Q2 2020 Forrester Research Inc Earnings Call
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Good afternoon. Thank you for joining today's call.
With me today, our George Colony, Forresters Chairman of the board and see how Kelley Hippler, Forresters, Chief sales officer, and Mike Doyle Forresters Chief Financial Officer.
George will open the call Kelly will follow George to discuss fails and Mike Doyle will discuss our financials.
Carry Johnson Forresters, Chief Research officer within drilling to presenters and we will then open the call to keep Monday.
A replay of this call will be available until August Thirtyth 2020, and can be accessed by dialing 8558, Fivenine to 056 or 4045373 406. Please reference the conference I'd seven four to eight eight fivenine.
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Before we begin I'd like to remind you that this call will contain 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. These statements are based on the company's current plans and expectations and involves risks and uncertainties that could cause future activities and results of operations.
To be materially different from those set forth into forward looking statements.
So many 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 obligation to update publicly any forward looking statements, whether as a result of new information future events or otherwise I'll now turn the call over to George colony.
Thank you Mike joined the force or second quarter 2020 Investor call.
In summary of the quarter, and then Kelley Hippler enforcement Chief sales officer will update on samples.
Well, Mike Doyle.
Review of the quarter, and then Kelly, Mike and I'd be glad they carry Johnson Chief Research Officer for question and answers.
It may never be creating unprecedented challenges for forrester and its clients.
That said, we are moving forward the definitive mines that number one as a company we will financially manage our way through the times whatever they may brand.
To the pandemic is accelerating digital transformation across all industries and this is directly enforcers strikes though.
And finally, three forced or will emerge stronger from this recession, given given its expertise and customer experience.
Well you experience digital transformation building high performing revenue engines.
In Q2, we exceeded guidance for revenue and earnings per share meeting revenue by 5 million, Yes, My 31 cents.
How much of this performance is driven by better than expected result in or reprints consulting and event businesses.
Given our Q2 performance, we are increasing revenue and he has gotten all year.
The pandemic is opening up what I call the Golden age of research.
In times of uncertainty larger organizations historically turned to research to help them by new ways of working.
Tactics, new models and reformulated strategies.
We are seeing increased engagement with our research led by reports on endeavor managements and future work digital execution and the alignment of sales marketing and product.
In June leadership increased 13% year over year and for the full second quarter leadership was up 7% over Q2 2019.
I know that received from a client last me sort of summed up the moment and I will now quote from her she said I have referred to force for over the years My prior rules. The two large European consumer goods firms and I now need for us or more than ever as I embark on another digital transformation journey rig global U.S. the CBD.
The company.
Horses research leads our portfolio of contract value businesses products that are continually used by our clients through the year and then renewed on an annual basis.
We have recently enhanced the research product to include.
Unforecasted insights.
This is the this gives clients now the ability to access more than 50 market, leading data forecast covering consumer trends digital marketing and ecommerce.
You forecast provide valuable data insights to help clients make strategic planning decisions and examples of these forecasts include our common 19 detailed scenario planner nothing global that'd be global forecast, Andy 2020 advertising forecast at U.S. only.
In addition, we rolled out enhancements to our research poorly in the second quarter in new personalized home page moves clients to the most relevant insights based on user preferences and activity.
And our research portfolio the serious decisions pipeline showed improved progress relative to Q1.
Companies are using the service to sharpen demand marketing and sales operation during the pandemic.
This person wants to grow its contract value businesses in 2021 research we lead that effort.
Our consulting business performed well in the second quarter.
Our referenced business had a record quarter as vendors on new ways of generating lead reprints grew 10% year over year.
Our content marketing business grew 11% year over year again, driven by the need of vendors to engage the customers digitally.
And finally certification grew 68% year over year companies using this time of working from home to increase the attitude and skilled employees, particularly in customer experience in b to B marketing.
Our third business line events was an important part of the second quarter story.
Instead of canceling are delaying our events as our competitors did we pivoted quickly to paid virtual events.
The Porsche serious decisions North America summit attendance equaled 2019 levels.
We had more than 115000 views of our sessions and by the end of this summer. We have resigned 35 is never sponsors for summit 2021.
See ex North America had 57% more attendees than in 2019, and 22% more than capacity that the physical but then you would have allowed.
Well revenue was down considerably between 19 due to reduced sponsor revenue.
Both CX North America, and the North American summit exceeded profit expectations, and perhaps what's surprising attendees towards the events showed strong performance across the value content experiences speakers, averaging a score 4.1 out of five and these are records for the company.
We will run our second half events virtually.
Asia and summit Asia will feature sessions with simultaneous Mandarin translation, even to expand our audience in the mainland China in a time of restricted travel.
So to conclude on product performance, our research content is relevant and it's driving higher client engagement.
It consulting business, the generating digital content, which is helping our vendor clients drive leads.
And finally, we're innovating and events attracting record audiences with relevant sessions in content.
Going virtual has enabled the company to keep its flagship flagship summit and form brands activated alive in 2020 and that sets the stage for extended events in 2021.
Let me highlight a few client wins from the second quarter.
The first is a large European bank looking to drive customer centricity across its organization and they're going to be putting a thousand of their employees through forgers CX certification.
The second to client when a large wealth management company in the U.S. using portion to build and implement a customer segmentation program, we assembled at $250000 multi product solution across research consulting and events whether its clients.
Turning now to forfeitures of financial position, we continue to retire debt incurred with the Sears decisions acquisition.
We had $68 million in cash year to date, we have generated $25 million in cash and we expect to that he would have positive cash flow when the year.
Well, we are financially strong we are still managing through widespread uncertainty in the worldwide economy.
We are being directly impacted by three factors one revenue in our revenue in our events business has been greatly reduced due to travel restrictions.
To 10% a fortress clients are in industries that are directly impacted by the pandemic hotel airline retail and automotive.
And finally general macroeconomic headwinds.
So to conclude I wanted to reiterate reiterate my earlier points.
We will find a way to management within this recession.
Companies are accelerating digital transformation and this is importers sweet spot and we will come out of this recession in the stronger position in particular in particular, we will look to expand our contract value in 2021.
None of this would be possible without the amazing people Forrester web courageously adapted to working at home juggling family care and their jobs in St cloud connected using every channel available.
I'm very glad to report their tech stack has been phenomenal naval enabling all the towards seamlessly and effectively we all feel very fortunate that we do our jobs, even though we're all working from home.
So I hope that you are all staying well and that your families are safe and now going to pass the call over to Kelley Hippler, Forresters Chief sales Officer Kelly.
Thank you tell right.
Okay, let's find another challenging quarter. So the Forrester sales organization in company history, given the macroeconomic condition stemming from the coal that 19 pandemic.
With that said, we performed better than forecasted with a relatively strong close in Jan.
I want to reiterate Georgia sentiment and expressing our gratitude to Forrester rights across the globe, let's continue to put our clients first and has focused on helping them to navigate and these uncertain times.
Not unexpectedly, we're seeing increased selling challenges and industries like retail travel and hospitality that of the hardest hit by the pandemic.
Smaller high Tech clients are also struggling financially.
In addition to these industries in the U.S., we've seen some softness in some geographies like India, well, others, including China, Singapore, Hong Kong UK in Ireland, and the Nordics are all performing in line with expectations.
Given the challenging environment, we pivoted quickly and the following four ways that contributed to our relatively stronger close in Q2.
Number one.
We shifted focus to strongest market opportunities in late March we pivoted to shift from new business and cross sell focus resources in head count to markets in industries that are less impacted.
Hi Tech and government. Our two examples that are performing stronger than other industries.
We helped one of our Premier high Tech clients build the lead generation programs using digital Forrester and serious decisions content to replace pipeline that they had lost due to the cancellation other major industry event.
We continue to partner with multiple <unk> government agencies to assist with the modernization of there I T stack.
In Q2, we want a consulting project to help support one of our government clients, but at cyber security strategy.
Number two moved to all virtual events.
George has addressed the great success, we had with moving our events to all virtual.
Not only did this enable us to run profit up at all events in Q2, but it also gave US a platform to increase client engagement during this unprecedented times.
Events play a central role and strengthening the overall relationship that clients have what Forrester.
Our Q2 virtual advanced gave us the opportunity to connect with clients and showcase I thought leadership with positive results.
Our events are accelerating pipeline building and helping to secure renewals.
Number three conducted more sales training.
During Q2, we took advantage of the fact that our sales teams were not traveling to provide more training. We hosted best practice sessions twice a week for both new and existing sales team members.
The result is that our teams are increasingly more sophisticated and their ability to demonstrate how the forrester and serious decisions portfolios deliver value to serve client needs as demonstrated by an increase in a number of deals cross sold in Q2.
And then finally number four we drank our own Champaign, we have been making a concerted effort to leverage our research and frameworks to improve alignment across our organization.
Aligned with our own models Forrester has shifted to become our audience centric and has identified a number of key buying centers that persona is that we serve.
This is driven tighter alignment across sales product and marketing and it will make it easier to enable our sales force and to ramped new hires as we move forward.
We have just conducted the serious decision sales activity study, which will provide insights into how we can make our sellers more productive and efficient.
We are also leveraging the serious decision sales planning methodology as we begin to turn our attention to 2021 and have built a bottoms up capacity model and our calculating lifetime value and client acquisition costs to guide us as we make future investments.
Looking ahead to the remainder of the year, our key priority is client retention and protecting the base our core value proposition of helping business and technology leaders create customer obsessed organizations that drive growth continues to resonate in this environment.
Our own research shows that customer experience differentiation is the key to post pandemic success, and we are helping our clients to build strategies and execute programs to differentiate their brands based on customer experience.
With that I will turn the call over to Mike Doyle.
Thanks, very much Kelly.
Im now going to review Forresters financial performance for the second quarter of 2020, including to look at our financial results the balance sheet at June Thirtyth, our second quarter metrics.
And the outlook for the third quarter and full year 2020.
Please note that the income statement figures review on this call or non-GAAP results, which we referred to as adjusted results going forward and exclude those items mentioned in our press release today.
For the second quarter Forrester delivered adjusted revenue operating profit and earnings per share that significantly exceeded guidance.
The strong performance was led by better than expected strategy consulting delivery increased sales of reprints and content marketing and larger than expected attendance at our virtual events as Kelly and George both mentioned.
Despite the uncertain environment, we're able to sustain healthy operating performance as our sales and operating teams work through the challenges of executing in a virtual environment.
In addition, we've continued to keep a tight rein on expenses.
Our expectation is that the current economic environment will remain uncertain, requiring us to remain flexible and creative and how we deliver value to our clients.
The negative macroeconomic trends will put downward pressure on all businesses. However, the pandemic has highlighted the need for stronger digital business models to track to support their customer interactions and sales.
This creates opportunities for Forrester to help our clients accelerate their customer obsessed transformation.
We will remain agile in our approach to the market looking to add value in areas of greatest need for our clients.
For some it is helping them solve near term issues for others. It is helping them sustained progress on important strategic initiatives that will lead to success post pandemic, such as differentiating their brands through a compelling digital customer experience.
Now, let me turn to more detailed review of our second quarter results.
Second quarter revenue decreased 15%, which is significantly better than we expected given that the second quarter is the largest quarter for our events business. The segment most directly impacted by the pandemic.
Compared to the second quarter of last year research revenue declined by 6% consulting revenue increased by 3% and events revenue decreased by 75%.
Operating expenses for the second quarter decreased by 16% driven by lower events production costs, resulting from our shift to virtual events and from a limiting in our smallest in quarter events.
Additional expense reductions were realized from the elimination of bonuses and reduced travel due to the pandemic.
Overall headcount increased 4% compared to the second quarter of 2019.
Operating income was 19.2 million or 16.9% of revenue compared to 20 million or 15% of revenue in the second quarter of 2019.
Interest expense for the quarter was 1.3 million as compared to 2.1 million in the second quarter of 2019 due to the pay down of our line of credit and a reduced interest rates in the quarter.
Net income for the quarter was 12.2 million.
Earnings per share was 65 cents compared with net income of 12.3 million and earnings per share of 65 cents in the second quarter of 2019.
Our businesses key metrics consistently reflect the challenging environment seen in the second quarter due to the cobot 19 pandemic.
Agreement value client count retention and enrichment were all down compared to last year and compared to last quarter. We provided details in today's earnings release.
Now I'd like to review the balance sheet.
Our cash at June Thirtyth, 2020 was 68.4 million, which is an increase of 500000 from the end of 2019.
Cash from operations was 3.2 million for the quarter as compared to 7.5 million in the second quarter of last year.
For the first six months of 2020, we've generated 25 million in cash from operations, which we are pleased within this economic environment.
Debt payments or 2.3 million during the quarter and 18.7 million for the six month period, which includes 14 million a payments to fully pay down our line of credit.
Property equipment purchases were 2.7 million for the quarter compared to 1.9 million in the second quarter of last year.
Accounts receivable at June Thirtyth, 2020 was 54.1 million compared to 65.8 million as of June Thirtyth 2019, with accounts receivable over 90 days at 4% at June Thirtyth 2020, compared to 5% as of June Thirtyth 2019.
Deferred revenue at June 32020 was 170.8 million a decrease of 6% compared to June thirtyth of 2019.
In summary, we had a good quarter in a very difficult economic environment, both our top and bottom line performance exceeded expectations for the quarter.
As Kelly in Georgia discussed, we've been innovative and agile and helping our clients deal with the challenges all businesses are facing.
We've been able to maintain a healthy balance sheet by partnering with sales and working closely with our clients to maintain good cash flow in a difficult environment as evidenced by our receivable management performance in the quarter.
I'll move now to our guidance for Q3 and the full year 2020.
On our last call, we said that we evaluated multiple scenarios and trying to assess the severity and duration of the impact of cobot 19 on our business.
At that point, we reduced our full year guidance for revenue by 16% and earnings per share by 41%.
Our working assumption was that the worst at the pandemic would be behind us by June Thirtyth and that things begin to improve at varying rates in the second half of 2020.
That remains our current view a significant uncertainty remains creating challenges in forecasting the business.
However, based on our performance in the second quarter and current outlook for 2020, we're fine tuning our guidance for revenue and expect it will be towards the upper end of the revised guidance, we provided on our Q1 call.
And our raising revised guidance for operating margin and earnings per share for 2020.
We provided guidance on a GAAP basis and listen the items excluded from our adjusted guidance in our press release, an 8-K filed today.
For us is providing third quarter 2020 guidance on an adjusted basis as follows.
Revenues of 99 million to 104 million.
Operating margin of 3% to 5%.
An effective tax rate of 31%.
Diluted earnings per share of six to 12 cents.
Our full year 2020 guidance on an adjusted spaces is as follows revenues of 420 to 430 million.
Operating margin of 8.5% to 10.5%.
The effective tax rate of 31% and diluted earnings per share a $1.15 to $1.40.
Thanks, very much and I'm now going to turn the call over to the operator for the Q and a portion of the call.
[noise], ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad. If your question has been asked what are you wish to remove yourself into Q simply press the pound cake.
Again, if you have a question or comment at this time. Please press Star then one on your telephone keypad.
Please stand by what we could probably came in a roster.
Our first question or comment comes from a line of Entre softer strong from Sidoti Your line is open.
Hi, everyone can you hear me.
Hello, Yes, ma'am.
Okay and congratulations on a good quite a amidst a challenging backdrop so.
My first question is to Kelly I alluded to it to June being sort of the strongest miles I believe at what are you seeing going into July ask Covis flaring, not bad and a lot of Regenesis stats and noticeable in your business is not really coming so yes.
Thank you for the question on yes, so as of right now we have not seen some of the recent spikes impacting Q3 pipeline and we see some of the momentum from Q2 carrying over however, we do continue to watch this on a daily basis as things are shifting quite a bit but thus far we are seeing that my.
Mentioned from June continue which is very encouraging.
But certainly you know something we're keeping a very close eye on.
Okay. Thank you and in terms of that client drops can't give some color on on that the is it that predominantly and that 10% buckets of them more hard hit them.
Sector, sorry, just anything else to note there.
Sure. That's a great question I would say the two main areas that we're seeing our some of those industries. So to your point retail travel and then we also from a number of client perspective, we did lose some smaller vendor clients, who tend to be cash constrained. During these types of economic situation.
And we do expect to when some of that business back on as things start to improve but I would say those are the two buckets.
Okay, and then just one last one so there's not kill and events you know you're getting a lot much wider reach our attendance at floor. So.
I think alluded to that helping your pipeline Kid, maybe give saw some more color on that some and then how that might be helpful. In terms of of their selling I just services to this people that might be near to you.
Sure I think part of what's been great and different about the virtual events then the physical and of course is always great to have a physical event, where you can meet with folks and they can go down to the marketplace.
With the virtual events, we have a number of different ways that we can interact with clients with also graded that clients can go back and they can review the content. So if they had multiple track sessions going on at the same time that they want to attend in the past thing is to have to choose where they were gonna go now they have options to still go back 90 days out.
After and leverage that content, which is leading to some really great follow up conversations and discussions that we see happening post event more so than than maybe we would have would face to face. So it's definitely opening up more opportunities for us to engage with our clients and to expose them to more of the IP that were conveying at the event than we've been able to do with a a strictly physic.
All event.
Okay, great. Thank you had ever so from a test and that was all for me. Thank you.
Great. Thank you.
Thank you. Our next question or comment comes from the line of Vincent Colicchio from Barrington Research. Your line is open.
Yeah I was curious.
This is for Georgia, Mike you know reprints a consulting work shrunk spot in the quarter can you talk to maybe what the outlook is for those businesses is written in the second half.
Yeah, Vince good question and I think both.
Princeton content marketing are tremendous vehicles and limits. This pandemic right. Its its people are looking for ways to market and presenter story and it's something that you know this can move quickly. Its a good use of marketing dollars. It tends to have a great ROI for our clients and when other avenues of marketing or limited.
You know it works really well I.
I think that right now our outlook for the balance here is still looking at these businesses is continuing to be strong so.
Thats Good news reprints in particular was very high margin for us. So we're pretty excited about it and it's what we we expected we just didnt expect it to be that strong. So that's a good thing.
And then a consulting or what are your thoughts depending on the on that business.
I'll give you my perspective, Kelly can jump in you know, we particularly North America, we had a really good performance you know up versus year ago, which we're pretty excited about I.
I think there is very real need out there on a credit the consulting organization to be able to a lot of their work virtually right now we have a pretty good backlog. So I think we're feeling good about the balance a year I think the challenges winter people going to do the work and that's just a little bit of the variable that we don't control 100%, but.
Ill, let Kelly give her views she's much closer to sort of what's going on out there.
Yeah, No Mike I would concur with your your points. There I think we're definitely seeing strong demand on the end user side and some of the areas around digital transformation customer experience and loyalty programs as well as some of our clients were trying to figure out how to get out of some of the old technologies. They haven't pay down that technical debt. So they can pivot to our customer focused.
Technology. So we're still seeing a lot of energy there as well as for the content marketing products that are leverage for it for the lead generation on the high Tech side.
And I would you compare overall client sentiment.
And sales cycles now.
Versus where we were you know in the last earnings call.
Sure what's really interesting is a lot of the timing around the sales cycle really depends upon who were working with within an organization. So in many cases when I see level sponsor is involved in a project, we're actually seeing a reduction.
And our days to close interestingly, our conversion rates of our pipeline in Q2 were just down one point over prior year, which was very encouraging for us that the overall our conversion rates are holding and cycle time, it's pretty much in line with what we've experienced historically, but definitely more outliers some going.
And more quickly others, perhaps taking a little bit longer if we're not high enough within the organization. Our you know how the cfos are sometimes getting involved in the buying process and slowing things down.
Yes, we are tend to be thoughtful and methodical and [laughter]. We then to get rid of or the answer I did on the call.
Got it. Thank you okay. Thank you.
Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one I'll get telephone keypad.
I'm showing no additional questions in the queue at this time I'd like to turn the conference back over to Mr., Mike Doyle for any closing comments.
Yes.
Thanks, everyone for joining the call and hopefully going to staying healthy.
We are going to be presenting at a couple of virtual events in the third quarter and will also be looking to schedule a number of.
Actual roadshow calls so we'll work with with everyone to get that on track, but looking forward frankly to an exciting third quarter and a unexciting balance to the year. So thanks, again, everyone and well sign off.
Ladies and gentlemen, thank you for participating in todays conference. This concludes the program you may now disconnect everyone have a wonderful day Stacey.
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