Forrester Research 10-K 2016
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the fiscal year ended December 31, 2015
For the transition period from to
Commission File Number 000-21433
Forrester Research, Inc.
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Securities to be registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2015 (based on the closing price as quoted by the Nasdaq National Market as of such date) was approximately $359,000,000.
As of March 7, 2016, 17,784,000 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement related to its 2016 Annual Stockholders’ Meeting to be filed subsequently — Part III of this Form 10-K.
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions are intended to identify these forward-looking statements. Reference is made in particular to our statements about possible acquisitions, our plans for international expansion, future dividends, future share repurchases, future growth rates and operating income, anticipated increases in, and productivity of, our sales force and headcount, and the adequacy of our cash, marketable investments and cash flows to satisfy our working capital and capital expenditures. These statements are based on our current plans and expectations and involve risks and uncertainties. Important factors that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements are discussed below under “Risk Factors.” We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
Forrester Research, Inc. is a global independent research, data, and advisory services firm. We work with business and technology leaders to help them develop customer-obsessed strategies that drive growth. Forrester’s unique insights are grounded in annual surveys of more than 500,000 consumers and business leaders worldwide, rigorous and objective research methodologies, and the shared wisdom of our clients. Through proprietary research and data, custom consulting, exclusive executive peer groups and events, Forrester challenges the thinking of its clients and positions them to lead change in their organizations.
We were incorporated in Massachusetts on July 7, 1983 and reincorporated in Delaware on February 16, 1996.
Our Internet address is www.forrester.com. We make available free of charge, on or through the investor information section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Enterprises and their employees struggle to remain both competitive and cost-efficient in an increasingly complex global business environment. Technology changes and innovations occur at an increasingly rapid pace. Developing comprehensive and coordinated business strategies is increasingly difficult as consumers and businesses adopt new methods of buying and selling, and markets grow increasingly dynamic.
Consequently, companies and the professionals in the roles we serve must rely on external sources of expertise from information services firms that provide independent business advice spanning a variety of areas including but not limited to technology, business strategy, and customer behavior. We believe there is a need for objective research, data, advisory and related services that are thematic, prescriptive, and executable, and that provide a comprehensive perspective on the rapidly changing business environment.
Empowered customers are ushering in a new “Age of the Customer” that we believe will reshape the way organizations succeed and grow. Our differentiated strategy, products, and services are designed to help those enterprises satisfy their increasingly dynamic customer bases.
Driven by the Company’s strategy, we: 1) help our clients stay current with and understand their dynamic customers, 2) advise marketing and strategy executives such as Chief Marketing Officers as they seek to win those customers, and 3) work with technology management executives such as Chief Information Officers as they build systems to satisfy customers. Technology is moving from being a tool for managing and lowering operating costs to a means of generating market opportunities and revenue. Given this shift, today’s technology management professionals have two agendas — a traditional IT agenda of running internal systems, and a business technology (BT) agenda that provides the technology, systems, and processes to win, serve and retain customers.
Importantly, the three areas where Forrester works with its clients (understanding their customers, winning their customers, and building technology to serve their customers) are highly interrelated in the large organizations that Forrester serves. This creates opportunities to sell add-on products and services to our existing clients. In addition, we believe our go to market strategy is unique, increasing our competitive differentiation.
Forrester’s solutions provide clients with more relevant fact-based insights, allowing them to make better informed decisions faster, to understand and manage the business dynamics most important to win, serve, and retain customers, and to help clients link their knowledge of customers, marketing efforts, and technology into a coherent plan.
The Company offers a broad set of products and services designed to help our clients win in the Age of the Customer. Our research, data, consulting, events and peer networks are used by our clients to:
Our products and services focus on five market imperatives important to our clients and prospects in the Age of the Customer:
Products and Services
We offer our clients a selection of products, services, and engagement opportunities. In the first quarter of 2016 we rebranded our products and services into five categories: Forrester Research (our core research), Forrester Connect (our peer offerings), Forrester Data, Forrester Consulting, and Forrester Events.
Forrester’s published research and decision tools enable clients to better anticipate and capitalize on the disruptive forces affecting their businesses and organizations. We believe Forrester Research provides insights and frameworks to drive growth in a complex and dynamic market. Our primary syndicated research product, RoleView™, provides clients with access to our core syndicated research designed to inform their strategic decision-making. RoleView Research includes our Playbooks, a set of integrated reports, tools, and guidance for critical business initiatives, and our Reports, designed to deepen clients’ understanding of market, customer, and technology trends through data-driven reports, case studies, predictions, and strategic road maps. Our syndicated research also includes The Forrester Wave,TM our primary mechanism for evaluating enterprise technologies. The Forrester Wave provides a detailed analysis of vendors’ technologies and services based on transparent, fully accessible criteria, and measurement of characteristics weighted by us. The Forrester Wave allows clients to compare products and develop a custom shortlist based on the client’s unique requirements.
In September 2015 we introduced a new Research package, Age of the Customer Research, which is closely aligned with our strategy of addressing our clients’ and prospects’ opportunities and challenges in the Age of the Customer. In addition to the Age of the Customer Research offering, our various RoleView Research offerings include BT (Business Technology) Research, M&S (Marketing and Strategy) Research, and TI (Technology Industry) Research, each consisting of a library of cross-linked documents that interconnect our playbooks, reports, data, product rankings, best practices, evaluation tools, and research archives. Research access is provided through role-based websites that facilitate client access to research and tools that are most relevant to their professional roles, including community tools that allow interaction between and among clients and our analysts.
We also offer clients the opportunity to license electronic “reprints” of designated Research for posting to a client’s website(s) for a designated period of time to support a client’s marketing or business objectives. Beginning in the first quarter of 2016, electronic reprints will be hosted on a new on-line platform that will enable interactive content and provide us with improved tracking of distribution of our intellectual propriety.
We employ a structured methodology in our research that enables us to identify and analyze business technology trends, markets, and audiences and ensures consistent research quality and recommendations across all coverage areas. We ascertain the issues important to our clients and prospects through thousands of interactions and surveys with vendors and business, marketing, and technology professionals, and accordingly, the majority of our research is focused on helping our clients increase their customer focus and grow their business. We use the following primary research inputs:
Collaboration among research, product, data and consulting professionals is an integral part of our process, leading to higher-quality research and a unified perspective. In 2015 we combined our global research and product organizations to better support our client base by facilitating better research and product collaboration and quality, promoting a more uniform client experience and improved customer satisfaction, and encouraging innovation.
Clients subscribing to our Research offerings may choose between two membership levels:
Both Member and Reader clients receive access to our research specialists, who provide additional information about our research, methodologies, coverage areas, and sources. The research specialists are available to help clients navigate our website, find relevant information, and put clients in contact with the appropriate analyst for inquiries.
The Forrester Connect offerings are designed to help clients connect with peers and Forrester’s products and professionals, and to coach executives to lead far-reaching change within their organizations.
Our Leadership Boards are exclusive peer groups for executives and other senior leaders at large organizations worldwide. Clients may participate in one or more Leadership Boards. Memberships are available to the Chief Information Officer (CIO) Group, the Chief Marketing Officer (CMO) Group and several Councils for the technology and marketing roles we cover. In addition to a Member license to access the appropriate RoleView Research offering, members of our Leadership Boards receive access to the following:
Our Executive Programs provide CMOs and CIOs with personal coaches who help the executives and their teams establish and tackle their most important initiatives. Our Executive Programs also provide on-site strategy workshops, personalized research and analysis, access to Forrester experts, and custom data analytics to help executives understand and anticipate customer behavior.
Our Data products and services are designed to provide fact-based customer insights to our clients. Clients can leverage our Data products and services or choose to have us conduct custom data analysis on their behalf. Our Data products and services include:
Our research-based advisory and project consulting services leverage our RoleView Research, Technographics and CX Index data to deliver focused insights and recommendations that assist clients with their challenges in developing and executing technology and business strategy, including customer experience and digital strategy, informing critical decisions and reducing business risk. Our consulting services help clients with challenges addressed in our published research, such as leading customer experience transformations, digital business transformation, and business technology transformations. We help business and technology professionals conduct maturity assessments, prioritize best practices, develop strategies, build business cases, select technology vendors, and structure organizations. We help marketing professionals at technology vendors develop content marketing strategies, create marketing collateral, and develop sales tools. We have a dedicated consulting organization to provide project consulting services to our clients, allowing our analysts to spend additional time on writing research and providing shorter-term advisory services.
We host multiple events in various locations in North America, Europe and Asia throughout the year. Events bring together executives and other participants serving or interested in the particular subject matter or professional role(s) on which an event focuses. Event participants come together to network with their peers, meet with Forrester analysts, and hear business leaders discuss business and technology issues of interest or significance to the professionals in attendance. Forrester Events focus on business imperatives of significant interest to our clients, including succeeding in the Age of the Customer, customer experience, digital transformation, and marketing leadership, and provide immersive experiences to challenge client’s thinking and help clients to lead change.
Sales and Marketing
We sell our products and services through our direct sales force in various locations in North America, Europe, Asia, and Australia. Our sales organization is organized into six groups based on client size, geography and market potential. Our Premier Group focuses on our largest vendor and end user clients across the globe; our Strategic Group focuses on mid-sized to large end user clients, and our Core Group focuses on small to mid-sized vendor and end user clients. Our European, Asia Pacific, and Emerging Markets Groups focus on both end user and vendor clients in their respective geographies. We also sell our products and services through independent sales representatives in select international locations. We intend to continue to evolve our selling model to better serve our clients and prospects and drive profitable growth.
We employed 524 sales personnel as of December 31, 2015, an increase of 3% from 510 as of December 31, 2014. We also sell select Research products directly online through our website.
For information on our operating segments and our international operations, see Note 10 of the Notes to Consolidated Financial Statements included herein.
Our marketing activities are designed to enhance the Forrester brand, differentiate and promote Forrester products and solutions, improve the client experience, and drive growth. We achieve these outcomes by combining the value of analytics, content, social media, public relations, and creative and field marketing, delivering multi-channel campaigns, Forrester Events, and high-quality digital journeys.
As of December 31, 2015, our products and services were delivered to more than 2,400 client companies. No single client company accounted for more than 2% of our 2015 revenues.
Pricing and Contracts
We report our revenue from client contracts in two categories of revenue: (1) research services and (2) advisory services and events. We classify revenue from subscriptions to our RoleView Research, Leadership Boards and Executive Programs, and Data Products and Services as research services revenue. We classify revenue from Forrester Consulting and Forrester Events as advisory services and events revenue.
Contract pricing for annual memberships for research and/or other subscription-based products is principally a function of the number of licensed users at the client. Pricing of contracts for research and advisory services is a function of the number of licensed users, and the amount and type of advisory services. We periodically review and increase the list prices for our products and services.
We track the agreement value of contracts to purchase research and advisory services as a significant business indicator. 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. Agreement value increased 2% to $237.0 million at December 31, 2015 from $231.7 million at December 31, 2014.
We believe that the principal competitive factors in our industry include the following:
We believe that we compete favorably with respect to each of these factors for the following reasons:
We compete principally in the market for research, data and advisory services and their application for client growth and success, with an emphasis on customer behavior and the impact of business technology on our clients’ business models and customer markets. Our principal direct competitors include other independent providers of research and advisory services, such as Gartner, as well as survey-based general market research firms, marketing agencies, general business consulting firms, providers of peer networking services and digital media measurement services. In addition, our indirect competitors include the internal planning and marketing staffs of our current and prospective clients, as well as other information providers such as electronic and print publishing companies. We also face competition from free sources of information available on the Internet, such as Google. Our indirect competitors could choose to compete directly against us in the future. In addition, there are relatively few barriers to entry into our market, and new competitors could readily seek to compete against us in one or more market segments addressed by our products and services. Increased competition could adversely affect our operating results through pricing pressure and loss of market share. There can be no assurance that we will be able to continue to compete successfully against existing or new competitors.
As of December 31, 2015, we employed a total of 1,345 persons, including 499 Research, Connect, Data and Consulting staff and 524 sales personnel.
Our culture emphasizes certain key values — including client service, courage, collaboration, integrity and quality — that we believe are critical to our future growth. We promote these values through training and frequent recognition for achievement. We encourage teamwork and promote and recognize individuals who foster these values. New employees participate in a three-day training process that focuses on our Age of the Customer strategy, our products and services, corporate culture, values and goals.
We operate in a rapidly changing and competitive environment that involves risks and uncertainties, certain of which are beyond our control. These risks and uncertainties could have a material adverse effect on our business and our results of operations and financial condition. These risks and uncertainties include, but are not limited to:
A Decline in Renewals or Demand for Our Membership-Based Research and Data Services. Our success depends in large part upon retaining (on both a client company and dollar basis) and enriching existing memberships for our Research, Data, and Leadership Boards products and services. Future declines in client retention, dollar retention, and enrichment, or failure to generate demand for and new sales of our membership-based products and services due to competition or otherwise, could have an adverse effect on our results of operations and financial condition.
Demand for Our Advisory and Consulting Services. Advisory and consulting services revenues comprised 30% of our total revenues in 2015 and 27% in 2014. Consulting engagements generally are project-based and non-recurring. A decline in our ability to fulfill existing or generate new project consulting engagements could have an adverse effect on our results of operations and financial condition.
Our Business may be Adversely Affected by the Economic Environment. Our business is in part dependent on technology spending and is impacted by economic conditions. The economic environment may materially and adversely affect demand for our products and services. If conditions in the United States and the global economy were to lead to a decrease in technology spending, or in demand for our products and services, this could have an adverse effect on our results of operations and financial condition.
Our International Operations Expose Us to a Variety of Operational Risks which Could Negatively Impact Our Results of Operations. We have clients in approximately 60 countries and approximately 23% of our revenue comes from international sales. Our operating results are subject to the risks inherent in international business activities, including challenges in staffing and managing foreign operations, changes in regulatory requirements, compliance with numerous foreign laws and regulations, differences between U.S. and foreign tax rates and laws, fluctuations in currency exchange rates, difficulty of enforcing client agreements, collecting accounts receivable, and protecting intellectual property rights in international jurisdictions. Furthermore, we rely on local independent sales representatives in some international locations. If any of these arrangements are terminated by our representatives or us, we may not be able to replace the arrangement on beneficial terms or on a timely basis, or clients sourced by the local sales representative may not want to continue to do business with us or our new representative.
Ability to Develop and Offer New Products and Services. Our future success will depend in part on our ability to offer new products and services. These new products and services must successfully gain market acceptance by anticipating and identifying changes in client requirements and changes in the technology industry and by addressing specific industry and business organization sectors. The process of internally researching, developing, launching and gaining client acceptance of a new product or service, or assimilating and marketing an acquired product or service, is risky and costly. We may not be able to introduce new, or assimilate acquired, products or services successfully. Our failure to do so would adversely affect our ability to maintain a competitive position in our market and continue to grow our business.
Loss of Key Management. Our future success will depend in large part upon the continued services of a number of our key management employees. The loss of any one of them, in particular George F. Colony, our founder, Chairman of the Board and Chief Executive Officer, could adversely affect our business.
We have undergone substantial internal reorganizations. Beginning in 2013, we began to transition the provision of consulting services from our research personnel to consultants in our dedicated consulting organization and have hired additional consulting employees to build out this organization. At the same time, we hired additional quota carrying sales employees. In 2013, we created global research and product organizations to better collaborate and improve our client’s experience, and in 2015, we combined our research and product organizations into a global organization headed by a Chief Research and Product officer. We have incurred material expenses in connection with these actions. If we do not realize anticipated benefits from these actions, our results of operations and financial condition could be adversely effected.
The Ability to Attract and Retain Qualified Professional Staff. Our future success will depend in large measure upon the continued contributions of our senior management team, research and data professionals, consultants, and experienced sales and marketing personnel. Thus, our future operating results will be largely dependent upon our ability to retain the services of these individuals and to attract additional professionals from a limited pool of qualified candidates. Our future success will also depend in part upon the effectiveness of our sales leadership in hiring and retaining sales personnel and in improving sales productivity. We experience competition in hiring and retaining professionals from developers of Internet and emerging-technology products, other research firms, management consulting firms, print and electronic publishing companies and financial services companies, many of which have substantially greater ability, either through cash or equity, to attract and compensate professionals. If we lose professionals or are unable to attract new talent, we will not be able to maintain our position in the market or grow our business.
Failure to Anticipate and Respond to Market Trends. Our success depends in part upon our ability to anticipate rapidly changing technologies and market trends and to adapt our research, data, advisory services, and other related products and services to meet the changing needs of our clients. The technology and commerce sectors that we analyze undergo frequent and often dramatic changes. The environment of rapid and continuous change presents significant challenges to our ability to provide our clients with current and timely analysis, strategies and advice on issues of importance to them. Meeting these challenges requires the commitment of substantial resources. Any failure to continue to provide insightful and timely analysis of developments, technologies, and trends in a manner that meets market needs could have an adverse effect on our market position and results of operations.
We May be Subject to Network Disruptions or Security Breaches that Could Damage Our Reputation and Harm Our Business and Operating Results. We may be subject to network disruptions or security breaches caused by computer viruses, illegal break-ins or hacking, sabotage, acts of vandalism by third parties or terrorism. Our security measures or those of our third party service providers may not detect or prevent such security breaches. Any such compromise of our information security could result in the unauthorized publication of our confidential business or proprietary information, cause an interruption in our operations, result in the unauthorized release of customer or employee data, result in a violation of privacy or other laws, expose us to a risk of litigation or damage our reputation, which could harm our business and operating results.
Competition. We compete in the market for research, data, advisory, and related products and services with other independent providers of similar services, as well as survey-based general market research firms, marketing agencies, general business consulting firms, providers of peer networking services and digital media measurement services. Some of our competitors, such as Gartner and various global management consulting firms, have substantially greater financial, information-gathering, and marketing resources than we do. In addition, our indirect competitors include the internal planning and marketing staffs of our current and prospective clients, as well as other information providers such as electronic and print publishing companies. We also face competition from free sources of information available on the Internet, such as Google. Our indirect competitors may choose to compete directly against us in the future. In addition, there are relatively few barriers to entry into our market, and new competitors could readily seek to compete against us in one or more market segments addressed by our products and services. Increased competition could adversely affect our operating results through pricing pressure and loss of market share.
Failure to Enforce and Protect our Intellectual Property Rights. We rely on a combination of copyright, trademark, trade secret, confidentiality and other contractual provisions to protect our intellectual property. Unauthorized third parties may obtain or use our proprietary information despite our efforts to protect it. The laws of certain countries do not protect our intellectual property to the same extent as the laws of the United States and accordingly we may not be able to protect our intellectual property against unauthorized use or distribution, which could adversely affect our business.
Privacy Laws. Privacy laws and regulations, and the interpretation and application of these laws and regulations, in the U.S, Europe and other countries around the world where we conduct business are sometimes inconsistent and frequently changing. Compliance with these laws, or changing interpretations and application of these laws, could cause us to incur substantial costs or require us to take action in a manner that would be adverse to our business.
Fluctuations in Our Operating Results. Our revenues and earnings may fluctuate from quarter to quarter based on a variety of factors, many of which are beyond our control, and which may affect our stock price. These factors include, but are not limited to:
As a result, our operating results in future quarters may be below the expectations of securities analysts and investors, which could have an adverse effect on the market price for our common stock. Factors such as announcements of new products, services, offices, acquisitions or strategic alliances by us, our competitors, or in the research, data and professional services industries generally,
may have a significant impact on the market price of our common stock. The market price for our common stock may also be affected by movements in prices of stocks in general.
Taxation Risks. We operate in numerous jurisdictions around the world. A portion of our income is generated outside of the United States and is taxed at rates significantly less than rates applicable to income generated in the U.S. or in other jurisdictions in which we do business. Our effective tax rate in the future, and accordingly our results of operations and financial position, could be adversely affected by changes in applicable tax law or if more of our income becomes taxable in jurisdictions with higher tax rates.
Concentration of Ownership. Our largest stockholder is our Chairman and CEO, George F. Colony, who owns approximately 45% of our outstanding stock. This concentration of ownership enables Mr. Colony to strongly influence or effectively control matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation, adoption or amendment of equity plans and approval of significant transactions such as mergers, acquisitions, consolidations and sales or purchases of assets. This concentration of ownership may also limit the liquidity of our stock. As a result, efforts by stockholders to change the direction, management or ownership of Forrester may be unsuccessful, and stockholders may not be able to freely purchase and sell shares of our stock.
Any Weakness Identified in Our System of Internal Controls by Us and Our Independent Registered Public Accounting Firm Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 Could Have an Adverse Effect on Our Business. Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their systems of internal control over financial reporting. In addition, our independent registered public accounting firm must report on its evaluation of those controls. There can be no assurance that no weakness in our internal control over financial reporting will occur in future periods, or that any such weakness will not have a material adverse effect on our business or financial results, including our ability to report our financial results in a timely manner.
We have not received written comments from the Securities and Exchange Commission that remain unresolved.
Our corporate headquarters building is comprised of approximately 190,000 square feet of office space in Cambridge, Massachusetts, substantially all of which is currently occupied by the Company. This facility accommodates research, data, marketing, sales, consulting, technology, and operations personnel. The lease term of this facility expires February 28, 2027.
We also rent office space in San Francisco, New York City, Dallas, McLean, Virginia, Amsterdam, Frankfurt, London, Paris, New Delhi, and Singapore. Our San Francisco lease is for approximately 19,000 square feet, with a term that expires June 30, 2022. Our New York lease is for approximately 15,200 square feet, with an initial term until January 31, 2021, with the right to terminate in 2017 with prior notice and payment of designated early termination fees and charges. The London lease is for approximately 17,800 square feet, with a term that expires September 24, 2021. We also lease office space on a relatively short-term basis in various other locations in North America, Europe, Asia, and Australia.
We believe that our existing facilities are adequate for our current needs and that additional facilities are available for lease to meet future needs.
We are not currently a party to any material legal proceedings.
Our common stock is listed on the Nasdaq Global Select Market under the symbol “FORR”. During 2014, quarterly dividends of $0.16 per common share were declared and paid in each of the four quarters during the year. During 2015, quarterly dividends of $0.17 per common share were declared and paid in each of the four quarters during the year. In February 2016 our Board of Directors declared an increase in our regular quarterly dividend to $0.18 per share that is payable on March 16, 2016. We intend to continue paying regular quarterly cash dividends; however, the actual declaration of any such future dividends, and the establishment of the per share amount and payment dates for any such future dividends are subject to the discretion of the Board of Directors.
As of March 7, 2016 there were approximately 32 stockholders of record of our common stock. On March 7, 2016 the closing price of our common stock was $32.15 per share.
The following table represents the ranges of high and low sale prices of our common stock for the years ended December 31, 2015 and December 31, 2014:
Through 2015, our Board of Directors authorized an aggregate $460.0 million to purchase common stock under our stock repurchase program including $25.0 million authorized in each of July 2015, February 2015 and April 2014. As of December 31, 2015 we had repurchased approximately 15.0 million shares of common stock at an aggregate cost of $423.1 million.
During the quarter ended December 31, 2015 we repurchased the following shares of our common stock under the stock repurchase program:
The following graph contains the cumulative stockholder return on our common stock during the period from December 31, 2010 through December 31, 2015 with the cumulative return during the same period for the Russell 2000 and the S&P 600 Small Cap Information Technology Index, and assumes that the dividends, if any, were reinvested.
The selected financial data presented below is derived from our consolidated financial statements and should be read in connection with those statements.
Cash dividends in 2015, 2014, 2013 and 2012 represent quarterly dividends of $0.17, $0.16, $0.15 and $0.14 per common share declared and paid during 2015, 2014, 2013 and 2012, respectively.
The following items impact the comparability of our consolidated data:
We derive revenues from memberships to, and sales of, our Research, Connect and Data products and services, performing advisory services and consulting projects, and hosting events. We offer contracts for our Research, Connect and Data products that are typically renewable annually and payable in advance. Membership 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 subscription-based products. Billings attributable to advisory services and consulting projects are initially recorded as deferred revenue. Advisory service revenues, such as workshops, speeches and advisory days, are recognized when the customer receives the agreed upon deliverable. Consulting project revenues, which generally are short-term in nature and based upon fixed-fee agreements, are recognized as the services are provided. Event billings are also initially recorded as deferred revenue and are recognized as revenue upon completion of each event.
Our primary operating expenses consist of cost of services and fulfillment, selling and marketing expenses and general and administrative expenses. Cost of services and fulfillment represents the costs associated with the production and delivery of our products and services, including salaries, bonuses, employee benefits and stock-based compensation expense for all personnel that produce and deliver our products and services, including all associated editorial, travel, and support services. Selling and marketing expenses include salaries, sales commissions, bonuses, employee benefits, stock-based compensation expense, travel expenses, 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 human resources groups and our other administrative functions, including salaries, bonuses, employee benefits, and stock-based compensation expense. Overhead costs such as facilities and annual fees for cloud-based information technology systems are allocated to these categories according to the number of employees in each group.
Deferred revenue, agreement value, client retention, dollar retention, enrichment and number of clients 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. We define these metrics as follows:
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 (dollars in millions):
Deferred revenue at December 31, 2015 decreased 3% compared to the prior year and on a constant currency basis was flat with the prior year, due to growth in contract bookings being offset by revenue growth and a small increase in future billings for current contracts as of December 31, 2015 compared to the prior year. Agreement value at December 31, 2015 increased 2% compared to the prior year and on a constant currency basis increased 4%, representing an increase in contract bookings for the year. Deferred revenue at December 31, 2014 decreased 5% compared to 2013 and on a constant currency basis decreased 3%, due to growth in contract bookings being offset by revenue growth. Agreement value at December 31, 2014 increased 7% compared to the prior year on both an actual rate and constant currency basis, due to an increase in contract bookings for the year. Client retention and dollar retention rates have improved steadily through 2015 compared to 2013 levels. The 2013 rates were at multi-year lows due in part to the negative effects from the challenges associated with the implementation of a sales reorganization in early 2012, high sales employee attrition during 2013 and 2012, a difficult selling environment in Europe and weaker demand for our data subscription products in 2013, in part due to the phasing out of our standalone Tech Marketing Navigator data product.
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, stock-based compensation, non-marketable investments, goodwill and intangible assets, and income taxes. Management bases its estimates on historical experience, data available at the time the estimates are made and various 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.
We consider the following accounting policies to be those that require the most subjective judgment or that involve uncertainty that could have a material impact on our financial statements. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements. This is not a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. For a discussion of our other accounting policies, see Note 1 of the Notes to Consolidated Financial Statements beginning on page F-7.
Annual subscriptions to our RoleView Research include access to all or a designated portion of our research, and depending on the type of license, membership in one or more of our Leadership Boards, unlimited phone or email analyst inquiry, unlimited participation in Forrester Webinars, and the right to attend one event. Contracts for RoleView Research and Leadership Boards are accounted for as two units of accounting: 1) the event ticket and 2) the remaining research services that are delivered throughout the contract period. Arrangement consideration is allocated to each element based upon its relative selling price, which is determined based on standalone sales of event tickets and the estimated selling price of the remaining research services. Annual subscriptions to our data subscription products include access to designated survey data products and access to a data advisor, which are delivered throughout the year, and are accounted for as one unit of accounting and recognized ratably as research services revenue over the membership period. Certain of our data subscription products also include advisory services and these contracts are accounted for as two units of accounting: 1) the data subscription and data advisor and 2) the advisory services. Arrangement consideration is allocated to each element based upon its relative selling price, which is determined based on standalone sales of the advisory services and the estimated selling price of the remaining data services.
Beginning in February 2013, we discontinued our policy of offering our clients a service guarantee. Service guarantees had provided our clients the right to cancel their contracts prior to the end of the contract term and receive a refund for unused products or services. Furthermore, our revenue recognition determines the timing of commission expenses, as commissions are earned during the month a contract is booked and are deferred and recognized as expense as the related revenue is recognized. We evaluate the recoverability of deferred commissions at each balance sheet date.
Expected volatility is based, in part, on the historical volatility of our common stock as well as management’s expectations of future volatility over the expected term of the awards granted. The development of an expected life assumption involves projecting employee exercise behaviors (expected period between stock option vesting dates and stock option exercise dates). Expected dividend yields are based on expectations of current and future dividends, if any. We are also required to estimate future forfeitures of stock-based awards for recognition of compensation expense, which we base on past experience and expectations of future forfeitures. We will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior recognized expense if the actual forfeitures are higher than estimated. The actual expense recognized over the vesting period will only be for those awards that vest. If our actual forfeiture rate is materially different from our estimates, or if our estimates of forfeitures are modified in a future period, the actual stock-based compensation expense could be significantly different from what we have recorded in the current period.
Intangible assets with finite lives as of December 31, 2015 consist primarily of acquired customer relationships and were valued according to the future cash flows they are estimated to produce. These assigned values are amortized on a basis which best matches the periods in which the economic benefits are expected to be realized. Tangible assets with finite lives consist of property and equipment, which are depreciated over their estimated useful lives. We continually evaluate whether events or circumstances have occurred that indicate that the estimated remaining useful life of our intangible and long-lived tangible assets may warrant revision or that the carrying value of these assets may be impaired. To compute whether intangible assets have been impaired, the estimated undiscounted future cash flows for the estimated remaining useful life of the assets are compared to the carrying value. To the extent that the future cash flows are less than the carrying value, the assets are written down to their estimated fair value.
As a global company, we use significant judgment to calculate and provide for income taxes in each of the tax jurisdictions in which we operate. In the ordinary course of our business, there are transactions and calculations undertaken whose ultimate tax outcome cannot be certain. Some of these uncertainties arise as a consequence of transfer pricing for transactions with our subsidiaries and potential challenges to nexus and credit estimates. We estimate our exposure to unfavorable outcomes related to these uncertainties and record a liability based on the probability for such outcomes in accordance with current accounting guidelines.
Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome will not be different from what is reflected in our historical income tax provisions, returns, and accruals. Such differences, or changes in estimates relating to potential differences, could have a material impact on our income tax provision and operating results in the period in which such a determination is made.
Results of Operations for the years ended December 31, 2015, 2014 and 2013
The following table sets forth our Consolidated Statements of Income as a percentage of total revenues for the years noted.
2015 compared to 2014
Total revenues increased 1% during 2015 compared to 2014 and on a constant currency basis increased 4%. Revenues from customers outside of the U.S. decreased 9% during 2015 compared to the prior year; however after adjusting for the effect of foreign currency fluctuations, revenues from customers outside of the U.S. increased 4% and represented 26% of total revenues in 2015. On a constant currency basis, revenue growth in the Asia Pacific region and Europe was partially offset by a decline in Canada.
Research services revenues are recognized as revenue primarily on a ratable basis over the term of the contracts, which are generally twelve-month periods. Research services revenues increased 1% during 2015 compared to the prior year and on a constant currency basis increased 5%, reflecting growth in our Research and Data products partially offset by a decline in revenue in our Connect products. The increase in revenue for our Research and Data products is a result of an increase in related contract bookings in 2015, while the decrease in revenue for our Connect products is a result of a decrease in related contract bookings in 2015, due in part to a reduction in our Connect product offerings outside of the U.S.
Revenues from advisory services and events decreased 1% during 2015 compared to the prior year and on a constant currency basis increased 2%. The decrease was driven by a 20% decrease in Events revenues due to a significant decrease in sponsorship revenues during 2015. The decrease in Events revenues was partially offset by a 2% increase in advisory and consulting revenue in 2015 due to an increase in related contract bookings and delivery of services in 2015.
Please refer to the “Segment Results” section below for a discussion of revenue and contribution margin results by segment.
Cost of Services and Fulfillment
Cost of services and fulfillment expenses increased less than 1% in 2015 compared to 2014 and on a constant currency basis increased 3%. Total compensation and benefits costs decreased approximately $0.2 million in 2015 compared to the prior year as lower salary and benefit costs, due to fewer employees in 2015, was partially offset by an increase in incentive bonus expense in 2015. Of the 50 employees terminated during the reorganization in the first quarter of 2015, 32 of the employees were included in cost of services and fulfillment. In addition, 2015 includes a $0.3 million increase in stock compensation costs and a $0.2 million increase in Events costs that were partially offset by lower professional service costs due to lower consulting outsourcing costs.
Selling and Marketing
Selling and marketing expenses increased less than 1% in 2015 compared to 2014 and on a constant currency basis increased 3%. The increase in selling and marketing expenses during 2015 compared to the prior year is primarily due to a $0.3 million increase in compensation and benefit costs resulting from an increase in sales employees and annual merit increases. In addition, 2015 includes a $0.5 million increase in professional service costs that were offset by lower bad debt expense and a $0.2 million charge to terminate a contract with an independent sales representative during 2014 that did not recur in 2015. Of the 50 employees terminated during the reorganization in the first quarter of 2015, 15 of the employees were included in selling and marketing.
Subject to the business environment, we intend to expand our quota carrying sales force by approximately 1% to 3% in 2016 as compared to 2015 as we anticipate productivity improvements in 2016.
General and Administrative
General and administrative expenses increased 1% in 2015 compared to 2014 and on a constant currency basis increased 4%. The increase in general and administrative expenses during 2015 compared to the prior year is primarily due to 1) a $1.5 million increase in compensation and benefits costs resulting from an increase in incentive bonus expense and annual merit increases and 2) a $0.6 million increase in stock based compensation expense. These increases were partially offset by lower professional services costs due to the implementation of cloud-based software services in 2014 that did not recur in 2015 and a reduction in recruiting costs due to the build out of the consulting organization that was substantially completed in 2014.
Depreciation expense decreased by $1.1 million during 2015 compared to 2014. The decrease was due to certain fixed assets becoming fully depreciated during 2015 as well as a $0.4 million immaterial out-of-period adjustment recorded during 2014 to correct an understatement error of depreciation expense of approximately $0.2 million in each of 2013 and 2012.
Amortization of Intangible Assets
Amortization expense decreased by $1.3 million during 2015 compared to 2014 due to a portion of our intangible assets becoming fully amortized at the end of 2014.
During 2015 we incurred $3.2 million of severance and related costs from our reorganization in the first quarter of 2015 that included the termination of 50 employees or approximately 4% of our workforce across various geographies and functions, in order to reallocate investment in 2015 to planned sales expansion and to delivery areas seeing the greatest client demand. We incurred an additional $0.3 million charge in the second quarter of 2015 related to this action primarily for a non-cash charge for the liquidation of a small non-U.S. subsidiary.
In addition, during the third quarter of 2015 we incurred $0.7 million of severance and related benefits for the reorganization of our Products Group, consisting of the termination of the chief product officer and related administrative staff, and the termination of a senior product leader with the intent to relocate this position to the U.S. The responsibilities of the former chief product officer have been assumed by our chief research officer. As a result of the change in leadership in the Products Group, we incurred an additional $0.2 million of expense to write off a software development project that was no longer deemed probable to be completed.
The remaining $0.5 million of the severance and related benefit costs incurred but not paid during 2015 are expected to be paid in 2016.
During 2014 we incurred $1.8 million of severance and related costs for the termination of approximately 1% of our employees across various geographies and functions primarily to realign resources due to a new organizational structure implemented in late 2013. The costs under this plan were substantially paid by the end of 2014.
In March 2016 we implemented a reduction in our workforce of approximately 2% across various geographies and functions. The Company expects to incur pre-tax expenses of $1.0 million to $1.2 million in the first and second quarters of 2016 related principally to severance and related benefit costs for terminated employees.
Income from Operations
Income from operations increased $0.6 million or 3% during 2015 as compared to the prior year and increased to 6.0% of total revenues in 2015 from 5.8% in the prior year. The expansion in income from operations as a percentage of total revenues in 2015 was due to tight cost controls in 2015, as shown by headcount declining to 1,345 at December 31, 2015 from 1,351 employees at December 31, 2014. The focus on cost controls during 2015 resulted in our operating expenses increasing by less than 1% compared to 2014, which was just under our revenue growth during 2015. We expect income from operations as a percentage of total revenue to increase to 7.0% to 8.0% for the year ended December 31, 2016 due to a continued focus on cost control and the cost reductions that are expected from the 2% workforce reduction implemented in March of 2016.
Other Income, Net
Other income, net primarily consists of interest income on our investments as well as gains and losses on foreign currency and remained essentially consistent during 2015 as compared to the prior year.
Losses on Investments, Net
Losses on investments, net include our share of equity method investment gains or losses from our technology-related investment funds and gains or losses from the sale of marketable securities, both of which were insignificant during 2015 and 2014.
Provision for Income Taxes