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FORRESTER RESEARCH, INC. - Quarter Report: 2023 June (Form 10-Q)

10-Q

 

 

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 June 30, 2023

OR

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

COMMISSION FILE NUMBER: 000-21433

 

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

04-2797789

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

60 Acorn Park Drive

Cambridge, Massachusetts

 

02140

(Zip Code)

(Address of principal executive offices)

 

 

 

(617) 613-6000

(Registrant’s telephone number, including area code)

 

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

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock, $.01 Par Value

 

FORR

 

Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

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

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

As of August 2, 2023, 19,212,000 shares of the registrant’s common stock were outstanding.

 


 

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

 

 

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

3

 

Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022

4

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023 and 2022

5

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022

6

 

Notes to Consolidated Financial Statements

7

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

32

 

 

 

SIGNATURES

33

 

 

 

 

 


 

PART I.

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

109,951

 

 

$

103,629

 

Marketable investments

 

 

13,664

 

 

 

19,688

 

Accounts receivable, net of allowance for expected credit losses of $578 and $560 as
   of June 30, 2023 and December 31, 2022, respectively

 

 

46,277

 

 

 

73,345

 

Deferred commissions

 

 

18,260

 

 

 

24,559

 

Prepaid expenses and other current assets

 

 

22,069

 

 

 

14,069

 

Total current assets

 

 

210,221

 

 

 

235,290

 

Property and equipment, net

 

 

20,707

 

 

 

23,208

 

Operating lease right-of-use assets

 

 

44,649

 

 

 

49,970

 

Goodwill

 

 

243,287

 

 

 

242,149

 

Intangible assets, net

 

 

43,406

 

 

 

49,504

 

Other assets

 

 

8,404

 

 

 

8,317

 

Total assets

 

$

570,674

 

 

$

608,438

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,137

 

 

$

361

 

Accrued expenses and other current liabilities

 

 

62,779

 

 

 

91,007

 

Deferred revenue

 

 

179,613

 

 

 

178,021

 

Total current liabilities

 

 

243,529

 

 

 

269,389

 

Long-term debt

 

 

35,000

 

 

 

50,000

 

Non-current operating lease liabilities

 

 

44,831

 

 

 

50,751

 

Other non-current liabilities

 

 

15,669

 

 

 

16,642

 

Total liabilities

 

 

339,029

 

 

 

386,782

 

Commitments and contingencies (Note 5, 15)

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

Authorized - 500 shares; issued and outstanding - none

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

Authorized - 125,000 shares

 

 

 

 

 

 

Issued - 24,512 and 24,367 shares as of June 30, 2023 and December 31, 2022,
   respectively

 

 

 

 

 

 

Outstanding - 19,180 and 19,062 shares as of June 30, 2023 and
   December 31, 2022, respectively

 

 

245

 

 

 

244

 

Additional paid-in capital

 

 

269,371

 

 

 

261,766

 

Retained earnings

 

 

175,860

 

 

 

174,631

 

Treasury stock - 5,332 and 5,305 shares as of June 30, 2023 and
   December 31, 2022, respectively

 

 

(207,887

)

 

 

(207,067

)

Accumulated other comprehensive loss

 

 

(5,944

)

 

 

(7,918

)

Total stockholders’ equity

 

 

231,645

 

 

 

221,656

 

Total liabilities and stockholders’ equity

 

$

570,674

 

 

$

608,438

 

 

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

 

3


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Research

 

$

87,699

 

 

$

89,447

 

 

$

168,605

 

 

$

175,227

 

Consulting

 

 

29,970

 

 

 

39,262

 

 

 

61,720

 

 

 

77,693

 

Events

 

 

17,920

 

 

 

19,537

 

 

 

18,934

 

 

 

20,297

 

Total revenues

 

 

135,589

 

 

 

148,246

 

 

 

249,259

 

 

 

273,217

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

54,614

 

 

 

60,991

 

 

 

103,906

 

 

 

114,242

 

Selling and marketing

 

 

41,581

 

 

 

44,974

 

 

 

83,113

 

 

 

89,018

 

General and administrative

 

 

15,315

 

 

 

15,925

 

 

 

36,542

 

 

 

31,449

 

Depreciation

 

 

2,191

 

 

 

2,299

 

 

 

4,295

 

 

 

4,618

 

Amortization of intangible assets

 

 

3,068

 

 

 

3,354

 

 

 

6,134

 

 

 

6,716

 

Restructuring and related costs

 

 

10,532

 

 

 

 

 

 

12,121

 

 

 

 

Total operating expenses

 

 

127,301

 

 

 

127,543

 

 

 

246,111

 

 

 

246,043

 

Income from operations

 

 

8,288

 

 

 

20,703

 

 

 

3,148

 

 

 

27,174

 

Interest expense

 

 

(730

)

 

 

(535

)

 

 

(1,523

)

 

 

(1,148

)

Other income (expense), net

 

 

514

 

 

 

103

 

 

 

1,064

 

 

 

(154

)

Gain on investments, net

 

 

 

 

 

 

 

 

 

 

 

426

 

Income before income taxes

 

 

8,072

 

 

 

20,271

 

 

 

2,689

 

 

 

26,298

 

Income tax expense

 

 

2,768

 

 

 

6,397

 

 

 

1,460

 

 

 

8,276

 

Net income

 

$

5,304

 

 

$

13,874

 

 

$

1,229

 

 

$

18,022

 

Basic income per common share

 

$

0.28

 

 

$

0.74

 

 

$

0.06

 

 

$

0.95

 

Diluted income per common share

 

$

0.28

 

 

$

0.72

 

 

$

0.06

 

 

$

0.94

 

Basic weighted average common shares outstanding

 

 

19,193

 

 

 

18,871

 

 

 

19,151

 

 

 

18,929

 

Diluted weighted average common shares outstanding

 

 

19,258

 

 

 

19,173

 

 

 

19,214

 

 

 

19,218

 

 

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

 

4


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

$

5,304

 

 

$

13,874

 

 

$

1,229

 

 

$

18,022

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

746

 

 

 

(4,528

)

 

 

1,952

 

 

 

(5,842

)

Net change in market value of investments

 

(11

)

 

 

(29

)

 

 

22

 

 

 

(93

)

Net change in market value of interest rate swap

 

 

 

 

68

 

 

 

 

 

 

264

 

Other comprehensive income (loss)

 

735

 

 

 

(4,489

)

 

 

1,974

 

 

 

(5,671

)

Comprehensive income

$

6,039

 

 

$

9,385

 

 

$

3,203

 

 

$

12,351

 

 

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

 

5


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 

 

Six Months Ended

 

 

June 30,

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

1,229

 

 

$

18,022

 

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

 

 

 

 

 

Depreciation

 

4,295

 

 

 

4,618

 

Impairment of property and equipment

 

600

 

 

 

 

Amortization of intangible assets

 

6,134

 

 

 

6,716

 

Net gains from investments

 

 

 

 

(426

)

Deferred income taxes

 

(1,479

)

 

 

(3,225

)

Stock-based compensation

 

7,025

 

 

 

7,131

 

Operating lease right-of-use assets amortization and impairments

 

6,691

 

 

 

5,384

 

Amortization of deferred financing fees

 

220

 

 

 

219

 

Amortization of (discount) premium on investments

 

(122

)

 

 

71

 

Foreign currency losses

 

39

 

 

 

80

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

27,391

 

 

 

26,705

 

Deferred commissions

 

6,299

 

 

 

7,062

 

Prepaid expenses and other current assets

 

(7,122

)

 

 

(326

)

Accounts payable

 

767

 

 

 

(734

)

Accrued expenses and other liabilities

 

(28,824

)

 

 

(30,680

)

Deferred revenue

 

(535

)

 

 

318

 

Operating lease liabilities

 

(6,820

)

 

 

(6,180

)

Net cash provided by operating activities

 

15,788

 

 

 

34,755

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(2,664

)

 

 

(2,698

)

Purchases of marketable investments

 

(964

)

 

 

(12,028

)

Proceeds from maturities of marketable investments

 

7,138

 

 

 

10,955

 

Other investing activity

 

(66

)

 

 

179

 

Net cash provided by (used in) investing activities

 

3,444

 

 

 

(3,592

)

Cash flows from financing activities:

 

 

 

 

 

Payments on borrowings

 

(15,000

)

 

 

(25,000

)

Repurchases of common stock

 

(820

)

 

 

(15,112

)

Proceeds from issuance of common stock under employee equity incentive plans

 

1,840

 

 

 

2,077

 

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

 

(1,259

)

 

 

(255

)

Net cash used in financing activities

 

(15,239

)

 

 

(38,290

)

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

 

2,424

 

 

 

(5,645

)

Net change in cash, cash equivalents and restricted cash

 

6,417

 

 

 

(12,772

)

Cash, cash equivalents and restricted cash, beginning of period

 

105,654

 

 

 

118,031

 

Cash, cash equivalents and restricted cash, end of period

$

112,071

 

 

$

105,259

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for interest

$

1,302

 

 

$

938

 

Cash paid for income taxes

$

9,729

 

 

$

4,189

 

 

 

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

 

6


 

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1 — Interim Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Forrester Research, Inc. (“Forrester”) Annual Report on Form 10-K for the year ended December 31, 2022. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the financial position, results of operations, comprehensive income, and cash flows as of the dates and for the periods presented have been included. The results of operations for the three and six months ended June 30, 2023 may not be indicative of the results for the year ending December 31, 2023, or any other period.

Presentation of Restricted Cash

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

 

 

Six Months Ended June 30,

 

 

2023

 

 

2022

 

Cash and cash equivalents

$

109,951

 

 

$

103,225

 

Restricted cash classified in other assets (1):

 

2,120

 

 

 

2,034

 

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

$

112,071

 

 

$

105,259

 

 

(1)
Restricted cash consists of collateral required for leased office space. The short-term or long-term classification regarding the collateral for the leased office space is determined in accordance with the expiration of the underlying leases.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Finance Reporting. The new standard provides optional guidance for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting due to the risk of cessation of the London Interbank Offered Rate (“LIBOR”). The updates apply to contracts, hedging relationships, and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform, and as a result require a modification. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this update defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments in this update apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. It is anticipated the standard will have no impact on the Company’s financial position or results of operations.

 

Note 2 — Marketable Investments

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

 

 

As of June 30, 2023

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate obligations

 

$

11,846

 

 

$

 

 

$

(162

)

 

$

11,684

 

Federal agency obligations

 

 

1,999

 

 

 

 

 

 

(19

)

 

 

1,980

 

Total

 

$

13,845

 

 

$

 

 

$

(181

)

 

$

13,664

 

 

 

7


 

 

 

 

As of December 31, 2022

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate obligations

 

$

17,900

 

 

$

8

 

 

$

(205

)

 

$

17,703

 

Federal agency obligations

 

 

1,999

 

 

 

 

 

 

(14

)

 

 

1,985

 

Total

 

$

19,899

 

 

$

8

 

 

$

(219

)

 

$

19,688

 

Realized gains and losses on investments are included in earnings and are determined using the specific identification method. There were no realized gains or losses on marketable investments during the three and six months ended June 30, 2023 and 2022.

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

 

 

FY 2023

 

 

FY 2024

 

 

FY 2025

 

 

Total

 

Corporate obligations

 

$

5,953

 

 

$

3,832

 

 

$

1,899

 

 

$

11,684

 

Federal agency obligations

 

 

 

 

 

1,980

 

 

 

 

 

$

1,980

 

Total

 

$

5,953

 

 

$

5,812

 

 

$

1,899

 

 

$

13,664

 

 

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 June 30, 2023

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Corporate obligations

 

$

7,280

 

 

$

85

 

 

$

4,403

 

 

$

77

 

Federal agency obligations

 

 

1,980

 

 

 

19

 

 

 

 

 

 

 

Total

 

$

9,260

 

 

$

104

 

 

$

4,403

 

 

$

77

 

 

 

 

As of December 31, 2022

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Corporate obligations

 

$

9,619

 

 

$

139

 

 

$

8,084

 

 

$

66

 

Federal agency obligations

 

 

1,985

 

 

 

14

 

 

 

 

 

 

 

Total

 

$

11,604

 

 

$

153

 

 

$

8,084

 

 

$

66

 

 

Note 3 — Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair values of the tangible and identifiable intangible net assets acquired. Goodwill is not amortized; however, it is required to be tested for impairment annually, which requires assessment of the potential impairment at the reporting unit level. Reporting units are determined based on the components of the Company's operating segments that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by segment management. Testing for impairment is also required on an interim basis if an event or circumstance indicates it is more likely than not an impairment loss has been incurred.

The Company performed its annual impairment testing as of November 30, 2022 utilizing a qualitative assessment to determine if it was more likely than not that the fair values of each of its reporting units was less than their respective carrying values and concluded that no impairments existed. Subsequent to completing the annual test and through June 30, 2023, there were no events or circumstances that required an interim impairment test. Accordingly, as of June 30, 2023, the Company had no accumulated goodwill impairment losses. Approximately $8.2 million of goodwill is allocated to the Company’s Consulting reporting unit, which had a negative carrying value as of the date of the last test.

 

The change in the carrying amount of goodwill for the six months ended June 30, 2023 is summarized as follows (in thousands):

Balance at December 31, 2022

$

242,149

 

Translation adjustments

 

1,138

 

Balance at June 30, 2023

$

243,287

 

 

 

8


 

Finite-Lived Intangible Assets

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

 

 

June 30, 2023

 

 

Gross

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

Customer relationships

$

77,798

 

 

$

38,032

 

 

$

39,766

 

Technology

 

16,303

 

 

 

14,992

 

 

 

1,311

 

Trademarks

 

12,486

 

 

 

10,157

 

 

 

2,329

 

Total

$

106,587

 

 

$

63,181

 

 

$

43,406

 

 

 

December 31, 2022

 

 

Gross

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

Customer relationships

$

77,786

 

 

$

33,805

 

 

$

43,981

 

Technology

 

16,803

 

 

 

14,696

 

 

 

2,107

 

Trademarks

 

12,472

 

 

 

9,056

 

 

 

3,416

 

Total

$

107,061

 

 

$

57,557

 

 

$

49,504

 

 

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

 

2023 (remainder)

$

5,817

 

2024

 

9,916

 

2025

 

8,876

 

2026

 

8,392

 

2027

 

8,324

 

Thereafter

 

2,081

 

Total

$

43,406

 

 

Note 4 — Debt

The Company has a credit facility that provides up to $150.0 million of revolving credit commitments and matures in December of 2026. The credit facility includes an expansion feature that permits the Company to increase the revolving credit commitments in an aggregate principal amount up to $50.0 million, subject to approval by the administrative agent and certain customary terms and conditions.

The credit facility contains certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio, minimum interest coverage ratio, and maximum annual capital expenditures. 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, change fiscal year, or enter into certain transactions with affiliates and subsidiaries. The Company was in full compliance with the covenants as of June 30, 2023.

The Company may voluntarily prepay revolving loans under the credit facility at any time and from time to time, without premium or penalty. No interim amortization payments are required to be made under the credit facility.

The credit facility provides that once LIBOR ceases to exist in 2023, the benchmark rate for the loans outstanding will automatically transfer from LIBOR to the Secured Overnight Financing Rate (SOFR). In April 2023, the Company executed a second amendment to the credit facility to facilitate the conversion from LIBOR to SOFR and to set the interest rate at SOFR plus 10 basis points.

Up to $5.0 million of the credit facility is available for the issuance of letters of credit, and any drawings under the letters of credit must be reimbursed within one business day. As of June 30, 2023, $0.6 million in letters of credit were issued under the credit facility.

Outstanding Borrowings

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

 

9


 

Description:

 

June 30, 2023

 

 

December 31, 2022

 

Credit facility

 

$

35,000

 

 

$

50,000

 

The contractual annualized interest rate as of June 30, 2023 was 6.452%, which consisted of SOFR of 5.102% plus a margin of 1.35%.

The Company had $114.4 million of available borrowing capacity on the credit facility (not including the expansion feature) as of June 30, 2023. The weighted average annual effective interest rate for the three and six months ended June 30, 2023, was 6.32% and 6.06%, respectively.

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

Note 5 — Leases

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

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

 

 

 

For the Three Months Ended June 30,

 

 

 

2023

 

 

2022

 

Operating lease cost

 

$

3,240

 

 

$

3,600

 

Short-term lease cost

 

 

257

 

 

 

175

 

Variable lease cost

 

 

1,072

 

 

 

1,463

 

Sublease income

 

 

(130

)

 

 

(192

)

Total lease cost

 

$

4,439

 

 

$

5,046

 

 

 

For the Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

Operating lease cost

 

$

6,554

 

 

$

7,252

 

Short-term lease cost

 

 

518

 

 

 

312

 

Variable lease cost

 

 

1,857

 

 

 

3,013

 

Sublease income

 

 

(261

)

 

 

(383

)

Total lease cost

 

$

8,668

 

 

$

10,194

 

 

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

 

 

 

For the Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

Cash paid for amounts included in the measurement of operating
   lease liabilities

 

$

6,820

 

 

$

6,180

 

Operating lease ROU assets obtained in exchange for lease
   obligations

 

$

1,110

 

 

$

172

 

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

 

 

4.7

 

 

 

5.5

 

Weighted-average discount rate - operating leases

 

 

4.3

%

 

 

4.3

%

 

 

10


 

Future minimum lease payments under non-cancelable leases and estimated future sublease cash receipts from non-cancelable arrangements as of June 30, 2023 are as follows (in thousands):

 

 

 

Operating Lease

 

 

Sublease

 

 

 

Payments

 

 

Cash Receipts

 

2023 (remainder)

 

$

8,133

 

 

$

307

 

2024

 

 

16,184

 

 

 

624

 

2025

 

 

13,920

 

 

 

 

2026

 

 

12,336

 

 

 

 

2027

 

 

5,713

 

 

 

 

Thereafter

 

 

8,913

 

 

 

 

Total lease payments and estimated sublease cash receipts

 

 

65,199

 

 

$

931

 

Less imputed interest

 

 

(6,225

)

 

 

 

Present value of lease liabilities

 

$

58,974

 

 

 

 

 

Lease balances as of June 30, 2023 are as follows (in thousands):

 

Operating lease ROU assets

 

$

44,649

 

 

 

 

 

Short-term operating lease liabilities (1)

 

$

14,143

 

Non-current operating lease liabilities

 

 

44,831

 

Total operating lease liabilities

 

$

58,974

 

 

(1)
Included in accrued expenses and other current liabilities in the Consolidated Balance Sheets.

The Company’s leases do not contain residual value guarantees, material restrictions, or covenants.

During the six months ended June 30, 2023, the Company recorded ROU asset impairments of $0.8 million related to closing one floor of its offices located in San Francisco and one other smaller office location. The impairments are included in restructuring and related costs in the Consolidated Statements of Operations. As a result of the impairments, the ROU assets were required to be recorded at their estimated fair values as Level 3 non-financial assets. The fair values of the asset groups were determined using a discounted cash flow model, which required the use of estimates, including projected cash flows for the related assets, the selection of a discount rate used in the model, and regional real estate industry data.

Note 6 – Revenue and Related Matters

Disaggregated Revenue

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

Revenue by Geography

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

Revenues: (1)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

North America

 

$

112,006

 

 

$

124,177

 

 

$

204,677

 

 

$

226,487

 

Europe

 

 

15,564

 

 

 

15,871

 

 

 

29,276

 

 

 

30,343

 

Asia Pacific

 

 

6,137

 

 

 

6,445

 

 

 

11,519

 

 

 

13,118

 

Other

 

 

1,882

 

 

 

1,753

 

 

 

3,787

 

 

 

3,269

 

Total

 

$

135,589

 

 

$

148,246

 

 

$

249,259

 

 

$

273,217

 

 

(1)
Revenue location is determined based on where the products and services are consumed.

Contract Assets and Contract Liabilities

Accounts Receivable

Accounts receivable includes amounts billed and currently due from customers. Since the only condition for payment of the Company’s invoices is the passage of time, a receivable is recorded on the date an invoice is issued. Also included in accounts receivable are unbilled amounts resulting from revenue exceeding the amount billed to the customer, where the right to payment is unconditional. If the right to payment for services performed was conditional on something other than the passage of time, the unbilled amount would be recorded as a separate contract asset. There were no contract assets as of June 30, 2023 or 2022.

 

11


 

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

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

Deferred Revenue

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

 

During the three months ended June 30, 2023 and 2022, the Company recognized $53.0 million and $58.4 million of revenue, respectively, related to its deferred revenue balances at the beginning of each such period. During the six months ended June 30, 2023 and 2022, the Company recognized $125.9 million and $139.3 million of revenue, respectively, related to its deferred revenue balance at January 1 of each such period.

 

Approximately $362.2 million of revenue is expected to be recognized during the next 24 months from remaining performance obligations as of June 30, 2023.

Reserves for Credit Losses

The allowance for expected credit losses on accounts receivable for the six months ended June 30, 2023 is summarized as follows (in thousands):

Balance at December 31, 2022

 

$

560

 

Provision for expected credit losses

 

 

315

 

Write-offs

 

 

(297

)

Balance at June 30, 2023

 

$

578

 

When evaluating the adequacy of the allowance for expected credit losses, the Company makes judgments regarding the collectability of accounts receivable based, in part, on the Company’s historical loss rate experience, customer concentrations, management’s expectations of future losses as informed by current economic conditions, and changes in customer payment terms. If the expected financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. If the expected financial condition of the Company’s customers were to improve, the allowances may be reduced accordingly.

Cost to Obtain Contracts

The Company capitalizes commissions paid to sales representatives and related fringe benefits costs that are incremental to obtaining customer contracts. These costs are included in deferred commissions in the Consolidated Balance Sheets. The Company accounts for these costs at a portfolio level as the Company’s contracts are similar in nature and the amortization model used closely matches the amortization expense that would be recognized on a contract-by-contract basis. Costs to obtain a contract are amortized to earnings over the initial contract term, which is the same period the related revenue is recognized. Amortization expense related to deferred commissions for the three months ended June 30, 2023 and 2022 was $10.4 million and $11.8 million, respectively. Amortization expense related to deferred commissions for the six months ended June 30, 2023 and 2022 was $19.0 million and $21.8 million, respectively. The Company evaluates the recoverability of deferred commissions at each balance sheet date and there were no impairments recorded during the six months ended June 30, 2023 and 2022.

Note 7 — Derivatives and Hedging

Interest Rate Swap

During 2019, the Company entered into a single interest rate swap contract that matured on December 31, 2022, with an initial notional amount of $95.0 million. The Company paid a base fixed rate of 1.65275% and in return received the greater of: (1) 1-month LIBOR, rounded up to the nearest 1/16 of a percent, or (2) 0.00%.

The swap was used to mitigate the cash flow risk associated with changes in interest rates on the Company’s variable rate debt (refer to Note 4 – Debt). The Company accounted for this derivative contract in accordance with FASB ASC Topic 815 – Derivatives

 

12


 

and Hedging (“Topic 815”), which requires all derivatives, including derivatives designated as accounting hedges, to be recorded on the balance sheet at fair value.

The swap had been designated and accounted for as a cash flow hedge of the forecasted interest payments on the Company’s debt. The swap was considered to be a highly effective hedge of the designated interest rate risk for the entire contract period and changes in the fair value of the swap were recorded in accumulated other comprehensive loss, a component of equity in the Consolidated Balance Sheets.

Foreign Currency Forwards

The Company enters into a limited number of foreign currency forward exchange contracts to mitigate the effects of adverse fluctuations in foreign currency exchange rates on transactions entered into in the normal course of business that are denominated in foreign currencies that differ from the local functional currency. These contracts generally have short durations and are recorded at fair value with both realized and unrealized gains and losses recorded in other income (expense), net in the Consolidated Statements of Operations because the Company does not designate these contracts as hedges for accounting purposes.

During the six months ended June 30, 2023, the Company entered into six foreign currency forward exchange contracts, all of which settled by June 30, 2023. Accordingly, as of June 30, 2023, there is no amount recorded in the Consolidated Balance Sheets for these contracts. During the six months ended June 30, 2022, the Company entered into eight foreign currency forward exchange contracts, all of which settled by June 30, 2022. Accordingly, as of June 30, 2022, there is no amount recorded in the Consolidated Balance Sheets for these contracts.

The Company’s derivative counterparties are investment grade financial institutions. The Company does not have any collateral arrangements with these counterparties and the derivative contracts do not contain credit risk related contingent features. The table below provides information regarding amounts recognized in the Consolidated Statements of Operations for the derivative contracts for the periods indicated (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

Amount recorded in:

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest expense (1)

 

$

 

 

$

(50

)

 

$

 

 

$

(195

)

Other income (expense), net (2)

 

 

4

 

 

 

(93

)

 

 

66

 

 

 

(176

)

Total

 

$

4

 

 

$

(143

)

 

$

66

 

 

$

(371

)

 

(1)
Consists of interest expense from the interest rate swap contract.
(2)
Consists of net realized gains and losses on foreign currency forward contracts.

Note 8 — Fair Value Measurements

The carrying amounts reflected in the Consolidated Balance Sheets for cash, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturities. The Company’s financial instruments also include its outstanding variable-rate borrowings (refer to Note 4 – Debt). The Company believes that the carrying amount of its variable-rate borrowings reasonably approximate their fair values because the rates of interest on those borrowings reflect current market rates of interest.

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

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

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

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

 

13


 

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

 

 

 

As of June 30, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

5,360

 

 

$

 

 

$

5,360

 

Marketable investments (2)

 

 

 

 

 

13,664

 

 

 

13,664

 

Total Assets

 

$

5,360

 

 

$

13,664

 

 

$

19,024

 

 

 

 

As of December 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

5,800

 

 

$

 

 

$

5,800

 

Marketable investments (2)

 

 

 

 

 

19,688

 

 

 

19,688

 

Total Assets

 

$

5,800

 

 

$

19,688

 

 

$

25,488

 

(1)
Included in cash and cash equivalents in the Consolidated Balance Sheets.
(2)
Marketable investments have been initially valued at the transaction price and subsequently valued, at the end of the reporting period, 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.

During the six months ended June 30, 2023, the Company did not transfer assets or liabilities between levels of the fair value hierarchy. Additionally, there have been no changes to the valuation techniques for Level 2 assets and liabilities.

Note 9 — 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 awards, and foreign currency gains or losses are treated as discrete items and are recorded in the period in which they arise.

Income tax expense for the six months ended June 30, 2023 was $1.5 million resulting in an effective tax rate of 54.3% for the period. Income tax expense for the six months ended June 30, 2022 was $8.3 million resulting in an effective tax rate of 31.5% for the period.

The increase in the effective tax rate during the 2023 period was primarily due to tax expense related to the settlement of share-based awards in 2023. The Company anticipates that its effective tax rate for the full year 2023 will be approximately 43%.

Note 10 — Accumulated Other Comprehensive Loss (“AOCL”)

The components of accumulated other comprehensive loss are as follows (net of tax, in thousands):

 

 

Marketable

 

 

Translation

 

 

 

 

 

 

Investments

 

 

Adjustment

 

 

Total AOCL

 

Balance at March 31, 2023

 

$

(126

)

 

$

(6,553

)

 

$

(6,679

)

Foreign currency translation (1)

 

 

 

 

 

746

 

 

 

746

 

Unrealized loss, net of tax of $4

 

 

(11

)

 

 

 

 

 

(11

)

Balance at June 30, 2023

 

$

(137

)

 

$

(5,807

)

 

$

(5,944

)

 

 

 

Marketable

 

 

Interest Rate

 

 

Translation

 

 

 

 

 

 

Investments

 

 

Swap

 

 

Adjustment

 

 

Total AOCL

 

Balance at March 31, 2022

 

$

(89

)

 

$

(16

)

 

$

(4,266

)

 

$

(4,371

)

Foreign currency translation (1)

 

 

 

 

 

 

 

 

(4,528

)

 

 

(4,528

)

Unrealized gain (loss) before reclassification, net
    of tax of $(
1)

 

 

(29

)

 

 

32

 

 

 

 

 

 

3

 

Reclassification to income, net
    of tax of $(
14) (2)

 

 

 

 

 

36

 

 

 

 

 

 

36

 

Balance at June 30, 2022

 

$

(118

)

 

$

52

 

 

$

(8,794

)

 

$

(8,860

)

 

 

14


 

 

 

 

Marketable

 

 

Translation

 

 

 

 

 

 

Investments

 

 

Adjustment

 

 

Total AOCL

 

Balance at December 31, 2022

 

$

(159

)

 

$

(7,759

)

 

$

(7,918

)

Foreign currency translation (1)

 

 

 

 

 

1,952

 

 

 

1,952

 

Unrealized gain, net of tax of $(7)

 

 

22

 

 

 

 

 

 

22

 

Balance at June 30, 2023

 

$

(137

)

 

$

(5,807

)

 

$

(5,944

)

 

 

 

Marketable

 

 

Interest Rate

 

 

Translation

 

 

 

 

 

 

Investments

 

 

Swap

 

 

Adjustment

 

 

Total AOCL

 

Balance at December 31, 2021

 

$

(25

)

 

$

(212

)

 

$

(2,952

)

 

$

(3,189

)

Foreign currency translation (1)

 

 

 

 

 

 

 

 

(5,842

)

 

 

(5,842

)

Unrealized gain (loss) before reclassification, net
   of tax of $(
16)

 

 

(93

)

 

 

123

 

 

 

 

 

 

30

 

Reclassification to income, net
   of tax of $(
54) (2)

 

 

 

 

 

141

 

 

 

 

 

 

141

 

Balance at June 30, 2022

 

$

(118

)

 

$

52

 

 

$

(8,794

)

 

$

(8,860

)

 

(1)
The Company does not record tax provisions or benefits for the net changes in foreign currency translation adjustments as it intends to permanently reinvest undistributed earnings of its foreign subsidiaries.
(2)
Reclassification is related to the Company’s interest rate swap (cash flow hedge) and was recorded in interest expense in the Consolidated Statements of Operations. Refer to Note 7 – Derivatives and Hedging.

 

Note 11 — Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the basic weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income 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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Basic weighted average common shares outstanding

 

 

19,193

 

 

 

18,871

 

 

 

19,151

 

 

 

18,929

 

Weighted average common equivalent shares

 

 

65

 

 

 

302

 

 

 

63

 

 

 

289

 

Diluted weighted average common shares outstanding

 

 

19,258

 

 

 

19,173

 

 

 

19,214

 

 

 

19,218

 

Options and restricted stock units excluded from diluted
   weighted average share calculation as effect would have
   been anti-dilutive

 

 

706

 

 

 

23

 

 

 

657

 

 

 

11

 

 

 

15


 

Note 12 — Stockholders’ Equity

The components of stockholders’ equity are as follows (in thousands):

 

Three Months Ended June 30, 2023

 

 

Common Stock

 

 

 

 

 

 

 

 

Treasury Stock

 

 

Accumulated

 

 

 

 

 

Number
of
Shares

 

 

$0.01ParValue

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Number
of
Shares

 

 

Cost

 

 

Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders'
Equity

 

Balance at March 31, 2023

 

24,495

 

 

$

245

 

 

$

265,691

 

 

$

170,556

 

 

 

5,305

 

 

$

(207,067

)

 

$

(6,679

)

 

$

222,746

 

Issuance of common stock under
   stock plans, including tax effects

 

17

 

 

 

 

 

 

(180

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(180

)

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

(820

)

 

 

 

 

 

(820

)

Stock-based compensation expense

 

 

 

 

 

 

 

3,860

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,860

 

Net income

 

 

 

 

 

 

 

 

 

 

5,304

 

 

 

 

 

 

 

 

 

 

 

 

5,304

 

Net change in marketable investments,
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

(11

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

746

 

 

 

746

 

Balance at June 30, 2023

 

24,512

 

 

$

245

 

 

$

269,371

 

 

$

175,860

 

 

 

5,332

 

 

$

(207,887

)

 

$

(5,944

)

 

$

231,645

 

 

 

Three Months Ended June 30, 2022

 

 

Common Stock

 

 

 

 

 

 

 

 

Treasury Stock

 

 

Accumulated

 

 

 

 

 

Number
of
Shares

 

 

$0.01
Par
Value

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Number
of
Shares

 

 

Cost

 

 

Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders'
Equity

 

Balance at March 31, 2022

 

24,143

 

 

$

241

 

 

$

251,001

 

 

$

156,973

 

 

 

5,202

 

 

$

(201,414

)

 

$

(4,371

)

 

$

202,430

 

Issuance of common stock under
   stock plans, including tax effects

 

16

 

 

 

1

 

 

 

99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

103

 

 

 

(5,653

)

 

 

 

 

 

(5,653

)

Stock-based compensation expense

 

 

 

 

 

 

 

3,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,837

 

Net income

 

 

 

 

 

 

 

 

 

 

13,874

 

 

 

 

 

 

 

 

 

 

 

 

13,874

 

Net change in interest rate swap,
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68

 

 

 

68

 

Net change in marketable investments,
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29

)

 

 

(29

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,528

)

 

 

(4,528

)

Balance at June 30, 2022

 

24,159

 

 

$

242

 

 

$

254,937

 

 

$

170,847

 

 

 

5,305

 

 

$

(207,067

)

 

$

(8,860

)

 

$

210,099

 

 

 

Six Months Ended June 30, 2023

 

 

Common Stock

 

 

 

 

 

 

 

 

Treasury Stock

 

 

Accumulated

 

 

 

 

 

Number
of
Shares

 

 

$0.01
Par
Value

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Number
of
Shares

 

 

Cost

 

 

Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders'
Equity

 

Balance at December 31, 2022

 

24,367

 

 

$

244

 

 

$

261,766

 

 

$

174,631

 

 

 

5,305

 

 

$

(207,067

)

 

$

(7,918

)

 

$

221,656

 

Issuance of common stock under
   stock plans, including tax effects

 

145

 

 

 

1

 

 

 

580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

581

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

(820

)

 

 

 

 

 

(820

)

Stock-based compensation expense

 

 

 

 

 

 

 

7,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,025

 

Net income

 

 

 

 

 

 

 

 

 

 

1,229

 

 

 

 

 

 

 

 

 

 

 

 

1,229

 

Net change in marketable investments,
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

22

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,952

 

 

 

1,952

 

Balance at June 30, 2023

 

24,512

 

 

$

245

 

 

$

269,371

 

 

$

175,860

 

 

 

5,332

 

 

$

(207,887

)

 

$

(5,944

)

 

$

231,645

 

 

 

16


 

 

 

Six Months Ended June 30, 2022

 

 

Common Stock

 

 

 

 

 

 

 

 

Treasury Stock

 

 

Accumulated

 

 

 

 

 

Number
of
Shares

 

 

$0.01
Par
Value

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Number
of
Shares

 

 

Cost

 

 

Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders'
Equity

 

Balance at December 31, 2021

 

24,085

 

 

$

241

 

 

$

245,985

 

 

$

152,825

 

 

 

5,027

 

 

$

(191,955

)

 

$

(3,189

)

 

$

203,907

 

Issuance of common stock under
   stock plans, including tax effects

 

74

 

 

 

1

 

 

 

1,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,822

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

278

 

 

 

(15,112

)

 

 

 

 

 

(15,112

)

Stock-based compensation expense

 

 

 

 

 

 

 

7,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,131

 

Net income

 

 

 

 

 

 

 

 

 

 

18,022

 

 

 

 

 

 

 

 

 

 

 

 

18,022

 

Net change in interest rate swap,
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

264

 

 

 

264

 

Net change in marketable investments,
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(93

)

 

 

(93

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,842

)

 

 

(5,842

)

Balance at June 30, 2022

 

24,159

 

 

$

242

 

 

$

254,937

 

 

$

170,847

 

 

 

5,305

 

 

$

(207,067

)

 

$

(8,860

)

 

$

210,099

 

Equity Plans

 

Restricted stock unit activity for the six months ended June 30, 2023 is presented below (in thousands, except per share data):

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Unvested at December 31, 2022

 

 

682

 

 

$

46.28

 

Granted

 

 

309

 

 

 

34.52

 

Vested

 

 

(117

)

 

 

50.70

 

Forfeited

 

 

(86

)

 

 

43.55

 

Unvested at June 30, 2023

 

 

788

 

 

$

41.32

 

 

Stock option activity for the six months ended June 30, 2023 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, 2022

 

 

89

 

 

$

35.58

 

 

 

 

 

 

 

Granted

 

 

144

 

 

 

33.04

 

 

 

 

 

 

 

Exercised

 

 

(2

)

 

 

34.37

 

 

 

 

 

 

 

Forfeited

 

 

(26

)

 

 

34.27

 

 

 

 

 

 

 

Outstanding at June 30, 2023

 

 

205

 

 

$

33.97

 

 

 

6.74

 

 

$

 

Exercisable at June 30, 2023

 

 

76

 

 

$

35.55

 

 

 

1.81

 

 

$

 

Vested and expected to vest at June 30, 2023

 

 

205

 

 

$

33.97

 

 

 

6.74

 

 

$

 

In May 2023, stockholders of the Company approved the amendment and restatement of the Forrester Research, Inc. Amended and Restated Equity Incentive Plan (the “Amended and Restated Equity Incentive Plan”), pursuant to which the number of shares available for purchase was increased by 3,500,000 shares.

Stock-Based Compensation

Forrester recognizes the fair value of stock-based compensation 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 the Consolidated Statements of Operations (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Cost of services and fulfillment

 

$

2,209

 

 

$

2,203

 

 

$

4,056

 

 

$

4,129

 

Selling and marketing

 

 

807

 

 

 

752

 

 

 

1,304

 

 

 

1,385

 

General and administrative

 

 

844

 

 

 

882

 

 

 

1,665

 

 

 

1,617

 

Total

 

$

3,860

 

 

$

3,837

 

 

$

7,025

 

 

$

7,131

 

 

 

17


 

 

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

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

Equity Incentive Plans

 

 

Employee Stock Purchase Plan

 

 

Employee Stock Purchase Plan

 

 

Equity Incentive Plans

 

 

Employee Stock Purchase Plan

 

 

Employee Stock Purchase Plan

 

Average risk-free interest rate

 

 

4.27

%

 

 

5.00

%

 

 

0.86

%

 

 

4.27

%

 

 

5.00

%

 

 

0.86

%

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

Expected life

 

4.75 Years

 

 

0.5 Years

 

 

0.5 Years

 

 

4.75 Years

 

 

0.5 Years

 

 

0.5 Years

 

Expected volatility

 

 

43

%

 

 

46

%

 

 

24

%

 

 

43

%

 

 

46

%

 

 

24

%

Weighted average fair value

 

$

14.24

 

 

$

9.47

 

 

$

11.02

 

 

$

14.24

 

 

$

9.47

 

 

$

11.02

 

 

Treasury Stock

As of June 30, 2023, Forrester’s Board of Directors had authorized an aggregate $585.0 million to purchase common stock under its stock repurchase program. The shares repurchased may be used, among other things, in connection with Forrester’s equity incentive and purchase plans. During the three and six months ended June 30, 2023, the Company repurchased approximately 27 thousand shares of common stock at an aggregate cost of approximately $0.8 million. During the three and six months ended June 30, 2022, the Company repurchased approximately 0.1 million shares and 0.3 million shares of common stock at an aggregate cost of approximately $5.7 million and $15.1 million, respectively. From the inception of the program through June 30, 2023, the Company repurchased 17.0 million shares of common stock at an aggregate cost of $510.9 million.

Note 13 — Restructuring and Related Costs

In January 2023, the Company implemented a reduction in its workforce of approximately 4% of its employees across various geographies and functions to streamline operations. The Company recorded $4.3 million of severance and related costs for this action during the fourth quarter of 2022, and $0.6 million during the first quarter of 2023. The Company also recorded a restructuring charge of $5.0 million during the fourth quarter of 2022 related to closing one floor of its offices located at 150 Spear Street, San Francisco, California, of which $3.7 million related to an impairment of a right-of-use asset and $1.3 million related to an impairment of leasehold improvements. The Company expects the accrued restructuring and related costs as of June 30, 2023 to be fully paid by the end of 2023.

The following table rolls forward the activity in the restructuring accrual for the January 2023 action for the six months ended June 30, 2023 (in thousands):

Accrual at December 31, 2022

$

4,360

 

Additional restructuring and related costs

 

1,589

 

Non-cash charge (included above)

 

(1,002

)

Cash payments

 

(3,815

)

Accrual at June 30, 2023

$

1,132

 

In May 2023, the Company implemented a reduction of approximately 8% of its workforce across various geographies and functions to better align its cost structure and to streamline its sales and consulting organizations. The Company recorded $7.5 million of severance and related costs for this action during the second quarter of 2023. In addition, the Company closed certain of its smaller offices both inside and outside the U.S. in order to reduce facility costs and better match its facilities to its hybrid work strategy. As a result of closing the offices, the Company recorded restructuring costs of $2.3 million, which included $1.3 million related to right-of-use asset impairments and accelerated amortization and $0.6 million related to impairments of leasehold improvements. In addition, the Company incurred $0.7 million in contract termination costs. The Company expects the majority of the accrued restructuring and related costs as of June 30, 2023 to be fully paid by the end of 2023.

The following table rolls forward the activity in the restructuring accrual for the May 2023 action for the six months ended June 30, 2023 (in thousands):

 

18


 

Accrual at December 31, 2022

$

 

Additional restructuring and related costs

 

10,532

 

Non-cash charge (included above)

 

(2,253

)

Cash payments

 

(3,299

)

Accrual at June 30, 2023

$

4,980

 

 

Note 14 — Operating Segments

The Company's chief operating decision-maker (used in determining the Company's segments) is the chief executive officer and the chief financial officer. The Company operates in three segments: Research, Consulting, and Events. These segments, which are also the Company's reportable segments, are based on the management structure of the Company and how the chief operating decision maker uses financial information to evaluate performance and determine how to allocate resources. The Company’s products and services are delivered through each segment as described below.

The Research segment includes the revenues from all of the Company’s research products as well as consulting revenues from advisory services (such as speeches and advisory days) delivered by the Company’s research organization. Research segment costs include the cost of the organizations responsible for developing and delivering these products in addition to the costs of the product management organization responsible for product pricing and packaging, and the launch of new products.

The Consulting segment includes the revenues and the related costs of the Company’s project consulting organization. The project consulting organization delivers a majority of the Company’s project consulting revenue and certain advisory services.

The Events segment includes the revenues and the costs of the organization responsible for developing and hosting in-person and virtual events.

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

The Company provides information by reportable segment in the tables below (in thousands):

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

Three Months Ended June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

87,699

 

 

$

 

 

$

 

 

$

87,699

 

Consulting revenues

 

 

7,003

 

 

 

22,967

 

 

 

 

 

 

29,970

 

Events revenues

 

 

 

 

 

 

 

 

17,920

 

 

 

17,920

 

Total segment revenues

 

 

94,702

 

 

 

22,967

 

 

 

17,920

 

 

 

135,589

 

Segment expenses

 

 

(32,536

)

 

 

(11,429

)

 

 

(10,524

)

 

 

(54,489

)

Selling, marketing, administrative and other expenses

 

 

 

 

 

 

 

 

 

 

 

(59,212

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

 

 

 

(3,068

)

Restructuring and related costs

 

 

 

 

 

 

 

 

 

 

 

(10,532

)

Interest expense, other income, and gains on investments

 

 

 

 

 

 

 

 

 

 

 

(216

)

Income before income taxes

 

 

 

 

 

 

 

 

 

 

$

8,072

 

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

Three Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

89,447

 

 

$

 

 

$

 

 

$

89,447

 

Consulting revenues

 

 

10,921

 

 

 

28,341

 

 

 

 

 

 

39,262

 

Events revenues

 

 

 

 

 

 

 

 

19,537

 

 

 

19,537

 

Total segment revenues

 

 

100,368

 

 

 

28,341

 

 

 

19,537

 

 

 

148,246

 

Segment expenses

 

 

(32,897

)

 

 

(14,059

)

 

 

(11,051

)

 

 

(58,007

)

Selling, marketing, administrative and other expenses

 

 

 

 

 

 

 

 

 

 

 

(66,182

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

 

 

 

(3,354

)

Interest expense, other income, and gains on investments

 

 

 

 

 

 

 

 

 

 

 

(432

)

Income before income taxes

 

 

 

 

 

 

 

 

 

 

$

20,271

 

 

 

19


 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

Six Months Ended June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

168,605

 

 

$

 

 

$

 

 

$

168,605

 

Consulting revenues

 

 

14,922

 

 

 

46,798

 

 

 

 

 

 

61,720

 

Events revenues

 

 

 

 

 

 

 

 

18,934

 

 

 

18,934

 

Total segment revenues

 

 

183,527

 

 

 

46,798

 

 

 

18,934

 

 

 

249,259

 

Segment expenses

 

 

(68,043

)

 

 

(23,782

)

 

 

(12,155

)

 

 

(103,980

)

Selling, marketing, administrative and other expenses

 

 

 

 

 

 

 

 

 

 

 

(123,876

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

 

 

 

(6,134

)

Restructuring and related costs

 

 

 

 

 

 

 

 

 

 

 

(12,121

)

Interest expense, other income, and gains on investments

 

 

 

 

 

 

 

 

 

 

 

(459

)

Income before income taxes

 

 

 

 

 

 

 

 

 

 

$

2,689

 

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

Six Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

175,227

 

 

$

 

 

$

 

 

$

175,227

 

Consulting revenues

 

 

22,111

 

 

 

55,582

 

 

 

 

 

 

77,693

 

Events revenues

 

 

 

 

 

 

 

 

20,297

 

 

 

20,297

 

Total segment revenues

 

 

197,338

 

 

 

55,582

 

 

 

20,297

 

 

 

273,217

 

Segment expenses

 

 

(67,077

)

 

 

(28,376

)

 

 

(12,802

)

 

 

(108,255

)

Selling, marketing, administrative and other expenses

 

 

 

 

 

 

 

 

 

 

 

(131,072

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

 

 

 

(6,716

)

Interest expense, other expense, and gains on investments

 

 

 

 

 

 

 

 

 

 

 

(876

)

Income before income taxes

 

 

 

 

 

 

 

 

 

 

$

26,298

 

 

Note 15 — Contingencies

From time to time, the Company may be subject to legal proceedings and civil and regulatory claims that arise in the ordinary course of its business activities. It is the Company's policy to record accruals for legal contingencies to the extent that it has concluded that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated, and to expense costs associated with loss contingencies, including any related legal fees, as they are incurred. The Company reviews its loss contingencies at least quarterly and adjusts its accruals and/or disclosures to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, or other new information, as deemed necessary. Once established, a provision may change in the future due to new developments or changes in circumstances and could increase or decrease the Company’s earnings in the period that the changes are made. Following an April 2023 mediation in a wage-related matter that resulted in an agreement in principle, the Company accrued $4.8 million of expense in the quarter ended March 31, 2023 that is classified in general and administrative expense in the Consolidated Statement of Operations.

The Company believes that it has meritorious defenses in connection with its current legal proceedings and claims and intends to vigorously contest each of them. Regardless of the outcome, legal proceedings and claims can have a material adverse effect on the Company because of defense and settlement costs, diversion of management resources, and other factors.

In the opinion of the Company's management, based upon information currently available to the Company, while the outcome of these legal proceedings and claims is uncertain, the likely results of these legal proceedings and claims are not expected, either individually or in the aggregate, to have a material adverse effect on the Company's financial position, results of operations or cash flows, although the effect could be material to the Company's consolidated results of operations or consolidated cash flows for any interim reporting period.

 

20


 

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 changing stakeholder expectations, migration of our clients into our Forrester Decisions products, product development, holding hybrid events, possible acquisitions, future dividends, future share repurchases, future growth rates, operating income and cash from operations, future deferred revenue, future compliance with financial covenants under our credit facility, future interest expense, anticipated increases in, and productivity of, our sales force and headcount, the adequacy of our cash, and cash flows to satisfy our working capital and capital expenditures, and the anticipated impact of accounting standards. These statements are based on our current plans and expectations and involve risks and uncertainties. Important factors that could cause actual future activities and results to differ include, among others, our ability to retain and enrich subscriptions to, and licenses of, our Research products and services, our ability to fulfill existing or generate new consulting engagements and advisory services, our ability to generate and increase demand for the Events we host, any adverse economic conditions that result in a reduction in technology spending or demand for our products and services, our international operations expose us to a variety of operational risks which could negatively impact us, our ability to offer new products and services, our dependence on key personnel, our ability to attract and retain qualified professional staff, our ability to respond to business and economic conditions and market trends, the impact of our outstanding debt, competition and industry consolidation, possible variations in our quarterly operating results, concentration of our stock ownership, the possibility of network disruptions and security breaches, our ability to enforce and protect our intellectual property rights, compliance with privacy laws, taxation risks, risks related to health epidemics that could adversely impact our business 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, 2022. 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 subscriptions to our Research products and services, licensing electronic “reprints” of our Research, performing consulting projects and advisory services, and hosting events. We offer contracts for our Research products that are typically renewable annually and payable in advance. Subscription products are recognized as revenue over the term of the contract. Accordingly, a substantial portion of our billings are initially recorded as deferred revenue. Reprints include an obligation to deliver a customer-selected research document and certain usage data provided through an on-line platform, which represents two performance obligations. We recognize revenue for the performance obligation for the data portion of the reprint ratably over the license term. We recognize revenue for the performance obligation for the research document at the time of providing access to the document. Billings for licensing of reprints are initially recorded as deferred revenue. Clients purchase consulting projects and advisory services independently and/or to supplement their access to our subscription-based products. Consulting project revenues, which are based upon fixed-fee agreements, are recognized as the services are provided. Advisory service revenues, such as speeches and advisory days, are recognized when the service is complete or the customer receives the agreed upon deliverable. Billings attributable to consulting projects and advisory services are initially recorded as deferred revenue. Events revenues consist of ticket and sponsorship sales for a Forrester-hosted event. Billings for events 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, net of sublease income, and annual fees for cloud-based information technology systems are allocated to these categories according to the number of employees in each group.

Our key metrics focus on our contract value ("CV") products. We are focusing on CV products as these products are our most profitable products and historically our contracts for CV products have renewed at high rates (as measured by our client retention and wallet retention metrics). Our CV products make up essentially all of our research revenues.

We calculate CV at the foreign currency rates used for internal planning purposes each year. For comparative purposes, we have recast historical CV at the current year foreign currency rates. We have included the recast CV metric below for the six months ended

 

21


 

June 30, 2022, and we have also provided recast CV amounts dating back to the second quarter of 2021, on the investor relations section of our website.

Contract value, client retention, wallet retention, and number of clients are metrics that we believe are important to understanding our research business. We define these metrics as follows:

Contract value (CV) — is defined as the value attributable to all of our recurring research-related contracts. Contract value is calculated as the annualized value of all contracts in effect at a specific point in time, without regard to how much revenue has already been recognized. Contract value primarily consists of subscription-based products for which revenue is recognized on a ratable basis, except for the entitlements embedded in our subscription products, such as event tickets and advisory sessions, for which the revenue is recognized when the item is delivered. Contract value also includes our reprint products, as these products are used throughout the year by our clients and are typically renewed.
Client retention — represents the percentage of client companies (defined as all clients that buy a CV product) at the prior year measurement date that have active contracts at the current year measurement date.
Wallet retention — represents a measure of the CV we have retained with clients over a twelve-month period. Wallet retention is calculated on a percentage basis by dividing the annualized contract value of our current clients, who were also clients a year ago, by the total annualized contract value from a year ago.
Clients — is calculated at the enterprise level as all clients that have an active CV contract.

Client retention and wallet retention 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

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

Contract value

 

$

344.0

 

 

$

345.3

 

 

$

(1.3

)

 

 

(—

%)

Client retention

 

 

74

%

 

 

76

%

 

(2) points

 

 

 

 

Wallet retention

 

 

92

%

 

 

99

%

 

(7) points

 

 

 

 

Number of clients

 

 

2,604

 

 

 

2,928

 

 

 

(324

)

 

 

(11

%)

Contract value at June 30, 2023 was consistent with the prior year period. Client retention decreased by 2 percentage points and wallet retention decreased by 7 percentage points at June 30, 2023 compared to the prior year period, however the retention metrics were consistent with the prior quarter. The decrease in our retention rates and number of clients from the prior year period is primarily attributable to 1) macroeconomic conditions affecting our client base including a) funding and budget pressure on our smaller technology clients and the technology industry in general, and b) the uncertain economic conditions caused by high-inflation, increasing interest rates, geopolitical turbulence, and the threat of recession, and 2) the ongoing transition of our client base to our Forrester Decisions product platform that was launched in August 2021. The ongoing macroeconomic conditions and product transition are anticipated to pressure our key metrics through 2023.

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 generally accepted accounting principles 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 estimates, including but not limited to, those related to our revenue recognition, goodwill, intangible and other long-lived assets, and income taxes. Management bases its estimates on historical experience, data available at the time the estimates are made, and various 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 critical accounting estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2022.

 

22


 

Results of Operations

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

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

 

64.7

%

 

 

60.3

%

 

 

67.6

%

 

 

64.1

%

Consulting revenues

 

 

22.1

 

 

 

26.5

 

 

 

24.8

 

 

 

28.4

 

Events revenues

 

 

13.2

 

 

 

13.2

 

 

 

7.6

 

 

 

7.5

 

Total revenues

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

40.3

 

 

 

41.1

 

 

 

41.7

 

 

 

41.8

 

Selling and marketing

 

 

30.7

 

 

 

30.3

 

 

 

33.3

 

 

 

32.6

 

General and administrative

 

 

11.3

 

 

 

10.7

 

 

 

14.7

 

 

 

11.5

 

Depreciation

 

 

1.5

 

 

 

1.6

 

 

 

1.6

 

 

 

1.7

 

Amortization of intangible assets

 

 

2.3

 

 

 

2.3

 

 

 

2.5

 

 

 

2.5

 

Restructuring and related costs

 

 

7.8

 

 

 

 

 

 

4.9

 

 

 

 

Income from operations

 

 

6.1

 

 

 

14.0

 

 

 

1.3

 

 

 

9.9

 

Interest expense

 

 

(0.5

)

 

 

(0.4

)

 

 

(0.6

)

 

 

(0.4

)

Other income (expense), net

 

 

0.4

 

 

 

0.1

 

 

 

0.4

 

 

 

(0.1

)

Gain on investments, net

 

 

 

 

 

 

 

 

 

 

 

0.2

 

Income before income taxes

 

 

6.0

 

 

 

13.7

 

 

 

1.1

 

 

 

9.6

 

Income tax expense

 

 

2.1

 

 

 

4.3

 

 

 

0.6

 

 

 

3.0

 

Net income

 

 

3.9

%

 

 

9.4

%

 

 

0.5

%

 

 

6.6

%

Three and Six Months Ended June 30, 2023 and 2022

Revenues

 

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

Total revenues

 

$

135.6

 

 

$

148.2

 

 

$

(12.7

)

 

 

(9

%)

Research revenues

 

$

87.7

 

 

$

89.4

 

 

$

(1.7

)

 

 

(2

%)

Consulting revenues

 

$

30.0

 

 

$

39.3

 

 

$

(9.3

)

 

 

(24

%)

Events revenues

 

$

17.9

 

 

$

19.5

 

 

$

(1.6

)

 

 

(8

%)

Revenues attributable to customers outside of
   the U.S.

 

$

28.0

 

 

$

29.8

 

 

$

(1.8

)

 

 

(6

%)

Percentage of revenue attributable to customers
   outside of the U.S.

 

 

21

%

 

 

20

%

 

1 point

 

 

 

 

 

 

 

Six Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

Total revenues

 

$

249.3

 

 

$

273.2

 

 

$

(24.0

)

 

 

(9

%)

Research revenues

 

$

168.6

 

 

$

175.2

 

 

$

(6.6

)

 

 

(4

%)

Consulting revenues

 

$

61.7

 

 

$

77.7

 

 

$

(16.0

)

 

 

(21

%)

Events revenues

 

$

18.9

 

 

$

20.3

 

 

$

(1.4

)

 

 

(7

%)

Revenues attributable to customers outside of
   the U.S.

 

$

53.2

 

 

$

57.3

 

 

$

(4.1

)

 

 

(7

%)

Percentage of revenue attributable to customers
   outside of the U.S.

 

 

21

%

 

 

21

%

 

 

 

 

 

 

 

 

23


 

Total revenues decreased 9% during both the three and six months ended June 30, 2023, compared to the prior year periods, and decreased by 8% for the six months ended June 30, 2023 when excluding the effect of changes in foreign currencies. Revenues from customers outside the U.S. decreased 6% and 7% during the three and six months ended June 30, 2023, respectively, and decreased by approximately 5% for the six months ended June 30, 2023 when excluding the effect of changes in foreign currencies.

Research revenues are recognized primarily on a ratable basis over the term of the contracts, which are generally 12 or 24-month periods. Research revenues decreased 2% and 4% during the three and six months ended June 30, 2023, respectively, compared to the prior year periods, and decreased by 3% for the six months ended June 30, 2023 when excluding the effect of changes in foreign currencies. The decrease in revenues during the periods was primarily due to flat CV growth, with revenue from subscription research products growing 2% during each of the periods, which was offset by a decline in revenue from our reprint product and our other smaller and discontinued products during both periods.

Consulting revenues decreased 24% and 21% during the three and six months ended June 30, 2023, respectively, compared to the prior year periods, and decreased by 20% for the six months ended June 30, 2023 when excluding the effect of changes in foreign currencies. The decrease in revenues during the three and six months ended June 30, 2023 was due to 1) a decrease in delivery of advisory services by our research analysts due primarily to lower client bookings for these services and 2) a decrease in delivery of consulting services by our consulting organization due to the macroeconomic environment and, based on our continued focus on contract value products, we have enacted a policy of only selling consulting to contract value clients, except in limited circumstances.

Events revenues decreased 8% and 7% during the three and six months ended June 30, 2023, respectively, compared to the prior year periods, and decreased by 6% for the six months ended June 30, 2023 when excluding the effect of changes in foreign currencies. The decrease in revenues during the three and six months ended June 30, 2023 was due to a decrease in sponsorship revenues and a decrease in event ticket revenue due to lower attendance.

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

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

Cost of services and fulfillment (dollars in millions)

 

$

54.6

 

 

$

61.0

 

 

$

(6.4

)

 

 

(10

%)

Cost of services and fulfillment as a percentage of
   total revenues

 

 

40

%

 

 

41

%

 

(1) point

 

 

 

 

Service and fulfillment employees
   (at end of period)

 

 

812

 

 

 

879

 

 

 

(67

)

 

 

(8

%)

 

 

 

Six Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

Cost of services and fulfillment (dollars in millions)

 

$

103.9

 

 

$

114.2

 

 

$

(10.3

)

 

 

(9

%)

Cost of services and fulfillment as a percentage of
   total revenues

 

 

42

%

 

 

42

%

 

 

 

 

 

 

Cost of services and fulfillment expenses decreased 10% during the three months ended June 30, 2023 compared to the prior year period. The decrease was primarily due to (1) a $3.8 million decrease in compensation and benefit costs due to a decrease in headcount, incentive bonus costs, and benefit costs, (2) a $1.8 million decrease in professional services costs primarily due to a decrease in contractor costs, outsourced expenses, and consulting fees, partially offset by an increase in survey costs, and (3) a $0.5 million decrease in facilities costs primarily due to a decrease in straight-line and variable lease expense.

Cost of service and fulfillment expenses decreased 9% during the six months ended June 30, 2023 compared to the prior year period, and decreased by 8% when excluding the effect of changes in foreign currencies. The decrease was primarily due to (1) a $4.8 million decrease in compensation and benefit costs due to a decrease in both incentive bonus costs and benefit costs (due to the introduction of the flexible vacation and personal paid time off policy in the United States), which were partially offset by an increase in salary costs due to an increase in average headcount, (2) a $4.5 million decrease in professional services costs primarily due to a decrease in contractor costs, outsourced expenses, and consulting fees, and (3) a $1.1 million decrease in facilities costs due to a decrease in straight-line and variable lease expense.

 

24


 

Selling and Marketing

 

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

Selling and marketing expenses (dollars in millions)

 

$

41.6

 

 

$

45.0

 

 

$

(3.4

)

 

 

(8

%)

Selling and marketing expenses as a percentage of
   total revenues

 

 

31

%

 

 

30

%

 

1 point

 

 

 

 

Selling and marketing employees (at end of period)

 

 

700

 

 

 

780

 

 

 

(80

)

 

 

(10

%)

 

 

 

Six Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

Selling and marketing expenses (dollars in millions)

 

$

83.1

 

 

$

89.0

 

 

$

(5.9

)

 

 

(7

%)

Selling and marketing expenses as a percentage of
   total revenues

 

 

33

%

 

 

33

%

 

 

 

 

 

 

Selling and marketing expenses decreased 8% during the three months ended June 30, 2023 compared to the prior year period, and decreased by 7% when excluding the effect of changes in foreign currencies. The decrease was primarily due to a $3.1 million decrease in compensation and benefit costs due to a decrease in commissions expense, headcount, incentive bonus costs, and benefit costs and (2) a $0.4 million decrease in facilities costs primarily due to a decrease in straight-line and variable lease expense.

Selling and marketing expenses decreased 7% during the six months ended June 30, 2023 compared to the prior year period, and decreased by 6% when excluding the effect of changes in foreign currencies. The decrease was primarily due to (1) a $4.7 million decrease in compensation and benefit costs due a decrease in commissions expense, incentive bonus costs, and benefit costs (due to the introduction of the flexible vacation and personal paid time off policy in the United States) and (2) a $1.0 million decrease in facilities costs due to a decrease in straight-line and variable lease expense.

General and Administrative

 

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

General and administrative expenses (dollars in
   millions)

 

$

15.3

 

 

$

15.9

 

 

$

(0.6

)

 

 

(4

%)

General and administrative expenses as a percentage
   of total revenues

 

 

11

%

 

 

11

%

 

 

 

 

 

 

General and administrative employees (at end of
   period)

 

 

281

 

 

 

286

 

 

 

(5

)

 

 

(2

%)

 

 

 

Six Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

General and administrative expenses (dollars in
   millions)

 

$

36.5

 

 

$

31.4

 

 

$

5.1

 

 

 

16

%

General and administrative expenses as a percentage
   of total revenues

 

 

15

%

 

 

12

%

 

3 points

 

 

 

 

General and administrative expenses decreased 4% during the three months ended June 30, 2023 compared to the prior year period. The decrease was primarily due to a $0.7 million decrease in compensation and benefit costs due to a decrease in incentive bonus and benefit costs, partially offset by an increase in salaries due to an increase in average headcount.

General and administrative expenses increased 16% during the six months ended June 30, 2023 compared to the prior year period, and increased by 17% when excluding the effect of changes in foreign currencies. The increase was primarily due to a $5.7 million increase in legal costs, due primarily to a $4.8 million provision for a preliminary legal settlement for a wage-related matter and related legal services.

 

25


 

Depreciation

Depreciation expense was consistent during the three and six months ended June 30, 2023 compared to the prior year periods.

Amortization of Intangible Assets

Amortization expense decreased by $0.3 million and $0.6 million during the three and six months ended June 30, 2023, respectively, compared to the prior year periods due to a decrease in the amortization of a trademark intangible asset.

Restructuring and Related Costs

In January 2023, we implemented a reduction in our workforce of approximately 4% of our employees across various geographies and functions to streamline operations. We recorded $4.3 million of severance and related costs for this action during the fourth quarter of 2022, and $0.6 million during the first quarter of 2023. We recorded a restructuring charge of $5.0 million during the fourth quarter of 2022 related to closing one floor of our offices in California, of which $3.7 million related to an impairment of a right-of-use asset and $1.3 million related to an impairment of leasehold improvements. During the first quarter of 2023, we recorded an incremental $0.4 million impairment to our California office. We also recorded a $0.6 million charge during the first quarter of 2023 for the write-off of a previously capitalized software project. We expect all of the severance and related costs for this plan to be paid during 2023.

In May 2023, we implemented a reduction of approximately 8% of our workforce across various geographies and functions to better align our cost structure with our revised revenue outlook for the year, and to streamline our sales and consulting organizations to more efficiently go to market in support of driving contract value growth in the future. We recorded $7.5 million of severance and related costs for this action during the second quarter of 2023. In addition, we closed certain of our smaller offices both inside and outside the U.S. in order to reduce facility costs and better match our facilities to our hybrid work strategy. As a result of closing the offices, we recorded restructuring costs of $2.3 million, which included $1.3 million related to right-of-use asset impairments and accelerated amortization and $0.6 million related to impairments of leasehold improvements. We also incurred $0.7 million in contract termination costs. We expect the majority of the accrued restructuring and related costs as of June 30, 2023 to be fully paid by the end of 2023.

Interest Expense

Interest expense consists of interest on our borrowings and in 2022 also included realized gains and losses on the related interest rate swap. Interest expense increased by $0.2 million and $0.4 million during the three and six months ended June 30, 2023, respectively, compared to the prior year periods due to an increase in the annualized interest rate on our borrowing partially offset by lower average outstanding borrowings.

Other Income (Expense), Net

Other income (expense), net primarily consists of gains and losses on foreign currency, gains and losses on foreign currency forward contracts, and interest income. Other income (expense), net increased $0.4 million and $1.2 million during the three and six months ended June 30, 2023, respectively, compared to the prior year periods primarily due to an increase in interest income.

Gain on Investments, Net

Gain on investments, net primarily represents our share of equity method investment gains and losses from our technology-related investment funds. Gain on investments, net decreased $0.4 million during the six months ended June 30, 2023 compared to the prior year period. The decrease was due to a decrease in investment gains generated by the underlying funds.

Income Tax Expense

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

Provision for income taxes (dollars in millions)

 

$

2.8

 

 

$

6.4

 

 

$

(3.6

)

 

 

(57

%)

Effective tax rate

 

 

34

%

 

 

32

%

 

2 points

 

 

 

 

 

 

 

Six Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

 

(Decrease)

 

Provision for income taxes (dollars in millions)

 

$

1.5

 

 

$

8.3

 

 

$

(6.8

)

 

 

(82

%)

Effective tax rate

 

 

54

%

 

 

31

%

 

23 points

 

 

 

 

 

 

26


 

Income tax expense decreased by $6.8 million during the six months ended June 30, 2023 compared to the prior year period primarily due to the decrease in income from operations. The increase in the effective tax rate during the 2023 period was primarily due to tax expense related to the settlement of share-based awards in 2023. For the full year 2023, we anticipate that our effective tax rate will be approximately 43%.

Segment Results

We operate in three segments: Research, Consulting, and Events. These segments, which are also our reportable segments, are based on our management structure and how management uses financial information to evaluate performance and determine how to allocate resources. Our products and services are delivered through each segment as described below.

The Research segment includes the revenues from all of our research products as well as consulting revenues from advisory services (such as speeches and advisory days) delivered by our research organization. Research segment costs include the cost of the organizations responsible for developing and delivering these products in addition to the cost of the product management organization that is responsible for product pricing and packaging and the launch of new products.

The Consulting segment includes the revenues and the related costs of our project consulting organization. The project consulting organization delivers a majority of our project consulting revenue and certain advisory services.

The Events segment includes the revenues and the costs of the organization responsible for developing and hosting in-person and virtual events.

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

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

 

 

(dollars in thousands)

 

Three Months Ended June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

87,699

 

 

$

 

 

$

 

 

$

87,699

 

Consulting revenues

 

 

7,003

 

 

 

22,967

 

 

 

 

 

 

29,970

 

Events revenues

 

 

 

 

 

 

 

 

17,920

 

 

 

17,920

 

Total segment revenues

 

 

94,702

 

 

 

22,967

 

 

 

17,920

 

 

 

135,589

 

Segment expenses

 

 

(32,536

)

 

 

(11,429

)

 

 

(10,524

)

 

 

(54,489

)

Year over year revenue change

 

 

(6

%)

 

 

(19

%)

 

 

(8

%)

 

 

(9

%)

Year over year expense change

 

 

(1

%)

 

 

(19

%)

 

 

(5

%)

 

 

(6

%)

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

 

 

(dollars in thousands)

 

Three Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

89,447

 

 

$

 

 

$

 

 

$

89,447

 

Consulting revenues

 

 

10,921

 

 

 

28,341

 

 

 

 

 

 

39,262

 

Events revenues

 

 

 

 

 

 

 

 

19,537

 

 

 

19,537

 

Total segment revenues

 

 

100,368

 

 

 

28,341

 

 

 

19,537

 

 

 

148,246

 

Segment expenses

 

 

(32,897

)

 

 

(14,059

)

 

 

(11,051

)

 

 

(58,007

)

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

 

 

(dollars in thousands)

 

Six Months Ended June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

168,605

 

 

$

 

 

$

 

 

$

168,605

 

Consulting revenues

 

 

14,922

 

 

 

46,798

 

 

 

 

 

 

61,720

 

Events revenues

 

 

 

 

 

 

 

 

18,934

 

 

 

18,934

 

Total segment revenues

 

 

183,527

 

 

 

46,798

 

 

 

18,934

 

 

 

249,259

 

Segment expenses

 

 

(68,043

)

 

 

(23,782

)

 

 

(12,155

)

 

 

(103,980

)

Year over year revenue change

 

 

(7

%)

 

 

(16

%)

 

 

(7

%)

 

 

(9

%)

Year over year expense change

 

 

1

%

 

 

(16

%)

 

 

(5

%)

 

 

(4

%)

 

 

27


 

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

 

 

(dollars in thousands)

 

Six Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

175,227

 

 

$

 

 

$

 

 

$

175,227

 

Consulting revenues

 

 

22,111

 

 

 

55,582

 

 

 

 

 

 

77,693

 

Events revenues

 

 

 

 

 

 

 

 

20,297

 

 

 

20,297

 

Total segment revenues

 

 

197,338

 

 

 

55,582

 

 

 

20,297

 

 

 

273,217

 

Segment expenses

 

 

(67,077

)

 

 

(28,376

)

 

 

(12,802

)

 

 

(108,255

)

 

Research segment revenues decreased 6% and 7% during the three and six months ended June 30, 2023, respectively, compared to the prior year periods. For the three and six months ended June 30, 2023, research product revenues within this segment decreased 2% and 4%, respectively, which was primarily due to flat CV growth, with revenue from our subscription research products growing 2% for both periods, offset by a decline in revenue from our reprint product and our other smaller and discontinued products during the periods. For the three and six months ended June 30, 2023, consulting product revenues within this segment decreased 36% and 33%, respectively, primarily due to decreased delivery of consulting and advisory services by our research analysts due primarily to lower client bookings for these services.

Research segment expenses decreased 1% and increased 1% during the three and six months ended June 30, 2023, respectively, compared to the prior year periods. The decrease in expenses during the three months ended June 30, 2023 was primarily due to a decrease in compensation and benefit costs primarily due to a decrease in headcount and benefit costs. The increase in expenses during the six months ended June 30, 2023 was primarily due to (1) a $1.7 million increase in compensation and benefit costs primarily due to an increase in average headcount, partially offset by (2) a $1.0 million decrease in professional services due to a decrease in contractor costs and consulting fees.

Consulting segment revenues decreased 19% and 16% during the three and six months ended June 30, 2023, respectively, compared to the prior year periods. The decrease in revenues during the three and six months ended June 30, 2023 was primarily due to a decrease in delivery of consulting services due to the macroeconomic environment and, based on our continued focus on contract value products, we have enacted a policy of only selling consulting to contract value clients, except in limited circumstances.

Consulting segment expenses decreased 19% and 16% during the three and six months ended June 30, 2023, respectively, compared to the prior year periods. The decrease in expenses during the three months ended June 30, 2023 was primarily due to (1) a $1.2 million decrease in professional services primarily due to a decrease in contractor costs and consulting fees, (2) a $0.7 million decrease in outsourced expenses, and (3) a $0.7 million decrease in compensation and benefit costs primarily due to a decrease in headcount and benefit costs. The decrease in expenses during the six months ended June 30, 2023 was primarily due to (1) a 2.5 million decrease in professional services primarily due to a decrease in contractor costs and consulting fees, (2) a $1.3 million decrease in outsourced expenses, and (3) a $0.8 million decrease in compensation and benefit costs primarily due to a decrease in benefit costs.

Event segment revenues decreased 8% and 7% during the three and six months ended June 30, 2023, respectively, compared to the prior year periods. The decrease in revenues was due to a decrease in sponsorship revenues and a decrease in event ticket revenue due to lower attendance.

Event segment expenses decreased 5% for both the three and six months ended June 30, 2023, respectively, compared to the prior year periods. The decrease in expenses during the three and six months ended June 30, 2023 was primarily due to a decrease in compensation and benefit costs.

Liquidity and Capital Resources

The amounts reported in our earnings release and Form 8-K filed on July 27, 2023 for net cash provided by operating activities and purchases of property and equipment of $15.4 million and $(2.3) million, respectively, have been adjusted in this Form 10-Q to $15.8 million and $(2.7) million, respectively.

We have historically financed our operations primarily through funds generated from operations. Research revenues, which constituted approximately 68% of our revenues during the six months ended June 30, 2023, are generally renewable annually and are typically payable in advance. We generated cash from operating activities of $15.8 million and $34.8 million during the six months ended June 30, 2023 and 2022, respectively. The $19.0 million decrease in cash provided from operations for the six months ended June 30, 2023 compared to the prior year period was primarily due to a $16.8 million decrease in net income, the timing of certain benefit payments, and an increase in income tax payments.

During the six months ended June 30, 2023, we generated cash from investing activities of $3.4 million primarily from $6.2 million in net maturities of marketable investments partially offset by $2.7 million of purchases of property and equipment, primarily

 

28


 

consisting of computer software. During the six months ended June 30, 2022, we used cash in investing activities of $3.6 million primarily for $2.7 million for purchases of property and equipment, primarily consisting of computer software and equipment, and $1.1 million in net purchases of marketable investments.

We used $15.2 million of cash from financing activities during the six months ended June 30, 2023 primarily due to $15.0 million of discretionary repayments of our revolving credit facility, $1.3 million in taxes paid related to net share settlements of restricted stock units, and $0.8 million for purchases of our common stock, partially offset by $1.8 million of net proceeds from the issuance of common stock under our stock-based incentive plans. We used $38.3 million of cash in financing activities during the six months ended June 30, 2022 primarily due to $25.0 million of discretionary repayments of our revolving credit facility and $15.1 million for purchases of our common stock, partially offset by $2.1 million of net proceeds from the issuance of common stock under our stock-based incentive plans. As of June 30, 2023, our remaining stock repurchase authorization was approximately $74.1 million.

The Company has a credit facility that provides up to $150.0 million of revolving credit commitments. The credit facility has a balance of $35.0 million at June 30, 2023 and matures in December of 2026. The credit facility permits the Company to increase the revolving credit commitments in an aggregate principal amount up to $50.0 million, subject to approval by the administrative agent and certain customary terms and conditions.

The credit facility contains certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio, minimum interest coverage ratio, and maximum annual capital expenditures. 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 the company, sell assets, change fiscal year, or enter into certain transactions with affiliates and subsidiaries. We were in full compliance with the covenants as of June 30, 2023 and expect to continue to be in compliance through the next 12 months.

Additional future contractual cash obligations extending over the next 12 months and beyond primarily consist of operating lease payments. We lease office space under non-cancelable operating lease agreements (refer to Note 5 – Leases in the Notes to Consolidated Financial Statements for additional information). The remaining duration of non-cancelable office space leases ranges from less than 1 year to 8 years. As of June 30, 2023, remaining non-cancelable lease payments are due as follows: $8.1 million in 2023, $30.1 million within 2024 and 2025, $18.0 million within 2026 and 2027, and $8.9 million beyond 2027.

In addition to the contractual cash commitments included above, we have other payables and liabilities that may be legally enforceable but are not considered contractual commitments.

As of June 30, 2023, we had cash, cash equivalents, and marketable investments of $123.6 million. This balance includes $90.8 million held outside of the U.S. If the cash outside of the U.S. is 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. 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 believe that our current cash balance and cash flows from operations will satisfy working capital, financing activities, and capital expenditure requirements for the next twelve months and to meet our known long-term cash requirements.

Recent Accounting Pronouncements

Refer to Note 1 – Interim Consolidated Financial Statements in 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.

Critical Accounting Policies and Estimates

For information regarding our critical accounting policies and estimates, please refer to Note 1, "Summary of Significant Accounting Policies" and Item 7, “Critical Accounting Estimates” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes to the critical accounting policies and estimates previously disclosed in that report.

 

29


 

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, 2022.

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 June 30, 2023. 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) of the Exchange Act) that occurred during the quarter ended June 30, 2023, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

30


 

PART II. OTHER INFORMATION

The information set forth in the "Note 15 - Contingencies", in Part I, Item 1 of this Quarterly Report is incorporated herein by reference.

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, 2022, 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 June 30, 2023, our Board of Directors authorized an aggregate $585.0 million to purchase common stock under our stock repurchase program. During the quarter ended June 30, 2023, we purchased the following shares of our common stock under the stock repurchase program:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maximum Approximate Dollar

 

 

 

 

 

 

 

 

 

Total Number of Shares

 

 

Value of Shares that May

 

 

 

Total Number of

 

 

Average Price

 

 

Purchased as Part of Publicly

 

 

Yet be Purchased

 

 

 

Shares Purchased

 

 

Paid per Share

 

 

Announced Plans or Programs

 

 

Under the Plans or Programs

 

Period

 

(#)

 

 

($)

 

 

(#)

 

 

(In thousands)

 

April 1 - April 30

 

 

 

 

$

 

 

 

 

 

$

74,966

 

May 1 - May 31

 

 

 

 

$

 

 

 

 

 

$

74,966

 

June 1 - June 30

 

 

27,500

 

 

$

29.82

 

 

 

27,500

 

 

$

74,146

 

   Total for the quarter

 

 

27,500

 

 

 

 

 

 

27,500

 

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 

31


 

ITEM 6. EXHIBITS

 

    3.1

 

Restated Certificate of Incorporation of Forrester Research, Inc. (see Exhibit 3.1 to Registration Statement on Form S-1A filed on November 5, 1996)

 

 

 

    3.2

 

Certificate of Amendment of the Certificate of Incorporation of Forrester Research, Inc. (see Exhibit 3.1 to Annual Report on Form 10-K for the year ended December 31, 1999)

 

 

 

    3.3

 

Certificate of Amendment to Restated Certificate of Incorporation of Forrester Research, Inc.

 

 

 

    3.4

 

Amended and Restated By-Laws of Forrester Research, Inc. (see Exhibit 3.4 to Annual Report on Form 10-K for the year ended December 31, 2022)

 

 

 

    4.1

 

Specimen Certificate for shares of Common Stock, $.01 par value, of Forrester Research, Inc. (see Exhibit 4 to Registration Statement on Form S-1A filed on November 5, 1996)

 

 

 

  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

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. (filed herewith)

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document. (filed herewith)

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document. (filed herewith)

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document. (filed herewith)

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document. (filed herewith)

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document. (filed herewith)

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL Document). (filed herewith)

 

 

32


 

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/ L. CHRISTIAN FINN

L. Christian Finn

Chief Financial Officer

(Principal financial officer)

 

Date: August 9, 2023

 

33