forr-10q_20190930.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, 2019

OR

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

COMMISSION FILE NUMBER: 000-21433

 

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

04-2797789

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

60 Acorn Park Drive

CAMBRIDGE, Massachusetts

 

02140

(Zip Code)

(Address of principal executive offices)

 

 

 

(617) 613-6000

(Registrant’s telephone number, including area code)

 

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 every Interactive Data File required to be submitted 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 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.

 

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 November 4, 2019, 18,622,000 shares of the registrant’s common stock were outstanding.

 

 

 

 


 

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

3

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018

4

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018

5

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

6

 

Notes to Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

 

 

 

PART II

OTHER INFORMATION

 

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 6.

Exhibits

37

 

 

2


 

PART I.

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,629

 

 

$

140,296

 

Accounts receivable, net

 

 

54,612

 

 

 

67,318

 

Deferred commissions

 

 

13,641

 

 

 

15,677

 

Prepaid expenses and other current assets

 

 

14,988

 

 

 

12,802

 

Total current assets

 

 

150,870

 

 

 

236,093

 

Property and equipment, net

 

 

27,609

 

 

 

22,005

 

Operating lease right-of-use assets

 

 

71,093

 

 

 

 

Goodwill

 

 

238,826

 

 

 

85,165

 

Intangible assets, net

 

 

102,915

 

 

 

4,951

 

Other assets

 

 

7,018

 

 

 

5,310

 

Total assets

 

$

598,331

 

 

$

353,524

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,093

 

 

$

588

 

Accrued expenses and other current liabilities

 

 

70,888

 

 

 

54,065

 

Current portion of long-term debt

 

 

8,594

 

 

 

 

Deferred revenue

 

 

168,008

 

 

 

135,332

 

Total current liabilities

 

 

248,583

 

 

 

189,985

 

Long-term debt, net of deferred financing fees

 

 

123,355

 

 

 

 

Non-current operating lease liabilities

 

 

63,829

 

 

 

 

Other non-current liabilities

 

 

14,912

 

 

 

11,939

 

Total liabilities

 

 

450,679

 

 

 

201,924

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity (Note 11):

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 500 shares; issued and outstanding - none

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 125,000 shares

 

 

 

 

 

 

 

 

Issued - 23,247 and 22,951 shares as of September 30, 2019 and

   December 31, 2018, respectively

 

 

 

 

 

 

 

 

Outstanding - 18,616 and 18,320 shares as of September 30, 2019 and

   December 31, 2018, respectively

 

 

232

 

 

 

230

 

Additional paid-in capital

 

 

212,656

 

 

 

200,696

 

Retained earnings

 

 

113,257

 

 

 

127,717

 

Treasury stock - 4,631 shares as of September 30, 2019 and December 31, 2018, at cost

 

 

(171,889

)

 

 

(171,889

)

Accumulated other comprehensive loss

 

 

(6,604

)

 

 

(5,154

)

Total stockholders’ equity

 

 

147,652

 

 

 

151,600

 

Total liabilities and stockholders’ equity

 

$

598,331

 

 

$

353,524

 

 

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

 

 

3


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research services

 

$

74,548

 

 

$

56,332

 

 

$

219,436

 

 

$

166,332

 

Advisory services and events

 

 

34,048

 

 

 

28,558

 

 

 

117,992

 

 

 

92,660

 

Total revenues

 

 

108,596

 

 

 

84,890

 

 

 

337,428

 

 

 

258,992

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

44,929

 

 

 

34,361

 

 

 

146,610

 

 

 

107,537

 

Selling and marketing

 

 

41,605

 

 

 

31,051

 

 

 

127,655

 

 

 

96,771

 

General and administrative

 

 

13,533

 

 

 

11,192

 

 

 

39,944

 

 

 

32,871

 

Depreciation

 

 

2,121

 

 

 

1,965

 

 

 

6,310

 

 

 

6,056

 

Amortization of intangible assets

 

 

5,654

 

 

 

402

 

 

 

16,963

 

 

 

770

 

Acquisition and integration costs

 

 

2,394

 

 

 

977

 

 

 

7,848

 

 

 

1,306

 

Total operating expenses

 

 

110,236

 

 

 

79,948

 

 

 

345,330

 

 

 

245,311

 

Income (loss) from operations

 

 

(1,640

)

 

 

4,942

 

 

 

(7,902

)

 

 

13,681

 

Interest expense

 

 

(1,904

)

 

 

 

 

 

(6,341

)

 

 

 

Other income (expense), net

 

 

127

 

 

 

319

 

 

 

(229

)

 

 

472

 

Losses on investments, net

 

 

(17

)

 

 

(17

)

 

 

(61

)

 

 

(62

)

Income (loss) before income taxes

 

 

(3,434

)

 

 

5,244

 

 

 

(14,533

)

 

 

14,091

 

Income tax expense (benefit)

 

 

(735

)

 

 

1,294

 

 

 

(73

)

 

 

4,086

 

Net income (loss)

 

$

(2,699

)

 

$

3,950

 

 

$

(14,460

)

 

$

10,005

 

Basic income (loss) per common share

 

$

(0.15

)

 

$

0.22

 

 

$

(0.78

)

 

$

0.55

 

Diluted income (loss) per common share

 

$

(0.15

)

 

$

0.21

 

 

$

(0.78

)

 

$

0.55

 

Basic weighted average common shares outstanding

 

 

18,546

 

 

 

18,088

 

 

 

18,448

 

 

 

18,030

 

Diluted weighted average common shares outstanding

 

 

18,546

 

 

 

18,433

 

 

 

18,448

 

 

 

18,353

 

Cash dividends declared per common share

 

$

 

 

$

0.20

 

 

$

 

 

$

0.60

 

 

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

 

 

4


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income (loss)

$

(2,699

)

 

$

3,950

 

 

$

(14,460

)

 

$

10,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(1,614

)

 

 

(602

)

 

 

(1,450

)

 

 

(2,293

)

Net change in market value of investments

 

 

 

 

65

 

 

 

 

 

 

12

 

Other comprehensive loss

 

(1,614

)

 

 

(537

)

 

 

(1,450

)

 

 

(2,281

)

Comprehensive income (loss)

$

(4,313

)

 

$

3,413

 

 

$

(15,910

)

 

$

7,724

 

 

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

 

 

5


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 

 

Nine Months Ended

 

 

September 30,

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

(14,460

)

 

$

10,005

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

6,310

 

 

 

6,056

 

Amortization of intangible assets

 

16,963

 

 

 

770

 

Net losses from investments

 

61

 

 

 

62

 

Deferred income taxes

 

(9,257

)

 

 

(1,305

)

Stock-based compensation

 

8,605

 

 

 

6,191

 

Operating lease right-of-use asset amortization and impairments

 

9,647

 

 

 

 

Amortization of deferred financing fees

 

720

 

 

 

 

Amortization of discount on investments

 

 

 

 

(17

)

Foreign currency losses

 

524

 

 

 

462

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

 

33,384

 

 

 

31,857

 

Deferred commissions

 

2,036

 

 

 

3,716

 

Prepaid expenses and other current assets

 

(610

)

 

 

(68

)

Accounts payable

 

828

 

 

 

19

 

Accrued expenses and other liabilities

 

(6,550

)

 

 

(12,111

)

Deferred revenue

 

6,532

 

 

 

(8,205

)

Operating lease liabilities

 

(9,111

)

 

 

 

Net cash provided by operating activities

 

45,622

 

 

 

37,432

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

(237,684

)

 

 

(9,250

)

Purchases of property and equipment

 

(8,362

)

 

 

(3,161

)

Purchases of marketable investments

 

 

 

 

(31,831

)

Proceeds from sales and maturities of marketable investments

 

 

 

 

33,802

 

Other investing activity

 

29

 

 

 

 

Net cash used in investing activities

 

(246,017

)

 

 

(10,440

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings, net of costs

 

171,275

 

 

 

 

Payments on borrowings

 

(40,688

)

 

 

 

Payment of debt issuance costs

 

(857

)

 

 

 

Deferred acquisition payments

 

(2,802

)

 

 

 

Dividends paid on common stock

 

 

 

 

(10,839

)

Repurchases of common stock

 

 

 

 

(9,946

)

Proceeds from issuance of common stock under employee equity incentive plans

 

5,589

 

 

 

11,217

 

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

 

(2,232

)

 

 

(2,509

)

Net cash provided by (used in) financing activities

 

130,285

 

 

 

(12,077

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(1,212

)

 

 

(2,648

)

Net change in cash, cash equivalents and restricted cash

 

(71,322

)

 

 

12,267

 

Cash and cash equivalents, beginning of period

 

140,296

 

 

 

79,790

 

Cash, cash equivalents and restricted cash, end of period

$

68,974

 

 

$

92,057

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

$

5,466

 

 

 

 

Cash paid for income taxes

$

3,305

 

 

$

3,263

 

 

Non-cash financing activities for the nine months ended September 30, 2019 include $3.7 million of debt issuance costs deducted directly from the proceeds of borrowings by the lender. Refer to Note 4 – Debt for further information.

 

 

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

 

6


 

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, 2018. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the financial position, results of operations, comprehensive income (loss) and cash flows as of the dates and for the periods presented have been included. The results of operations for the three and nine months ended September 30, 2019 may not be indicative of the results for the year ending December 31, 2019, or any other period.

Fair Value Measurements

The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturities. The Company believes that the carrying amount of its variable-rate borrowings reasonably approximate their fair values because the rates of interest on those borrowings reflect current market rates of interest. See Note 6 – Fair Value Measurements, for the fair value of the Company’s assets and liabilities.

Presentation of Restricted Cash

The following table summarizes the end-of-period cash and cash equivalents from the Company's Consolidated Balance Sheets and the total cash, cash equivalents and restricted cash as presented in the accompanying Consolidated Statements of Cash Flows (in thousands).

 

 

Nine Months Ended September 30,

 

 

2019

 

 

2018

 

Cash and cash equivalents

$

67,629

 

 

$

92,057

 

Restricted cash classified in (1):

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

717

 

 

 

 

Other assets

 

628

 

 

 

 

Cash, cash equivalents and restricted cash shown in statement of cash flows

$

68,974

 

 

$

92,057

 

 

(1)

Restricted cash consists primarily of collateral required for letters of credit. The short-term or long-term classification is determined in accordance with the expiration of the underlying lease as the letters of credit are non-cancellable while the leases are in effect.

Adoption of New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities from leases on the balance sheet and disclose qualitative and quantitative information about the lease arrangements. Lessor accounting is largely unchanged. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allowed for an additional adoption method, and for lessors, provides a practical expedient for the separation of lease and non-lease components within a contract.

 

7


 

On January 1, 2019, the Company adopted Topic 842 using the modified retrospective method in which prior periods are not adjusted. Under this method, the cumulative effect of applying the standard is recorded at the date of initial application. Adoption of the standard did not result in the Company recording a cumulative effect adjustment. Adoption of the standard resulted in the recognition of operating lease right-of-use (“ROU”) assets of $53.3 million, operating lease liabilities of $60.8 million and the elimination of deferred rent of $7.5 million on the adoption date. In addition, the Company recorded $10.4 million of operating lease ROU assets and operating lease liabilities on January 3, 2019 as a result of the acquisition of SiriusDecisions (see Note 2 – Acquisitions). Adoption of the standard did not have a material impact on the Company’s results of operations or cash flows.

The Company elected the package of practical expedients permitted under Topic 842 that allows the carry forward of the historical lease classification for all leases that existed as of the adoption date. In addition, the Company elected to exempt short term leases from recognition of ROU assets and lease liabilities and elected not to separate lease and non-lease components within its leases.

The Company determines whether an arrangement is a lease at inception of the arrangement. The Company accounts for a lease when it has the right to control the leased asset for a period of time while obtaining substantially all of the assets’ economic benefits. All of the Company’s leases are operating leases, the majority of which are for office space. Operating lease ROU assets and non-current operating lease liabilities are included as individual line items on the Consolidated Balance Sheets while short-term operating lease liabilities are recorded within accrued expenses and other current liabilities.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The discount rate used to determine the present value of the lease payments is the Company’s incremental borrowing rate based on the information available at lease inception, as generally an implicit rate in the lease is not readily determinable. An operating lease ROU asset includes all lease payments, lease incentives and initial direct costs incurred. Some of the Company’s leases include options to extend or terminate the lease. When determining the lease term, these options are included in the measurement and recognition of the Company’s ROU assets and lease liabilities when it is reasonably certain that the Company will exercise the option. The Company considers various economic factors when making this determination, including, but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty in replacing the asset, underlying contractual obligations, or specific characteristics unique to a particular lease.

Subsequent to entering into a lease arrangement, the Company reassesses the certainty of exercising options to extend or terminate a lease. When it becomes reasonably certain that the Company will exercise an option, the Company accounts for the change in circumstances as a lease modification, which results in the remeasurement of the ROU asset and lease liability as of the modification date.

Lease expense for operating leases is recognized on a straight-line basis over the lease term based on the total lease payments (which include initial direct costs and lease incentives). The expense is included in operating expenses in the Consolidated Statements of Operations.

The Company’s lease agreements generally contain lease and non-lease components. Non-lease components are fixed charges stated in an agreement and primarily include payments for parking at the leased office facilities. The Company accounts for the lease and fixed payments for non-lease components as a single lease component under Topic 842, which increases the amount of the ROU assets and lease liabilities.

Most of the Company’s lease agreements also contain variable payments, primarily maintenance-related costs, which are expensed as incurred and not included in the measurement of the ROU assets and lease liabilities.

The Company incurred $0.1 million and $0.4 million of ROU asset impairments during the three and nine months ended September 30, 2019, respectively, related to facility leases from the SiriusDecisions, Inc. acquisition.

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):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30, 2019

 

 

September 30, 2019

 

Operating lease cost

$

3,851

 

 

$

11,215

 

Short-term lease cost

 

80

 

 

 

420

 

Variable lease cost

 

1,197

 

 

 

3,888

 

Sublease income

 

(54

)

 

 

(121

)

Total lease cost

$

5,074

 

 

$

15,402

 

 

8


 

 

Additional lease information is summarized in the following table (in thousands, except lease term and discount rate):

 

 

Nine Months Ended

 

 

September 30, 2019

 

Cash paid for amounts included in the measurement of operating

   lease liabilities

$

9,111

 

Operating right-of-use assets obtained in exchange for lease

   obligations

$

17,770

 

Weighted-average remaining lease term - operating leases (years)

 

6.6

 

Weighted-average discount rate - operating leases

 

5.1

%

 

Future minimum lease payments under non-cancellable leases as of September 30, 2019 are as follows (in thousands):

 

2019

$

2,789

 

2020

 

15,546

 

2021

 

13,772

 

2022

 

13,321

 

2023

 

13,025

 

Thereafter

 

36,443

 

Total lease payments

 

94,896

 

Less imputed interest

 

(14,889

)

Present value of lease liabilities

$

80,007

 

 

Lease balances as of September 30, 2019 are as follows (in thousands):

 

Operating lease right-of-use assets

$

71,093

 

 

 

 

 

Short-term operating lease liabilities (1)

$

16,178

 

Non-current operating lease liabilities

 

63,829

 

Total operating lease liabilities

$

80,007

 

 

(1)

Included in accrued expenses and other current liabilities

The Company’s leases do not contain residual value guarantees, material restrictions or covenants, and all sublease transactions are not material.

Lease Disclosures Under Prior GAAP

Under prior GAAP, as of December 31, 2018, the Company’s future contractual obligations for operating leases were as follows (in thousands):

 

2019

$

12,498

 

2020

 

11,762

 

2021

 

10,145

 

2022

 

8,552

 

2023

 

7,856

 

Thereafter

 

22,222

 

Total minimum lease payments

$

73,035

 

 

Note 2 — Acquisitions

The Company accounts for business combinations in accordance with the acquisition method of accounting as prescribed by Accounting Standards Codification (“ASC”) 805, Business Combinations. The acquisition method of accounting requires the Company to record the assets and liabilities acquired based on their estimated fair values as of the acquisition date, with any excess of the consideration transferred over the estimated fair value of the net assets acquired, including identifiable intangible assets, to be recorded to goodwill.

 

9


 

GlimpzIt

On June 22, 2018, Forrester acquired substantially all of the assets of SocialGlimpz, Inc. (“GlimpzIt”), an artificial intelligence and machine-learning provider based in San Francisco. The acquisition is part of Forrester's plan to build a real-time customer experience or CX cloud solution, integrating a range of inputs to help companies monitor and improve customer experience. Forrester intends to deploy the GlimpzIt technology to extend the analytics engine in Forrester’s planned real-time CX cloud. The acquisition of GlimpzIt was determined to be an acquisition of a business under the provisions of ASC 805. The total purchase price was approximately $1.3 million, which was paid in cash on the acquisition date, and has been allocated as $0.7 million of goodwill and $0.6 million of an intangible asset representing technology, which is being amortized over its estimated useful life of five years. The acquired working capital was insignificant. Forrester may also be required to pay an additional $0.3 million in cash (of which $0.1 million was paid in 2019), contingent on the achievement of certain employment conditions by key employees, which is being recognized as compensation expense over the related service period of two years. Goodwill was allocated to the Product segment and is deductible for income tax purposes. Goodwill is attributable to the acquired workforce as well as future synergies.

FeedbackNow

On July 6, 2018, Forrester acquired 100% of the issued and outstanding shares of S.NOW SA, a Switzerland-based business that operates as FeedbackNow. FeedbackNow is a maker of physical buttons and monitoring software that companies deploy to measure, analyze, and improve customer experience. The acquisition is part of Forrester's plan to build a real-time CX cloud solution. FeedbackNow provides a high-volume input source for the real-time CX cloud solution. The Company paid $8.4 million on the closing date and, during the nine months ended September 30, 2019, the Company paid an additional $0.8 million for the acquired working capital. An additional $1.5 million “holdback” is payable during a two-year period from the closing date and is subject to typical indemnity provisions from the seller. The Company paid $0.5 million of this during the nine months ended September 30, 2019. In addition, the sellers may earn up to CHF 4.2 million ($4.3 million at September 30, 2019) based on the financial performance of FeedbackNow during the two-year period following the closing date, with up to $1.8 million and $2.5 million payable during 2019 and 2020, respectively, if the financial targets are met. In the third quarter of 2019, the first-year financial targets were met and as such $1.8 million was paid to the sellers during the same period. The remaining range of undiscounted amounts that could be payable under this arrangement for the second-year financial targets is zero to $2.5 million. The fair value of this contingent consideration arrangement as of the acquisition date was $3.4 million, which was recognized as purchase price. Measurement period adjustments were insignificant during 2019.

 

SiriusDecisions, Inc.

On January 3, 2019, Forrester acquired 100% of the issued and outstanding shares of SiriusDecisions, Inc. (“SiriusDecisions”), a privately-held company based in Wilton, Connecticut with approximately 350 employees globally. Forrester believes that the combination of its expertise in strategy with SiriusDecisions’ focus on operational excellence will create additional market opportunities for the Company, including cross-selling services to the respective client bases, extending SiriusDecisions’ platform, methodologies, data, and best-practices tools into new roles, and accelerating international and industry growth. The acquisition of SiriusDecisions was determined to be an acquisition of a business under the provisions of ASC 805.

Pursuant to the terms of the merger agreement, the Company paid $246.8 million at closing after certain transaction expense adjustments, which was subject to a working capital adjustment, and included the purchase price of $245.0 million plus an estimate of cash acquired and reduced by an estimate of certain working capital items. At the time of the merger, each vested SiriusDecisions stock option was converted into the right to receive the excess of the per share merger consideration over the exercise price of such stock option. All unvested SiriusDecisions stock options were cancelled without payment of any consideration.

Total Consideration Transferred

The following table summarizes the fair value of the aggregate consideration paid for SiriusDecisions (in thousands):

 

Cash paid at close (1)

 

$

246,801

 

Working capital adjustment (2)

 

 

(1,259

)

Total

 

$

245,542

 

 

(1)

The cash paid at close represents the gross contractual amount paid. Net cash paid, which accounts for the cash acquired of $7.9 million and the working capital adjustment of $1.3 million, was $237.7 million and is reflected as an investing activity in the Consolidated Statements of Cash Flows.

(2)

Amount represents the final amount receivable from the sellers based upon working capital as defined, which was received in the third quarter of 2019.

 

10


 

The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisition of SiriusDecisions (in thousands):

 

Assets:

 

 

 

 

Cash and cash equivalents

 

$

7,858

 

Accounts receivable

 

 

19,237

 

Prepaids and other current assets

 

 

3,660

 

Fixed assets

 

 

4,169

 

Goodwill (1) (2)

 

 

154,906

 

Acquired intangible assets (3)

 

 

115,000

 

Other assets

 

 

265

 

Total assets

 

 

305,095

 

Liabilities:

 

 

 

 

Accounts payable and accrued liabilities

 

 

8,924

 

Deferred revenue

 

 

26,143

 

Deferred tax liability (2)

 

 

22,357

 

Long-term deferred revenue

 

 

1,037

 

Other long-term liabilities

 

 

1,092

 

Total liabilities

 

 

59,553

 

Net assets acquired

 

$

245,542

 

 

(1)

Goodwill represents the expected revenue and cost synergies from combining SiriusDecisions with Forrester as well as the value of the acquired workforce.

(2)

During the third quarter of 2019, the Company recorded a $1.8 million measurement period adjustment related to deferred taxes. The adjustment reduced the allocation of the purchase price to both deferred tax liabilities and goodwill.

(3)

All of the acquired intangible assets are finite-lived. The determination of the fair value of the finite-lived intangible assets required management judgment and the consideration of a number of factors. In determining the fair values, management primarily relied on income valuation methodologies, in particular discounted cash flow models. The discounted cash flow models required the use of estimates, including projected cash flows related to the particular asset, the useful lives of the particular assets, the selection of royalty and discount rates used in the models and certain published industry benchmark data. In establishing the estimated useful lives of the acquired intangible assets, the Company relied primarily on the duration of the cash flows utilized in the valuation model. Of the $115.0 million assigned to acquired intangible assets, $13.0 million was assigned to the technology asset class with useful lives of 1 to 8 years (with a weighted average amortization period of 3.2 years), $13.0 million to backlog with a useful life of 2.0 years, $77.0 million to customer relationships with a useful life of 9.25 years, and $12.0 million to trade names with a useful life of 15.5 years. The weighted-average amortization period for the total acquired intangible assets is 8.4 years. Amortization of acquired intangible assets was $5.4 million and $16.3 million for the three and nine months ended September 30, 2019, respectively.

The allocation of the purchase price for SiriusDecisions is preliminary with respect to the valuation of acquired intangible assets, deferred taxes, and goodwill. The Company expects to obtain the remainder of the information to complete the allocation of purchase price by the end of 2019.

The Company’s financial statements include the operating results of SiriusDecisions beginning on January 3, 2019, the date of the acquisition. SiriusDecision’s operating results and the related goodwill are being reported as its own operating segment (refer to Note 12 – Operating Segments). The goodwill is not deductible for income tax purposes. The acquisition of SiriusDecisions added approximately $16.8 million and $59.5 million of additional revenue and $22.2 million and $79.2 million of direct expenses, including intangible amortization, for the three and nine months ended September 30, 2019, respectively. Had the Company acquired SiriusDecisions in prior periods, the Company’s operating results would have been materially different, and as a result the following unaudited pro forma financial information is presented as if SiriusDecisions had been acquired by the Company on January 1, 2018 (in thousands):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Pro forma total revenue

$

110,224

 

 

$

101,848

 

 

$

347,751

 

 

$

318,094

 

Pro forma net loss

$

(1,092

)

 

$

(2,511

)

 

$

(5,359

)

 

$

(9,951

)

 

 

11


 

The pro forma results have been prepared in accordance with U.S. GAAP and include the following pro forma adjustments for the three and nine months ended September 30, 2018: (1) an increase in interest expense and amortization of debt issuance costs related to the financing of the SiriusDecisions acquisition (refer to Note 4Debt for further information on the Company’s borrowings related to the acquisition); (2) a decrease in revenue as a result of the fair value adjustment to deferred revenue; and (3) an adjustment for depreciation and amortization expenses as a result of the preliminary purchase price allocation for finite-lived intangible assets and property and equipment. In addition, the nine months ended September 30, 2018 has been adjusted to increase operating costs to recognize acquisition costs incurred upon the close of the acquisition. The three and nine months ended September 30, 2019 have been adjusted to add the year two amounts, and eliminate the year one amounts, for the fair value of deferred revenue, depreciation and amortization expense and interest expense. In addition, the nine months ended September 30, 2019 have been adjusted to eliminate the acquisition costs incurred upon the close of the acquisition.

The Company recognized $1.7 million of acquisition costs for the three months ended March 31, 2019 and the nine months ended September 30, 2019 related to the SiriusDecisions acquisition. The costs primarily consisted of investment banker fees and other professional services costs and are included in acquisition and integration costs within the Consolidated Statements of Operations.

 

Note 3 — Goodwill and Intangible Assets

Goodwill

 

The change in the carrying amount of goodwill for the nine months ended September 30, 2019 is summarized as follows (in thousands):

 

 

Total

 

Balance at December 31, 2018

$

85,165

 

Acquisition

 

154,906

 

Translation adjustments

 

(1,245

)

Balance at September 30, 2019

$

238,826

 

 

As of September 30, 2019, the Company had no accumulated goodwill impairment losses.

Finite-Lived Intangible Assets

During the nine months ended September 30, 2019, $115.0 million of intangible assets were added as a result of the acquisition of SiriusDecisions.

 

The carrying values of finite-lived intangible assets are as follows (in thousands):

 

 

September 30, 2019

 

 

Gross

 

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

109,551

 

 

$

37,784

 

 

$

71,767

 

Technology

 

16,577

 

 

 

5,347

 

 

 

11,230

 

Backlog

 

13,000

 

 

 

4,875

 

 

 

8,125

 

Trade name

 

12,438

 

 

 

645

 

 

 

11,793

 

Total

$

151,566

 

 

$

48,651

 

 

$

102,915

 

 

 

December 31, 2018

 

 

Gross

 

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

32,823

 

 

$

31,604

 

 

$

1,219

 

Technology

 

3,610

 

 

 

295

 

 

 

3,315

 

Trade name

 

443

 

 

 

26

 

 

 

417

 

Total

$

36,876

 

 

$

31,925

 

 

$

4,951

 

 

 

12


 

Estimated intangible asset amortization expense as of September 30, 2019 is as follows (in thousands):

 

Year ending December 31, 2019 (remainder)

$

5,653

 

Year ending December 31, 2020

 

18,822

 

Year ending December 31, 2021

 

12,322

 

Year ending December 31, 2022

 

10,984

 

Year ending December 31, 2023

 

10,812

 

Thereafter

 

44,322

 

Total

$

102,915

 

 

Note 4 — Debt

 

In connection with the acquisition of SiriusDecisions, the Company entered into a $200.0 million Credit Agreement on January 3, 2019 (the “Closing Date”). The Credit Agreement provides for: (1) senior secured term loans in an aggregate principal amount of $125.0 million (the “Term Loans”) and (2) a senior secured revolving credit facility in an aggregate principal amount of $75.0 million (the “Revolving Credit Facility” and, together with the Term Loans, the “Facilities”). On the Closing Date, the full $125.0 million of the Term Loans and $50.0 million of the Revolving Credit Facility were used to finance a portion of the acquisition of SiriusDecisions and to pay certain fees, costs and expenses incurred in connection with the acquisition and the Facilities. The Facilities are scheduled to mature on January 3, 2024.

 

The Facilities permit the Company to borrow incremental term loans and/or increase commitments under the Revolving Credit Facility in an aggregate principal amount up to $50.0 million, subject to approval by the administrative agent and certain customary terms and conditions.

 

The Facilities can be repaid early, in part or in whole, at any time and from time to time, without premium or penalty, other than customary breakage reimbursement requirements for London Interbank Offering Rate (“LIBOR”) based loans. The Term Loans must be prepaid with net cash proceeds of (i) certain debt incurred or issued by Forrester and its restricted subsidiaries and (ii) certain asset sales and condemnation or casualty events, subject to certain reinvestment rights.

 

Amounts borrowed under the Facilities bear interest, at Forrester’s option, at a rate per annum equal to either (i) LIBOR for the applicable interest period plus a margin that is between 1.75% and 2.50% based on Forrester’s consolidated total leverage ratio or (ii) the alternate base rate plus a margin that is between 0.75% and 1.50% based on Forrester’s consolidated total leverage ratio. In addition, the Company will pay a commitment fee that is between 0.25% and 0.35% per annum, based on Forrester’s consolidated total leverage ratio, on the average daily unused portion of the Revolving Credit Facility, payable quarterly, in arrears.

 

The Term Loans require repayment of the outstanding principal balance in quarterly installments each year, commencing on March 31, 2019 with the balance repayable on the maturity date, subject to customary exceptions. The amount payable in each year as of September 30, 2019 is set forth in the table below (in thousands):

 

2019 (remainder)

$

1,563

 

2020

 

9,375

 

2021

 

12,500

 

2022

 

12,500

 

2023

 

15,625

 

Thereafter

 

68,750

 

Total remaining principal payments

$

120,313

 

 

The Revolving Credit Facility does not require repayment prior to maturity, subject to customary exceptions. In addition to financing the acquisition, proceeds from the Revolving Credit Facility can also be used towards working capital and general corporate purposes. Up to $5.0 million of the Revolving Credit Facility is available for the issuance of letters of credit, and any drawings under the letters of credit must be reimbursed within one business day.

 

Forrester incurred $1.8 million in costs related to the Revolving Credit Facility, which are recorded in other assets on the Consolidated Balance Sheets. These costs are being amortized as interest expense on a straight-line basis over the five-year term of the Revolving Credit Facility. Forrester incurred $2.8 million in costs related to the Term Loans, which are recorded as a reduction to the face value of long-term debt on the Consolidated Balance Sheets. These costs are being amortized as interest expense utilizing the effective interest rate method.

 

13


 

Outstanding Borrowings

The following table summarizes the Company’s total outstanding borrowings as of the dates indicated (in thousands):

 

Description:

 

September 30, 2019

 

 

December 31, 2018

 

Term loan facility (1)

 

$

120,313

 

 

$

 

Revolving credit facility (1) (2)

 

 

14,000

 

 

 

 

Principal amount outstanding (3)

 

 

134,313

 

 

 

 

Less: Deferred financing fees

 

 

(2,364

)

 

 

 

Net carrying amount

 

$

131,949

 

 

$

 

 

(1)

The contractual annualized interest rate as of September 30, 2019 on the Term loan facility was 4.375%, which consisted of LIBOR of 2.125% plus a margin of 2.25%, and the annualized interest rate on the Revolving Credit Facility was 4.3125%, which consisted of LIBOR of 2.0625% plus a margin of 2.25%.

(2)

The Company had $61.0 million of available borrowing capacity on the revolver (not including the expansion feature) as of September 30, 2019.

(3)

The weighted average annual effective rates on the Company's total debt outstanding for the three and nine months ended September 30, 2019, were 4.53% and 4.88%, respectively.

 

The Facilities contain certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio and minimum fixed charge coverage ratio. The negative covenants limit, subject to various exceptions, the Company’s ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of the Company, sell assets, pay dividends or other payments in respect to capital stock, change fiscal year, or enter into certain transactions with affiliates and subsidiaries. The Company was in full compliance with the covenants as of September 30, 2019. The Facilities also contain customary events of default, representations, and warranties.

 

All obligations under the Facilities are unconditionally guaranteed by each of the Company’s existing and future, direct and indirect material wholly-owned domestic subsidiaries, other than certain excluded subsidiaries, and are collateralized by a first priority lien on substantially all tangible and intangible assets including intellectual property and all of the capital stock of the Company and its subsidiaries (limited to 65% of the voting equity of certain subsidiaries).

 

Note 5 — Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows (in thousands):

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

Cumulative

 

 

Accumulated

 

 

 

 

 

Translation

 

 

Other Comprehensive

 

 

 

 

 

Adjustment

 

 

Loss

 

Balance at January 1, 2019

 

 

 

$

(5,154

)

 

$

(5,154

)

Foreign currency translation

 

 

 

 

(1,450

)

 

 

(1,450

)

Balance at September 30, 2019

 

 

 

$

(6,604

)

 

$

(6,604

)

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Net Unrealized

 

 

Cumulative

 

 

Accumulated

 

 

 

Loss on Marketable

 

 

Translation

 

 

Other Comprehensive

 

 

 

Investments

 

 

Adjustment

 

 

Loss

 

Balance at January 1, 2018

 

$

(115

)

 

$

(1,897

)

 

$

(2,012

)

Reclassification of stranded tax effects from

   tax reform

 

 

(26

)

 

 

 

 

 

(26

)

Foreign currency translation

 

 

 

 

 

(2,293

)

 

 

(2,293

)

Unrealized gain on investments, net of tax of $4

 

 

12

 

 

 

 

 

 

12

 

Balance at September 30, 2018

 

$

(129

)

 

$

(4,190

)

 

$

(4,319

)

 

14


 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

Cumulative

 

 

Accumulated

 

 

 

 

 

Translation

 

 

Other Comprehensive

 

 

 

 

 

Adjustment

 

 

Loss

 

Balance at July 1, 2019

 

 

 

$

(4,990

)

 

$

(4,990

)

Foreign currency translation

 

 

 

 

(1,614

)

 

 

(1,614

)

Balance at September 30, 2019

 

 

 

$

(6,604

)

 

$

(6,604

)

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Net Unrealized

 

 

Cumulative

 

 

Accumulated

 

 

 

Loss on Marketable

 

 

Translation

 

 

Other Comprehensive

 

 

 

Investments

 

 

Adjustment

 

 

Loss

 

Balance at July 1, 2018

 

$

(194

)

 

$

(3,588

)

 

$

(3,782

)

Foreign currency translation

 

 

 

 

 

(602

)

 

 

(602

)

Unrealized gain on investments, net of tax of $21

 

 

65