forr-10q_20170930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED September 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

COMMISSION FILE NUMBER: 000-21433

 

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

04-2797789

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

60 Acorn Park Drive

CAMBRIDGE, MASSACHUSETTS

 

02140

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 613-6000

 

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 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, 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

 

 (Do not check if a smaller reporting company)

  

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 November 3, 2017 17,975,000 shares of the registrant’s common stock were outstanding.

 

 

 

 


 

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

 

 

  

PAGE

 

PART I. FINANCIAL INFORMATION

  

4

 

ITEM 1. Financial Statements (Unaudited)

  

4

 

Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016

  

4

 

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016

  

5

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016

  

6

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016

  

7

 

Notes to Consolidated Financial Statements

  

8

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

17

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

  

26

 

ITEM 4. Controls and Procedures

  

26

 

PART II. OTHER INFORMATION

  

27

 

ITEM 1A. Risk Factors

  

27

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

ITEM 6. Exhibits

  

28

 

  

 

 

 

 

 

 

3


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

ASSETS

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

79,960

 

 

$

76,958

 

Marketable investments (Note 3)

 

 

54,019

 

 

 

61,147

 

Accounts receivable, net

 

 

39,481

 

 

 

58,812

 

Deferred commissions

 

 

9,146

 

 

 

12,052

 

Prepaid expenses and other current assets

 

 

15,817

 

 

 

14,467

 

Total current assets

 

 

198,423

 

 

 

223,436

 

Property and equipment, net

 

 

26,128

 

 

 

23,894

 

Goodwill

 

 

75,815

 

 

 

73,193

 

Intangible assets, net

 

 

927

 

 

 

1,464

 

Other assets

 

 

13,095

 

 

 

13,798

 

Total assets

 

$

314,388

 

 

$

335,785

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

613

 

 

$

1,806

 

Accrued expenses and other current liabilities

 

 

36,838

 

 

 

41,403

 

Deferred revenue

 

 

132,929

 

 

 

134,265

 

Total current liabilities

 

 

170,380

 

 

 

177,474

 

Non-current liabilities

 

 

8,788

 

 

 

8,275

 

Total liabilities

 

 

179,168

 

 

 

185,749

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity (Note 7):

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 500 shares; issued and outstanding - none

 

 

 

 

 

 

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

 

Additional paid-in capital

 

 

175,218

 

 

 

157,569

 

Retained earnings

 

 

124,343

 

 

 

121,799

 

Treasury stock - 4,391 and 3,358 shares as of September 30, 2017 and December 31, 2016, respectively, at cost

 

 

(161,943

)

 

 

(121,976

)

Accumulated other comprehensive loss

 

 

(2,621

)

 

 

(7,573

)

Total stockholders’ equity

 

 

135,220

 

 

 

150,036

 

Total liabilities and stockholders’ equity

 

$

314,388

 

 

$

335,785

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

4


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data, unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research services

 

$

54,235

 

 

$

52,727

 

 

$

160,553

 

 

$

160,998

 

Advisory services and events

 

 

26,134

 

 

 

24,700

 

 

 

86,743

 

 

 

81,651

 

Total revenues

 

 

80,369

 

 

 

77,427

 

 

 

247,296

 

 

 

242,649

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

32,508

 

 

 

29,889

 

 

 

100,814

 

 

 

95,429

 

Selling and marketing

 

 

29,225

 

 

 

27,751

 

 

 

90,355

 

 

 

87,490

 

General and administrative

 

 

10,083

 

 

 

10,086

 

 

 

30,672

 

 

 

30,359

 

Depreciation

 

 

1,607

 

 

 

1,941

 

 

 

4,775

 

 

 

5,982

 

Amortization of intangible assets

 

 

197

 

 

 

208

 

 

 

582

 

 

 

627

 

Reorganization costs

 

 

 

 

 

 

 

 

 

 

 

1,026

 

Total operating expenses

 

 

73,620

 

 

 

69,875

 

 

 

227,198

 

 

 

220,913

 

Income from operations

 

 

6,749

 

 

 

7,552

 

 

 

20,098

 

 

 

21,736

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

17,747

 

 

 

18,062

 

 

 

17,897

 

 

 

17,896

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

18,051

 

 

 

18,435

 

 

 

18,212

 

 

 

18,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

5


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(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

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

6


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 

 

Nine Months Ended

 

 

September 30,

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

13,047

 

 

$

11,861

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

Depreciation

 

4,775

 

 

 

5,982

 

Amortization of intangible assets

 

582

 

 

 

627

 

Net losses from investments

 

997

 

 

 

1,139

 

Deferred income taxes

 

(921

)

 

 

(413

)

Stock-based compensation

 

6,423

 

 

 

5,731

 

Amortization of premium on investments

 

171

 

 

 

267

 

Foreign currency losses

 

444

 

 

 

98

 

Changes in assets and liabilities

 

 

 

 

 

 

 

Accounts receivable

 

20,140

 

 

 

31,078

 

Deferred commissions

 

2,906

 

 

 

3,890

 

Prepaid expenses and other current assets

 

(979

)

 

 

2,322

 

Accounts payable

 

(1,208

)

 

 

133

 

Accrued expenses and other liabilities

 

(6,041

)

 

 

(10,101

)

Deferred revenue

 

(3,473

)

 

 

(14,309

)

Net cash provided by operating activities

 

36,863

 

 

 

38,305

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(5,806

)

 

 

(3,334

)

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

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Dividends paid on common stock

 

(10,205

)

 

 

(9,696

)

Repurchases of common stock

 

(39,967

)

 

 

 

Proceeds from issuance of common stock under employee equity

   incentive plans

 

13,866

 

 

 

9,987

 

Taxes paid related to net share settlements of stock-based compensation awards

 

(2,511

)

 

 

(2,069

)

Net cash used in financing activities

 

(38,817

)

 

 

(1,778

)

Effect of exchange rate changes on cash and cash equivalents

 

3,534

 

 

 

(870

)

Net increase in cash and cash equivalents

 

3,002

 

 

 

16,805

 

Cash and cash equivalents, beginning of period

 

76,958

 

 

 

53,331

 

Cash and cash equivalents, end of period

$

79,960

 

 

$

70,136

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

7


 

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1 — Interim Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Forrester Research, Inc. (“Forrester”) Annual Report on Form 10-K for the year ended December 31, 2016. 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 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, 2017 may not be indicative of the results for the year ending December 31, 2017, or any other period.

Fair Value Measurements

The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturities. See Note 3 – Marketable Investments - for the fair value of the Company’s marketable investments.

 

 

Adoption of New Accounting Pronouncements

 

The Company adopted the guidance in Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting, 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 impact 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.

 

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

 

8


 

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 million cumulative 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

 

 

 

9


 

 

 

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 at fair value on a recurring basis, including cash equivalents and available-for-sale securities. The fair values of these financial assets have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

Level 1 — Fair value based on quoted prices in active markets for identical assets or liabilities.

Level 2 — Fair value based on inputs other than Level 1 inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Fair value based on unobservable inputs that are supported by little or no market activity and such inputs are significant to the fair value of the assets or liabilities.

 

10


 

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) 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 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

 

 

(1)

Included in cash and cash equivalents. 

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 during the three months ended March 31, 2017. During the three months ended September 30, 2017, no distributions were received from the funds. During the nine months ended September 30, 2017, distributions of $0.4 million were received from the funds. During the nine months ended September 30, 2016, no distributions were received from the funds.

 

 

Note 5 — Reorganization

 

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 costs for this action during the three months ended March 31, 2016. All costs under this plan were paid during 2016.

 

 

Note 6 — Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the basic weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income 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 options and vesting of restricted stock units when dilutive.

 

11


 

Basic and diluted weighted average common shares are as follows (in thousands):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Basic weighted average common shares outstanding

 

17,747

 

 

 

18,062

 

 

 

17,897

 

 

 

17,896

 

Weighted average common equivalent shares

 

304

 

 

 

373

 

 

 

315

 

 

 

272

 

Diluted weighted average common shares outstanding

 

18,051

 

 

 

18,435

 

 

 

18,212

 

 

 

18,168

 

Share based awards excluded from diluted weighted average share

   calculation as effect would have been anti-dilutive

 

27

 

 

 

82