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, 2023

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 check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of November 1, 2023, 19,239,000 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, 2023 and December 31, 2022

3

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022

4

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022

5

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

6

 

Notes to Consolidated Financial Statements

7

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

 

 

 

SIGNATURES

34

 

 

 

 

 


 

PART I.

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

101,706

 

 

$

103,629

 

Marketable investments

 

 

9,750

 

 

 

19,688

 

Accounts receivable, net of allowance for expected credit losses of $626 and $560 as
   of September 30, 2023 and December 31, 2022, respectively

 

 

41,016

 

 

 

73,345

 

Deferred commissions

 

 

16,558

 

 

 

24,559

 

Prepaid expenses and other current assets

 

 

15,855

 

 

 

14,069

 

Total current assets

 

 

184,885

 

 

 

235,290

 

Property and equipment, net

 

 

19,693

 

 

 

23,208

 

Operating lease right-of-use assets

 

 

42,021

 

 

 

49,970

 

Goodwill

 

 

242,061

 

 

 

242,149

 

Intangible assets, net

 

 

40,343

 

 

 

49,504

 

Other assets

 

 

7,053

 

 

 

8,317

 

Total assets

 

$

536,056

 

 

$

608,438

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

762

 

 

$

361

 

Accrued expenses and other current liabilities

 

 

56,533

 

 

 

91,007

 

Deferred revenue

 

 

158,349

 

 

 

178,021

 

Total current liabilities

 

 

215,644

 

 

 

269,389

 

Long-term debt

 

 

35,000

 

 

 

50,000

 

Non-current operating lease liabilities

 

 

40,843

 

 

 

50,751

 

Other non-current liabilities

 

 

11,679

 

 

 

16,642

 

Total liabilities

 

 

303,166

 

 

 

386,782

 

Commitments and contingencies (Note 5, 15)

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

Authorized - 500 shares; issued and outstanding - none

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

Authorized - 125,000 shares

 

 

 

 

 

 

Issued - 24,672 and 24,367 shares as of September 30, 2023 and December 31, 2022,
   respectively

 

 

 

 

 

 

Outstanding - 19,235 and 19,062 shares as of September 30, 2023 and
   December 31, 2022, respectively

 

 

247

 

 

 

244

 

Additional paid-in capital

 

 

273,797

 

 

 

261,766

 

Retained earnings

 

 

178,344

 

 

 

174,631

 

Treasury stock - 5,437 and 5,305 shares as of September 30, 2023 and
   December 31, 2022, respectively

 

 

(211,149

)

 

 

(207,067

)

Accumulated other comprehensive loss

 

 

(8,349

)

 

 

(7,918

)

Total stockholders’ equity

 

 

232,890

 

 

 

221,656

 

Total liabilities and stockholders’ equity

 

$

536,056

 

 

$

608,438

 

 

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,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Research

 

$

80,606

 

 

$

87,038

 

 

$

249,211

 

 

$

262,265

 

Consulting

 

 

28,237

 

 

 

37,382

 

 

 

89,957

 

 

 

115,075

 

Events

 

 

4,588

 

 

 

3,259

 

 

 

23,522

 

 

 

23,556

 

Total revenues

 

 

113,431

 

 

 

127,679

 

 

 

362,690

 

 

 

400,896

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

47,978

 

 

 

52,717

 

 

 

151,884

 

 

 

166,959

 

Selling and marketing

 

 

39,967

 

 

 

44,231

 

 

 

123,080

 

 

 

133,249

 

General and administrative

 

 

15,108

 

 

 

16,448

 

 

 

51,650

 

 

 

47,897

 

Depreciation

 

 

2,262

 

 

 

2,374

 

 

 

6,557

 

 

 

6,992

 

Amortization of intangible assets

 

 

3,041

 

 

 

3,352

 

 

 

9,175

 

 

 

10,068

 

Restructuring and related costs

 

 

19

 

 

 

 

 

 

12,140

 

 

 

 

Total operating expenses

 

 

108,375

 

 

 

119,122

 

 

 

354,486

 

 

 

365,165

 

Income from operations

 

 

5,056

 

 

 

8,557

 

 

 

8,204

 

 

 

35,731

 

Interest expense

 

 

(763

)

 

 

(584

)

 

 

(2,286

)

 

 

(1,732

)

Other income, net

 

 

568

 

 

 

346

 

 

 

1,632

 

 

 

192

 

Gain on investments, net

 

 

 

 

 

 

 

 

 

 

 

426

 

Income before income taxes

 

 

4,861

 

 

 

8,319

 

 

 

7,550

 

 

 

34,617

 

Income tax expense

 

 

2,377

 

 

 

2,905

 

 

 

3,837

 

 

 

11,181

 

Net income

 

$

2,484

 

 

$

5,414

 

 

$

3,713

 

 

$

23,436

 

Basic income per common share

 

$

0.13

 

 

$

0.29

 

 

$

0.19

 

 

$

1.24

 

Diluted income per common share

 

$

0.13

 

 

$

0.28

 

 

$

0.19

 

 

$

1.22

 

Basic weighted average common shares outstanding

 

 

19,191

 

 

 

18,958

 

 

 

19,164

 

 

 

18,939

 

Diluted weighted average common shares outstanding

 

 

19,289

 

 

 

19,139

 

 

 

19,239

 

 

 

19,192

 

 

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

 

4


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

$

2,484

 

 

$

5,414

 

 

$

3,713

 

 

$

23,436

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(2,435

)

 

 

(4,971

)

 

 

(483

)

 

 

(10,813

)

Net change in market value of investments

 

30

 

 

 

(54

)

 

 

52

 

 

 

(147

)

Net change in market value of interest rate swap

 

 

 

 

(5

)

 

 

 

 

 

259

 

Other comprehensive loss

 

(2,405

)

 

 

(5,030

)

 

 

(431

)

 

 

(10,701

)

Comprehensive income

$

79

 

 

$

384

 

 

$

3,282

 

 

$

12,735

 

 

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,

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

3,713

 

 

$

23,436

 

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

 

 

 

 

 

Depreciation

 

6,557

 

 

 

6,992

 

Impairment of property and equipment

 

600

 

 

 

 

Amortization of intangible assets

 

9,175

 

 

 

10,068

 

Net gains from investments

 

 

 

 

(426

)

Deferred income taxes

 

(4,106

)

 

 

(3,023

)

Stock-based compensation

 

11,169

 

 

 

11,036

 

Operating lease right-of-use assets amortization and impairments

 

9,089

 

 

 

8,138

 

Amortization of deferred financing fees

 

332

 

 

 

331

 

Amortization of (discount) premium on investments

 

(168

)

 

 

48

 

Foreign currency gains

 

(30

)

 

 

(167

)

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

32,288

 

 

 

34,801

 

Deferred commissions

 

8,000

 

 

 

10,741

 

Prepaid expenses and other current assets

 

(1,002

)

 

 

2,185

 

Accounts payable

 

403

 

 

 

262

 

Accrued expenses and other liabilities

 

(34,839

)

 

 

(30,801

)

Deferred revenue

 

(20,809

)

 

 

(26,262

)

Operating lease liabilities

 

(10,581

)

 

 

(9,556

)

Net cash provided by operating activities

 

9,791

 

 

 

37,803

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(3,903

)

 

 

(4,227

)

Purchases of marketable investments

 

(964

)

 

 

(22,819

)

Proceeds from maturities of marketable investments

 

11,138

 

 

 

21,081

 

Other investing activity

 

33

 

 

 

246

 

Net cash provided by (used in) investing activities

 

6,304

 

 

 

(5,719

)

Cash flows from financing activities:

 

 

 

 

 

Payments on borrowings

 

(15,000

)

 

 

(25,000

)

Repurchases of common stock

 

(4,082

)

 

 

(15,112

)

Debt issuance costs

 

(25

)

 

 

 

Proceeds from issuance of common stock under employee equity incentive plans

 

3,485

 

 

 

4,298

 

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

 

(2,620

)

 

 

(2,975

)

Net cash used in financing activities

 

(18,242

)

 

 

(38,789

)

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

 

242

 

 

 

(10,727

)

Net change in cash, cash equivalents and restricted cash

 

(1,905

)

 

 

(17,432

)

Cash, cash equivalents and restricted cash, beginning of period

 

105,654

 

 

 

118,031

 

Cash, cash equivalents and restricted cash, end of period

$

103,749

 

 

$

100,599

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for interest

$

1,944

 

 

$

1,456

 

Cash paid for income taxes

$

10,583

 

 

$

5,380

 

 

 

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, 2022. 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, 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, 2023 may not be indicative of the results for the year ending December 31, 2023, or any other period.

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,

 

 

2023

 

 

2022

 

Cash and cash equivalents

$

101,706

 

 

$

98,735

 

Restricted cash classified in other assets (1):

 

2,043

 

 

 

1,864

 

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

$

103,749

 

 

$

100,599

 

 

(1)
Restricted cash consists of collateral required for leased office space. 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.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this update defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments in this update apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The standard has not impacted the Company’s financial position or results of operations, and will not have an impact in the future as the Company no longer has any financial instruments that reference LIBOR.

 

 

7


 

Note 2 — Marketable Investments

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

 

 

As of September 30, 2023

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate obligations

 

$

7,892

 

 

$

 

 

$

(126

)

 

$

7,766

 

Federal agency obligations

 

 

1,999

 

 

 

 

 

 

(15

)

 

 

1,984

 

Total

 

$

9,891

 

 

$

 

 

$

(141

)

 

$

9,750

 

 

 

 

As of December 31, 2022

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate obligations

 

$

17,900

 

 

$

8

 

 

$

(205

)

 

$

17,703

 

Federal agency obligations

 

 

1,999

 

 

 

 

 

 

(14

)

 

 

1,985

 

Total

 

$

19,899

 

 

$

8

 

 

$

(219

)

 

$

19,688

 

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 marketable investments during the three and nine months ended September 30, 2023 and 2022.

The following table summarizes the maturity periods of the marketable investments in the Company’s portfolio as of September 30, 2023 (in thousands).

 

 

FY 2023

 

 

FY 2024

 

 

FY 2025

 

 

Total

 

Corporate obligations

 

$

1,996

 

 

$

3,864

 

 

$

1,906

 

 

$

7,766

 

Federal agency obligations

 

 

 

 

 

1,984

 

 

 

 

 

$

1,984

 

Total

 

$

1,996

 

 

$

5,848

 

 

$

1,906

 

 

$

9,750

 

 

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, 2023

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Corporate obligations

 

$

3,417

 

 

$

34

 

 

$

4,349

 

 

$

92

 

Federal agency obligations

 

 

1,984

 

 

 

15

 

 

 

 

 

 

 

Total

 

$

5,401

 

 

$

49

 

 

$

4,349

 

 

$

92

 

 

 

 

As of December 31, 2022

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Corporate obligations

 

$

9,619

 

 

$

139

 

 

$

8,084

 

 

$

66

 

Federal agency obligations

 

 

1,985

 

 

 

14

 

 

 

 

 

 

 

Total

 

$

11,604

 

 

$

153

 

 

$

8,084

 

 

$

66

 

 

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. Reporting units are determined based on the components of the Company's operating segments that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by segment management. 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.

 

8


 

The Company performed its annual impairment testing as of November 30, 2022 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, 2023, there were no events or circumstances that required an interim impairment test. Accordingly, as of September 30, 2023, the Company had no accumulated goodwill impairment losses. Approximately $8.1 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, 2023 is summarized as follows (in thousands):

Balance at December 31, 2022

$

242,149

 

Foreign currency translation adjustments

 

(88

)

Balance at September 30, 2023

$

242,061

 

Finite-Lived Intangible Assets

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

 

 

September 30, 2023

 

 

Gross

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets: