10-Q
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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, 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)

 

 

 

(617) 613-6000

(Registrant’s telephone number, including area code)

 

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

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock, $.01 Par Value

 

FORR

 

Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

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

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

As of November 1, 2021, 19,171,000 shares of the registrant’s common stock were outstanding.

 


 

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

3

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020

4

 

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020

5

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

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

32

Item 4.

Controls and Procedures

32

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

 

 

 

SIGNATURES

35

 

 

 

 

 

2


 

PART I.

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

129,332

 

 

$

90,257

 

Marketable investments (Note 2)

 

 

17,018

 

 

 

 

Accounts receivable, net of allowance for expected credit losses of $672 and $708 as
   of September 30, 2021 and December 31, 2020, respectively

 

 

52,317

 

 

 

84,695

 

Deferred commissions

 

 

18,059

 

 

 

23,620

 

Prepaid expenses and other current assets

 

 

21,393

 

 

 

18,588

 

Total current assets

 

 

238,119

 

 

 

217,160

 

Property and equipment, net

 

 

29,743

 

 

 

27,032

 

Operating lease right-of-use assets

 

 

67,630

 

 

 

69,296

 

Goodwill

 

 

245,212

 

 

 

247,211

 

Intangible assets, net

 

 

66,260

 

 

 

77,995

 

Other assets

 

 

7,828

 

 

 

5,524

 

Total assets

 

$

654,792

 

 

$

644,218

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

700

 

 

$

657

 

Accrued expenses and other current liabilities

 

 

69,483

 

 

 

76,620

 

Current portion of long-term debt

 

 

12,500

 

 

 

12,500

 

Deferred revenue

 

 

194,164

 

 

 

179,968

 

Total current liabilities

 

 

276,847

 

 

 

269,745

 

Long-term debt, net of deferred financing fees

 

 

86,364

 

 

 

95,299

 

Non-current operating lease liabilities

 

 

68,395

 

 

 

70,323

 

Other non-current liabilities

 

 

22,034

 

 

 

23,085

 

Total liabilities

 

 

453,640

 

 

 

458,452

 

Commitments and contingencies (Note 5, 14)

 

 

 

 

 

 

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 - 24,042 and 23,648 shares as of September 30, 2021 and December 31, 2020,
   respectively

 

 

 

 

 

 

Outstanding - 19,178 and 19,017 shares as of September 30, 2021 and
   December 31, 2020, respectively

 

 

240

 

 

 

236

 

Additional paid-in capital

 

 

241,968

 

 

 

230,128

 

Retained earnings

 

 

144,802

 

 

 

127,981

 

Treasury stock - 4,864 and 4,631 shares as of September 30, 2021 and
   December 31, 2020, respectively

 

 

(182,535

)

 

 

(171,889

)

Accumulated other comprehensive loss

 

 

(3,323

)

 

 

(690

)

Total stockholders’ equity

 

 

201,152

 

 

 

185,766

 

Total liabilities and stockholders’ equity

 

$

654,792

 

 

$

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Research

 

$

79,876

 

 

$

74,445

 

 

$

235,846

 

 

$

223,746

 

Consulting

 

 

37,393

 

 

 

33,001

 

 

 

116,903

 

 

 

98,464

 

Events

 

 

867

 

 

 

1,131

 

 

 

7,838

 

 

 

6,253

 

Total revenues

 

 

118,136

 

 

 

108,577

 

 

 

360,587

 

 

 

328,463

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

49,836

 

 

 

46,125

 

 

 

149,571

 

 

 

133,442

 

Selling and marketing

 

 

41,340

 

 

 

42,209

 

 

 

123,175

 

 

 

121,599

 

General and administrative

 

 

14,383

 

 

 

12,475

 

 

 

41,895

 

 

 

35,936

 

Depreciation

 

 

2,342

 

 

 

2,544

 

 

 

6,887

 

 

 

7,398

 

Amortization of intangible assets

 

 

3,696

 

 

 

4,722

 

 

 

11,567

 

 

 

14,147

 

Integration costs

 

 

 

 

 

328

 

 

 

334

 

 

 

3,815

 

Total operating expenses

 

 

111,597

 

 

 

108,403

 

 

 

333,429

 

 

 

316,337

 

Income from operations

 

 

6,539

 

 

 

174

 

 

 

27,158

 

 

 

12,126

 

Interest expense

 

 

(1,056

)

 

 

(1,259

)

 

 

(3,251

)

 

 

(4,104

)

Other expense, net

 

 

(195

)

 

 

(274

)

 

 

(866

)

 

 

(165

)

Gain on investments, net

 

 

 

 

 

 

 

 

 

 

 

2,365

 

Income (loss) before income taxes

 

 

5,288

 

 

 

(1,359

)

 

 

23,041

 

 

 

10,222

 

Income tax expense

 

 

766

 

 

 

2,401

 

 

 

6,220

 

 

 

2,658

 

Net income (loss)

 

$

4,522

 

 

$

(3,760

)

 

$

16,821

 

 

$

7,564

 

Basic income (loss) per common share

 

$

0.24

 

 

$

(0.20

)

 

$

0.88

 

 

$

0.40

 

Diluted income (loss) per common share

 

$

0.23

 

 

$

(0.20

)

 

$

0.87

 

 

$

0.40

 

Basic weighted average common shares outstanding

 

 

19,134

 

 

 

18,872

 

 

 

19,107

 

 

 

18,779

 

Diluted weighted average common shares outstanding

 

 

19,388

 

 

 

18,872

 

 

 

19,351

 

 

 

18,873

 

 

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,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss)

$

4,522

 

 

$

(3,760

)

 

$

16,821

 

 

$

7,564

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(1,508

)

 

 

2,577

 

 

 

(3,086

)

 

 

1,542

 

Net change in market value of investments

 

(4

)

 

 

 

 

 

(4

)

 

 

 

Net change in market value of interest rate swap

 

128

 

 

 

205

 

 

 

457

 

 

 

(931

)

Other comprehensive income (loss)

 

(1,384

)

 

 

2,782

 

 

 

(2,633

)

 

 

611

 

Comprehensive income (loss)

$

3,138

 

 

$

(978

)

 

$

14,188

 

 

$

8,175

 

 

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,

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

16,821

 

 

$

7,564

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

6,887

 

 

 

7,398

 

Impairment of property and equipment

 

 

 

 

626

 

Amortization of intangible assets

 

11,567

 

 

 

14,147

 

Net gains from investments

 

 

 

 

(2,365

)

Deferred income taxes

 

(2,157

)

 

 

(1,600

)

Stock-based compensation

 

7,351

 

 

 

7,964

 

Operating lease right-of-use assets amortization and impairments

 

8,742

 

 

 

10,525

 

Amortization of deferred financing fees

 

703

 

 

 

736

 

Amortization of premium on investments

 

25

 

 

 

 

Foreign currency losses

 

1,033

 

 

 

277

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

31,052

 

 

 

30,226

 

Deferred commissions

 

5,562

 

 

 

5,916

 

Prepaid expenses and other current assets

 

(3,394

)

 

 

1,693

 

Accounts payable

 

64

 

 

 

1,183

 

Accrued expenses and other liabilities

 

(6,870

)

 

 

(22,481

)

Deferred revenue

 

16,132

 

 

 

(23,554

)

Operating lease liabilities

 

(8,526

)

 

 

(9,056

)

Net cash provided by operating activities

 

84,992

 

 

 

29,199

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(9,845

)

 

 

(7,279

)

Purchases of marketable investments

 

(18,549

)

 

 

 

Proceeds from maturities of marketable investments

 

1,500

 

 

 

 

Other investing activity

 

44

 

 

 

4,335

 

Net cash used in investing activities

 

(26,850

)

 

 

(2,944

)

Cash flows from financing activities:

 

 

 

 

 

Payments on borrowings

 

(9,375

)

 

 

(21,031

)

Repurchases of common stock

 

(10,646

)

 

 

 

Deferred acquisition payments

 

 

 

 

(1,064

)

Proceeds from issuance of common stock under employee equity incentive plans

 

7,840

 

 

 

3,514

 

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

 

(3,347

)

 

 

(2,876

)

Net cash used in financing activities

 

(15,528

)

 

 

(21,457

)

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

 

(1,464

)

 

 

(580

)

Net change in cash, cash equivalents and restricted cash

 

41,150

 

 

 

4,218

 

Cash, cash equivalents and restricted cash, beginning of period

 

90,652

 

 

 

69,192

 

Cash, cash equivalents and restricted cash, end of period

$

131,802

 

 

$

73,410

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for interest

$

2,532

 

 

$

3,385

 

Cash paid for income taxes

$

7,366

 

 

$

2,338

 

 

 

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 and nine months ended September 30, 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 $1.6 million and $4.5 million of revenue being reclassified from Consulting revenues to Research revenues during the three and nine months ended September 30, 2020, respectively. 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).

 

 

Nine Months Ended September 30,

 

 

2021

 

 

2020

 

Cash and cash equivalents

$

129,332

 

 

$

73,027

 

Restricted cash classified in (1):

 

 

 

 

 

Prepaid expenses and other current assets

 

215

 

 

 

345

 

Other assets

 

2,255

 

 

 

38

 

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

$

131,802

 

 

$

73,410

 

 

(1)
Restricted cash consists of collateral required for leased office space and credit card processing outside of the U.S. The short-term or long-term classification regarding the collateral for the leased office space 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 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.

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 adoption of this standard will not have a material impact on the Company’s financial position or results of operations as the Company's only interest rate swap, which is based on LIBOR, will terminate prior to the cessation of LIBOR. 

 

Note 2 — Marketable Investments

The following table summarizes the Company’s marketable investments (in thousands):

 

 

As of September 30, 2021

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate obligations

 

$

17,024

 

 

$

 

 

$

(6

)

 

$

17,018

 

Total

 

$

17,024

 

 

$

 

 

$

(6

)

 

$

17,018

 

Realized gains and losses on investments are included in earnings and are determined using the specific identification method. There were no realized gains or losses on the sale of the Company’s marketable investments during the three and nine months ended September 30, 2021.

The following table summarizes the maturity periods of the marketable investments in the Company’s portfolio as of September 30, 2021 (in thousands).

 

 

FY 2021

 

 

FY 2022

 

 

FY 2023

 

 

Total

 

Corporate obligations

 

$

1,500

 

 

$

11,471

 

 

$

4,047

 

 

$

17,018

 

Total

 

$

1,500

 

 

$

11,471

 

 

$

4,047

 

 

$

17,018

 

 

 

8


 

 

The following table shows the gross unrealized losses and market value of the Company’s available-for-sale securities with unrealized losses that are not deemed to be other-than-temporary, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

 

 

As of September 30, 2021

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Corporate obligations

 

$

15,640

 

 

$

6

 

 

$

 

 

$

 

Total

 

$

15,640

 

 

$

6

 

 

$

 

 

$

 

 

Note 3 — 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 September 30, 2021, there were no events or circumstances that required an interim impairment test. Accordingly, as of September 30, 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 had a negative carrying value as of the date of the last test.

 

The change in the carrying amount of goodwill for the nine months ended September 30, 2021 is summarized as follows (in thousands):

 

Total

 

Balance at December 31, 2020

$

247,211

 

Translation adjustments

 

(1,999

)

Balance at September 30, 2021

$

245,212

 

Finite-Lived Intangible Assets

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

 

 

September 30, 2021

 

 

Gross

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

Customer relationships

$

78,371

 

 

$

23,665

 

 

$

54,706

 

Technology

 

16,772

 

 

 

12,426

 

 

 

4,346

 

Trademarks