Forrester Research, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Comparisons are with Q1 2020 unless otherwise stated. Financial amounts are in U.S. dollars; millions except per-share data.
Business context and results
Forrester sells research subscriptions and related services, consulting, and events. Research revenue is generally recognized over subscription terms; many subscriptions are billed in advance. The company reported three operating segments: Research, Consulting, and Events.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $113.8 | $106.3 |
| Operating income (margin) | $7.5 (6.6%) | $0.7 (0.7%) |
| Net income (loss) | $4.0 | ($0.5) |
| Diluted EPS | $0.21 | ($0.03) |
| Cash provided by operating activities | $40.6 | $21.8 |
| Capital expenditures | $1.5 | $2.4 |
Revenue increased 7%: Research rose 1% to $75.0 million, Consulting rose 21% to $38.6 million, and Events revenue was $0.3 million. Consulting growth reflected demand for content marketing offerings and advisory services. No events were held in either comparison period. Operating expenses were $106.2 million, up slightly; cost of services and fulfillment rose 10%, while selling and marketing fell 2% and integration costs declined from $2.9 million to $0.1 million. The filing reports operating and net margins; it does not separately state gross margin.
Balance sheet, debt, and liquidity
- At March 31, 2021, cash and cash equivalents were $125.6 million, versus $90.3 million at December 31, 2020; total assets were $663.7 million and stockholders’ equity was $192.2 million.
- Debt principal was $106.3 million ($104.8 million net carrying amount), down from $109.4 million principal at year-end. The term loan’s stated contractual annualized rate was 2.125%; weighted-average effective debt rate for the quarter was 2.146%. The company had $74.1 million of available revolver capacity, excluding the expansion feature.
- Operating cash flow increased by $18.8 million year over year, which management attributed mainly to lower working-capital cash use and stronger cash generation from receivables and deferred revenue. Cash used in financing was $1.0 million, primarily reflecting $3.1 million of term-loan repayments, partly offset by employee-plan stock proceeds.
- Management said cash and operating cash flows should meet working-capital, financing, and capital-expenditure needs for the next 12 months. The company reported compliance with debt covenants and expected to remain compliant for at least 12 months.
Material changes, outlook, and risks
- Research revenue presentation changed in 2021 to include all components of subscription research products. Prior-period figures were reclassified, including approximately $1.4 million shifted from Consulting to Research revenue for Q1 2020; total revenue was unchanged.
- Contract value was $307.3 million, essentially flat year over year. Client retention was 75% versus 74%; wallet retention was 89% versus 90%; client count was 2,907 versus 2,835. Management said these measures improved from mid-2020 lows as bookings recovered in late 2020 and Q1 2021.
- COVID-19 had reduced bookings and affected events. Management reported a bookings rebound beginning in Q4 2020 and continuing in Q1 2021, and expected the trend to continue in 2021. First-half 2021 events were planned as virtual; the company hoped to hold second-half events in hybrid format. The duration and business effects of the pandemic remained uncertain.
- Forrester announced Forrester Decisions, a new research portfolio expected to be available in August 2021, combining Forrester and SiriusDecisions research offerings with features of Connect and Analytics. The filing provides no full-year revenue or EPS guidance.
- Management expected a 2021 effective tax rate of approximately 32% and integration costs of $0.3 million to $0.5 million for 2021. Q1’s effective tax rate was 33.4%. Dividends remained suspended; no shares were repurchased during the quarter.
- Key risks include customer retention and demand, consulting and events demand, COVID-19 impacts, competition, international operations and currency exposure, key-personnel and hiring risks, debt and covenant obligations, cybersecurity and privacy, and litigation. Ordinary-course legal proceedings may arise; the filing gives no specific material case or quantified contingency.
Important facts for investors to verify
- Whether the booking recovery continues and translates into sustained contract-value growth, retention, and research revenue.
- Whether Consulting growth is durable and whether its rising delivery costs affect profitability.
- Forrester Decisions’ August 2021 launch timing, customer adoption, and impact on the research portfolio and disclosures.
- Event recovery plans, including whether hybrid events can resume and improve the events business.
- Cash generation, the $106.3 million debt principal schedule, covenant compliance, and the effect of cash held outside the U.S.
- Actual full-year tax rate and integration costs versus management’s estimates.