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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED June 30, 2022

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 1, 2022, 18,980,000 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, 2022 and December 31, 2021

3

 

Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021

4

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021

5

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021

6

 

Notes to Consolidated Financial Statements

7

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

 

 

 

SIGNATURES

34

 

 

 

 

 

2


 

PART I.

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

103,225

 

 

$

115,769

 

Marketable investments (Note 2)

 

 

19,388

 

 

 

18,509

 

Accounts receivable, net of allowance for expected credit losses of $593 and $610 as
   of June 30, 2022 and December 31, 2021, respectively

 

 

59,014

 

 

 

86,965

 

Deferred commissions

 

 

22,570

 

 

 

29,631

 

Prepaid expenses and other current assets

 

 

18,350

 

 

 

18,614

 

Total current assets

 

 

222,547

 

 

 

269,488

 

Property and equipment, net

 

 

26,159

 

 

 

28,245

 

Operating lease right-of-use assets

 

 

58,966

 

 

 

65,009

 

Goodwill

 

 

241,471

 

 

 

244,994

 

Intangible assets, net

 

 

55,904

 

 

 

62,733

 

Other assets

 

 

9,883

 

 

 

9,660

 

Total assets

 

$

614,930

 

 

$

680,129

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

101

 

 

$

840

 

Accrued expenses and other current liabilities

 

 

66,347

 

 

 

97,800

 

Deferred revenue

 

 

210,592

 

 

 

213,696

 

Total current liabilities

 

 

277,040

 

 

 

312,336

 

Long-term debt

 

 

50,000

 

 

 

75,000

 

Non-current operating lease liabilities

 

 

57,517

 

 

 

65,038

 

Other non-current liabilities

 

 

20,274

 

 

 

23,848

 

Total liabilities

 

 

404,831

 

 

 

476,222

 

Commitments and contingencies (Note 5, 14)

 

 

 

 

 

 

Stockholders' Equity (Note 12):

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

Authorized - 500 shares; issued and outstanding - none

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

Authorized - 125,000 shares

 

 

 

 

 

 

Issued - 24,159 and 24,085 shares as of June 30, 2022 and December 31, 2021,
   respectively

 

 

 

 

 

 

Outstanding - 18,854 and 19,058 shares as of June 30, 2022 and
   December 31, 2021, respectively

 

 

242

 

 

 

241

 

Additional paid-in capital

 

 

254,937

 

 

 

245,985

 

Retained earnings

 

 

170,847

 

 

 

152,825

 

Treasury stock - 5,305 and 5,027 shares as of June 30, 2022 and
   December 31, 2021, respectively

 

 

(207,067

)

 

 

(191,955

)

Accumulated other comprehensive loss

 

 

(8,860

)

 

 

(3,189

)

Total stockholders’ equity

 

 

210,099

 

 

 

203,907

 

Total liabilities and stockholders’ equity

 

$

614,930

 

 

$

680,129

 

 

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

 

3


 

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data, unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Research

 

$

89,447

 

 

$

81,002

 

 

$

175,227

 

 

$

155,970

 

Consulting

 

 

39,262

 

 

 

40,960

 

 

 

77,693

 

 

 

79,510

 

Events

 

 

19,537

 

 

 

6,708

 

 

 

20,297

 

 

 

6,971

 

Total revenues

 

 

148,246

 

 

 

128,670

 

 

 

273,217

 

 

 

242,451

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

60,991

 

 

 

52,258

 

 

 

114,242

 

 

 

99,735

 

Selling and marketing

 

 

44,974

 

 

 

42,556

 

 

 

89,018

 

 

 

81,835

 

General and administrative

 

 

15,925

 

 

 

14,334

 

 

 

31,449

 

 

 

27,512

 

Depreciation

 

 

2,299

 

 

 

2,255

 

 

 

4,618

 

 

 

4,545

 

Amortization of intangible assets

 

 

3,354

 

 

 

3,968

 

 

 

6,716

 

 

 

7,871

 

Integration costs

 

 

 

 

 

216

 

 

 

 

 

 

334

 

Total operating expenses

 

 

127,543

 

 

 

115,587

 

 

 

246,043

 

 

 

221,832

 

Income from operations

 

 

20,703

 

 

 

13,083

 

 

 

27,174

 

 

 

20,619

 

Interest expense

 

 

(535

)

 

 

(1,066

)

 

 

(1,148

)

 

 

(2,195

)

Other income (expense), net

 

 

103

 

 

 

(201

)

 

 

(154

)

 

 

(671

)

Gain on investments, net

 

 

 

 

 

 

 

 

426

 

 

 

 

Income before income taxes

 

 

20,271

 

 

 

11,816

 

 

 

26,298

 

 

 

17,753

 

Income tax expense

 

 

6,397

 

 

 

3,473

 

 

 

8,276

 

 

 

5,454

 

Net income

 

$

13,874

 

 

$

8,343

 

 

$

18,022

 

 

$

12,299

 

Basic income per common share

 

$

0.74

 

 

$

0.44

 

 

$

0.95

 

 

$

0.64

 

Diluted income per common share

 

$

0.72

 

 

$

0.43

 

 

$

0.94

 

 

$

0.64

 

Basic weighted average common shares outstanding

 

 

18,871

 

 

 

19,126

 

 

 

18,929

 

 

 

19,094

 

Diluted weighted average common shares outstanding

 

 

19,173

 

 

 

19,377

 

 

 

19,218

 

 

 

19,332

 

 

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,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

$

13,874

 

 

$

8,343

 

 

$

18,022

 

 

$

12,299

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(4,528

)

 

 

723

 

 

 

(5,842

)

 

 

(1,578

)

Net change in market value of investments

 

(29

)

 

 

 

 

 

(93

)

 

 

 

Net change in market value of interest rate swap

 

68

 

 

 

139

 

 

 

264

 

 

 

329

 

Other comprehensive income (loss)

 

(4,489

)

 

 

862

 

 

 

(5,671

)

 

 

(1,249

)

Comprehensive income

$

9,385

 

 

$

9,205

 

 

$

12,351

 

 

$

11,050

 

 

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,

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

18,022

 

 

$

12,299

 

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

 

 

 

 

 

Depreciation

 

4,618

 

 

 

4,545

 

Amortization of intangible assets

 

6,716

 

 

 

7,871

 

Net gains from investments

 

(426

)

 

 

 

Deferred income taxes

 

(3,225

)

 

 

(4,620

)

Stock-based compensation

 

7,131

 

 

 

4,889

 

Operating lease right-of-use assets amortization

 

5,384

 

 

 

5,701

 

Amortization of deferred financing fees

 

219

 

 

 

467

 

Amortization of premium on investments

 

71

 

 

 

 

Foreign currency losses

 

80

 

 

 

778

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

26,705

 

 

 

20,468

 

Deferred commissions

 

7,062

 

 

 

4,377

 

Prepaid expenses and other current assets

 

(326

)

 

 

2,371

 

Accounts payable

 

(734

)

 

 

385

 

Accrued expenses and other liabilities

 

(30,680

)

 

 

(13,668

)

Deferred revenue

 

318

 

 

 

29,999

 

Operating lease liabilities

 

(6,180

)

 

 

(5,769

)

Net cash provided by operating activities

 

34,755

 

 

 

70,093

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(2,698

)

 

 

(5,243

)

Purchases of marketable investments

 

(12,028

)

 

 

 

Proceeds from maturities of marketable investments

 

10,955

 

 

 

 

Other investing activity

 

179

 

 

 

 

Net cash used in investing activities

 

(3,592

)

 

 

(5,243

)

Cash flows from financing activities:

 

 

 

 

 

Payments on borrowings

 

(25,000

)

 

 

(6,250

)

Repurchases of common stock

 

(15,112

)

 

 

(2,673

)

Proceeds from issuance of common stock under employee equity incentive plans

 

2,077

 

 

 

3,065

 

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

 

(255

)

 

 

(595

)

Net cash used in financing activities

 

(38,290

)

 

 

(6,453

)

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

 

(5,645

)

 

 

(122

)

Net change in cash, cash equivalents and restricted cash

 

(12,772

)

 

 

58,275

 

Cash, cash equivalents and restricted cash, beginning of period

 

118,031

 

 

 

90,652

 

Cash, cash equivalents and restricted cash, end of period

$

105,259

 

 

$

148,927

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for interest

$

938

 

 

$

1,732

 

Cash paid for income taxes

$

4,189

 

 

$

5,066

 

 

 

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, 2021. 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, 2022 may not be indicative of the results for the year ending December 31, 2022, 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,

 

 

2022

 

 

2021

 

Cash and cash equivalents

$

103,225

 

 

$

146,387

 

Restricted cash classified in (1):

 

 

 

 

 

Prepaid expenses and other current assets

 

 

 

 

221

 

Other assets

 

2,034

 

 

 

2,319

 

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

$

105,259

 

 

$

148,927

 

 

(1)
Restricted cash consists of collateral required for leased office space, and for the six months ended June 30, 2021, also included an amount for credit card processing outside of the U.S. The short-term or long-term classification regarding the collateral for the leased office space is determined in accordance with the expiration of the underlying leases.

Adoption of New Accounting Pronouncements

The Company adopted the guidance in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes on January 1, 2021. The standard provides guidance to simplify the accounting for income taxes in certain areas, changes the accounting for select income tax transactions, and makes other minor improvements. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Finance Reporting. The new standard provides optional guidance for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting due to the risk of cessation of the London Interbank Offered Rate (“LIBOR”). The updates apply to contracts, hedging relationships, and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform, and as a result require a modification. An entity may elect to apply the amendments immediately or at any point through December 31, 2022. The adoption of this standard will not have a material impact on the Company’s financial position or results of operations as the Company's only interest rate swap, which is based on LIBOR, will terminate prior to the cessation of LIBOR.

 

 

7


 

Note 2 — Marketable Investments

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

 

 

As of June 30, 2022

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate obligations

 

$

19,546

 

 

$

1

 

 

$

(159

)

 

$

19,388

 

Total

 

$

19,546

 

 

$

1

 

 

$

(159

)

 

$

19,388

 

 

 

 

As of December 31, 2021

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate obligations

 

$

18,542

 

 

$

 

 

$

(33

)

 

$

18,509

 

Total

 

$

18,542

 

 

$

 

 

$

(33

)

 

$

18,509

 

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

The following table summarizes the maturity periods of the marketable investments in the Company’s portfolio as of June 30, 2022 (in thousands).

 

 

FY 2022

 

 

FY 2023

 

 

FY 2024

 

 

Total

 

Corporate obligations

 

$

8,113

 

 

$

8,899

 

 

$

2,376

 

 

$

19,388

 

Total

 

$

8,113

 

 

$

8,899

 

 

$

2,376

 

 

$

19,388

 

 

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, 2022

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Corporate obligations

 

$

18,443

 

 

$

159

 

 

$

 

 

$

 

Total

 

$

18,443

 

 

$

159

 

 

$

 

 

$

 

 

 

 

As of December 31, 2021

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Corporate obligations

 

$

18,509

 

 

$

33

 

 

$

 

 

$

 

Total

 

$

18,509

 

 

$

33

 

 

$

 

 

$

 

 

Note 3 — Goodwill and Other Intangible Assets

Goodwill

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

 

8


 

The Company performed its annual impairment testing as of November 30, 2021 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, 2022, there were no events or circumstances that required an interim impairment test. Accordingly, as of June 30, 2022, the Company had no accumulated goodwill impairment losses. Approximately $8.1 million of goodwill is allocated to the Company’s Consulting reporting unit, which had a negative carrying value as of the date of the last test.

 

The change in the carrying amount of goodwill for the six months ended June 30, 2022 is summarized as follows (in thousands):

 

Total

 

Balance at December 31, 2021

$

244,994

 

Translation adjustments

 

(3,523

)

Balance at June 30, 2022

$

241,471

 

Finite-Lived Intangible Assets

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

 

 

June 30, 2022

 

 

Gross

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

Customer relationships

$

78,275

 

 

$

30,027

 

 

$

48,248

 

Technology

 

16,700

 

 

 

13,810

 

 

 

2,890

 

Trademarks

 

12,457

 

 

 

7,691

 

 

 

4,766

 

Total

$

107,432

 

 

$

51,528

 

 

$

55,904

 

 

 

December 31, 2021

 

 

Gross

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

Customer relationships

$

78,364

 

 

$

25,805

 

 

$

52,559

 

Technology

 

16,845

 

 

 

13,073

 

 

 

3,772

 

Trademarks

 

12,478

 

 

 

6,076

 

 

 

6,402

 

Total

$

107,687

 

 

$

44,954

 

 

$

62,733

 

 

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

 

2022 (remainder)

$

6,446

 

2023

 

11,917

 

2024

 

9,878

 

2025

 

8,869

 

2026

 

8,389

 

Thereafter

 

10,405

 

Total

$

55,904

 

 

Note 4 — Debt

On December 21, 2021, the Company and certain of its subsidiaries entered into an amendment of its existing credit facility, dated as of January 3, 2019, with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders party thereto (the "Existing Credit Agreement" and the Existing Credit Agreement as amended by the Amendment, the "Amended Credit Agreement").

 

9


 

The Existing Credit Agreement was amended to, among other things, (a) increase the aggregate principal amount of revolving credit commitments (the "Revolving Credit Facility") from $75.0 million to $150.0 million and eliminate the existing term loan facility, (b) extend the scheduled maturity date of the revolving credit commitments to December of 2026, (c) reduce the applicable margin with respect to revolving loans to, at Forrester’s option, (i) between 1.25% and 1.75% per annum for loans based on LIBOR and (ii) between 0.25% and 0.75% per annum for loans based on the applicable base rate, in each case, based on Forrester’s consolidated total leverage ratio, (d) reduce the commitment fee applicable to undrawn revolving credit commitments to between 0.30% and 0.20% per annum based on the Company's consolidated total leverage ratio, (e) replace the minimum fixed charge coverage ratio financial covenant under the Existing Credit Agreement with a minimum consolidated interest coverage ratio of 3.50:1.00 and (f) include a covenant limiting the amount of capital expenditures made by the Company in each fiscal year, subject to exceptions for (i) up to $25.0 million with respect to its headquarters property and (ii) an additional general basket of $20.0 million annually.

On December 21, 2021, the Company converted the $100.0 million outstanding term loan amounts under the Existing Credit Agreement to $100.0 million outstanding on the Revolving Credit Facility as the lenders remained the same under both facilities. The Amended Credit Agreement permits the Company to increase commitments under the Revolving Credit Facility in an aggregate principal amount up to $50.0 million, subject to approval by the Administrative Agent and certain customary terms and conditions.

The Company may voluntarily prepay revolving loans under the Amended Credit Agreement at any time and from time to time, without premium or penalty, other than customary breakage reimbursement requirements for LIBOR-based loans. No interim amortization payments are required to be made under the Amended Credit Agreement.

The Amended Credit Agreement provides that once LIBOR ceases to exist in 2023, the benchmark rate for the Revolving Credit Facility will automatically transfer from LIBOR to the Secured Overnight Financing Rate.

Up to $5.0 million of the Revolving Credit Facility is available for the issuance of letters of credit, and any drawings under the letters of credit must be reimbursed within one business day. As of June 30, 2022, $0.8 million in letters of credit were issued under the Revolving Credit Facility.

The Company incurred $0.5 million in costs related to the issuance of the Revolving Credit Facility under the Amended Credit Agreement, which were recorded to other assets on the Consolidated Balance Sheets. These costs are being amortized on a straight-line basis over the five-year term of the Revolving Credit Facility and are included in interest expense in the Consolidated Statements of Income. The Amended Credit Agreement was accounted for as a debt modification and thus no existing debt issuance costs were written off to interest expense as a result of the modification.

Outstanding Borrowings

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

Description:

 

June 30, 2022

 

 

December 31, 2021

 

Revolving credit facility

 

$

50,000

 

 

$

75,000

 

 

 

10


 

The contractual annualized interest rate as of June 30, 2022 was 2.9375%, which consisted of LIBOR of 1.6875% plus a margin of 1.25%. However, the Company has an interest rate swap contract that effectively converts the floating LIBOR base rates on a portion of the amounts outstanding to a fixed base rate. Refer to Note 7 – Derivatives and Hedging for further information on the swap.

The Company had $99.2 million of available borrowing capacity on the Revolving Credit Facility (not including the expansion feature) as of June 30, 2022. The weighted average annual effective interest rate for the three and six months ended June 30, 2022, was 2.13% and 1.87%, respectively.

The Amended Credit Agreement 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, 2022. The agreement also contains customary events of default, representations, and warranties.

All obligations under the Amended Credit Agreement 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 on 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 on 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,

 

 

 

2022

 

 

2021

 

Operating lease cost

 

$

3,600

 

 

$

4,062

 

Short-term lease cost

 

 

175

 

 

 

98

 

Variable lease cost

 

 

1,463

 

 

 

1,280

 

Sublease income

 

 

(192

)

 

 

(105

)

Total lease cost

 

$

5,046

 

 

$

5,335

 

 

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Operating lease cost

 

$

7,252

 

 

$

7,882

 

Short-term lease cost

 

 

312

 

 

 

186

 

Variable lease cost

 

 

3,013

 

 

 

2,715

 

Sublease income

 

 

(383

)

 

 

(166

)

Total lease cost

 

$

10,194

 

 

$

10,617

 

 

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

 

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

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

 

$

6,180

 

 

$

5,769

 

Operating lease ROU assets obtained in exchange for lease
   obligations

 

$

172

 

 

$

7,385

 

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

 

 

5.5

 

 

 

6.3

 

Weighted-average discount rate - operating leases

 

 

4.3

%

 

 

4.4

%

 

 

11


 

Future minimum lease payments under non-cancelable leases and estimated future sublease cash receipts from non-cancelable arrangements as of June 30, 2022 are as follows (in thousands):

 

 

 

Operating Lease

 

 

Sublease

 

 

 

Payments

 

 

Cash Receipts

 

2022 (remainder)

 

$

8,462

 

 

$

412

 

2023

 

 

16,446

 

 

 

606

 

2024

 

 

15,993

 

 

 

624

 

2025

 

 

14,059

 

 

 

 

2026

 

 

12,095

 

 

 

 

Thereafter

 

 

14,280

 

 

 

 

Total lease payments and estimated sublease cash receipts

 

 

81,335

 

 

$

1,642

 

Less imputed interest

 

 

(10,267

)

 

 

 

Present value of lease liabilities

 

$

71,068

 

 

 

 

 

Lease balances as of June 30, 2022 are as follows (in thousands):

 

Operating lease ROU assets

 

$

58,966

 

 

 

 

 

Short-term operating lease liabilities (1)

 

$

13,551

 

Non-current operating lease liabilities

 

 

57,517

 

Total operating lease liabilities

 

$

71,068

 

 

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

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

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)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

North America

 

$

124,177

 

 

$

105,371

 

 

$

226,487

 

 

$

196,267

 

Europe

 

 

15,871

 

 

 

15,587

 

 

 

30,343

 

 

 

30,669

 

Asia Pacific

 

 

6,445

 

 

 

6,322

 

 

 

13,118

 

 

 

12,715

 

Other

 

 

1,753

 

 

 

1,390

 

 

 

3,269

 

 

 

2,800

 

Total

 

$

148,246

 

 

$

128,670

 

 

$

273,217

 

 

$

242,451

 

 

(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, 2022 or 2021.

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 for a duration of one year 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.

 

12


 

Deferred Revenue

The Company refers to contract liabilities as deferred revenue on 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, 2022 and 2021, the Company recognized $58.4 million and $43.6 million of revenue, respectively, related to its deferred revenue balances at the beginning of each such period. During the six months ended June 30, 2022 and 2021, the Company recognized $139.3 million and $115.9 million of revenue, respectively, related to its deferred revenue balance at January 1 of each such period.

 

Approximately $409.7 million of revenue is expected to be recognized during the next 24 months from remaining performance obligations as of June 30, 2022.

Reserves for Credit Losses

The allowance for expected credit losses on accounts receivable for the six months ended June 30, 2022 is summarized as follows (in thousands):

 

 

Total
Allowance

 

Balance at December 31, 2021

 

$

610

 

Provision for expected credit losses

 

 

359

 

Write-offs

 

 

(376

)

Balance at June 30, 2022

 

$

593

 

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 on 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, 2022 and 2021 was $11.8 million and $10.0 million, respectively. Amortization expense related to deferred commissions for the six months ended June 30, 2022 and 2021 was $21.8 million and $18.9 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, 2022 and 2021.

Note 7 — Derivatives and Hedging

The Company has a derivative contract (an interest rate swap) to mitigate the cash flow risk associated with changes in interest rates on its variable rate debt (refer to Note 4 – Debt). The Company accounts for its derivative contract in accordance with FASB ASC Topic 815 – Derivatives and Hedging (“Topic 815”), which requires all derivatives, including derivatives designated as accounting hedges, to be recorded on the balance sheet at fair value.

Interest Rate Swap

At June 30, 2022, the Company had a single interest rate swap contract, with an initial notional amount of $95.0 million. The notional amount at June 30, 2022 was $17.2 million and the swap terminates on December 31, 2022. The Company pays a base fixed rate of 1.65275% and in return receives the greater of (1) 1-month LIBOR, rounded up to the nearest 1/16 of a percent, or (2) 0.00%. The fair value of the swap on June 30, 2022 was $0.1 million (refer to Note 8 – Fair Value Measurements for information on determining the fair value).

 

13


 

The swap has been designated and accounted for as a cash flow hedge of the forecasted interest payments on the Company’s debt. As long as the swap continues to be a highly effective hedge of the designated interest rate risk, changes in the fair value of the swap are recorded in accumulated other comprehensive loss, a component of equity in the Consolidated Balance Sheets. Any ineffective portion of a change in the fair value of a hedge is recorded in earnings.

As required under Topic 815, the swap’s effectiveness is assessed on a quarterly basis. Since its inception, and through June 30, 2022, the interest rate swap was considered highly effective. Accordingly, the entire fair value of the swap has been recorded in accumulated other comprehensive loss. Realized gains or losses related to the interest rate swap are included as operating activities in the Consolidated Statements of Cash Flows.

Foreign Currency Forwards

The Company enters into 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 Income because the Company does not designate these contracts as hedges for accounting purposes.

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. During the six months ended June 30, 2021, the Company entered into one foreign currency forward exchange contract, which settled by June 30, 2021. Accordingly, as of June 30, 2021, there is no amount recorded in the Consolidated Balance Sheets for this contract.

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 Income for the derivative contracts for the periods indicated (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

Amount recorded in:

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Interest expense (1)

 

$

(50

)

 

$

(203

)

 

$

(195

)

 

$

(462

)

Other income (expense), net (2)

 

 

(93

)

 

 

(36

)

 

 

(176

)

 

 

(36

)

Total

 

$

(143

)

 

$

(239

)

 

$

(371

)

 

$

(498

)

 

(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 on 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, marketable investments, and its derivative contract. 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.

 

14


 

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, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

5,919

 

 

$

 

 

$

5,919

 

Marketable investments (2)

 

 

 

 

 

19,388

 

 

 

19,388

 

Interest rate swap (3)

 

 

 

 

 

72

 

 

 

72

 

Total Assets

 

$

5,919

 

 

$

19,460

 

 

$

25,379

 

 

 

 

As of December 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

6,885

 

 

$

 

 

$

6,885

 

Marketable investments (2)

 

 

 

 

 

18,509

 

 

 

18,509

 

Total Assets

 

$

6,885

 

 

$

18,509

 

 

$

25,394

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap (3)

 

$

 

 

$

(294

)

 

$

(294

)

Total Liabilities

 

$

 

 

$

(294

)

 

$

(294

)

 

(1)
Included in cash and cash equivalents on 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.
(3)
The Company has an interest rate swap contract that hedges the risk of variability from interest payments on its borrowings (refer to Note 4 – Debt and Note 7 – Derivatives and Hedging). The fair value of the interest rate swap is based on valuations prepared by a third-party broker. Those valuations are based on observable interest rates and other observable market data, which the Company considers Level 2 inputs.

During the six months ended June 30, 2022, 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 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 payment awards, and foreign currency gains or losses are treated as discrete items and are recorded in the period in which they arise.

Income tax 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. Income tax expense for the six months ended June 30, 2021 was $5.5 million resulting in an effective tax rate of 30.7% for the period.

The Company anticipates that its effective tax rate for the full year 2022 will be approximately 31%.

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

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

 

 

Marketable

 

 

Interest Rate

 

 

Translation

 

 

 

 

 

 

Investments

 

 

Swap

 

 

Adjustment

 

 

Total AOCI/L

 

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

)

 

 

15


 

 

 

 

 

 

Interest Rate

 

 

Translation

 

 

 

 

 

 

 

 

Swap

 

 

Adjustment

 

 

Total AOCI/L

 

Balance at March 31, 2021

 

 

 

$

(631

)

 

$

(2,170

)

 

$

(2,801

)

Foreign currency translation (1)

 

 

 

 

 

 

 

723

 

 

 

723

 

Unrealized loss before reclassification, net
    of tax of $
2

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Reclassification to income, net
    of tax of $(
57) (2)

 

 

 

 

146

 

 

 

 

 

 

146

 

Balance at June 30, 2021

 

 

 

$

(492

)

 

$

(1,447

)

 

$

(1,939

)

 

 

 

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

)

 

 

 

 

 

Interest Rate

 

 

Translation

 

 

 

 

 

 

 

 

Swap

 

 

Adjustment

 

 

Total AOCL

 

Balance at December 31, 2020

 

 

 

$

(821

)

 

$

131

 

 

$

(690

)

Foreign currency translation (1)

 

 

 

 

 

 

 

(1,578

)

 

 

(1,578

)

Unrealized loss before reclassification, net
   of tax of $
1

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Reclassification to income, net
   of tax of $(
130) (2)

 

 

 

 

332

 

 

 

 

 

 

332

 

Balance at June 30, 2021

 

 

 

$

(492

)

 

$

(1,447

)

 

$

(1,939

)

 

(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 on the Consolidated Statements of Income. 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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Basic weighted average common shares outstanding

 

 

18,871

 

 

 

19,126

 

 

 

18,929

 

 

 

19,094

 

Weighted average common equivalent shares

 

 

302

 

 

 

251

 

 

 

289

 

 

 

238

 

Diluted weighted average common shares outstanding

 

 

19,173

 

 

 

19,377

 

 

 

19,218

 

 

 

19,332

 

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

 

 

23

 

 

 

9

 

 

 

11

 

 

 

6

 

 

 

16


 

Note 12 — Stockholders’ Equity

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

 

Three Months Ended June 30, 2022

 

 

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
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

 

 

 

Three Months Ended June 30, 2021

 

 

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
Equity

 

Balance at March 31, 2021

 

23,755

 

 

$

238

 

 

$

234,752

 

 

$

131,937

 

 

 

4,631

 

 

$

(171,889

)

 

$

(2,801

)

 

$

192,237

 

Issuance of common stock under
   stock plans, including tax effects

 

25

 

 

 

 

 

 

336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

336

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

63

 

 

 

(2,673

)

 

 

 

 

 

(2,673

)

Stock-based compensation expense

 

 

 

 

 

 

 

2,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,397

 

Net income

 

 

 

 

 

 

 

 

 

 

8,343

 

 

 

 

 

 

 

 

 

 

 

 

8,343

 

Net change in interest rate swap,
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139

 

 

 

139

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

723

 

 

 

723

 

Balance at June 30, 2021

 

23,780

 

 

$

238

 

 

$

237,485

 

 

$

140,280

 

 

 

4,694

 

 

$

(174,562

)

 

$

(1,939

)

 

$

201,502

 

 

 

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

 

 

 

17


 

 

Six Months Ended June 30, 2021

 

 

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, 2020

 

23,648

 

 

$

236

 

 

$

230,128

 

 

$

127,981

 

 

 

4,631

 

 

$

(171,889

)

 

$

(690

)

 

$

185,766

 

Issuance of common stock under
   stock plans, including tax effects

 

132

 

 

 

2

 

 

 

2,468

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,470

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

63

 

 

 

(2,673

)

 

 

 

 

 

(2,673

)

Stock-based compensation expense

 

 

 

 

 

 

 

4,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,889

 

Net income

 

 

 

 

 

 

 

 

 

 

12,299

 

 

 

 

 

 

 

 

 

 

 

 

12,299

 

Net change in interest rate swap,
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

329

 

 

 

329

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,578

)

 

 

(1,578

)

Balance at June 30, 2021

 

23,780

 

 

$

238

 

 

$

237,485

 

 

$

140,280

 

 

 

4,694

 

 

$

(174,562

)

 

$

(1,939

)

 

$

201,502

 

 

Equity Plans

 

Restricted stock unit activity for the six months ended June 30, 2022 is presented below (in thousands, except per share data):

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Unvested at December 31, 2021

 

 

634

 

 

$

42.45

 

Granted

 

 

319

 

 

 

50.96

 

Vested

 

 

(25

)

 

 

39.72

 

Forfeited

 

 

(26

)

 

 

44.31

 

Unvested at June 30, 2022

 

 

902

 

 

$

45.48

 

 

Stock option activity for the six months ended June 30, 2022 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, 2021

 

 

114

 

 

$

35.52

 

 

 

 

 

 

 

Exercised

 

 

(12

)

 

 

34.66

 

 

 

 

 

 

 

Forfeited

 

 

(2

)

 

 

36.65

 

 

 

 

 

 

 

Outstanding at June 30, 2022

 

 

100

 

 

$

35.60

 

 

 

2.38

 

 

$

1,222

 

Vested and Exercisable at June 30, 2022

 

 

100

 

 

$

35.60

 

 

 

2.38

 

 

$

1,222

 

 

No stock options were granted during the six months ended June 30, 2022.

In May 2022, stockholders of the Company approved an amendment to the Company’s Second Amended and Restated Employee Stock Purchase Plan, which provided for an additional 600,000 shares of Common Stock, par value $0.01 per share, to be granted under the plan.


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 on the Consolidated Statements of Income (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Cost of services and fulfillment

 

$

2,203

 

 

$

1,401

 

 

$

4,129

 

 

$

2,835

 

Selling and marketing

 

 

752

 

 

 

399

 

 

 

1,385

 

 

 

848

 

General and administrative

 

 

882

 

 

 

597

 

 

 

1,617

 

 

 

1,206

 

Total

 

$

3,837

 

 

$

2,397

 

 

$

7,131

 

 

$

4,889

 

 

 

18


 

 

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

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Average risk-free interest rate

 

 

0.86

%

 

 

0.05

%

 

 

0.86

%

 

 

0.05

%

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

Expected life

 

0.5 Years

 

 

0.5 Years

 

 

0.5 Years

 

 

0.5 Years

 

Expected volatility

 

 

24

%

 

 

35

%

 

 

24

%

 

 

35

%

Weighted average fair value

 

$

11.02

 

 

$

11.50

 

 

$

11.02

 

 

$

11.50

 

 

Treasury Stock

As of June 30, 2022, 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, 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. During the three and six months ended June 30, 2021, the Company repurchased approximately 0.1 million shares of common stock at an aggregate cost of approximately $2.7 million. From the inception of the program through June 30, 2022, the Company repurchased 17.0 million shares of common stock at an aggregate cost of $510.0 million.

Note 13 — Operating Segments

The Company's chief executive officer and the chief financial officer are the chief operating decision-maker (used in determining the Company's segments). 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. As of January 1, 2022, the Company realigned its events sales costs from selling and marketing expense to the Events segment as they now fall under the Events management structure. The 2021 amounts have been revised to conform to the current presentation.

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, 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.

 

19


 

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, 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

 

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

81,002

 

 

$

 

 

$

 

 

$

81,002

 

Consulting revenues

 

 

12,842

 

 

 

28,118

 

 

 

 

 

 

40,960

 

Events revenues

 

 

 

 

 

 

 

 

6,708

 

 

 

6,708

 

Total segment revenues

 

 

93,844

 

 

 

28,118

 

 

 

6,708

 

 

 

128,670

 

Segment expenses

 

 

(29,417

)

 

 

(12,851

)

 

 

(3,931

)

 

 

(46,199

)

Selling, marketing, administrative and other expenses

 

 

 

 

 

 

 

 

 

 

 

(65,204

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

 

 

 

(3,968

)

Integration costs

 

 

 

 

 

 

 

 

 

 

 

(216

)

Interest expense, other expense, and gains on investments

 

 

 

 

 

 

 

 

 

 

 

(1,267

)

Income before income taxes

 

 

 

 

 

 

 

 

 

 

$

11,816

 

 

 

 

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

 

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

155,970

 

 

$

 

 

$

 

 

$

155,970

 

Consulting revenues

 

 

25,573

 

 

 

53,937

 

 

 

 

 

 

79,510

 

Events revenues

 

 

 

 

 

 

 

 

6,971

 

 

 

6,971

 

Total segment revenues

 

 

181,543

 

 

 

53,937

 

 

 

6,971

 

 

 

242,451

 

Segment expenses

 

 

(60,134

)

 

 

(25,176

)

 

 

(5,495

)

 

 

(90,805

)

Selling, marketing, administrative and other expenses

 

 

 

 

 

 

 

 

 

 

 

(122,822

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

 

 

 

(7,871

)

Integration costs

 

 

 

 

 

 

 

 

 

 

 

(334

)

Interest expense, other expense, and gains on investments

 

 

 

 

 

 

 

 

 

 

 

(2,866

)

Income before income taxes

 

 

 

 

 

 

 

 

 

 

$

17,753

 

 

 

20


 

Note 14 — 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. Regardless of the outcome, litigation can have a material adverse effect on the Company because of defense and settlement costs, diversion of management resources, and other factors.

 

21


 

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, 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 ability to mitigate the adverse impact from the widespread outbreak of COVID-19 which could disrupt or restrict our ability to sell or fulfill, or reduce demand for, our products, services, and events, the risks and challenges inherent in international business activities, our ability to offer new products and services, our dependence on key personnel, our ability to 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, 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, 2021. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

The extent to which the COVID-19 pandemic ultimately impacts our business, financial condition, results of operations, cash flows, and liquidity may differ from our current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. All events during 2021 were held as virtual events, however, we intend to hold our events during 2022 as hybrid events, consisting of both in-person and virtual experiences. All events in the first half of 2022 were held as hybrid events, including two of our flagship events, B2B Summit North America and CX North America.

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.

 

22


 

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 June 30, 2021, and we have also provided recast CV amounts dating back to the second quarter of 2020, 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 utilized. 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

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

Contract value

 

$

349.4

 

 

$

317.7

 

 

$

31.7

 

 

 

10

%

Client retention

 

 

76

%

 

 

77

%

 

 

(1

)

 

 

(1

%)

Wallet retention

 

 

99

%

 

 

96

%

 

 

3

 

 

 

3

%

Number of clients

 

 

2,928

 

 

 

2,940

 

 

 

(12

)

 

 

(—

%)

Contract value increased 10% at June 30, 2022 compared to the prior year period. The increase in contract value was primarily due to an increase in contract bookings due to strong demand for our contract value products. Client retention decreased by 1 percentage point and wallet retention increased by 3 percentage points at June 30, 2022 compared to the prior year period. The increase in wallet retention was primarily due to the enrichment of existing clients when they renewed their contracts. Compared to March 31, 2022, wallet retention and client retention decreased by 4 percentage points and 1 percentage point, respectively. The decrease was primarily due to elongated sales cycles, lower conversion rates and sales capacity restraints.

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, 2021.

 

23


 

Results of Operations

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

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

 

60.3

%

 

 

63.0

%

 

 

64.1

%

 

 

64.3

%

Consulting revenues

 

 

26.5

 

 

 

31.8

 

 

 

28.4

 

 

 

32.8

 

Events revenues

 

 

13.2

 

 

 

5.2

 

 

 

7.5

 

 

 

2.9

 

Total revenues

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and fulfillment

 

 

41.1

 

 

 

40.6

 

 

 

41.8

 

 

 

41.1

 

Selling and marketing

 

 

30.3

 

 

 

33.1

 

 

 

32.6

 

 

 

33.8

 

General and administrative

 

 

10.7

 

 

 

11.1

 

 

 

11.5

 

 

 

11.3

 

Depreciation

 

 

1.6

 

 

 

1.8

 

 

 

1.7

 

 

 

2.0

 

Amortization of intangible assets

 

 

2.3

 

 

 

3.1

 

 

 

2.5

 

 

 

3.2

 

Integration costs

 

 

 

 

 

0.1

 

 

 

 

 

 

0.1

 

Income from operations

 

 

14.0

 

 

 

10.2

 

 

 

9.9

 

 

 

8.5

 

Interest expense

 

 

(0.4

)

 

 

(0.8

)

 

 

(0.4

)

 

 

(0.9

)

Other income (expense), net

 

 

0.1

 

 

 

(0.2

)

 

 

(0.1

)

 

 

(0.3

)

Gain on investments, net

 

 

 

 

 

 

 

 

0.2

 

 

 

 

Income before income taxes

 

 

13.7

 

 

 

9.2

 

 

 

9.6

 

 

 

7.3

 

Income tax expense

 

 

4.3

 

 

 

2.7

 

 

 

3.0

 

 

 

2.2

 

Net income

 

 

9.4

%

 

 

6.5

%

 

 

6.6

%

 

 

5.1

%

 

Three and Six Months Ended June 30, 2022 and 2021

Revenues

 

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

Total revenues

 

$

148.2

 

 

$

128.7

 

 

$

19.6

 

 

 

15

%

Research revenues

 

$

89.4

 

 

$

81.0

 

 

$

8.4

 

 

 

10

%

Consulting revenues

 

$

39.3

 

 

$

41.0

 

 

$

(1.7

)

 

 

(4

%)

Events revenues

 

$

19.5

 

 

$

6.7

 

 

$

12.8

 

 

 

191

%

Revenues attributable to customers outside of
   the U.S.

 

$

29.8

 

 

$

28.0

 

 

$

1.8

 

 

 

6

%

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

 

 

20

%

 

 

22

%

 

 

(2

)

 

 

(9

%)

 

 

 

Six Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

Total revenues

 

$

273.2

 

 

$

242.5

 

 

$

30.8

 

 

 

13

%

Research revenues

 

$

175.2

 

 

$

156.0

 

 

$

19.3

 

 

 

12

%

Consulting revenues

 

$

77.7

 

 

$

79.5

 

 

$

(1.8

)

 

 

(2

%)

Events revenues

 

$

20.3

 

 

$

7.0

 

 

$

13.3

 

 

 

191

%

Revenues attributable to customers outside of
   the U.S.

 

$

57.3

 

 

$

54.8

 

 

$

2.5

 

 

 

5

%

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

 

 

21

%

 

 

23

%

 

 

(2

)

 

 

(9

%)

 

 

24


 

Total revenues increased 15% and 13% during the three and six months ended June 30, 2022, respectively, compared to the prior year periods, and increased by 17% and 14% when excluding the effect of changes in foreign currencies. Revenues from customers outside the U.S. increased 6% and 5% during the three and six months ended June 30, 2022, respectively, due to an increase in revenues in the United Kingdom, Asia Pacific region, and Canada partially offset by a decrease in revenues in Europe. Revenues from customers outside the U.S. increased by approximately 13% and 10% when excluding the effect of changes in foreign currencies.

Research revenues are recognized as revenue primarily on a ratable basis over the term of the contracts, which are generally twelve-month periods. Research revenues increased 10% and 12% during the three and six months ended June 30, 2022, respectively, compared to the prior year periods, and increased by 12% and 13% when excluding the effect of changes in foreign currencies. The increase in revenues was primarily due to increased contract value, which was driven by strong demand for our products and an increase in our wallet retention rate compared to the prior year period.

Consulting revenues decreased 4% and 2% during the three and six months ended June 30, 2022, respectively, compared to the prior year periods, and decreased by 3% and 1% when excluding the effect of changes in foreign currencies. The decrease in revenues during the three and six months ended June 30, 2022 was primarily due to decreased delivery of advisory services by our research analysts as they shifted more of their efforts to developing and delivering our CV products.

Events revenues increased 191% during both the three and six months ended June 30, 2022 compared to the prior year periods. The increase in revenues during the three and six months ended June 30, 2022 was primarily due to an increase in sponsorship revenues, as well as paid ticket attendance, primarily due to the return of in-person attendance at our events.

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

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

Cost of services and fulfillment (dollars in millions)

 

$

61.0

 

 

$

52.3

 

 

$

8.7

 

 

 

17

%

Cost of services and fulfillment as a percentage of
   total revenues

 

 

41.1

%

 

 

40.6

%

 

 

0.5

 

 

 

1

%

Service and fulfillment employees
   (at end of period)

 

 

879

 

 

 

764

 

 

 

115

 

 

 

15

%

 

 

 

Six Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

Cost of services and fulfillment (dollars in millions)

 

$

114.2

 

 

$

99.7

 

 

$

14.5

 

 

 

15

%

Cost of services and fulfillment as a percentage of
   total revenues

 

 

41.8

%

 

 

41.1

%

 

 

0.7

 

 

 

2

%

Cost of services and fulfillment expenses increased 17% during the three months ended June 30, 2022 compared to the prior year period, and increased by 19% when excluding the effect of changes in foreign currencies. The increase was primarily due to (1) a $6.9 million increase in event expenses due to the return of in-person attendance at our events, (2) a $0.8 million increase in stock compensation expense, (3) a $0.6 million increase in travel and entertainment expenses due to the return of in-person attendance at our events and increased general business travel, and (4) a $0.6 million increase in professional services costs primarily due to increases in contractor costs.

Cost of services and fulfillment expenses increased 15% during the six months ended June 30, 2022 compared to the prior year period, and increased by 16% when excluding the effect of changes in foreign currencies. The increase was primarily due to (1) a $6.9 million increase in event expenses due to the return of in-person attendance at our events,(2) a $3.0 million increase in compensation and benefit costs due to an increase in headcount, benefit costs, and merit increases, which were partially offset by lower incentive bonus costs, (3) a $1.7 million increase in professional services costs primarily due to increases in survey and contractor costs, (4) a $1.3 million increase in stock compensation expense, (5) a $0.8 million increase in computer software costs, and (6) a $0.6 million increase in travel and entertainment expenses due to the return of in-person attendance at our events and increased general business travel.

 

25


 

Selling and Marketing

 

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

Selling and marketing expenses (dollars in millions)

 

$

45.0

 

 

$

42.6

 

 

$

2.4

 

 

 

6

%

Selling and marketing expenses as a percentage of
   total revenues

 

 

30.3

%

 

 

33.1

%

 

 

(2.8

)

 

 

(8

%)

Selling and marketing employees (at end of period)

 

 

780

 

 

 

720

 

 

 

60

 

 

 

8

%

 

 

 

Six Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

Selling and marketing expenses (dollars in millions)

 

$

89.0

 

 

$

81.8

 

 

$

7.2

 

 

 

9

%

Selling and marketing expenses as a percentage of
   total revenues

 

 

32.6

%

 

 

33.8

%

 

 

(1.2

)

 

 

(4

%)

Selling and marketing expenses increased 6% during the three months ended June 30, 2022 compared to the prior year period, and increased by 7% when excluding the effect of changes in foreign currencies. The increase was primarily due to (1) a $2.4 million increase in compensation and benefit costs due to an increase in headcount, commissions expense, and merit increases.

Selling and marketing expenses increased 9% during the six months ended June 30, 2022 compared to the prior year period, and increased by 10% when excluding the effect of changes in foreign currencies. The increase was primarily due to (1) a $6.0 million increase in compensation and benefit costs due to an increase in headcount, commissions expense, benefit costs, and merit increases and (2) a $0.5 million increase in stock compensation expense.

General and Administrative

 

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

General and administrative expenses (dollars in
   millions)

 

$

15.9

 

 

$

14.3

 

 

$

1.6

 

 

 

11

%

General and administrative expenses as a percentage
   of total revenues

 

 

10.7

%

 

 

11.1

%

 

 

(0.4

)

 

 

(4

%)

General and administrative employees (at end of
   period)

 

 

286

 

 

 

235

 

 

 

51

 

 

 

22

%

 

 

 

Six Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

General and administrative expenses (dollars in
   millions)

 

$

31.4

 

 

$

27.5

 

 

$

3.9

 

 

 

14

%

General and administrative expenses as a percentage
   of total revenues

 

 

11.5

%

 

 

11.3

%

 

 

0.2

 

 

 

2

%

General and administrative expenses increased 11% during the three months ended June 30, 2022 compared to the prior year period, and increased by 13% when excluding the effect of changes in foreign currencies. The increase was primarily due to a $0.8 million increase in compensation and benefit costs due to an increase in headcount and merit increases, which were partially offset by lower incentive bonus costs.

General and administrative expenses increased 14% during the six months ended June 30, 2022 compared to the prior year period, and increased by 16% when excluding the effect of changes in foreign currencies. The increase was primarily due to (1) a $2.2 million increase in compensation and benefit costs due to an increase in headcount and merit increases, which were partially offset by lower incentive bonus costs and (2) a $0.5 million increase in professional services costs.

 

26


 

Depreciation

Depreciation expense remained essentially consistent during the three and six months ended June 30, 2022 compared to the prior year periods.

Amortization of Intangible Assets

Amortization expense decreased by $0.6 million and $1.2 million during the three and six months ended June 30, 2022, respectively, compared to the prior year periods primarily due to certain technology intangible assets becoming fully amortized in 2021.

Interest Expense

Interest expense consists of interest on our borrowings and realized gains (losses) on the related interest rate swap. Interest expense decreased by $0.5 million and $1.0 million during the three and six months ended June 30, 2022, respectively, compared to the prior year periods due to lower average outstanding borrowings.

Other Income (Expense), Net

Other income (expense), net primarily consists of gains (losses) on foreign currency, gains (losses) on foreign currency forward contracts, and interest income. Other income, net increased $0.3 million during the three months ended June 30, 2022 compared to the prior year period. Other expense, net decreased $0.5 million during the six months ended June 30, 2022 compared to the prior year period. The decrease for the three and six months ended June 30, 2022 was primarily due to a decrease in foreign currency losses.

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 increased $0.4 million during the six months ended June 30, 2022 compared to the prior year period. The increase was due to an increase in investment gains generated by the underlying funds.

Income Tax Expense

 

 

Three Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

Provision for income taxes (dollars in millions)

 

$

6.4

 

 

$

3.5

 

 

$

2.9

 

 

 

84

%

Effective tax rate

 

 

31.6

%

 

 

29.4

%

 

 

2.2

 

 

 

7

%

 

 

 

Six Months Ended

 

 

Absolute

 

 

Percentage

 

 

 

June 30,

 

 

Increase

 

 

Increase

 

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

(Decrease)

 

Provision for income taxes (dollars in millions)

 

$

8.3

 

 

$

5.5

 

 

$

2.8

 

 

 

52

%

Effective tax rate

 

 

31.5

%

 

 

30.7

%

 

 

0.8

 

 

 

3

%

Income tax expense increased by $2.8 million during the six months ended June 30, 2022 compared to the prior year period primarily due to the increase in income from operations. For the full year 2022, we anticipate that our effective tax rate will be approximately 31%.

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.

 

27


 

The Events segment includes the revenues and the costs of the organization responsible for developing and hosting in-person and virtual events. As of January 1, 2022, we realigned our events sales costs from selling and marketing expense to the Events segment as they now fall under the Events management structure. The 2021 amounts have been revised to conform to the current presentation.

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, 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, 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

)

Year over year revenue change

 

 

7

%

 

 

1

%

 

 

191

%

 

 

15

%

Year over year expense change

 

 

12

%

 

 

9

%

 

 

181

%

 

 

26

%

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

 

 

(dollars in thousands)

 

Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

81,002

 

 

$

 

 

$

 

 

$

81,002

 

Consulting revenues

 

 

12,842

 

 

 

28,118

 

 

 

 

 

 

40,960

 

Events revenues

 

 

 

 

 

 

 

 

6,708

 

 

 

6,708

 

Total segment revenues

 

 

93,844

 

 

 

28,118

 

 

 

6,708

 

 

 

128,670

 

Segment expenses

 

 

(29,417

)

 

 

(12,851

)

 

 

(3,931

)

 

 

(46,199

)

 

 

 

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

)

Year over year revenue change

 

 

9

%

 

 

3

%

 

 

191

%

 

 

13

%

Year over year expense change

 

 

12

%

 

 

13

%

 

 

133

%

 

 

19

%

 

 

 

Research Segment

 

 

Consulting Segment

 

 

Events Segment

 

 

Consolidated

 

 

 

(dollars in thousands)

 

Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Research revenues

 

$

155,970

 

 

$

 

 

$

 

 

$

155,970

 

Consulting revenues

 

 

25,573

 

 

 

53,937

 

 

 

 

 

 

79,510

 

Events revenues

 

 

 

 

 

 

 

 

6,971

 

 

 

6,971

 

Total segment revenues

 

 

181,543

 

 

 

53,937

 

 

 

6,971

 

 

 

242,451

 

Segment expenses

 

 

(60,134

)

 

 

(25,176

)

 

 

(5,495

)

 

 

(90,805

)

 

 

28


 

 

Research segment revenues increased 7% and 9% during the three and six months ended June 30, 2022, respectively, compared to the prior year periods. For the three and six months ended June 30, 2022, research product revenues within this segment increased 10% and 12%, respectively, which primarily resulted from increased contract value during the period. For the three and six months ended June 30, 2022, consulting product revenues within this segment decreased 15% and 14%, respectively, primarily due to decreased delivery of consulting and advisory services by our research analysts as they shifted more of their efforts to developing and delivering our CV products.

Research segment expenses increased 12% during both the three and six months ended June 30, 2022 compared to the prior year periods. The increase in expenses during the three months ended June 30, 2022 was primarily due to (1) a $2.5 million increase in compensation and benefit costs primarily due to an increase headcount and merit increases and (2) a $0.4 million increase in travel and entertainment expenses. The increase in expenses during the six months ended June 30, 2022 was primarily due to (1) a $4.8 million increase in compensation and benefit costs primarily due to an increase headcount, benefit costs, and merit increases, (2) a $1.2 million increase in professional services costs due to an increase in survey costs and contractor costs, and (3) a $0.5 million increase in travel and entertainment expenses.

Consulting segment revenues increased 1% and 3% during the three and six months ended June 30, 2022, respectively, compared to the prior year periods. The increase in revenues during the three months ended June 30, 2022 was primarily due to demand for our content marketing offering. The increase in revenues during the six months ended June 30, 2022 was primarily due to demand for our content marketing and strategy consulting offerings.

Consulting segment expenses increased 9% and 13% during the three and six months ended June 30, 2022, respectively, compared to the prior year periods. The increase in expenses during the three months ended June 30, 2022 was primarily due to (1) a $0.8 million increase in compensation and benefit costs primarily due to an increase headcount and merit increases and (2) a $0.5 million increase in professional services primarily due to an increase in contractor costs. The increase in expenses during the six months ended June 30, 2022 was primarily due to (1) a $2.1 million increase in compensation and benefit costs primarily due to an increase headcount, benefit costs, and merit increases and (2) a $1.3 million increase in professional services primarily due to an increase in contractor costs.

Event segment revenues increased 191% during the three and six months ended June 30, 2022, respectively, compared to the prior year periods. The increase in revenues was primarily due to an increase in sponsorship revenues, as well as paid ticket attendance, primarily due to the return of in-person events.

Event segment expenses increased 181% and 133% during the three and six months ended June 30, 2022, respectively, compared to the prior year periods. The increase in expenses during the three and six months ended June 30, 2022 was primarily due to a $6.9 million increase in event expenses due to the return of in-person attendance at our events.

Liquidity and Capital Resources

We have historically financed our operations primarily through funds generated from operations. Research revenues, which constituted approximately 64% of our revenues during the six months ended June 30, 2022, are generally renewable annually and are typically payable in advance. We generated cash from operating activities of $34.8 million and $70.1 million during the six months ended June 30, 2022 and 2021, respectively. The $35.3 million decrease in cash provided from operations for the six months ended June 30, 2022 compared to the prior year period was primarily due to 1) a $23.4 million decrease in cash generated from accounts receivable and deferred revenue due to an increase in deferred revenue during the 2021 period from client billings in excess of revenue that did not recur in the 2022 period and 2) a $17.0 million increase in cash used for accrued expenses resulting from the payout of year end incentive compensation.

During the six months ended June 30, 2022, we used cash in investing activities of $3.6 million primarily for $2.7 million of purchases of property and equipment, primarily consisting of computer software and equipment, and $1.1 million in net purchases of marketable investments. During the six months ended June 30, 2021, we used cash in investing activities of $5.2 million for purchases of property and equipment, primarily consisting of computer software, leasehold improvements and equipment.

We used $38.3 million of cash from 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. We used $6.5 million of cash in financing activities during the six months ended June 30, 2021 primarily due to $6.3 million of repayments of our term loan and $2.7 million for purchases of our common stock, partially offset by $3.1 million of net proceeds from the issuance of common stock under our stock-based incentive plans. As of June 30, 2022, our remaining stock repurchase authorization was approximately $75.0 million.

 

29


 

On December 21, 2021, we and certain of our subsidiaries entered into an amendment of our existing credit facility, dated as of January 3, 2019, with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders party thereto (the “Existing Credit Agreement” and the Existing Credit Agreement as amended by the Amendment, the “Amended Credit Agreement”). The Existing Credit Agreement was amended to, among other things, (a) increase the aggregate principal amount of revolving credit commitments (the "Revolving Credit Facility") from $75.0 million to $150.0 million and eliminate the existing term loan facility, (b) extend the scheduled maturity date of the revolving credit commitments to December of 2026, (c) reduce the applicable margin with respect to revolving loans to, at Forrester’s option, (i) between 1.25% and 1.75% per annum for loans based on LIBOR and (ii) between 0.25% and 0.75% per annum for loans based on the applicable base rate, in each case, based on Forrester’s consolidated total leverage ratio, (d) reduce the commitment fee applicable to undrawn revolving credit commitments to between 0.30% and 0.20% per annum based on our consolidated total leverage ratio, (e) replace the minimum fixed charge coverage ratio financial covenant under the Existing Credit Agreement with a minimum consolidated interest coverage ratio of 3.50:1.00 and (f) include a covenant limiting the amount of capital expenditures in each fiscal year, subject to exceptions for (i) up to $25.0 million annually with respect to our headquarters property and (ii) an additional general basket of $20.0 million annually.

The Amended Credit Agreement permits an increase in commitments under the Revolving Credit Facility in an aggregate principal amount up to $50.0 million, subject to approval by the Administrative Agent and certain customary terms and conditions. Additional information is provided in Note 4 – Debt in the Notes to Consolidated Financial Statements. The Revolving Credit Facility matures on December 21, 2026. There was a balance of $50.0 million outstanding on the facility at June 30, 2022.

The Amended Credit Agreement 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. We were in full compliance with the covenants as of June 30, 2022 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 9 years. As of June 30, 2022, remaining non-cancelable lease payments are due as follows: $8.5 million in 2022, $32.4 million within 2023 and 2024, $26.2 million within 2025 and 2026, and $14.3 million beyond 2026.

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, 2022, we had cash, cash equivalents, and marketable investments of $122.6 million. This balance includes $78.7 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, 2021. There have been no material changes to the critical accounting policies and estimates previously disclosed in that report.

 

30


 

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, 2021.

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, 2022. 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, 2022, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

31


 

PART II. OTHER INFORMATION

From time to time, we may be subject to legal proceedings and civil and regulatory claims that arise in the ordinary course of our business activities. Regardless of the outcome, litigation can have a material adverse effect on us because of defense and settlement costs, diversion of management resources, and other factors.

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, 2021, 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, 2022, 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, 2022, 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

 

 

59,513

 

 

$

57.16

 

 

 

59,513

 

 

$

77,217

 

May 1 - May 31

 

 

39,508

 

 

$

53.01

 

 

 

39,508

 

 

$

75,122

 

June 1 - June 30

 

 

3,000

 

 

$

52.10

 

 

 

3,000

 

 

$

74,966

 

   Total for the quarter

 

 

102,021

 

 

 

 

 

 

102,021

 

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

 

32


 

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.

 

 

 

    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)

 

 

33


 

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 5, 2022

 

34