Forrester Q3 2026 Earnings Conference Call - FORRESTER RESEARCH INC

Explicit Guidance:

• Full-Year 2026 Revenue: $350–$360 million, implying a 9–12% decline versus 2025; assumes mid-single-digit decline in research, low-20s decline in consulting, and mid-to-high teen decline in events.
• Full-Year 2026 EPS: Raising low end to $0.77, with the new range set at $0.77–$0.82 (previously $0.72–$0.82), reflecting expense management and buyback impacts.
• Full-Year 2026 Operating Margin: Maintained at 6%–6.5%.
• Full-Year 2026 Financial Assumptions: Interest expense projected at $2.2 million; full-year tax rate expected at 29%.
• FY2026 Contract Value (CV) Outlook: Year-end CV expected to range from a 2% decline to 2% growth, centered on flat performance; fourth quarter is identified as the largest bookings period with outsized impact.
• Share Repurchases: Accelerating buyback program; ~$10 million repurchased in Q3 with $66 million remaining authorization; plans to continue aggressive repurchases for the remainder of the year.

Business-Segment Outlook:

• Research Products: Expected to contribute to mid-single-digit revenue decline for FY2026; new products (AI Access Plus, Team Solutions) expected to drive retention, upsell, and future CV growth.
• Consulting: Projected to decline in the low-20s for FY2026, driven by the exit of the strategy consulting business and softness in content marketing; government portion of strategy consulting noted as traditionally strong but impacted by current funding uncertainty.
• Events: Expected to decline in the mid-to-high teens for FY2026; strategy pivoted toward shorter duration, smaller footprint events to improve efficiency; early indicators show sold-out events in APAC and EMEA.
• Contract Value (CV): Retention metrics (wallet retention 89%, client retention 78%) are trending upward; new products and go-to-market improvements are credited with halving the CV decline rate (from -6% in late 2025 to projected -2% to +2% in late 2026).
• Segment-Specific Trends: High-tech and North America showing strength; U.S. federal government facing funding uncertainty affecting deal timing; international markets (APAC/EMEA) showing momentum.

Market and Competitive Outlook:

• AI Disruption Model: Foresees infrastructure, data, cybersecurity, and identity providers benefiting from AI scale; labor-intensive knowledge work and transformation services facing pressure/substitution; enterprise software categories likely to be reshaped rather than replaced within a 2–3 year timeframe due to switching costs and regulatory hurdles.
• Competitive Landscape: Management anticipates a surge in AI startups (greatest number of launches in history over the next five years); Forrester adjusting strategy to serve vendors under $50M previously excluded.
• Pricing & Productivity: Introduction of AI Access Plus and Team Solutions adds pricing tier flexibility; focus on sales force productivity and conversion rigor rather than headcount expansion.
• Demand Trends: Clients increasingly seeking guidance on private model deployment and AI system redefinition; demand driven by need to navigate "new math" of AI.

Macro / Industry Outlook:

• Economic Headwinds: U.S. federal government selling environment impacted by funding uncertainty, delaying large deals; global market uncertainty driving consulting decline.
• Regulatory & Legal: Forrester advises clients against reliance on frontier model providers for AI safeguards; advocates for legal liability for damages caused by frontier model products.
• Technology Trends: Anticipates "AI doomsday" narratives as self-serving by frontier labs preparing for IPOs; predicts continued proliferation of AI tools requiring enterprise adaptation.
• FX/Capex: Capital expenditures run rate ~$3M/year; 2025 lease amendment reduced footprint and generated $17.2M landlord funding; HQ build-out costs ($25M total) fully incurred in 2026.

Strategic Initiatives:

• Product Launches: Launched "Team Solutions" (collaborative research) and "AI Access Plus" (AI access with quarterly analyst inquiry sessions) in Q3; AI Access now ~4% of CV base, projected to reach ~5% by year-end.
• "Where You Work" Strategy: Expanded platform integrations to include Microsoft Teams, Copilot, and Anthropic's Claude (via limited early adopter); actively exploring Slack and Google Gemini.
• AI Platform: Forrester AI prompt volume up 142% YoY; total users up 65% YoY; seen as a major driver for CV growth and a "dream" fulfillment for client speed and value.
• M&A/Restructuring: Strategy consulting business exited earlier in the year; headcount reduced by 10% to align with revised cost structure.
• Timing: HQ renovation costs fully incurred during 2026; remaining capex for build-out approx. $2.5 million.

Risks and Headwinds to Outlook:

• U.S. Federal Funding: Funding uncertainty in U.S. federal space delaying large deals and impacting CV forecasting.
• Deal Complexity: Enterprise pipeline deals noted as more complex with longer close cycles.
• Q4 Variability: 40% of annual bookings occur in Q4; new product adoption variability could result in wider-than-anticipated CV outcomes.
• Consulting Decline: Continued weakness in content marketing and the exit of the strategy practice may drive deeper-than-expected declines in that segment.
• Market Sentiment: Risk of clients reacting to "doomsday" AI narratives; need to maintain rational, reality-grounded implementation strategies.

Management Tone on the Future:

• Confidence Level: Cautious regarding near-term CV due to Q4 timing and government uncertainty, but expresses "continued confidence" in the ability to return to CV growth in 2027.
• Strategic Confidence: Strong belief that AI is a "major driver" of growth and that clients will need "more force [advice] from us, not less" as they adopt AI.
• Operational Stance: Prudent expense management, focus on sales productivity, and aggressive capital return via buybacks.
• Product Outlook: Optimistic that new products (AI Access Plus, Team Solutions) will become "meaningful portions" of CV and drive margin expansion due to self-service components.

Miscellaneous:

• Financial Metrics Context: Q3 revenue $86.1M (-9% YoY); Operating income $6.5M (7.6% margin); Net income $4.7M (-35% YoY); EPS $0.24.
• Cash Position: Cash on hand $117.6M; Debt reduced to $30M after $5M paydown; Free cash flow YTD ~$13.9M (excluding HQ build-out spend).
• AI Metrics: 70% of surveyed AI users report increased value; AI Access users offered upgrade paths to AI Access Plus.