Analyst Perspectives

Forrester Research’s Third-Quarter and Nine-Month Financial Results

Forrester announced their third-quarter and nine-month financial results on October 29, 2009. Total revenue for the quarter were off $5.6 million from the third quarter of last year and net income declined $2.1 million (a 30% decline). For the first nine months, total revenue was down $6.1 million and net income declined $7 million (a 34.8% decline).

Despite the showing, George F. Colony, Forrester's chairman of the board and chief executive officer stated "Given the sluggish economy, we are pleased with Forrester's third-quarter performance. Deferred revenue was down at September 30, 2009, as expected; but client and dollar retention increased from last quarter, and our pro forma net income indicates that our expense control efforts are working. Overall, our results exceeded our guidance. As a result we are tightening our revenue range and raising our pro forma operating margin and diluted earnings per share guidance for the full year of 2009."

Looking ahead, Forrester provided new guidance for the fourth quarter and full-year:

Fourth Quarter 2009 (GAAP)

• Total revenues of approximately $58 million to $61 million.
• Operating margin of approximately 13% to 15%.
• Other income of approximately $500,000.
• An effective tax rate of 40 percent.

Full-Year 2009 (GAAP):

• Total revenues of approximately $230 million to $233 million.
• Operating margin of approximately 13% to 14%.
• Other income of approximately $2.7 million.
• An effective tax rate of 44 percent.
• Diluted earnings per share of approximately $0.80 to $0.87.

I had the opportunity to listen to their earning report the morning of the 29th. Here are some other interesting bits gathered from the presentations:

• 3^rd quarter research services declined 4% and accounted for 68% of total revenue
• 3^rd quarter demand for consulting declined 20%.
• Leadeship board – over 1,000 members
• Events business challenging but profitable for the remainder of the year.
• Contract Value - $183 million – a 15% decline
• Retention rate – up 1% to 72%
• 2512 clients – first increase in client count since Q3 2008
• Customers remain cautious – renewing at lower levels
• Headcount – 960 - down from 974 end of second quarter. 372 research, 315 sales

Nine months:

• Research services increased as a percentage of total revenue – a goal for the firm
• Cash on hand - $208 million – no debt
• Accounts receivable payments improving – less payments beyond 90 days

George Colony comments:

• Economy – The US economy is stabilizing and showing signs of turnaround. Europe is about 6 months behind in turnaround.
• Customers are “cautiously optimistic”.
• Tech Market will grow by 4% in 2010.
• Marketing spending – large companies will reduce budget by 20% in 2009. CMO is in full-blown cost-cutting mode, but spending on new channels is increasing
• Marketing and IT spending will increase modestly in 2010. Don’t expect return to 2008 levels until 2011.
• Forrester’s goal is to increase syndicated research revenue to 70% of total revenue
• Goal has been to keep Forrester’s headcount flat, but will be hiring 10-20 new sales people in the fourth quarter to get a jump on next year’s revenue goals.
• Role-based transition. Events now targeted at roles. As a result, attendance down but satisfaction increasing – up by 8% this year
• Continuing to focus on vertical markets. Key verticals for Forrester include:
• • Financial Services
  • Media & Entertainment
  • Consumer Products
  • Retail
  • Government>
  • Travel
  • Healthcare
  • Manufacturing
• Forrester’s team that is evaluating mergers and acquisitions is very busy. Forrester attributes this to two major reasons:
• • Economy – Financial stress is making companies more willing to deal. Some smaller firms are “running out of cash”.
  • Potential sellers are concerned that US capital gains taxes will increase in 2010, so they are more interested in trying to conclude a deal in 2009.

From the Q&A session:

• 40% of Forrester’s business activity is in fourth quarter>
• Competitive environment – A lot more stress on smaller players. At Gartner and CEB its been “business as usual for the quarter”.

To read the entire earning release, use this link.

To listen to the earnings announcement teleconference, use this link

Forrester Research To Broadcast Third-Quarter Earnings Conference Call Via Internet

Forrester Research, Inc. will broadcast its third-quarter results conference call on the Web at 11:00 a.m. Eastern time on Thursday, October 29, 2009.

The call will be available at www.forrester.com. Investors who want to hear the call should log in to www.forrester.com at least 15 minutes prior to the event's broadcast. Participants may preregister for the call at https://www.theconferencingservice.com/prereg/key.process?key=PAD3HA7TL

Gartner's Magic Quadrant in court

There is a very interesting blog post by Alex Handy on the SD (Software Development) Times web site. The post talks about a lawsuit brought by ZL Technologies against Gartner, claiming that Gartner only included its clients in its Magic Quadrants. The blogger gives a fairly balanced view of the issue, and it’s definitely worth a read.

Another new post on the same subject by Michael Krigsman at ZDNet - Gartner Magic Quadrant lawsuit: Sour grapes or real gripes?

Editor’s note: I personally do not believe that Gartner only includes its clients in the Magic Quadrants. Since being included in a Magic Quadrant is based in part on a company’s ability to execute and support a solution, it will always tend to favor large, well established companies (exactly the type of companies that make up a large portion of Gartner’s customer base). Maybe it’s time for Gartner to come up with a variation on the Magic Quadrant that features up-and-coming firms. This would help the smaller firms and quell some of the incessant debate about Gartner playing favorites…

Gartner analyst rants about his “integrity as an analyst”

Kudos to Gartner, Inc. (NYSE:IT), analyst Thomas Bittman who starts off his October 8^th blog post with “As an analyst at Gartner, I can’t describe how angry I get when I read bloggers spouting as “fact” their opinion that I and my teammates have no integrity. That we can be “bought.” In my 14+ years at Gartner, I have never, ever allowed a vendor to influence my opinion with anything but facts. Period. They have certainly tried to influence me with non-facts. I can say this definitively – it has never worked.”

Thomas’ “Rant” as he calls it is terrific – and much more believable than official statements from Gartner’s “Office of the Ombudsman” (nothing against the Office – I know it serves a valuable purpose). I believe that we need more analysts to step-up and clearly state as individuals that they “can’t be bought”. I particularly liked Thomas’s statement that “at Gartner, getting yelled at by a CEO is a badge of honor. Being proven right as time goes on – priceless.”

To read Thomas’ entire well-written and passionate post, use this link.

Gartner to Report Third Quarter 2009 Financial Results on October 30, 2009

Gartner, Inc. (NYSE:IT), will provide a webcast of its conference call to discuss its news release regarding the Company’s financial results for the third quarter 2009, which will be issued before the market opens on Friday, October 30, 2009.

The call and webcast are scheduled to begin at 10:00 a.m. eastern time on Friday, October 30, 2009. Listeners can access the webcast live on the Internet at http://investor.gartner.com

A replay of the webcast will be available for approximately 90 days following the call.

Why Do They Leave Forrester?

An interesting blog posts that looks at the top talent that has been leaving Forrester, including Ray Wang, Charlene Li, and most recently, Jeremiah Owyang. The article discusses how top talents “create their own brands”, and this makes it difficult to retain them.

Click here to read this post.

To read more about Jeremiah Owyang’s departure, click here.

A great related article “Why Jeremiah Owyang Is Leaving Forrester Research”, written by Marshall Kirkpatrick on August 21, 2009 for Read Write Web.

And yet another post on Owyang’s departure at The Enterprise System Spectator blog.

Gartner hype cycle v2.0 and analyst predictions

Gartner/analyst humor from the Technobble 2.0. blog….

Click on this link to view the cartoons.

Gartner’s Hype Cycle Indicators

You’ve probably heard about Gartner Hype Cycle – but do you know what it is? Check out this chart that shows the Hype Cycle Indicators.

Gartner Tells Reporter: You're Not Allowed To Mention Gartner Research Without Our Permission

Interesting post from the High Tech Dirt web site on Gartner efforts to strictly control their research findings.

Click on this link to read the post.

Further related postings available here…

Forrester Research Reports First Quarter Financial Results

Forrester Research, Inc. (Nasdaq: FORR) recently announced its first-quarter ended March 31, 2009 financial results. Here is the narrative portion of the press release:

First-Quarter Financial Performance

• Total revenues were $56.4 million, compared with $55.0 million for the first quarter of last year.
• On a GAAP-reported basis, Forrester reported net income of $2.6 million, or $0.11 per diluted share, compared with net income of $5.0 million, or $0.21 per diluted share, for the same period last year.
• On a pro forma basis, net income was $6.3 million, or $0.27 per diluted share, for the first quarter of 2009, which reflects a pro forma effective tax rate of 40 percent. Pro forma net income excludes stock-based compensation of $2.2 million, amortization of $656,000 of acquisition-related intangible assets, and $3.1 million of reorganization costs. This compares with pro forma net income of $6.2 million, or $0.26 per diluted share, for the same period in 2008, which reflects a pro forma effective tax rate of 39 percent. Pro forma net income for the first quarter of 2008 excludes stock-based compensation of $1.4 million, amortization of $171,000 of acquisition-related intangible assets, marketable and non-marketable investment gains of $497,000, and a net benefit of $68,000 related to the settlement of stock-option-related payroll tax exposure offset by professional fees related to the stock option investigation and restatement of the Company’s historical financial statements.

“As demonstrated by our first-quarter financial performance, we are weathering the current recession and managing the business accordingly,” said George F. Colony, Forrester’s chairman of the board and chief executive officer. “Based on our deferred revenue model, we should expect that the current softness in the market today will result in a delayed impact on our revenue later in the year. As a result while we exceeded our revenue guidance for the first quarter, we are reiterating our full-year guidance.”

Forrester is providing second-quarter 2009 financial guidance as follows:

Second-Quarter 2009 (GAAP):

• Total revenues of approximately $60 million to $63 million.
• Operating margin of approximately 16 percent to 18 percent.
• Other income of approximately $800,000.
• An effective tax rate of 40 percent.
• Diluted earnings per share of approximately $0.27 to $0.31.

Second-Quarter 2009 (Pro Forma):

Pro forma financial guidance for the second quarter of 2009 excludes amortization of acquisition-related intangible assets of approximately $700,000, stock-based compensation expense of $1.2 million to $1.7 million, and any gains or impairment charges related to marketable and non-marketable investments.

• Pro forma operating margin of approximately 19 percent to 21 percent.
• Pro forma effective tax rate of 40 percent.
• Pro forma diluted earnings per share of approximately $0.33 to $0.37.

Forrester is reiterating full-year 2009 guidance as follows:

Full-Year 2009 (GAAP):

• Total revenues of approximately $215 million to $235 million.
• Operating margin of approximately 10 percent to 13 percent.
• Other income of approximately $3.0 million.
• An effective tax rate of 40 percent.
• Diluted earnings per share of approximately $0.64 to $0.84.

Full-Year 2009 (Pro Forma):

Pro forma financial guidance for full-year 2009 excludes stock-based compensation expense of $5 million to $6 million, reorganization costs of $3.1 million, amortization of acquisition-related intangible assets of approximately $2.0 million, and any gains or impairment charges related to marketable and non-marketable investments.

• Pro forma operating margin of approximately 15 percent to 17 percent.
• Pro forma diluted earnings per share of approximately $0.88 to $ 1.11.
• An effective tax rate of 40 percent.

Forrester also announced today that its board of directors has authorized the repurchase of up to an additional $50 million of its common stock. The shares may be purchased from time to time in open market or privately negotiated transactions. The shares purchased will be used, among other things, for Forrester’s employee and director stock plans. As of March 31, 2009, Forrester had approximately 23,054,000 shares outstanding.

Click Here to view the entire release including detailed financials.