Business Overview and History

Forrester Research (NASDAQ:FORR) is a renowned global research and advisory firm that has been at the forefront of providing cutting-edge insights and guidance to businesses navigating the ever-evolving technological landscape. With a rich history spanning over three decades, Forrester has established itself as a trusted partner for leaders across various industries, empowering them to make informed decisions and stay ahead of the curve.

Forrester was founded in 1983 by George F. Colony, who recognized the growing importance of technology in shaping the business world. The company started as a technology research and advisory firm, offering specialized insights and analysis to help clients understand and leverage emerging technologies. In its early years, Forrester faced the challenge of establishing itself in a crowded market of technology research firms. However, the company successfully differentiated itself by focusing on helping clients understand and leverage technology to drive business outcomes.

This strategy resonated with clients, allowing Forrester to grow its client base and revenue steadily throughout the 1990s and 2000s. A significant milestone for the company was its initial public offering in 1996, which provided additional resources to invest in product development and expand its global reach. In the 2000s, Forrester made several strategic acquisitions to enhance its capabilities and reach, including the acquisitions of Fletcher Research in the UK and Jupiter Research in the US.

Over the years, Forrester has expanded its reach, diversifying its product offerings and establishing a global presence. The company's evolution included the addition of consulting services and events to complement its research offerings. In the early 2000s, Forrester made a strategic shift, focusing on becoming a leading provider of research-based advisory services. This move allowed the company to deepen its relationships with clients, providing them with tailored guidance and support to address their unique challenges.

The company's research covers a wide range of topics, including customer experience, digital transformation, marketing, and technology strategy, among others. More recently, Forrester has faced challenges related to the transition from traditional research products to a subscription-based model centered around its Forrester Decisions platform. This transition, which began in 2021, required significant investment and changes to the company's go-to-market strategy. Additionally, the company faced headwinds from the COVID-19 pandemic, which impacted its events business.

Financial Performance and Metrics

Forrester's financial performance has been marked by a mix of successes and challenges in recent years. As of the most recent 10-Q filing in 2024, the company reported annual revenue of $432.5 million, representing a 10% decline from the previous year. Net income for the year was a loss of $5.7 million, or $0.30 per share. Despite these headwinds, Forrester has maintained a strong balance sheet, with $104.7 million in cash and investments as of the end of 2024.

One of the key metrics closely watched by Forrester's investors is contract value (CV), which represents the value attributable to the company's recurring research-related contracts. As of the end of 2024, Forrester's CV stood at $307.6 million, a 5% decline from the prior year. However, the company has seen improvements in client retention, which increased by 2 percentage points to 73%, and wallet retention, which also improved by 2 percentage points to 89%.

For the most recent quarter, Forrester reported revenue of $108.0 million, down 9% year-over-year. However, net income for the quarter increased by 42% to $6.8 million. The company's operating cash flow for the most recent fiscal year was negative $3.9 million, while free cash flow was positive at $28.0 million.

Forrester operates in three main segments: Research, Consulting, and Events. The Research segment, which includes revenues from research products and consulting revenues from advisory services, saw a 7% decrease in revenues for both the three and nine months ended September 30, 2024. This decline was primarily due to a decrease in contract value and lower revenues from Forrester's reprint product and smaller, discontinued products. The Consulting segment experienced a 12% and 17% decrease in revenues for the three and nine month periods, respectively, driven by lower client demand. The Events segment saw the most significant decline, with revenues decreasing 54% and 33% in the three and nine month periods, primarily due to declines in both sponsorship and ticket sales.

Liquidity

Forrester has maintained a strong liquidity position despite the challenges faced in recent years. The company's cash and investments of $104.7 million as of the end of 2024 provide a solid financial foundation. This liquidity allows Forrester to continue investing in its strategic initiatives and navigate market uncertainties.

The company's debt-to-equity ratio stands at 0.27, indicating a relatively low level of leverage. Forrester also has access to a $150 million revolving credit facility, of which $114.4 million was available as of the most recent reporting period. The company's current ratio and quick ratio are both 0.98, suggesting a balanced short-term liquidity position.

Forrester's Transformation and Strategic Initiatives

In recent years, Forrester has undergone a significant transformation, focusing on the development and rollout of its flagship product, Forrester Decisions. This platform-based approach has been a critical driver of the company's strategic shift, as it has enabled Forrester to provide more comprehensive and integrated research-based solutions to its clients. By the end of 2024, Forrester expects over 80% of its CV to be from the Forrester Decisions offering, with the remaining CV from non-Decisions products like reprints and its legacy research products.

One of the key highlights of Forrester's transformation has been the introduction of Izola, the company's proprietary generative AI tool. Izola has become a valuable asset, allowing Forrester's clients to quickly access and synthesize the company's extensive research, streamlining their decision-making processes. The integration of Izola into the Forrester Decisions platform has been a significant achievement, contributing to the platform's growing popularity and client engagement. Notably, Izola has become the third highest destination for clients on the Forrester website, and Izola usage has shown a 20% higher renewal rate compared to non-users.

Furthermore, Forrester has made investments to enhance its events business, recognizing its potential as a powerful platform for client engagement and research contract renewals. The company is focusing on expanding the audience, improving the content and experience, and better aligning its sales efforts with the events strategy.

Challenges and Risks

While Forrester has made significant strides in its transformation, the company has also faced its share of challenges. The company's transition to the Forrester Decisions platform, while largely successful, has not been without its obstacles. The company has had to navigate the shifting dynamics of the technology and consulting markets, as well as the broader economic uncertainty, which have impacted its financial performance.

Additionally, Forrester operates in a highly competitive research and advisory industry, where it must continually innovate and differentiate itself to maintain its market position. The company also faces risks related to data security, regulatory changes, and the potential disruption of its business model by emerging technologies or new market entrants.

Outlook and Future Prospects

Looking ahead, Forrester is focused on executing its strategic initiatives to drive growth and profitability. The company's guidance for 2025 reflects a cautious outlook, with revenue expected to decline by 4-8% compared to 2024, falling in the range of $400 million to $415 million. Operating margins are projected to be between 8% and 9%, with interest expense estimated at $2.7 million and a full-year tax rate of 29%. Earnings per share (EPS) is expected to range from $1.20 to $1.35 for the full year 2025.

Despite these near-term challenges, Forrester remains optimistic about its long-term prospects. The company expects contract value growth to be flat in 2025 as it works to improve retention and drive new business growth. Forrester plans to return to positive free cash flow in 2025 based on expected bookings improvement.

The company is focusing on three key initiatives in 2025: improving retention, driving growth, and boosting the events business to be a stronger driver of retention and contract value growth. These efforts, coupled with the continued enhancement of the Forrester Decisions platform and the leveraging of Izola's capabilities, position Forrester to capitalize on emerging opportunities in the market.

Forrester's commitment to client-centricity, coupled with its innovative approach to research and advisory services, positions the company as a formidable player in the industry. As businesses navigate the complexities of the digital age, Forrester's role as a trusted partner and industry thought leader will continue to be highly sought after, offering promising opportunities for long-term growth and value creation.

The broader industry trends also bode well for Forrester's future prospects. The company projects global technology spend to grow 5.6% in 2025, reaching $4.9 trillion, driven by rapid adoption of software, IT services, generative AI, and cloud technologies. This growth in technology spending aligns well with Forrester's expertise and service offerings, potentially creating new opportunities for the company to expand its client base and increase its contract value per client.

While Forrester faces near-term headwinds, its strong liquidity position, strategic focus on high-value offerings like Forrester Decisions and Izola, and its commitment to improving key metrics such as client retention and contract value per client position the company well for future success in the dynamic research and advisory market.