FORRESTER RESEARCH, INC. (FORR)·Q2 2024 Earnings Summary

Executive Summary

• Q2 2024 revenue declined 10% year over year to $121.8M as Events (-25% YoY) and Consulting (-17% YoY) underperformed; GAAP EPS improved to $0.33 while adjusted EPS was $0.68 as cost controls aided profitability despite revenue pressure .
• Management cut full‑year 2024 guidance: revenue to $425–$435M (from $430–$450M), GAAP operating margin to 1.2%–2.2% (from 2.2%–3.4%), GAAP EPS to $0.06–$0.19 (from $0.24–$0.44), and adjusted EPS to $1.37–$1.57 (from $1.50–$1.70) on weaker Events sponsorships and ongoing Consulting headwinds .
• Core research (CV) showed stabilization: CV bookings beat plan with 5% YoY growth (qualitative), wallet retention rose to 89%, and 73% of CV is now on Forrester Decisions; management targets ~80% by year‑end and flat to slightly up CV for 2024 .
• Product/AI momentum: Izola (gen‑AI) rolled out to all Forrester Decisions clients, now the third most common action in the platform; 91% single‑prompt answer rate in Q2 (vs. 86% in Q1), supporting usage and migration narratives .

What Went Well and What Went Wrong

• What Went Well

  • Forrester Decisions migration progressed: 73% of CV now on FD (vs. 70% in Q1) with growing multiyear mix; “We remain on plan to hit our target of 80% of CV in Forrester Decisions by year‑end” .
  • Generative AI traction: “Izola…is now the third most common action taken by clients…percentage of questions that Izola answers from a single prompt reached 91% in Q2, up from 86% in Q1,” reinforcing client engagement and sales enablement .
  • Cost discipline and adj. profitability: Adjusted operating income of $17.9M (14.7% margin) despite revenue declines; headcount down ~8% YoY supported lower opex and improved GAAP EPS YoY .

• What Went Wrong

  • Events missed sponsorship targets at major Q2 conferences (B2B Summit, CX Summit), driving a 25% YoY revenue decline and contributing to the guidance reduction .
  • Consulting remains under macro pressure; clients are deferring discretionary services, with Consulting revenue down 17% YoY in Q2 and weakness expected to persist through 2024 .
  • 2024 outlook cut across revenue, margins, and EPS due to non‑CV headwinds; GAAP tax rate also raised (65%–80%) for the year, reducing GAAP EPS outlook .

Financial Results

Notes: Q4 and Q1 adjusted margins are calculated from cited adjusted operating income and revenue. Q2 adjusted margin per management commentary .

Segment revenue breakdown

Key operating metrics

Balance sheet and cash flow (select)

• Cash, cash equivalents and marketable investments: $110.8M at 6/30/24 .
• Debt outstanding: $35.0M at 6/30/24 .
• 1H24 cash from operations: $(2.3)M impacted by litigation settlement and restructuring payments .

Guidance Changes

Management attributed the reduction to weaker Events sponsorships and persistent Consulting headwinds, while research/CV trends improved modestly .

Earnings Call Themes & Trends

Management Commentary

• “We beat our CV bookings plan in the quarter…driven by improved renewal rates of Forrester Decisions, a greater‑than‑expected volume of cross‑sell deals, and improving new business flow…Wallet retention increased by 1 point to 89%” .
• “In Q2, we made our generative AI tool, Izola, available to all clients of Forrester Decisions…Izola…is now the third most common action…percentage of questions…answered from a single prompt reached 91% in Q2, up from 86% in Q1” .
• “While our content and value delivery excelled, we did not meet our sponsorship targets for either event, and this will have an impact on our full year revenue” .
• “Our Events business underperformed…headwinds we have seen in Consulting continue…these…have led us to lower our financial guidance for the year” .
• “Operating income…$17.9 million or 14.7% of revenue…down from $25.7 million or 19%…Lower operating income and margin were primarily driven by the revenue declines in our Consulting and Events businesses” .

Q&A Highlights

• Macro dependence: Management is not basing forecasts on macro improvement; expects potential rate cuts to help but focus remains on internal execution to drive growth .
• Government sector: Confident in plan; U.S. federal Q3 expected to be “a big quarter”; demand for an alternative in research is emerging .
• Events sponsorship: Sponsorships tied to high‑tech; sales approach adjusting with new leadership to meet a more solution‑sell environment .
• Sales force and pipeline: In‑quarter pipeline improved ~30%; higher expected attrition tied to performance management; aim for single‑digit headcount growth; strong candidate quality .
• Capital allocation: Will be opportunistic on buybacks in 2H24 under existing authorization .

Estimates Context

• S&P Global (Capital IQ) consensus estimates for Q2 2024 EPS and revenue were unavailable via our data connection at the time of analysis; as a result, we cannot verify beat/miss versus Wall Street consensus for this quarter. Values retrieved from S&P Global were unavailable due to access limits.
• Company did not provide quarterly guidance but lowered full‑year 2024 guidance (see Guidance Changes), which may drive estimate revisions lower for Events and Consulting while stabilizing trends in research/CV may temper downside .

Key Takeaways for Investors

• Core research stabilization is taking hold (wallet retention 89%, FD penetration 73% with YE target ~80%); this underpins management’s expectation for flat to slightly up CV in 2024 and a setup for 2025 growth .
• The near‑term overhang is non‑CV: Events (sponsorship shortfall) and Consulting (macro‑sensitive discretionary spend), which drove the FY24 guidance cut across revenue, margins, and EPS; monitor sponsorship pipeline and Consulting bookings to gauge inflection .
• Izola and platform enhancements are driving higher engagement and a stronger migration narrative; gating factor shifts to commercial execution (cross‑sell, multiyear mix, renewal motion) rather than product‑market fit .
• Cost discipline is visible (headcount down ~8% YoY) with adjusted margin still double‑digits in Q2 despite revenue pressure; however, achieving the low‑to‑mid‑9% adjusted margin guide requires Events/Consulting stabilization in 2H .
• Liquidity and flexibility remain solid (cash/investments $110.8M; debt $35M), with willingness to repurchase shares opportunistically in 2H24 .
• Governance/talent upgrades (two new Board members, new CPO) align with the CV growth mandate and go‑to‑market rigor; track salesforce productivity and pipeline conversion into bookings .
• Catalyst watch: evidence of Events sponsorship recovery, sustained CV inflection, government wins, and continued Izola‑led engagement could pivot the narrative; conversely, renewed Events/Consulting softness could force further estimate cuts and pressure shares .