Business context and reporting period
Forrester Research, Inc. filed this Form 10-K for the fiscal year ended December 31, 2022. The company sells subscription research, consulting and advisory services, and events. Its recurring research-related contract value (CV) is a key business metric; research products accounted for about 66% of 2022 revenue. In 2022, events were hybrid, combining in-person and virtual attendance.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $537.8 million | $494.3 million | +9% |
| Operating income / margin | $32.7 million / 6.1% | $38.6 million / 7.8% | Income down 16% |
| Net income / margin | $21.8 million / 4.1% | $24.8 million / 5.0% | Income down 12% |
| Diluted EPS | $1.14 | $1.28 | Down 11% |
| Cash from operations | $39.4 million | $107.1 million | Down $67.6 million |
| Cash, cash equivalents and marketable investments | $123.3 million | — | — |
| Debt outstanding | $50.0 million | $75.0 million | Down $25.0 million |
Revenue by category: research $354.5 million (+9%); consulting $152.6 million (-2%); events $30.7 million (+139%). Research and consulting results reflect foreign-exchange effects; total revenue grew 10% excluding currency movements. Current assets were $235.3 million versus current liabilities of $269.4 million. The company reported $64.4 million of operating lease liabilities.
Material changes versus the prior year
- CV increased 3% to $353.4 million, slowing from 14% growth in 2021. Client retention declined to 74% from 78%, wallet retention to 94% from 102%, and client count to 2,778 from 3,005.
- Operating expenses rose faster than revenue: total operating expenses increased about 11%, and cost of services and fulfillment increased 11%. Operating margin fell to 6.1% from 7.8%.
- Cash from operations fell substantially, mainly reflecting lower cash generation from accounts receivable and deferred revenue, and cash used for accrued expenses including incentive compensation payouts.
- Events revenue rebounded with the return of in-person attendance. Consulting revenue decreased as research analysts shifted effort toward developing and delivering recurring CV products.
Outlook, risks, contingencies and unusual items
- Management expects CV growth to be flat to low single digits through the first half of 2023, citing macroeconomic conditions and the transition to Forrester Decisions. It expects roughly two-thirds of CV to be in Forrester Decisions by year-end 2023; the portfolio represented about 32% at year-end 2022.
- Management said these conditions and the product transition are expected to pressure key metrics through the first half of 2023. The filing does not provide full-year revenue or earnings guidance.
- Fourth-quarter restructuring charges were $9.3 million: $5.0 million for impairment of a San Francisco office floor and $4.3 million for severance tied to a January 2023 workforce reduction of approximately 4%. Nearly all severance costs were expected to be paid in 2023.
- The revolving credit facility provides $150 million of commitments and matures in December 2026. At year-end, $50.0 million was drawn and $99.4 million of borrowing capacity was available, excluding the expansion feature. The company reported covenant compliance and expected to remain compliant for the next 12 months. Borrowings were floating-rate; a 25-basis-point rate change was estimated to alter next-12-month pretax interest expense by about $0.1 million.
- Management believes available cash and operating cash flows will cover working capital, financing and capital expenditure needs for the next 12 months and known longer-term requirements. However, $81.4 million of cash and investments was held outside the U.S.; repatriation could incur taxes.
- Key risks include weaker subscription renewals and demand, the Forrester Decisions migration, economic and technology-spending pressure, competition, foreign-exchange exposure, talent retention, cybersecurity and privacy risks, and debt covenants. Founder and CEO George Colony owned approximately 39% of outstanding shares.
- Ordinary-course litigation was not expected to materially affect financial position, results or cash flows in aggregate, though an interim-period effect could be material. The auditor gave an unqualified opinion and reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether client retention, wallet retention and client counts stabilize, and whether CV growth meets management’s flat-to-low-single-digit expectation for the first half of 2023.
- Progress and renewal economics of the Forrester Decisions migration, including the expected two-thirds CV mix by year-end 2023.
- Whether operating cash flow recovers after the 2022 decline and how deferred revenue, collections and incentive compensation affect cash generation.
- Execution and costs of the workforce reduction and office-space changes, including any further restructuring or lease impairments.
- Interest-rate and covenant headroom on floating-rate borrowings, and the availability and tax implications of offshore liquidity.