forr-10k_20191231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                      TO                     

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 No.)

60 Acorn Park Drive

Cambridge, Massachusetts

02140

(Address of principal executive offices)

(Zip Code)

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

 

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, $0.01 Par Value

 

FORR

 

Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  NO 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  YES  NO 

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, 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 check mark 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 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The NASDAQ Stock Market on June 30, 2019, was approximately $498,000,000.

The number of shares of Registrant’s Common Stock outstanding as of March 6, 2020 was 18,755,000.

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement related to its 2020 Annual Stockholders’ Meeting to be filed subsequently -- Part III of this Form 10-K.

 

 



FORRESTER RESEARCH, INC.

 

INDEX TO FORM 10-K

 

 

 

Page

PART I

 

 

Item 1.

Business

3

Item 1A.

Risk Factors

10

Item 1B.

Unresolved Staff Comments

13

Item 2.

Properties

13

Item 3.

Legal Proceedings

13

Item 4.

Mine Safety Disclosures

13

 

 

 

PART II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

14

Item 6.

Selected Consolidated Financial Data

16

Item 7.

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

17

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 8.

Consolidated Financial Statements and Supplementary Data

29

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

68

Item 9A.

Controls and Procedures

68

Item 9B.

Other Information

68

 

 

 

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

69

Item 11.

Executive Compensation

70

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

70

Item 13.

Certain Relationships and Related Transactions, and Director Independence

70

Item 14.

Principal Accountant Fees and Services

70

 

 

 

PART IV

 

 

Item 15.

Exhibits and Financial Statement Schedules

71

Item 16

Form 10-K Summary

71

 

 

 

SIGNATURES

 

74

 


2

 


This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions are intended to identify these forward-looking statements. Reference is made in particular to our statements about possible acquisitions, future dividends, future share repurchases, future growth rates and operating income, future deferred revenue, future financial results of SiriusDecisions, future compliance with financial covenants under our credit facility, future interest expense, anticipated increases in, and productivity of, our sales force and headcount, changes to our customer engagement model, future modification of our segment reporting, the estimated impact of holding our SiriusDecisions Summit 2020 as a virtual event, the adequacy of our cash, and cash flows to satisfy our working capital and capital expenditures, and the anticipated impact of accounting standards. These statements are based on our current plans and expectations and involve risks and uncertainties. Important factors that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements are discussed below under “Risk Factors.” We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

PART I

Item 1.

Business

General

Forrester Research, Inc. is a global independent research, data, and advisory services firm. We work with business and technology leaders to drive customer-obsessed vision, strategy, and execution that accelerate growth. Forrester’s unique insights are grounded in annual surveys of more than 690,000 consumers and business leaders worldwide, rigorous and objective research methodologies, and the shared wisdom of our clients. Through proprietary research, data and analytics, custom consulting, exclusive executive peer groups, certifications, and events, Forrester is revolutionizing how businesses grow in an era of powerful customers.

We were incorporated in Massachusetts on July 7, 1983 and reincorporated in Delaware on February 16, 1996.

Our Internet address is www.forrester.com. We make available free of charge, on or through the investor information section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

On January 3, 2019, we acquired SiriusDecisions, Inc., a privately held company based in Wilton, Connecticut with approximately 350 employees globally. SiriusDecisions equips business-to-business (B2B) sales, marketing, and product leaders with the actionable research, frameworks, tools, operational benchmarks and expert advice they need to maximize performance and drive alignment. The acquisition creates several opportunities for us, including cross-selling services to our respective client bases, extending SiriusDecisions’ platform, methodologies, data, and best-practices tools into new roles, and accelerating international and industry growth.

Industry Background

Enterprises struggle to keep up with digitally-savvy, empowered customers and maintain differentiation in a disruption-rich market. Technology changes and innovations occur at a rapid pace. Developing and executing on comprehensive and coordinated business strategies is challenging as consumers and businesses adopt new methods of buying and selling and markets grow increasingly dynamic.

Consequently, companies and the professionals in the roles we serve must rely on external sources of independent business advice spanning a variety of areas including but not limited to customer behavior, technology investments, business strategy, and functional discipline. We believe there is a need for objective research, data, advisory and related services that allow our clients to understand market dynamics, develop differentiated strategies, and execute in a complex, fast-moving market.

Forrester’s® Strategy

Empowered customers have ushered in a new “Age of the Customer” that we believe is reshaping the way organizations succeed and grow. Our unique strategy, products, and services are designed to help those enterprises become customer-obsessed in service of differentiated customer experiences, growth, and profit.

3

 


Driven by our strategy, we: 1) help our clients understand what is changing in their markets and how their customers and technology are changing; 2) provide guidance on how clients should build their strategies to achieve competitive advantage; and 3) provide specific, actionable guidance for how to execute on those strategies. Combining the complementary strengths of Forrester and SiriusDecisions, we help clients expand their vision, build strategy, and execute effectively with decisiveness and speed.

Importantly, the three areas where we work with our clients — vision, strategy, and execution — are interrelated and widespread in the large organizations that we serve. This creates opportunities to sell add-on products and services to our existing clients. In addition, we believe our go-to-market strategy is unique, increasing our competitive differentiation.  

Our core capabilities deliver a comprehensive set of products and solutions to help our clients compete and win in the Age of the Customer. Our ability to customize our solutions to specific industries provides a powerful method to drive the success of our clients and creates significant opportunities to consistently enrich our relationships with our clients.

Forrester’s Solution

We offer a broad set of products and services designed to help our clients win in the Age of the Customer. Our solutions help our clients to:

 

Understand trends in consumer and business buyer behavior and how to capitalize on those trends.

 

Plan strategies to improve their customer experience.

 

Develop customer-obsessed cultures that drive growth.

 

Assess potential new markets, competitors, products and services, and go-to-market strategies.

 

Anticipate technology-driven business model shifts.

 

Educate, inform, and align strategic decision-makers in their organizations.

 

Navigate technology purchases and implementation challenges and optimize technology investments, particularly in the information technology (IT) and marketing spaces.

 

Capitalize on emerging technologies to accommodate customers’ evolving needs.

 

Benchmark their customer experience.

 

Measure and improve their customer experience in real-time.

 

Align marketing, sales, and product efforts to achieve high efficiency and revenue growth.

 

Continually benchmark how marketing, sales, and product groups operate.

Our products and services focus on six market imperatives important to our clients and prospects in the Age of the Customer:

 

Drive revenue with continuously improving customer experience – so that customer experience becomes a growth engine for our clients.

 

Differentiate with digital – taking the critical step to enable our clients to become digital first companies.

 

Accelerate growth with marketing innovation – enabling our clients to expand and excel at engaging and retaining customers.

 

Use customer insights to gain a competitive advantage – enabling our clients to anticipate changing customer expectations.

 

Transform IT to win, serve and retain customers – so that IT becomes a strategic point of differentiation for our clients.

 

Secure customers and protect the brand – so that trust becomes an asset of our clients.

Products and Services

We offer our clients a selection of products, services, and engagement opportunities, which fall into five categories: Research (our core research), Connect (our peer offerings and certifications), Analytics, Consulting, and Events.

4

 


Research

Forrester’s published research and tools serve as the foundation for how we address our clients’ and prospects’ opportunities and challenges in the Age of the Customer. We believe that our Research enables clients to do three things: 1) clarify and predict market dynamics to set a bold vision for their firm; 2) build customer-obsessed strategies to achieve competitive advantage; and 3) execute effectively to drive revenue and profit. We offer two distinct Research products, Forrester Research and SiriusDecisions® Research.

Our primary syndicated research product, Forrester Research, provides clients with access to our core research designed to expand our clients’ understanding of external trends and tools to inform their strategic decision-making. We deepen clients’ understanding of market, customer, and technology trends through data-driven reports, predictions, and forecasts.  Our Playbooks offer a set of integrated reports and tools to tackle critical business initiatives. They provide in-depth advice designed to build detailed strategies for these initiatives, including assessments, roadmaps, and business cases, as well as organizational, process and technology guidance.  

Forrester Research also includes a body of evaluative research. The Forrester Tech Tide™ helps clients understand what technology categories to invest in and when. Our Now Tech reports help clients identify and segment technology players in established categories. And the Forrester Wave™ allows clients to compare individual products and develop a custom shortlist based on their unique requirements. The Forrester Wave provides a detailed analysis of vendors’ technologies and services in various markets based on transparent, fully accessible criteria, and measurement of characteristics. In the emerging technology space, our New Tech and New Wave reports help clients learn about new game-changing technologies and companies to help customers drive growth and support long-term strategies.

SiriusDecisions Research delivers operational intelligence and fact-based insight to functional marketing, sales and product leaders of B2B organizations and their teams. Research types include best-practice models and frameworks to structure functional operations, insights from more than 30 B2B buyer personas, event presentations, webinars, role profiles, select best practices implemented by peers, and the interactive, web-based SiriusTools® to aid in planning, execution and measurement. SiriusDecisions Research is created based on client priorities, which we believe are the most important business opportunities and critical challenges B2B marketing, sales and product leaders are trying to solve. SiriusDecisions Command Center® offers performance benchmarking metrics in a self-service platform to aid sales, marketing, and product leaders in planning, uncovering new opportunities, and making business cases.

Clients subscribing to Forrester Research offerings may choose between two subscription levels:

 

Member Licenses. Member Licenses include access to written research, as well as Inquiry with analysts, and access to Forrester On-Demand Keynotes and Webinars. Inquiry enables clients to contact our analysts for quick feedback on projects they may have underway, to discuss ideas and models in the research, or for answers to questions about unfolding industry events. Typically, Inquiry sessions are 30-minute phone calls, scheduled upon client request, or e-mail responses coordinated through our research specialists. Forrester Webinars are Web-based conferences on selected topics of interest to particular professional roles that typically are held several times a week. On-Demand Keynotes are recorded presentations from Forrester Events. Forrester clients that subscribe for one or more Member licenses receive one ticket per order to attend a Forrester Event.

 

Reader Licenses. Reader Licenses provide access to our written research.

Clients subscribing to SiriusDecisions Research offerings may choose between the following subscription levels:

 

Role-Based Services. Role-Based Services provide access to our written research for a leader and their team members.

 

Executive Services. Executive Services provide access to our written research with additional add-ons available for onsite sessions and a dedicated analyst advisor.

 

SiriusDecisions for Technology and Service Providers. Technology and Service Providers Licenses provide access to research in addition to an analyst webinar with a replay license.

SiriusDecisions offerings include analyst inquiry to enable clients to contact our analysts for feedback on projects they may have underway, to discuss ideas and models in the research, or for answers to questions about unfolding industry events. Typically, these inquiry sessions are 50-minute phone calls, scheduled upon client request, or e-mail responses coordinated through our research specialists.

5

 


All Research clients receive access to our Customer Success team, which provides additional information about our research, methodologies, coverage areas, and sources. The Customer Success team is available to help clients navigate our website, find relevant information, and put clients in contact with the appropriate analyst for inquiries.

We also offer clients the opportunity to license electronic “reprints” of designated Research for posting to their website(s) for a designated period of time to support their marketing or business objectives. Electronic reprints are hosted on an on-line platform that enables interactive content and provides us with improved tracking of distribution of our intellectual property. In addition, we offer Research Share licenses that allow clients to share a designated number of published pieces of research with a designated number of persons within their organizations.

Research Methodology

We employ a structured methodology in our research that enables us to identify and analyze technology trends, markets, and audiences and ensures consistent research quality and recommendations across all coverage areas. We ascertain the issues important to our clients and prospects through thousands of interactions and surveys with technology vendors and business, marketing, and technology professionals, and accordingly, the majority of our research is focused on helping our clients increase their customer focus and grow their business. We use the following primary research inputs:

 

Proprietary data from our Customer Experience Index (CX Index™), Consumer Technographics®, Business Technographics, ForecastView, and SiriusDecisions Command Center products.

 

Confidential interviews with early adopters and mainstream users of new technologies across technology, marketing, and strategy roles at end-user companies.

 

In-depth interviews with technology vendors and suppliers of related services.

 

Ongoing briefings with vendors to review current positions and future directions.

 

Continuous dialogue with our clients to identify business and technology opportunities in the marketplace.

Collaboration among research, product, analytics and consulting professionals is an integral part of our process, leading to higher-quality research and a unified perspective. Our global research and product organizations support our client base by facilitating research and product collaboration and quality, promoting a uniform client experience and improved customer satisfaction, and encouraging innovation.

Connect

The Forrester Connect offerings are designed to help clients connect with peers and Forrester’s professionals, optimize use of our products and services, and to coach executives to lead far-reaching change within their organizations.

Leadership Boards

Our Leadership Boards are exclusive peer groups for executives and other senior leaders at large organizations worldwide. Clients may participate in one or more Leadership Boards. Memberships are available to the Customer Experience (CX) Council, the Chief Information Officer (CIO) Group, the Chief Marketing Officer (CMO) Group and several other Councils for the technology and marketing roles we cover. In addition to a Member license to access the appropriate Research offering, members of our Leadership Boards receive access to the following:

 

A private forum for members to test their thinking with peers through local and national meetings, one-to-one and group peer exchanges, and virtual community activities.

 

Advisors to challenge members’ thinking with insights drawn from peers, our Research, and our analyst community, all designed to help members drive business growth and lead change.

 

Member-generated content that includes next and best practices as well as role-specific maturity benchmark data.

 

An event ticket to attend one Forrester event.

6

 


Executive Programs

Our Executive Programs provide CMOs, CIOs, and CXOs with a trusted partner who helps the executives and their teams establish and tackle their most important initiatives. In addition to a Member license for our research offering and one ticket to attend a Forrester event, our Executive Programs provide on-site strategy workshops, personalized research and analysis, and access to Forrester experts.

We also offer Team Access licenses that allow members of a Leadership Board or Executive Program to assign Member or Reader licenses to individuals within their extended teams to enhance collaboration and access to our Research offerings.

 

Certification

Our certification offerings consist of a series of courses for leaders and their teams that build upon each other and are purchased individually. Each certification course is an 8-week facilitated experience designed to help individuals gain critical proficiencies and to help teams develop a common vocabulary and mindset. Courses are delivered online leveraging a combination of short videos, hands-on exercises and peer discussion threads. Courses are offered regularly throughout the year. Forrester offers two unique tracks to suit different career needs and experiences, Pro (Professional) and Champ (Champion). Course content for the two tracks are identical, but the work required varies.

Our initial certification courses, focused on customer experience (CX), enable CX practitioners and other CX proponents within our clients’ organizations to learn the core skills needed to carry out a CX program aimed at driving business growth. In 2019, we expanded our certification portfolio of products by adding a Zero Trust Certification program that provides cybersecurity professionals and others collaborating with them with the knowledge, skills, and confidence to adopt Forrester’s “Zero Trust” approach to information security at their organizations, as well as a B2B Marketing Certification course that builds off our SiriusDecisions research and teaches the concepts and skills that enable marketing professionals to drive successful marketing strategies. We also added custom enterprise CX Essentials programs that are designed to train a diverse group of employees and can be integrated into our customers’ learning management systems.  

Analytics

Our Analytics products and services are designed to provide fact-based customer insights to our clients. Clients can leverage our Analytics products and services or choose to have us conduct custom data analysis on their behalf. Our Analytics products and services include:

 

Forrester’s Customer Experience (CX) Index.    The CX Index is a framework for assessing and measuring the quality of customer experience for nearly 600 brands worldwide. This unique framework provides useful and actionable analysis including a customer experience score, quantitative information about the score, and the most important drivers to improve the customer experience, along with a Business Impact Simulator tool that models out potential revenue uplift to help guide clients’ investments in customer experience. We offer two Forrester CX Index packages, consisting of an industry package that provides a benchmark of a particular brand’s CX Index scores against its competitors and an add-on CX Elite package that offers deep insights on what distinguishes leading brands. For brands not included in our standard offering, we offer a custom survey approach to build out a CX Index score and deliver our insight recommendations. We deliver the CX Index through an easy-to-use interactive platform that allows clients to customize their CX data based on business needs.

 

Consumer Technographics.    Consumer Technographics is an ongoing quantitative research program, based on surveys of over 400,000 individuals in North America, Europe, Asia Pacific, and Latin America. Marketing and strategy professionals rely on our Consumer Technographics data and analysis for unique insights into how technology impacts their customers’ purchase journey, including the way consumers select, purchase, use, and communicate about products and services. We combine respondent data sets from our Consumer Technographics surveys into multiple regional and industry offerings. We deliver Consumer Technographics through an interactive platform that provides access to the data, insights and analytic tools.  Additionally, clients may have access to an Analytics Client Manager to help them use the data effectively to meet their specific business needs.

 

Business Technographics.    Business Technographics is an ongoing quantitative research program that provides comprehensive, in-depth assessments of what motivates businesses to choose certain technologies and vendors over others. The offering also measures and reports on the current information consumption patterns of key influencers for large technology purchases. We annually survey more than 70,000 business and technology executives as well as information workers at small, medium and large enterprises in North American, European, and other global markets. Our surveys reveal these firms’ technology adoption, trends, budgets, business organization, decision processes, purchase plans, brand preferences, and primary influences in the purchasing process. We deliver Business Technographics through an interactive platform that provides access to the data, insights and analytic tools. Business Technographics’ clients may also have access to an Analytics Client Manager to assist in utilizing appropriate data to achieve desired outcomes.

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FeedbackNow. As customers become more powerful, we believe that companies must have the ability to monitor and improve their experience in real time. To this end, we have acquired and constructed a real-time customer experience cloud solution composed of:  1) multiple data inputs, 2) an artificial intelligence (AI)-assisted analytics engine, or “brain”; and 3) multiple output methods. This product, that we call FeedbackNow, is currently employing physical buttons as the primary input source. It is installed widely in Europe and the U.S. – primarily in large airports, arenas, retail, financial services locations and health care sites and we are processing hundreds of thousands of “votes” per day. We are expanding the capabilities of FeedbackNow to encompass a range of digital inputs and outputs. In addition, we are incorporating our proprietary customer experience data, drivers, and algorithms into the system brain to increase the precision and efficacy of feedback for our clients.

 

ForecastView.    ForecastView is an ongoing data program that provides a detailed evaluation of market size, based on expert analysis and quantitative insights from our consumer and business surveys. We leverage Technographics demand-side data and supply-side metrics to help clients uncover new business opportunities. Each forecast consists of at least ten years of data: five historic, the current year and four years in the future. We offer global forecasts for e-commerce, digital marketing, mobile applications and platforms markets. ForecastView clients may also have access to ForecastView analysts to assist in utilizing appropriate data to support client business decisions.

Consulting

Our advisory and project consulting services leverage our Research, Technographics and CX Index data, as well as our proprietary consulting frameworks, to deliver focused insights and recommendations that assist clients with their challenges in developing and executing technology and business strategy, including customer experience, digital strategy, and marketing, informing critical decisions and reducing business risk. Our consulting services help clients with challenges addressed in our published research, such as leading customer experience transformations, digital business transformation, technology transformations and modernization, and aligning sales, marketing, and product management. We help business and technology professionals conduct maturity assessments, prioritize best practices, develop strategies, build business cases, select technology vendors, and structure organizations. We help marketing professionals at technology vendors develop content marketing strategies, create content marketing collateral, and develop sales tools. We have a dedicated consulting organization to provide professional project consulting services to our clients, utilizing our Forrester solutions framework and best in class consulting techniques and content development tools, allowing our analysts to spend additional time on writing research and providing shorter-term advisory services.

Events

We host multiple events in various locations in North America, Europe and Asia throughout the year. Events bring together executives and other participants serving or interested in the particular subject matter or professional role(s) on which an event focuses. Event participants come together to network with their peers, meet with Forrester analysts, and hear business leaders discuss business and technology issues of interest or significance to the professionals in attendance. Forrester Events focus on business imperatives of significant interest to our clients, including marketing, sales and product leadership, customer experience, privacy and security, new technology and innovation, and data strategies and insights.  

Our Events business was substantially enhanced with the addition of the SiriusDecisions annual Summits, which are leading venues for marketing, sales, and product operations programs in the United States, Europe and Asia.  

Sales and Marketing

We sell our products and services through our direct sales force in various locations in North America, Europe and Asia Pacific. Our sales organization is organized into five groups based on client size, geography and market potential. Our Premier group focuses on our largest vendor and end user clients across the globe and our Core group focuses on small to mid-sized vendor and end user clients. Our European and Asia Pacific groups focus on both end user and vendor clients in their respective geographies.  Our International Business Development group sells our products and services through independent sales representatives in select international locations. We employed 698 sales personnel as of December 31, 2019 compared to 528 sales personnel employed as of December 31, 2018. We also sell select Research products directly online through our website.

We utilize a customer engagement model where we provide different sales engagement and support levels for clients and prospects in our Premier and Core groups. We believe that this positions us in a manner to improve client and dollar retention and enrichment and accelerate growth.

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Our marketing activities are designed to enhance the Forrester brand, differentiate and promote Forrester products and solutions, improve the client experience, and drive growth. We achieve these outcomes by combining the value of analytics, content, social media, public relations, creative, and field marketing, delivering multi-channel campaigns, Forrester events, and high-quality digital journeys.

As of December 31, 2019, our products and services were delivered to more than 2,800 client companies. No single client company accounted for more than 4% of our 2019 revenues.

Pricing and Contracts

We report our revenue from client contracts in two categories of revenue: (1) research services and (2) advisory services and events. We classify revenue from subscriptions to, and licenses of, our Research, Connect, and Analytics products and services as research services revenue. We classify revenue from Consulting, custom Analytics projects, and Events as advisory services and events revenue.

Contract pricing for annual subscription-based products is principally a function of the number of licensed users at the client. Pricing of contracts for advisory services generally is a fixed fee for the consulting project or shorter-term advisory service. We periodically review and increase the list prices for our products and services.

We track the agreement value of contracts to purchase our services as a significant business indicator. We calculate agreement value as the total revenues recognizable from all such contracts in force at a given time (excluding contracts that consist solely of advisory and consulting services and the value of Events sponsorships included in all contracts), without regard to how much revenue has already been recognized. Agreement value increased 34% (approximately 25 percentage points of the increase due to the acquisition of SiriusDecisions) to $358.0 million at December 31, 2019 from $266.3 million at December 31, 2018.

Competition

We compete principally in the market for research, data, and advisory services, with an emphasis on customer behavior, customer experience, and the deployment of technology to win, serve and retain customers. We believe that the principal competitive factors in the markets we participate in include:

 

the ability to offer products and services that meet the changing needs of organizations and their executives for research, data, and advisory services;

 

comprehensive global data and insights on customer behavior;

 

independent analysis and opinions;

 

the ability to render our services in digital forms;

 

the pricing and packaging of our products and services; and

 

customer service, including the quality of professional interactions with our clients.

We believe we compete favorably on these factors due to:

 

our differentiated Age of the Customer strategy and portfolio of complementary Age of the Customer and SiriusDecisions products and services;

 

our research methodology;

 

our experience with and focus on emerging technologies;

 

our history of providing research and executable advice on the impact of technology on business; and

 

our growing ability to deploy digital products.

Our principal direct competitors include other independent providers of research and advisory services, such as Gartner, as well as marketing agencies, general business consulting firms, survey-based general market research firms, providers of peer networking services, and digital media measurement services. In addition, our indirect competitors include the internal planning and marketing staffs of our current and prospective clients, as well as other information providers such as electronic and print publishing companies. We also face competition from free sources of information available on the Internet, such as Google. Our indirect competitors could choose to compete directly against us in the future. In addition, there are relatively few barriers to entry into certain segments of our market, and new competitors could readily seek to compete against us in one or more of these market segments. Increased competition could adversely affect our operating results through pricing pressure and loss of market share. There can be no assurance that we will be able to continue to compete successfully against existing or new competitors.

9

 


Employees

As of December 31, 2019, we employed a total of 1,795 persons, including 688 Research, Connect, Analytics, Consulting and Events staff and 698 sales personnel.

Our culture emphasizes certain key values — including client service, courage, collaboration, integrity and quality — that we believe are critical to our future growth. We promote these values through training and frequent recognition for achievement. We encourage teamwork and promote and recognize individuals who foster these values. New employees participate in a three-day training process that focuses on our Age of the Customer strategy, our products and services, corporate culture, values and goals.

 

 

Item 1A.

Risk Factors

We operate in a rapidly changing and competitive environment that involves risks and uncertainties, certain of which are beyond our control. These risks and uncertainties could have a material adverse effect on our business and our results of operations and financial condition. These risks and uncertainties include, but are not limited to:

A Decline in Renewals or Demand for Our Subscription-Based Research, Connect and Analytics Services.    Our success depends in large part upon retaining (on both a client company and dollar basis) and enriching existing subscriptions for our Research, Connect, and Analytics products and services. Future declines in client retention, dollar retention, and enrichment, or failure to generate demand for and new sales of our subscription-based products and services due to competition or otherwise, could have an adverse effect on our results of operations and financial condition.

Demand for Our Advisory and Consulting Services.    Advisory and consulting services revenues comprised 29% of our total revenues in 2019 and 32% of our total revenues in 2018. Consulting engagements generally are project-based and non-recurring. A decline in our ability to fulfill existing or generate new project consulting engagements could have an adverse effect on our results of operations and financial condition.

Our Business May be Adversely Affected by the Economic Environment.    Our business is in part dependent on technology spending and is impacted by economic conditions. The economic environment may materially and adversely affect demand for our products and services. If conditions in the United States and the global economy were to lead to a decrease in technology spending, or in demand for our products and services, this could have an adverse effect on our results of operations and financial condition.

Our International Operations Expose Us to a Variety of Operational Risks which Could Negatively Impact Our Results of Operations.    As of December 31, 2019, we have clients in approximately 76 countries and approximately 21% of our revenues come from international sales. Our operating results are subject to the risks inherent in international business activities, including challenges in staffing and managing foreign operations, changes in regulatory requirements, compliance with numerous foreign laws and regulations, differences between U.S. and foreign tax rates and laws, fluctuations in currency exchange rates, difficulty of enforcing client agreements, collecting accounts receivable, and protecting intellectual property rights in international jurisdictions. Furthermore, we rely on local independent sales representatives in some international locations. If any of these arrangements are terminated by our representatives or us, we may not be able to replace the arrangement on beneficial terms or on a timely basis, or clients sourced by the local sales representative may not want to continue to do business with us or our new representative.

We Face Risks Related to Health Epidemics That Could Adversely Impact Our Business.  Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus first identified in Wuhan, Hubei Province, China, or COVID-19. Any outbreak of contagious diseases, and other adverse public health developments, could have a material and adverse effect on our business operations. This could include disruptions or restrictions on the ability of our employees or our customers to travel and a slowdown in the global economy, which could adversely affect our ability to sell or fulfill, and a reduction in demand for, our products, services or events. Any disruption or delay of our customers or third-party service providers would likely impact our operating results. Our Events business generated $27.0 million of revenues during 2019. On March 13, 2020, due to considerations of the effect of COVID-19, we announced that we will be holding our SiriusDecisions Summit 2020, our single largest event, as a virtual event during its originally scheduled timeframe in May 2020. We estimate the impact of holding this event as a virtual event, as compared to a live event, will reduce revenues by $7.0 million to $9.0 million and will reduce operating income by $4.0 million to $6.0 million. However, the ultimate financial impact may be affected by a number of factors including the number of attendees and sponsors and our ability to recoup certain costs for the event. The ongoing impact of COVID-19 remains difficult to project and our business and financial results may be materially and adversely affected by it.

Our Business Could Suffer as a Result of the United Kingdom’s Decision to End Its Membership in the European Union.    Our London office serves as our European headquarters and is our second largest location in terms of headcount. The exit of the United Kingdom from the European Union (generally referred to as “Brexit”) could cause disruptions to and create uncertainty surrounding both this office and our business generally, including affecting our relationships with existing and potential customers, suppliers, and employees. The effects of Brexit will depend on any agreements the United Kingdom makes to retain access to European Union markets either during a transitional period or more permanently. The measures could potentially disrupt some of our target markets

10

 


and jurisdictions in which we operate, and adversely change tax benefits or liabilities in these or other jurisdictions. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations, as the United Kingdom determines which European Union laws to replace or replicate. Brexit also may create global economic uncertainty, which may cause our customers and potential customers to monitor their costs and reduce their budgets for our products and services. Any of these effects of Brexit, among others, could materially adversely affect our results of operations and financial condition.

Ability to Develop and Offer New Products and Services.    Our future success will depend in part on our ability to offer new products and services. These new products and services must successfully gain market acceptance by anticipating and identifying changes in client requirements and changes in the technology industry and by addressing specific industry and business organization sectors. The process of internally researching, developing, launching and gaining client acceptance of a new product or service, or assimilating and marketing an acquired product or service, is risky and costly. We may not be able to introduce new, or assimilate acquired, products or services successfully. Our failure to do so would adversely affect our ability to maintain a competitive position in our market and continue to grow our business.

Loss of Key Management.    Our future success will depend in large part upon the continued services of a number of our key management employees. The loss of any one of them, in particular George F. Colony, our founder, Chairman of the Board and Chief Executive Officer, could adversely affect our business.

The Ability to Attract and Retain Qualified Professional Staff.    Our future success will depend in large measure upon the continued contributions of our senior management team, research and data professionals, consultants, and experienced sales and marketing personnel. Thus, our future operating results will be largely dependent upon our ability to retain the services of these individuals and to attract additional professionals from a limited pool of qualified candidates. Our future success will also depend in part upon the effectiveness of our sales leadership in hiring and retaining sales personnel and in improving sales productivity. We experience competition in hiring and retaining professionals from developers of Internet and emerging-technology products, other research firms, management consulting firms, print and electronic publishing companies and financial services companies, many of which have substantially greater ability, either through cash or equity, to attract and compensate professionals. If we lose professionals or are unable to attract new talent, we will not be able to maintain our position in the market or grow our business.

Failure to Anticipate and Respond to Market Trends.    Our success depends in part upon our ability to anticipate rapidly changing technologies and market trends and to adapt our research, data, advisory services, and other related products and services to meet the changing needs of our clients. The technology and commerce sectors that we analyze undergo frequent and often dramatic changes. The environment of rapid and continuous change presents significant challenges to our ability to provide our clients with current and timely analysis, strategies, and advice on issues of importance to them. Meeting these challenges requires the commitment of substantial resources. Any failure to continue to provide insightful and timely analysis of developments, technologies, and trends in a manner that meets market needs could have an adverse effect on our market position and results of operations.

We May Experience Difficulties in Integrating the Operations of Acquired Companies into Our Business and in Realizing the Expected Benefits of the Acquisitions.    The success of our recent acquisitions of SiriusDecisions, FeedbackNow and GlimpzIt will depend in part on our ability to realize the anticipated business opportunities from combining the operations of these companies with our business in an efficient and effective manner. For 2020, we determined that SiriusDecisions will no longer operate under a separate management structure. Our internal management and reporting will be aligned to consolidate each of the SiriusDecisions products and related operations under a single, combined organization within our existing Products and Research segments. If we are unable to successfully or timely effect these changes, we may not realize the benefits that we currently anticipate will result from having a single, combined organization within our existing Products and Research segments.

We Have Outstanding Debt Which Could Materially Restrict our Business and Adversely Affect our Financial Condition, Liquidity and Results of Operations.    In connection with the SiriusDecisions acquisition, we entered into a credit agreement (the "Credit Agreement") that provides for a $125.0 million term loan facility and a $75.0 million revolving credit facility. All of the proceeds of the term loans and $50.0 million borrowed under the revolving credit facility were used to pay a portion of the purchase price of the acquisition. As of December 31, 2019, we had outstanding debt of $132.8 million under the Credit Agreement (see Note 4 – Debt in the Notes to Consolidated Financial Statements for further information). The debt service requirements of these credit arrangements could impair our future financial condition and operating results. In addition, the affirmative, negative and financial covenants of the Credit Agreement could limit our future financial flexibility. A failure to comply with these covenants could result in acceleration of all amounts outstanding, which could materially impact our financial condition unless accommodations could be negotiated with our lenders. No assurance can be given that we would be successful in doing so, or that any accommodations that we were able to negotiate would be on terms as favorable as those currently. The outstanding debt may limit the amount of cash or additional credit available to us, which could restrain our ability to expand or enhance products and services, respond to competitive pressures or pursue future business opportunities requiring substantial investments of additional capital.

11

 


We May be Subject to Network Disruptions or Security Breaches that Could Damage Our Reputation and Harm Our Business and Operating Results.    We may be subject to network disruptions or security breaches caused by computer viruses, illegal break-ins or hacking, sabotage, acts of vandalism by third parties or terrorism. Our security measures or those of our third-party service providers may not detect or prevent such security breaches. Any such compromise of our information security could result in the unauthorized publication of our confidential business or proprietary information, cause an interruption in our operations, result in the unauthorized release of customer or employee data, result in a violation of privacy or other laws, expose us to a risk of litigation or damage our reputation, which could harm our business and operating results.

Competition.    We compete principally in the market for research, data and advisory services, with an emphasis on customer behavior and customer experience, and the impact of technology on our clients’ business and service models. Our principal direct competitors include other independent providers of research and advisory services, such as Gartner, as well as marketing agencies, general business consulting firms, survey-based general market research firms, providers of peer networking services, and digital media measurement services. Some of our competitors have substantially greater financial and marketing resources than we do. In addition, our indirect competitors include the internal planning and marketing staffs of our current and prospective clients, as well as other information providers such as electronic and print publishing companies. We also face competition from free sources of information available on the Internet, such as Google. Our indirect competitors could choose to compete directly against us in the future. In addition, there are relatively few barriers to entry into certain segments of our market, and new competitors could readily seek to compete against us in one or more of these market segments. Increased competition could adversely affect our operating results through pricing pressure and loss of market share. There can be no assurance that we will be able to continue to compete successfully against existing or new competitors.

Failure to Enforce and Protect our Intellectual Property Rights.    We rely on a combination of copyright, trademark, trade secret, confidentiality and other contractual provisions to protect our intellectual property. Unauthorized third parties may obtain or use our proprietary information despite our efforts to protect it. The laws of certain countries do not protect our intellectual property to the same extent as the laws of the United States and accordingly we may not be able to protect our intellectual property against unauthorized use or distribution, which could adversely affect our business.

Privacy Laws.    Privacy laws and regulations, and the interpretation and application of these laws and regulations, in the U.S, Europe and other countries around the world where we conduct business are sometimes inconsistent and frequently changing. This includes, but is not limited to, the European Union General Data Protection Regulation (GDPR) and the California Consumer Privacy Act, which went into effect on January 1, 2020. Compliance with these laws, or changing interpretations and application of these laws, could cause us to incur substantial costs or require us to take action in a manner that would be adverse to our business.  

Fluctuations in Our Operating Results.    Our revenues and earnings may fluctuate from quarter to quarter based on a variety of factors, many of which are beyond our control, and which may affect our stock price. These factors include, but are not limited to:

 

Trends in technology and research, data and advisory services spending in the marketplace and general economic conditions.

 

The timing and size of new and renewal subscriptions for our products and services from clients.

 

The utilization of our advisory services by our clients.

 

The timing of revenue-generating events sponsored by us.

 

The introduction and marketing of new products and services by us and our competitors.

 

The hiring and training of new research and data professionals, consultants, and sales personnel.

 

Changes in demand for our research, data and advisory services.

 

Fluctuations in currency exchange rates.

 

An increase in the interest rates applicable to our outstanding debt obligations.

As a result, our operating results in future quarters may be below the expectations of securities analysts and investors, which could have an adverse effect on the market price for our common stock. Factors such as announcements of new products, services, offices, acquisitions or strategic alliances by us, our competitors, or in the research, data and professional services industries generally, may have a significant impact on the market price of our common stock. The market price for our common stock may also be affected by movements in prices of stocks in general.

12

 


Taxation Risks.    We operate in numerous jurisdictions around the world. A portion of our income is generated outside of the United States and is taxed at lower rates than rates applicable to income generated in the U.S. or in other jurisdictions in which we do business. Our effective tax rate in the future, and accordingly our results of operations and financial position, could be adversely affected by changes in applicable tax law or if more of our income becomes taxable in jurisdictions with higher tax rates.

Concentration of Ownership.    Our largest stockholder is our Chairman and CEO, George F. Colony, who owns approximately 42% of our outstanding stock. This concentration of ownership enables Mr. Colony to strongly influence or effectively control matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation, adoption or amendment of equity plans and approval of significant transactions such as mergers, acquisitions, consolidations and sales or purchases of assets. This concentration of ownership may also limit the liquidity of our stock. As a result, efforts by stockholders to change the direction, management or ownership of Forrester may be unsuccessful, and stockholders may not be able to freely purchase and sell shares of our stock.

Any Weakness Identified in Our System of Internal Controls by Us and Our Independent Registered Public Accounting Firm Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 Could Have an Adverse Effect on Our Business.    Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their systems of internal control over financial reporting. In addition, our independent registered public accounting firm must report on its evaluation of those controls. There can be no assurance that no weakness in our internal control over financial reporting will occur in future periods, or that any such weakness will not have a material adverse effect on our business or financial results, including our ability to report our financial results in a timely manner.

 

 

Item 1B.

Unresolved Staff Comments

We have not received written comments from the Securities and Exchange Commission that remain unresolved.

 

 

Item 2.

Properties

Our corporate headquarters building is comprised of approximately 190,000 square feet of office space in Cambridge, Massachusetts, substantially all of which is currently occupied by the Company. This facility accommodates research, data, marketing, sales, consulting, technology, and operations personnel. The lease term of this facility expires February 28, 2027.

We also rent office space in San Francisco, New York City, Dallas, McLean, Virginia, Nashville, Wilton, Connecticut (the SiriusDecisions headquarters), Austin, Amsterdam, Frankfurt, London, Paris, New Delhi, Singapore and Lausanne, Switzerland. Our San Francisco lease is for approximately 31,000 square feet, with a term that expires June 30, 2027. Our New York lease is for approximately 15,200 square feet, with an initial term until January 31, 2021. The Wilton lease is for approximately 42,000 square feet, with an initial term that expires July 31, 2020. The London lease is for approximately 17,800 square feet, with a term that expires September 24, 2021. We also lease office space on a relatively short-term basis in various other locations in North America, Europe, Asia, and Australia.

We believe that our existing facilities are adequate for our current needs and that additional facilities are available for lease to meet future needs.

 

 

Item 3.

Legal Proceedings

We are not currently a party to any material legal proceedings.

 

 

Item 4.

Mine Safety Disclosures

Not applicable.

13

 


PART II

 

 

Item 5.

Market For Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Our common stock is listed on the Nasdaq Global Select Market under the symbol “FORR”. During 2018, quarterly dividends of $0.20 per common share were declared and paid in each of the four quarters during the year. On November 27, 2018, in conjunction with the announcement of the acquisition of SiriusDecisions, Forrester announced the indefinite suspension of its quarterly dividend program beginning in 2019. The actual declaration of any potential future dividends, and the establishment of the per share amount and payment dates for any such future dividends are subject to the discretion of the Board of Directors.

As of March 6, 2020 there were approximately 33 stockholders of record of our common stock. On March 6, 2020 the closing price of our common stock was $38.55 per share.

As of December 31, 2019, our Board of Directors authorized an aggregate $535.0 million to purchase common stock under our stock repurchase program. As of December 31, 2019, we had repurchased approximately 16.3 million shares of common stock at an aggregate cost of $474.9 million, with no repurchases in the year ended December 31, 2019.

See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”, for information on our equity compensation plans.

14

 


The following graph contains the cumulative stockholder return on our common stock during the period from December 31, 2014 through December 31, 2019 with the cumulative return during the same period for the Russell 2000 and the S&P 600 Small Cap Information Technology Index, and assumes that the dividends, if any, were reinvested.

 

 

15

 


Item 6.

Selected Consolidated Financial Data

The selected financial data presented below is derived from our consolidated financial statements and should be read in connection with those statements.

 

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

 

(In thousands, except per share amounts)

 

Consolidated Statement of Income (Loss) Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research services

 

$

298,735

 

 

$

228,399

 

 

$

216,471

 

 

$

215,216

 

 

$

210,268

 

Advisory services and events

 

 

162,962

 

 

 

129,176

 

 

 

121,202

 

 

 

110,879

 

 

 

103,458

 

Total revenues

 

 

461,697

 

 

 

357,575

 

 

 

337,673

 

 

 

326,095

 

 

 

313,726

 

Income (loss) from operations

 

 

(1,075

)

 

 

22,425

 

 

 

27,549

 

 

 

30,774

 

 

 

18,827

 

Other income (expense) and gains (losses) on

   investments, net

 

 

(470

)

 

 

1,100

 

 

 

(178

)

 

 

(65

)

 

 

493

 

Net income (loss)

 

$

(9,570

)

 

$

15,380

 

 

$

15,140

 

 

$

17,651

 

 

$

11,996

 

Basic income (loss) per common share

 

$

(0.52

)

 

$

0.85

 

 

$

0.84

 

 

$

0.98

 

 

$

0.67

 

Diluted income (loss) per common share

 

$

(0.52

)

 

$

0.84

 

 

$

0.83

 

 

$

0.97

 

 

$

0.66

 

Basic weighted average shares outstanding

 

 

18,492

 

 

 

18,091

 

 

 

17,919

 

 

 

17,984

 

 

 

17,927

 

Diluted weighted average shares outstanding

 

 

18,492

 

 

 

18,380

 

 

 

18,240

 

 

 

18,269

 

 

 

18,143

 

 

 

 

As of December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

 

(In thousands)

 

Consolidated Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and marketable investments

 

$

67,904

 

 

$

140,296

 

 

$

134,123

 

 

$

138,105

 

 

$

101,106

 

Working capital

 

 

(76,895

)

 

 

46,108

 

 

 

41,766

 

 

 

45,962

 

 

 

15,274

 

Total assets

 

 

639,160

 

 

 

353,524

 

 

 

345,200

 

 

 

335,785

 

 

 

318,991

 

Deferred revenue

 

 

179,194

 

 

 

135,332

 

 

 

145,207

 

 

 

134,265

 

 

 

140,676

 

Long-term debt, net of deferred financing fees

 

 

130,545

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

481,072

 

 

 

201,924

 

 

 

204,011

 

 

 

185,749

 

 

 

191,689

 

Cash dividends declared

 

 

 

 

 

14,502

 

 

 

13,631

 

 

 

12,987

 

 

 

12,179

 

 

Cash dividends represent quarterly dividends of $0.20, $0.19, $0.18, and $0.17 per common share declared and paid during 2018, 2017, 2016, and 2015, respectively.

The following items impact the comparability of our consolidated data:

 

On January 3, 2019, the Company acquired SiriusDecisions, Inc. The reported results for 2019 include the operating results of SiriusDecisions beginning on the acquisition date. Refer to Note 2 – Acquisitions in the Notes to Consolidated Financial Statements for additional information.

 

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-12, Leases (Topic 842), using the modified retrospective method. The reported results for 2019 reflect the application of Topic 842, while the reported results for prior years reflect the prior lease standard. Adoption of Topic 842 increased both the related operating lease assets and liabilities by $53.3 million.

 

On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method. The reported results for 2018 and beyond reflect the application of Topic 606, while the reported results for prior years reflect the application of the prior revenue standard - ASU No. 2009-13, Revenue Recognition (Topic 605). Adoption of Topic 606 had the following effects on our 2018 financial results:

 

o

An increase of $1.6 million in total revenues for the year ended December 31, 2018 of which $1.3 million related to revenues from research services revenues and $0.3 million related to revenues from advisory services and events.

 

o

An increase in net income and diluted income per share for the year ended December 31, 2018 by $1.4 million and $0.08, respectively.

 

o

An increase in working capital as of December 31, 2018 of $4.6 million.

 

o

A decrease in deferred revenue as of December 31, 2018 of $14.0 million

 

On December 22, 2017, the Tax Cuts and Jobs Act was enacted resulting in a decrease in the U.S. corporate tax rate from 35% to 21% for the year ended December 31, 2018 and beyond and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. As a result, we recorded amounts related to the remeasurement of federal deferred tax assets and liabilities of $1.2 million and the one-time transition tax of $0.8 million, of which $0.4 million and $1.6 million was recognized during 2018 and 2017, respectively.

16

 


Item 7.

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

Overview

We derive revenues from subscriptions to our Research, Connect and Analytics products and services, licensing electronic “reprints” of our Research, performing advisory services and consulting projects, and hosting Events. We offer contracts for our Research, Connect and Analytics products that are typically renewable annually and payable in advance. Subscription 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 advisory and consulting services independently and/or to supplement their access to our subscription-based products. Consulting project revenues, which generally are short-term in nature and based upon fixed-fee agreements, are recognized as the services are provided. Advisory service revenues, such as workshops, speeches and advisory days, are recognized when the service is complete or the customer receives the agreed upon deliverable. Billings attributable to advisory services and consulting projects are initially recorded as deferred revenue. Events revenues consist of ticket or 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.

As previously noted, on January 3, 2019, we acquired 100% of the issued and outstanding shares of SiriusDecisions, Inc., a privately held company based in Wilton, Connecticut with approximately 350 employees globally. SiriusDecisions equips business-to-business (B2B) sales, marketing, and product leaders with the actionable research, frameworks, tools, operational benchmarks and expert advice to maximize performance and drive alignment. Pursuant to the terms of the merger agreement, the Company paid $246.8 million at closing, which included the purchase price of $245.0 million plus estimated cash acquired, reduced by certain working capital items. Net cash paid, which accounts for the cash acquired of $7.9 million, was $237.7 million. We paid for the acquisition with $175.0 million of debt and cash on hand. See Note 2 - Acquisitions in the Notes to Consolidated Financial Statements for more information on the acquisition.

Our primary operating expenses consist of cost of services and fulfillment, selling and marketing expenses and general and administrative expenses. Cost of services and fulfillment represents the costs associated with the production and delivery of our products and services, including salaries, bonuses, employee benefits and stock-based compensation expense for all personnel that produce and deliver our products and services, including all associated editorial, travel, and support services. Selling and marketing expenses include salaries, sales commissions, bonuses, employee benefits, stock-based compensation expense, travel expenses, promotional costs and other costs incurred in marketing and selling our products and services. General and administrative expenses include the costs of the technology, operations, finance, and human resources groups and our other administrative functions, including salaries, bonuses, employee benefits, and stock-based compensation expense. Overhead costs such as facilities and annual fees for cloud-based information technology systems are allocated to these categories according to the number of employees in each group.

In the first quarter of 2019, we modified our calculation of client retention, dollar retention, and enrichment in conjunction with a project to fully automate the calculations. Client retention has been expanded to include virtually all client relationships (except for clients that only purchase web-based products such as individual reports, workshops and Event tickets) in comparison to the prior calculation that included only clients that purchased subscription-based products. Dollar retention and enrichment are now calculated at a client account level in comparison to a contract level in the prior calculation. This results in a broader view of dollar retention and enrichment as it includes virtually all products in the calculations (except for web-based products mentioned above) and captures all enrichment that occurs within the year for an account. We have provided the metrics under the new methodology for each quarter of 2018 in the table below.

 

 

 

Q1 2018

 

 

Q2 2018

 

 

Q3 2018

 

 

Q4 2018

 

Client retention

 

 

71

%

 

 

71

%

 

 

71

%

 

 

71

%

Dollar retention

 

 

90

%

 

 

89

%

 

 

90

%

 

 

90

%

Enrichment

 

 

110

%

 

 

107

%

 

 

109

%

 

 

109

%

 

17

 


Deferred revenue, agreement value, client retention, dollar retention, enrichment, and number of clients are metrics that we believe are important to understanding our business. We believe that the amount of deferred revenue, along with the agreement value of contracts, provide a significant measure of our business activity. We define these metrics as follows:

 

Deferred revenue — billings in advance of revenue recognition as of the measurement date.

 

Agreement value the total revenues recognizable from all contracts to purchase our services in force at a given time (excluding contracts that consist solely of Consulting services and the value of Event sponsorships included in all contracts), without regard to how much revenue has already been recognized. No single client accounted for more than 3% of agreement value at December 31, 2019.

 

Client retention the percentage of client companies (defined as all clients except those that only purchase web-based products such as individual reports, workshops and Event tickets) at the prior year measurement date that have active contracts at the current year measurement date.

 

Dollar retention — the percentage of the total dollar value of client companies’ active contracts at the prior year measurement date that have active contracts at the current year measurement date.

 

Enrichment  the dollar value of client companies’ active contracts at the current year measurement date compared to the dollar value of the corresponding client companies’ active contracts at the prior year measurement date.

 

Clients we aggregate the various divisions and subsidiaries of a corporate parent as a single client and we also aggregate separate instrumentalities of the federal, state, and provincial governments as a single client. We include only clients that purchased subscription-based products in our definition of clients.

Client retention, dollar retention, and enrichment are not necessarily indicative of the rate of future retention of our revenue base. A summary of our key metrics is as follows (dollars in millions):

 

 

 

As of

 

 

Absolute

 

 

Percentage

 

 

 

December 31,

 

 

Increase

 

 

Increase

 

 

 

2019

 

 

2018

 

 

(Decrease)

 

 

(Decrease)

 

Deferred revenue

 

$

179.2

 

 

$

135.3

 

 

$

43.9

 

 

 

32

%

Agreement value

 

$

358.0

 

 

$

266.3

 

 

$

91.7

 

 

 

34

%

Client retention

 

 

72

%

 

 

71

%

 

 

1

 

 

 

1

%

Dollar retention

 

 

90

%

 

 

90

%

 

 

 

 

 

 

Enrichment

 

 

106

%

 

 

109

%

 

 

(3

)

 

 

(3

%)

Number of clients

 

 

2,880

 

 

 

2,353

 

 

 

527

 

 

 

22

%

 

Deferred revenue, agreement value and number of clients include the effect of SiriusDecisions, but retention and enrichment metrics will not be similarly affected until the first quarter of 2020.

Deferred revenue at December 31, 2019 increased 32% compared to the prior year with approximately 24 percentage points of growth due to the acquisition of SiriusDecisions. Agreement value increased 34% at December 31, 2019 compared to the prior year with approximately 25 percentage points of growth due to the acquisition of SiriusDecisions and the remainder due to both an increase in contract bookings and increased bundling of Consulting services with our Research and Connect products in our contracts. Client retention, dollar retention and enrichment rates were essentially consistent with the prior year. Client count at December 31, 2019 increased 22% compared to the prior year with approximately 17 percentage points of growth due to the acquisition of SiriusDecisions.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles 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, leases, goodwill, intangible and other long-lived assets, and income taxes. Management bases its estimates on historical experience, data available at the time the estimates are made and various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

18

 


We consider the following accounting policies to be those that require the most subjective judgment or that involve uncertainty that could have a material impact on our financial statements. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements. This is not a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management’s judgment in its application. For a discussion of our other accounting policies, see Note 1 Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements.

 

Revenue Recognition.    We generate revenues from subscriptions to our Research, Connect and Analytics products and services, licensing electronic reprints of our Research, performing advisory services and consulting projects and hosting Events. We execute contracts that govern the terms and conditions of each arrangement. Revenues are recognized when an approved contract with a customer exists, the fees, payment terms, and rights regarding the products or services to be transferred can be identified, it is probable we will collect substantially all of the consideration for the products and services expected to be provided, and we have transferred control of the products and services to the customer. We continually evaluate customers’ ability and intention to pay by reviewing factors including the customer’s payment history, our ability to mitigate credit risk, and experience selling to similarly situated customers.

Our contracts may include either a single promise (referred to as a performance obligation) to transfer a product or service or a combination of multiple promises to transfer products or services. We evaluate the existence of multiple performance obligations within our products and services by using judgment to determine if the customer can benefit from each contractual promise on its own or together with other readily available resources and if the transfer of each contractual promise is separately identifiable from other promises in a contract. When both criteria are met, each promise is accounted for as a separate performance obligation. Revenues from contracts that contain multiple products or services are allocated among the separate performance obligations on a relative basis according to their standalone selling prices. We obtain the standalone selling prices of our products and services based upon an analysis of standalone sales of these products and services. When there is an insufficient history of standalone sales, we use judgment to estimate the standalone selling price, taking into consideration available market conditions, factors used to set list prices, pricing of similar products, and internal pricing objectives.

The majority of our research services revenues, including our Research, Connect and Analytics subscription products, are recognized ratably over the term of the contract. Certain research services revenues, including revenues from sales of reprints, are recognized as revenue when delivered. Advisory services revenues, such as workshops, speeches and advisory days, are recognized at the point in time the service is complete or the customer receives the agreed upon deliverable. Consulting product revenues are recognized over time as the services are provided, based on an input method that calculates the total hours expended compared to the estimated hours required to satisfy the performance obligation. This input method was chosen since it closely aligns with how control of interim deliverables is transferred to the customer throughout the engagement. It is also the method used internally to price consulting services and assess operational performance. This method requires the use of judgement in determining the required number of hours to complete the project. Event revenues are recognized upon completion of the Event. Reimbursed out-of-pocket expenses are recorded as advisory services and events revenues in the Consolidated Statements of Income (Loss).

Our Research subscription products include access to all or a designated portion of our research, and depending on the type of license, unlimited phone or email analyst inquiry, and unlimited participation in Forrester Webinars, all of which are delivered throughout the contract period and are accounted for as a single performance obligation. Certain of our Research subscription products also include advisory services or an Event ticket and these products are accounted for as two performance obligations: (1) the subscription and (2) the advisory services or Event ticket. Arrangement consideration is allocated to each obligation based upon its standalone selling price, which is determined based on standalone sales of the advisory services or Event ticket and the estimated selling price of the remaining subscription services. Our Connect revenues primarily consist of annual subscriptions for Leadership Boards, which include access to the Research offering, access to a private forum with other Leadership Board member peers, access to a Forrester advisor, member-generated content, and one Event ticket. Leadership Boards are accounted for as two performance obligations: (1) the Event ticket and (2) the remaining services that are delivered throughout the contract period. Arrangement consideration is allocated to each obligation based upon their standalone selling prices, which are determined based on standalone sales of Event tickets and the estimated selling price of the remaining services. Our Analytics subscription products include access to designated survey data products and access to an analytics client manager, which are delivered throughout the contract period and are accounted for as a single performance obligation. Certain of our Analytics subscription products also include advisory services and these products are accounted for as two performance obligations: (1) the subscription and analytics client manager, and (2) the advisory services. Arrangement consideration is allocated to each obligation based upon its standalone selling price, which is determined based on standalone sales of the advisory services and the estimated selling price of the remaining Analytics services.

19

 


We are required to estimate the amount of prepaid performance obligations that will expire unused and recognize revenue for that estimate over the same period the related rights are exercised by our customers. This assessment requires judgment, including estimating the percentage of prepaid rights that will go unexercised and anticipating the impact that future changes to products, pricing, and customer engagement will have on actual expirations. We update the estimates used to recognize unexercised rights on a quarterly basis.

 

Leases.    We enter into operating leases, primarily for office space for our employees, which are recorded as operating lease right-of-use assets and operating lease liabilities on our Consolidated Balance Sheets. The amounts recorded are based on the present value of the future minimum lease payments over the lease term at the commencement date of the lease. We use judgement to determine the discount rate in the present value calculation as an implicit rate in our lease agreements is generally not determinable. Currently, we use our incremental borrowing rate based on information available at lease inception or at the time of lease modification. Future events and economic factors could cause these rates to change or for us to conclude that different rates should be used to measure the initial lease asset and liability.

Some of our lease agreements contain options to extend or terminate the lease. When determining the lease term at inception, these options are included in the measurement and recognition of the lease asset and liability when it is reasonably certain that we will exercise the option, which requires judgement. We consider 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, if it becomes reasonably certain that we will exercise an option that was not included in the lease term, we account for the change in circumstances as a lease modification, which results in the remeasurement of the lease asset and liability as of the modification date. We continually evaluate whether facts or events indicate it is reasonably certain that management will exercise an option.

 

Goodwill, Intangible Assets and Other Long-Lived Assets.    As of December 31, 2019, we had $341.3 million of goodwill and intangible assets with finite lives recorded in our Consolidated Balance Sheets. Goodwill is required to be measured for impairment at least annually or whenever events indicate that there may be an impairment. In order to determine if an impairment exists, we compare each of our reporting units’ carrying value to the reporting unit’s fair value. Determining the reporting unit’s fair value requires us to make estimates of market conditions and operational performance, including projected financial results, discount rates, control premium, and valuation multiples for key financial metrics.

We realigned our management structure into Products, Research, and SiriusDecisions as of January 1, 2019 from our prior structure of Products, Research, and Project Consulting. We performed a qualitative assessment of goodwill for the Products and Research reporting units (as the Project Consulting reporting unit did not contain goodwill) as of January 1, 2019, which was based on the quantitative assessment that was performed as of November 30, 2018 and activity in December 2018. We concluded that no impairment existed at January 1, 2019 and goodwill was reassigned as of January 1, 2019 based on the relative fair values of the Products and Research reporting units.

Absent an event that indicates a specific impairment may exist, we have selected November 30th as the date to perform the annual goodwill impairment test. The annual assessment of goodwill can be based on either a quantitative or qualitative assessment, or a combination of both. We completed the annual goodwill impairment testing as of November 30, 2019 utilizing a quantitative assessment for the SiriusDecisions reporting unit and a qualitative assessment for the Research reporting unit and concluded that the fair values of each of our reporting units exceeds their respective carrying values. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired. Any resulting impairment loss could have a material adverse impact on our results of operations.

Intangible assets with finite lives as of December 31, 2019 consist of acquired customer relationships, acquired technology, acquired backlog, and trade names and were valued according to the future cash flows they are estimated to produce or the estimated costs to replace the assets. These assigned values are amortized on a basis which best matches the periods in which the economic benefits are expected to be realized. Tangible assets with finite lives consist of property and equipment, which are depreciated over their estimated useful lives. We continually evaluate whether events or circumstances have occurred that indicate that the estimated remaining useful life of our intangible and long-lived tangible assets may warrant revision or that the carrying value of these assets may be impaired. No such events or circumstances occurred during 2019. To compute whether intangible assets have been impaired, the estimated undiscounted future cash flows for the estimated remaining useful life of the assets are compared to the carrying value. To the extent that the future cash flows are less than the carrying value, the assets are written down to their estimated fair value.

20

 


 

Income Taxes.    We recognize deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between book and tax bases of assets and liabilities as well as operating loss carryforwards (from acquisitions). Such amounts are adjusted as appropriate to reflect changes in the tax rates expected to be in effect when the temporary differences reverse. We record a valuation allowance to reduce our deferred taxes to an amount we believe is more likely than not to be realized. We consider future taxable income and prudent and feasible tax planning strategies in assessing the need for a valuation allowance.

As a global company, we use significant judgment to calculate and provide for income taxes in each of the tax jurisdictions in which we operate. In the ordinary course of our business, there are transactions and calculations undertaken whose ultimate tax outcome cannot be certain. Some of these uncertainties arise as a consequence of transfer pricing for transactions with our subsidiaries and potential challenges to nexus and credit estimates. We estimate our exposure to unfavorable outcomes related to these uncertainties and record a liability based on the probability for such outcomes in accordance with current accounting guidelines.

Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome will not be different from what is reflected in our historical income tax provisions, returns, and accruals. Such differences, or changes in estimates relating to potential differences, could have a material impact on our income tax provision and operating results in the period in which such a determination is made.

Results of Operations for the years ended December 31, 2019 and 2018

 

The following table sets forth our Consolidated Statements of Income (Loss) as a percentage of total revenues for the years noted. 

 

 

 

Years Ended

 

 

 

December 31,

 

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

Research services

 

 

64.7

%

 

 

63.9

%

Advisory services and events

 

 

35.3

 

 

 

36.1

 

Total revenues

 

 

100.0

 

 

 

100.0

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

42.6

 

 

 

41.0

 

Selling and marketing

 

 

37.4

 

 

 

36.9

 

General and administrative

 

 

11.5

 

 

 

12.3

 

Depreciation

 

 

1.9

 

 

 

2.2

 

Amortization of intangible assets

 

 

4.9

 

 

 

0.3

 

Acquisition and integration costs

 

 

1.9

 

 

 

1.0

 

Income (loss) from operations

 

 

(0.2

)

 

 

6.3

 

Interest expense

 

 

(1.8

)

 

 

 

Other income (expense), net

 

 

(0.1

)

 

 

0.2

 

Gains (losses) on investments, net

 

 

 

 

 

0.1

 

Income (loss) before income taxes

 

 

(2.1

)

 

 

6.6

 

Income tax expense (benefit)

 

 

 

 

 

2.3

 

Net income (loss)

 

 

(2.1

)%

 

 

4.3

%

 

21

 


2019 compared to 2018

Revenues

 

 

 

 

 

 

 

 

 

 

 

Absolute

 

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

Increase

 

 

 

2019

 

 

2018

 

 

(Decrease)

 

 

(Decrease)

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

Revenues

 

$

461.7

 

 

$

357.6

 

 

$

104.1

 

 

 

29

%

Revenues from research services

 

$

298.7

 

 

$

228.4

 

 

$

70.3

 

 

 

31

%

Revenues from advisory services and events

 

$

163.0

 

 

$

129.2

 

 

$

33.8

 

 

 

26

%

Revenues attributable to customers outside of the U.S.

 

$

98.8

 

 

$

83.4

 

 

$

15.4

 

 

 

18

%

Percentage of revenue attributable to customers outside of

   the U.S.

 

 

21

%

 

 

23

%

 

 

(2

)

 

 

(9

%)

Number of clients (at end of period)

 

 

2,880

 

 

 

2,353

 

 

 

527

 

 

 

22

%

Number of events

 

 

19

 

 

 

15

 

 

 

4

 

 

 

27

%

 

Total revenues increased 29% during 2019 compared to 2018 with SiriusDecisions contributing 22 percentage points of the increase. Revenues from customers outside of the U.S. increased 18% during 2019 compared to the prior year. The increase in revenues attributable to customers outside of the U.S. was primarily due to the acquisition of SiriusDecisions, which added $9.2 million in international revenue, and growth in revenues in the Asia Pacific region and Europe in the legacy Forrester business.

Research services revenues are recognized as revenue primarily on a ratable basis over the term of the contracts, which are generally twelve-month periods. Research services revenues increased 31% during 2019 compared to the prior year with SiriusDecisions contributing 26 percentage points of the increase. The remainder of the increase was primarily driven by growth in the legacy Analytics, Connect and Research products.

Revenues from advisory services and events increased 26% during 2019 compared to the prior year with SiriusDecisions contributing 16 percentage points of the increase. The remainder of the increase was due to growth of legacy Consulting revenues, which were partially offset by a decline in legacy Events revenues.

Please refer to the “Segment Results” section below for a discussion of revenue and contribution margin results by segment.

Cost of Services and Fulfillment

 

 

 

 

 

 

 

 

 

 

 

Absolute

 

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

Increase

 

 

 

2019

 

 

2018

 

 

(Decrease)

 

 

(Decrease)

 

Cost of services and fulfillment (dollars in millions)

 

$

196.7

 

 

$

146.5

 

 

$

50.2

 

 

 

34

%

Cost of services and fulfillment as a percentage of total

   revenues

 

 

42.6

%

 

 

41.0

%

 

 

1.6

 

 

 

4

%

Service and fulfillment employees (at end of period)

 

 

776

 

 

 

639

 

 

 

137

 

 

 

21

%

 

Cost of services and fulfillment expenses increased 34% in 2019 compared to 2018. Approximately $39.5 million of the increase was attributable to the acquisition of SiriusDecisions. The remainder of the increase was primarily due to (1) a $5.5 million increase in compensation and benefit costs, resulting principally from an increase in the number of employees compared to the prior year period and annual merit increases, (2) a $2.3 million increase in stock compensation expense, (3) a $1.2 million increase in lease expense and computer software costs, and (4) a $1.1 million increase in professional services costs primarily due to an increase in outsourced services related to revenue delivery.

22

 


Selling and Marketing

 

 

 

 

 

 

 

 

 

 

 

Absolute

 

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

Increase

 

 

 

2019

 

 

2018

 

 

(Decrease)

 

 

(Decrease)

 

Selling and marketing expenses (dollars in millions)

 

$

172.9

 

 

$

131.8

 

 

$

41.0

 

 

 

31

%

Selling and marketing expenses as a percentage of total

   revenues

 

 

37.4

%

 

 

36.9

%

 

 

0.5

 

 

 

1

%

Selling and marketing employees (at end of period)

 

 

780

 

 

 

590

 

 

 

190

 

 

 

32

%

 

Selling and marketing expenses increased 31% in 2019 compared to 2018. Approximately $33.4 million of the increase was attributable to the acquisition of SiriusDecisions. The remainder of the increase was primarily due to (1) a $5.1 million increase in compensation and benefit costs, resulting principally from an increase in the number of employees compared to the prior year period and annual merit increases, (2) a $1.1 million increase in professional services costs primarily due to an increase in advertising and marketing costs, (3) a $0.7 million increase in stock compensation expense, and (4) a $0.6 million increase in lease expense and computer software costs. We intend to increase our sales employees by approximately 4% to 6% during 2020 as compared to 2019.

General and Administrative

 

 

 

 

 

 

 

 

 

 

 

Absolute

 

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

Increase

 

 

 

2019

 

 

2018

 

 

(Decrease)

 

 

(Decrease)

 

General and administrative expenses (dollars in millions)

 

$

53.0

 

 

$

43.9

 

 

$

9.1

 

 

 

21

%

General and administrative expenses as a percentage of

   total revenues

 

 

11.5

%

 

 

12.3

%

 

 

(0.8

)

 

 

(7

%)

General and administrative employees (at end of period)

 

 

239

 

 

 

203

 

 

 

36

 

 

 

18

%

 

General and administrative expenses increased 21% in 2019 compared to 2018. Approximately $6.0 million of the increase was attributable to the acquisition of SiriusDecisions. The remainder of the increase was primarily due to (1) a $1.3 million increase in compensation and benefit costs, resulting principally from an increase in the number of employees compared to the prior year period and annual merit increases, (2) a $1.0 million increase in professional services costs primarily due to an increase in technology services, accounting, and tax costs, (3) a $0.5 million increase in lease expense and computer software costs, and (4) a $0.4 million increase in stock compensation expense.

Depreciation

Depreciation expense remained essentially consistent during the year ended December 31, 2019 compared to the prior year period.

Amortization of Intangible Assets

Amortization expense increased by $21.5 million to $22.6 million in 2019 as compared to $1.2 million in 2018, primarily due to the acquisition of SiriusDecisions. We expect amortization expense related to our intangible assets to be approximately $19.0 million for the year ending December 31, 2020.

Acquisition and Integration Costs

Net acquisition and integration costs increased by $5.2 million to $8.9 million in 2019 as compared to $3.8 million in 2018 due to the acquisition and ongoing integration of SiriusDecisions. The costs consist of the direct and incremental costs to acquire and integrate the companies acquired during 2019 and 2018, as well as certain fair value adjustments related to the acquisitions. The costs primarily consisted of consulting, severance, accounting and tax professional fees, and lease expense for unused facilities. For the year ended December 31, 2019, these costs included an offset of $2.5 million related to the benefit of recording deferred commissions for SiriusDecisions in the first year following the acquisition. We expect to incur integration costs in a range of $1.8 million to $2.2 million for the year ending December 31, 2020.

23

 


Income (Loss) from Operations

Income (loss) from operations was a loss of $1.1 million in 2019, which is a decrease of $23.5 million from income of $22.4 million in 2018. The decrease was primarily due to acquisition related costs, including an increase in amortization of intangible assets and acquisition and integration costs of $22.6 million and $5.2 million, respectively, partially offset by an increase in income from operations of $4.3 million due to the other factors mentioned above.

Interest Expense

During the year ended December 31, 2019, we incurred $8.1 million of interest expense. Interest expense consists of interest on our borrowings used to finance the acquisition of SiriusDecisions. We expect to incur interest expense in a range of $5.9 million to $6.1 million for the year ending December 31, 2020.

Other Income (Expense), Net

Other income (expense), net primarily consists of interest income as well as gains and losses on foreign currency. The decrease in other income (expense), net of $1.2 million during 2019 was primarily due to a decrease in interest income compared to 2018 due to the use of cash for the acquisition of SiriusDecisions.

Gains (Losses) on Investments, Net

Gains (losses) on investments, net include our share of equity method investment gains or losses from our technology-related investment funds and gains or losses from the sale of marketable securities. The decrease during 2019 was due to minimal investment gains recognized by the underlying funds in 2019 as compared to an investment gain of $0.6 million in the prior year.

Income Tax Expense (Benefit)

 

 

 

 

 

 

 

 

 

 

 

Absolute

 

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

Increase

 

 

 

2019

 

 

2018

 

 

(Decrease)

 

 

(Decrease)

 

Provision for income taxes (dollars in millions)

 

$

 

 

$

8.1

 

 

$

(8.1

)

 

 

(100

%)

Effective tax rate

 

 

0.3

%

 

 

34.6

%

 

 

(34.3

)

 

 

(99

%)

 

The decrease in the effective tax rate during 2019 as compared to the prior year was primarily due to the relative size of the loss before taxes in 2019 of $9.6 million compared to income before taxes in 2018 of $23.5 million, audit settlements in non-U.S. territories in 2019, and the impact of foreign subsidiary income subject to U.S. tax in 2019.

Segment Results

In the first quarter of 2019, we realigned our management structure into Products, Research and SiriusDecisions. Prior year amounts have been revised to conform to the current presentation.

The Products segment includes revenues from our Connect, Analytics, and Events products (excluding the revenues from SiriusDecisions products) and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes Consulting revenues and the related costs of our project consulting organization. The project consulting organization delivers a majority of our project consulting revenue (excluding SiriusDecisions consulting) and certain advisory services primarily related to the Analytics product line. This segment also includes the costs of the product management organization that is responsible for product pricing and packaging and the launch of new products.

The Research segment includes revenues from our Research products and the cost of the organizations responsible for developing and delivering the Research products (excluding the costs and revenues from SiriusDecisions products). In addition, this segment includes Consulting revenues primarily from the delivery of advisory services (such as workshops, speeches and advisory days) delivered by our research analysts.

The SiriusDecisions segment includes revenues from the all SiriusDecisions products and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes the costs of marketing, technology development and business support departments of the SiriusDecisions business.

24

 


We evaluate reportable segment performance and allocate resources based on segment revenues and expenses. Segment expenses include the direct expenses of each segment organization and exclude, except as noted above for the SiriusDecisions segment, selling and marketing expenses, general and administrative expenses, stock-based compensation expense, depreciation expense, adjustments to incentive bonus compensation from target amounts, amortization of intangible assets, interest and other income (expense), and gains (losses) on investments. The accounting policies used by the segments are the same as those used in the consolidated financial statements.

For 2020, we determined that SiriusDecisions will no longer operate under a separate management structure. Our internal management and reporting will be aligned to consolidate each of the SiriusDecisions products and related operations under a single, combined organization within our existing Products and Research segments. Accordingly, in the first quarter of 2020, we will modify our segment reporting, which will eliminate the SiriusDecisions segment, and incorporate SiriusDecisions Research products into the Research segment and incorporate SiriusDecisions Consulting, Connect and Event products into the Products segment.

 

 

 

 

 

 

 

 

 

 

 

 

Sirius

 

 

 

 

 

 

 

Products

 

 

Research

 

 

Decisions

 

 

Consolidated

 

Year Ended December 31, 2019

 

(In thousands, except percentages)

 

Research services revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research

 

$

 

 

$

161,487

 

 

$

57,702

 

 

$

219,189

 

Connect

 

 

54,350

 

 

 

 

 

 

1,874

 

 

 

56,224

 

Analytics

 

 

23,322

 

 

 

 

 

 

 

 

 

23,322

 

Total research services revenues

 

 

77,672

 

 

 

161,487

 

 

 

59,576

 

 

 

298,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory services and events revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting

 

 

76,567

 

 

 

53,258

 

 

 

6,127

 

 

 

135,952

 

Events

 

 

12,985

 

 

 

 

 

 

14,025

 

 

 

27,010

 

Total advisory services and events revenues

 

 

89,552

 

 

 

53,258

 

 

 

20,152

 

 

 

162,962

 

Total segment revenues

 

 

167,224

 

 

 

214,745

 

 

 

79,728

 

 

 

461,697

 

Segment expenses

 

 

81,520

 

 

 

55,330

 

 

 

45,734

 

 

 

182,584

 

Contribution margin

 

 

85,704

 

 

 

159,415

 

 

 

33,994

 

 

 

279,113

 

Year over year revenue change

 

 

12

%

 

 

3

%

 

N/A

 

 

 

29

%

Year over year expense change

 

 

9

%

 

 

4

%

 

N/A

 

 

 

42

%

 

 

 

 

 

 

 

 

 

 

 

Sirius

 

 

 

 

 

 

 

Products

 

 

Research

 

 

Decisions

 

 

Consolidated

 

Year Ended December 31, 2018

 

(In thousands)

 

Research services revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research

 

$

 

 

$

157,112

 

 

$

 

 

$

157,112

 

Connect

 

 

51,377

 

 

 

 

 

 

 

 

 

51,377

 

Analytics

 

 

19,910

 

 

 

 

 

 

 

 

 

19,910

 

Total research services revenues

 

 

71,287

 

 

 

157,112

 

 

 

 

 

 

228,399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory services and events revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting

 

 

64,309

 

 

 

51,396

 

 

 

 

 

 

115,705

 

Events

 

 

13,471

 

 

 

 

 

 

 

 

 

13,471

 

Total advisory services and events revenues

 

 

77,780

 

 

 

51,396

 

 

 

 

 

 

129,176