UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
FOR THE QUARTERLY PERIOD ENDED SeptemberJune 30, 20172019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
COMMISSION FILE NUMBER: 000-21433
FORRESTER RESEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE |
| 04-2797789 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
60 Acorn Park Drive CAMBRIDGE, MASSACHUSETTS |
| 02140 (Zip Code) |
(Address of principal executive offices) |
|
|
(617) 613-6000
(Registrant’s telephone number, including area code: (617) 613-6000code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
Common Stock, $.01 Par Value | FORR | Nasdaq Global Select Market |
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 requirements for the past 90 days. Yes ☒ No ☐
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☒ |
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|
|
|
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
Emerging growth company |
| ☐ |
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|
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 3, 2017 17,975,000August 1, 2019, 18,552,000 shares of the registrant’s common stock were outstanding.
INDEX TO FORM 10-Q
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PART I | FINANCIAL INFORMATION |
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3 |
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Consolidated Balance Sheets as of | 3 |
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4 |
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5 |
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6 |
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| 7 | |||
Item 2. |
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| 24 | |
Item 3. |
| 34 | ||
Item 4. | 34 | |||
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| 35 | |||
Item 2. |
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| 35 | |
Item 6. |
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36 |
FORRESTER RESEARCH, INC.
(In thousands, except per share data, unaudited)
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
ASSETS | ASSETS |
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|
|
|
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| ||||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 79,960 |
|
| $ | 76,958 |
|
| $ | 69,762 |
|
| $ | 140,296 |
|
Marketable investments (Note 3) |
|
| 54,019 |
|
|
| 61,147 |
| ||||||||
Accounts receivable, net |
|
| 39,481 |
|
|
| 58,812 |
|
|
| 65,824 |
|
|
| 67,318 |
|
Deferred commissions |
|
| 9,146 |
|
|
| 12,052 |
|
|
| 14,837 |
|
|
| 15,677 |
|
Prepaid expenses and other current assets |
|
| 15,817 |
|
|
| 14,467 |
|
|
| 16,227 |
|
|
| 12,802 |
|
Total current assets |
|
| 198,423 |
|
|
| 223,436 |
|
|
| 166,650 |
|
|
| 236,093 |
|
Property and equipment, net |
|
| 26,128 |
|
|
| 23,894 |
|
|
| 25,974 |
|
|
| 22,005 |
|
Operating lease right-of-use assets |
|
| 73,167 |
|
|
| — |
| ||||||||
Goodwill |
|
| 75,815 |
|
|
| 73,193 |
|
|
| 242,265 |
|
|
| 85,165 |
|
Intangible assets, net |
|
| 927 |
|
|
| 1,464 |
|
|
| 108,661 |
|
|
| 4,951 |
|
Other assets |
|
| 13,095 |
|
|
| 13,798 |
|
|
| 7,753 |
|
|
| 5,310 |
|
Total assets |
| $ | 314,388 |
|
| $ | 335,785 |
|
| $ | 624,470 |
|
| $ | 353,524 |
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LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY |
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| ||||||
Current Liabilities: |
|
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|
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|
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Accounts payable |
| $ | 613 |
|
| $ | 1,806 |
|
| $ | 3,462 |
|
| $ | 588 |
|
Accrued expenses and other current liabilities |
|
| 36,838 |
|
|
| 41,403 |
|
|
| 67,340 |
|
|
| 54,065 |
|
Current portion of long-term debt |
|
| 7,813 |
|
|
| — |
| ||||||||
Deferred revenue |
|
| 132,929 |
|
|
| 134,265 |
|
|
| 180,910 |
|
|
| 135,332 |
|
Total current liabilities |
|
| 170,380 |
|
|
| 177,474 |
|
|
| 259,525 |
|
|
| 189,985 |
|
Non-current liabilities |
|
| 8,788 |
|
|
| 8,275 |
| ||||||||
Long-term debt, net of deferred financing fees |
|
| 131,540 |
|
|
| — |
| ||||||||
Non-current operating lease liabilities |
|
| 64,818 |
|
|
| — |
| ||||||||
Other non-current liabilities |
|
| 18,901 |
|
|
| 11,939 |
| ||||||||
Total liabilities |
|
| 179,168 |
|
|
| 185,749 |
|
|
| 474,784 |
|
|
| 201,924 |
|
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|
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Stockholders' Equity (Note 7): |
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Stockholders' Equity (Note 11): |
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Preferred stock, $0.01 par value |
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Authorized - 500 shares; issued and outstanding - none |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock, $0.01 par value |
|
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Authorized - 125,000 shares |
|
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|
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Issued - 22,293 and 21,719 shares as of September 30, 2017 and December 31, 2016, respectively |
|
|
|
|
|
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| ||||||||
Outstanding - 17,902 and 18,361 shares as of September 30, 2017 and December 31, 2016, respectively |
|
| 223 |
|
|
| 217 |
| ||||||||
Issued - 23,089 and 22,951 shares as of June 30, 2019 and December 31, 2018, respectively |
|
|
|
|
|
|
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| ||||||||
Outstanding - 18,458 and 18,320 shares as of June 30, 2019 and December 31, 2018, respectively |
|
| 231 |
|
|
| 230 |
| ||||||||
Additional paid-in capital |
|
| 175,218 |
|
|
| 157,569 |
|
|
| 210,378 |
|
|
| 200,696 |
|
Retained earnings |
|
| 124,343 |
|
|
| 121,799 |
|
|
| 115,956 |
|
|
| 127,717 |
|
Treasury stock - 4,391 and 3,358 shares as of September 30, 2017 and December 31, 2016, respectively, at cost |
|
| (161,943 | ) |
|
| (121,976 | ) | ||||||||
Treasury stock - 4,631 shares as of June 30, 2019 and December 31, 2018, at cost |
|
| (171,889 | ) |
|
| (171,889 | ) | ||||||||
Accumulated other comprehensive loss |
|
| (2,621 | ) |
|
| (7,573 | ) |
|
| (4,990 | ) |
|
| (5,154 | ) |
Total stockholders’ equity |
|
| 135,220 |
|
|
| 150,036 |
|
|
| 149,686 |
|
|
| 151,600 |
|
Total liabilities and stockholders’ equity |
| $ | 314,388 |
|
| $ | 335,785 |
|
| $ | 624,470 |
|
| $ | 353,524 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(In thousands, except per share data, unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
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|
| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
| ||||||||
Revenues: |
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|
|
|
|
|
|
|
|
|
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|
|
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Research services |
| $ | 54,235 |
|
| $ | 52,727 |
|
| $ | 160,553 |
|
| $ | 160,998 |
|
| $ | 76,279 |
|
| $ | 58,300 |
|
| $ | 144,888 |
|
| $ | 110,000 |
|
Advisory services and events |
|
| 26,134 |
|
|
| 24,700 |
|
|
| 86,743 |
|
|
| 81,651 |
|
|
| 51,904 |
|
|
| 38,053 |
|
|
| 83,944 |
|
|
| 64,102 |
|
Total revenues |
|
| 80,369 |
|
|
| 77,427 |
|
|
| 247,296 |
|
|
| 242,649 |
|
|
| 128,183 |
|
|
| 96,353 |
|
|
| 228,832 |
|
|
| 174,102 |
|
Operating expenses: |
|
|
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|
|
|
|
|
|
|
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|
|
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|
|
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Cost of services and fulfillment |
|
| 32,508 |
|
|
| 29,889 |
|
|
| 100,814 |
|
|
| 95,429 |
|
|
| 56,571 |
|
|
| 39,071 |
|
|
| 101,681 |
|
|
| 73,176 |
|
Selling and marketing |
|
| 29,225 |
|
|
| 27,751 |
|
|
| 90,355 |
|
|
| 87,490 |
|
|
| 44,017 |
|
|
| 32,709 |
|
|
| 86,050 |
|
|
| 65,720 |
|
General and administrative |
|
| 10,083 |
|
|
| 10,086 |
|
|
| 30,672 |
|
|
| 30,359 |
|
|
| 13,221 |
|
|
| 10,940 |
|
|
| 26,411 |
|
|
| 21,679 |
|
Depreciation |
|
| 1,607 |
|
|
| 1,941 |
|
|
| 4,775 |
|
|
| 5,982 |
|
|
| 2,166 |
|
|
| 2,095 |
|
|
| 4,189 |
|
|
| 4,091 |
|
Amortization of intangible assets |
|
| 197 |
|
|
| 208 |
|
|
| 582 |
|
|
| 627 |
|
|
| 5,099 |
|
|
| 182 |
|
|
| 11,309 |
|
|
| 368 |
|
Reorganization costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,026 |
| ||||||||||||||||
Acquisition and integration costs |
|
| 2,487 |
|
|
| 329 |
|
|
| 5,454 |
|
|
| 329 |
| ||||||||||||||||
Total operating expenses |
|
| 73,620 |
|
|
| 69,875 |
|
|
| 227,198 |
|
|
| 220,913 |
|
|
| 123,561 |
|
|
| 85,326 |
|
|
| 235,094 |
|
|
| 165,363 |
|
Income from operations |
|
| 6,749 |
|
|
| 7,552 |
|
|
| 20,098 |
|
|
| 21,736 |
| ||||||||||||||||
Other income, net |
|
| 146 |
|
|
| 229 |
|
|
| 248 |
|
|
| 374 |
| ||||||||||||||||
Income (loss) from operations |
|
| 4,622 |
|
|
| 11,027 |
|
|
| (6,262 | ) |
|
| 8,739 |
| ||||||||||||||||
Interest expense |
|
| (2,085 | ) |
|
| — |
|
|
| (4,437 | ) |
|
| — |
| ||||||||||||||||
Other income (expense), net |
|
| (86 | ) |
|
| 271 |
|
|
| (356 | ) |
|
| 153 |
| ||||||||||||||||
Losses on investments, net |
|
| (772 | ) |
|
| (1,085 | ) |
|
| (997 | ) |
|
| (1,139 | ) |
|
| (8 | ) |
|
| (20 | ) |
|
| (44 | ) |
|
| (45 | ) |
Income before income taxes |
|
| 6,123 |
|
|
| 6,696 |
|
|
| 19,349 |
|
|
| 20,971 |
| ||||||||||||||||
Income tax provision |
|
| 2,170 |
|
|
| 3,584 |
|
|
| 6,302 |
|
|
| 9,110 |
| ||||||||||||||||
Net income |
| $ | 3,953 |
|
| $ | 3,112 |
|
| $ | 13,047 |
|
| $ | 11,861 |
| ||||||||||||||||
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Basic income per common share |
| $ | 0.22 |
|
| $ | 0.17 |
|
| $ | 0.73 |
|
| $ | 0.66 |
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Diluted income per common share |
| $ | 0.22 |
|
| $ | 0.17 |
|
| $ | 0.72 |
|
| $ | 0.65 |
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|
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Income (loss) before income taxes |
|
| 2,443 |
|
|
| 11,278 |
|
|
| (11,099 | ) |
|
| 8,847 |
| ||||||||||||||||
Income tax expense |
|
| 888 |
|
|
| 3,490 |
|
|
| 662 |
|
|
| 2,792 |
| ||||||||||||||||
Net income (loss) |
| $ | 1,555 |
|
| $ | 7,788 |
|
| $ | (11,761 | ) |
| $ | 6,055 |
| ||||||||||||||||
Basic income (loss) per common share |
| $ | 0.08 |
|
| $ | 0.43 |
|
| $ | (0.64 | ) |
| $ | 0.34 |
| ||||||||||||||||
Diluted income (loss) per common share |
| $ | 0.08 |
|
| $ | 0.43 |
|
| $ | (0.64 | ) |
| $ | 0.33 |
| ||||||||||||||||
Basic weighted average common shares outstanding |
|
| 17,747 |
|
|
| 18,062 |
|
|
| 17,897 |
|
|
| 17,896 |
|
|
| 18,435 |
|
|
| 17,965 |
|
|
| 18,399 |
|
|
| 18,001 |
|
|
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|
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|
|
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|
|
|
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|
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| ||||||||||||||||
Diluted weighted average common shares outstanding |
|
| 18,051 |
|
|
| 18,435 |
|
|
| 18,212 |
|
|
| 18,168 |
|
|
| 18,780 |
|
|
| 18,290 |
|
|
| 18,399 |
|
|
| 18,313 |
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Cash dividends declared per common share |
| $ | 0.19 |
|
| $ | 0.18 |
|
| $ | 0.57 |
|
| $ | 0.54 |
|
| $ | — |
|
| $ | 0.20 |
|
| $ | — |
|
| $ | 0.40 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, unaudited)
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
| September 30, |
|
| September 30, |
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Net income | $ | 3,953 |
|
| $ | 3,112 |
|
| $ | 13,047 |
|
| $ | 11,861 |
| |||||||||||||||
Net income (loss) | $ | 1,555 |
|
| $ | 7,788 |
|
| $ | (11,761 | ) |
| $ | 6,055 |
| |||||||||||||||
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
| 1,601 |
|
|
| (120 | ) |
|
| 4,905 |
|
|
| (68 | ) |
| 594 |
|
|
| (3,394 | ) |
|
| 164 |
|
|
| (1,691 | ) |
Net change in market value of investments |
| 23 |
|
|
| (48 | ) |
|
| 47 |
|
|
| 72 |
|
| — |
|
|
| 62 |
|
|
| — |
|
|
| (53 | ) |
Other comprehensive income (loss) |
| 1,624 |
|
|
| (168 | ) |
|
| 4,952 |
|
|
| 4 |
|
| 594 |
|
|
| (3,332 | ) |
|
| 164 |
|
|
| (1,744 | ) |
Comprehensive income | $ | 5,577 |
|
| $ | 2,944 |
|
| $ | 17,999 |
|
| $ | 11,865 |
| |||||||||||||||
Comprehensive income (loss) | $ | 2,149 |
|
| $ | 4,456 |
|
| $ | (11,597 | ) |
| $ | 4,311 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Nine Months Ended |
| ||||||||||||
| September 30, |
| Six Months Ended |
| ||||||||||
| 2017 |
|
| 2016 |
| June 30, |
| |||||||
|
|
|
|
|
|
|
| 2019 |
|
| 2018 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 13,047 |
|
| $ | 11,861 |
| |||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
| |||||||
Net income (loss) | $ | (11,761 | ) |
| $ | 6,055 |
| |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
| |||||||
Depreciation |
| 4,775 |
|
|
| 5,982 |
|
| 4,189 |
|
|
| 4,091 |
|
Amortization of intangible assets |
| 582 |
|
|
| 627 |
|
| 11,309 |
|
|
| 368 |
|
Net losses from investments |
| 997 |
|
|
| 1,139 |
|
| 44 |
|
|
| 45 |
|
Deferred income taxes |
| (921 | ) |
|
| (413 | ) |
| (10,814 | ) |
|
| (831 | ) |
Stock-based compensation |
| 6,423 |
|
|
| 5,731 |
|
| 5,533 |
|
|
| 4,071 |
|
Operating lease right-of-use asset amortization and impairments |
| 6,415 |
|
|
| — |
| |||||||
Amortization of deferred financing fees |
| 474 |
|
|
| — |
| |||||||
Amortization of premium on investments |
| 171 |
|
|
| 267 |
|
| — |
|
|
| 18 |
|
Foreign currency losses |
| 444 |
|
|
| 98 |
|
| 498 |
|
|
| 437 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
| |||||||
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
| |||||||
Accounts receivable |
| 20,140 |
|
|
| 31,078 |
|
| 22,476 |
|
|
| 20,020 |
|
Deferred commissions |
| 2,906 |
|
|
| 3,890 |
|
| 840 |
|
|
| 2,086 |
|
Prepaid expenses and other current assets |
| (979 | ) |
|
| 2,322 |
|
| (1,451 | ) |
|
| 280 |
|
Accounts payable |
| (1,208 | ) |
|
| 133 |
|
| 3,170 |
|
|
| 423 |
|
Accrued expenses and other liabilities |
| (6,041 | ) |
|
| (10,101 | ) |
| (9,976 | ) |
|
| (15,310 | ) |
Deferred revenue |
| (3,473 | ) |
|
| (14,309 | ) |
| 18,799 |
|
|
| 6,533 |
|
Operating lease liabilities |
| (6,216 | ) |
|
| — |
| |||||||
Net cash provided by operating activities |
| 36,863 |
|
|
| 38,305 |
|
| 33,529 |
|
|
| 28,286 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
| (238,943 | ) |
|
| (1,289 | ) | |||||||
Purchases of property and equipment |
| (5,806 | ) |
|
| (3,334 | ) |
| (4,666 | ) |
|
| (2,544 | ) |
Purchases of marketable investments |
| (27,430 | ) |
|
| (35,555 | ) |
| — |
|
|
| (14,673 | ) |
Proceeds from sales and maturities of marketable investments |
| 34,458 |
|
|
| 20,086 |
|
| — |
|
|
| 18,828 |
|
Other investing activity |
| 200 |
|
|
| (49 | ) |
| 30 |
|
|
| — |
|
Net cash provided by (used in) investing activities |
| 1,422 |
|
|
| (18,852 | ) |
| (243,579 | ) |
|
| 322 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings, net of costs |
| 171,275 |
|
|
| — |
| |||||||
Payments on borrowings |
| (33,125 | ) |
|
| — |
| |||||||
Payment of debt issuance costs |
| (857 | ) |
|
| — |
| |||||||
Deferred acquisition payments |
| (766 | ) |
|
| — |
| |||||||
Dividends paid on common stock |
| (10,205 | ) |
|
| (9,696 | ) |
| — |
|
|
| (7,196 | ) |
Repurchases of common stock |
| (39,967 | ) |
|
| — |
|
| — |
|
|
| (9,642 | ) |
Proceeds from issuance of common stock under employee equity incentive plans |
| 13,866 |
|
|
| 9,987 |
|
| 4,280 |
|
|
| 3,678 |
|
Taxes paid related to net share settlements of stock-based compensation awards |
| (2,511 | ) |
|
| (2,069 | ) |
| (130 | ) |
|
| (102 | ) |
Net cash used in financing activities |
| (38,817 | ) |
|
| (1,778 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents |
| 3,534 |
|
|
| (870 | ) | |||||||
Net increase in cash and cash equivalents |
| 3,002 |
|
|
| 16,805 |
| |||||||
Net cash provided by (used in) financing activities |
| 140,677 |
|
|
| (13,262 | ) | |||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
| 189 |
|
|
| (2,139 | ) | |||||||
Net change in cash, cash equivalents and restricted cash |
| (69,184 | ) |
|
| 13,207 |
| |||||||
Cash and cash equivalents, beginning of period |
| 76,958 |
|
|
| 53,331 |
|
| 140,296 |
|
|
| 79,790 |
|
Cash and cash equivalents, end of period | $ | 79,960 |
|
| $ | 70,136 |
| |||||||
Cash, cash equivalents and restricted cash, end of period | $ | 71,112 |
|
| $ | 92,997 |
| |||||||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
| |||||||
Cash paid for interest | $ | 3,791 |
|
|
| — |
| |||||||
Cash paid for income taxes | $ | 2,540 |
|
| $ | 2,102 |
|
Non-cash financing activities for the six months ended June 30, 2019 include $3.7 million of debt issuance costs deducted directly from the proceeds of borrowings by the lender. Refer to Note 4 – Debt for further information.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Interim Consolidated Financial Statements
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Forrester Research, Inc. (“Forrester”) Annual Report on Form 10-K for the year ended December 31, 2016.2018. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the financial position, results of operations, comprehensive income (loss) and cash flows as of the dates and for the periods presented have been included. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172019 may not be indicative of the results for the year ending December 31, 2017,2019, or any other period.
Fair Value Measurements
The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturities. The Company believes that the carrying amount of its variable-rate borrowings reasonably approximate their fair values because the rates of interest on those borrowings reflect current market rates of interest. See Note 36 – Marketable Investments -Fair Value Measurements, for the fair value of the Company’s marketable investments.assets and liabilities.
Presentation of Restricted Cash
The following table summarizes the end-of-period cash and cash equivalents from the Company's Consolidated Balance Sheets and the total cash, cash equivalents and restricted cash as presented in the accompanying Consolidated Statements of Cash Flows (in thousands).
| Six Months Ended June 30, |
| |||||
| 2019 |
|
| 2018 |
| ||
Cash and cash equivalents | $ | 69,762 |
|
| $ | 92,997 |
|
Restricted cash classified in (1): |
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
| 203 |
|
|
| — |
|
Other assets |
| 1,147 |
|
|
| — |
|
Cash, cash equivalents and restricted cash shown in statement of cash flows | $ | 71,112 |
|
| $ | 92,997 |
|
(1) | Restricted cash consists of collateral required primarily for letters of credit. The short-term or long-term classification is determined in accordance with the expiration of the underlying lease as the letters of credit are non-cancellable while the leases are in effect. |
Adoption of New Accounting Pronouncements
The Company adoptedIn February 2016, the guidance inFinancial Accounting Standards Board (FASB) issued Accounting Standards Update ("ASU"(“ASU”) No. 2016-09,2016-02, Compensation - Stock Compensation Leases- Improvements to Employee Share-Based Payment Accounting, on January 1, 2017. Under this (Topic 842). The standard entities are permitted to make an accounting policy election to either estimate forfeitures on share-based payment awards, as previously required, orrequires lessees to recognize forfeituresthe assets and liabilities from leases on the balance sheet and disclose qualitative and quantitative information about the lease arrangements. Lessor accounting is largely unchanged. Leases are classified as they occur. The Company has elected to recognize forfeitures as they occur andeither financing or operating, with classification affecting the impactpattern of that changeexpense recognition in accounting policy has been recorded as a $0.2 million cumulative effect adjustment to increase retained earnings as of January 1, 2017.
Additionally, ASU No. 2016-09 requires that all income tax effects related to settlements of share-based payment awards be reported in earnings as an increase or decrease to income tax expense. Previously, income tax effects at settlement of an award were reported as an increase (or decrease) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax effects reported in earnings duringstatement. In July 2018, the award's vesting period. The requirement to report those income tax effects in earnings has been applied onFASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows for an additional adoption method and for lessors, provides a prospective basis to settlements occurring on or after January 1, 2017, and the impact of applying this guidance resulted in a $0.3 million tax benefitpractical expedient for the threeseparation of lease and nine months ended September 30, 2017. Application of this guidance may result in fluctuations in the Company’s effective tax rate depending on how many options are exercised, how many restricted stock units vest and the volatility of the Company’s stock price.
ASU 2016-09 also requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows. Previously, income tax benefits at settlement of an award were reported asnon-lease components within a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. In addition, the standard requires that cash paid by directly withholding shares for tax withholding purposes be classified as a financing activity in the statement of cash flows. For the nine months ended September 30, 2017, the Company reflected $2.5 million of tax withholding in financing activities. The Company has elected to apply the changes in cash flow classification on a retrospective basis resulting in an increase in operating cash flows, with a corresponding decrease in financing cash flows, of $2.4 million for the nine months ended September 30, 2016, as compared to the amounts previously reported.
The Company elected to early adopt the guidance in ASU No. 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory, on January 1, 2017. The guidance in this standard eliminates for all intra-entity sales of assets other than inventory, the exception under existing standards that permits the tax effects of intra-entity asset transfers to be deferred until thecontract.
transferredOn January 1, 2019, the Company adopted Topic 842 using the modified retrospective method in which prior periods are not adjusted. Under this method, the cumulative effect of applying the standard is recorded at the date of initial application. Adoption of the standard did not result in the Company recording a cumulative effect adjustment. Adoption of the standard resulted in the recognition of operating lease right-of-use (“ROU”) assets of $53.3 million, operating lease liabilities of $60.8 million and the elimination of deferred rent of $7.5 million on the adoption date. In addition, the Company recorded $10.4 million of operating lease ROU assets and operating lease liabilities on January 3, 2019 as a result of the acquisition of SiriusDecisions (see Note 2 – Acquisitions). Adoption of the standard did not have a material impact on the Company’s results of operations or cash flows.
The Company elected the package of practical expedients permitted under the new lease standard that allowed the carry forward of the historical lease classification for all leases that existed as of the adoption date. In addition, the Company elected to exempt short term leases from recognition of ROU assets and lease liabilities and elected not to separate lease and non-lease components within its leases.
The Company determines whether an arrangement is a lease at inception of the arrangement. The Company accounts for a lease when it has the right to control the leased asset for a period of time while obtaining substantially all of the assets’ economic benefits. All of the Company’s leases are operating leases, the majority of which are for office space. Operating lease ROU assets and non-current operating lease liabilities are included as individual line items on the Consolidated Balance Sheets while short-term operating lease liabilities are recorded within accrued expenses and other current liabilities.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The discount rate used to determine the present value of the lease payments is soldthe Company’s incremental borrowing rate based on the information available at lease inception, as an implicit rate in the lease is generally not readily determinable. An operating lease ROU asset includes all lease payments, lease incentives and initial direct costs incurred. Some of the Company’s leases include options to extend or terminate the lease. When determining the lease term, these options are included in the measurement and recognition of the Company’s ROU assets and lease liabilities when it is reasonably certain that the Company will exercise the option. The Company considers various economic factors when making this determination, including but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty in replacing the asset, underlying contractual obligations, or specific characteristics unique to a third party or otherwise recovered through use. Asparticular lease.
Lease expense for operating leases is recognized on a result,straight-line basis over the lease term based on the total lease payments (which include initial direct costs and lease incentives). The expense is included in operating expenses in the Consolidated Statements of Operations.
The Company’s lease agreements generally contain lease and non-lease components. Non-lease components are fixed charges stated in an agreement and primarily include payments for parking at the leased office facilities. The Company accounts for the lease and fixed payments for non-lease components as a reporting entity would recognizesingle lease component under Topic 842, which increases the tax expenseamount of the ROU assets and lease liabilities.
Most of the Company’s lease agreements also contain variable payments, primarily maintenance-related costs, which are expensed as incurred and not included in the measurement of the ROU assets and lease liabilities.
The Company incurred $0.3 million of ROU asset impairments during the three and six months ended June 30, 2019 related to facility leases from the saleSiriusDecisions, Inc. acquisition.
Leases with an initial term of twelve months or less are not recorded on the assetConsolidated Balance Sheets and are not material.
The components of lease expense were as follows (in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||
| June 30, 2019 |
|
| June 30, 2019 |
| ||
Operating lease cost | $ | 3,727 |
|
| $ | 7,296 |
|
Short-term lease cost |
| 85 |
|
|
| 340 |
|
Variable lease cost |
| 1,335 |
|
|
| 2,569 |
|
Total lease cost | $ | 5,147 |
|
| $ | 10,205 |
|
Additional lease information is summarized in the seller’s tax jurisdiction when the transfer occursfollowing table (in thousands, except lease term and any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. As a result, the Company has recorded a $0.5 milliondiscount rate):cumulative effect adjustment to reduce retained earnings
| Six Months Ended |
| |
| June 30, 2019 |
| |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 7,762 |
|
Operating right-of-use assets obtained in exchange for lease obligations | $ | 16,626 |
|
Weighted-average remaining lease term - operating leases (years) |
| 6.7 |
|
Weighted-average discount rate - operating leases |
| 5.1 | % |
Future minimum lease payments under non-cancellable leases as of January 1, 2017.June 30, 2019 are as follows (in thousands):
2019 | $ | 6,155 |
|
2020 |
| 16,410 |
|
2021 |
| 13,995 |
|
2022 |
| 13,049 |
|
2023 |
| 12,728 |
|
Thereafter |
| 35,580 |
|
Total lease payments |
| 97,917 |
|
Less imputed interest |
| (15,773 | ) |
Present value of lease liabilities | $ | 82,144 |
|
Lease balances as of June 30, 2019 are as follows (in thousands):
Operating lease right-of-use assets | $ | 73,167 |
|
|
|
|
|
Short-term operating lease liabilities (1) | $ | 17,326 |
|
Non-current operating lease liabilities |
| 64,818 |
|
Total operating lease liabilities | $ | 82,144 |
|
(1) | Included in accrued expenses and other current liabilities |
The Company’s leases do not contain residual value guarantees, material restrictions or covenants.
Lease Disclosures Under Prior GAAP
Under prior GAAP, as of December 31, 2018, the Company’s future contractual obligations for operating leases were as follows (in thousands):
2019 | $ | 12,498 |
|
2020 |
| 11,762 |
|
2021 |
| 10,145 |
|
2022 |
| 8,552 |
|
2023 |
| 7,856 |
|
Thereafter |
| 22,222 |
|
Total minimum lease payments | $ | 73,035 |
|
Note 2 — Acquisitions
The Company accounts for business combinations in accordance with the acquisition method of accounting as prescribed by Accounting Standards Codification (“ASC”) 805, Business Combinations. The acquisition method of accounting requires the Company to record the assets and liabilities acquired based on their estimated fair values as of the acquisition date, with any excess of the consideration transferred over the estimated fair value of the net assets acquired, including identifiable intangible assets, to be recorded to goodwill.
On June 22, 2018, Forrester acquired substantially all of the assets of SocialGlimpz, Inc. (“GlimpzIt”), an artificial intelligence and machine-learning provider based in San Francisco. The acquisition is part of Forrester's plan to build a real-time customer experience or CX cloud solution, integrating a range of inputs to help companies monitor and improve customer experience. Forrester intends to deploy the GlimpzIt technology to extend the analytics engine in Forrester’s planned real-time CX cloud. The acquisition of GlimpzIt was determined to be an acquisition of a business under the provisions of ASC 805. The total purchase price was approximately $1.3 million, which was paid in cash on the acquisition date, and has been allocated as $0.7 million of goodwill and $0.6 million of an intangible asset representing technology, which is being amortized over its estimated useful life of five years. The acquired working capital was insignificant. Forrester may also be required to pay an additional $0.3 million in cash (of which $0.1 million was paid in 2019), contingent on the achievement of certain employment conditions by key employees, which is being recognized as compensation expense over the related service period of two years. Goodwill has been allocated to the Product segment and is deductible for income tax purposes. Goodwill is attributable to the acquired workforce as well as future synergies.
FeedbackNow
On July 6, 2018, Forrester acquired 100% of the issued and outstanding shares of S.NOW SA, a Switzerland-based business that operates as FeedbackNow. FeedbackNow is a maker of physical buttons and monitoring software that companies deploy to measure, analyze, and improve customer experience. The acquisition is part of Forrester's plan to build a real-time CX cloud solution. FeedbackNow provides a high-volume input source for the real-time CX cloud solution. The Company paid $8.4 million on the closing date. An additional $1.5 million is payable during a two-year period from the closing date and is subject to typical indemnity provisions from the seller. The Company paid additional purchase price based on the acquired working capital of $0.8 million during the six months ended June 30, 2019. In addition, the sellers may earn up to CHF 4.2 million ($4.3 million at June 30, 2019) based on the financial performance of FeedbackNow during the two-year period following the closing date, with up to $1.8 million and $2.5 million payable during 2019 and 2020, respectively, if the financial targets are met. The first-year financial targets are expected to be met and as such $1.8 million is expected to be paid to the sellers by the end of 2019. The range of undiscounted amounts that could be payable under this arrangement, including the presumed achievement of the first-year financial targets, is $1.8 million to $4.3 million. The fair value of this contingent consideration arrangement as of the acquisition date was $3.4 million, which was recognized as purchase price. Measurement period adjustments were insignificant during the six months ended June 30, 2019.
SiriusDecisions, Inc.
On January 3, 2019, Forrester acquired 100% of the issued and outstanding shares of SiriusDecisions, Inc. (“SiriusDecisions”), a privately-held company based in Wilton, Connecticut with approximately 350 employees globally. Forrester believes that the combination of its expertise in strategy with SiriusDecisions’ focus on operational excellence will create additional market opportunities for the Company, including cross-selling services to the respective client bases, extending SiriusDecisions’ platform, methodologies, data, and best-practices tools into new roles, and accelerating international and industry growth. The acquisition of SiriusDecisions was determined to be an acquisition of a business under the provisions of ASC 805.
Pursuant to the terms of the merger agreement, the Company paid $246.8 million at closing after certain transaction expense adjustments, which is subject to a working capital adjustment, and included the purchase price of $245.0 million plus an estimate of cash acquired and reduced by an estimate of certain working capital items. At the time of the merger, each vested SiriusDecisions stock option was converted into the right to receive the excess of the per share merger consideration over the exercise price of such stock option. All unvested SiriusDecisions stock options were cancelled without payment of any consideration.
Total Consideration Transferred
The following table summarizes the fair value of the aggregate consideration paid or payable for SiriusDecisions (in thousands):
Cash paid at close (1) |
| $ | 246,801 |
|
Working capital adjustment (2) |
|
| (833 | ) |
Total |
| $ | 245,968 |
|
(1) | The cash paid at close represents the gross contractual amount paid. Net cash paid, which accounts for the cash acquired of $7.9 million, was $238.9 million and is reflected as an investing activity in the Consolidated Statements of Cash Flows. |
(2) | Amount represents the provisional amount receivable from the sellers based upon working capital as defined. This amount is subject to adjustment and the Company expects to receive the working capital adjustment by the end of 2019. |
The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisition of SiriusDecisions (in thousands):
Assets: |
|
|
|
|
Cash and cash equivalents |
| $ | 7,858 |
|
Accounts receivable |
|
| 19,237 |
|
Prepaids and other current assets |
|
| 3,660 |
|
Fixed assets |
|
| 4,169 |
|
Goodwill (1) |
|
| 157,161 |
|
Acquired intangible assets (2) |
|
| 115,000 |
|
Other assets |
|
| 265 |
|
Total assets |
|
| 307,350 |
|
Liabilities: |
|
|
|
|
Accounts payable and accrued liabilities |
|
| 8,924 |
|
Deferred revenue |
|
| 26,143 |
|
Deferred tax liability |
|
| 24,204 |
|
Long-term deferred revenue |
|
| 1,037 |
|
Other long-term liabilities |
|
| 1,074 |
|
Total liabilities |
|
| 61,382 |
|
Net assets acquired |
| $ | 245,968 |
|
(1) | Goodwill represents the expected revenue and cost synergies from combining SiriusDecisions with Forrester as well as the value of the acquired workforce. |
(2) | All of the acquired intangible assets are finite-lived. The determination of the fair value of the finite-lived intangible assets required management judgment and the consideration of a number of factors. In determining the fair values, management primarily relied on income valuation methodologies, in particular discounted cash flow models. The use of discounted cash flow models required the use of estimates, including projected cash flows related to the particular asset; the useful lives of the particular assets; the selection of royalty and discount rates used in the models; and certain published industry benchmark data. In establishing the estimated useful lives of the acquired intangible assets, the Company relied primarily on the duration of the cash flows utilized in the valuation model. Of the $115.0 million assigned to acquired intangible assets, $13.0 million was assigned to the technology asset class with useful lives of 1 to 8 years (with a weighted average amortization period of 3.2 years), $13.0 million to backlog with a useful life of 2.0 years, $77.0 million to customer relationships with a useful life of 9.25 years, and $12.0 million to trade names with a useful life of 15.5 years. The weighted-average amortization period for the total acquired intangible assets is 8.4 years. Amortization of acquired intangible assets was $4.9 million and $10.9 million for the three and six months ended June 30, 2019, respectively. |
The allocation of the purchase price for SiriusDecisions is preliminary with respect to the valuation of acquired intangible assets, working capital and goodwill. The Company expects to obtain the remainder of the information to complete the allocation of purchase price by the end of 2019.
The Company’s financial statements include the operating results of SiriusDecisions beginning on January 3, 2019, the date of the acquisition. SiriusDecision’s operating results and the related goodwill are being reported as its own operating segment (refer to Note 12 – Operating Segments). The goodwill is not deductible for income tax purposes. The acquisition of SiriusDecisions added approximately $27.5 million and $42.7 million of additional revenue and $32.0 million and $57.0 million of direct expenses, including intangible amortization, for the three and six months ended June 30, 2019, respectively. Had the Company acquired SiriusDecisions in prior periods, the Company’s operating results would have been materially different, and as a result the following unaudited pro forma financial information is presented as if SiriusDecisions had been acquired by the Company on January 1, 2018 (in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
| ||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Pro forma total revenue | $ | 133,039 |
|
| $ | 122,875 |
|
| $ | 237,527 |
|
| $ | 216,246 |
|
Pro forma net income (loss) | $ | 4,823 |
|
| $ | 3,011 |
|
| $ | (4,267 | ) |
| $ | (7,440 | ) |
The pro forma results have been prepared in accordance with U.S. GAAP and include the following pro forma adjustments for the three and six months ended June 30, 2018: (1) an increase in interest expense and amortization of debt issuance costs related to the financing of the SiriusDecisions acquisition (refer to Note 4 – Debt for further information on the Company’s borrowings related to the acquisition); (2) a decrease in revenue as a result of the fair value adjustment to deferred revenue; (3) an adjustment for depreciation and amortization expenses as a result of the preliminary purchase price allocation for finite-lived intangible assets and property and equipment; and (4) an increase in operating costs to recognize acquisition costs incurred upon the close of the acquisition.
The Company recognized $1.7 million of acquisition costs for the three months ended March 31, 2019 and the six months ended June 30, 2019 related to the SiriusDecisions acquisition. The costs primarily consisted of investment banker fees and other professional services costs and are included in acquisition and integration costs within the Consolidated Statements of Operations.
Note 3 — Goodwill and Intangible Assets
Goodwill
The change in the carrying amount of goodwill for the six months ended June 30, 2019 is summarized as follows (in thousands):
| Total |
| |
Balance at December 31, 2018 | $ | 85,165 |
|
Acquisition |
| 157,161 |
|
Translation adjustments |
| (61 | ) |
Balance at June 30, 2019 | $ | 242,265 |
|
As of June 30, 2019, the Company had no accumulated goodwill impairment losses.
Finite-Lived Intangible Assets
During the six months ended June 30, 2019, $115.0 million of intangible assets were added as a result of the acquisition of SiriusDecisions.
The carrying values of finite-lived intangible assets are as follows (in thousands):
| June 30, 2019 |
| |||||||||
| Gross |
|
|
|
|
|
| Net |
| ||
| Carrying |
|
| Accumulated |
|
| Carrying |
| |||
| Amount |
|
| Amortization |
|
| Amount |
| |||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Customer relationships | $ | 109,794 |
|
| $ | 35,855 |
|
| $ | 73,939 |
|
Technology |
| 16,635 |
|
|
| 3,671 |
|
|
| 12,964 |
|
Backlog |
| 13,000 |
|
|
| 3,250 |
|
|
| 9,750 |
|
Trade name |
| 12,447 |
|
|
| 439 |
|
|
| 12,008 |
|
Total | $ | 151,876 |
|
| $ | 43,215 |
|
| $ | 108,661 |
|
| December 31, 2018 |
| |||||||||
| Gross |
|
|
|
|
|
| Net |
| ||
| Carrying |
|
| Accumulated |
|
| Carrying |
| |||
| Amount |
|
| Amortization |
|
| Amount |
| |||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Customer relationships | $ | 32,823 |
|
| $ | 31,604 |
|
| $ | 1,219 |
|
Technology |
| 3,610 |
|
|
| 295 |
|
|
| 3,315 |
|
Trade name |
| 443 |
|
|
| 26 |
|
|
| 417 |
|
Total | $ | 36,876 |
|
| $ | 31,925 |
|
| $ | 4,951 |
|
Estimated intangible asset amortization expense as of June 30, 2019 is as follows (in thousands):
Year ending December 31, 2019 (remainder) | $ | 11,315 |
|
Year ending December 31, 2020 |
| 18,839 |
|
Year ending December 31, 2021 |
| 12,339 |
|
Year ending December 31, 2022 |
| 11,000 |
|
Year ending December 31, 2023 |
| 10,827 |
|
Thereafter |
| 44,341 |
|
Total | $ | 108,661 |
|
Note 4 — Debt
In connection with the acquisition of SiriusDecisions, the Company entered into a $200.0 million Credit Agreement on January 3, 2019 (the “Closing Date”). The Credit Agreement provides for: (1) senior secured term loans in an aggregate principal amount of $125.0 million (the “Term Loans”) and (2) a senior secured revolving credit facility in an aggregate principal amount of $75.0 million (the “Revolving Credit Facility” and, together with the Term Loans, the “Facilities”). On the Closing Date, the full $125.0 million of the Term Loans and $50.0 million of the Revolving Credit Facility were used to finance a portion of the acquisition of SiriusDecisions and to pay certain fees, costs and expenses incurred in connection with the acquisition and the Facilities. The Facilities are scheduled to mature on January 3, 2024.
The Facilities permit the Company to borrow incremental term loans and/or increase commitments under the Revolving Credit Facility in an aggregate principal amount up to $50.0 million, subject to approval by the administrative agent and certain customary terms and conditions.
The Facilities can be repaid early, in part or in whole, at any time and from time to time, without premium or penalty, other than customary breakage reimbursement requirements for LIBOR-based loans. The Term Loans must be prepaid with net cash proceeds of (i) certain debt incurred or issued by Forrester and its restricted subsidiaries and (ii) certain asset sales and condemnation or casualty events, subject to certain reinvestment rights.
Amounts borrowed under the Facilities bear interest, at Forrester’s option, at a rate per annum equal to either (i) the London Interbank Offering Rate (“LIBOR”) for the applicable interest period plus a margin that is between 1.75% and 2.50% based on Forrester’s consolidated total leverage ratio or (ii) the alternate base rate plus a margin that is between 0.75% and 1.50% based on Forrester’s consolidated total leverage ratio. In addition, the Company will pay a commitment fee that is between 0.25% and 0.35% per annum, based on Forrester’s consolidated total leverage ratio, on the average daily unused portion of the Revolving Credit Facility, payable quarterly, in arrears.
The Term Loans require repayment of the outstanding principal balance in quarterly installments each year, commencing on March 31, 2019 with the balance repayable on the maturity date, subject to customary exceptions. The amount payable in each year as of June 30, 2019 is set forth in the table below (in thousands):
2019 (remainder) | $ | 3,125 |
|
2020 |
| 9,375 |
|
2021 |
| 12,500 |
|
2022 |
| 12,500 |
|
2023 |
| 15,625 |
|
Thereafter |
| 68,750 |
|
Total remaining principal payments | $ | 121,875 |
|
The Revolving Credit Facility does not require repayment prior to maturity, subject to customary exceptions. In addition to financing the acquisition, proceeds from the Revolving Credit Facility can also be used towards working capital and general corporate purposes. Up to $5.0 million of the Revolving Credit Facility is available for the issuance of letters of credit, and any drawings under the letters of credit must be reimbursed within one business day.
Forrester incurred $1.8 million in costs related to the Revolving Credit Facility, which are recorded in other assets on the Consolidated Balance Sheets. These costs are being amortized as interest expense on a straight-line basis over the five-year term of the Revolving Credit Facility. Forrester incurred $2.8 million in costs related to the Term Loans, which are recorded as a reduction to the face value of long-term debt on the Consolidated Balance Sheets. These costs are being amortized as interest expense utilizing the effective interest rate method.
Outstanding Borrowings
The following table summarizes the Company’s total outstanding borrowings as of the dates indicated (in thousands):
Description: |
| June 30, 2019 |
|
| December 31, 2018 |
| ||
Term loan facility (1) |
| $ | 121,875 |
|
| $ | — |
|
Revolving credit facility (1) (2) |
|
| 20,000 |
|
|
| — |
|
Principal amount outstanding (3) |
|
| 141,875 |
|
|
| — |
|
Less: Deferred financing fees |
|
| (2,522 | ) |
|
| — |
|
Net carrying amount |
| $ | 139,353 |
|
| $ | — |
|
(1) | The contractual annualized interest rate as of June 30, 2019 on the Term loan facility and the Revolving Credit Facility was 4.6875%, which consisted of LIBOR of 2.4375% plus a margin of 2.25%. |
(2) | The Company had $55.0 million of available borrowing capacity on the revolver (not including the expansion feature) as of June 30, 2019. |
(3) | The weighted average annual effective rates on the Company's total debt outstanding for the three and six months ended June 30, 2019, were 4.81% and 5.04%, respectively. |
The Facilities contain certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio and minimum fixed charge coverage ratio. The negative covenants limit, subject to various exceptions, the Company’s ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of the Company, sell assets, pay dividends or other payments in respect to capital stock, change fiscal year, or enter into certain transactions with affiliates and subsidiaries. The Company was in full compliance with the covenants as of June 30, 2019. The Facilities also contain customary events of default, representations, and warranties.
All obligations under the Facilities are unconditionally guaranteed by each of the Company’s existing and future, direct and indirect material wholly-owned domestic subsidiaries, other than certain excluded subsidiaries, and are collateralized by a first priority lien on substantially all tangible and intangible assets including intellectual property and all of the capital stock of the Company and its subsidiaries (limited to 65% of the voting equity of certain subsidiaries).
Note 5 — Accumulated Other Comprehensive Income (Loss)Loss
The components of accumulated other comprehensive income (loss)loss are as follows (in thousands):
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Net Unrealized Gain |
|
| Cumulative |
|
| Accumulated |
| |||
|
| (Loss) on Marketable |
|
| Translation |
|
| Other Comprehensive |
| |||
|
| Investments |
|
| Adjustment |
|
| Income (Loss) |
| |||
Balance at January 1, 2017 |
| $ | (83 | ) |
| $ | (7,490 | ) |
| $ | (7,573 | ) |
Foreign currency translation |
|
| — |
|
|
| 4,905 |
|
|
| 4,905 |
|
Unrealized gain on investments, net of tax of $29 |
|
| 47 |
|
|
| — |
|
|
| 47 |
|
Balance at September 30, 2017 |
| $ | (36 | ) |
| $ | (2,585 | ) |
| $ | (2,621 | ) |
|
|
|
|
|
|
|
| Total |
| |
|
|
|
| Cumulative |
|
| Accumulated |
| ||
|
|
|
| Translation |
|
| Other Comprehensive |
| ||
|
|
|
| Adjustment |
|
| Loss |
| ||
Balance at January 1, 2019 |
|
|
| $ | (5,154 | ) |
| $ | (5,154 | ) |
Foreign currency translation |
|
|
|
| 164 |
|
|
| 164 |
|
Balance at June 30, 2019 |
|
|
| $ | (4,990 | ) |
| $ | (4,990 | ) |
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Net Unrealized Gain |
|
| Cumulative |
|
| Accumulated |
| |||
|
| (Loss) on Marketable |
|
| Translation |
|
| Other Comprehensive |
| |||
|
| Investments |
|
| Adjustment |
|
| Income (Loss) |
| |||
Balance at July 1, 2017 |
| $ | (59 | ) |
| $ | (4,186 | ) |
| $ | (4,245 | ) |
Foreign currency translation |
|
| — |
|
|
| 1,601 |
|
|
| 1,601 |
|
Unrealized gain on investments, net of tax of $14 |
|
| 23 |
|
|
| — |
|
|
| 23 |
|
Balance at September 30, 2017 |
| $ | (36 | ) |
| $ | (2,585 | ) |
| $ | (2,621 | ) |
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Net Unrealized Gain |
|
| Cumulative |
|
| Accumulated |
| |||
|
| (Loss) on Marketable |
|
| Translation |
|
| Other Comprehensive |
| |||
|
| Investments |
|
| Adjustment |
|
| Income (Loss) |
| |||
Balance at January 1, 2016 |
| $ | (100 | ) |
| $ | (4,726 | ) |
| $ | (4,826 | ) |
Foreign currency translation |
|
| — |
|
|
| (68 | ) |
|
| (68 | ) |
Unrealized gain on investments, net of tax of $46 |
|
| 72 |
|
|
| — |
|
|
| 72 |
|
Balance at September 30, 2016 |
| $ | (28 | ) |
| $ | (4,794 | ) |
| $ | (4,822 | ) |
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Net Unrealized |
|
| Cumulative |
|
| Accumulated |
| |||
|
| Loss on Marketable |
|
| Translation |
|
| Other Comprehensive |
| |||
|
| Investments |
|
| Adjustment |
|
| Loss |
| |||
Balance at January 1, 2018 |
| $ | (115 | ) |
| $ | (1,897 | ) |
| $ | (2,012 | ) |
Reclassification of stranded tax effects from tax reform |
|
| (26 | ) |
|
| — |
|
|
| (26 | ) |
Foreign currency translation |
|
| — |
|
|
| (1,691 | ) |
|
| (1,691 | ) |
Unrealized loss on investments, net of tax of $(17) |
|
| (53 | ) |
|
| — |
|
|
| (53 | ) |
Balance at June 30, 2018 |
| $ | (194 | ) |
| $ | (3,588 | ) |
| $ | (3,782 | ) |
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Net Unrealized Gain |
|
| Cumulative |
|
| Accumulated |
| |||
|
| (Loss) on Marketable |
|
| Translation |
|
| Other Comprehensive |
| |||
|
| Investments |
|
| Adjustment |
|
| Income (Loss) |
| |||
Balance at July 1, 2016 |
| $ | 20 |
|
| $ | (4,674 | ) |
| $ | (4,654 | ) |
Foreign currency translation |
|
| — |
|
|
| (120 | ) |
|
| (120 | ) |
Unrealized loss on investments, net of tax of $(33) |
|
| (48 | ) |
|
| — |
|
|
| (48 | ) |
Balance at September 30, 2016 |
| $ | (28 | ) |
| $ | (4,794 | ) |
| $ | (4,822 | ) |
|
|
|
|
|
|
|
| Total |
| |
|
|
|
| Cumulative |
|
| Accumulated |
| ||
|
|
|
| Translation |
|
| Other Comprehensive |
| ||
|
|
|
| Adjustment |
|
| Loss |
| ||
Balance at April 1, 2019 |
|
|
| $ | (5,584 | ) |
| $ | (5,584 | ) |
Foreign currency translation |
|
|
|
| 594 |
|
|
| 594 |
|
Balance at June 30, 2019 |
|
|
| $ | (4,990 | ) |
| $ | (4,990 | ) |
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Net Unrealized |
|
| Cumulative |
|
| Accumulated |
| |||
|
| Loss on Marketable |
|
| Translation |
|
| Other Comprehensive |
| |||
|
| Investments |
|
| Adjustment |
|
| Loss |
| |||
Balance at April 1, 2018 |
| $ | (256 | ) |
| $ | (194 | ) |
| $ | (450 | ) |
Foreign currency translation |
|
| — |
|
|
| (3,394 | ) |
|
| (3,394 | ) |
Unrealized gain on investments, net of tax of $21 |
|
| 62 |
|
|
| — |
|
|
| 62 |
|
Balance at June 30, 2018 |
| $ | (194 | ) |
| $ | (3,588 | ) |
| $ | (3,782 | ) |
Note 36 — Marketable Investments
The following table summarizes the Company’s marketable investments (in thousands):
|
| As of September 30, 2017 |
| |||||||||||||
|
|
|
|
|
| Gross |
|
| Gross |
|
|
|
|
| ||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Market |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
Federal agency obligations |
| $ | 1,800 |
|
| $ | — |
|
| $ | (4 | ) |
| $ | 1,796 |
|
Corporate obligations |
|
| 52,277 |
|
|
| 7 |
|
|
| (61 | ) |
|
| 52,223 |
|
Total |
| $ | 54,077 |
|
| $ | 7 |
|
| $ | (65 | ) |
| $ | 54,019 |
|
| As of December 31, 2016 |
| ||||||||||||||
|
|
|
|
|
| Gross |
|
| Gross |
|
|
|
|
| ||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Market |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
Federal agency obligations |
| $ | 1,800 |
|
| $ | — |
|
| $ | (7 | ) |
| $ | 1,793 |
|
Corporate obligations |
|
| 59,481 |
|
|
| 2 |
|
|
| (129 | ) |
|
| 59,354 |
|
Total |
| $ | 61,281 |
|
| $ | 2 |
|
| $ | (136 | ) |
| $ | 61,147 |
|
Realized gains and losses on investments are included in earnings and are determined using the specific identification method. Realized gains or losses on the sale of the Company’s marketable investments were not material in the three and nine months ended September 30, 2017 and 2016.
The following table summarizes the maturity periods of the marketable investments in the Company’s portfolio as of September 30, 2017 (in thousands).
|
| FY 2017 |
|
| FY 2018 |
|
| FY 2019 |
|
| Total |
| ||||
Federal agency obligations |
| $ | — |
|
| $ | 1,796 |
|
| $ | — |
|
| $ | 1,796 |
|
Corporate obligations |
|
| 4,000 |
|
|
| 28,559 |
|
|
| 19,664 |
|
|
| 52,223 |
|
Total |
| $ | 4,000 |
|
| $ | 30,355 |
|
| $ | 19,664 |
|
| $ | 54,019 |
|
The following table shows the gross unrealized losses and market value of the Company’s available-for-sale securities with unrealized losses that are not deemed to be other-than-temporary, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):
|
| As of September 30, 2017 |
| |||||||||||||
|
| Less Than 12 Months |
|
| 12 Months or Greater |
| ||||||||||
|
| Market |
|
| Unrealized |
|
| Market |
|
| Unrealized |
| ||||
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
| ||||
Federal agency obligations |
| $ | - |
|
| $ | — |
|
| $ | 1,796 |
|
| $ | 4 |
|
Corporate obligations |
|
| 25,039 |
|
|
| 30 |
|
|
| 17,640 |
|
|
| 31 |
|
Total |
| $ | 25,039 |
|
| $ | 30 |
|
| $ | 19,436 |
|
| $ | 35 |
|
|
| As of December 31, 2016 |
| |||||||||||||
|
| Less Than 12 Months |
|
| 12 Months or Greater |
| ||||||||||
|
| Market |
|
| Unrealized |
|
| Market |
|
| Unrealized |
| ||||
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
| ||||
Federal agency obligations |
| $ | 1,793 |
|
| $ | 7 |
|
| $ | — |
|
| $ | — |
|
Corporate obligations |
|
| 53,647 |
|
|
| 129 |
|
|
| — |
|
|
| — |
|
Total |
| $ | 55,440 |
|
| $ | 136 |
|
| $ | — |
|
| $ | — |
|
Fair Value Measurements
The Company measures certain financial assets at fair value on a recurring basis, including cash equivalents and available-for-sale securities. The fair values of these financial assets have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.
Level 1 — Fair value based on quoted prices in active markets for identical assets or liabilities.
Level 2 — Fair value based on inputs other than Level 1 inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Fair value based on unobservable inputs that are supported by little or no market activity and such inputs are significant to the fair value of the assets or liabilities.
During the six months ended June 30, 2019 and 2018, the Company did not transfer assets or liabilities between levels of the fair value hierarchy. The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments)liabilities that are measured at fair value on a recurring basis (in thousands):
|
| As of September 30, 2017 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Money market funds (1) |
| $ | 763 |
|
| $ | — |
|
| $ | — |
|
| $ | 763 |
|
Federal agency obligations |
|
| — |
|
|
| 1,796 |
|
|
| — |
|
|
| 1,796 |
|
Corporate obligations |
|
| — |
|
|
| 52,223 |
|
|
| — |
|
|
| 52,223 |
|
Total |
| $ | 763 |
|
| $ | 54,019 |
|
| $ | — |
|
| $ | 54,782 |
|
|
| As of June 30, 2019 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1) |
| $ | 7,331 |
|
| $ | — |
|
| $ | — |
|
| $ | 7,331 |
|
Total Assets: |
| $ | 7,331 |
|
| $ | — |
|
| $ | — |
|
| $ | 7,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price (2) |
| $ | — |
|
| $ | — |
|
| $ | (4,269 | ) |
| $ | (4,269 | ) |
Total Liabilities: |
| $ | — |
|
| $ | — |
|
| $ | (4,269 | ) |
| $ | (4,269 | ) |
|
| As of December 31, 2016 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Money market funds (1) |
| $ | 2,522 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,522 |
|
Federal agency obligations |
|
| — |
|
|
| 1,793 |
|
|
| — |
|
|
| 1,793 |
|
Corporate obligations |
|
| — |
|
|
| 59,354 |
|
|
| — |
|
|
| 59,354 |
|
Total |
| $ | 2,522 |
|
| $ | 61,147 |
|
| $ | — |
|
| $ | 63,669 |
|
|
| As of December 31, 2018 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1) |
| $ | 255 |
|
| $ | — |
|
| $ | — |
|
| $ | 255 |
|
Total Assets: |
| $ | 255 |
|
| $ | — |
|
| $ | — |
|
| $ | 255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price (2) |
| $ | — |
|
| $ | — |
|
| $ | (4,196 | ) |
| $ | (4,196 | ) |
Total Liabilities: |
| $ | — |
|
| $ | — |
|
| $ | (4,196 | ) |
| $ | (4,196 | ) |
(1) | Included in cash and cash equivalents. |
(2) | $1.8 million is included in accrued expenses and other current liabilities, and $2.5 million and $2.4 million is included in non-current liabilities as of June 30, 2019 and December 31, 2018, respectively. |
Level 2 assets3 liabilities at June 30, 2019 consist entirely of the Company’s entire portfoliocontingent purchase price related to the acquisition of marketable investments.FeedbackNow. Changes in the fair value of Level 2 assets have been initially valued at3 contingent consideration for the transaction price and subsequently valued, at the end of each reporting period, typically utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation methods, including both income and market based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events.six months ended June 30, 2019 were as follows (in thousands):
| Contingent |
| |
| Consideration |
| |
Balance at December 31, 2018 | $ | (4,196 | ) |
Fair value adjustment of contingent purchase price (1) |
| (46 | ) |
Foreign exchange effect |
| (27 | ) |
Balance at June 30, 2019 | $ | (4,269 | ) |
(1) | This amount was recognized as acquisition and integration costs within the Consolidated Statements of Operations. As of June 30, 2019, the significant unobservable inputs used in the Monte Carlo simulation to fair value the contingent consideration included projected contract bookings, a discount rate of 17.3%, and revenue volatility of 26.6%. Increases or decreases in the inputs would result in a higher or lower fair value measurement. |
Note 47 — Non-Marketable Investments
At SeptemberJune 30, 20172019 and December 31, 2016,2018, the carrying value of the Company’s non-marketable investments, which were composed primarily of interests in technology-related private equity funds, was $1.5$2.4 million and $2.8$2.5 million, respectively, and is included in other assets in the Consolidated Balance Sheets.
The Company’s non-marketable investments at SeptemberJune 30, 20172019 are being accounted for using the equity method as the investments are limited partnerships and the Company has an ownership interest in excess of 5% and, accordingly, the Company records its share of the investee’s operating results each period. Losses from non-marketable investments were $0.8 million and $1.0 millionimmaterial during the three and ninesix months ended SeptemberJune 30, 2017. Losses from non-marketable investments were $1.1 million2019 and $1.2 million during the three and nine months ended September 30, 2016.2018. Losses are included in Losseslosses on investments, net in the Consolidated Statements of Income. At December 31, 2016, the Company’s investments also included an investment with a book value of $0.4 million, which was accounted for using the cost method. This investment was fully liquidated during the three months ended March 31, 2017. Operations. During the three and six months ended SeptemberJune 30, 2017,2019 and 2018, no distributions were received from the funds. During the nine months ended September 30, 2017, distributions of $0.4 million were received from the funds. During the nine months ended September 30, 2016, no distributions were received from the funds.
Note 5 — Reorganization8 – Contract Assets and Liabilities
Accounts Receivable
Accounts receivable includes amounts billed and currently due from customers. Since the only condition for payment of our invoices is the passage of time, the Company records a receivable on the date the invoice is issued. Also included in accounts receivable are unbilled amounts resulting from revenue exceeding the amount billed to the customer, where the right to payment is unconditional. If the right to payment for services performed was conditional on something other than the passage of time, the unbilled amount would be recorded as a separate contract asset. There were no contract assets as of June 30, 2019 or 2018.
The majority of the Company’s contracts are non-cancellable. However, for contracts that are cancellable by the customer, the Company does not record a receivable when it issues an invoice. The Company records accounts receivable on these contracts only up to the amount of revenue earned but not yet collected.
In addition, since the majority of the Company’s contracts are for a duration of one year and payment is expected within one year from the transfer of products and services, the Company does not adjust its receivables or transaction price for the effects of a significant financing component.
Deferred Revenue
The Company refers to contract liabilities as deferred revenue on the Consolidated Balance Sheets. Payment terms in the Company’s customer contracts vary, but generally require payment in advance of fully satisfying the performance obligation(s). Deferred revenue consists of billings in excess of revenue recognized. Similar to accounts receivable, the Company does not record deferred revenue for invoices issued on a cancellable contract.
InDuring the first quarter of 2016,three and six months ended June 30, 2019, the Company implementedrecognized approximately $53.5 million and $111.6 million of revenue related to its deferred revenue balance at January 1, 2019. During the three and six months ended June 30, 2018, the Company recognized approximately $45.9 million and $103.9 million of revenue related to its deferred revenue balance at January 1, 2018. To determine revenue recognized in the current period from deferred revenue at the beginning of the period, the Company first allocates revenue to the individual deferred revenue balance outstanding at the beginning of the period, until the revenue equals that balance.
Approximately $325.0 million of revenue is expected to be recognized during the next 12 to 24 months from remaining performance obligations as of June 30, 2019.
Cost to Obtain Contracts
The Company capitalizes commissions paid to internal sales representatives and related fringe benefits costs that are incremental to obtaining customer contracts. These costs are included in deferred commissions on the Consolidated Balance Sheets. The Company accounts for these costs at a reductionportfolio level as the Company’s contracts are similar in its workforcenature and the amortization model used closely matches the amortization expense that would be recognized on a contract-by-contract basis. Costs to obtain a contract are amortized to operations as the related revenue is recognized over the initial contract term. Amortization expense related to deferred commissions was $8.9 million and $16.0 million for the three and six months ended June 30, 2019, respectively. Amortization expense related to deferred commissions was $8.2 million and $15.2 million for the three and six months ended June 30, 2018, respectively. The Company evaluates the recoverability of approximately 2%deferred commissions at each balance sheet date.
Note 9 — Income Taxes
Forrester provides for income taxes on an interim basis according to management’s estimate of its employees across various geographiesthe effective tax rate expected to be applicable for the full fiscal year. Certain items such as changes in tax rates, tax benefits or expense related to settlements of share-based payment awards, and functions.foreign currency gains or losses are treated as discrete items and are recorded in the period in which they arise.
Income tax expense for the six months ended June 30, 2019 was $0.7 million resulting in an effective tax rate of (6.0)% for the period. The Company recorded $1.0a $0.6 million of severance and related costs for this actiondiscrete tax expense during the threesix months ended March 31, 2016. All costs underJune 30, 2019 due to the settlement of a U.S. Competent Authority claim during the period. The Company anticipates that its effective tax rate for the full year 2019 will be approximately (10)% to (5)% due to a projected pretax loss for the year and a minimal amount of tax expense for the year due to non-deductible expense items and tax expense related to the Competent Authority claim. Income tax expense for the six months ended June 30, 2018 was $2.8 million resulting in an effective tax rate of 31.6% for the period.
In July 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. The opinion invalidated part of a treasury regulation requiring stock-based compensation to be included in any qualified intercompany cost-sharing arrangement. The Company previously recorded a tax benefit based on the opinion in the case. In June 2019, the U.S. Court of Appeals for Ninth Circuit reversed the U.S. Tax Court’s decision. Currently, Altera Corp. submitted its appeal for an en banc rehearing before the U.S. Court of Appeals for the Ninth Circuit. Due to the uncertainty surrounding the status of the current regulations and questions related to jurisdiction, the Company has determined no adjustment is required to the consolidated financial statements as a result of this plan were paid during 2016.ruling. The Company will continue to monitor ongoing developments and potential impacts to its consolidated financial statements.
Note 610 — Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) by the basic weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the diluted weighted average number of common shares and common equivalent shares outstanding during the period. The weighted average number of common equivalent shares outstanding has been determined in accordance with the treasury-stock method. Common equivalent shares consist of common stock issuable on the exercise of outstanding stock options and the vesting of restricted stock units when dilutive.units.
Basic and diluted weighted average common shares are as follows (in thousands):
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Basic weighted average common shares outstanding |
| 17,747 |
|
|
| 18,062 |
|
|
| 17,897 |
|
|
| 17,896 |
|
|
| 18,435 |
|
|
| 17,965 |
|
|
| 18,399 |
|
|
| 18,001 |
|
Weighted average common equivalent shares |
| 304 |
|
|
| 373 |
|
|
| 315 |
|
|
| 272 |
|
|
| 345 |
|
|
| 325 |
|
|
| — |
|
|
| 312 |
|
Diluted weighted average common shares outstanding |
| 18,051 |
|
|
| 18,435 |
|
|
| 18,212 |
|
|
| 18,168 |
|
|
| 18,780 |
|
|
| 18,290 |
|
|
| 18,399 |
|
|
| 18,313 |
|
Share based awards excluded from diluted weighted average share calculation as effect would have been anti-dilutive |
| 27 |
|
|
| 82 |
|
|
| 177 |
|
|
| 910 |
| ||||||||||||||||
Options and restricted stock units excluded from diluted weighted average share calculation as effect would have been anti-dilutive |
|
| 1 |
|
|
| 14 |
|
|
| 1,084 |
|
|
| 14 |
|
Note 711 — Stockholders’ Equity
The components of stockholders’ equity are as follows (in thousands):
| Common Stock |
|
|
|
|
|
|
|
|
|
| Treasury Stock |
|
| Accumulated |
|
|
|
|
| |||||||||||
| Number |
|
| $0.01 |
|
| Additional |
|
|
|
|
|
| Number |
|
|
|
|
|
| Other |
|
|
|
|
| |||||
| of |
|
| Par |
|
| Paid-in |
|
| Retained |
|
| of |
|
|
|
|
|
| Comprehensive |
|
| Total |
| |||||||
| Shares |
|
| Value |
|
| Capital |
|
| Earnings |
|
| Shares |
|
| Cost |
|
| Income (Loss) |
|
| Equity |
| ||||||||
Balance at January 1, 2019 |
| 22,951 |
|
| $ | 230 |
|
| $ | 200,696 |
|
| $ | 127,717 |
|
|
| 4,631 |
|
| $ | (171,889 | ) |
| $ | (5,154 | ) |
| $ | 151,600 |
|
Issuance of common stock under stock plans, net |
| 138 |
|
|
| 1 |
|
|
| 4,149 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,150 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 5,533 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,533 |
|
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (11,761 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,761 | ) |
Foreign currency translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 164 |
|
|
| 164 |
|
Balance at June 30, 2019 |
| 23,089 |
|
| $ | 231 |
|
| $ | 210,378 |
|
| $ | 115,956 |
|
|
| 4,631 |
|
| $ | (171,889 | ) |
| $ | (4,990 | ) |
| $ | 149,686 |
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| Treasury Stock |
|
| Accumulated |
|
|
|
|
| |||||||||||
| Number |
|
| $0.01 |
|
| Additional |
|
|
|
|
|
| Number |
|
|
|
|
|
| Other |
|
|
|
|
| |||||
| of |
|
| Par |
|
| Paid-in |
|
| Retained |
|
| of |
|
|
|
|
|
| Comprehensive |
|
| Total |
| |||||||
| Shares |
|
| Value |
|
| Capital |
|
| Earnings |
|
| Shares |
|
| Cost |
|
| Income (Loss) |
|
| Equity |
| ||||||||
Balance at January 1, 2018 |
| 22,432 |
|
| $ | 224 |
|
| $ | 181,910 |
|
| $ | 123,010 |
|
|
| 4,391 |
|
| $ | (161,943 | ) |
| $ | (2,012 | ) |
| $ | 141,189 |
|
Issuance of common stock under stock plans, net |
| 132 |
|
|
| 2 |
|
|
| 3,573 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,575 |
|
Cumulative effect adjustment due to adoption of new accounting pronouncements |
| — |
|
|
| — |
|
|
| — |
|
|
| 3,829 |
|
|
| — |
|
|
| — |
|
|
| (26 | ) |
|
| 3,803 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 4,071 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,071 |
|
Repurchases of common stock |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 233 |
|
|
| (9,642 | ) |
|
| — |
|
|
| (9,642 | ) |
Dividends paid on common shares |
| — |
|
|
| — |
|
|
| — |
|
|
| (7,196 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,196 | ) |
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 6,055 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,055 |
|
Net change in marketable investments, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (53 | ) |
|
| (53 | ) |
Foreign currency translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,691 | ) |
|
| (1,691 | ) |
Balance at June 30, 2018 |
| 22,564 |
|
| $ | 226 |
|
| $ | 189,554 |
|
| $ | 125,698 |
|
|
| 4,624 |
|
| $ | (171,585 | ) |
| $ | (3,782 | ) |
| $ | 140,111 |
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| Treasury Stock |
|
| Accumulated |
|
|
|
|
| |||||||||||
| Number |
|
| $0.01 |
|
| Additional |
|
|
|
|
|
| Number |
|
|
|
|
|
| Other |
|
|
|
|
| |||||
| of |
|
| Par |
|
| Paid-in |
|
| Retained |
|
| of |
|
|
|
|
|
| Comprehensive |
|
| Total |
| |||||||
| Shares |
|
| Value |
|
| Capital |
|
| Earnings |
|
| Shares |
|
| Cost |
|
| Income (Loss) |
|
| Equity |
| ||||||||
Balance at April 1, 2019 |
| 23,050 |
|
| $ | 231 |
|
| $ | 206,655 |
|
| $ | 114,401 |
|
|
| 4,631 |
|
| $ | (171,889 | ) |
| $ | (5,584 | ) |
| $ | 143,814 |
|
Issuance of common stock under stock plans, net |
| 39 |
|
|
| — |
|
|
| 875 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 875 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 2,848 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,848 |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 1,555 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,555 |
|
Foreign currency translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 594 |
|
|
| 594 |
|
Balance at June 30, 2019 |
| 23,089 |
|
| $ | 231 |
|
| $ | 210,378 |
|
| $ | 115,956 |
|
|
| 4,631 |
|
| $ | (171,889 | ) |
| $ | (4,990 | ) |
| $ | 149,686 |
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| Treasury Stock |
|
| Accumulated |
|
|
|
|
| |||||||||||
| Number |
|
| $0.01 |
|
| Additional |
|
|
|
|
|
| Number |
|
|
|
|
|
| Other |
|
|
|
|
| |||||
| of |
|
| Par |
|
| Paid-in |
|
| Retained |
|
| of |
|
|
|
|
|
| Comprehensive |
|
| Total |
| |||||||
| Shares |
|
| Value |
|
| Capital |
|
| Earnings |
|
| Shares |
|
| Cost |
|
| Income (Loss) |
|
| Equity |
| ||||||||
Balance at April 1, 2018 |
| 22,514 |
|
| $ | 225 |
|
| $ | 186,335 |
|
| $ | 121,495 |
|
|
| 4,497 |
|
| $ | (166,310 | ) |
| $ | (450 | ) |
| $ | 141,295 |
|
Issuance of common stock under stock plans, net |
| 50 |
|
|
| 1 |
|
|
| 1,111 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,112 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 2,108 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,108 |
|
Repurchases of common stock |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 127 |
|
|
| (5,275 | ) |
|
| — |
|
|
| (5,275 | ) |
Dividends paid on common shares |
| — |
|
|
| — |
|
|
| — |
|
|
| (3,585 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,585 | ) |
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 7,788 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,788 |
|
Net change in marketable investments, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 62 |
|
|
| 62 |
|
Foreign currency translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,394 | ) |
|
| (3,394 | ) |
Balance at June 30, 2018 |
| 22,564 |
|
| $ | 226 |
|
| $ | 189,554 |
|
| $ | 125,698 |
|
|
| 4,624 |
|
| $ | (171,585 | ) |
| $ | (3,782 | ) |
| $ | 140,111 |
|
Equity Plans
Restricted stock unit activity for the six months ended June 30, 2019 is presented below (in thousands, except per share data):
|
|
|
|
|
| Weighted- |
| |
|
|
|
|
|
| Average |
| |
|
| Number of |
|
| Grant Date |
| ||
|
| Shares |
|
| Fair Value |
| ||
Unvested at December 31, 2018 |
|
| 497 |
|
| $ | 40.89 |
|
Granted |
|
| 190 |
|
|
| 45.14 |
|
Vested |
|
| (22 | ) |
|
| 38.89 |
|
Forfeited |
|
| (39 | ) |
|
| 43.10 |
|
Unvested at June 30, 2019 |
|
| 626 |
|
| $ | 42.11 |
|
Stock option activity for the ninesix months ended SeptemberJune 30, 20172019 is presented below (in thousands, except per share data and contractual term):
|
|
|
|
|
| Weighted - |
|
| Weighted - |
|
|
|
|
| ||
|
|
|
|
|
| Average |
|
| Average |
|
|
|
|
| ||
|
|
|
|
|
| Exercise |
|
| Remaining |
|
| Aggregate |
| |||
|
| Number |
|
| Price Per |
|
| Contractual |
|
| Intrinsic |
| ||||
|
| of Shares |
|
| Share |
|
| Term (in years) |
|
| Value |
| ||||
Outstanding at December 31, 2016 |
|
| 1,540 |
|
| $ | 34.35 |
|
|
|
|
|
|
|
|
|
Granted |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (385 | ) |
|
| 32.32 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (73 | ) |
|
| 34.44 |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2017 |
|
| 1,082 |
|
| $ | 35.07 |
|
|
| 6.01 |
|
| $ | 7,332 |
|
Exercisable at September 30, 2017 |
|
| 771 |
|
| $ | 34.92 |
|
|
| 5.36 |
|
| $ | 5,340 |
|
Vested and expected to vest at September 30, 2017 |
|
| 1,082 |
|
| $ | 35.07 |
|
|
| 6.01 |
|
| $ | 7,332 |
|
|
|
|
|
|
| Weighted - |
|
| Weighted - |
|
|
|
|
| ||
|
|
|
|
|
| Average |
|
| Average |
|
|
|
|
| ||
|
|
|
|
|
| Exercise |
|
| Remaining |
|
| Aggregate |
| |||
|
| Number |
|
| Price Per |
|
| Contractual |
|
| Intrinsic |
| ||||
|
| of Shares |
|
| Share |
|
| Term (in years) |
|
| Value |
| ||||
Outstanding at December 31, 2018 |
|
| 583 |
|
| $ | 35.27 |
|
|
|
|
|
|
|
|
|
Granted |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (95 | ) |
|
| 34.31 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (18 | ) |
|
| 35.46 |
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2019 |
|
| 470 |
|
| $ | 35.46 |
|
|
| 4.62 |
|
| $ | 5,433 |
|
Exercisable at June 30, 2019 |
|
| 404 |
|
| $ | 35.67 |
|
|
| 4.34 |
|
| $ | 4,589 |
|
Vested and expected to vest at June 30, 2019 |
|
| 470 |
|
| $ | 35.46 |
|
|
| 4.62 |
|
| $ | 5,433 |
|
Restricted stock unit activity for the nine months ended September 30, 2017 is presented below (in thousands, except per share data):
|
|
|
|
|
| Weighted- |
| |
|
|
|
|
|
| Average |
| |
|
| Number of |
|
| Grant Date |
| ||
|
| Shares |
|
| Fair Value |
| ||
Unvested at December 31, 2016 |
|
| 539 |
|
| $ | 35.50 |
|
Granted |
|
| 241 |
|
|
| 39.58 |
|
Vested |
|
| (205 | ) |
|
| 35.28 |
|
Forfeited |
|
| (51 | ) |
|
| 36.01 |
|
Unvested at September 30, 2017 |
|
| 524 |
|
| $ | 37.42 |
|
Stock-Based Compensation
Forrester recognizes the fair value of stock-based compensation in net income (loss) over the requisite service period of the individual grantee, which generally equals the vesting period. Stock-based compensation was recorded in the following expense categories (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Cost of services and fulfillment |
| $ | 1,088 |
|
| $ | 1,077 |
|
| $ | 3,387 |
|
| $ | 3,141 |
|
| $ | 1,567 |
|
| $ | 1,108 |
|
| $ | 3,030 |
|
| $ | 2,127 |
|
Selling and marketing |
|
| 170 |
|
|
| 272 |
|
|
| 535 |
|
|
| 695 |
|
|
| 485 |
|
|
| 246 |
|
|
| 925 |
|
|
| 491 |
|
General and administrative |
|
| 920 |
|
|
| 622 |
|
|
| 2,501 |
|
|
| 1,895 |
|
|
| 796 |
|
|
| 754 |
|
|
| 1,578 |
|
|
| 1,453 |
|
Total |
| $ | 2,178 |
|
| $ | 1,971 |
|
| $ | 6,423 |
|
| $ | 5,731 |
|
| $ | 2,848 |
|
| $ | 2,108 |
|
| $ | 5,533 |
|
| $ | 4,071 |
|
Forrester utilizes the Black-Scholes valuation model for estimating the fair value of shares subject to purchase under the employee stock purchase plan, which were valued using the following assumptions:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Average risk-free interest rate |
|
| 0.96 | % |
|
| 0.47 | % |
|
| 0.81 | % |
|
| 0.47 | % |
|
| 2.51 | % |
|
| 1.92 | % |
|
| 2.51 | % |
|
| 1.62 | % |
Expected dividend yield |
|
| 1.9 | % |
|
| 2.0 | % |
|
| 1.9 | % |
|
| 2.0 | % |
|
| 0.0 | % |
|
| 2.0 | % |
|
| 0.0 | % |
|
| 2.0 | % |
Expected life |
| 0.5 Years |
|
| 0.5 Years |
|
| 0.5 Years |
|
| 0.5 Years |
|
| 0.5 Years |
|
| 0.5 Years |
|
| 0.5 Years |
|
| 0.5 Years |
| ||||||||
Expected volatility |
|
| 26 | % |
|
| 26 | % |
|
| 24 | % |
|
| 25 | % |
|
| 34 | % |
|
| 22 | % |
|
| 34 | % |
|
| 22 | % |
Weighted average fair value |
| $ | 8.50 |
|
| $ | 7.52 |
|
| $ | 8.32 |
|
| $ | 7.75 |
|
| $ | 12.50 |
|
| $ | 8.49 |
|
| $ | 12.50 |
|
| $ | 8.50 |
|
Dividends
As a result of the acquisition of SiriusDecisions on January 3, 2019 and the related debt incurred to fund the acquisition, the Company suspended its dividend program beginning in 2019. Accordingly, the Company did not declare or pay any dividends in the three and six months ended June 30, 2019. In the ninesix months ended SeptemberJune 30, 2017,2018, the Company declared and paid two quarterly dividends of $10.2 million consisting of a $0.19$0.20 per share dividendor $7.2 million in each of the first three quarters of 2017. In the nine months ended September 30, 2016, the Company declared and paid dividends of $9.7 million consisting of a $0.18 per share dividend in each of the first three quarters of 2016. In October 2017, the Company declared a dividend of $0.19 per share payable on December 20, 2017 to shareholders of record as of December 6, 2017.aggregate.
Treasury Stock
As of SeptemberJune 30, 2017,2019, Forrester’s Board of Directors had authorized an aggregate $485.0$535.0 million to purchase common stock under its stock repurchase program. The shares repurchased may be used, among other things, in connection with Forrester’s equity incentive and purchase plans. In the six months ended June 30, 2019, the Company did not repurchase any shares of common stock. In the three and ninesix months ended SeptemberJune 30, 2017,2018, the Company repurchased approximately 0.1 and 1.1 million shares, respectively, of common stock at an aggregate cost of approximately $3.5 million and $40.0 million, respectively. The Company did not repurchase shares of common stock in the nine months ended September 30, 2016. From the inception of the program through September 30, 2017, Forrester repurchased 16.10.2 million shares of common stock at an aggregate cost of $464.9approximately $5.3 million and $9.6 million, respectively. From the inception of the program through June 30, 2019, the Company repurchased 16.3 million shares of common stock at an aggregate cost of $474.9 million.
Note 812 — Income TaxesOperating Segments
Forrester provides for income taxes on an interim basis according to management’s estimateIn conjunction with the acquisition of the effective tax rate expected to be applicable for the full fiscal year. Certain items such as changes in tax rates and tax benefits or expense related to settlements of share-based payment awards are treated as discrete items and are recorded in the period in which they arise.
Income tax expense for the nine months ended September 30, 2017 was $6.3 million resulting in an effective tax rate of 32.6% for the period. Income tax expense for the nine months ended September 30, 2016 was $9.1 million resulting in an effective tax rate of 43.4% for the period. The decrease in the effective tax rate during the nine months ended September 30, 2017 compared to the prior year period was primarily due to the recognition of a $1.3 million benefit from the settlement of a tax auditSiriusDecisions in the first quarter of 20172019, the Company realigned its management structure into Products, Research and SiriusDecisions.
The Products segment includes the recognition of approximately $0.3 million of windfall tax benefits from the settlement of options and restricted stock units during the third quarter of 2017. In addition, in 2016 an additional $0.6 million of tax expense was incurred due to a valuation allowance on a capital loss generated from onerevenues of the Company’s investments. ForConnect, Analytics, and Events products (excluding the full year 2017, the Company anticipates that its effective tax rate will be approximately 35%.
Note 9 — Operating Segments
The Research segment includesrevenues from SiriusDecisions products) and the costs of the Company’s research personnel who areorganizations responsible for writing the researchdeveloping and performing the webinars and inquiries for the Company’s Research and Connectdelivering these products. In addition, this segment includes Consulting revenues from the research personnel deliver advisory services (such as workshops, speeches and advisory days) andproject consulting organization that is included in this segment. The project consulting organization delivers a portionmajority of the Company’s project consulting services. Revenue in this segment includes only revenue from(excluding SiriusDecisions consulting) and certain advisory services and project consulting services that are delivered byprimarily related to the research personnel in this segment.
The ProductAnalytics product line. This segment also includes the costs of the product management organization that is responsible for product pricing and packaging and the launch of new products.
The Research segment includes the revenues of the Research products and the cost of the organizations responsible for developing and delivering the Research products (excluding the costs and revenues from SiriusDecisions products). In addition, this segment includes Consulting revenues primarily from the delivery of advisory services (such as workshops, speeches and advisory days) delivered by the Company’s research analysts.
The SiriusDecisions segment includes the revenues of the legacy SiriusDecisions products and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes the costs of marketing, technology development and business support departments of the Company’s Data, Connect and Events organizations. Revenue in this segment includes all revenue for the Company (including Research and Connect) except for revenue from advisory services and project consulting services that are delivered by personnel in the Research and Project Consulting segments.legacy SiriusDecisions business.
The Project Consulting segment includes the costs of the consultants that deliver the majority of the Company’s project consulting services. Revenue in this segment includes the project consulting revenue delivered by the consultants in this segment.
The Company evaluates reportable segment performance and allocates resources based on segment revenues and expenses. Segment expenses include the direct expenses of each segment organization and exclude, except as noted above for the SiriusDecisions segment, selling and marketing expenses, certain client support expenses, general and administrative expenses, stock-based compensation expense, depreciation expense, adjustments to incentive bonus compensation from target amounts, amortization of intangible assets, reorganization costs,interest and other income,expense, and losses on investments. The accounting policies used by the segments are the same as those used in the consolidated financial statements.
In the first quarter of 2017, theThe Company modified its internal reporting for the Research and Project Consulting segments to reflect the transfer ofis providing disaggregated revenue and direct costs related to a small consulting team in Asia Pacific from Research to Project Consulting, and to remove from both Research and Project Consulting certain client support activities that are now included within selling, marketing, administrative and other expensesby product in the table below. Accordingly, the 2016segment tables below (in thousands). The 2018 amounts have been reclassified to conform to the current presentation.
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
|
| Products |
|
| Research |
|
| Sirius Decisions |
|
| Consolidated |
| |||||
Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research |
| $ | — |
|
| $ | 41,506 |
|
| $ | 14,799 |
|
| $ | 56,305 |
| ||||||||||||||||
Connect |
|
| 13,525 |
|
|
| — |
|
|
| 542 |
|
|
| 14,067 |
| ||||||||||||||||
Analytics |
|
| 5,907 |
|
|
| — |
|
|
| — |
|
|
| 5,907 |
| ||||||||||||||||
Total research services revenues |
|
| 19,432 |
|
|
| 41,506 |
|
|
| 15,341 |
|
|
| 76,279 |
| ||||||||||||||||
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Three Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research services revenues |
| $ | 54,235 |
|
| $ | — |
|
| $ | — |
|
| $ | 54,235 |
| ||||||||||||||||
Advisory services and events revenues |
|
| 3,353 |
|
|
| 10,379 |
|
|
| 12,402 |
|
|
| 26,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 19,021 |
|
|
| 13,503 |
|
|
| 1,493 |
|
|
| 34,017 |
| ||||||||||||||||
Events |
|
| 7,194 |
|
|
| — |
|
|
| 10,693 |
|
|
| 17,887 |
| ||||||||||||||||
Total advisory services and events revenues |
|
| 26,215 |
|
|
| 13,503 |
|
|
| 12,186 |
|
|
| 51,904 |
| ||||||||||||||||
Total segment revenues |
|
| 57,588 |
|
|
| 10,379 |
|
|
| 12,402 |
|
|
| 80,369 |
|
|
| 45,647 |
|
|
| 55,009 |
|
|
| 27,527 |
|
|
| 128,183 |
|
Segment expenses |
|
| 9,764 |
|
|
| 11,953 |
|
|
| 6,443 |
|
|
| 28,160 |
|
|
| 23,431 |
|
|
| 13,747 |
|
|
| 15,498 |
|
|
| 52,676 |
|
Contribution margin (loss) |
|
| 47,824 |
|
|
| (1,574 | ) |
|
| 5,959 |
|
|
| 52,209 |
| ||||||||||||||||
Contribution margin |
|
| 22,216 |
|
|
| 41,262 |
|
|
| 12,029 |
|
|
| 75,507 |
| ||||||||||||||||
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (45,263 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (63,299 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (197 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5,099 | ) |
Reorganization costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||||||||||||||
Other income and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (626 | ) | ||||||||||||||||
Acquisition and integration costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,487 | ) | ||||||||||||||||
Interest, other expense and loss on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,179 | ) | ||||||||||||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 6,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,443 |
|
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
| |
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
| ||||
Three Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
| $ | 52,727 |
|
| $ | — |
|
| $ | — |
|
| $ | 52,727 |
|
Advisory services and events revenues |
|
| 2,333 |
|
|
| 10,330 |
|
|
| 12,037 |
|
|
| 24,700 |
|
Total segment revenues |
|
| 55,060 |
|
|
| 10,330 |
|
|
| 12,037 |
|
|
| 77,427 |
|
Segment expenses |
|
| 8,884 |
|
|
| 11,586 |
|
|
| 5,522 |
|
|
| 25,992 |
|
Contribution margin (loss) |
|
| 46,176 |
|
|
| (1,256 | ) |
|
| 6,515 |
|
|
| 51,435 |
|
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (43,675 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (208 | ) |
Reorganization costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Other income and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (856 | ) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 6,696 |
|
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
|
| Products |
|
| Research |
|
| Sirius Decisions |
|
| Consolidated |
| |||||
Three Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research |
| $ | — |
|
| $ | 41,055 |
|
| $ | — |
|
| $ | 41,055 |
| ||||||||||||||||
Connect |
|
| 12,538 |
|
|
| — |
|
|
| — |
|
|
| 12,538 |
| ||||||||||||||||
Analytics |
|
| 4,707 |
|
|
| — |
|
|
| — |
|
|
| 4,707 |
| ||||||||||||||||
Total research services revenues |
|
| 17,245 |
|
|
| 41,055 |
|
|
| — |
|
|
| 58,300 |
| ||||||||||||||||
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research services revenues |
| $ | 160,553 |
|
| $ | — |
|
| $ | — |
|
| $ | 160,553 |
| ||||||||||||||||
Advisory services and events revenues |
|
| 15,714 |
|
|
| 32,279 |
|
|
| 38,750 |
|
|
| 86,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 16,363 |
|
|
| 13,681 |
|
|
| — |
|
|
| 30,044 |
| ||||||||||||||||
Events |
|
| 8,009 |
|
|
| — |
|
|
| — |
|
|
| 8,009 |
| ||||||||||||||||
Total advisory services and events revenues |
|
| 24,372 |
|
|
| 13,681 |
|
|
| — |
|
|
| 38,053 |
| ||||||||||||||||
Total segment revenues |
|
| 176,267 |
|
|
| 32,279 |
|
|
| 38,750 |
|
|
| 247,296 |
|
|
| 41,617 |
|
|
| 54,736 |
|
|
| — |
|
|
| 96,353 |
|
Segment expenses |
|
| 32,788 |
|
|
| 36,510 |
|
|
| 18,886 |
|
|
| 88,184 |
|
|
| 20,985 |
|
|
| 13,378 |
|
|
| — |
|
|
| 34,363 |
|
Contribution margin (loss) |
|
| 143,479 |
|
|
| (4,231 | ) |
|
| 19,864 |
|
|
| 159,112 |
| ||||||||||||||||
Contribution margin |
|
| 20,632 |
|
|
| 41,358 |
|
|
| — |
|
|
| 61,990 |
| ||||||||||||||||
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (138,432 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (50,452 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (582 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (182 | ) |
Reorganization costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||||||||||||||
Other income and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (749 | ) | ||||||||||||||||
Acquisition and integration costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (329 | ) | ||||||||||||||||
Other expense and loss on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 251 |
| ||||||||||||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 19,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 11,278 |
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sirius |
|
|
|
|
| |||
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
|
| Product |
|
| Research |
|
| Decisions |
|
| Consolidated |
| ||||||||
Nine Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Six Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research services revenues |
| $ | 160,998 |
|
| $ | — |
|
| $ | — |
|
| $ | 160,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | — |
|
| $ | 77,943 |
|
| $ | 28,142 |
|
| $ | 106,085 |
| ||||||||||||||||
Connect |
|
| 26,640 |
|
|
| — |
|
|
| 998 |
|
|
| 27,638 |
| ||||||||||||||||
Analytics |
|
| 11,165 |
|
|
| — |
|
|
| — |
|
|
| 11,165 |
| ||||||||||||||||
Total research services revenues |
|
| 37,805 |
|
|
| 77,943 |
|
|
| 29,140 |
|
|
| 144,888 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Advisory services and events revenues |
|
| 14,191 |
|
|
| 33,244 |
|
|
| 34,216 |
|
|
| 81,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 36,858 |
|
|
| 26,271 |
|
|
| 2,675 |
|
|
| 65,804 |
| ||||||||||||||||
Events |
|
| 7,221 |
|
|
| — |
|
|
| 10,919 |
|
|
| 18,140 |
| ||||||||||||||||
Total advisory services and events revenues |
|
| 44,079 |
|
|
| 26,271 |
|
|
| 13,594 |
|
|
| 83,944 |
| ||||||||||||||||
Total segment revenues |
|
| 175,189 |
|
|
| 33,244 |
|
|
| 34,216 |
|
|
| 242,649 |
|
|
| 81,884 |
|
|
| 104,214 |
|
|
| 42,734 |
|
|
| 228,832 |
|
Segment expenses |
|
| 30,306 |
|
|
| 36,026 |
|
|
| 17,465 |
|
|
| 83,797 |
|
|
| 41,608 |
|
|
| 27,776 |
|
|
| 24,908 |
|
|
| 94,292 |
|
Contribution margin (loss) |
|
| 144,883 |
|
|
| (2,782 | ) |
|
| 16,751 |
|
|
| 158,852 |
| ||||||||||||||||
Contribution margin |
|
| 40,276 |
|
|
| 76,438 |
|
|
| 17,826 |
|
|
| 134,540 |
| ||||||||||||||||
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (135,463 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (124,039 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (627 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (11,309 | ) |
Reorganization costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,026 | ) | ||||||||||||||||
Other income and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (765 | ) | ||||||||||||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 20,971 |
| ||||||||||||||||
Acquisition and integration costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5,454 | ) | ||||||||||||||||
Interest expense, other income and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,837 | ) | ||||||||||||||||
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (11,099 | ) |
|
|
|
|
|
|
|
|
|
| Sirius |
|
|
|
|
| |
|
| Products |
|
| Research |
|
| Decisions |
|
| Consolidated |
| ||||
Six Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | — |
|
| $ | 75,698 |
|
| $ | — |
|
| $ | 75,698 |
|
Connect |
|
| 25,102 |
|
|
| — |
|
|
| — |
|
|
| 25,102 |
|
Analytics |
|
| 9,200 |
|
|
| — |
|
|
| — |
|
|
| 9,200 |
|
Total research services revenues |
|
| 34,302 |
|
|
| 75,698 |
|
|
| — |
|
|
| 110,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services and events revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 30,770 |
|
|
| 25,323 |
|
|
| — |
|
|
| 56,093 |
|
Events |
|
| 8,009 |
|
|
| — |
|
|
| — |
|
|
| 8,009 |
|
Total advisory services and events revenues |
|
| 38,779 |
|
|
| 25,323 |
|
|
| — |
|
|
| 64,102 |
|
Total segment revenues |
|
| 73,081 |
|
|
| 101,021 |
|
|
| — |
|
|
| 174,102 |
|
Segment expenses |
|
| 37,041 |
|
|
| 26,789 |
|
|
| — |
|
|
| 63,830 |
|
Contribution margin |
|
| 36,040 |
|
|
| 74,232 |
|
|
| — |
|
|
| 110,272 |
|
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (100,836 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (368 | ) |
Acquisition and integration costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (329 | ) |
Other income and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 108 |
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 8,847 |
|
Note 1013 — Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes all existing revenue recognition requirements, including most industry specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The guidance also includes enhanced disclosure requirements which are intended to help financial statement users better understand the nature, amount, timing and uncertainty of revenue being recognized and the related cash flows. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance obligations and licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients, which relates to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, noncash consideration and the presentation of sales and other similar taxes collected from customers. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements: Revenue from Contracts with Customers, which clarifies several topics including, certain types of transactions that are outside the scope of the new standard, disclosure requirements and balance sheet considerations.
The new standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company has determined that it will adopt the standard utilizing the modified retrospective method.
In 2016, Forrester established a formal program and cross-functional implementation team to identify, design and implement changes to its accounting systems and policies, business processes and internal controls to support recognition and disclosures under the new standard. The Company believes that it has essentially completed its assessment of how the new standard will affect the Company’s revenue recognition for all of its products and services, and will complete its accounting system and business process changes by the end of 2017.
The Company does not anticipate that the standard will have a material impact on its results of operations. The number of performance obligations in the Company’s arrangements will not be different under the new standard than under current guidance. Determining standalone selling prices and allocating contract consideration on multiple element arrangements will follow a similar process as the Company’s current methodologies of establishing fair value / estimated selling price for our goods and services or allocating total contract consideration under the relative selling price method. Additionally, the timing of revenue recognition will remain substantially unchanged for most products. Subscription based research services revenues will continue to be recognized over time, using the new standard’s output method of time elapsed, as Forrester’s clients receive and consume the benefits of our services as we transfer control throughout the contract period. Advisory, reprint and events revenues will continue to be recognized at the point in time as control is transferred to the customer, which will generally be when the client has physical possession of the good(s) or upon completion of the service(s). The Company expects that most of its consulting contracts will continue to be recognized over time, while some contracts may be required to be recognized at a point in time upon completion of the project.
The following changes are anticipated under the new standard:
The Company will no longer record accounts receivable and deferred revenue on its balance sheet when it issues an invoice to a customer for a contract that is cancellable by the customer. For contracts that are cancellable, the Company will only record accounts receivable up to the amount of revenue earned but not yet collected. This change will have the effect of reducing the amount of accounts receivable and deferred revenue on the balance sheet compared to amounts recorded based on current accounting standards. The majority of the Company’s contracts are non-cancellable; however, the Company has not yet determined the effect of this change on its balance sheet.
Key areas still in process include the evaluation of costs to fulfill contracts and completion and testing of new functionality of the Company’s existing software systems that is being implemented as part of this project. The adoption program and all remaining activities, including updates to the Company’s systems, processes, policies and controls, are expected to be completed by the end of 2017. In addition, report development and testing for disclosure requirements in 2018 will be completed in the first quarter of 2018.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The adoption of this standard is expected to have a material impact on the Company’s financial position as virtually all leases will be recorded on the balance sheets as a right-of-use asset and a lease liability. The Company is currently evaluating the potential impact that this standard may have on its results of operations.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The new standard amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The new standard will be effective for the Company on January 1, 2020. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new standard clarifies certain aspects of the statement of cash flows, including contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees, among others. The new standard will be effective for the Company on January 1, 2018. The adoption of this standard is not expected to have a material impact on the Company’s statements of cash flows upon adoption.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test and requires that instead, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The new standard will be effective for the Company on January 1, 2020. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The standard includes changes to fair value transfers and Level 3 fair value disclosures. The new standard will be effective for the Company on January 1, 2020. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The new standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The new standard will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact that this standard may have on its financial position and results of operations.
ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
This Quarterly Report on Form 10-Q 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, payments pursuant to existing acquisition agreements, acquisition and integration costs, future dividends, future share repurchases, future growth rates and operating income, future compliance with financial covenants under our plans forcredit facility, anticipated increases in, and productivity of, our sales force and headcount, future growth rates, future tax rates, future operating cash flows, future dividends, future share repurchaseschanges to our customer engagement model, 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 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, our ability to retain and enrich memberships for our research, dataconnect and leadership board products andanalytics services, our ability to fulfill existing or generate new project consulting engagements, our ability to integrate the operations of acquired companies, the impact of our outstanding debt, the impact of our evolving customer engagement model, technology spending, the risks and challenges inherent in international business activities including any impact of Brexit, our ability to offer new products and services, our dependence on key personnel, our ability to realize anticipated benefits from internal reorganizations, the ability to attract and retain qualified professional staff, our ability to respond to business and economic conditions and market trends, the possibility of network disruptions and security breaches, competition and industry consolidation, our ability to enforce and protect our intellectual property rights, compliance with privacy laws, possible variations in our quarterly operating results, taxation risks, concentration of our stock ownership and any weakness identified in our system of internal controls. These risks are described more completely in our Annual Report on Form 10-K for the year ended December 31, 2016.2018. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
We derive revenues from memberships to, and sales of our Research, Connect and DataAnalytics products and services, performing advisoryConsulting services and consulting projects, and hosting events.Events. We offer contracts for our Research, Connect and DataAnalytics 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 Consulting services (includes advisory services and consulting projects) 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 serviceservices 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.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.
In the first quarter of 2019, we modified our calculation of client retention, dollar retention, and enrichment in conjunction with a project to fully automate the calculations. Client retention has been expanded to include virtually all client relationships (except for clients that only purchase web-based products such as individual reports, workshops and Event tickets) in comparison to the prior calculation that included only clients that purchased membership-based products. Dollar retention and enrichment are now calculated at a client account level in comparison to a contract level in the prior calculation. This results in a broader view of dollar retention and enrichment as it includes virtually all products in the calculations (except for web-based products mentioned above) and captures all enrichment that occurs within the year for an account. We have provided the metrics under the new methodology for each quarter of 2018 in the table below.
|
| Q1 2018 |
|
| Q2 2018 |
|
| Q3 2018 |
|
| Q4 2018 |
| ||||
Client retention |
|
| 71 | % |
|
| 71 | % |
|
| 71 | % |
|
| 71 | % |
Dollar retention |
|
| 90 | % |
|
| 89 | % |
|
| 90 | % |
|
| 90 | % |
Enrichment |
|
| 110 | % |
|
| 107 | % |
|
| 109 | % |
|
| 109 | % |
Deferred revenue, agreement value, client retention, dollar retention, enrichment and number of clients are metrics that 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:
Deferred revenue — billings in advance of revenue recognition as of the measurement date.
Agreement value — the total revenues recognizable from all contracts to purchase our services in force at a given time (but not including advisory-only(excluding contracts that consist solely of Consulting services and the value of Event sponsorships included in all contracts), without regard to how much revenue has already been recognized.
Client retention — the percentage of client companies with memberships expiring during(defined as all clients except those that only purchase web-based products such as individual reports, workshops and Event tickets) at the most recent twelve-month periodprior year measurement date that renewed one or more of those memberships during that same period.have active contracts at the current year measurement date.
Dollarretention — the percentage of the total dollar value of client membershipcompanies’ active contracts expiring duringat the most recent twelve-month period, which are renewed in whole or in part, as a percentage ofprior year measurement date that have active contracts at the dollar value of all expiring client membership contracts during the same period.current year measurement date.
Enrichment— the percentage of the dollar value of client membershipcompanies’ active contracts renewed duringat the most recent twelve-month periodcurrent year measurement date compared to the dollar value of the corresponding expiring contracts.client companies’ active contracts at the prior year measurement date.
Clients — we aggregate the various divisions and subsidiaries of a corporate parent as a single client and we also aggregate separate instrumentalities of the federal, state, and provincial governments as a single client. We have historically included only clients that purchased membership-based products in our definition of clients. We plan to reassess this definition during the second half of 2019.
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):
|
| As of |
|
| Absolute |
|
| Percentage |
|
| As of |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Deferred revenue |
| $ | 132.9 |
|
| $ | 126.2 |
|
| $ | 6.7 |
|
|
| 5 | % |
| $ | 180.9 |
|
| $ | 143.0 |
|
| $ | 37.9 |
|
|
| 27 | % |
Agreement value |
| $ | 237.8 |
|
| $ | 241.1 |
|
| $ | (3.3 | ) |
|
| (1 | %) |
| $ | 348.9 |
|
| $ | 249.5 |
|
| $ | 99.4 |
|
|
| 40 | % |
Client retention |
|
| 76 | % |
|
| 76 | % |
|
| — |
|
|
| — |
|
|
| 73 | % |
|
| 71 | % |
|
| 2 |
|
|
| 3 | % |
Dollar retention |
|
| 88 | % |
|
| 88 | % |
|
| — |
|
|
| — |
|
|
| 90 | % |
|
| 89 | % |
|
| 1 |
|
|
| 1 | % |
Enrichment |
|
| 94 | % |
|
| 95 | % |
|
| (1 | ) |
|
| (1 | %) |
|
| 108 | % |
|
| 107 | % |
|
| 1 |
|
|
| 1 | % |
Number of clients |
|
| 2,393 |
|
|
| 2,482 |
|
|
| (89 | ) |
|
| (4 | %) |
|
| 2,875 |
|
|
| 2,355 |
|
|
| 520 |
|
|
| 22 | % |
Agreement value and number of clients include the effect of SiriusDecisions, but retention and enrichment metrics will not be similarly affected until the first quarter of 2020.
Deferred revenue at SeptemberJune 30, 20172019 increased 5%27% compared to the prior year. The increase inyear primarily due to the acquisition of SiriusDecisions. Excluding the effect of SiriusDecisions, deferred revenue is a result ofincreased approximately 6% as contract billings in excessexceeded revenue for the period. Agreement value increased 40% at June 30, 2019 compared to the prior year with approximately 27 percentage points of revenue recognizedgrowth due to the acquisition of SiriusDecisions and the remainder due to both an increase in contract bookings. Agreement value decreased 1% at September 30, 2017bookings and increased bundling of Consulting services with our Research and Connect products in our contracts. Client retention rate increased 2 percentage points compared with both the prior quarter and with the prior year period. Dollar retention rate increased 1 percentage point compared to the prior year and after adjusting for the effect of foreign currency fluctuations, remained essentiallywas flat compared to the prior year. Client retentionquarter period. Enrichment rate and dollar retention rate both increased 1% compared to the prior quarter and were essentially flat1 percentage point compared to the prior year period. Enrichment rate, although essentially consistent with the prior quarter, declined 1%and 2 percentage points compared to the prior yearquarter period.
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, non-marketable investments, goodwill and other intangible assets, and income taxes. Management bases its estimates on historical experience, data available at the time the estimates are made and various other 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. Our other critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
The following table sets forth our statement of incomeoperations as a percentage of total revenues for the periods indicated:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services |
|
| 67.5 | % |
|
| 68.1 | % |
|
| 64.9 | % |
|
| 66.4 | % |
|
| 59.5 | % |
|
| 60.5 | % |
|
| 63.3 | % |
|
| 63.2 | % |
Advisory services and events |
|
| 32.5 |
|
|
| 31.9 |
|
|
| 35.1 |
|
|
| 33.6 |
|
|
| 40.5 |
|
|
| 39.5 |
|
|
| 36.7 |
|
|
| 36.8 |
|
Total revenues |
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and fulfillment |
|
| 40.4 |
|
|
| 38.6 |
|
|
| 40.8 |
|
|
| 39.3 |
|
|
| 44.1 |
|
|
| 40.5 |
|
|
| 44.4 |
|
|
| 42.0 |
|
Selling and marketing |
|
| 36.4 |
|
|
| 35.8 |
|
|
| 36.5 |
|
|
| 36.1 |
|
|
| 34.3 |
|
|
| 33.9 |
|
|
| 37.6 |
|
|
| 37.7 |
|
General and administrative |
|
| 12.6 |
|
|
| 13.0 |
|
|
| 12.4 |
|
|
| 12.5 |
|
|
| 10.3 |
|
|
| 11.4 |
|
|
| 11.5 |
|
|
| 12.5 |
|
Depreciation |
|
| 2.0 |
|
|
| 2.5 |
|
|
| 2.0 |
|
|
| 2.5 |
|
|
| 1.8 |
|
|
| 2.3 |
|
|
| 1.9 |
|
|
| 2.4 |
|
Amortization of intangible assets |
|
| 0.2 |
|
|
| 0.3 |
|
|
| 0.2 |
|
|
| 0.2 |
|
|
| 4.0 |
|
|
| 0.2 |
|
|
| 4.9 |
|
|
| 0.2 |
|
Reorganization costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
| ||||||||||||||||
Income from operations |
|
| 8.4 |
|
|
| 9.8 |
|
|
| 8.1 |
|
|
| 9.0 |
| ||||||||||||||||
Other income, net |
|
| 0.2 |
|
|
| 0.3 |
|
|
| 0.1 |
|
|
| 0.1 |
| ||||||||||||||||
Acquisition and integration costs |
|
| 1.9 |
|
|
| 0.3 |
|
|
| 2.4 |
|
|
| 0.2 |
| ||||||||||||||||
Income (loss) from operations |
|
| 3.6 |
|
|
| 11.4 |
|
|
| (2.7 | ) |
|
| 5.0 |
| ||||||||||||||||
Interest expense |
|
| (1.6 | ) |
|
| — |
|
|
| (1.9 | ) |
|
| — |
| ||||||||||||||||
Other income (expense), net |
|
| (0.1 | ) |
|
| 0.3 |
|
|
| (0.3 | ) |
|
| 0.1 |
| ||||||||||||||||
Losses on investments, net |
|
| (1.0 | ) |
|
| (1.5 | ) |
|
| (0.4 | ) |
|
| (0.5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Income before income taxes |
|
| 7.6 |
|
|
| 8.6 |
|
|
| 7.8 |
|
|
| 8.6 |
| ||||||||||||||||
Income tax provision |
|
| 2.7 |
|
|
| 4.6 |
|
|
| 2.5 |
|
|
| 3.7 |
| ||||||||||||||||
Net income |
|
| 4.9 | % |
|
| 4.0 | % |
|
| 5.3 | % |
|
| 4.9 | % | ||||||||||||||||
Income (loss) before income taxes |
|
| 1.9 |
|
|
| 11.7 |
|
|
| (4.9 | ) |
|
| 5.1 |
| ||||||||||||||||
Income tax expense |
|
| 0.7 |
|
|
| 3.6 |
|
|
| 0.2 |
|
|
| 1.6 |
| ||||||||||||||||
Net income (loss) |
|
| 1.2 | % |
|
| 8.1 | % |
|
| (5.1 | %) |
|
| 3.5 | % |
Three and NineSix Months Ended SeptemberJune 30, 20172019 and 20162018
Revenues
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
| ||||||||||
Revenues |
| $ | 80.4 |
|
| $ | 77.4 |
|
| $ | 3.0 |
|
|
| 4 | % |
| $ | 128.2 |
|
| $ | 96.4 |
|
| $ | 31.8 |
|
|
| 33 | % |
Revenues from research services |
| $ | 54.2 |
|
| $ | 52.7 |
|
| $ | 1.5 |
|
|
| 3 | % |
| $ | 76.3 |
|
| $ | 58.3 |
|
| $ | 18.0 |
|
|
| 31 | % |
Revenues from advisory services and events |
| $ | 26.1 |
|
| $ | 24.7 |
|
| $ | 1.4 |
|
|
| 6 | % |
| $ | 51.9 |
|
| $ | 38.1 |
|
| $ | 13.8 |
|
|
| 36 | % |
Revenues attributable to customers outside of the U.S. |
| $ | 19.2 |
|
| $ | 17.4 |
|
| $ | 1.8 |
|
|
| 10 | % |
| $ | 25.1 |
|
| $ | 22.5 |
|
| $ | 2.6 |
|
|
| 12 | % |
Percentage of revenue attributable to customers outside of the U.S. |
|
| 24 | % |
|
| 22 | % |
|
| 2 |
|
|
| 9 | % |
|
| 20 | % |
|
| 23 | % |
|
| (3 | ) |
|
| (13 | %) |
Number of events |
|
| 3 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| Nine Months Ended |
|
| Absolute |
|
| Percentage |
|
| Six Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
| ||||||||||
Revenues |
| $ | 247.3 |
|
| $ | 242.6 |
|
| $ | 4.7 |
|
|
| 2 | % |
| $ | 228.8 |
|
| $ | 174.1 |
|
| $ | 54.7 |
|
|
| 31 | % |
Revenues from research services |
| $ | 160.6 |
|
| $ | 161.0 |
|
| $ | (0.4 | ) |
|
| — |
|
| $ | 144.9 |
|
| $ | 110.0 |
|
| $ | 34.9 |
|
|
| 32 | % |
Revenues from advisory services and events |
| $ | 86.7 |
|
| $ | 81.7 |
|
| $ | 5.0 |
|
|
| 6 | % |
| $ | 83.9 |
|
| $ | 64.1 |
|
| $ | 19.8 |
|
|
| 31 | % |
Revenues attributable to customers outside of the U.S. |
| $ | 55.7 |
|
| $ | 55.4 |
|
| $ | 0.3 |
|
|
| 1 | % |
| $ | 46.9 |
|
| $ | 41.3 |
|
| $ | 5.6 |
|
|
| 14 | % |
Percentage of revenue attributable to customers outside of the U.S. |
|
| 23 | % |
|
| 23 | % |
|
| — |
|
|
| — |
|
|
| 20 | % |
|
| 24 | % |
|
| (4 | ) |
|
| (17 | %) |
Number of events |
|
| 9 |
|
|
| 10 |
|
|
| (1 | ) |
|
| (10 | %) |
|
| 9 |
|
|
| 7 |
|
|
| 2 |
|
|
| 29 | % |
Total revenues increased 4%33% and 2%31% during the three and ninesix months ended SeptemberJune 30, 20172019, respectively, compared to the prior year periods. After adjusting forperiods, with SiriusDecisions contributing 29% and 25% of the effect of foreign currency fluctuations, the revenue increase, was 3% during the three months ended September 30, 2017 and remained at 2% for the nine months ended September 30, 2017. respectively. Revenues from customers outside the U.S. increased 10%12% and 1%14% during the three and ninesix months ended SeptemberJune 30, 2017,2019, respectively, compared to the prior year periods and increased 8% and 2%, respectively, after adjusting for the effects of foreign currency fluctuations. Revenues from customers outside of the U.S. represented 24% of total revenues for the three months ended September 30, 2017 and after adjusting for
the effect of foreign currency fluctuations, represented 23% of total revenues compared to 22% in the prior year period.. The increase in the percentage of revenues attributable to customers outside of the U.S. during the threesix months ended SeptemberJune 30, 20172019 was principallyprimarily due to an increasethe acquisition of SiriusDecisions, which added $4.5 million in revenues in Canadainternational revenue, and the Asia Pacific region. Revenues from customers outside of the U.S. represented 23% of total revenues during the nine months ended September 30, 2017 and remained essentially flat compared to the prior year period, reflecting growth in revenues in the Asia Pacific region that was offset by a decline in revenues in Europe. There was no material effect of foreign currency fluctuations on revenues from customers outside of the U.S. as a percent of total revenues during the nine months ended September 30, 2017.legacy Forrester business.
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 3%31% and 32% during the three and six months ended SeptemberJune 30, 2017 and was essentially flat during the nine months ended September 30, 2017,2019, respectively, compared to the prior year periods, with SiriusDecisions contributing 26% of the increase for both periods. Currency fluctuations hadThe remainder of the effect of increasing revenue growth by 1% in the three months ended September 30, 2017 and had an insignificant effect in the nine months ended September 30, 2017. The increase in revenues for the three and six months ended SeptemberJune 30, 20172019 was primarily driven by an increasegrowth in revenue for our Reprintsthe legacy Analytics and Connect products. Duringproducts, with slower growth in the nine months ended September 30, 2017, a decline in revenue for our Data products and a slight decline in revenue for our Research products was offset by an increase in revenue for our Reprints and Connect products.
Revenues from advisory services and events increased 6%36% and 31% during both the three and ninesix months ended SeptemberJune 30, 20172019, respectively, compared to the prior year periods, with SiriusDecisions contributing 32% and increased 5% and 6%, respectively, after adjusting for21% of the effectincrease, respectively. The remainder of foreign currency fluctuations. Thethe increase in revenues for the three months ended September 30, 2017 was principally due to increases in both advisory and eventsgrowth of legacy Consulting revenues, that waswhich were partially offset by a slight decline in consultinglegacy Events revenues. The increase in revenues for the nine months ended September 30, 2017 was principally due to growth in consulting and events revenues. Events revenues increased 158% and 14% during the three and nine months ended September 30, 2017, respectively, compared to the prior year periods. The increase in events revenues during the three months ended September 30, 2017 was primarily due to revenue from a new event held in the U.S. during the current year period that exceeded the decline in revenue resulting from the discontinuation of a small event in the Asia Pacific region. The increase in events revenues during the nine months ended September 30, 2017 was due an increase in sponsorship revenues that offset having held one less event in the Asia Pacific region in the current year compared to the prior year.
Please refer to the “Segments Results” section below for a discussion of revenues and expenses by segment.
Cost of Services and Fulfillment
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Cost of services and fulfillment (dollars in millions) |
| $ | 32.5 |
|
| $ | 29.9 |
|
| $ | 2.6 |
|
|
| 9 | % |
| $ | 56.6 |
|
| $ | 39.1 |
|
| $ | 17.5 |
|
|
| 45 | % |
Cost of services and fulfillment as a percentage of total revenues |
|
| 40.4 | % |
|
| 38.6 | % |
|
| 1.8 |
|
|
| 5 | % |
|
| 44.1 | % |
|
| 40.5 | % |
|
| 3.6 |
|
|
| 9 | % |
Service and fulfillment employees (at end of period) |
|
| 593 |
|
|
| 571 |
|
|
| 22 |
|
|
| 4 | % |
|
| 761 |
|
|
| 627 |
|
|
| 134 |
|
|
| 21 | % |
|
| Nine Months Ended |
|
| Absolute |
|
| Percentage |
|
| Six Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Cost of services and fulfillment (dollars in millions) |
| $ | 100.8 |
|
| $ | 95.4 |
|
| $ | 5.4 |
|
|
| 6 | % |
| $ | 101.7 |
|
| $ | 73.2 |
|
| $ | 28.5 |
|
|
| 39 | % |
Cost of services and fulfillment as a percentage of total Revenues |
|
| 40.8 | % |
|
| 39.3 | % |
|
| 1.5 |
|
|
| 4 | % | ||||||||||||||||
Cost of services and fulfillment as a percentage of total revenues |
|
| 44.4 | % |
|
| 42.0 | % |
|
| 2.4 |
|
|
| 6 | % |
Cost of services and fulfillment expenses increased 9%45% during the three months ended SeptemberJune 30, 20172019 compared to the prior year period and after adjusting forperiod. Approximately $14.2 million of the effectincrease was attributable to the acquisition of foreign currency fluctuations, increased 8%.SiriusDecisions. The remainder of the increase in dollars was primarily due to (1) a $1.4$2.0 million increase in compensation and benefit costs, resulting principally from an increase in the number of employees compared to the prior year period and annual merit increases, (2) a $0.3$0.7 million increase in event expensesprofessional services costs primarily due to an increase in outsourced services related to revenue delivery, and (3) a $0.5 million increase in professional services costs.stock compensation expense.
Cost of services and fulfillment expenses increased 6%39% during the ninesix months ended SeptemberJune 30, 20172019 compared to the prior year period and after adjusting forperiod. Approximately $22.2 million of the effectincrease was attributable to the acquisition of foreign currency fluctuations, increased 7%.SiriusDecisions. The remainder of the increase in dollars was primarily due to (1) a $2.8$3.4 million increase in compensation and benefit costs, resulting principally from an increase in the number of employees compared to the prior year period and annual merit increases, (2) a $1.0$1.2 million increase in professional services costs primarily due to an increase in outsourced services related to revenue delivery, (3) a $0.9 million increase in stock compensation expense, and (4) a $0.5 million increase in event expensesfacilities costs due to increased lease expense and (3) a $0.7 million increase in professional servicescomputer software costs.
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Selling and marketing expenses (dollars in millions) |
| $ | 29.2 |
|
| $ | 27.8 |
|
| $ | 1.4 |
|
|
| 5 | % |
| $ | 44.0 |
|
| $ | 32.7 |
|
| $ | 11.3 |
|
|
| 35 | % |
Selling and marketing expenses as a percentage of total revenues |
|
| 36.4 | % |
|
| 35.8 | % |
|
| 0.6 |
|
|
| 2 | % |
|
| 34.3 | % |
|
| 33.9 | % |
|
| 0.4 |
|
|
| 1 | % |
Selling and marketing employees (at end of period) |
|
| 589 |
|
|
| 572 |
|
|
| 17 |
|
|
| 3 | % |
|
| 772 |
|
|
| 577 |
|
|
| 195 |
|
|
| 34 | % |
|
| Nine Months Ended |
|
| Absolute |
|
| Percentage |
|
| Six Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Selling and marketing expenses (dollars in millions) |
| $ | 90.4 |
|
| $ | 87.5 |
|
| $ | 2.9 |
|
|
| 3 | % |
| $ | 86.1 |
|
| $ | 65.7 |
|
| $ | 20.4 |
|
|
| 31 | % |
Selling and marketing expenses as a percentage of total revenues |
|
| 36.5 | % |
|
| 36.1 | % |
|
| 0.4 |
|
|
| 1 | % |
|
| 37.6 | % |
|
| 37.7 | % |
|
| (0.1 | ) |
|
| — |
|
Selling and marketing expenses increased 5%35% during the three months ended SeptemberJune 30, 20172019 compared to the prior year period. Approximately $10.1 million of the increase was attributable to the acquisition of SiriusDecisions. The remainder of the increase in dollars was primarily due to (1) a $1.5$0.5 million increase in compensation and benefit costs, resulting principally from annual merit increases, (2) a $0.3 million increase in professional services costs primarily due to an increase in sales employees, annual merit increases,advertising and anmarketing costs, and (3) a $0.2 million increase in incentive bonuses compared to the prior year period. There was no material effect of foreign currency fluctuations on selling and marketing expenses during the three months ended September 30, 2017.stock compensation expense.
Selling and marketing expenses increased 3%31% during the ninesix months ended SeptemberJune 30, 20172019 compared to the prior year period and after adjusting forperiod. Approximately $18.6 million of the effectincrease was attributable to the acquisition of foreign currency fluctuations, increased 4%.SiriusDecisions. The remainder of the increase in dollars was primarily due to (1) a $3.4$0.7 million increase in compensation and benefit costs, resulting principally from an increase in sales employees, annual merit increases, an(2) a $0.5 million increase in incentive bonusestravel and anentertainment expenses, and (3) a $0.4 million increase in severance costsstock compensation expense.
General and Administrative
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| June 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
General and administrative expenses (dollars in millions) |
| $ | 13.2 |
|
| $ | 10.9 |
|
| $ | 2.3 |
|
|
| 21 | % |
General and administrative expenses as a percentage of total revenues |
|
| 10.3 | % |
|
| 11.4 | % |
|
| (1.1 | ) |
|
| (10 | %) |
General and administrative employees (at end of period) |
|
| 245 |
|
|
| 198 |
|
|
| 47 |
|
|
| 24 | % |
|
| Six Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| June 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
General and administrative expenses (dollars in millions) |
| $ | 26.4 |
|
| $ | 21.7 |
|
| $ | 4.7 |
|
|
| 22 | % |
General and administrative expenses as a percentage of total revenues |
|
| 11.5 | % |
|
| 12.5 | % |
|
| (1.0 | ) |
|
| (8 | %) |
General and administrative expenses increased 21% during the three months ended June 30, 2019 compared to the prior year period. ThisApproximately $1.5 million of the increase was partially offset by a $0.8 million decrease in travel and entertainment expenses primarily resulting from a reduction in expense for our annual sales conference.
Subjectattributable to the business environment, we expect our sales headcountacquisition of SiriusDecisions. The remainder of the increase was primarily due to an increase by 3% to 6% in 2017 as compared tocompensation and benefit costs, resulting principally from an increase in the year ended December 31, 2016.
General and Administrative
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| September 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
General and administrative expenses (dollars in millions) |
| $ | 10.1 |
|
| $ | 10.1 |
|
| $ | — |
|
|
| — |
|
General and administrative expenses as a percentage of total revenues |
|
| 12.6 | % |
|
| 13.0 | % |
|
| (0.4 | ) |
|
| (3 | %) |
General and administrative employees (at end of period) |
|
| 192 |
|
|
| 189 |
|
|
| 3 |
|
|
| 2 | % |
|
| Nine Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| September 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
General and administrative expenses (dollars in millions) |
| $ | 30.7 |
|
| $ | 30.4 |
|
| $ | 0.3 |
|
|
| 1 | % |
General and administrative expenses as a percentage of total revenues |
|
| 12.4 | % |
|
| 12.5 | % |
|
| (0.1 | ) |
|
| (1 | %) |
General and administrative expenses remained essentially flat during the three months ended September 30, 2017number of employees compared to the prior year period primarily due to a $0.5 million decrease in professional services expense that was offset by (1) a $0.3 million increase in stock compensation expense and (2) a $0.1 million increase in compensation and benefits costs. There was no material effect of foreign currency fluctuations on general and administrative expenses during the three months ended September 30, 2017.annual merit increases.
General and administrative expenses increased 1%22% during the ninesix months ended SeptemberJune 30, 20172019 compared to the prior year period. Approximately $3.6 million of the increase was attributable to the acquisition of SiriusDecisions. The remainder of the increase was primarily due to an increase in compensation and benefit costs, resulting principally from an increase in the number of employees compared to the prior year period and after adjusting for the effect of foreign currency fluctuations, increased 2%. The increase in dollars was primarily due to (1) a $0.8 million increase in compensation and benefit costs resulting from an increase in headcount and annual merit increases compared to the prior year period, (2) a $0.6 million increase in stock compensation costs and (3) a $0.2 million increase in hiring and relocation expense. These increases were partially offset by a $1.4 million decrease in professional services expense.increases.
Depreciation expense decreasedremained essentially consistent during the three and six months ended June 30, 2019 compared to the prior year periods.
Amortization of Intangible Assets
Amortization expense increased by $0.3$4.9 million and $1.2$10.9 million during the three and ninesix months ended SeptemberJune 30, 2017,2019, respectively, compared to the prior year periods primarily due to our recent acquisitions.
Acquisition and Integration Costs
During the three and six months ended June 30, 2019, we incurred $2.5 million and $5.5 million of acquisition and integration costs, respectively. The costs consist of the direct and incremental costs to acquire and integrate the companies as well as certain equipmentfair value adjustments related to the acquisitions. The charges primarily consisted of consulting, severance, accounting and software assets becoming fully depreciated.tax professional fees, and lease expenses. For the six months ended June 30, 2019, these charges were partially offset by a $1.8 million decrease due to recording deferred commissions for SiriusDecisions as the result of adopting ASC 606. We expect to incur acquisition and integration costs in a range of $7.5 million to $8.0 million for the year ending December 31, 2019.
AmortizationInterest Expense
During the three and six months ended June 30, 2019, we incurred $2.1 million and $4.4 million of Intangible Assetsinterest expense, respectively. Interest expense consists of interest on our borrowings used to finance the acquisition of SiriusDecisions.
Amortization expense remained essentially consistentOther Income (Expense), Net
Other income (expense), net primarily consists of losses on foreign currency and interest income. The decrease in other income (expense), net of $0.4 million and $0.5 million during the three and ninesix months ended SeptemberJune 30, 20172019, respectively, compared to the prior year periods.
Reorganization Costs
During the nine months ended September 30, 2016, we incurred $1.0 million of severance and related benefits costs for a reduction in our workforce of approximately 2% of employees across various geographies and functions. All costs under this plan were paid during 2016.
Other Income, Net
Other income, net primarily consists of interest income on our investments as well as gains and losses on foreign currency. The decrease in other income, net of $0.1 million during the three months ended September 30, 2017 compared to the prior year period isperiods was primarily due to an increase in foreign currency losses. Thea decrease in other income, net of $0.1 million during the nine months ended September 30, 2017 compared to the prior year period is primarily due to an increase in foreign currency losses of $0.3 million that was partially offset by an increase in interest income of $0.2 million.
income.
Losses on Investments, Net
Losses on investments, net primarily represents our share of equity method investment gains and losses from our technology-related investment funds. The decrease in investment lossesLosses on investments, net remained essentially consistent during the three and ninesix months ended SeptemberJune 30, 2017 is primarily due to a decrease in investment losses incurred by the underlying funds as2019 compared to the prior year periods.
Provision for Income TaxesTax Expense
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Provision for income taxes (dollars in millions) |
| $ | 2.2 |
|
| $ | 3.6 |
|
| $ | (1.4 | ) |
|
| (39 | %) |
| $ | 0.9 |
|
| $ | 3.5 |
|
| $ | (2.6 | ) |
|
| (74 | %) |
Effective tax rate |
|
| 35.4 | % |
|
| 53.5 | % |
|
| (18.1 | ) |
|
| (34 | %) |
|
| 36.3 | % |
|
| 30.9 | % |
|
| 5.4 |
|
|
| 17 | % |
|
| Nine Months Ended |
|
| Absolute |
|
| Percentage |
|
| Six Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Provision for income taxes (dollars in millions) |
| $ | 6.3 |
|
| $ | 9.1 |
|
| $ | (2.8 | ) |
|
| (31 | %) |
| $ | 0.7 |
|
| $ | 2.8 |
|
| $ | (2.1 | ) |
|
| (75 | %) |
Effective tax rate |
|
| 32.6 | % |
|
| 43.4 | % |
|
| (10.8 | ) |
|
| (25 | %) |
|
| (6.0 | %) |
|
| 31.6 | % |
|
| (37.5 | ) |
|
| (119 | %) |
Income tax expense for the ninesix months ended SeptemberJune 30, 20172019 was $6.3$0.7 million resulting in an effective tax rate of 32.6% for the period. Income tax expense for the nine months ended September 30, 2016 was $9.1 million resulting in an effective tax rate of 43.4%(6.0)% for the period. The decrease in the effectiveCompany recorded a $0.6 million discrete tax rate expense during the ninesix months ended SeptemberJune 30, 2017 compared2019 due to the prior year period was due primarily to the recognition of a $1.3 million benefit from the settlement of a tax audit in the first quarter of 2017 and the recognition of approximately $0.3 million of windfall tax benefits from the settlement of options and restricted stock unitsU.S. Competent Authority claim during the third quarter of 2017. In addition, in 2016 an additional $0.6 million of tax expense was incurred due to a valuation allowance on a capital loss generated from one of our investments. For the full year 2017, weperiod. We anticipate that our effective tax rate for the full year 2019 will be approximately 35%.(10)% to (5)% due to a projected pretax loss for the year and a minimal amount of tax expense for the year due to non-deductible expense items and tax expense related to the Competent Authority claim.
Segment Results
In July 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. The Research segment includesopinion invalidated part of a treasury regulation requiring stock-based compensation to be included in any qualified intercompany cost-sharing arrangement. We previously recorded a tax benefit based on the costsopinion in the case. In June 2019, the U.S. Court of Appeals for Ninth Circuit reversed the U.S. Tax Court’s decision. Currently, Altera Corp. submitted its appeal for an en banc rehearing before the U.S. Court of Appeals for the Ninth Circuit. Due to the uncertainty surrounding the status of the current regulations and questions related to jurisdiction, we have determined no adjustment is required to the consolidated financial statements as a result of this ruling. We will continue to monitor ongoing developments and potential impacts to our research personnel who are responsible for writing the research and performing the webinars and inquiries for our Research and Connect products. In addition, the research personnel deliver advisory services (such as workshops, speeches and advisory days) and a portion of our project consulting services. Revenue in this segment includes only revenue from advisory services and project consulting services that are delivered by the research personnel in this segment.consolidated financial statements.
In conjunction with the acquisition of SiriusDecisions in the first quarter of 2019, we realigned our management structure into Products, Research and SiriusDecisions. Prior year amounts have been reclassified to conform to the current presentation.
The ProductProducts segment includes the revenues of the Connect, Analytics, and Events products (excluding the revenues from SiriusDecisions products) and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes Consulting revenues from the project consulting organization that is included in this segment. The project consulting organization delivers a majority of our project consulting revenue (excluding SiriusDecisions consulting) and certain advisory services primarily related to the Analytics product line. This segment also includes the costs of the product management organization that is responsible for product pricing and packaging and the launch of new products.
The Research segment includes the revenues of the Research products and the cost of the organizations responsible for developing and delivering the Research products (excluding the costs and revenues from SiriusDecisions products). In addition, this segment includes Consulting revenues primarily from the delivery of advisory services (such as workshops, speeches and advisory days) delivered by our research analysts.
The SiriusDecisions segment includes the revenues of the legacy SiriusDecisions products and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes the costs of our Data, Connectmarketing, technology development and Events organizations. Revenue in this segment includes all of our revenue (including Research and Connect) except for revenue from advisory services and project consulting services that are delivered by personnel in the Research and Project Consulting segments.
The Project Consulting segment includes the costsbusiness support departments of the consultants that deliver the majority of our project consulting services. Revenue in this segment includes the project consulting revenue delivered by the consultants in this segment.legacy SiriusDecisions business.
We evaluate reportable segment performance and allocate resources based on segment revenues and expenses. Segment expenses include the direct expenses of each segment organization and exclude, except as noted above for the SiriusDecisions segment, selling and marketing expenses, certain client support expenses, general and administrative expenses, stock-based compensation expense, depreciation expense, adjustments to incentive bonus compensation from target amounts, amortization of intangible assets, reorganization costs,interest and other income,expense, and losses on investments. The accounting policies used by the segments are the same as those used in the consolidated financial statements.
In the first quarter of 2017, we modified our internal reporting for the Research and Project Consulting segments to reflect the transfer of revenue and direct costs related to a small consulting team in Asia Pacific from Research to Project Consulting, and to remove from both Research and Project Consulting certain client support activities that are now included within selling, marketing, administrative and other expenses in the table below. Accordingly, the 2016 amounts have been reclassified to conform to the current presentation.
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
|
| Products |
|
| Research |
|
| Sirius Decisions |
|
| Consolidated |
| |||||
Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research |
| $ | — |
|
| $ | 41,506 |
|
| $ | 14,799 |
|
| $ | 56,305 |
| ||||||||||||||||
Connect |
|
| 13,525 |
|
|
| — |
|
|
| 542 |
|
|
| 14,067 |
| ||||||||||||||||
Analytics |
|
| 5,907 |
|
|
| — |
|
|
| — |
|
|
| 5,907 |
| ||||||||||||||||
Total research services revenues |
|
| 19,432 |
|
|
| 41,506 |
|
|
| 15,341 |
|
|
| 76,279 |
| ||||||||||||||||
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Three Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research services revenues |
| $ | 54,235 |
|
| $ | — |
|
| $ | — |
|
| $ | 54,235 |
| ||||||||||||||||
Advisory services and events revenues |
|
| 3,353 |
|
|
| 10,379 |
|
|
| 12,402 |
|
|
| 26,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 19,021 |
|
|
| 13,503 |
|
|
| 1,493 |
|
|
| 34,017 |
| ||||||||||||||||
Events |
|
| 7,194 |
|
|
| — |
|
|
| 10,693 |
|
|
| 17,887 |
| ||||||||||||||||
Total advisory services and events revenues |
|
| 26,215 |
|
|
| 13,503 |
|
|
| 12,186 |
|
|
| 51,904 |
| ||||||||||||||||
Total segment revenues |
|
| 57,588 |
|
|
| 10,379 |
|
|
| 12,402 |
|
|
| 80,369 |
|
|
| 45,647 |
|
|
| 55,009 |
|
|
| 27,527 |
|
|
| 128,183 |
|
Segment expenses |
|
| 9,764 |
|
|
| 11,953 |
|
|
| 6,443 |
|
|
| 28,160 |
|
|
| 23,431 |
|
|
| 13,747 |
|
|
| 15,498 |
|
|
| 52,676 |
|
Contribution margin (loss) |
|
| 47,824 |
|
|
| (1,574 | ) |
|
| 5,959 |
|
|
| 52,209 |
| ||||||||||||||||
Contribution margin |
|
| 22,216 |
|
|
| 41,262 |
|
|
| 12,029 |
|
|
| 75,507 |
| ||||||||||||||||
Year over year revenue change |
|
| 5 | % |
|
| — |
|
|
| 3 | % |
|
| 4 | % |
|
| 10 | % |
|
| — |
|
| N/A |
|
|
| 33 | % | |
Year over year expense change |
|
| 10 | % |
|
| 3 | % |
|
| 17 | % |
|
| 8 | % |
|
| 12 | % |
|
| 3 | % |
| N/A |
|
|
| 53 | % |
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
| |
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
| ||||
Three Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
| $ | 52,727 |
|
| $ | — |
|
| $ | — |
|
| $ | 52,727 |
|
Advisory services and events revenues |
|
| 2,333 |
|
|
| 10,330 |
|
|
| 12,037 |
|
|
| 24,700 |
|
Total segment revenues |
|
| 55,060 |
|
|
| 10,330 |
|
|
| 12,037 |
|
|
| 77,427 |
|
Segment expenses |
|
| 8,884 |
|
|
| 11,586 |
|
|
| 5,522 |
|
|
| 25,992 |
|
Contribution margin (loss) |
|
| 46,176 |
|
|
| (1,256 | ) |
|
| 6,515 |
|
|
| 51,435 |
|
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
| |
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
| ||||
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
| $ | 160,553 |
|
| $ | — |
|
| $ | — |
|
| $ | 160,553 |
|
Advisory services and events revenues |
|
| 15,714 |
|
|
| 32,279 |
|
|
| 38,750 |
|
|
| 86,743 |
|
Total segment revenues |
|
| 176,267 |
|
|
| 32,279 |
|
|
| 38,750 |
|
|
| 247,296 |
|
Segment expenses |
|
| 32,788 |
|
|
| 36,510 |
|
|
| 18,886 |
|
|
| 88,184 |
|
Contribution margin (loss) |
|
| 143,479 |
|
|
| (4,231 | ) |
|
| 19,864 |
|
|
| 159,112 |
|
Year over year revenue change |
|
| 1 | % |
|
| (3 | %) |
|
| 13 | % |
|
| 2 | % |
Year over year expense change |
|
| 8 | % |
|
| 1 | % |
|
| 8 | % |
|
| 5 | % |
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
| |
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
| ||||
Nine Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
| $ | 160,998 |
|
| $ | — |
|
| $ | — |
|
| $ | 160,998 |
|
Advisory services and events revenues |
|
| 14,191 |
|
|
| 33,244 |
|
|
| 34,216 |
|
|
| 81,651 |
|
Total segment revenues |
|
| 175,189 |
|
|
| 33,244 |
|
|
| 34,216 |
|
|
| 242,649 |
|
Segment expenses |
|
| 30,306 |
|
|
| 36,026 |
|
|
| 17,465 |
|
|
| 83,797 |
|
Contribution margin (loss) |
|
| 144,883 |
|
|
| (2,782 | ) |
|
| 16,751 |
|
|
| 158,852 |
|
| Products |
|
| Research |
|
| Sirius Decisions |
|
| Consolidated |
| |||||
Three Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | — |
|
| $ | 41,055 |
|
| $ | — |
|
| $ | 41,055 |
|
Connect |
|
| 12,538 |
|
|
| — |
|
|
| — |
|
|
| 12,538 |
|
Analytics |
|
| 4,707 |
|
|
| — |
|
|
| — |
|
|
| 4,707 |
|
Total research services revenues |
|
| 17,245 |
|
|
| 41,055 |
|
|
| — |
|
|
| 58,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services and events revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 16,363 |
|
|
| 13,681 |
|
|
| — |
|
|
| 30,044 |
|
Events |
|
| 8,009 |
|
|
| — |
|
|
| — |
|
|
| 8,009 |
|
Total advisory services and events revenues |
|
| 24,372 |
|
|
| 13,681 |
|
|
| — |
|
|
| 38,053 |
|
Total segment revenues |
|
| 41,617 |
|
|
| 54,736 |
|
|
| — |
|
|
| 96,353 |
|
Segment expenses |
|
| 20,985 |
|
|
| 13,378 |
|
|
| — |
|
|
| 34,363 |
|
Contribution margin |
|
| 20,632 |
|
|
| 41,358 |
|
|
| — |
|
|
| 61,990 |
|
|
| Products |
|
| Research |
|
| Sirius Decisions |
|
| Consolidated |
| ||||
Six Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | — |
|
| $ | 77,943 |
|
| $ | 28,142 |
|
| $ | 106,085 |
|
Connect |
|
| 26,640 |
|
|
| — |
|
|
| 998 |
|
|
| 27,638 |
|
Analytics |
|
| 11,165 |
|
|
| — |
|
|
| — |
|
|
| 11,165 |
|
Total research services revenues |
|
| 37,805 |
|
|
| 77,943 |
|
|
| 29,140 |
|
|
| 144,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services and events revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 36,858 |
|
|
| 26,271 |
|
|
| 2,675 |
|
|
| 65,804 | �� |
Events |
|
| 7,221 |
|
|
| — |
|
|
| 10,919 |
|
|
| 18,140 |
|
Total advisory services and events revenues |
|
| 44,079 |
|
|
| 26,271 |
|
|
| 13,594 |
|
|
| 83,944 |
|
Total segment revenues |
|
| 81,884 |
|
|
| 104,214 |
|
|
| 42,734 |
|
|
| 228,832 |
|
Segment expenses |
|
| 41,608 |
|
|
| 27,776 |
|
|
| 24,908 |
|
|
| 94,292 |
|
Contribution margin |
|
| 40,276 |
|
|
| 76,438 |
|
|
| 17,826 |
|
|
| 134,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over year revenue change |
|
| 12 | % |
|
| 3 | % |
| N/A |
|
|
| 31 | % | |
Year over year expense change |
|
| 12 | % |
|
| 4 | % |
| N/A |
|
|
| 48 | % |
|
| Products |
|
| Research |
|
| Sirius Decisions |
|
| Consolidated |
| ||||
Six Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | — |
|
| $ | 75,698 |
|
| $ | — |
|
| $ | 75,698 |
|
Connect |
|
| 25,102 |
|
|
| — |
|
|
| — |
|
|
| 25,102 |
|
Analytics |
|
| 9,200 |
|
|
| — |
|
|
| — |
|
|
| 9,200 |
|
Total research services revenues |
|
| 34,302 |
|
|
| 75,698 |
|
|
| — |
|
|
| 110,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services and events revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 30,770 |
|
|
| 25,323 |
|
|
| — |
|
|
| 56,093 |
|
Events |
|
| 8,009 |
|
|
| — |
|
|
| — |
|
|
| 8,009 |
|
Total advisory services and events revenues |
|
| 38,779 |
|
|
| 25,323 |
|
|
| — |
|
|
| 64,102 |
|
Total segment revenues |
|
| 73,081 |
|
|
| 101,021 |
|
|
| — |
|
|
| 174,102 |
|
Segment expenses |
|
| 37,041 |
|
|
| 26,789 |
|
|
| — |
|
|
| 63,830 |
|
Contribution margin |
|
| 36,040 |
|
|
| 74,232 |
|
|
| — |
|
|
| 110,272 |
|
Product segment revenues increased 5%10% and 1%12% during the three and ninesix months ended SeptemberJune 30, 2017,2019, respectively, compared to the prior year periods. Research services revenues increased 3% duringFor the three months ended SeptemberJune 30, 20172019, Connect revenues increased 8% driven by our new learning product and remained essentially flatAnalytics revenues grew 25% due primarily to the FeedbackNow product line. Consulting revenues increased 16% driven by
strong delivery by our consultants and Events revenues decreased 10% due in part to hosting one fewer Event in the period. For the six months ended June 30, 2019, Connect revenues increased 6% driven by our new learning product and Analytics revenues grew 21% due primarily to the FeedbackNow product line. Consulting revenues increased 20% driven by healthy backlog and strong delivery by our consultants and Events revenues decreased by 10% due in part to hosting one fewer Event in the period.
Product segment expenses increased 12% during the ninethree and six months ended SeptemberJune 30, 20172019 compared to the prior year periods. The increase in research services revenues for the three months ended September 30, 2017 was principally driven by an increase in revenues for our Reprints and Connect products. During the nine months ended September 30, 2017 a decline in revenues for our Data products and a slight decline in revenues for our Research products were offset by an increase in revenues for our Reprints and Connect products. Advisory services and events revenues, which is comprised of data consulting and events revenues in this segment, increased 44% and 11% during the three and nine months ended September 30, 2017, respectively, compared to the prior year periods. The increase in advisory services and events revenuesexpenses during the three months ended SeptemberJune 30, 20172019 was primarily due to a $0.4$1.7 million increase in data consulting revenues and a $0.7 million increase in Events revenues. The increase in Events revenues was primarily due to revenue from a new event held in the U.S. during the current year period that exceeded the decline in revenue resulting from the discontinuation of a small event in the Asia Pacific region. The increase in advisory services and events revenues during the nine months ended September 30, 2017 was primarily due to a $0.8 million increase in data consulting revenues and a $1.0 million increase in Events revenues. The increase in Events revenues was due to an increase in sponsorship revenues that offset having held one less event in the Asia Pacific region in the current year compared to the prior year. Product segment expenses increased 10% and 8% during the three and nine months ended September 30, 2017, respectively, compared to the prior year periods primarily due to an increase in compensation and benefit costs due to an increase in the number of employees andas well as a $0.6 million increase in professional services due to an increase in eventsoutsourced services related to revenue delivery. The increase in expenses driven by increased attendance atduring the events.six months ended June 30, 2019 was primarily due to a $3.0 million increase in compensation and benefit costs due to an increase in the number of employees, a $0.7 million increase in billable expenses, as well as a $0.6 million increase in professional services due to an increase in outsourced services related to revenue delivery.
ResearchResearch segment revenues remained essentially flat duringconsistent for the three months ended SeptemberJune 30, 2017 and declined 3% during the nine months ended September 30, 2017,2019 compared to the prior year periods. Duringperiod. For the threesix months ended SeptemberJune 30, 2017 an increase in advisory2019, Research segment revenues was essentially offset by a decrease in consulting revenues. The decline in revenues duringincreased 3% compared to the nineprior year period. For the six months ended SeptemberJune 30, 2017 was principally due to a decrease in consulting2019, the Research product line increased 3% driven by our reprint product and Consulting revenues that was partially offset by a slight increase in advisory revenues. increased 4%.
Research segment expenses increased 3% and 1%4% during the three and ninesix months ended SeptemberJune 30, 2017,2019, respectively, compared to the prior year periods. The increase in expenses during the three and nine months ended September 30, 2017 was primarily due to an increase in compensation and benefit costs of $0.5 million and $0.8 million, respectively, compared to the prior year periods.
Project Consulting segment revenues increased 3% and 13% during the three and nine months ended September 30, 2017, respectively, compared to the prior year periods due primarily to growth in our content marketing group, that was partially offset by a decline in revenue from our strategic consulting group. We expect revenue growth rates to be at a single digit level for the fourth quarter of the year. Project Consulting expenses increased 17% and 8% during the three and nine months ended September 30, 2017, respectively, compared to the prior year periods. The increase in expenses during the three months and nine months ended SeptemberJune 30, 20172019 was primarily due to ana $0.3 million increase in compensation and benefit costs due to an increase in the number of employees. The increase in expenses during the six months ended June 30, 2019 was primarily due to a $0.5 million increase in compensation and $1.0 million, respectively, compared to the prior year periods.
benefits and small increases in professional services and travel and entertainment.
Liquidity and Capital Resources
We have historically financed our operations primarily through funds generated from operations. Memberships for researchResearch services revenues, which constituted approximately 65%63% of our revenues during the ninesix months ended SeptemberJune 30, 2017,2019, are generally renewable annually and are typically payable in advance. We generated cash from operating activities of $36.9$33.5 million and $38.3$28.3 million during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. The $1.4$5.2 million decreaseincrease in cash provided from operations for the ninesix months ended SeptemberJune 30, 20172019 was primarily attributable to a $1.7$13.6 million increase in cash generated from working capital, driven by (1) a $14.7 million increase in cash generated from accounts receivable and deferred revenue due to strong bookings and collections activity in the current period and (2) a $5.3 million increase in cash generated due to a lower amount of cash used for accrued expenses due to an increase of $6.8 million in accrued income taxes in the current period (which partially offsets the non-cash deferred tax expense of $10.8 million). These increases were partially offset by an increase in cash used of $6.2 million for payments on operating lease liabilities (which was offset by the $6.4 million non-cash amortization of lease right-of-use assets). The increase in cash generated from working capital was partially offset by an $8.4 million decrease in cash generated from working capital. The decrease in cash from working capitalnet income (loss) combined with the effect of non-cash items, which was primarily due to increasesa $10.0 million increase in cash used for income taxes and cash used for accounts payable that were partially offset by a decreasedeferred tax expense recorded in the use of cash for accrued salary expense resulting from a change in the timing of payroll payments. We expect cash from operating activities for the full year 2017 to be in the range of $37.0 to $41.0 million.current period.
During the ninesix months ended SeptemberJune 30, 20172019, we generated $1.4used cash in investing activities of $243.6 million, consisting primarily of $238.9 million for the acquisition of SiriusDecisions, net of cash acquired, and $4.7 million in purchases of property and equipment. Property and equipment purchases during 2019 consisted primarily of software and leasehold improvements. During the six months ended June 30, 2018, we generated cash from investing activities of $0.3 million, consisting primarily of $7.0$4.2 million in net proceeds from sales and maturities of marketable investments, that was partially offset by $5.8 million of purchases of property and equipment.equipment of $2.5 million and $1.3 million for the acquisition of GlimpzIt. Property and equipment purchases during 20172018 consisted primarily of computer equipment, software and leasehold improvements for our new office location in Nashville. During the nine months ended September 30, 2016, we used $18.9 million of cash from investing activities, consisting primarily of $15.5 million in net purchases of marketable investments and $3.3 million of purchases of property and equipment. Property and equipment purchases during 2016 consisted primarily of computer equipment and software.
We used $38.8generated $140.7 million of cash from financing activities during the ninesix months ended SeptemberJune 30, 2017 2019 primarily due to $171.3 million of borrowings, which reflects the face value of debt of $175.0 million less $3.7 million that was netted against the proceeds to pay debt issuance costs. This was partially offset by $33.1 million of repayments of debt that consisted of $30.0 million of discretionary payments on our revolving credit facility and $3.1 million of required repayments of our term loan. We used $13.3 million of cash in financing activities during the six months ended June 30, 2018 primarily due to the use of $40.0$9.6 million for purchases of our common stock and $10.2 million for the payment of dividends,a $7.2 million quarterly dividend, at $0.19$0.20 per share, in each of the first three quarters of 2017 as well as $2.5 million in taxes paid related to net share settlements of restricted stock units, which were partially offset by $13.9$3.7 million of proceeds from the exercise of stock options and our employee stock purchase plan. We used $1.8At June 30, 2019, we had $20.0 million ofoutstanding on our revolving credit facility and plan to use excess cash from financing activities during the nine months ended September 30, 2016 primarily for the payment of dividends totaling $9.7 million, at $0.18 per share in each of the first three quarters of 2016, as well as $2.1 million in taxes paid relatedflow, if any, to net share settlements of restricted stock units, which was partially offset by $10.0 million of proceeds from the exercise of stock options andcontinue to make discretionary payments on our employee stock purchase plan.revolving credit facility.
As of SeptemberJune 30, 20172019 our remaining stock repurchase authorization was approximately $20.1$60.1 million. We planAs previously disclosed, subsequent to repurchaseour acquisition of SiriusDecisions we anticipate continuing to substantially reduce or eliminate repurchases of our common stock during 2019.
In connection with the acquisition of SiriusDecisions, we entered into a $200.0 million credit agreement on January 3, 2019. The credit agreement provides for: (1) senior secured term loans in an aggregate principal amount of $125.0 million (the “Term Loans”) and (2) a senior secured revolving credit facility in an aggregate principal amount of $75.0 million (the “Revolving Credit Facility”). We utilized the full $125.0 million of the Term Loans and $50.0 million of the Revolving Credit Facility to finance a portion of the acquisition of SiriusDecisions and to pay certain fees, costs and expenses incurred in connection with the Term Loans and Revolving Credit Facility. Additional information on this debt is provided in Note 4 – Debt included herein.
Borrowings under the credit agreement can be repaid early, in part or in whole, at any time and from time to time, without premium or penalty, other than customary breakage reimbursement requirements for LIBOR-based loans. The Term Loans must be prepaid with net cash proceeds of (i) certain debt incurred or issued by us and our restricted subsidiaries and (ii) certain asset sales and condemnation or casualty events, subject to certain reinvestment rights.
Amounts borrowed under the credit agreement bear interest, at our option, at a rate per annum equal to either (i) the London Interbank Offering Rate (“LIBOR”) for the applicable interest period plus a margin that is between 1.75% and 2.50% based on our consolidated total leverage ratio or (ii) the alternate base rate plus a margin that is between 0.75% and 1.50% based on our consolidated total leverage ratio. In addition, we will pay a commitment fee that is between 0.25% and 0.35% per annum, based on our consolidated total leverage ratio, on the average daily unused portion of the Revolving Credit Facility, payable quarterly, in arrears.
The credit agreement contains certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio and minimum fixed charge coverage ratio. The negative covenants limit, subject to various exceptions, our ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of Forrester, sell assets, pay dividends or other payments in respect to capital stock, change fiscal year, or enter into certain transactions with affiliates and subsidiaries. The Company was in full compliance with the covenants as market conditions warrant.of June 30, 2019. The credit agreement also contains customary events of default, representations, and warranties.
As of SeptemberJune 30, 2017,2019, we had cash and cash equivalents of $80.0 million and marketable investments of $54.0$69.8 million. These balances include $61.6$50.7 million held outside of the U.S. If these funds outside of the U.S. are needed for operations in the U.S., we would be required to accrue and pay U.S. state taxes and may be required to pay withholding taxes to foreign jurisdictions to repatriate these funds. We would not expect these additional taxes to be significant. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate these funds for our U.S. operations. We do not currently have a line of credit and do not presently anticipate the need to access a line of credit in the foreseeable future except in the case of a significant acquisition. We believe that our current cash balance marketable investments, and cash flows from operations will satisfy working capital, financing activities, and capital expenditure requirements for the next twelve months.
Contractual Obligations
There havehas been noa material changeschange to the contractual obligations table as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2018 due to the acquisition of SiriusDecisions that closed on January 3, 2019. As of June 30, 2019, we have the following new future contractual obligations (in thousands):
Contractual Obligations (1) |
| Total |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| Thereafter |
| |||||||
Interest payments - long-term debt (2) |
| $ | 21,532 |
|
| $ | 2,933 |
|
| $ | 5,491 |
|
| $ | 4,974 |
|
| $ | 4,368 |
|
| $ | 3,721 |
|
| $ | 45 |
|
(1) | Operating lease obligations are included in Note 1 – Interim consolidated financial statements. |
(2) | Interest payments were based on the interest rates in effect as of June 30, 2019. Long-term principal repayments are included in Note 4 – Debt. |
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet financing arrangements.
Recent Accounting Pronouncements
See Note 1 and Note 1013 of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the expected dates of adoption and effects on results of operations and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ThereExcept as noted below, there have been no material changeschange in our assessment of our sensitivity to market risk since our presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
INTEREST RATE RISK
As of June 30, 2019, we had $141.9 million in total debt principal outstanding. See Note 4 — Debt herein for additional information regarding our outstanding debt obligations.
All of our debt outstanding as of June 30, 2019 was based on a floating base rate of interest, which potentially exposes us to increases in interest rates. As an indication of our potential exposure to changes in interest rates, a hypothetical 25 basis point increase or decrease in interest rates could change our annual pretax interest expense for the following 12 month period by approximately $0.4 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2019. Based upon their evaluation and subject to the foregoing, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance as of that date.
The foregoing assessment excludes our acquisition on January 3, 2019 of SiriusDecisions. See Note 2 to the Consolidated Financial Statements for additional information. This exclusion is in accordance with the general guidance issued by the Staff of the SEC that an assessment of a recent business acquisition may be omitted from management’s report on internal control over financial reporting in the first year of consolidation.
Changes in Internal Control Over Financial Reporting
There waswere no changechanges in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended SeptemberJune 30, 20172019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
reporting with respect to historical Forrester operations. We are currently in the process of integrating our acquisition of SiriusDecisions, evaluating its internal controls and implementing our internal control structure over its operations, which may lead us to modify certain internal controls in future periods.
In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form 10-K remain applicable to our business. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Through SeptemberJune 30, 2017,2019, our Board of Directors authorized an aggregate $485.0$535.0 million to purchase common stock under our stock repurchase program. During the quarter ended SeptemberJune 30, 2017,2019, we purchased the followingdid not purchase any shares of our common stock under the stock repurchase program:
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| Maximum Dollar |
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|
|
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| Value that May |
| |
|
|
|
|
|
|
|
|
|
| Yet be Purchased |
| |
|
| Total Number of |
|
| Average Price |
|
| Under the Stock |
| |||
Period |
| Shares Purchased (1) |
|
| Paid per Share |
|
| Repurchase Program |
| |||
|
|
|
|
|
|
|
|
|
| (In thousands) |
| |
July 1 - July 30 |
|
| 32,065 |
|
| $ | 39.69 |
|
|
|
|
|
August 1 - August 31 |
|
| 26,468 |
|
| $ | 39.82 |
|
|
|
|
|
September 1 - September 30 |
|
| 30,359 |
|
| $ | 40.01 |
|
|
|
|
|
|
|
| 88,892 |
|
|
|
|
|
| $ | 20,100 |
|
|
|
program. As previously disclosed, subsequent to our acquisition of SiriusDecisions we anticipate continuing to substantially reduce or eliminate repurchases of our common stock during 2019.
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31.1 |
| Certification of the Principal Executive Officer. (filed herewith) |
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31.2 |
| Certification of the Principal Financial Officer. (filed herewith) |
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32.1 |
| |
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32.2 |
| |
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101.INS |
| XBRL Instance Document. (filed herewith) |
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101.SCH |
| XBRL Taxonomy Extension Schema. (filed herewith) |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase. (filed herewith) |
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase. (filed herewith) |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase. (filed herewith) |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase. (filed herewith) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FORRESTER RESEARCH, INC. | ||
|
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By: |
| /s/ Michael A. Doyle |
|
| Michael A. Doyle |
|
| Chief Financial Officer (Principal financial officer) |
Date: November 7, 2017August 6, 2019
37
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30