Forrester Research (FORR) 8-K Forrester Research Reports Fourth-Quarter And Full-Year 2005 Financial Results

Exhibit 99.1
 

FOR IMMEDIATE RELEASE

Forrester Research Reports Fourth-Quarter And Full-Year 2005 Financial Results

CAMBRIDGE, Mass., February 1, 2006 . . . Forrester Research, Inc. (Nasdaq: FORR) today announced its fourth-quarter and full-year 2005 financial results.

Fourth-Quarter Financial Performance

• Total revenues increased 9 percent to $41.2 million, compared with $38.0 million for the fourth quarter of last year.

• On a GAAP-reported basis, which reflects an effective tax rate of 37 percent, Forrester reported net income of $3.6 million or $0.16 per diluted share, compared with net income of $3.5 million, or $0.16 per diluted share, for the same period last year.

• On a pro forma basis, net income was $4.8 million or $0.22 per diluted share, for the fourth quarter of 2005, which excludes amortization of $782,000 of acquisition-related intangible assets, non-cash stock-based compensation expense of $537,000, and net realized losses and impairments of non-marketable investments of $326,000 and reflects a pro forma effective tax rate of 35 percent. This compares with pro forma net income of $3.9 million, or $0.18 per diluted share, for the same period in 2004, which excludes amortization of $1.3 million of acquisition-related intangible assets, a reversal of reorganization costs of $355,000, and net marketable and non-marketable investment gains of $305,000, and reflects a pro forma effective tax rate of 35 percent.

Full-Year 2005 Financial Performance

• Total revenues increased 11 percent to $153.2 million, compared with $138.5 million for 2004.

• On a GAAP-reported basis, which reflects an effective tax rate of 41 percent, Forrester reported net income of $11.3 million, or $0.52 per diluted share for 2005, compared to net income of $4.1 million or $0.18 per diluted share for 2004.

• On a pro forma basis, net income was $14.8 million or $0.68 per diluted share for 2005, which excludes amortization of $3.5 million of acquisition-related intangible assets, non-cash stock-based compensation expense of $1.6 million, net marketable and non-marketable investment gains and impairments of $1.7 million, and reflects a pro forma effective tax rate of 35 percent. This compares with pro forma net income of $12.8 million, or $0.57 per diluted share for the same period last year, which excludes amortization of $6.5 million of acquisition-related intangible assets, reorganization costs of $8.4 million primarily due to office space consolidations, and net marketable and non-marketable investment gains of $1.4 million, and reflects a pro forma effective tax rate of 35 percent.

A reconciliation of GAAP results to pro forma results may be found in the attached financial tables.

“Forrester’s financial performance made important gains in 2005,” said George F. Colony, chairman of the board and chief executive officer. “Full-year revenues grew 11 percent, marking the first organic double-digit growth rate for the company since 2000. Cash flows from operations increased 33 percent to $23.9 million for 2005. Client and dollar retention rates remained high at 78 percent and 87 percent respectively.”

“During the past year, Forrester made progress on its goal to stabilize and increase sales of its core research product, WholeView 2^™,” said Colony. “In addition, we posted healthy growth in other products including consulting, data, and Forrester Leadership Boards, formerly known as the Forrester Oval Program. In 2006, we will maintain our primary focus to drive sales of syndicated products, particularly WholeView 2.”

Forrester is providing first-quarter 2006 financial guidance as follows:

First-Quarter 2006 (GAAP):
GAAP financial guidance includes an estimate of $2.0 million to $3.0 million in non-cash stock-based compensation expense related to the adoption of SFAS 123R, Share-Based Payment, and its related estimated impact on the effective tax rate.

• Total revenues of approximately $38.0 million to $40.0 million.

• Operating margin of approximately 1 percent to 3 percent.

• Other income of approximately $800,000.

• An effective tax rate of 44 percent.

• Diluted earnings per share of approximately $0.02 to $0.06.

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Forrester Fourth-Quarter Fiscal 2005 Results / Page 2

First-Quarter 2006 (Pro Forma):
Pro forma financial guidance for the first quarter of 2006 excludes amortization of acquisition-related intangible assets of approximately $700,000, non-cash stock-based compensation expense of approximately $2.0 million to $3.0 million, and does not include any estimate of gains or impairment charges related to non-marketable investments.

• Pro forma operating margin of approximately 9 percent to 10 percent.

• Pro forma effective tax rate of 37 percent.

• Pro forma diluted earnings per share of approximately $0.12 to $0.14.

Forrester is providing full-year 2006 guidance as follows:

Full-Year 2006 (GAAP):
GAAP financial guidance includes an estimate of $8.0 million to $10.0 million in non-cash stock-based compensation expense related to the adoption of SFAS 123R, Share-Based Payment, and its related estimated impact on the effective tax rate. The Company continues to review the impact of SFAS 123R and intends to update guidance when more precise data is available.

• Total revenues of approximately $175.0 million to $180.0 million.

• Operating margin of approximately 7 percent to 9 percent.

• Other income of approximately $3.2 million.

• An effective tax rate of 44 percent.

• Diluted earnings per share of approximately $0.46 to $0.54.

Full-Year 2006(Pro Forma):
Pro forma financial guidance for full-year 2006 excludes amortization of acquisition-related intangible assets of approximately $2.1 million, non-cash stock-based compensation expense of approximately $8.0 million to $10.0 million, and does not include any estimate of gains or impairment charges related to non-marketable investments.

• Pro forma operating margin of approximately 14 percent to 15 percent.

• Pro forma diluted earnings per share of approximately $0.80 to $0.86.

• An effective tax rate of 37 percent.

Forrester Research (Nasdaq: FORR) is an independent technology and market research company that provides pragmatic and forward-thinking advice about technology’s impact on business and consumers. For 22 years, Forrester has been a thought leader and trusted advisor, helping global clients lead in their markets through its research, consulting, events, and peer-to-peer executive programs. For more information, visit www.forrester.com.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, Forrester’s financial and operating targets for the first quarter of and full-year 2006. These statements are based on Forrester’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 future activities and results to differ include, among others, Forrester’s ability to anticipate business and economic conditions, technology spending, market trends, competition, industry consolidation, the ability to attract and retain professional staff, possible variations in Forrester’s quarterly operating results, risks associated with Forrester’s ability to offer new products and services, and Forrester’s dependence on renewals of its membership-based research services and on key personnel. Forrester undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. For further information, please refer to Forrester’s reports and filings with the Securities and Exchange Commission.

The consolidated statements of income, consolidated balance sheets, and consolidated statements of cash flows are attached.

Kimberly Maxwell	Karyl Levinson
Director, Investor Relations	Director, Corporate Communications
Forrester Research, Inc.	Forrester Research, Inc.
+1 617/613-6234	+1 617/613-6262
kmaxwell@forrester.com	press@forrester.com

^© 2006, Forrester Research, Inc. All rights reserved. Forrester and Forrester Oval Program are trademarks of Forrester Research, Inc.

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Forrester Fourth-Quarter Fiscal 2005 Results / Page 4  

Forrester Research, Inc.

Consolidated Statements of Income

(In thousands, except per share data)

	Three months ended						Year ended
	December 31,						December 31,
	2005			2004			2005			2004
	(Unaudited)
Revenues
Research services	$	26,095		$	24,768		$	98,298		$	94,347
Advisory services and other		15,081			13,182			54,931			44,132
Total revenues		41,176			37,950			153,229			138,479
Operating expenses
Cost of services and fulfillment		15,950			13,905			61,598			54,687
Selling and marketing		13,350			13,166			50,814			46,867
General and administrative		4,417			4,677			17,539			16,364
Depreciation		925			890			3,539			3,691
Amortization of intangible assets		782			1,349			3,527			6,461
Non-cash stock-based compensation expense		537			—			1,556			—
Reorganization costs		—			(355	)		—			8,396
Total operating expenses		35,961			33,632			138,573			136,466
Income from operations		5,215			4,318			14,656			2,013
Other income, net		799			699			3,027			2,867
Realized (losses) gains on sales of securities and non-marketable investments		(162	)		305			1,859			1,353
Impairments of non-marketable investments		(164	)		—			(164	)		—
Income before income taxes		5,688			5,322			19,378			6,233
Income tax provision		2,094			1,796			8,030			2,101
Net income	$	3,594		$	3,526		$	11,348		$	4,132
Diluted income per share	$	0.16		$	0.16		$	0.52		$	0.18
Diluted weighted average shares outstanding		21,912			22,040			21,883			22,442
Basic income per share	$	0.17		$	0.16		$	0.53		$	0.19
Basic weighted average shares outstanding		21,246			21,814			21,413			22,024
Pro forma data (1):
Income from operations	$	5,215		$	4,318		$	14,656		$	2,013
Amortization of intangible assets		782			1,349			3,527			6,461
Non-cash stock-based compensation		537			—			1,556			—
Reorganization costs		—			(355	)		—			8,396
Pro forma income from operations		6,534			5,312			19,739			16,870
Other income, net		799			699			3,027			2,867
Pro forma income before income taxes		7,333			6,011			22,766			19,737
Pro forma income tax provision		2,567			2,104			7,968			6,908
Pro forma net income	$	4,766		$	3,907		$	14,798		$	12,829
Pro forma diluted earnings per share	$	0.22		$	0.18		$	0.68		$	0.57
Diluted weighted average shares outstanding		21,912			22,040			21,883			22,442

Forrester believes that pro forma financial results provide investors with consistent and comparable information to aid in the understanding of Forrester’s ongoing business. Our pro forma presentation excludes amortization of intangibles, non-cash stock-based compensation, reorganization costs, and impairments of non-marketable securities and gains from sales of marketable securities as well as their related tax effects. This does not purport to be prepared in accordance with Generally Accepted Accounting Principles

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Forrester Fourth-Quarter Fiscal 2005 Results / Page 5  

Forrester Research, Inc.

Consolidated Balance Sheets

(In thousands)

	December 31,			December 31,
	2005			2004
Assets:
Cash and cash equivalents	$	48,538		$	37,328
Marketable securities		83,730			90,112
Accounts receivable, net		52,177			39,210
Deferred commissions		8,940			6,834
Prepaid expenses and other current assets		5,126			5,509
Total current assets		198,511			178,993
Property and equipment, net		5,771			6,410
Goodwill, net		53,034			52,875
Intangible assets, net		3,530			6,992
Deferred income taxes		36,941			42,860
Non-marketable investments and other assets		13,915			14,742
Total assets	$	311,702		$	302,872
Liabilities and stockholders’ equity:
Accounts payable	$	1,716		$	3,741
Accrued expenses		24,569			26,928
Deferred revenue		86,663			72,357
Total liabilities		112,948			103,026
Preferred stock		—			—
Common stock		254			247
Additional paid-in capital		192,206			180,310
Retained earnings		82,425			71,077
Treasury stock, at cost		(73,527	)		(50,056	)
Accumulated other comprehensive loss		(2,604	)		(1,732	)
Total stockholders’ equity		198,754			199,846
Total liabilities and stockholders’ equity	$	311,702		$	302,872

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Forrester Fourth-Quarter Fiscal 2005 Results / Page 6  

Forrester Research, Inc.

Consolidated Statements of Cash Flows

(In thousands)

	Year ended December 31,
	2005			2004
Cash flows from operations:
Net income	$	11,348		$	4,132
Adjustments to reconcile net income to net cash provided by operating activities –
Depreciation		3,539			3,691
Amortization of intangible assets		3,527			6,461
(Gains) impairments of non-marketable investments		(206	)		(281	)
Realized gain on sale of securities		(1,489	)		(1,072	)
Tax benefit from stock options		1,375			411
Deferred income taxes		5,261			(158	)
Non-cash stock-based compensation expense		1,556			—
Non-cash reorganization costs		—			1,844
Increase in provision for doubtful accounts		100			309
Accretion of premiums on marketable securities		1,080			924
Changes in assets and liabilities, net of acquisition –
Accounts receivable		(14,444	)		1,283
Deferred commissions		(2,108	)		(835	)
Prepaid expenses and other current assets		117			1,763
Accounts payable		(2,057	)		1,152
Accrued expenses		(400	)		(3,850	)
Deferred revenue		16,733			2,232
Net cash provided by operating activities		23,932			18,006
Cash flows from investing activities:
Purchases of property and equipment		(3,012	)		(3,664	)
Purchase of non-marketable investments		(700	)		(3,613	)
Proceeds from non-marketable investments		741			—
Decrease in other assets		995			1,081
Purchase of marketable securities		(260,362	)		(161,344	)
Proceeds from sales and maturities of marketable securities		264,626			176,509
Net cash provided by investing activities		2,288			8,969
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock option plans and employee stock purchase plan		8,963			5,279
Acquisition of treasury shares		(23,474	)		(17,756	)
Structured stock repurchase		—			54
Net cash used in financing activities		(14,511	)		(12,423	)
Effect of exchange rate changes on cash and cash equivalents		(499	)		391
Net increase in cash and cash equivalents		11,210			14,943
Cash and cash equivalents, beginning of period		37,328			22,385
Cash and cash equivalents, end of period	$	48,538		$	37,328

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