Forrester Research Reports Third-Quarter Financial Results

Business Wire

CAMBRIDGE, Mass.--(BUSINESS WIRE)--

Forrester Research, Inc. (FORR) today announced its 2013 third-quarter financial results.

Third-Quarter Financial Performance

Total revenues were $69.6 million for the third quarter of 2013, compared with $68.5 million for the third quarter of last year. Research revenues decreased 1%, and advisory services and other revenue increased 8% compared with the third quarter of last year.

On a GAAP basis, net income was $2.1 million, or $0.10 per diluted share, for the third quarter of 2013, compared with net income of $10.4 million, or $0.45 per diluted share, for the same period last year. Net income in 2012 includes a $5.5 million deferred tax benefit resulting from the settlement of a foreign tax audit.

On a pro forma basis, net income was $3.9 million, or $0.19 per diluted share, for the third quarter of 2013, which reflects a pro forma effective tax rate of 39%. Pro forma net income excludes stock-based compensation of $1.9 million, amortization of $0.6 million of acquisition-related intangible assets, and net investment losses of $0.3 million. This compares with pro forma net income of $5.8 million, or $0.26 per diluted share, for the same period in 2012, which reflects a pro forma tax rate of 39%. Pro forma net income for the third quarter of 2012 excludes stock-based compensation of $1.4 million, amortization of $0.6 million of acquisition-related intangible assets, and net investment gains of $0.1 million.

“Forrester met its revenue guidance and exceeded operating margin and earnings per share for the third quarter,” said George F. Colony, Forrester’s chairman and chief executive officer. “We continue a deliberate, yearlong process to improve how we operate to better serve our clients and take advantage of emerging growth opportunities. While our recovery remains a work in progress, we are seeing positive signs in some areas of the business.”

Nine-Month Period Ended September 30, 2013, Financial Performance

Total revenues were $219.2 million, compared with $217.9 million for the same period last year.

On a GAAP basis, net income was $10.1 million, or $0.46 per diluted share, for the nine months ended September 30, 2013, compared with net income of $21.3 million, or $0.93 per diluted share, for the same period last year.

On a pro forma basis, net income was $15.4 million, or $0.71 per diluted share, for the nine months ended September 30, 2013, which reflects a pro forma effective tax rate of 39%. Pro forma net income excludes stock-based compensation of $4.6 million, amortization of $1.7 million of acquisition-related intangible assets, reorganization costs of $1.9 million, and net investment losses of $0.4 million. This compares with pro forma net income of $19.1 million, or $0.83 per diluted share, for the same period in 2012, which reflects a pro forma tax rate of 39%. Pro forma net income for the nine months ended September 30, 2012, excludes stock-based compensation of $3.9 million, amortization of $1.8 million of acquisition-related intangible assets, $1.4 million of reorganization costs, and net investment gains of $0.3 million.

A reconciliation of GAAP results to pro forma results may be found in the attached financial tables.

Forrester is providing fourth-quarter 2013 financial guidance as follows:

Fourth-Quarter 2013 (GAAP):

GAAP financial guidance for the fourth quarter of 2013 excludes an estimated investment loss of $2.0 million to $2.5 million ($0.10 to $0.12 per share) related to the anticipated future sale of the company’s auction rate security portfolio.

  • Total revenues of approximately $75.5 million to $78.5 million.
  • Operating margin of approximately 3.0% to 5.0%.
  • Other income, net of zero.
  • An effective tax rate of 39%.
  • Weighted average diluted shares outstanding of approximately 20.7 million.
  • Diluted earnings per share of approximately $0.07 to $0.11.

Fourth-Quarter 2013 (Pro Forma):

Pro forma financial guidance for the fourth quarter of 2013 excludes stock-based compensation expense of $1.8 million to $2.0 million, amortization of acquisition-related intangible assets of approximately $0.6 million, and any investment gains or losses.

  • Pro forma operating margin of approximately 6.0% to 8.0%.
  • Pro forma effective tax rate of 39%.
  • Pro forma diluted earnings per share of approximately $0.14 to $0.18.

Our full-year 2013 guidance is as follows:

Full-Year 2013 (GAAP):

GAAP financial guidance for full-year 2013 excludes an estimated investment loss of $2.0 million to $2.5 million ($0.10 to $0.12 per share) related to the anticipated future sale of the company’s auction rate security portfolio.

  • Total revenues of approximately $295.0 million to $298.0 million.
  • Operating margin of approximately 6.0% to 7.0%.
  • Other income, net of approximately $0.6 million.
  • An effective tax rate of 39%.
  • Weighted average diluted shares outstanding of approximately 21.5 million.
  • Diluted earnings per share of approximately $0.54 to $0.57.

Full-Year 2013 (Pro Forma):

Pro forma financial guidance for full-year 2013 excludes stock-based compensation expense of $6.4 million to $6.6 million, amortization of acquisition-related intangible assets of approximately $2.3 million, reorganization costs of approximately $1.9 million, and any investment gains or losses.

  • Pro forma operating margin of approximately 9.5% to 10.5%.
  • Pro forma effective tax rate of 39%.
  • Pro forma diluted earnings per share of approximately $0.85 to $0.89.

Organizational Changes

On October 1, 2013, Forrester modified its operating structure in order to improve the client experience and better support future growth. The move created a single, global research organization that will provide differentiated insight for technology management and marketing professionals. Client demand continues to shift toward technology, systems, and processes that can win, serve, and retain customers. A unified research organization will be better able to help clients in what Forrester has defined as the age of the customer. The new structure also creates a single, global product organization that will provide a more consistent brand experience for clients and fuel future product innovation.

The change led to the creation of two new executive positions:

Dennis van Lingen has been named chief product officer. Van Lingen has been a member of the Forrester executive team since 2006. Prior to joining Forrester, he was a senior product manager for Nissan. Van Lingen will continue to serve as Forrester’s chief Europe, Middle East, and Africa (EMEA) officer.

Cliff Condon has been named chief research officer. Condon is a Forrester veteran, having joined the company in 1997. In that time, he has held a variety of senior research management positions. Most recently, he ran Forrester’s global events business.

Quarterly Dividend

Forrester also announced today that its board of directors has approved a quarterly dividend of $0.15 per share payable December 18, 2013, to shareholders of record on December 4, 2013.

About Forrester Research

Forrester Research (FORR) is a global research and advisory firm serving professionals in 13 key roles across three distinct client segments. Our clients face progressively complex business and technology decisions every day. To help them understand, strategize, and act upon opportunities brought by change, Forrester provides proprietary research, consumer and business data, custom consulting, events and online communities, and peer-to-peer executive programs. We guide leaders in business technology, marketing and strategy, and the technology industry through independent fact-based insight, ensuring their business success today and tomorrow. For more information, visit www.forrester.com.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, Forrester’s financial guidance for the fourth quarter of and full-year 2013, the focus and performance of Forrester’s organizational structure, and statements about Forrester’s future financial performance and financial condition. These statements are based on Forrester’s current plans and expectations and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual future activities and results to differ include, among others, Forrester’s ability to retain and enrich memberships for its research products and services, technology spending, Forrester’s ability to respond to business and economic conditions and market trends, the risks and challenges inherent in international business activities, competition and industry consolidation, the ability to attract and retain professional staff, Forrester’s dependence on key personnel, the possibility of network disruptions and security breaches, and possible variations in Forrester’s quarterly operating results. Financial guidance regarding shares outstanding and per-share amounts is based on certain assumptions that are subject to change, including as a result of the number of shares repurchased by Forrester under its announced share repurchase program. Dividend declarations are at the discretion of Forrester’s board of directors, and plans for future dividends may be revised by the board at any time. Forrester undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. For further information, please refer to Forrester’s reports and filings with the Securities and Exchange Commission.

The consolidated statements of income and the table of key financial data are attached.

© 2013, Forrester Research, Inc. All rights reserved. Forrester is a trademark of Forrester Research, Inc.

Forrester Research, Inc.
Consolidated Statements of Income
(Unaudited, in thousands, except per share data)
      Three Months Ended   Nine Months Ended
September 30,

September 30,

2013   2012 2013   2012
 
Revenues:
Research services $ 49,818 $ 50,300 $ 150,708 $ 151,132
Advisory services and other   19,754     18,211     68,527     66,732
Total revenues   69,572     68,511     219,235     217,864
 
Operating expenses:
Cost of services and fulfillment 27,584 25,736 85,397 82,502
Selling and marketing 25,771 24,309 79,617 75,709
General and administrative 9,310 8,411 27,217 26,667
Depreciation 2,292 2,262 6,954 6,510
Amortization of intangible assets 557 579 1,670 1,779
Reorganization costs   -     37     1,905     1,431
Total operating expenses   65,514     61,334     202,760     194,598
 
Income from operations 4,058 7,177 16,475 23,266
 
Other income (expense), net (71 ) 357 560 896
Gains (losses) on investments, net   (296 )   147     (398 )   290
Income before income taxes 3,691 7,681 16,637 24,452
 
Income tax provision (benefit)   1,590     (2,692 )   6,573     3,129
Net Income $ 2,101   $ 10,373   $ 10,064   $ 21,323
 
Diluted income per share $ 0.10   $ 0.45   $ 0.46   $ 0.93
 
Diluted weighted average shares outstanding   20,665     22,858     21,690     23,018
 
Basic income per share $ 0.10   $ 0.46   $ 0.47   $ 0.94
 
Basic weighted average shares outstanding   20,117     22,398     21,226     22,573
 
Pro forma data (1):
 
Income from operations $ 4,058 $ 7,177 $ 16,475 $ 23,266
Amortization of intangible assets 557 579 1,670 1,779
Reorganization costs - 37 1,905 1,431

Stock-based compensation included in the following expense categories:

Cost of services and fulfillment 1,061 835 2,708 2,213
Selling and marketing 321 207 893 638
General and administrative   478     367     987     1,070
 
Pro forma income from operations 6,475 9,202 24,638 30,397
 
Other income (expense), net   (71 )   357     560     896
Pro forma income before income taxes 6,404 9,559 25,198 31,293
 
Pro forma income tax provision   2,498     3,728     9,827     12,204
 
Pro forma net income $ 3,906   $ 5,831   $ 15,371   $ 19,089
 
Pro forma diluted income per share $ 0.19   $ 0.26   $ 0.71   $ 0.83
Diluted weighted average shares outstanding   20,665     22,858     21,690     23,018
 

(1) Forrester believes that pro forma financial results provide investors with consistent and comparable information to aid in the understanding of Forrester's ongoing business, and are also used by Forrester in making compensation decisions. Our pro forma presentation excludes amortization of acquisition-related intangible assets, stock-based compensation, reorganization costs and net gains or losses from investments, as well as their related tax effects. The pro forma data does not purport to be prepared in accordance with Accounting Principles Generally Accepted in the United States.

Forrester Research, Inc.
Key Financial Data
(Unaudited, dollars in thousands)
         
September 30, December 31,
2013 2012
Balance sheet data:
Cash, cash equivalents and marketable investments $ 166,753 $ 242,656
Accounts receivable, net $ 37,009 $ 74,623
Deferred revenue $ 126,665 $ 150,479
 
 
Nine Months Ended
September 30,
2013 2012
Cash flow data:
Net cash provided by operating activities $ 32,352 $ 43,223
Purchases of property and equipment $ (2,049 ) $ (4,845 )
Repurchases of common stock $ (109,193 ) $ (26,187 )
Dividends paid $ (9,425 ) $ (9,481 )
 
 
As of
September 30,
2013 2012
Metrics:
Agreement value $ 210,744 $ 221,576
Client retention 76 % 78 %
Dollar retention 89 % 91 %
Enrichment 95 % 96 %
Number of clients 2,482 2,498
 
As of
September 30,
2013 2012
Headcount:
Total headcount 1,263 1,218
Research staff 466 440
Sales staff 474 446

Contact:
Forrester Research, Inc.
Michael Doyle, +1 617-613-6000
Chief Financial Officer
mdoyle@forrester.com
or
Jon Symons, + 1 617-613-6104
Vice President, Corporate Communications
press@forrester.com

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