<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended September 30, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 000-21433
-------------
FORRESTER RESEARCH, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2797789
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 Technology Square
Cambridge, MA 02139
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 497-7090
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 4, 1999, 9,163,272 shares of the registrant's common stock
were outstanding.
<PAGE> 2
FORRESTER RESEARCH, INC.
INDEX TO FORM 10-Q
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at September 30, 1999
and December 31, 1998 3
Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
ITEM 3. Quantitative and Qualitative Disclosures
about Market Risk 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities 15
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security-Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORRESTER RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 15,390 $ 10,414
Marketable securities 72,078 56,070
Accounts receivable, net 20,922 21,158
Deferred commissions 4,000 2,124
Prepaid income taxes 43 334
Prepaid expenses and other current assets 5,213 2,605
-------- --------
Total current assets 117,646 92,705
-------- --------
Property and equipment, net 7,496 7,813
Other assets 1,720 --
-------- --------
Total assets $126,862 $100,518
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,147 $ 1,434
Customer deposits 568 264
Accrued expenses 7,964 5,051
Accrued income taxes 114 933
Deferred revenue 46,909 38,894
Deferred income taxes 1,167 409
-------- --------
Total current liabilities 57,869 46,985
======== ========
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value
Authorized--500,000 shares
Issued and outstanding--none -- --
Common stock, $.01 par value
Authorized--25,000,000 shares
Issued and outstanding--9,126,947 and
8,654,175 shares at September 30, 1999 and
December 31, 1998, respectively 91 86
Additional paid-in capital 48,577 39,575
Retained earnings 20,550 13,555
Accumulated other comprehensive income (225) 317
-------- --------
Total stockholders' equity 68,993 53,533
-------- --------
Total liabilities and stockholders' equity $126,862 $100,518
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Core research $17,026 $12,354 $44,778 $34,026
Advisory services and other 4,955 2,716 14,803 9,219
------- ------- ------- -------
Total revenues 21,981 15,070 59,581 43,245
------- ------- ------- -------
OPERATING EXPENSES:
Cost of services and fulfillment 6,909 5,212 19,945 15,822
Selling and marketing 7,854 5,194 21,322 15,039
General and administrative 2,504 1,647 6,758 4,846
Depreciation and amortization 973 760 2,894 1,939
------- ------- ------- -------
Total operating expenses 18,240 12,813 50,919 37,646
------- ------- ------- -------
Income from operations 3,741 2,257 8,662 5,599
OTHER INCOME, NET 864 765 2,618 2,196
------- ------- ------- -------
Income before income tax provision 4,605 3,022 11,280 7,795
INCOME TAX PROVISION 1,750 1,148 4,287 2,961
------- ------- ------- -------
Net income $ 2,855 $ 1,874 $ 6,993 $ 4,834
======= ======= ======= =======
BASIC NET INCOME PER COMMON SHARE $ 0.32 $ 0.22 $ 0.79 $ 0.57
======= ======= ======= =======
DILUTED NET INCOME PER COMMON SHARE $ 0.29 $ 0.20 $ 0.72 $ 0.52
======= ======= ======= =======
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,002 8,555 8,876 8,495
======= ======= ======= =======
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,850 9,491 9,688 9,358
======= ======= ======= =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,993 $ 4,834
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 2,894 1,939
Loss on disposal of property and equipment 105 --
Deferred income taxes 758 208
Cumulative translation adjustment (209) --
Accretion of premiums on marketable securities (22) --
Changes in assets and liabilities-
Accounts receivable 236 (5,315)
Deferred commissions (1,876) (658)
Prepaid expenses and other (2,609) (892)
Prepaid income taxes 291 --
Accounts payable (287) 159
Customer deposits 304 13
Accrued expenses 2,912 428
Accrued income taxes (818) 301
Deferred revenue 8,015 6,633
--------- ---------
Net cash provided by operating activities 16,687 7,650
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,733) (5,328)
Proceeds related to disposals of property and equipment 1,056 --
Purchase of non-marketable investment (Note 7) (1,000) --
Increase in other assets (720) --
Purchase of marketable securities (360,640) (244,175)
Proceeds from sales and maturities of marketable securities 344,323 236,168
--------- ---------
Net cash used in investing activities (20,714) (13,335)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under stock option
plan and employee stock purchase plan, including tax
benefit on exercise of stock options 9,007 3,129
--------- ---------
Net cash provided by financing activities 9,007 3,129
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (4) --
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,976 (2,556)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,414 7,742
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,390 $ 5,186
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 1,062 $ 770
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
FORRESTER RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) for reporting on Form 10-Q.
Accordingly, certain information and footnote disclosures required for complete
financial statements are not included herein. It is recommended that these
financial statements be read in conjunction with the consolidated financial
statements and related notes of Forrester Research, Inc. (the "Company") as
reported in the Company's Annual Report on Form 10-K for the year ended December
31, 1998. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
financial position, results of operations, and cash flows at the dates and for
the periods presented have been included. The consolidated balance sheet
presented as of December 31, 1998 has been derived from the consolidated
financial statements that have been audited by the Company's independent public
accountants. The results of operations for the quarter ended September 30, 1999
may not be indicative of the results that may be expected for the year ended
December 31, 1999, or any other period.
NOTE 2 - NET INCOME PER COMMON SHARE
Basic net income per common share was computed by dividing net income by the
basic weighted-average number of common shares outstanding during the period.
Diluted net income per common share was computed by dividing net income by the
diluted weighted-average number of common shares outstanding during the period.
The weighted-average number of common equivalent shares outstanding has been
determined in accordance with the treasury-stock method. Common stock
equivalents consist of common stock issuable on the exercise of outstanding
options. Reconciliation of basic to diluted weighted-average common shares
outstanding is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Basic weighted average common shares outstanding 9,002 8,555 8,876 8,495
Weighted average common equivalent shares 848 936 812 863
----- ----- ----- -----
Diluted weighted average shares outstanding 9,850 9,491 9,688 9,358
----- ----- ----- -----
</TABLE>
As of September 30, 1999 and 1998, 625,500 and 357,500 stock options,
respectively, were not included in diluted weighted average shares outstanding
as the effect would have been anti-dilutive.
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. The components of other comprehensive income for the three-
and nine-month periods ended September 30, 1999 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Unrealized (loss) gain on marketable securities,
net of taxes $ (52) $ 239 $(329) $ 270
Cumulative translation adjustment (23) -- (213) --
----- ----- ----- -----
Total other comprehensive income $ (75) $ 239 $(542) $ 270
----- ----- ----- -----
</TABLE>
6
<PAGE> 7
NOTE 4 - CAPITALIZED SOFTWARE COSTS
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
certain computer software costs associated with internal-use software to be
expensed as incurred until certain capitalization criteria are met. The Company
adopted SOP No. 98-1 beginning January 1, 1999. SOP No. 98-1 had no effect upon
adoption. The net book value of capitalized internal use software costs at
September 30, 1999 and December 31, 1998 was $1.8 million and $1.9 million,
respectively.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for all periods
beginning after June 15, 2000, and establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Adoption of SFAS No. 133 is not
expected to have a material impact on the Company's consolidated financial
position or results from operations.
NOTE 6 - SEGMENT AND ENTERPRISE-WIDE REPORTING
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, in the fiscal year ended December 31, 1998. SFAS No.131
establishes selected standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are defined
as components of an enterprise about which separate, discrete financial
information is evaluated regularly by the chief operating decision-maker, or
decision-making group, in deciding how to allocate resources and assess
performance. The Company's chief decision-making group, as defined under SFAS
No. 131, is the Executive Team, consisting of the executive officers. To date,
the Company has viewed its operations and managed its business principally as
one segment, research services. As a result, the financial information disclosed
herein materially represents all of the financial information related to the
Company's principal operating segment. Substantially all of the Company's assets
are located in the United States.
Net revenues by geographic destination and as a percentage of total revenues are
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
United States $17,078 $12,039 $46,834 $34,315
Europe 2,968 1,826 7,608 5,160
Other 1,935 1,205 5,139 3,770
------- ------- ------- -------
$21,981 $15,070 $59,581 $43,245
======= ======= ======= =======
United States 78% 80% 79% 79%
Europe 13% 12% 13% 12%
Other 9% 8% 8% 9%
------- ------- ------- -------
100% 100% 100% 100%
------- ------- ------- -------
</TABLE>
7
<PAGE> 8
NOTE 7 - INVESTMENT IN GREENFIELD ONLINE, INC.
In May 1999, the Company invested $1.0 million in a holding company that is the
majority shareholder of Greenfield Online, Inc., an Internet-based marketing
research firm. As a result of this investment, the Company effectively owns
approximately a 3.4% interest in Greenfield Online, Inc. This investment is
being accounted for using the cost method and, accordingly, is valued at cost
until it has been determined that a permanent impairment in its value has
occurred.
NOTE 8 - NEW LEASE
In May 1999, the Company signed a seven-year lease to relocate its corporate
headquarters to a new location within Cambridge, Mass. The new lease term began
in October 1999 and has two options to extend, each option for an additional
five years. The Company has incurred approximately $510,000 in lease acquisition
costs to date, which is included in other assets in the accompanying
Consolidated Balance Sheet as of September 30, 1999 and will be amortized over
the initial term of the lease.
In connection with the relocation of its corporate headquarters, the Company
disposed of approximately $2.5 million of leasehold improvements and furniture
with an aggregate net book value of $1.2 million. This was offset by $1.1
million to be received from the buyout of the Company's former lease. This
receivable is included in other current assets in the accompanying Consolidated
Balance Sheet as of September 30, 1999. The transaction resulted in a net loss
of $105,000, which is included in other income in the accompanying Consolidated
Statements of Income for the three and nine months ended September 30, 1999.
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 are based on the Company'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 results to differ materially from those indicated by
forward-looking statements include, among others, the need to attract and retain
professional staff, management of growth, variability of quarterly operating
results, possible volatility of stock price, dependence on renewals of
membership-based research services, dependence on key personnel, risks
associated with anticipating market trends, new products and services, and
competition. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
Forrester Research, Inc. ("Forrester" or the "Company") is a leading
independent research firm offering products and services that help its clients
assess the effect of technology and Internet commerce on their businesses. The
Company provides analysis and insight into a broad range of technology areas
such as electronic commerce and the Internet, computing, software, networking,
and telecommunications, and projects how technology trends will impact
businesses, consumers, and society. Forrester's clients, which include senior
management, business strategists, and marketing and information technology
("IT") professionals within large enterprises, use Forrester's prescriptive
research to understand and benefit from current developments in technology, and
as support for their development and implementation decisions.
Forrester offers its clients annual memberships to core research that is
organized into three Coverage Areas: Internet Commerce, Internet Commerce
Enabling Technology, and Technographics(R) Data & Analysis ("Coverage Areas").
Such memberships are renewable contracts, typically annual and payable in
advance. Accordingly, a substantial portion of the Company's billings are
recorded initially as deferred revenue. Revenues for core research are
recognized pro rata on a monthly basis over the contract period. The Company's
other revenues are derived from advisory services rendered pursuant to
Forrester's Partners Program and Strategy Review Program and from Forrester
Forums ("Forums"). The Company's advisory service clients purchase such services
together with core research memberships. Billings attributable to
8
<PAGE> 9
advisory services are recorded initially as deferred revenue and recognized as
revenue when performed. Similarly, Forum billings are recorded initially as
deferred revenue and are recognized as revenue upon completion of each event.
The Company's operating expenses consist of cost of services and
fulfillment, selling and marketing expenses, general and administrative
expenses, and depreciation and amortization. Cost of services and fulfillment
represent the costs associated with production and delivery of the Company's
products and services, and include the costs of salaries, bonuses, and related
benefits for research personnel, and all associated editorial, travel, and
support services. Selling and marketing expenses include salaries, employee
benefits, travel expenses, promotional costs, sales commissions, and other costs
incurred in marketing and selling the Company's products and services. General
and administrative expenses include the costs of the finance, operations,
technology, and strategy groups, and other administrative functions of the
Company.
The Company believes that the "agreement value" of contracts to purchase
core research and advisory services provides a significant measure of the
Company's business volume. Forrester calculates agreement value as the total
revenues recognizable from all core research and advisory service contracts in
force at a given time without regard to how much revenue already has been
recognized. Agreement value increased 48% to $89.8 million at September 30, 1999
from $60.6 million at September 30, 1998. No single client company accounted for
more than 3% of agreement value at September 30, 1999. The Company's experience
is that a substantial portion of client companies renew expiring contracts for
an equal or higher level of total core research and advisory service fees each
year. Approximately 75% of Forrester's client companies with memberships
expiring during the 12-month period ended September 30, 1999 renewed one or more
memberships for the Company's products and services. This renewal rate is not
necessarily indicative of the rate of future retention of the Company's revenue
base.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Core research 77% 82% 75% 79%
Advisory services and other 23 18 25 21
---- ---- ---- ----
Total revenues 100 100 100 100
Cost of services and fulfillment 31 35 33 37
Selling and marketing 36 34 36 35
General and administrative 11 11 11 11
Depreciation and amortization 5 5 5 4
---- ---- ---- ----
Income from operations 17 15 15 13
Other income, net 4 5 4 5
---- ---- ---- ----
Income before income tax provision 21 20 19 18
Provision for income taxes 8 8 7 7
---- ---- ---- ----
Net income 13% 12% 12% 11%
==== ==== ==== ====
</TABLE>
9
<PAGE> 10
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
REVENUES. Total revenues increased 46% to $22.0 million in the three months
ended September 30, 1999 from $15.1 million in the three months ended September
30, 1998. Revenues from core research increased 38% to $17.0 million in the
three months ended September 30, 1999 from $12.4 million in the three months
ended September 30, 1998. Increases in total revenues and revenues from core
research were primarily attributable to an increase in the number of client
companies to 1,558 at September 30, 1999 from 1,142 at September 30, 1998, an
increase in the sales organization to 144 employees at September 30, 1999 from
95 employees at September 30, 1998, and sales of additional core research to
existing clients. No single client company accounted for more than 3% of
revenues for the three months ended September 30, 1999.
Advisory services and other revenues increased 82% to $5.0 million in the
three months ended September 30, 1999 from $2.7 million in the three months
ended September 30, 1998. This increase was primarily attributable to increased
demand for the Partner and Strategy Review Programs, and the Marketing and New
Media forum held by the Company in the quarter, compared with no events held in
the three months ended September 30, 1998.
Revenues attributable to customers outside the United States increased 62%
to $4.9 million in the three months ended September 30, 1999 from $3.0 million
in the three months ended September 30, 1998, and increased as a percentage of
total revenues to 22% for the three months ended September 30, 1999 from 20% for
the three months ended September 30, 1998. The increase in international
revenues was primarily attributable to the continued expansion of the Company's
European headquarters in Amsterdam, the Netherlands, and the increase in sales
personnel there. The Company invoices its international clients in U.S. dollars.
COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
decreased as a percentage of total revenues to 31% in the three months ended
September 30, 1999 from 35% in the three months ended September 30, 1998. These
expenses increased 33% to $6.9 million in the three months ended September 30,
1999 from $5.2 million in the three months ended September 30, 1998. The
decrease in expense as a percentage of revenues reflects the larger revenue base
in the current year, as well as costs incurred in the development of
eResearch(TM) reflected in the three months ended September 30, 1998. The
expense increase in the current period was principally due to research analyst
staffing and related compensation expense.
SELLING AND MARKETING. Selling and marketing expenses increased as a
percentage of total revenues to 36% in the three months ended September 30, 1999
from 34% in the three months ended September 30, 1998. These expenses increased
51% to $7.9 million in the three months ended September 30, 1999 from $5.2
million in the three months ended September 30, 1998. The increases in expenses
and expense as a percentage of revenues were principally due to the addition of
direct salespersons and related commission and travel expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses remained
constant as a percentage of total revenues at 11% in the three months ended
September 30, 1999 and 1998. These expenses increased 52% to $2.5 million in the
three months ended September 30, 1999 from $1.6 million in the three months
ended September 30, 1998. The increase in expenses was principally due to
staffing increases in the Company's operations, finance, technology, and
strategy groups.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 28% to $973,000 in the three months ended September 30, 1999, from
$760,000 in the three months ended September 30, 1998. The increase in this
expense was principally due to purchases of computer equipment, software, office
furnishings, and leasehold improvements to support business growth.
OTHER INCOME, NET. Other income, consisting primarily of interest income,
increased to $864,000 in the three months ended September 30, 1999 from $765,000
in the three months ended September 30, 1998. Other income for the three months
ended September 30, 1999 includes a loss of approximately $105,000 resulting
from the relocation of the Company's corporate headquarters. The increase was
due to the Company's higher cash and marketable securities balances resulting
from positive cash flows from operations.
10
<PAGE> 11
PROVISION FOR INCOME TAXES. During the three months ended September 30,
1999, the Company recorded a tax provision of $1.8 million, reflecting an
effective tax rate of 38%. During the three months ended September 30, 1998, the
Company recorded a tax provision of $1.1 million, reflecting an effective tax
rate of 38%.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. Total revenues increased 38% to $59.6 million in the nine months
ended September 30, 1999 from $43.2 million in the nine months ended September
30, 1998. Revenues from core research increased 32% to $44.8 million in the nine
months ended September 30, 1999 from $34.0 million in the nine months ended
September 30, 1998. Increases in total revenues and revenues from core research
were primarily attributable to an increase in the number of client companies to
1,558 at September 30, 1999 from 1,142 at September 30, 1998, an increase in the
sales organization to 144 employees at September 30, 1999 from 95 employees at
September 30, 1998, and sales of additional core research to existing clients.
No single client company accounted for more than 3% of revenues for the nine
months ended September 30, 1999.
Advisory services and other revenues increased 61% to $14.8 million in the
nine months ended September 30, 1999 from $9.2 million in the nine months ended
September 30, 1998. This increase was primarily attributable to increased demand
for the Partners and Strategy Review Programs and Forrester Forum events, an
increase in the number of events held to five in the nine months ended September
30, 1999 from four in the nine months ended September 30, 1998, and the increase
in analyst staff providing advisory services to 123 at September 30, 1999 from
98 at September 30, 1998.
Revenues attributable to customers outside the United States increased 43%
to $12.7 million in the nine months ended September 30, 1999 from $8.9 million
in the nine months ended September 30, 1998. Revenues attributable to customers
outside the United States remained constant as a percentage of total revenues at
21% for the nine months ended September 30, 1999 and 1998. The increase in
international revenues was primarily attributable to the continued expansion of
the company's European headquarters in Amsterdam, the Netherlands, and the
increase in sales personnel there.
COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
decreased as a percentage of total revenues to 33% in the nine months ended
September 30, 1999 from 37% in the nine months ended September 30, 1998. These
expenses increased 26% to $19.9 million in the nine months ended September 30,
1999 from $15.8 million in the nine months ended September 30, 1998. The
decrease in expense as a percentage of revenues reflects a larger revenue base
in the current year. The expense increase in the current period was principally
due to research analyst staffing and related compensation expense.
SELLING AND MARKETING. Selling and marketing expenses increased as a
percentage of total revenues to 36% in the nine months ended September 30, 1999
from 35% in the nine months ended September 30, 1998. These expenses increased
42% to $21.3 million in the nine months ended September 30, 1999 from $15.0
million in the nine months ended September 30, 1998. The increases in expenses
and expense as a percentage of revenues were principally due to the addition of
direct salespersons and related commission and travel expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses remained
constant as a percentage of total revenues at 11% in the nine months ended
September 30, 1999 and 1998. These expenses increased 49% to $6.8 million in the
nine months ended September 30, 1999 from $4.8 million in the nine months ended
September 30, 1998. The increase in expenses was principally due to staffing
increases in the Company's operations, finance, technology, and strategy groups.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 49% to $2.9 million in the nine months ended September 30, 1999 from
$1.9 million in the nine months ended September 30, 1998. The increase in this
expense was principally due to purchases of computer equipment, software, office
furnishings, and leasehold improvements to support business growth.
OTHER INCOME, NET. Other income, consisting primarily of interest income,
increased to $2.6 million in the nine months ended September 30, 1999 from $2.2
million in the nine months ended September 30, 1998. Other income for the nine
months ended September 30, 1999 includes a loss of approximately $105,000
resulting from the reduction of the Company's corporate headquarters. The
increase was due to the Company's higher cash and marketable securities balances
resulting from positive cash flows from operations.
11
<PAGE> 12
PROVISION FOR INCOME TAXES. During the nine months ended September 30,
1999, the Company recorded a tax provision of $4.3 million, reflecting an
effective tax rate of 38%. During the nine months ended September 30, 1998, the
Company recorded a tax provision of $3.0 million, reflecting an effective tax
rate of 38%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations during these periods through funds
generated from operations. Memberships for core research, which constituted
approximately 77% of the Company's revenues for the three months ended September
30, 1999, are annually renewable and are generally payable in advance. The
Company generated $16.7 million and $7.7 million in cash from operating
activities during the nine-month periods ended September 30, 1999 and 1998,
respectively.
During the nine-month period ended September 30, 1999, the Company used
$20.7 million of cash in investing activities, consisting primarily of $2.6
million for net purchases of property and equipment, $1.0 million for a minority
investment in Greenfield Online, Inc., and $16.3 million for net purchases of
marketable securities. The Company regularly invests excess funds in short- and
intermediate-term interest-bearing obligations of investment grade.
As of September 30, 1999, the Company had cash and cash equivalents of
$15.4 million and $72.1 million in marketable securities. The Company does not
have a line of credit and does not anticipate the need for one in the
foreseeable future. The Company plans to continue to introduce new products and
services and to invest in its infrastructure over the next 12 months. The
Company believes that its current cash balance, marketable securities, and cash
flows from operations will satisfy working capital, financing activities, and
capital expenditure requirements for at least the next two years.
YEAR 2000 DISCLOSURE
THE COMPANY'S STATE OF READINESS. The Company has implemented a broad-based
remediation effort to address the year 2000 problem. This effort consists of the
following three stages: (i) survey and assess the Company's operations for year
2000 compliance; (ii) execute the necessary software and hardware remedial
changes; and (iii) test the remediation efforts to ensure year 2000 compliance.
There can be no assurance that the Company's survey will identify all year 2000
problems in these areas or that the necessary corrective actions will be
completed in a timely manner.
The first stage of the effort, a survey and assessment of the Company's
operations for year 2000 compliance, has been completed. The Company identified
three areas of operations where the year 2000 problem could arise:
External product delivery systems. This includes the Company's three
main platforms for electronic product delivery: Forrester's Web site,
FTP site, and Lotus Notes system.
Internal information technology systems. This includes the Company's
MIS functions, customer service applications, and production systems.
Third-party vendors and service providers. This includes a review of
the Company's third-party vendor and service providers to establish
their readiness for the year 2000 problem and assess any risks to the
Company. Material third-party vendor and service providers include:
printers, mailing houses, and CD-ROM duplicators.
This survey included a review of the year 2000 compliance of the Company's
European Research Center. The Company's external product delivery systems,
internal information technology systems, and a number of third-party vendors and
service providers are also utilized by the European Research Center. The Company
has completed its survey of non-IT facilities and third-party vendors that are
used exclusively by the European Research Center and has replaced vendors who
are not year 2000 compliant.
The Company has implemented the second stage, executing the software and
hardware changes necessary to remediate potential year 2000 problems identified
in the survey. The year 2000 compliance of the Company's external product
delivery systems and internal information technology
12
<PAGE> 13
systems ultimately depends upon the delivery of year 2000-compliant systems from
the Company's vendors that the Company receives on a continuous basis. The
Company is working closely with these vendors to ensure the timely delivery of
year 2000 compliant systems. The Company's Lotus Notes system is fully year
2000 compliant, and the Company has released updated versions of its Web site
and FTP site, which bring these external delivery systems into year 2000
compliance. The Company's MIS systems are fully compliant and vendor-supplied
upgrades for the Company's customer service applications and production systems
have been delivered and installed. The Company's survey of non-IT facilities
technology, which included a review of the elevator, HVAC, security, and energy
management systems, indicated that these systems are currently year
2000 compliant.
During this second stage the Company has assessed its vulnerability to year
2000 problems of third-party vendors and service providers by requiring these
third-party vendors and service providers to complete a survey pertaining to
their year 2000 readiness. The Company relies on third-party suppliers primarily
to deliver printing services, mailing services, Internet and Web hosting
services, and CD-ROM duplication. The Company has received responses from the
majority of these vendors and service providers that indicate that the vendors
and service providers are year 2000 compliant and the Company intends to
continuously identify and prioritize critical service providers and vendors, and
communicate with them about their plans and progress in addressing the year 2000
problem.
The final stage of the Company's year 2000 efforts, the internal testing of
all systems, has been completed. In the fourth quarter of 1998 the Company
completed a successful test of its internal IT systems and intends to continue
to test these systems during 1999 and early 2000. The Company has completed all
testing for year 2000 compliance and will continue to monitor all of its systems
during the fourth quarter of 1999. The Company also has established a
contingency plan that provides a framework for decisions in the event of year
2000 induced service or systems interruptions.
THE COMPANY'S YEAR 2000 RISK. Based on the efforts described above, the
Company currently believes that its systems are year 2000 compliant. However,
there can be no assurance that all year 2000 problems will be successfully
identified or that the necessary corrective actions will be completed in a
timely manner. In addition, the survey has indicated that the Company's
compliance will require the delivery of upgrades by various vendors, and any
failure to deliver these upgrades in a timely manner will adversely affect the
Company's readiness for the year 2000 problem. The Company relies on the
Internet for its external distribution systems, and any failure of the Internet
due to year 2000 issues could adversely affect the Company.
THE COMPANY'S CONTINGENCY PLANS. The Company has designed a contingency
plan for year 2000 problems. This contingency plan is designed to mitigate the
effects of third parties' failures to remediate their year 2000 issues and for
unexpected failures in its own systems. Pursuant to the contingency plan, the
Company has made arrangements for some alternate suppliers, such as Internet
service providers, and will continue to identify potential alternate suppliers.
If it becomes necessary for the Company to take these corrective actions, it is
uncertain whether this would result in significant interruptions in service or
delays in business operations or whether it would have a material adverse effect
on the Company's results of operations, financial position, or cash flow.
COSTS OF YEAR 2000 REMEDIATION. As of September 30, 1999, the Company has
not incurred material costs related to the year 2000 problem. In the future, the
Company may incur small incremental costs in connection with the upgrades of its
external delivery systems and internal information technology systems. The
Company has not deferred other information technology projects due to year 2000
expenses and does not expect to defer such projects in the future.
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. The Company is exposed to
market risk related to changes in interest rates and foreign currency exchange
rates. The Company does not use derivative financial instruments for speculative
or trading purposes.
INTEREST RATE SENSITIVITY. The Company maintains an investment portfolio
consisting mainly of corporate obligations, federal agency obligations, state
and municipal bonds, and U.S. Treasury notes with a weighted-average maturity of
less than one year. These held-to-maturity securities are subject to interest
rate risk and will fall in value if market interest rates increase. If market
interest rates were to increase immediately and uniformly by 10% from levels at
September 30, 1999, the fair market value of the portfolio would decline by an
immaterial amount. The Company has the ability to hold its fixed income
investments until maturity. Therefore, the Company would not expect its
operating results or cash flows to be affected to any significant degree by the
effect of a sudden change in market interest rates on its securities portfolio.
The following table provides information about the Company's investment
portfolio. For investment securities, the table presents principal cash flows
and related weighted average interest rates by expected maturity dates.
Principal amounts by expected maturity in U.S. Dollars (in thousands except
interest rates):
<TABLE>
<CAPTION>
FAIR VALUE AT FY 2001
SEPTEMBER 30, AND
1999 FY 1999 FY 2000 THEREAFTER
<S> <C> <C> <C> <C>
Cash equivalents $14,244 $14,244 $ -- $ --
Weighted average interest rate 4.40% 4.40% --% --%
Investments $72,078 $ 9,792 $29,127 $33,159
Weighted average interest rate 5.03% 4.50% 5.12% 5.12%
Total portfolio $86,322 $24,036 $29,127 $33,159
Weighted average interest rate 4.93% 4.44% 5.12% 5.12%
</TABLE>
FOREIGN CURRENCY EXCHANGE. On a global level, the Company faces exposure to
adverse movements in foreign currency exchange rates. This exposure may change
over time as business practices evolve and could have a material adverse impact
on the Company's financial results. Historically, the Company's primary exposure
had been related to non-dollar-denominated operating expenses in Europe, Canada,
and Asia, where the Company sells primarily in U.S. dollars. The introduction of
the Euro as a common currency for members of the European Monetary Union has
taken place in the Company's fiscal year 1999. The Company has not determined
what impact, if any, the Euro will have on foreign exchange exposure. The
Company is prepared to hedge against fluctuations the Euro will have on foreign
exchange exposure if this exposure becomes material. As of September 30, 1999,
the assets and liabilities related to non-dollar-denominated currencies was
approximately $1.3 million.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Forrester Research, Inc.
By: /s/ George F. Colony
----------------------------------------
George F. Colony
Chairman of the Board, President, and
Chief Executive Officer
Date: November 10, 1999
By: /s/ Susan M. Whirty
----------------------------------------
Susan M. Whirty
Chief Financial Officer, Vice President,
Operations (principal financial and
accounting officer)
Date: November 10, 1999
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORRESTER
RESEARCH, INC.'S DECEMBER 31, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN
FORM 10-K.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 15,389,991
<SECURITIES> 72,077,565
<RECEIVABLES> 21,322,046
<ALLOWANCES> 400,000
<INVENTORY> 0
<CURRENT-ASSETS> 117,645,981
<PP&E> 13,906,283
<DEPRECIATION> 6,409,827
<TOTAL-ASSETS> 126,862,216
<CURRENT-LIABILITIES> 57,869,181
<BONDS> 0
0
0
<COMMON> 91,268
<OTHER-SE> 68,901,767
<TOTAL-LIABILITY-AND-EQUITY> 126,862,216
<SALES> 0
<TOTAL-REVENUES> 21,981,328
<CGS> 0
<TOTAL-COSTS> 6,909,425
<OTHER-EXPENSES> 11,331,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,604,308
<INCOME-TAX> 1,750,000
<INCOME-CONTINUING> 2,854,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,854,308
<EPS-BASIC> .32
<EPS-DILUTED> .29
</TABLE>
