Forrester Q3 2026 Earnings Conference Call - FORRESTER RESEARCH INC

Good afternoon, and thank you for standing by. Welcome to Forrester's third quarter 2026 conference call. At this time, all participants are in a listen-only mode. After the speaker's 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 third quarter, 2026. 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. Kerry Johnson, our Chief Product Officer, and Christophe Favre, our 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 be materially different from those set forth in the forward-looking statements. Factors that could caused actual results to differ are discussed in our reports and filings with the Securities and Exchange Commission and the company undertakes no obligation 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'll be discussing our performance on an unadjusted basis. This excludes items affecting comparability. While reporting on an anadjustated 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. Hello, and thank you for joining Forrester's Q3 2026 Investor Call. Today, I'll be discussing four key topics. One, our third quarter performance and outlook for the remainder of the year. Two, new products announced in Q3. Three, the adoption and usage of Forreester AI. And four, important research that the company released in the third quarter. Third quarter contract value declined 3.5% year over year. while retention was in line with the previous two quarters at 89%, up from 86% in the previous year. Client retention returned to Q1 levels, up to 78%, a one-point increase from the previous quarter and a four-point decrease from the previously year. Total revenue decreased 9%, consistent with the prior quarter. Research revenue was down 3%, an improvement from last quarter, driven by strength in the technology vertical. Consulting was down 31%, driven by continuing market uncertainty, along with our exit of the strategy consulting business earlier in the year. In Q3, we hosted sold-out events in APAC and EMEA, with our B2B forum in London and our AI forums in Singapore and Sydney. The B2V forum focused on the go-to-market singularity, the point where AI and changing buyer behaviors permanently reshape how companies win, serve, and retain B2P customers. The AI forums mapped how clients can scale their generative and agentic deployments and how to use these new systems to drive revenue growth. Overall, Q3 performance was in line with our expectations with consensus beats on revenue, margin, and EPS. Turning now to product expansion. In Q3, we introduced a new research product, Team Solutions, that makes it easier for teams to collaborate and complete transformations faster. Because our research is un-siloed, teams get the analysis, data, and frameworks to see all facets of a problem and to make decisions that will positively impact a wide range of business outcomes. Along with Team Solutions, we expanded our portfolio of AI products with the introduction of AI Access Plus. This offering enables clients to access our research via AI and schedule quarterly inquiry sessions with Forrester analysts. AI Access Plus will further democratize Forrester's research and advisory, reaching a broader range of executives within the organizations we serve. We continue to expand our product line, giving clients more choice and optionality, enabling Forreester to drive upsell within our client base. Turning now to an update on Forreaster AI. As I have talked about on previous calls, generative AI technology has fulfilled a dream for the company. enabling our clients to get advice and guidance faster and to empower them to create something new and original from our data. This is not theory. In a recent client survey of Forrester AI users, more than 70% of respondents told us that the tools helped them get more value from Forreester. Engagement with Forreister AI continues to grow, with the number of prompts in the third quarter increasing 13% quarter-over-quarter and 142% year-over year. Total users of Forrester AI increased 6% quarter-over-quarter and 65% year-over year. And here's a quote from a Forreester AI customer. I use it all the time. It's a great way to summarize the research and to get instant answers. It's time-saver and a game-changer, end quote. Forreister continues to lead this space, and we see AI as a major driver of CV growth. In addition to enhancing the Forrester AI platform, we are making it available in more places, and we call this the Where You Work strategy. While a majority of clients access Forreester AI through the Forresters website, a growing number now use Forreaster AI from within their corporate Microsoft Teams and Microsoft Copilot environments. In Q3, we have expanded the WhereYouWork program to include Anthropix Cloud. The Forrester AI plugin for Claude brings Forreester's trusted research, proprietary data, and analyst expertise directly into a client's Claude environment. We are not yet in full release on this product, launching the Claude plugin through a limited early adopter program. Forreister clients value frictionless access to our research, and we are committed to delivering that promise. We are actively exploring a number of other platforms, including Slack and Gemini. Now, I wanted to spend a few moments highlighting some recent groundbreaking research from Forrester. In the early spring of this year, we launched a research project to quantify how AI is going to disrupt specific sectors of the technology market. We built the Forresters AI Disruption Model and ran it against 17 business categories comprising 205 technology and service markets. Our model showed how AI will accelerate, disrupt, reshape, or destroy specific markets. And here are some of the conclusions. Providers of infrastructure, data, cybersecurity, and identity will benefit from AI deployment at scale. Labor-intensive knowledge work will face extensive disruption. Transformation services, technology implementation, software development, and other similar markets will experience pressure as AI substitutes activities previously performed by people. Many enterprise software categories are more likely to be reshaped than replaced. Business applications, governance, process automation, customer experience, and others will evolve as AI continues to proliferate. Obstacles like switching costs, regulatory requirements, and accumulated trust will prevent wholesale destruction in this space, at least in the two- to three-year time frame. In the third quarter, there was a groundswell of AI doomsday scenarios swirling through the media. Many of these claims were being propagated by the leaders of the frontier model companies. The self-serving motivation behind these declarations is noteworthy. With the frontier labs preparing IPOs, advocating regulation protects their competitive edge, making it harder for challengers to form and grow. Our research team convened to analyze the warnings and technology, resulting in several new reports for our clients. Forrester is counseling clients to remain composed, patient, and relentlessly rational in the face of the doomsday narratives. While risk can never be fully eliminated, AI models do not independently have the resources to inflict serious societal damage. Frontier labs could create safeguards, but companies should not rely on them to do so. Instead, firms need to maintain a disciplined approach grounded in reality and not science fiction conjecture. They must learn how AI exposes and exploits weaknesses in software and take steps to bridge those security gaps. Companies can't assume any model is inherently safe, but they should also not shy away from this opportunity, especially based on the views of CEOs who may be more intent on protecting their leads than on facilitating safe implementations of AI in large companies. Corporations should be planning and implementing their own private models that will serve their customers in a trusted and secure way. We also believe that the frontier model producers should be held legally liable for damages their products may inflict on companies, governments, or individuals. I wanted to highlight this moment because it demonstrates Forrester's value, imparting an objective and unbiased view, unafraid to draw different conclusions than the received wisdom being propagated by tech companies, the media, investment banks, and venture capitalists. Thank you for listening, and I will now hand the call over to our CFO, Chris Finn. Chris? Thanks, George. And good afternoon, everyone. In the third quarter, we saw a meaningful expansion of our product capabilities with the launch of AI Access Plus and Team Solutions. A year ago, we launched AI Access, one of our best-selling new products in the history of the company. This product has delivered meaningful incremental bookings since its launch and now makes up approximately 4% of our contract value base. In parallel, the sales transformation work enacted by our head of sales has helped build pipeline and equip the sales force with the right tools to drive improved productivity. The new products released this quarter provide additional price and engagement level options to our product hierarchy. We believe these new products, similar to AI access, will also become a meaningful portion of our contract value over time and will help Draft sustain CV growth by offering retention and upsell benefits. For Q3, CV was down 3.5%. This compares to a 7% decline in the same period a year ago. This quarter's decline was largely consistent with the first half of the year. We saw CV declines of 3.3% in the first and second quarters. Wallet retention at 89% was up 3 points from prior year and was consistent with the two prior quarters. Client retention at 78% was at 4 points from prior year, and up 1 point from prior quarter. Retention improvements, the positive impact of new products going forward, along with improvements we're seeing in our largest sales segment, high-tech, gives us continued confidence in the outlook for our CV business. However, near-term challenges in the U.S. federal government's selling environment has impacted our CV outlook for the remainder of the year. The fourth quarter is our largest bookings quarter, and performance in this period has an outsized impact on results. We now see a slightly wider range of outcomes for CV at year-end, centered around flat performance with a spread from 2% decline to 2% growth. Despite some of these challenges, we delivered a strong quarter, with revenue, margin, and EPS above consensus. We accelerated our stock buyback program and bought back approximately $10 million of stock in the period. Furthermore, we are increasing the low end of our earnings per share guidance. This reflects our prudent management of expenses throughout the year and the positive impact of our stock buyback program. For the total company, we generated $86.1 million in revenue compared to $94.3 million in the prior year period, which is an overall revenue decrease of 9%. In terms of our revenue breakdown for the quarter, research revenues were $70.1 billion down from $72.7 million in 2025. This was a decrease of 3% compared to the third quarter of 2025, with revenue from research products down 3% and reprints down 6%. Churn, downsell, and new business were all at or above expectations, while upsell was slightly below expectations and remained flat versus prior period. We believe the new products launched this quarter will offer a compelling upsell opportunity for our clients. For example, AI Access users who enjoy the self-service capabilities of the product but would like additional engagement with analysts can now upgrade their seats to AI Access+. This provides clients the opportunity to spend time with analysts on their most pressing initiatives multiple times a year. Furthermore, we believe the expansion of our Where You Work strategy, which encompasses Microsoft Teams, CoPilot, and now Claude, will provide growing retention benefits as we move forward through the remainder of the year and into next year. Our consulting business posted revenues of $14.7 million, which was down 31% compared to the prior year. There were meaningful declines in our content marketing business and in the now-exited strategy consulting business. The strategy consulting decline was notably impactful as third quarter had traditionally been a strong quarter for the government portion of that practice. And finally, in our events business, revenue was $1.2 million for the quarter, including two smaller events that occurred in Q4 in the prior year. As a result, year-over-year comparisons are not meaningful. We remain focused on executing our revised event strategy, which emphasizes shorter duration, smaller footprint forms designed to improve efficiency, and attendee engagement. Early indicators are encouraging with several sold-out events and healthy sponsorship activity, especially across EMEA and APAC. Continuing down our P&L on an adjusted basis, operating expenses for the third quarter decreased by 6%, primarily driven by lower compensation and related costs, along with the benefits of our reduced real estate costs. Headcount was down 10%, driven by the restructuring earlier in the year. We continue to manage costs very closely, with specific attention focused on headcount, hiring, and attrition. Operating income decreased by 35% to $6.5 million, or 7.6% of revenue in the current quarter, compared to $9.9 million, with 10.5% of Revenue in the third quarter of 2025. Interest expense for the quarter was $0.5M, down from $0,7M in the 3rd quarter of 2025. Finally, net income and earnings per share decreased 35% compared to Q3 of last year, with net income at $4.7 million and earnings per share at $0.24 for the current quarter, compared with netincome of $7.2 million and earning per share of $0,37 in the third quarter of 2025. For some context regarding our CapEx this year, our typical run rate is approximately $3 million per year. However, during 2025, we amended the lease for our headquarters, which reduced our footprint in the building, generating significant and ongoing cost savings, which began last year. As part of this amendment, we received $17.2 million of landlord funding towards the cost of renovating our space in the building. The total cost of innovations are expected to be approximately $25 million, which will be fully incurred during 2026. The unit date cash flow from operating activities was $33.4 million, of which $171 million represents cash received from our landlord to offset capital expenditures for our headquarters. Year-to-date capital expenditures were $24.8 million, of which $22.3 million relates to the headquarter build-out. Free cash flow year-to date, excluding the net spending on the build-up, was approximately $13.9 million. Remaining capex spend for the buildout will be approximately $2.5 million. Our balance sheet is strong, with cash at the end of the quarter of $117.6 million. We paid down $5 million of debt in the quarter, and debt now stands at $30 million. We accelerated our stock buyback program and repurchased approximately $10 million worth of shares this quarter. We have approximately $66 million of our stock repurchase authorization intact, and we plan on continuing to aggressively repurchASE our stock for the remainder of the year. As mentioned earlier, we are adjusting our EPS guidance range for the year, For 2026, we continue to expect revenue to be $350 to $360 million, or down 9% to 12% versus 2025. This guidance assumes the outlook for research to be a mid-single-digit decline, consulting to be a decline in low 20s, and events to be declined in the mid-to-high teens for the year. We still expect our operating margins to be in the range of 6% to 6.5% for 2026. An interest expense is expected to be $2.2 million for the year, we are guiding to a full-year tax rate of 29%. With the impact of careful expense management and the stock buyback program, we now see EPS to be in the high side of the original range of $0.72 to $0,82. To that end, we are raising the low end of guidance to $.77, so the new range will be $0.,77 to $,82 for the full year. We continue to offer additional flexibility, scalability, and pricing options for our clients. Every increasing adoption and additional platform integrations for Forrester AI should continue to support retention improvements. As we have seen over the last year, AI access, retention initiatives, and go-to-market improvements have all helped cut the CV decline in half. We believe going forward, the new product we outlined and ongoing product innovation will play a meaningful role in returning the business to CV growth. Thank you all for taking the time today. And with that, I'll hand the call back to George. Thank you, Chris. We continue to evolve our product offerings to deliver insights faster, where our clients work, to a wider audience of executives in the companies we serve. AI has revolutionized the way we guide our clients, and it has increased the need for our research as organizations strive to stay and pace with the market and use the new technology to serve their customers in new ways. As has been true for many previous technology waves, our clients need Forrester's research and advice to help them navigate the new math and the new rules of AI. This is an extraordinary opportunity. Thank you for your time, and I will now turn the call over to the operator for questions. Thank you, sir. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To withdraw your question, please press star 1-2. Star 1-4 again. Please stand by while we compile the Q&A roster. Can I share our first question? It comes from the line of Ashi Alpesh Shah from Sedodian Company. Please go ahead. Hi. Thank you for taking my question. I'm here on behalf of Anya. could you talk a little bit about your confidence in returning to positive contract value growth by the end of the year and what trends are you seeing in customer renewals and new business activity are you Seeing any improvement in the customer retention yeah sure thanks for the question this is Chris yeah so I'll start with just the range for this year, talking about the minus two to flat to plus two range we gave. We're being a little bit cautious here in our CV outlook. There's really three factors that are driving that. The first is just anticipated, you know, we had anticipated some growth deals in the U.S. federal government space that did not materialize in the third quarter. We didn't lose the deals. There was just some funding issues that pushed out the timing on those, made them a littlebit harder to forecast. The second piece of that is, you know, we have some enterprise deals in our pipeline. They're just more complex. They take a little bit longer to close. And the third piece is, you know 40% of our annual bookings happen in the fourth quarter for the year. And so we just launched two new products so there can be a bit of variability in an ending CV based on how the fourth quarter goes. And those are factored into that range. But based on all that, you know, especially with the new products that we just launched, all the go-to-market, you know, changes that Christophe has been driving in the sales organization, we feel confident as we go forward into 27. You know, we don't, you know, when we're guiding, obviously, you know, right now into 27, we're still going through our annual planning process. But, you know, we look at the stabilization in the business that we've had this year, obviously improvement and retention rates, cutting the CV decline, you know, from negative 6% at the end of 25 to the projected range that we've talked about here for the end-of-the-year. The new products that we're introducing, our retention initiatives, the leadership, obviously the sales organization, as I've discussed, they're all contributing to improvement in 26, and that's what gives us confidence as we go forward to sustain CV growth as we get into 27. right thank you and just a few questions on the ai opportunity uh with the introduction of several new ai enabled offerings this quarter how do you view ai's impact on the core research and advisory business do you see it primarily as an opportunity or a potential competitive threat and if you can just elaborate a little bit on the monetization of these new offerings that and how will they compare in margin profile with the traditional research products? Yeah, I'll talk in, this is George here, I'll just talk in generality and then maybe Chris can talk about margin. But there are two very big opportunities here. One, of course, is that having our own private model, Forrester AI, enables our clients to get our research, to ask, to converse with our research and get answers across all of our research reports over many years and to get the best answer at a very, very high speed. I use the word dream in my remarks, but this really is a dream for us and for our clients and the fact it's now so much easier to use our research and to not only find it, but also to be able to generate something new and original from our research. As an example, PowerPoints, presentations, internal reports for themselves. So one, a very big opportunity in the way we deliver our research That's number one. Of course, number two is the big one, which is this is the seventh technology wave that actually I've lived through. But this is the biggest technology wave actually of my lifetime. And it means that all of our clients will need massive help in how they build their private models, how they redeploy systems internally around a Gentic system to be a Gentick, and how they essentially redefine their businesses using AI. so there will be so one it is a very big opportunity the way we deliver the number two it means that our clients will need more force from the future not less this is a perfect opportunity for us you have a comment go talk about margin Chris yeah thanks George yeah so from a margin perspective you know we're very excited about the new product access you know this year as we talked about on the call it makes up you know through q3 about 4% of our CV base that's going to grow to be in the neighborhood of approximately 5% as we get through to the end of the year here and that's a self-service product so it has materially higher margins obviously than our forest and decisions product and and higher margins and the newer products that we've we're launching in q4 with a access plus but with that said what's nice about a access as a a self-service product and then AI access plus which does have some analyst support around you know not guidance sessions but inquiry a few times a year a little bit you know higher costs there from a selling perspective and a service perspective but the reality is once again much higher margins than our highest tier products and forest decisions so look we're excited about you know the ongoing you know opportunity there and and seeing margin expansion from a product perspective as we move forward and you know I think Christophe you want to mention yeah really yeah excess is really performing well and we have now more than 50% of all our sense force which have sold that public that product and it proved very efficient product to sell to new customers as well as to win back customers but it's also a fantastic product to deploy Forester at the broader range within organizations so I really believe that AI access and now the expansion of it with AI access plus will become a very important driver for the future growth of Forester. Hope that helps. Right yes thank you so much thank you good question thank you and i show our next question comes from the line of vincent calicchio from barrington research please go ahead yeah christophe uh could you give some color on uh what drove the sales staff decline uh sequentially and um any early thoughts on um if you're going to grow the sales stuff in 27. yes so as chris mentioned the sitting environment remains mixed. We are really seeing strength in North America high-tech segment. We see also strength in selling to the tech personnel, so the CIO, the CTO, the SISO, the enterprise architect in the end-user market, so in industry like financial services, manufacturing, or business services. We still see momentum in international, especially in Q3 in APAC, but there are more challenging areas. And one challenging area was clearly the U.S. federal business where funding uncertainty has affected the timing of large deals. That segment remains attractive for Forrester, but we are going to be more cautious in planning those deals in the future due to timing reasons. And Christophe, go ahead. Yeah, I was just going to say, Vincent, you know, the other thing we're focused on really is really productivity sales, ongoing, you now, scaling of sales talent, and we're focused on performance management. So, look, in the near term, I think, you know, we're going to look very closely at quarter bearing headcount and for expansion in specific areas, but we're laser focused on productivity and enablement of sales at this juncture. And introducing the AI Access Plus, it gives you more and more economical price points for, you Know, maybe that's, you Now, what certain clients are looking for. Will we see more products maybe in the near future to, you know, broaden the price points you offer? Hey, Vince, it's Carrie. We have a very full portfolio right now. The launch of these latest products really fill out some gaps that we had in our portfolio, including team solutions, which George also mentioned, George and Chris both mentioned, that also help clients work better together faster with a group of individuals and peers that are on their team. So we're always looking at new product offerings based on what clients have asked us, and the ones that we've launched this quarter really do, or the twos, I would say, most requested ones by our clients and fill the biggest needs, so we're excited about that. The other place you'll continue to see product innovation from us, as we've talked about, is on the, where Forrester is available. George mentioned this as well. While we don't charge for that separately per se, it is creating demand across all of the products that we've mentioned because it's available as part of everything that we offer and part of all Forreester products. So plenty of Forreister innovation coming for sure. Feel really good about the current portfolio and that it's meeting the market need. Yeah, one thing, Vince, about four years ago, we decided not to sell to vendors, tech vendors under $50 million in size. And as we look forward into this AI era, there's going to be, I think, the greatest number of launches and startups in history in the next five years. And so we want to be able to serve those small AI companies as they launch. And to an extent, AI Access Plus is, to an extent, it was built for them, but it's a perfect product for them to introduce themselves to Forrester. So the market has changed, and we've changed our product line to match it. And contract value pipeline, did that increase year over year? What does that look like? So the pipeline right now remains consistent with a recent quarter, but with a larger contribution from our new expanded portfolio and our AI solutions. My focus right now is less on the overall pipeline value, but more on the quality of that pipeline, on the late-stage conversion, and deal velocity. And I've put in place a new self-leadership system in order to put more rigor and discipline in the way we convert those opportunities and we drive retention. And as George mentioned, we saw leading indicators such as wallet share going up by three points compared to last year and client retention going up by four points compared to last year. So we are going to the right direction. Thanks, gentlemen. Thanks, Vince. Excellent. Thank you. that concludes our q a session at this time i'd like to turn the conference back to chris finn chief financial officer for closing remarks thanks all for joining us today uh any questions or follow-up once you reach out to michelle for ed we're always available thank you thank you thank you this concludes today's conference call thank you for participating you may now Now disconnect.