Forrester Research, Inc. Price & Performance (FORR)

Hello, everyone. Thanks for joining today's call. Earlier this afternoon, we issued our press release for the fourth quarter and full year 2024. 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, Forrest's Chief Executive Officer and Chairman and Chris Finn, Chief Financial Officer. Carrie Johnson, our Chief Product Officer and Nate Swan, Chief Sales Officer are also with us for the Q and A section of the call. Before we begin, I'd like to remind you that this call will contain certain 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 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 obligations to publicly update any forward looking statements whether as a result of new information, future events Lastly, consistent with 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. From these adjusted results in our press release. And with that, I'll hand it over to George. Thank you for joining Forrester's twenty twenty four Q4 and full year earnings call. With me is our Chief Financial Officer, Chris Finn who will present a financial update following my remarks. I will be covering the following key themes.

Our progress in twenty twenty four two Q4 and 2024 fiscal year financial performance. And three, focus areas for 2025. 2024 was the final year of our transition to Forrester Decisions or FD. We embarked on this journey in 2021 and have worked through a number of challenges, all against the backdrop of a tech slowdown in an uncertain economic environment. As Christoph Fahr, our Head of Sales in Europe and Asia observed, this wasn't a transition to a new product, it was a transition to a new company. We have had to introduce all of our clients to a different value proposition and a new way of working with Forrester Forrester. We are pleased to report that our migration is essentially complete. With 80% of our contract value or CV now in our FD portfolio. The remaining 20% of CV is largely reprints, with a small portion remaining in our legacy product. As a result, after our multiyear migration, the entire organization is now 100% focused on selling and supporting [indiscernible] This will allow research and product to continue enhancing Forrester decisions and our go to market teams to focus on retention, enrichment and adding new clients to the platform.

While this period in the company's history has been challenging, we remain confident that the changes we have made will generate long term shareholder and [indiscernible] As discussed on previous calls, while we have been transitioning Forrester decisions, we've also been refocusing our consulting and events businesses to drive CV. By design, these businesses comprise a smaller portion of our overall revenue mix now less than 30%. Our consulting business overcame a slow start in the year and showed improved trends in the second half of the year with particular strength strategy, Our events business was challenged in 2024 While the percentage of clients with events tickets attending events rose to historically high rates, non client attendees were down resulting in smaller than planned total audiences. Audience size impacted sponsorship sales which comprise approximately 70% of events revenue. Now despite these factors, our Events continue to record high experience scores from attendees.

Or events in part high value. In 2025, we are investing in events to drive higher audiences and expanded experiences. Our metrics stabilized in the year with pockets of improvement. While retention improved by two points, while contract value per client increased 10%, from $143,000 at year end 2023 to $158,000 at year end 2024. The percentage of CV that is in multiyear contracts continues to grow. This number moved from 62% at the end of 2023 to 69% at year end 2024. Turning now to a brief summary of our product improvements in 2024. IZOLA is Forrester's generative AI tool. It enables clients to quickly access our research and create new synthesis of that research. It went into full availability at midyear and we continue to enhance the tool. In the fourth quarter, we released a new version of iZOLA UX, and we've added functionality enabling clients to access survey data models and WAV baseline data sets. IZOLA is now the third highest destination for our clients when they visit the Forrester website. We launched our new reprint hub, which allows clients to easily manage their reprint licenses from within the core digital Forster.com platform. The transition to our new in house site brings us operational efficiencies and cost savings and it enabled the creation of a new subscription product Flexible Reprints, which launched in the third quarter.

As part of our continually enhancement of Forrester decisions, we launched a new service in 2024, Forrester Decisions Forrester, AI and analytics. This service guides data and technology leaders as they build their AI and data roadmaps link business objectives to their data strategy and create modern data governance. Early clients are in the financial services, consumer and high-tech verticals. Finally, this year, we unveiled a major update to our iconic Forrester Forrester, the comprehensive product guide that has served tech buyers for more than two decades. These changes simplify the process of buyer selection and allow clients to make purchasing decisions based on their specific needs preferences and priorities. Our new interactive wave comparison tool allows clients to view results tailored to their specific requirements and context. Turning now to our full year and Q4 performance. Bookings attenuated late in the fourth quarter resulting in a CV decline of 5% for the full year. This was another reminder that we are still adjusting to the exigencies and selling dynamics of Forrester decisions. The CV bookings missed in the fourth quarter contributed to revenue decline, 9% for the quarter and 10% for the year. That said, revenue and profitability for Q4 and twenty twenty four were at or above the midpoint of our guidance.

Keep our expenses aligned with expected revenue in 2025, we had a reduction in force of 6% in early January. Chris will give you additional financial details in a few moments. And now I'd like to touch on our outlook for 2025.

We are planning for flat contract value growth in the year. Our outlook is being driven by three factors. [indiscernible] while the product transition is complete, we believe that our sales motion and culture will be completing its transition in 2025. Two, continued weakness in the technology and tech services markets. And three, economic and political uncertainties. Potentially driven by the changes being made by the incoming U. S. Presidential administration. So while we expect CB growth to be flat in 2025, we are planning for revenue to be down in the year as a result of negative contract value increase in 2020 However, expect cash flow to return to historical levels in the year. With the product transition complete, the company is focused on three initiatives in 2025. [indiscernible] improving retention. Two, driving growth. [indiscernible] boosting events to be a more potent driver of retention and CV growth. Now while retaining clients is of course always job one for the company, we are enhancing our systems to drive it higher in 2025. The foremost change is the institutionalization of our retention lifecycle process which we debuted in the second half of twenty twenty four. Retention lifecycle is set to cadence of continuous check ins with the economic buyer of Forrester decisions.

Reviewing the clients' progress of their most important initiatives, In the second half of twenty twenty four, we found correlation between client lifecycle participation and improved [indiscernible] To drive growth, we will continue with the regimen we put One, selling to C level executives who have the budget and authority to apply our research.

To ensuring that our sales activities are standardized and consistently followed. And three, applying our new sales methodology, what we call FAST, to reduce the time to close business. Our 2025 growth plan includes investments to boost sales productivity training and execution, including the hiring of new quota bearing headcount and account development representatives. Our third initiative is to supercharge our events to make them more powerful platforms for selling and renewing research contracts. I like to call events the Apple Store Forrester. The place where we are in person with clients where our clients can get to spend time with their peers and colleagues. We're making three investments in events. One, shifting marketing dollars to expand the events audience. [indiscernible] incentivizing our sales force to sign up clients and non clients for events and three, expanding the experience and content Our marketing organization is being tightly integrated with our events organization to ensure that we have good alignment of messaging spend and attention. Events is a business that we've always been in We want to better leverage this asset to get the most return in the form of CV growth. [indiscernible] I want to thank investors for their patience as the company has moved through these past [indiscernible] Well, this has certainly been challenging I want to outline what we have accomplished and why the new Forrester will ultimately be a better investment than the old Forrester Forrester.

Number one, the company has pivoted from a 60% CV 40% non CV ratio to 73% CV and 27% non CV. As we return to growth, these new ratios will increase profitability and operating leverage. Two, CV per client and multiyear contracts continue to expand. Which will ultimately increase sales productivity. This reflects our ongoing move to shed small company customers in favor of larger [indiscernible] Three, we've simplified the business. Centering on one power research platform designed to increase cross sell, wallet retention. Four we are the only research company of scale that has constructed a generative AI tool to enable clients to get answers and solutions [indiscernible] This will improve client satisfaction and retention rates. And finally, five, we have sharpened our competitive positioning and uniqueness. We analyze tech and business together, not in silos. We uniquely Forrester on helping our clients win, serve and retain their customers. And finally, unlike our competitors, we offer research, We are on the side and by the side of our clients. We believe that the transition in the last three years has been worthwhile Getting to this new model will make the company more profitable, with higher growth potential with more opportunities to be embedded clients We are through the product transition and now we are focused on executing making this distinct model [indiscernible] Thank you very much.

I will now turn the call over to Chris Finn, Forrester's CFO Forrester. Chris, Thanks, George, and good afternoon, everyone. As George discussed, our fourth quarter results fell short of our expectations. Despite this, have made meaningful progress this year as a company. Including materially completing the Forest of Decisions migration completing the rollout of our generative AI tool, IZola, launching a new reprints platform, which allows for the capability to offer a newly launched of Trifion reprint product and continuously improving the Forrester Decisions platform with ongoing updates. In addition, our fourth quarter and full year financial results were in line with or better than the midpoint of our guidance and consensus estimates. Furthermore, key metrics have stabilized or steadily improved These include wallet retention, client retention, contract value per client, and the portion of CV on multiyear contracts. On the topic of metrics, I wanted to highlight that we have recast our CV metric for 2025 plan foreign currency rates furthermore, we corrected an insignificant error in the calculation which had no effect on prior CV trends. We have included the historical recast CV metrics in the investor presentation on our website. Also, starting next quarter, we'll only be commenting on a consolidated set of metrics going forward.

For the quarter, overall revenue was $108,000,000 representing a 9% decline from Q4 'twenty three revenues of $118,100,000 Overall revenue for the year came in at $432,500,000 representing a 10% decline from the $480,800,000 we generated in 2023. As we've outlined in January, have taken actions to better align our cost structure with the decline in our revenue. I'll now provide some additional details regarding the restructuring. We have reduced our workforce by approximately 6%. We expect to incur approximately $5,500,000 to $5,700,000 of costs for these actions, including $4,200,000 that was recognized during the fourth quarter. Approximately $300,000 of the charge is non cash and we plan to use a portion of the cost savings to fund overall employee compensation incentives as well as focused investments across sales and customer success. In terms of segment results for the quarter, for the research segment, CV came in at $307,600,000 on December 31, 2024. And this is a 5% decline from December 2023. The decrease in CV was largely due to a smaller improvement in wall retention than expected and lower new business across the globe. As outlined by George, retention and growth are the two most important areas of focus for sales and the entire company for 2025.

We have seen wall retention improve by two points in 2024 from 87% to 89% and expect this improvement to continue. However, due to the anticipated pacing of wall retention improvements and new business growth during 2025, we expect CV to only show a modest improvement as we move through the year. Although the selling environment is improving overall, it's still a challenging market and we expect the first half to remain muted with improving CV performance in the back half.

Overall client count was lower for the fourth quarter and client retention remained stable at 73%. As part of the ongoing retention initiatives, we are looking to improve overall client retention in the near term. Client retention should benefit by the fact that we achieved our goal of having 80% of our CV in the Forged Decision platform at year end. And by an increasing amount of CV in multiyear contracts. The remaining 20% of CV primarily represents our reprint products along with a small portion of CV remaining in our legacy research products. From a revenue standpoint, research revenues decreased 7% in the fourth quarter and 5% for the full year. For the full year, revenue from our subscription research products was down approximately 1% as growth in far as the decisions was offset by declines in our legacy research products. In addition, we experienced declines in reprints in our other smaller and discontinued products. Our consulting business posted revenues of $25,900,000 for the fourth quarter and $97,300,000 for the full year. Representing declines of 818% respectively. Versus the prior year periods. Despite these declines, we saw some positive trends in our consulting services in 2024. This includes a return to bookings growth for strategy consulting and booking stabilization in our content marketing and advisory businesses.

This ongoing stabilization of consulting over the last two quarters combined with improved alignment of consulting and sales, gives us confidence that the business will continue to improve in 2025. And finally, our events business posted revenues of $2,700,000 representing a decline of 42% compared to the fourth quarter of twenty twenty three.

For the full year, the segment declined by 34% to $18,500,000 This was driven by lower sponsorship revenue and ticket sales. As George outlined, we are looking to refocus our events business in 2025 with additional investments New leadership an emphasis on sponsorship and driving both clients and prospects to events. Continuing down our P and L on an adjusted basis, operating expenses for the fourth quarter decreased by 11% primarily driven by ongoing cost management. Specifically on headcount, for the fourth quarter, grew down 10% compared to the same period in 2023. On a full year basis, operating expenses decreased by 8% also largely driven by labor reductions in the associated compensation and benefit savings. With additional savings from other categories including professional services and facilities expenses. Operating income increased by 32% to $8,900,000 or 8.3% of revenue in the current quarter. Compared to $6,800,000 or 5.8% of revenue in the fourth quarter of twenty twenty three. On a full year basis, operating income decreased by 26% to $38,500,000 8.9% of revenue compared with $52,300,000 or 10.9% of revenue in 2024. We continue to be committed to aligning our cost structure with our revenue outlook. Interest expense for the quarter was $700,000 as compared to $800,000 in the fourth quarter of twenty twenty three.

On a full year basis, interest expense was $3,000,000 compared to $3,100,000 in 2023. Finally, net income and earnings per share increased 4244% respectively compared to Q4 of last year. With net income of $6,800,000 and earnings per share at $0.36 for the current quarter. Compared with net income of $4,800,000 and earnings per share of $0.25 in the fourth quarter of twenty twenty three. On a full year basis, net income and EPS decreased 23% to $28,100,000 and $1.47 respectively.

Looking at our capital structure, cash flow from operating activities for 2024 was negative $3,900,000 and capital expenditure was $3,400,000 The negative cash flow was driven by climbing bookings litigation settlement we outlined in Q1. We had $104,700,000 of cash and investments as we exited the fourth quarter. We repurchased approximately $2,900,000 worth of shares in the quarter and for the year, we repurchased almost $16,000,000 worth of shares. This leaves approximately $80,000,000 of our stock repurchase authorization intact. Turning to guidance, starting with the top line. For 2025, we expect revenue to be $400,000,000 to $415,000,000 or down 4% to 8% versus 2024. The revenue outlook is driven by last year's bookings decline, which Tampa's first half growth with better performance anticipated for the second half. Furthermore, this guidance assumes the outlook for the research, consulting and events businesses all to be a mid single digit decline for the year.

Given the actions we have taken to control costs, combined with investments we've highlighted, we would expect our operating margins to be in the range of 8% to 9% for 2025. And interest expense is expected to be $2,700,000 for the year we are guiding to a full year tax rate of 29%. Taking all of this into account, would expect EPS to be in the range of $1.2 In summary, we made significant progress in 2024 transforming our CV revenue base Forrester Decisions platform and in our go to market activities. We believe that we will see the benefits of these improvements as we progress through 2025. We were also pleased to see positive momentum in the consulting business in the second half of twenty twenty four and believe that the business has stabilized and will show improved performance going forward. And although the events business had a difficult year, our outlook for the business remains positive and we expect the events business to stabilize moving forward with the actions we're taking.

In addition, we anticipate returning to positive free cash flow in 2025 based on bookings improvement. We continue to remain very positive about Farf's decisions as a singular product platform going forward. The growth potential of consulting and events and the ever faster cycles of technology disruption all driving the business back to growth. We have a solid plan in place for this year and we're laser focused on execution to realize the full potential of our business. Thank you all for taking the time today. And with that, I will hand the call back to George.

Thank you, Chris.

In conclusion, the company is excited to be focused on executing the new Forrester model.

We are confident that we have the right product and the right go to market strategy to return to bookings growth and ultimately [indiscernible] Thank you again for your support of the company and your belief in our important and valuable mission.

I'm going to hand the call back to the operator We will now Thank you, sir. And I show our first question comes from the line of Andrew Nicholas from William Blair. Please go ahead.

Hi, good afternoon. I wanted to start with the bookings commentary George, I think you said that bookings growth attenuated a little bit late in the fourth quarter And I think you also noted that you're still kind of dealing with some adjustments as you transition the sales motion and the culture Can you just unpack a little bit more what kind of occurred over the course of November and December?

Were there individual industries that were giving you more issues? Do you think it was more execution driven or end market driven? Any additional color there would be great. Hey, Andrew. It's Nate Swans, the Chief Sales Officer.

Happy to jump in and I'm sure George will give some comments as well. So Q4 was a challenging quarter for us across a couple of different segments.

We had some challenges in the smaller high-tech field where we've continually seen some challenges. We're meeting those pretty well, but we step backwards a little bit in Q4. I think as a lot of small vendors were really struggling with budgets. The government sector was also a challenge in Q4. That was part of partly due to continuing resolution as that did not get resolved until really the Christmas break for a lot of the government agencies was well in play. And then in India, we also had some challenges meeting our numbers. So it was really around execution And I guess I would say going forward in 2025, execution is our main focus for the sales organization. We are not changing any of our strategies. We are staying on the same focus of developing pipelines executing our retention lifecycle and using our sales methodology that George refers to as fast and just getting better at it. We don't need to introduce more. We've introduced plenty. And it's about getting the sales team and the rest of Forrester on the same page and making sure that we're delivering for our clients and getting to those senior level executives and delivering for them.

That would be the probably the biggest challenge area. So those were specific industries. And I'd say the second area would be the focus at getting to a more senior economic buyer has been the area where we could be doing better as an organization.

I'd say one last comment on Q4 is that one area of strength was we call premier high-tech. [indiscernible] That business has actually recovered pretty well the second half of the year. I think Nate talked about small tech being very challenged, but big tech was a big performer for the full year.

Yes.

Good question.

Great. I guess maybe as a follow-up to that and thinking about the guidance 2025 and your expectation that CV growth will improve as we kind of move into the second Do you need small, high-tech to kind of saw a little bit. I guess I just trying to understand how much of a macro improvement you need versus execution to to see that second half acceleration and maybe more broadly, any comments on overall visibility of the business now relative to this time last year.

Yes, Andrew, good follow-up. The The exposure on the smaller tech is not nearly as much as what we've had over the last few years. We're as Chris has said, we're through most of the migration very small amount with that group. We are also working on we want to keep those clients. We're not trying to move on from them. We have a a different product set that we are trying to move them over to and we're working on glide paths for those for those clients as well to move them on. But the exposure in that sector is not nearly as much as what it has been.

Yes. As you know, we've been transitioning away from sub-fifty million dollars tech vendors And that's really what's happened over the last couple of years. We love them to death, but they would roll it on the tide of good times and they would roll back out on the tide of more challenging times. So we've made a decision as a company to deemphasize the sub-fifty million dollars in focus above that. So most of that transition is over at this point.

Understood. And then if I could just squeeze one more in on the AI topic. I understand IZOLA, you're very optimistic about that and what it means for kind of the overall Forrester decisions product offering. But on the efficiency side, is there been any developments there to help with cost management or productivity or anything that's in the pipeline from an operational perspective that that you could speak to? Thank you. Sure. Hi. It's Carrie Johnson, I'm Chief Product Officer.

As you noted, as well as certainly our client facing tool, but we're using leveraging it quite a bit as well for internal efficiency. So primarily tools like IZOLA plus some other enhancements that we've added are allowing our customer success team to find answers faster for clients. We're also using some automation, which is part of, by the way, some of the outsourcing that we're doing and then we're also using automation to decrease the time that it takes for analysts to conduct calls with our clients. So we're doing some auto summarization and then some JNA to then update the records that then help us service clients faster. So certainly a big area of focus for us on the client side and using some of the same tools plus new tools on the back end.

Yes.

And so there was some informal research here on IZOLA in Q4. Again, informal, but heavy users of IZOLA were renewing at 20% So there's it looks like an emerging correlation here with the companies who are focused on IZOLO. Recommitting to us. So it's been a big help.

Thank you.

Thank you. Good question.

Thank you.

Thank you. And I show our next question comes from the line of Anya Soderstrom from Sidoti. Please go ahead. Hi, and thank you for taking my questions. I'm just curious, you mentioned you had some challenges in India. Can you just elaborate on that?

Yes, sure. We had with the small vendors India, we were having a little bit more of a challenge. It was really the first time in the the two years that I've been here that we had a miss. So we think it is more of a miss in quarter on execution as opposed to a broader trend. That we see challenges in that market. I'll actually be there in two weeks and looking forward to being with the team learning more about that market, but we don't think it's a long term problem, just more of a Q4 execution on some growth and retention that we were expecting to come in.

Okay. And it seems like you have some you're mentioning issues with smaller vendors and your focus is really to grow with larger customers, right? So how is that going? You mentioned you had some It's been more challenging than you thought to get to the C suite. But what are you doing to sort of improve that? And expand with larger customers?

Yes, great question. We are working on our Forrester agile selling technique. Where we are educated for the last three quarters, our salespeople to on how to have those conversations. They're really leaning in, our management team really leaning in on coaching that. It's a different sales motion than we had to do before. So they are working on that and practicing. So we're getting better all the time doing that. And we've seen some great success where we have done that. So we run an early renewal program and we're seeing roughly 30% of our 30% growth when we work with senior executives show them where there's an opportunity to improve the the current contract with new members that could be utilizing those services. And rewriting those for a new multiyear engagement We're seeing really, really good success. When we do that. So it's just broad based customer success, making sure we're understanding the initiatives that our clients have what outcomes they are trying to achieve and making sure that we're setting our analysts up for success so that they can deliver against them. When we do that, we do really well.

Okay. And really some new products, how much of a driver is that for engaging with the customers? And what does the roadmap look like? For the year?

Sure. So George mentioned a couple of [indiscernible] potentially in his comments as did Chris. I mean, one was our reprints hub, which is and the flexible reprints product. And that's I think as you know, that's a sort of business where we allow customers to purchase the rights for reprints for some of our existing research, published research, that has been very successful for us. It's a much more its name is, flexible product, less driven around engagement per se with four decisions, but certainly very helpful in our with our high-tech clients. It's a product that they've been asking for. So we believe that has a sort of net positive impact on those large vendor relationships in particular that we've been talking about. The other sort of from an enhancement perspective are things that essentially allow further customization and flexibility around Forrester decisions. So George talked about the interactive wave as an example. What's very critical about that kind of tool and IZOLA is really unlocking all of the great insights and research that we have already done and allowing customers to access it in a more personalized way.

When you think about [indiscernible] Much of it is in fact leveraging the insights that we already have and delivering it to customers you'll see more features from Forrester like interactivity around data, which is again unlocking the rich data set that we have and that type of service to allow customers to get insights. Faster and more personalized.

So I'd say, Anya, a lot of IZOLA during the year, IZOLA upgrades and improvements during as well.

Okay. Thank you. That was all for me. Thank you, Anis.

Thank you. I'm showing no further questions in the queue. At this time, I'd like to turn the call back to to Chris Fin, Chief Financial Officer for closing remarks.

Yes. Thanks everyone for joining the call today.

As always, just reach out to myself or Ed for any follow ups. Thank you. Thank you very much. Thank you. This concludes today's conference call.

Thank you for participating. You may now disconnect.