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| FORR > SEC Filings for FORR > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
savings related to reductions in force and associated actions, risks associated
with our ability to offer new products and services and our dependence on
renewals of our membership-based research services and on key personnel. These
risks are described more completely in our Annual Report on Form 10-K for the
year ended December 31, 2008. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
We derive revenues from memberships to our research product offerings and from
our advisory services and events. We offer contracts for our research products
that are typically renewable annually and payable in advance. Research revenues
are recognized as revenue ratably over the term of the contract. Accordingly, a
substantial portion of our billings are initially recorded as deferred revenue.
Clients purchase advisory services independently and/or to supplement their
memberships to our research. Billings attributable to advisory services are
initially recorded as deferred revenue and are recognized as revenue when the
customer receives the agreed upon deliverable. Event billings are also initially
recorded as deferred revenue and are recognized as revenue upon completion of
each event. Consequently, changes in the number and value of client contracts,
both net decreases as well as net increases, impact our revenues and other
results over a period of several months.
Our primary operating expenses consist of cost of services and fulfillment,
selling and marketing expenses, general and administrative expenses,
depreciation, and amortization of intangible assets. Cost of services and
fulfillment represents the costs associated with the production and delivery of
our products and services, and it includes the costs of salaries, bonuses, and
related benefits for research personnel, non-cash stock-based compensation
expense and all associated editorial, travel, and support services. Selling and
marketing expenses include salaries, sales commissions, employee benefits,
travel expenses, non-cash stock-based compensation expense, promotional costs,
and other costs incurred in marketing and selling our products and services.
General and administrative expenses include the costs of the technology,
operations, finance, and strategy groups and our other administrative functions,
including salaries, bonuses, employee benefits and non-cash stock-based
compensation expense. Overhead costs are allocated over these categories
according to the number of employees in each group. Amortization of intangible
assets represents the cost of amortizing acquired intangible assets such as
customer relationships.
Reorganization costs relate to severance and related benefits costs incurred in
connection with the termination of positions and to lease loss costs.
The Company's results of operations for the three and nine months ended
September 30, 2009 include the operations of JupiterResearch, acquired July 31,
2008. The results of FME's operations have been included in the Company's
results of operations since the date of acquisition, January 22, 2009.
Deferred revenue, agreement value, client retention, dollar retention and
enrichment are metrics we believe are important to understanding our business.
We believe that the amount of deferred revenue, along with the agreement value
of contracts to purchase research and advisory services, provide a significant
measure of our business activity. Deferred revenue reflects billings in advance
of revenue recognition as of the measurement date. We calculate agreement value
as the total revenues recognizable from all research and advisory service
contracts in force at a given time (but not including advisory-only contracts),
without regard to how much revenue has already been recognized. No single client
accounted for more than 2% of agreement value at September 30, 2009 or 2008. We
calculate client retention as the percentage of client companies with
memberships expiring during the most recent twelve-month period who renewed one
or more of those memberships during that same period. We calculate dollar
retention as a percentage of the dollar value of all client membership contracts
renewed during the most recent twelve-month period to the total dollar value of
all client membership contracts that expired during the period. We calculate
enrichment as a percentage of the dollar value of client membership contracts
renewed during the period to the dollar value of the corresponding expiring
contracts. Client retention, dollar retention, and enrichment are not
necessarily indicative of the rate of future retention of our revenue base. A
summary of our key metrics is as follows:
As of
September 30, Absolute Percentage
2009 2008 Decrease Decrease
Deferred Revenue (dollars in millions) $ 93.5 $ 98.1 (4.6 ) (5 )%
Agreement Value (dollars in millions) $ 183.5 $ 216.2 (32.7 ) (15 )%
Client Retention 72 % 77 % (5 ) (6 )%
Dollar Retention 82 % 87 % (5 ) (6 )%
Enrichment 97 % 108 % (11 ) (10 )%
Number of clients 2,505 2,718 (213 ) (8 )%
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The decrease in deferred revenue, agreement value, client retention, dollar
retention, enrichment and the number of clients is reflective of the more
difficult economic environment.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP"). The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our policies and
estimates, including but not limited to, those related to our revenue
recognition, non-cash stock-based compensation, allowance for doubtful accounts,
non-marketable investments, goodwill and other intangible assets, taxes and
valuation and impairment of marketable investments. Management bases its
estimates on historical experience and various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. Our critical
accounting policies and estimates are described in our Annual Report on Form
10-K for the year ended December 31, 2008.
RESULTS OF OPERATIONS
The following table sets forth selected items in our statement of income as a
percentage of total revenues for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2009 2008 2009 2008
Research services 72 % 68 % 68 % 64 %
Advisory services and other 28 32 32 36
Total revenues 100 100 100 100
Cost of services and fulfillment 36 37 37 37
Selling and marketing 34 34 33 34
General and administrative 13 13 12 13
Reorganization costs - - 2 -
Depreciation 2 2 2 2
Amortization of intangible assets 1 - 1 -
Income from operations 14 14 13 14
Other income, net 1 3 1 3
(Impairments) gains from marketable and
non-marketable investments, net (1 ) - (1 ) 1
Net income before income tax provision 14 17 13 18
Income tax provision 6 6 6 7
Net income 8 % 11 % 7 % 11 %
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THREE MONTHS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008
REVENUES.
THREE MONTHS
ENDED Absolute Percentage
SEPTEMBER 30, Increase Increase
2009 2008 (Decrease) (Decrease)
Revenues (in millions) $ 53.9 $ 59.5 $ (5.6 ) (9 )%
Revenues from research services (in
millions) $ 38.9 $ 40.3 $ (1.4 ) (3 )%
Advisory services and other revenues (in
millions) $ 15.0 $ 19.2 $ (4.2 ) (22 )%
Revenues attributable to customers
outside of the United States (in
millions) $ 16.2 $ 16.6 $ (0.4 ) (2 )%
Revenues attributable to customers
outside of the United States as a
percentage of total revenues 30 % 28 % 2 7 %
Number of clients (at end of period) 2,505 2,718 (213 ) (8 )%
Number of research employees (at end of
period) 372 410 (38 ) (9 )%
Number of events 1 2 (1 ) (50 )%
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The decrease in total revenues is principally the result of the global economic slowdown which has resulted in lower client and dollar retention and to a lesser extent the adverse impact of foreign exchange. The decrease in advisory services and other revenues is primarily the result of a softer overall events performance, the global economic slowdown and our objective to drive a higher percentage of our total revenues from research services. In 2008, the Company modified its sales compensation plan for greater alignment with this objective. The decrease in research services is due to the global economic slowdown. The effects of foreign currency translation resulted in an approximately 2% decrease in total revenues in the three months ended September 30, 2009 as compared with the three months ended September 30, 2008. The increase in international revenues as a percentage of total revenues is primarily attributable to revenues declining at a slower rate internationally than in the United States.
No single client company accounted for more than 2% of revenues during the three months ended September 30, 2009 or 2008.
COST OF SERVICES AND FULFILLMENT.
THREE MONTHS ENDED
SEPTEMBER 30, Absolute Percentage
2009 2008 Decrease Decrease
Cost of services and fulfillment (in
millions) $ 19.2 $ 21.8 $ (2.6 ) (12 )%
Cost of services and fulfillment as a
percentage of total revenues 36 % 37 % (1 ) (3 )%
Number of research and fulfillment
employees (at end of period) 449 501 (52 ) (10 )%
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The decrease in cost of services and fulfillment in dollars and as a percentage of total revenues is primarily due to decreased compensation and benefits costs resulting from a decrease in the number of research and fulfillment employees as well as to reduced discretionary expense spending.
SELLING AND MARKETING.
THREE MONTHS ENDED
SEPTEMBER 30, Absolute Percentage
2009 2008 Decrease Decrease
Selling and marketing expenses (in
millions) $ 18.1 $ 20.3 $ (2.2 ) (11 )%
Selling and marketing expenses as a
percentage of total revenues 34 % 34 % - -
Number of selling and marketing employees
(at end of period) 368 415 (47 ) (11 )%
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The decrease in selling and marketing expenses in dollars is primarily due to a decrease in compensation and benefits costs resulting from a decrease in the number of selling and marketing employees as well as to a decrease in sales commissions associated with lower overall performance by sales employees under our sales compensation plan in the three months ended September 30, 2009 as compared with the three months ended September 30, 2008.
GENERAL AND ADMINISTRATIVE.
THREE MONTHS ENDED
SEPTEMBER 30, Absolute Percentage
2009 2008 Decrease Decrease
General and administrative expenses (in
millions) $ 7.1 $ 7.5 $ (0.4 ) (5 )%
General and administrative expenses as a
percentage of total revenues 13 % 13 % - -
Number of general and administrative
employees (at end of period) 143 152 (9 ) (6 )%
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The decrease in general and administrative expenses in dollars is primarily due to a decrease in professional services fees associated with the stock option investigation and restatement of our historical financial statements and other non-recurring expenses incurred in the three months ended September 30, 2008.
DEPRECIATION.
THREE MONTHS ENDED
SEPTEMBER 30, Absolute Percentage
2009 2008 Increase Increase
Depreciation expense (in millions) $ 1.1 $ 1.0 $ 0.1 10 %
Depreciation expense as a percentage of
total revenues 2 % 2 % - -
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The increase in depreciation expense is primarily attributable to purchases of
leasehold improvements in the first quarter of 2009.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets increased
to $439,000 in the three months ended September 30, 2009 from $282,000 in the
three months ended September 30, 2008. The increase in amortization expense is
attributable to the amortization of intangible assets from the acquisitions of
JupiterResearch on July 31, 2008 and Forrester Middle East on January 22, 2009.
OTHER INCOME, NET. Other income, net, consisting primarily of interest income,
decreased to $460,000 in the three months ended September 30, 2009 from
$1.4 million in the three months ended September 30, 2008. The decrease is
primarily due to lower returns on invested capital.
(IMPAIRMENTS) GAINS FROM MARKETABLE AND NON-MARKETABLE INVESTMENTS, NET.
Impairments from non-marketable investments totaled $732,000 for the three
months ended September 30, 2009 due to a write-down in the value of a portfolio
company of one of the private equity investment funds in which the Company has
an interest. Gains on distributions from non-marketable investments totaled
$26,000 in the three months ended September 30, 2008.
PROVISION FOR INCOME TAXES. During the three months ended September 30, 2009, we
recorded an income tax provision of approximately $3.4 million, which reflected
an effective tax rate of 44%. During the three months ended September 30, 2008,
we recorded an income tax provision of approximately $3.7 million, which
reflected an effective tax rate of 37%. The increase in our effective tax rate
for fiscal year 2009 resulted primarily from an increase in valuation allowance
related to capital loss, a decrease in deductions related to disqualifying
dispositions of incentive stock options, and an increase in foreign taxes in
2009 as compared to 2008.
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008
REVENUES.
NINE MONTHS
ENDED Absolute Percentage
SEPTEMBER 30, Increase Increase
2009 2008 (Decrease) (Decrease)
Revenues (in millions) $ 171.9 $ 178.0 $ (6.1 ) (3 )%
Revenues from research services (in
millions) $ 117.0 $ 114.1 $ 2.9 3 %
Advisory services and other revenues (in
millions) $ 54.9 $ 63.8 $ (8.9 ) (14 )%
Revenues attributable to customers
outside of the United States (in
millions) $ 50.4 $ 50.3 $ 0.1 -
Revenues attributable to customers
outside of the United States as a
percentage of total revenues 29 % 28 % 1 4 %
Number of clients (at end of period) 2,505 2,718 (213 ) (8 )%
Number of research employees (at end of
period) 372 410 (38 ) (9 )%
Number of events 10 9 1 11 %
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The decrease in total revenues is principally the result of lower demand for our
advisory and other services as explained further below, and the adverse impact
of foreign exchange. The effects of foreign currency translation resulted in an
approximately 3% decrease in total revenues in the nine months ended
September 30, 2009 as compared with the nine months ended September 30, 2008.
The increase in international revenues in dollars and as a percentage of total
revenues is primarily attributable to revenues declining at a slower rate
internationally than in the United States.
The increase in research services revenues is primarily the result of our
objective to drive a higher percentage of our total revenues from research
services. In 2008, the Company modified its sales compensation plan for greater
alignment with this objective. The increase in research services revenues is
also due to the acquisition of JupiterResearch in July 2008 and is offset by the
adverse impact of foreign exchange.
The decrease in advisory services and other revenues is reflective of a decline
in the demand for our advisory and consulting services, driven by the global
economic slowdown, our objective to drive a higher percentage of our total
revenues from research services, the adverse impact of foreign exchange and a
softer overall events performance.
No single client company accounted for more than 2% of revenues during the nine
months ended September 30, 2009 or 2008.
COST OF SERVICES AND FULFILLMENT.
NINE MONTHS ENDED
SEPTEMBER 30, Absolute Percentage
2009 2008 Decrease Decrease
Cost of services and fulfillment (in
millions) $ 63.3 $ 65.8 $ (2.5 ) (4 )%
Cost of services and fulfillment as a
percentage of total revenues 37 % 37 % - -
Number of research and fulfillment
employees (at end of period) 449 501 (52 ) (10 )%
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The decrease in cost of services and fulfillment in dollars is primarily due to
reduced discretionary expense spending; in particular travel and entertainment
and events related expenses.
SELLING AND MARKETING.
NINE MONTHS ENDED
SEPTEMBER 30, Absolute Percentage
2009 2008 Decrease Decrease
Selling and marketing expenses (in
millions) $ 56.5 $ 60.1 $ (3.6 ) (6 )%
Selling and marketing expenses as a
percentage of total revenues 33 % 34 % (1 ) (3 )%
Number of selling and marketing employees
(at end of period) 368 415 (47 ) (11 )%
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The decrease in selling and marketing expenses in dollars and as a percentage of total revenues is primarily due to a decrease in sales commissions associated with lower sales volume in the nine months ended September 30, 2009 due to the difficult economic environment as well as to reduced discretionary travel and entertainment and events related expenses.
GENERAL AND ADMINISTRATIVE.
NINE MONTHS ENDED
SEPTEMBER 30, Absolute Percentage
2009 2008 Decrease Decrease
General and administrative expenses (in
millions) $ 20.5 $ 22.9 $ (2.4 ) (10 )%
General and administrative expenses as a
percentage of total revenues 12 % 13 % (1 ) (8 )%
Number of general and administrative
employees (at end of period) 143 152 (9 ) (6 )%
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The decrease in general and administrative expenses in dollars and as a
percentage of total revenues is primarily attributable to a decrease in
professional services fees associated with the stock option investigation and
restatement of our historical financial statements as well as to a reduction in
recruiting expenses.
REORGANIZATION COSTS. Reorganization costs of $3.1 million in 2009 primarily
related to severance and related benefits costs incurred in connection with the
termination of approximately 50 positions, and to facility consolidation costs.
DEPRECIATION.
NINE MONTHS ENDED
SEPTEMBER 30, Absolute Percentage
2009 2008 Increase Increase
Depreciation expense (in millions) $ 3.3 $ 3.0 $ 0.3 10 %
Depreciation expense as a percentage of
total revenues 2 % 2 % - -
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The increase in depreciation expense is primarily attributable to purchases of
leasehold improvements in the first quarter of 2009.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets increased
to $1.8 million in the nine months ended September 30, 2009 from $476,000 in the
nine months ended September 30, 2008. The increase in amortization expense is
attributable to the amortization of intangible assets from the acquisitions of
JupiterResearch on July 31, 2008 and Forrester Middle East on January 22, 2009.
OTHER INCOME, NET. Other income, net, consisting primarily of interest income,
decreased to approximately $2.2 million in the nine months ended September 30,
. . .
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