Forrester Research, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; balance-sheet comparisons are with December 31, 2011. Unaudited consolidated results. Forrester provides research memberships, advisory and consulting services, and events.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $70.3 million | $65.7 million | +7% |
| Operating income | $4.6 million | $4.2 million | +10% |
| Operating margin | 6.5% | 6.4% | +0.1 percentage point |
| Net income | $3.2 million | $2.9 million | +9% |
| Diluted EPS | $0.14 | $0.13 | +1 cent |
| Operating cash flow | $34.9 million | $32.2 million | +$2.7 million |
- Research services revenue rose 12% to $49.8 million; advisory services and other revenue fell 3% to $20.5 million. Revenue growth reflected greater demand and more clients, with the Springboard acquisition contributing about 1% to overall growth.
- Cost of services and fulfillment increased 6% to $26.9 million; selling and marketing expense decreased 1% to $25.1 million; general and administrative expense increased 8% to $9.6 million. Depreciation more than doubled to $2.0 million, mainly due to the new headquarters and website.
- Cash and cash equivalents were $100.4 million and marketable investments were $152.5 million at March 31. Current assets were $336.2 million against current liabilities of $180.7 million. Total liabilities were $199.1 million. The filing reports no line of credit and no off-balance-sheet financing; debt balances are not separately identified.
- Operating cash flow benefited from $29.5 million of receivables collections, which management says are seasonally strong in Q1. Investing activities used $7.7 million; financing activities used $8.9 million, including $7.7 million of stock repurchases and $3.2 million of dividends. Cash increased $19.4 million during the quarter.
- Forrester declared and paid a $0.14-per-share dividend in Q1 and declared another $0.14 dividend payable June 20, 2012. It had $71.3 million remaining under its share-repurchase authorization at quarter-end.
Material changes and operating indicators
- Deferred revenue increased 10% year over year to $151.7 million; agreement value increased 10% to $220.7 million. Client count rose 5% to 2,725.
- Client retention was 80% in both periods; dollar retention eased to 90% from 91%, and enrichment declined to 99% from 103%. Management attributed higher deferred revenue and agreement value primarily to increased demand.
- Segment revenue increased in Business Technology (7%), Technology Industry (11%, including 3.5% from Springboard), and Marketing and Strategy (10%). Events revenue declined as the company held three fewer events due to timing changes.
- Q1 included $1.3 million of reorganization costs related to sales-force realignment and other cost reductions. The company terminated 17 additional employees in the quarter, following costs for three employees recorded in Q4 2011.
Outlook, commentary, and risks
- Management expects $5 million to $8 million of property and equipment purchases in 2012, and an additional $0.1 million to $0.2 million of reorganization costs in Q2; remaining reorganization accruals are expected to be paid by year-end.
- Management believes cash, investments, and operating cash flow will meet working-capital, financing, and capital needs for at least two years, and plans to continue repurchases during 2012 as market conditions warrant. No formal revenue or earnings guidance is provided.
- About $9.6 million of auction-rate securities remain illiquid after repeated failed auctions; contractual maturities extend from 2024 to 2034. Management says the limited liquidity is not expected to affect its business plan, but valuation depends on significant unobservable assumptions.
- Other risks highlighted include membership renewal and enrichment, technology spending and economic conditions, international operations, competition, staffing and key-person dependence, network disruption or security breaches, and quarterly variability. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether lower enrichment and slightly weaker dollar retention persist, and how they affect renewals and future revenue.
- Whether research-revenue growth offsets softer advisory and event revenue, including the effect of event timing and Springboard.
- Cash-flow sustainability beyond the seasonally strong Q1 collections, and planned capital spending against cash generation.
- Liquidity, valuation assumptions, and potential recovery timing for the auction-rate securities.
- Execution and cash costs of the sales reorganization, alongside repurchases and dividend commitments.