Forrester Research(FORR) - 2022 Q4 - Annual Report

PART I This section outlines Forrester's business, risk factors, properties, legal proceedings, and statutory disclosures Item 1. Business Forrester is a global research and advisory firm, accelerating client growth via subscription research, consulting, and events - Forrester Research, Inc. is a global independent research and advisory firm focused on helping business and technology leaders achieve growth through 'customer obsession' via proprietary research, consulting, and events[14] - The core business model is built on increasing Contract Value (CV) through renewable subscription research products, with consulting and events playing complementary roles in driving CV growth[18][19][21] - Forrester Decisions, launched in 2021, is the primary subscription research product, with a goal to migrate existing clients and achieve approximately two-thirds of CV in Forrester Decisions products by the end of 2023. As of December 31, 2022, Forrester Decisions comprised approximately 32% of the company's CV[25][84] - The company's sales force increased from 637 personnel in 2021 to 709 in 2022, selling products and services globally through various groups segmented by client size, geography, and market potential[30][31] Contract Value and Client Metrics | Metric | December 31, 2022 (in millions) | December 31, 2021 (in millions) | Change (Absolute, in millions) | Change (Percentage) | |---|---|---|---|---| | Contract value | $353.4 | $343.0 | $10.4 | 3% | | Client retention | 74% | 78% | (4) points | — | | Wallet retention | 94% | 102% | (8) points | — | | Number of clients | 2,778 | 3,005 | (227) | (8%) | - The decline in CV growth rate, client retention, and client count in 2022 was primarily attributed to macroeconomic conditions (funding/budget pressure on smaller tech clients, inflation, rising interest rates, geopolitical turbulence, recession threat) and the ongoing transition to the Forrester Decisions product platform[84] - As of December 31, 2022, Forrester employed 2,033 persons globally, with 1,487 in the US and Canada, 298 in EMEA, and 248 in Asia Pacific[39] Item 1A. Risk Factors The company faces risks from declining renewals, reduced consulting demand, economic conditions, international operations, and talent retention - Key business risks include a decline in renewals or demand for subscription-based research services (especially during the Forrester Decisions migration), decreased demand for consulting services (which comprised 28% of 2022 revenues), and adverse impacts from the economic environment (inflation, interest rates, recession threat) on technology spending[44][45][46] - International operations, accounting for approximately 21% of 2022 revenues across 79 countries, expose the company to risks such as political/economic conditions, staffing challenges, regulatory changes, currency fluctuations, and intellectual property enforcement difficulties[47][98] - The company's future success depends on its ability to develop and offer new products, attract and retain qualified professional staff (including key management like CEO George F. Colony), and anticipate/respond to rapidly changing market trends and technologies[48][49][50][51] - Outstanding debt of $50.0 million under a $150.0 million revolving credit facility (as of December 31, 2022) could restrict business operations and affect financial condition, with covenants limiting financial flexibility[52][129] - Competition is intense, primarily from other research/advisory firms (e.g., Gartner), marketing agencies, consulting firms, and free online information sources, with low barriers to entry in some market segments[53] - General risks include network disruptions or security breaches, challenges in enforcing and protecting intellectual property rights, compliance with evolving privacy laws (GDPR, CCPA), taxation risks from operating in multiple jurisdictions, and potential adverse impacts from health epidemics like COVID-19[57][58][59][60][61] Item 1B. Unresolved Staff Comments The company has not received any unresolved written comments from the Securities and Exchange Commission - No unresolved written comments have been received from the Securities and Exchange Commission[63] Item 2. Properties Forrester's corporate headquarters is in Cambridge, Massachusetts, with global leased offices, deemed adequate for current operations - The corporate headquarters is located in Cambridge, Massachusetts, comprising approximately 190,000 square feet, with the lease expiring on February 28, 2027[64] - Additional office spaces are rented in San Francisco, New York City, McLean (VA), Nashville, Norwalk (CT), London, New Delhi, Singapore, and Sydney, along with other short-term leases globally[65] - Management believes current facilities are adequate and additional facilities are available for future needs[66] Item 3. Legal Proceedings The company is subject to ordinary course legal proceedings, which are not expected to materially impact its financial position or operations - The company is subject to legal proceedings and civil/regulatory claims in the ordinary course of business[67] - Accruals for legal contingencies are recorded when a liability is probable and estimable, with associated costs expensed as incurred[67] - Management believes current lawsuits and claims are not expected to have a material adverse effect on financial position, results of operations, or cash flows, though litigation can still be adverse due to costs and resource diversion[68][69] Item 4. Mine Safety Disclosures This item is not applicable to Forrester Research, Inc - Not applicable[70] PART II This section details the company's common equity market, financial condition, operations, market risks, and consolidated financial statements Item 5. Market For Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Forrester's common stock trades on Nasdaq, with a suspended dividend and $510.0 million utilized from authorized stock repurchases - Common stock is listed on the Nasdaq Global Select Market under the symbol 'FORR'[73] - The quarterly dividend program was indefinitely suspended starting in 2019[73] Stockholder and Repurchase Program Metrics | Metric | Value | |---|---| | Stockholders of record (as of March 6, 2023) | ~24 | | Closing stock price (as of March 6, 2023) | $34.09 per share | | Total authorized stock repurchase program | $585.0 million | | Aggregate cost of repurchased shares (as of Dec 31, 2022) | $510.0 million | | Number of shares repurchased (as of Dec 31, 2022) | ~17.0 million | | Shares outstanding (as of March 6, 2023) | 19,191,000 | | Market value of non-affiliate common equity (as of June 30, 2022) | ~$532,000,000 | - No shares were purchased under the stock repurchase program during the quarter ended December 31, 2022[75] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Forrester's financial performance, noting slowed Contract Value growth, increased expenses, decreased net income, and cash flow changes Overview This overview describes Forrester's revenue streams, operating expenses, and Contract Value (CV) metric performance - Revenues are generated from Research subscriptions, electronic reprints, consulting projects, advisory services, and events. Subscription products are recognized ratably over the contract term, while consulting and event revenues are recognized as services are provided or events are completed[79] - Primary operating expenses include cost of services and fulfillment, selling and marketing, and general and administrative expenses, with overhead costs allocated based on employee headcount[80] - The company focuses on Contract Value (CV) products, which are its most profitable and have historically high renewal rates. CV is defined as the annualized value of all recurring research-related contracts in effect at a specific point in time[81][83] Contract Value and Client Metrics | Metric | 2022 (in millions) | 2021 (in millions) | Absolute Change (in millions) | Percentage Change | |---|---|---|---|---| | Contract value | $353.4 | $343.0 | $10.4 | 3% | | Client retention | 74% | 78% | (4) points | — | | Wallet retention | 94% | 102% | (8) points | — | | Number of clients | 2,778 | 3,005 | (227) | (8%) | - The 3% CV growth in 2022 represents an 11-point decrease from 14% growth in 2021, primarily due to macroeconomic conditions (funding/budget pressure, inflation, interest rates, geopolitical turbulence, recession threat) and the ongoing transition to the Forrester Decisions product platform[84] - Approximately 32% of CV was composed of Forrester Decisions products as of December 31, 2022, with an anticipation of reaching two-thirds by the end of 2023. Macroeconomic conditions and product transition are expected to pressure key metrics through the first half of 2023[84] Critical Accounting Estimates This section outlines key accounting estimates for revenue recognition, goodwill impairment, and income taxes - Key accounting estimates include revenue recognition (determining performance obligations, standalone selling prices, and estimating unused prepaid obligations), goodwill and intangible asset impairment, and income taxes (deferred tax assets/liabilities and valuation allowances)[85][86][88][89][90][94] - Goodwill and intangible assets totaled $291.7 million as of December 31, 2022. The annual goodwill impairment test as of November 30, 2022, concluded no impairments[89][91] - In 2022, the company recorded $3.7 million in right-of-use asset impairments and $1.3 million in leasehold improvement impairments related to closing office space in San Francisco[94] - A valuation allowance of $1.0 million was maintained as of December 31, 2022, primarily for foreign net operating loss carryforwards[94] Results of Operations for the years ended December 31, 2022 and 2021 This section analyzes Forrester's consolidated revenues and operating expenses for 2022 and 2021 Consolidated Statements of Income (as a percentage of total revenues) | Metric | 2022 (%) | 2021 (%) | |---|---|---| | Research revenues | 65.9% | 65.8% | | Consulting revenues | 28.4% | 31.6% | | Events revenues | 5.7% | 2.6% | | Total revenues | 100.0% | 100.0% | | Cost of services and fulfillment | 41.6% | 40.8% | | Selling and marketing | 33.8% | 34.6% | | General and administrative | 12.6% | 11.7% | | Depreciation | 1.7% | 1.9% | | Amortization of intangible assets | 2.5% | 3.1% | | Integration costs | — | 0.1% | | Restructuring costs | 1.7% | — | | Income from operations | 6.1% | 7.8% | | Interest expense | (0.5%) | (0.9%) | | Other income (expense), net | — | (0.2%) | | Gains on investments, net | 0.1% | — | | Income before income taxes | 5.7% | 6.7% | | Income tax expense | 1.6% | 1.7% | | Net income | 4.1% | 5.0% | Revenue Performance (2022 vs. 2021) | Revenue Category | 2022 (in millions) | 2021 (in millions) | Absolute Change (in millions) | Percentage Change | |---|---|---|---|---| | Total revenues | $537.8 | $494.3 | $43.5 | 9% | | Research revenues | $354.5 | $325.3 | $(29.1) | 9% | | Consulting revenues | $152.6 | $156.1 | $(3.5) | (2%) | | Events revenues | $30.7 | $12.9 | $17.9 | 139% | | Revenues attributable to customers outside of the U.S. | $111.7 | $112.7 | $(1.0) | (1%) | | Percentage of revenue attributable to customers outside of the U.S. | 21% | 23% | (2) points | — | - Total revenues increased 9% (10% excluding foreign currency effects) in 2022, driven by a 139% increase in Events revenue due to the return of in-person attendance, while Consulting revenues decreased 2% due to a shift in research analysts' efforts to CV products[98][99][100][101] Operating Expenses (2022 vs. 2021) | Expense Category | 2022 (in millions) | 2021 (in millions) | Absolute Change (in millions) | Percentage Change | |---|---|---|---|---| | Cost of services and fulfillment | $223.8 | $201.8 | $22.0 | 11% | | Selling and marketing | $181.9 | $170.9 | $11.0 | 6% | | General and administrative | $67.7 | $58.1 | $9.6 | 17% | | Amortization of intangible assets | $13.2 | $15.1 | $(2.0) | (13%) | | Restructuring costs | $9.3 | $0.0 | $9.3 | — | | Interest expense | $(2.5) | $(4.2) | $1.8 | (43%) | | Income tax expense | $8.9 | $8.3 | $0.6 | 7% | - Cost of services and fulfillment increased 11% due to higher event expenses, compensation/benefits (headcount, merit increases), and stock compensation. Selling and marketing expenses rose 6% primarily from increased compensation/benefits. General and administrative expenses increased 17% due to higher compensation/benefits, professional services, and software costs[103][104][105] - Amortization expense decreased by $2.0 million as certain intangible assets became fully amortized in 2021. Restructuring costs of $9.3 million were incurred in Q4 2022, including $5.0 million for office space impairment and $4.3 million for severance related to a 4% workforce reduction[107][108] - Interest expense decreased by $1.8 million due to lower average outstanding borrowings, partially offset by an increase in the annualized interest rate[109] - The effective tax rate increased from 25% in 2021 to 29% in 2022, mainly due to increased non-deductible stock compensation, higher foreign subsidiary income subject to U.S. tax, and non-deductible expenses, partially offset by a tax legislation benefit[112] Segment Results This section details the financial performance of Forrester's Research, Consulting, and Events operating segments - The company operates in three reportable segments: Research, Consulting, and Events, with performance evaluated based on segment revenues and direct expenses[113][117] Segment Revenues and Expenses (2022 vs. 2021, in thousands) | Segment | 2022 Revenues (in thousands) | 2021 Revenues (in thousands) | YoY Revenue Change (%) | 2022 Expenses (in thousands) | 2021 Expenses (in thousands) | YoY Expense Change (%) | |---|---|---|---|---|---|---| | Research | $396,012 | $372,587 | 6% | $(133,566) | $(118,155) | 13% | | Consulting | $111,028 | $108,867 | 2% | $(56,889) | $(51,770) | 10% | | Events | $30,747 | $12,861 | 139% | $(21,801) | $(12,709) | 72% | | Consolidated Total | $537,787 | $494,315 | 9% | $(212,256) | $(182,634) | 16% | - Research segment revenues increased 6% in 2022, driven by a 9% increase in research product revenues (due to 2021's strong CV growth), but partially offset by a 12% decrease in consulting product revenues within this segment as analysts shifted focus to CV products. Research segment expenses increased 13% due to higher compensation and travel[119][120] - Consulting segment revenues increased 2% due to demand for content marketing and strategy offerings. Expenses rose 10% due to increased compensation and professional services[120][121] - Event segment revenues surged 139% due to increased sponsorship and paid ticket attendance from the return of in-person events. Expenses increased 72% accordingly[122] Liquidity and Capital Resources This section discusses Forrester's cash flow, debt obligations, and overall financial resources and liquidity - Operations are primarily financed through funds generated from operations, with research revenues (66% of 2022 revenues) typically renewable annually and payable in advance[124] Cash Flow from Operating Activities | Year | Net Cash Provided (in millions) | |---|---| | 2022 | $39.4 | | 2021 | $107.1 | | Change (2022 vs 2021) | $(67.6) | - The $67.6 million decrease in cash from operations in 2022 was primarily due to a $50.9 million decrease from accounts receivable and deferred revenue (due to high client billings in 2021 not recurring) and a $26.5 million increase in cash used for accrued expenses (year-end incentive compensation payout)[124] Cash Flow from Investing Activities | Year | Net Cash Used (in millions) | |---|---| | 2022 | $6.8 | | 2021 | $29.3 | | Change (2022 vs 2021) | $(22.5) | - Investing activities in 2022 included $5.7 million for property and equipment purchases and $1.4 million in net marketable investments[125] Cash Flow from Financing Activities | Year | Net Cash Used (in millions) | |---|---| | 2022 | $38.9 | | 2021 | $49.1 | | Change (2022 vs 2021) | $(10.2) | - Financing activities in 2022 included $25.0 million in discretionary repayments of the revolving credit facility and $15.1 million for common stock repurchases[127] - As of December 31, 2022, the company had $50.0 million outstanding on its $150.0 million revolving credit facility, which matures in December 2026. The company was in full compliance with all loan covenants[128][129][130] - As of December 31, 2022, cash, cash equivalents, and marketable investments totaled $123.3 million, with $81.4 million held outside the U.S. The company intends to permanently reinvest foreign funds and believes current liquidity is sufficient for the next twelve months and long-term cash requirements[133] Recent Accounting Pronouncements This section refers to the notes for a description of recent accounting pronouncements affecting the company - The company refers to Note 1 – Summary of Significant Accounting Policies for a full description of recent accounting pronouncements[135] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Forrester manages market risks from foreign currency and variable interest rates on its $50.0 million debt, with minimal investment portfolio impact - The company is exposed to market risk from changes in foreign currency exchange rates (Euro, British Pound, etc.) and interest rates on its variable-rate debt[136][137] - Foreign currency exchange losses were $0.2 million in 2022, down from $1.4 million in 2021. The company uses foreign currency forward contracts to mitigate these risks[137][138] - As of December 31, 2022, all $50.0 million of outstanding debt was based on a floating interest rate. A hypothetical 25 basis point change in interest rates would alter annual pretax interest expense by approximately $0.1 million[138][139] - The investment portfolio, consisting of cash equivalents and marketable investments (U.S. government agencies, corporate notes, etc.), aims to preserve principal and maintain liquidity. Given short maturities and investment-grade quality, a 10% change in interest rates is not expected to materially affect the fair value of cash and cash equivalents[140] Marketable Investment Portfolio by Maturity (as of December 31, 2022, in thousands) | Maturity Year | Corporate Obligations (in thousands) | Federal Obligations (in thousands) | Total (in thousands) | |---|---|---|---| | 2023 | $11,982 | — | $11,982 | | 2024 | $3,815 | $1,985 | $5,800 | | 2025 | $1,906 | — | $1,906 | | Weighted average interest rates | 3.45% (2023) | 2.88% (2024) | 2.53% (2025) | Item 8. Consolidated Financial Statements and Supplementary Data This section presents Forrester's audited consolidated financial statements and supplementary data, with an unqualified audit opinion from PricewaterhouseCoopers LLP - PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[149][150] - A critical audit matter identified was Revenue Recognition – Identification of Distinct Performance Obligations, due to the significant audit effort required to evaluate management's judgments in identifying distinct performance obligations within customer contracts[157][158] Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on Forrester's consolidated financial statements and internal control over financial reporting - PricewaterhouseCoopers LLP audited the consolidated financial statements and internal control over financial reporting, issuing an unqualified opinion for both as of December 31, 2022[149][150] - The critical audit matter identified was 'Revenue Recognition – Identification of Distinct Performance Obligations,' highlighting the significant judgment required by management and the extensive audit effort to evaluate the identification of distinct performance obligations in contracts[157][158] Consolidated Balance Sheets This section presents Forrester's consolidated financial position, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheet (in thousands) | Asset/Liability/Equity | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |---|---|---| | ASSETS | | | | Cash and cash equivalents | $103,629 | $115,769 | | Marketable investments | $19,688 | $18,509 | | Accounts receivable, net | $73,345 | $86,965 | | Deferred commissions | $24,559 | $29,631 | | Prepaid expenses and other current assets | $14,069 | $18,614 | | Total current assets | $235,290 | $269,488 | | Property and equipment, net | $23,208 | $28,245 | | Operating lease right-of-use assets | $49,970 | $65,009 | | Goodwill | $242,149 | $244,994 | | Intangible assets, net | $49,504 | $62,733 | | Other assets | $8,317 | $9,660 | | Total assets | $608,438 | $680,129 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $361 | $840 | | Accrued expenses and other current liabilities | $91,007 | $97,800 | | Deferred revenue | $178,021 | $213,696 | | Total current liabilities | $269,389 | $312,336 | | Long-term debt | $50,000 | $75,000 | | Non-current operating lease liabilities | $50,751 | $65,038 | | Other non-current liabilities | $16,642 | $23,848 | | Total liabilities | $386,782 | $476,222 | | Total stockholders' equity | $221,656 | $203,907 | | Total liabilities and stockholders' equity | $608,438 | $680,129 | Consolidated Statements of Income This section presents Forrester's consolidated revenues, expenses, and net income for the reported periods Consolidated Statements of Income (in thousands, except per share data) | Metric | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | |---|---|---|---| | Revenues: | | | | | Research | $354,453 | $325,340 | $301,544 | | Consulting | $152,587 | $156,114 | $137,303 | | Events | $30,747 | $12,861 | $10,137 | | Total revenues | $537,787 | $494,315 | $448,984 | | Operating expenses: | | | | | Cost of services and fulfillment | $223,773 | $201,815 | $180,899 | | Selling and marketing | $181,940 | $170,949 | $166,200 | | General and administrative | $67,655 | $58,056 | $50,369 | | Depreciation | $9,269 | $9,390 | $9,879 | | Amortization of intangible assets | $13,161 | $15,129 | $19,683 | | Integration costs | — | $334 | $5,779 | | Restructuring costs | $9,335 | — | — | | Total operating expenses | $505,133 | $455,673 | $432,809 | | Income from operations | $32,654 | $38,642 | $16,175 | | Interest expense | $(2,461) | $(4,222) | $(5,340) | | Other income (expense), net | $222 | $(1,229) | $(374) | | Gains on investments, net | $309 | — | $2,472 | | Income before income taxes | $30,724 | $33,191 | $12,933 | | Income tax expense | $8,918 | $8,347 | $2,943 | | Net income | $21,806 | $24,844 | $9,990 | | Basic income per common share | $1.15 | $1.30 | $0.53 | | Diluted income per common share | $1.14 | $1.28 | $0.53 | | Basic weighted average common shares outstanding | 18,967 | 19,110 | 18,827 | | Diluted weighted average common shares outstanding | 19,172 | 19,357 | 18,935 | Consolidated Statements of Comprehensive Income This section presents Forrester's comprehensive income, including net income and other comprehensive income components Consolidated Statements of Comprehensive Income (in thousands) | Metric | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | |---|---|---|---| | Net income | $21,806 | $24,844 | $9,990 | | Other comprehensive income (loss), net of tax: | | | | | Foreign currency translation | $(4,807) | $(3,083) | $4,884 | | Net change in market value of interest rate swap | $212 | $609 | $(717) | | Net change in market value of investments | $(134) | $(25) | — | | Other comprehensive income (loss) | $(4,729) | $(2,499) | $4,167 | | Comprehensive income | $17,077 | $22,345 | $14,157 | Consolidated Statements of Stockholders' Equity This section details changes in Forrester's stockholders' equity, including common stock, retained earnings, and treasury stock Consolidated Statements of Stockholders' Equity (in thousands) | Metric | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | December 31, 2020 (in thousands) | |---|---|---|---| | Common Stock ($0.01 Par Value) | $244 | $241 | $236 | | Additional Paid-in Capital | $261,766 | $245,985 | $230,128 | | Retained Earnings | $174,631 | $152,825 | $127,981 | | Treasury Stock (Cost) | $(207,067) | $(191,955) | $(171,889) | | Accumulated Other Comprehensive Loss | $(7,918) | $(3,189) | $(690) | | Total Stockholders' Equity | $221,656 | $203,907 | $185,766 | - Key changes in 2022 include an increase in additional paid-in capital by $15.8 million (driven by stock-based compensation expense of $14.5 million), an increase in retained earnings by $21.8 million (net income), and an increase in treasury stock cost by $15.1 million (repurchases of common stock)[171] Consolidated Statements of Cash Flows This section presents Forrester's cash flows from operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | |---|---|---|---| | Net cash provided by operating activities | $39,425 | $107,067 | $47,754 | | Net cash used in investing activities | $(6,814) | $(29,296) | $(4,570) | | Net cash used in financing activities | $(38,871) | $(49,143) | $(23,687) | | Effect of exchange rate changes on cash | $(6,117) | $(1,249) | $1,963 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(12,377) | $27,379 | $21,460 | | Cash, cash equivalents and restricted cash, beginning of year | $118,031 | $90,652 | $69,192 | | Cash, cash equivalents and restricted cash, end of year | $105,654 | $118,031 | $90,652 | | Cash paid for interest | $2,015 | $3,279 | $4,373 | | Cash paid for income taxes | $8,901 | $9,815 | $3,194 | - Net cash from operating activities decreased significantly in 2022 to $39.4 million from $107.1 million in 2021, primarily due to a $50.9 million decrease in cash generated from accounts receivable and deferred revenue and a $26.5 million increase in cash used for accrued expenses[124][174] - Net cash used in investing activities decreased to $6.8 million in 2022 from $29.3 million in 2021, mainly due to lower net purchases of marketable investments and property and equipment[125][126][174] - Net cash used in financing activities decreased to $38.9 million in 2022 from $49.1 million in 2021, driven by lower debt repayments and common stock repurchases[127][174] Notes to Consolidated Financial Statements This section provides detailed disclosures on Forrester's significant accounting policies and specific financial statement accounts Note 1 – Summary of Significant Accounting Policies This note outlines Forrester's significant accounting policies, including revenue recognition, impairment, and income taxes - Forrester Research, Inc. is a global independent research and advisory firm, with consolidated financial statements prepared in accordance with GAAP and SEC rules[177][178] - Significant accounting estimates include revenue recognition, goodwill and intangible asset impairment, and income taxes[180] - The company adopted ASU No. 2019-12 (Income Taxes) and ASU No. 2016-13 (Credit Losses) in 2021 and 2020, respectively. The adoption of Topic 326 resulted in a $0.2 million decrease to retained earnings[181][182] - Revenue recognition follows a five-step model, identifying performance obligations and allocating transaction prices based on standalone selling prices. Revenue is recognized when control of products or services is transferred to the customer[205][209] - Research revenues are primarily recognized ratably over the contract term. Consulting project revenues are recognized over time using an input method (hours expended), while advisory services and event revenues are recognized at a point in time (completion of service/event)[210][212][213][214] - Deferred revenue represents billings in excess of recognized revenue. As of December 31, 2022, approximately $416.8 million of revenue is expected to be recognized from remaining performance obligations over the next 24 months[221][222] - Commissions paid to sales representatives are capitalized as deferred commissions and amortized over the initial contract term. Amortization expense was $45.9 million in 2022[223][225] - All leases are operating leases, primarily for office space. Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments. Total lease cost was $19.7 million in 2022[226][227][230][261] - Stock-based compensation expense was $14.5 million in 2022. The unamortized fair value of stock-based awards was $24.2 million as of December 31, 2022, with a weighted average remaining recognition period of 2.4 years[235][236] - Depreciation and amortization of property and equipment are computed using the straight-line method. Amortization of intangible assets is computed using an accelerated method[237][238] - The effective tax rate was 29.0% in 2022, up from 25.1% in 2021, primarily due to increased non-deductible stock compensation and foreign subsidiary income subject to U.S. tax[240][241][279] - Basic and diluted net income per common share were $1.15 and $1.14, respectively, in 2022[242][243] Note 2 – Marketable Investments This note details Forrester's marketable investments, classified as available-for-sale securities, and their fair value measurements Marketable Investments (as of December 31, 2022, in thousands) | Category | Amortized Cost (in thousands) | Gross Unrealized Gains (in thousands) | Gross Unrealized Losses (in thousands) | Market Value (in thousands) | |---|---|---|---|---| | Corporate obligations | $17,900 | $8 | $(205) | $17,703 | | Federal agency obligations | $1,999 | — | $(14) | $1,985 | | Total | $19,899 | $8 | $(219) | $19,688 | - Marketable investments are classified as available-for-sale securities and carried at fair value, with unrealized gains and losses recorded in accumulated other comprehensive loss. No realized gains or losses were recorded in 2022 or 2021[192][193] Marketable Investments by Maturity (as of December 31, 2022, in thousands) | Maturity Year | Corporate Obligations (in thousands) | Federal Agency Obligations (in thousands) | Total (in thousands) | |---|---|---|---| | 2023 | $11,982 | — | $11,982 | | 2024 | $3,816 | $1,985 | $5,801 | | 2025 | $1,905 | — | $1,905 | | Total | $17,703 | $1,985 | $19,688 | Note 3 – Goodwill and Other Intangible Assets This note provides information on Forrester's goodwill and amortizable intangible assets, including impairment testing and amortization Goodwill by Segment (in thousands) | Segment | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |---|---|---| | Research | $234,020 | $236,770 | | Consulting | $8,129 | $8,224 | | Total Goodwill | $242,149 | $244,994 | - Goodwill decreased by $2.8 million in 2022, primarily due to translation adjustments. The annual impairment test as of November 30, 2022, concluded no impairments[250] Amortizable Intangible Assets (as of December 31, 2022, in thousands) | Category | Gross Carrying Amount (in thousands) | Accumulated Amortization (in thousands) | Net Carrying Amount (in thousands) | |---|---|---|---| | Customer relationships | $77,786 | $33,805 | $43,981 | | Technology | $16,803 | $14,696 | $2,107 | | Trademarks | $12,472 | $9,056 | $3,416 | | Total | $107,061 | $57,557 | $49,504 | - Amortization expense for intangible assets was $13.2 million in 2022, and is estimated to be $11.9 million for 2023[251] Note 4 – Debt This note describes Forrester's debt obligations, including its revolving credit facility and compliance with covenants - On December 21, 2021, the company amended its credit facility, increasing the revolving credit facility to $150.0 million, eliminating the term loan, and extending maturity to December 2026[252][253] - The amendment reduced applicable margins for revolving loans and commitment fees, replaced the minimum fixed charge coverage ratio with a minimum consolidated interest coverage ratio of 3.50:1.00, and included a capital expenditure limit[253] Outstanding Borrowings (in thousands) | Description | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |---|---|---| | Revolving credit facility | $50,000 | $75,000 | | Total | $50,000 | $75,000 | - The contractual annualized interest rate on the revolving credit facility was 5.6875% as of December 31, 2022. The weighted average annual effective rate on total debt was 2.9% in 2022[259] - The company was in full compliance with all restrictive loan covenants as of December 31, 2022[259] Note 5 – Leases This note details Forrester's operating lease arrangements, lease costs, and future minimum lease payments Components of Lease Expense (in thousands) | Expense Category | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | |---|---|---|---| | Operating lease cost | $14,284 | $15,527 | $16,188 | | Short-term lease cost | $754 | $439 | $330 | | Variable lease cost | $5,416 | $5,582 | $1,871 | | Sublease income | $(746) | $(549) | $(256) | | Total lease cost | $19,708 | $20,999 | $18,133 | - Cash paid for operating lease liabilities was $12.9 million in 2022. The weighted-average remaining lease term for operating leases was 5.1 years, with a weighted-average discount rate of 4.3%[262] Future Minimum Lease Payments (as of December 31, 2022, in thousands) | Year | Operating Lease Payments (in thousands) | |---|---| | 2023 | $16,463 | | 2024 | $16,027 | | 2025 | $14,074 | | 2026 | $12,118 | | 2027 | $5,589 | | Thereafter | $8,728 | | Total lease payments | $72,999 | | Less imputed interest | $(8,616) | | Present value of lease liabilities | $64,383 | - In 2022, the company recorded $3.7 million of ROU asset impairments and $1.3 million of leasehold improvement impairments related to closing office space in San Francisco, included in restructuring costs[264] Note 6 – Derivatives and Hedging This note explains Forrester's use of derivative contracts to manage interest rate and foreign currency risks - The company uses derivative contracts (interest rate swaps and foreign currency forwards) to mitigate cash flow risk from interest rate changes on variable debt and foreign exchange rate fluctuations[266] - An interest rate swap contract, designated as a cash flow hedge, matured on December 31, 2022. Changes in its fair value were recorded in accumulated other comprehensive loss[267][268] - Foreign currency forward exchange contracts are used to mitigate adverse fluctuations in foreign currency rates. These are not designated as hedges for accounting purposes, with gains and losses recorded in other income (expense), net[269] Amounts Recognized in Consolidated Statements of Income for Derivative Contracts (in thousands) | Expense Category | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | |---|---|---|---| | Interest expense (from interest rate swap) | $(103) | $(807) | $(858) | | Other income (expense), net (net realized losses on foreign currency forward contracts) | $(194) | $(90) | $(157) | | Total | $(297) | $(897) | $(1,015) | Note 7 – Fair Value Measurements This note describes Forrester's fair value measurements for financial assets and liabilities, categorized by hierarchy levels - Financial assets and liabilities measured at fair value are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), or Level 3 (unobservable inputs)[273][274][275] Fair Value Hierarchy for Financial Assets and Liabilities (as of December 31, 2022, in thousands) | Category | Level 1 (in thousands) | Level 2 (in thousands) | Total (in thousands) | |---|---|---|---| | Assets: | | | | | Money market funds | $5,800 | — | $5,800 | | Marketable investments | — | $19,688 | $19,688 | | Total Assets | $5,800 | $19,688 | $25,488 | | Liabilities: | | | | | Interest rate swap | — | $(294) | $(294) | | Total Liabilities | — | $(294) | $(294) | - Marketable investments are valued using third-party pricing services and observable market inputs (Level 2). The interest rate swap's fair value is based on mark-to-market valuations from a third-party broker using observable interest rates (Level 2)[276] - Level 3 activity consisted entirely of contingent purchase price related to the FeedbackNow acquisition, which was fully settled by December 31, 2020[277][278] Note 8 – Income Taxes This note provides details on Forrester's income tax expense, effective tax rate, deferred taxes, and net operating loss carryforwards Income Before Income Taxes (in thousands) | Category | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | |---|---|---|---| | Domestic | $16,552 | $22,424 | $7,237 | | Foreign | $14,172 | $10,767 | $5,696 | | Total | $30,724 | $33,191 | $12,933 | Components of Income Tax Expense (in thousands) | Category | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | |---|---|---|---| | Current | $15,570 | $8,622 | $4,620 | | Deferred | $(6,652) | $(275) | $(1,677) | | Income tax expense | $8,918 | $8,347 | $2,943 | Effective Tax Rate Reconciliation | Factor | 2022 (%) | 2021 (%) | 2020 (%) | |---|---|---|---| | Income tax provision at federal statutory rate | 21.0% | 21.0% | 21.0% | | State tax provision, net of federal benefit | 5.2% | 3.8% | 2.6% | | Foreign tax rate differential | (0.5%) | (0.4%) | (0.2%) | | Stock compensation | 0.9% | (0.4%) | 5.7% | | Withholding taxes | 1.7% | 1.3% | 3.3% | | Non-deductible expenses | 1.5% | — | 2.2% | | Change in valuation allowance | 1.0% | — | (5.8%) | | Foreign subsidiary income subject to U.S. tax | 0.6% | (0.5%) | (4.3%) | | Change in tax legislation | (1.6%) | (0.3%) | (1.9%) | | Other, net | (0.8%) | 0.6% | 0.2% | | Effective tax rate | 29.0% | 25.1% | 22.8% | - The effective tax rate increased in 2022 primarily due to increased non-deductible stock compensation, higher foreign subsidiary income subject to U.S. tax, and non-deductible expenses, partially offset by a tax legislation benefit[279] - As of December 31, 2022, the company had a net deferred tax liability of $13.4 million and maintained a valuation allowance of $1.0 million, primarily related to foreign net operating loss carryforwards[281][285] - The company has foreign net operating loss carryforwards of approximately $18.9 million, which can be carried forward indefinitely[282] - As of December 31, 2022, the company had no significant unrecognized tax benefits and no jurisdictions under audit[287][289] Note 9 – Stockholders' Equity This note details Forrester's common stock, stock repurchase program, equity incentive plans, and accumulated other comprehensive loss - The Board of Directors has authorized $585.0 million for common stock repurchases, with $510.0 million used to repurchase approximately 17.0 million shares as of December 31, 2022[291] - The company does not currently pay cash dividends on its common stock[292] - The Equity Incentive Plan, running until May 2026, provides for stock-based awards (ISOs, NSOs, RSUs). As of December 31, 2022, approximately 1.4 million shares were available for future grant[293] Restricted Stock Unit (RSU) Activity (in thousands, except per share data) | Metric | Number of Shares (in thousands) | Weighted Average Grant Date Fair Value | |---|---|---| | Unvested at December 31, 2021 | 634 | $42.45 | | Granted | 355 | $50.37 | | Vested | (230) | $42.45 | | Forfeited | (77) | $44.99 | | Unvested at December 31, 2022 | 682 | $46.28 | Stock Option Activity (in thousands, except per share data) | Metric | Number of Shares (in thousands) | Weighted Average Exercise Price Per Share | |---|---|---| | Outstanding at December 31, 2021 | 114 | $35.52 | | Exercised | (23) | $35.35 | | Forfeited | (2) | $34.91 | | Outstanding at December 31, 2022 | 89 | $35.58 | | Vested and Exercisable at December 31, 2022 | 89 | $35.58 | - The Employee Stock Purchase Plan allows eligible employees to purchase common stock at a discount. As of December 31, 2022, approximately 0.7 million shares remain available for issuance under the plan[299] Accumulated Other Comprehensive Loss (AOCL) Components (in thousands) | Component | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | December 31, 2020 (in thousands) | |---|---|---|---| | Marketable Investments | $(159) | $(25) | — | | Interest Rate Swap | — | $(212) | $(821) | | Translation Adjustment | $(7,759) | $(2,952) | $131 | | Total AOCL | $(7,918) | $(3,189) | $(690) | - The increase in AOCL in 2022 was primarily due to foreign currency translation losses of $4.8 million[301] Note 10 – Employee Pension Plans This note describes Forrester's defined contribution employee pension plans and related contributions - Forrester sponsors several defined contribution plans for eligible employees. Contributions totaled approximately $8.2 million in 2022, up from $6.5 million in 2021[302] Note 11 – Restructuring This note details restructuring costs incurred in Q4 2022, including office space impairment and severance expenses - In Q4 2022, the company incurred $9.3 million in restructuring costs, including $5.0 million for office space impairment (ROU asset and leasehold improvements) and $4.3 million for severance related to a 4% workforce reduction in January 2023[303] - Approximately all $4.3 million of severance and related benefit costs incurred in 2022 are expected to be paid in 2023[304] Note 12 – Non-Marketable Investments This note provides information on Forrester's non-marketable investments, primarily in technology-related private equity funds - Non-marketable investments, primarily interests in technology-related private equity funds, had a carrying value of $0.9 million as of December 31, 2022[305] - These investments are accounted for using the equity method. The company recorded $0.3 million in gains from non-marketable investments in 2022[306] Note 13 – Operating Segment and Enterprise Wide Reporting This note details Forrester's reportable segments (Research, Consulting, Events) and revenue breakdown by geographic destination - The company operates in three reportable segments: Research, Consulting, and Events. Segment performance is evaluated based on revenues and direct expenses[308][312] Total Segment Revenues (in thousands) | Segment | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | |---|---|---|---| | Research | $396,012 | $372,587 | $351,950 | | Consulting | $111,028 | $108,867 | $86,897 | | Events | $30,747 | $12,861 | $10,137 | | Consolidated Total | $537,787 | $494,315 | $448,984 | Revenues by Geographic Destination (2022, 2021, 2020, in thousands and as % of total) | Region | 2022 Revenue (in thousands) | 2022 (%) | 2021 Revenue (in thousands) | 2021 (%) | 2020 Revenue (in thousands) | 2020 (%) | |---|---|---|---|---|---|---| | United States | $426,041 | 79% | $381,662 | 77% | $356,288 | 79% | | Europe (excluding UK) | $36,664 | 7% | $41,264 | 9% | $34,897 | 8% | | United Kingdom | $20,079 | 4% | $21,913 | 5% | $15,741 | 4% | | Canada | $20,759 | 4% | $17,213 | 3% | $14,005 | 3% | | Asia Pacific | $26,548 | 5% | $26,768 | 5% | $22,969 | 5% | | Other | $7,696 | 1% | $5,495 | 1% | $5,084 | 1% | | Total | $537,787 | 100% | $494,315 | 100% | $448,984 | 100% | Note 14 – Certain Balance Sheet Accounts This note provides detailed breakdowns of specific balance sheet accounts, including property and equipment, and accrued liabilities Property and Equipment, Net (in thousands) | Category | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |---|---|---| | Computers and equipment | $14,303 | $15,751 | | Computer software | $34,903 | $39,858 | | Furniture and fixtures | $9,745 | $10,896 | | Leasehold improvements | $30,285 | $31,697 | | Total property and equipment | $89,236 | $98,202 | | Less accumulated depreciation | $(66,028) | $(69,957) | | Total property and equipment, net | $23,208 | $28,245 | - Amortization of capitalized internal use software costs was $4.8 million in 2022[316] Accrued Expenses and Other Current Liabilities (in thousands) | Category | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |---|---|---| | Payroll and related benefits | $53,581 | $61,979 | | Taxes | $5,823 | $4,731 | | Lease liability | $13,632 | $12,992 | | Other | $17,971 | $18,098 | | Total | $91,007 | $97,800 | Non-Current Liabilities (in thousands) | Category | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |---|---|---| | Deferred tax liability | $14,133 | $21,346 | | Other | $2,509 | $2,502 | | Total | $16,642 | $23,848 | Allowance for Doubtful Accounts (in thousands) | Metric | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | |---|---|---|---| | Balance, beginning of year | $610 | $708 | $628 | | Provision for doubtful accounts | $638 | $225 | $721 | | Write-offs | $(669) | $(318) | $(850) | | Balance, end of year | $560 | $610 | $708 | Note 15 – Contingencies This note discusses Forrester's legal contingencies and the management's assessment of their potential financial impact - The company is subject to legal proceedings and civil/regulatory claims in the ordinary course of business. Accruals are recorded when a liability is probable and estimable[320] - Management believes current lawsuits and claims are not expected to have a material adverse effect on the company's financial position, results of operations, or cash flows, despite potential defense and settlement costs[321][322] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable, indicating no changes in or disagreements with accountants on accounting and financial disclosure - Not applicable[324] Item 9A. Controls and Procedures Management and auditors concluded Forrester's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2022[325] - Management assessed and concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework[326][327] - PricewaterhouseCoopers LLP audited and attested to the effectiveness of internal control over financial reporting[328] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2022[329] Item 9B. Other Information Forrester's Board of Directors approved a bylaw amendment on March 8, 2023, to clarify procedures for advance notice and director nominations - On March 8, 2023, the Board of Directors approved an amendment to the company's bylaws to clarify procedures for advance notice bylaws and director nominations under Rule 14a-19[330] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Forrester Research, Inc - Not applicable[332] PART III This section provides information on Forrester's directors, executive officers, corporate governance, compensation, and security ownership Item 10. Directors, Executive Officers, and Corporate Governance This section lists Forrester's executive officers, references its Code of Business Conduct, and incorporates governance details from the 2023 Proxy Statement - The executive officers as of March 10, 2023, include George F. Colony (Chairman & CEO), Ryan D. Darrah (Chief Legal Officer), L. Christian Finn (CFO), Carrie Johnson (Chief Product Officer), Mike Kasparian (CIO), Sharyn Leaver (Chief Research Officer), Sarah Le Roy (Chief People Officer), Shirley Macbeth (Chief Marketing Officer), Steven Peltzman (Chief Business Technology Officer), and Nate Swan (Chief Sales Officer)[335][336][337][338][339][340][341][342][343] - The company's Code of Business Conduct and Ethics covers all employees, officers, and directors and is available on its website[344][345] - Disclosures regarding amendments to or waivers from the Code of Business Conduct and Ethics will be posted on the company's website[347] - Further information on director elections and Section 16(a) Beneficial Ownership Reporting Compliance is incorporated by reference from the 2023 Proxy Statement[348] Item 11. Executive Compensation Executive compensation details are incorporated by reference from the company's 2023 Proxy Statement - Executive compensation details are incorporated by reference from the 2023 Proxy Statement under 'Director Compensation' and 'Executive Compensation'[349] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section incorporates security ownership data from the 2023 Proxy Statement, detailing outstanding and available shares under equity plans - Information on security ownership of certain beneficial owners and management is incorporated by reference from the 2023 Proxy Statement[350] Equity Compensation Plan Summary (as of December 31, 2022) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | |---|---|---|---| | Equity compensation plans approved by stockholders | 771,072 (includes 682,122 restricted stock units) | $35.58 | 2,136,068 (includes 1,412,830 shares under Equity Incentive Plan and 723,238 shares under Stock Purchase Plan) | | Equity compensation plans not approved by stockholders | N/A | N/A | N/A | | Total | 771,072 | $35.58 | 2,136,068 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Details on certain relationships, related transactions, and director independence are incorporated by reference from the 2023 Proxy Statement[352] Item 14. Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2023 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2023 Proxy Statement under 'Independent Auditors' Fees and Other Matters'[353] PART IV This section lists the exhibits and financial statement schedules filed as part of the annual report Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits included in the 2022 Annual Report on Form 10-K, with a comprehensive Exhibit Index - Financial statements are filed as part of this 2022 Annual Report on Form 10-K[354] - A complete listing of exhibits is provided in the Exhibit Index[354] Item 16. Form 10-K Summary This item is not applicable - Not applicable[355] EXHIBIT INDEX The Exhibit Index provides a comprehensive list of documents filed with the Form 10-K, including corporate governance, equity plans, and certifications - The Exhibit Index lists various documents filed with the Form 10-K, including corporate governance documents, equity plans, lease agreements, and credit agreements[358][359][360] - Key exhibits include the Agreement and Plan of Merger (2.1), Restated Certificate of Incorporation (3.1), Amended and Restated By-Laws (3.5), Amended and Restated Employee Stock Purchase Plan (10.02+), Amended and Restated Equity Incentive Plan (10.03+), Credit Agreement (10.21), and First Amendment to Credit Agreement (10.22)[358][359][360] - Certifications from the Principal Executive Officer (31.1) and Principal Financial Officer (31.2) are included, along with the Consent of PricewaterhouseCoopers LLP (23.1)[360]