What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2020-11-06 · 135 added, 219 removed, 110 unchanged (76% of the section changed)

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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 possible acquisitions, payments pursuant to existing acquisition agreements, acquisition and integration costs, future dividends, future share repurchases, future growth rates and operating income, future compliance with financial covenants under our credit facility, anticipated increases in, and productivity of, our sales force and headcount, and the adequacy of our cash and cash flows to satisfy our working capital and capital expenditures.

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

Important factors that could cause actual future activities and results to differ include, among others, our ability to retain and enrich 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 September 30, 2020.

Reference is made in particular to our statements about possible acquisitions, future dividends, future share repurchases, future growth rates, results from operations and tax rates, the launch of Forrester Decisions, 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, 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, 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, 2020.

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

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 had previously announced that our events for the remainder of 2020 will be held as virtual events.

While the duration and severity of this pandemic is uncertain, we currently expect the reduction in our subscription Research, Connect and Analytics revenues to continue during the fourth quarter of 2020 due to reduced customer contract booking activity that began in March 2020 and continued into the third quarter of 2020.

The COVID-19 pandemic 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.

While the duration and severity of the pandemic is uncertain, we did experience a rebound in contract bookings beginning in the fourth quarter of 2020 and continuing through the first quarter of 2021.

We expect that trend to continue in 2021.

Our events business continues to be negatively affected by the pandemic.

As we previously announced, all events in the first half of 2021 will be held as virtual events, including two of our flagship events, B2B Summit North America and CX North America.

We hope to hold our events during the second half of 2021 as hybrid events, consisting of both in-person and virtual experiences.

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.

We have implemented several cost-reduction measures that include reductions to travel, new hiring, and employee incentive compensation programs.

We will continue to proactively respond to the situation and may take further actions that alter our business operations as may be required by governmental authorities, or that we determine are in the best interests of our employees and customers.

As previously noted, on January 3, 2019, we acquired 100% of the issued and outstanding shares of SiriusDecisions, Inc., a privately held company based in Wilton, Connecticut with approximately 350 employees globally.

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, 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.

We paid for the acquisition with $175.0 million of debt and cash on hand.

Refer to 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 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 product revenues are recognized ratably over the term of the contract.

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 ratably over the term of the contract.

Accordingly, a substantial portion of our billings are initially recorded as deferred revenue.

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Billings for licensing of reprints are initially recorded as deferred revenue.

Clients purchase advisory and consulting services independently and/or to supplement their access to our subscription 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 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 revenues consist of ticket or sponsorship sales for a Forrester-hosted event.

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.

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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.

General and administrative expenses include the costs of the technology, operations, finance, and human resources groups and our other administrative functions, including

salaries, bonuses, employee benefits, and stock-based compensation expense.

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

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

We believe that the amount of deferred revenue, along with the agreement value of contracts, provide a significant measure of our business activity.

Effective for the first quarter of 2021, we have modified our key metrics to focus on our contract value (“CV”) products (as described below) in comparison to our prior metrics which included measures of our broader product portfolio.

For 2021, we have focused on increasing our CV product bookings and have modified our compensation programs and metrics accordingly.

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 have included the historical calculation of the metrics below, dating back to the first quarter of 2019, 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:

Deferred revenue — billings in advance of revenue recognition as of the measurement date.

Agreement value — the total revenues recognizable from all contracts to purchase our services in force at a given time (excluding contracts that consist solely of Consulting services and the value of Event sponsorships included in all contracts), without regard to how much revenue has already been recognized.

Client retention — the percentage of client companies (defined as all clients except those that only purchase web-based products such as individual reports, workshops and Event tickets) at the prior year measurement date that have active contracts at the current year measurement date.

Dollar retention — the percentage of the total dollar value of client companies’ active contracts at the prior year measurement date that have active contracts at the current year measurement date.

Enrichment — the dollar value of client companies’ active contracts at the current year measurement date compared to the dollar value of the corresponding client companies’ active contracts at the prior year measurement date.

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

We include only clients that purchased subscription-based products in our definition of clients.

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

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 contracts 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):

September 30,

Deferred revenue

Agreement value

Contract value

Client retention

Dollar retention

Wallet retention

Number of clients

Deferred revenue and agreement value decreased 8% and 5%, respectively, at September 30, 2020 compared to the prior year, primarily due to a reduction in contract bookings during the nine months ended September 30, 2020 due to the negative economic effects of COVID-19.

Retention and enrichment rates decreased from the prior year due to the decrease in contract bookings experienced in 2020.

Contract value and our retention metrics were essentially flat at March 31, 2021 compared to the prior year period.

These metrics were at their lows during the second and third quarters of 2020 as contract booking declined during 2020 due to the pandemic.

We have seen an improvement in these metrics from their lows in the middle of 2020 as contract bookings expanded during the second half of 2020 and the first quarter of 2021.

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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On an ongoing basis, we evaluate our policies and estimates, including but not limited to, those related to our revenue recognition, leases, goodwill, intangible and other long-lived assets, and income taxes.

basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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.

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Three Months Ended

Nine Months Ended

September 30,

Research revenues

Consulting revenues

Events revenues

Total revenues

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Amortization of intangible assets

Acquisition and integration costs

Income (loss) from operations

Integration costs

Income from operations

Interest expense

Other income (expense), net

Gain (loss) on investments, net

Gain on investments, net

Income (loss) before income taxes

Income tax expense (benefit)

Income tax expense

Net income (loss)

Three and Nine Months Ended September 30, 2020 and 2019

Three Months Ended March 31, 2021 and 2020

Three Months Ended

September 30,

(dollars in millions)

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Number of events

Nine Months Ended

September 30,

(dollars in millions)

Total revenues

Research revenues

Consulting revenues

Events revenues

Revenues attributable to customers outside of the U.S.

Percentage of revenue attributable to customers outside of

Number of events

Total revenues remained essentially consistent and decreased 3% during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods.

This includes the fair value adjustment of pre-acquisition deferred revenue, which reduced revenues during the three and nine months ended September 30, 2019, favorably impacting the comparable periods in 2020 by 1% and 3%, respectively.

Total revenues increased 7% during the three months ended March 31, 2021 compared to the prior year period, with 1% of the increase due to changes in foreign currencies.

Revenues from customers outside the U.S.

decreased 4% and 6% during the three and nine months ended September 30, 2020, respectively, which was primarily due to a decrease in revenues in Canada and the United Kingdom.

increased 25% during the three months ended March 31, 2021, due to an increase in revenues in the United Kingdom, Asia Pacific region, Europe and Canada.

Approximately 7% of the increase was due to 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 decreased 2% and remained essentially consistent during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods.

During the three and nine months ended September 30, 2020, the decrease in Research revenues, after adjusting for the deferred revenue fair value adjustment, was driven by reduced revenues for the Research, Connect, and Analytics products.

Consulting revenues increased 6% and 5% during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods primarily due to growth in project consulting that was partially offset by slower growth in advisory services.

Events revenues decreased 20% and 68% during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods.

This includes the fair value adjustment of pre-acquisition deferred revenue, which reduced revenues during the nine months ended September 30, 2019, favorably impacting the comparable period in 2020 by 13%.

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

Research revenues increased 1% during the three months ended March 31, 2021 compared to the prior year period, which primarily resulted from flat contract value growth during this period.

Consulting revenues increased 21% during the three months ended March 31, 2021 compared to the prior year period due to continued strong demand for our content marketing offerings and growth in our advisory services.

Events revenues were insignificant and remained essentially consistent during the three months ended March 31, 2021 compared to the prior year period as no events took place during either period.

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

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Three Months Ended

September 30,

Cost of services and fulfillment (dollars in millions)

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(at end of period)

Nine Months Ended

September 30,

Cost of services and fulfillment (dollars in millions)

Cost of services and fulfillment as a percentage of total

Cost of services and fulfillment expenses increased 3% during the three months ended September 30, 2020 compared to the prior year period.

The increase was primarily due to (1) a $2.9 million increase in compensation and benefits due to an increase in headcount, merit increases, and the reinstatement of some employee benefits during the third quarter that were previously suspended as a result of the impact of the COVID-19 pandemic, and (2) a $0.9 million increase in professional services costs primarily due to an increase in outsourced services related to revenue delivery and survey costs .

These increases were partially offset by (1) a $1.8 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic, and (2) a $0.5 million

decrease in event expenses due to switching our events to virtual delivery as a result of the COVID-19 pandemic , and one less event compared to the prior year period.

Cost of services and fulfillment expenses decreased 9% during the nine months ended September 30, 2020 compared to the prior year period.

The decrease was primarily due to (1) an $8.3 million decrease in event expenses due to switching our events to virtual delivery as a result of the COVID-19 pandemic, as well as seven less events compared to the prior year period, (2) a $5.0 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic, (3) a $2.8 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 (4) a $0.3 million decrease in stock compensation expense.

These decreases were partially offset by a $3.5 million increase in professional services costs primarily due to an increase in outsourced services related to revenue delivery, temporary contractors, survey costs, and product enhancements .

Cost of services and fulfillment expenses increased 10% during the three months ended March 31, 2021 compared to the prior year period.

The increase was primarily due to (1) a $4.0 million increase in compensation and benefit costs due to reinstating incentive bonus programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the impact of the COVID-19 pandemic, merit increases, and severance costs, and (2) a $2.3 million increase in professional services costs primarily due to increases in outsourced services related to revenue delivery and survey costs .

These increases were partially offset by a $1.5 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

Selling and Marketing

Three Months Ended

September 30,

Selling and marketing expenses (dollars in millions)

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Selling and marketing employees (at end of period)

Nine Months Ended

September 30,

Selling and marketing expenses (dollars in millions)

Selling and marketing expenses as a percentage of total

Selling and marketing expenses increased 1% during the three months ended September 30, 2020 compared to the prior year period.

The increase was primarily due to a $3.0 million increase in compensation and benefit costs due to an increase in headcount, merit increases, commissions expense and the reinstatement of some employee benefits previously suspended as a result of the impact of the COVID-19 pandemic.

This increase was partially offset by (1) a $1.6 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic, (2) a $0.5 million decrease in bad debt expense, and (3) a $0.2 million decrease in professional services costs.

Selling and marketing expenses decreased 5% during the nine months ended September 30, 2020 compared to the prior year period.

The decrease was primarily due to (1) a $5.3 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 $0.5 million decrease in marketing and training costs as a result of moving our events to virtual delivery, and (3) a $0.4 million decrease in bad debt expense.

These decreases were partially offset by a $0.3 million increase in compensation and benefit costs, resulting principally from an increase in headcount and merit increases as well as an increase in commissions expense, partially offset by a decrease in incentive bonuses and other related cost-reduction measures implemented as a result of the impact of the COVID-19 pandemic.

Selling and marketing expenses decreased 2% during the three months ended March 31, 2021 compared to the prior year period.

The decrease was primarily due to (1) a $1.7 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic, and (2) a $0.4 million decrease in bad debt expense.

These decreases were partially offset by a $1.5 million increase in compensation and benefit costs due to reinstating incentive bonus programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the impact of the COVID-19 pandemic, an increase in commissions expense, and merit increases.

General and Administrative

Three Months Ended

September 30,

General and administrative expenses (dollars in millions)

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General and administrative employees (at end of period)

Nine Months Ended

September 30,

General and administrative expenses (dollars in millions)

General and administrative expenses as a percentage of

total revenues

General and administrative expenses decreased 7% during the three months ended September 30, 2020 compared to the prior year period.

The decrease was primarily due to (1) a $0.6 million decrease in professional services costs mostly due to a decrease in consulting expenses, (2) a $0.2 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic, and (3) a $0.2 million decrease in stock compensation expense.

General and administrative expenses decreased 10% during the nine months ended September 30, 2020 compared to the prior year period.

The decrease was primarily due to (1) a $2.5 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, (2) a $0.5 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic, (3) a $0.5 million decrease in professional services costs mostly due to a decrease in consulting expenses, and (4) a $0.2 million decrease in stock compensation expense.

Depreciation expense increased by $0.4 million and $1.1 million during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods due primarily to additional leasehold improvements being put into service.

General and administrative expenses increased 10% during the three months ended March 31, 2021 compared to the prior year period.

The increase was primarily due to a $1.3 million increase in compensation and benefit costs due to reinstating incentive bonus programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the impact of the COVID-19 pandemic and merit increases.

Depreciation expense during the three months ended March 31, 2021 was consistent with the prior year period.

Amortization of Intangible Assets

Amortization expense decreased by $0.9 million and $2.8 million during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods due to certain technology intangible assets becoming fully amortized.

Acquisition and Integration Costs

We 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 $2.1 million during the three months ended September 30, 2020 compared to the prior year period primarily due to a decrease in professional service fees and severance, 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 $4.0 million during the nine months ended September 30, 2020 compared to the prior year period primarily due to (1) a $4.8 million decrease in professional service fees and transaction costs, (2) a $2.3 million decrease in severance, and (3) a $0.7 million decrease in marketing and insurance costs.

These decreases were partially offset by (1) a $2.3 million increase related to the benefit of recording deferred commissions for SiriusDecisions in the year of the acquisition, and (2) a $1.9 million ROU asset impairment recognized in the 2020 period.

Amortization expense decreased by $0.8 million during the three months ended March 31, 2021 compared to the prior year period primarily due to a certain intangible asset becoming fully amortized in 2020.

Integration Costs

Integration costs consist of direct and incremental costs to integrate acquired companies and in 2020 primarily consisted of certain fair value adjustments, consulting, severance, accounting and tax professional fees, and expenses related to unused lease facilities.

Integration costs decreased by $2.8 million during the three months ended March 31, 2021 compared to the prior year period due to the substantial completion of the integration of SiriusDecisions, Inc.

(acquired at the beginning of 2019) during 2020.

Integration costs in 2021 relate to unused lease facilities from the SiriusDecisions acquisition.

We expect to incur integration costs in a range of $0.3 million to $0.5 million for the year ending December 31, 2021.

Interest Expense

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 $0.6 million and $2.2 million during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods.

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

Interest expense consists of interest on our borrowings and realized gains (losses) on the related interest rate swap.

Interest expense decreased by $0.4 million during the three months ended March 31, 2021 compared to the prior year period due to lower average outstanding borrowings and a lower effective interest rate.

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.

The decrease in other income (expense), net of $0.4 million during the three months ended September 30, 2020 compared to the prior year period was primarily due to an increase in foreign currency losses.

The increase in other income (expense), net of $0.1 million during the nine months ended September 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 September 30, 2020 compared to the prior year period.

Gain (loss) on investments, net increased by $2.4 million during the nine months ended September 30, 2020 compared to the prior year period due to an increase in investment gains generated by the underlying funds.

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

The decrease in other income (expense), net of $0.8 million during the three months ended March 31, 2021 compared to the prior year period was primarily due to an increase 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 remained consistent during the three months ended March 31, 2021 compared to the prior year period.

Income Tax Expense

Three Months Ended

September 30,

Provision for income taxes (dollars in millions)

Effective tax rate

Nine Months Ended

September 30,

Provision for income taxes (dollars in millions)

Effective tax rate

Income tax expense increased by $2.8 million during the nine months ended September 30, 2020 compared to the prior year period primarily due to the increase in overall U.S.

Income tax expense increased by $2.0 million during the three months ended March 31, 2021 compared to the prior year period primarily due to the increase in overall U.S.

profitability.

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Segment Results

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:

Our operations are grouped into three segments:

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.

These 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.

Additionally, the tables below include the reclassification of revenues for the components of our CV subscription research products, as described further in Note 1:

Interim Consolidated Financial Statements in the Notes to Consolidated Financial Statements .

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.

In May 2021, we announced the launch of a new research portfolio called Forrester Decisions, anticipated to be available in August 2021.

This new portfolio of products will help executives, functional leaders, and their teams, across technology, marketing, customer experience, sales, and product management, plan and pursue their initiatives for driving growth.

The Forrester Decisions product combines the research, frameworks, models, and methodologies of our Forrester Research and SiriusDecisions Research product offerings, as well as features of our Connect and Analytics products.

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

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

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

Segment expenses include the direct expenses of each segment organization and exclude selling and marketing expenses, general and administrative expenses, stock-based compensation expense, depreciation expense, adjustments to incentive bonus compensation from target amounts, amortization of intangible assets, interest and other expense, and gains (losses) on investments.

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

(dollars in thousands)

Three Months Ended September 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)

Three Months Ended September 30, 2019

Research revenues

Total research revenues

Total segment revenues

Segment expenses

Research Segment

Consulting Segment

Events Segment

(dollars in thousands)

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Research revenues

Total research revenues

Consulting revenues

Events revenues

Total segment revenues

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Year over year expense change

Research Segment

Consulting Segment

Events Segment

(dollars in thousands)

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Research revenues

Total research revenues

Consulting revenues

Events revenues

Total segment revenues

Segment expenses

Research segment revenues decreased 2 % and 1 % during the three and nine months ended September 30, 2020 , respectively, compared to the prior year periods .

The decrease in segment revenues during the three months ended September 30, 2020 , 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, and (2) a decrease in Connect product revenues due primarily to a decrease in the leadership board product that was partially offset by an increase in the learning and executive programs products .

The decrease in segment revenues during the nine months ended September 30, 2020 , 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 that was partially offset by an increase in the learning and executive programs products, (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 remained essentially consistent and decreased 9% during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods.

The decrease in expenses during the nine months ended September 30, 2020 was primarily due to (1) a $4.6 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, and (2) a $3.2 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

Consulting segment revenues increased 10% and 12% during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods driven by strong demand for consulting services.

Consulting segment expenses increased 4% and 6% during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods.

The increase in expenses during the three months ended September 30, 2020 was primarily due to (1) a $0.7 million increase in professional services primarily due to an increase in outsourced services related to revenue delivery and an increase in survey costs, which was partially offset by 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 nine months ended September 30, 2020 was primarily due to (1) a $2.2 million increase in professional services primarily due to an increase in outsourced services related to revenue delivery and an increase in survey costs, temporary contractors, and product enhancements, (2) a $0.5 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 $1.0 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

Event segment revenues decreased 21% and 68% during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods.

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 seven fewer events during the 2020 period.

Event segment expenses decreased 26% and 61% during the three and nine months ended September 30, 2020, respectively, compared to the prior year periods.

The decrease in expenses during the three months ended September 30, 2020 was primarily due to a $0.4 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 one fewer event during the 2020 period.

The decrease in expenses during the nine months ended September 30, 2020 was primarily due to (1) a $7.9 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 seven 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.

Research segment revenues increased 1% during the three months ended March 31, 2021 compared to the prior year period.

Research revenues within this segment increased 1% which primarily resulted from flat contract value growth during this period.

Consulting revenues increased 1% within this segment due to increased delivery of advisory services.

Research segment expenses increased 12% during the three months ended March 31, 2021 compared to the prior year period.

The increase in expenses during the three months ended March 31, 2021 was primarily due to (1) a $3.6 million increase in compensation and benefit costs primarily due to reinstating incentive bonus programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the impact of the COVID-19 pandemic, merit increases, and severance costs and (2) a $0.9 million increase in professional services costs due to an increase in survey costs and new product development.

These increases were partially offset by a $1.1 million decrease in travel and entertainment expenses due to reduced travel as a result of the COVID-19 pandemic.

Consulting segment revenues increased 33% during the three months ended March 31, 2021 compared to the prior year period driven by continued strong demand for our content marketing offerings.

Consulting segment expenses increased 23% during the three months ended March 31, 2021 compared to the prior year period.

The increase in expenses during the three months ended March 31, 2021 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 (2) a $1.1 million increase in compensation and benefit costs primarily due to reinstating incentive bonus programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the impact of the COVID-19 pandemic .

Event segment revenues and expenses remained essentially consistent during the three months ended March 31, 2021 compared to the prior year period.

No events were held during either period.

Liquidity and Capital Resources

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

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

We generated cash from operating activities of $29.2 million and $45.6 million during the nine months ended September 30, 2020 and 2019, respectively.

The $16.4 million decrease in cash provided from operations for the nine months ended September 30, 2020 was primarily due to a $33.2 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 increase in cash used for working capital.

During the nine months ended September 30, 2020, we used cash in investing activities of $2.9 million primarily for $7.3 million of purchases of property and equipment, primarily consisting of software and leasehold improvements .

This was partially offset by a $4.3 million distribution received from an equity method investment.

During the nine months ended September 30, 2019,

we used cash in investing activities of $24 6 .

0 million, consisting primarily of $23 7 .

7 million for the acquisition of SiriusDecisions, net of cash acquired, and $ 8 .

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

We used $21.5 million of cash from financing activities during the nine months ended September 30, 2020 primarily due to $21.0 million of repayments of debt that consisted of $14.0 million of discretionary payments on our revolving credit facility and $7.0 million of required repayments of our term loan.

We generated $130.3 million of cash in financing activities during the nine months ended September 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 $40.7 million of repayments of debt that consisted of $36.0 million of discretionary payments on our revolving credit facility and $4.7 million of required repayments of our term loan.

During the remainder of 2020, we anticipate paying approximately $2.7 million of deferred acquisition purchase price for a contingent consideration agreement (refer to Note 8 – Fair Value Measurements in the Notes to Consolidated Financial Statements).

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

Research revenues, which constituted approximately 66% of our revenues during the three months ended March 31, 2021, are generally renewable annually and are typically payable in advance.

We generated cash from operating activities of $40.6 million and $21.8 million during the three months ended March 31, 2021 and 2020, respectively.

The $18.8 million increase in cash provided from operations for the three months ended March 31, 2021 compared to the prior year period was primarily due to a $10.8 million reduction in cash used for working capital (excluding accounts receivable and deferred revenue) and an $8.6 million increase in cash generated from accounts receivable and deferred revenue due to an increase in contract bookings and strong collections activity.

During the three months ended March 31, 2021 , we used cash in investing a cti vities of $ 1.

5 million for purchases of property and equipment , primarily consisting of computer software and equipment .

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 computer software and leasehold improvements.

We used $1.0 million of cash from financing activities during the three months ended March 31, 2021 primarily due to $3.1 million of repayments of our term loan , partially offset by $2.1 million of net proceeds from the issuance of common stock under our stock-based incentive plans.

We used $15.3 million of cash in financing activities during the three months ended March 31, 2020 primarily due to $16.3 million of repayments of debt that included $14.0 million of discretionary payments on our revolving credit facility.

We entered into a $200.0 million credit agreement on January 3, 2019.

The credit agreement provides for:

(1) senior secured term loans in an aggregate principal amount of $125.0 million (the “ Term Loans ”) and (2) a senior secured revolving credit facility in an aggregate principal amount of $75.0 million (the “ Revolving Credit Facility ”).

We utilized the full $125.0 million of the Term Loans and $50.0 million of the Revolving Credit Facility to finance a portion of the acquisition of SiriusDecisions and to pay certain fees, costs and expenses incurred in connection with the Term Loans and Revolving Credit Facility.

(1) senior secured term loans in an aggregate principal amount of $125.0 million (the “Term Loans”) and, (2) a senior secured revolving credit facility in an aggregate principal amount of $75.0 million (the “Revolving Credit Facility” and, together with the Term Loans, the “Facilities”).

Additional information is provided in Note 3 – Debt in the Notes to Consolidated Financial Statements.

Borrowings under the Credit Agreement can be repaid early, in part or in whole, at any time and from time to time, without premium or penalty, other than customary breakage reimbursement requirements for the London Interbank Offering Rate (“ LIBOR” ) based loans.

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 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 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.

The Credit Agreement contains certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio and minimum fixed charge coverage ratio.

The negative covenants limit, subject to various exceptions, our ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of Forrester, sell assets, pay dividends or other payments in respect to capital stock, change fiscal year, or enter into certain transactions with affiliates and subsidiaries.

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

As of September 30, 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 half of the year.

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 September 30, 2020, we had cash and cash equivalents of $73.0 million.

The Facilities mature on January 3, 2024.

As of March 31, 2021, we had remaining principal payments on the Facilities totaling $106.3 million, contractually due as follows:

$9.4 million in 2021, $28.1 million within 2022 and 2023, and $68.8 million in 2024 .

We were in full compliance with the covenants as of March 31, 2021 and expect to continue to be in compliance through the next 12 months.

The Facilities contain certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio and minimum fixed charge coverage ratio.

The negative covenants limit, subject to various exceptions, our ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of the Company, sell assets, pay dividends or other payments in respect to capital stock, change fiscal year, or enter into certain transactions with affiliates and subsidiaries.

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-cancellable operating lease agreements (refer to Note 4 – Leases in the Notes to Consolidated Financial Statements for additional information).

The remaining duration of non-cancellable office space leases ranges from less than 1 year to 11 years.

As of March 31, 2021, remaining non-cancelable lease payments are due as follows:

$11.6 million in 2021, $33.2 million within 2022 and 2023, $30.4 million within 2024 and 2025, and $27.1 million beyond 2025.

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 March 31, 2021, we had cash and cash equivalents of $125.6 million.

This balance includes $60.2 million held outside of the U.S.

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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.

Contractual Obligations

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

Operating lease payments (1)

Purchase commitments (2)

We primarily lease office space under non-cancellable operating lease agreements.

During the three months ended March 31, 2020, we entered into several operating leases that commenced later in 2020.

These leases require us to make $17.2 million of lease payments over the terms of the leases, which are up to ten years.

This additional amount is reflected in the table above.

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

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.

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.

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

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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