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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 March 31, 2021

OR

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

COMMISSION FILE NUMBER: 000-21433

 

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

 

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 May 3, 2021, 19,129,000 shares of the registrant’s common stock were outstanding.



 

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

3

 

Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020

4

 

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020

5

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

6

 

Notes to Consolidated Financial Statements

7

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

28

 

 

 

SIGNATURES

29

 

 

 

 

 

2


 

 

PART I.

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

125,600

 

 

$

90,257

 

Accounts receivable, net of allowance for expected credit losses of $731 and $708 as

   of March 31, 2021 and December 31, 2020, respectively

 

 

68,822

 

 

 

84,695

 

Deferred commissions

 

 

21,937

 

 

 

23,620

 

Prepaid expenses and other current assets

 

 

19,913

 

 

 

18,588

 

Total current assets

 

 

236,272

 

 

 

217,160

 

Property and equipment, net

 

 

26,513

 

 

 

27,032

 

Operating lease right-of-use assets

 

 

73,810

 

 

 

69,296

 

Goodwill

 

 

245,691

 

 

 

247,211

 

Intangible assets, net

 

 

73,898

 

 

 

77,995

 

Other assets

 

 

7,535

 

 

 

5,524

 

Total assets

 

$

663,719

 

 

$

644,218

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

380

 

 

$

657

 

Accrued expenses and other current liabilities

 

 

54,747

 

 

 

76,620

 

Current portion of long-term debt

 

 

12,500

 

 

 

12,500

 

Deferred revenue

 

 

216,522

 

 

 

179,968

 

Total current liabilities

 

 

284,149

 

 

 

269,745

 

Long-term debt, net of deferred financing fees

 

 

92,319

 

 

 

95,299

 

Non-current operating lease liabilities

 

 

74,567

 

 

 

70,323

 

Other non-current liabilities

 

 

20,447

 

 

 

23,085

 

Total liabilities

 

 

471,482

 

 

 

458,452

 

Commitments and contingencies (Note 4, 13)

 

 

 

 

 

 

 

 

Stockholders' Equity (Note 11):

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 500 shares; issued and outstanding - none

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 125,000 shares

 

 

 

 

 

 

 

 

Issued - 23,755 and 23,648 shares as of March 31, 2021 and December 31, 2020,

   respectively

 

 

 

 

 

 

 

 

Outstanding - 19,124 and 19,017 shares as of March 31, 2021 and

   December 31, 2020, respectively

 

 

238

 

 

 

236

 

Additional paid-in capital

 

 

234,752

 

 

 

230,128

 

Retained earnings

 

 

131,937

 

 

 

127,981

 

Treasury stock - 4,631 shares as of March 31, 2021 and December 31, 2020

 

 

(171,889

)

 

 

(171,889

)

Accumulated other comprehensive loss

 

 

(2,801

)

 

 

(690

)

Total stockholders’ equity

 

 

192,237

 

 

 

185,766

 

Total liabilities and stockholders’ equity

 

$

663,719

 

 

$

644,218

 

 

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Research

 

$

74,968

 

 

$

74,267

 

Consulting

 

 

38,550

 

 

 

31,988

 

Events

 

 

263

 

 

 

90

 

Total revenues

 

 

113,781

 

 

 

106,345

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

47,477

 

 

 

43,353

 

Selling and marketing

 

 

39,279

 

 

 

40,273

 

General and administrative

 

 

13,178

 

 

 

12,005

 

Depreciation

 

 

2,290

 

 

 

2,406

 

Amortization of intangible assets

 

 

3,903

 

 

 

4,712

 

Integration costs

 

 

118

 

 

 

2,875

 

Total operating expenses

 

 

106,245

 

 

 

105,624

 

Income from operations

 

 

7,536

 

 

 

721

 

Interest expense

 

 

(1,129

)

 

 

(1,538

)

Other income (expense), net

 

 

(470

)

 

 

310

 

Gain on investments, net

 

 

 

 

 

13

 

Income (loss) before income taxes

 

 

5,937

 

 

 

(494

)

Income tax expense

 

 

1,981

 

 

 

19

 

Net income (loss)

 

$

3,956

 

 

$

(513

)

Basic income (loss) per common share

 

$

0.21

 

 

$

(0.03

)

Diluted income (loss) per common share

 

$

0.21

 

 

$

(0.03

)

Basic weighted average common shares outstanding

 

 

19,061

 

 

 

18,705

 

Diluted weighted average common shares outstanding

 

 

19,288

 

 

 

18,705

 

 

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

 

 

March 31,

 

 

2021

 

 

2020

 

Net income (loss)

$

3,956

 

 

$

(513

)

 

 

 

 

 

 

 

 

Other comprehensive loss net of tax:

 

 

 

 

 

 

 

Foreign currency translation

 

(2,301

)

 

 

(1,920

)

Net change in market value of interest rate swap

 

190

 

 

 

(1,181

)

Other comprehensive loss

 

(2,111

)

 

 

(3,101

)

Comprehensive income (loss)

$

1,845

 

 

$

(3,614

)

 

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

 

 

5


 

 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

3,956

 

 

$

(513

)

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

 

 

 

 

 

 

 

Depreciation

 

2,290

 

 

 

2,406

 

Impairment of property and equipment

 

 

 

 

626

 

Amortization of intangible assets

 

3,903

 

 

 

4,712

 

Net gains from investments

 

 

 

 

(13

)

Deferred income taxes

 

(2,395

)

 

 

(251

)

Stock-based compensation

 

2,492

 

 

 

2,802

 

Operating lease right-of-use assets, amortization, and impairments

 

2,666

 

 

 

4,535

 

Amortization of deferred financing fees

 

232

 

 

 

244

 

Foreign currency (gains) losses

 

521

 

 

 

(229

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

15,181

 

 

 

24,556

 

Deferred commissions

 

1,683

 

 

 

1,723

 

Prepaid expenses and other current assets

 

(1,255

)

 

 

(6,943

)

Accounts payable

 

(275

)

 

 

(143

)

Accrued expenses and other liabilities

 

(22,235

)

 

 

(27,264

)

Deferred revenue

 

36,505

 

 

 

18,574

 

Operating lease liabilities

 

(2,718

)

 

 

(2,999

)

Net cash provided by operating activities

 

40,551

 

 

 

21,823

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(1,468

)

 

 

(2,401

)

Net cash used in investing activities

 

(1,468

)

 

 

(2,401

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments on borrowings

 

(3,125

)

 

 

(16,344

)

Proceeds from issuance of common stock under employee equity incentive plans

 

2,614

 

 

 

1,955

 

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

 

(480

)

 

 

(902

)

Net cash used in financing activities

 

(991

)

 

 

(15,291

)

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

 

(478

)

 

 

(2,683

)

Net change in cash, cash equivalents and restricted cash

 

37,614

 

 

 

1,448

 

Cash, cash equivalents and restricted cash, beginning of period

 

90,652

 

 

 

69,192

 

Cash, cash equivalents and restricted cash, end of period

$

128,266

 

 

$

70,640

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

$

902

 

 

$

1,286

 

Cash paid for income taxes

$

1,719

 

 

$

1,356

 

 

 

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

 

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, 2020. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the financial position, results of operations, comprehensive income (loss), and cash flows as of the dates and for the periods presented have been included. The results of operations for the three months ended March 31, 2021 may not be indicative of the results for the year ending December 31, 2021, or any other period.

Reclassification

Effective for the first quarter of 2021, the Company modified its key metrics, as further described in Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations. As part of these changes, beginning January 1, 2021, the Company is classifying all components of its subscription research products within the Research revenues financial statement line on the Consolidated Statements of Operations. In prior periods, the separate advisory session performance obligations included in any of the Company’s subscription research products were classified within the Consulting revenues financial statement line. Prior periods have been reclassified to conform to the current presentation which resulted in approximately $1.4 million of revenue being reclassified from Consulting revenues to Research revenues during the three months ended March 31, 2020. This reclassification had no impact on the amount of total revenues previously reported.

Presentation of Restricted Cash

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

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

Cash and cash equivalents

$

125,600

 

 

$

69,815

 

Restricted cash classified in (1):

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

360

 

 

 

787

 

Other assets

 

2,306

 

 

 

38

 

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

$

128,266

 

 

$

70,640

 

 

(1)

Restricted cash consists of collateral required for leased office space, letters of credit, and credit card processing outside of the U.S. The short-term or long-term classification regarding the collateral for the leased office space and letters of credit is determined in accordance with the expiration of the underlying leases.

Adoption of New Accounting Pronouncements

The Company adopted the guidance in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes on January 1, 2021. The standard provides guidance to simplify the accounting for income taxes in certain areas, changes the accounting for select income tax transactions, and makes other minor improvements. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“Topic 326”). The standard amends the existing financial instrument incurred loss impairment model by requiring entities to use a forward-looking approach based on expected losses and to consider a broader range of reasonable and

 

7


 

supportable information to estimate credit losses on certain types of financial instruments, including trade receivables. On January 1, 2020, the Company adopted the standard using the modified retrospective method in which prior periods are not adjusted and recorded a cumulative effect adjustment of $0.2 million to decrease retained earnings.

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

The Company adopted the guidance in ASU No. 2018-13, Fair Value Measurement Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement on January 1, 2020. The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including changes to fair value transfers and Level 3 fair value measurements. Changes required upon adoption of this standard are included in Note 7 – Fair Value Measurements and did not impact the Company’s financial position or results of operations.

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

Recent Accounting Pronouncements

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

Note 2 — Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair values of the tangible and identifiable intangible net assets acquired. Goodwill is not amortized; however, it is required to be tested for impairment annually, which requires assessment of the potential impairment at the reporting unit level. Testing for impairment is also required on an interim basis if an event or circumstance indicates it is more likely than not an impairment loss has been incurred.

The Company performed its annual impairment testing as of November 30, 2020 utilizing a qualitative assessment to determine if it was more likely than not that the fair values of each of its reporting units was less than their respective carrying values and concluded that no impairments existed. Subsequent to completing the annual test and through March 31, 2021, there were no events or circumstances that required an interim impairment test. Accordingly, as of March 31, 2021, the Company had no accumulated goodwill impairment losses. Approximately $8.2 million of goodwill is allocated to the Company’s Consulting reporting unit, which has a negative carrying value as of March 31, 2021.

 

The change in the carrying amount of goodwill for the three months ended March 31, 2021 is summarized as follows (in thousands):

 

Total

 

Balance at December 31, 2020

$

247,211

 

Translation adjustments

 

(1,520

)

Balance at March 31, 2021

$

245,691

 

 

8


 

 

Finite-Lived Intangible Assets

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

 

 

March 31, 2021

 

 

Gross

 

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

78,375

 

 

$

19,384

 

 

$

58,991

 

Technology

 

16,740

 

 

 

10,929

 

 

 

5,811

 

Trademarks

 

12,463

 

 

 

3,367

 

 

 

9,096

 

Total

$

107,578

 

 

$

33,680

 

 

$

73,898

 

 

 

December 31, 2020

 

 

Gross

 

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

78,450

 

 

$

17,277

 

 

$

61,173

 

Technology

 

16,956

 

 

 

10,197

 

 

 

6,759

 

Trademarks

 

12,495

 

 

 

2,432

 

 

 

10,063

 

Total

$

107,901

 

 

$

29,906

 

 

$

77,995

 

 

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

 

2021 (remainder)

$

11,212

 

2022

 

13,179

 

2023

 

11,938

 

2024

 

9,895

 

2025

 

8,879

 

Thereafter

 

18,795

 

Total

$

73,898

 

 

Note 3 — Debt

On January 3, 2019, the Company entered into a $200.0 million credit agreement (the “Credit Agreement”). The Credit Agreement provides for: (1) senior secured term loans in an aggregate principal amount of $125.0 million (the “Term Loans”) and (2) a senior secured revolving credit facility in an aggregate principal amount of $75.0 million (the “Revolving Credit Facility”). The Credit Agreement is scheduled to mature on January 3, 2024.

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

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

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

 

9


 

The Term Loans require repayment of the outstanding principal balance in quarterly installments each year, with the balance repayable on the maturity date, subject to customary exceptions. As of March 31, 2021, the amount payable in each year is set forth in the table below (in thousands):

 

2021 (remainder)

 

9,375

 

2022

 

12,500

 

2023

 

15,625

 

2024

 

68,750

 

Total remaining principal payments

$

106,250

 

 

The Revolving Credit Facility does not require repayment prior to maturity, subject to customary exceptions. The Company has $74.1 million of available borrowing capacity on the revolver (not including the expansion feature) as of March 31, 2021. Proceeds from the Revolving Credit Facility can be used towards working capital and general corporate purposes. Up to $5.0 million of the Revolving Credit Facility is available for the issuance of letters of credit, and any drawings under the letters of credit must be reimbursed within one business day. As of March 31, 2021, $0.9 million in letters of credit were issued under the Revolving Credit Facility.

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

Outstanding Borrowings

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

 

Description:

 

March 31, 2021

 

 

December 31, 2020

 

Principal amount outstanding (1) (2)

 

$

106,250

 

 

$

109,375

 

Less: Deferred financing fees

 

 

(1,431

)

 

 

(1,576

)

Net carrying amount

 

$

104,819

 

 

$

107,799

 

 

(1)

This amount consists entirely of the outstanding Term Loan balance.

(2)

The contractual annualized interest rate as of March 31, 2021 on the Term loan facility was 2.125%, which consisted of LIBOR of 0.125% plus a margin of 2.000%. However, the Company has an interest rate swap that effectively converts the floating LIBOR base rates on a portion of the amounts outstanding to a fixed base rate. Refer to Note 6 – Derivatives and Hedging for further information on the swap. The weighted average annual effective rate on the Company's total debt outstanding for the three months ended March 31, 2021, was 2.146%.

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

As of March 31, 2021, the Company is in compliance with its financial covenants under the Credit Agreement. The Company currently forecasts that it will be in compliance with its financial covenants for at least one year from the issuance of these interim financial statements.

 

10


 

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

Note 4 — Leases

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

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

 

 

For the Three Months Ended March 31,

 

 

2021

 

 

2020

 

Operating lease cost

$

3,819

 

 

$

3,991

 

Short-term lease cost

 

88

 

 

 

81

 

Variable lease cost

 

1,436

 

 

 

1,356

 

Sublease income

 

(61

)

 

 

(61

)

Total lease cost

$

5,282

 

 

$

5,367

 

 

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

 

 

For the Three Months Ended March 31,

 

 

2021

 

 

2020

 

Cash paid for amounts included in the measurement of operating

   lease liabilities

$

2,718

 

 

$

2,999

 

Operating lease ROU assets obtained in exchange for lease

   obligations

$

7,433

 

 

$

1,466

 

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

 

6.5

 

 

 

6.3

 

Weighted-average discount rate - operating leases

 

4.4

%

 

 

5.1

%

 

Future minimum lease payments under non-cancellable leases as of March 31, 2021 are as follows (in thousands):

 

2021 (remainder)

$

11,642

 

2022

 

16,623

 

2023

 

16,582

 

2024

 

16,208

 

2025

 

14,233

 

Thereafter

 

27,076

 

Total lease payments

 

102,364

 

Less imputed interest

 

(15,623

)

Present value of lease liabilities

$

86,741

 

 

Lease balances as of March 31, 2021 are as follows (in thousands):

 

Operating lease ROU assets

$

73,810

 

 

 

 

 

Short-term operating lease liabilities (1)

$

12,174

 

Non-current operating lease liabilities

 

74,567

 

Total operating lease liabilities

$

86,741

 

 

(1)

Included in accrued expenses and other current liabilities on the Consolidated Balance Sheets.

The Company’s leases do not contain residual value guarantees, material restrictions or covenants, and all sublease transactions are not material. The Company incurred $1.4 million of ROU asset impairments during the three months ended March 31, 2020 related to facility leases from the SiriusDecisions, Inc. acquisition that the Company no longer used as a result of the integration of SiriusDecisions. These impairments are recorded in integration costs on the Consolidated Statements of Operations.

 

11


 

Note 5 – Revenue and Related Matters

Disaggregated Revenue

The Company disaggregates revenue as set forth in the following tables (in thousands):

Revenue by Geography

 

 

For the Three Months Ended March 31,

 

Revenues: (1)

 

2021

 

 

2020

 

North America

 

$

90,896

 

 

$

88,410

 

Europe

 

 

15,081

 

 

 

11,787

 

Asia Pacific

 

 

6,393

 

 

 

5,051

 

Other

 

 

1,411

 

 

 

1,097

 

Total

 

$

113,781

 

 

$

106,345

 

(1)

Revenue location is determined based on where the products and services are consumed.

Contract Assets and Contract Liabilities

Accounts Receivable

Accounts receivable includes amounts billed and currently due from customers. Since the only condition for payment of the Company’s invoices is the passage of time, a receivable is recorded on the date an invoice is issued. Also included in accounts receivable are unbilled amounts resulting from revenue exceeding the amount billed to the customer, where the right to payment is unconditional. If the right to payment for services performed was conditional on something other than the passage of time, the unbilled amount would be recorded as a separate contract asset. There were no contract assets as of March 31, 2021 or 2020.

The majority of the Company’s contracts are non-cancellable. However, for contracts that are cancellable by the customer, the Company does not record a receivable when it issues an invoice. The Company records accounts receivable on these contracts only up to the amount of revenue earned but not yet collected.

In addition, since the majority of the Company’s contracts are for a duration of one year and payment is expected within one year from the transfer of products and services, the Company does not adjust its receivables or transaction prices for the effects of a significant financing component.

Deferred Revenue

The Company refers to contract liabilities as deferred revenue on the Consolidated Balance Sheets. Payment terms in the Company’s customer contracts vary, but generally require payment in advance of fully satisfying the performance obligation(s). Deferred revenue consists of billings in excess of revenue recognized. Similar to accounts receivable, the Company does not record deferred revenue for unpaid invoices issued on a cancellable contract.

 

During the three months ended March 31, 2021 and 2020, the Company recognized $72.3 and $69.9 million of revenue, respectively, related to its deferred revenue balances at January 1 of each such period. To determine revenue recognized in each period from deferred revenue at the beginning of each period, the Company first allocates revenue to the individual deferred revenue balance outstanding at the beginning of each period, until the revenue equals that balance.

 

Approximately $489.0 million of revenue is expected to be recognized during the next 24 months from remaining performance obligations as of March 31, 2021.

Reserves for Credit Losses

The allowance for expected credit losses on accounts receivable for the three months ended March 31, 2021 is summarized as follows (in thousands):

 

 

Total

Allowance

 

Balance at December 31, 2020

 

$

708

 

Provision for expected credit losses

 

 

86

 

Write-offs

 

 

(63

)

Balance at March 31, 2021

 

$

731

 

When evaluating the adequacy of the allowance for expected credit losses, the Company makes judgments regarding the collectability of accounts receivable based, in part, on the Company’s historical loss rate experience, customer concentrations, management’s expectations of future losses as informed by current economic conditions, and changes in customer payment terms. If

 

12


 

the expected financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. If the expected financial condition of the Company’s customers were to improve, the allowances may be reduced accordingly.

Cost to Obtain Contracts

The Company capitalizes commissions paid to sales representatives and related fringe benefits costs that are incremental to obtaining customer contracts. These costs are included in deferred commissions on the Consolidated Balance Sheets. The Company accounts for these costs at a portfolio level as the Company’s contracts are similar in nature and the amortization model used closely matches the amortization expense that would be recognized on a contract-by-contract basis. Costs to obtain a contract are amortized to earnings over the initial contract term, which is the same period the related revenue is recognized. Amortization expense related to deferred commissions for the three months ended March 31, 2021 and 2020 was $8.8 million and $8.1 million, respectively. The Company evaluates the recoverability of deferred commissions at each balance sheet date and there were no impairments recorded during the three months ended March 31, 2021 and 2020.

Note 6 — Derivatives and Hedging

The Company has a derivative contract (an interest rate swap) to mitigate the cash flow risk associated with changes in interest rates on its variable rate debt (refer to Note 3 – Debt). The Company accounts for its derivative contract in accordance with FASB ASC Topic 815 – Derivatives and Hedging (“Topic 815”), which requires all derivatives, including derivatives designated as accounting hedges, to be recorded on the balance sheet at fair value.

Interest Rate Swap

At March 31, 2021, the Company had a single interest rate swap contract that matures in 2022, with an initial notional amount of $95.0 million. The notional amount at March 31, 2021 was $52.7 million. The Company pays a base fixed rate of 1.65275% and in return receives the greater of (1) 1-month LIBOR, rounded up to the nearest 1/16 of a percent, or (2) 0.00%. The fair value of the swap on March 31, 2021 was a liability of $0.9 million (refer to Note 7 – Fair Value Measurements for information on determining the fair value). The liability is included in other non-current liabilities on the Consolidated Balance Sheets.

The swap has been designated and accounted for as a cash flow hedge of the forecasted interest payments on the Company’s debt. As long as the swap continues to be a highly effective hedge of the designated interest rate risk, changes in the fair value of the swap are recorded in accumulated other comprehensive income (loss), a component of equity in the Consolidated Balance Sheets. Any ineffective portion of a change in the fair value of a hedge is recorded in earnings.

As required under Topic 815, the swap’s effectiveness is assessed on a quarterly basis. Since its inception, and through March 31, 2021, the interest rate swap was considered highly effective. Accordingly, the entire negative fair value as of March 31, 2021 of $0.6 million, net of taxes, is recorded in accumulated other comprehensive loss. The Company expects $0.5 million of this loss, net of taxes, to be reclassified into earnings within the next 12 months. Realized gains or losses related to the interest rate swap are included as operating activities in the Consolidated Statements of Cash Flows.

The Company’s derivative counterparty is an investment grade financial institution. The Company does not have any collateral arrangements with this counterparty and the derivative contract does not contain credit risk related contingent features. The table below provides information regarding amounts recognized in the Consolidated Statements of Operations for the derivative contract for the periods indicated (in thousands):

 

 

For the Three Months Ended

 

 

 

March 31,

 

Amount recorded in:

 

2021

 

 

2020

 

Interest expense (1)

 

$

(259

)

 

$

13

 

Total

 

$

(259

)

 

$

13

 

(1)

Consists of interest expense from the interest rate swap contract.

 

13


 

 

Note 7 — Fair Value Measurements

The carrying amounts reflected on the Consolidated Balance Sheets for cash, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturities. The Company’s financial instruments also include its outstanding variable-rate borrowings (refer to Note 3 – Debt). The Company believes that the carrying amount of its variable-rate borrowings reasonably approximate their fair values because the rates of interest on those borrowings reflect current market rates of interest.

Additionally, the Company measures certain financial assets and liabilities at fair value on a recurring basis including cash equivalents and its derivative contract. The fair values of these financial assets and liabilities have been classified as Level 1, 2, or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements:

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

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

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

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

As of March 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

503

 

 

$

 

 

$

503

 

Total Assets

 

$

503

 

 

$

 

 

$

503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap (2)

 

 

 

 

$

(880

)

 

$

(880

)

Total Liabilities

 

$

 

 

$

(880

)

 

$

(880

)

 

 

 

As of December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

503

 

 

$

 

 

$

503

 

Total Assets

 

$

503

 

 

$

 

 

$

503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap (2)

 

 

 

 

$

(1,144

)

 

$

(1,144

)

Total Liabilities

 

$

 

 

$

(1,144

)

 

$

(1,144

)

 

(1)

Included in cash and cash equivalents on the Consolidated Balance Sheets.

(2)

The Company has an interest rate swap contract that hedges the risk of variability from interest payments on its borrowings (refer to Note 3 – Debt and Note 6 – Derivatives and Hedging). The fair value of the interest rate swap is based on valuations prepared by a third-party broker. Those valuations are based on observable interest rates and other observable market data, which the Company considers Level 2 inputs.

During the three months ended March 31, 2021, the Company did not transfer assets or liabilities between levels of the fair value hierarchy. Additionally, there have been no changes to the valuation techniques for Level 2 liabilities.

Note 8 — Income Taxes

Forrester provides for income taxes on an interim basis according to management’s estimate of the effective tax rate expected to be applicable for the full fiscal year. Certain items such as changes in tax rates, tax benefits or expense related to settlements of share-based payment awards, and foreign currency gains or losses are treated as discrete items and are recorded in the period in which they arise.

Income tax expense for the three months ended March 31, 2021 was $2.0 million resulting in an effective tax rate of 33.4% for the period. Income tax expense for the three months ended March 31, 2020 was $19 thousand resulting in an effective tax rate of

 

14


 

negative 3.8