents and marketable investments | $124.5 million | — | Includes $75.8 million held outside the U.S. |
| Debt outstanding | $35.0 million | $50.0 million | $150 million revolving facility matures December 2026 |
| Contract value | $332.1 million | $345.4 million | Down 4% |
Research represented 69.6% of revenue, versus 65.9% in 2022; Consulting represented 24.6%, versus 28.4%. Operating expenses included $13.3 million of restructuring costs. The effective tax rate was 51.5%, up from 29.0%, reflecting lower pretax income and increased nondeductible stock compensation. The filing does not present a standalone gross-profit figure.
At year-end, total assets were $564.2 million, total liabilities $323.9 million, and stockholders’ equity $240.3 million. Current assets were $216.0 million and current liabilities $240.1 million. Deferred revenue was $156.8 million, down from $178.0 million. The company reported $385.6 million of revenue expected from remaining performance obligations over the next 24 months.
Material changes and drivers
- Revenue declined across all three businesses. Research subscription revenue was essentially flat overall: growth in Forrester Decisions was offset by declines in legacy products; reprints and smaller or discontinued products also declined.
- Consulting fell amid weaker client bookings and a policy shift toward selling consulting primarily to CV clients. Events revenue declined mainly due to lower sponsorship revenue.
- CV fell 4%; client retention eased to 73% from 74%, wallet retention to 87% from 94%, and client count to 2,449 from 2,778. Management attributed pressure to economic conditions and the transition to Forrester Decisions.
- Approximately 66% of CV was in Forrester Decisions as of January 1, 2024; management expects approximately 80% over the longer term. CV and wallet-retention history was recast for a calculation and currency-rate update, which should be considered when comparing periods.
- Operating cash flow decreased, primarily alongside lower net income and a decline in deferred revenue. Investing activities used $36.8 million, including $31.3 million of net marketable-investment purchases and $5.5 million of capital expenditures. Financing activities used $18.3 million, including $15.0 million of debt repayments.
Outlook, risks and unusual items
- Management said macroeconomic conditions and the product transition are expected to continue pressuring key metrics through 2024. It believes current cash and operating cash flows will meet working-capital, financing, capital-expenditure, and known long-term cash needs.
- Management expects approximately $10.0 million of intangible-asset amortization in 2024. No specific revenue or earnings guidance is provided in the filing.
- After year-end, Forrester implemented a workforce reduction of approximately 3% and plans to close its San Francisco office at 150 Spear Street. Estimated total costs are $7.3 million to $7.7 million, including approximately $3.8 million of noncash lease impairment costs; most cash costs are expected in 2024. Approximately $0.7 million was recorded in Q4 2023.
- During 2023, the company recorded restructuring costs related to workforce reductions and office closures. A wage-related settlement resulted in $4.8 million of expense in Q1 2023.
- The $35.0 million of borrowings carries a floating rate; the stated year-end annualized rate was 6.71%. The company was in compliance with credit-facility covenants and expected to remain compliant for the next 12 months. A 25-basis-point rate change would affect annual pretax interest expense by approximately $0.1 million.
- Key risks include subscription renewals and Forrester Decisions migration, weak consulting demand, economic and technology-spending conditions, competition, talent and sales productivity, foreign-exchange exposure, cybersecurity and privacy, generative-AI risks, and debt covenants. The company introduced the generative-AI research-query tool Izola in October 2023.
- The company reported no known material cybersecurity incident and no expected material cybersecurity effect, while noting that future incidents cannot be ruled out. Management and the auditor concluded internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
- Management said current legal matters are not expected to materially affect financial position, results, or cash flows, though an interim-period impact could be material. Goodwill impairment testing identified no impairment in 2023.
Investor verification priorities
- Track CV, client count, client and wallet retention, and the pace and economics of migration to Forrester Decisions, accounting for the disclosed CV recast.
- Assess whether research revenue stabilizes and whether consulting bookings and events sponsorship recover, given the broad FY 2023 revenue decline.
- Reconcile operating cash flow with net income and deferred-revenue movements; monitor cash held abroad, investment liquidity, and lease-payment obligations.
- Review the impact of restructuring and the 2024 workforce and office actions on costs, capacity, and sales productivity.
- Monitor floating-rate debt, covenant headroom, and the use of the remaining $70.9 million share-repurchase authorization; no dividends were paid in 2022 or 2023.
- Verify the settlement, remaining legal contingencies, and risks associated with generative AI, data privacy, cybersecurity, and protection of proprietary research.