Forrester Research Reports 2012 Fourth-Quarter and Full-Year Financial Results

CAMBRIDGE, Mass.--(BUSINESS WIRE)--Forrester Research, Inc. (Nasdaq: FORR) today announced its 2012 fourth-quarter and full-year financial results.

“Our brand remains strong as evidenced by our stable client retention rates, and our market opportunity is large.”

Fourth-Quarter 2012 Financial Performance

Total revenues were $75.1 million for the fourth quarter of 2012, compared with $74.7 million for the fourth quarter of last year. Research revenues increased 3%, and advisory services and other revenue decreased 4% compared with the fourth quarter of last year.
On a GAAP basis, net income was $4.7 million, or $0.21 per diluted share, for the fourth quarter of 2012, compared with net income of $8.9 million, or $0.38 per diluted share, for the same period last year. On a pro forma basis, net income was $6.4 million, or $0.28 per diluted share, for the fourth quarter of 2012, which reflects a pro forma effective tax rate of 39%. Pro forma net income excludes stock-based compensation of $1.5 million, amortization of $0.7 million of acquisition-related intangible assets, and acquisition-related costs of $0.6 million related to M&A activity Forrester did not pursue. This compares with pro forma net income of $9.2 million, or $0.40 per diluted share, for the same period in 2011, which reflects a pro forma tax rate of 40%. Pro forma net income for the fourth quarter of 2011 excludes stock-based compensation of $0.5 million, amortization of $0.7 million of acquisition-related intangible assets, $0.4 million of reorganization costs, and net investment gains of $0.4 million.

“While our sales performance in 2012 will manifest itself in dampened revenue growth in 2013, we are aggressively taking action to correct what we believe were specific, one-time issues,” said George F. Colony, Forrester’s chairman and chief executive officer. “Our brand remains strong as evidenced by our stable client retention rates, and our market opportunity is large.”

“Today, stability is returning to our sales organization. A seasoned sales executive is instilling better process management and more discipline on the selling organization, which should result in improved productivity as we move through the year,” said Colony. “We are beginning to see some early, positive results in the form of lower sales attrition.”

“We are restructuring other parts of the company to streamline some support functions and get our costs more in line with projected revenue in 2013,” said Colony. “We are balancing our desire for near-term financial results with the proper level of investment to get us back on a growth trajectory in 2014.”

Year Ended December 31, 2012 Financial Performance

Total revenues were $292.9 million, compared with $283.6 million for the same period last year.
On a GAAP basis, net income was $26.0 million, or $1.13 per diluted share, for 2012, compared with net income of $23.0 million, or $0.99 per diluted share, for 2011. Net income in 2012 includes a $5.5 million deferred tax benefit resulting from the settlement of a tax audit at one of the company’s foreign subsidiaries.
On a pro forma basis, net income was $25.5 million, or $1.11 per diluted share, for 2012, which reflects a pro forma effective tax rate of 39%. Pro forma net income excludes stock-based compensation of $5.4 million, amortization of $2.4 million of acquisition-related intangible assets, $1.4 million of reorganization costs, acquisition-related costs of $0.6 million, and net investment gains of $0.3 million. This compares with pro forma net income of $29.4 million, or $1.27 per diluted share, for 2011, which reflects a pro forma tax rate of 40%. Pro forma net income for 2011 excludes stock-based compensation of $3.6 million, amortization of $2.6 million of acquisition-related intangible assets, $3.9 million of duplicate lease costs, $0.4 million of reorganization costs, $1.0 million of acquisition and integration costs, and net investment gains of $1.0 million.

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

Reorganization

Forrester is announcing a reduction of approximately 30 jobs or an estimated 2.5% of its workforce worldwide to streamline its operations and to bring costs more in line with projected revenues for 2013. The company anticipates incurring approximately $1.5 million to $1.8 million of severance and related benefit costs in the first quarter of 2013 related to the reduction.

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

First-Quarter 2013 (GAAP):

Total revenues of approximately $66.0 million to $69.0 million.
Operating margin of approximately (1.0%) to 1.0%.
Other income, net of approximately $0.2 million.
An effective tax rate of 39%.
Weighted average diluted shares outstanding of approximately 22.8 million.
Diluted earnings per share of approximately ($0.02) to $0.02.

First-Quarter 2013 (Pro Forma):

Pro forma financial guidance for the first quarter of 2013 excludes stock-based compensation expense of $1.9 million to $2.1 million, amortization of acquisition-related intangible assets of approximately $0.6 million, reorganization costs of $1.5 million to $1.8 million, and any investment gains or losses.

Pro forma operating margin of approximately 5.0% to 7.0%.
Pro forma effective tax rate of 39%.
Pro forma diluted earnings per share of approximately $0.09 to $0.13.

Our full-year 2013 guidance as follows:

Full-Year 2013 (GAAP):

Total revenues of approximately $290.0 million to $298.0 million.
Operating margin of approximately 6.0% to 7.0%.
Other income, net of approximately $0.8 million.
An effective tax rate of 39%.
Weighted average diluted shares outstanding of approximately 21.9 million.
Diluted earnings per share of approximately $0.52 to $0.59.

Full-Year 2013 (Pro Forma):

Pro forma financial guidance for full-year 2013 excludes stock-based compensation expense of $5.7 million to $6.2 million, amortization of acquisition-related intangible assets of approximately $2.3 million, reorganization costs of $1.5 million to $1.8 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 $0.79 to $0.86.

About Forrester Research

Forrester Research, Inc. (Nasdaq: FORR) is an independent research company that provides pragmatic and forward-thinking advice to global leaders in business and technology. Forrester works with professionals in 17 roles at major companies providing proprietary research, customer insight, consulting, events, and peer-to-peer executive programs. For more than 29 years, Forrester has been making IT, marketing, and technology industry leaders successful every day. 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 include, but are not limited to, statements about anticipated growth, productivity improvements, restructuring activities, and Forrester’s financial guidance for the first quarter of and full-year 2013. 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. 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.



Forrester Research, Inc.
Consolidated Statements of Income
(Unaudited, In thousands, except per share data)
	Three months ended					Year ended
	December 31,					December 31,
	2012			2011		2012		2011

Revenues:
Research services	$	51,866		$	50,518	$	202,998	$	191,648
Advisory services and other		23,200			24,132		89,932		91,968
Total revenues		75,066			74,650		292,930		283,616

Operating expenses:
Cost of services and fulfillment		28,726			24,978		111,228		103,571
Selling and marketing		25,681			25,067		101,390		101,468
General and administrative		10,199			8,108		36,866		33,284
Depreciation		2,411			2,024		8,921		5,359
Amortization of intangible assets		666			664		2,445		2,562
Reorganization costs (credits)		(10	)		375		1,421		375
Total operating expenses		67,673			61,216		262,271		246,619

Income from operations		7,393			13,434		30,659		36,997

Other income, net		404			357		1,300		630
Gains on investments, net		11			370		301		1,018
Income before income taxes		7,808			14,161		32,260		38,645

Income tax provision		3,107			5,264		6,236		15,635
Net Income	$	4,701		$	8,897	$	26,024	$	23,010

Diluted income per share	$	0.21		$	0.38	$	1.13	$	0.99

Diluted weighted average shares outstanding		22,652			23,118		22,929		23,164

Basic income per share	$	0.21		$	0.39	$	1.16	$	1.02

Basic weighted average shares outstanding		22,282			22,646		22,500		22,666

Pro forma data (1):

Income from operations	$	7,393		$	13,434	$	30,659	$	36,997
Amortization of intangible assets		666			664		2,445		2,562
Duplicate lease costs		-			-		-		3,850
Reorganization costs (credits)		(10	)		375		1,421		375
Acquisition-related and integration costs		569			-		569		986
Stock-based compensation included in the following expense categories:
Cost of services and fulfillment		872			319		3,085		1,644
Selling and marketing		256			65		894		751
General and administrative		348			165		1,418		1,247

Pro forma income from operations		10,094			15,022		40,491		48,412

Other income, net		404			357		1,300		630
Pro forma income before income taxes		10,498			15,379		41,791		49,042

Pro forma income tax provision		4,094			6,151		16,298		19,617

Pro forma net income	$	6,404		$	9,228	$	25,493	$	29,425

Pro forma diluted income per share	$	0.28		$	0.40	$	1.11	$	1.27
Diluted weighted average shares outstanding		22,652			23,118		22,929		23,164

(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, duplicate lease costs, costs associated with acquisition and integration activities,

stock-based compensation, reorganization costs and credits 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)

	December 31,
	2012			2011
Balance sheet data:
Cash, cash equivalents and marketable investments	$	242,656		$	227,603
Accounts receivable, net	$	74,623		$	81,378
Deferred revenue	$	150,479		$	147,887


	Year ended
	December 31,
	2012			2011
Cash flow data:
Net cash provided by operating activities	$	53,147		$	55,444
Cash used for acquisitions	$	-		$	(7,531	)
Purchases of property and equipment	$	(5,103	)	$	(39,776	)
Repurchases of common stock	$	(29,843	)	$	(18,405	)
Dividends paid	$	(12,588	)	$	-


	As of
	December 31,
	2012			2011
Metrics:
Agreement value	$	220,355		$	221,089
Client retention		77	%		80	%
Dollar retention		90	%		90	%
Enrichment		95	%		101	%
Number of clients		2,462			2,495

	As of
	December 31,
	2012			2011
Headcount:
Total headcount		1,236			1,208
Research staff		432			450
Sales staff		462			438