Forrester Research(FORR) - 2021 Q4 - Annual Report

PART I Business Forrester Research is a global independent research and advisory firm that helps business and technology leaders accelerate growth through a focus on 'customer obsession' via its research, consulting, and events segments - Forrester is a global research and advisory firm helping leaders use customer obsession to accelerate growth through its proprietary research, consulting, and events[12] - The company's strategy is built around a 'CV growth engine,' which focuses on increasing contract value (CV) from recurring, renewable research products to generate predictable and profitable revenue streams[16][18][19] - In 2021, Forrester launched 'Forrester Decisions,' a new portfolio of 15 standardized research services that is expected to become the company's flagship research product[23] Key Business Metrics (as of Dec 31, 2021) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Contract Value (CV) | $345.8 million | $301.3 million | +15% | | Client Companies | >3,000 | - | - | - The company's main competitors include other independent research firms like Gartner, consulting firms, marketing agencies, and free online information sources[34] - As of December 31, 2021, the company employed 1,781 people, with 1,316 in the United States and Canada, 267 in EMEA, and 198 in the Asia Pacific region[36] Risk Factors The company faces various business, operational, and general risks, including dependency on subscriptions, competition, and impacts from economic downturns or health epidemics - The COVID-19 pandemic significantly impacted the Events business, causing revenues to fall from $27.0 million in 2019 to $12.9 million in 2021 as events shifted from in-person to virtual formats[47] - As of December 31, 2021, the company had $75.0 million in outstanding debt under its revolving credit facility, which could restrict business operations and affect financial condition[52] - A significant concentration of ownership exists, with founder, Chairman, and CEO George F. Colony owning approximately 40% of the company's outstanding stock, enabling him to strongly influence or control matters requiring stockholder approval[56] - The company faces competition from direct competitors like Gartner and indirect competitors such as internal client staff and free online information sources like Google[53] Unresolved Staff Comments The company reports that it has not received any written comments from the Securities and Exchange Commission that remain unresolved Properties Forrester's corporate headquarters is a leased 190,000 square foot office in Cambridge, Massachusetts, supplemented by other leased offices globally, which management deems adequate - The corporate headquarters is located in a leased facility of approximately 190,000 square feet in Cambridge, Massachusetts, with the lease expiring on February 28, 2027[63] Legal Proceedings The company may be subject to legal proceedings and claims that arise in the ordinary course of business, which could have a material adverse effect due to defense costs and diversion of management resources Mine Safety Disclosures This item is not applicable to the company PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Forrester's common stock trades on Nasdaq under 'FORR', with its dividend program suspended since 2019 and approximately $90.1 million remaining authorized for stock repurchases as of December 31, 2021 - The company's quarterly dividend program has been indefinitely suspended since the beginning of 2019[69] - As of December 31, 2021, the Board had authorized $585.0 million for stock repurchases, with $494.9 million used to repurchase 16.7 million shares, leaving approximately $90.1 million available[71][122] Share Repurchases (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1 - Oct 31 | 13,116 | $49.53 | | Nov 1 - Nov 30 | 107,900 | $58.79 | | Dec 1 - Dec 31 | 42,000 | $57.78 | | Total for Quarter | 163,016 | - | Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews the company's financial performance, noting a 10% revenue increase to $494.3 million in 2021, 15% CV growth, increased operating expenses, and a strong liquidity position with $115.8 million in cash Overview and Key Metrics The company's revenue streams include Research, Consulting, and Events, with contract value (CV) as a primary metric, which increased 15% in 2021 alongside improved client and wallet retention Key Performance Metrics (as of Dec 31) | Metric | 2021 | 2020 | % Increase | | :--- | :--- | :--- | :--- | | Contract value | $345.8 M | $301.3 M | 15% | | Client retention | 78% | 72% | 8% | | Wallet retention | 102% | 86% | 19% | | Number of clients | 3,005 | 2,808 | 7% | Results of Operations Total revenues increased 10% to $494.3 million in 2021 across all segments, with operating expenses rising due to reinstated incentive programs, significantly boosting income from operations and net income Revenue Performance (2021 vs. 2020) | Revenue Category | 2021 (in millions) | 2020 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Research | $325.3 | $301.5 | 8% | | Consulting | $156.1 | $137.3 | 14% | | Events | $12.9 | $10.1 | 27% | | Total Revenues | $494.3 | $449.0 | 10% | - Cost of services and fulfillment increased 12% in 2021, primarily due to a $10.4 million increase in compensation from reinstated incentive programs and a $9.5 million increase in professional services costs[97] - Selling and marketing expenses increased 3% in 2021, driven by higher compensation and commissions, as well as increased advertising and marketing expenses[98] - Acquisition and integration costs decreased by $5.4 million in 2021 as the integration of SiriusDecisions was substantially completed in 2020[103] Income Tax Summary (2021 vs. 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Provision for income taxes | $8.3 M | $2.9 M | | Effective tax rate | 25.1% | 22.8% | Segment Results All three operating segments reported revenue growth in 2021, with Research up 6% to $372.6 million, Consulting up 25% to $108.9 million, and Events up 27% to $12.9 million Segment Revenue and Expense Changes (2021 vs. 2020) | Segment | Revenue Change | Expense Change | | :--- | :--- | :--- | | Research | +6% | +7% | | Consulting | +25% | +29% | | Events | +27% | +3% | - Consulting segment revenue increased 25% due to continued strong demand for content marketing and strategy consulting offerings[114] Liquidity and Capital Resources The company maintains strong liquidity, with cash from operating activities increasing to $107.1 million in 2021, $115.8 million in cash and equivalents, and an amended $150.0 million revolving credit facility with $75.0 million outstanding - Cash from operating activities increased by $59.3 million to $107.1 million in 2021, primarily due to increased contract bookings, strong collections, and a reduction in cash used for working capital[119][120] - In December 2021, the company amended its credit agreement to increase its revolving credit facility to $150.0 million and eliminate the existing term loan. As of December 31, 2021, $75.0 million was outstanding on the facility[123][124] - As of December 31, 2021, the company held $115.8 million in cash and cash equivalents, of which $69.1 million was held outside the U.S. and is intended to be permanently reinvested abroad[128] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency exchange rates, resulting in a $1.5 million loss in 2021, and interest rates on its $75.0 million floating-rate debt, where a 25 basis point change impacts pre-tax interest expense by approximately $0.1 million - The company faces exposure to foreign currency exchange rate movements and incurred losses of $1.5 million, $0.6 million, and $0.9 million in 2021, 2020, and 2019, respectively[133][134] - As of December 31, 2021, the company had $75.0 million in floating-rate debt. An interest rate swap hedges a portion of this debt. A hypothetical 25 basis point change in interest rates on the unhedged balance of approximately $35.9 million would change annual pretax interest expense by about $0.1 million[134][135] Consolidated Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal year 2021, along with the independent auditor's report and detailed notes on financial position, operations, and cash flows Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements and internal controls, identifying 'Revenue Recognition – Identification of Distinct Performance Obligations' as a critical audit matter - The auditor, PricewaterhouseCoopers LLP, issued an unqualified (clean) opinion on the financial statements and the effectiveness of internal controls over financial reporting[144] - A Critical Audit Matter was identified related to Revenue Recognition, specifically the significant management judgment involved in identifying distinct performance obligations within customer contracts[151][152] Consolidated Financial Statements Consolidated financial statements show total assets increased to $680.1 million in 2021, with total liabilities at $476.2 million, stockholders' equity at $203.9 million, and net income significantly improved to $24.8 million Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $115,769 | $90,257 | | Goodwill | $244,994 | $247,211 | | Total Assets | $680,129 | $644,218 | | Deferred revenue | $213,696 | $179,968 | | Long-term debt, net | $75,000 | $95,299 | | Total Liabilities | $476,222 | $458,452 | | Total Stockholders' Equity | $203,907 | $185,766 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total revenues | $494,315 | $448,984 | $461,697 | | Income (loss) from operations | $38,642 | $16,175 | $(1,075) | | Net income (loss) | $24,844 | $9,990 | $(9,570) | | Diluted EPS | $1.28 | $0.53 | $(0.52) | Notes to Consolidated Financial Statements The notes detail accounting policies and financial items, including the SiriusDecisions acquisition, goodwill, credit facility, leases, income taxes, and segment data, with a reclassification of certain revenues from Consulting to Research - Effective January 1, 2021, the company reclassified revenue from advisory sessions included in subscription research products from Consulting revenues to Research revenues. Prior periods were reclassified, moving $7.1 million for 2020 and $5.1 million for 2019[174] - The 2019 acquisition of SiriusDecisions had a total consideration of $245.5 million, resulting in $158.6 million of goodwill and $115.0 million of identifiable intangible assets[244][246][247] - As of December 31, 2021, the company had $245.0 million in goodwill and $62.7 million in net intangible assets. The annual impairment test concluded that no impairments existed[253][254] - The company's stock repurchase program has an aggregate authorization of $585.0 million, with $494.9 million used as of December 31, 2021[299] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This item is not applicable Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, a conclusion also supported by the independent auditor's unqualified opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[329] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[331] Other Information This item is not applicable Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable PART III Directors, Executive Officers, and Corporate Governance This section lists executive officers as of March 10, 2022, including George F. Colony (Chairman & CEO), with further director and corporate governance information incorporated by reference from the 2022 Proxy Statement Executive Officers (as of March 10, 2022) | Name | Age | Position | | :--- | :--- | :--- | | George F. Colony | 68 | Chairman of the Board, Chief Executive Officer | | Ryan D. Darrah | 50 | Chief Legal Officer and Secretary | | L. Christian Finn | 51 | Chief Financial Officer | | Kelley Hippler | 53 | Chief Sales Officer | | Carrie Johnson | 46 | Chief Product Officer | Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement under the captions 'Director Compensation' and 'Executive Compensation' Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details equity compensation plans as of December 31, 2021, showing 748,933 securities to be issued at a weighted average exercise price of $35.52, and 1,906,052 securities available for future issuance Equity Compensation Plan Information (as of Dec 31, 2021) | Category | Securities to be Issued Upon Exercise | Weighted Avg. Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 748,933 | $35.52 | 1,906,052 | Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement under the caption 'Independent Auditors' Fees and Other Matters' PART IV Exhibits and Financial Statement Schedules This section confirms financial statements are indexed within the report, with no financial statement schedules filed, and a complete listing of exhibits provided in the Exhibit Index Form 10-K Summary This item is not applicable