# Forrester Research, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Forrester Research, Inc.](/companies/forr.md) (CIK 1023313)
- Form: 10-Q
- Filed: 2023-08-09
- Accepted by EDGAR: Aug 9, 2023, 16:03 ET
- Period: 2023-06-30
- Accession: 0000950170-23-040545
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1023313/000095017023040545/forr-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1023313/000095017023040545/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $135.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $249.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $54.5m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $104.0m | us-gaap:CostOfRevenue |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $59.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $123.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $8.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $3.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $2.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $1.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $5.3m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $1.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.28 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.28 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.06 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 19,258,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 19,214,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $15.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $2.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $820.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $110.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $210.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $570.7m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $243.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $339.0m | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $35.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-06-30 | $231.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,530 characters.

### Overview

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions are intended to identify these forward-looking statements. Reference is made in particular to our statements about changing stakeholder expectations, migration of our clients into our Forrester Decisions products, product development, holding hybrid events, possible acquisitions, future dividends, future share repurchases, future growth rates, operating income and cash from operations, future deferred revenue, future compliance with financial covenants under our credit facility, future interest expense, anticipated increases in, and productivity of, our sales force and headcount, the adequacy of our cash, and cash flows to satisfy our working capital and capital expenditures, and the anticipated impact of accounting standards. These statements are based on our current plans and expectations and involve risks and uncertainties. Important factors that could cause actual future activities and results to differ include, among others, our ability to retain and enrich subscriptions to, and licenses of, our Research products and services, our ability to fulfill existing or generate new consulting engagements and advisory services, our ability to generate and increase demand for the Events we host, any adverse economic conditions that result in a reduction in technology spending or demand for our products and services, our international operations expose us to a variety of operational risks which could negatively impact us, our ability to offer new products and services, our dependence on key personnel, our ability to attract and retain qualified professional staff, our ability to respond to business and economic conditions and market trends, the impact of our outstanding debt, competition and industry consolidation, possible variations in our quarterly operating results, concentration of our stock ownership, the possibility of network disruptions and security breaches, our ability to enforce and protect our intellectual property rights, compliance with privacy laws, taxation risks, risks related to health epidemics that could adversely impact our business and any weakness identified in our system of internal controls. These risks are described more completely in our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

We derive revenues from subscriptions to our Research products and services, licensing electronic “reprints” of our Research, performing consulting projects and advisory services, and hosting events. We offer contracts for our Research products that are typically renewable annually and payable in advance. Subscription products are recognized as revenue over the term of the contract. Accordingly, a substantial portion of our billings are initially recorded as deferred revenue. Reprints include an obligation to deliver a customer-selected research document and certain usage data provided through an on-line platform, which represents two performance obligations. We recognize revenue for the performance obligation for the data portion of the reprint ratably over the license term. We recognize revenue for the performance obligation for the research document at the time of providing access to the document. Billings for licensing of reprints are initially recorded as deferred revenue. Clients purchase consulting projects and advisory services independently and/or to supplement their access to our subscription-based products. Consulting project revenues, which are based upon fixed-fee agreements, are recognized as the services are provided. Advisory service revenues, such as speeches and advisory days, are recognized when the service is complete or the customer receives the agreed upon deliverable. Billings attributable to consulting projects and advisory services are initially recorded as deferred revenue. Events revenues consist of ticket and sponsorship sales for a Forrester-hosted event. Billings for events are also initially recorded as deferred revenue and are recognized as revenue upon completion of each event.

Our primary operating expenses consist of cost of services and fulfillment, selling and marketing expenses, and general and administrative expenses. Cost of services and fulfillment represents the costs associated with the production and delivery of our products and services, including salaries, bonuses, employee benefits, and stock-based compensation expense for all personnel that produce and deliver our products and services, including all associated editorial, travel, and support services. Selling and marketing expenses include salaries, sales commissions, bonuses, employee benefits, stock-based compensation expense, travel expenses, promotional costs, and other costs incurred in marketing and selling our products and services. General and administrative expenses include the costs of the technology, operations, finance, and human resources groups and our other administrative functions, including salaries, bonuses, employee benefits, and stock-based compensation expense. Overhead costs such as facilities, net of sublease income, and annual fees for cloud-based information technology systems are allocated to these categories according to the number of employees in each group.

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

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

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

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

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

Client retention and wallet retention are not necessarily indicative of the rate of future retention of our revenue base. A summary of our key metrics is as follows (dollars in millions):

|  | As of June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Contract value | $344.0 | $345.3 | $(1.3) | (—%) |
| Client retention | 74% | 76% | (2) points | — |
| Wallet retention | 92% | 99% | (7) points | — |
| Number of clients | 2,604 | 2,928 | (324) | (11%) |

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

Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including but not limited to, those related to our revenue recognition, goodwill, intangible and other long-lived assets, and income taxes. Management bases its estimates on historical experience, data available at the time the estimates are made, and various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Results of Operations

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

| Revenues: | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Research revenues | 64.7% | 60.3% | 67.6% | 64.1% |
| Consulting revenues | 22.1 | 26.5 | 24.8 | 28.4 |
| Events revenues | 13.2 | 13.2 | 7.6 | 7.5 |
| Total revenues | 100.0 | 100.0 | 100.0 | 100.0 |
| Operating expenses: |  |  |  |  |
| Cost of services and fulfillment | 40.3 | 41.1 | 41.7 | 41.8 |
| Selling and marketing | 30.7 | 30.3 | 33.3 | 32.6 |
| General and administrative | 11.3 | 10.7 | 14.7 | 11.5 |
| Depreciation | 1.5 | 1.6 | 1.6 | 1.7 |
| Amortization of intangible assets | 2.3 | 2.3 | 2.5 | 2.5 |
| Restructuring and related costs | 7.8 | — | 4.9 | — |
| Income from operations | 6.1 | 14.0 | 1.3 | 9.9 |
| Interest expense | (0.5) | (0.4) | (0.6) | (0.4) |
| Other income (expense), net | 0.4 | 0.1 | 0.4 | (0.1) |
| Gain on investments, net | — | — | — | 0.2 |
| Income before income taxes | 6.0 | 13.7 | 1.1 | 9.6 |
| Income tax expense | 2.1 | 4.3 | 0.6 | 3.0 |
| Net income | 3.9% | 9.4% | 0.5% | 6.6% |

### Three and Six Months Ended June 30, 2023 and 2022

### Revenues

*(dollars in millions)*

|  | Three Months Ended June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Total revenues | $135.6 | $148.2 | $(12.7) | (9%) |
| Research revenues | $87.7 | $89.4 | $(1.7) | (2%) |
| Consulting revenues | $30.0 | $39.3 | $(9.3) | (24%) |
| Events revenues | $17.9 | $19.5 | $(1.6) | (8%) |
| Revenues attributable to customers outside of the U.S. | $28.0 | $29.8 | $(1.8) | (6%) |
| Percentage of revenue attributable to customers outside of the U.S. | 21% | 20% | 1 point | — |

*(dollars in millions)*

|  | Six Months Ended June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Total revenues | $249.3 | $273.2 | $(24.0) | (9%) |
| Research revenues | $168.6 | $175.2 | $(6.6) | (4%) |
| Consulting revenues | $61.7 | $77.7 | $(16.0) | (21%) |
| Events revenues | $18.9 | $20.3 | $(1.4) | (7%) |
| Revenues attributable to customers outside of the U.S. | $53.2 | $57.3 | $(4.1) | (7%) |
| Percentage of revenue attributable to customers outside of the U.S. | 21% | 21% | — | — |

23

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

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

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

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

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

### Cost of Services and Fulfillment

|  | Three Months Ended June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Cost of services and fulfillment (dollars in millions) | $54.6 | $61.0 | $(6.4) | (10%) |
| Cost of services and fulfillment as a percentage of total revenues | 40% | 41% | (1) point | — |
| Service and fulfillment employees (at end of period) | 812 | 879 | (67) | (8%) |

|  | Six Months Ended June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Cost of services and fulfillment (dollars in millions) | $103.9 | $114.2 | $(10.3) | (9%) |
| Cost of services and fulfillment as a percentage of total revenues | 42% | 42% | — | — |

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

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

### Selling and Marketing

|  | Three Months Ended June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Selling and marketing expenses (dollars in millions) | $41.6 | $45.0 | $(3.4) | (8%) |
| Selling and marketing expenses as a percentage of total revenues | 31% | 30% | 1 point | — |
| Selling and marketing employees (at end of period) | 700 | 780 | (80) | (10%) |

|  | Six Months Ended June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Selling and marketing expenses (dollars in millions) | $83.1 | $89.0 | $(5.9) | (7%) |
| Selling and marketing expenses as a percentage of total revenues | 33% | 33% | — | — |

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

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

### General and Administrative

|  | Three Months Ended June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expenses (dollars in millions) | $15.3 | $15.9 | $(0.6) | (4%) |
| General and administrative expenses as a percentage of total revenues | 11% | 11% | — | — |
| General and administrative employees (at end of period) | 281 | 286 | (5) | (2%) |

|  | Six Months Ended June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expenses (dollars in millions) | $36.5 | $31.4 | $5.1 | 16% |
| General and administrative expenses as a percentage of total revenues | 15% | 12% | 3 points | — |

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

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

### Depreciation

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

### Amortization of Intangible Assets

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

### Restructuring and Related Costs

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

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

### Interest Expense

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

### Other Income (Expense), Net

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

### Gain on Investments, Net

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

### Income Tax Expense

|  | Three Months Ended June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes (dollars in millions) | $2.8 | $6.4 | $(3.6) | (57%) |
| Effective tax rate | 34% | 32% | 2 points | — |

|  | Six Months Ended June 30, 2023 | 2022 | Absolute Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes (dollars in millions) | $1.5 | $8.3 | $(6.8) | (82%) |
| Effective tax rate | 54% | 31% | 23 points | — |

26

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

### Segment Results

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

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

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

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

We evaluate reportable segment performance and allocate resources based on segment revenues and expenses. Segment expenses include the direct expenses of each segment organization and exclude selling and marketing expenses, general and administrative expenses, stock-based compensation expense, depreciation expense, adjustments to incentive bonus compensation from target amounts, amortization of intangible assets, restructuring and related costs, interest and other income (expense), and gains on investments. The accounting policies used by the segments are the same as those used in the consolidated financial statements.

*(dollars in thousands)*

| Three Months Ended June 30, 2023 | Research Segment | Consulting Segment | Events Segment | Consolidated |
| --- | ---: | ---: | ---: | ---: |
| Research revenues | $87,699 | $— | $— | $87,699 |
| Consulting revenues | 7,003 | 22,967 | — | 29,970 |
| Events revenues | — | — | 17,920 | 17,920 |
| Total segment revenues | 94,702 | 22,967 | 17,920 | 135,589 |
| Segment expenses | (32,536) | (11,429) | (10,524) | (54,489) |
| Year over year revenue change | (6%) | (19%) | (8%) | (9%) |
| Year over year expense change | (1%) | (19%) | (5%) | (6%) |

*(dollars in thousands)*

| Three Months Ended June 30, 2022 | Research Segment | Consulting Segment | Events Segment | Consolidated |
| --- | ---: | ---: | ---: | ---: |
| Research revenues | $89,447 | $— | $— | $89,447 |
| Consulting revenues | 10,921 | 28,341 | — | 39,262 |
| Events revenues | — | — | 19,537 | 19,537 |
| Total segment revenues | 100,368 | 28,341 | 19,537 | 148,246 |
| Segment expenses | (32,897) | (14,059) | (11,051) | (58,007) |

*(dollars in thousands)*

| Six Months Ended June 30, 2023 | Research Segment | Consulting Segment | Events Segment | Consolidated |
| --- | ---: | ---: | ---: | ---: |
| Research revenues | $168,605 | $— | $— | $168,605 |
| Consulting revenues | 14,922 | 46,798 | — | 61,720 |
| Events revenues | — | — | 18,934 | 18,934 |
| Total segment revenues | 183,527 | 46,798 | 18,934 | 249,259 |
| Segment expenses | (68,043) | (23,782) | (12,155) | (103,980) |
| Year over year revenue change | (7%) | (16%) | (7%) | (9%) |
| Year over year expense change | 1% | (16%) | (5%) | (4%) |

27

*(dollars in thousands)*

| Six Months Ended June 30, 2022 | Research Segment | Consulting Segment | Events Segment | Consolidated |
| --- | ---: | ---: | ---: | ---: |
| Research revenues | $175,227 | $— | $— | $175,227 |
| Consulting revenues | 22,111 | 55,582 | — | 77,693 |
| Events revenues | — | — | 20,297 | 20,297 |
| Total segment revenues | 197,338 | 55,582 | 20,297 | 273,217 |
| Segment expenses | (67,077) | (28,376) | (12,802) | (108,255) |

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

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

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

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

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

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

### Liquidity and Capital Resources

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

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

During the six months ended June 30, 2023, we generated cash from investing activities of $3.4 million primarily from $6.2 million in net maturities of marketable investments partially offset by $2.7 million of purchases of property and equipment, primarily consisting of computer software. During the six months ended June 30, 2022, we used cash in investing activities of $3.6 million primarily for $2.7 million for purchases of property and equipment, primarily consisting of computer software and equipment, and $1.1 million in net purchases of marketable investments.

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

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

The credit facility contains certain customary restrictive loan covenants, including among others, financial covenants that apply a maximum leverage ratio, minimum interest coverage ratio, and maximum annual capital expenditures. The negative covenants limit, subject to various exceptions, our ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of the company, sell assets, change fiscal year, or enter into certain transactions with affiliates and subsidiaries. We were in full compliance with the covenants as of June 30, 2023 and expect to continue to be in compliance through the next 12 months.

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

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

As of June 30, 2023, we had cash, cash equivalents, and marketable investments of $123.6 million. This balance includes $90.8 million held outside of the U.S. If the cash outside of the U.S. is needed for operations in the U.S., we would be required to accrue and pay U.S. state taxes and may be required to pay withholding taxes to foreign jurisdictions to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate these funds for our U.S. operations. We believe that our current cash balance and cash flows from operations will satisfy working capital, financing activities, and capital expenditure requirements for the next twelve months and to meet our known long-term cash requirements.

### Recent Accounting Pronouncements

Refer to Note 1 – *Interim Consolidated Financial Statements* in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the expected dates of adoption and effects on results of operations and financial condition.

### Critical Accounting Policies and Estimates

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

## Market risk

As filed, 266 characters.

There have been no material changes in our assessment of our sensitivity to market risk since our presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2022.

## Controls and procedures

As filed, 1,804 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023. Based upon their evaluation and subject to the foregoing, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance as of that date.

### Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2023, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 695 characters.

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form 10-K remain applicable to our business. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Filed Aug 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-040545. Last ingested by Listed: Oct 29, 2026, 16:06 ET. No prices; not investment advice.