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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2020

OR

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

COMMISSION FILE NUMBER: 000-21433

 

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

04-2797789

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

60 Acorn Park Drive

Cambridge, Massachusetts

 

02140

(Zip Code)

(Address of principal executive offices)

 

 

 

(617613-6000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock, $.01 Par Value

 

FORR

 

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

As of November 3, 2020, 18,964,000 shares of the registrant’s common stock were outstanding.

 

1


FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

3

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

4

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019

5

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

6

 

Notes to Consolidated Financial Statements

7

Item 2.

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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

36

Item 6.

Exhibits

36

 

 

 

SIGNATURES

37

 

 

 

 

 

2


 

PART I.

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

73,027

 

 

$

67,904

 

Accounts receivable, net of allowance for expected credit losses of $796 and $628 as

   of September 30, 2020 and December 31, 2019, respectively

 

 

54,141

 

 

 

84,605

 

Deferred commissions

 

 

14,408

 

 

 

20,326

 

Prepaid expenses and other current assets

 

 

16,041

 

 

 

19,201

 

Total current assets

 

 

157,617

 

 

 

192,036

 

Property and equipment, net

 

 

28,531

 

 

 

29,937

 

Operating lease right-of-use assets

 

 

73,211

 

 

 

69,100

 

Goodwill

 

 

244,990

 

 

 

243,895

 

Intangible assets, net

 

 

83,386

 

 

 

97,363

 

Other assets

 

 

5,040

 

 

 

6,829

 

Total assets

 

$

592,775

 

 

$

639,160

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,707

 

 

$

505

 

Accrued expenses and other current liabilities

 

 

54,802

 

 

 

79,857

 

Current portion of long-term debt

 

 

11,719

 

 

 

9,375

 

Deferred revenue

 

 

155,418

 

 

 

179,194

 

Total current liabilities

 

 

223,646

 

 

 

268,931

 

Long-term debt, net of deferred financing fees

 

 

98,268

 

 

 

121,170

 

Non-current operating lease liabilities

 

 

72,940

 

 

 

67,062

 

Other non-current liabilities

 

 

23,213

 

 

 

23,909

 

Total liabilities

 

 

418,067

 

 

 

481,072

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' Equity (Note 12):

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 500 shares; issued and outstanding - none

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 125,000 shares

 

 

 

 

 

 

 

 

Issued - 23,579 and 23,275 shares as of September 30, 2020 and December 31, 2019,

   respectively

 

 

 

 

 

 

 

 

Outstanding - 18,948 and 18,644 shares as of September 30, 2020 and

   December 31, 2019, respectively

 

 

236

 

 

 

233

 

Additional paid-in capital

 

 

225,053

 

 

 

216,454

 

Retained earnings

 

 

125,554

 

 

 

118,147

 

Treasury stock - 4,631 shares as of September 30, 2020 and December 31, 2019

 

 

(171,889

)

 

 

(171,889

)

Accumulated other comprehensive loss

 

 

(4,246

)

 

 

(4,857

)

Total stockholders’ equity

 

 

174,708

 

 

 

158,088

 

Total liabilities and stockholders’ equity

 

$

592,775

 

 

$

639,160

 

 

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

 

 

3


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research

 

$

72,813

 

 

$

74,548

 

 

$

219,230

 

 

$

219,436

 

Consulting

 

 

34,633

 

 

 

32,619

 

 

 

102,980

 

 

 

98,422

 

Events

 

 

1,131

 

 

 

1,429

 

 

 

6,253

 

 

 

19,570

 

Total revenues

 

 

108,577

 

 

 

108,596

 

 

 

328,463

 

 

 

337,428

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

46,125

 

 

 

44,929

 

 

 

133,442

 

 

 

146,610

 

Selling and marketing

 

 

42,209

 

 

 

41,605

 

 

 

121,599

 

 

 

127,655

 

General and administrative

 

 

12,475

 

 

 

13,533

 

 

 

35,936

 

 

 

39,944

 

Depreciation

 

 

2,544

 

 

 

2,121

 

 

 

7,398

 

 

 

6,310

 

Amortization of intangible assets

 

 

4,722

 

 

 

5,654

 

 

 

14,147

 

 

 

16,963

 

Acquisition and integration costs

 

 

328

 

 

 

2,394

 

 

 

3,815

 

 

 

7,848

 

Total operating expenses

 

 

108,403

 

 

 

110,236

 

 

 

316,337

 

 

 

345,330

 

Income (loss) from operations

 

 

174

 

 

 

(1,640

)

 

 

12,126

 

 

 

(7,902

)

Interest expense

 

 

(1,259

)

 

 

(1,904

)

 

 

(4,104

)

 

 

(6,341

)

Other income (expense), net

 

 

(274

)

 

 

127

 

 

 

(165

)

 

 

(229

)

Gain (loss) on investments, net

 

 

 

 

 

(17

)

 

 

2,365

 

 

 

(61

)

Income (loss) before income taxes

 

 

(1,359

)

 

 

(3,434

)

 

 

10,222

 

 

 

(14,533

)

Income tax expense (benefit)

 

 

2,401

 

 

 

(735

)

 

 

2,658

 

 

 

(73

)

Net income (loss)

 

$

(3,760

)

 

$

(2,699

)

 

$

7,564

 

 

$

(14,460

)

Basic income (loss) per common share

 

$

(0.20

)

 

$

(0.15

)

 

$

0.40

 

 

$

(0.78

)

Diluted income (loss) per common share

 

$

(0.20

)

 

$

(0.15

)

 

$

0.40

 

 

$

(0.78

)

Basic weighted average common shares outstanding

 

 

18,872

 

 

 

18,546

 

 

 

18,779

 

 

 

18,448

 

Diluted weighted average common shares outstanding

 

 

18,872

 

 

 

18,546

 

 

 

18,873

 

 

 

18,448

 

 

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

 

 

4


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

$

(3,760

)

 

$

(2,699

)

 

$

7,564

 

 

$

(14,460

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

2,577

 

 

 

(1,614

)

 

 

1,542

 

 

 

(1,450

)

Net change in fair value of interest rate swap

 

205

 

 

 

 

 

 

(931

)

 

 

 

Other comprehensive income (loss)

 

2,782

 

 

 

(1,614

)

 

 

611

 

 

 

(1,450

)

Comprehensive income (loss)

$

(978

)

 

$

(4,313

)

 

$

8,175

 

 

$

(15,910

)

 

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

 

 

5


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 

 

Nine Months Ended

 

 

September 30,

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

7,564

 

 

$

(14,460

)

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

 

 

 

 

 

 

 

Depreciation

 

7,398

 

 

 

6,310

 

Impairment of property and equipment

 

626

 

 

 

 

Amortization of intangible assets

 

14,147

 

 

 

16,963

 

Net (gains) losses from investments

 

(2,365

)

 

 

61

 

Deferred income taxes

 

(1,600

)

 

 

(9,257

)

Stock-based compensation

 

7,964

 

 

 

8,605

 

Operating lease right-of-use asset amortization and impairments

 

10,525

 

 

 

9,647

 

Amortization of deferred financing fees

 

736

 

 

 

720

 

Foreign currency losses

 

277

 

 

 

524

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

 

30,226

 

 

 

33,384

 

Deferred commissions

 

5,916

 

 

 

2,036

 

Prepaid expenses and other current assets

 

1,693

 

 

 

(610

)

Accounts payable

 

1,183

 

 

 

828

 

Accrued expenses and other liabilities

 

(22,481

)

 

 

(6,550

)

Deferred revenue

 

(23,554

)

 

 

6,532

 

Operating lease liabilities

 

(9,056

)

 

 

(9,111

)

Net cash provided by operating activities

 

29,199

 

 

 

45,622

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

 

 

 

(237,684

)

Purchases of property and equipment

 

(7,279

)

 

 

(8,362

)

Other investing activity

 

4,335

 

 

 

29

 

Net cash used in investing activities

 

(2,944

)

 

 

(246,017

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings, net of costs

 

 

 

 

171,275

 

Payments on borrowings

 

(21,031

)

 

 

(40,688

)

Payment of debt issuance costs

 

 

 

 

(857

)

Deferred acquisition payments

 

(1,064

)

 

 

(2,802

)

Proceeds from issuance of common stock under employee equity incentive plans

 

3,514

 

 

 

5,589

 

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

 

(2,876

)

 

 

(2,232

)

Net cash provided by (used in) financing activities

 

(21,457

)

 

 

130,285

 

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

 

(580

)

 

 

(1,212

)

Net change in cash, cash equivalents and restricted cash

 

4,218

 

 

 

(71,322

)

Cash, cash equivalents and restricted cash, beginning of period

 

69,192

 

 

 

140,296

 

Cash, cash equivalents and restricted cash, end of period

$

73,410

 

 

$

68,974

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

$

3,385

 

 

$

5,466

 

Cash paid for income taxes

$

2,338

 

 

$

3,305

 

 

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

 

 

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

 

6


 

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1 — Interim Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Forrester Research, Inc. (“Forrester”) Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the financial position, results of operations, comprehensive income (loss), and cash flows as of the dates and for the periods presented have been included. The results of operations for the three and nine months ended September 30, 2020 may not be indicative of the results for the year ending December 31, 2020, or any other period.

Due to the Company’s operating segment realignment during the three months ended June 30, 2020, the revenue line items in the Consolidated Statements of Operations were updated to present Events revenues as a separate financial statement line. In the prior presentation, Events revenues were combined within the “Advisory services and events revenues” financial statement line. Prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on the amount of total revenues previously reported.

 

Liquidity and Impact of COVID-19

The COVID-19 pandemic has significantly affected the Company beginning in March 2020 primarily through lower contract bookings and a reduction in revenues from the conversion of the Company’s events from in-person to virtual events. The Company had previously announced that its events for the remainder of 2020 will be held as virtual events. While the duration and severity of this pandemic is uncertain, the Company currently expects the reduction in its subscription Research, Connect and Analytics revenues to continue during the fourth quarter of 2020 due to reduced customer contract booking activity that began in March 2020 and continued into the third quarter of 2020. The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from the Company’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

The Company has implemented several cost-reduction measures that include reductions to travel, new hiring, and employee incentive compensation programs. The Company will continue to proactively respond to the situation and may take further actions that alter the Company’s business operations as may be required by governmental authorities, or that the Company determines are in the best interests of its employees and customers.

As of September 30, 2020, the Company is in compliance with its financial covenants under its Credit Agreement (refer to Note 4 – Debt). The Company currently forecasts that it will be in compliance with its financial covenants for at least one year from the issuance of these interim financial statements, after taking into consideration the measures noted above. If the impact of COVID-19 is more severe than currently forecasted this may impact the Company’s ability to comply with its financial covenants which could have a material adverse effect on the Company.

The Company assessed certain accounting estimates that generally require consideration of forecasted financial information in context with the information reasonably available to it and the unknown future impacts COVID-19 as of September 30, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for expected credit losses, the carrying value of its goodwill and other long-lived assets, valuation allowances for tax assets, and revenue recognition. While there was not a material impact to the consolidated financial statements resulting from the Company’s assessments as of and for the three and nine months ended September 30, 2020, the Company’s future assessment of its current expectations of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to its consolidated financial statements in future reporting periods.

 

7


 

Presentation of Restricted Cash

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

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

Cash and cash equivalents

$

73,027

 

 

$

67,629

 

Restricted cash classified in (1):

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

345

 

 

 

717

 

Other assets

 

38

 

 

 

628

 

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

$

73,410

 

 

$

68,974

 

 

(1)

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

Adoption of New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“Topic 326”). The standard amends the existing financial instrument incurred loss impairment model by requiring entities to use a forward-looking approach based on expected losses and to consider a broader range of reasonable and supportable information to estimate credit losses on certain types of financial instruments, including trade receivables. On January 1, 2020, the Company adopted the standard using the modified retrospective method in which prior periods are not adjusted and recorded a cumulative effect adjustment of $0.2 million to decrease retained earnings. Expected losses are based, in part, on the Company’s historical loss rate experience as well as management’s expectations of future losses as informed by current economic conditions.

The allowance for expected credit losses on accounts receivable for the nine months ended September 30, 2020 is summarized as follows (in thousands):

 

 

Total

Allowance

 

Balance at December 31, 2019

$

628

 

Cumulative effect adjustment of adopting Topic 326

 

218

 

Provision for expected credit losses

 

591

 

Write-offs

 

(637

)

Translation adjustments

 

(4

)

Balance at September 30, 2020

$

796

 

 

The Company adopted the guidance in ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment on January 1, 2020. The new standard simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test and requires that instead, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The adoption of this standard did not impact the Company’s financial position or results of operations.

The Company adopted the guidance in ASU No. 2018-13, Fair Value Measurement Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement on January 1, 2020. The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including changes to fair value transfers and Level 3 fair value measurements. Changes required upon adoption of this standard are included in Note 8 – Fair Value Measurements and did not impact the Company’s financial position or results of operations.

The Company adopted the guidance in ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract on January 1, 2020. The new standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

 

8


 

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The new standard provides guidance to simplify the accounting for income taxes in certain areas, changes the accounting for select income tax transactions, and makes other minor improvements. The new standard will be effective for the Company on January 1, 2021. The Company is currently evaluating the potential impact that this standard may have on its financial position and results of operations.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Finance Reporting. The new standard provides optional guidance for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting due to the risk of cessation of the London Interbank Offered Rate (“LIBOR”). The updates apply to contracts, hedging relationships, and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform, and as a result require a modification. An entity may elect to apply the amendments immediately or at any point through December 31, 2022. The Company is currently evaluating the potential impact that this standard may have on its financial position and results of operations, including the standard’s potential impact on any contractual changes in the future that may result from reference rate reform.

Note 2 — Acquisitions

Forrester accounts for business combinations in accordance with the acquisition method of accounting as prescribed by Accounts Standards Codification (“ASC”) Topic 805, Business Combinations (“Topic 805”). The acquisition method of accounting requires the Company to record the assets and liabilities acquired based on their estimated fair values as of the acquisition date, with any excess of the consideration transferred over the estimated fair value of the net assets acquired, including identifiable intangible assets, to be recorded to goodwill. The Company did not have any business combinations during the nine months ended September 30, 2020.

SiriusDecisions, Inc.

On January 3, 2019, Forrester acquired 100% of the issued and outstanding shares of SiriusDecisions, Inc. (“SiriusDecisions”), a privately-held company based in Wilton, Connecticut with approximately 350 employees globally. 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 the Company, including cross-selling services to the Company’s respective client bases, extending SiriusDecisions’ platform, methodologies, data, and best-practices tools into new roles, and accelerating international and industry growth. The acquisition of SiriusDecisions was determined to be an acquisition of a business under the provisions of Topic 805.

Pursuant to the terms of the merger agreement, the Company paid $246.8 million at closing after certain transaction expense adjustments, which was subject to a working capital adjustment.

SiriusDecisions’ operating results are reported within the Company’s Research, Consulting and Events segments. During the year ended December 31, 2019, the Company finalized the purchase price allocation and related accounting for the acquisition.

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

Note 3 — Goodwill and Other Intangible Assets

Goodwill

 

The change in the carrying amount of goodwill for the nine months ended September 30, 2020 is summarized as follows (in thousands):

 

 

Total

 

Balance at December 31, 2019

$

243,895

 

Translation adjustments

 

1,095

 

Balance at September 30, 2020

$

244,990

 

 

The Company assesses goodwill for impairment annually on November 30, or on an interim basis if an event indicates a specific impairment may exist. As a result of the Company’s segment realignments during the first half of 2020 (refer to Note 14 – Operating Segments for additional information), the Company performed qualitative assessments of goodwill for all reporting units immediately prior to and after the reporting unit changes and concluded no impairment existed. Approximately $8.0 million of goodwill is allocated to the Company’s Consulting reporting unit, which has a negative carrying value as of September 30, 2020.

 

9


 

As of September 30, 2020, the Company had no accumulated goodwill impairment losses.

Finite-Lived Intangible Assets

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

 

 

September 30, 2020

 

 

Gross

 

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

109,977

 

 

$

46,699

 

 

$

63,278

 

Technology

 

16,815

 

 

 

9,326

 

 

 

7,489

 

Backlog

 

13,000

 

 

 

11,375

 

 

 

1,625

 

Trademarks

 

12,474

 

 

 

1,480

 

 

 

10,994

 

Total

$

152,266

 

 

$

68,880

 

 

$

83,386

 

 

 

December 31, 2019

 

 

Gross

 

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

109,825

 

 

$

40,169

 

 

$

69,656

 

Technology

 

16,661

 

 

 

7,051

 

 

 

9,610

 

Backlog

 

13,000

 

 

 

6,500

 

 

 

6,500

 

Trademarks

 

12,451

 

 

 

854

 

 

 

11,597

 

Total

$

151,937

 

 

$

54,574

 

 

$

97,363

 

 

Estimated intangible asset amortization expense for each of the five succeeding years is as follows (in thousands):

 

2020 (remainder)

$

4,720

 

2021

 

12,380

 

2022

 

11,042

 

2023

 

10,862

 

2024

 

9,751

 

Thereafter

 

34,631

 

Total

$

83,386

 

 

Note 4 — Debt

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

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

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

 

10


 

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

The Term Loans require repayment of the outstanding principal balance in quarterly installments each year, with the balance repayable on the maturity date, subject to customary exceptions. As of September 30, 2020, the amount payable in each year is set forth in the table below (in thousands):

 

2020 (remainder)

$

2,344

 

2021

 

12,500

 

2022

 

12,500

 

2023

 

15,625

 

2024

 

68,750

 

Total remaining principal payments

$

111,719

 

 

The Revolving Credit Facility does not require repayment prior to maturity, subject to customary exceptions. In addition to financing the acquisition, proceeds from the Revolving Credit Facility can also be used towards working capital and general corporate purposes. Up to $5.0 million of the Revolving Credit Facility is available for the issuance of letters of credit, and any drawings under the letters of credit must be reimbursed within one business day. As of September 30, 2020, $0.9 million in letters of credit were issued under the Revolving Credit Facility.

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

Outstanding Borrowings

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

 

Description:

 

September 30, 2020

 

 

December 31, 2019

 

Term loan facility (1)

 

$

111,719

 

 

$

118,750

 

Revolving credit facility (2)

 

 

 

 

 

14,000

 

Principal amount outstanding (3)

 

 

111,719

 

 

 

132,750

 

Less: Deferred financing fees

 

 

(1,732

)

 

 

(2,205

)

Net carrying amount

 

$

109,987

 

 

$

130,545

 

 

(1)

The contractual annualized interest rate as of September 30, 2020 on the Term loan facility was 2.1875%, which consisted of LIBOR of 0.1875% plus a margin of 2.00%. However, the Company has an interest rate swap that effectively converts the floating LIBOR base rates on a portion of the amounts outstanding to a fixed base rate. Refer to Note 7 – Derivatives and Hedging for further information on the swap.

(2)

The Company had $74.1 million of available borrowing capacity on the revolver (not including the expansion feature) as of September 30, 2020.

(3)

The weighted average annual effective rate on the Company's total debt outstanding for the three and nine months ended September 30, 2020, was 2.1875% and 2.9006%, respectively.

The Credit Agreement contains certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio and minimum fixed charge coverage ratio. The maximum leverage ratio is based on total debt outstanding at the measurement date divided by EBITDA (as defined in the Credit Agreement) and the fixed charge coverage ratio is based upon EBITDA (as defined in the Credit Agreement), less capital expenditures, as a ratio to certain fixed charges, including Term Loan amortization, cash interest expense and cash taxes. The negative covenants limit, subject to various exceptions, the Company’s ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of the Company, sell assets, pay dividends or other payments in respect to capital stock, change fiscal year, or enter into certain transactions with affiliates and subsidiaries. The Credit Agreement also contains customary events of default, representations, and warranties.

 

11


 

As of September 30, 2020, the Company is in compliance with its financial covenants under the Credit Agreement. The Company currently forecasts that it will be in compliance with its financial covenants for at least one year from the issuance of these interim financial statements, after taking into consideration the cost-reduction measures implemented during the first quarter of the year. If the impact of COVID-19 is more severe than currently forecasted this may impact the Company’s ability to comply with its financial covenants, and it is not certain that the Company would be able to renegotiate the terms of the Credit Agreement in order to provide relief related to the financial covenants. If the Company were unable to meet its financial covenants and then were unable to renegotiate the terms of its financial covenants, all debt outstanding under the Credit Agreement could become immediately due and payable. 

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

Note 5 — Leases

All of the Company’s leases are operating leases, the majority of which are for office space. Operating lease right-of-use (“ROU”) assets and non-current operating lease liabilities are included as individual line items on the Consolidated Balance Sheets, while short-term operating lease liabilities are recorded within accrued expenses and other current liabilities. Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets and are not material.

The components of lease expense were as follows (in thousands):

 

 

For the Three Months Ended September 30,

 

 

2020

 

 

2019

 

Operating lease cost

$

4,114

 

 

$

3,851

 

Short-term lease cost