Q3 2023 Forrester Research Inc Earnings Call
Okay.
Good afternoon, and thank you for standing by welcome to Forrester as third quarter 2023 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session. Please be advised that today's conference is being recorded.
And I like to turn the conference over to Vice President of corporate development and Investor Relations Ed Brian Morris. Please go ahead.
Thank you and Hello, everyone. Thanks for joining today's call.
Earlier. This afternoon, we issued a press release for the third quarter of 2023, if you need a copy you can find one on our website in the investors section.
He with US today to discuss our results are George colony, first as Chief Executive Officer, and Chairman and Crispin Chief Financial Officer, Carrie Johnson, our Chief product Officer, and Nate Swan, Our Chief sales Officer are also here with us for the Q&A section 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 1995.
Words, such as expects believes anticipates intends plans estimates or similar expressions are intended to identify these forward looking statements.
These statements are based on the company's current plans and expectations and 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 unadjusted basis, which 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 results in our press release and with that I'll hand, it over to George.
Thank you for joining Foresters Q3, 2023 earnings call.
As has been true for the last four quarters, we continue to navigate through a challenging macroeconomic environment, while simultaneously progressing on a major product transition.
As we enter the busiest selling season of the year for Forrester I would like to cover five key themes, one Forrester third quarter performance.
Two enhancements to the fore sure decisions product threep or work applying generative AI to our business for an update on our third quarter events and five improvements to our sales process.
As a result of persistent headwinds contract value was flat in Q3.
However, we are pleased to report that Forrester decisions has now reached approximately $200 million in contract value, representing 57% of our overall CV.
In our non CV businesses, we have seen signs of stabilization as well as a modest improvement in our strategy consulting volume.
Consulting is transitioning to be a smaller part of our overall business, but its importance as part of our CV growth engine remains undiminished.
We are piloting acceleration services pre packaged consulting offerings that are aligned with priorities in the Forrester decisions services.
The packages will give clients in depth direction and guidance as they apply our research models and frameworks in their organizations.
We remain on track to convert two thirds of our CV to Forrester decisions by the end of the year and Chris will go into more details in a few moments.
Turning now to the enhancements we've made to the Forrester decisions product.
Firstly, we are excited to report that the addition of client outcomes, which was mentioned in our previous call has made significant progress.
As a reminder, our client outcomes is a new feature that identifies our clients' most pressing initiatives and links them to contextually relevant Forrester decisions assets.
We have now catalog initiatives and outcomes for 80% of Forrester decisions clients.
Client outcomes will play a vital role in creating a stickier product as it directly aligns our offerings with the work that our clients are doing every day.
It creates a continuous dialogue between clients and our research, which we call the Golden thread stitching the partnership together over the long term.
A new form of IP, which we call solutions blueprints clarifies the most common client initiatives in a step by step guides for success.
On the research side I'm excited to share that we have recently published both our 2020 for planning guides and our predictions series for the year ahead.
He is widely read reports provide guidance for our clients as they make critical 2020 for budget decisions.
We have also released our top emerging Tech report this was a major collective effort by our research organization, and which we tracked and analyzed 410 emerging technologies to highlight the tech that will shape business over the next three years.
And finally Q3 also marked the launch of the AI advantage, our sixth bold vision research theme.
Because the AI will become pervasive in a wide array of business applications. We are making this analysis available to all Forrester decisions personas.
The most important enhancement to Forrester decisions is currently in beta test with 75 clients.
Zola, our generative AI tool enables clients to converse with foresters massive database of research and get answers quickly and efficiently.
We believe that it is the most significant step forward in delivering value to our clients since the launch of our web site in 1994.
After testing and refinement I solar will become available to all for sure decisions clients further enhancing the product experience.
I was always one of four generative AI projects being developed at Forrester. In addition to improving our clients' research experience. We expect these jet AI applications to be used to increase the efficiency of internal operations improve the productivity of our sales force and augment our customer success process I believe the generative AI will.
Evolution is the research business and we are positioning Forrester to lead that revolution.
Turning now to our events business in Q3, we hosted three events technology and innovation in North America.
<unk> data strategy and insights and BTB summit APAC.
We continue to successfully attract audiences through our hybrid events model, which combines in person and a digital experience.
This approach is enabling forrester to widen the reach of events globally, approximately 25% of our event attendees are joining virtually.
Our Q3 events received all time high session scores for experience value and content.
Notably our executive leadership exchange program instead of tracks built for C level technology leaders grew nearly 50% year over year.
Nate Swan Foresters head of sales and Lisa Rally forces had a events are successfully partnering to optimize events for driving new research contract sales and for boosting cross sell with existing accounts.
In response to client demand, we are premiering a new flagship technology event next year.
By bringing together data and technology through the merger of our data strategy insights and our technology and innovation events.
Tech data teams will be able to align on growth and opportunity in a single unified Forum.
This move has already resulted in growing sponsorship renewals, 100% year over year.
Next year the events portfolio will consist of BTB summit.
CX Forum and the technology form each held in North America, Europe and Asia.
We believe that simplifying and focusing our events that will improve the client experience and more closely align the business with research content.
Events continues to play a significant role in sales pipeline generation of technology innovation form alone generated over $9 million and client opportunities up significantly from 2022.
I would like to turn to our ongoing journey to create a high performance sales team at Forrester.
In September Carter Macquarie joined as Vice President of New business.
Carter has deep new business experienced in the research industry, having worked in sales at the corporate Executive Board before that company was acquired.
He will run new sales in the Americas as well as managed global revenue development. This is a team that converts leads to new opportunities.
Recognizing the importance of customer success and sustaining long term partnerships. We also recently welcomed a new vice president of customer success settle Kumar said.
Central brings significant experience from his previous role at Salesforce, where he was the regional VP of C. S.
Nate Swanner, our chief sales officer can didn't continues to build a culture of process and coaching in the sales force and Carter and central will be excellent additions to his team.
In Q3, we saw three themes play out in our sales motion first we are seeing broad relationships with end user client organizations.
This quarter, a major American telco expanded their contract with Forrester decisions deployments across multiple business units contributing to over $1 million in CV.
These types of deals are exactly what Forrester decisions was designed to do with our legacy base start conversations and unlock new opportunities in previously untapped functional areas.
Second we are seeing strong traction with governments, both in the United States and internationally.
Governments and public agencies now recognize the connection between delivering high quality citizen and customer experiences.
Our government clients benefit from Forrester benchmarks frameworks, including zero Trust and certifications, while helping them meet stringent security requirements.
In the quarter, we closed several million dollar plus deals with U S government agencies as well as significant government contracts in APAC and EMEA.
The third trend enforcer decision sales is the conversion of large technology vendors over the platform.
In Q3, a major U S based tech company expanded their relationships by signing a 1.2 million dollar Forrester decisions contract, which will be used I C level executives to operate their functions.
She will now play an important role, helping the company increased growth through the alignment of sales marketing and product.
Bush's boarder clients convened last week in Cambridge. These executives are advised for sure on our strategy and our products and this is the 25th anniversary of the formation of the board.
Feedback and Forrester decisions was overwhelmingly positive and the board was enthusiastic about enhancements, we're making to the platform in particular, the addition of <unk> Zola.
To end my remarks, I want to reiterate that I remain confident and positive regarding the future of our business.
Unlike in past turbulent times like 2001, we have a powerful product platform, a differentiated strategy and a sales force that is making the transition to high performance. Additionally.
Additionally, we see generative AI is a game changer for our business that has the potential to make our product more usable and valuable for our clients.
We know where we're going now, though we have encountered challenges we remain resolute in our pursuit of growing C V.
Thank you very much and I will now turn the call over to Chris Finn Foresters CFO Chris.
Thanks, George and good afternoon, everyone as George outlined we continue to see business uncertainty impacting our results the third quarter shop, most metrics coming in lower than the prior year, but generally consistent with the prior quarter. We believe this uncertain environment will continue to impact the remainder of the year and into 2024.
For.
This along with our product migration is limiting our CV growth and continues to depress our non CV business, specifically with consulting and events. However, we are confident in our ability to execute and have maintained our revenue margin and EPS guidance for the year.
Furthermore, we continue to manage costs and set the business on a solid foundation to improve performance into 2024 and beyond.
Q3 saw flat C V in the quarter and overall revenue decreased 11% largely driven by our consulting business and declining legacy research for the total company, we generated $113 $4 million in revenue compared to $127.7 million in the prior year period.
In terms of segment results for the quarter research revenues decreased 7% compared to third quarter of 2022 with revenue from our subscription research products down 1%, coupled with declines in our reprint and other smaller and discontinued products.
Overall client and wallet retention, both dipped slightly compared to Q2 at 73% and 91% respectively. While Forrester decision specific client and wallet retention also dipped slightly or flat versus the second quarter at 85% and 92% respectively.
Although overall client count is down from the prior quarter Forrester decisions client count continues to grow and foster decisions client retention remains well above overall client retention by approximately 12 points.
As we noted previously we expect continued noise around our client count and retention rates as we migrate our legacy base to the forest and decisions platform.
We continue to believe that macro headwinds will perpetuate well into 2024, and this is causing our clients to put off buying decisions. This is evident in new business growth and our consulting and events businesses.
Despite these headwinds we remain on track for our foster decisions migration plan. We now have approximately $200 million of C. V on the platform and we're confident in achieving our target of approximately two thirds of total CV on foster decisions by the end of the year.
Our consulting business posted revenues of $28.2 million, which was down 24% compared to the prior year and this was driven by two factors one as outlined in previous quarters, we are focusing on using consulting as a lever to drive C V by increasing engagement and identifying cross sell opportunities within our CV client base as such.
Except in limited circumstances, we've enacted a policy of only selling consulting to customers whoever CV relationship with Forrester.
To do the environment clients are limiting discretionary spending on consulting projects. This was evident across most of our consulting lines of business, including content marketing strategy and advisory. However, this quarter, we did see a small improvement in our content marketing and strategy consulting businesses compared to the prior quarter.
And finally, our events business posted revenues of $4.6 million, representing an increase of 41% compared to the third quarter of 2020 to.
The increase was driven by a shift in event timing in Q3. This year Forrester hosted three events compared to two events in the prior year quarter.
Continuing down our P&L on an adjusted basis operating expenses for the third quarter decreased by 10% primarily driven by the restructuring plan, we announced during our Q1 call specifically on head count for the third quarter, we were down 13% compared to the same period in 2022, we plan to keep a close eye on head count hiring and attrition throughout the room.
Major of the year, we are encouraged that attrition has remained very low throughout 2023.
Operating income decreased by 22% to $12 $3 million or 10, 8% of revenue in the current quarter compared to $15.8 million or 12.4% of revenue in the third quarter of 2022, we continue to manage our margins and remain committed to aligning our cost structure without revenue outlook.
Interest expense for the quarter was point $8 million as compared to point $6 million in the third quarter of 2022. This increase was driven by higher interest rates compared to a year ago. Finally, net income and earnings per share decreased 21% and 23% respectively compared to Q3 of last year with net income at <unk>.
Point $6 million and earnings per share at 44 cents for the current quarter compared with net income of $10 $9 million and earnings per share of 57 cents in the third quarter of 2022 looking at our capital structure year to date cash flow from operating activities was $9.8 million and capital expenditures were $3 $9 million.
And we had $111.5 million of cash and investments as we exited the quarter, we did not pay down any debt during the third quarter. However, we did repurchase approximately $3.3 million worth of shares in the quarter, leaving us with approximately $71 million of our stock repurchase authorization intact.
I'll now provide additional commentary on longer term trends, we expect to play out for the remainder of the year and into next year. One recent flat CV performance will continue to impact revenue growth in 2023, and 2020 for the continued focus on C V with alignment from our product sales consulting and events teams are targeted to draw.
I've returned to CV growth.
Saw continued stabilization of CV this quarter and believe this combined with our ongoing sales initiatives will translate to modest <unk> growth in 2024 with that said the recent flat CV performance combined with declines of consulting and events will impact. The overall company revenue outlook in the near term, we expect revenue declines to moderate into.
Next year to the mid single digits as we returned to CV growth in the back half of 2024, and our expectation that consulting and events will continue to be challenged based on the macro environment.
Two we remain focused on migration and converting approximately two thirds of our C V to foster decisions by the end of the year.
In the longer term, we anticipate that approximately 80% of our CV will be represented by the Fars decisions platform. This percentage recap by nonfarm decision CV products, such as reprints of growing feedback now business and a small amount of long tail legacy business that we expect to continue into 2025, and then become immaterial to the <unk>.
This overall.
Three since nate's, one joined US here. So we continue the work to elevate our go to market strategy and sales force as George mentioned the sales organization has a number of initiatives underway, including a focus on new business improvement to the customer success process and a tighter interlock between sales and the rest of the organization.
These changes will improve our focus on renewals cross sell upsell and new business growth.
Let me provide some additional commentary on the remainder of the year.
Revenue is still expected to be in the range of 475 million to $485 million. This guidance assumes the outlet for the research business to be in a mid single digit decline a decline in our consulting business in the low twenties and a decline our vans business in the mid to high single digits for the year.
Operating margins are still expected to be in the range of 10, and a half to 11, 5% interest expense is expected to be approximately $3.1 million for the year and we are continuing to guide to a full year tax rate of approximately 29% taking.
Taking all this into account we are maintaining earnings per share in the range of $1 80 to $2.
We remain focused on the elements of the business, we can control, namely to focus on CV. They go to market improvements and our ability to manage costs. We plan on carefully managing these levers for the remainder of 2023, they need to 2024, we continued to be emboldened by the customer feedback and the value that our forest decision platform as <unk>.
Operator: Good afternoon and thank you for standing by. Welcome to Forrester's third quarter 2023 conference call. At this time, all participants are on the listen only mode.
Living for clients, which now includes approximately $200 million in contract value and will continue to grow.
Furthermore, we believe this platform and our operations in general can only be enhanced by generative AI as seen in the recent launch of rise Ola.
Operator: After the speaker's presentation, there'll be a question and answer session. Please be advised that today's conference is being recorded.
Bryce Mars: I'll now like to turn the conference over to Vice President of Corporate Development and Investor Relations at Bryce Mars. Please go ahead. Thank you and hello everyone. Thanks for joining today's call. Earlier this afternoon, we issued our press release for the third quarter of 2023. If you need a copy, you can find one on our website in the Investors section. Here with us today to discuss our results are George Colony, Forrester's Chief Executive Officer and Chairman and Chris Finn, Chief Financial Officer. Carrie Johnson, our Chief Product Officer and Nate Swan, our Chief Sales Officer, are also here with us for the Q&A section of the call.
Thank you all for taking the time today and with that I'll hand, the call back to George.
Thank you Chris I.
I would like to take a moment to express my gratitude to our employees and clients as.
As we approach Thanksgiving, we are thankful for the hard work and commitment of our employees, who have navigated through the prolonged headwinds and challenges we faced this year they're.
Their dedication and resilience have been instrumental in driving our business forward and enabling us to adapt to the evolving needs of our clients.
We're also grateful for the trust and partnership of our clients their continued support and engagement and have allowed us to deliver impactful research innovative consulting solutions and groundbreaking event experiences. We appreciate the opportunity to work with them and help them achieve their business outcomes.
Bryce Mars: Before we begin, I'd like to remind you that this call will contain forward-looking statements within the meaning of the Private Security's Litigation Reform Act of 1995. Words such as expects, believes, anticipates, intends, plans, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on the company's current plans and expectations and 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.
I'm going to hand, the call now back to the operator, and we will take questions.
Thank you Sir.
As a reminder to ask a question you will need to press star one one on your telephone to.
And which are your question. Please press star one again.
Please standby, while we compile the Q&A roster.
And I show. Our first question comes from the line of Andrew Nicholas from William Blair. Please go ahead.
Hi, Good afternoon. This is Tom <unk> on for Andrew Nicholas.
Bryce Mars: 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.
I wanted to ask about the CV growth stabilization or the stipulation CV growth that youre seeing in the quarter. I know you mentioned you saw coming out of last quarter and I was wondering if it was kind of in line with those expectations are that it improved a little bit worse and kind of what youre thinking as we exit this year.
Bryce Mars: Lastly, consistent with our previous calls, today we will be discussing our performance on an adjusted basis, which excludes items affecting comparability. While reporting on an adjusted basis is not in accordance with GAB, 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 results in our press release.
Yes, Thanks for your question Krish.
As you know, we don't specifically guide on TV per Se. We've said in the past we do expect our metrics continue to be a little bit lumpy in that area. As you go through a product transition, especially in light of the macroeconomic conditions.
Sure.
So for next few quarters, we do expect to see CV growth move up and down a few points I think we said that last time as well, but essentially would be relatively flat.
George Colony: And with that, I'll hand it over to George. Thank you for joining Foresters Q3 2023 earnings call. As has been true for the last four quarters, we continue to navigate through a challenging macroeconomic environment while simultaneously progressing on a major product transition.
Sure we are.
Positive feedback on the <unk> platform as I noted.
And we're very confident in getting to our two thirds of CV.
Platform by the end of the year and that combined with the improvements that maintenance team are making to the sales organization, you'll give us confidence yet CV growth will return as we get further along in the product transition.
George Colony: As we enter the busiest selling season of the year for Forester, I would like to cover five key themes. One, Forester's third quarter performance. Two, enhancements to the Forester Decisions product. Three, our work-applying generative AI to our business. Four, an update on our third quarter events and five improvements to our sales process. As a result of persistent headwinds, contract value was flat in Q3. However, we are pleased to report that Forester Decisions has now reached approximately $200 million in contract value representing 57% of our overall CV.
Next year.
Great and then for a follow up I know you'd mentioned.
Lola.
Being piloted by some customers I was wondering what kind of feedback you're getting right now and then also just China, China in general kind of what opportunities you see there going forward from the product side.
Sure. This is Gary I'll take that one we rolled out to about 80 beta clients.
Last week.
Early feedback has been unbelievably positive in particular clients like the ability to get quick answers from our entire body of research.
George Colony: In our non-CV businesses, we have seen signs of stabilization, as well as a modest improvement in our strategy consulting volume. Consulting and transitioning could be a smaller part of our overall business, but its importance as part of our CV growth engine remains undiminished. We are piloting acceleration services, pre-packaged consulting offerings that are aligned with priorities in the Forrester decisions services. The packages will give clients in-depth direction and guidance as they apply our research models and framework in their organizations. We remain on track to convert two-thirds of our CV to Forrester decisions by the end of the year and Chris will go into more details in a few moments.
Then.
Youre out whats researching the most relevant for them to then dig into so as always doing very nicely for us.
We're hoping that rolled this out to more customers soon because we really do believe.
This is a massive leap forward in how customers interact with us and help move their journeys forward. So we're very proud of this and excited to launch into more customer soon.
Great.
Yes, I mean, Jennie I as it is is a way for people to converse in their own language English for us.
With big piles of data, we have a very big pile of data.
And its a daunting pilot data is hard to its hard to hard to find the right research with Angola is strangely enough to get you.
George Colony: Turning now to the enhancements we've made to the Forrester decisions product. Firstly, we are excited to report that the addition of client outcomes, which was mentioned in our previous call, has made significant progress. As a reminder, client outcomes is a new feature that identifies our clients most pressing initiatives and links them to contextually relevant Forrester decisions assets. We have now cataloged initiatives and outcomes for 80% of Forrester decisions clients. Client outcomes will play a vital role in creating a stickier product as it directly aligns our offerings with the work that our clients are doing every day.
We'll get there immediately so this is again as I said the biggest change since our website.
Which is why we have four projects internally.
<unk>.
Thanks for the question.
Thank you. Thank you.
And I show. Our next question comes from the line of Anja Soderstrom from Sidoti. Please go ahead.
Great and thanks for taking my questions.
So I'm just curious about the client churn is that still mainly geared to setting a nonstrategic accounts.
George Colony: It creates a continuous dialogue between clients and our research, which we call the golden thread. Ditching the partnership together over the long term. A new form of IP, which we call Solutions Blueprints, codifies the most common client initiatives into step-by-step guides for success. On the research side, I'm excited to share that we have recently published both our 2024 planning guides and our prediction series for the year ahead. These widely read reports provide guidance for our clients as they make critical 2024 budget decisions.
Yeah from a client sharing perspective, yeah. This is Chris.
Yes, we're still seeing that really in a small vendor cohort.
That's ongoing as we go through the transition.
Smaller base now.
Legacy business from a CV perspective going into Q.
Q4, now in the next year or so.
We continue to expect our retention numbers to be a little bit lumpy as we go forward.
George Colony: We have also released our top emerging tech report. This was a major collective effort by our research organization in which we tracked and analyzed 410 emerging technologies to highlight the tech that will shape business over the next three years.
But obviously as we continue to make that migration.
We're going to see it stabilize going into next year.
Yes.
Our board members is one of my Board members is a silicon valley.
<unk> and she said that 650 startups have gone out of business and the last.
George Colony: And finally, Q3 also marked the launch of the AI advantage, our sixth bold vision research theme. Because AI will become pervasive in a wide array of business applications, we are making this analysis available to all Forrester decisions personas. The most important enhancement to Forrester decisions is currently in beta test with 75 clients. Isola, our generative AI tool, enables clients to converse with Forrester's massive database of research and get answers quickly and efficiently.
Four five quarters and she and she said she expects another 500 to go out of business over the next four quarters Ed.
It's pretty it's pretty extraordinary was happening in the small vendor world yes.
Yeah.
And it comes from them.
Yes.
Has that have transitioned to furnish their decision you're talking about that that wallet retention.
It's higher than the overall.
George Colony: We believe that it is the most significant step forward in delivering value to our clients since the launch of our website in 1994. After testing and refinement, Isola will become available to all Forrester decisions clients further enhancing the product experience. Isola is one of four generative AI projects being developed at Forrester. In addition to improving our clients' research experience, we expect these GNI applications to be used to increase the efficiency of internal operations, improve the productivity of our sales force, and augment our customer success process. I believe the generative AI will revolutionize the research business, and we are positioning Forrester to lead that revolution.
Did you say to what magnitude.
That is yes.
Client retention standpoint, it's approximately 12 points higher on FTE than it is for the overall platform.
Overall im sorry.
Business route.
Okay, and then in terms of the AI.
In addition to your platform how much of an upsell is Scott.
Actually yes.
Yes Kerry.
I know that will be included in the Forrester decision.
<unk> line and not included in our Heritage line.
So again more incentive to migrate more incentive to migrate correct.
George Colony: Turning now to our events business. In Q3 we hosted three events, Technology and Innovation North America, Data Strategy Insights, and B2B Summit APAC. We continued to successfully attract audiences through our hybrid events model which combined in-person and a digital experience. This approach is enabling Forrester to widen the reach of events globally. Approximately 25% of our event attendees are joining virtually. Our Q3 events received all-time high-session scores for experience, value, and content.
Okay.
Thank you that was all for me.
Thanks Kelly.
Thank you.
And I show. Our next question comes from the line of Vince Colicchio from Barrington. Please go ahead.
Yes.
I'm curious so what caused the sequential decline in sales was that voluntary and involuntary what does that look like.
Sorry, you mean, our sales head count, yes, yes, sorry.
Got it.
Yes.
It's down slightly I may do you want to comment on that.
George Colony: Notably, our Executive Leadership Exchange Program, a set of tracks built for sea-level technology leaders, grew nearly 50% year over year. Nate Swan Forrester's head of sales and Lisa Riley Forrester's head of events are successfully partnering to optimize events for driving new research contract sales and for boosting cross-cell with existing accounts.
Are you talking from Q2 to Q3 post reduction enforce yes.
Okay.
Post reduction enforced we've had.
Just slight declines were in the.
We're in the process of actually adding back in head count right now so.
George Colony: In response to client demand, we are premiering a new flagship technology event next year. By bringing together data and technology through the merger of our Data Strategy Insights and our Technology and Innovation events, Tech and Data Teams will be able to align on growth and opportunity in a single unified forum. This move has already resulted in growing sponsorship renewals 100% year over year. Next year the events portfolio will consist of B2B Summit, CX Forum, and the Technology Forum each held in North America, Europe, and Asia.
<unk>.
Opening up a lot too for backfill. So we're excited about that.
Looking forward to continuing to grow our sales force we.
We need to invest.
Invest in the right areas in the right areas really around new business development that part of the reason Carter is here.
Is getting focused on the end user opportunity that we see out here, where we're already very good at capturing the mid sized vendors.
We're going to get really focused on how do we capture more user clients. So we will be focused in that area and adding head count in that area. So right now we're just down due to attrition, but we are bringing those back up.
George Colony: We believe that simplifying and focusing in our events will improve the client experience and more closely align the business with research content. Events continue to play a significant role in sales pipeline generation. The Technology and Innovation Forum alone generated over $9 million in client opportunities, up significantly from 2022.
And we don't anticipate going lower than what we are right now and Vince attrition is very low it's in there.
Single digits single digits.
Kind of historically low attrition.
And.
How are you feeling about the.
George Colony: I would like to turn to our ongoing journey to create a high-performance sales team at Forrester. In September, Carter McCory joined as vice president of new business. Carter has deep new business experience in the research industry, having worked in sales at the corporate executive board before that company was acquired. He will run new sales in the Americas as well as manage global revenue development. This is a team that converts leads to new opportunities.
Important process of selling more to more senior people, our clients and prospects.
Has that progressed.
Progressing as you had expected.
Yes, I think so I mean, it's a journey that we go through there is it's a different model that we're selling to Vince or different set we're starting to sell into so that's a change in skill set but the sales force is reacting really well to that they want to be.
George Colony: Recognizing the importance of customer success in sustaining long-term partnerships, we also recently welcomed the new vice president of customer success, Centil Kumar. Centil brings significant experience from his previous role at Salesforce, where he was a regional VP of CS. Nate Swan, our chief sales officer, continues to build a culture of process and coaching in the Salesforce and Carter and Centil will be excellent additions to his team.
Where we're going and they want to have more senior level relationships.
And they are enjoying doing the scalpel building to get there. We're also doing this.
We got great feedback back from our board of clients.
That was the value that they see in working with Forrester is better alignment across their teams.
These are some of the most senior executives at rather large organizations and they specifically look to Forrester to understand what's happening in the organization because we can connect.
George Colony: In Q3, we saw three themes play out in our sales motion. First, we are seeing broad relationships within user-client organizations. This quarter, a major American telco, expanded their contract, with Forrester decisions and deployments across multiple business units contributing to over $1 million in CV. These types of deals are exactly what Forrester decisions was designed to do with a legacy base. Start conversations and unlock new opportunities in previously untapped functional areas.
That all together for them. So it's not just that we think this is something that's good our clients are telling us that this is good as well.
And Chris on the.
Decline in clients.
Small client is obviously the key driver there.
How large is the small client base as a percentage of the total now.
Yes, as I appreciated that the total at this point I mean, I think we're down to.
George Colony: Second, we are seeing strong traction with governments, both in the United States and internationally. Governments and public agencies now recognize the connection between delivering high-quality citizen and customer experiences. Our government clients benefit from Forrester benchmarks, frameworks, including zero trust, and certifications, while helping them meet stringent security requirements. In the quarter, we closed several million dollar plus deals with U.S, government agencies, as well as significant government contracts in APAC and in May of.
<unk>.
And the legacy business I mean.
Less than 30% at this point.
We feel pretty good.
About the ongoing migration in general from a legacy perspective and looked at churn.
As expected and built into our numbers as we go forward and obviously the further we get into migration growing next year its less of an impact that's going to have.
And especially as we go out past 'twenty four we do expect that to really be an immaterial part of the business on the legacy side once we get into 'twenty five and beyond.
George Colony: The third trend in Forrester decision sales is the conversion of large technology vendors over to the platform. In Q3, a major U.S.-based tech company expanded their relationship by signing a $1.2 million Forrester Decisions contract, which will be used by sea level executives to operate their functions. Forrester will now play an important role helping the company increase growth through the alignment of sales, marketing, and products.
We made a decision to not sell to sub $50 million vendors.
So we are turning the sales force again toward larger users primarily and of course, the large vendors.
Okay.
Is it from me Thank you guys.
Thanks, guys I appreciate it.
Thank you.
I'm showing no further questions in the queue at this time I'd like to turn the call back over to Chris <unk> for closing remarks.
George Colony: Forrester's Board of Clients convened last week in Cambridge. These executives have advised Forrester on a strategy and their products, and this is the 25th anniversary of the formation of the board. Feedback on Forrester Decisions was overwhelmingly positive, and the board was enthusiastic about enhancement through the partnership we are making to the platform in particular, the addition of IZola.
Yes, thanks, everybody for joining us today, we really appreciate it any questions follow up comments, please reach out to us on my shelf or adverse marsh. Thank you all.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
George Colony: To end my remarks, I want to reiterate that I remain confident and positive regarding the future of our business. Unlike in past turbulent times like 2001, we have a powerful product platform, a differentiated strategy, and a sales force that is making the transition to high performance. Additionally, we see generative AI as a game changer for a business that has the potential to make our product more usable and valuable for our clients. We know where we are going, and although we have encountered challenges, we remain resolute in our pursuit of growing CV.
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Chris Finn: Thank you very much, and we'll now turn the call over to Chris Finn forrester CFO, Chris. Thanks, George, and good afternoon everyone. As George outlined, we continue to see business uncertainty impacting our results.
Chris Finn: The third quarter saw most metrics coming in lower than the prior year, but generally consistent with the prior quarter. We believe this uncertain environment will continue to impact the remainder of the year and into 2024. This, along with our product migration, is limiting our CV growth and continues to depress our non-CV business, specifically with consulting and events. However, we are confident in our ability to execute and have maintained our revenue margin and EPS guidance for the year.
Chris Finn: Furthermore, we continue to manage costs and set the business on a solid foundation to improve performance into 2024 and beyond.
Chris Finn: Q3 saw flat CV in the quarter and overall revenue decreased 11%, largely driven by our consulting business and declining legacy research. For the total company, we generated $113.4 million in revenue compared to $127.7 million in the prior year period. In terms of segment results for the quarter, research revenues decreased 7%, compared to the third quarter of 2022, with revenue from our subscription research products down 1%, coupled with declines in our reprint and other smaller and discontinued products.
Chris Finn: Overall, client and wallet retention both dips slightly compared to Q2 at 73% and 91% respectively, while farce of decisions specific client and wallet retention also dips slightly or flat versus the second quarter at 85% and 92% respectively. Although overall client count is down from the prior quarter, farce of decisions client count continues to grow, and farce of decisions client retention remains well above overall client retention by approximately 12 points. As we noted previously, we expect continued noise around our client count and retention rates as we migrate our legacy base to the farce of decisions platform.
Chris Finn: We continue to believe that macro headwinds will perpetuate well into 2024, and this is causing our clients to put off buying decisions. This is evident in new business growth and our consulting and events businesses. Despite these headwinds, we remain on track for our farce of decisions migration plan. We now have approximately two million dollars of CV on the platform, and we're confident in achieving our target of approximately two thirds of total CV on farce of decisions by the end of the year.
Chris Finn: Our consulting business posted revenues of $28.2 million, which was down 24% compared to the prior year, and this was driven by two factors. One, as outlined in previous quarters, we are focusing on using consulting as a lever to drive CV by increasing engagement and identifying cross-sell opportunities within our CV client base. As such, except in limited circumstances, we've enacted a policy of only selling consulting to customers who have a CV relationship with farrester.
Chris Finn: Two, due to the environment, clients are limiting discretionary spending on consulting projects. This was evident across most of our consulting lines of business, including content marketing, strategy, and advisory. However, this quarter we did see a small improvement in our content marketing and strategy consulting businesses compared to the prior quarter.
Chris Finn: And finally, our events business posted revenues of $4.6 million, representing an increase of 41% compared to the third quarter of 2022. The increase was driven by a shift in event timing. In Q3 this year, farrester hosted three events compared to two events in the prior year quarter. Continuing down our P&L on an adjusted basis, operating expenses of the third quarter decreased by 10%, primarily driven by the restructuring plan we announced during our Q1 call.
Chris Finn: Specifically on headcounts of the third quarter, we would down 13% compared to the same period in 2022. We plan to keep a close eye on headcount, hiring, and attrition throughout the remainder of the year. We are encouraged that attrition has remained very low throughout 2023. Operating income decreased by 22% to $12.3 million or 10.8% of revenue in the current quarter compared to $15.8 million or $12.4% of revenue in the third quarter of 2022.
Chris Finn: We continue to manage our margins and remain committed to aligning our cross structure without revenue outlook. Interest expense for the quarter was $0.8 million as compared to $0.6 million in the third quarter of 2022. This increase was driven by higher interest rates compared to a year ago. Finally, net income in earnings per share decreased 21% and 23% respectively compared to Q3 of last year with net income at $8.6 million and earnings per share at $0.44 for the current quarter.
Chris Finn: Compare with net income of $10.9 million and earnings per share of 57 cents in the third quarter of 2022. Looking at our capital structure, due to date cash flow from operating activities was $9.8 million and capital expenditures with $3.9 million and we had $111.5 million of cash and investments as we educated the quarter. We did not pay down any debt during the third quarter. However, we did repurchase approximately $3.3 million worth of shares in the quarter, leaving us with approximately $71 million of our stock repurchase authorization intact.
Chris Finn: I'll now provide additional commentary on longer term trends we expect to play out for the remainder of the year in the next year. 1. Recent flat CV performance will continue to impact revenue growth in 2023 and 2024. The continued focus on CV with alignment from our product, sales, consulting, and events teams are targeted to driver return to CV growth. We saw a continued stabilization of CV this quarter, and believe this combined with our ongoing sales initiatives will translate to modest CV growth in 2024.
Chris Finn: With that said, the recent flat CV performance combined with declines in consulting and events will impact the overall company revenue outlook in the near term. We expect revenue declines to moderate into next year to the mid-single digits as we return to CV growth in the back half of 2024 and our expectation that consulting events will continue to be challenged based on the macro environment.
Chris Finn: 2. We remain focused on migration and converting approximately two-thirds of our CV to far to decisions by the end of the year. In the longer term, we anticipate that approximately 80% of our CV will be represented by the far to decisions platform. This percentage will be capped by non-far to decision CV products such as reprints of growing feedback now business and a small amount of long tail legacy business that we expect to continue into 2025 and then become immaterial to the business overall.
Chris Finn: 3. Since Nate Swan joined at CSO, we continue the work to elevate our go-to-market strategy and sales force. As George mentioned, the sales organization has a number of initiatives underway, including a focus on new business, improvement to the customer success process, and a tighter interlock between sales and the rest of the organization. These changes will improve our focus on renewals, cross-fell-up sell, and new business growth.
Chris Finn: Let me provide some additional commentary on the remainder of the year. Revenue is still expected to be in a range of $475 million to $485 million. This guidance assumes the outlook for the research business to be in a mid-single-digit decline but decline in our consulting business in the low 20s and a decline in our events business in the mid-to-high single digits for the year. Operating margins are still expected to be in a range of 10.5 to 11.5%.
Chris Finn: Interest expenses expected to be approximately $3.1 million for the year, and we are continuing to guide to a full-year tax rate of approximately 29%. Taking all of this into account, we are maintaining earnings for share in a range of $1.80 to $2. We remain focused on the elements of the business we can control, namely the focus on CV, the go-to-market improvements, and our ability to manage costs. We plan on carefully managing these levers for the remainder of 2023 and into 2024.
Chris Finn: We continue to be emboldened by the customer feedback and the value that our Farsi decision platform is driving for clients, which now includes approximately $200 million of contract value and will continue to grow. Furthermore, we believe this platform and our operations in general can only be enhanced by a genitive AI as seen in the recent launch of Isola.
George Colony: Thank you all for taking the time today, and with that, I will hand the call back to George. Thank you, Chris.
George Colony: I would like to take a moment to express my gratitude to our employees and clients. As we approach Thanksgiving, we are thankful for the hard work and commitment of our employees who have navigated through the prolonged headwinds and challenges we face this year. The dedication and resilience have been instrumental in driving our business forward and enabling us to adapt to the evolving needs of our clients. We are also grateful for the trust and partnership of our clients.
George Colony: They are continuing to support an engagement and have a lot of us to deliver impactful research, innovative consulting solutions and groundbreaking event experiences. We appreciate the opportunity to work with them and help them achieve their business outcomes.
Operator: I'm going to hand the call now back to the operator and we will take questions. Thank you, sir. As a reminder to ask a question, you would need to press star 11 on your telephone to withdraw your question. Please press star 11 again. Please stand by while we compile the Q&A roster.
Tom Rauchon: And I show our first question comes from the line of Andrew Nicholas from William Blair. Please go ahead. Hi, good afternoon.
Chris Finn: This is Tom Rauchon for Andrew Nicholas. I want to ask about the CV growth civilization or the Civilization CV growth that you are seeing in the quarter. I know you mentioned you saw coming out of the last quarter. And I was wondering if those kind of in line with those expectations or did it improve a little bit worse and kind of what you are thinking as we exit this year. Yeah, thanks.
Chris Finn: It's a good question. It's Chris. So as you know, we don't specifically guide on CV growth for say, we have said the past. We do expect our metrics to continue to be a little bit lumpy in that area. As we go through our product transition, especially in the late of the back work and on the conditions are, you know, we're out there. So for the next three quarters, we do expect to see CV growth move up and down a few points.
Chris Finn: I think we said that last time as well, but essentially be relatively flat. You know, that being said, we are, you know, continuing to have positive feedback on the FD platform as I noted. And we're very confident getting to our two thirds of CV on the platform by the end of the year. And that combined with the improvements that Nate and his team are making to the sales organization do give us confidence and CV growth will return as we get further along on the product transition next year.
Carrie Johnson: Great. And then for follow up, I know you mentioned the AI product as a lot. And it's being it's getting piloted by some customers. I was wondering what kind of feedback you're getting right now. And then also just try not try to add in general kind of what opportunity you see there going forward from the product side.
Carrie Johnson: Sure, this is carrier. I'll take that one. We rolled as all out to about 80 beta clients last week. The early feedback has been unbelievably positive in particular. Clients like the ability to get quick answers from our entire body of research. And then figure out what research is the most relevant for them to then dig into. So as always doing very nicely for us.
George Colony: And we're hoping to roll this out to more customers soon because we really do believe this is a massive leap forward on how customers interact with us and help move their journeys forward. So we're very proud of this and excited to launch it to more customers soon. Great.
George Colony: Yeah, I mean, Jenny is a is a is a way for people to converse in their own language English for us with big piles of data. We have a very big pile of data. And it's a daunting pile of data. It's hard. It's hard to find the right research.
George Colony: With Isola, it's strangely enough, So, this is, again, as I said, the biggest change since our website, which is why we have four products internally, ongoing Thanks for the question Thank you, thank you.
Anja Söderström: And I show our next question comes from the line of Anja Soderstrom from Siddori, please go ahead. Hi, and thanks for taking my questions. I'm just curious about the client.
Chris Finn: So, are you still mainly due to shedding a monstertidic account? Yeah, from a client's current perspective, yeah, this is Chris, I know. Yeah, we're still seeing that really in the small vendor cohort. You know, that's ongoing as we go through the transition and we get a smaller base now in a legacy business from a CV perspective, going into, you know, in a Q4 now and in that year. So, what we continue to expect our attention numbers to be a little bit lumpy and as we go forward, but obviously as we continue to make that migration progress, we're going to see it stabilize going into next year.
George Colony: Anja, one of our board members is, one of our board members is the Silicon Valley executive. And she said that 650 starters have gone out of business in the last four or five quarters. And she said that she expects other 1500 to go out of business of the next four quarters ahead. So pretty extraordinary. It's happening in the small vendor world. Yeah, no, and in terms of them, the kinds that have transitioned to forest or decision, you're talking about that wall of retention and retention rate is higher than the overall. Did you say to what magnitude that is? Yeah, for climate attention standpoint, it's approximately 12 points higher on FD than it is for the overall platform. Well, the overall, sorry, overall business round.
Carrie Johnson: Okay, and then in terms of the AI addition to your platform, how much of an upsell is that? Actually, hi, Anja, it's Carrie. Isola will be included in the forest or decisions product line and not included in our heritage line. So again, more incentive to migrate? More incentive to migrate, correct?
Anja Söderström: Thank you. That was all from me. Thank you.
Vincent Colicchio: Anja, our next question comes from the line of Vince Colliqueo from Barrington.
Vincent Colicchio: Please go ahead. Yes. Curious what caused the sequential decline in sales? Was that voluntary and voluntary? What does that look like? Sorry, you mean our sales headcount? Yes, yes, sorry. It's down slightly than 81, I'm coming on that note. Down, are you talking from Q2 to Q3 post-production in force? Yes. Okay. Post-production and force, we've had just like declines, we're in the process of actually adding back in headcount right now, so actually opening up a lot for backfill, so we're excited about that.
Vincent Colicchio: We're looking forward to continuing to grow our sales force. We need to invest in the right areas, and the right areas really are around new business development. That's part of the reason Carter is here is getting focused on the end-user opportunity that we see out here. We're already very good at capturing the mid-size vendors. We're going to get really focused on how do we capture more user clients, so we will be focused in that area and adding headcount in that area.
Vincent Colicchio: So right now we're just down due to attrition, but we are bringing those back up, and we don't anticipate going lower than what we are right now. And Vincent Trishon is very low, it's in the single digit. So kind of historically low attrition.
Nate Swan: And Nate, how are you feeling about the important process of selling more to more senior people at clients and prospects? Is that progressing as you had expected? Yeah, I think so. I mean, it's a journey that we go through. There is a different model that we're selling to, vents or different sets that we're selling to, so that's a change in skill set. But the sales force is reacting really well to that.
Nate Swan: They want to be where we're going, they want to have more senior-level relationships, and they are enjoying doing the skill building to get there. We're also the value that they see in working with Forrester is better alignment across their teams. These are some of the most senior executives at rather large organizations, and they specifically look to Forrester to understand what's happening in their organization because we can connect that all together for them. So it's not just that we think this is something that's good, our clients are telling us that this is good as well.
Chris Finn: Chris, on the decline in clients, small clients is obviously the key driver there. How large is the small client base as a percentage of the total now? Yeah, as a percentage of the total at this point, I mean, I think we're down to, excuse me, in the legacy business, I mean, it's less than 30 percent at this point. So we feel pretty good about the ongoing migration in general from a legacy perspective, and look, that turn is expected, and it's kind of built into our numbers as we go forward.
Chris Finn: And obviously, the further we get into migration going next year, the less of an impact that's going to have, especially as we go out past 24, we do expect that to really be an immaterial part of the business on the legacy side once we get into 25 of beyond. Yeah, we made a decision to not sell to sub $50 million vendors. So we are turning the sales force again, toward larger users primarily, and of course, the large vendors.
Vincent Colicchio: Okay, that's it for me. Thank you, guys. Thanks, Vince, for sharing. Thank you.
Operator: I'm sure no further questions in the queue.
Chris Finn: At this time, I'd like to turn the call back over to Chris Finn for closing remarks. Yeah, thanks very much for joining us today. We really appreciate it.
Operator: Any questions, follow-up comments, please reach out to us, Michelle or Edward Morris. Thank you all. Thank you.
Operator: This concludes today's conference call.
Operator: Thank you for participating. You may now disconnect.