Good afternoon, and thank you for standing by. Welcome to Forrester's Fourth Quarter and Full Year 2023 Conference Call. [Operator Instructions] 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, everybody. Thanks for joining today's call. Earlier this afternoon, we issued our press release for the fourth quarter and full year 2023. 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; Nate Swan, Chief Sales Officer; and Chris Finn, Chief Financial Officer. Carrie Johnson, our Chief Product Officer, is also 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 meanings 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, 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 cause 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 will be discussing our performance on an unadjusted basis, which excludes items affecting comparability. While reporting on an unadjusted basis is not in accordance with GAAP, we believe that reporting numbers on this adjusted basis provides meaningful comparison and an appropriate basis for our discussion. You will 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.

Thank you for joining Forrester's Q4 and full year earnings call. Joining me today are Forrester's Chief Sales Officer, Nate Swan; and our Chief Financial Officer, Chris Finn. Following my remarks, Nate and Chris will provide sales and financial updates. 2023 was the penultimate year of our Forrester decisions transition. This change, coupled with the uncertain macroeconomic environment and technology market unevenness contributed to a challenging year for the company, but one that we navigated and managed. In my remarks, I'd like to cover four key themes: number one, the progress we made in 2023; two, our Q4 and 2023 fiscal year financial performance; three, product and technology enhancements; and finally number four, 2024 guidance and the road ahead. We entered 2024 having achieved a major milestone in our product transition. As I've stated in previous calls, our North Star for 2023 was migrating two-thirds of our contract value or CV into the Forrester Decisions platform. I'm happy to report that as of January 1, 2024, we have hit that goal. While our short-term performance has certainly been impacted by this journey, we are progressing on our long-term goal of consistent contract value growth based on the Forrester Decisions platform. With the exception of a small number of accounts, we will complete the final transitionary phase of this change in 2024. In 2023, we made two other strategic moves that are difficult in the short term, but will serve us well in future years. The first was sharpening the target audience for Forrester decisions. The product was built to primarily serve C-level executives and their teams in large user organizations and our sales force is successfully pivoting to these targets. Selling higher and focusing on user companies with more than $1 billion of revenue allows us to land and expand…

Thank you, George, and good afternoon, everyone. I'd like to spend a few minutes outlining the progress made in the last 12 months since I joined Forrester and share what's ahead. We put in the foundation to build a high-performance sales culture and are rallying around NCVI, Net Contract Value Increase, as a continuous motion to improve retention and growth. I'd like to expand on four areas: one, building a strong sales leadership team; two, selling to C-level decision-makers in our ideal customer profile; three, standardizing the Forrester engagement model to drive renewals; and four, widening our reach within client and prospect organizations to drive growth. Going deeper on my first point of sales leadership. Throughout last year, I revamped key functions within the sales organization to improve structure, efficiency, execution and accountability. These changes include the addition of a new VP of Sales Operations and Enablement, new VP of Customer Success, new VP of New Business, and lastly, a new SVP of North American Account Management. With the exception of international leadership, every one of my direct reports is new from 2023. They all bring proven experience, building high-performance sales and service organizations, and I'm excited by the strong caliber and energy of this leadership team. Secondly, we are focused on selling higher into the C-suite at client and prospect organizations. This is where a customer-obsessed decisions are made. This is where Forrester's research has the biggest impact on clients. We help business and technology leaders align and grow their businesses, and we've made good progress this year with coaching, training and enablement support of our salespeople calling on more senior executives. Approximately 70% of Forrester Decision seat holders are at the director level and above, which is significantly higher than our heritage product. Thirdly, we are maturing and…

Thanks, Nate, and good afternoon, everyone. As George outlined, our fourth quarter results were challenging. However, I am happy with the progress the company made on a number of fronts, including the evolution of the sales organization that Nate outlined, the continual improvements that we made to the Forrester Decision platform and the launch of our AI tool, Izola along with the achievement of our migration goal of 66% of CV in Forrester decisions as of January 1. In addition, our financial results were in line with the midpoint of our guidance and consensus estimates. At the same time, we continue to see some of our key metrics negatively impacted by the ongoing migration and the uncertain underlying business environment. On the topic of metrics, we want to highlight a small modification to the calculation methodology of our CV metric. This change is driven by a desire to better align contract value with trends in the business. As we complete the migration of Forrester decisions, the larger makeup of multiyear contract is driving the change in methodology. In our historical calculations, while the routable portion of our subscription products have been annualized, the entitlements included in the subscriptions representing approximately 10% of the subscription have been included in CV at the total value as all entitlements in the contract are available for use during an annual period. The revised calculation annualizes the entitlement for contracts greater than one year. This change will create a more precise view of the trends impacting CV bookings and revenue. In addition, although we typically update our CV metrics in the first quarter of the year for the current year's planned FX rates, we made that update this quarter in order to avoid a second change to the metric next quarter. Please note, we have…

Thank you, Chris. To summarize, 2023 was a challenging year with internal and external factors impacting our financial performance. However, we believe in the Forrester Decisions product, our evolution into a high-performance sales organization, the impact of generative AI and the research market opportunity driven by massive technology disruption. We believe 2024 will be remembered as an inflection point for Forrester. The foundational work of the year will enable us to capture a growing share of our substantial total addressable market in 2025 and beyond. I'm going to hand the call back to the operator, and we will now take questions.

[Operator Instructions] And I show our first question comes from the line of Anja Soderstrom from Sidoti. Please go ahead.

Hi, and thank you for taking my questions. I'm just curious -- how much of this sort of decline for this year, the softness for 2024 do you attribute to just internal initiatives in terms of switching to serious decision and new clients and how much is due to the general macro environment and maybe sales cycles being longer?

Yes. Thanks, Anja. This is Chris. So this is the last phase in last year of the FTE transformation for us. We've been on this journey since really August '21, when we launched the product. And so during this time, obviously, we've made some decisions along the way that we feel would benefit us in the long term. And we knew it would hurt, frankly, in the short term. And so combine that with the fact that we've had a serious tech recession here over the past couple of years with a lot of layoffs, large tech companies, both vendors and users. And so I think it's hard to really peg the percentages. I would think that, look, a lot of this has been kind of an external environmentally driven, frankly. And -- but I'd say a smaller percentage of it really is things that we've made decisions on ourselves and that, frankly, have elongated the transformation that we're going through. With that said, I am very confident that this is the final year. We do know that based on where we are today at 66% of CV and FD, we're confident that we're going to get to approximately 80% by the end of the year -- really be done with this transformation at this point. And the remaining part of CV is really going to be in our nonsubscription areas around reprint. So we feel confident about the direction that we're going in, and we do feel confident that we're going to see probably a little bit more of a decline as we go through the beginning of this year, but we're going to edge at '24 with CV starting to turn around and get some growth here.

Anja, I think -- this is George here. I think the biggest surprise -- one of the biggest surprises has been the weakness in tech over the last two years. And that -- it's impacted us with small vendors. It's also impacted us with large vendors. I think it's been very interest rate driven actually. Venture has dried up, and many of these smaller vendors are -- they've just cut budgets and cut people. And so that is definitely -- it is one of the major factors here.

Yes, and I'd even say on the small vendor side. Yes, Anja, the small vendor side as well. I mean, a lot of those companies have literally just gone away. And I'd say on the larger vendor side, it's not so much churn as it is as they've made the migration over to FD and they've had budget constraints as well. They've reduced some of their overall spend with us, but they have not churned out unlike some of the small vendors.

Yes. One of the disciplines we've developed through this period is -- we're being very, very selective as who we will take from that small vendor group. So generally, we are turning away from vendors under $50 million in size.

But that's something you've been doing over the year, right? It's been more strategic and move from the company that you intended to do anyway, right? It's not just a macroeconomic environment that's sort of weeding those out?

Yes.

And in terms of generative AI, it seems like that's on fire now and how much of that is going to be driving your growth, do you think, and pick up your sort of research resources?

Yes. There are approximately almost 100 analysts now who are spending a great deal of time in Generative AI for us. I talked about 80 reports. I'll take -- I'll estimate this, but I bet I'll get pretty close that it's going to be in the area of 15% to 20% of our research focused in Generative AI in 2024. And it is -- it's on the minds of all of our clients, whether they're vendors, users, all -- Boards of Directors. And the higher you go in the organizations, the more greater magnitude of questions here on you. So this is what -- as I said in my remarks, this is what Forrester was built to do. when there's big technology change, clients are need decision-making. They need context, they need vision to the future. And so this is a great opportunity for us.

Okay. And in terms of the competitive landscape, is there anything to call out there that's been changing?

I'm looking at Nate here, but.

From a competitive landscape, no, I mean, I think we've got -- we feel very confident in our research and our value proposition. Our clients are really reacting well to high-performance IT. We think our view of customer obsession and how it plays across all different functions. -- really makes us different. So there are great providers that are out there. We have a unique perspective and our clients seem to like our perspective. And so we feel very confident in that. So I don't think competition is any more or less than it ever has been.

Yes. I think the biggest change here, Anja, is that below us, there are some smaller companies who are kind of turning away from research towards generating leads for vendors. So that's -- we like that because they're essentially taking a step outside of the research business and further away from us. We like that.

Okay. And in terms of global, is there anything to call out any region that did better or worse?

Yes. We did really well on -- from an international standpoint, one of our best performing groups. We did well in the government sector. We've been growing pretty well in that marketplace. And saw some really good green shoots in Q4 for the user new business team. We've got a new leader in that group and had some great focus there. And that team really delivered in Q4 and is off to a pretty good start actually in Q1 as well. So lots of consistency. All teams are working really hard. We've just got some tougher markets in the high-tech side of the house. And North America is a big focus for us. We -- Patrick is going to be a great leader for us, really bringing structure and discipline to the organization, and I expect the North American team will really react well to that.

Okay. And just one last one, if I may. In terms of the headcount, the 3%, you expect -- you've been cutting headcounts now for a couple of quarters. Is there more room to cut? And where are you cutting? And how can you do that without jeopardizing the quality of your work?

Yes. That's a good question. Yes, we feel like at this point, we're through the labor reductions, the RIF disproportionately impacted our consulting organization which really was necessary to bring the resources in line with where the expectations are on the consulting business for '24. We know there were some challenges there last year, and we do expect some of those to continue into this year. And so as a percentage of headcount, most of the other business units were really well below the 3% average for the company as we really intend to preserve resources to get back to growth later on this year.

Okay, thank you. That was all for me. Appreciate your time.

Thanks, Anja

Thank you. And actually, our next question comes from the line of Vincent Colicchio from Barrington Research. Please go ahead.

Yes. A question for Nate. So the 70% of seat holders at director level and above sounds like -- sorry?

Yes. Go ahead. Sorry, Vince.

It sounds like a pretty good data point. Did I hear -- I'm not sure if I heard, is that in line with your objective? Did you mention that?

It is in line with where we are going. So we are -- we look at really three roles as our target roles to enter into a company. We want to be at the head of function, generally at a CMO, CPO, Chief Digital Officer, CSO type role. We look at the VPs and we look at the directors. We certainly have opportunities with managers and below. Generally, that is going to be our team seat function that we can grow in. So what we're looking to do as a strategy, Vince, is we want to win the leader and then we want to capture the teams underneath them. Organizations work in a team-based function to accomplish their goals. I think the great thing about Forrester decisions and how we are aligned as a company is the alignment we create across the organization. So if we happen to be in with the IT organization, the next step might be to get over to the CX organization or the marketing organization. We can work with all those organizations at once. You don't tend to capture the teams or those deals all at one time, you grow into those. But the way you capture opportunity, grow the opportunities by being at the most senior level functions and by understanding what their initiatives are and delivering against those initiatives. And when you do that, clients feel very comfortable expanding and growing the relationship. So we've seen some good success in doing that. The sales organization is very excited about doing that. We've got a new sales methodology that we are in process of rolling out for the organization, and we're excited about what that's going to do for us, which is really understand and align on how our clients are trying to work.

So when you began this journey, if you were to know that you'd be at this level of seat holders at the direct level or above at this point in time, I assume you'd be content with that.

Well, I don't -- content might be a good word, I guess. We always want to get higher, right? If you sell to the senior most function, you can sell our highest level offering, which will deliver the most value to the organization. So I think all of our salespeople want to try to get to the top level of the organization. It's where impact happens. It's where the revenue happens and it's where they can be most successful and it's where they can help their clients the most. Working on those really top initiatives that they're going on. So we are paying attention to it. We are capturing data as to where people are going, and we can see that we are improving at calling on more senior levels. So we'll continue to do that. We also know that when we call on more senior levels, we are able to sell multiyear contracts because initiatives go over multiple years. So it's really it aligns really well with Forrester decisions, which we've been trying to sell more multiyear. We want to really try and drive that number up as much as we can.

Vince, I think the important point here is that the -- we are selling at a higher level with Forrester decisions than we did with legacy. That's good, but we need to get at even higher levels. I'd say we're feeling good, but we're not content. That's the wrong word to use there. Yes.

Yes. I think maybe I'm -- sounded a bit more exciting to me than maybe I shouldn't be too excited. I mean, good progress, but a ways to go.

Yes. Yes, exactly.

On the small client side, are we nearing a point where there may be some stabilization in the client losses? And also how many -- what portion of small clients make up your total currently?

Yes, Vince, this is Chris. Yes, we feel like -- I mean, certainly, this year, we're going to be through most of that churn in the base from a CV perspective our expectation in general is that we're going to get CV from a legacy perspective, down below 10% at that point. And so that's a small portion we think we're through the majority of that. We don't really give guidance on the number. But I think based on the CV metric that I just gave you of it being below 10%, and you get a sense of kind of what it is.

And also, Vince, I think Forrester decisions has been a weeding -- had I said a weeding effect here because it's built for larger organizations. And it's -- it's a little bit more expensive. So that has also helped take smaller -- the smaller specialty vendors out of the mix.

And I think most organizations, including yourselves, are expecting a better IT spending year this year than last year and you're targeting larger enterprises. I just -- how do you square sort of your expectation that CV doesn't pick up until later in the year versus a better IT spending year? I suppose it's just the vagaries of executing on a new product. What am I missing?

Yes. No, I think that's right, Vince. I think we're probably being a little bit conservative here just because of what we came out of Q4 with and going into Q1. We are seeing some bright spots, certainly. But I don't want to get too excited yet. We have to show that we can execute. But certainly, the continued momentum around the growth on FD is certainly really important, and we're seeing that. And I'd love to see some moves obviously on interest rates. I think that will help, too. But I think the tech recession is still very much here, but we're starting to see some green shoots around budgets opening up and having conversations. We're even having conversations with clients at -- on the big vendor side may have reduced spend during the migration over FD, they're actually coming back now and having discussions about larger contracts, which is a bright spot. So we're definitely seeing it start to open up a little bit. But our expectation is that being a little bit conservative in the first half and expect to get -- start to see some of that growth during the back half, especially as we exit the year.

Thanks, guys.

Thanks, Vince. Appreciate it.

Thank you. I'm showing no further questions in the queue. At this time, I would like to turn the call back to Mr. Chris Finn, CFO, for closing remarks.

Yes. Thanks, everyone, for joining the call today. We really appreciate it. If you have any questions or follow-up, please contact Ed or myself. Thank you.

Thank you.

This concludes today's conference call. Thank you for attending. You may all disconnect.