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, 20182019
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: (617) 613-6000code)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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. (Check one):
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 ☒
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 |
As of May 7, 2018 17,984,0006, 2019, 18,437,000 shares of the registrant’s common stock were outstanding.
INDEX TO FORM 10-Q
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|
| ||
PART I | FINANCIAL INFORMATION |
| ||
| ||||
3 | ||||
| ||||
Consolidated Balance Sheets as of March 31, | 3 | |||
| ||||
4 | ||||
| ||||
5 | ||||
| ||||
Consolidated Statements of Cash Flows for the Three Months Ended March 31, | 6 | |||
| ||||
7 | ||||
Item 2. |
| 20 | ||
Item 3. |
| 28 | ||
Item 4. | 28 | |||
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| |||
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| |||
29 | ||||
Item 2. |
| 29 | ||
Item 6. | 30 | |||
FORRESTER RESEARCH, INC.
(In thousands, except per share data, unaudited)
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 82,073 |
|
| $ | 79,790 |
|
| $ | 75,012 |
|
| $ | 140,296 |
|
Marketable investments (Note 3) |
|
| 54,258 |
|
|
| 54,333 |
| ||||||||
Accounts receivable, net |
|
| 62,154 |
|
|
| 70,023 |
|
|
| 69,122 |
|
|
| 67,318 |
|
Deferred commissions |
|
| 14,722 |
|
|
| 13,731 |
|
|
| 17,254 |
|
|
| 15,677 |
|
Prepaid expenses and other current assets |
|
| 18,641 |
|
|
| 18,942 |
|
|
| 16,299 |
|
|
| 12,802 |
|
Total current assets |
|
| 231,848 |
|
|
| 236,819 |
|
|
| 177,687 |
|
|
| 236,093 |
|
Property and equipment, net |
|
| 24,487 |
|
|
| 25,249 |
|
|
| 26,357 |
|
|
| 22,005 |
|
Operating lease right-of-use assets |
|
| 71,529 |
|
|
| — |
| ||||||||
Goodwill |
|
| 76,900 |
|
|
| 76,169 |
|
|
| 242,543 |
|
|
| 85,165 |
|
Intangible assets, net |
|
| 559 |
|
|
| 732 |
|
|
| 114,684 |
|
|
| 4,951 |
|
Other assets |
|
| 6,942 |
|
|
| 6,231 |
|
|
| 7,578 |
|
|
| 5,310 |
|
Total assets |
| $ | 340,736 |
|
| $ | 345,200 |
|
| $ | 640,378 |
|
| $ | 353,524 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 353 |
|
| $ | 217 |
|
| $ | 1,209 |
|
| $ | 588 |
|
Accrued expenses and other current liabilities |
|
| 35,260 |
|
|
| 49,629 |
|
|
| 69,946 |
|
|
| 54,065 |
|
Current portion of long-term debt |
|
| 7,031 |
|
|
| — |
| ||||||||
Deferred revenue |
|
| 155,425 |
|
|
| 145,207 |
|
|
| 191,612 |
|
|
| 135,332 |
|
Total current liabilities |
|
| 191,038 |
|
|
| 195,053 |
|
|
| 269,798 |
|
|
| 189,985 |
|
Non-current liabilities |
|
| 8,403 |
|
|
| 8,958 |
| ||||||||
Long-term debt, net of deferred financing fees |
|
| 143,728 |
|
|
| — |
| ||||||||
Non-current operating lease liabilities |
|
| 63,843 |
|
|
| — |
| ||||||||
Other non-current liabilities |
|
| 19,195 |
|
|
| 11,939 |
| ||||||||
Total liabilities |
|
| 199,441 |
|
|
| 204,011 |
|
|
| 496,564 |
|
|
| 201,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity (Note 8): |
|
|
|
|
|
|
|
| ||||||||
Stockholders' Equity (Note 10): |
|
|
|
|
|
|
|
| ||||||||
Preferred stock, $0.01 par value |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
Authorized - 500 shares; issued and outstanding - none |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock, $0.01 par value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized - 125,000 shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued - 22,514 and 22,432 shares as of March 31, 2018 and December 31, 2017, respectively |
|
|
|
|
|
|
|
| ||||||||
Outstanding - 18,017 and 18,041 shares as of March 31, 2018 and December 31, 2017, respectively |
|
| 225 |
|
|
| 224 |
| ||||||||
Issued - 23,050 and 22,951 shares as of March 31, 2019 and December 31, 2018, respectively |
|
|
|
|
|
|
|
| ||||||||
Outstanding - 18,419 and 18,320 shares as of March 31, 2019 and December 31, 2018, respectively |
|
| 231 |
|
|
| 230 |
| ||||||||
Additional paid-in capital |
|
| 186,335 |
|
|
| 181,910 |
|
|
| 206,655 |
|
|
| 200,696 |
|
Retained earnings |
|
| 121,495 |
|
|
| 123,010 |
|
|
| 114,401 |
|
|
| 127,717 |
|
Treasury stock - 4,497 and 4,391 shares as of March 31, 2018 and December 31, 2017, respectively, at cost |
|
| (166,310 | ) |
|
| (161,943 | ) | ||||||||
Treasury stock - 4,631 shares as of March 31, 2019 and December 31, 2018, at cost |
|
| (171,889 | ) |
|
| (171,889 | ) | ||||||||
Accumulated other comprehensive loss |
|
| (450 | ) |
|
| (2,012 | ) |
|
| (5,584 | ) |
|
| (5,154 | ) |
Total stockholders’ equity |
|
| 141,295 |
|
|
| 141,189 |
|
|
| 143,814 |
|
|
| 151,600 |
|
Total liabilities and stockholders’ equity |
| $ | 340,736 |
|
| $ | 345,200 |
|
| $ | 640,378 |
|
| $ | 353,524 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)OPERATIONS
(In thousands, except per share data, unaudited)
|
| Three Months Ended |
|
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
|
| March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
|
| 2019 |
|
| 2018 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services |
| $ | 51,700 |
|
| $ | 51,743 |
|
|
| $ | 68,609 |
|
| $ | 51,700 |
|
Advisory services and events |
|
| 26,049 |
|
|
| 25,451 |
|
|
|
| 32,040 |
|
|
| 26,049 |
|
Total revenues |
|
| 77,749 |
|
|
| 77,194 |
|
|
|
| 100,649 |
|
|
| 77,749 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and fulfillment |
|
| 34,105 |
|
|
| 31,396 |
|
|
|
| 45,110 |
|
|
| 34,105 |
|
Selling and marketing |
|
| 33,011 |
|
|
| 30,622 |
|
|
|
| 42,033 |
|
|
| 33,011 |
|
General and administrative |
|
| 10,739 |
|
|
| 10,170 |
|
|
|
| 13,190 |
|
|
| 10,739 |
|
Depreciation |
|
| 1,996 |
|
|
| 1,679 |
|
|
|
| 2,023 |
|
|
| 1,996 |
|
Amortization of intangible assets |
|
| 186 |
|
|
| 191 |
|
|
|
| 6,210 |
|
|
| 186 |
|
Acquisition and integration costs |
|
| 2,967 |
|
|
| — |
| |||||||||
Total operating expenses |
|
| 80,037 |
|
|
| 74,058 |
|
|
|
| 111,533 |
|
|
| 80,037 |
|
Income (loss) from operations |
|
| (2,288 | ) |
|
| 3,136 |
|
| ||||||||
Other income (expense), net |
|
| (118 | ) |
|
| 9 |
|
| ||||||||
Loss from operations |
|
| (10,884 | ) |
|
| (2,288 | ) | |||||||||
Interest expense |
|
| (2,352 | ) |
|
| — |
| |||||||||
Other expense, net |
|
| (270 | ) |
|
| (118 | ) | |||||||||
Losses on investments, net |
|
| (25 | ) |
|
| (203 | ) |
|
|
| (36 | ) |
|
| (25 | ) |
Income (loss) before income taxes |
|
| (2,431 | ) |
|
| 2,942 |
|
| ||||||||
Loss before income taxes |
|
| (13,542 | ) |
|
| (2,431 | ) | |||||||||
Income tax benefit |
|
| (698 | ) |
|
| (88 | ) |
|
|
| (226 | ) |
|
| (698 | ) |
Net income (loss) |
| $ | (1,733 | ) |
| $ | 3,030 |
|
| ||||||||
Basic income (loss) per common share |
| $ | (0.10 | ) |
| $ | 0.17 |
|
| ||||||||
Diluted income (loss) per common share |
| $ | (0.10 | ) |
| $ | 0.16 |
|
| ||||||||
Net loss |
| $ | (13,316 | ) |
| $ | (1,733 | ) | |||||||||
Basic loss per common share |
| $ | (0.73 | ) |
| $ | (0.10 | ) | |||||||||
Diluted loss per common share |
| $ | (0.73 | ) |
| $ | (0.10 | ) | |||||||||
Basic weighted average common shares outstanding |
|
| 18,036 |
|
|
| 18,230 |
|
|
|
| 18,363 |
|
|
| 18,036 |
|
Diluted weighted average common shares outstanding |
|
| 18,036 |
|
|
| 18,536 |
|
|
|
| 18,363 |
|
|
| 18,036 |
|
Cash dividends declared per common share |
| $ | 0.20 |
|
| $ | 0.19 |
|
|
| $ | — |
|
| $ | 0.20 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS
(In thousands, unaudited)
| Three Months Ended March 31, |
| Three Months Ended |
| ||||||||||
| 2018 |
|
| 2017 |
| March 31, |
| |||||||
Net income (loss) | $ | (1,733 | ) |
| $ | 3,030 |
| |||||||
| 2019 |
|
| 2018 |
| |||||||||
Net loss | $ | (13,316 | ) |
| $ | (1,733 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
| 1,703 |
|
|
| 790 |
|
| (430 | ) |
|
| 1,703 |
|
Net change in market value of investments |
| (115 | ) |
|
| 17 |
|
| — |
|
|
| (115 | ) |
Other comprehensive income |
| 1,588 |
|
|
| 807 |
| |||||||
Comprehensive income (loss) | $ | (145 | ) |
| $ | 3,837 |
| |||||||
Other comprehensive income (loss) |
| (430 | ) |
|
| 1,588 |
| |||||||
Comprehensive loss | $ | (13,746 | ) |
| $ | (145 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Three Months Ended |
| |||||||||||||
| Three Months Ended March 31, | March 31, |
| ||||||||||||
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) | $ | (1,733 | ) |
| $ | 3,030 |
|
| |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
| |||||||
Net loss | $ | (13,316 | ) |
| $ | (1,733 | ) | ||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
| ||||||||
Depreciation |
| 1,996 |
|
|
| 1,679 |
|
|
| 2,023 |
|
|
| 1,996 |
|
Amortization of intangible assets |
| 186 |
|
|
| 191 |
|
|
| 6,210 |
|
|
| 186 |
|
Net losses from investments |
| 25 |
|
|
| 203 |
|
|
| 36 |
|
|
| 25 |
|
Deferred income taxes |
| 93 |
|
|
| (257 | ) |
|
| (10,529 | ) |
|
| 93 |
|
Stock-based compensation |
| 1,963 |
|
|
| 2,049 |
|
|
| 2,685 |
|
|
| 1,963 |
|
Amortization of deferred financing fees |
| 230 |
|
|
| — |
| ||||||||
Amortization of premium on investments |
| 25 |
|
|
| 61 |
|
|
| — |
|
|
| 25 |
|
Foreign currency losses |
| 387 |
|
|
| 215 |
|
|
| 330 |
|
|
| 387 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
| |||||||
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
| ||||||||
Accounts receivable |
| 7,921 |
|
|
| 3,839 |
|
|
| 19,239 |
|
|
| 7,921 |
|
Deferred commissions |
| (122 | ) |
|
| (235 | ) |
|
| (1,577 | ) |
|
| (122 | ) |
Prepaid expenses and other current assets |
| (5,454 | ) |
|
| 138 |
|
|
| (1,945 | ) |
|
| (5,454 | ) |
Operating lease right-of-use asset |
| 3,225 |
|
|
| — |
| ||||||||
Accounts payable |
| 133 |
|
|
| (1,485 | ) |
|
| 902 |
|
|
| 133 |
|
Accrued expenses and other liabilities |
| (14,890 | ) |
|
| (11,512 | ) |
|
| (7,244 | ) |
|
| (14,890 | ) |
Deferred revenue |
| 17,275 |
|
|
| 21,538 |
|
|
| 29,108 |
|
|
| 17,275 |
|
Operating lease liabilities |
| (3,389 | ) |
|
| — |
| ||||||||
Net cash provided by operating activities |
| 7,805 |
|
|
| 19,454 |
|
|
| 25,988 |
|
|
| 7,805 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
| (238,943 | ) |
|
| — |
| ||||||||
Purchases of property and equipment |
| (1,324 | ) |
|
| (1,540 | ) |
|
| (2,772 | ) |
|
| (1,324 | ) |
Purchases of marketable investments |
| (11,604 | ) |
|
| (11,503 | ) |
|
| — |
|
|
| (11,604 | ) |
Proceeds from sales and maturities of marketable investments |
| 11,500 |
|
|
| 12,200 |
|
|
| — |
|
|
| 11,500 |
|
Other investing activity |
| — |
|
|
| 184 |
|
| |||||||
Net cash used in investing activities |
| (1,428 | ) |
|
| (659 | ) |
|
| (241,715 | ) |
|
| (1,428 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings, net of costs |
| 171,275 |
|
|
| — |
| ||||||||
Payments on borrowings |
| (21,563 | ) |
|
| — |
| ||||||||
Payment of debt issuance costs |
| (857 | ) |
|
| — |
| ||||||||
Deferred acquisition payments |
| (766 | ) |
|
| — |
| ||||||||
Dividends paid on common stock |
| (3,611 | ) |
|
| (3,462 | ) |
|
| — |
|
|
| (3,611 | ) |
Repurchases of common stock |
| (4,367 | ) |
|
| (21,453 | ) |
|
| — |
|
|
| (4,367 | ) |
Proceeds from issuance of common stock under employee equity incentive plans |
| 2,530 |
|
|
| 2,723 |
|
|
| 3,361 |
|
|
| 2,530 |
|
Taxes paid related to net share settlements of stock-based compensation awards |
| (66 | ) |
|
| (56 | ) |
|
| (89 | ) |
|
| (66 | ) |
Net cash used in financing activities |
| (5,514 | ) |
|
| (22,248 | ) |
| |||||||
Effect of exchange rate changes on cash and cash equivalents |
| 1,420 |
|
|
| 671 |
|
| |||||||
Net increase (decrease) in cash and cash equivalents |
| 2,283 |
|
|
| (2,782 | ) |
| |||||||
Cash and cash equivalents, beginning of period |
| 79,790 |
|
|
| 76,958 |
|
| |||||||
Cash and cash equivalents, end of period | $ | 82,073 |
|
| $ | 74,176 |
|
| |||||||
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
| |||||||
Net cash provided by (used in) financing activities |
| 151,361 |
|
|
| (5,514 | ) | ||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
| 438 |
|
|
| 1,420 |
| ||||||||
Net change in cash, cash equivalents and restricted cash |
| (63,928 | ) |
|
| 2,283 |
| ||||||||
Cash, cash equivalents and restricted cash, beginning of period |
| 140,296 |
|
|
| 79,790 |
| ||||||||
Cash, cash equivalents and restricted cash, end of period | $ | 76,368 |
|
| $ | 82,073 |
| ||||||||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest | $ | 1,948 |
|
|
| — |
| ||||||||
Cash paid for income taxes | $ | 669 |
|
| $ | 115 |
|
| $ | 849 |
|
| $ | 669 |
|
Non-cash financing activities for the three months ended March 31, 2019 include $3.7 million of debt issuance costs deducted directly from the proceeds of borrowings by the lender. Refer to Note 3 – Debt for further information.
Refer to Note 1 – Interim Consolidated Financial Statements for lease right of use assets obtained in exchange for operating lease obligations during the three months ended March 31, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
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 accounting principles generally accepted 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 accounting principles generally accepted in the United States of America. 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, 2017.2018. 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)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, 20182019 may not be indicative of the results for the year ending December 31, 2018,2019, or any other period.
Fair Value Measurements
The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturities. 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. See Note 35 – Marketable Investments -Fair Value Measurements, for the fair value of the Company’s marketable investments.assets and liabilities.
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).
| March 31, |
| |||||
| 2019 |
|
| 2018 |
| ||
Cash and cash equivalents | $ | 75,012 |
|
| $ | 82,073 |
|
Restricted cash classified in (1): |
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
| 208 |
|
|
| — |
|
Other assets |
| 1,148 |
|
|
| — |
|
Cash, cash equivalents and restricted cash shown in statement of cash flows | $ | 76,368 |
|
| $ | 82,073 |
|
(1) | Restricted cash consists of collateral required primarily for letters of credit. The short-term or long-term classification 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
The Company adoptedIn February 2016, the guidance inFinancial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2016-15,2016-02, StatementLeases (Topic 842). The standard requires lessees to recognize the assets and liabilities from leases on the balance sheet and disclose qualitative and quantitative information about the lease arrangements. Lessor accounting is largely unchanged. Leases are classified as either financing or operating, with classification affecting the pattern of Cash Flows: Classificationexpense recognition in the income statement. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows for an additional adoption method and for lessors, provides a practical expedient for the separation of Certain Cash Receiptslease and Cash Payments,non-lease components within a contract.
On January 1, 2019, the Company adopted Topic 842 using the modified retrospective method in which prior periods are not adjusted. Under this method, the cumulative effect of applying the standard is recorded at the date of initial application. Adoption of the
standard did not result in the Company recording a cumulative effect adjustment. The standard resulted in the recognition of operating lease right-of-use assets of $53.3 million, operating lease liabilities of $60.8 million and the elimination of deferred rent of $7.5 million on the adoption date. In addition, the Company recorded $10.4 million of operating lease right-of-use assets and operating lease liabilities on January 1, 2018. The new standard clarifies certain aspects3, 2019 as a result of the statementacquisition of cash flows, including contingent consideration payments made after a business combination, proceeds fromSiriusDecisions (see to Note 2 – Acquisitions). Adoption of the settlement of insurance claims, and distributions received from equity method investees, among others. The adoption of this standard did not have a material impact on the Company’s statementsresults of operations or cash flows.
The Company adopted the guidance in ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, on January 1, 2018. The new standard requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. The adoption of this standard did not have an impact on the Company’s statements of cash flows.
The Company elected to adopt the guidance in ASU No. 2018-02, Reclassificationpackage of Certain Tax Effects from Accumulated Other Comprehensive Income, on January 1, 2018. Thepractical expedients permitted under the new lease standard allows but does not require, a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting fromthat allowed the Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017. The Company elected to make the reclassification adjustment ascarry forward of the beginning of the period of adoption in the amount of $26,000 using the aggregate portfolio approach. The reclassification amount includes the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of enactment of the Act related to items remaining in accumulated other comprehensive income.
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers, and has since issued several additional amendments thereto (collectively known as ASC 606). ASC 606 supersedeshistorical lease classification for all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amountleases that reflects the consideration that the company expects to receive for those goods or services. ASC 606 also includes subtopic ASC 340-40, Other Assets and Deferred Costs-Contracts with Customers, which provides guidance on accounting for certain revenue related costs including costs associated with obtaining and fulfilling a contract.
On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. Under this method, the reported results for 2018 reflect the application of ASC 606, while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition, which is referred to herein as the “previous guidance”. The modified retrospective method requires the
cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018 to be recorded as an adjustment to retained earningsexisted as of the adoption date. Forrester consideredIn addition, the Company elected to exempt short term leases from recognition of right of use assets and lease liabilities, and elected not to separate lease and non-lease components within its leases.
The Company determines whether an arrangement is a contractlease at inception. The Company accounts for a lease when it has the right to be complete ifcontrol the leased asset for a period of time while obtaining substantially all of the revenue wasassets’ economic benefits. 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.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The discount rate used to determine the present value of the lease payments is the Company’s incremental borrowing rate based on the information available at lease inception, as an implicit rate is generally not readily determinable. An operating lease ROU asset includes all lease payments and excludes lease incentives and initial direct costs incurred. Some of the Company’s leases include options to extend or terminate the lease. When determining the lease term, these options are included in the measurement and recognition of the Company’s ROU assets and lease liabilities when it is reasonably certain that the Company will exercise the option. The Company considers several economic factors when making this determination, including but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty in replacing the asset, underlying contractual obligations, or specific characteristics unique to a particular lease.
Lease expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments (which include initial direct costs and lease incentives). The expense is included in operating expenses in the Consolidated Statements of Operations.
The Company’s lease agreements generally contain lease and non-lease components. Non-lease components are fixed charges stated in an agreement and primarily include payments for parking at the leased office space. The Company accounts for the lease and fixed payments for non-lease components as a single lease component under Topic 842, which increases the amount of the ROU assets and lease liabilities.
Most of the Company’s lease agreements also contain variable payments, primarily maintenance-related costs, which are expensed as incurred and not included in the measurement of the ROU assets and lease liabilities.
Leases with an initial term of 12 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):
| Three Months Ended |
| |
| March 31, 2019 |
| |
Operating lease cost | $ | 3,569 |
|
Short-term lease cost |
| 255 |
|
Variable lease cost |
| 1,234 |
|
Total lease cost | $ | 5,058 |
|
Additional information related to leases is summarized in the following table (in thousands, except lease term and discount rate):
| Three Months Ended |
| |
| March 31, 2019 |
| |
Cash paid for operating cash flows from operating leases | $ | 3,753 |
|
Operating right-of-use assets obtained in exchange for lease obligations | $ | 12,011 |
|
Weighted-average remaining lease term - operating leases (years) |
| 7.0 |
|
Weighted-average discount rate - operating leases |
| 5.1 | % |
Future minimum lease payments under non-cancellable leases as of March 31, 2019 are as follows (in thousands):
2019 | $ | 9,590 |
|
2020 |
| 15,030 |
|
2021 |
| 12,692 |
|
2022 |
| 11,993 |
|
2023 |
| 11,988 |
|
Thereafter |
| 35,041 |
|
Total lease payments |
| 96,334 |
|
Less imputed interest |
| (16,087 | ) |
Present value of lease liabilities | $ | 80,247 |
|
Lease balances as of March 31, 2019 are as follows (in thousands):
Operating lease right-of-use assets | $ | 71,529 |
|
|
|
|
|
Short term operating lease liability (1) | $ | 16,404 |
|
Non-current operating lease liabilities |
| 63,843 |
|
Total operating lease liabilities | $ | 80,247 |
|
(1) | Included in accrued expenses and other current liabilities |
The Company’s leases do not contain residual value guarantees, material restrictions or covenants.
Note 2 — Acquisitions
The Company accounts for business combinations in accordance with the previous guidance that was in effect beforeacquisition method of accounting as prescribed by Accounting Standards Codification (“ASC”) 805, Business Combinations. The acquisition method of accounting requires the adoption date.
The effect of adopting ASC 606 included a $7.8 million reduction in deferred revenue, primarily relatedCompany to prepaid performance obligations that are expected to expire in 2018record the assets and 2019 that would have been recognized in 2017 under the new guidance; a decrease of $5.5 million in prepaid expenses and other current assets related to deferred survey costs that would have been expensedliabilities acquired based on their estimated fair values as incurred in 2017 under the new guidance and the current tax impact of the cumulative effect; an increaseacquisition date, with any excess of $0.9 million in deferred commissions relatedthe consideration transferred over the estimated fair value of the net assets acquired, including identifiable intangible assets, to be recorded to goodwill.
FeedbackNow
On July 6, 2018, Forrester acquired 100% of the capitalizationissued and outstanding shares of fringe benefitsS.NOW SA, a Switzerland-based business that operates as incremental costsFeedbackNow. FeedbackNow is a maker of physical buttons and monitoring software that companies deploy to obtainmeasure, analyze, and improve customer contracts under the new guidance; and an increaseexperience. The acquisition is part of $0.6 million in other assetsForrester's plan to build a real-time CX cloud solution. FeedbackNow provides a high-volume input source for the deferred tax effect of the cumulative effect. Retained earnings increased by $3.8real-time CX cloud solution. The Company paid $8.4 million as a net result of these adjustments.
Refer to Note 5, Revenue and Contract Costs, for additional disclosures and a discussion of the Company's updated policies related to revenue recognition, related balance sheet accounts, and accounting for costs to obtain and fulfill a customer contract.
The following tables summarize the effect of adopting ASC 606 on the Company’s financial statementsclosing date. An additional $1.5 million is payable during a two-year period from the closing date and asis subject to typical indemnity provisions from the seller. The Company also paid additional purchase price based on the acquired working capital of $0.8 million during the three months ended March 31, 20182019. In addition, the sellers may earn up to $4.2 million based on the financial performance of FeedbackNow during the two-year period following the closing date, with up to $1.7 million and $2.5 million payable during 2019 and 2020, respectively, if the financial targets are met. The range of undiscounted amounts that could be payable under this arrangement is zero to $4.2 million. The fair value of this contingent consideration arrangement as of the acquisition date was $3.4 million, which was recognized as purchase price.
There were no measurement period adjustments recorded during the three months ended March 31, 2019. The allocation of the purchase price for FeedbackNow is preliminary with respect to income taxes payable. The Company expects to obtain the remainder of the information to complete the allocation of purchase price during the second quarter of 2019.
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. Forrester believes that the combination of its expertise in strategy with SiriusDecisions’ focus on operational excellence will create additional market opportunities for the Company, including cross-selling services to the 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 ASC 805.
Pursuant to the terms of the merger agreement, the Company paid $247.3 million at closing, which is subject to adjustment, and included the purchase price of $245.0 million plus an estimate of cash acquired and reduced by an estimate of certain working capital items. Net cash paid, which accounts for cash acquired of $7.9 million and a subsequent $0.5 million reduction in cash paid for transaction-related expenses, was $238.9 million and is reflected as an investing activity in the Consolidated Statements of Cash Flows. The Company expects to determine the working capital adjustment during the second quarter of 2019. At the time of the merger, each vested SiriusDecisions stock option was converted into the right to receive the excess of the per share merger consideration over the exercise price of such stock option. All unvested SiriusDecisions stock options were cancelled without payment of any consideration.
The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisition of SiriusDecisions (in thousands):
Consolidated Balance Sheet |
|
|
|
|
|
|
|
| As of March 31, 2018 |
| |||||
|
|
|
|
| Amounts as |
| |
|
|
|
|
| if Previous |
| |
|
|
|
|
| Guidance in |
| |
| As Reported |
|
| Effect |
| ||
Accounts receivable, net | $ | 62,154 |
|
| $ | 67,826 |
|
Deferred commissions |
| 14,722 |
|
|
| 13,791 |
|
Prepaid expenses and other current assets |
| 18,641 |
|
|
| 23,427 |
|
Total current assets |
| 231,848 |
|
|
| 241,375 |
|
Other assets |
| 6,942 |
|
|
| 6,380 |
|
Total assets |
| 340,736 |
|
|
| 349,702 |
|
|
|
|
|
|
|
|
|
Deferred revenue | $ | 155,425 |
|
| $ | 166,669 |
|
Total current liabilities |
| 191,038 |
|
|
| 202,282 |
|
Total liabilities |
| 199,441 |
|
|
| 210,685 |
|
Retained earnings |
| 121,495 |
|
|
| 119,217 |
|
Total stockholders’ equity |
| 141,295 |
|
|
| 139,017 |
|
Total liabilities and stockholders’ equity |
| 340,736 |
|
|
| 349,702 |
|
Assets: |
|
|
|
|
Cash and cash equivalents |
| $ | 7,858 |
|
Accounts receivable |
|
| 18,981 |
|
Prepaids and other current assets |
|
| 3,786 |
|
Fixed assets |
|
| 4,169 |
|
Goodwill (1) |
|
| 157,808 |
|
Acquired intangible assets (2) |
|
| 116,000 |
|
Other assets |
|
| 265 |
|
Total assets |
|
| 308,867 |
|
Liabilities: |
|
|
|
|
Accounts payable and accrued liabilities |
|
| 9,251 |
|
Deferred revenue |
|
| 26,244 |
|
Deferred tax liability |
|
| 24,460 |
|
Long-term deferred revenue |
|
| 1,037 |
|
Other long-term liabilities |
|
| 1,073 |
|
Total liabilities |
|
| 62,065 |
|
Net assets acquired |
| $ | 246,802 |
|
(1) | Goodwill represents the expected revenue and cost synergies from combining SiriusDecisions with Forrester as well as the value of the acquired workforce. |
(2) | All of the acquired intangible assets are finite-lived. The determination of the fair value of the finite-lived intangible assets required management judgment and the consideration of a number of factors. In determining the fair values, management primarily relied on income valuation methodologies, in particular discounted cash flow models. The use of discounted cash flow models required the use of estimates, including projected cash flows related to the particular asset; the useful lives of the particular assets; the selection of royalty and discount rates used in the models; and certain published industry benchmark data. In establishing the estimated useful lives of the acquired intangible assets, the Company relied primarily on the duration of the cash flows utilized in the valuation model. Of the $116.0 million assigned to acquired intangible assets, $14.0 million was assigned to the technology asset class with useful lives of 1 to 8 years (with a weighted average amortization period of 2.9 years), $13.0 million to backlog with a useful life of 2.0 years, $77.0 million to customer relationships with a useful life of 9.25 years, and $12.0 million to trade names with a useful life of 15.5 years. The weighted-average amortization period for the total acquired intangible assets is 8.3 years. Amortization of acquired intangible assets was $6.0 million for the three months ended March 31, 2019. |
Total assets were $9.0 million less than ifThe allocation of the previous guidance remained in effect, largely duepurchase price for SiriusDecisions is preliminary with respect to the following changes requiredvaluation of acquired intangible assets, working capital and goodwill. The Company expects to obtain the remainder of the information to complete the allocation of purchase price by the adoptionend of ASC 606:2019.
Accounts receivable, net was lower dueThe Company’s financial statements include the operating results of SiriusDecisions beginning on January 3, 2019, the date of the acquisition. SiriusDecision’s operating results and the related goodwill are being reported as its own operating segment (refer to Note 11 – Operating Segments). The goodwill is not deductible for income tax purposes. The acquisition of SiriusDecisions added approximately $15.2 million of additional revenue and $24.9 million of direct expenses including intangible amortization for the three months ended March 31, 2019. Had the Company excluding invoices issued on cancellable contractsacquired SiriusDecisions in excess of revenue recognized.
Prepaid expenses and other current assets were lower due to expensing survey costs as incurred andprior periods, the current period tax effect of the adjustments.
Deferred revenue was $11.2 million less due to the accelerated recognition of revenue for estimated unexercised rights, whichCompany’s operating results would have been deferred undermaterially different, and as a result the previous guidance untilfollowing unaudited pro forma financial information is presented as if SiriusDecisions had been acquired by the right expired, and the exclusion of invoices issuedCompany on cancellable contracts in excess of revenue recognized.January 1, 2018 (in thousands, except per share amounts):
|
|
|
|
|
|
| |
| Three Months Ended March 31, 2018 |
| |||||
|
|
|
|
| Amounts as |
| |
|
|
|
|
| if Previous |
| |
|
|
|
|
| Guidance in |
| |
| As Reported |
|
| Effect |
| ||
Revenues: |
|
|
|
|
|
|
|
Research services | $ | 51,700 |
|
| $ | 53,387 |
|
Advisory services and events |
| 26,049 |
|
|
| 26,618 |
|
Total revenues |
| 77,749 |
|
|
| 80,005 |
|
Operating expenses: |
|
|
|
|
|
|
|
Cost of services and fulfillment |
| 34,105 |
|
|
| 34,090 |
|
Selling and marketing |
| 33,011 |
|
|
| 33,073 |
|
Total operating expenses |
| 80,037 |
|
|
| 80,084 |
|
Income from operations |
| (2,288 | ) |
|
| (79 | ) |
Income before income taxes |
| (2,431 | ) |
|
| (222 | ) |
Income tax provision |
| (698 | ) |
|
| (13 | ) |
Net loss |
| (1,733 | ) |
|
| (209 | ) |
Basic loss per common share | $ | (0.10 | ) |
| $ | (0.01 | ) |
Diluted loss per common share | $ | (0.10 | ) |
| $ | (0.01 | ) |
| Three Months Ended |
| |||||
| March 31, |
| |||||
| 2019 |
|
| 2018 |
| ||
Pro forma total revenue | $ | 104,488 |
|
| $ | 93,371 |
|
Pro forma net loss | $ | (9,090 | ) |
| $ | (10,451 | ) |
The $2.3 million reduction to total revenues ispro forma results have been prepared in accordance with U.S. GAAP and include the following pro forma adjustments for the three months ended March 31, 2018: (1) an increase in interest expense and amortization of debt issuance costs related to ASC 606’s requirementthe financing of the SiriusDecisions acquisition (refer to recognize revenueNote 3 – Debt for estimated future unexercised customer rights rather than recognize unexercised rights when they occur. The Company currently expects this change to primarily affect the timing of revenue within the quarters of 2018 but does not expect it to have a material effectfurther information on the Company’s resultsborrowings related to the acquisition); (2) a decrease in revenue as a result of operationsthe preliminary purchase price allocation for deferred revenue; (3) an adjustment for depreciation and amortization expenses as a result of the preliminary purchase price allocation for finite-lived intangible assets and property, and equipment; and (4) an increase in operating costs to recognize acquisition costs incurred upon the close of the acquisition.
For the three months ended March 31, 2019, goodwill increased by $157.4 million with $157.8 million of the increase attributable to the acquisition of SiriusDecisions and a $0.4 million decrease due to foreign currency fluctuations.
The Company recognized $1.7 million of acquisition costs in the three months ended March 31, 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 — Debt
In connection with the acquisition of SiriusDecisions, the Company entered into a $200.0 million Credit Agreement on January 3, 2019 (the “Closing Date”). 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” and, together with the Term Loans, the “Facilities”). 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 Facilities. The Facilities are scheduled to mature on January 3, 2024.
The Facilities permit 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 Facilities 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 Facilities bear interest, at Forrester’s option, at a rate per annum equal to either (i) the London Interbank Offering Rate (“LIBOR”) for the full yearapplicable 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 will pay a commitment fee equal to 0.35% per annum on the average daily unused portion of 2018.the Revolving Credit Facility, payable quarterly, in arrears. The net impact, including the tax effect, of accounting for revenue under the new guidance increased net loss and net loss per share by $1.5 million and $0.09, respectively.commitment fee may decrease to 0.30% or 0.25% based on Forrester’s consolidated total leverage ratio.
Consolidated Statement of Comprehensive Income (Loss) |
|
|
|
|
|
|
|
| Three Months Ended March 31, 2018 |
| |||||
|
|
|
|
| Amounts as |
| |
|
|
|
|
| if Previous |
| |
|
|
|
|
| Guidance in |
| |
| As Reported |
|
| Effect |
| ||
Net loss | $ | (1,733 | ) |
| $ | (209 | ) |
Comprehensive income (loss) |
| (145 | ) |
|
| 1,379 |
|
Consolidated Statement of Cash Flows |
|
|
|
|
|
|
|
| Three Months Ended March 31, 2018 |
| |||||
|
|
|
|
| Amounts as |
| |
|
|
|
|
| if Previous |
| |
|
|
|
|
| Guidance in |
| |
| As Reported |
|
| Effect |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income | $ | (1,733 | ) |
| $ | (209 | ) |
Accounts receivable |
| 7,921 |
|
|
| 2,249 |
|
Deferred commissions |
| (122 | ) |
|
| (75 | ) |
Prepaid expenses and other current assets |
| (5,454 | ) |
|
| (4,769 | ) |
Deferred revenue |
| 17,275 |
|
|
| 20,691 |
|
The impactTerm Loans require repayment of the outstanding principal balance in quarterly installments each year, commencing on March 31, 2019 with the balance repayable on the maturity date, subject to comprehensive losscustomary exceptions. The amount payable in each year as of March 31, 2019 is set forth in the table below (in thousands):
2019 | $ | 4,688 |
|
2020 |
| 9,375 |
|
2021 |
| 12,500 |
|
2022 |
| 12,500 |
|
2023 |
| 15,625 |
|
Thereafter |
| 68,750 |
|
Total principal payments | $ | 123,438 |
|
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 cash flows from operating activitiesgeneral 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.
Forrester incurred $1.8 million in costs related to the Revolving Credit Facility which are drivenrecorded in other assets on the Consolidated Balance Sheets. These costs are being amortized as interest expense 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 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, 2019 |
| December 31, 2018 |
| ||
Term loan facility (1) | $ | 123,438 |
| $ | �� |
|
Revolving credit facility (1) (2) |
| 30,000 |
|
| — |
|
Principal amount outstanding (3) |
| 153,438 |
|
| — |
|
Less: Deferred financing fees |
| (2,679 | ) |
| — |
|
Net balance sheet carrying amount | $ | 150,759 |
| $ | — |
|
(1) | The contractual annualized interest rate as of March 31, 2019 on the Term loan facility and the Revolving Credit Facility was 5.0%, which consisted of LIBOR of 2.5% plus a margin of 2.5%. |
(2) | The Company had $45.0 million of available borrowing capacity on the revolver (not including the expansion feature) as of March 31, 2019. |
(3) | The weighted average annual effective rates on the Company's total debt outstanding for the three months ended March 31, 2019, was 5.0%. |
The Facilities contain certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio and minimum fixed charge coverage ratio. 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 first covenant reporting period was March 31, 2019 and the Company was in full compliance. The Facilities also contain customary events of default, representations, and warranties.
All obligations under the Facilities are unconditionally guaranteed by each of the consolidated balance sheetCompany’s existing and income statement changes previously discussed.
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 24 — Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows (in thousands):
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Net Unrealized |
|
| Cumulative |
|
| Accumulated |
| |||
|
| Loss on Marketable |
|
| Translation |
|
| Other Comprehensive |
| |||
|
| Investments |
|
| Adjustment |
|
| Loss |
| |||
Balance at January 1, 2018 |
| $ | (115 | ) |
| $ | (1,897 | ) |
| $ | (2,012 | ) |
Reclassification of stranded tax effects from tax reform |
|
| (26 | ) |
|
| — |
|
|
| (26 | ) |
Foreign currency translation |
|
| — |
|
|
| 1,703 |
|
|
| 1,703 |
|
Unrealized loss on investments, net of tax of $(38) |
|
| (115 | ) |
|
| — |
|
|
| (115 | ) |
Balance at March 31, 2018 |
| $ | (256 | ) |
| $ | (194 | ) |
| $ | (450 | ) |
|
|
|
|
|
| Total |
| |
|
| Cumulative |
|
| Accumulated |
| ||
|
| Translation |
|
| Other Comprehensive |
| ||
|
| Adjustment |
|
| Loss |
| ||
Balance at January 1, 2019 |
| $ | (5,154 | ) |
| $ | (5,154 | ) |
Foreign currency translation |
|
| (430 | ) |
|
| (430 | ) |
Balance at March 31, 2019 |
| $ | (5,584 | ) |
| $ | (5,584 | ) |
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Net Unrealized |
|
| Cumulative |
|
| Accumulated |
| |||
|
| Loss on Marketable |
|
| Translation |
|
| Other Comprehensive |
| |||
|
| Investments |
|
| Adjustment |
|
| Loss |
| |||
Balance at January 1, 2017 |
| $ | (83 | ) |
| $ | (7,490 | ) |
| $ | (7,573 | ) |
Foreign currency translation |
|
| — |
|
|
| 790 |
|
|
| 790 |
|
Unrealized gain on investments, net of tax of $11 |
|
| 17 |
|
|
| — |
|
|
| 17 |
|
Balance at March 31, 2017 |
| $ | (66 | ) |
| $ | (6,700 | ) |
| $ | (6,766 | ) |
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Net Unrealized |
|
| Cumulative |
|
| Accumulated |
| |||
|
| Loss on Marketable |
|
| Translation |
|
| Other Comprehensive |
| |||
|
| Investments |
|
| Adjustment |
|
| Loss |
| |||
Balance at January 1, 2018 |
| $ | (115 | ) |
| $ | (1,897 | ) |
| $ | (2,012 | ) |
Reclassification of stranded tax effects from tax reform |
|
| (26 | ) |
|
| — |
|
|
| (26 | ) |
Foreign currency translation |
|
| — |
|
|
| 1,703 |
|
|
| 1,703 |
|
Unrealized loss on investments, net of tax of $(38) |
|
| (115 | ) |
|
| — |
|
|
| (115 | ) |
Balance at March 31, 2018 |
| $ | (256 | ) |
| $ | (194 | ) |
| $ | (450 | ) |
Note 35 — Marketable Investments
The following table summarizes the Company’s marketable investments (in thousands):
|
| As of March 31, 2018 |
| |||||||||||||
|
|
|
|
|
| Gross |
|
| Gross |
|
|
|
|
| ||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Market |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
Federal agency obligations |
| $ | 1,800 |
|
| $ | — |
|
| $ | (6 | ) |
| $ | 1,794 |
|
Corporate obligations |
|
| 52,800 |
|
|
| — |
|
|
| (336 | ) |
|
| 52,464 |
|
Total |
| $ | 54,600 |
|
| $ | — |
|
| $ | (342 | ) |
| $ | 54,258 |
|
|
| As of December 31, 2017 |
| |||||||||||||
|
|
|
|
|
| Gross |
|
| Gross |
|
|
|
|
| ||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Market |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
Federal agency obligations |
| $ | 1,800 |
|
| $ | — |
|
| $ | (7 | ) |
| $ | 1,793 |
|
Corporate obligations |
|
| 52,721 |
|
|
| — |
|
|
| (181 | ) |
|
| 52,540 |
|
Total |
| $ | 54,521 |
|
| $ | — |
|
| $ | (188 | ) |
| $ | 54,333 |
|
Realized gains and losses on investments are included in earnings and are determined using the specific identification method. Realized gains and losses on the sale of the Company’s marketable investments were not material in the three months ended March 31, 2018 and 2017.
The following table summarizes the maturity periods of the marketable investments in the Company’s portfolio as of March 31, 2018 (in thousands).
|
| FY 2018 |
|
| FY 2019 |
|
| FY2020 |
|
| Total |
| ||||
Federal agency obligations |
| $ | 1,794 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,794 |
|
Corporate obligations |
|
| 19,970 |
|
|
| 26,720 |
|
| $ | 5,774 |
|
|
| 52,464 |
|
Total |
| $ | 21,764 |
|
| $ | 26,720 |
|
| $ | 5,774 |
|
| $ | 54,258 |
|
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 March 31, 2018 |
| |||||||||||||
|
| Less Than 12 Months |
|
| 12 Months or Greater |
| ||||||||||
|
| Market |
|
| Unrealized |
|
| Market |
|
| Unrealized |
| ||||
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
| ||||
Federal agency obligations |
| $ | — |
|
| $ | — |
|
| $ | 1,794 |
|
| $ | 6 |
|
Corporate obligations |
|
| 39,966 |
|
|
| 295 |
|
|
| 12,498 |
|
|
| 41 |
|
Total |
| $ | 39,966 |
|
| $ | 295 |
|
| $ | 14,292 |
|
| $ | 47 |
|
|
| As of December 31, 2017 |
| |||||||||||||
|
| Less Than 12 Months |
|
| 12 Months or Greater |
| ||||||||||
|
| Market |
|
| Unrealized |
|
| Market |
|
| Unrealized |
| ||||
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
| ||||
Federal agency obligations |
| $ | — |
|
| $ | — |
|
| $ | 1,793 |
|
| $ | 7 |
|
Corporate obligations |
|
| 31,723 |
|
|
| 149 |
|
|
| 20,817 |
|
|
| 32 |
|
Total |
| $ | 31,723 |
|
| $ | 149 |
|
| $ | 22,610 |
|
| $ | 39 |
|
Fair Value Measurements
The Company measures certain financial assets at fair value on a recurring basis, including cash equivalents and available-for-sale securities. The fair values of these financial assets 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.
During the three months ended March 31, 2019 and March 31, 2018, the Company did not transfer assets or liabilities between levels of the fair value hierarchy. The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments)liabilities that are measured at fair value on a recurring basis (in thousands):
|
| As of March 31, 2018 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Money market funds (1) |
| $ | 851 |
|
| $ | — |
|
| $ | — |
|
| $ | 851 |
|
Federal agency obligations |
|
| — |
|
|
| 1,794 |
|
|
| — |
|
|
| 1,794 |
|
Corporate obligations |
|
| — |
|
|
| 52,464 |
|
|
| — |
|
|
| 52,464 |
|
Total |
| $ | 851 |
|
| $ | 54,258 |
|
| $ | — |
|
| $ | 55,109 |
|
|
| As of March 31, 2019 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1) |
| $ | 7,177 |
|
| $ | — |
|
| $ | — |
|
| $ | 7,177 |
|
Total Assets: |
| $ | 7,177 |
|
| $ | — |
|
| $ | — |
|
| $ | 7,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price (2) |
| $ | — |
|
| $ | — |
|
| $ | (4,059 | ) |
| $ | (4,059 | ) |
Total Liabilities: |
| $ | — |
|
| $ | — |
|
| $ | (4,059 | ) |
| $ | (4,059 | ) |
|
| As of December 31, 2017 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Money market funds (1) |
| $ | 492 |
|
| $ | — |
|
| $ | — |
|
| $ | 492 |
|
Federal agency obligations |
|
| — |
|
|
| 1,793 |
|
|
| — |
|
| $ | 1,793 |
|
Corporate obligations |
|
| — |
|
|
| 52,540 |
|
|
| — |
|
|
| 52,540 |
|
Total |
| $ | 492 |
|
| $ | 54,333 |
|
| $ | — |
|
| $ | 54,825 |
|
|
| As of December 31, 2018 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1) |
| $ | 255 |
|
| $ | — |
|
| $ | — |
|
| $ | 255 |
|
Total Assets: |
| $ | 255 |
|
| $ | — |
|
| $ | — |
|
| $ | 255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price (2) |
| $ | — |
|
| $ | — |
|
| $ | (4,196 | ) |
| $ | (4,196 | ) |
Total Liabilities: |
| $ | — |
|
| $ | — |
|
| $ | (4,196 | ) |
| $ | (4,196 | ) |
(1) | Included in cash and cash equivalents. |
(2) | $1.8 million is included in accrued expenses and other current liabilities, and $2.3 million and $2.4 million is included in non-current liabilities as of March 31, 2019 and December 31, 2018, respectively. |
Level 2 assets3 liabilities at March 31, 2019 consist entirely of the Company’s entire portfoliocontingent purchase price related to the acquisition of marketable investments.FeedbackNow. Changes in the fair value of Level 2 assets have been initially valued at3 contingent consideration for the transaction price and subsequently valued, at the end of each reporting period, typically utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation methods, including both income and market basedthree months ended March 31, 2019 were as follows (in thousands):
| Contingent |
| |
| Consideration |
| |
Balance at December 31, 2018 | $ | (4,196 | ) |
Fair value adjustment of contingent purchase price (1) |
| 88 |
|
Foreign exchange effect |
| 49 |
|
Balance at March 31, 2019 | $ | (4,059 | ) |
approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events.
(1) | This amount was recognized as a reduction in acquisition and integration costs within the Consolidated Statements of Operations. As of March 31, 2019, the significant unobservable inputs used in the Monte Carlo simulation to fair value the contingent consideration included projected contract bookings, a discount rate of 17.8%, and revenue volatility of 24.4%. Increases or decreases in the inputs would result in a higher or lower fair value measurement. |
Note 46 — Non-Marketable Investments
At March 31, 20182019 and December 31, 2017,2018, the carrying value of the Company’s non-marketable investments, which were composed of interests in technology-related private equity funds, was $1.8$2.4 million and $1.9$2.5 million, respectively, and is included in other assets in the Consolidated Balance Sheets.
The Company’s non-marketable investments at March 31, 20182019 are being accounted for using the equity method as the investments are limited partnerships and the Company has an ownership interest in excess of 5% and, accordingly, the Company records its share of the investee’s operating results each period. Losses from non-marketable investments were immaterial during the three months ended March 31, 20182019 and were $0.2 million duringMarch 31, 2018. Losses are included in losses on investments, net in the Consolidated Statements of Operations. During the three months ended March 31, 2017. Losses are included in Losses on Investments, Net in the Consolidated Statements of Income (Loss). During the three months ended2019 and March 31, 2018, no distributions were received from the funds. During the three months ended March 31, 2017, $0.4 million of distributions were received from the funds.
Note 57 – RevenueContract Assets and Contract Costs
Revenue Policy
The Company adopted ASC 606 on January 1, 2018 using the modified retrospective approach, which applies to all contracts not complete as of the date of adoption. Under ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company follows the five step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenues are presented net of any sales or value added taxes collected from customers and remitted to the government.
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration expected to be transferred to the customer is probable. The Company applies judgment in determining the customer’s ability and intention to pay for services expected to be transferred, which is based on factors including the customer’s payment history, management’s ability to mitigate exposure to credit risk (for example, requiring payment in advance of the transfer of goods or services, or the ability to stop transferring promised goods or services in the event a customer fails to pay consideration when due) and experience selling to similarly situated customers.
Performance obligations within a contract are identified based on the goods and services promised to be transferred in the contract. When a contract includes more than one promised good or service, the Company must apply judgment to determine whether the promises represent multiple performance obligations or a single, combined performance obligation. This evaluation requires the Company to determine if the promises are both capable of being distinct, where the customer can benefit from the good or service on its own or together with other resources readily available, and are distinct within the context of the contract, where the transfer of goods or services is separately identifiable from other promises in the contract. When both criteria are met, each promised good or service is accounted for as a separate performance obligation. In cases where the promises are distinct, the Company is further required to evaluate if the promises are a series of goods and services that are substantially the same and have the same pattern of transfer to the customer (referred to as the “series” guidance). When the Company determines that promises meet the series guidance, they are accounted for as a single, combined performance obligation. The number of performance obligations in the Company’s arrangements is not different under ASC 606 than the number of separate units of accounting under pervious guidance, as discussed further below.
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative basis according to their standalone selling prices. The Company continues to determine standalone selling price based on the price at which the performance obligation is sold separately. If the Company does not have a history of selling a performance obligation, management applies judgment to estimate the standalone selling price, taking into consideration available information, including market conditions, factors considered to set list price, pricing of similar products, and internal pricing objectives. The corresponding allocated revenues are recognized as the performance obligations are satisfied, as discussed below.
Research services revenues
Research services revenues consist primarily of memberships to Research, Connect, and Analytics products. The majority of the Research revenues are annual subscriptions to our research, including access to all or a designated portion of our research and, depending on the type of license, unlimited phone or email analyst inquiry and unlimited participation in Forrester webinars, all of which are delivered throughout the contract period. The Company has concluded that the promises represent a stand ready obligation to provide a daily information service, in which the services are the same each day, every day is distinct, and the customer simultaneously receives and consumes the benefits as the Company transfers control throughout the contract period. Accordingly, these subscriptions meet the requirements of the series guidance and are each accounted for as a single performance obligation. The Company recognizes revenue ratably over time, using an output measure of time elapsed. Research revenues also include sales of electronic reprints, which are written research documents prepared by Forrester’s analysts and hosted via an on-line platform. Reprints include a promise to deliver a customer-selected research document and certain usage data provided through the on-line platform, which represents two performance obligation. The Company satisfies the performance obligation for the research document by providing access to the electronic reprint and accordingly recognizes revenue at that point in time. The Company satisfies the performance obligation for the data portion of the reprint on a daily basis and accordingly recognizes revenue over time.
The majority of the Connect revenues are the Company’s Leadership Board product which includes access to the Research offering, access to a private forum with other Leadership Board member peers, access to a Forrester advisor, member-generated content, and one Event ticket. The Company has concluded that all promises, other than the Event ticket, represent a stand ready obligation to provide a daily information and peer service, in which the services are the same each day, every day is distinct, and the customer simultaneously receives and consumes the benefits as the Company transfers control throughout the contract period. Accordingly, these promises meet the requirements of the series guidance and are accounted for as a single performance obligation. The Company recognizes revenue ratably over time, using an output measure of time elapsed. The Event ticket is accounted for as a separate performance obligation and is recognized when the Event occurs.
Analytics revenues are annual subscriptions to access designated survey data products and typically include a data advisor, all of which are delivered throughout the contract period. For Analytics subscriptions, the Company has concluded that the promises represent a stand ready obligation to provide a daily data service, in which the services are the same each day, every day is distinct and the customer simultaneously receives and consumes the benefits as the Company transfers control throughout the contract period. Accordingly, these subscriptions meet the requirements of the series guidance and are accounted for as a single performance obligation. The Company recognizes revenue ratably over time, using an output measure of time elapsed. Certain of the Analytics products include advisory services which are accounted for as a separate performance obligation and are recognized at the point in time the session is completed or the final deliverable is transferred to the customer.
Advisory services and events revenues
Advisory services and events revenues consists of sales of advisory services, consulting projects, and Events.
Advisory services revenues are short-term presentations or knowledge sharing sessions (which can range from one hour to two days), such as workshops, speeches and advisory days. Each is a promise for a Forrester analyst to deliver a deeper understanding of Forrester’s published research and represents a single performance obligation. Revenue is recognized at the point in time the session is completed or the final deliverable is transferred to the customer.
Consulting project revenues consists of the delivery of focused insights and recommendations that assist customers with their challenges in developing and executing strategies around technology, customer experience and digital transformation. Projects are fixed-fee arrangements that are generally completed within two weeks to three months. The Company concluded that each project represents a single performance obligation as they are a single promise to deliver a customized engagement and deliverable. For the majority of these services, either practically or contractually, the work performed and delivered to the customer has no alternative use to the Company. Additionally, Forrester maintains an enforceable right to payment at all times throughout the contract. The Company utilizes an input method and recognizes revenue over time, based on hours expended relative to the total estimated hours required to satisfy the performance obligation. This input method was chosen since it closely aligns with how control of interim deliverables is transferred to the customer throughout the engagement and is also the method used internally to price the project and assess operational performance. If the Company were to enter into an agreement where it does not have an enforceable right to payment at all times, revenue would be recognized at the point in time the project is completed.
Events revenues consist of either ticket or sponsorship sales for a Forrester-hosted event. Each is a single promise that either allows entry to, or grants the right to promote a product or service at, a specific event. The Company concluded that each of these represents a single performance obligation. The Company recognizes revenue at the completion of the Event, which is the point in time when the customer has received the benefit(s) from attending or sponsoring the Event.
Prepaid performance obligations, including Event tickets, reprints, advisory and consulting hours, on non-cancellable contracts that the Company estimates will expire unused are recognized in proportion to the pattern of related rights exercised by the customer. This assessment requires significant judgment, including estimating the percentage of prepaid rights that will go unexercised and anticipating the impact that future changes to products, pricing and customer engagement will have on actual expirations. The Company periodically updates the rates used to recognize unexercised rights.
Refer to Note 9, Operating Segments, for a summary of disaggregated revenue by product category and business segment.
Contract Modifications
The Company considers a contract modification to exist when a mutually agreed upon change creates new, or updates existing, enforceable rights and obligations. ASC 606 introduced three specific methods to account for contract modifications depending on the nature of the change(s) in scope or price to the original contract. The new guidance is consistent with how the Company has historically accounted for contract modifications and as a result, will not have an impact on the Company’s results of operations.
The majority of the Company’s contract modifications result in additional or remaining distinct goods and services, and are treated on a prospective basis. Under the prospective method, the transaction price is updated to combine the unrecognized amount as of the modification date plus the additional transaction price from the modification. This amount is then re-allocated to the remaining distinct performance obligations and recognized accordingly.
Consulting services contracts can be modified to update the scope of the services purchased. Since a consulting project is a single performance obligation that is only partially satisfied at the modification date, the updated project requirements are not distinct and the modification is accounted for as part of the existing contract. The effect of the modification on the transaction price and the Company’s measure of progress for the performance obligation to which is relates, is recognized as an adjustment to revenue (either an increase or decrease) on a cumulative catch-up basis. For the three months ended March 31, 2018, the Company recorded an immaterial amount of cumulative catch-up adjustments.
Liabilities
Accounts Receivable
Accounts receivable includes amounts billed and currently due from customers. Since the only condition for payment of our invoices is the passage of time, the Company records a receivable on the date the 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, 2019 or 2018.
The majority of the Company’s contracts are non-cancellable. However, for contracts that are cancellable by the customer, thethe 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 goodsproducts and services, the Company does not adjust its receivables or transaction price for the effects of a significant financing component.
Deferred Revenue
The Company refers to contract liabilities as deferred revenue on the consolidated balance sheets.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 invoices issued on a cancellable contract.
During the three months ended March 31, 2018,2019, the Company recognized approximately $58$58.1 million of revenue related to its deferred revenue balance at January 1, 2019. During the three months ended March 31, 2018, the Company recognized approximately $58.0 million of revenue related to its deferred revenue balance at January 1, 2018. In order toTo determine revenue recognized in the current period from deferred revenue at the beginning of the period, the Company first allocates revenue to the individual deferred revenue balance outstanding at the beginning of the period, until the revenue exceedsequals that balance.
Approximately $254$357.9 million of revenue is expected to be recognized during the next 12 to 24 months from remaining performance obligations as of March 31, 2018.
2019.
Cost to Obtain and Fulfill Contracts
The Company capitalizes commissions paid to internal sales representatives and related fringe benefits costs that are incremental to obtaining customer contracts.contracts. These costs are included in deferred commissions on the consolidated balance sheets. The judgments made in determining the amount of costs incurred include the types of costs to capitalize and whether or not the costs are in fact incremental.Consolidated Balance Sheets. The Company elected the practical expedient to accountaccounts 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 operations as the related revenue is recognized over the initial contract term. Amortization expense related to deferred commissions was $7.2 million and $7.1 million for the three months ended March 31, 2019 and March 31, 2018, respectively. The Company evaluates the recoverability of deferred commissions at each balance sheet date.
Costs to fulfill the Company’s contracts, such as our survey costs for our Analytics product line, do not meet the specified capitalization criteria as defined in the guidance and as such are expensed as incurred.
Note 68 — 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 benefit for the three months ended March 31, 2019 was $0.2 million resulting in an effective tax rate of 1.7% for the period. The Company recorded a $0.6 million discrete tax expense during the three months ended March 31, 2019 due to the settlement of a U.S. Competent Authority claim during the period. The Company anticipates that its effective tax rate for the full year 2019 will be approximately 5% due to a projected pretax loss for the year. Income tax benefit for the three months ended March 31, 2018 was $0.7 million resulting in an effective tax rate of 28.7% for the period. Income
In July 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. The opinion invalidated part of a treasury regulation requiring stock-based compensation to be included in any qualified intercompany cost-sharing arrangement. The Company previously recorded a tax benefit based on the opinion in the case. Currently the U.S. Court of Appeals for the three months ended March 31, 2017 was $0.1 million resulting in an effective tax rate of (3.0)% forNinth Circuit is reviewing the period.case and a final decision is yet to be issued. The increase in the effective tax rate during the three months ended March 31, 2018 comparedCompany will continue to the prior year period was primarily duemonitor ongoing developments and potential impacts to the recognition of a $1.3 million benefit from the settlement of a tax audit in the first quarter of 2017. For the full year 2018, the Company anticipates that its effective tax rate will be approximately 31%.consolidated financial statements.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law making significant changes to the Internal Revenue Code. We calculated our best estimate of the impact of the Act in our prior year end income tax provision in accordance with our understanding of the Act and guidance available at that date. On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date of the Act for companies to complete the accounting for the income tax effects of the Act. Any subsequent adjustment to these provisional amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete. As the Company completes itsanalysis of the Act, and collects and prepares necessary data, and interprets any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may make adjustments to the provisional amounts. No adjustments to the provisional amounts were recognized during the three months ended March 31, 2018.
Note 79 — Net Income (Loss)Loss Per Common Share
Basic net income (loss)loss per common share is computed by dividing net income (loss)loss by the basic weighted average number of common shares outstanding during the period. Diluted net income (loss)loss per common share is computed by dividing net income (loss)loss by the diluted weighted average number of common shares and common equivalent shares outstanding during the period. The weighted average number of common equivalent shares outstanding has been determined in accordance with the treasury-stock method. Common equivalent shares consist of common stock issuable on the exercise of outstanding stock options and the vesting of restricted stock units.
Basic and diluted weighted average common shares are as follows (in thousands):
|
|
|
|
| Three Months Ended |
| ||||||||||
|
| Three Months Ended March 31, |
|
| March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Basic weighted average common shares outstanding |
|
| 18,036 |
|
|
| 18,230 |
|
|
| 18,363 |
|
|
| 18,036 |
|
Weighted average common equivalent shares |
|
| — |
|
|
| 306 |
|
|
| — |
|
|
| — |
|
Diluted weighted average common shares outstanding |
|
| 18,036 |
|
|
| 18,536 |
|
|
| 18,363 |
|
|
| 18,036 |
|
Options excluded from diluted weighted average share calculation as effect would have been anti-dilutive |
|
| 1,059 |
|
|
| 374 |
| ||||||||
Options and restricted stock units excluded from diluted weighted average share calculation as effect would have been anti-dilutive |
|
| 703 |
|
|
| 1,059 |
|
Note 10 — Stockholders’ Equity
The components of stockholders’ equity are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |
| Common Stock |
|
| Additional |
|
|
|
|
|
| Treasury Stock |
|
| Other |
|
|
|
|
| ||||||||||||
| Number of |
|
| $0.01 Par |
|
| Paid-in |
|
| Retained |
|
| Number of |
|
|
|
|
|
| Comprehensive |
|
| Total |
| |||||||
| Shares |
|
| Value |
|
| Capital |
|
| Earnings |
|
| Shares |
|
| Cost |
|
| Income (Loss) |
|
| Equity |
| ||||||||
Balance at January 1, 2019 |
| 22,951 |
|
| $ | 230 |
|
| $ | 200,696 |
|
| $ | 127,717 |
|
|
| 4,631 |
|
| $ | (171,889 | ) |
| $ | (5,154 | ) |
| $ | 151,600 |
|
Issuance of common stock under stock plans |
| 99 |
|
|
| 1 |
|
|
| 3,274 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,275 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 2,685 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,685 |
|
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (13,316 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,316 | ) |
Foreign currency translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (430 | ) |
|
| (430 | ) |
Balance at March 31, 2019 |
| 23,050 |
|
| $ | 231 |
|
| $ | 206,655 |
|
| $ | 114,401 |
|
|
| 4,631 |
|
| $ | (171,889 | ) |
| $ | (5,584 | ) |
| $ | 143,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |
| Common Stock |
|
| Additional |
|
|
|
|
|
| Treasury Stock |
|
| Other |
|
|
|
|
| ||||||||||||
| Number of |
|
| $0.01 Par |
|
| Paid-in |
|
| Retained |
|
| Number of |
|
|
|
|
|
| Comprehensive |
|
| Total |
| |||||||
| Shares |
|
| Value |
|
| Capital |
|
| Earnings |
|
| Shares |
|
| Cost |
|
| Income (Loss) |
|
| Equity |
| ||||||||
Balance at January 1, 2018 |
| 22,432 |
|
| $ | 224 |
|
| $ | 181,910 |
|
| $ | 123,010 |
|
|
| 4,391 |
|
| $ | (161,943 | ) |
| $ | (2,012 | ) |
| $ | 141,189 |
|
Issuance of common stock under stock plans |
| 82 |
|
|
| 1 |
|
|
| 2,462 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,463 |
|
Cumulative effect adjustment due to adoption of new accounting pronouncements |
| — |
|
|
| — |
|
|
| — |
|
|
| 3,829 |
|
|
| — |
|
|
| — |
|
|
| (26 | ) |
|
| 3,803 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 1,963 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,963 |
|
Repurchases of common stock |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 106 |
|
|
| (4,367 | ) |
|
| — |
|
|
| (4,367 | ) |
Dividends paid on common shares |
| — |
|
|
| — |
|
|
| — |
|
|
| (3,611 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,611 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (1,733 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,733 | ) |
Net change in marketable investments, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (115 | ) |
|
| (115 | ) |
Foreign currency translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,703 |
|
|
| 1,703 |
|
Balance at March 31, 2018 |
| 22,514 |
|
| $ | 225 |
|
| $ | 186,335 |
|
| $ | 121,495 |
|
|
| 4,497 |
|
| $ | (166,310 | ) |
| $ | (450 | ) |
| $ | 141,295 |
|
Note 8 — Stockholders’ Equity
Restricted stock unit activity for the three months ended March 31, 20182019 is presented below (in thousands, except per share data):
|
|
|
|
|
| Weighted- |
|
|
|
|
|
| Weighted- |
| ||
|
|
|
|
|
| Average |
|
|
|
|
|
| Average |
| ||
|
| Number of |
|
| Grant Date |
|
| Number of |
|
| Grant Date |
| ||||
|
| Shares |
|
| Fair Value |
|
| Shares |
|
| Fair Value |
| ||||
Unvested at December 31, 2017 |
|
| 509 |
|
| $ | 37.59 |
| ||||||||
Unvested at December 31, 2018 |
|
| 497 |
|
| $ | 40.89 |
| ||||||||
Granted |
|
| 12 |
|
|
| 39.14 |
|
|
| 162 |
|
|
| 44.88 |
|
Vested |
|
| (9 | ) |
|
| 37.39 |
|
|
| (11 | ) |
|
| 40.38 |
|
Forfeited |
|
| (17 | ) |
|
| 37.62 |
|
|
| (11 | ) |
|
| 41.94 |
|
Unvested at March 31, 2018 |
|
| 495 |
|
| $ | 37.63 |
| ||||||||
Unvested at March 31, 2019 |
|
| 637 |
|
| $ | 41.89 |
|
Stock option activity for the three months ended March 31, 20182019 is presented below (in thousands, except per share data and contractual term):
|
|
|
|
|
| Weighted - |
|
| Weighted - |
|
|
|
|
| ||
|
|
|
|
| Average |
|
| Average |
|
|
|
|
| |||
|
|
|
|
|
| Exercise |
|
| Remaining |
|
| Aggregate |
| |||
|
| Number |
|
| Price Per |
|
| Contractual |
|
| Intrinsic |
| ||||
|
| of Shares |
|
| Share |
|
| Term (in years) |
|
| Value |
| ||||
Outstanding at December 31, 2017 |
|
| 937 |
|
| $ | 35.10 |
|
|
|
|
|
|
|
|
|
Granted |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (50 | ) |
|
| 33.31 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (12 | ) |
|
| 35.02 |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2018 |
|
| 875 |
|
| $ | 35.21 |
|
|
| 5.75 |
|
| $ | 5,465 |
|
Exercisable at March 31, 2018 |
|
| 625 |
|
| $ | 35.17 |
|
|
| 5.16 |
|
| $ | 3,924 |
|
Vested and expected to vest at March 31, 2018 |
|
| 875 |
|
| $ | 35.21 |
|
|
| 5.75 |
|
| $ | 5,465 |
|
|
|
|
|
|
| Weighted - |
|
| Weighted - |
|
|
|
|
| ||
|
|
|
|
|
| Average |
|
| Average |
|
|
|
|
| ||
|
|
|
|
|
| Exercise |
|
| Remaining |
|
| Aggregate |
| |||
|
| Number |
|
| Price Per |
|
| Contractual |
|
| Intrinsic |
| ||||
|
| of Shares |
|
| Share |
|
| Term (in years) |
|
| Value |
| ||||
Outstanding at December 31, 2018 |
|
| 583 |
|
| $ | 35.27 |
|
|
|
|
|
|
|
|
|
Granted |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (67 | ) |
|
| 34.99 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (1 | ) |
|
| 33.16 |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2019 |
|
| 515 |
|
| $ | 35.31 |
|
|
| 4.72 |
|
| $ | 6,721 |
|
Exercisable at March 31, 2019 |
|
| 438 |
|
| $ | 35.48 |
|
|
| 4.38 |
|
| $ | 5,639 |
|
Vested and expected to vest at March 31, 2019 |
|
| 515 |
|
| $ | 35.31 |
|
|
| 4.72 |
|
| $ | 6,721 |
|
Stock-Based Compensation
Forrester recognizes the fair value of stock-based compensation in net income (loss) over the requisite service period of the individual grantee, which generally equals the vesting period. Stock-based compensation was recorded in the following expense categories (in thousands):
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Cost of services and fulfillment |
| $ | 1,020 |
|
| $ | 1,197 |
|
| $ | 1,463 |
|
| $ | 1,020 |
|
Selling and marketing |
|
| 244 |
|
|
| 162 |
|
|
| 440 |
|
|
| 244 |
|
General and administrative |
|
| 699 |
|
|
| 690 |
|
|
| 782 |
|
|
| 699 |
|
Total |
| $ | 1,963 |
|
| $ | 2,049 |
|
| $ | 2,685 |
|
| $ | 1,963 |
|
Forrester utilizes the Black-Scholes valuation model for estimating the fair value of shares subject to purchase under the employee stock purchase plan, which were valued using the following assumptions:
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Average risk-free interest rate |
|
| 1.92 | % |
|
| 0.88 | % |
Expected dividend yield |
|
| 2.0 | % |
|
| 1.9 | % |
Expected life |
| 0.5 Years |
|
| 0.5 Years |
| ||
Expected volatility |
|
| 22 | % |
|
| 28 | % |
Weighted average fair value |
| $ | 8.49 |
|
| $ | 8.49 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Average risk-free interest rate |
|
| 2.51 | % |
|
| 1.92 | % |
Expected dividend yield |
|
| 0.0 | % |
|
| 2.0 | % |
Expected life |
| 0.5 Years |
|
| 0.5 Years |
| ||
Expected volatility |
|
| 34 | % |
|
| 22 | % |
Weighted average fair value |
| $ | 12.50 |
|
| $ | 8.49 |
|
Dividends
As a result of the acquisition of SiriusDecisions on January 3, 2019 and the related debt incurred to fund the acquisition, the Company suspended its dividend program in November 2018. Accordingly, the Company did not declare or pay any dividend in the three months ended March 31, 2019. In the three months ended March 31, 2018, the Company declared and paid a dividenddividends of $0.20 per share or $3.6 million in the aggregate. In the three months ended March 31, 2017, the Company declared and paid a dividend 0.19 or $3.5 million in the aggregate. In April 2018, the Company declared a dividend of $0.20 per share payable on June 27, 2018 to shareholders of record as of June 13, 2018.
As of March 31, 2018,2019, Forrester’s Board of Directors had authorized an aggregate $535.0 million to purchase common stock under its stock repurchase program including $50.0 million authorized in February 2018.program. The shares repurchased may be used, among other things, in connection with Forrester’s equity incentive and purchase plans. In the three months ended March 31, 2019, the Company did not repurchase any shares of common stock. In the three months ended March 31, 2018, the Company repurchased approximately 0.1 million shares of common stock at an aggregate cost of approximately $4.4 million. InFrom the three months endedinception of the program through March 31, 2017,2019, the Company repurchased approximately 0.616.3 million shares of common stock at an aggregate cost of approximately $21.5 million. From the inception of the program through March 31, 2018, the Company repurchased 16.2 million shares of common stock at an aggregate cost of $469.3$474.9 million.
Note 911 — Operating Segments
In conjunction with the acquisition of SiriusDecisions in the first quarter of 2019, the Company realigned its management structure into Products, Research and SiriusDecisions.
The ProductProducts segment includes the revenues of the Connect, Analytics, and Events products (excluding the revenues from SiriusDecisions products) and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes Consulting revenues from the project consulting organization that is included in this segment. The project consulting organization delivers a majority of the Company’s project consulting revenue (excluding SiriusDecisions consulting) and certain advisory services primarily related to the Analytics product line. This segment also includes the costs of the product management organization that is responsible for product pricing and packaging and the launch of new products. In addition, this segment includes the costs of the Company’s Analytics, Connect and Events organizations. Revenue in this segment includes all revenue for the Company (including Research and Connect) except for revenue from advisory services and project consulting services that are delivered by personnel in the Research and Project Consulting segments.
The Research segment includes the costsrevenues of the Company’s research personnel who areResearch products and the cost of the organizations responsible for writingdeveloping and delivering the researchResearch products (excluding the costs and performing the webinars and inquiries for the Company’s Research and Connect products.revenues from SiriusDecisions products). In addition, this segment includes Consulting revenues primarily from the research personnel deliverdelivery of advisory services (such as workshops, speeches and advisory days) and a portion of the Company’s project consulting services. Revenue in this segment includes only revenue from advisory services and project consulting services that are delivered by the Company’s research personnel in this segment.analysts.
The Project ConsultingSiriusDecisions segment includes the revenues of the legacy SiriusDecisions products and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes the costs of the consultants that deliver the majoritymarketing, technology development and business support departments of the Company’s project consulting services. Revenue in this segment includes the project consulting revenue delivered by the consultants in this segment.legacy SiriusDecisions business.
The Company evaluates reportable segment performance and allocates resources based on segment revenues and expenses. Segment expenses include the direct expenses of each segment organization and exclude, except as noted above for the SiriusDecisions segment, selling and marketing expenses, general and administrative expenses, stock-based compensation expense, depreciation expense, adjustments to incentive bonus compensation from target amounts, amortization of intangible assets, interest and other income (expense)expense, and losses on investments. The accounting policies used by the segments are the same as those used in the consolidated financial statements.
The Company is providing disaggregated revenue by product in the segment tables below in accordance with(in thousands). The 2018 amounts have been reclassified to conform to the revenue standard adopted on January 1, 2018.current presentation.
|
| Products |
|
| Research |
|
| SiriusDecisions |
|
| Consolidated |
| ||||
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | — |
|
| $ | 36,437 |
|
| $ | 13,343 |
|
| $ | 49,780 |
|
Connect |
|
| 13,115 |
|
|
| — |
|
|
| 456 |
|
|
| 13,571 |
|
Analytics |
|
| 5,258 |
|
|
| — |
|
|
| — |
|
|
| 5,258 |
|
Total research services revenues |
|
| 18,373 |
|
|
| 36,437 |
|
|
| 13,799 |
|
|
| 68,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services and events revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 17,837 |
|
|
| 12,768 |
|
|
| 1,182 |
|
|
| 31,787 |
|
Events |
|
| 27 |
|
|
| — |
|
|
| 226 |
|
|
| 253 |
|
Total advisory services and events revenues |
|
| 17,864 |
|
|
| 12,768 |
|
|
| 1,408 |
|
|
| 32,040 |
|
Total segment revenues |
|
| 36,237 |
|
|
| 49,205 |
|
|
| 15,207 |
|
|
| 100,649 |
|
Segment expenses |
|
| 18,177 |
|
|
| 14,029 |
|
|
| 9,410 |
|
|
| 41,616 |
|
Contribution margin |
|
| 18,060 |
|
|
| 35,176 |
|
|
| 5,797 |
|
|
| 59,033 |
|
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (60,740 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6,210 | ) |
Acquisition and integration costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,967 | ) |
Interest and other expense and loss on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,658 | ) |
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (13,542 | ) |
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
| |||||||||||||||||
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
|
| Products |
|
| Research |
|
| SiriusDecisions |
|
| Consolidated |
| ||||||||
Three Months Ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | 34,643 |
|
| $ | — |
|
| $ | — |
|
| $ | 34,643 |
|
| $ | — |
|
| $ | 34,643 |
|
| $ | — |
|
| $ | 34,643 |
|
Connect |
|
| 12,564 |
|
|
| — |
|
|
| — |
|
|
| 12,564 |
|
|
| 12,564 |
|
|
| — |
|
|
| — |
|
|
| 12,564 |
|
Analytics |
|
| 4,493 |
|
|
| — |
|
|
| — |
|
|
| 4,493 |
|
|
| 4,493 |
|
|
| — |
|
|
| — |
|
|
| 4,493 |
|
Total research services revenues |
|
| 51,700 |
|
|
| — |
|
|
| — |
|
|
| 51,700 |
|
|
| 17,057 |
|
|
| 34,643 |
|
|
| — |
|
|
| 51,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services and events revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services |
|
| — |
|
|
| 9,480 |
|
|
| 34 |
|
|
| 9,514 |
| ||||||||||||||||
Consulting services |
|
| — |
|
|
| 2,162 |
|
|
| 12,409 |
|
|
| 14,571 |
| ||||||||||||||||
Consulting |
|
| 14,407 |
|
|
| 11,642 |
|
|
| — |
|
|
| 26,049 |
| ||||||||||||||||
Events |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Analytics services |
|
| 1,964 |
|
|
| — |
|
|
| — |
|
|
| 1,964 |
| ||||||||||||||||
Total advisory services and events revenues |
|
| 1,964 |
|
|
| 11,642 |
|
|
| 12,443 |
|
|
| 26,049 |
|
|
| 14,407 |
|
|
| 11,642 |
|
|
| — |
|
|
| 26,049 |
|
Total segment revenues |
|
| 53,664 |
|
|
| 11,642 |
|
|
| 12,443 |
|
|
| 77,749 |
|
|
| 31,464 |
|
|
| 46,285 |
|
|
| — |
|
|
| 77,749 |
|
Segment expenses |
|
| 10,117 |
|
|
| 12,713 |
|
|
| 6,864 |
|
|
| 29,694 |
|
|
| 16,056 |
|
|
| 13,411 |
|
|
| — |
|
|
| 29,467 |
|
Contribution margin (loss) |
|
| 43,547 |
|
|
| (1,071 | ) |
|
| 5,579 |
|
|
| 48,055 |
| ||||||||||||||||
Contribution margin |
|
| 15,408 |
|
|
| 32,874 |
|
|
| — |
|
|
| 48,282 |
| ||||||||||||||||
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (50,157 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (50,384 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (186 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (186 | ) |
Other income (expense) and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (143 | ) | ||||||||||||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (2,431 | ) | ||||||||||||||||
Acquisition and integration costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||||||||||||||
Other expense and loss on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (143 | ) | ||||||||||||||||
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (2,431 | ) |
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
| |
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
| ||||
Three Months Ended March 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | 35,524 |
|
| $ | — |
|
| $ | — |
|
| $ | 35,524 |
|
Connect |
|
| 11,637 |
|
|
| — |
|
|
| — |
|
|
| 11,637 |
|
Analytics |
|
| 4,582 |
|
|
| — |
|
|
| — |
|
|
| 4,582 |
|
Total research services revenues |
|
| 51,743 |
|
|
| — |
|
|
| — |
|
|
| 51,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services and events revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services |
|
| — |
|
|
| 8,536 |
|
|
| 77 |
|
|
| 8,613 |
|
Consulting services |
|
| — |
|
|
| 1,957 |
|
|
| 12,380 |
|
|
| 14,337 |
|
Events |
|
| 80 |
|
|
| — |
|
|
| — |
|
|
| 80 |
|
Analytics services |
|
| 2,421 |
|
|
| — |
|
|
| — |
|
|
| 2,421 |
|
Total advisory services and events revenues |
|
| 2,501 |
|
|
| 10,493 |
|
|
| 12,457 |
|
|
| 25,451 |
|
Total segment revenues |
|
| 54,244 |
|
|
| 10,493 |
|
|
| 12,457 |
|
|
| 77,194 |
|
Segment expenses |
|
| 9,227 |
|
|
| 12,143 |
|
|
| 5,854 |
|
|
| 27,224 |
|
Contribution margin (loss) |
|
| 45,017 |
|
|
| (1,650 | ) |
|
| 6,603 |
|
|
| 49,970 |
|
Selling, marketing, administrative and other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (46,643 | ) |
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (191 | ) |
Other income (expense) and losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (194 | ) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,942 |
|
Note 1012 — Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The adoption of this standard is expected to have a material impact on the Company’s financial position as virtually all leases will be recorded on the balance sheets as a right-of-
use asset and a lease liability. The Company is currently evaluating the potential impact that this standard may have on its results of operations.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The new standard amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The new standard will be effective for the Company on January 1, 2020. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment. 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 new standard will be effective for the Company on January 1, 2020. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The standard includes changes to fair value transfers and Level 3 fair value disclosures. The new standard will be effective for the Company on January 1, 2020. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.
In August 2018, the FASB issued 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. 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 new standard will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact that this standard may have on its financial position and results of operations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions are intended to identify these forward-looking statements. Reference is made in particular to our statements about possible acquisitions, future dividends, future share repurchases, future growth rates and operating income, future compliance with financial covenants under our plans forcredit facility, anticipated increases in, and productivity of, our sales force and headcount, future growth rates, future tax rates, future operating cash flows, future dividends, future share repurchaseschanges to our customer engagement model, and the adequacy of our cash marketable investments and cash flows to satisfy our working capital and capital expenditures. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual future activities and results to differ include, among others, our ability to retain and enrich memberships for our research, connect and analytics services, our ability to fulfill existing or generate new project consulting engagements, our ability to realize anticipated benefits from internal reorganizations,integrate the operations of acquired companies, the impact of our outstanding debt, the impact of our evolving customer engagement model, technology spending, the risks and challenges inherent in international business activities including any impact of Brexit, our ability to offer new products and services, our dependence on key personnel, the ability to attract and retain qualified professional staff, our ability to respond to business and economic conditions and market trends, the possibility of network disruptions and security breaches, competition and industry consolidation, our ability to enforce and protect our intellectual property rights, compliance with privacy laws, possible variations in our quarterly operating results, taxation risks, concentration of our stock ownership and any weakness identified in our system of internal controls. These risks are described more completely in our Annual Report on Form 10-K for the year ended December 31, 2017.2018. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
We derive revenues from memberships of our Research, Connect and Analytics products and services, performing advisoryConsulting services and consulting projects, and hosting Events. We offer contracts for our Research, Connect and Analytics products that are typically renewable annually and payable in advance. Membership revenues are recognized as revenue ratably over the term of the contract. Accordingly, a substantial portion of our billings are initially recorded as deferred revenue. Clients purchase Consulting services (includes advisory services and consulting projects) independently and/or to supplement their memberships to our subscription-based products. Billings attributable to advisory services and consulting projects are initially recorded as deferred revenue. Advisory services revenues, such as workshops, speeches and advisory days, are recognized when the customer receives the agreed upon deliverable. Consulting project revenues, which generally are short-term in nature and based upon fixed-fee agreements, are recognized as the services are provided. Event billings are also initially recorded as deferred revenue and are recognized as revenue upon completion of each Event.
Our primary operating expenses consist of cost of services and fulfillment, selling and marketing expenses and general and administrative expenses. Cost of services and fulfillment represents the costs associated with the production and delivery of our products and services, including salaries, bonuses, employee benefits and stock-based compensation expense for all personnel that produce and deliver our products and services, including all associated editorial, travel, and support services. Selling and marketing expenses include salaries, sales commissions, bonuses, employee benefits, stock-based compensation expense, travel expenses, promotional costs and other costs incurred in marketing and selling our products and services. General and administrative expenses include the costs of the technology, operations, finance, and human resources groups and our other administrative functions, including salaries, bonuses, employee benefits, and stock-based compensation expense. Overhead costs such as facilities and annual fees for cloud-based information technology systems are allocated to these categories according to the number of employees in each group.
In the first quarter of 2019, we modified our calculation of client retention, dollar retention, and enrichment in conjunction with a project to fully automate the calculations. Client retention has been expanded to include virtually all client relationships (except for clients that only purchase web-based products such as individual reports, workshops and Event tickets) in comparison to the prior calculation that included only clients that purchased membership-based products. Dollar retention and enrichment are now calculated at a client account level in comparison to a contract level in the prior calculation. This results in a broader view of dollar retention and enrichment as it includes virtually all products in the calculations (except for web-based products mentioned above) and captures all enrichment that occurs within the year for an account. We have provided the metrics under the new methodology for each quarter of 2018 in the table below.
|
| Q1 2018 |
|
| Q2 2018 |
|
| Q3 2018 |
|
| Q4 2018 |
| ||||
Client retention |
|
| 71 | % |
|
| 71 | % |
|
| 71 | % |
|
| 71 | % |
Dollar retention |
|
| 90 | % |
|
| 89 | % |
|
| 90 | % |
|
| 90 | % |
Enrichment |
|
| 110 | % |
|
| 107 | % |
|
| 109 | % |
|
| 109 | % |
Deferred revenue, agreement value, client retention, dollar retention, enrichment and number of clients are metrics that we believe are important to understanding our business. We believe that the amount of deferred revenue, along with the agreement value of contracts, to purchase research and advisory services, provide a significant measure of our business activity.
We define these metrics as follows:
Deferred revenue — billings in advance of revenue recognition as of the measurement date.
Agreement value — the total revenues recognizable from all contracts to purchase our services in force at a given time (but not including advisory-only(excluding contracts that consist solely of Consulting services and Eventsthe value of Event sponsorships included in all contracts), without regard to how much revenue has already been recognized.
Client retention — the percentage of client companies with memberships expiring during(defined as all clients except those that only purchase web-based products such as individual reports, workshops and Event tickets) at the most recent twelve-month periodprior year measurement date that renewed one or more of those memberships during that same period.have active contracts at the current year measurement date.
Dollar retention — the percentage of the total dollar value of client membershipcompanies’ active contracts expiring duringat the most recent twelve-month period, which are renewed in whole or in part, as a percentage ofprior year measurement date that have active contracts at the dollar value of all expiring client membership contracts during the same period.current year measurement date.
Enrichment — the percentage of the dollar value of client membershipcompanies’ active contracts renewed duringat the most recent twelve-month periodcurrent year measurement date compared to the dollar value of the corresponding expiring contracts.client companies’ active contracts at the prior year measurement date.
Clients — we aggregate the various divisions and subsidiaries of a corporate parent as a single client and we also aggregate separate instrumentalities of the federal, state, and provincial governments as a single client. We have historically included only clients that purchased membership-based products in our definition of clients. We plan to reassess this definition during the second quarter of 2019.
Client retention, dollar retention, and enrichment are not necessarily indicative of the rate of future retention of our revenue base. A summary of our key metrics is as follows (dollars in millions):
|
| As of |
|
| Absolute |
|
| Percentage |
|
| As of |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| March 31, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2018 |
|
| 2017 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Deferred revenue |
| $ | 155.4 |
|
| $ | 156.3 |
|
| $ | (0.9 | ) |
|
| (1 | %) |
| $ | 191.6 |
|
| $ | 155.4 |
|
| $ | 36.2 |
|
|
| 23 | % |
Agreement value |
| $ | 246.4 |
|
| $ | 236.6 |
|
| $ | 9.8 |
|
|
| 4 | % |
| $ | 345.3 |
|
| $ | 246.4 |
|
| $ | 98.9 |
|
|
| 40 | % |
Client retention |
|
| 75 | % |
|
| 74 | % |
|
| 1 |
|
|
| 1 | % |
|
| 72 | % |
|
| 71 | % |
|
| 1 |
|
|
| 1 | % |
Dollar retention |
|
| 88 | % |
|
| 87 | % |
|
| 1 |
|
|
| 1 | % |
|
| 90 | % |
|
| 90 | % |
|
| — |
|
|
| — |
|
Enrichment |
|
| 98 | % |
|
| 94 | % |
|
| 4 |
|
|
| 4 | % |
|
| 106 | % |
|
| 110 | % |
|
| (4 | ) |
|
| (4 | %) |
Number of clients |
|
| 2,349 |
|
|
| 2,427 |
|
|
| (78 | ) |
|
| (3 | %) |
|
| 2,850 |
|
|
| 2,349 |
|
|
| 501 |
|
|
| 21 | % |
Agreement value and number of clients include the effect of SiriusDecisions, but retention and enrichment metrics will not be similarly affected until the first quarter of 2020.
Deferred revenue at March 31, 2018 decreased 1%2019 increased 23% compared to the prior year and decreased 2% after adjusting for the effect of foreign currency fluctuations. The decrease in deferred revenue resulted from the implementation of the new revenue standard in the first quarter of 2018 that resulted in a 7% reduction in deferred revenue at March 31, 2018 comparedprimarily due to the prior year.acquisition of SiriusDecisions. Excluding the effect of the new revenue standard and foreign currency,SiriusDecisions, deferred revenue would have increased approximately 5%3% as contract billings exceeded revenue for the period. Agreement value increased 4%40% at March 31, 20182019 compared to the prior year with approximately 28 percentage points of growth due to the acquisition of SiriusDecisions and foreign currency had an insignificant effect. The increase in agreement value wasthe remainder due to both an increase in contract bookings and increased bundling of consultingConsulting services with our Research and Connect products in our contracts. Client retention rate and dollar retention rate both increased 1 percentage point compared to the prior year period however client retention declined 1 percentage point fromwith both the prior quarter and dollarwith the prior year period. Dollar retention rate was flat with both the prior quarter.quarter and the prior year period. Enrichment rate increaseddecreased 4 percentage points compared to the prior year and increased 23 percentage points compared to the prior quarter.quarter period.
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our policies and estimates, including but not limited to, those related to our revenue recognition, non-marketable investments, goodwill and other intangible assets, and income taxes. Management bases its estimates on historical experience, data available at the time the estimates are made and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions. Our other critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.
The following table sets forth our statement of income (loss)operations as a percentage of total revenues for the periods indicated:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services |
|
| 66.5 | % |
|
| 67.0 | % |
|
| 68.2 | % |
|
| 66.5 | % |
Advisory services and events |
|
| 33.5 |
|
|
| 33.0 |
|
|
| 31.8 |
|
|
| 33.5 |
|
Total revenues |
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and fulfillment |
|
| 43.9 |
|
|
| 40.7 |
|
|
| 44.8 |
|
|
| 43.9 |
|
Selling and marketing |
|
| 42.5 |
|
|
| 39.7 |
|
|
| 41.8 |
|
|
| 42.5 |
|
General and administrative |
|
| 13.8 |
|
|
| 13.2 |
|
|
| 13.1 |
|
|
| 13.8 |
|
Depreciation |
|
| 2.5 |
|
|
| 2.1 |
|
|
| 2.0 |
|
|
| 2.5 |
|
Amortization of intangible assets |
|
| 0.2 |
|
|
| 0.2 |
|
|
| 6.2 |
|
|
| 0.2 |
|
Income (loss) from operations |
|
| (2.9 | ) |
|
| 4.1 |
| ||||||||
Other income (expense), net |
|
| (0.2 | ) |
|
| — |
| ||||||||
Acquisition and integration costs |
|
| 2.9 |
|
|
| — |
| ||||||||
Loss from operations |
|
| (10.8 | ) |
|
| (2.9 | ) | ||||||||
Interest expense |
|
| (2.3 | ) |
|
| — |
| ||||||||
Other expense, net |
|
| (0.3 | ) |
|
| (0.2 | ) | ||||||||
Losses on investments, net |
|
| — |
|
|
| (0.3 | ) |
|
| — |
|
|
| — |
|
Income (loss) before income taxes |
|
| (3.1 | ) |
|
| 3.8 |
| ||||||||
Loss before income taxes |
|
| (13.5 | ) |
|
| (3.1 | ) | ||||||||
Income tax benefit |
|
| (0.9 | ) |
|
| (0.1 | ) |
|
| (0.3 | ) |
|
| (0.9 | ) |
Net income (loss) |
|
| (2.2 | %) |
|
| 3.9 | % | ||||||||
Net loss |
|
| (13.2 | %) |
|
| (2.2 | %) |
Three Months Ended March 31, 20182019 and 20172018
Revenues
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| March 31, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2018 |
|
| 2017 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
| |||||
Revenues |
| $ | 77.7 |
|
| $ | 77.2 |
|
| $ | 0.5 |
|
|
| 1 | % |
Revenues from research services |
| $ | 51.7 |
|
| $ | 51.7 |
|
| $ | — |
|
|
| — |
|
Revenues from advisory services and events |
| $ | 26.0 |
|
| $ | 25.5 |
|
| $ | 0.5 |
|
|
| 2 | % |
Revenues attributable to customers outside of the U.S. |
| $ | 18.8 |
|
| $ | 16.8 |
|
| $ | 2.0 |
|
|
| 12 | % |
Percentage of revenue attributable to customers outside of the U.S. |
|
| 24 | % |
|
| 22 | % |
|
| 2 |
|
|
| 9 | % |
Number of events |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| March 31, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
| |||||
Revenues |
| $ | 100.6 |
|
| $ | 77.7 |
|
| $ | 22.9 |
|
|
| 29 | % |
Revenues from research services |
| $ | 68.6 |
|
| $ | 51.7 |
|
| $ | 16.9 |
|
|
| 33 | % |
Revenues from advisory services and events |
| $ | 32.0 |
|
| $ | 26.0 |
|
| $ | 6.0 |
|
|
| 23 | % |
Revenues attributable to customers outside of the U.S. |
| $ | 22.4 |
|
| $ | 18.8 |
|
| $ | 3.6 |
|
|
| 19 | % |
Percentage of revenue attributable to customers outside of the U.S. |
|
| 21 | % |
|
| 24 | % |
|
| (3 | ) |
|
| (13 | %) |
Number of events |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| 100 | % |
Total revenues increased 1%29% during the three months ended March 31, 20182019 compared to the prior year period. After adjusting forperiod, with SiriusDecisions contributing $15.2 million or 19.5% of the effect of foreign currency fluctuations, revenues decreased 1%. Adjustments of $2.3 million resulting from new revenue guidance had the effect of reducing revenues by 3% compared to the prior year period. increase. Revenues from customers outside the U.S. increased 12%19% during the three months ended March 31, 20182019 compared to the prior year period and increased 4% after adjusting for the effects of foreign currency fluctuations. Revenues from customers outside of the U.S. represented 24% of total revenues for the three months ended March 31, 2018 and after adjusting for the effect of foreign currency fluctuations, represented 23% of total revenues compared to 22% in the prior year period.. The increase in the percentage of revenues attributable to customers outside of the U.S. during the three months ended March 31, 20182019 was principally due to an increasethe acquisition of SiriusDecisions, which added $2.5 million in international revenue, and growth in revenues in Canada and the Asia Pacific region.region in the legacy Forrester business.
Research services revenues are recognized as revenue primarily on a ratable basis over the term of the contracts, which are generally twelve-month periods. Research services revenues were essentially flatincreased 33% during the three months ended March 31, 20182019 compared to the prior year period, and after adjusting forwith SiriusDecisions contributing $13.8 million or 27% of the effectincrease. The remainder of foreign currency fluctuations, decreased 2%. A decrease in revenues for our Research and Analytics productsthe increase was essentially offsetprimarily driven by an increase in revenuesdemand for our Connectthe legacy Forrester Research products. Adjustments of $1.7 million resulting from new revenue guidance had the effect of reducing research services revenue by 3% compared to the prior year period.
Revenues from advisory services and events increased 2%23% during the three months ended March 31, 20182019 compared to the prior year period, and increased 1% after adjusting forwith SiriusDecisions contributing $1.4 million or 5% of the effectincrease. The remainder of foreign currency fluctuations. Thethe increase in revenues for the three months
ended March 31, 2018 was principally due to increases in both advisory and consulting revenues, that was partially offset by a decline in Analytics servicesstrong delivery of legacy Forrester Consulting revenues. Adjustments of $0.5 million resulting from new revenue guidance had the effect of reducing advisory services and events revenue by 2% compared to the prior year period.
Please refer to the “Segments Results” section below for a discussion of revenues and expenses by segment.
Cost of Services and Fulfillment
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| March 31, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2018 |
|
| 2017 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Cost of services and fulfillment (dollars in millions) |
| $ | 34.1 |
|
| $ | 31.4 |
|
| $ | 2.7 |
|
|
| 9 | % |
| $ | 45.1 |
|
| $ | 34.1 |
|
| $ | 11.0 |
|
|
| 32 | % |
Cost of services and fulfillment as a percentage of total revenues |
|
| 43.9 | % |
|
| 40.7 | % |
|
| 3.2 |
|
|
| 8 | % |
|
| 44.8 | % |
|
| 43.9 | % |
|
| 0.9 |
|
|
| 2 | % |
Service and fulfillment employees (at end of period) |
|
| 610 |
|
|
| 595 |
|
|
| 15 |
|
|
| 3 | % |
|
| 754 |
|
|
| 610 |
|
|
| 144 |
|
|
| 24 | % |
Cost of services and fulfillment expenses increased 9%32% during the three months ended March 31, 20182019 compared to the prior year period and after adjusting forperiod. Approximately $8.0 million of the effectincrease was attributable to the acquisition of foreign currency fluctuations, increased 6%.SiriusDecisions. The $3.0 million increase in dollarsattributable to legacy Forrester activity was primarily due to (1) a $1.7$1.3 million increase in compensation and benefit costs, resulting principally from an increase in employees compared to the prior year period and annual merit increases, (2) a $0.7$0.5 million increase in professional services costs primarily due to an increase in outsourced fees related to consulting projects delivered, an increase in fees related to the deliveryoutsourcing of reprintsservices performed on our digital reprint platform,revenue contracts, (3) a $0.4 million increase in travel and an increase in costs for the digitization of our Analytics products,entertainment expenses, and (3)(4) a $0.3$0.4 million increase in facilities and software services costs.stock compensation expense.
Selling and Marketing
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| March 31, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2018 |
|
| 2017 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
Selling and marketing expenses (dollars in millions) |
| $ | 33.0 |
|
| $ | 30.6 |
|
| $ | 2.4 |
|
|
| 8 | % |
Selling and marketing expenses as a percentage of total revenues |
|
| 42.5 | % |
|
| 39.7 | % |
|
| 2.8 |
|
|
| 7 | % |
Selling and marketing employees (at end of period) |
|
| 577 |
|
|
| 588 |
|
|
| (11 | ) |
|
| (2 | %) |
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
Selling and marketing expenses (dollars in millions) |
| $ | 42.0 |
|
| $ | 33.0 |
|
| $ | 9.0 |
|
|
| 27 | % |
Selling and marketing expenses as a percentage of total revenues |
|
| 41.8 | % |
|
| 42.5 | % |
|
| (0.7 | ) |
|
| (2 | %) |
Selling and marketing employees (at end of period) |
|
| 739 |
|
|
| 577 |
|
|
| 162 |
|
|
| 28 | % |
Selling and marketing expenses increased 8%27% during the three months ended March 31, 20182019 compared to the prior year period and after adjusting forperiod. Approximately $8.4 million of the effectincrease was attributable to the acquisition of foreign currency fluctuations, increased 6%.SiriusDecisions. The $0.6 million increase in dollarsattributable to legacy Forrester activity was primarily due to (1) a $1.1 million increase in compensation and benefit costs due to an increase in the average cost per employee and annual merit increases, (2) a $0.5 million increase in travel and entertainment expenses.
General and Administrative
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| March 31, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
General and administrative expenses (dollars in millions) |
| $ | 13.2 |
|
| $ | 10.7 |
|
| $ | 2.5 |
|
|
| 23 | % |
General and administrative expenses as a percentage of total revenues |
|
| 13.1 | % |
|
| 13.8 | % |
|
| (0.7 | ) |
|
| (5 | %) |
General and administrative employees (at end of period) |
|
| 247 |
|
|
| 192 |
|
|
| 55 |
|
|
| 29 | % |
General and administrative expenses increased 23% during the three months ended March 31, 2019 compared to the prior year period. Approximately $2.1 million of the increase was attributable to the acquisition of SiriusDecisions. The $0.4 million increase attributable to legacy Forrester activity was primarily resulting from an increase in expense for our annual sales conference, and (3)due to multiple small increases including an increase in the allowance for doubtful accounts,compensation and benefits costs resulting principally from an increase in facilities and software services costs and an increase in professional services costs.
Subject to the business environment, we expect our sales headcount growth to be flat to low single digits in 2018 as compared to the year ended December 31, 2017.
General and Administrative
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| |||||||
|
| March 31, |
|
| Increase |
|
| Increase |
| |||||||
|
| 2018 |
|
| 2017 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
General and administrative expenses (dollars in millions) |
| $ | 10.7 |
|
| $ | 10.2 |
|
| $ | 0.5 |
|
|
| 6 | % |
General and administrative expenses as a percentage of total revenues |
|
| 13.8 | % |
|
| 13.2 | % |
|
| 0.6 |
|
|
| 5 | % |
General and administrative employees (at end of period) |
|
| 192 |
|
|
| 192 |
|
|
| — |
|
|
| — |
|
General and administrative expenses increased 6% during the three months ended March 31, 2018employees compared to the prior year period and after adjusting for the effect of foreign currency fluctuations, increased 3%. Thean increase in dollars was primarily due to a $0.4 million increase in compensationprofessional and benefits costs resulting from annual merit increases.
Depreciationsubscription services costs.
Depreciation expense increased by $0.3 million during the three months ended March 31, 2018 compared to the prior year period primarily due to additional software assets being put into service.
Amortization of Intangible Assets
AmortizationDepreciation expense remained essentially consistent during the three months ended March 31, 20182019 compared to the prior year period.
Other Income (Expense), Net
Amortization of Intangible Assets
Other income (expense), net primarily consists of interest income on our investments as well as gains and losses on foreign currency. The decrease in other income (expense), net of $0.1Amortization expense increased by $6.0 million during the three months ended March 31, 20182019 compared to the prior year period due to our recent acquisitions.
Acquisition and Integration Costs
During the three months ended March 31, 2019, we incurred $3.0 million of acquisition and integration costs. The costs consist of the direct and incremental costs to acquire and integrate the companies as well as certain fair value adjustments related to the acquisitions. The charges primarily consisted of consulting, severance, accounting and tax professional fees, and valuation services. These charges were partially offset by a $1.1 million decrease due to recording deferred commissions for SiriusDecisions as the result of adopting ASC 606. We expect to incur acquisition and integration costs in a range of $6.5 million to $7.5 million for the year ending December 31, 2019.
Interest Expense
During the three months ended March 31, 2019, we incurred $2.4 million of interest expense. Interest expense consists of interest on our borrowings used to finance the acquisition of SiriusDecisions.
Other Expense, Net
Other expense, net primarily consists of losses on foreign currency partially offset by interest income. The increase in other expense, net of $0.2 million during the three months ended March 31, 2019 compared to the prior year period was primarily due to an increasea decrease in foreign currency losses.
interest income.
Losses on Investments, Net
Losses on investments, net primarily represents our share of equity method investment gains and losses from our technology-related investment funds. The decrease in investment lossesLosses on investments, net remained essentially consistent during the three months ended March 31, 2018 was due to a decrease in investment losses incurred by the underlying funds as2019 compared to the prior year periods.period.
Income Tax Benefit
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
|
| Three Months Ended |
|
| Absolute |
|
| Percentage |
| ||||||||||||||
|
| March 31, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||||
|
| 2018 |
|
| 2017 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Income tax benefit (dollars in millions) |
| $ | 0.7 |
|
| $ | 0.1 |
|
| $ | 0.6 |
|
|
| 693 | % |
| $ | (0.2 | ) |
| $ | (0.7 | ) |
| $ | (0.5 | ) |
|
| (71 | %) |
Effective tax rate |
|
| 28.7 | % |
|
| (3.0 | %) |
|
| 31.7 |
|
|
| (1,060 | %) |
|
| 1.7 | % |
|
| 28.7 | % |
|
| (27.0 | ) |
|
| (94 | %) |
Income tax benefit for the three months ended March 31, 2018 was $0.7 million resulting in an effective tax rate of 28.7% for the period. The increase in the effective tax rate during the three months ended March 31, 2018 compared2019 includes a discrete tax expense of $0.6 million due to a settlement with U.S. Competent Authority during the prior year period was due primarily to the recognition of a $1.3 million benefit from the settlement of a tax audit in the first quarter of 2017. period. For the full year 2018,2019, we anticipate that our effective tax rate will be approximately 31%.5% due to a projected pretax loss for the year.
In July 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. The opinion invalidated part of a treasury regulation requiring stock-based compensation to be included in any qualified intercompany cost-sharing arrangement. We previously recorded a tax benefit based on the opinion in the case. Currently the U.S. Court of Appeals for the Ninth Circuit is reviewing the case and a final decision is yet to be issued. We will continue to monitor ongoing developments and potential impacts to our consolidated financial statements.
Segment Results
In conjunction with the acquisition of SiriusDecisions in the first quarter of 2019, we realigned our management structure into Products, Research and SiriusDecisions. Prior year amounts have been reclassified to conform to the current presentation.
The ProductProducts segment includes the revenues of the Connect, Analytics, and Events products (excluding the revenues from SiriusDecisions products) and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes Consulting revenues from the project consulting organization that is included in this segment. The project consulting organization delivers a majority of our project consulting revenue (excluding SiriusDecisions consulting) and certain advisory services primarily related to the Analytics product line. This segment also includes the costs of the product management organization that is responsible for product pricing and packaging and the launch of new products.
The Research segment includes the revenues of the Research products and the cost of the organizations responsible for developing and delivering the Research products (excluding the costs and revenues from SiriusDecisions products). In addition, this segment includes
Consulting revenues primarily from the delivery of advisory services (such as workshops, speeches and advisory days) delivered by our research analysts.
The SiriusDecisions segment includes the revenues of the legacy SiriusDecisions products and the costs of the organizations responsible for developing and delivering these products. In addition, this segment includes the costs of our Analytics, Connectmarketing, technology development and Events organizations. Revenue in this segment includes all of our revenue (including Research and Connect) except for revenue from advisory services and project consulting services that are delivered by personnel in the Research and Project Consulting segments.
The Research segment includes the costs of our research personnel who are responsible for writing the research and performing the webinars and inquiries for our Research and Connect products. In addition, the research personnel deliver advisory services (such as workshops, speeches and advisory days) and a portion of our project consulting services. Revenue in this segment includes only revenue from advisory services and project consulting services that are delivered by the research personnel in this segment.
The Project Consulting segment includes the costsbusiness support departments of the consultants that deliver the majority of our project consulting services. Revenue in this segment includes the project consulting revenue delivered by the consultants in this segment.legacy SiriusDecisions business.
We evaluate reportable segment performance and allocate resources based on segment revenues and expenses. Segment expenses include the direct expenses of each segment organization and exclude, except as noted above for the SiriusDecisions segment, selling and marketing expenses, general and administrative expenses, stock-based compensation expense, depreciation expense, adjustments to incentive bonus compensation from target amounts, amortization of intangible assets, interest and other income (expense)expense, and losses on investments. The accounting policies used by the segments are the same as those used in the consolidated financial statements.
|
| Products |
|
| Research |
|
| SiriusDecisions |
|
| Consolidated |
| ||||
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | — |
|
| $ | 36,437 |
|
| $ | 13,343 |
|
| $ | 49,780 |
|
Connect |
|
| 13,115 |
|
|
| — |
|
|
| 456 |
|
|
| 13,571 |
|
Analytics |
|
| 5,258 |
|
|
| — |
|
|
| — |
|
|
| 5,258 |
|
Total research services revenues |
|
| 18,373 |
|
|
| 36,437 |
|
|
| 13,799 |
|
|
| 68,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services and events revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
| 17,837 |
|
|
| 12,768 |
|
|
| 1,182 |
|
|
| 31,787 |
|
Events |
|
| 27 |
|
|
| — |
|
|
| 226 |
|
|
| 253 |
|
Total advisory services and events revenues |
|
| 17,864 |
|
|
| 12,768 |
|
|
| 1,408 |
|
|
| 32,040 |
|
Total segment revenues |
|
| 36,237 |
|
|
| 49,205 |
|
|
| 15,207 |
|
|
| 100,649 |
|
Segment expenses |
|
| 18,177 |
|
|
| 14,029 |
|
|
| 9,410 |
|
|
| 41,616 |
|
Contribution margin |
|
| 18,060 |
|
|
| 35,176 |
|
|
| 5,797 |
|
|
| 59,033 |
|
Year over year revenue change |
|
| 15 | % |
|
| 6 | % |
| N/A |
|
|
| 29 | % | |
Year over year expense change |
|
| 13 | % |
|
| 5 | % |
| N/A |
|
|
| 41 | % |
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
| ||
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
| ||||
Three Months Ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | 34,643 |
|
| $ | — |
|
| $ | — |
|
| $ | 34,643 |
|
Connect |
|
| 12,564 |
|
|
| — |
|
|
| — |
|
|
| 12,564 |
|
Analytics |
|
| 4,493 |
|
|
| — |
|
|
| — |
|
|
| 4,493 |
|
Total research services revenues |
|
| 51,700 |
|
|
| — |
|
|
| — |
|
|
| 51,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services and events revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services |
|
| — |
|
|
| 9,480 |
|
|
| 34 |
|
|
| 9,514 |
|
Consulting services |
|
| — |
|
|
| 2,162 |
|
|
| 12,409 |
|
|
| 14,571 |
|
Events |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Analytics services |
|
| 1,964 |
|
|
| — |
|
|
| — |
|
|
| 1,964 |
|
Total advisory services and events revenues |
|
| 1,964 |
|
|
| 11,642 |
|
|
| 12,443 |
|
|
| 26,049 |
|
Total segment revenues |
|
| 53,664 |
|
|
| 11,642 |
|
|
| 12,443 |
|
|
| 77,749 |
|
Segment expenses |
|
| 10,117 |
|
|
| 12,713 |
|
|
| 6,864 |
|
|
| 29,694 |
|
Contribution margin (loss) |
|
| 43,547 |
|
|
| (1,071 | ) |
|
| 5,579 |
|
|
| 48,055 |
|
Year over year revenue change |
|
| (1 | %) |
|
| 11 | % |
|
| — |
|
|
| 1 | % |
Year over year expense change |
|
| 10 | % |
|
| 5 | % |
|
| 17 | % |
|
| 9 | % |
|
|
|
|
|
|
|
|
|
| Project |
|
|
|
|
|
| Products |
|
| Research |
|
| SiriusDecisions |
|
| Consolidated |
| |||||
|
| Product |
|
| Research |
|
| Consulting |
|
| Consolidated |
| ||||||||||||||||||||
Three Months Ended March 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Three Months Ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Research services revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research |
| $ | 35,524 |
|
| $ | — |
|
| $ | — |
|
| $ | 35,524 |
|
| $ | — |
|
| $ | 34,643 |
|
| $ | — |
|
| $ | 34,643 |
|
Connect |
|
| 11,637 |
|
|
| — |
|
|
| — |
|
|
| 11,637 |
|
|
| 12,564 |
|
|
| — |
|
|
| — |
|
|
| 12,564 |
|
Analytics |
|
| 4,582 |
|
|
| — |
|
|
| — |
|
|
| 4,582 |
|
|
| 4,493 |
|
|
| — |
|
|
| — |
|
|
| 4,493 |
|
Total research services revenues |
|
| 51,743 |
|
|
| — |
|
|
| — |
|
|
| 51,743 |
|
|
| 17,057 |
|
|
| 34,643 |
|
|
| — |
|
|
| 51,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services and events revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services |
|
| — |
|
|
| 8,536 |
|
|
| 77 |
|
|
| 8,613 |
| ||||||||||||||||
Consulting services |
|
| — |
|
|
| 1,957 |
|
|
| 12,380 |
|
|
| 14,337 |
| ||||||||||||||||
Consulting |
|
| 14,407 |
|
|
| 11,642 |
|
|
| — |
|
|
| 26,049 |
| ||||||||||||||||
Events |
|
| 80 |
|
|
| — |
|
|
| — |
|
|
| 80 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Analytics services |
|
| 2,421 |
|
|
| — |
|
|
| — |
|
|
| 2,421 |
| ||||||||||||||||
Total advisory services and events revenues |
|
| 2,501 |
|
|
| 10,493 |
|
|
| 12,457 |
|
|
| 25,451 |
|
|
| 14,407 |
|
|
| 11,642 |
|
|
| — |
|
|
| 26,049 |
|
Total segment revenues |
|
| 54,244 |
|
|
| 10,493 |
|
|
| 12,457 |
|
|
| 77,194 |
|
|
| 31,464 |
|
|
| 46,285 |
|
|
| — |
|
|
| 77,749 |
|
Segment expenses |
|
| 9,227 |
|
|
| 12,143 |
|
|
| 5,854 |
|
|
| 27,224 |
|
|
| 16,056 |
|
|
| 13,411 |
|
|
| — |
|
|
| 29,467 |
|
Contribution margin (loss) |
|
| 45,017 |
|
|
| (1,650 | ) |
|
| 6,603 |
|
|
| 49,970 |
| ||||||||||||||||
Contribution margin |
|
| 15,408 |
|
|
| 32,874 |
|
|
| — |
|
|
| 48,282 |
|
Product segment revenues decreased 1%increased 15% during the three months ended March 31, 20182019 compared to the prior year period. Research servicesConnect revenues were essentially flatincreased 4% driven by our new learning product and Analytics revenues grew 17% due primarily to the FeedbackNow product line. Consulting revenues increased 24% driven by healthy backlog entering the quarter and higher utilization of our consultants. Product segment expenses increased 13% during the three months ended March 31, 2018 compared to the prior year period. A decrease in revenues for our Research and Analytics products was essentially offset by an increase in revenues for our Connect products. Adjustments of $1.7 million resulting from new revenue guidance had the effect of reducing research services revenue by 3% compared to the prior year period. Advisory services and events revenues, which is comprised of Analytics consulting and Events revenues in this segment, decreased 22% during the three months ended March 31, 2018 compared to the prior year period. The decrease in advisory services and events revenues during the three months ended March 31, 2018 was primarily due to a $0.5 million decrease in Analytics consulting revenues. Product segment expenses increased 10% during the three months ended March 31, 20182019 compared to the prior year period. The increase in expenses was primarily due to a $0.5$1.3 million increase in compensation and benefit costs due to an increase in the number of employees as well as a $0.4$0.5 million increase in professional servicesbillable expenses driven by an increase in fees related to the delivery of reprints on our digital reprint platform, and an increase in costs for the digitization of our Analytics products.
other travel and entertainment.
Research segment revenues increased 11%6% during the three months ended March 31, 20182019 compared to the prior year periodperiod. The Research product line increased 5% driven by an 11% increase in bothour reprint product and Consulting revenues increased 10% due to strong delivery of advisory services and consulting revenues.project consulting. Research segment expenses increased 5% during the three months ended March 31, 20182019 compared to the prior year period. The increase in expenses during the three months ended March 31, 2018 was primarily due to an increase in compensation and benefit costs, of $0.4 million compared to the prior year period.professional services, and travel and entertainment.
Project Consulting segment revenues remained essentially flat during the three months ended March 31, 2018 compared to the prior year period due primarily due to a slight decline in revenues from our content marketing group that was essentially offset by an slight increase in revenues from our strategic consulting group. Project Consulting expenses increased 17% during the three months ended March 31, 2018 compared to the prior year period. The increase in expenses during the three months ended March 31, 2018 was primarily due to an increase in compensation and benefit costs of $0.8 million compared to the prior year period.
Liquidity and Capital Resources
The amounts reported in our earnings release and Form 8-K filed on April 30, 2019 for cash generated from operating activities and cash used for acquisitions of $26.5 million and $(239.4) million, respectively, have been adjusted in this Form 10-Q to $26.0 million and $(238.9) million, respectively.
We have historically financed our operations primarily through funds generated from operations. Memberships for researchResearch services revenues, which constituted approximately 67%68% of our revenues during the three months ended March 31, 2018,2019, are generally renewable annually and are typically payable in advance. We generated cash from operating activities of $7.8$26.0 million and $19.5$7.8 million during the three months ended March 31, 20182019 and 2017,2018, respectively. The $11.7$18.2 million decreaseincrease in cash provided from operations for the three months ended March 31, 20182019 was primarily attributable to a $7.4$33.5 million decreaseincrease in cash generated from working capital, anddriven by (a) a $4.2$23.2 million decreaseincrease from accounts receivable in net income and the effect of non-cash items. The decrease in cash from working capital was primarilydeferred revenue due to increasesstrong bookings and collections activity in the current period and due to the prior period having lower than normal cash generation due to system changes implemented in the first quarter of 2018 which delayed client invoicing and (b) $7.6 million of lower cash used for accrued expenses resulting from the payout of year end incentive compensation as well as cash used for prepaids and other current assets due to early renewalsan increase of large contracts, the timing of benefit payments, and tax payments exceeding our current tax provision. We expect cash from operating activities to improve during the next three months compared to the comparable prior year period as accounts receivable is approximately $7$7.0 million higher at March 31, 2018 compared to March 31, 2017, resulting from a delayin accrued income taxes in the invoicingcurrent period (which partially offset the non-cash deferred tax expense of our clients at$10.5 million). These increases were partially offset by a $15.3 million decrease in net loss combined with the beginningeffect of non-cash items, which was due to a $10.5 million deferred tax expense recorded in the current year due to system modifications related to the adoption of the new revenue standard as of January 1, 2018. period and increased acquisition and integration costs.
During the three months ended March 31, 2019, we used cash in investing activities of $241.7 million, consisting primarily of $238.9 million for the acquisition of SiriusDecisions, net of cash acquired, and $2.8 million in purchases of property and equipment. Property and equipment purchases during 2019 consisted primarily of software and leasehold improvements. During the three months ended March 31, 2018, we used $1.4 million of cash from investing activities, consisting primarily of $1.3 million of purchases of property and equipment and $0.1 million in net purchases of marketable investments. Property and equipment purchases during 2018 consisted primarily of softwaresoftware.. During the three months ended March 31, 2017, we used $0.7 million of cash from investing activities, consisting primarily of $1.5 million of purchases of property and equipment partially offset by $0.7 million in net proceeds from sales and maturities of marketable investments. Property and equipment purchases during 2017 consisted primarily of computer equipment and software.
We used $5.5generated $151.4 million of cash from financing activities during the three months ended March 31, 20182019 primarily due to $171.3 million of borrowings, which reflects the face value of debt of $175.0 million less $3.7 million that was netted against the proceeds to pay debt issuance costs. This was partially offset by $21.6 million of repayments of debt during the quarter that consisted of $20.0 million of discretionary payments on our revolving credit facility and $1.6 million of required repayments of our term loan. We used $5.5 million of cash in financing activities during the three months ended March 31, 2018 primarily due to the use of $4.4 million for purchases of our common stock and and the payment of a $3.6 million quarterly dividend, at $0.20 per share, which were partially offset by $2.5 million of proceeds from the exercise of stock options and our employee stock purchase plan. We used $22.2 million of cash from financing activities during the three months endedAt March 31, 2017 primarily due2019, we had $30.0 million outstanding on our revolving credit facility and plan to $21.5 million for purchases ofuse excess cash flow, if any, to continue to make discretionary payments on our common stock and the payment of a $3.5 million quarterly dividend, at $0.19 per share, which was partially offset by $2.7 million of proceeds from the exercise of stock options and our employee stock purchase plan. revolving credit facility.
In February 2018, our Board of Directors increased our stock repurchase authorization by an additional $50.0 million. As of March 31, 2018,2019, our remaining stock repurchase authorization was approximately $65.7$60.1 million.
In connection with the acquisition of SiriusDecisions, we entered into a $200.0 million credit agreement on January 3, 2019. 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”). We planutilized the full $125.0 million of the Term Loans and $50.0 million of the Revolving Credit Facility to repurchasefinance a portion of the acquisition of SiriusDecisions and to pay certain fees, costs and expenses incurred in connection with the Term Loans and Revolving Credit Facility. Additional information on this debt is provided in Note 3 – Debt included herein
Borrowings under the credit agreement 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 us and our commonrestricted 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 our option, at a rate per annum equal to either (i) the London Interbank Offering Rate (“LIBOR”) for the applicable interest period plus a margin that is between 1.75% and 2.50% based on our consolidated total leverage ratio or (ii) the alternate base rate plus a margin that is between 0.75% and 1.50% based on our consolidated total leverage ratio. In addition, we will pay a commitment fee equal to 0.35% per annum on the average daily unused portion of the Revolving Credit Facility, payable quarterly, in arrears. The commitment fee may decrease to 0.30% or 0.25% based on our consolidated total leverage ratio.
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 negative covenants limit, subject to various exceptions, our ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of Forrester, sell assets, pay dividends or other payments in respect to capital stock, as market conditions warrant.change fiscal year, or enter into certain transactions with affiliates and subsidiaries. The first covenant reporting period was March 31, 2019 and we were in full compliance. The credit agreement also contains customary events of default, representations, and warranties.
As of March 31, 2018,2019, we had cash and cash equivalents of $82.1 million and marketable investments of $54.3$75.0 million. These balances include $68.8$46.0 million held outside of the U.S. If these funds outside of the U.S. are needed for operations in the U.S., we would be required to accrue and pay U.S. state taxes and may be required to pay withholding taxes to foreign jurisdictions to repatriate these funds. We would not expect these additional taxes to be significant. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not
demonstrate a need to repatriate these funds for our U.S. operations. We do not currently have a line of credit and do not presently anticipate the need to access a line of credit in the foreseeable future except in the case of a significant acquisition. We believe that our current cash balance marketable investments, and cash flows from operations will satisfy working capital, financing activities, and capital expenditure requirements for the next twelve months.
Contractual Obligations
There havehas been noa material changeschange to the contractual obligations table as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.2018 due to the acquisition of SiriusDecisions that closed on January 3, 2019. As of March 31, 2019, we have the following new future contractual obligations (in thousands):
Contractual Obligations (1) |
| Total |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| Thereafter |
| |||||||
Interest payments - long-term debt (2) |
| $ | 24,528 |
|
| $ | 4,689 |
|
| $ | 5,857 |
|
| $ | 5,306 |
|
| $ | 4,660 |
|
| $ | 3,969 |
|
| $ | 47 |
|
(1) | Operating lease obligations are included in Note 1 – Interim consolidated financial statements. |
(2) | Interest payments were based on the interest rates in effect as of March 31, 2019. Long-term principal repayments are included in Note 3 – Debt. |
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet financing arrangements.
Recent Accounting Pronouncements
See Note 1 and Note 1012 of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the expected dates of adoption and effects on results of operations and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ThereExcept as noted below, there have been no material changeschange in our assessment of our sensitivity to market risk since our presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.
INTEREST RATE RISK
As of March 31, 2019, we had $153.4 million in total debt principal outstanding. See Note 3 — Debt herein for additional information regarding our outstanding debt obligations.
All of our debt outstanding as of March 31, 2019 was based on a floating base rate of interest, which potentially exposes us to increases in interest rates. As an indication of our potential exposure to changes in interest rates, a hypothetical 25 basis point increase or decrease in interest rates could change our annual pretax interest expense for the following 12 month period by approximately $0.4 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2018.2019. Based upon their evaluation and subject to the foregoing, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance as of that date.
The foregoing assessment excludes our acquisition on January 3, 2019 of SiriusDecisions, for which we paid $247.3 million at closing. See Note 2 to the Consolidated Financial Statements for additional information. This exclusion is in accordance with the general guidance issued by the Staff of the SEC that an assessment of a recent business acquisition may be omitted from management’s report on internal control over financial reporting in the first year of consolidation.
Changes in Internal Control Over Financial Reporting
As of January 1, 2018, we implemented ASC 606, Revenue from Contracts with Customers. As a result, we implementedThere were no changes to our accounting processes and procedures related to revenue recognition, the control activities within them and the system functionalities to enable the preparation of financial information. This included the development of new policies based on the five-step model provided in the new revenue standard, new training, gathering and analysis of information for disclosures and determining and recording adjustments to beginning retained earnings for the modified retrospective transition adoption method. There was no other change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 20182019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
reporting with respect to historical Forrester operations. We are currently in the process of integrating our acquisition of SiriusDecisions, evaluating its internal controls and implementing our internal control structure over its operations, which may lead us to modify certain internal controls in future periods.
In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017,2018, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form 10-K remain applicable to our business. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Through March 31, 2018,2019, our Board of Directors authorized an aggregate $535.0 million to purchase common stock under our stock repurchase program, including $50.0 million authorized in February 2018.program. During the quarter ended March 31, 2018,2019, we purchased the followingdid not purchase any shares of our common stock under the stock repurchase program:
|
|
|
|
|
|
|
|
|
| Maximum Dollar |
| |
|
|
|
|
|
|
|
|
|
| Value that May |
| |
|
|
|
|
|
|
|
|
|
| Yet be Purchased |
| |
|
| Total Number of |
|
| Average Price |
|
| Under the Stock |
| |||
Period |
| Shares Purchased (1) |
|
| Paid per Share |
|
| Repurchase Program |
| |||
|
|
|
|
|
|
|
|
|
| (In thousands) |
| |
February 1 - February 28 |
|
| 44,953 |
|
| $ | 41.28 |
|
|
|
|
|
March 1 - March 31 |
|
| 60,623 |
|
| $ | 41.42 |
|
|
|
|
|
|
|
| 105,576 |
|
|
|
|
|
| $ | 65,700 |
|
|
|
program.
10.1 | ||
|
|
|
31.1 |
| Certification of the Principal Executive Officer. (filed herewith) |
|
|
|
31.2 |
| Certification of the Principal Financial Officer. (filed herewith) |
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
101.INS |
| XBRL Instance Document. (filed herewith) |
|
|
|
101.SCH |
| XBRL Taxonomy Extension Schema. (filed herewith) |
|
|
|
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase. (filed herewith) |
|
|
|
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase. (filed herewith) |
|
|
|
101.LAB |
| XBRL Taxonomy Extension Label Linkbase. (filed herewith) |
|
|
|
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase. (filed herewith) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FORRESTER RESEARCH, INC. | ||
|
|
|
By: |
| /s/ Michael A. Doyle |
|
| Michael A. Doyle |
|
| Chief Financial Officer (Principal financial officer) |
Date: May 10, 2018
2019
31