Q3 2020 Forrester Research Inc Earnings Call
[music].
Good afternoon. Thank you for joining todays call with me today are George Colony, Forresters Chairman of the board and CEO Kelley Hippler, Forresters, Chief sales officer, and Mike Doyle.
Ill Forresters Chief Financial Officer George.
George will open the call Kelly will follow George to discuss sales and Mike Doyle will discuss our financials. We will then open the call for Q1 day every play of this call will be available until November 28, 2020, and can be accessed by dialing eight five sites each fivenine to 056 or forward your AFFO.
45373 406, please reference the conference I'd 5894, 106 before we begin I liked your money 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 anti.
Dissipates 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 involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward looking statements.
Some of the important factors that could cause actual result to differ are discussed in our reported filings with the securities and Exchange Commission and 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 hand, the call over to George colony.
Thanks for being on our third quarter 2020, investor call a drug it with update on the quarter Kelley Hippler fourth who's the Chief sales officer will summarize sales results and progress.
Mike Doyle, our CFO will finish up with a financial review of Q3 and full year guidance, and then Kelly, Mike and I will take questions.
In Q3, we exceeded guidance for revenue and earnings per share, beating revenue by nearly $5 million and EPS by 12 cents.
We are increasing revenue and EPS guidance for the full year.
As I talked about on the Q2 call. The pandemic is increasing demand for research and advice.
Challenges change and disruption of these times are driving client engagement in what I call. It Golden age of research.
We're seeing increasing demand for our content on poor levels number one research that advisors on how to navigate the pandemic.
Do research on structural changes in the workforce in particular, the future of work.
Three research on how to transition to digital development that has been accelerated by the pandemic.
And then finally number four digital tools provided by four through the use by our clients to drive their sales leads and client engagement. This.
This business has accelerated with reprints to growing 37% year over year in Q3 and content marketing increasing 31%.
Year to date, we have seen research readership of my active clients increased by 10%.
Webinar, our attendance is up 44%.
Enlist inquiries. This is a 30 to 60 minute client meetings conducted by analysts are up 10% for the year.
Workers residents. During these times is also being manifested in our events business.
Our virtual events continue to draw large paying audiences and we saw attendance accelerate in the third quarter.
In 2020, we have held six events, including serious decision summit, CX, North America, and the security and risk for them.
Paid attendance at our virtual event top 2019, physical events by 11% and feedback scores continue to outpace scores for physical events.
In the second and third quarters, there were nearly 170000 views Upstreamed sessions.
He back now is forresters venture to enable companies to measure and improve the experience in real time.
Our technology is deployed in over 1000 locations worldwide gathering data from over 18000, physical and digital endpoints.
You are currently rolling out new touchless devices in digital people counters to help our clients improve their experiences during the pandemic.
So to conclude on products, our certification business grew 24% year over year as companies continue to use these times to improve the skills of the team you need to be marketing and also in customer experience.
Before she moves into 2021, we're looking to grow our contract value products in particular fourth are in serious decisions research.
To stimulate our CV sales pipeline for the year ahead, we create predictions and planning assumption documents and I wanted to highlight a few here.
And the buyer behavior space, we believe that social distancing will probably will prompt to consumers to experiment with immersive virtual experiences in the coming year.
12% of U.S., all on idle to experiment with augmented and virtual reality in 2021, expanding overall A.R.V. our exposure to nearly half the U.S. online up population.
In the marketing space marketers will double down on retention and loyalty.
75% of BTB markers will focus demand generation tactics on retention and enrichment in 2021, and that's up from 59% in 2020.
We just see marketers will spend 30% more loyalty and retention efforts driving a 40% spike in E mail and mobile messaging.
In the cyber security space, we're finding the pandemic related uncertainty remote working conditions and employee errors are going to intersect to created to create the ideal conditions for social tax.
One third of security breaches in 2021 will be caused by insider threats.
And then finally in the cloud space, we now predict that the global public cloud infrastructure market will grow 35% in 2000 $21 billion to $120 billion and then Alibaba cloud will take the number three revenue spot globally. After it'd be a W. S and azure.
The report projects that many large companies was shipped select portions of the cloud traffic toward a new architecture edge computing.
Better serve local customers and this trend is going to slow the growth of public cloud and Usher in a new group of edge computing Tech vendors.
The full portfolio prediction and planning assumption documents will be online by year end.
Turning now to Forresters financial position, we continue to flow free cash with our cash position position at quarter end at $73 million.
Year to date, we have generated 29.2 million in cash and in 2020, we have reduced our debt obligation by $21 million.
So to conclude Forrester is navigating its way through the pandemic and recession.
Our clients are challenged by macroeconomic conditions and 10% are highly challenged.
Now that said companies are turning to for her to widen the digital footprints align sales marketing and product improve ceocs improve employee experience and sharpened their customer obsession. So yes. These are demanding times, but they are stimulating a golden age of research as companies look for answers in a changing world.
Four to remain financially sound and we are using these times to develop new products that will position the company to accelerate as the pandemic and recession begin to clear.
So I hope that you are all staying well that your families are safe and now I will pass the call over to Kelley Hippler, Forresters Chief sales Officer Kelly.
Thank you chart I'm.
I'm pleased to share that the positive momentum we saw in June carried into Q3, we.
We're both proud and appreciative of the hard work our forced her team members across the globe have been doing to support our clients. During this unprecedented times.
In Q3 bookings performance improved across all geographies and selling motions first as Q2.
Most notably both our core organization, which sells to high tech clients and prospects below $1 billion in revenue and our premier user teams in the United States rebounded strongly.
As George mentioned, we are in the Golden age of research clients need Forresters insights now more than ever to help them navigate change innovate and grow for.
For example in India, one of the regions hardest hit by the pandemic, we just signed a multi year higher growth agreement with one of our clients for $1.6 million over two years.
The pivots, we put in place in April have helped us to steadily improve results. Despite the continued economic headwinds. These initiatives include number one shifting focus to strongest market opportunities. We stood up a cross functional pipeline acceleration program to align resources across the Forrester Eco says.
Stem to where we are best positioned to drive value for our clients.
This program included hot topics, such as Coke at 19 response, a management customer experience digital experience employee experience and demand generation.
We had a nearly $500000 digital user experience project win but the 50 billion dollar global Commerce client what started as an inquiry, where the Forrester analyst evolved into a full digital user experience review of 22 sites in the United States, the United Kingdom across seven persona.
Our high tech clients depend on Forrester to support content creation and demand has increased as other traditional lead sources like in person events are no longer available to them.
One example, we partnered with one of our clients to create a demand program leveraging forresters total economic impact or T.I. methodology valued at over $500000.
To move to all virtual events Forresters pivot to all virtual events has enabled us to deliver on our events calendar for 2020.
Events play a central role in strengthening the overall relationship that clients have with Forrester.
Our virtual events have given us the opportunity to stay connected with clients and showcase our thought leadership with positive results. Our events continue to accelerate pipeline building and help to secure renewals.
Number three conducted more sales training.
In July and August we held our annual H two strategy workshops, we leverage these virtual workshops to share best practices on topics like social selling and they use of video and prospecting and client engagement.
We also conducted additional training on our audience centric buyer persona approach to enable us to capitalize on the efforts of marketing.
And number four we drink our own Champagne, we continue to leverage our research and frameworks to improve alignment across our organization.
This includes shifting our team to be digital sellers.
Principal analyst Mary Shay had correctly predicted that 2020 would be the year of digital selling and she said this before the pandemic hit.
Now that we are all digital sellers were having more meaningful and authentic interactions with our clients and prospects who are literally inviting us into their homes.
We're working with our team to make sure that we are well prepared doing our homework and are respectful of their time.
As planning for 2021 continues we are leveraging our serious decisions sales planning methodology and have built a bottoms up sales capacity model, we have calculated our lifetime value and client acquisition cost to guide future investment decisions.
We are focused on our core value proposition of helping business and technology leaders create customer obsessed organizations that drive growth.
Our own research shows that customer experience differentiation is the key to post pandemic success, and we will continue 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, Kelly negative review Forresters financial performance for the third quarter of 2020.
Including a look at our financial results the balance sheet at September Thirtyth, our third quarter metrics and the outlook for the fourth quarter and full year of 2020.
Please note that the income statement figures review on this call our non-GAAP results, which we referred to as adjusted results and exclude those items mentioned in our press release today.
For the third quarter Forrester delivered adjusted revenue operating profit and earnings per share that exceeded the upper end of guidance.
Despite a challenging unpredictable environment, we continue to see resiliency in many parts of our business.
Reprints and content marketing offerings offerings continue to lead the way in the third quarter growing by double digits for the third consecutive quarter.
Our core Forrester research service, an executive programs of both outperformed expectations as clients need help navigating challenging times and planning for the future.
These stronger product results helped offset some of the revenue pressure, we're experiencing other services due to sales declines earlier in the year.
Expenses remain in check driven by lower TNT and events expenses due to travel restrictions.
Combination of better than expected revenue and continued tight expense management resulted in both operating margin and EPS exceeding expectations.
As we look forward to the fourth quarter, we continue to expect an uncertain macroeconomic environment. However.
However, we are experiencing increased demand for both our research and consulting services and as a result, we are raising our full year guidance for revenue operating profit and EPS.
For sales and operating organizations have done an excellent job adapting the pandemic and continued to execute well despite the macroeconomic headwinds.
Now, let me turn to a more detailed review of our third quarter results.
Third quarter revenue decreased by 1% compared to the third quarter of last year research revenue declined by 4% consulting revenue increased by 6% and events revenue decreased by 21%.
Operating expenses for the third quarter increased by 1% driven by higher headcount and merit increases that were issued earlier in the year as well as the restoration of certain employee benefits that were previously deferred as cost savings measures do.
These increases were materially offset by lower travel and entertainment expenses due to travel restrictions lower professional services and lower events production costs due to our move to virtual events.
Overall headcount increased 2% compared to the third quarter of 2019.
Operating income was $8.2 million or 7.6% of revenue compared to $11.1 million or 10.1% of revenue in the third quarter of 2019.
Interest expense for the quarter was 1.3 million as compared to $1.9 million in the third 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 4.6 million and earnings per share was 24 cents compared with net income of six and a half million and earnings per share of 34 cents in the third quarter 2019.
Our business is key metrics continue to reflect the challenging environment in which we're operating to the COVID-19 pandemic.
Agreement value client count retention and enrichment declined compared to last year.
However, we did see stabilization across all metrics compared to the prior quarter.
Provided detailed in today's earnings release.
Now I'd like to review the balance sheet.
For cash at September Thirtyth, 2020, with $73 million, which is an increase of 5.1 million from the end of 2019.
Cash from operations was 4.2 million for the quarter as compared to 12.1 million in third quarter of last year.
For the first nine months of 2020, we generated $29.2 million cash from operations, which we are pleased with in this economic environment.
Debt payments were 2.3 million during the quarter and $21 million for the nine month period, which includes 14 million paying a payments to fully pay down our line of credit.
Property and equipment purchases were 2.2 million for the quarter compared with $3.7 million in the third quarter of last year.
Accounts receivable at September Thirtyth, 2020 was $54.1 billion compared to 54.6 million as of September Thirtyth 2019, with accounts receivable over 90 days at 5% September 32120, compared to 6% as of September Thirtyth 2019.
I am very happy with our collections performance in this difficult economic environment.
Deferred revenue at September Thirtyth, 2020 was $155.4 million, a decrease of 7% compared to September Thirtyth 2019.
In summary, we had a stronger quarter than expected.
The momentum we saw in our business late in the second quarter continued in the third quarter with continued double digit growth performance from our reprints and content marketing products.
Our consulting business performed well and we had better than expected performance from our core Forrester research product.
For client metrics are stabilizing and our balance sheet remains healthy.
Despite constrained budgets, our clients are valued than our research content and advisory services to help them navigate this challenging business environment.
As we look ahead, the macroeconomic nonres remains uncertain with the krona virus spiking around the globe.
That said the demand for our products and services is growing.
Given that and on the heels of a strong third quarter performance, we are raising our full year guidance for revenue operating margin earnings per share.
We provided guidance on a GAAP basis and listed the items excluded from our adjusted guidance in our press release and 8-K filed today.
Forces, providing fourth quarter 2020 guidance on an adjusted basis as follows Red.
Revenues of 108 million to $116 million.
Operating margin of 8% to 10%.
An effective tax rate of 31%.
And diluted earnings per share of 27 cents to 34 cents.
Our full year 2020 guidance on an adjusted basis is as follows.
Revenues of $437 million to $445 million.
Operating margin of 10.5% to 11.5%.
And effective tax rate of 31% and.
Diluted earnings per share of $1.53 to $1.60.
Thanks, very much and I'm going to turn the call over to the operator for the Q and a portion of the call.
Thank you as a reminder to ask the question you will need to press star one on your telephone switch on your question press the pound key.
First question comes from Andrew Nicholas of William Blair. Your line is now open.
Hi, This is actually Trevor Romeo in for Andrew Thank you for taking our questions.
You.
First it's nice to see the guidance increase which was particularly sizeable on the bottom line I think Kelly gave some helpful. Examples of individual instances, where you've seen when lately I was just kind of wondering if you could broadly some of the most important factors that are giving you confidence to increase guidance relative to where you were last.
Quarter, and if you could talk about maybe some specific areas, where you're seeing the strongest pickup in your pipeline.
Hi, This is Kelly I can at least take the question on the pipeline only questions on guidance to at 10, Mike but in terms of one of the best things. We thought about the quarter was we saw upticks across every single region and across all of our geographies, which I think was very encouraging for us and specifically our premier.
User organization.
Is one that had really struggled I know we've talked previously about there being about 10% of our client base that was in that direct hit from the cobot space that was the organization that took the.
The biggest brunt of it in Q2 and that organization has bounced back really nicely, but I think one of the things were really encouraged by is that we're seeing improvements in pipeline conversion rates retention rates across all of our selling motions.
[laughter] Trevor.
Trevor and this is Mike relative to the guidance I think.
We had I think we mentioned our core from Forrester research product, which is our biggest product had a really good quarter. So thats syndicated revenue that will push out going forward. In addition, we like the backlog of activity. We have in those areas that are currently doing really well content marketing and our strategy consulting business. So.
The confidence level, there and also based on what we're seeing we felt very comfortable pushing our guidance up.
No, it's still going to be a bumpy ride, but I think the numbers we have out there we're pretty comfortable with.
And Trevor George here.
Just a small note that the the velocity around digital has been very surprising to us pretty.
Pretty obvious to us, it's kind of digital or die. So companies that were delaying or accelerating and the efforts the money being spent the capital being spent is pretty a pretty impressive. So that also I think is encouraging us.
Good question. Thank you.
Okay, great Yeah, that's a that's helpful and really good to hear all around.
Just another one on a on the events business I guess now that were one more quarter into the environment that we find ourselves in now just thought I would update or sorry, I would ask for your updated views on kind of the medium term trajectory of that business sounds like you've seen some really positive results with virtual so far but just.
Kind of curious on your thoughts.
On how that business evolves over the next few years. Thank you.
Yeah. Good question. So as you know we were the first we were we did this really quickly we pivoted fast.
We did not canceling events for the year, we were virtually the beginning we'll begin the effort in March 1st huge a the first big event of course was in May.
So we feel very proud of the of the very fast pivot, we made into a into virtual and within tried and tried it has been a terrific platform. Unlike some of our competitors who system new player Who's platforms went down during events that has not happened to us we've had great stability and a great experience. So as we look forward into 2021 forever.
It really three models here there is a pure physical events they were fully virtual Benson the hybrid events.
We are preparing for all three scenarios in 2021.
Beyond 2000, 2020 2021 with the pandemic is over we think we will actually have the ability to have very cool very large virtual events. So that we could have some it physically here in the U.S., but anyone in China or anyone in Asia or Europe could attend that virtually at this simultaneously. So we think.
That we're we're learning some new some new ways to to build events of Runabouts, which will enable us to really drive that business.
Do a good job in 2021, but also to.
To drive even faster the pandemic is over so we.
We've learned a lot because thats, a learning curves and and we're going to use this period, what we learn to really drive this business.
In the next two to three years so.
So expansion not contraction.
Okay, great well, that's all I had for now thank you very much for the color I appreciate it.
Thank you Trevor Thanks Trevor.
Thank you and our next question comes from Vincent Colicchio with Barrington Research. Your line is now open.
Yeah, I guess George or Mike.
What's a are you assuming a continued rapid growth and the reprint revenue content market marketing revenue into Q4, and could you give us more color as far as what's driving that extraordinary growth.
[noise], yeah, so Vince what's going on here is that.
The b to B tech vendors, because all of their events have been canceled or having a lot of difficulty engaging and driving pipelines and driving leads so what's happened is the user they are using our reprint in dollar content marketing to do that so I think I expect this is going to get to your right through Q4, probably through the first half of next year.
What do you guys think.
Yes, George I would agree with that as well and I think that was a big part of the rebound that we saw within the core space I was related to helping to support our b to b clients.
And.
Based on the pipeline you have and then.
What are your thoughts George in terms of when we may see a meaningful improvement in agreement value.
Yes, I mean, we love those businesses cut the marketing referenced those are those are wonderful businesses, but they're really exhaust.
From the from the contract value research businesses, Vince, which were really looking to drive next year.
We still did rather than actually were as Mike said, we're very encouraged by performance in the legacy Porsche research in Q3.
So would love when those businesses, that's not that's not a problem that's not our core primary business.
But we'll take it during during recession during the pandemic.
But we're looking this year, we said a lot of time this year developing new products to drive contract value and formerly called agreement valued contract value next year. So we have we have ambitious plans for next year around driving that business.
[laughter] given some in.
What fee agreement value and also sit in deferred revenue as well is down year over year and that's not surprising given the you know a meaningful hit in the second quarter for just about every business certainly ours, so grim value drops down.
It's a little bit of the hill, we're gonna be climbing as you roll into next year right. As you begin replacing will be those bookings we call syndicated bookings at Green Valley, which will be going to contract for you next year.
As we replace that that will build but.
I think that that's going to be our expectation economically is that the first half is still going to be somewhat uncertain. So we're in a bounce around a little bit. So I think it's going to be we're going to be digging ourselves out with a very I think probably a very pronounced acceleration in the back half of next year.
How were thinking about it right now.
And what are your thoughts on consulting into Q4, and how that could be pretty fairly lumpy and it's been a pretty good growth driver times in the past what do you think what you're thinking there.
Its Vince it's always a wildcard you just you don't know if if the virus spikes.
Or going to curtail activity, but frankly, our consulting team has has figured out how to deliver it in a virtual manner in a very effective way. So I expect that you.
We should have a very very good quarter with consulting we are feeling pretty good about that and to Georges point. This there's a lot of value. We can add this lot of our clients that are really really struggling with some things and they need our help.
Okay Kettlebell event.
Telecom events that.
We what we've learned how to do consulting virtually no really well.
So that business is it's really surprised us this year I mean, not is not doing as well in Asia in Europe, but doing very well here.
[noise] I'll go back in the queue. Thanks, guys.
Thank you and our next question comes from Andre soldiers for my Sidoti. Your line is now open.
Yeah, Hi, Thank you for taking my question and congratulations on a great quarter.
And I wanted to see how you are progressing with this year's decision and cross selling of that and the integration of this house teams that you've been conducting over there.
Yes on yeah. Thank you for the question. So we are definitely seeing improving results on the serious decision side and we like the trajectory that we're on a given the economic headwinds that we have seen improvements in retention rates in the last couple of quarters as well as acceleration of the two various cross sell programs that we have.
In place and are expecting additional sales from that coming into Q4 timeframe just given our cycle time, so making progress not where we would like to be but definitely on a good trajectory there.
Okay. Thank you and are you still expanding the sales team and or are you sort of fully built out and you just need to.
Get that those you have up to speed on.
Sure. So we did expand our head count at the start of the year. So year over year, we do have more sales capacity I'm ever going to remain flexible based on what we see from the market conditions as we head into 2021 with the goal being to be positioned for growth coming into the back half of next year.
Okay. Thank you that was helpful and then.
In terms of that sort of 10% of your clients that I I'm wind a challenge them sectors. So are you engaging with them and how engaging and are you seeing any sort of them active.
Activity at all there.
Are you seeing any change in their activity, we have seen a few come back in the back half of the year, especially those that were in sort of travel space. In particular, so we are starting to have some potential went back opportunities, but some of those clients. So we will continue to engage with them we want to obviously be there to help our clients.
Through these tough economic times I'm sort of tried to be as customer obsessed as we can to help these individuals navigate and we're starting to see some.
Some uptick there and I suspect that we'll have several win backs into 2021 as their businesses start to come back as well.
Okay. Thank you and I will suffer me great. Thank you on yeah.
Thank you and thank you and again, ladies and gentlemen, if you would like to ask a question at this time. Please press Star then one on your touched on telephones and our next question comes from Allen Klee at National Securities Corporation. Your line is now open.
Yes, Hi, My my apology I jumped on late if you mentioned this but.
In terms of your new initiatives with.
Getting more of a balance sheet.
Faster feedback on customer experiences and what you're doing with security could you kind of talk about where.
Where they stand now and where what the path is over the next year.
Hi, Hey, Alan Thanks for joining I'm not quite clear on the question.
I think the gallons going looking at your analyst feedback now and where were the Ted.
Yes.
Yeah, Yeah, I mean, I know you had the numbers, but you were talking about being 1000 locations 16000 endpoints gathering data. So its interesting our love the <unk> the votes coming through feedback now which were in the 600000 range pre pandemic dropdown pretty precipitously of course as you know a lot of it's driven by retail and travel.
Over the last the in Q3 actually that curve best sort of been upward again, we actually can watch traffic through airports and so we're probably back to if 50, 560% of traffic, though a boat traffic moving through the feedback down systems.
I mean, the most exciting thing we did this quarter is we will begin to rollout touchless devices.
So obviously in kind of a pandemic nose go push a button and a bathroom. So we're in a retail store so have to have touchless and we have.
Lot of interest in touch with right now.
So we're not really changing a lot of endpoints you know into the new technology in Q4 and also is in the first half of next year, we think it's really going to be big.
It's going to help us push push against some of the smaller competitors.
Thank you my other question is what.
Where would you say are the key thing key initiatives you have to.
Improve.
Retention numbers in Richmond and number of clients.
Sure. Alan This is Kelly and we are continuing to work on driving our client enrichment through.
Different cross sell efforts that we have so we mentioned our audience centric go to market, which is set up to target five different buying centers. So we're partnering very closely with marketing and to leverage our go to market framework to be able to drive enrichment within our existing clients as well as targeting those same buying centers to drive new business.
Then on the retention side, our customer success team is doubling down its efforts to engage our clients. We've actually automated a number of client journeys to be able to help make sure that we're keeping clients engaged throughout this process and in addition to that part of our sales strategy is positioning more multiyear deals moving forward, which we know.
Over the phone nets of time will help drive our retention rates up so definitely a two pronged approach working to drive retention as well as strategies for driving enrichment and new business and will carry those over into 2021.
Okay. Thank you.
Thank you.
Thank you and ladies and gentlemen, this does conclude our question and answer session I would now like to turn the call back over to Michael Doyle for any closing remarks.
[noise], yeah, thanks, very much and thanks, everyone for joining the call.
What are the Silverline from the pandemic is George and I have spent a lot of time virtually with our investors and Weve had a busy quarter Im looking forward to doing the same in the fourth quarter. So we'll be reaching out and looking for opportunities to to comment talk more about our business and where we're headed thanks very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Good afternoon, and thank you for joining todays call with me today are George Colony, Forresters Chairman of the board and CEO, Kelly <unk> workforce, Chief sales Officer, and Mike Doyle, Forresters, Chief Financial Officer George.
George will open the call Kelly will follow George to discuss sales and Mike Doyle will discuss our financials. We will then open the call for Q1 day, a replay of this call will be available until November 28, 2020, and can be accessed by dialing 855, each 592 056 or four zero.
45373 406, please reference the conference I'd 5894 106 before.
Before we begin I liked your money that this call will contain forward looking statements within the meaning of the private Securities Litigation Reform Act at 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 involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward looking statements. Some of the important factors that could cause actual results to differ are discussed in our reports and filings with the securities and exchange coming.
<unk>.
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 hand, the call over to George colony.
Thanks for being on our third quarter 2020, Investor call I'd, probably give an update on the quarter Kelley Hippler Fourq who's the Chief sales officer will summarize sales results and progress.
Why do I want to see a cold finish up with a financial review of Q3 and full year guidance and then tell me, Mike and I will take questions.
In Q3, we exceeded guidance for revenue and earnings per share, beating revenue by nearly $5 million and EPS by 12 cents.
We are increasing revenue and EPS guidance for the full year.
As I talked about on the Q2 call. The pandemic is increasing demand for research and advice.
The challenges change and disruption lead times are driving client engagement and what I call. It Golden age of research.
We're seeing increasing demand for our call just on four levels number one research that advisors on how to navigate the pandemic.
Do research on structural changes in the workforce in particular, the future of work.
Three research on how to transition to digital development that has been accelerated by the pandemic.
And then finally number four digital tools provided by four through the use by our clients to drive their sales leads and client engagement.
This business has accelerated with repressive growing 37% year over year in Q3 and content marketing increasing 31%.
Year to date, we have seen research readership among active clients increased by 10%.
Webinar, our attendance is up 44%.
You know what the inquiries. This is a 30 to 60 minute client meetings conducted by analysts are up 10% for the year.
Orchard residents. During these times is also being manifested in our events business.
Our virtual events continue to draw large paying audiences and we saw attendance accelerate in the third quarter.
2020, we have held six events, including serious decision summit, CA, North America, and the security and risk for them.
Hey, the tenants that are virtual events top 2019 physical events.
11%.
Feedback scores continue to outpace scores for physical events.
In the second and third quarters, there were nearly 170000 views upstream session.
He back though is fortress venture to enable companies to measure and improve the experience in real time.
Our technology is deployed in over 1000 locations worldwide gathering data from over 18000, physical and digital influence.
You are currently rolling out new touchless devices, and digital people counters to help our clients improve their experiences during the pandemic.
So to conclude on products are sort of vacation business grew 24% year over year as companies continue to use these times to improve the skills of their teams you need to be marketing and also in customer experience.
It's foerster moved into 2021, you're looking to grow our contract value products in particular fourth are in serious decisions research.
To stimulate our CV sales pipeline for the year ahead, we create predictions and planning assumption documents and I wanted to highlight a few here.
And the buyer behavior space, we believe that social distancing will probably will pop to consumers to experiment with immersive virtual experiences in the coming year 12.
Well were set of U.S. all in adults with Paramount was augmented or virtual reality and 2021, expanding overall A.R.V. our exposure to nearly half the U.S. online population.
In the marketing space marketers will double down on retention and loyalty.
75% of VTB markers will focus demand generation tactics of retention and enrichment in 2021, and that's up from 59% in 2020.
He didn't see marketers will spend 30% more loyalty and retention efforts driving a 40% spike in E mail and mobile messaging.
In the cyber security space, we're finding that pandemic related uncertainty remote working conditions and employee errors are going to intersect to create it to create the ideal conditions for social tax.
One third of security breaches in 2021 will be caused like insider threats.
And then finally in the cloud space, we now predicts that the global public cloud infrastructure market will grow 35% in 2000 $21 billion to $120 billion and that Ali Baba cloud will pick a number three revenue spot globally. After it'd be a W. S and azure.
The report projects that many large companies will shift select portions of the cloud traffic toward a new architecture edge computing.
To better serve local customers.
This trend is going to slow the growth of public cloud and Usher in a new group of edge computing Tech vendors.
The full portfolio prediction and planning assumption documents will be online by yearend.
Turning now to fourth first financial position, we continue to flow free cash with our cash position position at quarter end at $73 million.
Year to date, we have generated 29.2 million in cash and in 2020, we have reduced our debt obligation by $21 million.
So to conclude.
Forrester is navigating its way through the pandemic and recession.
Our clients are challenged by macroeconomic conditions and 10% are highly challenged.
Now that said companies are turning to for her to widen the digital footprints.
Life sales marketing and product improve ceocs improved employee experience and sharpen their customer obsession. So yes. These are demanding times, but they are stimulating a golden age of research as companies look for answers in a changing world.
Four to remain financially sound and we are using these times to develop new products that will position the company to accelerate as the pandemic and recession began to clear.
So I hope that you are all staying well, let your families are safe and now ill pass the call over to Kelley Hippler, Forresters Chief sales Officer Kelly.
Thank you chart.
I'm pleased to share that the positive momentum we saw in Jan carried into Q3.
We're both proud and appreciative of the hard work our forced her team members across the globe have been doing to support our clients. During this unprecedented times.
In Q3 bookings performance improved across all geographies and selling motions first as Q2.
Most notably both our core organization, which sells to high tech clients and prospects below $1 billion in revenue and our premier user teams in the United States rebounded strongly.
As George mentioned, we are in the Golden age of research clients need Forresters insights now more than ever to help them navigate change innovate and grow.
For example in India, one of the regions hardest hit by the pandemic, we just signed a multi year higher growth agreement with one of our clients for $1.6 million over two years.
The pivots, we put in place in April has helped us to steadily improve results. Despite the continued economic headwinds. These initiatives include number one shifting focus to strongest market opportunities. We stood up a cross functional pipeline acceleration program to align resources across the Forrester Eco says.
Stem to where we are best positioned to drive value for our clients.
This program included hot topics, such as Coke at 19 responses management customer experience digital experience employee experience and demand generation.
We had a nearly $500000 digital user experience project win but the $50 billion Global Commerce client what started as an inquiry with a forrester analyst evolved into a full digital user experience review of 22 sites in the United States, the United Kingdom across seven persona.
Our high tech clients depend on forced her to support content creation and demand has increased as other traditional lead sources like in person events are no longer available to them.
One example, we partnered with one of our clients to create a demand program leveraging forresters total economic impact or T.I. methodology valued at over $500000.
To move to all virtual events Forresters pivot to all virtual events has enabled us to deliver on our events calendar for 2020.
Events play a central role in strengthening the overall relationship that clients have with Forrester.
Our virtual events have given us the opportunity to stay connected with clients and showcase our thought leadership with positive results. Our events continue to accelerate pipeline building and help to secure renewals.
Number three conducted more sales training.
In July and August we held our annual H two strategy workshops, we leverage these virtual workshops to share best practices on topics like social selling and the use of video and prospecting and client engagement.
We also conducted additional training on our audience centric buyer persona approach to enable us to capitalize on the efforts of marketing.
And number four we drink our own Champagne, we continue to leverage our research and frameworks to improve alignment across our organization.
This includes shifting our team to be digital sellers.
Principal analyst Mary Shay had correctly predicted that 2020 would be the year of digital selling and she said this before the pandemic cat.
Now that we are all digital sellers were having more meaningful and authentic interactions with our clients and prospects who are literally inviting us into their homes.
We're working with our team to make sure that we are well prepared doing our homework and are respectful of their time.
As planning for 2021 continues we are leveraging our serious decisions sales planning methodology and have built a bottoms up sales capacity model, we have calculated our lifetime value and client acquisition cost to guide future investment decisions.
We are focused on our core value proposition of helping business and technology leaders create customer obsessed organizations that drive growth.
Our own research shows that customer experience differentiation is the key to post pandemic success, and we will continue 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, Kelly not going to review Forresters financial performance for the third quarter of 2020.
You know look at our financial results the balance sheet at September Thirtyth, our third quarter metrics and the outlook for the fourth quarter and full year of 2020.
Please note that the income statement figures review on this call our non-GAAP results, which we referred to as adjusted results and exclude those items mentioned in our press release today.
For the third quarter Forrester delivered adjusted revenue operating profit and earnings per share that exceeded the upper end of guidance.
Despite a challenging unpredictable environment, we continue to see resiliency in many parts of our business.
Our reprints you content marketing often offerings continue to lead the way in the third quarter growing by double digits for the third consecutive quarter.
Our core Forrester research service, an executive programs of both outperformed expectations as clients need help navigating challenging times and planning for the future.
The stronger product results helped offset some of the revenue pressure, we're experiencing other services due to sales declines earlier in the year.
Expenses remain in check driven by lower TNT and event expenses due to travel restrictions.
Combination of better than expected revenue and continued tight expense management resulted in both operating margin and EPS exceeding expectations.
As we look forward to the fourth quarter, we continue to expect an uncertain macroeconomic environment.
Well, we are experiencing increased demand for both our research and consulting services and as a result, we are raising our full year guidance for revenue operating profit and EPS.
For sales and operating organizations have done an excellent job adapting to the pandemic and continued to execute well despite the macroeconomic headwinds.
Now, let me turn to a more detailed review of our third quarter results.
Third quarter revenue decreased by 1% compared to the third quarter of last year research revenue declined by 4% consulting revenue increased by 6% and events revenue decreased by 21%.
Operating expenses for the third quarter increased by 1% driven by higher headcount and merit increases that Richard earlier in the year as well as the restoration of certain employee benefits that were previously deferred as cost savings measures.
These increases were materially offset by lower travel and entertainment expenses due to travel restrictions lower professional services and lower events production cost due to our move to virtual events.
Overall headcount increased 2% compared to the third quarter of 2019.
Operating income was $8.2 million or 7.6% of revenue compared to $11.1 million or 10.1% of revenue in the third quarter of 2019.
Interest expense for the quarter was 1.3 million as compared to 1.9 million in the third 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 4.6 million and earnings per share was 24 cents compared with net income up six and a half million and earnings per share of 34 cents in the third quarter 2019.
Our business is key metrics continue to reflect the challenging environment in which we're operating to the cope with 19 pandemic.
Agreement value client count retention and enrichment declined compared to last year.
However, we did see stabilization across all metrics compared to the prior quarter.
Provided detailed in todays earnings release.
Now I'd like to review the balance sheet.
Cash at September Thirtyth, 2020 was 73 million, which is an increase of 5.1 million from the end of 2019.
Cash from operations was 4.2 million for the quarter as compared to 12.1 million in third quarter of last year.
For the first nine months of 2020, we generated 29.2 million cash from operations, which we are pleased with in this economic environment.
Debt payments were 2.3 million during the quarter and $21 million for the nine month period, which includes 14 million paying a payments to fully pay down our line of credit.
Property and equipment purchases were 2.2 million for the quarter compared with 3.7 billion in the third quarter of last year.
Accounts receivable at September Thirtyth, 2020 was $54.1 billion compared to 54.6 million as of September Thirtyth 2019, with accounts receivable over 90 days at 5% September Thirtyth 2020, compared to 6% as of September Thirtyth 2019.
I am very happy with our collections performance in this difficult economic environment.
Deferred revenue at September Thirtyth, 2020 was $155.4 million decrease of 7% compared to September Thirtyth 2019.
[music].
In summary, we had a stronger quarter than expected.
The momentum we saw in her business late in the second quarter continued in the third quarter with continued double digit growth performance from our reprints and content marketing products.
Our consulting business performed well and we had better than expected performance from our core Forrester research product.
Client metrics are stabilizing and our balance sheet remains healthy.
Despite constrained budgets our clients are valued in our research content and advisory services to help them navigate this challenging business environment.
As we look ahead to me.
Sacroc and whatnot remains uncertain with the krona virus spiking around the globe.
That said the demand for our products and services is growing.
Given that and on the heels of a strong third quarter performance, we are raising our full year guidance for revenue operating margin earnings per share.
We provided guidance on a GAAP basis and listed the items excluded from our adjusted guidance in our press release and 8-K filed today.
First just riding fourth quarter 2020 guidance on an adjusted basis is as follows.
Revenues of 108 million to 116 million.
Operating margin of 8% to 10%.
An effective tax rate of 31%.
Diluted earnings per share of 27 cents to 34 cents.
Our full year 2020 guidance on an adjusted basis is as follows.
Revenues of 437 million to 445 million.
Operating margin of 10.5% to 11.5%.
The effective tax rate of 31% and.
Diluted earnings per share of $1.53 to $1.60.
Thanks, very much and I'm going to turn the call over to the operator for the Q and a portion of the call.
Thank you as a reminder to ask the question you will need to press star one on your telephone switch.
Your question press the pound key <unk> first question comes from Andrew Nicholas of William Blair. Your line is now open.
Hi, This is actually Trevor Romeo in for Andrew Thank you for taking our questions.
Q.
First it's nice to see the guidance increase which was particularly sizeable on the bottom line I think Kelly gave some helpful. Examples of individual instances, where you've seen when lately I was just kind of wondering if you could broadly sum up the most important factors that are giving you confidence to increase guidance relative to where you were last.
Quarter, and if you could talk about maybe some specific areas, where you're seeing the strongest pickup in your pipeline.
Hi, This is Kelly I can at least take the question on the pipeline all the questions on guidance to 10, Mike but in terms of one of the best things. We thought about the quarter was we saw upticks across every single region and across all of our geographies, which I think was very encouraging for us and specifically our premier.
User organization is one that had really struggled I know we've talked previously about there being about 10% of our client base that was in that direct hit from the cobot space that was the organization that took.
The biggest brunt of it in Q2 and that organization has bounced back really nicely, but I think one of the things were really encouraged by is that we're seeing improvements in pipeline conversion rates retention rates across all of our selling motions.
[laughter] Trevor and this is Mike relative to the guidance I think.
You know we had I think we mentioned our core Forrester research product, which is our biggest product had a really good quarter. So that's syndicated revenue that will push out going forward. In addition, we like the backlog of activity. We have in those areas that are currently doing really well content marketing and our strategy consulting business. So.
The confidence level, there and also based on what we're seeing we felt very comfortable pushing our guidance up.
Now we know it's still going to be a bumpy ride, but I think the numbers we have out there.
We're pretty comfortable with.
And Trevor George here or just.
Just a small note that the velocity.
Velocity around digital has been very surprising to us it's pretty obvious to us it's kind of digital or die. So companies that were delaying or accelerating and does the efforts the money being spent the capital being spent is pretty a pretty impressive. So that also I think is encouraging us.
Good question. Thank you.
Okay, great Yeah, that's a that's helpful and really good to hear all around.
Just another one on a on the events business I guess now that were one more quarter into the environment that we find ourselves in now just thought I would up they are sorry, I would ask for your updated views on kind of the medium term trajectory of that business sounds like you've seen some really positive results with virtual so far but just.
Kind of curious on your thoughts.
On how that business evolves over the next few years. Thank you yeah.
Yeah. Good question. So as you know we were the first we were we did this really quickly we pivoted fast we.
We did not canceling events for the year, we were virtually the beginning I will begin the effort in March 1st huge a the first big event of course was in May.
So we feel very proud of the of the very fast pivot, we made into a into virtual and within tried and tried it has been a terrific platform. Unlike some of our competitors who system plus who's platforms went down during events that is what happened to us we've had great stability in the grid experience. So as we look forward into 2021 Trevor.
It really three models here, there's a there are physical events there were fully virtual that's in the hybrid events.
We are preparing for all three scenarios in 2021.
Beyond 20, 2020 2021 with the pandemic is over we think we will actually have the ability to have very cool very large virtual events. So that we could have something physically here in the U.S., but anyone in China already more than in Asia or Europe could attend that virtually at this simultaneously. So we think.
We're we're learning some new some new ways to to build events of Runabouts, which will enable us to really drive that business.
Do a good job in 2021, but also.
To drive even faster depend demick is over so you.
You know we've learned a lot because thats the learning curves and and we're going to use this period, what we learn to really drive this business.
In the next two to three years so.
So expansion not contraction.
Okay, great well, that's all I had pronounced so thank you very much for the color I appreciate it.
Thank you Robert Thanks Trevor.
Thank you and our next question comes from Vincent Colicchio Barrington Research. Your line is now open.
Yeah, I guess, George or Mike what so are you assuming a continued rapid growth and the reprint revenue content market marketing revenue into Q4, and could you give us more color as far as what's driving that extraordinary growth.
[noise], yeah, so Vince what's going on here is that.
The b to B tech vendors, because all of their events have been canceled or having a lot of difficulty engaging and driving pipelines and driving leads so what's happened is the U.S, they're using our reprint in dollar content marketing to do that so I think I expect this is going to continue right through Q4, probably through the first half of next year.
What do you guys think.
Yeah.
Yes, George I would agree with that as well and I think that was a big part of the rebound that we saw within the core space I was related to helping to support our b to b clients.
And based on the pipeline you have and then what are your thoughts George in terms of when we may see a meaningful improvement in agreement value.
Yeah, I mean, we love those businesses cut the marketing a reference those are those are wonderful businesses, but they're really exhaust from the from the contract value research businesses, Vince which were really looking to drive next year and we were always looking to drive that actually were as Mike said, we're very encouraged by performance in the legacy Porsche research.
Q3.
So were glad were those businesses that's not that's not a problem that's not our core primary business.
But we'll take it during during recession during independently.
But we're looking at this year, we said a lot of time this year developing new products to drive contract value and formerly called agreement valued contract value next year. So.
We have we have ambitious plans predicts you're around driving that business.
[laughter] given something.
What fee agreement value and also sit in deferred revenue as well is down year over year and that's not surprising given the you know a meaningful hit in the second quarter for just about every business and certainly ours. So [noise] green value drops down such a little bit of the hill, we're gonna be climbing as you roll into next year right as you begin replacing.
Well be those bookings, we call syndicated bookings Green valley, which will be going to contract by your next year.
As we replace that that will build but you know I think that that's going to be our expectation economically is that the first half is still going to be somewhat uncertain sort of bounce around a little bit. So I think it's going to be we're going to be digging ourselves out with a very I think probably a very pronounced acceleration in the back half of next year. That's how we're thinking about it right now.
And what are your thoughts on consulting into Q4, and how that could be pretty fairly lumpy and it's been a pretty good growth driver times in the past what do you think we should take from there.
It's you know Vince it's always a wildcard you know you just don't know if that if the virus spikes or going to curtail activity, but frankly, our consulting team has has figured out how to deliver it in a virtual manner in a very effective way. So I expect that you know.
We should have a very very good quarter with consulting we are feeling pretty good about that and to Georges point. This there's a lot of value. We can add this lot of our clients that are really really struggling with some things and they need our help.
[laughter].
But I like event with.
Telecom event, then we what we've learned how to do consulting virtually no really well.
So that business is it's really surprised us this year I mean, not a not doing as well in Asia, and Europe, but doing very well here.
I'll go back in the queue. Thanks, guys.
Thank you and our next question comes from Andre centers for my Sidoti. Your line is now open.
Yeah, Hi, Thank you for taking my question and congratulations on the great quarter.
And I want to see how you are progressing with this year's decision and cross selling of that and integration of this house teams that you've been conducting over there.
Yes on your thank you for the question. So we are definitely seeing improving results on the serious decision side and we like the trajectory that we're on a given the economic headwinds that we have seen improvements in retention rates in the last couple of quarters as well as acceleration of that to various cross sell programs that we have.
In place and are expecting additional sales from that coming into Q4 timeframe just given our cycle time, so making progress not where we would like to be but definitely on a good trajectory there.
Okay. Thank you and are you still expanding the sales team and or are you sort of fully built out and you just need to.
Get that those you have up to speed on.
Sure. So we did expand our head count at the start of the year. So year over year, we do have more sales capacity I'm ever going to remain flexible based on what we see from the market conditions as we head into 2021 with the goal being to be positioned for growth coming into the back half of next year.
Okay. Thank you that was helpful and then.
In terms of that sort of 10% of your clients that wind a challenged sectors. So are you engaging with them and how engaging <unk> and are you seeing any sort of them active.
Activity at all there.
Are you seeing any change in their activity, we have seen a few come back in the back half of the year, especially those that were in sort of travel space. In particular, so we are starting to have some potential went back opportunities, but some of those clients. So we will continue to engage with them. We want to obviously be there to help our CLI.
Science through these tough economic times I'm sort of tried to be as customer obsessed as we can to help these individuals navigate and were starting to see some uptick there and I suspect that well have several win backs into 2021 as their businesses start to come back as well.
Okay. Thank you know that well enough for me great. Thank you on yeah.
Thank you and thank you and again, ladies and gentlemen, if you would like to ask a question at this time. Please press Star then one on your touched on telephones and our next question comes from Allen Klee at National Securities Corporation. Your line is now open.
Yes, Hi, My my apology I jumped on late if you mentioned this but.
In terms of your new initiatives with.
Getting more of a balance sheet.
Faster feedback on customer experiences and what you're doing with security could you kind of talk about where they stand now and where what the path is over the next year.
Hi, Hey, Alan Thanks.
Thanks for joining I'm not quite clear on the question.
I think the gallons going looking at your tenant feedback now and where that is headed.
Yes, yes.
Yeah, Yeah, I mean, I know if you have the numbers, but you were talking about being 1000 locations 16000 endpoints gathering data. So its interesting our loved the <unk> the votes coming through feedback now.
Which were in the 600000 range pre pandemic dropdown pretty precipitously of course as you know a lot of it's driven by retail and travel.
Over the last in Q3 actually that curve, that's sort of been upward again, we actually can watch.
Traffic through airports and so we'll probably back to if 50, 560% of traffic, though a boat traffic moving through the feedback down systems.
I mean, the most exciting thing we did this quarter is we will begin to rollout touchless devices.
So obviously in kind of a pandemic nose go push a button in the bathroom. So we're in a retail store so have to have touchless and we have a lot of interest in touch with right now.
So we're not really changing a lot of endpoints you know into the new technology in Q4 and also is.
As in the first half of next year, we think it's really going to be big.
It's going to help us push push against some of the smaller competitors.
Thank you my other question is where.
Where would you say are the key thing key initiatives you have.
To improve retention.
Retention numbers in Richmond and number of clients.
Sure. Alan This is Kelly and we are continuing to work on driving our client enrichment through different cross sell efforts that we have so we mentioned our audience centric go to market, which is set up to target five different buying centers.
Our partnering very closely with marketing to leverage our go to market framework to be able to drive enrichment within our existing clients as well as targeting those same buying centers to drive new business and then on the retention side, our customer success team is doubling down its efforts to engage our clients, we've actually automated a number of claims.
In journeys to be able to help make sure that we're keeping clients engaged throughout this process and in addition to that part of our sales strategy is positioning more multiyear deals moving forward, which we know over the phone nets of time will help drive our retention rates up so definitely a two pronged approach working to drive retention as well as strategies for driving enriched.
Current and new business and will carry those over into 2021.
Okay. Thank you.
Thank you.
Thank you and ladies and gentlemen, this does conclude our question and answer session I would now like to turn the call back over to Michael Doyle for any closing remarks.
[noise], yeah, thanks, very much and thanks, everyone for joining the call what are the Silverline from the pandemic is George and I have spent a lot of time virtually with our investors and Weve had a busy quarter and we're looking forward to doing the same in the fourth quarter. So we'll be reaching out and looking for opportunities to come and talk more about our bid.
Yes, and where we're headed thanks very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.