Forrester Research, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unless noted, financial amounts are in millions of dollars. Comparisons are with the corresponding 2020 periods.
Business context
Forrester earns revenue from research subscriptions and related products, consulting and advisory services, and events. Management says contract bookings rebounded from the pandemic-related decline beginning in Q4 2020 and continued improving through Q2 2021. Research products accounted for about 64% of first-half revenue.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $128.7 | $113.5 | $242.5 | $219.9 |
| Operating income | $13.1 | $11.2 | $20.6 | $12.0 |
| Operating margin | 10.2% | 9.9% | 8.5% | 5.4% |
| Net income | $8.3 | $11.8 | $12.3 | $11.3 |
| Diluted EPS | $0.43 | $0.63 | $0.64 | $0.60 |
| Operating cash flow | Not separately provided for Q2 | $70.1 | $25.0 |
Q2 revenue grew 13%; research increased 8%, consulting 22%, and events 33%. First-half revenue grew 10%, with research up 4%, consulting up 21%, and events up 36%. Consulting growth reflected demand for content marketing and strategy offerings; event growth was primarily due to higher sponsorship revenue. About 22% of Q2 revenue and 23% of first-half revenue came from outside the U.S.
Q2 net income declined despite higher operating income, principally as income tax expense rose to $3.5 million from $0.2 million. First-half tax expense was $5.5 million versus $0.3 million, primarily reflecting increased U.S. profitability. Management reported a 30.7% first-half effective tax rate.
First-half operating cash flow rose $45.1 million year over year, mainly due to stronger collections and higher contract bookings, reflected in receivables and deferred revenue, and lower working-capital cash use. Capital expenditures were $5.2 million; derived operating cash flow less capital expenditures was approximately $64.9 million, versus $19.9 million a year earlier.
Financial position and liquidity
- At June 30, cash and cash equivalents were $146.4 million, up from $90.3 million at year-end; an additional $2.5 million was restricted cash. Cash held outside the U.S. was $62.4 million, which management intends to permanently reinvest abroad.
- Current assets were $245.0 million and current liabilities $287.6 million. Deferred revenue was $210.3 million, compared with $180.0 million at December 31, 2020.
- Term-loan principal was $103.1 million, down from $109.4 million at year-end; net carrying debt was $101.8 million. The company had $74.1 million of available revolver capacity and $0.9 million of letters of credit outstanding.
- Debt matures January 3, 2024. The company reported compliance with its credit covenants and expected to remain compliant for at least the next 12 months. Operating lease liabilities totaled $83.7 million.
- Stock repurchases totaled $2.7 million in the first half; approximately $57.5 million remained authorized at June 30.
Material changes and management outlook
- Research contract value was $319.8 million at June 30, up 9% year over year. Client retention rose to 77% from 72%, wallet retention to 96% from 87%, and client count to 2,940 from 2,760. Management said these measures improved from pandemic-related lows in mid-2020.
- Management expected the contract-booking rebound to continue through the remainder of 2021. Events remained affected by COVID-19: events in the first three quarters were virtual, while the company hoped to hold most Q4 events in hybrid formats. The duration and effects of the pandemic remained uncertain.
- Management anticipated a full-year 2021 effective tax rate of approximately 31% and said it did not expect further integration costs in 2021.
- Forrester Decisions, a new research portfolio combining elements of Forrester Research and SiriusDecisions offerings, was announced for availability in August 2021. The company also changed its research revenue classification in 2021 and reclassified prior periods; total revenue was unchanged.
- Expense growth reflected reinstatement of incentive bonuses and benefits reduced during 2020, merit increases, and higher professional-services costs. Integration costs fell as SiriusDecisions integration was substantially completed in 2020.
Risks, contingencies, and controls
Management cited risks including COVID-19 impacts on demand and fulfillment, subscription retention and consulting demand, event performance, competition, staffing, cybersecurity and privacy, international operations, and the company’s outstanding debt. Ordinary-course legal proceedings and claims may expose the company to defense or settlement costs; the filing does not identify a specific material proceeding. Management reported disclosure controls were effective as of June 30, 2021 and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether the booking rebound and improved contract-value retention measures persist, and how they translate into recognized revenue.
- Whether Forrester Decisions launches as planned and supports research growth and renewals.
- How the transition from virtual to hybrid events affects attendance, sponsorship revenue, and event costs.
- Whether higher compensation and delivery costs remain controlled as revenue expands, and whether the expected tax rate is near 31%.
- Cash generation, debt repayment and covenant compliance, including the planned treatment of overseas cash and future share repurchases.