What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-11 · 155 added, 113 removed, 145 unchanged (65% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS O F FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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These statements are based on our current plans and expectations and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements.

Important factors that could cause actual future activities and results to differ include, among others, our ability to retain and enrich subscriptions to, and licenses of, our Research, Connect, and Analytics products, our ability to fulfill existing or generate new advisory and consulting engagements, our ability to generate and increase demand for our Events we host, technology spending, 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 including any impact of Brexit, 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, our ability to integrate the operations of acquired companies, the impact of our outstanding debt, the possibility of network disruptions and security breaches, competition and industry consolidation, our ability to enforce and protect our intellectual property rights, compliance with privacy laws, possible variations in our quarterly operating results, taxation risks, concentration of our stock ownership and any weakness identified in our system of internal controls.

These risks are described more completely in our Annual Report on Form 10-K for the year ended December 31, 2019 and in Item 1A of Part II of this Quarterly Report on Form 10-Q for the year ended March 31, 2020.

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, Connect, and Analytics products, our ability to fulfill existing or generate new advisory and consulting engagements, our ability to generate and increase demand for the Events we host, technology spending, 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 including any impact of Brexit, 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, our ability to integrate the operations of acquired companies, the impact of our outstanding debt, the possibility of network disruptions and security breaches, competition and industry consolidation, our ability to enforce and protect our intellectual property rights, compliance with privacy laws, possible variations in our quarterly operating results, taxation risks, concentration of our stock ownership, and any weakness identified in our system of internal controls.

These risks are described more completely in our Annual Report on Form 10-K for the year ended December 31, 2019 and in Item 1A of Part II of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

The global spread of the novel coronavirus (COVID-19), which has been declared by the World Health Organization to be a “pandemic”, has spread to many countries and is impacting worldwide economic activity.

Many governments have implemented policies intended to stop or slow the further spread of the disease, such as shelter-in-place orders, resulting in the temporary closure of non-essential businesses, and these measures may remain in place for a significant period of time.

Due to COVID-19 materially impacting our business beginning only in the last month of the quarter, the impact on our business in the first quarter of 2020 is primarily limited to March customer contract bookings and the amount of consulting projects delivered.

While the duration and severity of this pandemic is uncertain, we currently expect that our results of operations in the second quarter of 2020 will have the most significant impact of the effects of COVID-19, and that subsequent periods will also be negatively impacted.

We typically generate a significant portion of our Events revenues in the second quarter of the year, including revenues from our two flagship events, the SiriusDecisions Summit and CX North America, both of which will be held as virtual events, resulting in a significant reduction in revenues and profits from these two events.

In addition, we cancelled two smaller events originally scheduled for the second quarter of the year.

We also expect a reduction in our subscription Research, Connect and Analytics revenues and a reduction in Consulting revenues during the second quarter due to reduced customer contract booking activity in March, which is expected to continue through at least the second quarter of 2020.

The COVID-19 pandemic has significantly affected us beginning in March 2020 primarily through lower contract bookings and a reduction in revenues from the conversion of our events from in-person events to virtual events.

We also announced that our events in the second half of 2020 will be held as virtual events.

While the duration and severity of this pandemic is uncertain, we currently expect a reduction in our subscription Research, Connect and Analytics revenues during the second half of the 2020 due to reduced customer contract booking activity that began in March 2020, and which is expected to continue through at least the third quarter of 2020.

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.

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SiriusDecisions equips business-to-business (B2B) sales, marketing, and product leaders with the actionable research, frameworks, tools, operational benchmarks and expert advice to maximize performance and drive alignment.

Pursuant to the terms of the merger agreement, the Company paid $246.8 million at closing.

Pursuant to the terms of the merger agreement, we paid $246.8 million at closing.

Net cash paid, which accounts for the cash acquired of $7.9 million and a subsequent working capital adjustment, was $237.7 million.

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See Note 2 - Acquisitions and Note 4 – Debt in the Notes to Consolidated Financial Statements for more information on the acquisition and related debt obligations.

We derive revenues from subscriptions to our Research, Connect and Analytics products and se rvices, licensing electronic “reprints” of our Research, performing advisory services and consulting projects, and hosting Events.

We offer contracts for our Research, Connect and Analytics products that are typically renewable annually and payable in adva nce.

We derive revenues from subscriptions to our Research, Connect and Analytics products and services, licensing electronic “reprints” of our Research, performing advisory services and consulting projects, and hosting Events.

We offer contracts for our Research, Connect and Analytics products that are typically renewable annually and payable in advance.

Subscription products are recognized as revenue ratably 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 researc h document and certain usage data provided through an on-line platform, which represents two performance obligations.

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 revenu e for the performance obligation for the research document at the time of providing access to the document.

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 advisory and consulting services independently and/o r to supplement their access to our subscription-based products.

Clients purchase advisory and consulting services independently and/or to supplement their access to our subscription-based products.

Consulting project revenues, which generally are short-term in nature and based upon fixed-fee agreements, are recognized as the services are provided.

Advisory service revenues, such as work shops, speeches and advisory days, are recognized when the service is complete or the customer receives the agreed upon deliverable.

Advisory service revenues, such as workshops, speeches and advisory days, are recognized when the service is complete or the customer receives the agreed upon deliverable.

Billings attributable to advisory services and consulting projects are initially recorded as deferred revenue.

Events reven ues consist of ticket or sponsorship sales for a Forrester-hosted event.

Events revenues consist of ticket or 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.

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Overhead costs such as facilities and annual fees for cloud-based information technology systems are allocated to these categories according to the number of employees in each group.

Client retention includes all client relationships except for clients that only purchase web-based products such as individual reports, workshops and Event tickets.

Dollar retention and enrichment are calculated at a client account level which results in a broader view of dollar retention and enrichment as it includes virtually all products in the calculations (except for web-based products mentioned above) and captures all enrichment that occurs within the year for an account.

Deferred revenue, agreement value, client retention, dollar retention, enrichment, and number of clients are metrics that we believe are important to understanding our business.

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Client retention, dollar retention, and enrichment are not necessarily indicative of the rate of future retention of our revenue base.

A summary of our key metrics is as follows (dollars in mi llions):

A summary of our key metrics is as follows (dollars in millions):

Deferred revenue

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Number of clients

Deferred revenue at March 31, 2020 increased 2% compared to the prior year , with 4% of the increase due to the fair value adjustment of pre-acquisition deferred revenue that reduced deferred revenue in the prior year, and a 2% decrease primarily due to a reduction in contract billings during the three months ended March 31, 2020.

Agreement value increased 3% at March 31, 2020 compared to the prior year due primarily to increased bundling of Consulting services with our Research and Connect products in our contracts.

Client retention rate decreased 3 percentage points compared to the prior year period.

Dollar retention rate decreased 1 percentage point compared to the prior year period.

Enrichment rate decreased 4 percentage points compared to the prior year period.

Retention and enrichment rates were negatively affected by a decrease in contract bookings experienced in March of 2020 as the economic effects of COVID-19 became widespread in Europe and North America.

Deferred revenue and agreement value decreased 6% and 3% , respectively , at June 30, 2020 compared to the prior year , primarily due to a reduction in contract billing s during the six months ended June 30, 2020 as the economic effects of COVID-19 became widespread in Europe and North America .

R etention and enrichment rate s decreased from the prior year as they were negatively affected by a decrease in contract bookings experienced in 2020.

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”).

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Three Months Ended

Research services

Advisory services and events

Six Months Ended

Total revenues

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Gain (loss) on investments, net

Loss before income taxes

Income tax expense (benefit)

Three Months Ended March 31 , 20 20 and 201 9

Income (loss) before income taxes

Income tax expense

Net income (loss)

Three and Six Months Ended June 30, 2020 and 2019

Three Months Ended

(dollars in millions)

Revenues from research services

Revenues from advisory services and events

Revenues attributable to customers outside of the U.S.

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Number of events

Total revenues increased 6% during the three months ended March 31, 2020 compared to the prior year period.

Approximately 4% of the growth was due to the fair value adjustment of pre-acquisition deferred revenue that reduced revenues during the three months ended March 31, 2019.

Six Months Ended

(dollars in millions)

Revenues attributable to customers outside of the U.S.

Percentage of revenue attributable to customers outside of

Number of events

Total revenues decreased 11% and 4% during the three and six months ended June 30, 2020, respectively, compared to the prior year periods and decreased 15% and 8%, respectively, after adjusting for the fair value adjustment of pre-acquisition deferred revenue that reduced revenues during the three and six months ended June 30, 2019.

Revenues from customers outside the U.S.

decreased 4% during the three months ended March 31, 2020 which was primarily due to a decrease in revenues in Canada and the United Kingdom.

Research services revenues are recognized as revenue primarily on a ratable basis over the term of the contracts, which are generally twelve-month periods.

Research services revenues increased 6% during the three months ended March 31, 2020 compared to the prior year period, which was primarily driven by growth in Research and Connect products.

Approximately 5% of the growth was due to the fair value adjustment of pre-acquisition deferred revenue that reduced revenues during the three months ended March 31, 2019.

Revenues from advisory services and events increased 5% during the three months ended March 31, 2020 compared to the prior year period, which was due to growth of Consulting revenues.

Approximately 1% of the growth was due to the fair value adjustment of pre-acquisition deferred revenue that reduced revenues during the three months ended March 31, 2019.

decreased 12% and 7% during the three and six months ended June 30, 2020, respectively, which was primarily due to a decrease in revenues in Canada and the United Kingdom.

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 decreased 4% and increased 1% during the three and six months ended June 30, 2020, respectively, compared to the prior year periods and decreased 7% and 3%, respectively, after adjusting for the fair value adjustment of pre-acquisition deferred revenue that reduced revenues during the three and six months ended June 30, 2019.

The decrease in Research revenues, after adjusting for the deferred revenue fair vale adjustment, was driven by reduced revenues for the Research, Connect, and Analytics products.

Consulting revenues increased 3% and 4% during the three and six months ended June 30, 2020, respectively, compared to the prior year periods primarily due to growth in project consulting.

Events revenues decreased 72% during both the three and six months ended June 30, 2020 compared to the prior year periods, and decreased 85% for both periods after adjusting for the fair value adjustment of pre-acquisition deferred revenue that reduced revenues during the three and six months ended June 30, 2019.

The decrease in Events revenues was due to lower sponsorship revenues in 2020 compared to the prior year due primarily to the change to virtual events as a result of the COVID-19 pandemic, and, to a lesser extent, having six fewer events during the 2020 period.

Refer to the “Segments Results” section below for a discussion of revenues and expenses by segment.

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(at end of period)

Cost of services and fulfillment expenses decreased 4% during the three months ended March 31, 2020 compared to the prior year period.

The decrease was primarily due to a $2.6 million decrease in compensation and benefit costs, resulting principally from a decrease in incentive bonuses due to the cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, partially offset by an increase in headcount and merit increases, and a $0.6 million decrease in travel and entertainment expenses.

These decreases were partially offset by a $1.6 million increase in professional services costs .

Six Months Ended

Cost of services and fulfillment (dollars in millions)

Cost of services and fulfillment as a percentage of total

Cost of services and fulfillment expenses decreased 22% during the three months ended June 30, 2020 compared to the prior year period.

The decrease was primarily due to (1) a $7.6 million decrease in event expenses due to switching our two flagship events to virtual delivery and the cancellation of two smaller events, both as a result of the COVID-19 pandemic, (2) a $2.9 million decrease in compensation and benefit costs, resulting principally from a decrease in incentive bonuses and other related cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, partially offset by an increase in headcount and merit increases, (3) a $2.6 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19

pandemic , and (4) a $0.3 million decrease in stock compensation expense.

These decreases were partially offset by a $1.

1 million increase in professional services costs primarily due to an increase in outsourced services related to revenue delivery .

Cost of services and fulfillment expenses decreased 14% during the six months ended June 30, 2020 compared to the prior year period.

The decrease was primarily due to (1) a $7.8 million decrease in event expenses due to switching our two flagship events to virtual delivery and the cancellation of two smaller events, both as a result of the COVID-19 pandemic, (2) a $5.6 million decrease in compensation and benefit costs, resulting principally from a decrease in incentive bonuses and other related cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, partially offset by an increase in headcount and merit increases, (3) a $3.2 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic, and (4) a $0.2 million decrease in stock compensation expense.

These decreases were partially offset by a $2.6 million increase in professional services costs primarily due to an increase in outsourced services related to revenue delivery, survey costs, and product enhancements .

Selling and Marketing

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Selling and marketing employees (at end of period)

Selling and marketing expenses decreased 4 % during the three months ended March 31, 2020 comp ared to the prior year period .

The decrease was primarily due to (1) a $1.1 million decrease in travel and entertainment expenses, and ( 2 ) a $ 0 .

7 million decrease in compensation and benefit costs, resulting principally from a decrease in incentive bonuses due to the cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic , partially offset by an increase in headcount and merit increase s .

Six Months Ended

Selling and marketing expenses (dollars in millions)

Selling and marketing expenses as a percentage of total

Selling and marketing expenses decreased 11% during the three months ended June 30, 2020 compared to the prior year period.

The decrease was primarily due to (1) a $2.5 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic, (2) a $1.7 million decrease in compensation and benefit costs, resulting principally from a decrease in incentive bonuses and other related cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic as well as a decrease in commissions expense, partially offset by an increase in headcount and merit increases, (3) a $0.3 million decrease in bad debt expense, and (4) a $0.2 million decrease in marketing costs as a result of moving our events to virtual delivery.

Selling and marketing expenses decreased 8% during the six months ended June 30, 2020 compared to the prior year period.

The decrease was primarily due to (1) a $3.6 million decrease in travel and entertainment expenses due to reduced travel and other related cost reduction measures as a result of the COVID-19 pandemic, (2) a $2.4 million decrease in compensation and benefit costs, resulting principally from a decrease in incentive bonuses and other related cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, as well as a decrease in commissions expense, partially offset by an increase in headcount and merit increases, and (3) a $0.4 million decrease in marketing and training costs as a result of moving our events to virtual delivery.

General and Administrative

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General and administrative employees (at end of period)

General and administrative expenses decreased 9% during the three months ended March 31, 2020 compared to the prior year period.

The decrease was primarily due to a $1.1 million decrease in compensation and benefit costs, resulting principally from a decrease in incentive bonuses due to the cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic.

Depreciation expense increased by $0.4 million during the three months ended March 31, 2020 compared to the prior year period due to additional leasehold improvements being put into service.

Six Months Ended

General and administrative expenses (dollars in millions)

General and administrative expenses as a percentage of

total revenues

General and administrative expenses decreased 13% during the three months ended June 30, 2020 compared to the prior year period .

The decrease was primarily due to (1) a $ 1 .

2 million decrease in compensation and benefit costs, resulting principally from a decrease in incentive bonuses and other related cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic , as well as a decrease in headcount, and (2) a $0.3 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic .

General and administrative expenses decreased 11% during the six months ended June 30, 2020 compared to the prior year period.

The decrease was primarily due to (1) a $2.6 million decrease in compensation and benefit costs, resulting principally from a decrease in incentive bonuses and other related cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, and (2) a $0.3 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

Depreciation expense increased by $0.3 million and $0.7 million during the three and six months ended June 30, 2020, respectively, compared to the prior year periods due primarily to additional leasehold improvements being put into service.

Amortization of Intangible Assets

Amortization expense decreased by $1.5 million during the three months ended March 31, 2020 compared to the prior year period due to certain technology intangible assets becoming fully amortized.

Amortization expense decreased by $0.4 million and $1.9 million during the three and six months ended June 30, 2020, respectively, compared to the prior year periods due to certain technology intangible assets becoming fully amortized.

Acquisition and Integration Costs

Acquisition and integration costs remained consistent during the three months ended March 31, 2020 compared to the prior year period.

The Company did not have any acquisitions in 2020 and had one acquisition, SiriusDecisions, at the beginning of 2019.

Acquisition and integration costs consist of direct and incremental costs to acquire and integrate acquired companies and primarily consist of certain fair value adjustments, consulting, severance, accounting and tax professional fees, and lease expense for unused facilities.

Acquisition and integration costs decreased by $1.9 million during the three months ended June 30, 2020 compared to the prior year period primarily due to a decrease in professional service fees, partially offset by an increase related to the benefit of recording deferred commissions for SiriusDecisions in the year of the acquisition.

Acquisition and integration costs decreased by $2.0 million during the six months ended June 30, 2020 compared to the prior year period primarily due to (1) a $4.1 million decrease in professional service fees and transaction costs, and (2) a $1.4 million decrease in severance.

These decreases were offset by (1) a $1.9 million ROU asset impairment recognized in the 2020 period, and (2) a $1.8 million increase related to the benefit of recording deferred commissions for SiriusDecisions in the year of the acquisition.

We expect to incur integration costs in a range of $4.3 million to $4.7 million for the year ending December 31, 2020.

Interest Expense

Interest expense consists of interest on our borrowings used to finance the previous acquisition of SiriusDecisions.

Interest expense decreased by $0.8 million during the three months ended March 31, 2020 compared to the prior year period.

This decrease was primarily due to lower average outstanding borrowings and lower effective interest rates.

Interest expense consists of interest on our borrowings used to finance the previous acquisition of SiriusDecisions and realized gains (losses) on the related interest rate swap.

Interest expense decreased by $0.8 million and $1.6 million during the three and six months ended June 30, 2020, respectively, compared to the prior year periods.

These decreases were due to lower average outstanding borrowings and lower effective interest rates.

Other Income (Expense), Net

Other income (expense), net primarily consists of gains (losses) on foreign currency and interest income.

The increase in other income (expense), net of $0.6 million during the three months ended March 31, 2020 compared to the prior year period was primarily due to a decrease in foreign currency losses.

Other income (expense), net primarily consists of gains (losses) on foreign currency, gains (losses) on foreign currency forward contracts, and interest income.

Other income (expense), net remained essentially consistent during the three months ended June 30, 2020 compared to the prior year period.

The increase in other income (expense), net of $0.5 million during the six months ended June 30, 2020 compared to the prior year period was primarily due to a decrease in foreign currency losses.

Gain (Loss) on Investments, Net

Gain (loss) on investments, net primarily represents our share of equity method investment gains and losses from our technology-related investment funds.

Gain (loss) on investments, net remained essentially consistent during the three months ended March 31, 2020 compared to the prior year period.

Income Tax Expense (Benefit)

Gain (loss) on investments, net increased by $2.4 million during both the three and six months ended June 30, 2020 compared to the prior year periods due to an increase in investment gains generated by the underlying funds.

Income Tax Expense

Three Months Ended

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

Provision for income taxes (dollars in millions)

Effective tax rate

Income tax expense for the three months ended March 31, 2020 was $ 19 thousand resulting in an effective tax rate of negative 3 .

8 % for the period due to discrete items for the period, primarily tax expense related to th e exercise of stock options and the vesting of restricted stock units .

For the full year 20 20 , we anticipate that our effective tax rate will be approximately 10 % to 15 % .

Six Months Ended

Provision for income taxes (dollars in millions)

Effective tax rate

Income tax expense decreased by $0.4 million during the six months ended June 30, 2020 compared to the prior year period due to the release of a U.S.

valuation allowance on capital loss carryforwards.

For the full year 2020, we anticipate that our effective tax rate will be approximately 1%.

Segment Results

As of January 1, 2020, we realigned our internal management and reporting into Products and Research segments.

The realignment eliminated the SiriusDecisions segment as it no longer operated under a separate management structure.

The 2019 amounts have been revised to conform to the current presentation.

The Products segment includes the revenues of the Connect, Analytics, and Events products and the costs of the organizations responsible for developing and delivering these products.

In addition, this segment includes Consulting revenues and the related cost of our project consulting organization.

The project consulting organization delivers a majority of our project consulting revenue and certain advisory services primarily related to the Analytics product line.

This segment also includes the costs of the product management organization that is responsible for product pricing and packaging and the launch of new products.

The Research segment includes the revenues of the Research products and the cost of the organizations responsible for developing and delivering our Research products.

In addition, this segment includes Consulting revenues primarily from the delivery of advisory services (such as workshops, speeches and advisory days) delivered by our research analysts.

As described in the Form 8-K filed on April 2, 2020, our Chief Product Officer resigned effective April 17, 2020.

Subsequently, the Chief Product Officer position was eliminated and we reorganized our operations to reflect three lines of business:

Research, Consulting, and Events.

As a result of these changes, during the three months ended June 30, 2020, we realigned our internal reporting into Research, Consulting, and Events.

The realignment eliminated the Products segment as the product lines and organizations supporting the related revenues began operating under separate management structures.

The prior period amounts have been revised to conform to the current presentation.

The Research segment includes the revenues of the Research, Connect and Analytics products and the cost of the organizations responsible for developing and delivering our Research, Connect and Analytics products.

In addition, this segment includes Consulting revenues from the delivery of advisory services (such as workshops, speeches and advisory days) delivered by our research and analytics analysts.

The costs of the product management organization that is responsible for product pricing and packaging and the launch of new products is included in this segment.

The Consulting segment includes the revenues and the related costs of our project consulting organization.

The project consulting organization delivers a majority of our project consulting revenue and certain advisory services.

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

We evaluate reportable segment performance and allocate resources based on segment revenues and expenses.

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The accounting policies used by the segments are the same as those used in the consolidated financial statements.

Three Months Ended March 31, 2020

Research services revenues

Total research services revenues

Advisory services and events revenues

Total advisory services and events revenues

(dollars in thousands)

Three Months Ended June 30, 2020

Research revenues

Total research revenues

Total segment revenues

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Year over year expense change

Three Months Ended March 31, 2019

Research services revenues

Total research services revenues

Advisory services and events revenues

Total advisory services and events revenues

(dollars in thousands)

Three Months Ended June 30, 2019

Research revenues

Total research revenues

Total segment revenues

Segment expenses

Product se gment revenues increased 5 % during the three months ended March 31, 2020 compared to the prior year period.

Connect revenues increased 2 % driven by the exec utive program product while Analytics revenues increased 1% .

Consulting revenues increased 9 % driven by strong consultant delivery .

Approximately 1% of the Product segment growth was due to the fair value adjustment of pre-acquisition deferred revenue that reduced revenues during the three months ended March 31, 2019.

Product segment expenses decreased 3% during the three months ended March 31, 2020 compared to the prior year period.

The decrease in expenses was primarily due to a (1) $1.5 million decrease in compensation and benefit costs due to a decrease in incentive bonuses due to the cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, partially offset by an increase in headcount and merit increases, (2) a $1.4 million increase in professional services primarily due to an increase in survey costs and an increase in outsourced services related to revenue delivery, and (3) a $0.4 million decrease in travel and entertainment expenses.

R esearch segment revenues increased 6% for the three months ended March 31, 2020 compared to the prior year period.

The Research product line increased 8% driven by our reprint product, which was offset by a 1% decrease in Consulting revenues due to lower delivery of advisory revenues.

Approximately 5% of the Research segment growth was due to the fair value adjustment of pre-acquisition deferred revenue that reduced revenues during the three months ended March 31, 2019.

Research segment expenses decreased 8% during the three months ended March 31, 2020 compared to the prior year period.

The decrease in expenses was primarily due to a $1.5 million decrease in compensation and benefit costs due to a decrease in incentive bonuses due to the cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, partially offset by an increase in headcount and merit increases.

(dollars in thousands)

Six Months Ended June 30, 2020

Research revenues

Total research revenues

Total segment revenues

Segment expenses

Year over year revenue change

Year over year expense change

(dollars in thousands)

Six Months Ended June 30, 2019

Research revenues

Total research revenues

Total segment revenues

Segment expenses

Research segment revenues decreased 5% and remained essentially consistent during the three and six months ended June 30, 2020, respectively, compared to the prior year periods , and decreased 7% and 4%, respectively, after adjusting for the fair value adjustment of pre-acquisition deferred revenue that reduced revenues during the three and six months ended June 30, 2019.

The decrease in segment revenues, after adjusting for the deferred revenue fair value adjustment, was due to (1) a decrease in Research product line revenues due to a decrease in our subscription revenues that was partially offset by an increase in reprint product revenues, (2) a decrease in Connect product revenues due primarily to a decrease in the leadership board product, (3) a decrease in our Analytics products, and (4) a decrease in Consulting product revenues due to a decrease in advisory delivery during the period.

Research segment expenses decreased 17% and 13% during the three and six months ended June 30, 2020, respectively, compared to the prior year periods.

The decrease in expenses during the three months ended June 30, 2020 was primarily due to a (1) a $3.0 million decrease in compensation and benefit costs resulting principally from a decrease in incentive bonuses and other cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, partially offset by an increase in headcount and merit increases, and (2) a $1.9 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

The decrease in expenses during the six months ended June 30, 2020 was primarily due to (1) a $5.9 million decrease in compensation and benefit costs resulting principally from a decrease in incentive bonuses and other related cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, partially offset by an increase in headcount and merit increases, and (2) a $1.8 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

Consulting segment revenues increased 13% during the three and six months ended June 30, 2020, respectively, compared to the prior year periods driven by strong consulting delivery.

Consulting segment expenses increased 7% and 6% during the three and six months ended June 30, 2020, respectively, compared to the prior year periods.

The increase in expenses during the three months ended June 30, 2020 was primarily due to (1) a $0.8 million increase in professional services primarily due to an increase in outsourced services related to revenue delivery and an increase in survey costs, (2) a $0.3 million increase in compensation and benefit costs due to an increase in headcount and merit increases, partially offset by a decrease in incentive bonuses due to the cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, and (3) a $0.4 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

The increase in expenses during the six months ended June 30, 2020 was primarily due to (1) a $1.5 million increase in professional services primarily due to an increase in outsourced services related to revenue delivery and an increase in survey costs, (2) a $0.3 million increase in compensation and benefit costs due to an increase in headcount and merit increases, partially offset by a decrease in incentive bonuses due to the cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic, and (3) a $0.6 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

Event segment revenues decreased 72% during both the three and six months ended June 30, 2020 compared to the prior year periods and decreased 85% for both periods after adjusting for the fair value adjustment of pre-acquisition deferred revenue that reduced revenues during the three and six months ended June 30, 2019.

Event segment expenses decreased 70% and 67% during the three and six months ended June 30, 2020, respectively, compared to the prior year periods.

The decrease in expenses during the three months ended June 30, 2020 was primarily due to (1) a $7.3 million decrease in event expenses due primarily to the change to virtual events as a result of the COVID-19 pandemic, and, to a lesser extent, having six fewer events during the 2020 period, and (2) a $0.2 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

The decrease in expenses during the six months ended June 30, 2020 was primarily due to (1) a $7.4 million decrease in event expenses due primarily to the change to virtual events as a result of the COVID-19 pandemic, and, to a lesser extent, having six fewer events during the 2020 period, and (2) a $0.3 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

Liquidity and Capital Resources

We have historically financed our operations primarily through funds generated from operations.

Research services revenues, which constituted approximately 69% of our revenues during the three months ended March 31, 2020, are generally renewable annually and are typically payable in advance.

We generated cash from operating activities of $21.8 million and $26.0 million during the three months ended March 31, 2020 and 2019, respectively.

The $4.2 million decrease in cash provided from operations for the three months ended March 31, 2020 was primarily attributable to a $5.3 million reduction in cash generated from accounts receivable and deferred revenue due to a reduction in contract bookings for the period.

During the three months ended March 31, 2020, we used cash in investing activities of $2.4 million for purchases of property and equipment, primarily consisting of software and leasehold improvements .

During the three months ended March 31, 2019, we used cash in investing activities of $241.7 million, consisting primarily of $238.9 million for the acquisition of SiriusDecisions, net of cash acquired, and $2.8 million in purchases of property and equipment, consisting primarily of software and leasehold improvements.

We used $15.3 million of cash from financing activities during the three months ended March 31, 2020 primarily due to $16.3 million of repayments of debt that consisted of $14.0 million of discretionary payments on our revolving credit facility and $2.3 million of required repayments of our term loan.

We generated $151.4 million of cash in financing activities during the three months ended March 31, 2019 primarily due to $171.3 million of borrowings, which reflects the face value of debt of $175.0 million less $3.7 million that was netted against the proceeds to pay debt issuance costs.

This was partially offset by $21.6 million of repayments of debt during the quarter that consisted of $20.0 million of discretionary payments on our revolving credit facility and $1.6 million of required repayments of our term loan.

During 2020, we anticipate paying approximately $3.5 million of deferred acquisition purchase price (which consists of up to $2.5 million for a contingent consideration agreement (refer to Note 8 – Fair Value Measurements in the Notes to Consolidated Financial Statements) and $1.0 million of an indemnity holdback) for the FeedbackNow acquisition that occurred in 2018.

Research revenues, which constituted approximately 67% of our revenues during the six months ended June 30, 2020, are generally renewable annually and are typically payable in advance.

We generated cash from operating activities of $25.0 million and $33.5 million during the six months ended June 30, 2020 and 2019, respectively.

The $8.5 million decrease in cash provided from operations for the six months ended June 30, 2020 was primarily due to an $18.2 million reduction in cash generated from accounts receivable and deferred revenue due to a reduction in contract bookings for the period, partially offset by the combination of an increase in net income for the period with an increases in cash used for working capital.

During the six months ended June 30, 2020, we used cash in investing activities of $5.1 million for purchases of property and equipment, primarily consisting of software and leasehold improvements .

During the six months ended June 30, 2019, we used cash in

investing activities of $24 3 .

6 million, consisting primarily of $238.9 million for the acquisition of SiriusDecisions, net of cash acquired, and $ 4 .

7 million in purchases of property and equipment , consist ing primarily of software and leasehold improvements.

We used $17.6 million of cash from financing activities during the six months ended June 30, 2020 primarily due to $18.7 million of repayments of debt that consisted of $14.0 million of discretionary payments on our revolving credit facility and $4.7 million of required repayments of our term loan.

We generated $140.7 million of cash in financing activities during the six months ended June 30, 2019 primarily due to $171.3 million of borrowings, which reflects the face value of debt of $175.0 million less $3.7 million that was netted against the proceeds to pay debt issuance costs.

This was partially offset by $33.1 million of repayments of debt that consisted of $30.0 million of discretionary payments on our revolving credit facility and $3.1 million of required repayments of our term loan.

During the remainder of 2020, we anticipate paying approximately $3.6 million of deferred acquisition purchase price (which consists of up to $2.6 million for a contingent consideration agreement (refer to Note 8 – Fair Value Measurements in the Notes to Consolidated Financial Statements) and $1.0 million of an indemnity holdback) for the FeedbackNow acquisition that occurred in 2018.

In connection with the acquisition of SiriusDecisions, we entered into a $200.0 million credit agreement on January 3, 2019 (the “Credit Agreement”).

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The Term Loans must be prepaid with net cash proceeds of (i) certain debt incurred or issued by us and our restricted subsidiaries and (ii) certain asset sales and condemnation or casualty events, subject to certain reinvestment rights.

Amounts borrowed under the C redit A greement bear interest, at our option, at a rate per annum equal to either (i) LIBOR for the applicable interest period plus a margin that is between 1.75% and 2.50% based on our consolidated total l everage ratio or (ii) the alternate base rate plus a margin that is between 0.75% and 1.50% based on our consolidated total leverage ratio.

Amounts borrowed under the Credit Agreement bear interest, at our option, at a rate per annum equal to either (i) LIBOR for the applicable interest period plus a margin that is between 1.75% and 2.50% based on our consolidated total leverage ratio or (ii) the alternate base rate plus a margin that is between 0.75% and 1.50% based on our consolidated total leverage ratio.

In addition, we will pay a commitment fee that is between 0.25% and 0.35% per annum, based on our consolidated total leverage ratio, on the average daily unused portion of the Revolving Credit Facility, payable quarterly, in arrears.

During 2019, we entered into an interest rate swap contract to effectively convert the floating base interest rate to a fixed rate on appr oximately 80% of the outstanding Term Loan principal balance.

During 2019, we entered into an interest rate swap contract to effectively convert the floating base interest rate to a fixed rate on a majority of the outstanding Term Loan principal balance.

Additional information is provided in Note 7 – Derivatives and Hedging in the Notes to the Consolidated Financial Statements.

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

As of March 31, 2020, we were in compliance with our financial covenants under the Credit Agreement.

We currently forecast that we will be in compliance with our financial covenants for at least one year from the issuance of these interim financial statements, after taking into consideration the cost cutting measures implemented during the first quarter of the year.

As of June 30, 2020, we were in compliance with our financial covenants under the Credit Agreement.

If the impact of COVID-19 is more severe than currently forecasted this may impact our ability to comply with our financial covenants which could have a material adverse effect on our business.

As of March 31, 2020, we had cash and cash equivalents of $69.8 million.

As of June 30, 2020, we had cash and cash equivalents of $68.4 million.

This balance includes $52.4 million held outside of the U.S.

If the cash outside of the U.S.

are needed for operations in the U.S., we would be required to accrue and pay 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.

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Contractual Obligations

There has been a material change to the operating lease payments and purchase commitment lines of the contractual obligations table as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

As of March 31, 2020, we have the following updated contractual obligations (in thousands):

Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 included a material change to the operating lease payments and purchase commitment lines of the contractual obligations table as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

As of March 31, 2020, we had the following updated contractual obligations (in thousands):

Contractual Obligations

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Purchase commitments principally consist of contractual commitments for software, outsourced research services and Event venues.

As noted earlier, due to the impact of COVID-19, we moved our two flagship events during the second quarter, the SiriusDecisions Summit and CX North America, to a virtual format, and we cancelled two smaller everts originally scheduled to take place during the same period.

Due to the impact of COVID-19, we moved our two flagship events during the second quarter, the SiriusDecisions Summit and CX North America, to a virtual format, and we cancelled two smaller everts originally scheduled to take place during the same period.

As a result of these changes, during the three months ended March 31, 2020 we were able to cancel contracts for event venues, reducing our previously disclosed purchase commitments amounts by a total of $2.1 million.

During the three months ended June 30, 2020, there were no additional material changes to our contractual obligations.

Other than as noted above, the Contractual Obligations section in our Annual Report on Form 10-K for the year ended December 31, 2019 remains current in all material respects.

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See 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.

QUANTITATIVE AND QUALITAT IVE DISCLOSU RES ABOUT MARKET RISK

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, 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis