forr-10q_20200930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)


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

FOR THE QUARTERLY PERIOD ENDED September 30, 2020


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

COMMISSION FILE NUMBER: 000-21433

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

Delaware		04-2797789
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
60 Acorn Park Drive Cambridge, Massachusetts		02140 (Zip Code)
(Address of principal executive offices)

(617) 613-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock, $.01 Par Value		FORR		Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of November 3, 2020, 18,964,000 shares of the registrant’s common stock were outstanding.

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	36
Item 6.	Exhibits	36

SIGNATURES		37

PART I.

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data, unaudited)

	September 30,			December 31,
	2020			2019
ASSETS
Current Assets:
Cash and cash equivalents	$	73,027		$	67,904
Accounts receivable, net of allowance for expected credit losses of $796 and $628 as of September 30, 2020 and December 31, 2019, respectively		54,141			84,605
Deferred commissions		14,408			20,326
Prepaid expenses and other current assets		16,041			19,201
Total current assets		157,617			192,036
Property and equipment, net		28,531			29,937
Operating lease right-of-use assets		73,211			69,100
Goodwill		244,990			243,895
Intangible assets, net		83,386			97,363
Other assets		5,040			6,829
Total assets	$	592,775		$	639,160
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	1,707		$	505
Accrued expenses and other current liabilities		54,802			79,857
Current portion of long-term debt		11,719			9,375
Deferred revenue		155,418			179,194
Total current liabilities		223,646			268,931
Long-term debt, net of deferred financing fees		98,268			121,170
Non-current operating lease liabilities		72,940			67,062
Other non-current liabilities		23,213			23,909
Total liabilities		418,067			481,072
Commitments and contingencies
Stockholders' Equity (Note 12):
Preferred stock, $0.01 par value
Authorized - 500 shares; issued and outstanding - none		—			—
Common stock, $0.01 par value
Authorized - 125,000 shares
Issued - 23,579 and 23,275 shares as of September 30, 2020 and December 31, 2019, respectively
Outstanding - 18,948 and 18,644 shares as of September 30, 2020 and December 31, 2019, respectively		236			233
Additional paid-in capital		225,053			216,454
Retained earnings		125,554			118,147
Treasury stock - 4,631 shares as of September 30, 2020 and December 31, 2019		(171,889	)		(171,889	)
Accumulated other comprehensive loss		(4,246	)		(4,857	)
Total stockholders’ equity		174,708			158,088
Total liabilities and stockholders’ equity	$	592,775		$	639,160

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenues:
Research	$	72,813		$	74,548		$	219,230		$	219,436
Consulting		34,633			32,619			102,980			98,422
Events		1,131			1,429			6,253			19,570
Total revenues		108,577			108,596			328,463			337,428
Operating expenses:
Cost of services and fulfillment		46,125			44,929			133,442			146,610
Selling and marketing		42,209			41,605			121,599			127,655
General and administrative		12,475			13,533			35,936			39,944
Depreciation		2,544			2,121			7,398			6,310
Amortization of intangible assets		4,722			5,654			14,147			16,963
Acquisition and integration costs		328			2,394			3,815			7,848
Total operating expenses		108,403			110,236			316,337			345,330
Income (loss) from operations		174			(1,640	)		12,126			(7,902	)
Interest expense		(1,259	)		(1,904	)		(4,104	)		(6,341	)
Other income (expense), net		(274	)		127			(165	)		(229	)
Gain (loss) on investments, net		—			(17	)		2,365			(61	)
Income (loss) before income taxes		(1,359	)		(3,434	)		10,222			(14,533	)
Income tax expense (benefit)		2,401			(735	)		2,658			(73	)
Net income (loss)	$	(3,760	)	$	(2,699	)	$	7,564		$	(14,460	)
Basic income (loss) per common share	$	(0.20	)	$	(0.15	)	$	0.40		$	(0.78	)
Diluted income (loss) per common share	$	(0.20	)	$	(0.15	)	$	0.40		$	(0.78	)
Basic weighted average common shares outstanding		18,872			18,546			18,779			18,448
Diluted weighted average common shares outstanding		18,872			18,546			18,873			18,448

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net income (loss)	$	(3,760	)	$	(2,699	)	$	7,564		$	(14,460	)

Other comprehensive income (loss), net of taxes:
Foreign currency translation		2,577			(1,614	)		1,542			(1,450	)
Net change in fair value of interest rate swap		205			—			(931	)		—
Other comprehensive income (loss)		2,782			(1,614	)		611			(1,450	)
Comprehensive income (loss)	$	(978	)	$	(4,313	)	$	8,175		$	(15,910	)

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Nine Months Ended
	September 30,
	2020			2019
Cash flows from operating activities:
Net income (loss)	$	7,564		$	(14,460	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		7,398			6,310
Impairment of property and equipment		626			—
Amortization of intangible assets		14,147			16,963
Net (gains) losses from investments		(2,365	)		61
Deferred income taxes		(1,600	)		(9,257	)
Stock-based compensation		7,964			8,605
Operating lease right-of-use asset amortization and impairments		10,525			9,647
Amortization of deferred financing fees		736			720
Foreign currency losses		277			524
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		30,226			33,384
Deferred commissions		5,916			2,036
Prepaid expenses and other current assets		1,693			(610	)
Accounts payable		1,183			828
Accrued expenses and other liabilities		(22,481	)		(6,550	)
Deferred revenue		(23,554	)		6,532
Operating lease liabilities		(9,056	)		(9,111	)
Net cash provided by operating activities		29,199			45,622
Cash flows from investing activities:
Acquisitions, net of cash acquired		—			(237,684	)
Purchases of property and equipment		(7,279	)		(8,362	)
Other investing activity		4,335			29
Net cash used in investing activities		(2,944	)		(246,017	)
Cash flows from financing activities:
Proceeds from borrowings, net of costs		—			171,275
Payments on borrowings		(21,031	)		(40,688	)
Payment of debt issuance costs		—			(857	)
Deferred acquisition payments		(1,064	)		(2,802	)
Proceeds from issuance of common stock under employee equity incentive plans		3,514			5,589
Taxes paid related to net share settlements of stock-based compensation awards		(2,876	)		(2,232	)
Net cash provided by (used in) financing activities		(21,457	)		130,285
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(580	)		(1,212	)
Net change in cash, cash equivalents and restricted cash		4,218			(71,322	)
Cash, cash equivalents and restricted cash, beginning of period		69,192			140,296
Cash, cash equivalents and restricted cash, end of period	$	73,410		$	68,974
Supplemental disclosure of cash flow information:
Cash paid for interest	$	3,385		$	5,466
Cash paid for income taxes	$	2,338		$	3,305

Non-cash financing activities for the nine months ended September 30, 2019 include $3.7 million of debt issuance costs deducted directly from the proceeds of borrowings by the lender. Refer to Note 4 – Debt for further information.

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

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Interim Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Forrester Research, Inc. (“Forrester”) Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the financial position, results of operations, comprehensive income (loss), and cash flows as of the dates and for the periods presented have been included. The results of operations for the three and nine months ended September 30, 2020 may not be indicative of the results for the year ending December 31, 2020, or any other period.

Due to the Company’s operating segment realignment during the three months ended June 30, 2020, the revenue line items in the Consolidated Statements of Operations were updated to present Events revenues as a separate financial statement line. In the prior presentation, Events revenues were combined within the “Advisory services and events revenues” financial statement line. Prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on the amount of total revenues previously reported.

Liquidity and Impact of COVID-19

The COVID-19 pandemic has significantly affected the Company beginning in March 2020 primarily through lower contract bookings and a reduction in revenues from the conversion of the Company’s events from in-person to virtual events. The Company had previously announced that its events for the remainder of 2020 will be held as virtual events. While the duration and severity of this pandemic is uncertain, the Company currently expects the reduction in its 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 extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from the Company’s 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.

The Company has implemented several cost-reduction measures that include reductions to travel, new hiring, and employee incentive compensation programs. The Company will continue to proactively respond to the situation and may take further actions that alter the Company’s business operations as may be required by governmental authorities, or that the Company determines are in the best interests of its employees and customers.

As of September 30, 2020, the Company is in compliance with its financial covenants under its Credit Agreement (refer to Note 4 – Debt). The Company currently forecasts that it will be in compliance with its financial covenants for at least one year from the issuance of these interim financial statements, after taking into consideration the measures noted above. If the impact of COVID-19 is more severe than currently forecasted this may impact the Company’s ability to comply with its financial covenants which could have a material adverse effect on the Company.

The Company assessed certain accounting estimates that generally require consideration of forecasted financial information in context with the information reasonably available to it and the unknown future impacts COVID-19 as of September 30, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for expected credit losses, the carrying value of its goodwill and other long-lived assets, valuation allowances for tax assets, and revenue recognition. While there was not a material impact to the consolidated financial statements resulting from the Company’s assessments as of and for the three and nine months ended September 30, 2020, the Company’s future assessment of its current expectations of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to its consolidated financial statements in future reporting periods.

Presentation of Restricted Cash

The following table summarizes the end-of-period cash and cash equivalents from the Company's Consolidated Balance Sheets and the total cash, cash equivalents and restricted cash as presented in the accompanying Consolidated Statements of Cash Flows (in thousands).

	Nine Months Ended September 30,
	2020		2019
Cash and cash equivalents	$	73,027	$	67,629
Restricted cash classified in (1):
Prepaid expenses and other current assets		345		717
Other assets		38		628
Cash, cash equivalents and restricted cash shown in statement of cash flows	$	73,410	$	68,974

(1)

Restricted cash consists of collateral required for letters of credit and credit card processing outside of the U.S. The short-term or long-term classification regarding the collateral for the letters of credit is determined in accordance with the expiration of the underlying lease as the letters of credit are non-cancellable while the leases are in effect.

Adoption of New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“Topic 326”). The standard amends the existing financial instrument incurred loss impairment model by requiring entities to use a forward-looking approach based on expected losses and to consider a broader range of reasonable and supportable information to estimate credit losses on certain types of financial instruments, including trade receivables. On January 1, 2020, the Company adopted the standard using the modified retrospective method in which prior periods are not adjusted and recorded a cumulative effect adjustment of $0.2 million to decrease retained earnings. Expected losses are based, in part, on the Company’s historical loss rate experience as well as management’s expectations of future losses as informed by current economic conditions.

The allowance for expected credit losses on accounts receivable for the nine months ended September 30, 2020 is summarized as follows (in thousands):

	Total Allowance
Balance at December 31, 2019	$	628
Cumulative effect adjustment of adopting Topic 326		218
Provision for expected credit losses		591
Write-offs		(637	)
Translation adjustments		(4	)
Balance at September 30, 2020	$	796

The Company adopted the guidance in ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment on January 1, 2020. The new standard simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test and requires that instead, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The adoption of this standard did not impact the Company’s financial position or results of operations.

The Company adopted the guidance in ASU No. 2018-13, Fair Value Measurement Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement on January 1, 2020. The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including changes to fair value transfers and Level 3 fair value measurements. Changes required upon adoption of this standard are included in Note 8 – Fair Value Measurements and did not impact the Company’s financial position or results of operations.

The Company adopted the guidance in ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract on January 1, 2020. The new standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The new standard provides guidance to simplify the accounting for income taxes in certain areas, changes the accounting for select income tax transactions, and makes other minor improvements. The new standard will be effective for the Company on January 1, 2021. The Company is currently evaluating the potential impact that this standard may have on its financial position and results of operations.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Finance Reporting. The new standard provides optional guidance for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting due to the risk of cessation of the London Interbank Offered Rate (“LIBOR”). The updates apply to contracts, hedging relationships, and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform, and as a result require a modification. An entity may elect to apply the amendments immediately or at any point through December 31, 2022. The Company is currently evaluating the potential impact that this standard may have on its financial position and results of operations, including the standard’s potential impact on any contractual changes in the future that may result from reference rate reform.

Note 2 — Acquisitions

Forrester accounts for business combinations in accordance with the acquisition method of accounting as prescribed by Accounts Standards Codification (“ASC”) Topic 805, Business Combinations (“Topic 805”). The acquisition method of accounting requires the Company to record the assets and liabilities acquired based on their estimated fair values as of the acquisition date, with any excess of the consideration transferred over the estimated fair value of the net assets acquired, including identifiable intangible assets, to be recorded to goodwill. The Company did not have any business combinations during the nine months ended September 30, 2020.

SiriusDecisions, Inc.

On January 3, 2019, Forrester acquired 100% of the issued and outstanding shares of SiriusDecisions, Inc. (“SiriusDecisions”), 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 they need to maximize performance and drive alignment. The acquisition creates several opportunities for the Company, including cross-selling services to the Company’s respective client bases, extending SiriusDecisions’ platform, methodologies, data, and best-practices tools into new roles, and accelerating international and industry growth. The acquisition of SiriusDecisions was determined to be an acquisition of a business under the provisions of Topic 805.

Pursuant to the terms of the merger agreement, the Company paid $246.8 million at closing after certain transaction expense adjustments, which was subject to a working capital adjustment.

SiriusDecisions’ operating results are reported within the Company’s Research, Consulting and Events segments. During the year ended December 31, 2019, the Company finalized the purchase price allocation and related accounting for the acquisition.

The Company recognized $1.7 million of acquisition costs in the nine months ended September 30, 2019 related to the SiriusDecisions acquisition. The costs primarily consisted of investment banker fees and other professional services costs and are included in acquisition and integration costs within the Consolidated Statements of Operations.

Note 3 — Goodwill and Other Intangible Assets

Goodwill

The change in the carrying amount of goodwill for the nine months ended September 30, 2020 is summarized as follows (in thousands):

	Total
Balance at December 31, 2019	$	243,895
Translation adjustments		1,095
Balance at September 30, 2020	$	244,990

The Company assesses goodwill for impairment annually on November 30, or on an interim basis if an event indicates a specific impairment may exist. As a result of the Company’s segment realignments during the first half of 2020 (refer to Note 14 – Operating Segments for additional information), the Company performed qualitative assessments of goodwill for all reporting units immediately prior to and after the reporting unit changes and concluded no impairment existed. Approximately $8.0 million of goodwill is allocated to the Company’s Consulting reporting unit, which has a negative carrying value as of September 30, 2020.

As of September 30, 2020, the Company had no accumulated goodwill impairment losses.

Finite-Lived Intangible Assets

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

	September 30, 2020
	Gross				Net
	Carrying		Accumulated		Carrying
	Amount		Amortization		Amount
Amortizable intangible assets
Customer relationships	$	109,977	$	46,699	$	63,278
Technology		16,815		9,326		7,489
Backlog		13,000		11,375		1,625
Trademarks		12,474		1,480		10,994
Total	$	152,266	$	68,880	$	83,386

	December 31, 2019
	Gross				Net
	Carrying		Accumulated		Carrying
	Amount		Amortization		Amount
Amortizable intangible assets
Customer relationships	$	109,825	$	40,169	$	69,656
Technology		16,661		7,051		9,610
Backlog		13,000		6,500		6,500
Trademarks		12,451		854		11,597
Total	$	151,937	$	54,574	$	97,363

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

2020 (remainder)	$	4,720
2021		12,380
2022		11,042
2023		10,862
2024		9,751
Thereafter		34,631
Total	$	83,386

Note 4 — Debt

In connection with the acquisition of SiriusDecisions, on January 3, 2019 (the “Closing Date”) the Company entered into a $200.0 million credit agreement (the “Credit Agreement”). 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”). On the Closing Date, the full $125.0 million of the Term Loans and $50.0 million of the Revolving Credit Facility were used to finance a portion of the acquisition of SiriusDecisions and to pay certain fees, costs and expenses incurred in connection with the acquisition and the Credit Agreement. The Credit Agreement is scheduled to mature on January 3, 2024.

The Credit Agreement permits the Company to borrow incremental term loans and/or increase commitments under the Revolving Credit Facility in an aggregate principal amount up to $50.0 million, subject to approval by the administrative agent and certain customary terms and conditions.

The Term Loans and Revolving Credit Facility 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 LIBOR based loans. The Term Loans must be prepaid with net cash proceeds of (i) certain debt incurred or issued by Forrester and its 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 Forrester’s 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 Forrester’s consolidated total leverage ratio or (ii) the alternate base rate plus a margin that is between 0.75% and 1.50% based on Forrester’s consolidated total leverage ratio. In addition, the Company pays a commitment fee that is between 0.25% and 0.35% per annum, based on Forrester’s consolidated total leverage ratio, on the average daily unused portion of the Revolving Credit Facility, payable quarterly, in arrears.

The Term Loans require repayment of the outstanding principal balance in quarterly installments each year, with the balance repayable on the maturity date, subject to customary exceptions. As of September 30, 2020, the amount payable in each year is set forth in the table below (in thousands):

2020 (remainder)	$	2,344
2021		12,500
2022		12,500
2023		15,625
2024		68,750
Total remaining principal payments	$	111,719

The Revolving Credit Facility does not require repayment prior to maturity, subject to customary exceptions. In addition to financing the acquisition, proceeds from the Revolving Credit Facility can also be used towards working capital and general corporate purposes. Up to $5.0 million of the Revolving Credit Facility is available for the issuance of letters of credit, and any drawings under the letters of credit must be reimbursed within one business day. As of September 30, 2020, $0.9 million in letters of credit were issued under the Revolving Credit Facility.

Forrester incurred $1.8 million in costs related to the Revolving Credit Facility, which are recorded in other assets on the Consolidated Balance Sheets. These costs are being amortized as interest expense on the Consolidated Statements of Operations on a straight-line basis over the five-year term of the Revolving Credit Facility. Forrester incurred $2.8 million in costs related to the Term Loans, which are recorded as a reduction to the face value of long-term debt on the Consolidated Balance Sheets. These costs are being amortized as interest expense on the Consolidated Statements of Operations utilizing the effective interest rate method.

Outstanding Borrowings

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

Description:	September 30, 2020			December 31, 2019
Term loan facility (1)	$	111,719		$	118,750
Revolving credit facility (2)		—			14,000
Principal amount outstanding (3)		111,719			132,750
Less: Deferred financing fees		(1,732	)		(2,205	)
Net carrying amount	$	109,987		$	130,545

(1)

The contractual annualized interest rate as of September 30, 2020 on the Term loan facility was 2.1875%, which consisted of LIBOR of 0.1875% plus a margin of 2.00%. However, the Company has an interest rate swap that effectively converts the floating LIBOR base rates on a portion of the amounts outstanding to a fixed base rate. Refer to Note 7 – Derivatives and Hedging for further information on the swap.

(2)	The Company had $74.1 million of available borrowing capacity on the revolver (not including the expansion feature) as of September 30, 2020.

(3)	The weighted average annual effective rate on the Company's total debt outstanding for the three and nine months ended September 30, 2020, was 2.1875% and 2.9006%, respectively.

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 maximum leverage ratio is based on total debt outstanding at the measurement date divided by EBITDA (as defined in the Credit Agreement) and the fixed charge coverage ratio is based upon EBITDA (as defined in the Credit Agreement), less capital expenditures, as a ratio to certain fixed charges, including Term Loan amortization, cash interest expense and cash taxes. The negative covenants limit, subject to various exceptions, the Company’s ability to incur additional indebtedness, create liens on assets, merge, consolidate, liquidate or dissolve any part of the Company, sell assets, 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, the Company is in compliance with its financial covenants under the Credit Agreement. The Company currently forecasts that it will be in compliance with its financial covenants for at least one year from the issuance of these interim financial statements, after taking into consideration the cost-reduction measures implemented during the first quarter of the year. If the impact of COVID-19 is more severe than currently forecasted this may impact the Company’s ability to comply with its financial covenants, and it is not certain that the Company would be able to renegotiate the terms of the Credit Agreement in order to provide relief related to the financial covenants. If the Company were unable to meet its financial covenants and then were unable to renegotiate the terms of its financial covenants, all debt outstanding under the Credit Agreement could become immediately due and payable.

All obligations under the Credit Agreement are unconditionally guaranteed by each of the Company’s existing and future, direct and indirect material wholly-owned domestic subsidiaries, other than certain excluded subsidiaries, and are collateralized by a first priority lien on substantially all tangible and intangible assets including intellectual property and all of the capital stock of the Company and its subsidiaries (limited to 65% of the voting equity of certain subsidiaries).

Note 5 — Leases

All of the Company’s leases are operating leases, the majority of which are for office space. Operating lease right-of-use (“ROU”) assets and non-current operating lease liabilities are included as individual line items on the Consolidated Balance Sheets, while short-term operating lease liabilities are recorded within accrued expenses and other current liabilities. Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets and are not material.

The components of lease expense were as follows (in thousands):

	For the Three Months Ended September 30,
	2020			2019
Operating lease cost	$	4,114		$	3,851
Short-term lease cost		81			80
Variable lease cost		1,539			1,197
Sublease income		(65	)		(54	)
Total lease cost	$	5,669