Forrester Research, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2022. Forrester sells research subscriptions and related services, consulting, and events. Research represented about 65% of nine-month revenue. All events in the first three quarters of 2022 were held in hybrid format, compared with virtual events in 2021.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $127.7M | $118.1M | $400.9M | $360.6M |
| Operating income | $8.6M | $6.5M | $35.7M | $27.2M |
| Net income | $5.4M | $4.5M | $23.4M | $16.8M |
| Diluted EPS | $0.28 | $0.23 | $1.22 | $0.87 |
| Operating margin | 6.7% | 5.5% | 8.9% | 7.5% |
| Net margin | 4.2% | 3.8% | 5.8% | 4.7% |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $37.8M | $85.0M |
- Q3 revenue rose 8% year over year (10% excluding foreign-exchange effects); nine-month revenue increased 11% (13% excluding FX).
- Q3 research revenue grew 9% to $87.0M; consulting revenue was essentially flat at $37.4M; events revenue increased 276% to $3.3M. For nine months, research rose 11%, consulting fell 2%, and events rose 201%.
- Q3 operating expenses increased 7% to $119.1M. For nine months, expenses rose 10% to $365.2M; higher staffing, compensation, stock compensation, event costs and professional services contributed.
- Nine-month cash from operations fell $47.2M year over year, principally reflecting lower cash generated from receivables and deferred revenue, incentive-compensation payments, and working-capital movements. Investing activities used $5.7M; financing activities used $38.8M, including $25.0M of debt repayments and $15.1M of share repurchases.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $98.7M and marketable investments were $20.0M; the company reported $118.7M in cash, cash equivalents and investments. An additional $1.9M was restricted cash.
- Debt was $50.0M, down from $75.0M at December 31, 2021. The $150M revolving facility matures in December 2026; $99.2M of borrowing capacity was available, excluding the expansion feature. The company was in covenant compliance.
- Total assets were $585.2M and stockholders’ equity was $213.9M. Current assets were $204.3M versus current liabilities of $247.1M, including $180.8M of deferred revenue.
- Cash, cash equivalents and investments included $77.5M held outside the U.S.; management stated its intent to permanently reinvest these funds abroad. Management believes available cash and operating cash flow will meet working-capital, capital-expenditure and known long-term needs for the next 12 months.
Material changes, outlook and risks
- Contract value, a key research-business measure, increased 7% year over year to $353.0M. Client retention declined 3 percentage points to 75%; wallet retention declined 2 points to 97%; client count fell 3% to 2,875. Management attributed weaker retention and client numbers mainly to higher turnover among smaller clients, macroeconomic conditions, sales-capacity constraints and the transition to Forrester Decisions.
- Management expected a full-year 2022 effective tax rate of approximately 32%; the nine-month rate was 32.3%. The filing gives no revenue or earnings guidance.
- Management identified risks including weaker technology spending or demand, subscription retention and renewal, consulting demand, event demand, staffing and sales capacity, international operations and currency movements, competition, cybersecurity and privacy, and COVID-related disruption. It cautioned that interim results may not indicate full-year results.
- Foreign-currency translation reduced nine-month other comprehensive income by $10.8M. The filing reports ordinary-course legal and regulatory claims but does not identify a specific material proceeding or quantify a contingency.
- Disclosure controls were assessed as effective as of September 30, 2022; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether contract-value growth can continue and client and wallet retention stabilize, particularly among smaller clients.
- Whether hybrid-event revenue and attendance remain sustainable, and how event costs affect profitability.
- Whether operating cash flow recovers after the year-over-year decline and working-capital outflows.
- Whether the company remains compliant with credit covenants as borrowing costs rise; Q3 contractual annualized borrowing rate was 4.375%.
- Whether foreign-exchange exposure, overseas cash repatriation costs, and the stated 2022 tax-rate estimate affect reported results.