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FORRESTER RESEARCH, INC. (FORR)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 revenue declined 10% year over year to $102.5M, with GAAP diluted EPS at -$0.30; adjusted EPS was $0.29 as consulting and events remained soft while Forrester Decisions migration advanced to ~78% of CV .
  • Management maintained full-year adjusted guidance (revenue $425–$435M; adjusted operating margin 8.5%–9.5%; adjusted EPS $1.37–$1.57), but lowered GAAP outlook (operating margin to 0.5%–1.5%; GAAP loss per share -$0.24 to -$0.04; GAAP tax rate to 135%–270%) .
  • Contract value fell 5% YoY to $315.2M, with wallet retention at 89% and client retention at 73%; divestiture of FeedbackNow completed with $6M cash, $9M note due 2025, and small equity stake, and historical metrics recast to reflect the sale .
  • Strategic catalysts: continued Forrester Decisions migration, Izola generative AI usage ramp (+40% QoQ prompts), and launch of Forrester Decisions for Data, AI & Analytics; focus on go-to-market motion, retention lifecycle, Med-PIC opportunity discipline into Q4 seasonally strongest bookings quarter .

What Went Well and What Went Wrong

What Went Well

  • Forrester Decisions migration on track: ~78% of CV on FD with target >80% by year-end; CEO: “We will move to 2025 with a 4-year migration journey substantially completed” .
  • Izola usage surged: Izola prompts increased ~40% QoQ; enhancements include grounding answers in Waves, inline citations; “Izola has now become the third most used feature of the FP platform” .
  • Large deals and sector wins: $5M two-year APAC tech deal; $1.6M U.S. government migration to Forrester Decisions portfolio; FD client retention ~8 points above overall retention .

What Went Wrong

  • Consulting and events weakness pressured margins: consulting revenue down 17% YoY; events down 54% YoY (mergers/push to Q4; sponsorship softness); adjusted operating margin fell to ~8% from ~10.8% YoY .
  • CV bookings below plan and CV down 5% YoY to $315.2M, modestly worse than Q2 (-4%); management now expects FY CV flat to marginally down vs prior flat-to-slightly up outlook .
  • GAAP results impacted by divestiture and restructuring: GAAP net loss -$5.8M; loss on sale recognized; combined with a wider GAAP tax rate range; adjusted EPS declined to $0.29 from $0.44 YoY .

Financial Results

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$113.4 $100.1 $121.8 $102.5
GAAP Diluted EPS ($USD)$0.13 -$0.35 $0.33 -$0.30
Adjusted Diluted EPS ($USD)$0.44 $0.14 $0.68 $0.29
Adjusted Operating Income ($USD Millions)$12.3 $3.4 $17.9 $8.2
Adjusted Operating Margin (%)10.8% 3.4% 14.7% 8.0%
Segment Revenue ($USD Millions)Q3 2023Q1 2024Q2 2024Q3 2024
Research$80.6 $76.6 $83.7 $77.1
Consulting$28.2 $23.1 $24.8 $23.4
Events$4.6 $0.4 $13.4 $2.1
Total$113.4 $100.1 $121.8 $102.5
KPIsQ1 2024Q2 2024Q3 2024
Contract Value ($USD Millions)$323.1 $323.0 $315.2
Client Retention (%)72% 73% 73%
Wallet Retention (%)88% 89% 89%
Number of Clients2,308 2,220 2,002
Total Headcount1,690 1,656 1,608
Sales Force604 592 597
CV on Forrester Decisions (%)~70% ~73% ~78%

Notes: Adjusted results exclude stock-based compensation, amortization of intangibles, restructuring, divestiture-related loss and transaction costs, legal settlement (2023), and investment gains/losses; adjusted tax rate assumption 29% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($USD)FY 2024$425–$435M (Q2) $425–$435M (Q3) Maintained
Operating Margin (GAAP)FY 20241.2%–2.2% (Q2) 0.5%–1.5% (Q3) Lowered
Interest Expense ($USD)FY 2024~$3.0M (Q2) ~$3.0M (Q3) Maintained
Effective Tax Rate (GAAP)FY 2024~65%–80% (Q2) ~135%–270% (Q3) Raised
GAAP EPSFY 2024$0.06–$0.19 (Q2) -$0.24 to -$0.04 (Q3) Lowered
Adjusted Operating MarginFY 20248.5%–9.5% (Q2) 8.5%–9.5% (Q3) Maintained
Adjusted Effective Tax RateFY 2024~29% (Q2) ~29% (Q3) Maintained
Adjusted Diluted EPSFY 2024$1.37–$1.57 (Q2) $1.37–$1.57 (Q3) Maintained

Context: Q1 guidance had higher GAAP margin/EPS ranges and revenue $430–$450M; revised down at Q2 due to consulting/events headwinds; Q3 maintained adjusted ranges while GAAP moved lower .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Forrester Decisions migrationQ1 ~70% CV on FD; Q2 ~73%; multiyear deal mix rising; FD retention ~8–10 pts above overall ~78% CV on FD; targeting >80% YE; FD retention ~81% client, ~89% wallet Improving
Generative AI (Izola) & AI coverageQ1: Izola expanded to all FD accounts; client feedback strong ; Q2: Izola top-3 action; LLM Wave published Izola prompts +40% QoQ; grounded answers, inline citations; launched “Forrester Decisions for Data, AI & Analytics” (available Oct 29) Strengthening
ConsultingQ1 revenue -27% YoY; headwinds to persist ; Q2 -17% YoY with uneven performance -17% YoY; early stabilization in strategy consulting bookings Stabilizing, still weak
EventsQ1 minimal events; -65% YoY ; Q2 -25% YoY; sponsorship declines -54% YoY; merged events; one pushed to Q4; sponsorship/attendance softness Worsening Q3
Macro & budgetsQ1 macro headwinds; tech retrenchment ; Q2 macro uneven; planning for rate cuts; Europe weaker; U.S. improving “Choppy” economy; early read: tech budgets increasing in 2025; vendor layoffs stabilizing Cautious improvement
Go-to-market executionQ2: pipeline +30%; retention lifecycle rollout; calling higher ;Targeting $500k rolling pipe per rep; tightening opportunity quality with Med-PIC; standardizing sales motion Building discipline

Management Commentary

  • CEO George Colony: “We are ahead of scheduled FT migration with 78% of contract value or CV out in FD... we will finish the year with over 80% of CV in Forrester decisions” .
  • On Izola: “Izola has now become the third most used feature… prompts increased by 40% quarter-over-quarter” .
  • Board of Clients value feedback: “Compared to McKinsey, Bain and other consultants, Forrester is affordable. The return on investment is very high” and “We need Forrester to look out into the next 5 years… No one else in our organization can do that” .
  • CFO Chris Finn: “Operating income decreased by 33% to $8.2 million or 8% of revenue… net income and EPS decreased 35% and 34%… we are maintaining earnings per share in the range of $1.37 to $1.57” .
  • Product strategy: launched “Forrester Decisions for Data, AI & Analytics” to help leaders architect data/AI platforms, governance, and business outcomes .

Q&A Highlights

  • CV bookings and execution: sales execution adjustments made in a weaker group; management “comfortable” with Q4 bookings trajectory .
  • 2025 budgets: tech budgets expected to increase; vendor environment stabilizing after ~1M U.S. tech layoffs in 18 months .
  • GTM traction metrics: aiming for $500K rolling pipeline per rep; applying Med-PIC to improve pipeline quality; retention lifecycle adoption progressing .
  • Client count decline drivers: mix shift away from smaller clients and restatement after FeedbackNow divestiture; impact concentrated in small clients .
  • Pushback on seat expansion: budget constraints cited, requiring better value articulation vs consulting alternatives; success linked to connecting to top initiatives .
  • Buybacks: will remain opportunistic in H2 2024 .

Estimates Context

  • S&P Global consensus estimates for Q3 2024 could not be retrieved at time of query due to system limit; therefore, we cannot assess beats/misses versus Wall Street consensus for revenue or EPS. Values from S&P Global were unavailable at time of analysis.
  • Given the unavailability, anchor to reported outcomes: GAAP diluted EPS -$0.30 and adjusted EPS $0.29; revenue $102.5M .

Key Takeaways for Investors

  • Forrester Decisions migration remains the core long-term driver; >80% CV target by year-end is a key execution milestone to support 2025 stabilization and growth .
  • Weak consulting and events continue to weigh on revenue and margins; the events soft sponsorship dynamic and merged/pushed events suggest limited near-term relief, so monitor Q4 event performance carefully .
  • Izola and expanded AI service portfolio are differentiators that can lift engagement, retention, and cross-sell; usage growth and feature grounding increase product stickiness .
  • GAAP guidance reset (operating margin and EPS to a loss range) reflects divestiture impacts and tax dynamics; adjusted guidance maintained—focus on adjusted profitability and cash discipline .
  • CV stabilization signals with wallet retention at 89% and FD retention premium are constructive; however, Q3 CV down 5% and bookings below plan warrant caution into Q4 .
  • Government and international showed bright spots and large wins; continued success here can offset vendor softness and support multi-year deal mix .
  • Tactical trading: absent consensus datapoints, narrative catalysts include Q4 bookings seasonality, >80% FD migration achievement, and potential AI-driven adoption; risks include continued events/consulting softness and macro variability .