Q3 2021 Forrester Research Inc Earnings Call
Today's conference is scheduled to begin shortly please continue to standby and thank you for your patience again todays conference is scheduled to begin shortly thank you for your patience and please continue to standby.
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Good afternoon. Thank you for joining today's call with me today are George colony Forester as chairman of the board and CEO Kelley.
Hitler Forester, Chief sales officer, and Kristin Foresters, New Chief Financial Officer.
George will open the call Kelley will follow George to provide a sales update and Chris will discuss our financials.
Well then open the call to Q&A.
Carrie Johnson, Chief Research Officer, and Scott <unk>, Chief Accounting Officer, and Treasurer will join us for the Q&A portion of the call.
A replay of this call will be available until December 3rd 2021 and can be accessed by dialing 8558592056 or 4045 37 3406. Please reference the meeting conference I D.
4698681.
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 there.
These forward looking statements. These statements are based on the company's current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward looking statements. Some of the important factors that could cause actual.
Else to differ are discussed in our reports and filings with the Securities and Exchange Commission the.
The company undertakes no obligation to update publicly any forward looking statements, whether as a result of new information future events or otherwise.
I will now hand, the call over to George colony.
Thanks for joining for <unk> 2021 Q3 investor call.
I want to welcome Kelley, Chris Cary and Scott.
I'll, let Chris introduce himself in a few moments, but I want to say that we're very excited to have him on our team.
He is a highly sought after talent, who has deep experience scaling global companies and building World class Finance teams.
He is an expert at optimizing recurring revenue models, making him a perfect fit to help forester build and optimize its CV growth engine.
He has worked with investors in his previous assignments and he has a good understanding of what you will need to stay current with Foresters story. So welcome Chris.
Forester delivered another outstanding quarter in Q3 marks the fifth consecutive quarter of CV growth.
The company is excelling on many levels and we are excited about our expanding prospects and future.
In Q3, we exceeded guidance for revenue margin and EPS and are raising guidance for the third time this year.
Contract value year over year increased 12% with net contract value increase or N C b I of $35 million.
Operating income was up 54% and earnings per share grew 71% year over year.
Wallet retention was at 99% and client retention increased to 78%.
So we're very pleased that performance in 2021, and a laser focus on growing CV is yielding results.
Now the broader economy is also working in our favor.
Number one the technology World has never been more dynamic with Ipos running at record numbers maturing technologies like crypto currencies challenging large companies to increase their tech IQ and.
And new models like edge computing changing market structure.
Two buyers have new demands and requirements, winning serving and retaining them requires a higher level of customer obsession.
Three it's a digital or die moment with laggard organizations, recognizing that they can no longer be followers market share will be in danger and.
And for the pandemic is changing the way companies operate the future of work is arriving now.
All of these factors are fueling the Golden age of research.
Companies and governments require a continuous stream of guidance and analysis to develop strategy and operate efficiently and that's what we do.
I'd now like to give an update on our research business.
In Q3 research showed strong double digit bookings growth.
British products continued to grow at robust double digit rates alongside the transition to forester decisions.
Forester decisions, our new core research product.
Launched in August and is off to an excellent start.
As we talked about on the Q1 and Q2 calls forester decisions combines the best of Forrester research the best of Sirius decisions research and analytics certification and benchmarks.
Unlike competitive offerings that separate technology from business Forester decisions helps organizations directly apply technology to their operations.
It is a unique unparalleled portfolio, helping companies see the future make the right tech decisions and execute brilliantly every day.
It includes 15 different research services, serving specific functional leaders and their teams.
We will be continually enhancing and adding value to forester decisions. This will enable forester to drive wallet retention above 100%.
So how is the product doing.
By the end of Q3, there were 100 forester decisions clients double what we had internally forecast.
The two most popular services, where customer experience and BTB marketing and all 15 services have clients.
100% of seats acquired are showing high engagement, meaning that they have rather report a tenant a webinar or event or engage with analysts for guidance kickoff or guidance session.
Session duration, that's the time spent in the product is up 27% over the legacy research products.
Clients are visiting 11% more pages in staying in those pages longer time spent on pages is now up 20%.
76% of clients gave forester decisions, a green feedback now score and that's in the very good range for web content.
Clients upgrading into forester decisions had on average N T V I of 46% foreign excess of the legacy Forrester and Sirius decisions research products.
Average discounting was zero percent, an early indicator of the perceived value of the products.
The Q4 in 2022 sales pipelines proportional decisions are strong.
An early win with Forester decisions is its architecture.
Each services built around five to seven client priorities that were identified through hundreds of client interviews.
As an example, the customer experience services, driven by six priorities, including one design experiences that drive loyalty and to embed customer insights into the business.
Priority is enable our sales force to simply explain each service and they form a clear agenda for our research teams ensuring relevancy.
That was Carrie mentioned last quarter, we expect forester decisions to revolutionize our CV business in three important ways, one by improving our sales velocity with a product that's easier to buy and easier to sell.
Two by improving wallet retention with a stickier research product and three by growing our capacity to close multi year deals and we've seen all three factors at work in the early days of the product.
Turning to our non CV products, which as you know enhance our ability to grow CV consulting continued its strong 2021 performance led by international strategy consulting and content marketing.
Revenue backlog is at an all time high going into Q4 with.
We continue to improve the quality of our virtual events and satisfaction scores improved in the third quarter.
We are preparing to move into a hybrid events in 2022 and are expected to be in person in the second quarter of next year.
Calls Ive talked about how for sure is building a CV growth engine, which will drive shareholder value.
Simply stated this model grows contract value, which increases cash flow, which is then invested in sales and marketing product development and acquisitions.
Better sales engine armed with better products increases CV, even further continuing the cycle forward.
The company has made much progress in 2021 refining this model with sales and marketing focused on CV expansion and our product group, creating Porsche decisions as we complete 2021 and move toward 2022, we're managing head count to ensure that our economic engine continues to operate effectively.
Now as you know and the difficult business environment of 2020, we chose to be employee first retaining our full head count.
This gave us an advantage as it strengthen our culture and enable us to go on the offensive in the latter half of 2020 and revolutionize our research portfolio.
Now that being said like all companies, we have had higher than average attrition in 2021 Annualizing for us at 23% and that's two percentage points above 2019.
To assure that our CV growth engine can perform in 2022 we are aggressively hiring.
This year, we have brought 300 do for shreds into the company and we've built this talent acquisition team that is prepared to grow our staff to the head count that we will need next year.
The great resignation as actually bringing good new talent to our door executives that want to move into technology research in the business of helping large organizations make the right decisions.
Unfortunately continues to be a destination place to work based on our high Glassdoor scores over the last three years.
Our strong brand client focused innovative culture and career growth are helping us attract the best and the brightest.
We've had an increased number of what we called Boomerang, who joined the company and these are former employees are returning to forester for a second assignment.
So in my remarks, I am very happy with our progress. This year, we are winning and retaining clients at unprecedented rates and our contract value is growing at double digits.
The company continues its pivot to become a formidable CV growth engine when they can serve clients in new ways and in so doing enhance shareholder value.
I am very proud of the achievements of all force rates in 'twenty, 'twenty, one, but especially how quickly and seamlessly they have constructed our new model.
Now a big part of our story. This year has been Kelley hippler, our head of sales and now I would like to welcome her to the call Kelley.
Thank you George Forester delivered another very strong quarter through our laser focus on targeting five key buying centers at client company technology marketing customer experience sales and product.
Our sales teams have been very successful in selling these functional leaders and their teams how forester vision strategy and execution research can help address their most pressing priorities.
Clients Trust forester to be on their side and by their side, helping to drive major business transformation and accelerate growth.
This is resulted in our fifth consecutive quarter of CV bookings growth.
We've gone through a healthy mix of new client acquisition and retention cross sell and upsell.
Customer retention continues to improve coming out of the pandemic.
Our trailing 12 months client retention rate has improved to 78% and our wallet retention reached 99%.
We're also continuing to build long term client relationships.
Our premier clients have an average tenure of seven years.
In addition investments that we've made in our customer success organization over the last 18 months are paying off.
Our latest CX index scores have increased by three points, which is a statistically significant job and is also a strong indicator of customer loyalty and satisfaction.
I want to share highlights of our first two months selling the new forester decisions portfolio.
We think Q2, ensuring our sales and support teams were ready when the product launched in August, which got us off to a fast start.
While the product has only been available for a short time, we're seeing good signals that clients see the value in the new product and will upgrade to forester decisions and little sign multi year contracts.
Here are the top reasons, we're hearing from our clients about why they selected forester decisions number one forester decisions outcome oriented approach is resonating with clients as George mentioned each service is built around addressing five to seven key priorities with a deep set of research data tools frameworks benchmark.
Certification guidance sessions and more to help solve these priorities.
And the renewal process with one U S financial services client. This priority approach helped us elevate the conversation to the office of the chairman the V. P of customer experience and the VP of strategy to share our point of view on customer experience the client renewed an upgraded to forester decisions because of our focus on outcomes.
They saw how guidance sessions will offer a more hands on time with experts to guide progress on their work. They also appreciated how data can be organically leverage just part of the service.
Forester decisions focused on outcomes also helped us enrich a single seat relationship into a multiyear win worth over $250000 annually with a technology arm of a U S utility company after.
After successful delivery of two consulting projects, we displaced a competitor and signed a multiyear research contract to help their I T team focused on the following priorities.
Deliver a high performing organization and bad privacy and cyber security in the company and modernized with cloud a new computing architectures.
The second key theme, we are saying is that clients see value in a unified platform. One example is a north American client win back his top priority is to differentiate on customer experience as they convert their retail clients to digital.
A key selling point for them with forester decisions by the inclusion of consumer data as part of the integrated research platform.
The client was thrilled with the insights they will be receiving.
Another example of the value of a unified platform with a Q3 win with a client who previously had access to both forester and Sirius decisions research.
This client upgraded multiple contracts to forester decisions with access, including BTB marketing executive demand in a b M sales operation sales enablement, CX and marketing operations services are.
A key benefit they saw the new offering with certification being included with the platform, which will help ensure a common language and approach as they work to upscale their team.
A third key theme clients see value in using forester services to help align multiple functions across their organization.
Our research shows that organizations that are aligned across functions achieve better business results.
When our clients are aligned using forester research across sales product and marketing teams for example, they achieved 19% faster revenue growth and 15% higher profitability.
Cross company alignment is the reason why our global hosting service company selected nine Forester decision services in Q3.
Moving to Forester decisions was the perfect solution for them to support the vision and execution needed to consolidate new acquisitions revisit organizational design make key technology decisions and bring new offerings to market.
Building on an existing client relationship with the CMO, we were able to cross sell additional services for sales operations sales enablement customer experience and product marketing. In addition, the CMO expanded her contract to include the full suite of marketing services.
These initial months selling forester decisions is giving our sales team confidence and it's making them excited to bring forester decisions into renewal conversations as George mentioned, the unified portfolio not only benefits clients that makes it easier for our teams to sell the value proposition is clear and simplifies the job.
Our sales organization to focus on a platform sale rather than selling in multiple smaller products.
Looking ahead to Q4 in 2022 strategically we continue to grow our sales and customer success teams as well as invest in tools and training to increase their productivity.
We're looking to expand our number of quota carriers by high single digits for 2022.
We are aggressively ramping headcount in Q4 to support future 2022 growth.
Forrester continues to attract outstanding talent, we've long been known for our strong culture.
Forester is a glassdoor best place to work and George was recognized at the Glassdoor top CEO in 2020 one.
With our focus on diversity and inclusion ESG competitive pay flex work and career growth opportunities Forester is a destination workplace.
And with that I will turn the call over to Forester as Chief Financial Officer, Chris Finn.
Thanks, Kelly before I review, our financial performance in detail I, just want to say, thank you to George for the introduction.
I'm incredibly excited to join Forester during what I believe is a truly transformational period in the history of the company.
The transformation made possible by the strategic acquisition of Sirius decisions, which resulted in the development of our new product platform forester decisions.
Coming from a technology and SaaS background I was attractive forester for five key reasons number one the massive market opportunity.
Number two forester is attractive recurring revenue business.
Number three the focus on double digit CV and revenue growth.
Number four the development and successful launch of Forester decisions.
And finally number five a great leadership team focused on growth.
During my first six weeks with the company I've met with many of our employees across the organization and its clear we have tight alignment at all levels within the business around our strategy.
And the evidence of that is manifesting itself in our performance we are executing at a high level and a critical part of my role will be to keep us focused on operational execution against our goals and continuing our momentum.
I'll now review Forest, whose financial performance for the third quarter, our quarterly metrics and our guidance for the fourth quarter and full year 2021.
Please note that the income statement figures. We review on this call are non-GAAP results, which we referred to as adjusted results. We have provided a reconciliation of our GAAP results to our adjusted results in our press release that we issued today.
As George mentioned, we had another great quarter, which was headlined by the launch of our new flagship product forester decisions and the fact that we grew CV by 12% achieving our goal of double digit growth ahead of our internal plan. Moreover.
Moreover, we delivered revenue operating margin and earnings per share that exceeded our guidance range.
Overall revenues increased 9% compared to the third quarter of last year.
And 10% on a year to date basis, driven by healthy growth in research, our CV business and in consulting we continue to see momentum in the business with demand for our research services showing in our CV growth.
And consulting revenues continuing to outperform expectations.
And we continue to generate significant cash flow with operating cash flow of approximately $85 million for the first nine months of 2021.
We also completed an additional $8 million of stock repurchases within the quarter and our board has authorized an additional $50 million in repurchases, bringing the repurchase authorization close to $100 million.
We are confident that our results continue to indicate fundamental strength in our business and in our performance for the remainder of the year.
We are therefore, raising guidance for revenue operating margin and EPS, which I will describe in more detail shortly.
Turning to the results for the quarter research revenues were up 7% compared to the third quarter of 2020.
CV growth was 12% compared to Q3 of 2020.
And we have seen five straight quarters of sequential growth in CV.
Similar to CV, we have experienced a sequential upward trend in wallet and client retention from a low in Q3 of last year and client count has increased steadily from Q3 of last year.
Consulting revenue increased 13% compared to the prior year with continued strength in both our content marketing and strategy offerings.
Event revenue declined 23% compared to the third quarter of 2020, due primarily to shifting a larger event into the fourth quarter and holding a smaller event and its place in the third quarter.
Currency rates improved our overall revenue growth by about one percentage point compared to the prior year.
Operating expenses for the third quarter increased by 5% driven by higher bonuses Merit and promotion and increased professional services, which were partially offset by lower head count.
Ending head count was down 3% compared to the third quarter of 2020.
Operating income increased by 54% to $12 $7 million or 10, 7% of revenue in the current quarter compared to $8 $2 million or seven 6% of revenue in the third quarter of 2020.
Interest expense for the quarter was $1 $1 million as compared to $1 $3 million in the third quarter of 2020 due to reduced debt levels.
Net income and earnings per share both increased by 71% compared to Q3 of last year.
With net income coming in at $7 $9 million in EPS at 41 cents for the current quarter compared with net income of $4 $6 million and earnings per share of 24 cents in the third quarter of 2020.
Cash flow from operating activities was $14 9 million for the quarter and $85 million for the first nine months of 2021.
The $85 million of cash flow, representing an increase of 191% from the prior period.
Capex was $4 $6 million for the quarter and $9 $8 million for the nine months and we ended the quarter with over $146 million of cash and investments on the balance sheet.
In summary, we had a great quarter with double digit CV growth, along with revenue and earnings that exceeded our expectations, our client count and retention metrics continue to trend upwards and our cash flow was at a record level.
In addition, we accelerated our stock buyback program this quarter and plan to continue to buy Opportunistically.
Our products and engagement model are resonating with our clients and with forester decisions off to a fast start this will allow us to sustain momentum in the business and increase our engagement with our clients.
Now turning to our fourth quarter and full year 2021 updated outlook, despite having to hold our fourth quarter events in a virtual format. We have raised our full year guidance ranges on revenue margin and EPS.
This is a result of the continued momentum we see building in the broader business.
We have provided guidance on a GAAP basis and listed the items excluded from our adjusted guidance in our press release and 8-K filed today.
Our fourth quarter 2021 guidance on an adjusted basis is as follows revenues of $131 million to $136 million.
Operating margin of 12% to 14%.
An effective tax rate of 31% and diluted earnings per share of 53 to.
59.
Our full year 2021 guidance on an adjusted basis is as follows revenues of $492 million to $497 million.
Operating margin of 12% 13%.
An effective tax rate of 31% and.
And diluted earnings per share of $2.04 to $2.10.
Just a note on our operating margin outlook of 12% to 13% for the full year.
We have raised our operating margin guidance by 200 basis points since the beginning of the year, we're positioning the company for long term growth and expect to continue investing in the business to sustain our momentum and scale across our sales marketing product and technology areas there.
There will be challenges to margins in 2022, as we face an inflationary environment, along with year over year cost increases due to having realized lower than planned spend in areas such as head count travel and facilities over the past year, we remain focused on managing costs across the business, while still investing aggressively.
Sivley and topline growth.
In conclusion, he could not be a better time to have joined forester and I look forward to working with our great employees clients investors and analysts as we continue this exciting new path driving sustained double digit CV growth.
And achieved a strong start grant next year.
Some of that you'll see roll over for sure into Q1, and we definitely expect to make further investments in our go to market digital channels from product, while continuing to invest to modernize the infrastructure and foster.
Areas like procurement IR data management cloud enablement.
As I noted in my remarks, we raised our operating margin guidance by about 200 basis points from the original guidance of the year and some of that is due to stronger revenue some due to lower costs from lower than planned head count virtually no teen each year and reduce facility costs. So as you know as I noted, there's definitely margin pressure going into next year.
And we're working through that as we develop the plan, but we're definitely committed to investing and growing the top line. So we expect margins to stay sort of flattish as we move forward or slightly decline.
In the near term and we know there's operating leverage in the business.
And we're definitely investing for growth and long term I think on the <unk> front.
We had relatively zero this year, we're not going to go back to <unk> at the levels that were pre pandemic, we're going to likely ramp into it.
As we go forward, so I expect <unk>.
It would be somewhere in the 50% range of kind of where we were pre pandemic and but it's going to ramp through the year.
Great. Thank you and then for my follow up.
Another question for you, Chris If you don't mind, just kind of curious bigger picture.
You mentioned all the different reasons that brought you to Forrester and that was helpful to hear I'm just curious if you have.
Chris uses a lot has used a lot in the first six weeks is modernize yes, yes good.
Word.
Great. Thanks, a lot thank.
Thank you. Thank you.
Thank you and our next question comes from the line of <unk>.
<unk> with Barrington Research. Your line is open. Please go ahead.
Yeah, Georgia, I think you mentioned that customer experience and be where the most popular areas for forester decisions just curious and in the pipeline is that still.
Still the case or is there a broadening of interest.
The ZIP carries a final answer that there is actually very strong demand across the board for the 15 services.
B as George indicated and sick did come out strong may have incredibly strong value proposition than we have ultimately I think nice differentiation and unique offering in those spaces.
Pacifically around customer obsession and the revenue engine one.
One of the areas, where seeing them interest rise right now is in Tech services as George mentioned, there's a lot of different.
But I would say pretty unilaterally there is demand across the board.
And.
Yeah.
I don't know who was who will tell you said that there was a.
No discounting on the forester decisions product.
Was that in line with expectations going into the Porter.
Yes, Hi, Kelley, absolutely given all of the unified offering that we are presenting at all the value of that has been added in queue. Forester decision. We made it very clear from the onset that we are not going to be allowing discounting on this particular products that as other part of the reason why we're not forced migrating clients into it right now and the good.
News is the value is clearly resonating with our clients they see the enhancements from getting the certifications data. The new you Act. So it has not been an issue because the value of prop Israeli clear for our clients, which has made a great power sellers to be able to explain the value.
Have you seen an impact salesforce turnover from the excitement around for some decisions.
So.
As George mentioned, we've seen a little bit of a psych across the board and turnover what I would say is not due to forester decision, but we did make a very strong Tibet and change with our focus on contract value. This year and there were a limited number of folks who decided that that wasn't for them, but by the same token we are hiring aggressively.
Right now and we've also had some what we call here Boomerang some folks that have rejoined our sales force recently, so we're excited to expand the sales force. The folks that are here are leaning in our existing salesforce productivity for a ramp drops has improved double digits over the last year. So the good news is the bulk of our reps are leaning in and really excite.
About forester decisions and we are actively hiring to get the capacity we need for 2022.
Okay. Thank you nice quarter.
Thanks I appreciate it.
Thank you and our next question comes from the line of Anya Soda storm with your line is open. Please go ahead.
Hi, and thank you for taking my questions and congratulations on the good corner.
First I'm just curious about the 100 times you said you had had achieved performance. The decision are those new time, so I did conversion from the legacy Forester.
Those are.
A healthy mix, but a significant number of renewals that are in that number. So we have quite a large uptake of existing clients when.
When we put the new product in front of them and.
47% in CVI of those clients, so it's really nice uptick.
Okay. Thank you that sounds good and then also I think I'm Dan what's in the spring I think he'll you said that you had done done a list of of that clients you and let you targeted that you wanted to get back from that fell off young dependent make how does that is coming along.
Yes. Thank you. So we've had concerted win back programs, both within our Premier space as well as our core organization in in the Premier user team. They actually double that we had set for this year. So this is also a place where the new offering with forester decisions has really helped us to go back to some of the clients that we lost during the pandemic and.
Sure the strong value proposition and a number of the ones that we've had in the forester decision side have been went back which is really exciting.
Thank you and then setting them.
Really good progress and putting up nice numbers, how and how she would think about the out here in terms of them keeping their snap.
The pace of growth.
That's that's what Chris surgeries focused focusing on execution.
We have a great strategy on Ya, we know exactly what we have to do and improving our products and lodging and shrubbery with salesforce. So it's.
We think that this is very sustainable.
In the long term.
To review Crisp.
Really great moment during the business right now grid alignment of across the revenue Adrienne with sales marketing a product organization.
Completely lives around driving sustainable double digit television growth as we've discussed.
More aggressively hiring across the board, we're investing in our talent acquisition engine in order to do so.
George's point, rather tricia totally up slightly about 2% versus we're in the same period 19.
But we're actually seeing sequential headcount growth of the business style from last quarter. So I think we're starting to get some momentum around the hiring as well and so we're going to continue to drive and obviously, it's not just round increasing capacity for the sales organization would also increase in productivity as well.
And I.
I talked about the exhaustion as factors.
And the economy in technology and it's just.
It's.
There'll be more technology change in the next five years then the word in the last 10 years. So it is just an intensification you can see that in the IPO activity in.
Definitely the challenges, we see with our clients it as a digital or die moment for them and we are going to make sure they don't die.
[laughter], Okay that sounds good.
And then just one last one for me I'm trying.
Do you have anything to call us call out geographically.
Hi, Kelley, what I would say as we've seen good solid performance across all of our sales regions in sales motion. So the results have been pretty much uniform across the board in terms of getting to our desire double digit CVV ground. So we've been really pleased with both the north American as well as our international market.
And we are.
Open a window opened in London, Paris Paging, Singapore in Amsterdam. So we're we're slowly opening up we're opening up faster in Asia, and Europe and the us.
Okay, great. Thank you and what's not for me.
Thanks, Thank you.
Thank you and I'm showing no further questions at this time and I would like to turn the conference over to the CFO, Chris fend for any further remarks.
Yes. Thank you thanks for being a a call today as I noted during my prepared remarks from excited to be here and look forward to working with you. All we're in the process of highly ahead of Investor relations to continue improving this process and the quality of our interactions overall with our investors and analysts. Thanks again for joining us today.
Thank you.
This concludes today's conference. Thank you for participating you may now disconnect everyone have a great day.
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