Q1 2020 Earnings Call
[music].
Good afternoon. Thank you for joining today's call with me today, our George Colony Northstar Chairman of the Board and CEO, Jerry Johnson Horse, just Chief Research Officer, and Mike Doyle Forresters Chief Financial Officer.
George will open the call Harry will follow George to discuss the research and Mike Doyle will discuss our financials.
Kelley Hippler forced to Chief sales officer will join diapers interest and we'll then open the call secure Monday.
Oh briefly on this call will be available until July 2020, it can be accessed by dialing eight my 5859, 205 sick or 404537 reported see rustic.
Please reference the conference I'd 77887 Bye bye.
Before we begin I like to remind you that is Paul will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Words, such as expects believes anticipates intend plan estimate or similar expressions are intended to identify these forward looking statement.
These statements are based on the company's current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in support Lincoln statement.
Some of the important factors that could cause actual results to differ are discussed in our reports and filings with the securities and Exchange Commission.
The company undertakes no obligations to update publicly any forward looking statement, whether as it was brought up new affirmation future events or otherwise.
And I had the color, but to George colony.
Thank you for listening in on the Forrester Q1 2020 coal.
We're going to switch it up for this call everybody's Curie Johnston forces Chief Research officer to update investors our product strategy.
So many kick it off and hand, the call over to carry for her remarks that we're gonna here from CFO, Mike Doyle will give a financial review for the quarter.
Terry myself, and Mike will be drilling by Kelley Hippler, Chief sales officer for questions and answers.
No points to start number one worster, we'll manage its way through this economic moment whatever it may bring.
To the pandemic will accelerate the need for all companies to build customer obsessed digital capabilities and that's for sure spoke us.
And finally three.
Portion will emerge stronger from this recession, given its expertise and customer experience.
We experienced digital transformation and building high performing revenue engine.
Not much has changed since our last quarterly call in February.
That time I reported for the year was launching as planned however, the pen Dennis.
We can go to the first quarter slightly below revenue guidance, while still growing by 2% year over year.
We dramatically exceeded <unk> exceeded our EPS targets, but this is due primarily to cost reductions in March.
Workers the working remotely that's been marching I'm happy to report that we've made the transition quickly and seamlessly.
Our technology stack, it performed admirably and our collaboration across the company and with clients as move Board unimpeded.
We feel very fortunate to be a company that can operated near peak levels, well still being remote.
That said the pandemic any economic downturn will impact for sure in three ways number one revenue or a best business will be reduced by travel restrictions.
To our clients in the hotel airline restaurant automotive in physical retail sectors have cut budgets and three some clients, including the technology sector or reducing budgets because of the general economic slowdown.
As a result, we've taken action to keep expenses aligned revenue. These include removing the company bonus for 2020, reducing hiring restricting non essential travel.
The company has weathered many economic.
Moments in its history lot of turbulence in its history, including the 2000 dotcom crashing most recently in 2008 recession.
And I can kind of at least five recession did have occurred enforcers lifetime through all of them. We most free cash in our business pull their market position was stronger as we moved into better economic times.
We are no organized into three groups.
Research, which includes all of our products, which are sold that you really contracts consulting which encompasses our project consulting and our content marketing businesses and the VAT.
Our research business includes Forrester research jurist decisions research analytics and community.
Very Johnson runs a research and you'll get beat you're gonna be hearing from her in a few moment.
In terms of turbulence and uncertainty the need for research increases.
And we can see this in our current engagement and leadership metrics.
Changes if you will that makes the research business go faster.
To be as we've seen often in technology shifts like the move to the Internet and also the move to cloud.
We can beat up quarter clients several weeks ago, and the overriding message with innovation was accelerating at the Companys, India paradigm to be more digital was front and center.
You can see the starkly should compare online retailers as a thriving in the physical retailers who are of course shut down.
Yeah, the digital at a large new England bag commented that the projects that he couldn't get funded before the pandemic are now moving ahead at top speed.
The CEO is now paying attention.
So not to get too dramatic, but we believe we're entering the Golden age of research in which the laggard companies will have to ramp up their digital customer experience to compete with the leaders.
Our research organization has provided valuable insights around the pandemic.
Continued to deliver high value declines through forgers breadth of coverage.
We will look to double.
We'll look to drive double digit growth from our research products moving forward in 2021.
Our second business consulting complements our research business.
Companies that use forces consulting renew at 70% higher rates than the mean.
Consulting continues to be a strong performer in the portion organization growing revenue by 10% year over year in first quarter led by the content marketing practice.
Our third business event complements and showcases Forresters research.
In the past had called events are Apple store, the place, where we directly interact with their clients, where they can experience our findings ideas and data up close and personal.
Events are important venues for technology vendors to showcase their products and officially generate leads and new business.
It was as I previously mentioned 2020 will be a challenging year for events.
But unlike our larger competitors with canceled most of their events. We have quickly moved to virtual virtual event with really surprising result.
Our largest of ended the year the force or serious decision summit concluded today with as many attendees as we had in Austin, Texas in May of 2019.
So yes, you are not profitable or as revenue producing but the virtual events are keeping the brand and community alive.
I'm very proud of our innovation speed as we've made this.
In future calls will be analyzed the business industry segments research consulting and event.
Look a highlight a few client wins through the close of Q1.
Our largest growth deal with the quarter came from a $1.3 billion Irishman would the national oceanic and atmospheric administration.
Our new business teams have shown surprisingly strong momentum as we enter Q2.
An example of a 100000 dollar win was Fairview health services late in Q1.
Growing our multiyear deals has become a cute keep parity of our sales organization. For example, cognizant recently signed a multiyear deal for 1.2 million.
And in the quarter in Q1, we closed 45 different global deals with Microsoft.
For a total of 4.5 million.
It was a final note I wanted to talk of enforcers financial position.
We continue to retire debt incurred with the serious decisions acquisition.
In Q1, we paid the remaining 14 million on our revolver, while maintaining full access to the 75 million dollar facility.
We have $70 million in cash in Q1, we generated 22 million in cash and we expect to have positive cash flow for the year.
So to conclude I wanted to reiterate my earlier points. One we will manage your way through this pandemic in recession. Two companies are accelerating digital transformation. This is enforcers sweet spot.
And three the company will emerge in a stronger position.
I hope that you and your families are staying healthy and well through these times and now I'm going to pass the call over to carry Johnson Forresters Chief Research Officer Eric.
Thank you George and good afternoon, everyone.
As a quick introduction to me I'm coming up on 22 years at Forrester.
For Exterran nearly every role in the research organization.
Getting 10 years as an analyst covering digital retailing.
Then went on to lead research team and the content port portfolio for all of our research.
I've been part of most strategic transformation, the Forresters business and I've led many clients student as well.
Pivoting corner stores research products and services in response to customers needs.
I'd like now it to build on some of the George's comments about engagement with our research.
Although could be 19 has negatively impacted businesses on a global scale.
The pandemic has pushed many customer obsessed transformation initiatives into the spotlight for our clients.
From Renault and.
Employee and call center activation to digital transformation acceleration.
Customer obsession right now is critical to survival for firms.
Here are some examples of how our research and our events products are delivering high value for clients and where we're seeing increased engagement levels.
First our research product.
As George mentioned this is truly proving to be a golden age for research.
Our research team have had a fast.
Coordinated response to covert 19.
Publishing our first guide pandemic planning back in early March.
Our security and risk team first wrote that pandemic research 10 years ago.
Our expertise expertise and experience is very deep here.
We also launched a first of its kind employee experience survey that we feel that every two weeks to take the pulse of business employees worldwide as they cope with it pandemic.
We've used our new digital platform as a hub to publish short form content daily that help our clients respond thoughtfully and quickly and critical areas like leadership business continuity customer experience collaboration tech.
Virtual eclipse care and yes, virtual and then.
We're demonstrating the value of research and pipe insight embedded into our clients operation.
The results has been higher than average engagement levels with our clients.
What we're finding is that with clients at home.
They're meeting advice on working uncharted territory, and they're engaging with us at record levels here Here's some details.
Site visits to read our research has increased year over year and they continue to right.
Covidien 18 blog posts have led to a 40% increase into on traffic.
So on communications and then one by George on the four phases of the pandemic have led to the highest ever use enforcer history.
Demand for our time with our analysts have also increase.
The pandemic has led to an increase in requests for inquiry, which are 30 minute calls with analysts.
And client attendance at our analyst, but webinars hit a record high in April they're up over 100%.
And finally.
Virtual sessions with our exclusive executive communities have seen any more than 50% increase in attendance.
Now onto event.
Our two biggest event or in Q2, one is north American summit, what's shorts talk a bit about this is the must attend event for sales marketing and product professionals.
The other it's the ex North America in June.
As George said, rather than canceling, we decided to be bolt customer and stuff and we pivoted staff to virtual event.
With innovative and immersive experiences.
North American summit concluded today and the results are quite positive.
George mentioned, we matched in person attendance from 29 Keith.
The virtual North America summit proved to be in engaging experience.
Hosting nearly 150 lightstream presentation, including keynotes by Bernie Brown and also a concert series teaching out of featuring Adam Levine.
We had a lively marketplace.
That had nearly 50 paid sponsors.
Many of which have already renewed their spot for our 2021 of them.
The virtual showroom floor saw a 100000 visits from attending.
Through this virtual marketplace and also our content marketing product.
Weve been able to enable clients to generate pipeline replacement man that vendors and in particular are losing when they tried to cancel their own in person event.
To summarize.
Forced to clients need our help and they accelerate their customer obsessed initiatives and they're highly engaged with us.
We believe that our herculean effort to be by our clients sides with timely relevant and actionable advice every day, what position for us there well in the future.
With that I'll turn the call over to Mike Doyle.
[noise] Thanks Kerry.
Now going to review Forresters financial performance for the first quarter of 2020.
Including the look at our financial results.
The balance sheet at March 31, our first quarter metrics and the outlook for the second quarter and full year 2020.
Please note that the income statement numbers are pro forma and exclude those items mentioned in our press release today.
First quarter Forrester delivered pro forma revenue below guidance whoever operating profit in earnings per share exceeded guidance.
Well below expectations.
Revenue grew slightly for the quarter despite headwinds from the impact of Cobot 19.
Expenses were favorable expectations as we move quickly to contain costs, making reductions in bonuses and travel expense, which more than offset the revenue shortfall.
It's both George and Carrie mentioned, we are entering a very dynamic and changing business landscape as a result at the pandemic.
Clients are looking to us to help them navigate to these very challenging times I.
I do think this will create great opportunity for Forrester going forward. However, we will not be immune to the near term macro economic impact of the pandemic.
Many of our clients are feeling financial pressure on their businesses and we see that in the form of deferred projects reduce research sheets, you to client layoffs and the impact of the pandemic on or events business.
Now, let me turn to more detailed review of our first quarter results.
First quarter revenue increased 2%, which was less than expected as we began to see the impact of covert 19 in our business.
We saw the impact again earlier in the quarter in our Asia Pac business and later in the quarter in our North America and EMEA businesses.
Spite that research services grew 1% driven mainly by reprints and our advisory services and events grew 4% driven by strong performance from our content marketing group.
Operating expenses for the first quarter decreased by 4% as we eliminated our annual bonus program and reduced travel expenses in response to cope with 19.
Overall, our head count increased 1% compared to the first quarter of 2019.
As a result of the operating expense reductions operating income expanded to 11.3 million or 10.6% of revenue compared to 4.9 million or 4.7% of revenue in the first quarter of 2019.
Our interest expense for the quarter was 1.5 million as compared to 2.4 million in the first quarter of 2019 due both to the aggressive pay down of our line of credit and to reduce interest rates in the quarter.
Net income for the quarter was 6.9 million and earnings per share was 37 cents compared with net income of 1.6 million earnings per share of eight cents in the first quarter of 2019.
Now turning to the key metrics, where we began to see a more pronounced impact of the covert 19 pandemic with client count retention to end enrichment all down versus prior year and sequentially. We provided details in today's earnings release.
Agreement I was up 3% from the first quarter of 2019, primarily due to more bundling of consulting services with renewable contracts.
Now I'd like to review the balance sheet.
Our cash at March 31, 2020 was 69.8 million, which has an increase of 1.9 million from the end of 2019.
Cash from operations was 21.8 million for the quarter as compared to 26 million in the first quarter of last year.
Debt payments were 16.3 million during the quarter, which included 14 million of payments to fully pay down our line of credit.
Property and equipment purchases were 2.4 million for the quarter compared to 2.8 million for the first quarter of last year.
Accounts receivable as of March 31, 2020 was 59.5 million compared to 69.1 million as of March 31, 2019 with accounts receivable over 90 days at 9% at March 31, 2020, compared to 4% as of March 31 2019.
Deferred revenue at March 31, 2020 was 195.4 million an increase of 2% compared to March 31 2019.
Four points of the deferred revenue growth reflects the fair value adjustment to acquire deferred revenue in the prior period.
Well move now to our guidance for the second quarter and full year of 2020.
And trying to assess the severity and duration of the impact of coping 19 on our business, we evaluated multiple scenarios.
Our assumption is that the worst of the pandemic is behind us by the end of June and the things begin to improve at varying rates in the second half of 2020.
This is reflected in a wider than normal range in our annual guidance.
Based on those scenarios, we brought our 2000, a 20 revenue guidance down approximately 16% from our previous guidance.
Our events business, which represents approximately 6% of our total revenue accounted for 25% of the revision downward.
As Gary discussed we've moved quickly to virtual events, which result in significantly less revenue than in person event, but are still profitable for Forrester.
We expect the broader macro economic impact of the recession were slow to near term softness in our consulting and advisory business and our research services business.
It is of course difficult to predict how covert 19 will impact the economy in our business.
We are currently staff to be opportunistic as the company rebalanced to ensure we get back to healthy growth in 2021.
We will be constantly serving the business climate and checking that are that against our assumptions. If we see a change we revised our actions and guidance accordingly.
[noise], we provided guidance on a GAAP basis and lifted the items excluded from our pro forma guidance in our press release, an 8-K filed today.
Of course, it for binding second quarter 2020 pro forma guidance as follows.
Revenues of 103 billion to 108 million.
Operating margins of 8% to 10%.
An effective tax rate of 31%.
Diluted earnings per share of 26 to 34 cents.
Our full year 2020 pro forma guidance is this follows revenues of 410 to 430 million.
Operating margins of 7% to 9%.
And effective tax rate of 31%.
And diluted earnings per share up between 90 cents to $1.20.
That concludes my prepared remarks, I want to reiterate what George and carry of Mitch.
Forrester will manner to manage our way through this we move swiftly to an act expense reductions, which will help offset anticipated revenue softness in 2020.
Pandemic will accelerate customer obsessed digital innovation.
As was mentioned by carrying George we are leading by example, here and we'll continue to help our customers do the same.
Barstool, even stronger coming out of this pandemic.
I agree with Korean George that Forrester products and service will be in greater demand as a result to the impact of the pandemic on companies, whose business models are proving to be inadequate for the new normal.
Thanks, very much and I'm going to turn the call back over to the operator for the Q and a portion.
Yes, you would like to ask a question during todays call. Please press Star then be number one on your telephone keypad, what Pos there's just a moment took a politic una roster.
Your first question isn't the line up into Nicholas.
Hi, good afternoon hope, everyone, a safe and healthy.
Just wanted to start with a little bit more detail on the guidance I'm just wondering.
What are you implying for the events business a knows that you said it was 25% of the guidance reduction, but are you expecting the rest of the year to be virtual and if you could make any comment on what that profitability looks like that would be helpful.
Yeah. This is this is George Kelly you want take that.
Yeah, George and I'll tackle the profitability aspect of it into guidance aspect of it which may be better killed okay.
Sure.
Thank you Andrew and thank you George So we are prepared to make a pivot to digital if we need to as of right. Now we do still have our full roster. Other that's on the calendar and we're going to continue to monitor the situation, but having built out this capability as we do now have the option. So I know as Mike had a late.
Ramp as we get further into the year here. So those numbers will be going up sequentially as we have individuals' coming off of around right. Now we have 94% capacity on our open territories, which is the highest it's been in over it.
The year.
Okay.
I'm sorry.
The thing on because yes, it was up and they will say that we took a number of measures to reduce costs. Some of which we've identified we also froze a lot of open headcount, but we have consciously chosen to continue to invest in sales.
And to some degree nationalist headcount in part because frankly, we see that you know we we we think there's gonna be we're going to come out of this and we need to be prepared as as the second half of the year starts getting better to be able to capitalize on that so we have consciously not cut head count in the sales organization the analysts area.
Okay. Thank yeah, and and time. So that then the hiring sales people has the current environment sort of.
Impact that AD in either positive or negative anyway.
So I would say in the the current environment, we have been able to fill positions a little bit more quickly. Then we had been throughout the course of of 2019 and I'm glad to say, the where where close to full capacity right now and our focus on ramping up our our new hires.
Okay. Thank you know us all from me.
Thank you.
Yeah, I'm showing no further questions at this time, Oh, no technical back to Mr. Doyle.
[noise] Oh, George you want to have some closing comments here.
No go ahead.
Okay.
First thanks, everyone for joining the call. We do hope that that you are are safe and and healthy we we plan to be out there in the markets virtually and you know if I could reinforce you know our major points here you know, we're gonna manage our way through this you know we've been.
Through this before I've been through some of the recessions with George not the entire pieces, but you know we were going to find a way through this oh I think we know how to do this we know how to move quickly we've positioned ourselves to be ready to as the economy bounces back we think the pandemic has exposed a lot of.
A lot of every week digital models, which we are frankly would be thinking the best position to maintain and we're gonna come out stronger we've got a great and very talented employee based all of whom we've retained in were pretty excited about that so we're looking forward to work into these challenges with our clients. So thanks, very much and I would say the George here guys anyone out there who.
Wants to meet with us my assume or whether X., we'd love to meet with you.
And thank you for being on the call and everyone's Dave I can.
[noise].