Forrester Research, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Comparisons are year over year unless stated otherwise. Amounts below are in U.S. dollars; financial figures are rounded to millions.
Business context and reporting period
Forrester sells research subscriptions and reprints, consulting and advisory services, and events. Research subscriptions are generally annual and paid in advance. In August 2021, the company launched Forrester Decisions, a research portfolio combining elements of Forrester Research and SiriusDecisions offerings. Starting in 2021, subscription-related advisory components are classified as Research revenue; prior periods were reclassified without changing total revenue.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $118.1 million | $108.6 million | $360.6 million | $328.5 million |
| Operating income | $6.5 million | $0.2 million | $27.2 million | $12.1 million |
| Operating margin | 5.5% | 0.2% | 7.5% | 3.7% |
| Net income (loss) | $4.5 million | $(3.8) million | $16.8 million | $7.6 million |
| Net margin | 3.8% | (3.5)% | 4.7% | 2.3% |
| Diluted EPS | $0.23 | $(0.20) | $0.87 | $0.40 |
- Q3 revenue mix: Research $79.9 million (+7%); Consulting $37.4 million (+13%); Events $0.9 million (−23%). Nine-month growth was 5%, 19%, and 25%, respectively. Management attributed consulting growth to demand for content marketing and strategy consulting; Q3 events revenue fell on lower sponsorship revenue and smaller events.
- Cash flow: Nine-month operating cash flow was $85.0 million, versus $29.2 million a year earlier. Management attributed the improvement mainly to stronger bookings and collections, which increased cash generated from accounts receivable and deferred revenue. Investing activities used $26.9 million; financing activities used $15.5 million.
- Cash and liquidity: At September 30, cash and cash equivalents were $129.3 million, with $17.0 million in marketable investments and $2.5 million in restricted cash. Current assets were $238.1 million and current liabilities $276.8 million; the difference largely includes deferred revenue. Management said cash and operating cash flows should cover working capital, financing activities, and capital expenditures for the next 12 months.
- Debt: Term-loan principal outstanding was $100.0 million ($98.9 million net carrying amount); no revolver borrowings were reported. The company had $74.1 million of revolver capacity available, excluding the expansion feature. The facility matures January 3, 2024. The company reported covenant compliance and expected to remain compliant for at least 12 months.
- Other balance-sheet items: Total assets were $654.8 million and stockholders’ equity $201.2 million. Operating lease liabilities totaled $80.8 million.
Material changes versus the prior comparable period
- Q3 revenue rose 9%; nine-month revenue rose 10%. Contract value, a company-defined measure of recurring research-related contracts, increased 12% to $331.0 million at September 30, 2021.
- Client retention increased to 78% from 71%, wallet retention to 99% from 86%, and client count to 2,964 from 2,750. Management said these measures improved from pandemic-related lows in 2020.
- Q3 net income moved from a loss to profit; nine-month net income more than doubled. Lower selling and marketing expense as a share of revenue and reduced amortization and integration costs supported operating-margin improvement. Nine-month expense growth also reflected reinstated incentive programs, merit increases, and higher professional-services costs.
- Cash and cash equivalents increased from $90.3 million at December 31, 2020; debt principal declined from $109.4 million. The company spent $10.6 million on share repurchases in the first nine months. The board increased repurchase authorization by $50 million in October, after quarter-end.
Outlook, management commentary, risks, and unusual items
- Management reported a rebound in contract bookings beginning in Q4 2020 and continuing through Q3 2021, and expected that trend to continue through the remainder of 2021. The filing provides no specific revenue or earnings guidance.
- Management anticipated a full-year 2021 effective tax rate of approximately 27%.
- COVID-19 continued to affect events: all 2021 events were or would be virtual, and the events business remained negatively affected. Switching from in-person to virtual events resulted in hotel cancellation fees. The duration and business effects of the pandemic remained uncertain.
- Management did not expect further integration costs in 2021; remaining 2021 costs related to unused SiriusDecisions lease facilities. Nine-month integration costs were $0.3 million, compared with $3.8 million a year earlier.
- Approximately $370.4 million of revenue was expected to be recognized over the next 24 months from remaining performance obligations. This is not a revenue forecast.
- Key disclosed risks include retaining research subscriptions, generating consulting and event demand, COVID-19 effects, competition, attracting and retaining staff, cybersecurity and privacy, international operations and currency movements, and debt obligations. The company also noted that ordinary-course legal proceedings and claims could entail material costs or management distraction; no specific material proceeding was described in the supplied filing text.
Important facts for investors to verify
- Whether the recovery in contract bookings and retention metrics continues, and how Forrester Decisions affects renewals, pricing, and research revenue.
- Whether consulting growth can be sustained while associated segment expenses are rising faster than revenue.
- Whether virtual-event economics, sponsorship demand, and cancellation costs improve as pandemic conditions change.
- Cash generation, working-capital movements, and the effect of advance billings and deferred revenue on reported operating cash flow.
- Debt amortization, covenant headroom, lease commitments, and the implications of holding $65.7 million of cash outside the U.S. if repatriation becomes necessary.
- Execution and potential dilution or capital-allocation effects from share repurchases, stock-based compensation, and the October 2021 increase in repurchase authorization.