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Edited Transcript of FORR earnings conference call or presentation 31-Jul-19 8:30pm GMT

Q2 2019 Forrester Research Inc Earnings Call

CAMBRIDGE Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Forrester Research Inc earnings conference call or presentation Wednesday, July 31, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George F. Colony

Forrester Research, Inc. - Founder, Chairman, CEO & President

* Kelley Hippler

Forrester Research, Inc. - Chief Sales Officer

* Michael A. Doyle

Forrester Research, Inc. - CFO

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Conference Call Participants

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* Allen Robert Klee

Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst

* Timothy John McHugh

William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst

* Vincent Alexander Colicchio

Barrington Research Associates, Inc., Research Division - MD

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Presentation

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Operator [1]

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Good afternoon. Thank you for joining today's call. With me today are George Colony, Forrester's Chairman and of the Board and CEO; Kelley Hippler, Forrester's Chief Sales Officer; and Mike Doyle, Forrester's Chief Financial Officer. George will open the call, Kelley will follow George to discuss sales and Mike Doyle will discuss our financials. We'll then open the call to Q&A. A replay of this call will be available until October 30, 2019 and can be accessed by dialing 1 (888) 843-7419 or internationally at 1 (630) 652-3042. Please reference the passcode 9604933#.

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. Some of the important factors that could cause actual results to differ are discussed in our reports and filings with the Securities and Exchange Commission. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now hand the call over to George Colony. George, you may begin.

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George F. Colony, Forrester Research, Inc. - Founder, Chairman, CEO & President [2]

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Thanks for being with us for Forrester's 2019 Q2 investor call. Myself; Kelley Hippler, Head of Sales; and Mike Doyle, Forrester's CFO will give updates and then we're going to finish up with questions and answers.

In the second quarter, we achieved the top end of revenue guidance and exceeded earnings per share guidance. In addition, client retention and contract enrichment both grew in the quarter, continuing the trends of expansion that we experienced in 2018 and in the first quarter of this year. As we intensify the combination of SiriusDecisions, we are encountering typical integration hurdles, but the cultural, client and synergy fundamentals remain very strong. The value propositions of the combined entity are unique and powerful. We now cover the full waterfront of B2B and B2C. We are able to guide our clients on what to do, strategy and how to do it, execution. And we can direct large companies on how to best align marketing, sales and product an imperative for success in the age of the customer.

The second quarter was a busy quarter. We successfully integrated several SiriusDecisions and Forrester functions. We hosted 2 of the largest events in the history of the company. We introduced a new certification product and we continued to move forward on the development of our customer experience cloud. This was the first quarter of business line integration between SiriusDecisions and Forrester, which consolidation of the consulting, learning and events teams. In addition, we brought the SiriusDecisions sales team under the management of Forrester leadership, setting the structure for accelerated cross-selling.

In Q2, we hosted 2 large events: the SiriusDecisions Summit 2019 in Austin and the Forrester CX Forum in New York City. Since its launch in 2005, Summit has become the Woodstock of B2B marketing, sales and product; where executives from those 3 disciplines come together to work on aligning and sharpening their execution and skills. We had 3,500 attendees and 130 sponsors at Summit, making it by the largest event in Forrester's history. At Summit, we rolled out new models and new research for clients. At the event, Monster, the job-seeking and recruitment company, was recognized for its work implementing SiriusDecisions' best practice and frameworks to achieve B2B sales efficiency. Monster's implementation led to changes in the way it organized and enabled its salesforce, driving significantly improved financial results. And like Monster, it is not uncommon for CMOs and CSOs to bring 20 to 30 direct reports to the event, where they fan out to learn new skills and then convene to strategize on how they will implement. Many of the best practices from Summit will be adopted for upcoming and future Forrester events.

In Q2, we hosted legacy Forrester's largest annual event, the Customer Experience New York City Forum. At the event were 1,400 attendees and 48 sponsors. Forrester's CX index research has shown the CX scores have stalled over the last 2 years. So the theme of the Forum was helping senior leaders build innovative customer experiences that will help their brand break through the CX ceiling. An example was Amazon's acquisition of Whole Foods. Since the deal, the food retailer's CXi score has increased 3.5 points, a statistically significant move upward, driven by price cuts and digital-physical integration. And as you would expect, improved customer experience increase Whole Foods' foot traffic 16.5% and revenue was up 6% over the same period. Both Summit and the CX Forum grew year-over-year, attended and recorded the highest sponsorship renewal percentages in their history. Before this year's Summit ended, we had already booked 64% of Summit 2020's sponsorship space.

In Q2 we widened the portfolio of our certification product line, introducing certification in Zero Trust for security and risk professionals. Zero Trust is a security framework that was created and perfected at Forrester over the last 6 years. It has become widely used in that time, adopted by many organizations, including (inaudible), Google, NASA and the CIA. Zero Trust certification, it helps security professionals adapt the framework for their business, align their teams around a specific security philosophy and take steps to architect Zero Trust security. So we now have 2 disciplines in our certification product line, Customer experience and Zero Trust.

I'd like to end by talking about the investment we continue to make in FeedbackNow, our real-time customer experience cloud product. As you all know, the first version of FeedbackNow deployed physical devices to gather experience data. This first version is deployed widely in Europe and now in the U.S., primarily in airports, large venues and retail locations. Over the last year, the number of votes processed through FeedbackNow has nearly doubled. We will be introducing FeedbackNow Version 2 late in the third quarter. This platform incorporates inputs from digital sources combined with data from physical devices to provide real-time monitoring, text feedback and text analytics. We are deploying machine learnings in the text analytics engine to ensure the clients are focused on the feedbacks that will most improve customer experience. We've been testing the product with 10 beta customers over the last 4 months. The new product will be sold by a select segment of the Forrester salesforce initially, before we move to a wider release in early 2020.

So to conclude, the SiriusDecisions integration is moving forward according to plan. The marriage of strategy and execution is strongly resonating with clients. Our 2 largest events of the year were successful and continue to grow. Our certification business is expanding beyond customer experience to security and risk and our initiative to build tools to enable our clients to monitor and improve their experience in real-time is now moving into its second phase, incorporating digital and physical inputs in one platform. And then finally on the capital side in the first half of the year, we have paid down $33 million of the $175 million in debt that we took on as part of the SiriusDecisions acquisition.

So we're very pleased with where we stand at midyear, and we look forward to the work that lies ahead in the second half of 2019. Now I'd like to turn the call over to Kelley Hippler, who will provide a sales update. Kelley?

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Kelley Hippler, Forrester Research, Inc. - Chief Sales Officer [3]

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Thank you, George. In Q2 on the legacy Forrester business, we continue see a number of leading indicators trending in a positive direction in our customer engagement model, Forrester's go-to-market strategy. Our 12-month rolling client retention has improved over Q1, which helped to drive an increase in client count. We're also seeing a continued increase enrolling enrichment. Q2 marked the 10th consecutive quarter that productivity of our ramped reps improved. In addition, we continue to see sales attrition ratchet down as our sellers are adjusting to their roles in the customer engagement model. We believe that there's a symbiotic relationship between sales rep retention and client retention. Just to give a reminder, we allowed the SiriusDecisions team to finish out their fiscal year in our Q1. In Q2, we made an assessment and decided to expedite the integration of the sales organization. Specifically, we moved the SiriusDecisions sales teams under Forrester leaders based on geography and selling motion. Approximately 30% of the SiriusDecisions salesforce started this calendar year. We also had a group of high-performing reps who had been newly promoted to manager roles. Given the strength of the leadership team that we have built over the last 2 years at Forrester, we chose to leverage those leaders to provide additional support and to help with ramping our new team members and managers. I'm pleased to report that with the increased clarity about future state, we are starting to see sales rep attrition taper back down.

We are now in a position to start introducing a number of the operational practices we've developed at Forrester, including optimizing territory assignments, aligning sales compensation plans, and leveraging key activity metrics to drive pipeline. We continue to be very pleased with the SiriusDecisions product. Client feedback about the value SiriusDecisions provides across sales, marketing and products in the B2B space is very positive. Clients and prospects also continue to reinforce the adjacent nature of the SiriusDecisions product with the Forrester portfolio. We've rolled out a number of collaboration programs to help drive bookings in the second half of the year that we're starting to gain traction with. This is a precursor to having a fully integrated sales organization in 2020 that will allow us to take advantage of revenue synergies.

With that, I would like to turn the call over to Mike Doyle to review our Q2 financial results.

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Michael A. Doyle, Forrester Research, Inc. - CFO [4]

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Thanks very much, Kelley. I will now begin my review of Forrester's financial performance for the second quarter of 2019, including a look at our financial results, the balance sheet at June 30, our second quarter metrics, and the outlook for the third quarter and full-year 2019. Please note that the income statement numbers I'm reporting are pro forma and exclude the following items: impact on revenue from the acquisition-related fair value adjustment to deferred revenue, stock-based compensation expense, amortization of intangibles, acquisition and integration costs and any net gains and losses from investments. We continue to utilize an effective tax rate of 31% for pro forma purposes for 2019. In addition, we'll continue to highlight the impact of SiriusDecisions on our consolidated results by indicating year-over-year performance with and without the acquisition in the relevant section of my comments.

For the second quarter, Forrester delivered pro forma revenue and operating margin that achieved the top half of guidance and earnings per share that exceeded guidance, despite some FX headwinds. We delivered another quarter of strong financial results, as we accelerated the process of integrating SiriusDecisions, the largest acquisition in company history. The upside was driven by strong analytics, consulting and advisory delivery performance. In addition, our key client metrics continue to show improvement.

Now let me turn to a more detailed review of our second quarter results. Forrester second quarter revenue increased by 38% to $133.1 million from $96.4 million in the second quarter of 2018. SiriusDecisions impacted growth by approximately 34% in the quarter. Second quarter research services revenue increased by 35% to $78.8 million from $58.3 million and SiriusDecisions impacted growth by 31% in the quarter. Research services revenue represented 59% of total revenue for the quarter.

Second quarter advisory services and events revenue increased by 43% to $54.3 million from $38.1 million and SiriusDecisions accounted for 38% of the growth in the quarter. Advisory services and events revenue represented 41% of total revenue for the quarter. Our international revenue mix was 19%, down 4% from 23% in the second quarter of 2018. SiriusDecisions impacted international revenue mix by minus 3 points for the quarter.

I would now like to take you through the product activity behind our revenues, starting with Forrester Research. Forrester's published research and decision tools enable clients to better anticipate and capitalize on the disruptive forces affecting their businesses and organizations. We believe Forrester Research provides insights and frameworks as well as operational tools to drive growth in a complex and dynamic market. Research services revenue increased by 43% for the second quarter of 2019. SiriusDecisions accounted for 42% of the growth for the quarter.

Onto our connect offerings, which encompasses our leadership boards, executive programs as well as our learning products. Leadership boards provide peer connections to allow clients to collaborate and create plans born from practical experience. Executive Programs pair clients with former C-level executives, trusted partners who clients can count on to help them make big calls. Our learning products provide companies with training and certification opportunities for their teams that combine hands-on activities with instruction from Forrester analysts. As of June 30, 2019, Forrester leadership boards and Executive Programs had a total of 1,463 members, down 1% compared to the prior quarter, and up 4% compared to prior year.

Connect revenue increased by 13% for the second quarter of 2019, driven in part by our new learning offering. SiriusDecisions accounted for 5% of the growth. Our analytics products helped clients understand and anticipate dynamic and changing B2B and B2C customers. Our services provide a view onto the potential future change and offer powerful measures and models to create a blueprint for growth. For the second quarter, revenue increased by 21%, driven by our acquisition of FeedbackNow, which accounted for 18% of the growth in the quarter.

Forrester's advisory and consulting offerings help clients apply Forrester's intellectual property to drive action across the enterprise, enabling them to act faster and smarter in a market that rewards customer obsession, speed and agility. Revenue increased by 14% for the second quarter, driven by strong bookings in growth in content marketing and higher utilization of our consultants and analysts. SiriusDecisions accounted for 5% of the growth in the quarter.

Our events business provides leading content via immersive experiences focused on enabling professionals in customer experience, digital transformation, privacy and security, sales and marketing. In the second quarter, we held 7 events, including our 2 flagship events, the SiriusDecisions North America Summit in Austin, Texas and the CX Forum in New York. Second quarter events revenue increased by 153% with 163% of the growth related to SiriusDecisions, partially offset by a 10% decline in other events, due in part to the elimination of our Customer Experience DC Forum this year.

I will now highlight the expense and income portions of the income statement. Operating expenses for the second quarter increased by 37% and were $113.1 million compared to $82.7 million the prior year. Cost of services and fulfillment increased by 45% with 36% of the growth related to SiriusDecisions and the remainder driven by higher legacy Forrester headcount, annual merit increases and professional services expenses. Selling and marketing expenses increased by 34% with 31% of the growth due to SiriusDecisions.

General and administrative costs increased by 22% with 14% of the growth related to SiriusDecisions, and the remainder due to higher compensation related to higher headcount and merit increases. Overall headcount increased 27% compared to the second quarter of 2018 with 24% of the growth due to SiriusDecisions. At the end of the second quarter, we had a total staff of 1,777, including products and advisory staff of 670 and total salesforce of 697. Products and advisory services headcount increased by 24% year-over-year, with 21% due to SiriusDecisions. Total salesforce increased by 34% year-over-year, entirely due to SiriusDecisions.

Operating income was $20 million or 15% of revenue compared to operating income of $13.6 million or 14.2% of revenue in the second quarter of 2018. Interest expense for the quarter was $2.1 million as compared to no interest expense in the second quarter of last year. Other expenses for the quarter was $86,000 compared to $271,000 of other income in the second quarter of 2018.

Net income for the quarter was $12.3 million and earnings per share was $0.65 on diluted weighted average shares outstanding of 18.8 million, compared with net income of $9.6 million and earnings per share of $0.53 on 18.3 million diluted weighted average shares outstanding in the second quarter of 2018.

Now I'll review Forrester's second quarter metrics to provide more perspective on the operating results for the quarter. These metrics are inclusive of acquisitions when appropriate. Agreement value, this represents the total value of all contracts for research and advisory services in place, without regard to the amount of revenue that has already been recognized. As of June 30, 2019, agreement value was $348.9 million, up 40% from the second quarter of 2018. SiriusDecisions impacted Q2 agreement value growth by 27%.

As of June 30, 2019, our total for client companies was 2,875, up 22% compared to last year. SiriusDecisions impacted Q2 client count growth by approximately 18%. Client count, unlike our retention and enrichment metrics, is a point-in-time metric at the end of the quarter. As we mentioned last quarter, we have updated the methodology we used to calculate client retention, dollar retention and enrichment to focus on account level activity as opposed to contract level activity. Additionally, we have broadened the products and services included in the calculation, which better reflects our solutions-oriented approach to serving our clients. Historical values have been restated to allow for appropriate comparisons. The retention and enrichment metrics reflect legacy Forrester performance and exclude the impact of our recent acquisitions. Forrester's client retention rate was 73% for the second quarter, up 1 point compared to last quarter and up 2 points compared to last year. Our dollar retention was 90%, unchanged to last quarter and up 1 point compared to last year.

Forrester's enrichment rate was 108% for the second quarter, up 2 points compared to last quarter and up 1 point compared to last year. We continue to calculate client and dollar retention rates and enrichments rates on a rolling 12-month basis, due to the fluctuations which can occur between quarters with deals that close early or slip into the next quarter. The rolling 12-month methodology captures the proper trend information.

Now I'd like to review the balance sheet. Our cash at June 30, 2019 was $69.8 million, which is a decrease of $70.5 million from $140.3 million at year-end 2018. The decrease in cash was due to the funding of the SiriusDecisions acquisition, which I shall explain in more detail. Cash paid for Sirius net of cash acquired was $238.9 million, of which $175 million was funded with debt and $63.9 million was funded with cash on hand. We also paid $4.6 million of debt issuance costs as a part of the transaction. Cash from operations was $7.5 million for the quarter, as compared to $20.5 million in the second quarter of last year. For the first 6 months of 2019, cash from operations was $33.5 million, which is an increase of 19% from the 2018 period.

Debt payments were $11.6 million during the quarter, including $10 million of discretionary payments on our revolver. For the first 6 months of 2019, debt payments were $33.1 million, including $30 million of discretionary payments. Debt outstanding at June 30, 2019 was $141.9 million. We received $900,000 in cash from options exercised for the quarter as compared to $1.1 million in the second quarter of last year.

Accounts receivable at June 30, 2019 was $65.8 million compared to $49.5 million as of June 30, 2018. Our days sales outstanding at both June 30, 2019 and 2018 was 47 days. And accounts receivable over 90 days was 5% at both June 30, 2019 and 2018. Deferred revenue at June 30, 2019 was $180.9 million, an increase of 26% compared to June 30, 2018 with approximately 21 points of this growth coming from SiriusDecisions.

In closing, we had a good quarter, despite accelerating the process of integrating SiriusDecisions. Pro forma revenue and margin performed at the upper end of expectations. Earnings per share exceeded guidance and cash flow was up significantly on a year-to-date basis, which allowed us to continue to pay down our revolving line of credit. As I mentioned earlier, to date we have paid down $33.1 million, bringing our debt outstanding to $141.9 million, leaving the balance sheet in good shape.

Kelley mentioned in her comments we've had an opportunity to assess where we are with the SiriusDecisions sales channel and have decided to integrate their sales function faster than originally planned. We believe it is the right move to make to maximize the long-term success of our investment in SiriusDecisions. As George mentioned in his remarks, it's a great product that resonates well with clients and complements our products and services that support CMOs. By integrating sales now, it allows us to be better positioned to start 2020 with a unified approach to customers. We believe the decision to integrate SiriusDecisions sales in Q2 will have an impact on our 2019 results. As a result, we have reduced guidance modestly, 1% to 2% for both revenue and earnings per share to reflect the impact of this change and the impact of FX headwinds on our revenue.

Now let me take you through the specifics of our guidance for the third quarter and full year 2019. Our guidance excludes the following: the fair value adjustment to the acquired deferred revenue from the Sirius acquisition of $1.5 million to $2 million for the third quarter and $11 million to $11.5 million for the full year 2019; amortization of intangibles, which we expect to be $5.5 million to $6 million for the third quarter and $22 million to $23 million for the full year of 2019; stock-based compensation expense of $3 million to $3.2 million for the third quarter and $11.5 million to $12 million for the full year 2019; acquisition and integration costs of $1.3 million to $1.6 million for the third quarter and $7.5 million to $8 million for the full year 2019; and any investment gains and losses.

Forrester is providing third quarter 2019 financial guidance as follows: pro forma revenues of approximately $107 million to $111 million, pro forma operating margin of approximately 9% to 11%, pro forma effective tax rate of 31%, pro forma earnings per share of $0.27 to $0.31. Our full year 2019 guidance is as follows: pro forma revenues of approximately $468 million to $478 million, pro forma operating margin of approximately 10.5% to 11.5%, pro forma effective tax rate of 31%, pro forma diluted earnings per share of approximately $1.52 to $1.62. We have provided guidance on a GAAP basis for the third quarter and full year 2019 in our press release and 8-K filed today.

Thanks very much. I'm now going to turn the call over to the operator for the Q&A portion of the call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Tim McHugh.

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Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [2]

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Just on the SiriusDecisions sales integration, I guess can you elaborate on, I guess, what the direct activity is? When you say it was more tightly integrated, is it the sales targets, the comp structure, the managers? I guess I'm just trying to more specifically understand what change you made, I guess, versus how you had been running it up to that point.

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Kelley Hippler, Forrester Research, Inc. - Chief Sales Officer [3]

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Sure, Tim. It's Kelley. So in terms of the changes that we made, we essentially when you look at how SD's sales organization was structured, there were different teams and/or groups that aligned to current selling motions. So for example, there might have been a team that they would call vendor in geo and were largely selling to small technology providers. That mapped to our core organization. So we essentially took teams in their entirety and moved them under the Forrester GSL that aligned with the selling motion that they were part of. So that was sort of the structural change that we moved. So I think in most cases, all reps have the same manager that they did. It was really just realigning who that top layer of management is reporting into and then now reporting to Forrester sales leaders. We took some steps to harmonize comp plans. We're probably about 75% of the way there and we'll have similar comp plans on both sides next year as well as our go-to-market strategy. So currently Sirius in the U.S. deployed a hybrid strategy and that is something that we here actually moved away from 2 years ago, after seeing that a lot of good prospects were being given to account managers who were too busy to follow up on them. And then conversely, we had a lot of new business reps with sub-optimized territories. So that's something that we're working on shifting to as we head into 2020; so a bit of structure, bit of go-to-market as well as sales comp plan.

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Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [4]

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Okay. And is it still the case where you described that the former SiriusDecisions salespeople are still selling SD and Forrester is still selling legacy Forrester products? Or is there a blending here where they're -- is anyone selling something different than I guess they were selling in the past or is it more about managerial structure and incentives?

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Kelley Hippler, Forrester Research, Inc. - Chief Sales Officer [5]

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Yes, so it's to date been mostly about managerial structure. So anybody who was selling Forrester previously is still selling Forrester, same on the SiriusDecisions side. But what we had been planning to do, and I think the structural move is going to help accelerate this; was we've introduced 4 different collaboration programs to help drive collaboration and joint selling in areas where we see very close adjacencies and the ability to have low channel conflict. It's also helping us to test some of our thinking around our ultimate 2020 go-to-market strategy. So we do have a number of collaboration programs where people are partnering together. But everybody is still exclusively selling the product portfolio with which they're aligned.

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George F. Colony, Forrester Research, Inc. - Founder, Chairman, CEO & President [6]

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Tim, George here. The original plan going into the year was that we would keep the salesforces separate right through 2019. And then as we get a good look at them after their close in their fiscal Q4, our fiscal Q1; we just decided, we've got to bring them together at least structurally to get ready essentially for cross-selling in 2020. So we wanted to do it earlier rather than later.

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Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [7]

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Okay. That's helpful. And then I guess the last question on this and for me, just the impact on, I guess, the outlook for this year. Are you anticipating or trying to be conservative that this could cause a disruption to the sales momentum on that side of the business? Or is this something we've actually seen, I guess, during the last couple months as you've made this change?

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Michael A. Doyle, Forrester Research, Inc. - CFO [8]

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Tim, it's Mike. I would say it's a couple of things. First, by accelerating the move, I think what Kelley is doing which she did very effectively with our customer engagement model, she essentially as things open up as we had attrition, we're not automatically filling. I think we're assessing and her approach has always been, let's build out robust territories so salespeople can be effective. So as we factor that into our guidance balance of year, as you have headcounts that tread away, if you don't replace immediately and even when you do replace immediately, you're going to have a revenue shortfall. Because there's time to ramp and those sorts of things. So I think we factored that aspect into our guidance and we do expect some noise. And I think as Kelley refocuses in areas where they were further down market, we're going to move up market. We've tried to factor that in as well. So this is just a matter of trying to look at the noise and attrition that occurred. It's now tapered off, which is great. But factoring the loss, if you will, of productivity of a ramp rep in that situation and just put that into our revenue numbers. In addition, we have some FX headwinds in there as well. So it's principally the SD product because of attrition and FX.

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George F. Colony, Forrester Research, Inc. - Founder, Chairman, CEO & President [9]

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And this is George again. We are seeing attrition beginning to slow Q1 compared to Q2 -- Q2 compared to Q1.

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Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [10]

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Yes, and actually -- sorry, go ahead.

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Kelley Hippler, Forrester Research, Inc. - Chief Sales Officer [11]

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Oh no, I was just going to say, I think part of it and part of what we were seeing and hearing, Tim, was that the SiriusDecisions reps, some of them were concerned about what their future would be and whether or not they would have one with Forrester. So we also wanted to make a move that would help confirm that we are intending on growing the sales organization as we move forward, and needed all hands on deck. And I think that that has definitely helped people to check back in and get back to it in terms of building pipelines in the back half of the year here.

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Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [12]

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Is the comment that the sales attrition is back to normal now or it's, I guess, improving versus Q1, I guess when you say it got better in Q2?

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Kelley Hippler, Forrester Research, Inc. - Chief Sales Officer [13]

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Yes. It is improving. So it is down to roughly 27% at SiriusDecisions. Forrester is lower than that. And that is ironically that was about where we hit when we moved into the customer engagement model, Tim. So I think any time you have a big transition, people are going to take a look at the organization, where it's going, and make a determination about whether or not it's a good fit for them and their skillset and their passions as they move forward. So the good news is I think there's through that hump. And I would expect that number to continue to trend down as we get into the back half of the year.

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Operator [14]

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And our next question comes from Allen Klee.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [15]

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Yes, following up a little bit, in terms of your modest change in your guidance; how would you say how much is related to FX and how much is related to the issue of the attrition of some of the salesforce?

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Michael A. Doyle, Forrester Research, Inc. - CFO [16]

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I would say FX is 20% to 25% of it, and the balance is related to SD. So FX is real. It's there. We've had an impact year-to-date, but we've been able to overcome. But we're just looking at it. So I would say the 20% to 25% is foreign exchange and then the balance is really the impact of the SDPL product and the attrition.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [17]

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Okay. In terms of when you have some attrition in the salesforce and you're trying to figure out how to build it back up, how long does it take for you to think that you'll get back to kind of a run rate where you originally hoped to be?

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Kelley Hippler, Forrester Research, Inc. - Chief Sales Officer [18]

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In terms of the SiriusDecisions reps, I think historically it takes around a year to get to a place where folks are fully productive. Again, we're hoping to expedite that through both leveraging some of the learning, training and management tools that we've been leveraging here at Forrester, along with the collaboration program. So in one particular program, we've identified a set of target accounts that are Forrester clients that have a propensity to buy SiriusDecisions. And we're having the Forrester rep help introduce the SiriusDecisions rep. So while it is generally a year, we are taking steps to try to expedite that so that we see some uptick from some of these newer heads at that back end of the year.

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Michael A. Doyle, Forrester Research, Inc. - CFO [19]

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And as I look at it, Allen, I think that the advantage by getting in early to the point both George and Kelley made is that because we've integrated sooner, I think we're set up better as we roll into 2020 when there can be cross-sell and upsell that we have a broader range of reps who have been exposed to all of this and that's going to help us. So that's the goal is that because we're looking at -- we didn't buy the business for the 2019 impact. We bought it for the next 5-year impact and beyond. And I think we feel very good about that. And we'll take -- this is a modest reduction in what we think this year is going to look like to set us up better for 2020.

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George F. Colony, Forrester Research, Inc. - Founder, Chairman, CEO & President [20]

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We all feel better, Allen, making the changes now rather than -- we didn't want to get to 2020 and then suddenly have to reeducate the SDPL salesforce on Forrester products and vice versa. Doing it now is much better.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [21]

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Okay. And your pro forma operating margin for next quarter guidance is a little bit lower than what you just posted, which was very good. And is that really as a result of kind of what you're factoring in with the salesforce or is there something else about something else, seasonality or something else?

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Michael A. Doyle, Forrester Research, Inc. - CFO [22]

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Well, yes. I mean you've got revenue that's below events too, right? Then that was we had a big boost in event performance, right, in Q2. So there's a drop-down in revenue and that's going to have a corresponding effect on margin, just because you have a certain level of fixed cost built in. So I think that's really the primary driver.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [23]

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Okay. And then with the CX cloud and what you're building up there and integrating all the different products, can you just remind me what you're saying about where that stands today and the future outlook for that?

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George F. Colony, Forrester Research, Inc. - Founder, Chairman, CEO & President [24]

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Yes, so think of it this way, Allen. The first version of -- which we are now calling FeedbackNow. We're calling that FeedbackNow. The first version of that of course exists. That is what we acquired when we bought the company FeedbackNow. And that's the physical devices, which are the inputs into this very at this point, version 1 is a very simple cloud. And that business is really doubling in size every year. The votes are doubling. It's a very fast-growing business for us. So version 2 now is -- think of it really in 3 segments. There are inputs to the cloud. There is the brain in the center which is able to process or analyze those votes. Then there's the outputs to the client. In version 2, which we'll be introducing late in this quarter, you add to the physical inputs now digital inputs. That's one change.

Two, in the brain itself, we are building a machine learning set of tools there to enable our clients to figure out which of these votes are important to their experience and which are not important to their experience. And that's a very important factor. And then we will also have several new outputs in version 2 as well. So version 1 was the physical version, which we acquired. Version 2 now, it integrates digital and physical inputs to the cloud and also has an improved analytics engine at the center of it, if that makes sense. And all of this, Allen, is really about one thing. We believe that in the age of the customer, companies must have the ability to monitor their experience in real-time and to improve their experience in real time. And this is the tool that will enable them to do that.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [25]

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Okay. You mentioned 2 products involved in certification, the customer experience and security. How do you think about the opportunity on the security side?

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George F. Colony, Forrester Research, Inc. - Founder, Chairman, CEO & President [26]

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We are launching that because our clients are leaning on us to do that. I mean it's really a very demand-driven launch around Zero Trust. We had some Congressmen and generals in here recently talking to Zero Trust in the military. Zero Trust is moving very, very quickly to become the philosophical standard. And companies -- well individuals, people working in security, want to have the ability to be certified in Zero Trust. I saw a statistic the other day. We've been in the CX certification business for 3 quarters now. And 35% of the executives who have been certified in CX certification are now showing their certification badge in their LinkedIn profile. So we believe it can quickly become a way for people to build resumes, but also to learn more about on the Zero Trust side and to become certified as official Zero Trust experts. So we're going there because our clients are taking us there. They really want this. So certification as a business, great potential. And of course we hit the 2 first primary opportunities in CX and Zero Trust, but a lot more to come here.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [27]

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Okay. My last question is just I've been seeing some kind of mixed messages in the market of what overall tech demand is or what the outlook is going to be. Are you sensing or what's your view of what you're seeing for overall demand for technology consulting and your services?

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Michael A. Doyle, Forrester Research, Inc. - CFO [28]

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Allen, our projections are still healthy. I don't see -- we don't see a pullback yet in tech. It may shift between categories, but we're not seeing that yet, both in terms of our own analyst, Andy Bartels, who looks out and monitors tech spend across the broad spectrum. And similarly and I can let Kelley talk because she's in front of clients much more than I am, as is George, that there's still a lot for folks to do. There's a lot of very healthy projects that have healthy return on investment that make sense, probably regardless of the business environment. Right now the business environment is good as well. With interest rates so low, it's still a good time to be out and investing. So I just don't see...

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George F. Colony, Forrester Research, Inc. - Founder, Chairman, CEO & President [29]

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The only worry that our economists have here, Allen, is around recession, because there's a pretty tight correlation between CapEx and recession spending. But our economists are generally quite -- they're still quite bullish.

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Operator [30]

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And our next question comes from Vincent Colicchio.

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Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [31]

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Yes, most of mine were asked. I'm curious. I think last quarter you said that the turnover at SiriusDecisions was mostly from relatively junior people. Is that still the case? Any color would be helpful.

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Kelley Hippler, Forrester Research, Inc. - Chief Sales Officer [32]

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Sure, I mean I think we've seen a mix of turnover. I would say overall the SiriusDecisions salesforce is a bit more junior in terms of number of years of experience than the Forrester team. So it has been a little bit of a blend across some of the different pockets. So I don't know that it's skewing one way or another.

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George F. Colony, Forrester Research, Inc. - Founder, Chairman, CEO & President [33]

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I think if you also look at attrition, Vince, it has tended -- if you look at SiriusDecisions in total, it's tended to be more on the sales side than in the product side. Product side is quite low, actually, for SiriusDecisions. That's the rest of the company, rest of the product line. But I don't think it's skewed necessarily young in the salesforce, in general.

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Kelley Hippler, Forrester Research, Inc. - Chief Sales Officer [34]

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I don't believe so.

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Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [35]

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And then Kelley, the Forrester side was the performance in the quarter sort of broad-based or were there any regions, sales regions that stood out either way?

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Kelley Hippler, Forrester Research, Inc. - Chief Sales Officer [36]

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I mean I think we saw a relatively balanced performance which is what we've been trying to drive here. I would say our Asia Pacific and international business team has been one of our most consistent performing double-digit growth areas and a region that we will continue to invest in. But we're very pleased with the overall performance across the team.

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Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [37]

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Okay, and Mike, what was the contribution of SiriusDecisions in the quarter?

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Michael A. Doyle, Forrester Research, Inc. - CFO [38]

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To what, Vince?

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Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [39]

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The overall revenue number, do you have that?

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Michael A. Doyle, Forrester Research, Inc. - CFO [40]

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Oh, overall revenue? They probably run 22%, 32%.

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Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [41]

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Okay. I'm sorry, 32%?

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Michael A. Doyle, Forrester Research, Inc. - CFO [42]

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We're consulting yet. We're getting this one in 1 minute here, Vince. It looks like it's about 24% roughly.

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Operator [43]

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(Operator Instructions) Okay. We have no more questions at this time.

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Michael A. Doyle, Forrester Research, Inc. - CFO [44]

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Great. Thanks, everyone, for joining the call. We're going to be out and reaching out and calling on everyone and meeting with investors. So I look forward to seeing you all in the near future. Thanks.

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George F. Colony, Forrester Research, Inc. - Founder, Chairman, CEO & President [45]

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Thank you.

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Operator [46]

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And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.