Forrester Research (FORR) 8-K Forrester Research Reports Second-Quarter 2006 Financial Results

FOR IMMEDIATE RELEASE
 

Forrester Research Reports Second-Quarter 2006 Financial Results
 

CAMBRIDGE, Mass., July 26, 2006 . . . Forrester Research, Inc. (Nasdaq: FORR) today announced its second-quarter ended June 30, 2006 financial results.

Second-Quarter Financial Performance

• Total revenues were $48.5 million, compared with $39.2 million for the second quarter of last year.

• On a GAAP-reported basis, which reflects an effective tax rate of 46 percent, Forrester reported net income of $3.9 million or $0.17 per diluted share, compared with net income of $2.5 million, or $0.11 per diluted share for the same period last year.

• On a pro forma basis, net income was $5.9 million or $0.26 per diluted share for the second quarter of 2006, which excludes amortization of $472,000 of acquisition-related intangible assets, non-cash stock-based compensation expense of $1.8 million, net non-marketable investment gains of $8,000, and which reflects a pro forma effective tax rate of 37 percent. This compares with pro forma net income of $3.4 million, or $0.15 per diluted share, for the same period in 2005, which excludes amortization of $833,000 of acquisition-related intangible assets, non-cash stock-based compensation expense of $290,000 and non-marketable investment gains of $112,000, and which reflects a pro forma effective tax rate of 35 percent.

Six-Month Period Ended June 30, 2006 Financial Performance

• Total revenues were $89.7 million, compared with $73.0 million for the same period last year.

• On a GAAP-reported basis, which reflects an effective tax rate of 48 percent, Forrester reported net income of $5.4 million, or $0.24 per diluted share for the six months ended June 30, 2006, compared with net income of $5.2 million or $0.24 per diluted share for the same period last year.

• On a pro forma basis, net income was $9.2 million or $0.41 per diluted share, for the six months ended June 30, 2006, which excludes amortization of $1.1 million of acquisition-related intangible assets, non-cash stock-based compensation expense of $3.5 million, non-marketable investment gains of $207,000, and which reflects a pro forma effective tax rate of 37 percent. This compares with pro forma net income of $5.9 million, or $0.27 per diluted share for the same period last year, which excludes amortization of $2.0 million of acquisition-related intangible assets, non-cash stock-based compensation expense of $290,000, non-marketable investment gains of $1.8 million, and which 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 second quarter exceeded expectations for revenue, operating profit, and EPS due to three sold-out events in the quarter and the strengthening of our syndicated sales in the past three quarters,” said George F. Colony, chairman of the board and chief executive officer. “As we look forward to the second half of the year, we remain cautiously optimistic about the business and are pleased with our progress, particularly with the role-focused Forrester Leadership Boards. As a result of our financial performance in the first half of the year, we are raising our guidance today for the full year.”

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

Third-Quarter 2006 (GAAP):

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Forrester Second-Quarter Fiscal 2006 Results/Page 2  

• Total revenues of approximately $44.0 million to $46.0 million.

• Operating margin of approximately 9 percent to 11 percent.

• Other income of approximately $1.5 million.

• An effective tax rate of approximately 50 percent.

• Diluted weighted average shares outstanding of approximately 23.5 million.

• Diluted earnings per share of approximately $0.13 to $0.16.

Third-Quarter 2006 (Pro Forma):
Pro forma financial guidance for the third quarter of 2006 excludes amortization of acquisition-related intangible assets of approximately $500,000, non-cash stock-based compensation expense of approximately $2.0 million to $2.5 million, and any gains or impairment charges related to non-marketable investments.

• Pro forma operating margin of approximately 14 percent to 16 percent.

• Pro forma effective tax rate of 37 percent.

• Pro forma diluted earnings per share of approximately $0.21 to $0.23.

Forrester is revising full-year 2006 guidance as follows:

Full-Year 2006 (GAAP):

• Total revenues of approximately $182 million to $187 million.

• Operating margin of approximately 8 percent to 10 percent.

• Other income of approximately $5 million.

• An effective tax rate of approximately 50 percent.

• Diluted weighted average shares outstanding of approximately 23 million.

• Diluted earnings per share of approximately $0.48 to $0.59.

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 $7.0 million to $9.0 million, and any gains or impairment charges related to non-marketable investments.

• Pro forma operating margin of approximately 15 percent.

• Pro forma diluted earnings per share of approximately $0.86 to $0.92.

• 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 23 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 third quarter of and full-year 2006, statements about the potential success of product offerings, and the ability of Forrester to achieve success in the current economy. 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

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Forrester Second-Quarter Fiscal 2006 Results/Page 3  

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.

Warren Hadley	Karyl Levinson
Chief Financial Officer	Vice President, Corporate Communications
Forrester Research, Inc.	Forrester Research, Inc.
+1 617/613-5886	+1 617/613-6262
whadley@forrester.com	press@forrester.com

^© 2006, Forrester Research, Inc. All rights reserved. Forrester is a trademark of Forrester Research, Inc.

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Forrester Second-Quarter Fiscal 2006 Results/Page 4  

Forrester Research, Inc.
Consolidated Statements of Income

(In thousands, except per share data)  

	Three months ended				Six months ended
	June 30,				June 30,
	2006		2005		2006		2005
	(Unaudited)				(Unaudited)
Revenues
Research services	$	28,323	$	23,847	$	55,526	$	47,216
Advisory services and other		20,161		15,399		34,155		25,812
Total revenues		48,484		39,246		89,681		73,028
Operating expenses
Cost of services and fulfillment		20,282		16,673		37,909		30,450
Selling and marketing		15,442		13,065		29,987		24,967
General and administrative		5,526		4,484		11,126		8,518
Depreciation		916		882		1,800		1,756
Amortization of intangible assets		472		833		1,124		1,956
Total operating expenses		42,638		35,937		81,946		67,647
Income from operations		5,846		3,309		7,735		5,381
Other income, net		1,326		754		2,277		1,504
Realized gains on sales of securities and non-marketable investments, net		8		112		207		1,780
Income before income taxes		7,180		4,175		10,219		8,665
Income tax provision		3,330		1,718		4,856		3,469
Net income	$	3,850	$	2,457	$	5,363	$	5,196
Diluted income per share	$	0.17	$	0.11	$	0.24	$	0.24
Diluted weighted average shares outstanding		22,844		21,847		22,317		21,843
Basic income per share	$	0.18	$	0.11	$	0.25	$	0.24
Basic weighted average shares outstanding		21,988		21,511		21,587		21,561
Pro forma data (1):
Income from operations	$	5,846	$	3,309	$	7,735	$	5,381
Amortization of intangible assets		472		833		1,124		1,956
Non-cash stock-based compensation included in the following expense categories:
Cost of services and fulfillment		828		159		1,574		159
Selling and marketing		524		63		987		63
General and administrative		436		68		963		68
Pro forma income from operations		8,106		4,432		12,383		7,627
Other income, net		1,326		754		2,277		1,504
Pro forma income before income taxes		9,432		5,186		14,660		9,131
Pro forma income tax provision		3,490		1,815		5,424		3,196
Pro forma net income	$	5,942	$	3,371	$	9,236	$	5,935
Pro forma diluted earnings per share	$	0.26	$	0.15	$	0.41	$	0.27
Diluted weighted average shares outstanding		22,844		21,847		22,317		21,843

(1) Forrester believes that pro forma financial results provide investors with consistent and comparable information to aid in the understanding of 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 expense Forrester’s ongoing business. Our pro forma presentation excludes amortization of intangibles, non-cash stock-based compensation expense and gains or 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 Accounting Principles Generally Accepted in the United States. This does not purport to be prepared in accordance with Accounting Principles Generally Accepted in the United States.

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Forrester Second-Quarter Fiscal 2006 Results/Page 5  

Forrester Research, Inc.
Consolidated Balance Sheets

(In thousands)

	June 30,			December 31,
	2006			2005
	(Unaudited)
Assets:
Cash and cash equivalents	$	84,558		$	48,538
Available-for-sale securities		97,581			83,730
Accounts receivable, net		32,187			52,177
Deferred commissions		7,784			8,940
Prepaid expenses and other current assets		7,679			5,126
Total current assets		229,789			198,511
Property and equipment, net		5,707			5,771
Goodwill, net		53,279			53,034
Intangible assets, net		2,434			3,530
Deferred income taxes		37,187			36,941
Non-marketable investments and other assets		14,043			13,915
Total assets	$	342,439		$	311,702
Liabilities and stockholders’ equity:
Accounts payable	$	3,103		$	1,716
Accrued expenses		27,033			24,569
Deferred revenue		80,344			86,663
Total liabilities		110,480			112,948
Preferred stock		—			—
Common stock		270			254
Additional paid-in capital		223,035			192,206
Retained earnings		87,788			82,425
Treasury stock, at cost		(76,462	)		(73,527	)
Accumulated other comprehensive loss		(2,672	)		(2,604	)
Total stockholders’ equity		231,959			198,754
Total liabilities and stockholders’ equity	$	342,439		$	311,702

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Forrester Second-Quarter Fiscal 2006 Results/Page 6  

Forrester Research, Inc.
Consolidated Statements Cash Flows

(In thousands)

	Six months ended
	June 30,
	2006			2005
	(Unaudited)
Cash flows from operations:
Net income	$	5,363		$	5,196
Adjustments to reconcile net income to net cash provided by operating activities –
Depreciation		1,800			1,756
Amortization of intangible assets		1,124			1,956
Non-cash stock-based compensation		3,524			290
Excess tax benefits from non-cash stock-based compensation		(369	)		(400	)
Non-marketable investments gains, net		(161	)		(291	)
Realized gain on sale of marketable securities		—			(1,489	)
Deferred income taxes		(339	)		598
Accretion of premiums on marketable securities		406			577
Changes in assets and liabilities -
Accounts receivable		20,603			10,114
Deferred commissions		1,156			173
Prepaid expenses and other current assets		(2,367	)		(531	)
Accounts payable		1,426			(1,286	)
Accrued expenses		2,317			(123	)
Deferred revenue		(7,447	)		(415	)
Net cash provided by operating activities		27,036			16,125
Cash flows from investing activities:
Purchases of property and equipment		(1,676	)		(1,983	)
Purchase of non-marketable investments		(300	)		—
Proceeds from non-marketable investments		188			—
Decrease in other assets		153			538
Purchase of marketable securities		(229,887	)		(103,222	)
Proceeds from sales and maturities of marketable securities		215,821			115,567
Net cash (used in) provided by investing activities		(15,701	)		10,900
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock option plans and employee stock purchase plan		26,952			2,202
Excess tax benefits from non-cash stock-based compensation		369			400
Acquisition of treasury shares		(2,937	)		(11,187	)
Net cash provided by (used in) financing activities		24,384			(8,585	)
Effect of exchange rate changes on cash and cash equivalents		301			(551	)
Net increase in cash and cash equivalents		36,020			17,889
Cash and cash equivalents, beginning of period		48,538			37,328
Cash and cash equivalents, end of period	$	84,558		$	55,217

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