Forrester Research, Inc. (Nasdaq: FORR) today announced its preliminary and unaudited fourth-quarter and full-year 2006 financial results.
Preliminary Fourth-Quarter Financial Performance
- Total revenues increased 20.2 percent to $48.9 million, compared with $40.7 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 $5.5 million or $0.23 per diluted share, compared with net income of $3.6 million, or $0.16 per diluted share, for the same period last year.
- On a pro forma basis, net income was $7.3 million or $0.31 per diluted share, for the fourth quarter of 2006, which excludes amortization of $462,000 of acquisition-related intangible assets, non-cash stock-based compensation expense of $2.5 million, and net realized gains on non-marketable investments of $90,000 and reflects a pro forma effective tax rate of 37 percent. This compares with pro forma net income of $4.8 million, or $0.22 per diluted share, for the same period in 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.
Preliminary Full-Year 2006 Financial Performance
- Total revenues increased 19.9 percent to $181.5 million, compared with $151.4 million for 2005.
- On a GAAP-reported basis, which reflects an effective tax rate of 43 percent, Forrester reported net income of $16.2 million, or $0.70 per diluted share for 2006, compared with net income of $11.3 million or $0.52 per diluted share for 2005.
- On a pro forma basis, net income was $22.3 million or $0.97 per diluted share for 2006, which excludes amortization of $2.1 million of acquisition-related intangible assets, non-cash stock-based compensation expense of $8.5 million, net marketable and non-marketable investment gains of $395,000, income from discontinued operations of $300,000, and gain on sale of discontinued operations of $1.4 million, and reflects a pro forma effective tax rate of 37 percent. This compares with pro forma net income of $15.1 million, or $0.69 per diluted share for the same period last year, 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 of $1.7 million, and reflects a pro forma effective tax rate of 35 percent.
These results are preliminary and subject to possible adjustment as a result of an ongoing investigation into Forrester’s stock option granting practices, which is discussed in more detail below. A reconciliation of preliminary and unaudited GAAP results to pro forma results may be found in the attached financial tables.
“We are extremely pleased with our Q4 and full-year 2006 performance,” said George F. Colony, Forrester’s chairman of the board, chief executive officer, and acting chief financial officer. “Forrester’s top-line growth of 20 percent and the healthy increase in our operating margin indicate that we are on target for achieving our long-term performance plan. In 2006, we focused on leveraging our syndicated offerings, which proved to be successful.”
Forrester Expands Role-Based Strategy For An Enhanced Client Experience
For the past several quarters, Forrester’s fastest-growing business has been the Forrester Leadership Boards, the company’s executive membership programs. Based on that success — and input from more than 1,500 clients over the past 18 months — Forrester has accelerated execution of a role-based strategy to focus attention on serving individual leaders in 18 roles across its client base.
Forrester’s syndicated offering, now called RoleView™ and available today, provides clients with more relevant research, easier access to the insight that will make them successful, and new community tools to provide a consummate view of the problems they face.
“Our 2007 role-focused strategy simply means greater relevant content for our clients that’s easier to use,” said Colony. “Forrester’s commitment to serve professional roles is both a natural evolution of our clients’ current needs and an extension of what we’ve offered business professionals through our leadership boards for several years. We are in a strong position to make leaders successful every day.”
To support this strategy, Forrester has undertaken a comprehensive re-organization into three client groups that broadly represent Forrester’s global client base: IT, marketing and strategy, and technology industry professionals. Each of these client groups is led by a proven Forrester leader: Julie Meringer heads the IT client group; Dennis Van Lingen oversees the marketing and strategy client group; Mark Nemec leads the technology industry client group. Meringer, van Lingen — both Forrester veterans — and Nemec — who last year managed the Forrester Leadership Boards for the Americas — have all joined Forrester’s executive management team, reporting to COO Charles Rutstein.
For a list of the specific job roles and more insight into Forrester’s offerings, please visit www.forrester.com.
Investigation Into Stock Option Granting Practices
Forrester also announced that the Audit Committee of its Board of Directors has reported to the Board of Directors certain findings of its investigation into the conduct of its officers, directors and former officers in connection with the granting of stock options, principally during the period between 1997 and 2003. The Committee was assisted in the investigation by the law firms of Ropes & Gray LLP and Skadden, Arps, Slate, Meagher & Flom LLP. The Committee’ class=”newpage” target=”_blank”s principal findings were:
- Historically, there was a lack of effective controls and documentation in the process of granting stock options, particularly during the 1997-2003 time period. There were also numerous instances in which approval processes were not properly followed and in which there were irregularities in setting the exercise price for certain options. These irregularities involved the selection of exercise prices different from, and usually lower than, the market value of the underlying common stock on the date the option grants were finalized. As a result, although Forrester has not yet established the correct measurement date for the option grants in question, it believes that the appropriate accounting may have required it to record additional stock-based compensation charges for certain options that were granted during this time period.
- The responsibility for issuing, and establishing controls over, option grants during this time period appears to have been shared between Forrester’s finance and strategic growth (human resources) organizations. The individuals who led those organizations during this time period are no longer at the company.
- Although Forrester’s chief executive officer and the two current directors who served on the Compensation Committee participated in some measure in approving stock option grants during this time period, the Committee has found no evidence to suggest that any of them was aware of improper practices with respect to stock options.
The investigation is ongoing and the Committee is being assisted by Huron Consulting Group in its efforts to evaluate whether Forrester used the correct accounting measurement date for its historical option grants. At this time, Forrester is not able to determine whether any material adjustments will be required to its previously issued financial statements or the preliminary and unaudited financial results disclosed in this release, or which periods may be affected. If adjustments are required that affect the 2006 period or prior periods, the actual results could be materially different from those in this press release or as previously reported.
As a result of the investigation, Forrester is unable at this time to predict whether it will be able to file on a timely basis its Annual Report on Form 10-K, which is due on March 16, 2007. When the Form 10-K is filed, the financial statements may differ from the results disclosed in this press release, not only as a result of any required stock-based compensation charges arising from prior periods, but also because judgments and estimates that management used in preparing the preliminary financial results reported in this press release will need to be updated to the date of the filing. These preliminary results also remain subject to review by the company’s independent registered public accounting firm.
2007 Preliminary Business Outlook
Forrester is providing first-quarter 2007 financial guidance as follows:
First-Quarter 2007 (GAAP):
GAAP financial guidance includes an estimate of $2.5 million to $3.0 million in non-cash stock-based compensation expense.
- Total revenues of approximately $44.0 million to $46.0 million.
- Operating margin of approximately 0 to 2 percent.
- Other income of approximately $1.8 million.
- An effective tax rate of 43 percent.
- Diluted earnings per share of approximately $0.03 to $0.05.
First-Quarter 2007 (Pro Forma):
Pro forma financial guidance for the first quarter of 2007 excludes amortization of acquisition-related intangible assets of approximately $400,000, non-cash stock-based compensation expense of approximately $2.5 million to $3.0 million, and does not include any estimate of gains or impair