Forrester Research, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Forrester sells research subscriptions and reprints, consulting and advisory services, and events. Research subscriptions are generally annual and billed in advance.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $125.0 million | $113.8 million | +10% (11% excluding currency effects) |
| Research revenue | $85.8 million | $75.0 million | +14% |
| Consulting revenue | $38.4 million | $38.6 million | Essentially flat |
| Events revenue | $0.8 million | $0.3 million | +189%; small in absolute terms |
| Operating income | $6.5 million | $7.5 million | Down 14% |
| Net income | $4.1 million | $4.0 million | Up 5%; diluted EPS was $0.22 versus $0.21 |
| Operating cash flow | $22.7 million | $40.6 million | Down $17.9 million |
Operating expenses rose 12% to $118.5 million, outpacing revenue growth. Cost of services and fulfillment increased 12%, selling and marketing increased 12%, and general and administrative increased 18%. The filing’s percentage-of-revenue table reports operating margin of 5.4% versus 6.6% and net margin of 3.5% in both periods. The reported operating-margin percentage does not appear to reconcile with operating income divided by revenue; verify the calculation.
Financial position and liquidity
- At March 31, cash and cash equivalents were $112.5 million and marketable investments were $19.1 million. Cash, cash equivalents and restricted cash totaled $114.7 million.
- Revolving-credit-facility borrowings were $60.0 million, down from $75.0 million at year-end; $89.2 million of borrowing capacity remained available. The facility matures in December 2026. The company reported covenant compliance and expected to remain compliant for the next 12 months.
- Current assets were $249.4 million and current liabilities were $305.5 million; current liabilities included $248.1 million of deferred revenue. Total assets were $651.9 million and total liabilities were $449.5 million.
- Operating cash flow was lower mainly because of cash used for accrued expenses, including year-end incentive-compensation payments. Financing used $22.7 million, principally for $15.0 million of debt repayments and $9.5 million of share repurchases.
- Operating leases represented $74.9 million of lease liabilities. Management said cash and operating cash flows should meet working-capital, financing and capital-expenditure needs for the next 12 months and known longer-term requirements.
Material changes and management commentary
- Research growth was attributed to higher contract value and stronger demand, with improved wallet retention and client enrichment. Contract value rose 15% to $351.4 million; client retention was 77% versus 75%, wallet retention was 103% versus 89%, and clients numbered 2,945 versus 2,907.
- Consulting revenue was essentially flat overall. Management cited demand for strategy consulting, while research-analyst consulting and advisory revenue declined as analysts focused more on contract-value products.
- Operating expenses increased with compensation, benefits, headcount, commissions and professional-services costs. Service and fulfillment headcount grew 11% year over year.
- Operating cash flow declined primarily due to accrued-expense payments. The company repurchased approximately 175,000 shares for $9.5 million; about $80.6 million remained authorized for repurchases at quarter-end.
- Events continued to be affected by COVID-19. No events were held during either first quarter; management intended to hold hybrid events in 2022 and reported completing its first hybrid event in May, after quarter-end.
Outlook, risks and contingencies
- Management anticipated a full-year 2022 effective tax rate of approximately 30%. No specific revenue or earnings guidance was provided in the supplied filing text.
- Management cited uncertainty from the economic environment, technology spending and COVID-19, as well as risks to subscription renewals, consulting demand, event attendance, staffing, competition, cybersecurity, privacy compliance and international operations.
- The company had $446.3 million of remaining performance obligations expected to be recognized over the next 24 months. It recognized $80.8 million in Q1 revenue from deferred revenue outstanding at January 1, 2022.
- The filing describes ordinary-course legal proceedings and claims but does not identify a specific material proceeding or quantify a related contingency.
- Cash held outside the United States was $83.1 million; repatriation could trigger state or foreign withholding taxes. The company said it intended to permanently reinvest these funds abroad.
Important facts for investors to verify
- Reconcile the filing’s reported operating-margin percentage with operating income and revenue.
- Track whether contract-value growth, wallet retention and client retention persist, and whether they convert to recognized revenue and cash flow.
- Monitor expense growth relative to revenue, particularly compensation, sales and fulfillment costs.
- Assess event recovery and the economics of the planned hybrid-event strategy, noting that the first hybrid event occurred after quarter-end.
- Review debt repayment, available facility capacity, covenant headroom, share repurchases and the timing of lease commitments.
- Consider the location and potential tax consequences of overseas cash and the risks discussed in the company’s annual report.