Edgar Filing: FORRESTER RESEARCH, INC.

forr-10q_20150630.htm

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED June 30, 2015

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

COMMISSION FILE NUMBER: 000-21433

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		04-2797789
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

60 Acorn Park Drive CAMBRIDGE, MASSACHUSETTS		02140
(Address of principal executive offices)		(Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

As of July 31, 2015 17,920,000 shares of the registrant’s common stock were outstanding.

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

		PAGE
PART I. FINANCIAL INFORMATION		3
ITEM 1. Financial Statements (Unaudited)		3
Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014		3
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2015 and 2014		4
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2015 and 2014		5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014		6
Notes to Consolidated Financial Statements		7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		23
ITEM 4. Controls and Procedures		23
PART II. OTHER INFORMATION		24
ITEM 1A. Risk Factors		24
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		24
ITEM 6. Exhibits		25

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

	June 30,			December 31,
	2015			2014
ASSETS
Current Assets:
Cash and cash equivalents	$	50,163		$	49,650
Marketable investments (Note 3)		60,677			54,885
Accounts receivable, net		42,656			67,429
Deferred commissions		10,985			13,754
Prepaid expenses and other current assets		22,330			22,277
Total current assets		186,811			207,995
Property and equipment, net		29,305			32,174
Goodwill		74,525			76,683
Intangible assets, net		2,801			3,382
Other assets		13,944			12,473
Total assets	$	307,386		$	332,707

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	698		$	912
Accrued expenses and other current liabilities		29,168			36,217
Deferred revenue		136,228			144,568
Total current liabilities		166,094			181,697
Non-current liabilities		9,315			9,408
Total liabilities		175,409			191,105

Commitments

Stockholders' Equity (Note 7):
Preferred stock, $0.01 par value
Authorized - 500 shares, issued and outstanding - none		—			—
Common stock, $0.01 par value
Authorized - 125,000 shares
Issued - 20,983 and 20,856 as of June 30, 2015 and December 31, 2014, respectively
Outstanding 17,955 and 18,153 as of June 30, 2015 and December 31, 2014, respectively		210			209
Additional paid-in capital		129,588			124,942
Retained earnings		116,718			117,318
Treasury stock - 3,028 and 2,703 as of June 30, 2015 and December 31, 2014, respectively, at cost		(111,040	)		(99,254	)
Accumulated other comprehensive loss		(3,499	)		(1,613	)
Total stockholders’ equity		131,977			141,602
Total liabilities and stockholders’ equity	$	307,386		$	332,707

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data, unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2015			2014		2015			2014
Revenues:
Research services	$	52,604		$	52,322	$	104,462		$	103,115
Advisory services and events		30,207			30,625		53,536			52,903
Total revenues		82,811			82,947		157,998			156,018
Operating expenses:
Cost of services and fulfillment		32,560			33,558		63,321			63,038
Selling and marketing		28,481			28,630		58,112			58,513
General and administrative		9,276			9,815		19,034			19,342
Depreciation		2,096			2,289		4,203			5,062
Amortization of intangible assets		224			536		445			1,075
Reorganization costs		81			1,039		3,505			1,888
Total operating expenses		72,718			75,867		148,620			148,918
Income from operations		10,093			7,080		9,378			7,100
Other income (expense), net		(99	)		79		183			15
Gains (losses) on investments, net		10			43		(9	)		80
Income before income taxes		10,004			7,202		9,552			7,195
Income tax provision		4,254			2,913		4,026			2,972
Net income	$	5,750		$	4,289	$	5,526		$	4,223

Basic income per common share	$	0.32		$	0.23	$	0.31		$	0.22

Diluted income per common share	$	0.31		$	0.23	$	0.30		$	0.22

Basic weighted average common shares outstanding		18,007			18,757		18,033			19,184
Diluted weighted average common shares outstanding		18,268			19,044		18,314			19,479
Cash dividends declared per common share	$	0.17		$	0.16	$	0.34		$	0.32

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014

Net income	$	5,750		$	4,289		$	5,526		$	4,223

Other comprehensive income (loss), net of taxes:
Foreign currency translation		1,067			(106	)		(1,933	)		(61	)
Net change in market value of investments		(51	)		25			47			36
Other comprehensive income (loss)		1,016			(81	)		(1,886	)		(25	)
Comprehensive income	$	6,766		$	4,208		$	3,640		$	4,198

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Six Months Ended
	June 30,
	2015			2014

Cash flows from operating activities:
Net income	$	5,526		$	4,223
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,203			5,062
Amortization of intangible assets		445			1,075
Net (gains) losses from investments		9			(80	)
Deferred income taxes		(1,514	)		(2,964	)
Stock-based compensation		3,661			3,165
Amortization of premium on investments		381			751
Foreign currency losses		70			319
Changes in assets and liabilities
Accounts receivable		24,353			36,210
Deferred commissions		2,769			1,661
Prepaid expenses and other current assets		(511	)		(797	)
Accounts payable		(195	)		(75	)
Accrued expenses and other liabilities		(7,268	)		(4,159	)
Deferred revenue		(7,168	)		(9,110	)
Net cash provided by operating activities		24,761			35,281
Cash flows from investing activities:
Purchases of property and equipment		(1,678	)		(871	)
Purchases of marketable investments		(18,575	)		(27,165	)
Proceeds from sales and maturities of marketable investments		12,478			26,464
Other investing activity		266			1,437
Net cash used in investing activities		(7,509	)		(135	)
Cash flows from financing activities:
Dividends paid on common stock		(6,126	)		(6,128	)
Repurchases of common stock		(11,786	)		(54,940	)
Proceeds from issuance of common stock under employee equity incentive plans		1,906			4,186
Excess tax benefits from stock-based compensation		31			100
Net cash used in financing activities		(15,975	)		(56,782	)
Effect of exchange rate changes on cash and cash equivalents		(764	)		138
Net increase (decrease) in cash and cash equivalents		513			(21,498	)
Cash and cash equivalents, beginning of period		49,650			74,132
Cash and cash equivalents, end of period	$	50,163		$	52,634

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

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Interim Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Forrester Research, Inc. (“Forrester”) Annual Report on Form 10-K for the year ended December 31, 2014. 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, 2015 may not be indicative of the results for the year ending December 31, 2015, or any other period.

Fair Value Measurements

The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturities. See Note 3 – Marketable Investments for the fair value of the Company’s marketable investments.

Note 2 — Accumulated Other Comprehensive Income (Loss)

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

							Total
	Net Unrealized Gain			Cumulative			Accumulated
	(Loss) on Marketable			Translation			Other Comprehensive
	Investments			Adjustment			Income (Loss)
Balance at January 1, 2015	$	(74	)	$	(1,539	)	$	(1,613	)
Foreign currency translation		—			(1,933	)		(1,933	)
Unrealized gain on investments before reclassification, net of tax of $29		47			—			47
Balance at June 30, 2015	$	(27	)	$	(3,472	)	$	(3,499	)

							Total
	Net Unrealized Gain			Cumulative			Accumulated
	(Loss) on Marketable			Translation			Other Comprehensive
	Investments			Adjustment			Income (Loss)
Balance at April 1, 2015	$	24		$	(4,539	)	$	(4,515	)
Foreign currency translation		—			1,067			1,067
Unrealized loss on investments before reclassification, net of tax of $33		(51	)		—			(51	)
Balance at June 30, 2015	$	(27	)	$	(3,472	)	$	(3,499	)

						Total
	Net Unrealized Gain		Cumulative			Accumulated
	(Loss) on Marketable		Translation			Other Comprehensive
	Investments		Adjustment			Income (Loss)
Balance at January 1, 2014	$	16	$	2,438		$	2,454
Foreign currency translation		—		(61	)		(61	)
Unrealized gain on investments before reclassification, net of tax of $27		33		—			33
Reclassification adjustment for net loss realized in net income, net of tax of $2		3		—			3
Balance at June 30, 2014	$	52	$	2,377		$	2,429

							Total
	Net Unrealized Gain			Cumulative			Accumulated
	(Loss) on Marketable			Translation			Other Comprehensive
	Investments			Adjustment			Income (Loss)
Balance at April 1, 2014	$	27		$	2,483		$	2,510
Foreign currency translation		—			(106	)		(106	)
Unrealized gain on investments before reclassification, net of tax of $27		27			—			27
Reclassification adjustment for net loss realized in net income, net of tax of $2		(2	)		—			(2	)
Balance at June 30, 2014	$	52		$	2,377		$	2,429

Reclassification adjustments for net gains (losses) are reported in gains (losses) on investments, net in the Consolidated Statements of Income.

Note 3 — Marketable Investments

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

	As of June 30, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value

Corporate obligations	$	60,720	$	17	$	(60	)	$	60,677

	As of December 31, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value

Corporate obligations	$	55,005	$	13	$	(133	)	$	54,885

Realized gains and losses on securities are included in earnings and are determined using the specific identification method. Realized gains or losses on the sale of the Company’s corporate obligations were not material in the three and six months ended June 30, 2015 or 2014.

The following table summarizes the maturity periods of the marketable securities in the Company’s portfolio as of June 30, 2015 (in thousands).

		FY 2015				FY 2016				FY 2017				Thereafter				Total
Corporate obligations		$	8,478			$	25,496			$	23,706			$	2,997			$	60,677

The following table shows the gross unrealized losses and market value of Forrester’s available-for-sale securities with unrealized losses that are not deemed to be other-than-temporary, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

	As of June 30, 2015
	Less Than 12 Months				12 Months or Greater
	Market		Unrealized		Market		Unrealized
	Value		Losses		Value		Losses

Corporate obligations	$	32,296	$	53	$	2,043	$	7

	As of December 31, 2014
	Less Than 12 Months				12 Months or Greater
	Market		Unrealized		Market		Unrealized
	Value		Losses		Value		Losses

Corporate obligations	$	38,175	$	133	$	—	$	—

Fair Value

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

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

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

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

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014 (in thousands):

	As of June 30, 2015
	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	852	$	—	$	—	$	852
Corporate obligations		—		60,677		—		60,677
Total	$	852	$	60,677	$	—	$	61,529

	As of December 31, 2014
	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	1,794	$	—	$	—	$	1,794
Corporate obligations		—		54,885		—		54,885
Total	$	1,794	$	54,885	$	—	$	56,679

(1)	Included in cash and cash equivalents.

Level 2 assets consist of the Company’s entire portfolio of corporate bonds. Level 2 assets have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation methods, including both income and market based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events.

Note 4 — Non-Marketable Investments

At June 30, 2015 and December 31, 2014, the carrying value of the Company’s non-marketable investments, which were composed primarily of interests in technology-related private equity funds, was $3.7 million and $3.8 million, respectively, and is included in other assets in the Consolidated Balance Sheets.

One of the Company’s investments, with a book value of $0.6 million and $0.7 million at June 30, 2015 and December 31, 2014, respectively, is being accounted for using the cost method and, accordingly, is valued at cost unless an other-than-temporary impairment in its value occurs. The other investments are being accounted for using the equity method as the investments are limited partnerships and the Company has an ownership interest in excess of 5% and, accordingly, the Company records its share of the investee’s operating results each period. Gains and losses from non-marketable investments were insignificant during the three and six months ended June 30, 2015 and 2014, and are included in gains (losses) on investments, net in the Consolidated Statements of Income. During the six months ended June 30, 2015 and 2014, gross distributions of $0.1 million and $1.4 million, respectively, were received from the funds.

Note 5 — Reorganization

In the first quarter of 2015, the Company implemented a reduction in its workforce of approximately 4% of its employees across various geographies and functions, in order to reallocate investment in 2015 to planned sales expansion and to delivery areas seeing the greatest client demand. Overall the Company expects to increase its headcount by 5% to 7% at the end of 2015 compared to 2014 levels. The Company recorded $(0.2) million and $3.2 million of severance and related costs for this action during the three and six months ended June 30, 2015. In addition, the Company incurred $0.3 million during the three months ended June 30, 2015 primarily for a non-cash charge for the liquidation of a small non-U.S. subsidiary. The costs under this plan are expected to be substantially paid by the end of 2015.

During 2014 the Company incurred $1.8 million of severance and related costs for the termination of approximately 1% of its employees across various geographies and functions primarily to realign resources due to the Company’s new organizational structure put in place in late 2013. Approximately $0.8 million of the costs were recognized in the three months ended March 31, 2014 and approximately $1.0 million were recognized in the three months ended June 30, 2014.

The following table rolls forward the activity in the reorganization accrual for the six months ended June 30, 2015 (in thousands):

	Workforce			Subsidiary
	Reduction			Liquidation			Total
Accrual at December 31, 2014	$	118		$	—		$	118
Additions		3,173			332			3,505
Cash payments		(2,768	)		—			(2,768	)
Non-cash charge		—			(318	)		(318	)
Accrual at June 30, 2015	$	523		$	14		$	537

Note 6 — 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 options and vesting of restricted stock units when dilutive.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014

Basic weighted average common shares outstanding		18,007		18,757		18,033		19,184
Weighted average common equivalent shares		261		287		281		295
Diluted weighted average common shares outstanding		18,268		19,044		18,314		19,479
Options excluded from diluted weighted average share calculation as effect would have been anti-dilutive		1,012		602		852		582

Note 7 — Stockholders’ Equity

Equity Plans

Stock option activity for the six months ended June 30, 2015 is presented below (in thousands, except per share data):

Weighted -

Average

Exercise

Remaining

Aggregate

Number

Price Per

Contractual

Intrinsic

of Shares

Term (in years)

Value

Outstanding at December 31, 2014

1,954