Forrester Research Balances Earnings Pressure With AI Push

Forrester Research ((FORR)) has held its Q1 earnings call. Read on for the main highlights of the call.

Forrester Research’s latest earnings call struck a cautious but constructive tone as management balanced near‑term financial setbacks with clear strategic progress. Revenue and earnings declined, weighed down by consulting exits and one‑time costs, yet rising retention, surging AI adoption, solid cash flow and a strong balance sheet gave leaders confidence to tighten guidance and reaffirm a gradual CV recovery path.

Improving Retention Metrics

Wallet retention improved to 89%, up two points sequentially and three points year over year, while client retention rose to 78%, up one point sequentially and five points year over year. Management framed these gains as proof that revamped onboarding and engagement programs are taking hold, helping stabilize core subscription relationships even as overall CV remains under pressure.

Forrester AI Adoption and Product Advances

Forrester AI usage reached a record in Q1, with overall usage up 55% year over year and prompt volume up 65%, underscoring rapid client adoption. The firm rolled out a new AI model supporting conversational interactions and nearly 200 languages and embedded it into Microsoft Teams and Copilot, effectively meeting clients inside their daily workflows.

Strong Cash Generation and Balance Sheet

The company generated $19 million in free cash flow, or roughly $25 million when excluding a $5.4 million one‑time headquarters capital outlay, showcasing strong cash conversion despite weaker earnings. Forrester ended the quarter with more than $145 million in cash against only $35 million of debt and extended its credit facility maturity to 2029, giving ample flexibility to fund its strategy.

Productivity and Sales Momentum

Contract value productivity per sales rep rose 6% compared with last year, indicating improving efficiency even in a choppy demand environment. AI Access is gaining traction, now just under 5% of CV with a goal of about 10% by year‑end, while roughly 40% of reps have already sold AI Access and event attendance metrics, including a 10% lift at B2B events, are moving higher.

Research Output and Practical Offerings

Forrester delivered more than 420 research reports and datasets in the quarter, reinforcing its role as a content engine for technology and business leaders. The firm also created 70 initiative blueprints and launched an AI Use Case Catalog with over 900 examples, giving clients detailed, step‑by‑step guidance on where to deploy AI and how to prioritize investments.

Raised Confidence in Guidance

Management raised the low end of its multi‑year revenue outlook and narrowed the full‑year revenue range to $350 million to $360 million, even though that still implies a high‑single‑ to low‑double‑digit decline versus the prior year. Executives highlighted stronger sponsorship bookings and healthier KPIs as reasons to maintain operating margin guidance of 6% to 6.5% and EPS of $0.72 to $0.82.

Portfolio and Go‑to‑Market Execution

The company reported tangible progress on its strategic initiatives, including a redesigned retention life cycle and faster onboarding aimed at reducing early churn. Sales territories have been restructured, particularly in North America where coverage now centers on six key industries, and the introduction of AI Access expands product optionality for clients at different stages of AI adoption.

Cost Discipline and Lower Operating Expense Base

Adjusted operating expenses declined 1% in the quarter, reflecting headcount reductions of about 8% and lower real estate costs as the firm rationalizes its footprint. Management argued that this leaner cost base is already improving operating leverage and should position the business to expand margins once revenue growth returns, even after factoring in one‑time items.

Revenue Decline in Q1

Total revenue fell 5% year over year to $85.5 million, with research revenue down 2% and consulting revenue down 13%, marking a difficult start to the year. Management acknowledged the top‑line pressure but pointed to narrowing CV declines and improving retention as signs that the worst of the contraction may be passing.

Consulting Business Headwinds and Strategic Exit

Consulting remained a key drag, with revenue at $18.6 million, down 13% year over year, largely due to the deliberate decision to exit the strategy consulting business and stop actively selling those services early in the quarter. The company expects consulting revenue to fall in the low‑20% range for the full year but views this as a necessary repositioning to focus on scalable, higher‑margin offerings.

Q1 Profitability and Earnings Pressure

Profitability deteriorated, with adjusted operating income slipping to a loss of $0.9 million, or negative 1% of revenue, compared with a $2.5 million profit a year ago. Net income swung to a $7 million loss and EPS fell to negative $0.04, reflecting both softer revenue and one‑time charges that investors will watch to ensure do not become recurring.

Events Revenue Still Recovering

Events contributed essentially no revenue in the first quarter because no major conferences were held in the period, and management expects events revenue to decline in the mid‑ to high‑teens for the year. Even so, sponsorship bookings and attendee interest have improved, suggesting events could become a more meaningful revenue driver when the calendar normalizes.

Near‑Term Revenue Guidance Still Below Prior Year

Despite the more confident tone, full‑year revenue guidance of $350 million to $360 million still points to a 9% to 12% decline versus last year, with research expected to be down mid‑single digits and larger drops in consulting and events. That outlook underscores the transitional nature of 2026 as the company exits noncore work and retools its offerings around AI and subscription growth.

One‑Time and Litigation‑Related Costs

Results were also weighed down by one‑off items, including $5.4 million of capital spending on the Cambridge headquarters and costs tied to concluded litigation, masking the underlying cash generation. Management expects another $4 million to $5 million of HQ buildout costs but stresses these investments are temporary and should not recur at current levels.

Contract Value Still Declining in the Near Term

Contract value slipped 3% in the quarter, better than the 6% decline recorded in the prior year yet still a year‑over‑year drop that limits near‑term revenue visibility. The company expects CV to be slightly positive for the full year, implying a gradual recovery as improved retention, AI Access uptake and sales productivity compound over the coming quarters.

No Share Buybacks or Debt Paydown

Despite a sizable cash balance and modest leverage, Forrester neither repurchased shares nor reduced its debt in the quarter, a stance that may disappoint investors hoping for more aggressive capital returns. Management appears focused instead on maintaining flexibility to invest in product, AI capabilities and go‑to‑market changes while the revenue base is still in transition.

Forward‑Looking Guidance and Outlook

Looking ahead, Forrester now projects full‑year revenue of $350 million to $360 million with operating margins of 6% to 6.5%, interest expense of $2.3 million and a tax rate of about 29%, translating to EPS of $0.72 to $0.82. The firm is betting that CV will turn slightly positive for the year and that AI Access, higher retention and a more efficient cost base will support a return to sustainable growth beyond the current reset phase.

For investors, the call painted a company in mid‑transition: absorbing short‑term revenue and earnings pressure while leaning hard into AI, subscription resiliency and cost discipline. If retention gains, AI‑driven upsell and CV stabilization continue, Forrester could emerge from this period with a leaner model and stronger growth engine, but the market will expect proof in coming quarters.