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FORRESTER RESEARCH, INC. - Quarter Report: 2016 March (Form 10-Q)

 

 

FORM 10-Q

 

(MARK ONE)

x

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

FOR THE QUARTERLY PERIOD ENDED March 31, 2016

OR

o

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

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 613-6000

 

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  x     No  o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  o

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of May 4, 2016 17,827,000 shares of the registrant’s common stock were outstanding.

 

 

 

 

 


 

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

 

 

  

PAGE

 

PART I. FINANCIAL INFORMATION

  

3

 

ITEM 1. Financial Statements (Unaudited)

  

3

 

Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015

  

3

 

Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 2016 and 2015

  

4

 

Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2016 and 2015

  

5

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015

  

6

 

Notes to Consolidated Financial Statements

  

7

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

14

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

  

21

 

ITEM 4. Controls and Procedures

  

21

 

PART II. OTHER INFORMATION

  

22

 

ITEM 1A. Risk Factors

  

22

 

ITEM 6. Exhibits

  

23

  

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

78,654

 

 

$

53,331

 

Marketable investments (Note 3)

 

 

41,356

 

 

 

47,775

 

Accounts receivable, net

 

 

49,351

 

 

 

67,355

 

Deferred commissions

 

 

13,316

 

 

 

13,529

 

Prepaid expenses and other current assets

 

 

18,713

 

 

 

15,737

 

Total current assets

 

 

201,390

 

 

 

197,727

 

Property and equipment, net

 

 

26,946

 

 

 

27,569

 

Goodwill

 

 

74,992

 

 

 

74,071

 

Intangible assets, net

 

 

2,165

 

 

 

2,334

 

Other assets

 

 

17,426

 

 

 

17,290

 

Total assets

 

$

322,919

 

 

$

318,991

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,289

 

 

$

525

 

Accrued expenses and other current liabilities

 

 

27,371

 

 

 

41,252

 

Deferred revenue

 

 

154,805

 

 

 

140,676

 

Total current liabilities

 

 

183,465

 

 

 

182,453

 

Non-current liabilities

 

 

9,254

 

 

 

9,236

 

Total liabilities

 

 

192,719

 

 

 

191,689

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity (Note 7):

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 500 shares; issued and outstanding - none

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 125,000 shares

 

 

 

 

 

 

 

 

Issued - 21,112 and 21,063 shares as of March 31, 2016 and December 31, 2015,

   respectively

 

 

 

 

 

 

 

 

Outstanding - 17,801 and 17,752 shares as of March 31, 2016 and December 31, 2015, respectively

 

 

211

 

 

 

211

 

Additional paid-in capital

 

 

138,180

 

 

 

134,967

 

Retained earnings

 

 

115,222

 

 

 

117,135

 

Treasury stock - 3,311 shares as of March 31, 2016 and December 31, 2015,

  at cost

 

 

(120,185

)

 

 

(120,185

)

Accumulated other comprehensive loss

 

 

(3,228

)

 

 

(4,826

)

Total stockholders’ equity

 

 

130,200

 

 

 

127,302

 

Total liabilities and stockholders’ equity

 

$

322,919

 

 

$

318,991

 

 

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

 

 

3


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except per share data, unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

Research services

$

53,248

 

 

$

51,858

 

Advisory services and events

 

24,153

 

 

 

23,329

 

Total revenues

 

77,401

 

 

 

75,187

 

Operating expenses:

 

 

 

 

 

 

 

Cost of services and fulfillment

 

31,123

 

 

 

30,761

 

Selling and marketing

 

30,404

 

 

 

29,631

 

General and administrative

 

9,973

 

 

 

9,758

 

Depreciation

 

1,965

 

 

 

2,107

 

Amortization of intangible assets

 

209

 

 

 

221

 

Reorganization costs

 

1,015

 

 

 

3,424

 

Total operating expenses

 

74,689

 

 

 

75,902

 

Income (loss) from operations

 

2,712

 

 

 

(715

)

Other income (expense), net

 

(328

)

 

 

282

 

Losses on investments, net

 

-

 

 

 

(19

)

Income (loss) before income taxes

 

2,384

 

 

 

(452

)

Income tax provision (benefit)

 

1,095

 

 

 

(228

)

Net income (loss)

$

1,289

 

 

$

(224

)

 

 

 

 

 

 

 

 

Basic income (loss) per common share

$

0.07

 

 

$

(0.01

)

 

 

 

 

 

 

 

 

Diluted income (loss) per common share

$

0.07

 

 

$

(0.01

)

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

17,762

 

 

 

18,058

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

17,925

 

 

 

18,058

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

0.18

 

 

$

0.17

 

 

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

 

 

4


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net income (loss)

$

1,289

 

 

$

(224

)

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes:

 

 

 

 

 

 

 

Foreign currency translation

 

1,481

 

 

 

(3,000

)

Net change in market value of investments

 

117

 

 

 

98

 

Other comprehensive income (loss)

 

1,598

 

 

 

(2,902

)

Comprehensive income (loss)

$

2,887

 

 

$

(3,126

)

 

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

 

 

5


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

1,289

 

 

$

(224

)

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

   activities:

 

 

 

 

 

 

 

Depreciation

 

1,965

 

 

 

2,107

 

Amortization of intangible assets

 

209

 

 

 

221

 

Net losses from investments

 

-

 

 

 

19

 

Deferred income taxes

 

(177

)

 

 

109

 

Stock-based compensation

 

2,135

 

 

 

2,186

 

Amortization of premium on investments

 

107

 

 

 

187

 

Foreign currency (gains) losses

 

464

 

 

 

(166

)

Changes in assets and liabilities

 

 

 

 

 

 

 

Accounts receivable

 

18,138

 

 

 

16,802

 

Deferred commissions

 

213

 

 

 

785

 

Prepaid expenses and other current assets

 

(3,001

)

 

 

(5,449

)

Accounts payable

 

763

 

 

 

(13

)

Accrued expenses and other liabilities

 

(14,150

)

 

 

(7,984

)

Deferred revenue

 

13,582

 

 

 

7,702

 

Net cash provided by operating activities

 

21,537

 

 

 

16,282

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(1,144

)

 

 

(948

)

Purchases of marketable investments

 

(2,206

)

 

 

(14,552

)

Proceeds from sales and maturities of marketable investments

 

8,710

 

 

 

8,578

 

Other investing activity

 

(20

)

 

 

204

 

Net cash provided by (used in) investing activities

 

5,340

 

 

 

(6,718

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Dividends paid on common stock

 

(3,201

)

 

 

(3,069

)

Repurchases of common stock

 

-

 

 

 

(5,723

)

Proceeds from issuance of common stock under employee equity

   incentive plans

 

1,182

 

 

 

1,349

 

Excess tax benefits from stock-based compensation

 

14

 

 

 

20

 

Net cash used in financing activities

 

(2,005

)

 

 

(7,423

)

Effect of exchange rate changes on cash and cash equivalents

 

451

 

 

 

(1,623

)

Net increase in cash and cash equivalents

 

25,323

 

 

 

518

 

Cash and cash equivalents, beginning of period

 

53,331

 

 

 

49,650

 

Cash and cash equivalents, end of period

$

78,654

 

 

$

50,168

 

 

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

 

 

 

6


 

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1 — Interim Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with 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, 2015. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the financial position, results of operations, comprehensive income (loss) and cash flows as of the dates and for the periods presented have been included. The results of operations for the three months ended March 31, 2016 may not be indicative of the results for the year ending December 31, 2016, 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. See Note 3 – Marketable Investments for the fair value of the Company’s marketable investments.

 

 

Note 2 — Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Net Unrealized Gain

 

 

Cumulative

 

 

Accumulated

 

 

 

(Loss) on Marketable

 

 

Translation

 

 

Other Comprehensive

 

 

 

Investments

 

 

Adjustment

 

 

Income (Loss)

 

Balance at January 1, 2016

 

$

(100

)

 

$

(4,726

)

 

$

(4,826

)

Foreign currency translation

 

 

 

 

 

1,481

 

 

 

1,481

 

Unrealized gain on investments, net of tax of $76

 

 

117

 

 

 

 

 

 

117

 

Balance at March 31, 2016

 

$

17

 

 

$

(3,245

)

 

$

(3,228

)

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Net Unrealized Gain

 

 

Cumulative

 

 

Accumulated

 

 

 

(Loss) on Marketable

 

 

Translation

 

 

Other Comprehensive

 

 

 

Investments

 

 

Adjustment

 

 

Income (Loss)

 

Balance at January 1, 2015

 

$

(74

)

 

$

(1,539

)

 

$

(1,613

)

Foreign currency translation

 

 

 

 

 

(3,000

)

 

 

(3,000

)

Unrealized gain on investments, net of tax of $62

 

 

98

 

 

 

 

 

 

98

 

Balance at March 31, 2015

 

$

24

 

 

$

(4,539

)

 

$

(4,515

)

 

 

 

 

7


 

Note 3 — Marketable Investments

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

 

 

 

As of  March 31, 2016

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate obligations

 

$

41,328

 

 

$

34

 

 

$

(6

)

 

$

41,356

 

 

 

 

As of December 31, 2015

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate obligations

 

$

47,939

 

 

$

-

 

 

$

(164

)

 

$

47,775

 

 

Realized gains and losses on securities are included in earnings and are determined using the specific identification method. Realized gains or losses on the sale of the Company’s corporate obligations were not material in the three months ended March 31, 2016 or 2015.

The following table summarizes the maturity periods of the marketable securities in the Company’s portfolio as of March 31, 2016 (in thousands).

 

 

 

FY 2016

 

 

FY 2017

 

 

FY 2018

 

 

Total

 

Corporate obligations

 

$

10,591

 

 

$

25,738

 

 

$

5,027

 

 

$

41,356

 

 

The following table shows the gross unrealized losses and market value of Forrester’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, 2016

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Corporate obligations

 

$

11,763

 

 

$

5

 

 

$

3,026

 

 

$

1

 

 

 

 

As of December 31, 2015

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Corporate obligations

 

$

45,748

 

 

$

158

 

 

$

2,027

 

 

$

6

 

 

Fair Value

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.

 

8


 

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

 

 

 

As of  March 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds (1)

 

$

7,124

 

 

$

 

 

$

 

 

$

7,124

 

Corporate obligations

 

 

 

 

 

41,356

 

 

 

 

 

 

41,356

 

Total

 

$

7,124

 

 

$

41,356

 

 

$

 

 

$

48,480

 

 

 

 

As of December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds (1)

 

$

325

 

 

$

 

 

$

 

 

$

325

 

Corporate obligations

 

 

 

 

 

47,775

 

 

 

 

 

 

47,775

 

Total

 

$

325

 

 

$

47,775

 

 

$

 

 

$

48,100

 

 

(1)

Included in cash and cash equivalents. 

Level 2 assets consist of the Company’s entire portfolio of corporate bonds. Level 2 assets have been initially valued at 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 based 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.

 

 

Note 4 — Non-Marketable Investments

At March 31, 2016 and December 31, 2015, the carrying value of the Company’s non-marketable investments, which were composed primarily of interests in technology-related private equity funds, was $3.6 million and is included in other assets in the Consolidated Balance Sheets.

One of the Company’s investments, with a book value of $0.4 million at March 31, 2016 and December 31, 2015, is being accounted for using the cost method and, accordingly, is valued at cost unless an other-than-temporary impairment in its value occurs. The other investments 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. Gains and losses from non-marketable investments were insignificant during the three months ended March 31, 2016 and 2015, and are included in losses on investments, net in the Consolidated Statements of Income (Loss). During the three months ended March 31, 2016 no distributions were received from the funds. During the three months ended March 31, 2015, gross distributions of $0.1 million were received from the funds.

 

 

Note 5 — Reorganization

In the first quarter of 2016, the Company implemented a reduction in its workforce of approximately 2% of its employees across various geographies and functions. The Company recorded $1.0 million of severance and related costs for this action during the three months ended March 31, 2016 and expects to incur an additional $0.1 million during the three months ended June 30, 2016. All costs under this plan are expected to be paid during 2016.

In the first quarter of 2015, the Company implemented a reduction in its workforce of approximately 4% of its employees across various geographies and functions, in order to reallocate investment in 2015 to planned sales expansion and to delivery areas seeing the greatest client demand. The Company recorded $3.4 million of severance and related costs for this action during the three months ended March 31, 2015.

The following table rolls forward the activity in the reorganization accrual for the three months ended March 31, 2016 (in thousands):

 

 

 

Workforce

 

 

Subsidiary

 

 

Products Group

 

 

 

 

 

 

 

Reduction

 

 

Liquidation

 

 

Reorganization

 

 

Total

 

Accrual at December 31, 2015

 

 

41

 

 

 

7

 

 

 

433

 

 

 

481

 

Additions

 

 

1,011

 

 

 

-

 

 

 

4

 

 

 

1,015

 

Cash payments

 

 

(164

)

 

 

(7

)

 

 

(436

)

 

 

(607

)

Accrual at March 31, 2016

 

$

888

 

 

$

-

 

 

$

1

 

 

$

889

 

 

9


 

 

 

Note 6 — Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the basic weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (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 options and vesting of restricted stock units when dilutive.

Basic and diluted weighted average common shares are as follows (in thousands):

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Basic weighted average common shares outstanding

 

17,762

 

 

 

18,058

 

Weighted average common equivalent shares

 

163

 

 

 

-

 

Diluted weighted average common shares outstanding

 

17,925

 

 

 

18,058

 

Options excluded from diluted weighted average share

   calculation as effect would have been anti-dilutive

 

1,736

 

 

 

2,052

 

 

 

Note 7 — Stockholders’ Equity

Equity Plans

Stock option activity for the three months ended March 31, 2016 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, 2015

 

 

2,171

 

 

$

33.84

 

 

 

 

 

 

 

 

 

Granted

 

 

30

 

 

 

31.81

 

 

 

 

 

 

 

 

 

Exercised

 

 

(19

)

 

 

26.34

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(109

)

 

 

36.02

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

 

2,073

 

 

$

33.77

 

 

 

6.40

 

 

$

3,148

 

Exercisable at March 31, 2016

 

 

1,110

 

 

$

32.44

 

 

 

4.61

 

 

$

2,763

 

Vested and expected to vest at March 31, 2016

 

 

1,968

 

 

$

33.70

 

 

 

6.27

 

 

$

3,102

 

 

Restricted stock unit activity for the three months ended March 31, 2016 is presented below (in thousands, except per share data):

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Unvested at December 31, 2015

 

 

504

 

 

$

33.67

 

Granted

 

 

5

 

 

 

30.03

 

Vested

 

 

(2

)

 

 

36.43

 

Forfeited

 

 

(24

)

 

 

34.30

 

Unvested at March 31, 2016

 

 

483

 

 

$

33.59

 

 

 

10


 

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

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Cost of services and fulfillment

 

$

1,194

 

 

$

1,237

 

Selling and marketing

 

 

314

 

 

 

334

 

General and administrative

 

 

627

 

 

 

615

 

Total

 

$

2,135

 

 

$

2,186

 

 

Forrester utilizes the Black-Scholes valuation model for estimating the fair value of stock options. Options granted under the equity incentive plans and shares subject to purchase under the employee stock purchase plan were valued using the following assumptions:

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31, 2016

 

 

March 31, 2015

 

 

 

Equity Incentive

 

 

Employee Stock

 

 

Equity Incentive

 

 

Employee Stock

 

 

 

Plans

 

 

Purchase Plan

 

 

Plans

 

 

Purchase Plan

 

Average risk-free interest rate

 

 

1.52

%

 

 

0.47

%

 

 

1.37

%

 

 

0.11

%

Expected dividend yield

 

 

2.3

%

 

 

2.3

%

 

 

1.8

%

 

 

1.8

%

Expected life

 

5.0 Years

 

 

0.5 Years

 

 

5.1 Years

 

 

0.5 Years

 

Expected volatility

 

 

24

%

 

 

27

%

 

 

25

%

 

 

22

%

Weighted average fair value

 

$

5.53

 

 

$

7.06

 

 

$

7.48

 

 

$

7.93

 

 

 

Dividends

In the three months ended March 31, 2016, the Company declared and paid a dividend of $0.18 per share or $3.2 million in the aggregate. In the three months ended March 31, 2015, the Company declared and paid a dividend of $0.17 per share or $3.1 million in the aggregate. In April 2016, the Company declared a dividend of $0.18 per share payable on June 22, 2016 to shareholders of record as of June 8, 2016.

Treasury Stock

As of March 31, 2016 Forrester’s Board of Directors had authorized an aggregate $460.0 million to purchase common stock under its stock repurchase program. The shares repurchased may be used, among other things, in connection with Forrester’s employee and director equity incentive and purchase plans. The Company did not repurchase shares of common stock in the three months ended March 31, 2016. In the three months ended March 31, 2015, the Company repurchased 0.2 million shares of common stock at an aggregate cost of $5.7 million. From the inception of the program through March 31, 2016, Forrester repurchased 15.0 million shares of common stock at an aggregate cost of $423.1 million.

 

 

Note 8 — Income Taxes

Forrester provides for income taxes on an interim basis according to management’s estimate of the effective tax rate expected to be applicable for the full fiscal year. Certain items such as changes in tax rates and tax benefits related to disqualifying dispositions of incentive stock options are treated as discrete items and are recorded in the period in which they arise.

 

Income tax expense for the three months ended March 31, 2016 was $1.1 million resulting in an effective tax rate of 46% for the period. Income tax benefit for the three months ended March 31, 2015 was $0.2 million resulting from losses of $0.5 million in the period. Income tax expense increased by $1.3 million during the three months ended March 31, 2016 compared to the prior year period due primarily to a $2.8 million increase in income before taxes during the current year period. Due to the low amount of income before taxes during the three months ended March 31, 2016, the effective tax rate is not considered meaningful or representative of the full year effective tax rate. For the full year 2016 the Company anticipates that its effective tax rate will be approximately 40%.

 

 

 

11


 

Note 9 — Operating Segments

The Research segment includes the costs of the Company’s research personnel who are responsible for writing the research and performing the webinars and inquiries for the Company’s Research and Connect products. In addition, the research personnel deliver 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 research personnel in this segment.

The Product segment 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 Data, 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 Project Consulting segment includes the costs of the consultants that deliver the majority of the Company’s project consulting services. Revenue in this segment includes the project consulting revenue delivered by the consultants in this segment.

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 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, reorganization costs, other income (expense), and gains (losses) on investments. The accounting policies used by the segments are the same as those used in the consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

 

 

 

 

 

Products

 

 

Research

 

 

Consulting

 

 

Consolidated

 

Three Months Ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research services revenues

 

$

53,248

 

 

$

 

 

$

 

 

$

53,248

 

Advisory services and events revenues

 

 

2,701

 

 

 

10,586

 

 

 

10,866

 

 

 

24,153

 

Total segment revenues

 

 

55,949

 

 

 

10,586

 

 

 

10,866

 

 

 

77,401

 

Segment expenses

 

 

8,878

 

 

 

13,337

 

 

 

6,780

 

 

 

28,995

 

Contribution margin (loss)

 

 

47,071

 

 

 

(2,751

)

 

 

4,086

 

 

 

48,406

 

Selling, marketing, administrative and other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,470

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(209

)

Reorganization costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,015

)

Other income (expense) and losses on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(328

)

Income (loss) before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,384

 

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

 

 

 

 

 

Products

 

 

Research

 

 

Consulting

 

 

Consolidated

 

Three Months Ended March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research services revenues

 

$

51,858

 

 

$

 

 

$

 

 

$

51,858

 

Advisory services and events revenues

 

 

2,467

 

 

 

10,327

 

 

 

10,535

 

 

 

23,329

 

Total segment revenues

 

 

54,325

 

 

 

10,327

 

 

 

10,535

 

 

 

75,187

 

Segment expenses

 

 

8,349

 

 

 

12,948

 

 

 

6,960

 

 

 

28,257

 

Contribution margin (loss)

 

 

45,976

 

 

 

(2,621

)

 

 

3,575

 

 

 

46,930

 

Selling, marketing, administrative and other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,000

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(221

)

Reorganization costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,424

)

Other income (expense) and losses on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

263

 

Income (loss) before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(452

)

 

 

 

Note 10 — Recent Accounting Pronouncements

In May 2014 the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes 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 amount that reflects the consideration that the company expects to receive for those goods or services. The new standard will be effective for annual reporting periods beginning

 

12


 

after December 15, 2017, including interim periods within that reporting period, with early adoption permitted for the first interim period within annual reporting periods beginning after December 15, 2016. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company has not yet selected a transition method; however it has determined that it will not elect to adopt the standard early. The Company is currently evaluating the potential changes from this standard to its future financial reporting and disclosures.

 

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. The Company is currently evaluating the potential impact that this standard may have on its results of operations.

In March 2016 the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The new standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The new standard will be effective for the Company on January 1, 2017. The Company is currently evaluating the potential impact that this standard may have on its financial reporting and disclosures.

 

 

 

 

 

13


 

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 our plans for anticipated increases in, and productivity of, our sales force and headcount, future growth rates, future dividends, future share repurchases 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, data and leadership board products and services, our ability to fulfill existing or generate new project consulting engagements, technology spending, the risks and challenges inherent in international business activities, our ability to offer new products and services, our dependence on key personnel, our ability to realize anticipated benefits from internal reorganizations, 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, and possible variations in our quarterly operating results. These risks are described more completely in our Annual Report on Form 10-K for the year ended December 31, 2015. 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 licensing memberships to, and sales of, our Research, Connect and Data products and services, performing advisory services and consulting projects, and hosting events. We offer contracts for our Research, Connect and Data 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 advisory services 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 service 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.

Deferred revenue, agreement value, client retention, dollar retention, enrichment and number of clients are metrics 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 in force at a given time (but not including advisory-only contracts), without regard to how much revenue has already been recognized.

 

Client retention — the percentage of client companies with memberships expiring during the most recent twelve-month period that renewed one or more of those memberships during that same period.

 

Dollar retention — the percentage of the dollar value of all client membership contracts renewed during the most recent twelve-month period to the total dollar value of all client membership contracts that expired during the period.

 

Enrichment — the percentage of the dollar value of client membership contracts renewed during the most recent twelve-month period to the dollar value of the corresponding expiring contracts.

 

Clients — we count as a single client the various divisions and subsidiaries of a corporate parent and we also aggregate separate instrumentalities of the federal, state, and provincial governments as a single client.

 

14


 

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

 

 

 

March 31,

 

 

Increase

 

 

Increase

 

 

 

2016

 

 

2015

 

 

(Decrease)

 

 

(Decrease)

 

Deferred revenue

 

$

154.8

 

 

$

150.4

 

 

$

4.4

 

 

 

3

%

Agreement value

 

$

240.5

 

 

$

232.9

 

 

$

7.6

 

 

 

3

%

Client retention

 

 

77

%

 

 

79

%

 

 

(2

)

 

 

(3

%)

Dollar retention

 

 

88

%

 

 

90

%

 

 

(2

)

 

 

(2

%)

Enrichment

 

 

97

%

 

 

97

%

 

 

 

 

 

 

Number of clients

 

 

2,477

 

 

 

2,464

 

 

 

13

 

 

 

1

%

 

Deferred revenue at March 31, 2016 increased 3% compared to the prior year. The increase in deferred revenue is reflective of the fact that contract bookings have exceeded revenue growth on a trailing twelve month (constant currency) basis. Agreement value increased 3% at March 31, 2016 compared to the prior year and on a constant currency basis increased 5%.  The increase in agreement value is due to increased demand for our products and services. Client retention and dollar retention rates, while essentially consistent with the period ending December 31, 2015, have declined since their recent highs achieved during 2015.  Enrichment rates have remained essentially consistent during the past two years.

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, stock-based compensation, 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, 2015.

Results of Operations

The financial results for the three months ended March 31, 2016 included in this report differ from those included in our earnings release issued April 27, 2016 in that the financial results in this report reflect lower  operating expenses in the amount of $450,000 ($275,000 after tax).  On May 6, 2016 we received updated information from the management company at our Cambridge, MA facility indicating that the operating expenses at the facility for the year ended December 31, 2015 had changed from their prior estimate.  This resulted in (1) an increase in income from operations from the previously announced $2,262,000 to $2,712,000, (2) an increase in income tax provision from the previously announced $920,000 to $1,095,000, and (3) an increase in net income from the previously announced $1,014,000 to $1,289,000 and a corresponding increase in basic and diluted net income per share from the previously announced $0.06 to $0.07.  This change had the same effect on our pro forma income from operations and our pro forma diluted net income per share.

 

15


 

 

The following table sets forth our statement of income as a percentage of total revenues for the periods indicated:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

Research services

 

 

68.8

%

 

 

69.0

%

Advisory services and events

 

 

31.2

 

 

 

31.0

 

Total revenues

 

 

100.0

 

 

 

100.0

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

40.2

 

 

 

40.9

 

Selling and marketing

 

 

39.3

 

 

 

39.4

 

General and administrative

 

 

12.9

 

 

 

13.0

 

Depreciation

 

 

2.5

 

 

 

2.8

 

Amortization of intangible assets

 

 

0.3

 

 

 

0.3

 

Reorganization costs

 

 

1.3

 

 

 

4.6

 

Income (loss) from operations

 

 

3.5

 

 

 

(1.0

)

Other income (expense), net

 

 

(0.4

)

 

 

0.4

 

Losses on investments, net

 

 

 

 

 

 

Income (loss) before income taxes

 

 

3.1

 

 

 

(0.6

)

Income tax provision (benefit)

 

 

1.4

 

 

 

(0.3

)

Net income (loss)

 

 

1.7

%

 

 

(0.3

)

 

Three Months Ended March 31, 2016 and 2015

Revenues

 

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

March 31,

 

 

Increase

 

 

Increase

 

 

 

2016

 

 

2015

 

 

(Decrease)

 

 

(Decrease)

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

Revenues

 

$

77.4

 

 

$

75.2

 

 

$

2.2

 

 

 

3

%

Revenues from research services

 

$

53.2

 

 

$

51.9

 

 

$

1.3

 

 

 

3

%

Revenues from advisory services and events

 

$

24.2

 

 

$

23.3

 

 

$

0.9

 

 

 

4

%

Revenues attributable to customers outside of the U.S.

 

$

17.9

 

 

$

17.2

 

 

$

0.7

 

 

 

4

%

Percentage of revenue attributable to customers

   outside of the U.S.

 

 

23

%

 

 

23

%

 

 

 

 

 

 

Number of clients (at end of period)

 

 

2,477

 

 

 

2,464

 

 

 

13

 

 

 

1

%

Number of events

 

 

 

 

 

2

 

 

 

(2

)

 

 

(100

%)

 

 

Total revenues increased 3% during the three months ended March 31, 2016 compared to the prior year period and increased 4% on a constant currency basis. Revenues from customers outside of the U.S. increased 4% compared to the prior year period, however after adjusting for the effect of foreign currency fluctuations, revenues from customers outside of the U.S. increased 9% and represented 24% of total revenues. On a constant currency basis, revenue growth in the Asia Pacific region and Europe was partially offset by a decline in Canada.

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 increased 3% during the three months ended March 31, 2016 compared to the prior year period and on a constant currency basis increased 4%, reflecting growth in our Research products, essentially flat revenues in our Data products and a decline in our Connect products.

Revenues from advisory services and events increased 4% during the three months ended March 31, 2016 compared to the prior year period and the fluctuation in currency rates did not significantly affect the revenue growth rate for the period. The increase in advisory services and events revenues for the three months March 31, 2016 was due to an increase in both Advisory and Consulting revenues

 

16


 

which were partially offset by a decrease in Events revenues.  The decrease in Events revenues was due to a shift in the timing of our events in 2016 such that no events were held during the first quarter of 2016 compared to two events held in the first quarter of 2015.

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

 

 

 

March 31,

 

 

Increase

 

 

Increase

 

 

 

2016

 

 

2015

 

 

(Decrease)

 

 

(Decrease)

 

Cost of services and fulfillment (dollars in millions)

 

$

31.1

 

 

$

30.8

 

 

$

0.3

 

 

 

1

%

Cost of services and fulfillment as a percentage of

   total revenues

 

 

40.2

%

 

 

40.9

%

 

 

(0.7

)

 

 

(2

%)

Service and fulfillment employees

   (at end of period)

 

 

575

 

 

 

566

 

 

 

9

 

 

 

2

%

 

 

Cost of services and fulfillment expenses increased 1% during the three months ended March 31, 2016 compared to the prior year period and on a constant currency basis increased 2%. The increase in dollars was primarily due to a $0.7 million increase in professional services costs related to outsourced fees and a $0.3 million increase in compensation and benefit costs compared to the prior year period. These increases were partially offset by a decrease in event expenses of $0.4 million due to no events being held in the first quarter of 2016 compared to two events held during the prior year period.

Selling and Marketing

 

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

March 31,

 

 

Increase

 

 

Increase

 

 

 

2016

 

 

2015

 

 

(Decrease)

 

 

(Decrease)

 

Selling and marketing expenses (dollars in millions)

 

$

30.4

 

 

$

29.6

 

 

$

0.8

 

 

 

3

%

Selling and marketing expenses as a percentage of

   total revenues

 

 

39.3

%

 

 

39.4

%

 

 

(0.1

)

 

 

 

Selling and marketing employees (at end of period)

 

 

565

 

 

 

555

 

 

 

10

 

 

 

2

%

 

 

Selling and marketing expenses increased 3% during the three months ended March 31, 2016 compared to the prior year period and increased 4% on a constant currency basis. The increase in dollars during the three months ended March 31, 2016 was primarily due to (1) a $0.6 million increase in compensation and benefit costs resulting from an increase in sales employees and annual merit increases compared to the prior year period and (2) an increase in travel and entertainment costs.

Subject to the business environment, we intend to expand our quota carrying sales force by approximately 1% to 3% in 2016 as compared to 2015 as we anticipate productivity improvements in 2016.

General and Administrative

 

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

March 31,

 

 

Increase

 

 

Increase

 

 

 

2016

 

 

2015

 

 

(Decrease)

 

 

(Decrease)

 

General and administrative expenses (dollars in millions)

 

$

10.0

 

 

$

9.8

 

 

$

0.2

 

 

 

2

%

General and administrative expenses as a percentage of

   total revenues

 

 

12.9

%

 

 

13.0

%

 

 

(0.1

)

 

 

(1

%)

General and administrative employees (at end of period)

 

 

182

 

 

 

184

 

 

 

(2

)

 

 

(1

%)

 

 

General and administrative expenses increased 2% during the three months ended March 31, 2016 compared to the prior year period and on a constant currency basis increased 3%.  The increase in dollars was primarily due to higher professional services fees partially offset by a decrease in compensation and benefits costs.

 

17


 

Depreciation

Depreciation expense remained essentially consistent during the three months ended March 31, 2016 compared to the prior year period.

Amortization of Intangible Assets

Amortization expense remained essentially consistent during the three months ended March 31, 2016 compared to the prior year period.

Reorganization Costs

During the three months ended March 31, 2016 we incurred $1.0 million of severance and related benefits for a reduction in our workforce of approximately 2% of employees across various geographies and functions. We expect to incur an additional $0.1 million of severance and related costs in the second quarter of 2016 related to this plan. All costs under this plan are expected to be paid during 2016.

During the three months ended March 31, 2015 we incurred $3.4 million of severance and related costs from our reorganization in the first quarter of 2015 that included the termination of 50 employees, or approximately 4% of our workforce across various geographies and functions, in order to reallocate investment in 2015 to planned sales expansion and to delivery areas seeing the greatest client demand.

Other Income (Expense), Net

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 during the three months ended March 31, 2016 is due to foreign currency losses of approximately $0.5 million during the current year quarter versus foreign currency gains of $0.2 million during the prior year quarter.

Losses on Investments, Net

Gains (losses) on investments, net primarily represents our share of equity method investment gains and losses from our technology-related investment funds. Activity within the funds was insignificant during the 2016 and 2015 periods.

Provision (Benefit) for Income Taxes

 

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

March 31,

 

 

Increase

 

 

Increase

 

 

 

2016

 

 

2015

 

 

(Decrease)

 

 

(Decrease)

 

Provision (benefit) for income taxes (dollars in millions)

 

$

1.1

 

 

$

(0.2

)

 

$

1.3

 

 

 

(580

%)

Effective tax rate

 

 

45.9

%

 

 

50.4

%

 

 

(4.5

)

 

 

(9

%)

 

 

Income tax expense increased by $1.3 million during the three months ended March 31, 2016 compared to the prior year period due primarily to a $2.8 million increase in income before taxes during the current year period.  Due to the low amount of income (loss) before taxes during the three months ended March 31, 2016 and 2015, the effective tax rate is not considered meaningful or representative of the full year effective tax rate.  For the full year 2016 we anticipate that our effective tax rate will be approximately 40%.

 

Segment Results

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 Product segment includes the costs of the product management organization that is responsible for pricing, packaging and the launch of new products. In addition, this segment includes the costs of our Data, Connect 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.

 

18


 

The Project Consulting segment includes the costs 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.

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 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, reorganization costs, other income (expense), and gains (losses) on investments. The accounting policies used by the segments are the same as those used in the consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

 

 

 

 

 

Products

 

 

Research

 

 

Consulting

 

 

Consolidated

 

Three Months Ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research services revenues

 

$

53,248

 

 

$

 

 

$

 

 

$

53,248

 

Advisory services and events revenues

 

 

2,701

 

 

 

10,586

 

 

 

10,866

 

 

 

24,153

 

Total segment revenues

 

 

55,949

 

 

 

10,586

 

 

 

10,866

 

 

 

77,401

 

Segment expenses

 

 

8,878

 

 

 

13,337

 

 

 

6,780

 

 

 

28,995

 

Contribution margin (loss)

 

 

47,071

 

 

 

(2,751

)

 

 

4,086

 

 

 

48,406

 

Year over year revenue change

 

 

3

%

 

 

3

%

 

 

3

%

 

 

3

%

Year over year expense change

 

 

6

%

 

 

3

%

 

 

(3

%)

 

 

3

%

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

 

 

 

 

 

Products

 

 

Research

 

 

Consulting

 

 

Consolidated

 

Three Months Ended March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research services revenues

 

$

51,858

 

 

$

 

 

$

 

 

$

51,858

 

Advisory services and events revenues

 

 

2,467

 

 

 

10,327

 

 

 

10,535

 

 

 

23,329

 

Total segment revenues

 

 

54,325

 

 

 

10,327

 

 

 

10,535

 

 

 

75,187

 

Segment expenses

 

 

8,349

 

 

 

12,948

 

 

 

6,960

 

 

 

28,257

 

Contribution margin (loss)

 

 

45,976

 

 

 

(2,621

)

 

 

3,575

 

 

 

46,930

 

 

Product segment revenues increased 3% during the three months ended March 31, 2016 as compared to the prior year period. Research services revenues increased 3% during the three months ended March 31, 2016 compared to the prior year period and on a constant currency basis increased 4%, reflecting growth in our Research products, essentially flat revenues in our Data products and a decline in our Connect products. Advisory services and events revenues increased $0.2 million during the three months ended March 31, 2016 due to a $1.1 million increase in data advisory that was partially offset by a $0.9 million decrease in events revenues as we did not hold any events in the first quarter of 2016 compared to two events in the first quarter of 2015. Product segment expenses increased 6% during the three months ended March 31, 2016 compared to the prior year period due to a $0.7 million increase in compensation and benefit costs which were partially offset by lower event expenses.  

Research segment revenues increased 3% during the three months ended March 31, 2016 as compared to the prior year period, reflecting an increase in both advisory and consulting revenue. Research segment expenses increased by 3% during the three months ended March 31, 2016 compared to the prior year period due primarily to a $0.4 million increase in compensation and benefit costs.

Project Consulting segment revenues increased 3% during the three months ended March 31, 2016 as compared to the prior year period while expenses decreased 3% during the period.   The decrease in expenses of $0.2 million during the three months ended March 31, 2016 was due to lower compensation and benefit costs due to fewer consulting employees during the current year period, which were partially offset by higher outsourced costs related to the consulting projects delivered during the quarter.  

Liquidity and Capital Resources

We have historically financed our operations primarily through funds generated from operations. Memberships for research services, which constituted approximately 69% of our revenues during the three months ended March 31, 2016, are generally renewable annually and are typically payable in advance. We generated cash from operating activities of $21.5 million and $16.3 million during the three months ended March 31, 2016 and 2015, respectively. The $5.3 million increase in cash provided from operations for the three months ended March 31, 2016 is primarily attributable to a $1.5 million increase in net income and a $3.7 million increase in cash generated from working capital.  The increase in cash from working capital was due primarily to an increase in cash generated from accounts receivable and deferred revenue that was partially offset by an increase in the use of cash for accrued expenses due primarily to increased payments of accrued incentive bonuses during the three months ended March 31, 2016.

 

19


 

During the three months ended March 31, 2016 we generated $5.3 million of cash from investing activities, consisting primarily of $6.5 million in net proceeds from sales and maturities of marketable investments partially offset by $1.1 million of purchases of property and equipment. Property and equipment purchases during 2016 consisted primarily of equipment and software. During the three months ended March 31, 2015, we used $6.7 million of cash from investing activities, consisting primarily of $6.0 million in net purchases of marketable investments and $0.9 million of purchases of property and equipment. Property and equipment purchases during 2015 consisted primarily of software. We regularly invest excess funds in short and intermediate-term interest-bearing obligations of investment grade.

We used $2.0 million of cash from financing activities during the three months ended March 31, 2016 primarily for payment of a quarterly dividend of $3.2 million, at $0.18 per share, which was partially offset by $1.2 million of proceeds from the exercise of stock options and our employee stock purchase plan. We used $7.4 million of cash from financing activities during the three months ended March 31, 2015 primarily for $5.7 million of purchases of our common stock. In addition, we paid a quarterly dividend of $3.1 million, at $0.17 per share, and we received $1.3 million of proceeds from the exercise of stock options and our employee stock purchase plan. As of March 31, 2016 our remaining stock repurchase authorization was approximately $36.9 million.

As of March 31, 2016, we had cash and cash equivalents of $78.7 million and marketable investments of $41.4 million. These balances include $44.6 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. taxes to repatriate these funds. 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 have been no material changes to the contractual obligations table as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet financing arrangements.

 

 

20


 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes 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, 2015.

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, 2016. 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.

Changes in Internal Control Over Financial Reporting

There was no 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, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

21


 

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

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, 2015, 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.

 

 

 

 

 

22


 

ITEM 6. EXHIBITS

 

 

 

 

  31.1

 

Certification of the Principal Executive Officer. (filed herewith)

 

 

 

  31.2

 

Certification of the Principal Financial Officer. (filed herewith)

 

 

 

  32.1

 

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)

 

 

 

  32.2

 

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)

 

 

 

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)

 

 

 

23


 

SIGNATURES

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 and Treasurer

(Principal financial officer)

Date: May 10, 2016

 

 

 

24


 

Exhibit Index

 

Exhibit

No.

 

Document

 

 

 

  31.1

 

Certification of the Principal Executive Officer. (filed herewith)

 

 

 

  31.2

 

Certification of the Principal Financial Officer. (filed herewith)

 

 

 

  32.1

 

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)

 

 

 

  32.2

 

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)

 

 

 

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)

 

 

 

25