Q1 2022 Forrester Research Inc Earnings Call

May 5, 2022

Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, thank you for calling please remain on your line your conference call will begin momentarily. Thank you.

[music].

Good day, ladies and gentlemen, and thank you for standing by welcome to the Forrester Research first quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone keypad.

As a reminder, this conference call is being recorded if you require any further assistance. Please press Star then zero at this time I would like to turn the conference over to Mr. Chris Van.

Hi, everyone before we begin I want to quickly introduce Tyson Seely, our new Vice President of Investor Relations Tyson joined Us from Carrig, Dr Pepper, where he ran investor relations for the <unk>.

Last three years and prior to that he was in IR and financial planning and analysis at Pinnacle Foods. We're very excited to have her on board and look forward to leveraging his expertise as we ramp up our investor relations function welcome Tyson.

Thank you, Chris and Hello, everyone. Thanks for joining today's call.

I'm very happy to be here with Forrester and look forward to making connections with all of you.

Earlier. This afternoon, we issued our press release for the first quarter of 2022.

Need a copy you can find one on our website in the investors section.

I'm joined this afternoon by our chairman of the Board and CEO , George Colony, and Foresters, Chief Financial Officer, Christopher <unk>.

George will open the call. This afternoon, and Chris will follow with a financial update and will then go into Q&A.

Kelley Hippler, Chief sales officer, and Carrie Johnson, Chief product Officer will also join us for the Q&A portion of the call.

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 $19 95 words, such as expects believes anticipates intends plans estimates or similar expressions are intended to identify these forward looking statements.

These statements are based on the company's current plans and expectations and 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.

Factors that could cause actual results to differ are discussed in our reports and filings with the Securities and Exchange Commission and the company undertakes no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise.

Lastly, consistent with our previous calls today, we will be discussing our performance on an adjusted basis, which excludes items affecting comparability.

You can find a detailed list of items excluded from these adjusted numbers in our press release and with that I'll hand, it over to George.

Thank you for joining <unk> Q1, 2022 investor call.

We are very excited to have tightened joining the Forrester team welcome Tyson.

Forrester came out of the gate strong in Q1.

The momentum of 2021 continued as we delivered our third consecutive quarter of double digit CV growth in.

In Q1, we produced double digit revenue growth headlined by a 14% increase in research revenue.

Wallet retention improved to 103%.

<unk> increased by 15%, helping us deliver adjusted EPS of <unk> 45 exceed.

Exceeding our high end guidance by <unk> 11.

And Chris will provide more color in a few minutes.

<unk> sustained CV growth is partially driven by the success of our recently launched flagship research product Forrester decisions.

As a reminder, fortunate decisions combines the best of Forrester and Sirius decisions research.

He constitutes a unified portfolio of 15 different research services built around business and technology personas and their critical priorities.

Since its launch in August 2021, the portfolio has become the fastest growing product in fortress history, winning new logos and migrating existing clients from the legacy Forrester and Sirius decisions research products.

The Salesforce has enthusiastically embraced forrester decisions.

Product is selling at list price and the vast majority of clients have opted into multi year deals five to six priorities lay out the critical imperatives for each services persona.

The priorities were constructed based on hundreds of customer interviews and they've made portion of decisions easier to sell into by the priorities are a shortcut to value for clients and.

In addition, they create a clear research agenda for the analysts that serve Forrester decisions clients.

To drive excellent customer experiences with our new portfolio, we made enhancements in Q1, two the Forrester decisions user interface and search functionality and we continue to streamline our clients find relevant research.

Between search the priority architecture insight organization clients can get to value faster quarterly visits to the site are up 42%.

In addition, fortunate decisions inquiry and guidance sessions are enabling clients to directly apply our research and here's a quote from the CMO of a large commercial bank.

Forrester decision seats are must have for all of my direct reports during the banks next budget cycle.

We've already added two seats for team members, who are involved in our analyst conversations.

So as noted on previous calls we will be continually improving the product and finding innovative ways of delivering our research benchmarks and forecast with additives content categories, and we expect to create additional features and value over time.

Fortunate decisions will become our power platform. The most important product in our CV growth engine.

Before I move on I would like to highlight some of the key research we published in Q1.

In March a research team analyze the much hyped web three.

The report concluded that many of the underlying web three technologies and premises will never be fully workable and the CIO and CMO as it should have adapted posture of educated wariness.

For sure it's been assembling a portfolio of research to prepare foresters clients for potential cyber security attacks that we expect to be launched in the west as a result of the Russia Ukraine War.

And finally, a group of analysts published an in depth analysis of the meta versus concluding that the technology is probably mortal at best.

That said large company executives should engage in aggressive experimentation to prepare for possible internal and customer applications that could emerge in the next five years.

As these examples demonstrate forestry is unafraid to make objective calls emerging technology running against the grain of media ventured capital and vendor hype.

And finally I'm happy to report that the White House announced two weeks ago that the federal government will be using foresters CX index to measure his department and the overall citizen experience. Its goal is to move from the bottom of the CX index to the top 10% over the next four years.

<unk> has been working with the U S government for many years and we are very happy that it has now decided to embed our methodologies to accurately measure and improve its digital and physical experiences.

Turning now to our events business earlier this week at Austin, Texas posture hosted its annual BTB North America Summit.

And this was <unk> first in person event since November of 2019 attendees were excited to be together and they were very highly engaged.

All of our events for 2022 are planned to be hybrid in person running concurrently with virtual.

We had over 500 attendees at summit with over 100 in person sponsors.

In addition to bring you back physical events Forrester fully reopened 18 offices globally in Q1 after more than two years of being closed.

Forrester rates around the globe are embracing the spirit of our new anywhere work policy, which empowers employees to decide when and how often to be in the office depending on their needs.

We believe this is not only the right approach for people, but also for our business.

Research shows that companies are embracing similar policies have happier more engaged employees was attrition running lower than average rates now.

Now it is a challenging hiring environment and as you know for sure is looking to expand head count by double digits in the year.

After spiking in 2021 attrition across all departments is dropping and we're expecting that in 2022, the company will return to our pre pandemic levels.

<unk> work is helping us with talent acquisition and we've expanded our hiring staff to enable the company to extend its research and sales capacity overall company head count was up 7% in Q1 as compared to Q1 of 2021.

I am pleased to share two new additions to the Forrester team first Sara Leroy has joined us as our new Chief people Officer.

Sarah has had a very distinguished career, most recently as the chief Human Resources Officer at RSA security.

She will play a key role in expanding our ability to attract and retain top talent and her background extends to compensation diversity inclusion and training and development.

I would also like to welcome award Roll mine to Forgers Board as we scale our company and continue to drive contract value growth. We look forward to benefiting from warrants deep expertise in leading investment banking finance and M&A functions.

Warren joined as the eighth independent Board member to be full board of nine members.

And finally in celebration of Earth day, we announced our plan to reduce foresters carbon emissions from 2019 to 2025 by 50% and anywhere work will be a big part of that story.

Before I turn the call over to Chris I'd like to take a moment to discuss the Russia Ukraine War.

Four years ago, we made the decision to not expand our business into Russia, and we have no staff offices or significant business in that country.

That said, we did have several clients controlled by Russian companies and.

In the quarter, we made the decision to sever those relationships. We've stated publicly that as a company. We stayed with international sanctions levied against Russia in response to its envision of Ukraine.

Additionally, I am very proud of force Reits, who collectively raised a substantial sum for humanitarian relief in Ukraine, one of the largest fundraising efforts in our history.

So to conclude we are very pleased with our performance in the first quarter as we continue to increase contract value at double digit rates I'm, especially proud of how the Forrester teams are staying focused on helping our clients navigate the challenges of pandemic inflation and the war in Europe , we continue to be on their side and by their side and.

Now I'd like to turn the call over to Chris Finn Foresters CFO Chris.

Thanks, George and thanks again, everyone for joining us.

There is no question that the year is off to a great start as George mentioned, we delivered strong CV growth of 15% in the quarter and overall revenue growth of 10% driven by the strength in our research business in the quarter, we exceeded our guidance for revenue adjusted operating margin and adjusted EPS.

Basically for the first quarter, our key metrics continued to be strong with improvements in wallet and client retention compared to the prior year period.

Sales productivity also continues to increase and I am encouraged by our growth in sales head count.

Let me walk you through our results in more detail starting with revenue.

Total revenue increased 10% to $125 million compared to a $113 $8 million in the prior year period as I indicated this growth was largely driven by our research business, specifically research revenues increased 14% compared to the first quarter of 2021 as a result of the aforementioned double digit grew.

And CV.

Further wallet retention increased 14 points compared to Q1 of last year and was up one point over our previous quarter, representing our sixth sequential quarter of wallet retention growth.

Client retention and client count were also both up from Q1 of last year.

They did decline slightly from Q4 due to elevated churn within our smaller vendor clients to this end and looking forward. We believe there may be continued noise around client count and retention as we migrate our legacy base to the FRC decisions platform.

But with that said our wallet retention metric continues to improve showing that we are keeping an enriching our larger clients.

Part of the enrichment story has been the success of our forest decisions platform as clients migrate to our new platform have shown strong enrichment.

Let me provide a quick comment on our CV metric we.

We have calculated the current quarter CV at the 2022 foreign currency rates that we use internally and for comparative purposes, we have recast our historical CV at these 2022 rates.

We have published the updated CV metric on a quarterly basis going back to the first quarter of 2020 in the investor presentation on our website.

Our consulting business posted revenues of $38 $4 million, which was essentially flat compared to the prior year as our analysts continue to shift a portion of their focus to delivering on our fast growing CV business.

And finally in terms of our events business, we had minimal revenue as we did not hold any events during the quarter. We look forward to talking to you more about this segment of our business as the year unfolds and we are certainly encouraged by the prospect of holding hybrid events. This year.

As George mentioned, we just completed our first hybrid event BTB summit this week in Austin.

Continuing down our P&L adjusted operating expenses for the first quarter increased by 12% driven by higher head count and increased compensation costs to be more specific for the first quarter head count was up 7% compared to the same period in 2021, which was in line with our projected head count for the quarter.

As a result of these increased expenses adjusted operating income declined by 7% to $13 1 million or 10, 5% of revenue in the current quarter compared to $14 million or 12, 3% of revenue in the first quarter of 2021.

Interest expense for the quarter was <unk> $6 million as compared to $1 $1 million in the first quarter 2021. This reduction was driven by lower outstanding debt.

Finally, adjusted net income of $8 $6 million and.

<unk> earnings per share of <unk> 45 were flat compared to the same period last year.

Turning now to our cash flow and our balance sheet.

During the first quarter of 2022 cash flow from operating activities was $22 $7 million and capital expenditures were $1 3 million given the strong performance. We ended the quarter with nearly $132 million of cash and investments.

From a capital structure standpoint, we paid down $15 million of our revolver during the first quarter, leaving us with $60 million of outstanding debt.

We also purchased not $5 million of our common stock, leaving us with approximately $80 million of our stock repurchase authorization as of March 31.

We intend to remain opportunistic with our stock repurchase program during 2022.

Given all of that I will now walk you through what we're expecting over the rest of the year and provide some additional commentary.

We have good momentum coming out of the first quarter, although there are still many macroeconomic uncertainties and the balance of the year.

We did a good job on the quarter navigating these challenges in hiring new talent in what remains a difficult environment for talent acquisition given.

Given the ongoing war in Europe , Covid related challenges and record inflation rates, which all lead to rising recession risk. We remain cautiously optimistic looking ahead to the rest of the year.

As we have indicated previously we do expect some lumpiness across the quarters on a topline basis, specifically for the full year. We continue to expect FX headwinds to reduce revenue growth by approximately 1% to 2% with an insignificant effect on adjusted operating margin.

Also as I mentioned on our last call a portion of our research revenue is recognized as we deliver it such as our reprint product and advisory and event tickets that are included in certain of our research subscriptions.

This revenue can be uneven and was higher than expected in the first quarter.

Due to the uneven nature of this revenue along with current macroeconomic risks, we do not expect the revenue beat in the first quarter to carry over for the full year.

I will now provide commentary on our expectations for top line growth for our segments.

In our research business for the second quarter, we expect high single to low double digit growth and for the full year, we expect low double digit growth on the strength of our CV growth in 2021, and our projected CV bookings for 2022.

For our consulting business, we expect revenue to continue to be flat to down in the second quarter with double digit growth in the second half as we ramp capacity and mid to high single digit growth for the full year.

Finally for our vans business. Our revenue guidance includes a presumption that we will continue to be able to hold hybrid events. During the year, which is highly dependent on local conditions in each of the jurisdictions, where we hold events. As previously mentioned, we just wrapped up our first hybrid event and are planning for our second significant hybrid event later.

In June given all of this we expect second quarter revenue to increase 160% to 170% compared to prior year and we expect event revenue for the full year to approximately double compared to 2021 as you move through the year, we will revisit the advanced revenue outlook based on changing macro environment conditions.

In the second quarter, given everything I just walked through we expect total revenue of $144 million to $148 million and for the full year. We continue to expect total revenue to be $550 million to $560 million.

In terms of other guidance in the second quarter of 2022, we expect our adjusted operating margin to be 14% to 16% and we continued to expect our full year adjusted operating margin to be 11, five to 12, 5%.

Given post pandemic ramping of the business along with our ongoing investment initiatives to drive growth.

We also continue to expect interest expense at two and a half million dollars for the year as our lower debt balance sheet offset expected increases in rates.

In the second quarter and for the full year of 2022, we continue to expect an adjusted effective tax rate of 30%.

Finally for the second quarter, we expect our adjusted EPS to be in a range of 70% to 76.

And we continue to hold our guidance for the full year in the range of $2 25.

To $2 35.

Given the strong performance that we posted today, we have the potential to raise this guidance later in the year, but given the macro environment that both George and I have spoken to we are holding our original guidance for the full year at this point.

In summary, foster is off to a great start to the year with foster decisions performing well our talent acquisition engine, bringing new employees to drive our growth and excellent CV and revenue growth.

While there is still many macro headwinds both geopolitical and economic we are confident in the guidance, we've put out today and our ability to navigate through these challenges to deliver on our commitments. Finally, I continue to be extremely thankful to all our employees for their work to drive these strong results.

With that let me hand, it back over to the operator for any questions.

Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

If your question has been answered or you wish to remove yourself from the queue simply press the pound key.

Again, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

Our first question or comment comes from the line of Andrew Nicholas from William Blair. Your line is open.

Hi, good afternoon.

Wanted to start by touching on a.

A few references in your prepared remarks, and the release about the macro headwinds I understand that that would make sense certainly in terms of conservatism for the rest of the year, but I'm. Just curious are you seeing anything kind of with boots on the ground now in terms of those headwinds impacting your business, obviously it doesn't look like that.

In terms of the first quarter results, but thinking about maybe the first four or five weeks of the year that leading you to mention that.

Organic just tied to conservatism through year end.

Yes. Thanks. This is Chris that's a good question. So yes, we indicated recall I think there's still a lot of uncertainties in the current environment as you mentioned, Ukraine Russian War Cobranded driving continued lockdowns in Asia and elsewhere heightened inflation tight labor market.

The risk of recession, I think really it's given that it's so early in the year. Our view is that it's prudent to prudent course to really just hold our guidance at this juncture given all the uncertainties. We do have full confidence that we can navigate all the challenges as we've done over the last three years and believe we can deliver on the guidance that we reiterated today with the possibility of updating.

On the guidance later in the year as we noted but at this point, we're just taking the stance that we're going to wait and see how these uncertainties unfold.

And.

I'd call that a large part of our top and bottom line beat this quarter was also driven by the onetime revenues, we noted and.

Not necessarily things that are kind of repeat per se that can cause some lumpiness in our results and we were conservative in our forecasting those items in the first quarter, we continue to be.

<unk> as we can.

For capital items going forward, Andrew I think we believe there'll be more clarity. After Q2, So we'll give you.

Better direction.

Alright, great. Thank you for that color.

And then I just wanted to spend a little bit of time for my follow up question on Forrester decision I think George in your prepared remarks, you talked about.

It being a benefit to both Upsells, but also new logos is there.

<unk>.

A benefit that's disproportionate between the two.

What youre seeing from Forrester decisions or is it pretty broad based across all those different types of growth vectors.

Hi, Andrew This is Carrie Johnson.

If we're talking about the sort of.

Right between new business versus existing migration the bulk of Forrester.

But we are seeing really healthy uptake from our existing client base and Thats, where were seeing a lot of that.

<unk> benefits to revenue benefit.

They are mostly multiyear selling our buttonless price and they're also at a pretty healthy contract value increase as they migrate to the new portfolio.

Great. Thanks again.

Thank you. Thank you our next question or comment comes from.

Thank you our next question or comment.

Okay.

Our next question or comment comes from the line of Vincent Colicchio from Barrington Research. Your line is open.

Yes, good quarter guys.

Thanks.

Yes, I'm curious.

Your contract value.

Very very strong year over year growth.

Sequential growth slowed a little bit.

I'm wondering if that is there anything to look into that should it pick up again in Q2.

And.

Yes.

My question.

Yes.

We did see very strong growth.

In contract value and our expectations as we move forward, we will see that pick up obviously in revenue.

Sure.

And then I'm curious.

For <unk> decisions are you seeing.

The strength is.

Is it broad across all the functional areas, you're targeting or are there some like many things in life.

Some areas, where you're seeing a lot more strength than others.

Hi, guys. This is karri I'll I'll take this one too.

We're seeing we're really pleased with the site every single service right now and we're seeing some strength in some of our services.

Like customer experience and DDB marketing executives in particular, but overall.

Every service has cleared a threshold sort of threshold that we're looking for very pleased across the board.

And then Kelly are you continuing to see.

Return of new clients that had left during the pandemic.

Thank you Vincent for the question in terms of RASK went back we do continue with that program and we are continuing to win back not at the same rate.

Pandemic, because thankfully we've been retaining more better win back efforts to continue and that is contributing to the strength of our new business.

Yes.

Okay go onto the queue.

Yes.

We're all just coming back to the summit events and there are a number of clients there.

They were former series satisfied you dropped out they've come back to us now so.

I think.

As the events go back to being in person, that's helping us to reconnect and thats, bringing those clients back into our fold which is nice.

Okay ill go back in queue nice quarter. Thanks.

Thanks, guys I appreciate it thanks.

Thank you. Our next question or comment comes from the line of on just sort of stone from Sidoti. Your line is open.

Alright, Thank you for taking my questions and congratulations on another great quarter.

I missed that.

With that the number of clients declined sequentially.

To call out there.

Yes.

Thanks, Joe.

As we move forward I think as we move through the transition of the base of legacy clients over partial decisions.

We do expect to see some lumpiness.

And number of clients and client retention.

I think we went down sequentially from 78% to 77% on retention and number of clients slightly but we do expect to be in the highest revenues as we continue.

And go through that migration as we shared before we're looking at.

Approximately one third of CV in FTE. This year, we're still very much on track to hit those targets.

There was some seasonality.

Awesome. Thank you and just any sort of timeframe. When you expect all the legacy to half a percent onto them today of course the decision.

Not really.

We're still Arnie this is carey.

Still determining the total timeline for that we have we're still selling some of our core legacy products.

Have discontinued some of our core research product is actually still available for purchase.

So we'll probably have more information for you in the next at the next call on that.

Okay. Thank you.

Just curious.

Mentioned.

The risks are.

And you mentioned the recession, how do you get there and lastly session.

What was the last part of that.

Would it be fair.

So essentially yes.

We flipped free cash right through that recession.

Yes revenue was down.

Maybe some of the Roomba to help me with this probably was down 3% or so.

Three to four weeks that it wasn't down that much we flowed free cash throughout the great recession.

Obviously the COO.

Way back oil recession was much more difficult for us because that was a tech recession centrally.

But as I said I think on the last call.

Our clients are looking for us looking to us to help them through our inflation.

There is a change in budgeting, which we help them with budgets during recessions.

So.

Yes.

We are affected.

In times of change in times of challenge that tends to stimulate some.

A good retention of research so.

So.

Are you guys ready to sell the Florida, we were down 3% and revenue and.

Strong cash in a recession.

Thanks Scott.

It's early in the year.

That's the point, we're making at this juncture. So it's a lot of in a wait and see approach.

Yes, and I understand thank you so much that was all for me.

Thanks very much.

Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to Mr. Thailand's Tyson Seely for any closing remarks.

Thank you Eric and thanks again, everyone for joining us today as I said upfront that it really is a pleasure to be Eric Forrester and are excited about the opportunities ahead for all of us I'll be around and available this evening.

For Tomorrow next week. So please follow up and reach out with any questions. Thank you. Thank you very much everyone. Thank you ladies and.

Gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

Okay.

[music].

Yes.

Okay.

[music].

Good day, ladies and gentlemen, and thank you for standing by welcome to the Forrester Research first quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star.

One on your telephone keypad.

As a reminder, this conference call is being recorded if you require any further assistance. Please press Star then zero at this time I would like to turn the conference over to Mr. Chris Van.

Hi, everyone before we begin I want to quickly introduce Tyson Seely, our new Vice President of Investor Relations Tyson joined us from carrying Dr. Pepper, where he ran investor relations for the last three years and prior to that he was in IR and financial planning and analysis at Pinnacle Foods, we're very excited to have him on.

Board and I look forward to leveraging his expertise as we ramp up our investor relations function welcome Tyson.

Thank you, Chris and Hello, everyone. Thanks for joining today's call.

I am very happy to be here with Forrester and look forward to making connections with all of you.

Earlier. This afternoon, we issued our press release for the first quarter of 2022.

Need a copy you can find one on our website in the investors section.

I'm joined this afternoon by our chairman of the Board and CEO , George Colony, and Foresters, Chief Financial Officer, Christopher <unk>.

George will open the call. This afternoon, and Chris will follow with a financial update and will then go into Q&A.

Kelley Hippler, Chief sales officer, and Carrie Johnson, Chief product Officer will also join us for the Q&A portion of the call.

Lastly, consistent with our previous calls today, we will be discussing our performance on an adjusted basis.

<unk> excludes items affecting comparability.

While reporting on an adjusted basis is not in accordance with GAAP. We believe that reporting numbers on this adjusted basis provides a meaningful comparison and an appropriate basis for our discussion you can find a detailed list of items excluded from these adjusted numbers in our press release and with that I'll hand, it over to George.

Thank you for joining <unk> Q1, 2022 investor call. We are very excited to have tightened joining the Forrester team welcome Tyson.

<unk> came out of the gate strong in Q1.

The momentum of 2021 continued as we delivered our third consecutive quarter of double digit CV growth in.

In Q1, we produced double digit revenue growth headlined by a 14% increase in research revenue.

Wallet retention improved to 103%.

<unk> increased by 15%, helping us deliver adjusted EPS of <unk> 45 exceeding.

Exceeding our high end guidance by <unk> 11.

And Chris will provide more color in a few minutes.

<unk> sustained CD growth is partially driven by the success of our recently launched flagship research product Forrester decisions.

As a reminder for sure decisions combines the best of Forrester and Sirius decisions research.

He constitutes a unified portfolio of 15 different research services built around business and technology personas and their critical priorities.

Since its launch in August 2021, the portfolio has become the fastest growing product in <unk> history, winning new logos and migrating existing clients from the legacy Forrester and Sirius decisions research products.

The Salesforce has enthusiastically embraced forrester decisions.

Product is selling at list price and the vast majority of clients have opted into multi year deals five to six priorities lay out the critical imperatives for each services persona.

The priorities were constructed based on hundreds of customer interviews and they've made porsche decisions easier to sell into by the priorities are a shortcut to value for clients.

And in addition, they create a clear research agenda for the analysts that serve Forrester decisions clients.

Search the priority architecture insight organization clients can get to value faster quarterly visits to the site are up 42%.

In addition, fortunate decisions inquiry and guidance sessions are enabling clients to directly apply our research and here's a quote from the CMO of a large commercial bank.

Forrester decision seats are must have for all of my direct reports during the banks next budget cycle I have already added two seats for team members, who are involved in our analyst conversations.

So as noted on previous calls we will be continually improving the product and finding innovative ways of delivering our research benchmarks and forecasted additives content categories, and we expect to create additional features and value over time.

Fortunate decisions will become our power platform. The most important product in our CV growth engine.

Before I move on I would like to highlight some of the key research we published in Q1.

In March a research team analyze the much hyped web three.

The report concluded that many of the underlying web three technologies and premises will never be fully workable and the CIO and CMO should adapted posture of educated wariness.

For sure has been assembling a portfolio of research to prepare foresters clients for potential cyber security attacks that we expect to be launched in the west as a result of the Russia Ukraine War.

And finally, a group of analysts published an in depth analysis of the meta versus concluding that the technology is probably mortal at best.

That said large company executives should engage in aggressive experimentation to prepare for possible internal and customer applications that could emerge in the next five years.

As these examples demonstrate four series unafraid to make objective calls and emerging technology running against the grain of media ventured capital and vendor hype.

And finally I'm happy to report that the White House announced two weeks ago that the federal government will be using Forrester CX index to measure its department and overall citizen experience. Its goal is to move from the bottom of the CX index to the top 10% over the next four years.

Turning now to our events business earlier this week at Austin, Texas Forrester hosted its annual <unk> North America Summit.

And this was <unk> first in person event since November of 2019 attendees were excited to be together and they're very highly engaged.

All of our events for 2022 are planned to be hybrid in person running concurrently with virtual <unk>.

Over 500 attendees at summit with over 100 in person sponsors.

In addition to bringing back physical events Forrester fully reopened 18 offices globally in Q1 after more than two years of being closed.

Forrester rates around the globe are embracing the spirit of our new anywhere work policy, which empowers employees to decide when and how often to be in the office depending on their needs.

We believe this is not only the right approach for people, but also for our business.

Our research shows that companies are embracing similar policies have happier more engaged employees with attrition running lower than average rates.

Now it is a challenging hiring environment and as you know for sure is looking to expand head count by double digits in the year.

After spiking in 2021 attrition across all departments is dropping and we are expecting that in 2022, the company will return to our pre pandemic levels.

Anywhere work is helping us with talent acquisition and we've expanded our hiring staff to enable the company to extend its research and sales capacity overall company head count was up 7% in Q1 as compared to Q1 of 2021.

I am pleased to share two new additions to the Forrester team first Sara Leroy has joined US as our new Chief people Officer, Sarah has had a very distinguished career. Most recently as the chief Human Resources Officer at RSA security.

She will play a key role in expanding our ability to attract and retain top talent and her background extends to compensation diversity inclusion and training and development.

I would also like to welcome award enroll mine to Foresters board as well.

Taylor company and continue to drive contract value growth, we look forward to benefiting from warrants deep expertise in leading investment banking finance and M&A functions.

Warren joins us the eighth independent board member and to be full board of nine members.

And finally in celebration of Earth day, we announced our plan to reduce foresters carbon emissions from 2019 to 2025 by 50% and anywhere work will be a big part of that story.

Before I turn the call over to Chris I'd like to take a moment to discuss the Russia Ukraine War.

Four years ago, we made the decision to not expand our business into Russia, and we have no staff offices or significant business in that country.

That said, we did have several clients controlled by Russian companies in the quarter. We made the decision to sever those relationships. We've stated publicly that as a company we stand with international sanctions levied against Russia in response to its envision of Ukraine.

Additionally, I am very proud of force rates, who collectively raised a substantial sum for humanitarian relief in Ukraine, one of the largest fund raising efforts in our history.

Now I would like to turn the call over to Chris Finn Foresters CFO Chris.

Thanks, George and thanks again, everyone for joining us.

Specifically for the first quarter, our key metrics continued to be strong with improvements in wallet and client retention compared to the prior year period sales productivity also continues to increase and I am encouraged by our growth in sales head count.

Let me walk you through our results in more detail starting with revenue.

Total revenue increased 10% to $125 million.

Compared to a $113 8 million in the prior year period.

As I indicated this growth was largely driven by our research business, specifically research revenues increased 14% compared to the first quarter of 2021 as a result of the aforementioned double digit growth in CV further wallet retention increased 14 points compared to Q1 of last year and was up one point over our pre.

This quarter, representing our sixth sequential quarter of wallet retention growth client retention and client count were also both up from Q1 of last year.

Although they did decline slightly from Q4 due to elevated churn within our smaller vendor clients to this end and looking forward. We believe there may be continued noise around client count and retention as we migrate our legacy base to the FERC decisions platform.

But with that said our wallet retention metric continues to improve showing that we are keeping an enriching our larger clients.

Part of the enrichment story has been the success of our foster decisions platform as clients migrate to our new platform have shown strong enrichment.

Let me provide a quick comment on our CV metric.

We have calculated the current quarter CV at the 2022 foreign currency rates that we use internally and for comparative purposes, we have recast our historical CV at these 2022 rates. We have published the updated CV metric on a quarterly basis going back to the first quarter of 2020 in the investor presentation on our website.

Our consulting business posted revenues of $38 4 million, which was essentially flat compared to the prior year as our analysts continue to shift a portion of their focus to delivering on our fast growing CV business.

As George mentioned, we just completed our first hybrid event BTB summit this week in Austin.

Interest expense for the quarter was <unk> $6 million as compared to $1 $1 million in the first quarter of 2021. This reduction was driven by lower outstanding debt.

Finally, adjusted net income of $8 $6 million and adjusted earnings per share of <unk> 45 were flat compared to the same period last year.

Turning now to our cash flow and our balance sheet.

During the first quarter of 2022 cash flow from operating activities was $22 7 million and capital expenditures were $1 3 million given the strong performance. We ended the quarter with nearly $132 million of cash and investments.

From a capital structure standpoint, we paid down $15 million of our revolver during the first quarter, leaving us with $60 million of outstanding debt. We also purchased $9 $5 million of our common stock, leaving us with approximately $80 million of our stock repurchase authorization as of March 31.

We intend to remain opportunistic with our stock repurchase program during 2022.

Given all of that I will now walk you through what we are expecting over the rest of the year and provide some additional commentary.

We have good momentum coming out of the first quarter, although there are still many macroeconomic uncertainties and the balance of the year.

Did a good job on the quarter navigating these challenges in hiring new talent in what remains a difficult environment for talent acquisition.

Given the ongoing war on Europe , Covid related challenges and record inflation rates, which all lead to rising recession risk. We remain cautiously optimistic looking ahead to the rest of the year.

So as I mentioned on our last call a portion of our research revenue is recognized as we deliver it such as our reprint product and the advisory and event tickets that are included in certain of our research subscriptions.

This revenue can be uneven and was higher than expected in the first quarter due to the uneven nature of this revenue along with current macroeconomic risks, we do not expect the revenue beat in the first quarter to carry over for the full year.

I'll now provide commentary on our expectations for top line growth for our segments.

Finally for our events business. Our revenue guidance includes a presumption that we will continue to be able to hold hybrid events. During the year, which is highly dependent on local conditions in each of the jurisdictions, where we hold events.

As previously mentioned, we just wrapped up our first hybrid event and are planning for our second significant hybrid event later in June given all of this we expect second quarter revenue to increase 160% to 170% compared to prior year and we expect event revenue for the full year to approximately double compared to 2021.

As you move through the year, we will revisit the events revenue outlook based on changing macro environment conditions.

In the second quarter, given everything I just walked through we expect total revenue of $144 million.

To $148 million and for the full year, we continue to expect total revenue to be $550 million to $560 million.

In terms of other guidance in the second quarter of 2022, we expect our adjusted operating margin to be 14% to 16% and we continue to expect our full year adjusted operating margin to be 11, five to 12, 5%.

Given post pandemic ramping of the business along with our ongoing investment initiatives to drive growth.

We also continue to expect interest expense at $2 5 million for the year as our lower debt balance sheet offset expected increases in rates.

In the second quarter and for the full year of 2022, we continue to expect an adjusted effective tax rate of 30%.

Finally for the second quarter, we expect our adjusted EPS to be in a range of 70 to 76.

And we continue to hold our guidance for the full year in the range of $2 25.

To $2 35.

In summary, foster is off to a great start to the year with Forrester decisions performing well our talent acquisition engine, bringing new employees to drive our growth and excellent CV and revenue growth.

Finally, I continue to be extremely thankful to all our employees for their work to drive these strong results.

With that let me hand, it back over to the operator for any questions.

Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

If your question has been answered or you wish to remove yourself from the queue simply press the pound key.

Again, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

Our first question or comment comes from the line of Andrew Nicholas from William Blair. Your line is open.

Hi, good afternoon.

Wanted to start by touching on a few references in your prepared remarks and in the release about the macro headwinds I understand that that would make sense certainly in terms of conservatism for the rest of the year, but I'm. Just curious are you seeing anything kind of boots on the ground now in turns.

Of those headwinds impacting your business, obviously, it doesn't look like that in terms of the first quarter results were thinking about maybe the first four or five weeks of the year, that's leading you to mention that.

Organic it just tied to conservatism through year end.

The risk of recession, I think really it's given that it's so early in the year. Our view is that it's prudent.

Prudent course to really just hold our guidance at this juncture given all the uncertainties. We do have full confidence that we can navigate all of these challenges as we've done over the last three years and we believe we can deliver on the guidance that we reiterated today with the possibility of updating the guidance later in the year as we noted but at this point, we're just taking the stance that we're going to wait and see how this works.

Sure It does unfold and.

Call out that a large part of our top and bottom line beat this quarter was also driven by the onetime revenues, we noted and.

Not necessarily things that are kind of repeat per se and can cause some lumpiness in our results and we were conservative in our forecasting those items in the first quarter, we continue to be conservative.

As we forecast those items going forward.

I think we believe there'll be more clarity after Q2.

Ill give you.

Better direction.

Alright, great. Thank you for that color.

And then I just wanted to spend a little bit of time for my follow up question on Forrester decision I think George in your prepared remarks, you talked about.

It being a benefit to both upsells, but also new logos.

Sure.

<unk>.

A benefit thats disproportionate between the two.

What youre seeing from Forrester decisions or is it pretty broad based across all those different types of growth vectors.

Hi, Andrew This is Carrie Johnson.

If we're talking about the sort of.

Between new business versus existing migrations and bulk of Forrester.

But we are seeing really healthy uptake from our existing client base and Thats, where were seeing a lot of that.

Looking at benefits to revenue benefit.

They are mostly multiyear selling our list price and there are also at a pretty healthy contract value increase as they migrate to the new portfolio.

Great. Thanks again.

Thank you. Thank you our next question or comment comes.

Thank you our next question or comment.

Our next question or comment comes from the line of Vincent Colicchio from Barrington Research. Your line is open.

Yes, good quarter guys.

Thanks, guys.

I'm curious.

Your contract value.

Very very strong year over year growth.

Sequential growth slowed a little bit.

I'm wondering if that is there anything to look into that should it pick up again in Q2.

And.

Yes.

My question.

Yes.

We did see good strong growth in.

In contract value and our expectations as we move forward, we will see that pick up obviously in revenue as we move forward.

Sure.

And then I am curious.

For <unk> decisions are are you seeing.

The strength.

Is it broad across all the functional areas, you're targeting or are there some like many things in life.

Some areas, where you're seeing a lot more strength than others.

Hi, guys. This is karri I'll I'll take this one too.

We're seeing we're really pleased with the size of every single service right now and we're seeing some strength in some of our services.

Like customer experience and marketing executives in particular, but overall.

Every service has cleared a threshold sort of threshold that we're looking for very pleased with its across the board.

And then Kelly are you continuing to see.

Return of new clients that had left during the pandemic.

Thank you Vincent for the question in terms of our brand actually do continue with that program.

We are continuing to win back clients not at the same rate at pre pandemic, because thankfully, we've been retaining more of them, but our win back efforts to continue and that is contributing to the strength of our new business efforts.

Okay I'll go into the queue.

Yes.

We're all just coming back to the summit events in a number of clients there.

They were former series to satisfy two dropped out they would come back to us now so.

I think.

As the events go back to being in person, that's helping us to reconnect.

And thats, bringing those clients back into our fold, which is nice.

Okay I'll go back in queue nice quarter. Thanks.

Thanks, guys I appreciate it.

Thank you. Our next question or comment comes from the line of on just sort of stone from Sidoti. Your line is open.

Alright, Thank you for taking my questions and congratulations on another great quarter.

First I missed.

Or is that the number of clients declined sequentially.

To call out there.

Yes.

Thanks, Amit so yes.

As we move forward I think as we move through the transition of the base of legacy clients over the course of this year.

We do expect to see some lumpiness.

And number of clients and client retention.

I think we went down sequentially from 78% to 77% on retention and number of clients slightly but we do expect to be in the highest revenues as we continue.

And go through that migration as we shared before we're looking at.

Approximately one third of CV in FTE. This year, we're still very much on track to hit those targets.

There was some seasonality.

Okay. Thank you and just any sort of timeframe. When you expect all the legacy to have purpose and Amsterdam.

Of course the decision.

Not really.

We're still I mean this is carey.

Determining the total timeline for that we have we are still selling some of our core legacy products.

<unk>.

Discontinuing some of our core research products actually are still available for purchase.

So we'll probably have more information for you at the next at the next call on that.

Okay. Thank you.

Just curious.

Mentioned.

The risks are.

And you mentioned the recession, how did you fare and last recession.

What was the last part of that.

Would it be fair.

I'll answer session yes.

And in a way, we float free cash right through that recession.

Yes revenue was down.

Maybe some of the room to help me with this probably was down 3% or so.

Three to four weeks that it wasn't down that much we flowed free cash throughout that process.

<unk>.

Obviously, the COO way.

Way back here at oil recession was much more difficult for us because that was a tech recession essentially.

But as I said I think at the last call.

Our clients are looking for us looking to us to help them through our inflation.

There is a change in budgeting, which can we help them with budgets during recessions.

Yes.

We are affected but in times of change in times of challenge that tends to stimulate some.

A good retention of research so.

So our revenue.

Are you guys ready to sell the floor right now.

3% and revenue and.

Strong cash and that recession.

Thanks Scott.

Got it.

It's early in the year.

That's the point, we're making at this juncture, so it's all going to wait and see approach.

Yes, no I understand thank you so much that was for me. Thank.

Thanks very much.

Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to Mr. Thailand's Tyson Seely for any closing remarks.

Thank you, Eric and thanks, again to everyone for joining us today as I said upfront. It really is a pleasure to be here at Forrester and are excited about the opportunities ahead for all of us I'll be around and available this evening.

For Tomorrow next week. So please follow up and reach out with any questions. Thank you.

Thank you very much everyone. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

Q1 2022 Forrester Research Inc Earnings Call

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