<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, 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, 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 10, 2000, 21,667,982 shares of the registrant's common stock
were outstanding.
<PAGE> 2
FORRESTER RESEARCH, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000 and
December 31, 1999 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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 9
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>
ASSETS
SEPTEMBER 30, DECEMBER 31,
2000 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,535 $ 13,445
Marketable securities 155,913 85,342
Accounts receivable, net 31,897 36,988
Deferred commissions 7,523 4,850
Prepaid income taxes 1,187 1,187
Prepaid expenses and other current assets 5,696 4,142
--------- ---------
Total current assets 236,751 145,954
--------- ---------
Property and equipment, net 19,626 11,619
Deferred income taxes 16,111 --
Other assets 6,768 1,820
--------- ---------
Total assets $ 279,256 $ 159,393
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,660 $ 2,702
Customer deposits 1,319 716
Accrued expenses 24,829 9,447
Accrued income taxes -- 617
Deferred revenue 89,386 66,233
Deferred income taxes -- 873
--------- ---------
Total current liabilities 119,194 80,588
--------- ---------
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--21,630,969 and 19,408,064
shares at September 30, 2000 and December 31, 1999, respectively 216 194
Additional paid-in capital 122,035 54,771
Retained earnings 38,717 24,434
Accumulated other comprehensive income (906) (594)
--------- ---------
Total stockholders' equity 160,062 78,805
--------- ---------
Total liabilities and stockholders' equity $ 279,256 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES:
Core research $ 32,270 $ 17,026 $ 84,039 $ 44,778
Advisory services and other 7,867 4,955 25,194 14,803
-------- -------- -------- --------
Total revenues 40,137 21,981 109,233 59,581
-------- -------- -------- --------
OPERATING EXPENSES:
Cost of services and fulfillment 11,294 6,909 32,262 19,945
Selling and marketing 14,785 7,854 41,322 21,322
General and administrative 4,729 2,504 13,212 6,758
Depreciation and amortization 1,984 973 5,166 2,894
-------- -------- -------- --------
Total operating expenses 32,792 18,240 91,962 50,919
-------- -------- -------- --------
Income from operations 7,345 3,741 17,271 8,662
OTHER INCOME, NET 2,157 864 5,583 2,618
-------- -------- -------- --------
Income before income tax provision 9,502 4,605 22,854 11,280
INCOME TAX PROVISION 3,563 1,750 8,570 4,287
-------- -------- -------- --------
Net income $ 5,939 $ 2,855 $ 14,284 $ 6,993
======== ======== ======== ========
BASIC NET INCOME PER COMMON SHARE $ 0.28 $ 0.16 $ 0.69 $ 0.39
======== ======== ======== ========
DILUTED NET INCOME PER COMMON SHARE $ 0.24 $ 0.14 $ 0.58 $ 0.36
======== ======== ======== ========
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 21,407 18,005 20,750 17,753
======== ======== ======== ========
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 25,075 19,699 24,460 19,376
======== ======== ======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,284 $ 6,993
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization 5,166 2,894
Loss on disposal of property and equipment -- 105
Deferred income taxes 8,570 758
Accretion of premiums on marketable securities (167) (22)
Changes in assets and liabilities-
Accounts receivable, net 4,328 236
Deferred commissions (2,673) (1,876)
Prepaid income taxes -- 291
Prepaid expenses and other current assets (1,455) (2,662)
Accounts payable 1,017 (293)
Customer deposits 580 304
Accrued expenses 15,606 2,852
Accrued income taxes -- 1,306
Deferred revenue 23,376 8,015
--------- ---------
Net cash provided by operating activities 68,632 18,901
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (12,872) (3,806)
Proceeds related to disposals of property and equipment -- 1,056
Purchases of non-marketable investments (5,525) (1,000)
Decrease (increase) in other assets 64 (720)
Purchase of marketable securities (304,568) (360,640)
Proceeds from sales and maturities of marketable securities (234,421) 344,323
--------- ---------
Net cash used in investing activities (88,480) (20,787)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under stock option
plan and employee stock purchase plan 18,446 6,866
Net proceeds from public offering of common stock 22,647 --
--------- ---------
Net cash provided by financing activities 41,093 6,866
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (155) (4)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 21,090 4,976
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,445 10,414
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 34,535 $ 15,390
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Cash paid for income taxes $ -- $ 1,817
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH FLOW ACTIVITIES:
Increase in additional paid-in capital and decrease in accrued
income taxes related to the tax benefit on the exercises on
stock options $ 26,145 $ 2,185
========= =========
</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 September 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
stock 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,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Basic weighted average common shares outstanding 21,407 18,005 20,750 17,753
Weighted average common equivalent shares 3,668 1,694 3,710 1,623
------ ------ ------ ------
Diluted weighted average shares outstanding 25,075 19,699 24,460 19,376
====== ====== ====== ======
</TABLE>
As of September 30, 2000 and 1999, 35,500 and 1,251,000 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, 2000 and 1999 are as follows (in
thousands):
6
<PAGE> 7
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Unrealized gain (loss) on marketable securities,
net of taxes $ 241 $ (52) $ 258 $ (329)
Cumulative translation adjustment (443) (23) (570) (213)
------ ------ ------ ------
Total other comprehensive income $ (202) $ (75) $ (312) $ (542)
====== ====== ====== ======
</TABLE>
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, 2000 and December 31, 1999 was $4.6 million and $3.4 million,
respectively.
NOTE 5 -- NON-MARKETABLE INVESTMENTS
In July 2000, the Company invested $1.6 million to purchase preferred shares of
comScore Networks, Inc. ("comScore"), resulting in approximately a 1.2%
ownership interest. comScore is a provider of infrastructure services which
utilizes proprietary technology to accumulate comprehensive information on
consumer buying behavior. 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 September 30, 2000,
the Company has determined that a permanent impairment has not occurred.
In March 2000, the Company invested $1.0 million to purchase common shares 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
September 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
Doculabs' common shares. 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 purchase documents.
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. In March 2000, the above 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 accrued interest at 10% per annum and was payable
June 30, 2000. In June 2000, 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 which accrued interest at 10%
per annum. On August 25, 2000, in connection with a subsequent round of
financing, the notes were converted into Greenfield common stock. As a result of
these events, the Company effectively owns approxmately a 2.6% ownership
interest in Greenfield. In addition, the Company was issued warrants to purchase
approximately 6,100 shares of Class A common stock of Greenfield at a price per
share of $7.15. The warrants are immediately exercisable and expire on March 3,
2005.
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 September 30, 2000, the Company has determined
that a permanent impairment has not occurred.
7
<PAGE> 8
NOTE 6 -- FORRESTER EMPLOYEE RETENTION FUND
In June 2000, the Company committed to invest approximately $20.0 million in
two private equity investment funds. The Company intends to distribute a
percentage of its investment gains earned and liquidated by the investment funds
to certain key employees of the Company, which would result in the Company
incurring compensation expense with respect to the bonuses to be paid to
employees.
To date, the Company has contributed approximately $3.0 million to the
investment funds, which is included in other assets on the accompanying
consolidated balance sheet as of September 30, 2000. These investments are being
accounted for using the cost method and, accordingly, are being valued at cost
unless a permanent impairment in their value occurs or the investments are
liquidated. As of September 30, 2000, the Company has determined that a
permanent impairment has not occurred.
NOTE 7 -- MARKETING ALLIANCE
In April 2000, the Company entered into a one-year strategic marketing alliance
with Information Resources, Inc. ("IRI"), a data provider to consumer packaged
goods companies, to promote its Netquity(R) product offering. The alliance is
intended to be an equal sharing of revenues and expenses. To date, the alliance
has not had a significant impact on the results of operations of the Company.
NOTE 8 -- SEGMENT AND ENTERPRISE-WIDE REPORTING
Statement of Financial Accounting Standards ("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 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. Foreign assets represented approximately 4% and 2% of total
consolidated assets as of September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
United States $ 30,016 $ 17,078 $ 80,806 $ 46,834
United Kingdom 2,853 1,269 8,911 3,236
Europe (excluding United Kingdom) 3,399 1,699 9,382 4,372
Canada 1,643 859 4,683 2,423
Other 2,226 1,076 5,451 2,716
-------- -------- -------- --------
$ 40,137 $ 21,981 $109,233 $ 59,581
======== ======== ======== ========
United States 75% 78% 74% 79%
United Kingdom 7 6 8 5
Europe (excluding United Kingdom) 8 7 9 7
Canada 4 4 4 4
Other 6 5 5 5
-------- -------- -------- --------
100% 100% 100% 100%
-------- -------- -------- --------
</TABLE>
8
<PAGE> 9
NOTE 9 -- 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, 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. The adoption of this interpretation is not expected to have any
effect on the accompanying financial statements.
NOTE 10 -- ACQUISITION OF FORIT, GmbH
On October 15, 2000, the Company acquired 100% of the outstanding shares of
Forit, GmbH ("Forit") for $15.0 milliion in cash. Forit is a provider of
technology research to companies primarily located in Germany, Switzerland, and
Austria. The acquisition will be accounted for by the purchase method, and the
purchase price will be allocated to the assets acquired and the liabilities
assumed based upon estimated fair values at the date of acquisition.
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, competition, and business and economic
conditions. 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 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 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. Core 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 core research. Billings attributable
9
<PAGE> 10
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 87% to
$167.5 million at September 30, 2000, from $89.8 million at September 30, 1999.
No single client accounted for more than 2% of agreement value at September 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 September 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Core research 80% 77% 77% 75%
Advisory services and other 20 23 23 25
------- ------- ------- -------
Total revenues 100 100 100 100
Cost of services and fulfillment 28 31 29 33
Selling and marketing 37 36 38 36
General and administrative 12 11 12 11
Depreciation and amortization 5 5 5 5
------- ------- ------- -------
Income from operations 18 17 16 15
Other income, net 6 4 5 4
------- ------- ------- -------
Income before income tax provision 24 21 21 19
Provision for income taxes 9 8 8 7
------- ------- ------- -------
Net income 15% 13% 13% 12%
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
REVENUES. Total revenues increased 83% to $40.1 million in the three months
ended September 30, 2000 from $22.0 million in the three months ended September
30, 1999. Revenues from core research increased 90% to $32.3 million in the
three months ended September 30, 2000 from $17.0 million in the three months
ended September 30, 1999. Increases in total revenues and revenues from core
research were primarily attributable to an increase in the number of client
10
<PAGE> 11
companies to 2,283 at September 30, 2000, from 1,558 at September 30, 1999, an
increase in the sales organization to 236 employees at September 30, 2000 from
144 employees at September 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 September 30, 2000.
Advisory services and other revenues increased 59% to $7.9 million in the
three months ended September 30, 2000 from $5.0 million in the three months
ended September 30, 1999. This increase was primarily attributable to increased
demand for the Partner and Strategy Review Programs, the increase in analyst
staff providing advisory services to 180 at September 30, 2000 from 123 at
September 30, 1999, and the increase in the number of events held to two in the
quarter ended September 30, 2000 from one in the three months ended September
30, 1999.
Revenues attributable to customers outside the United States increased 106%
to $10.1 million in the three months ended September 30, 2000 from $4.9 million
in the three months ended September 30, 1999, and increased as a percentage of
total revenues to 25% for the three months ended September 30, 2000 from 22% for
the three months ended September 30, 1999. The increase in international
revenues was primarily attributable to the continued expansion of our European
headquarters in Amsterdam, the Netherlands, and our UK Research Centre in
London, England, and the increase 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 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 28% in the three months ended
September 30, 2000 from 31% in the three months ended September 30, 1999. These
expenses increased 63% to $11.3 million in the three months ended September 30,
2000 from $6.9 million in the three months ended September 30, 1999. The
decrease in expense as a percentage of revenues reflects the larger revenue base
in the current year, proportionally lower costs related to hosting our events,
as well as proportionally 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, as well as increased survey costs related to our
Technographics(R) data research.
SELLING AND MARKETING. Selling and marketing expenses increased as a
percentage of total revenues to 37% in the three months ended September 30, 2000
from 36% in the three months ended September 30, 1999. These expenses increased
88% to $14.8 million in the three months ended September 30, 2000 from $7.9
million in the three months ended September 30, 1999. 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 increased
as a percentage of total revenues to 12% in the three months ended September 30,
2000 from 11% in the three months ended September 30, 1999. These expenses
increased 89% to $4.7 million in the three months ended September 30, 2000 from
$2.5 million in the three months ended September 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 104% to $2.0 million in the three months ended September 30, 2000,
from $973,000 in the three months ended September 30, 1999. 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 150% to $2.2 million in the three months ended September 30, 2000 from
$864,000 in the three months ended September 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 public offering of common stock in February 2000, and $18.4 million
from proceeds of stock option exercises by employees and from our employee stock
purchase plan during the nine months ended September 30, 2000.
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PROVISION FOR INCOME TAXES. During the three months ended September 30,
2000, we recorded a tax provision of $3.6 million, reflecting an effective tax
rate of 37.5%. During the three months ended September 30, 1999, we recorded a
tax provision of $1.8 million, reflecting an effective tax rate of 38.0%. 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.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES. Total revenues increased 83% to $109.2 million in the nine months
ended September 30, 2000 from $59.6 million in the nine months ended September
30, 1999. Revenues from core research increased 88% to $84.0 million in the nine
months ended September 30, 2000 from $44.8 million in the nine months ended
September 30, 1999. Increases in total revenues and revenues from core research
were primarily attributable to an increase in the number of client companies to
2,283 at September 30, 2000 from 1,558 at September 30, 1999, an increase in the
sales organization to 236 employees at September 30, 2000 from 144 employees at
September 30, 1999, and sales of additional core research to existing clients.
No single client company accounted for more than 2% of revenues for the nine
months ended September 30, 2000.
Advisory services and other revenues increased 70% to $25.2 million in the
nine months ended September 30, 2000 from $14.8 million in the nine months ended
September 30, 1999. This increase was primarily attributable to increased demand
for the Partners and Strategy Review Programs and Forrester Forum events, the
increase in analyst staff providing advisory services to 180 at September 30,
2000 from 123 at September 30, 1999, and the increase in the number of events
held to seven in the nine months ended September 30, 2000 from five in the nine
months ended September 30, 1999.
Revenues attributable to customers outside the United States increased 123%
to $28.4 million in the nine months ended September 30, 2000 from $12.7 million
in the nine months ended September 30, 1999. Revenues attributable to customers
outside the United States increased to 26% for the nine months ended September
30, 2000 from 21% in the nine months ended September 30, 1999. The increase in
international revenues was primarily attributable to the continued expansion of
our European headquarters in Amsterdam, the Netherlands, and our UK Research
Centre in London, England, and increase 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 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 29% in the nine months ended
September 30, 2000 from 33% in the nine months ended September 30, 1999. These
expenses increased 62% to $32.3 million in the nine months ended September 30,
2000 from $19.9 million in the nine months ended September 30, 1999. The
decrease in expense as a percentage of revenues reflects the larger revenue base
in the current year, proportionally 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, as well as increased survey costs related to our
Technographics(R) data research.
SELLING AND MARKETING. Selling and marketing expenses increased as a
percentage of total revenues to 38% in the nine months ended September 30, 2000
from 36% in the nine months ended September 30, 1999. These expenses increased
94% to $41.3 million in the nine months ended September 30, 2000 from $21.3
million in the nine months ended September 30, 1999. The increases 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 nine months ended September 30,
2000 from 11% in the nine months ended September 30, 1999. These expenses
increased 96% to $13.2 million in the nine months ended September 30, 2000 from
$6.8 million in the nine months ended September 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 79% to $5.2 million in the nine months ended September 30, 2000 from
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$2.9 million in the nine months ended September 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 to $5.6 million in the nine months ended September 30, 2000 from $2.6
million in the nine months ended September 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 public offering of common stock in February 2000, and $18.4 million
from proceeds of stock option exercises by employees and from our employee stock
purchase plan during the nine months ended September 30, 2000.
PROVISION FOR INCOME TAXES. During the nine months ended September 30,
2000, we recorded a tax provision of $8.6 million, reflecting an effective tax
rate of 37.5%. During the nine months ended September 30, 1999, we recorded a
tax provision of $4.3 million, reflecting an effective tax rate of 38.0%. 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 80% of our revenues for the three months ended
September 30, 2000, are annually renewable and are generally payable in advance.
We generated $68.6 and $18.9 million in cash from operating activities during
the nine-month periods ended September 30, 2000 and 1999, respectively.
During the nine months ended September 30, 2000, we used $88.5 million of
cash in investing activities, consisting of $12.9 million for purchases of
property and equipment and $75.7 million for net purchases of marketable
securities and other non-marketable investments. We regularly invest excess
funds in short- and intermediate-term interest-bearing obligations of investment
grade.
During the nine months ended September 30, 2000, we generated $41.0 million
from financing activities, consisting of $22.6 million of net proceeds from our
public offering of common stock in February 2000, and $18.4 million in proceeds
from exercises of employee stock options and proceeds from our employee stock
purchase plan. As a result of the option exercises during the nine-month period
ended September 30, 2000, we will receive a tax benefit in the form of a tax
deduction that will offset approximately $26.1 million of our taxable income.
This tax benefit is reflected as an increase in additional paid-in capital in
the accompanying balance sheet as of September 30, 2000.
As of September 30, 2000, we had cash and cash equivalents of $34.5 million
and marketable securities of $155.9 million. 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 of 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. To date, we have contributed approximately $3.0
million to the funds, which is included in other assets on the accompanying
consolidated balance sheet as of September 30, 2000. These investments are being
accounted for using the cost method and, accordingly, are being valued at cost
unless a permanent impairment in their value occurs or the investments are
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
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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 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 involves
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 available-for-sale securities are subject to interest rate risk
and will fall in value if market interest rates increase. 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 rates by expected maturity dates.
Principal amounts by expected maturity are as follows (in thousands except
interest rates):
<TABLE>
<CAPTION>
FAIR VALUE AT FY 2003
SEPTEMBER AND
2000 FY 2000 FY 2001 FY 2002 THEREAFTER
<S> <C> <C> <C> <C> <C>
Cash equivalents $ 29,741 $ 29,741 $ -- $ -- $ --
Weighted average interest rate 6.09% 6.09% --% --% --%
Investments $ 155,913 $ 32,246 $ 41,658 $ 44,642 $ 37,367
Weighted average interest rate 5.00% 4.47% 5.44% 5.37% 4.51%
Total portfolio $ 185,684 $ 61,987 $ 41,658 $ 44,642 $ 37,367
Weighted average interest rate 5.18% 5.27% 5.44% 5.37% 4.51%
</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 has 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 attempt to hedge
against fluctuations the euro will have on foreign exchange exposure if this
exposure becomes material. As of September 30, 2000, the assets and liabilities
related to non-dollar-denominated currencies was approximately $12.1 million.
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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.
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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: November 14, 2000
By: /s/ Susan Whirty Maffei
-----------------------------------------------
Susan Whirty Maffei
Chief Financial Officer, Vice President, Operations
(principal financial and accounting officer)
Date: November 14, 2000
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