Forrester Research, Inc. — 2015 Form 10-K
Business context and reporting period. Forrester provides subscription research and data, advisory and consulting services, peer networks, and events to business and technology leaders. This annual report covers the fiscal year ended December 31, 2015; it also reports fourth-quarter results. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | 2015 | 2014 | Change / context |
|---|---|---|---|
| Revenue | $313.7 million | $312.1 million | Up 1% reported; up 4% at constant currency |
| Research services revenue | $210.3 million | $207.5 million | Up 1% reported; up 5% at constant currency |
| Advisory services and events revenue | $103.5 million | $104.5 million | Down 1% reported; up 2% at constant currency |
| Operating income / margin | $18.8 million / 6.0% | $18.2 million / 5.8% | Operating income up 3% |
| Net income / net margin | $12.0 million / 3.8% | $10.9 million / 3.5% | Up about 10%; effective tax rate was 37.9%, versus 40.9% |
| Diluted EPS | $0.66 | $0.57 | Share repurchases reduced weighted-average shares |
| Operating cash flow | $32.5 million | $28.8 million | Up $3.7 million |
| Cash, cash equivalents and marketable investments | $101.1 million | $104.5 million | At year-end |
| Working capital | $15.3 million | $26.3 million | Down $11.0 million |
| Deferred revenue | $140.7 million | $144.6 million | Down 3% |
| Agreement value | $237.0 million | $231.7 million | Up 2% reported; up 4% at constant currency |
Fourth quarter: Revenue was $81.0 million, operating income $4.1 million, net income $2.0 million, and diluted EPS $0.11. Revenue was slightly above the $80.7 million recorded in fourth-quarter 2014.
Liquidity, debt, and capital allocation: The filing reports no debt balance and says the company had no line of credit. Management believed cash, investments, and operating cash flows would cover working capital and capital expenditure needs for the next 12 months. Investing activities provided $2.8 million; financing activities used $29.7 million, including $20.9 million for share repurchases and $12.2 million in dividends. Year-end stock repurchase authorization remaining was $36.9 million. Contractual obligations included $96.5 million of operating lease payments and $6.9 million of purchase commitments.
Changes versus the prior comparable period
- Reported revenue growth was modest, with foreign exchange reducing reported growth; international revenue fell 9% reported but rose 4% at constant currency.
- Research and Data product growth was partly offset by weaker Connect results. Event revenue fell 20%, principally because of lower sponsorship revenue; advisory and consulting revenue increased.
- Operating expenses rose less than 1%. Cost control, lower depreciation and amortization, and a lower tax rate helped offset higher reorganization costs.
- Client metrics improved: client retention was 77% versus 76%, dollar retention 89% versus 88%, and enrichment 98% versus 97%. The client count rose 2% to 2,471.
- Deferred revenue declined even as agreement value increased. Management attributed the difference to revenue growth and the timing of bookings and future billings.
Outlook, management commentary, and risks
- Management expected 2016 operating margin of 7.0%–8.0%, citing continued cost control and savings from a workforce reduction implemented in March 2016.
- The company planned, subject to business conditions, to expand its quota-carrying sales force by approximately 1%–3% in 2016 and anticipated productivity improvements. Expected 2016 capital expenditures were $3–$5 million.
- The March 2016 workforce reduction was approximately 2%; expected related pre-tax costs were $1.0–$1.2 million, primarily severance, in the first two quarters of 2016.
- The Board raised the regular quarterly dividend from $0.17 to $0.18 per share in February 2016. Future dividends remain subject to Board approval.
- 2015 reorganization costs were $4.4 million, including workforce and product-group actions. A $0.6 million tax benefit related to the Altera tax-court opinion lowered the 2015 tax provision. The filing also describes immaterial out-of-period corrections recorded in 2014.
- Key risks include membership renewals and demand, competition and pricing pressure, economic and technology-spending conditions, international and currency exposure, retaining skilled staff, successful product development, cybersecurity and privacy compliance, and reliance on key management. Approximately 23% of 2015 revenue came from outside the United States. CEO George F. Colony owned approximately 45% of outstanding shares.
- The company reported no material legal proceedings. Management and its auditor concluded that internal control over financial reporting was effective as of year-end.
Most important facts for investors to verify
- Whether agreement value growth and improving retention convert into renewed contracts, billings, and revenue, particularly given lower deferred revenue.
- Whether the planned 2016 operating-margin expansion and sales-force productivity gains are achieved, and how the workforce reduction affects delivery and growth.
- Whether event sponsorship weakness and Connect declines persist, and whether international performance improves on a constant-currency basis.
- The sustainability of cash generation and the effects of dividends and repurchases on liquidity, share count, and per-share results.
- Developments in tax examinations and uncertain tax positions, foreign-currency exposure, and the company’s ability to protect client and proprietary information.