<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 June 30, 2000.
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, Massachusetts 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 August 11, 2000, 21,365,191 shares of the registrant's common
stock were outstanding.
<PAGE> 2
FORRESTER RESEARCH, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 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 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 2. Changes in Securities 14
ITEM 3. Defaults Upon Senior Securities 14
ITEM 4. Submission of Matters to a Vote of Security-Holders 14
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORRESTER RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
2000 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 27,367 $ 13,445
Marketable securities 144,305 85,342
Accounts receivable, net 26,993 36,988
Deferred commissions 6,310 4,850
Prepaid income taxes 1,187 1,187
Prepaid expenses and other current assets 4,802 4,142
--------- ---------
Total current assets 210,964 145,954
--------- ---------
Property and equipment, net 15,541 11,619
--------- ---------
Deferred income taxes 9,042 --
--------- ---------
Other assets 2,704 1,820
--------- ---------
Total assets $ 238,251 $ 159,393
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,819 $ 2,702
Customer deposits 984 716
Accrued expenses 15,658 9,447
Accrued income taxes -- 617
Deferred revenue 81,681 66,233
Deferred income taxes -- 873
--------- ---------
Total current liabilities 101,142 80,588
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value
Authorized--500,000 shares
Issued and outstanding--none -- --
Common stock, $.01 par value
Authorized--125,000,000 shares
Issued and outstanding--21,101,207 and 19,408,064 shares
at June 30, 2000 and December 31, 1999, respectively 211 194
Additional paid-in capital 104,824 54,771
Retained earnings 32,778 24,434
Accumulated other comprehensive income (704) (594)
--------- ---------
Total stockholders' equity 137,109 78,805
--------- ---------
Total liabilities and stockholders' equity $ 238,251 $ 159,393
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES:
Core research $28,011 $14,773 $51,769 $27,751
Advisory services and other 10,269 4,898 17,327 9,849
------- ------- ------- -------
Total revenues 38,280 19,671 69,096 37,600
------- ------- ------- -------
OPERATING EXPENSES:
Cost of services and fulfillment 11,674 6,424 20,968 13,036
Selling and marketing 14,323 7,276 26,537 13,468
General and administrative 4,703 2,213 8,483 4,254
Depreciation and amortization 1,750 1,048 3,182 1,921
------- ------- ------- -------
Total operating expenses 32,450 16,961 59,170 32,679
------- ------- ------- -------
Income from operations 5,830 2,710 9,926 4,921
OTHER INCOME, NET 1,972 895 3,425 1,755
------- ------- ------- -------
Income before income tax provision 7,802 3,605 13,351 6,676
INCOME TAX PROVISION 2,926 1,370 5,007 2,537
------- ------- ------- -------
Net income $ 4,876 $ 2,235 $ 8,344 $ 4,139
======= ======= ======= =======
BASIC NET INCOME PER COMMON SHARE $ 0.23 $ 0.13 $ 0.41 $ 0.23
======= ======= ======= =======
DILUTED NET INCOME PER COMMON SHARE $ 0.20 $ 0.12 $ 0.35 $ 0.22
======= ======= ======= =======
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 20,895 17,762 20,422 17,627
======= ======= ======= =======
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 24,727 18,964 24,152 19,215
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,344 $ 4,139
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization 3,182 1,921
Deferred income taxes 5,007 462
Accretion of discount on marketable securities (148) (28)
Changes in assets and liabilities
Accounts receivable 9,976 3,616
Deferred commissions (1,460) (1,151)
Prepaid expenses and other current assets (552) (498)
Accounts payable 173 106
Customer deposits 268 282
Accrued expenses 6,093 621
Accrued income taxes -- 204
Deferred revenue 15,458 2,561
-------- ---------
Net cash provided by operating activities 46,341 12,235
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,597) (1,391)
Purchase of non-marketable investment (1,500) (1,000)
Decrease (increase) in other assets 26 (470)
Purchase of marketable securities (228,395) (180,672)
Proceeds from sales and maturities of marketable securities 169,596 165,375
-------- ---------
Net cash used in investing activities (66,870) (11,321)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the sale of common stock 22,647 --
Proceeds from issuance of common stock under stock option plans 11,858 3,577
-------- ---------
Net cash provided by financing activities 34,505 3,577
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (54) (6)
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,922 (2,293)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,445 10,414
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 27,367 $ 8,121
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ -- $ 1,062
======== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Increase in additional paid-in capital and decrease in
accrued income taxes related to the tax benefit on
the exercises on stock options $ 15,565 $ 1,778
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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, 1999. 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, 1999 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 periods ended June 30, 2000 may
not be indicative of the results that may be expected for the year ended
December 31, 2000, 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 shares outstanding
is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic weighted average common shares outstanding 20,895 17,762 20,422 17,627
Weighted average common equivalent shares 3,832 1,202 3,730 1,588
------ ------ ------ ------
Diluted weighted average shares outstanding 24,727 18,964 24,152 19,215
====== ====== ====== ======
</TABLE>
As of June 30, 2000 and 1999, 68,500 and 162,568 outstanding stock options,
respectively, were not included in diluted weighted average shares outstanding
as the effect would have been anti-dilutive.
NOTE 3 - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, requires disclosure of comprehensive income and the
components of 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 six-month periods ended on the
accompanying balance sheets as of June 30, 2000 and 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Unrealized gain (loss) on marketable securities,
net of taxes $ 27 $(189) $ 17 $(277)
Cumulative translation adjustment (53) (81) (127) (190)
---- ----- ----- -----
Total other comprehensive income $(26) $(271) $(110) $(467)
==== ===== ===== =====
</TABLE>
6
<PAGE> 7
NOTE 4 - NON-MARKETABLE INVESTMENTS
In March 2000, the Company invested $1.0 million in the common stock of
Doculabs, Inc. ("Doculabs"), an independent technology research firm, resulting
in approximately a 3.9% ownership interest. This investment is being accounted
for using the cost method and, accordingly, is being valued at cost unless a
permanent impairment in its value occurs or the investment is liquidated. As of
June 30, 2000, the Company has determined that a permanent impairment has not
occurred.
The Company also has an option to purchase an additional $2.0 million of
Doculab's equity. The purchase price and the number of shares issuable upon
exercise of the option may vary according to Doculabs' valuation as of December
31, 2000, as determined pursuant to the original agreements.
In May 1999, the Company invested $1.0 million in a holding company that is the
majority shareholder of Greenfield Online, Inc. (Greenfield), an Internet-based
marketing research firm. As a result of this investment, the Company effectively
owns approximately a 3.4% ownership interest in Greenfield. This investment is
being accounted for using the cost method and, accordingly, is being valued at
cost unless a permanent impairment in its value occurs or the investment is
liquidated. As of June 30, 2000, the Company has determined that a permanent
impairment has not occurred.
In March 2000, the holding company entered into a Note and Warrant Purchase
Agreement with Greenfield. Pursuant to this agreement, the Company loaned the
holding company $108,000 in exchange for a subordinated note, which bears
interest at 10% per annum and was payable June 30, 2000. In June 2000, in
accordance with the note and warrant purchase agreement, the Company extended
the term of the subordinated note and related accrued interest and loaned the
holding company an additional $108,000 in exchange for another subordinated
note bearing interest at 10% per annum. All outstanding amounts, including
principal and interest, are payable October 31, 2000. The value of these notes
is included in Other Current Assets in the accompanying Consolidated Balance
Sheet as of June 30, 2000. In addition, the Company was issued warrants to
obtain approximately 2,300 shares of Class A common stock at $7.15. The
warrants are immediately exercisable and expire on March 3, 2005.
In June 2000, the Company committed to invest approximately $20.0 million in two
private equity investment funds. The Company intends to adopt a cash bonus plan
to pay bonuses, after the return of its invested capital, from the proceeds of a
portion of its share of net profits from these investments, if any, to certain
key employees of the Company, subject to the terms and conditions of such plan.
The payment of such bonuses would result in the Company incurring compensation
expense with respect to the amounts so paid. In June 2000, the Company
contributed $500,000 to one of the funds, which is included in Other Assets on
the accompanying Consolidated Balance Sheet as of June 30, 2000. This investment
is being accounted for using the cost method and, accordingly, is being valued
at cost unless a permanent impairment in its value occurs or the investment is
liquidated. The timing and amount of future contributions are entirely within
the discretion of the investment funds.
NOTE 5 - JOINT VENTURE
In April 2000, the Company entered into a one-year joint venture agreement with
Information Resources, Inc. (IRI) to target research offerings to the consumer
packaged goods industry. The joint venture is intended to be an equal sharing of
revenues and expenses. To date, the joint venture has not had a significant
impact on the results of operations of the Company.
NOTE 6 - SEGMENT AND ENTERPRISE WIDE REPORTING
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, 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
7
<PAGE> 8
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 its Executive Team, consisting of its 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.
Foreign assets represented approximately 5% and 2% of total consolidated assets
as of June 30, 2000 and December 31, 1999, respectively.
Net revenues by geographic destination and as a percentage of total revenues are
as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
United States $27,938 $15,563 $50,790 $29,756
United Kingdom 3,430 1,010 6,059 1,968
Europe (excluding United Kingdom) 3,529 1,388 5,983 2,672
Canada 1,577 810 3,040 1,565
Other 1,806 900 3,224 1,639
------- ------- ------- -------
$38,280 $19,671 $69,096 $37,600
======= ======= ======= =======
United States 73% 79% 74% 79%
United Kingdom 9 5 9 5
Europe (excluding United Kingdom) 9 7 9 7
Canada 4 4 4 4
Other 5 5 4 5
------- ------- ------- -------
100% 100% 100% 100%
======= ======= ======= =======
</TABLE>
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
is effective for all periods beginning after June 15, 2000, as amended by SFAS
No. 137 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.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation -- an Interpretation of Accounting
Principles Board (APB), Opinion No. 25. The interpretation clarifies the
application of APB Opinion No. 25 in certain situations, as defined. The
interpretation is effective July 1, 2000, but covers certain events occurring
during the period after December 15, 1998 but before the effective date. To the
extent that events covered by this interpretation occur during the period after
December 15, 1998 but before the effective date, the effects of applying this
interpretation would be recognized on a prospective basis from the effective
date. Accordingly, upon initial application of the final interpretation, (i) no
adjustments would be made to the financial statements for periods before the
effective date and (ii) no expense would be recognized for any additional
compensation cost measured that is attributable to periods before the effective
date. We expect that the adoption of this interpretation would not have any
effect on the accompanying financial statements.
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 core research, dependence on key personnel, the ability to
integrate acquisitions effectively, 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. Unless the context
8
<PAGE> 9
otherwise requires, references in this Quarterly Report to "we", "us", and
"our" refer to Forrester Research, Inc. and our Subsidiaries.
We are a leading independent Internet research firm that conducts
research and analysis on the impact of the Internet and emerging technologies on
business strategy, consumer behavior and society. Our clients, which include
senior management, business strategists and marketing and technology
professionals within large enterprises use our prescriptive, actionable research
to understand and capitalize on the Internet and emerging business models and
technologies.
We derive revenues from memberships to our core research and from our
advisory services and Forum events. We offer contracts for our products and
services that are typically renewable annually and payable in advance.
Accordingly, a substantial portion of our billings are initially recorded as
deferred revenue. Research revenues are recognized pro rata on a monthly basis
over the term of the contract. Our advisory services clients purchase such
services together with memberships to our research. Billings attributable to
advisory services are initially recorded as deferred revenue and recognized as
revenue when performed. Similarly, Forum billings are initially recorded as
deferred revenue and are recognized upon completion of each event.
Our 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 the production and delivery of our 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 our products and services. General and administrative expenses include
the costs of the operations, technology, finance and strategy groups and our
other administrative functions.
We believe that the "agreement value" of contracts to purchase research
and advisory services provides a significant measure of our business volume. We
calculate agreement value as the total revenues recognizable from all research
and advisory service contracts in force at a given time, without regard to how
much revenue has already been recognized. Agreement value increased 85% to
$148.6 million at June 30, 2000 from $80.3 million at June 30, 1999. No single
client accounted for more than 2% of agreement value at June 30, 2000. Our
experience is that a substantial portion of client companies renew expiring
contracts for an equal or higher level of total research and advisory service
fees each year. Approximately 74% of our client companies with memberships
expiring during the twelve-months ended June 30, 2000 renewed one or more
memberships for our products and services. This renewal rate is not necessarily
indicative of the rate of future retention of our revenue base.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage
of total revenues for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
Core research 73% 75% 75% 74%
Advisory services and other 27 25 25 26
--- --- --- ---
Total revenues 100 100 100 100
Cost of services and fulfillment 31 33 30 35
Selling and marketing 37 37 39 36
General and administrative 12 11 12 11
Depreciation and amortization 5 5 5 5
--- --- --- ---
Income from operations 15 14 14 13
Interest income 5 4 5 5
--- --- --- ---
9
<PAGE> 10
Income before income tax provision 20 18 19 18
Provision for income taxes 7 7 7 7
--- --- --- ---
Net income 13% 11% 12% 11%
=== === === ===
THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
REVENUES. Total revenues increased 95% to $38.3 million in the three
months ended June 30, 2000 from $19.7 million in the three months ended June 30,
1999. Revenues from core research increased 90% to $28.0 million in the three
months ended June 30, 2000 from $14.8 million in the three months ended June 30,
1999. Increases in total revenues and revenues from core research were primarily
attributable to an increase in the number of client companies to 2,143 at June
30, 2000 from 1,466 at June 30, 1999, an increase in the sales organization to
215 employees at June 30, 2000 from 130 employees at June 30, 1999, and sales of
additional core research to existing clients. No single client company accounted
for more than 2% of revenues for the three months ended June 30, 2000.
Advisory services and other revenues increased 110% to $10.3 million in
the three months ended June 30, 2000 from $4.9 million in the three months
ended June 30, 1999. This increase was primarily attributable to the demand for
the Partners and Strategy Review Programs, the increase in analyst staff
providing advisory services to 159 at June 30, 2000 from 117 at June 30, 1999,
and the increase in the number of events held to three in the quarter ended
June 30, 2000 from two in the quarter ended June 30, 1999.
Revenues attributable to customers outside the United States increased
152% to $10.3 million in the three months ended June 30, 2000 from $4.1 million
in the three months ended June 30, 1999, and increased as a percentage of total
revenues to 27% for the three months ended June 30, 2000 from 21% for the three
months ended June 30, 1999. The increase in international revenues is
attributable primarily to the continued expansion of our European headquarters
in Amsterdam, the Netherlands, and our UK Research Centre in London, England,
and increases in sales personnel at each location. We invoice our international
clients in U.S. dollars, except for those billed by our UK Research Centre,
which invoices its clients in British Pounds Sterling. To date, the effect of
changes in currency exchange rates has not had a significant impact on our
results of operations.
COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
decreased as a percentage of total revenues to 31% in the three months ended
June 30, 2000 from 33% in the three months ended June 30, 1999. These expenses
increased 82% to $11.7 million in the three months ended June 30, 2000 from $6.4
million in the three months ended June 30, 1999. The decrease in expense as a
percentage of total revenues reflects a larger revenue base in 2000, lower
production costs resulting from the leverage of our eResearch platform, and
increased analyst productivity. The expense increase in the current period
reflects increased analyst staffing and related compensation expense.
SELLING AND MARKETING. Selling and marketing expenses remained constant
as a percentage of total revenues at 37% in the three months ended June 30, 2000
and 1999. These expenses increased 97% to $14.3 million in the three months
ended June 30, 2000 from $7.3 million in the three months ended June 30, 1999.
The increase in expenses was principally due to the addition of direct
salespersons and related commission expense.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased as a percentage of total revenues to 12% in the three months ended
June 30, 2000 from 11% in the three months ended June 30, 1999. These expenses
increased 113% to $4.7 million in the three months ended June 30, 2000 from $2.2
million in the three months ended June 30, 1999. The increase in expenses and
expense as a percentage of revenues were principally due to increased staffing
in our operations, finance and technology groups and related compensation and
recruiting expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 80% to $1.8 million in the three months ended June 30, 2000, from $1.0
million in the three months ended June 30, 1999. The increase in this expense
was principally due to purchases of computer equipment, software and leasehold
improvements to support business growth.
10
<PAGE> 11
OTHER INCOME, NET. Other income, consisting primarily of interest
income, increased 120% to $2.0 million in the three months ended June 30, 2000
from $895,000 in the three months ended June 30, 1999. The increase was due to
additional interest income from higher cash and marketable securities balances
resulting from positive cash flows from operations, proceeds of $22.6 million
from our offering of common stock in February 2000 and $11.9 million from
exercises of stock options by employees during the six months ended June 30,
2000.
PROVISION FOR INCOME TAXES. During the three months ended June 30,
2000, we recorded a tax provision of $2.9 million, reflecting an effective tax
rate of 37.5%. During the three months ended June 30, 1999, we recorded a tax
provision of $1.4 million, reflecting an effective tax rate of 38%. The decrease
in our effective tax rate resulted from a reduction in our effective state tax
rate and an increase in our investments in tax-exempt marketable securities.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Total revenues increased 84% to $69.1 million in the six
months ended June 30, 2000 from $37.6 million in the six months ended June 30,
1999. Revenues from core research increased 87% to $51.8 million in the six
months ended June 30, 2000 from $27.8 million in the six months ended June 30,
1999. Increases in total revenues and revenues from core research were primarily
attributable to an increase in the number of client companies to 2,143 at June
30, 2000 from 1,466 at June 30, 1999, an increase in the sales organization to
215 employees at June 30, 2000 from 130 employees at June 30, 1999, and sales of
additional core research to existing clients. No single client company accounted
for more than 2% of revenues for the six months ended June 30, 2000.
Advisory services and other revenues increased 76% to $17.3 million in
the six months ended June 30, 2000 from $9.8 million in the six months ended
June 30, 1999. This increase was primarily attributable to increased demand for
both the Partners and Strategy Review Programs and Forrester Forum events, and
the increase in analyst staff providing advisory services to 159 at June 30,
2000 from 117 at June 30, 1999, and the increase in number of events held to
five in the period ended June 30, 2000 from four in the period ended June 30,
1999.
Revenues attributable to customers outside the United States increased
133% to $18.3 million in the six months ended June 30, 2000 from $7.8 million in
the six months ended June 30, 1999. Revenues attributable to customers outside
the United States increased to 26% for the six months ended June 30, 2000 from
21% for the six months ended June 30, 1999. The increase in international
revenues is attributable primarily to the continued expansion of our European
headquarters in Amsterdam, the Netherlands, and our UK Research Centre in
London, England, and increases in sales personnel at each location. We invoice
our international clients in U.S. dollars, except for those billed by our UK
Research Centre, which invoices its clients in British Pounds Sterling. To
date, the effect of changes in currency exchange rates has not had a
significant impact on our results of operations.
COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
decreased as a percentage of total revenues to 30% in the six months ended June
30, 2000 from 35% in the six months ended June 30, 1999. These expenses
increased 61% to $21.0 million in the six months ended June 30, 2000 from $13.0
million in the six months ended June 30, 1999. The decrease in expense as a
percentage of total revenues reflects a larger revenue base in 2000, lower
production costs resulting from the leverage of our eResearch platform, and
increased analyst productivity. The expense increase in the current period
reflects increased analyst staffing and related compensation expense.
SELLING AND MARKETING. Selling and marketing expenses increased as a
percentage of total revenues to 39% in the six months ended June 30, 2000 from
36% in the six months ended June 30, 1999. These expenses increased 97% to $26.5
million in the six months ended June 30, 2000 from $13.4 million in the six
months ended June 30, 1999. The increase in expenses and expense as a percentage
of revenues were principally due to the addition of direct salespersons and
related commission expense.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased as a percentage of total revenues to 12% in the six months ended June
30, 2000 from 11% in the six months ended June 30, 1999. These expenses
increased 99% to $8.5 million in the six months ended June 30, 2000 from $4.3
million in the six months ended June 30, 1999. The increase in expenses was
principally due to increased staffing in the Company's operations, finance and
technology groups and related compensation and recruiting expenses.
11
<PAGE> 12
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 66% to $3.2 million in the six months ended June 30, 2000 from $1.9
million in the six months ended June 30, 1999. The increase in this expense was
principally due to purchases of computer equipment, software and leasehold
improvements to support business growth.
OTHER INCOME, NET. Other income, consisting primarily of interest
income, increased 95% to $3.4 million in the six months ended June 30, 2000 from
$1.8 million in the six months ended June 30, 1999. The increase was due to
additional interest income from higher cash and marketable securities balances
resulting from positive cash flows from operations, proceeds of $22.6 million
from our offering of common stock in February 2000 and $11.9 million from
exercises of stock options by employees during the six months ended June 30,
2000.
PROVISION FOR INCOME TAXES. During the six months ended June 30, 2000,
the Company recorded a tax provision of $5.0 million, reflecting an effective
tax rate of 37.5%. During the six months ended June 30, 1999, the Company
recorded a tax provision of $2.5 million, reflecting an effective tax rate of
38%. The decrease in our effective tax rate resulted from a reduction in our
effective state tax rate and an increase in our investments in tax-exempt
marketable securities.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations during these periods primarily through
funds generated from operations. Memberships for core research, which
constituted approximately 73% of our revenues for the three months ended June
30, 2000, are annually renewable and are generally payable in advance. We
generated $46.5 and $12.2 million in cash from operating activities during the
six-month periods ended June 30, 2000 and 1999, respectively.
During the six-month period ended June 30, 2000, we used $67.0 million
of cash in investing activities, consisting of $6.6 million for purchases of
property and equipment and $58.9 million for net purchases of marketable
securities. We regularly invest excess funds in short- and intermediate-term
interest-bearing obligations of investment grade.
During the six-month period ended June 30, 2000, we generated $34.5
million from financing activities, consisting of $22.6 million of net proceeds
from our public offering of common stock and $11.9 million in proceeds from
exercises of employee stock options. As a result of these option exercises
during the six-month period ended June 30, 2000, we will receive a tax benefit
in the form of a tax deduction that will offset approximately $15.5 million of
our taxable income. This tax benefit is reflected as an increase in our
Shareholders' Equity.
As of June 30, 2000, we had cash and cash equivalents of $27.4 million
and $144.3 million in marketable securities. We do not have a line of credit and
do not anticipate the need for one in the foreseeable future. We plan to
continue to introduce new products and services, to open additional offices in
and outside the United States and to invest in our infrastructure over the next
12 months. We believe that our 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.
In June 2000, we committed to invest approximately $20.0 million in two
private equity investment funds. We intend to adopt a cash bonus plan to pay
bonuses, after the return of our invested capital, from the proceeds of a
portion of our share of net profits from these investments, if any, to certain
key employees, subject to the terms and conditions of such plan. The payment of
such bonuses would result in Forrester incurring compensation expense with
respect to the amounts so paid. In June 2000, we contributed $500,000 to one of
the funds, which is included in Other Assets on the accompanying Consolidated
Balance Sheet as of June 30, 2000. This investment is being accounted for using
the cost method and, accordingly, is being valued at cost unless a permanent
impairment in its value occurs or the investment is liquidated. The timing and
amount of future contributions are entirely within the discretion of the
investment funds.
The timing of the recognition of gains from the investment funds, if
any, is beyond our control. As a result, it is not possible to predict when we
will recognize such gains, if any, if we will award cash bonuses based on the
net profit from such investments, or when we will incur compensation expense in
connection with the payment of such bonuses. If the investment funds realize
large returns on their investments, we could experience significant variations
in our quarterly results unrelated to our business operations. These
12
<PAGE> 13
variations could be due to significant gains or to significant compensation
expenses. While gains may offset compensation expenses in a particular quarter,
there can be no assurance that related gains and compensation expenses will
occur in the same quarter.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involve
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates and foreign currency exchange rates. We do
not use derivative financial instruments for speculative or trading purposes.
INTEREST RATE SENSITIVITY. We maintain 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
June 30, 2000, the fair market value of the portfolio would decline by an
immaterial amount. We have the ability to hold our fixed income investments
until maturity. Therefore, we would not expect our operating results or cash
flows to be affected to any significant degree by the effect of a sudden change
in market interest rates on our securities portfolio. The following table
provides information about our investment portfolio. For investment securities,
the table presents principal cash flows and related weighted average interest
rated by expected maturity dates.
Principal amounts by expected maturity in U.S. Dollars (in thousands,
except interest rates):
<TABLE>
<CAPTION>
FAIR VALUE FY 2003
AT JUNE 30, AND
2000 FY 2000 FY 2001 FY 2002 THEREAFTER
<S> <C> <C> <C> <C> <C>
Cash equivalents $ 23,471 $23,471 $ - $ - $ -
Weighted average interest rate 6.39% 6.39% -% -% -%
Investments $144,305 $58,297 $32,741 $24,383 $28,884
Weighted average interest rate 4.79% 4.61% 5.20% 4.91% 4.58%
Total portfolio $167,776 $81,768 $32,741 $24,383 $28,884
Weighted average interest rate 5.01% 5.12% 5.20% 4.91% 4.58%
</TABLE>
FOREIGN CURRENCY EXCHANGE. On a global level, we face 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 our financial results. Historically, our primary exposure had been related to
non-dollar-denominated operating expenses in Europe, Canada, and Asia, where we
sell 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 2000. We have not determined what impact, if any, the Euro
will have on foreign exchange exposure. We are prepared to hedge against
fluctuations the Euro will have on foreign exchange exposure if this exposure
becomes material. As of June 30, 2000, the total assets related to
non-dollar-denominated currencies was approximately $11.8 million.
13
<PAGE> 14
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
The Annual Meeting of Stockholders ("Meeting") was held on May 9, 2000. At such
Meeting, the stockholders elected one (1) Class I Director and two (2) Class III
Directors to the Board of Directors. William M. Bluestein (former Class I
Director) was elected as a Class III Director. Michael H. Welles (former Class
III Director) was elected as a Class I Director. Robert M. Galford was
re-elected as a Class III Director. Below are the votes by which each Director
was elected:
Total Vote For Total Vote Withheld
Director From Director
-------------- -------------------
William M. Bluestein 17,867,891 127,035
Michael H. Welles 17,867,891 127,035
Robert M. Galford 17,867,891 127,035
Henk W. Broeders and George R. Hornig's terms of office as Class II Directors
continued after the Meeting. George F. Colony's term of office as a Class I
Director continued after the Meeting.
At this Meeting, the stockholders also approved an increase in the number of
shares of Common Stock available for issuance under the Company's 1996 Amended
and Restated Equity Incentive Plan from 10.5 million shares to 13.5 million
shares by the following vote:
TOTAL ABSTENTIONS AND
TOTAL VOTE FOR INCREASE TOTAL VOTE AGAINST INCREASE BROKER NON-VOTES
-------------------------------------------------------------------------------
11,137,981 4,870,394 619,585
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.
14
<PAGE> 15
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 and
Chief Executive Officer
Date: August 14, 2000
By: /s/ Susan Whirty Maffei
-------------------------------------
Susan Whirty Maffei
Chief Financial Officer and Vice
President, Operations
(principal financial and
accounting officer)
Date: August 14, 2000
15
