Forrester Q3 2026 Earnings Conference Call - FORRESTER RESEARCH INC

Explicit Guidance:

• FY2026 Revenue: Projected between $350M and $360M (down 9–12% YoY), assuming research declines mid-single-digits, consulting declines in the low-20s, and events decline mid-to-high teens.
• FY2026 Operating Margin: Expected to range between 6% and 6.5%.
• FY2026 EPS: Range raised to $0.77 – $0.82 (previously $0.72–$0.82), reflecting expense management and stock buybacks.
• FY2026 Tax Rate: Guided at 29%.
• FY2026 Interest Expense: Expected to be $2.2 million.
• FY2026 Contract Value (CV): Year-end outlook centered on flat performance with a spread of -2% to +2%, citing Q4 timing variability and government funding delays.
• CapEx: Remaining capital expenditures for the headquarters build-out (totaling ~$25M in 2026) are expected to be $2.5 million for the remainder of the year.
• Share Buybacks: Company plans to aggressively repurchase stock for the remainder of 2026, utilizing the remaining $66 million of authorization.

Business-Segment Outlook:

• Research: Expected to drive mid-single-digit decline in revenue for 2026; Forrester AI is anticipated to be a major driver of CV growth, with AI usage metrics (prompts and users) continuing to expand.
• Consulting: Projected to decline in the low 20s for the full year, driven by market uncertainty and the exit of the strategy consulting business.
• Events: Expected to decline mid-to-high teens; strategy shifted toward shorter, smaller, more efficient events with a focus on EMEA and APAC regions.
• Product Portfolio:
  • AI Access: Currently ~4% of contract value; expected to reach ~5% by year-end 2026, with materially higher margins than traditional products.
  • AI Access Plus & Team Solutions: New products launched in Q3 expected to become meaningful portions of contract value over time, driving retention and upsell through broader executive access and team collaboration.
  • Platform Expansion: Continued rollout of the "Where You Work" strategy (Microsoft Teams, Copilot, Claude), with early adopter programs for Claude plugins and potential integrations into Slack and Gemini to drive frictionless access and retention.
• Sales & Pipeline: Sales force headcount will remain steady in the near term with a focus on productivity; pipeline quality, late-stage conversion, and deal velocity are prioritized over total pipeline value. U.S. federal government bookings are expected to remain constrained due to funding uncertainty, while high-tech and international (APAC) segments show strength.

Market and Competitive Outlook:

• AI Disruption: Forrester anticipates AI will benefit providers of infrastructure, data, cybersecurity, and identity, while labor-intensive knowledge work and transformation services face pressure.
• Market Structure: Enterprise software categories are expected to be reshaped rather than replaced within the 2–3 year timeframe due to switching costs and trust barriers.
• Competitive Landscape: Management argues "AI doomsday" narratives from frontier model companies are self-serving; expects corporate clients to prioritize private models and disciplined implementation over reliance on external frontier labs.
• Target Audience Shift: Strategic pivot to serve small AI startups (<$50M valuation) alongside large enterprises, with AI Access Plus specifically designed to facilitate entry for smaller clients.

Macro / Industry Outlook:

• U.S. Federal Government: Identified as a challenging area for the remainder of the year due to funding uncertainty, which delays large deals and impacts Q4 booking timing.
• Economic Environment: Market uncertainty continues to drive declines in consulting and requires prudent expense management.
• Regulatory/Liability: Forrester counsels clients that frontier labs should be held legally liable for damages and that companies should not rely on these labs to create safeguards, emphasizing internal security and governance.

Strategic Initiatives:

• Product Innovation: Continuous expansion of the product line (Team Solutions, AI Access Plus) to provide price options and increase share of wallet within client organizations.
• Sales Optimization: Implementation of new sales leadership systems and self-leadership tools to improve conversion rigor and discipline.
• M&A/Restructuring: Continued focus on cost discipline following the Q1 restructuring (headcount down 10%); no active M&A mentioned, but focus remains on organic product-led growth.
• Real Estate: Headquarters renovation project is nearing completion, with $17.2M landlord funding offsetting costs and generating ongoing savings.

Risks and Headwinds to Outlook:

• Q4 Volatility: Significant variability in year-end Contract Value expected due to the concentration of bookings in Q4 and the recent launch of new products.
• Government Funding: Potential delays or cancellations of U.S. federal government deals due to budgetary constraints.
• Complexity of Deals: Enterprise deals in the pipeline are noted as more complex and longer to close, impacting near-term forecasting.
• Adoption Rates: Uncertainty regarding the speed at which new products (AI Access Plus, Team Solutions) will be adopted and contribute to contract value growth.
• Competitive Narratives: Risk of market sentiment being swayed by "doomsday" narratives from tech giants, which could alter client risk appetite, though Forrester advises rationality.

Management Tone on the Future:

• Confidence Level: Moderate-to-high confidence in the 2027 outlook for CV growth, driven by stabilization in 2026, retention improvements, and new product adoption.
• Caution: Cautious and prudent tone regarding the remainder of 2026, explicitly citing the unpredictability of Q4 government deals and the early stage of new product revenue ramp-up.
• Strategic Optimism: Strong belief that AI is a "dream" come true and a "major driver" of future growth, viewing the current AI wave as the "biggest technology wave" of management's lifetime.
• Guidance Adjustments: Proactive stance in raising the low end of EPS guidance due to expense control and buyback benefits, signaling strong operational execution despite revenue headwinds.

Miscellaneous:

• Cash Flow: Free cash flow YTD (excluding HQ build-out spending) was $13.9 million; cash balance stands at $117.6 million.
• Debt: Debt balance reduced to $30 million (down $5M in Q3).
• Stock Buyback: Accelerated repurchases totaling $10 million in Q3; $66M authorization remaining.
• Cost Savings: Q3 operating expenses down 6% driven by lower compensation and reduced real estate costs following lease amendments.