UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(MARK ONE)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
FOR THE QUARTERLY PERIOD ENDED September 30, 2017March 31, 2021
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)
|
| 04-2797789 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
60 Acorn Park Drive
|
| 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 |
| ☒ |
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
Emerging growth company |
| ☐ |
|
|
|
|
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 NovemberMay 3, 2017 17,975,0002021, 19,129,000 shares of the registrant’s common stock were outstanding.
INDEX TO FORM 10-Q
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| ||
PART I | FINANCIAL INFORMATION |
| ||
Item 1. |
| 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. |
|
| 19 | |
Item 3. |
| 26 | ||
Item 4. | 26 | |||
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| ||
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| |||
| 27 | |||
27 | ||||
Item 2. |
| 27 | ||
Item 3. | 27 | |||
Item 4. | 27 | |||
Item 5. | 27 | |||
Item 6. | 28 | |||
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| ||
| 29 | |||
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|
PART I. FINANCIAL INFORMATION
FORRESTER RESEARCH, INC.
(In thousands, except per share data, unaudited)
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||
ASSETS | ASSETS |
|
|
|
|
|
|
|
|
| ||||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 79,960 |
|
| $ | 76,958 |
|
| $ | 125,600 |
|
| $ | 90,257 |
|
Marketable investments (Note 3) |
|
| 54,019 |
|
|
| 61,147 |
| ||||||||
Accounts receivable, net |
|
| 39,481 |
|
|
| 58,812 |
| ||||||||
Accounts receivable, net of allowance for expected credit losses of $731 and $708 as of March 31, 2021 and December 31, 2020, respectively |
|
| 68,822 |
|
|
| 84,695 |
| ||||||||
Deferred commissions |
|
| 9,146 |
|
|
| 12,052 |
|
|
| 21,937 |
|
|
| 23,620 |
|
Prepaid expenses and other current assets |
|
| 15,817 |
|
|
| 14,467 |
|
|
| 19,913 |
|
|
| 18,588 |
|
Total current assets |
|
| 198,423 |
|
|
| 223,436 |
|
|
| 236,272 |
|
|
| 217,160 |
|
Property and equipment, net |
|
| 26,128 |
|
|
| 23,894 |
|
|
| 26,513 |
|
|
| 27,032 |
|
Operating lease right-of-use assets |
|
| 73,810 |
|
|
| 69,296 |
| ||||||||
Goodwill |
|
| 75,815 |
|
|
| 73,193 |
|
|
| 245,691 |
|
|
| 247,211 |
|
Intangible assets, net |
|
| 927 |
|
|
| 1,464 |
|
|
| 73,898 |
|
|
| 77,995 |
|
Other assets |
|
| 13,095 |
|
|
| 13,798 |
|
|
| 7,535 |
|
|
| 5,524 |
|
Total assets |
| $ | 314,388 |
|
| $ | 335,785 |
|
| $ | 663,719 |
|
| $ | 644,218 |
|
|
|
|
|
|
|
|
|
| ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
| ||||||
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 613 |
|
| $ | 1,806 |
|
| $ | 380 |
|
| $ | 657 |
|
Accrued expenses and other current liabilities |
|
| 36,838 |
|
|
| 41,403 |
|
|
| 54,747 |
|
|
| 76,620 |
|
Current portion of long-term debt |
|
| 12,500 |
|
|
| 12,500 |
| ||||||||
Deferred revenue |
|
| 132,929 |
|
|
| 134,265 |
|
|
| 216,522 |
|
|
| 179,968 |
|
Total current liabilities |
|
| 170,380 |
|
|
| 177,474 |
|
|
| 284,149 |
|
|
| 269,745 |
|
Non-current liabilities |
|
| 8,788 |
|
|
| 8,275 |
| ||||||||
Long-term debt, net of deferred financing fees |
|
| 92,319 |
|
|
| 95,299 |
| ||||||||
Non-current operating lease liabilities |
|
| 74,567 |
|
|
| 70,323 |
| ||||||||
Other non-current liabilities |
|
| 20,447 |
|
|
| 23,085 |
| ||||||||
Total liabilities |
|
| 179,168 |
|
|
| 185,749 |
|
|
| 471,482 |
|
|
| 458,452 |
|
|
|
|
|
|
|
|
|
| ||||||||
Stockholders' Equity (Note 7): |
|
|
|
|
|
|
|
| ||||||||
Commitments and contingencies (Note 4, 13) |
|
|
|
|
|
|
|
| ||||||||
Stockholders' Equity (Note 11): |
|
|
|
|
|
|
|
| ||||||||
Preferred stock, $0.01 par value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized - 500 shares; issued and outstanding - none |
|
| — |
|
|
| — |
| ||||||||
Authorized - 500 shares; issued and outstanding - NaN |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.01 par value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized - 125,000 shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued - 22,293 and 21,719 shares as of September 30, 2017 and December 31, 2016, respectively |
|
|
|
|
|
|
|
| ||||||||
Outstanding - 17,902 and 18,361 shares as of September 30, 2017 and December 31, 2016, respectively |
|
| 223 |
|
|
| 217 |
| ||||||||
Issued - 23,755 and 23,648 shares as of March 31, 2021 and December 31, 2020, respectively |
|
|
|
|
|
|
|
| ||||||||
Outstanding - 19,124 and 19,017 shares as of March 31, 2021 and December 31, 2020, respectively |
|
| 238 |
|
|
| 236 |
| ||||||||
Additional paid-in capital |
|
| 175,218 |
|
|
| 157,569 |
|
|
| 234,752 |
|
|
| 230,128 |
|
Retained earnings |
|
| 124,343 |
|
|
| 121,799 |
|
|
| 131,937 |
|
|
| 127,981 |
|
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 March 31, 2021 and December 31, 2020 |
|
| (171,889 | ) |
|
| (171,889 | ) | ||||||||
Accumulated other comprehensive loss |
|
| (2,621 | ) |
|
| (7,573 | ) |
|
| (2,801 | ) |
|
| (690 | ) |
Total stockholders’ equity |
|
| 135,220 |
|
|
| 150,036 |
|
|
| 192,237 |
|
|
| 185,766 |
|
Total liabilities and stockholders’ equity |
| $ | 314,388 |
|
| $ | 335,785 |
|
| $ | 663,719 |
|
| $ | 644,218 |
|
The accompanying notes are an integral part of these consolidated financial statements.
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(In thousands, except per share data, unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services |
| $ | 54,235 |
|
| $ | 52,727 |
|
| $ | 160,553 |
|
| $ | 160,998 |
| ||||||||
Advisory services and events |
|
| 26,134 |
|
|
| 24,700 |
|
|
| 86,743 |
|
|
| 81,651 |
| ||||||||
Research |
| $ | 74,968 |
|
| $ | 74,267 |
| ||||||||||||||||
Consulting |
|
| 38,550 |
|
|
| 31,988 |
| ||||||||||||||||
Events |
|
| 263 |
|
|
| 90 |
| ||||||||||||||||
Total revenues |
|
| 80,369 |
|
|
| 77,427 |
|
|
| 247,296 |
|
|
| 242,649 |
|
|
| 113,781 |
|
|
| 106,345 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and fulfillment |
|
| 32,508 |
|
|
| 29,889 |
|
|
| 100,814 |
|
|
| 95,429 |
|
|
| 47,477 |
|
|
| 43,353 |
|
Selling and marketing |
|
| 29,225 |
|
|
| 27,751 |
|
|
| 90,355 |
|
|
| 87,490 |
|
|
| 39,279 |
|
|
| 40,273 |
|
General and administrative |
|
| 10,083 |
|
|
| 10,086 |
|
|
| 30,672 |
|
|
| 30,359 |
|
|
| 13,178 |
|
|
| 12,005 |
|
Depreciation |
|
| 1,607 |
|
|
| 1,941 |
|
|
| 4,775 |
|
|
| 5,982 |
|
|
| 2,290 |
|
|
| 2,406 |
|
Amortization of intangible assets |
|
| 197 |
|
|
| 208 |
|
|
| 582 |
|
|
| 627 |
|
|
| 3,903 |
|
|
| 4,712 |
|
Reorganization costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,026 |
| ||||||||
Integration costs |
|
| 118 |
|
|
| 2,875 |
| ||||||||||||||||
Total operating expenses |
|
| 73,620 |
|
|
| 69,875 |
|
|
| 227,198 |
|
|
| 220,913 |
|
|
| 106,245 |
|
|
| 105,624 |
|
Income from operations |
|
| 6,749 |
|
|
| 7,552 |
|
|
| 20,098 |
|
|
| 21,736 |
|
|
| 7,536 |
|
|
| 721 |
|
Other income, net |
|
| 146 |
|
|
| 229 |
|
|
| 248 |
|
|
| 374 |
| ||||||||
Losses on investments, net |
|
| (772 | ) |
|
| (1,085 | ) |
|
| (997 | ) |
|
| (1,139 | ) | ||||||||
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 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic income per common share |
| $ | 0.22 |
|
| $ | 0.17 |
|
| $ | 0.73 |
|
| $ | 0.66 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Diluted income per common share |
| $ | 0.22 |
|
| $ | 0.17 |
|
| $ | 0.72 |
|
| $ | 0.65 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest expense |
|
| (1,129 | ) |
|
| (1,538 | ) | ||||||||||||||||
Other income (expense), net |
|
| (470 | ) |
|
| 310 |
| ||||||||||||||||
Gain on investments, net |
|
| — |
|
|
| 13 |
| ||||||||||||||||
Income (loss) before income taxes |
|
| 5,937 |
|
|
| (494 | ) | ||||||||||||||||
Income tax expense |
|
| 1,981 |
|
|
| 19 |
| ||||||||||||||||
Net income (loss) |
| $ | 3,956 |
|
| $ | (513 | ) | ||||||||||||||||
Basic income (loss) per common share |
| $ | 0.21 |
|
| $ | (0.03 | ) | ||||||||||||||||
Diluted income (loss) per common share |
| $ | 0.21 |
|
| $ | (0.03 | ) | ||||||||||||||||
Basic weighted average common shares outstanding |
|
| 17,747 |
|
|
| 18,062 |
|
|
| 17,897 |
|
|
| 17,896 |
|
|
| 19,061 |
|
|
| 18,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Diluted weighted average common shares outstanding |
|
| 18,051 |
|
|
| 18,435 |
|
|
| 18,212 |
|
|
| 18,168 |
|
|
| 19,288 |
|
|
| 18,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash dividends declared per common share |
| $ | 0.19 |
|
| $ | 0.18 |
|
| $ | 0.57 |
|
| $ | 0.54 |
|
The accompanying notes are an integral part of these consolidated financial statements.
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, unaudited)
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| ||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net income | $ | 3,953 |
|
| $ | 3,112 |
|
| $ | 13,047 |
|
| $ | 11,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
| 1,601 |
|
|
| (120 | ) |
|
| 4,905 |
|
|
| (68 | ) |
Net change in market value of investments |
| 23 |
|
|
| (48 | ) |
|
| 47 |
|
|
| 72 |
|
Other comprehensive income (loss) |
| 1,624 |
|
|
| (168 | ) |
|
| 4,952 |
|
|
| 4 |
|
Comprehensive income | $ | 5,577 |
|
| $ | 2,944 |
|
| $ | 17,999 |
|
| $ | 11,865 |
|
| Three Months Ended |
| |||||
| March 31, |
| |||||
| 2021 |
|
| 2020 |
| ||
Net income (loss) | $ | 3,956 |
|
| $ | (513 | ) |
|
|
|
|
|
|
|
|
Other comprehensive loss net of tax: |
|
|
|
|
|
|
|
Foreign currency translation |
| (2,301 | ) |
|
| (1,920 | ) |
Net change in market value of interest rate swap |
| 190 |
|
|
| (1,181 | ) |
Other comprehensive loss |
| (2,111 | ) |
|
| (3,101 | ) |
Comprehensive income (loss) | $ | 1,845 |
|
| $ | (3,614 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Nine Months Ended |
| ||||||||||||
| September 30, |
| Three Months Ended |
| ||||||||||
| 2017 |
|
| 2016 |
| March 31, |
| |||||||
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
| ||
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) | $ | 3,956 |
|
| $ | (513 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
| |||||||
Depreciation |
| 4,775 |
|
|
| 5,982 |
|
| 2,290 |
|
|
| 2,406 |
|
Impairment of property and equipment |
| — |
|
|
| 626 |
| |||||||
Amortization of intangible assets |
| 582 |
|
|
| 627 |
|
| 3,903 |
|
|
| 4,712 |
|
Net losses from investments |
| 997 |
|
|
| 1,139 |
| |||||||
Net gains from investments |
| — |
|
|
| (13 | ) | |||||||
Deferred income taxes |
| (921 | ) |
|
| (413 | ) |
| (2,395 | ) |
|
| (251 | ) |
Stock-based compensation |
| 6,423 |
|
|
| 5,731 |
|
| 2,492 |
|
|
| 2,802 |
|
Amortization of premium on investments |
| 171 |
|
|
| 267 |
| |||||||
Foreign currency losses |
| 444 |
|
|
| 98 |
| |||||||
Changes in assets and liabilities |
|
|
|
|
|
|
| |||||||
Operating lease right-of-use assets, amortization, and impairments |
| 2,666 |
|
|
| 4,535 |
| |||||||
Amortization of deferred financing fees |
| 232 |
|
|
| 244 |
| |||||||
Foreign currency (gains) losses |
| 521 |
|
|
| (229 | ) | |||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
| |||||||
Accounts receivable |
| 20,140 |
|
|
| 31,078 |
|
| 15,181 |
|
|
| 24,556 |
|
Deferred commissions |
| 2,906 |
|
|
| 3,890 |
|
| 1,683 |
|
|
| 1,723 |
|
Prepaid expenses and other current assets |
| (979 | ) |
|
| 2,322 |
|
| (1,255 | ) |
|
| (6,943 | ) |
Accounts payable |
| (1,208 | ) |
|
| 133 |
|
| (275 | ) |
|
| (143 | ) |
Accrued expenses and other liabilities |
| (6,041 | ) |
|
| (10,101 | ) |
| (22,235 | ) |
|
| (27,264 | ) |
Deferred revenue |
| (3,473 | ) |
|
| (14,309 | ) |
| 36,505 |
|
|
| 18,574 |
|
Operating lease liabilities |
| (2,718 | ) |
|
| (2,999 | ) | |||||||
Net cash provided by operating activities |
| 36,863 |
|
|
| 38,305 |
|
| 40,551 |
|
|
| 21,823 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
| (5,806 | ) |
|
| (3,334 | ) |
| (1,468 | ) |
|
| (2,401 | ) |
Purchases of marketable investments |
| (27,430 | ) |
|
| (35,555 | ) | |||||||
Proceeds from sales and maturities of marketable investments |
| 34,458 |
|
|
| 20,086 |
| |||||||
Other investing activity |
| 200 |
|
|
| (49 | ) | |||||||
Net cash provided by (used in) investing activities |
| 1,422 |
|
|
| (18,852 | ) | |||||||
Net cash used in investing activities |
| (1,468 | ) |
|
| (2,401 | ) | |||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock |
| (10,205 | ) |
|
| (9,696 | ) | |||||||
Repurchases of common stock |
| (39,967 | ) |
|
| — |
| |||||||
Payments on borrowings |
| (3,125 | ) |
|
| (16,344 | ) | |||||||
Proceeds from issuance of common stock under employee equity incentive plans |
| 13,866 |
|
|
| 9,987 |
|
| 2,614 |
|
|
| 1,955 |
|
Taxes paid related to net share settlements of stock-based compensation awards |
| (2,511 | ) |
|
| (2,069 | ) |
| (480 | ) |
|
| (902 | ) |
Net cash used in financing activities |
| (38,817 | ) |
|
| (1,778 | ) |
| (991 | ) |
|
| (15,291 | ) |
Effect of exchange rate changes on cash and cash equivalents |
| 3,534 |
|
|
| (870 | ) | |||||||
Net increase in cash and cash equivalents |
| 3,002 |
|
|
| 16,805 |
| |||||||
Cash and cash equivalents, beginning of period |
| 76,958 |
|
|
| 53,331 |
| |||||||
Cash and cash equivalents, end of period | $ | 79,960 |
|
| $ | 70,136 |
| |||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
| (478 | ) |
|
| (2,683 | ) | |||||||
Net change in cash, cash equivalents and restricted cash |
| 37,614 |
|
|
| 1,448 |
| |||||||
Cash, cash equivalents and restricted cash, beginning of period |
| 90,652 |
|
|
| 69,192 |
| |||||||
Cash, cash equivalents and restricted cash, end of period | $ | 128,266 |
|
| $ | 70,640 |
| |||||||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
| |||||||
Cash paid for interest | $ | 902 |
|
| $ | 1,286 |
| |||||||
Cash paid for income taxes | $ | 1,719 |
|
| $ | 1,356 |
|
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 generally accepted 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.GAAP. 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, 2016.2020. 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 nine months ended September 30, 2017March 31, 2021 may not be indicative of the results for the year ending December 31, 2017,2021, or any other period.
Reclassification
Effective for the first quarter of 2021, the Company modified its key metrics, as further described in Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations. As part of these changes, beginning January 1, 2021, the Company is classifying all components of its subscription research products within the Research revenues financial statement line on the Consolidated Statements of Operations. In prior periods, the separate advisory session performance obligations included in any of the Company’s subscription research products were classified within the Consulting revenues financial statement line. Prior periods have been reclassified to conform to the current presentation which resulted in approximately $1.4 million of revenue being reclassified from Consulting revenues to Research revenues during the three months ended March 31, 2020. This reclassification had 0 impact on the amount of total revenues previously reported.
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 on the accompanying Consolidated Statements of Cash Flows (in thousands).
| Three Months Ended March 31, |
| |||||
| 2021 |
|
| 2020 |
| ||
Cash and cash equivalents | $ | 125,600 |
|
| $ | 69,815 |
|
Restricted cash classified in (1): |
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
| 360 |
|
|
| 787 |
|
Other assets |
| 2,306 |
|
|
| 38 |
|
Cash, cash equivalents and restricted cash shown in statement of cash flows | $ | 128,266 |
|
| $ | 70,640 |
|
(1) | Restricted cash consists of collateral required for leased office space, letters of credit, and credit card processing outside of the U.S. The short-term or long-term classification regarding the collateral for the leased office space and letters of credit is determined in accordance with the expiration of the underlying leases. |
Adoption of New Accounting Pronouncements
The Company adopted the guidance in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes on January 1, 2021. The standard provides guidance to simplify the accounting for income taxes in certain areas, changes the accounting for select income tax transactions, and makes other minor improvements. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“Topic 326”). The standard amends the existing financial instrument incurred loss impairment model by requiring entities to use a forward-looking approach based on expected losses and to consider a broader range of reasonable and
supportable information to estimate credit losses on certain types of financial instruments, including trade receivables. On January 1, 2020, the Company adopted the standard using the modified retrospective method in which prior periods are not adjusted and recorded a cumulative effect adjustment of $0.2 million to decrease retained earnings.
The Company adopted the guidance in ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment on January 1, 2020. 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 adoption of this standard did not impact the Company’s financial position or results of operations.
The Company adopted the guidance in ASU No. 2018-13, Fair Value Measurement Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement on January 1, 2020. The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including changes to fair value transfers and Level 3 fair value measurements. Changes required upon adoption of this standard are included in Note 7 – Fair Value Measurements and did not impact the Company’s financial position or results of operations.
The Company adopted the guidance in 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 on January 1, 2020. 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 adoption of this standard did not have a material impact on the Company’s financial position or results of operations.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Finance Reporting. The new standard provides optional guidance for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting due to the risk of cessation of the London Interbank Offered Rate (“LIBOR”). The updates apply to contracts, hedging relationships, and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform, and as a result require a modification. An entity may elect to apply the amendments immediately or at any point through December 31, 2022. The Company is currently evaluating the potential impact that this standard may have on its financial position and results of operations, including the standard’s potential impact on any contractual changes in the future that may result from reference rate reform.
Note 2 — Goodwill and Other Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair values of the tangible and identifiable intangible net assets acquired. Goodwill is not amortized; however, it is required to be tested for impairment annually, which requires assessment of the potential impairment at the reporting unit level. Testing for impairment is also required on an interim basis if an event or circumstance indicates it is more likely than not an impairment loss has been incurred.
The Company performed its annual impairment testing as of November 30, 2020 utilizing a qualitative assessment to determine if it was more likely than not thatthe fair values of each of its reporting units was less than their respective carrying values and concluded that 0 impairments existed. Subsequent to completing the annual test and through March 31, 2021, there were no events or circumstances that required an interim impairment test. Accordingly, as of March 31, 2021, the Company had 0 accumulated goodwill impairment losses. Approximately $8.2 million of goodwill is allocated to the Company’s Consulting reporting unit, which has a negative carrying value as of March 31, 2021.
The change in the carrying amount of goodwill for the three months ended March 31, 2021 is summarized as follows (in thousands):
| Total |
| |
Balance at December 31, 2020 | $ | 247,211 |
|
Translation adjustments |
| (1,520 | ) |
Balance at March 31, 2021 | $ | 245,691 |
|
Finite-Lived Intangible Assets
The carrying values of finite-lived intangible assets are as follows (in thousands):
| March 31, 2021 |
| |||||||||
| Gross |
|
|
|
|
|
| Net |
| ||
| Carrying |
|
| Accumulated |
|
| Carrying |
| |||
| Amount |
|
| Amortization |
|
| Amount |
| |||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Customer relationships | $ | 78,375 |
|
| $ | 19,384 |
|
| $ | 58,991 |
|
Technology |
| 16,740 |
|
|
| 10,929 |
|
|
| 5,811 |
|
Trademarks |
| 12,463 |
|
|
| 3,367 |
|
|
| 9,096 |
|
Total | $ | 107,578 |
|
| $ | 33,680 |
|
| $ | 73,898 |
|
| December 31, 2020 |
| |||||||||
| Gross |
|
|
|
|
|
| Net |
| ||
| Carrying |
|
| Accumulated |
|
| Carrying |
| |||
| Amount |
|
| Amortization |
|
| Amount |
| |||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Customer relationships | $ | 78,450 |
|
| $ | 17,277 |
|
| $ | 61,173 |
|
Technology |
| 16,956 |
|
|
| 10,197 |
|
|
| 6,759 |
|
Trademarks |
| 12,495 |
|
|
| 2,432 |
|
|
| 10,063 |
|
Total | $ | 107,901 |
|
| $ | 29,906 |
|
| $ | 77,995 |
|
Estimated intangible asset amortization expense for each of the five succeeding years is as follows (in thousands):
2021 (remainder) | $ | 11,212 |
|
2022 |
| 13,179 |
|
2023 |
| 11,938 |
|
2024 |
| 9,895 |
|
2025 |
| 8,879 |
|
Thereafter |
| 18,795 |
|
Total | $ | 73,898 |
|
Note 3 — Debt
On January 3, 2019, the Company entered into a $200.0 million credit agreement (the “Credit Agreement”). 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”). The Credit Agreement is scheduled to mature on January 3, 2024.
The Credit Agreement permits 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 Term Loans and Revolving Credit Facility 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 Credit Agreement bear interest, at Forrester’s option, at a rate per annum equal to either (i) 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 pays 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, with the balance repayable on the maturity date, subject to customary exceptions. As of March 31, 2021, the amount payable in each year is set forth in the table below (in thousands):
2021 (remainder) |
| 9,375 |
|
2022 |
| 12,500 |
|
2023 |
| 15,625 |
|
2024 |
| 68,750 |
|
Total remaining principal payments | $ | 106,250 |
|
The Revolving Credit Facility does not require repayment prior to maturity, subject to customary exceptions. The Company has $74.1 million of available borrowing capacity on the revolver (not including the expansion feature) as of March 31, 2021. Proceeds from the Revolving Credit Facility can 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. As of March 31, 2021, $0.9 million in letters of credit were issued under the Revolving Credit Facility.
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 the Consolidated Statements of Operations 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 on the Consolidated Statements of Operations 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: |
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Principal amount outstanding (1) (2) |
| $ | 106,250 |
|
| $ | 109,375 |
|
Less: Deferred financing fees |
|
| (1,431 | ) |
|
| (1,576 | ) |
Net carrying amount |
| $ | 104,819 |
|
| $ | 107,799 |
|
(1) | This amount consists entirely of the outstanding Term Loan balance. |
(2) | The contractual annualized interest rate as of March 31, 2021 on the Term loan facility was 2.125%, which consisted of LIBOR of 0.125% plus a margin of 2.000%. However, the Company has an interest rate swap that effectively converts the floating LIBOR base rates on a portion of the amounts outstanding to a fixed base rate. Refer to Note 6 – Derivatives and Hedging for further information on the swap. The weighted average annual effective rate on the Company's total debt outstanding for the three months ended March 31, 2021, was 2.146%. |
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 maximum leverage ratio is based on total debt outstanding at the measurement date divided by EBITDA (as defined in the Credit Agreement) and the fixed charge coverage ratio is based upon EBITDA (as defined in the Credit Agreement), less capital expenditures, as a ratio to certain fixed charges, including Term Loan amortization, cash interest expense and cash taxes. 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 Credit Agreement also contains customary events of default, representations, and warranties.
As of March 31, 2021, the Company is in compliance with its financial covenants under the Credit Agreement. The Company currently forecasts that it will be in compliance with its financial covenants for at least one year from the issuance of these interim financial statements.
All obligations under the Credit Agreement 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 4 — Leases
All of the Company’s leases are operating leases, the majority of which are for office space. Operating lease right-of-use (“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. Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets and are not material.
The components of lease expense were as follows (in thousands):
| For the Three Months Ended March 31, |
| |||||
| 2021 |
|
| 2020 |
| ||
Operating lease cost | $ | 3,819 |
|
| $ | 3,991 |
|
Short-term lease cost |
| 88 |
|
|
| 81 |
|
Variable lease cost |
| 1,436 |
|
|
| 1,356 |
|
Sublease income |
| (61 | ) |
|
| (61 | ) |
Total lease cost | $ | 5,282 |
|
| $ | 5,367 |
|
Additional lease information is summarized in the following table (in thousands, except lease term and discount rate):
| For the Three Months Ended March 31, |
| |||||
| 2021 |
|
| 2020 |
| ||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 2,718 |
|
| $ | 2,999 |
|
Operating lease ROU assets obtained in exchange for lease obligations | $ | 7,433 |
|
| $ | 1,466 |
|
Weighted-average remaining lease term - operating leases (years) |
| 6.5 |
|
|
| 6.3 |
|
Weighted-average discount rate - operating leases |
| 4.4 | % |
|
| 5.1 | % |
Future minimum lease payments under non-cancellable leases as of March 31, 2021 are as follows (in thousands):
2021 (remainder) | $ | 11,642 |
|
2022 |
| 16,623 |
|
2023 |
| 16,582 |
|
2024 |
| 16,208 |
|
2025 |
| 14,233 |
|
Thereafter |
| 27,076 |
|
Total lease payments |
| 102,364 |
|
Less imputed interest |
| (15,623 | ) |
Present value of lease liabilities | $ | 86,741 |
|
Lease balances as of March 31, 2021 are as follows (in thousands):
Operating lease ROU assets | $ | 73,810 |
|
|
|
|
|
Short-term operating lease liabilities (1) | $ | 12,174 |
|
Non-current operating lease liabilities |
| 74,567 |
|
Total operating lease liabilities | $ | 86,741 |
|
(1) | Included in accrued expenses and other current liabilities on the Consolidated Balance Sheets. |
The Company’s leases do not contain residual value guarantees, material restrictions or covenants, and all sublease transactions are not material. The Company incurred $1.4 million of ROU asset impairments during the three months ended March 31, 2020 related to facility leases from the SiriusDecisions, Inc. acquisition that the Company no longer used as a result of the integration of SiriusDecisions. These impairments are recorded in integration costs on the Consolidated Statements of Operations.
Note 5 – Revenue and Related Matters
Disaggregated Revenue
The Company disaggregates revenue as set forth in the following tables (in thousands):
Revenue by Geography
|
| For the Three Months Ended March 31, |
| |||||
Revenues: (1) |
| 2021 |
|
| 2020 |
| ||
North America |
| $ | 90,896 |
|
| $ | 88,410 |
|
Europe |
|
| 15,081 |
|
|
| 11,787 |
|
Asia Pacific |
|
| 6,393 |
|
|
| 5,051 |
|
Other |
|
| 1,411 |
|
|
| 1,097 |
|
Total |
| $ | 113,781 |
|
| $ | 106,345 |
|
(1) | Revenue location is determined based on where the products and services are consumed. |
Contract Assets and Contract Liabilities
Accounts Receivable
Accounts receivable includes amounts billed and currently due from customers. Since the only condition for payment of the Company’s invoices is the passage of time, a receivable is recorded on the date an 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 0 contract assets as of March 31, 2021 or 2020.
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 prices 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 unpaid invoices issued on a cancellable contract.
During the three months ended March 31, 2021 and 2020, the Company recognized $72.3 and $69.9 million of revenue, respectively, related to its deferred revenue balances at January 1 of each such period. To determine revenue recognized in each period from deferred revenue at the beginning of each period, the Company first allocates revenue to the individual deferred revenue balance outstanding at the beginning of each period, until the revenue equals that balance.
Approximately $489.0 million of revenue is expected to be recognized during the next 24 months from remaining performance obligations as of March 31, 2021.
Reserves for Credit Losses
The allowance for expected credit losses on accounts receivable for the three months ended March 31, 2021 is summarized as follows (in thousands):
|
| Total Allowance |
| |
Balance at December 31, 2020 |
| $ | 708 |
|
Provision for expected credit losses |
|
| 86 |
|
Write-offs |
|
| (63 | ) |
Balance at March 31, 2021 |
| $ | 731 |
|
When evaluating the adequacy of the allowance for expected credit losses, the Company makes judgments regarding the collectability of accounts receivable based, in part, on the Company’s historical loss rate experience, customer concentrations, management’s expectations of future losses as informed by current economic conditions, and changes in customer payment terms. If
the expected financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. If the expected financial condition of the Company’s customers were to improve, the allowances may be reduced accordingly.
Cost to Obtain Contracts
The Company capitalizes commissions paid to 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 portfolio level as the Company’s contracts are similar in nature 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 earnings over the initial contract term, which is the same period the related revenue is recognized. Amortization expense related to deferred commissions for the three months ended March 31, 2021 and 2020 was $8.8 million and $8.1 million, respectively. The Company evaluates the recoverability of deferred commissions at each balance sheet date and there were 0 impairments recorded during the three months ended March 31, 2021 and 2020.
Note 6 — Derivatives and Hedging
The Company has a derivative contract (an interest rate swap) to mitigate the cash flow risk associated with changes in interest rates on its variable rate debt (refer to Note 3 – Debt). The Company accounts for its derivative contract in accordance with FASB ASC Topic 815 – Derivatives and Hedging (“Topic 815”), which requires all derivatives, including derivatives designated as accounting hedges, to be recorded on the balance sheet at fair value.
Interest Rate Swap
At March 31, 2021, the Company had a single interest rate swap contract that matures in 2022, with an initial notional amount of $95.0 million. The notional amount at March 31, 2021 was $52.7 million. The Company pays a base fixed rate of 1.65275% and in return receives the greater of (1) 1-month LIBOR, rounded up to the nearest 1/16 of a percent, or (2) 0.00%. The fair value of the swap on March 31, 2021 was a liability of $0.9 million (refer to Note 7 – Fair Value Measurements for information on determining the fair value). The liability is included in other non-current liabilities on the Consolidated Balance Sheets.
The swap has been designated and accounted for as a cash flow hedge of the forecasted interest payments on the Company’s debt. As long as the swap continues to be a highly effective hedge of the designated interest rate risk, changes in the fair value of the swap are recorded in accumulated other comprehensive income (loss), a component of equity in the Consolidated Balance Sheets. Any ineffective portion of a change in the fair value of a hedge is recorded in earnings.
As required under Topic 815, the swap’s effectiveness is assessed on a quarterly basis. Since its inception, and through March 31, 2021, the interest rate swap was considered highly effective. Accordingly, the entire negative fair value as of March 31, 2021 of $0.6 million, net of taxes, is recorded in accumulated other comprehensive loss. The Company expects $0.5 million of this loss, net of taxes, to be reclassified into earnings within the next 12 months. Realized gains or losses related to the interest rate swap are included as operating activities in the Consolidated Statements of Cash Flows.
The Company’s derivative counterparty is an investment grade financial institution. The Company does not have any collateral arrangements with this counterparty and the derivative contract does not contain credit risk related contingent features. The table below provides information regarding amounts recognized in the Consolidated Statements of Operations for the derivative contract for the periods indicated (in thousands):
|
| For the Three Months Ended |
| |||||
|
| March 31, |
| |||||
Amount recorded in: |
| 2021 |
|
| 2020 |
| ||
Interest expense (1) |
| $ | (259 | ) |
| $ | 13 |
|
Total |
| $ | (259 | ) |
| $ | 13 |
|
(1) | Consists of interest expense from the interest rate swap contract. |
Note 7 — Fair Value Measurements
The carrying amounts reflected inon 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. SeeThe Company’s financial instruments also include its outstanding variable-rate borrowings (refer to Note 3 – Marketable Investments - for the fair value of the Company’s marketable investments.
Adoption of New Accounting Pronouncements
Debt). The Company adoptedbelieves that the guidance in Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting,carrying amount of its variable-rate borrowings reasonably approximate their fair values because the rates of interest on January 1, 2017. Under this standard, entities are permitted to make an accounting policy election to either estimate forfeitures on share-based payment awards, as previously required, or to recognize forfeitures as they occur. The Company has elected to recognize forfeitures as they occur and the impactthose borrowings reflect current market rates of that change in accounting policy has been recorded as a $0.2 million cumulative effect adjustment to increase retained earnings as of January 1, 2017.
interest.
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 during the award's vesting period. The requirement to report those income tax effects in earnings has been applied on 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 benefit for the three 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 as 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 the
transferred asset is sold to a third party or otherwise recovered through use. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs 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 millioncumulative effect adjustment to reduce retained earnings as of January 1, 2017.
Note 2 — Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (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 |
| |
|
| 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 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 | ) |
Note 3 — 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
The Company measures certain financial assets and liabilities at fair value on a recurring basis including cash equivalents and available-for-sale securities.its derivative contract. The fair values of these financial assets and liabilities have been classified as Level 1, 2, or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.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;liabilities, quoted prices in markets that are not active;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.
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 March 31, 2021 |
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Total |
| |||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1) |
| $ | 503 |
|
| $ | — |
|
| $ | 503 |
|
Total Assets |
| $ | 503 |
|
| $ | — |
|
| $ | 503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap (2) |
|
| — |
|
| $ | (880 | ) |
| $ | (880 | ) |
Total Liabilities |
| $ | — |
|
| $ | (880 | ) |
| $ | (880 | ) |
|
| 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, 2020 |
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Total |
| |||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1) |
| $ | 503 |
|
| $ | — |
|
| $ | 503 |
|
Total Assets |
| $ | 503 |
|
| $ | — |
|
| $ | 503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap (2) |
|
| — |
|
| $ | (1,144 | ) |
| $ | (1,144 | ) |
Total Liabilities |
| $ | — |
|
| $ | (1,144 | ) |
| $ | (1,144 | ) |
(1) | Included in cash and cash |
(2) | The Company has an interest rate swap contract that hedges the risk of variability from interest payments on its borrowings (refer to Note 3 – Debt and Note 6 – Derivatives and Hedging). The fair value of the interest rate swap is based on valuations prepared by a third-party broker. Those valuations are based on observable interest rates and other observable market data, which the Company considers Level 2 inputs. |
Level 2 assets consist of the Company’s entire portfolio of marketable investments. Level 2 assets have been initially valued at 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.
Note 4 — Non-Marketable Investments
At September 30, 2017 and December 31, 2016, 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 million and $2.8 million, respectively, and is included in other assets in the Consolidated Balance Sheets.
The Company’s investments at September 30, 2017 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 million during the three and nine months ended September 30, 2017. Losses from non-marketable investments were $1.1 million and $1.2 million during the three and nine months ended September 30, 2016. Losses are included in Losses 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 duringDuring the three months ended March 31, 2017. During2021, the three months ended September 30, 2017,Company did not transfer assets or liabilities between levels of the fair value hierarchy. Additionally, there have been no distributions were received fromchanges to 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.
valuation techniques for Level 2 liabilities.
Note 58 — ReorganizationIncome Taxes
Forrester provides for income taxes on an interim basis according to management’s estimate of the 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 foreign currency gains or losses are treated as discrete items and are recorded in the period in which they arise.
In the first quarter of 2016, the Company implemented a reduction in its workforce of approximately 2% of its employees across various geographies and functions. The Company recorded $1.0 million of severance and related costsIncome tax expense for this action during the three months ended March 31, 2016. All costs under this plan were paid during 2016.2021 was $2.0 million resulting in an effective tax rate of 33.4% for the period. Income tax expense for the three months ended March 31, 2020 was $19 thousand resulting in an effective tax rate of
negative 3.8% for the period. The increase in income tax expense during the 2021 period was primarily due to the increase in overall U.S. profitability.
The Company anticipates that its effective tax rate for the full year 2021 will be approximately 32%.
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security ("CARES") Act to provide certain relief as a result of the COVID-19 outbreak. The Company evaluated the impact of the CARES Act and determined it was not material to its financial position or results of operations.
Note 9 — Accumulated Other Comprehensive Income (Loss) (“AOCI/L”)
The components of accumulated other comprehensive income (loss) are as follows (net of tax, in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest Rate |
|
| Translation |
|
|
|
|
| ||
|
| Swap |
|
| Adjustment |
|
| Total AOCI/L |
| |||
Balance at December 31, 2020 |
| $ | (821 | ) |
| $ | 131 |
|
| $ | (690 | ) |
Foreign currency translation (1) |
|
| — |
|
|
| (2,301 | ) |
|
| (2,301 | ) |
Unrealized gain before reclassification, net of tax of $(1) |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Reclassification of AOCI/L to income, net of tax of $(73) (2) |
|
| 186 |
|
|
| — |
|
|
| 186 |
|
Balance at March 31, 2021 |
| $ | (631 | ) |
| $ | (2,170 | ) |
| $ | (2,801 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest Rate |
|
| Translation |
|
|
|
|
| ||
|
| Swap |
|
| Adjustment |
|
| Total AOCI/L |
| |||
Balance at December 31, 2019 |
| $ | (104 | ) |
| $ | (4,753 | ) |
| $ | (4,857 | ) |
Foreign currency translation (1) |
|
| — |
|
|
| (1,920 | ) |
|
| (1,920 | ) |
Unrealized loss, net of tax of $462 |
|
| (1,181 | ) |
|
| — |
|
|
| (1,181 | ) |
Balance at March 31, 2020 |
| $ | (1,285 | ) |
| $ | (6,673 | ) |
| $ | (7,958 | ) |
(1) | The Company does not record tax provisions or benefits for the net changes in foreign currency translation adjustments as it intends to permanently reinvest undistributed earnings of its foreign subsidiaries. |
(2) | Reclassification is related to the Company’s interest rate swap (cash flow hedge) and was recorded in interest expense on the Consolidated Statements of Operations. Refer to Note 6 – Derivatives and Hedging. |
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 |
| |||||||||||||||
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Basic weighted average common shares outstanding |
| 17,747 |
|
|
| 18,062 |
|
|
| 17,897 |
|
|
| 17,896 |
|
|
| 19,061 |
|
|
| 18,705 |
|
Weighted average common equivalent shares |
| 304 |
|
|
| 373 |
|
|
| 315 |
|
|
| 272 |
|
|
| 227 |
|
|
| — |
|
Diluted weighted average common shares outstanding |
| 18,051 |
|
|
| 18,435 |
|
|
| 18,212 |
|
|
| 18,168 |
|
|
| 19,288 |
|
|
| 18,705 |
|
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 |
|
| 3 |
|
|
| 980 |
|
Note 11 — Stockholders’ Equity
The components of stockholders’ equity are as follows (in thousands):
| Three Months Ended March 31, 2021 |
| |||||||||||||||||||||||||||||
| Common Stock |
|
|
|
|
|
|
|
|
|
| Treasury Stock |
|
| Accumulated |
|
|
|
|
| |||||||||||
| Number of Shares |
|
| $0.01 Par Value |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Number of Shares |
|
| Cost |
|
| Other Comprehensive Income (Loss) |
|
| Total Stockholders' Equity |
| ||||||||
Balance at December 31, 2020 |
| 23,648 |
|
| $ | 236 |
|
| $ | 230,128 |
|
| $ | 127,981 |
|
|
| 4,631 |
|
| $ | (171,889 | ) |
| $ | (690 | ) |
| $ | 185,766 |
|
Issuance of common stock under stock plans, including tax effects |
| 107 |
|
|
| 2 |
|
|
| 2,132 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,134 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 2,492 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,492 |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 3,956 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,956 |
|
Net change in interest rate swap, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 190 |
|
|
| 190 |
|
Foreign currency translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,301 | ) |
|
| (2,301 | ) |
Balance at March 31, 2021 |
| 23,755 |
|
| $ | 238 |
|
| $ | 234,752 |
|
| $ | 131,937 |
|
|
| 4,631 |
|
| $ | (171,889 | ) |
| $ | (2,801 | ) |
| $ | 192,237 |
|
| Three Months Ended March 31, 2020 |
| |||||||||||||||||||||||||||||
| Common Stock |
|
|
|
|
|
|
|
|
|
| Treasury Stock |
|
| Accumulated |
|
|
|
|
| |||||||||||
| Number of Shares |
|
| $0.01 Par Value |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Number of Shares |
|
| Cost |
|
| Other Comprehensive Income (Loss) |
|
| Total Stockholders' Equity |
| ||||||||
Balance at December 31, 2019 |
| 23,275 |
|
| $ | 233 |
|
| $ | 216,454 |
|
| $ | 118,147 |
|
|
| 4,631 |
|
| $ | (171,889 | ) |
| $ | (4,857 | ) |
| $ | 158,088 |
|
Issuance of common stock under stock plans, including tax effects |
| 114 |
|
|
| 1 |
|
|
| 1,052 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,053 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 2,802 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,802 |
|
Cumulative effect adjustment due to adoption of new accounting pronouncement, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| (157 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (157 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (513 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (513 | ) |
Net change in interest rate swap, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,181 | ) |
|
| (1,181 | ) |
Foreign currency translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,920 | ) |
|
| (1,920 | ) |
Balance at March 31, 2020 |
| 23,389 |
|
| $ | 234 |
|
| $ | 220,308 |
|
| $ | 117,477 |
|
|
| 4,631 |
|
| $ | (171,889 | ) |
| $ | (7,958 | ) |
| $ | 158,172 |
|
Note 7 — Stockholders’ Equity
Equity Plans
Restricted stock unit activity for the three months ended March 31, 2021 is presented below (in thousands, except per share data):
|
|
|
|
|
| Weighted- |
| |
|
|
|
|
|
| Average |
| |
|
| Number of |
|
| Grant Date |
| ||
|
| Shares |
|
| Fair Value |
| ||
Unvested at December 31, 2020 |
|
| 642 |
|
| $ | 38.99 |
|
Granted |
|
| 7 |
|
|
| 46.04 |
|
Vested |
|
| (38 | ) |
|
| 41.24 |
|
Forfeited |
|
| (13 | ) |
|
| 39.44 |
|
Unvested at March 31, 2021 |
|
| 598 |
|
| $ | 38.93 |
|
Stock option activity for the ninethree months ended September 30, 2017March 31, 2021 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, 2020 |
|
| 292 |
|
| $ | 35.46 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (30 | ) |
|
| 36.04 |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2021 |
|
| 262 |
|
| $ | 35.40 |
|
|
| 3.15 |
|
| $ | 1,859 |
|
Vested and Exercisable at March 31, 2021 |
|
| 262 |
|
| $ | 35.40 |
|
|
| 3.15 |
|
| $ | 1,859 |
|
|
|
|
|
|
| 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 |
|
RestrictedNaN stock unit activity foroptions were granted or forfeited during the ninethree 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 |
|
March 31, 2021.
Stock-Based Compensation
Forrester recognizes the fair value of stock-based compensation in net income over the requisite service period of the individual grantee, which generally equals the vesting period. period. Stock-based compensation was recorded in the following expense categories on the Consolidated Statements of Operations (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Cost of services and fulfillment |
| $ | 1,088 |
|
| $ | 1,077 |
|
| $ | 3,387 |
|
| $ | 3,141 |
|
| $ | 1,435 |
|
| $ | 1,593 |
|
Selling and marketing |
|
| 170 |
|
|
| 272 |
|
|
| 535 |
|
|
| 695 |
|
|
| 449 |
|
|
| 362 |
|
General and administrative |
|
| 920 |
|
|
| 622 |
|
|
| 2,501 |
|
|
| 1,895 |
|
|
| 608 |
|
|
| 847 |
|
Total |
| $ | 2,178 |
|
| $ | 1,971 |
|
| $ | 6,423 |
|
| $ | 5,731 |
|
| $ | 2,492 |
|
| $ | 2,802 |
|
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 |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Average risk-free interest rate |
|
| 0.96 | % |
|
| 0.47 | % |
|
| 0.81 | % |
|
| 0.47 | % |
|
| 0.05 | % |
|
| 0.30 | % |
Expected dividend yield |
|
| 1.9 | % |
|
| 2.0 | % |
|
| 1.9 | % |
|
| 2.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
Expected life |
| 0.5 Years |
|
| 0.5 Years |
|
| 0.5 Years |
|
| 0.5 Years |
|
| 0.5 Years |
|
| 0.5 Years |
| ||||||
Expected volatility |
|
| 26 | % |
|
| 26 | % |
|
| 24 | % |
|
| 25 | % |
|
| 35 | % |
|
| 26 | % |
Weighted average fair value |
| $ | 8.50 |
|
| $ | 7.52 |
|
| $ | 8.32 |
|
| $ | 7.75 |
|
| $ | 11.50 |
|
| $ | 8.10 |
|
Dividends
In 2019, the nineCompany suspended its dividends program as a result of the acquisition of SiriusDecisions, Inc. and the related debt incurred to fund the acquisition (refer to Note 3 – Debt). The Company did not declare or pay any dividends in the three months ended September 30, 2017, the Company declaredMarch 31, 2021 and paid dividends of $10.2 million consisting of a $0.19 per share dividend 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, 2017.2020, respectively.
Treasury Stock
As of September 30, 2017,March 31, 2021, 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 three and nine months ended September 30, 2017,March 31, 2021 and 2020, 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 not0t repurchase any shares of common stock in the nine months ended September 30, 2016.stock. From the inception of the program through September 30, 2017, ForresterMarch 31, 2021, the Company repurchased 16.116.3 million shares of common stock at an aggregate cost of $464.9$474.9 million.
Note 12 — Operating Segments
Note 8 — Income Taxes
Forrester provides for income taxesThe Company’s operations are grouped into 3 segments: Research, Consulting, and Events. These segments are based on an interim basis according to management’s estimatethe management structure of the effective tax rate expectedCompany and how management uses financial information to be applicableevaluate performance and determine how to allocate resources. The Company’s products and services are delivered through each segment as described below. Additionally, the tables below include the reclassification of revenues 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 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 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 onecomponents of the Company’s investments. For the full year 2017, the Company anticipates that its effective tax rate will be approximately 35%.
CV subscription research products, as described further in Note 9 — Operating Segments1: Interim Consolidated Financial Statements.
The Research segment includes the costsrevenues from all of the Company’s research personnel who are responsible for writing the research and performing the webinars and inquiries for the Company’s Research and Connect products. In addition, the research personnel deliverproducts as well as consulting revenues from advisory services (such as workshops, speeches and advisory days) and a portion of the Company’s project consulting services. Revenue in this segment includes only revenue from advisory services and project consulting services that are delivered by the Company’s research personnelorganization. Research segment costs include the cost of the organizations responsible for developing and delivering these products in this segment.
The Product segment includesaddition to the costs of the product management organization that is responsible for product pricing and packaging, and the launch of new products. In addition, thisMay 2021, the Company announced the launch of a new research portfolio called Forrester Decisions, anticipated to be available in August 2021. This new portfolio of products will help executives, functional leaders, and their teams, across technology, marketing,customer experience, sales, and product management, plan and pursue initiatives for driving growth. The Forrester Decisions product combines the research, frameworks, models, and methodologies of the Company’s Forrester Research and SiriusDecisions Research product offerings, as well as features of the Company’s Connect and Analytics products. In connection with the launch of Forrester Decisions, the Company will no longer provide disaggregation of revenue by its research products in the segment tables below (refer to Note 5 – Revenue and Related Matters for disclosure of disaggregated revenue).
The Consulting segment includes the revenues and the related costs 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.
organization. The Project Consulting segment includes the costs of the consultants that deliver theproject consulting organization delivers a majority of the Company’s project consulting revenue and certain advisory services. Revenue in this
The Events 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. the costs of the organization responsible for developing and hosting in-person and virtual events.
Segment expenses include the direct expenses of each segment organization and exclude 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 lossesgains 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 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 expensesprovides information by reportable segment in the table below. Accordingly, the 2016 amounts have been reclassified to conform to the current presentation.tables below (in thousands):
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
| |
|
| 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 |
|
Total segment revenues |
|
| 57,588 |
|
|
| 10,379 |
|
|
| 12,402 |
|
|
| 80,369 |
|
Segment expenses |
|
| 9,764 |
|
|
| 11,953 |
|
|
| 6,443 |
|
|
| 28,160 |
|
Contribution margin (loss) |
|
| 47,824 |
|
|
| (1,574 | ) |
|
| 5,959 |
|
|
| 52,209 |
|
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (45,263 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (197 | ) |
Reorganization costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Other income and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (626 | ) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 6,123 |
|
|
| Research Segment |
|
| Consulting Segment |
|
| Events Segment |
|
| Consolidated |
| ||||
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research revenues |
| $ | 74,968 |
|
| $ | — |
|
| $ | — |
|
| $ | 74,968 |
|
Consulting revenues |
|
| 12,731 |
|
|
| 25,819 |
|
|
| — |
|
|
| 38,550 |
|
Events revenues |
|
| — |
|
|
| — |
|
|
| 263 |
|
|
| 263 |
|
Total segment revenues |
|
| 87,699 |
|
|
| 25,819 |
|
|
| 263 |
|
|
| 113,781 |
|
Segment expenses |
|
| (30,717 | ) |
|
| (12,325 | ) |
|
| (714 | ) |
|
| (43,756 | ) |
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (58,468 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,903 | ) |
Integration costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (118 | ) |
Interest expense, other expense, and gains on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,599 | ) |
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 5,937 |
|
|
|
|
|
|
|
|
|
|
| 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 |
|
|
| Research Segment |
|
| Consulting Segment |
|
| Events Segment |
|
| Consolidated |
| ||||
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research revenues |
| $ | 74,267 |
|
| $ | — |
|
| $ | — |
|
| $ | 74,267 |
|
Consulting revenues |
|
| 12,582 |
|
|
| 19,406 |
|
|
| — |
|
|
| 31,988 |
|
Events revenues |
|
| — |
|
|
| — |
|
|
| 90 |
|
|
| 90 |
|
Total segment revenues |
|
| 86,849 |
|
|
| 19,406 |
|
|
| 90 |
|
|
| 106,345 |
|
Segment expenses |
|
| (27,464 | ) |
|
| (10,021 | ) |
|
| (677 | ) |
|
| (38,162 | ) |
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (59,875 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,712 | ) |
Integration costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,875 | ) |
Interest expense, other income, and gains on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,215 | ) |
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (494 | ) |
|
|
|
|
|
|
|
|
|
| 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 |
|
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (138,432 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (582 | ) |
Reorganization costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Other income and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (749 | ) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 19,349 |
|
|
|
|
|
|
|
|
|
| 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 |
|
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (135,463 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (627 | ) |
Reorganization costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,026 | ) |
Other income and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (765 | ) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 20,971 |
|
Note 1013 — Recent Accounting PronouncementsContingencies
In May 2014,From time to time, 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 companyCompany may be subject to recognize revenue when it transfers goods or services to customerslegal proceedings and civil and regulatory claims that arise 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 uncertaintyordinary course 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 scopeits business activities. Regardless 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 willoutcome, litigation can have a material impactadverse effect on its resultsthe Company because of operations. The numberdefense and settlement costs, diversion of performance obligations in the Company’s arrangements will not be different under the new standard than under current guidance. Determining standalone selling pricesmanagement resources, 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:other factors.
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.
ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OFOF 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, future dividends, future share repurchases, future growth rates, results from operations and tax rates, the launch of Forrester Decisions, future compliance with financial covenants under our plans forcredit facility, future interest expense, 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 repurchases and the adequacy of our cash, marketable investments and cash flows to satisfy our working capital and capital expenditures.expenditures, and the anticipated impact of accounting standards. 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.uncertainties. Important factors that could cause actual future activities and results to differ include, among others, our ability to retain and enrich memberships forsubscriptions to, and licenses of, our research, data and leadership boardResearch products and services, our ability to fulfill existing or generate new project consulting engagements and advisory services, our ability to generate and increase demand for the impact of our evolving customer engagement model,Events we host, technology spending, our ability to mitigate the adverse impact from the widespread outbreak of COVID-19 which could disrupt or restrict our ability to sell or fulfill, or reduce demand for, our products, services, and events, 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 impact of our outstanding debt, competition and industry consolidation, possible variations in our quarterly operating results, concentration of our stock ownership, 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, 2016.2020. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
The COVID-19 pandemic significantly affected us beginning in March 2020 primarily through lower contract bookings and a reduction in revenues from the conversion of our events from in-person events to virtual events. While the duration and severity of the pandemic is uncertain, we did experience a rebound in contract bookings beginning in the fourth quarter of 2020 and continuing through the first quarter of 2021. We expect that trend to continue in 2021. Our events business continues to be negatively affected by the pandemic. As we previously announced, all events in the first half of 2021 will be held as virtual events, including two of our flagship events, B2B Summit North America and CX North America. We hope to hold our events during the second half of 2021 as hybrid events, consisting of both in-person and virtual experiences.
The extent to which the COVID-19 pandemic ultimately impacts our business, financial condition, results of operations, cash flows, and liquidity may differ from our current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
We derive revenues from membershipssubscriptions to our Research products and salesservices, licensing electronic “reprints” of our Research, Connectperforming consulting projects and Data products and services, performing advisory services, and consulting projects, and hosting events.Events. We offer contracts for our Research Connect and Data products that are typically renewable annually and payable in advance. Membership revenuesSubscription products are recognized as revenue ratably over the term of the contract. Accordingly, a substantial portion of our billings are initially recorded as deferred revenue. Reprints include an obligation to deliver a customer-selected research document and certain usage data provided through an on-line platform, which represents two performance obligations. We recognize revenue for the performance obligation for the data portion of the reprint ratably over the license term. We recognize revenue for the performance obligation for the research document at the time of providing access to the document. Billings for licensing of reprints are initially recorded as deferred revenue. Clients purchase consulting projects and advisory services independently and/or to supplement their membershipsaccess to our subscription-based products. Billings attributable to advisory services and consulting projects are initially recorded as deferred revenue. Advisory service revenues, such as workshops, speeches and advisory days, are recognized when the customer receives the agreed upon deliverable. Consulting project revenues, which generally are short-term in nature and based upon fixed-fee agreements, are recognized as the services are provided. Event billingsAdvisory service revenues, such as speeches and advisory days, are recognized when the service is complete or the customer receives the agreed upon deliverable. Billings attributable to consulting projects and advisory services are initially recorded as deferred revenue. Events revenues consist of ticket and sponsorship sales for a Forrester-hosted event. Billings for Events 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.
Deferred revenue, agreementEffective for the first quarter of 2021, we have modified our key metrics to focus on our contract value (“CV”) products (as described below) in comparison to our prior metrics which included measures of our broader product portfolio. For 2021, we have focused on increasing our CV product bookings and have modified our compensation programs and metrics accordingly. We are focusing on CV products as these products are our most profitable products and historically our contracts for CV products have renewed at high rates (as measured by our client retention and wallet retention metrics). Our CV products make up essentially all of our research revenues.
We have included the historical calculation of the metrics below, dating back to the first quarter of 2019, on the investor relations section of our website.
Contract value, client retention, dollarwallet 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.business. 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 in force at a given time (but not including advisory-only contracts), without regard to how much revenue has already been recognized.
Client retention — the percentage of client companies with memberships expiring during the most recent twelve-month period that renewed one or more of those memberships during that same period.
Dollarretention — the total dollar value of client membership contracts expiring during the most recent twelve-month period, which are renewed in whole or in part, as a percentage of the dollar value of all expiring client membership contracts during the same period.
Enrichment — the percentage of the dollar value of client membership contracts renewed during the most recent twelve-month period to the dollar value of the corresponding expiring contracts.
• | Contract value (CV) — is defined as the value attributable to all of our recurring research-related contracts. Contract value is calculated as the annualized value of all contracts in effect at a specific point in time, without regard to how much revenue has already been recognized. Contract value primarily consists of subscription-based contracts for which revenue is recognized on a ratable basis, except for the entitlements embedded in our subscription products, such as event tickets and advisory sessions, for which the revenue is recognized when the item is utilized. Contract value also includes our reprint products, as these products are used throughout the year by our clients and are typically renewed. |
• | Wallet retention — represents a |
• | Clients — is calculated at the enterprise level as |
Client retention dollarand wallet 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 |
| |||||||
|
| September 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
Deferred revenue |
| $ | 132.9 |
|
| $ | 126.2 |
|
| $ | 6.7 |
|
|
| 5 | % |
Agreement value |
| $ | 237.8 |
|
| $ | 241.1 |
|
| $ | (3.3 | ) |
|
| (1 | %) |
Client retention |
|
| 76 | % |
|
| 76 | % |
|
| — |
|
|
| — |
|
Dollar retention |
|
| 88 | % |
|
| 88 | % |
|
| — |
|
|
| — |
|
Enrichment |
|
| 94 | % |
|
| 95 | % |
|
| (1 | ) |
|
| (1 | %) |
Number of clients |
|
| 2,393 |
|
|
| 2,482 |
|
|
| (89 | ) |
|
| (4 | %) |
|
| As of |
|
| Absolute |
|
| Percentage |
| |||||||
|
| March 31, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
Contract value |
| $ | 307.3 |
|
| $ | 308.0 |
|
| $ | (0.7 | ) |
|
| — |
|
Client retention |
|
| 75 | % |
|
| 74 | % |
|
| 1 |
|
|
| 1 | % |
Wallet retention |
|
| 89 | % |
|
| 90 | % |
|
| (1 | ) |
|
| (1 | %) |
Number of clients |
|
| 2,907 |
|
|
| 2,835 |
|
|
| 72 |
|
|
| 3 | % |
Deferred revenue at September 30, 2017 increased 5% compared to the prior year. The increase in deferred revenue is a result of contract billings in excess of revenue recognized due to an increase in contract bookings. AgreementContract value decreased 1% at September 30, 2017 compared to the prior year and after adjusting for the effect of foreign currency fluctuations, remainedour retention metrics were essentially flat compared to the prior year. Client retention rate and dollar retention rate both increased 1% compared to the prior quarter and were essentially flatat March 31, 2021 compared to the prior year period. Enrichment rate, although essentially consistent withThese metrics were at their lows during the prior quarter,second and third quarters of 2020 as contract booking declined 1% comparedduring 2020 due to the prior year period.
pandemic. We have seen an improvement in these metrics from their lows in the middle of 2020 as contract bookings expanded during the second half of 2020 and the first quarter of 2021.
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 generally accepted 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,leases, goodwill, intangible and other intangiblelong-lived 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, 2016.2020.
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 |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services |
|
| 67.5 | % |
|
| 68.1 | % |
|
| 64.9 | % |
|
| 66.4 | % | ||||||||
Advisory services and events |
|
| 32.5 |
|
|
| 31.9 |
|
|
| 35.1 |
|
|
| 33.6 |
| ||||||||
Research revenues |
|
| 65.9 | % |
|
| 69.8 | % | ||||||||||||||||
Consulting revenues |
|
| 33.9 |
|
|
| 30.1 |
| ||||||||||||||||
Events revenues |
|
| 0.2 |
|
|
| 0.1 |
| ||||||||||||||||
Total revenues |
|
| 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 |
|
|
| 41.7 |
|
|
| 40.8 |
|
Selling and marketing |
|
| 36.4 |
|
|
| 35.8 |
|
|
| 36.5 |
|
|
| 36.1 |
|
|
| 34.5 |
|
|
| 37.9 |
|
General and administrative |
|
| 12.6 |
|
|
| 13.0 |
|
|
| 12.4 |
|
|
| 12.5 |
|
|
| 11.6 |
|
|
| 11.3 |
|
Depreciation |
|
| 2.0 |
|
|
| 2.5 |
|
|
| 2.0 |
|
|
| 2.5 |
|
|
| 2.1 |
|
|
| 2.2 |
|
Amortization of intangible assets |
|
| 0.2 |
|
|
| 0.3 |
|
|
| 0.2 |
|
|
| 0.2 |
|
|
| 3.4 |
|
|
| 4.4 |
|
Reorganization costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
| ||||||||
Integration costs |
|
| 0.1 |
|
|
| 2.7 |
| ||||||||||||||||
Income from operations |
|
| 8.4 |
|
|
| 9.8 |
|
|
| 8.1 |
|
|
| 9.0 |
|
|
| 6.6 |
|
|
| 0.7 |
|
Other income, net |
|
| 0.2 |
|
|
| 0.3 |
|
|
| 0.1 |
|
|
| 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 | % | ||||||||
Interest expense |
|
| (1.0 | ) |
|
| (1.4 | ) | ||||||||||||||||
Other income (expense), net |
|
| (0.4 | ) |
|
| 0.2 |
| ||||||||||||||||
Gain on investments, net |
|
| — |
|
|
| — |
| ||||||||||||||||
Income (loss) before income taxes |
|
| 5.2 |
|
|
| (0.5 | ) | ||||||||||||||||
Income tax expense |
|
| 1.7 |
|
|
| — |
| ||||||||||||||||
Net income (loss) |
|
| 3.5 | % |
|
| (0.5 | %) |
Three and Nine Months Ended September 30, 2017March 31, 2021 and 20162020
Revenues
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| September 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
| |||||
Revenues |
| $ | 80.4 |
|
| $ | 77.4 |
|
| $ | 3.0 |
|
|
| 4 | % |
Revenues from research services |
| $ | 54.2 |
|
| $ | 52.7 |
|
| $ | 1.5 |
|
|
| 3 | % |
Revenues from advisory services and events |
| $ | 26.1 |
|
| $ | 24.7 |
|
| $ | 1.4 |
|
|
| 6 | % |
Revenues attributable to customers outside of the U.S. |
| $ | 19.2 |
|
| $ | 17.4 |
|
| $ | 1.8 |
|
|
| 10 | % |
Percentage of revenue attributable to customers outside of the U.S. |
|
| 24 | % |
|
| 22 | % |
|
| 2 |
|
|
| 9 | % |
Number of events |
|
| 3 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| Nine Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| September 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
| |||||
Revenues |
| $ | 247.3 |
|
| $ | 242.6 |
|
| $ | 4.7 |
|
|
| 2 | % |
Revenues from research services |
| $ | 160.6 |
|
| $ | 161.0 |
|
| $ | (0.4 | ) |
|
| — |
|
Revenues from advisory services and events |
| $ | 86.7 |
|
| $ | 81.7 |
|
| $ | 5.0 |
|
|
| 6 | % |
Revenues attributable to customers outside of the U.S. |
| $ | 55.7 |
|
| $ | 55.4 |
|
| $ | 0.3 |
|
|
| 1 | % |
Percentage of revenue attributable to customers outside of the U.S. |
|
| 23 | % |
|
| 23 | % |
|
| — |
|
|
| — |
|
Number of events |
|
| 9 |
|
|
| 10 |
|
|
| (1 | ) |
|
| (10 | %) |
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| March 31, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
| |||||
Total revenues |
| $ | 113.8 |
|
| $ | 106.3 |
|
| $ | 7.4 |
|
|
| 7 | % |
Research revenues |
| $ | 75.0 |
|
| $ | 74.3 |
|
| $ | 0.7 |
|
|
| 1 | % |
Consulting revenues |
| $ | 38.6 |
|
| $ | 32.0 |
|
| $ | 6.6 |
|
|
| 21 | % |
Events revenues |
| $ | 0.3 |
|
| $ | 0.1 |
|
| $ | 0.2 |
|
|
| 192 | % |
Revenues attributable to customers outside of the U.S. |
| $ | 26.8 |
|
| $ | 21.4 |
|
| $ | 5.5 |
|
|
| 26 | % |
Percentage of revenue attributable to customers outside of the U.S. |
|
| 24 | % |
|
| 20 | % |
|
| 4 |
|
|
| 20 | % |
Number of events |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total revenues increased 4% and 2%7% during the three and nine months ended September 30, 2017 respectively,March 31, 2021 compared to the prior year periods. After adjusting forperiod, with 1% of the effect ofincrease due to changes in 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. currencies. Revenues from customers outside the U.S. increased 10% and 1% during the three and nine months ended September 30, 2017, 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.25% during the three months ended September 30, 2017 was principallyMarch 31, 2021, due to an increase in revenues in Canada 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 theUnited Kingdom, 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 outsideEurope and Canada. Approximately 7% of the U.S. as a percent of total revenues during the nine months ended September 30, 2017.increase was due to changes in foreign currencies.
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%1% during the three months ended September 30, 2017 and was essentially flat during the nine months ended September 30, 2017,March 31, 2021 compared to the prior year periods. Currency fluctuations had the effect of increasing revenueperiod, which primarily resulted from flat contract value growth by 1% induring this period.
Consulting revenues increased 21% during 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 months ended September 30, 2017 was primarily driven by an increase in revenue for our Reprints and Connect products. During 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% during both the three and nine months ended September 30, 2017March 31, 2021 compared to the prior year periodsperiod due to continued strong demand for our content marketing offerings and increased 5%growth in our advisory services.
Events revenues were insignificant and 6%, respectively, after adjusting for the effect of foreign currency fluctuations. The increase in revenues forremained essentially consistent during the three months ended September 30, 2017 was principally due to increases in both advisory and events revenues, that was partially offset by a slight decline in consulting 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,March 31, 2021 compared to the prior year periods. The increase inperiod as no events revenuestook place 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.either period.
Please referRefer 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 |
| |||||||
|
| September 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
Cost of services and fulfillment (dollars in millions) |
| $ | 32.5 |
|
| $ | 29.9 |
|
| $ | 2.6 |
|
|
| 9 | % |
Cost of services and fulfillment as a percentage of total revenues |
|
| 40.4 | % |
|
| 38.6 | % |
|
| 1.8 |
|
|
| 5 | % |
Service and fulfillment employees (at end of period) |
|
| 593 |
|
|
| 571 |
|
|
| 22 |
|
|
| 4 | % |
|
| Nine Months Ended |
|
| Absolute |
|
| Percentage |
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Cost of services and fulfillment (dollars in millions) |
| $ | 100.8 |
|
| $ | 95.4 |
|
| $ | 5.4 |
|
|
| 6 | % |
| $ | 47.5 |
|
| $ | 43.4 |
|
| $ | 4.1 |
|
|
| 10 | % |
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 |
|
| 41.7 | % |
|
| 40.8 | % |
|
| 0.9 |
|
|
| 2 | % | ||||||||||||||||
Service and fulfillment employees (at end of period) |
|
| 760 |
|
|
| 786 |
|
|
| (26 | ) |
|
| (3 | %) |
Cost of services and fulfillment expenses increased 9%10% during the three months ended September 30, 2017 compared to the prior year period and after adjusting for the effect of foreign currency fluctuations, increased 8%. The increase in dollars was primarily due to (1) a $1.4 million increase in compensation and benefit costs, resulting principally from an increase in employees compared to the prior year period and annual merit increases, (2) a $0.3 million increase in event expenses and (3) a $0.5 million increase in professional services costs.
Cost of services and fulfillment expenses increased 6% during the nine months ended September 30, 2017 compared to the prior year period and after adjusting for the effect of foreign currency fluctuations, increased 7%. The increase in dollars was primarily due to (1) a $2.8 million increase in compensation and benefit costs, resulting principally from an increase in employees compared to the prior year period and annual merit increases, (2) a $1.0 million increase in event expenses and (3) a $0.7 million increase in professional services costs.
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| September 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
Selling and marketing expenses (dollars in millions) |
| $ | 29.2 |
|
| $ | 27.8 |
|
| $ | 1.4 |
|
|
| 5 | % |
Selling and marketing expenses as a percentage of total revenues |
|
| 36.4 | % |
|
| 35.8 | % |
|
| 0.6 |
|
|
| 2 | % |
Selling and marketing employees (at end of period) |
|
| 589 |
|
|
| 572 |
|
|
| 17 |
|
|
| 3 | % |
|
| Nine Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| September 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
Selling and marketing expenses (dollars in millions) |
| $ | 90.4 |
|
| $ | 87.5 |
|
| $ | 2.9 |
|
|
| 3 | % |
Selling and marketing expenses as a percentage of total revenues |
|
| 36.5 | % |
|
| 36.1 | % |
|
| 0.4 |
|
|
| 1 | % |
Selling and marketing expenses increased 5% during the three months ended September 30, 2017March 31, 2021 compared to the prior year period. The increase in dollars was primarily due to (1) a $4.0 million increase in compensation and benefit costs due to reinstating incentive bonus programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the impact of the COVID-19 pandemic, merit increases, and severance costs, and (2) a $2.3 million increase in professional services costs primarily due to increases in outsourced services related to revenue delivery and survey costs. These increases were partially offset by a $1.5 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.
Selling and Marketing
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| March 31, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
Selling and marketing expenses (dollars in millions) |
| $ | 39.3 |
|
| $ | 40.3 |
|
| $ | (1.0 | ) |
|
| (2 | %) |
Selling and marketing expenses as a percentage of total revenues |
|
| 34.5 | % |
|
| 37.9 | % |
|
| (3.4 | ) |
|
| (9 | %) |
Selling and marketing employees (at end of period) |
|
| 746 |
|
|
| 771 |
|
|
| (25 | ) |
|
| (3 | %) |
Selling and marketing expenses decreased 2% during the three months ended March 31, 2021 compared to the prior year period. The decrease was primarily due to (1) a $1.7 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic, and (2) a $0.4 million decrease in bad debt expense. These decreases were partially offset by a $1.5 million increase in compensation and benefit costs resulting fromdue to reinstating incentive bonus programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the impact of the COVID-19 pandemic, an increase in sales employees, annualcommissions expense, and merit increases,increases.
General and an increase in incentive bonusesAdministrative
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| March 31, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
General and administrative expenses (dollars in millions) |
| $ | 13.2 |
|
| $ | 12.0 |
|
| $ | 1.2 |
|
|
| 10 | % |
General and administrative expenses as a percentage of total revenues |
|
| 11.6 | % |
|
| 11.3 | % |
|
| 0.3 |
|
|
| 3 | % |
General and administrative employees (at end of period) |
|
| 243 |
|
|
| 237 |
|
|
| 6 |
|
|
| 3 | % |
General and administrative expenses increased 10% during the three months ended March 31, 2021 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.
Selling and marketing expenses increased 3% during the nine months ended September 30, 2017 compared to the prior year period and after adjusting for the effect of foreign currency fluctuations, increased 4%. The increase in dollars was primarily due to a $3.4$1.3 million increase in compensation and benefit costs resulting from an increasedue to reinstating incentive bonus programs that were eliminated as part of the cost-reduction measures implemented in sales employees, annual2020 as a result of the impact of the COVID-19 pandemic and merit increases, an increase in incentive bonuses and an increase in severance costs compared to the prior year period. This increase was partially offset by a $0.8 million decrease in travel and entertainment expenses primarily resulting from a reduction inincreases.
Depreciation
Depreciation expense for our annual sales conference.
Subject to the business environment, we expect our sales headcount to increase by 3% to 6% in 2017 as compared to 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, 2017March 31, 2021 was consistent with the prior year period.
Amortization of Intangible Assets
Amortization expense decreased by $0.8 million during the three months ended March 31, 2021 compared to the prior year period primarily due to a $0.5certain intangible asset becoming fully amortized in 2020.
Integration Costs
Integration costs consist of direct and incremental costs to integrate acquired companies and in 2020 primarily consisted of certain fair value adjustments, consulting, severance, accounting and tax professional fees, and expenses related to unused lease facilities.
Integration costs decreased by $2.8 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.
General and administrative expenses increased 1% during the nine months ended September 30, 2017March 31, 2021 compared to the prior year period and after adjustingdue to the substantial completion of the integration of SiriusDecisions, Inc. (acquired at the beginning of 2019) during 2020. Integration costs in 2021 relate to unused lease facilities from the SiriusDecisions acquisition.
We expect to incur integration costs in a range of $0.3 million to $0.5 million for the effectyear ending December 31, 2021.
Interest Expense
Interest expense consists of foreign currency fluctuations, increased 2%. The increase in dollars was primarily due to (1) a $0.8interest on our borrowings and realized gains (losses) on the related interest rate swap. Interest expense decreased by $0.4 million increase in compensation and benefit costs resulting from an increase in headcount and annual merit increasesduring the three months ended March 31, 2021 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.
Depreciation expense decreased by $0.3 million and $1.2 million during the three and nine months ended September 30, 2017, respectively, compared to the prior year periods primarily due to certain equipmentlower average outstanding borrowings and software assets becoming fully depreciated.
Amortization of Intangible Assets
Amortization expense remained essentially consistent during the three and nine months ended September 30, 2017 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.lower effective interest rate.
Other Income (Expense), Net
Other income (expense), net primarily consists of interest income on our investments as well as gains and losses(losses) on foreign currency.currency and interest income. The decrease in other income (expense), net of $0.1$0.8 million during the three months ended September 30, 2017March 31, 2021 compared to the prior year period iswas primarily due to an increase in foreign currency losses. The 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.
LossesGain on Investments, Net
LossesGain on investments, net primarily represents our share of equity method investment gains and losses from our technology-related investment funds. The decrease in investment lossesGain on investments, net remained consistent during the three and nine months ended September 30, 2017 is primarily due to a decrease in investment losses incurred by the underlying funds asMarch 31, 2021 compared to the prior year periods.period.
Provision for Income TaxesTax Expense
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| September 30, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
Provision for income taxes (dollars in millions) |
| $ | 2.2 |
|
| $ | 3.6 |
|
| $ | (1.4 | ) |
|
| (39 | %) |
Effective tax rate |
|
| 35.4 | % |
|
| 53.5 | % |
|
| (18.1 | ) |
|
| (34 | %) |
|
| Nine Months Ended |
|
| Absolute |
|
| Percentage |
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| September 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Provision for income taxes (dollars in millions) |
| $ | 6.3 |
|
| $ | 9.1 |
|
| $ | (2.8 | ) |
|
| (31 | %) |
| $ | 2.0 |
|
| $ | — |
|
| $ | 2.0 |
|
|
| 100 | % |
Effective tax rate |
|
| 32.6 | % |
|
| 43.4 | % |
|
| (10.8 | ) |
|
| (25 | %) |
|
| 33.4 | % |
|
| (3.8 | %) |
|
| 37.2 |
|
|
| 968 | % |
Income tax expense forincreased by $2.0 million during the ninethree 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, 2017March 31, 2021 compared to the prior year period wasprimarily due primarily to the recognition of a $1.3 million benefit from the settlement of a tax auditincrease 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 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 one of our investments.overall U.S. profitability. For the full year 2017,2021, we anticipate that our effective tax rate will be approximately 35%32%.
Segment Results
Our operations are grouped into three segments: Research, Consulting, and Events. These segments are based on our management structure and how management uses financial information to evaluate performance and determine how to allocate resources. Our products and services are delivered through each segment as described below. Additionally, the tables below include the reclassification of revenues for the components of our CV subscription research products, as described further in Note 1: Interim Consolidated Financial Statements in the Notes to Consolidated Financial Statements.
The Research segment includes the costsrevenues from all of 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 deliverproducts as well as consulting revenues from 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 our research organization. Research segment costs include the research personnelcost of the organizations responsible for developing and delivering these products in this segment.
The Product segment includesaddition to the costscost of the product management organization that is responsible for product pricing and packaging and the launch of new products. In addition, this segment includesMay 2021, we announced the costslaunch of a new research portfolio called Forrester Decisions, anticipated to be available in August 2021. This new portfolio of products will help executives, functional leaders, and their teams, across technology, marketing,customer experience, sales, and product management, plan and pursue their initiatives for driving growth. The Forrester Decisions product combines the research, frameworks, models, and methodologies of our Data,Forrester Research and SiriusDecisions Research product offerings, as well as features of our Connect 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.Analytics products.
The Project Consulting segment includes the revenues and the related costs of the consultants that deliver theour project consulting organization. The project consulting organization delivers a majority of our project consulting revenue and certain advisory services. Revenue in this
The Events segment includes the project consulting revenue delivered by the consultants in this segment.
We evaluate reportable segment performance and allocate resources based on segment revenues and expenses. the costs of the organization responsible for developing and hosting in-person and virtual events.
Segment expenses include the direct expenses of each segment organization and exclude 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 lossesgains 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 |
|
|
|
|
|
| Research Segment |
|
| Consulting Segment |
|
| Events Segment |
|
| Consolidated |
| |||||
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
|
| (dollars in thousands) |
| |||||||||||||||||
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 |
| ||||||||||||||||
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research revenues |
| $ | 74,968 |
|
| $ | — |
|
| $ | — |
|
| $ | 74,968 |
| ||||||||||||||||
Consulting revenues |
|
| 12,731 |
|
|
| 25,819 |
|
|
| — |
|
|
| 38,550 |
| ||||||||||||||||
Events revenues |
|
| — |
|
|
| — |
|
|
| 263 |
|
|
| 263 |
| ||||||||||||||||
Total segment revenues |
|
| 57,588 |
|
|
| 10,379 |
|
|
| 12,402 |
|
|
| 80,369 |
|
|
| 87,699 |
|
|
| 25,819 |
|
|
| 263 |
|
|
| 113,781 |
|
Segment expenses |
|
| 9,764 |
|
|
| 11,953 |
|
|
| 6,443 |
|
|
| 28,160 |
|
|
| (30,717 | ) |
|
| (12,325 | ) |
|
| (714 | ) |
|
| (43,756 | ) |
Contribution margin (loss) |
|
| 47,824 |
|
|
| (1,574 | ) |
|
| 5,959 |
|
|
| 52,209 |
| ||||||||||||||||
Year over year revenue change |
|
| 5 | % |
|
| — |
|
|
| 3 | % |
|
| 4 | % |
|
| 1 | % |
|
| 33 | % |
|
| 192 | % |
|
| 7 | % |
Year over year expense change |
|
| 10 | % |
|
| 3 | % |
|
| 17 | % |
|
| 8 | % |
|
| 12 | % |
|
| 23 | % |
|
| 5 | % |
|
| 15 | % |
|
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Research Segment |
|
| Consulting Segment |
|
| Events Segment |
|
| Consolidated |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research revenues |
| $ | 74,267 |
|
| $ | — |
|
| $ | — |
|
| $ | 74,267 |
|
Consulting revenues |
|
| 12,582 |
|
|
| 19,406 |
|
|
| — |
|
|
| 31,988 |
|
Events revenues |
|
| — |
|
|
| — |
|
|
| 90 |
|
|
| 90 |
|
Total segment revenues |
|
| 86,849 |
|
|
| 19,406 |
|
|
| 90 |
|
|
| 106,345 |
|
Segment expenses |
|
| (27,464 | ) |
|
| (10,021 | ) |
|
| (677 | ) |
|
| (38,162 | ) |
ProductResearch segment revenues increased 5% and 1% during the three and nine months ended September 30, 2017, respectively,March 31, 2021 compared to the prior year periods.period. Research servicesrevenues within this segment increased 1% which primarily resulted from flat contract value growth during this period. Consulting revenues increased 3%1% within this segment due to increased delivery of advisory services.
Research segment expenses increased 12% during the three months ended September 30, 2017 and remained essentially flat during the nine months ended September 30, 2017March 31, 2021 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 revenues during the three months ended September 30, 2017 was primarily due to a $0.4 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 employees and an increase in events expenses driven by increased attendance at the events.
Research segment revenues remained essentially flat during the three months ended September 30, 2017 and declined 3% during the nine months ended September 30, 2017, compared to the prior year periods. During the three months ended September 30, 2017 an increase in advisory revenues was essentially offset by a decrease in consulting revenues. The decline in revenues during the nine months ended September 30, 2017 was principally due to a decrease in consulting revenues that was partially offset by a slight increase in advisory revenues. Research segment expenses increased 3% and 1% during the three and nine months ended September 30, 2017, 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. period. The increase in expenses during the three months ended March 31, 2021 was primarily due to (1) a $3.6 million increase in compensation and ninebenefit costs primarily due to reinstating incentive bonus programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the impact of the COVID-19 pandemic, merit increases, and severance costs and (2) a $0.9 million increase in professional services costs due to an increase in survey costs and new product development. These increases were partially offset by a $1.1 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.
Consulting segment revenues increased 33% during the three months ended September 30, 2017March 31, 2021 compared to the prior year period driven by continued strong demand for our content marketing offerings.
Consulting segment expenses increased 23% during the three months ended March 31, 2021 compared to the prior year period. The increase in expenses during the three months ended March 31, 2021 was primarily due to (1) a $1.5 million increase in professional services primarily due to an increase in outsourced services related to revenue delivery, and (2) a $1.1 million increase in compensation and benefit costs primarily due to reinstating incentive bonus programs that were eliminated as part of $0.5 millionthe cost-reduction measures implemented in 2020 as a result of the impact of the COVID-19 pandemic.
Event segment revenues and $1.0 million, respectively,expenses remained essentially consistent during the three months ended March 31, 2021 compared to the prior year periods.
period. No events were held during either period.
Liquidity and Capital Resources
We have historically financed our operations primarily through funds generated from operations. Memberships for research services,Research revenues, which constituted approximately 65%66% of our revenues during the ninethree months ended September 30, 2017,March 31, 2021, are generally renewable annually and are typically payable in advance. We generated cash from operating activities of $36.9$40.6 million and $38.3$21.8 million during the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. The $1.4$18.8 million decreaseincrease in cash provided from operations for the ninethree months ended September 30, 2017 March 31, 2021 compared to the prior year period was primarily attributabledue to a $1.7$10.8 million decreasereduction in cash used for working capital (excluding accounts receivable and deferred revenue) and an $8.6 million increase in cash generated from working capital. The decrease in cash from working capital was primarilyaccounts receivable and deferred revenue due to increasesan increase in cash used for income taxescontract bookings and cash used for accounts payable that were partially offset by a decrease 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.strong collections activity.
During the ninethree months ended September 30, 2017March 31, 2021, we generated $1.4 million ofused cash fromin investing activities consisting primarily of $7.0$1.5 million in net proceeds from sales and maturities of marketable investments that was partially offset by $5.8 million offor purchases of property and equipment. Propertyequipment, primarily consisting of computer software and equipment purchases during 2017 consisted primarily of computer equipment, software and leasehold improvements for our new office location in Nashville.. During the ninethree months ended September 30, 2016, March 31, 2020, we used $18.9 million of cash fromin investing activities consisting primarily of $15.5$2.4 million in net purchases of marketable investments and $3.3 million offor purchases of property and equipment. Property and equipment, purchases during 2016 consisted primarily consisting of computer equipmentsoftware and software.leasehold improvements.
We used $38.8$1.0 million of cash from financing activities during the ninethree months ended September 30, 2017March 31, 2021 primarily due to the use$3.1 million of $40.0 million for purchasesrepayments of our common stock and $10.2 million for the payment of dividends, at $0.19 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 wereterm loan, partially offset by $13.9$2.1 million of net proceeds from the exerciseissuance of common stock options andunder our employee stock purchase plan.stock-based incentive plans. We used $1.8$15.3 million of cash fromin financing activities during the ninethree months ended September 30, 2016 March 31, 2020 primarily fordue to $16.3 million of repayments of debt that included $14.0 million of discretionary payments on our revolving credit facility.
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” and, together with the paymentTerm Loans, the “Facilities”). Additional information is provided in Note 3 – Debt in the Notes to Consolidated Financial Statements. The Facilities mature on January 3, 2024. As of dividendsMarch 31, 2021, we had remaining principal payments on the Facilities totaling $9.7$106.3 million, at $0.18 per sharecontractually due as follows: $9.4 million in each2021, $28.1 million within 2022 and 2023, and $68.8 million in 2024. We were in full compliance with the covenants as of March 31, 2021 and expect to continue to be in compliance through the next 12 months.
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, our ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of the first three quartersCompany, sell assets, pay dividends or other payments in respect to capital stock, change fiscal year, or enter into certain transactions with affiliates and subsidiaries.
Additional future contractual cash obligations extending over the next 12 months and beyond primarily consist of 2016,operating lease payments. We lease office space under non-cancellable operating lease agreements (refer to Note 4 – Leases in the Notes to Consolidated Financial Statements for additional information). The remaining duration of non-cancellable office space leases ranges from less than 1 year to 11 years. As of March 31, 2021, remaining non-cancelable lease payments are due as well as $2.1follows: $11.6 million in taxes paid related2021, $33.2 million within 2022 and 2023, $30.4 million within 2024 and 2025, and $27.1 million beyond 2025.
In addition to net share settlements of restricted stock units, which was partially offset by $10.0 million of proceeds from the exercise of stock optionscontractual cash commitments included above, we have other payables and our employee stock purchase plan.liabilities that may be legally enforceable but are not considered contractual commitments.
As of September 30, 2017 our remaining stock repurchase authorization was approximately $20.1 million. We plan to repurchase our common stock as market conditions warrant.
As of September 30, 2017,March 31, 2021, we had cash and cash equivalents of $80.0 million and marketable investments of $54.0$125.6 million. These balances include $61.6This balance includes $60.2 million held outside of the U.S. If these fundsthe cash outside of the U.S. areis 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. 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 have been no material changes to the contractual obligations table as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet financing arrangements.
Recent Accounting Pronouncements
SeeRefer to Note 1 and Note 10 of– Interim Consolidated Financial Statements in 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 QUALITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes 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, 2016.2020.
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 September 30, 2017.March 31, 2021. 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.
Changes in Internal Control Over Financial Reporting
ThereExcept as noted below, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) underof the Exchange Act) that occurred during the quarter ended September 30, 2017 thatMarch 31, 2021, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
In response to COVID-19, we have undertaken measures to protect our employees, partners, and clients, including encouraging employees to work remotely. These changes have compelled us to modify some of our control procedures. However, these changes have so far not been material.
PART II. OTHEROTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and civil and regulatory claims that arise in the ordinary course of our business activities. Regardless of the outcome, litigation can have a material adverse effect on us because of defense and settlement costs, diversion of management resources, and other factors.
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, 2016,2020, 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 September 30, 2017,March 31, 2021, 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 September 30, 2017,March 31, 2021, we purchased the followingdid not purchase any shares of our common stock under the stock repurchase program:program.
|
|
|
|
|
|
|
|
|
| Maximum Dollar |
| |
|
|
|
|
|
|
|
|
|
| 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 |
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
|
|
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
3.1 | ||
3.2 | ||
3.3 | Certificate of Amendment to Restated Certificate of Incorporation of Forrester Research, Inc. | |
3.4 | ||
4.1 | ||
|
|
|
31.1 |
| Certification of the Principal Executive Officer. (filed herewith) |
|
|
|
31.2 |
| Certification of the Principal Financial Officer. (filed herewith) |
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
101.INS |
| Inline XBRL Instance |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document). (filed herewith) |
SIGNATURES
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. | ||
|
|
|
By: |
| /s/ |
|
|
|
|
| Interim Chief Financial Officer (Principal financial and accounting officer) |
Date: November 7, 2017
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Date: May 6, 2021
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