Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
FORR > SEC Filings for FORR > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for FORRESTER RESEARCH, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for FORRESTER RESEARCH, INC.


10-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expects," "believes," "anticipates," "intends," "plans," "estimates," or similar expressions are intended to identify these forward-looking statements. These statements include, but are not limited to, statements about the adequacy of our liquidity and capital resources, future growth rates, anticipated increases in our sales force, future dividends, anticipated continued repurchases of our common stock, and remediation of our internal control over financial reporting. These statements are based on our 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, our ability to retain and enrich memberships for our research products and services, technology spending, the risks and challenges inherent in international business activities, our ability to offer new products and services, our dependence on key personnel, the ability to attract and retain professional staff, our ability to respond to business and economic conditions and market trends, the possibility of network disruptions and security breaches, competition and industry consolidation, possible variations in our quarterly operating results, and our ability to remediate the identified material weakness in our internal control over financial reporting as of December 31, 2012. These risks are described more completely in our Annual Report on Form 10-K for the year ended December 31, 2012. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

We derive revenues from memberships to our research products and services, performing advisory services and consulting projects, and hosting events. We offer contracts for our research products that are typically renewable annually and payable in advance. Research revenues are recognized as revenue ratably over the term of the contract. Accordingly, a substantial portion of our billings are initially recorded as deferred revenue. Clients purchase advisory services independently and/or to supplement their memberships to our research. Billings attributable to advisory services and consulting projects are initially recorded as deferred revenue. Advisory service revenues, such as workshops, speeches and advisory days, are recognized when the customer receives the agreed upon deliverable. Consulting project revenues, which generally are short-term in nature and based upon fixed-fee agreements, are recognized as the services are provided. Event billings are also initially recorded as deferred revenue and are recognized as revenue upon completion of each event.

Our primary operating expenses consist of cost of services and fulfillment, selling and marketing expenses and general and administrative expenses. Cost of services and fulfillment represents the costs associated with the production and delivery of our products and services, including salaries, bonuses, employee benefits and stock-based compensation expense for research personnel and all associated editorial, travel, and support services. Selling and marketing expenses include salaries, sales commissions, bonuses, employee benefits, stock-based compensation expense, travel expenses, promotional costs and other costs incurred in marketing and selling our products and services. General and administrative expenses include the costs of the technology, operations, finance, and human resources groups and our other administrative functions, including salaries, bonuses, employee benefits, and stock-based compensation expense. Overhead costs such as facilities are allocated to these categories according to the number of employees in each group.

Deferred revenue, agreement value, client retention, dollar retention, enrichment and number of clients are metrics we believe are important to understanding our business. We believe that the amount of deferred revenue, along with the agreement value of contracts to purchase research and advisory services, provide a significant measure of our business activity. We define these metrics as follows:

Deferred revenue - billings in advance of revenue recognition as of the measurement date.

Agreement value - the total revenues recognizable from all research and advisory service contracts in force at a given time (but not including advisory-only contracts), without regard to how much revenue has already been recognized.

Client retention - the percentage of client companies with memberships expiring during the most recent twelve-month period that renewed one or more of those memberships during that same period.

Dollar retention - the percentage of the dollar value of all client membership contracts renewed during the most recent twelve-month period to the total dollar value of all client membership contracts that expired during the period.

Enrichment - the percentage of the dollar value of client membership contracts renewed during the most recent twelve-month period to the dollar value of the corresponding expiring contracts.

Clients - we count as a single client the various divisions and subsidiaries of a corporate parent and we also aggregate separate instrumentalities of the federal, state, and provincial governments as a single client.

Client retention, dollar retention, and enrichment are not necessarily indicative of the rate of future retention of our revenue base. A summary of our key metrics is as follows (dollars in millions):

                                   As of               Absolute         Percentage
                                 March 31,             Increase          Increase
                             2013         2012        (Decrease)        (Decrease)
        Deferred revenue    $ 152.2      $ 151.7      $       0.5                -
        Agreement value     $ 218.6      $ 220.7      $      (2.1 )              (1 %)
        Client retention         77 %         80 %             (3 )              (4 %)
        Dollar retention         90 %         90 %             -                 -
        Enrichment               95 %         99 %             (4 )              (4 %)
        Number of clients     2,442        2,524              (82 )              (3 %)

Deferred revenue and agreement value remained essentially flat at March 31, 2013 as compared to March 31, 2012, which continues a trend from 2012 of declining year-over-year growth due to the downward trend in the growth in overall contract bookings during this period. Enrichment at 95% for the period ending March 31, 2013 is consistent with the period ending December 31, 2012, however it represents a 4% decrease from the prior year. As the enrichment rate includes a 12-month period, the decline in the rate as of March 31, 2013 compared to the prior year reflects the challenges associated with the implementation of the sales reorganization in January 2012 as well as high sales employee attrition during 2012. Client retention, dollar retention and number of clients at March 31, 2013 remained essentially flat with December 31, 2012 and the retention metrics remain near historical levels.


Table of Contents

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our policies and estimates, including but not limited to, those related to our revenue recognition, stock-based compensation, non-marketable investments, goodwill and other intangible assets, income taxes, and valuation and impairment of marketable investments. Management bases its estimates on historical experience, data available at the time the estimates are made and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our other critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2012.

Results of Operations

The following table sets forth our statement of income as a percentage of total
revenues for the periods indicated:



                                                   Three Months Ended
                                                        March 31,
                                                   2013           2012
            Revenues:
            Research services                         70.5 %        70.8 %
            Advisory services and other               29.5          29.2

            Total revenues                           100.0         100.0
            Operating expenses:
            Cost of services and fulfillment          37.8          38.3
            Selling and marketing                     37.8          35.8
            General and administrative                13.3          13.8
            Depreciation                               3.3           2.8
            Amortization of intangible assets          0.8           0.9
            Reorganization costs                       2.2           1.9

            Income from operations                     4.8           6.5
            Other income, net                          0.5           0.6
            Gains (losses) on investments, net        (0.1 )         0.1

            Income before income taxes                 5.2           7.2
            Income tax provision                       1.9           2.7

            Net income                                 3.3 %         4.5 %

Three Months Ended March 31, 2013 and March 31, 2012

Revenues




                                                Three Months Ended              Absolute           Percentage
                                                    March 31,                   Increase            Increase
                                              2013               2012          (Decrease)          (Decrease)
                                              (dollars in millions)
Revenues                                   $      71.5          $  70.3        $       1.2                   2 %
Revenues from research services            $      50.4          $  49.8        $       0.6                   1 %
Revenues from advisory services and
other                                      $      21.1          $  20.5        $       0.6                   3 %
Revenues attributable to customers
outside of the U.S.                        $      19.1          $  20.1        $      (1.0 )                (5 %)
Percentage of revenue attributable to
customers outside of the U.S.                       27 %             29 %               (2 )                (7 %)
Number of clients (at end of period)             2,442            2,524                (82 )                (3 %)
Number of events                                     2                1                  1                 100 %

The 2% increase in total revenues during the three months ended March 31, 2013 compared to the prior year was driven by a 3% increase in advisory services and other revenue and a 1% increase in research services revenue. Foreign exchange fluctuations had an insignificant impact on revenue growth during the quarter. Revenues from customers outside of the U.S. in the 2013 quarter declined by 2% as a percentage of total revenues compared to the prior year due primarily to a decline in revenue from the European region. The general economic conditions in Europe as well as open positions in our European sales leadership team have contributed to a difficult selling environment in that region.


Table of Contents

Research services revenues are generally recognized as revenue ratably over the term of the contracts, which are generally twelve-month periods. Revenue growth in the first quarter of 2013 continues the downward trend in year-over-year growth rates experienced in the second half of 2012, reflecting a downward trend in the growth in overall contract bookings during this period.

Revenue from advisory services and other increased $0.6 million or 3% during the three months ended March 31, 2013 compared to the prior year primarily due to higher productivity during the current quarter from the research analysts delivering the revenue. Event revenue increased approximately $0.1 million during the current quarter compared to the prior year due to the addition of one small event in the Asia Pacific region during the current quarter.

Please refer to the "Segment Results" section below for a discussion of revenue and direct margin results by segment.

Cost of Services and Fulfillment




                                              Three Months Ended            Absolute           Percentage
                                                  March 31,                 Increase            Increase
                                             2013             2012         (Decrease)          (Decrease)
Cost of services and fulfillment
(dollars in millions)                      $    27.0         $ 26.9        $       0.1                  -
Cost of services and fulfillment as a
percentage of total revenues                    37.8 %         38.3 %             (0.5 )                (1 %)
Number of research and fulfillment
employees (at end of period)                     531            537                 (6 )                (1 %)

The small increase in cost of services and fulfillment in dollars during the three months ended March 31, 2013 compared to the prior year period is primarily due to an increase in stock compensation expense resulting primarily from an increase in the amount of awards granted and an increase in facility costs due to new office space in the Asia Pacific region. These increases were partially offset by a decrease in professional services fees primarily related to a reduction in the cost and amount of surveys performed.

Selling and Marketing




                                               Three Months Ended             Absolute         Percentage
                                                   March 31,                  Increase          Increase
                                              2013             2012          (Decrease)        (Decrease)
Selling and marketing expenses (dollars
in millions)                                $    27.1         $ 25.1        $        2.0                 8 %
Selling and marketing expenses as a
percentage of total revenues                     37.8 %         35.8 %               2.0                 6 %
Selling and marketing employees (at end
of period)                                        523            491                  32                 7 %

The increase in selling and marketing expenses during the three months ended March 31, 2013 compared to the prior year period is primarily due to an increase in compensation costs resulting from an increase in sales and marketing employees, an increase in stock compensation costs and increased facility costs. Subject to the business environment, we intend to expand our sales force by approximately 10% in 2013 as compared to 2012. Increased sales of our research services are generally recognized over a twelve-month period, which typically results in an increase in selling and marketing expense as a percentage of revenues during periods of sales force expansion.

General and Administrative




                                              Three Months Ended            Absolute           Percentage
                                                  March 31,                 Increase            Increase
                                             2013             2012         (Decrease)          (Decrease)
General and administrative expenses
(dollars in millions)                      $     9.5         $  9.6        $      (0.1 )                (1 %)
General and administrative expenses as

a percentage of total revenues 13.3 % 13.8 % (0.5 ) (4 %) General and administrative employees
(at end of period) 168 176 (8 ) (5 %)

The decrease in general and administrative expenses during the three months ended March 31, 2013 compared to the prior year period is primarily due to a decrease in professional service fees for information technology projects, partially offset by an increase in stock compensation costs and increased facility costs.

Depreciation

Depreciation expense increased approximately $0.4 million during the three months ended March 31, 2013 compared to the prior year primarily resulting from the initiation of depreciation for our new website in March 2012.

Amortization of Intangible Assets

Amortization expense remained essentially consistent during the three months ended March 31, 2013 compared to the prior year.


Table of Contents

Reorganization Costs

During the three months ended March 31, 2013 we incurred $1.6 million of severance and related costs for the elimination of 31 jobs or approximately 2.5% of our workforce worldwide to streamline our operations. We anticipate incurring an additional $0.3 million of severance and related costs in the second quarter of 2013 related to this reduction. The accrual at March 31, 2013 and any additional costs in the second quarter are expected to be paid by the end of 2013.

During the three months ended March 31, 2012 we realigned our sales force to simplify the selling process to our customers. We incurred $1.3 million of severance and related costs in the first quarter of 2012 for the termination of 17 additional employees related to the sales reorganization and other cost reduction initiatives. In addition, we incurred an additional $0.1 million of severance and related costs in the second quarter of 2012 related to these initiatives.

Other Income, Net

Other income, net remained essentially consistent during the three months ended March 31, 2013 compared to the prior year.

Gains (Losses) on Investments, Net

Gains (losses) on investments, net were insignificant during the three months ended March 31, 2013 and 2012.

Provision for Income Taxes




                                              Three Months Ended            Absolute           Percentage
                                                  March 31,                 Increase            Increase
                                             2013             2012         (Decrease)          (Decrease)
Provision for income taxes (dollars in

millions) $ 1.4 $ 1.9 $ (0.5 ) (27 %) Effective tax rate 37.5 % 37.6 % (0.1 ) -

The effective tax rate has remained relatively consistent during the three months ended March 31, 2013 as compared to the prior year period.

Segment Results

We are organized into two client groups with each client group responsible for writing relevant research for the roles within the client organization on a worldwide basis. The two client groups, which are considered operating segments, are: Business Technology ("BT") and Marketing and Strategy ("M&S"). In addition, our Events segment supports both client groups. Each client group generates revenues through sales of research, advisory and other service offerings targeted at specific roles within their targeted clients. Each client group consists of research personnel focused primarily on issues relevant to particular roles and to the day-to-day responsibilities of persons within the roles. Amounts included in the Events segment relate to the operations of the events production department. Revenue reported in the Events segment consists primarily of sponsorships and event tickets to Forrester events.

We evaluate reportable segment performance and allocate resources based on direct margin. Direct margin, as presented below, is defined as operating income excluding sales expenses, certain marketing and fulfillment expenses, stock-based compensation expense, general and administrative expenses, depreciation expense, amortization of intangible assets and reorganization costs. In the first quarter of 2013, we modified segment direct margin for each of the BT and M&S clients groups to reflect the transfer of revenue and direct costs related to one product line from BT to M&S and to reallocate certain shared consulting costs between BT and M&S. Accordingly, the 2012 amounts have been reclassified to conform to the current presentation. The accounting policies used by the segments are the same as those used in the consolidated financial statements.

  Add FORR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for FORR - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.