Prepared remarks
Good afternoon, and thank you for standing by. Welcome to Forrester's First Quarter 2025 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Vice President of Corporate Development and Investor Relations, Ed Bryce Morris. Please go ahead.
Thank you, and hello, everyone. Thanks for joining today's call. Earlier this afternoon, we issued our press release for the first quarter 2025. 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, 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 differ materially 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 obligations 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 unadjusted 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.
Good afternoon, and welcome to Forrester's first quarter earnings call. I'll be joined today by Chris Finn, our Chief Financial Officer, who following my remarks will provide an update on our financial performance in the quarter. While the company has completed the transition to Forrester Decisions, challenges persisted in the first quarter, with decreases in both revenue and contract value. That said, the company showed healthy cash flow in the quarter, and earnings per share and operating margin exceeded consensus. The last mile of the Forrester Decisions transition is optimizing our go-to-market motion to match our product platform. The company's sales force continues to move towards processes and methodology to reach higher-level executives whom Forrester Decisions was designed to serve, and expand the number of personas served within accounts. Sales activities and sales pipelines are increasing month-on-month, and I expect this trend to continue throughout the year, improving our performance as we progress through the quarters.
Economic uncertainty emerged in the quarter, and we are planning for it to persist throughout the year. While the U.S. federal government makes up less than 6% of our contract value, we have had several contract cancellations associated with the DOGE efforts in Washington. To date, these have been minimal, but we expect the renewals and new business in the government sector will remain tight throughout the year given the administration's posture. Tariffs imposed by the U.S. government are driving hesitancy on the part of buyers, something that we encountered most predominantly in our Asian and European businesses in the first quarter. As with COVID five years ago, the lack of certainty is resulting in budget tightening, increased sourcing attention and spending pauses, especially in the most impacted vertical markets such as discrete manufacturing and retail. So how are we responding to these challenges?
Late in the first quarter, we launched a new wave of research focused on helping companies manage through volatility. This stream covers a number of different personas and topics, including B2C and B2B marketing, technology, cybersecurity and the workforce. The research doubles down on our traditional focus on lowering risk, optimizing spending, simplifying technology stacks, attenuating cloud costs, sharpening contract negotiations and prioritizing critical customers. Our volatility research has been the most read in our portfolio over the last four weeks, and it is the second highest topic in guidance sessions. In the government sector, we are using the DOGE disruption to unlock departments that were essentially no bid, in other words, dominated by one supplier, finding new ways into these previously locked out accounts. As part of the government department reorganization plans, there has been a greater focus on AI and cybersecurity in the government, two areas of strength for Forrester.
We will use these topic areas to penetrate more accounts in Washington. We continue to expand our research in artificial intelligence across all 14 of the Forrester Decision Services. In addition to our coverage of generative AI, we have expanded our research in the Agentic AI space, and this is a technology that will vastly change the landscape of large corporate systems over the next five years. While technology vendors are moving quickly in the space, we are now working with many of our user clients as they develop their first significant applications using generative and Agentic. Forrester's artificial intelligence quotient is being used by our clients to pinpoint gaps in their knowledge and expertise, which our research can fill. As I've talked about on previous calls, we are the only research company of scale that has built its own large language model to service clients, Izola. A key part of Forrester's value is providing buying assistance to our clients who rely on our unbiased research to guide them to the best vendor for their applications and environment.
Unsurprisingly, finding vendors is a top use case for Izola. Nearly 40% of Izola prompts submitted by our technology client executives are questions about vendors or products in a specific market. Izola can surface these customized answers within seconds, improving the experience for our clients and streamlining our internal operations. We continue to expand Izola's capabilities with the LLM now incorporating our consumer and technographics data and our wave evaluative research. In the first quarter, we enabled clients to use Izola to converse with individual reports, making it quick and easy for our clients to access our frameworks and models. Given our broad coverage of AI and the deployment of Izola, we believe that we are now the leading AI research company. We continue to improve Forrester Decisions. We launched Expanded Access, which provides a wider breadth of content for Forrester Decisions clients.
We've seen strong adoption among our clients. The majority of new FD bookings in Q1 were in this format. Forrester Decisions contains extensive data drawn from our business and consumer tech and graphic studies. In the quarter, we launched a new interactive data tool that enables clients to query survey sets by vertical markets, demographics, and geography. So to conclude, while the start of the year did not meet our plan and economic instability has presented new challenges, we are pleased to be operating with one power platform, Forrester Decisions, which we believe can help our clients through these uncertain times. Thank you for being on the call. And I'd now like to pass it off to Chris Finn, Forrester's Chief Financial Officer. Chris?
Thanks, George, and good afternoon, everyone. Our first quarter results reflected the macroeconomic and geopolitical uncertainty in the marketplace with our CV research business impacted and our consulting business showing mixed results. Despite these uneven results, we continue to manage our costs closely and deliver the operating margin and EPS above consensus estimates. Furthermore, we delivered positive free cash flow this quarter of $26.1 million on the back of prudent cash management. Q1 saw a 7% CV decline in the quarter and based on an expected ongoing challenging operating environment, we're now expecting CV to be flat to slightly down for the year. Although this market is challenging, we see areas of opportunity and are actively working on several initiatives to improve our performance, including ongoing retention work, a focus on the user and government portions of the business, and pricing and packaging augmentation of our portfolio aimed at broadening the market for our products.
One retention area where we are seeing positive momentum is in multi-year contracts. We hit 73% of CV in multi-year contracts in Q1, an all-time high. For the total company, we generated $89.9 million in revenue compared to $100.1 million in the prior year period, which is an overall revenue decrease of 10%. As we noted on our Q4 call, we expected revenue to decline this year due to the bookings declines we experienced in 2024. The ongoing government efficiency efforts by the current administration have had a small negative impact on our first quarter results. However, our overall federal government business is less than 6% of total contract value. Therefore, we anticipate that any potential future contract cancellations by the government will be a slight headwind in 2025. More broadly, although we believe that economic volatility will be a constant theme throughout 2025, and this caused some clients to trim spend or hold off on moving forward with projects in Q1, overall clients continue to meet guidance navigating through these volatile times, and Forrester is well positioned to assist them.
In terms of our revenue breakdown for the quarter, research revenues decreased 11% compared to the first quarter of 2024 with revenue from our subscription research products down 6%, coupled with declines in our reprint and other small and discontinued products, including FeedbackNow, which we divested last year. Client retention of 73% was flat and has remained at this level for the last three quarters. However, wallet retention was down 3 points to 86% from 89% in the prior quarter. Wallet retention is a combination of dollar retention and enrichment. Dollar retention has remained at consistent levels, but enrichment dipped this quarter, reflecting the budgetary and macroeconomic factors I discussed earlier. Our Consulting business posted revenues of $21.4 million, which was down 7% compared to the prior year. The consulting product line was down this quarter, but advisory had a strong quarter with single-digit growth compared to the prior year.
We expect the ongoing market uncertainty and the government cost cutting to impact the consulting business throughout 2025. And finally, regarding our Events business, revenues were insignificant this quarter and in the prior year as we did not hold any events during these periods. Continuing down our P&L on an adjusted basis, operating expenses for the first quarter decreased by 10%, primarily driven by lower compensation and related costs. Specifically, on headcount for the first quarter, we were down 11% compared to the same period in 2024. We continue to monitor headcount, hiring and attrition very closely. Operating income decreased by 27% to $2.5 million or 2.8% of revenue in the current quarter compared to $3.4 million or 3.4% of revenue in the first quarter of 2024. Lower operating income and margin were primarily driven by declines in our research and consulting business, coupled with seasonal trends, which impact the business in Q1, including traditionally not holding events during the first quarter.
Interest expense for the quarter was $0.7 million, down slightly from the $0.8 million in the first quarter of 2024. Finally, net income and earnings per share decreased 28% and 21%, respectively, compared to Q1 of last year, and net income at $2 million and earnings per share at $0.11 for the current quarter compared with net income of $2.8 million and earnings per share of $0.14 in the first quarter of 2024. Looking at our capital structure, first quarter cash flow from operating activities was $26.7 million and capital expenditures were $0.6 million. We did not pay down any debt nor did we repurchase any shares in the quarter. We have approximately $80 million of our stock repurchase authorization intact. Our balance sheet is strong with cash at the end of the quarter of over $134 million and debt of only $35 million. I want to take a moment to discuss the goodwill impairment charge of approximately $84 million that we recorded this quarter.
This non-cash charge was required solely from the fact that our stock price declined significantly during the first quarter, with our market cap falling below our book value. When this occurs, the accounting guidelines require a write-down of goodwill. The charge does not in any way reflect lowered expectations from us regarding the long-term future of the business. Moving on to guidance. For 2025, our guidance remains unchanged at this stage. So let me provide some additional commentary on the outlook for the year. For 2025, we expect revenue to be $400 million to $415 million, or down 4% to 8% versus 2024. The revenue outlook is driven by last year's bookings decline, which hampers first half growth, with better performance anticipated for the second half. Additional volatility has been added to the economy in recent months, but we continue to forecast the research, consulting and events businesses all to be a mid-single digit decline for the year.
We expect our operating margins to be in the range of 8% to 9% for 2025, and interest expense is expected to be $2.7 million for the year, and we are guiding to a full-year tax rate of 29%. Taking all of this into account, we would expect EPS to be in the range of $1.20 to $1.35 for the full year. 2025 is proving to be a volatile year with government efficiency efforts and tariff uncertainty likely to impact all corners of the economy. However, Forrester has proved time and again that it is the ideal partner for companies navigating uncertain times. We enable clients to do more with less and optimize costs without sacrificing AI ambitions to lead businesses and teams through change with confidence and to prepare companies for whatever new risks and emerging threats come next. Thank you all for taking the time today. And with that, I will hand the call back to George.
Thank you, Chris. Before we move on to Q&A, I'd like to restate where we stand. While we had anticipated a more placid economy for the year, that has not been the case, and we are ready for any eventuality. We have the right research for our clients in a time of volatility. We are the AI research company. We are looking to take advantage of the changes in the U.S. federal government, and we continue to improve Forrester Decisions. We are on the side and by the side of our clients in these turbulent times. And this is evident in our client engagement data as the number of advisory, guidance and inquiry sessions have increased from the fourth quarter of 2024. We remain diligent in our work of completing the last step of our transition, ensuring that our go-to-market system is best positioned to sell and serve our power research platform. So with that, I'll hand the call back to the operator for questions.
Questions and answers
Thank you. Our first question comes from Andrew Nicholas from William Blair. Please go ahead.
Hi, 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?
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.
Hey, Andrew, it's Nate Swan. We hired a new leader in January, and he's doing an excellent job with the team. They are focused on building the pipeline and collaborating with the right mission leaders in the government. We are concentrating our efforts where we believe we can succeed. There are also opportunities in state and local government where we can compete. We are still attentive to the federal government as we believe there is potential to succeed there, which I'll elaborate on shortly. We are also focusing on state and local business and have already achieved some success in accessing certain purchasing vehicles, so I am confident about that. As George mentioned earlier, the government is emphasizing AI and cybersecurity, areas where we excel. We are ensuring they recognize our capabilities and how we present them through Izola, which is a key asset for us. Our ability to provide quicker answers is very attractive to our government contacts. While we still have a lot of work ahead, we see potential in both federal and state/local spaces, and we're also witnessing government wins globally.
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.
Certainly. We are focusing on three key areas. First, our sales methodology, specifically the fast methodology, is a priority for our sales teams to ensure we communicate effectively with both clients and internally. We will be conducting a session with our analyst group tomorrow to align communication between our analysts and salespeople about our business and opportunities. Second, our pipelines on a per Account Executive basis have increased about 33% year-over-year through Q1 and have continued that trend into April, despite a slight decrease in AE headcount. I am proud of the sales team's efforts to secure more meetings and opportunities while qualifying them quickly, although we are facing some delays due to longer approval processes in this volatile market. Lastly, we are enhancing our retention life cycle activities, which are being emphasized by our customer success and sales organizations. We are engaging with senior leaders at the organizations using our services to discuss their experiences with Forrester and the value they can expect. This focus on retention is set to benefit the organization in the long run. In summary, we are concentrating on sales methodology, pipeline growth, and process improvements concerning our retention life cycle.
If I could squeeze one more in, Nate, because you mentioned the headcount growth in the sales force. I mean, is there any way for us to think about what's voluntary attrition there versus involuntary? It does look like it ticked down a decent bit sequentially. So just want to get a sense for that and maybe what the headcount growth plans are planned as we move through the rest of the year?
We have plans for headcount growth in the second half of the year. We are evaluating areas where we can invest as we progress. We believe there's a good opportunity with the government, but we need to reconsider how we are adding staff there and possibly redistribute resources to other areas. We are assessing global opportunities for headcount increases. Currently, we have seen a decrease in headcount compared to last year, which is due to both attrition and the decision not to replace some positions during cuts. We now feel confident that we have the right size for our territories and it's time to begin rebuilding the team. I want to highlight that our sales team is excelling in building a pipeline, proving that we can generate opportunities. Our focus now is on converting this growth pipeline into results.
Thank you very much.
Thank you.
Thank you. And I show our next question comes from the line of Anja Soderstrom from Sidoti. Please go ahead.
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?
That's correct, Anja. We're experiencing approximately 10 to 12 additional days in our initial timeline to finalize deals, which is not surprising given the increased scrutiny involved. Our account managers and clients are informing us that there is a new process in place that they were previously unaware of. This change has rapidly developed in Q1 as we navigated both renewals and growth phases. We feel well-prepared for these discussions now, especially since long-time buyers who previously didn't have a process now do. We need to adapt to this and ensure we stay aligned with them, and we feel good about our progress. We should not be caught off guard for the rest of the year, as we anticipate further scrutiny and additional steps that need to be completed before contracts are signed.
Okay. Thank you. And are you still hosting the two large events in the second quarter? And if so how are they shaping up?
We do. Hi, Anja, it's Carrie. We have our CX events, one in Europe and London here coming up in a few weeks, and then we have CX North America at the end of the month in Nashville. Both are looking very good from an audience perspective. CX North America, in particular, we're seeing really good growth there in the total attendee side for the year so far. So excited about those and excited to get those executives together.
Thank you. Were there specific sectors that faced more challenges, or is it a widespread issue?
I think we're seeing challenges across various sectors, particularly in manufacturing and somewhat in financial services. However, the pressure appears to be fairly balanced across different industries and groups.
Retail as well, Anja. As I said in the remarks, the biggest impact we saw in the tariffs was really in Asia. Companies there hesitating Asia followed closely by Europe.
Okay. Thank you. That's all for me.
Thanks, Anja. I appreciate it.
And I show our last question in the queue comes from the line of Vincent Colicchio from Barrington Research. Please go ahead.
Yes. Most of my questions have already been asked. Chris, how does your visibility for the revenue estimate at the low end compare to the same period last year?
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.
Is the decline in total clients still primarily affecting small clients? If that is the case, when do you anticipate that number will begin to grow again?
Yes, it is mainly Vince focused on the smaller clients. We are certainly observing very positive outcomes from our emerging tech business, which is one of our top-performing sectors, but that is targeted towards the higher end of the market. Therefore, in line with our strategy of managing accounts greater than $50 million, we are experiencing improved retention rates from that segment. However, we are still losing some of the smaller vendors, particularly those that transitioned to the new product, which may not have been suitable as it wasn't intended for organizations that were not growing and taking advantage of those services.
Yes. The biggest reason for non-retentions, Vince, is a mismatch. We sold to the wrong persona, the wrong product, and that's the primary reason. We're very vigilant about this now when we are selling, making sure that the client is matched up with the priorities and matched up with the persona. But that's the primary reason for non-retention.
Yes, single seat holders with contracts is an area we need to avoid. We prefer to sell to teams and provide team solutions. When we encounter a client with only one license, it tends to be more challenging. We can navigate through this, but it is also a significant opportunity for improvement.
Thank you, gentlemen. Appreciate it.
Thanks, Vince.
Thanks, Vince.
That concludes our Q&A session. I would now like to turn the conference back to Chris Finn, CFO, for closing remarks.
Yes. Thanks all for joining today. Any follow-up questions, please reach out to myself or Ed. We're always here to help. Thank you.
Thank you very much.
Thank you.
Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.