FORRESTER RESEARCH, INC. Q1 FY2025 earnings call

The company faced challenges during the transition to Forrester Decisions, with decreases in revenue and contract value in the first quarter, but showed healthy cash flow and exceeded consensus in EPS and operating margin. To address challenges, a new wave of research focused on managing volatility was launched, which was highly read. In the government sector, they are leveraging the DOGE disruption to access previously locked-out accounts, using AI and cybersecurity strengths. Forrester expanded AI research across all 14 Forrester Decision Services, including Agentic AI. Izola's capabilities were enhanced with consumer and technographics data. Forrester Decisions saw expansion with Expanded Access and a new interactive data tool.

Research revenues decreased 11% compared to the first quarter of 2024, with subscription research products down 6%, and reprint and other small/discontinued products (including FeedbackNow, which was divested last year) also seeing declines. Consulting business posted revenues of $21.4 million, a 7% year-over-year decrease; the consulting product line was down, but advisory had single-digit growth. Events business revenues were insignificant as no events were held during the period. Research revenues contributed a significant portion to the overall revenue, while consulting and events had smaller contributions.

For 2025, guidance remains unchanged. Revenue is expected to be $400 million to $415 million, a 4%-8% decline compared to 2024. Operating margins are projected to be in the range of 8%-9%. Interest expense is expected to be $2.7 million for the year, and the full-year tax rate is guided at 29%. EPS is expected to be in the range of $1.20 to $1.35.

Economic uncertainty persists throughout 2025, leading to budget tightening and spending pauses. There are risks of government contract cancellations, with the U.S. federal government making up less than 6% of contract value but still posing a headwind. Tariffs imposed by the U.S. government are causing buyer hesitancy, particularly in Asian and European businesses, affecting vertical markets like discrete manufacturing and retail.

Q: Good afternoon. Thanks for taking my question. First, I just kind of wanted to ask a little bit more about guidance. I think, George, you mentioned first quarter being a little bit below plan. Obviously, macro uncertainty is a bit more elevated versus when we last spoke. Just kind of wondering what gives you conviction in the maintained guidance given the more disruptive environment? And then also and I apologize for the multi-part question, but if we're talking about what went below plan in the first quarter, was that more macro budgetary driven? Or is there some government headwind in that number as well?

A: Yes. Hey, Andrew, this is Chris. Yes, from a guidance perspective, the guide on revenue was fairly conservative on the bottom end in the beginning of the year when we talked last time in the last call. So, look at this juncture, it's early in the year. There's a lot of possible scenarios that can unfold. We do have a little bit of favorable foreign currency, obviously, in that number, it's about one point on our outlook based on the dollar. And look, we're being more mindful of earnings, margin and cash flow and we're prepared to ensure costs remain in line with the top line as we move forward. And so this outlook obviously is in a recessionary outlook. So that's why we're maintaining the guide. I mean if things do get considerably more challenging and worse with the tariff and the DOGE situation, obviously, we would change the guide. But at this juncture, I mean, I think, look, we see some opportunity on the government side. We did have about $2 million of cancellations in government so far. But like we said, it's approximately less than 6% of our overall business. And we do see some opportunities there. We've identified by account where the risk is on the government side, and we see about probably $1.5 million to $2 million of additional risk in the back half. And we have new leadership as well on the government side, which I think Nate can talk to, which we've got some high confidence in around those relationships that have come with that new hire. And so I think overall in the guide, I think we are just pretty conservative down the middle right now, and we're trying to balance opportunity with risk.

Q: Great. Thank you. I appreciate the color. And then for my follow-up, again, I think George mentioned evidence of progress with the sales force and reinvigoration and execution, pipelines and activity increasing month-over-month. So I was just hoping you could spend a little bit more time there. What are some areas where you're particularly excited about maybe early signs of better performance from a sales force organization perspective? Thank you.

A: Yes, sure. So I will give you three specific areas that we are working on. So our sales methodology, our fast methodology, our sales teams are really leaning in on that. So making sure that we speak the right way with our clients and internally. So we're actually doing a session with our analyst group tomorrow on that same methodology, so we make sure our analysts and our salespeople are communicating the same way. So getting on the same page about how we talk about our business and opportunities. That's one. Number two, our pipelines on a per AE basis. Now keep in mind, we're down slightly from a AE headcount year-over-year. So year-over-year per AE basis, pipelines are up about 33% through Q1 and continue that trend in April. I'm really proud of what the sales team is doing. They are very focused on getting more meetings, more opportunities, qualifying them quickly to try and keep -- to move them through the pipelines as quickly as possible. Certainly, it's a volatile market right now, and it's taking longer to go through there, getting longer approvals. And we definitely saw a little bit more wait and see. So pipelines are improving. And then number three, really our retention life cycle activity, the activity that our customer success organization is really ramping up on and our sales organization. So making sure that we're talking to the senior leaders of the organizations that are buying our services, talking to them about what -- how are they using Forrester and what value can they be expecting back. So we're really seeing the organization lean in on those areas around making sure that they're driving retention. And I know that will pay off for the organization in the long run.

Q: Hi, thank you for taking my question. Have addressed most of them, but if I understand right, the pipeline is expanding, but the sales cycles you see a little bit prolonged?

A: That's correct, Anja. We're seeing about 10 days longer, 10 to 12 days longer in our initial view to close out deals. So not surprising, much more layers of scrutiny. We're certainly hearing it from our account managers as well as from clients that, hey, there's a new process in place. We weren't aware of this process. This just changed. So pretty rapid development in Q1 as we were going through both renewals and growth cycles. I think we're very prepared for those conversations now as you -- things have changed with long-time buyers where they didn't have a process before, now they have the process. Great. We need to react to that and make sure that we're on track with them and feeling pretty good about how we're doing. We should not be getting surprised going into the remainder of the year is that there's more scrutiny and more tie-offs that have to happen before contracts get signed.

Q: Yes. Most of my questions were asked already as well. Just Chris, how strong is your -- how does your visibility to the revenue estimate for the year at the low end compared to what it was in the year ago period?

A: Yes. I think it's strong. I mean, on the subscription side of the business, obviously, for research, that's a very good estimate for the year. Obviously, the outlook has us with a forecast on FD, I think is, like I said, right down the middle, balances our risk and opportunities, especially on the government side and across the sectors where we have seen a little bit of weakness. High-tech has been kind of our best performing vertical though overall, which is good. And so our expectation that we're going to watch that closely and hope that it continues to perform the way it has been. And I think on the Consulting side, certainly, we think that's a balanced view as well. Same thing for events. So we feel pretty good about the outlook. Obviously, like I said earlier in the call, it's not a recessionary outlook. It is a balanced view based on what we can see right now and how this expectations around where this administration is and the macroeconomic environment. And yes, we're going to continue to watch it closely. So we feel pretty good about the guide on especially on that one.

Q: And the client decline -- excuse me, the decline in total clients, is that still solely or primarily small clients? And if so, well, when do you expect that to start to grow again?

A: Yes, it is Vince mostly in the -- still in the smaller clients. We certainly are seeing really good results out of our emerging tech business. It is one of our better performing business, but that is at the higher end of that market. So kind of following our strategy of greater than $50 million, we're seeing better retention numbers out of that group. But it's still churning some of those smaller vendors, some of them that had migrated over to the new product and maybe it was not a fit, which it wasn't designed to be a fit for an organization that was not growing and utilizing those services.

Q: Thank you gentlemen. Appreciate it.

A: Thanks Vince.