III - Earnings call transcript Q2 2018 | Information Services Group, Inc.

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Operator

Good day, and welcome to the Information Services Group 2018 Second Quarter Investor Conference Call. Today's conference is being recorded, and a replay will be available on ISG's website within 24 hours. At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. Barry Holt. Please go ahead.

Barry Holt

operator. you, Thank morning. good Hello, and My name Barry Holt. is a Communications at Executive ISG. I'm Senior to I'd ISG's Second everyone Quarter to like welcome Conference Call. I'm Executive Chief Connors, and joined Chairman and Chief Michael today Executive David Vice Officer. Financial Berger, and President by Officer;

Before subject and statement. is future we management to beliefs communication contain effects. potential of risks These important are forward-looking represent which ISG results this It forward-looking their that the and begin, statements, could to and note of are those the anticipated. that a like may to I'd read events to current of future uncertainties concerning results differ certain from not and statements actual guarantees cause materially expectations

refer the and SEC, contained listing a statement in that that to in full detailed our For XX-K Form please Risk results. furnished the other ISG's the the risks to more Form this morning covering X-K, forward-looking could of section factors Factors was and results, affect future year

read supplements on and any also annual with XXXX, documents, any including should report relevant these XX, for or documents amendments Form the year the filed December other ISG's You to fiscal ending SEC. XX-K

obtain be ISG's filings www.isg-one.com any or revise or either to subsequent of You able statement reflect SEC ISG at website free events or circumstances. obligation ISG's of website at SEC's update to will on the www.sec.gov. to no copies undertakes any forward-looking

as as comparability of improves measures key are touch substitute net the data for we evaluate call, the provides for results GAAP. we earnings include currency measures a The in information, the be believes isolation this should will financial prepared financial today financial During selected not provided and basis. or of with performance. in on non-GAAP to ISG Non-GAAP considered EBITDA, and accordance results financial the a constant adjusted presentation measures additional adjusted discuss company's used non-GAAP of on periods will which company's certain transparency greater and which between measures,

on reconciliation be presented measure, the to the over will Berger. turn Connors, closely by most the filed Form applicable which followed refer I'd And SEC. all this Mike? to with For like of was non-GAAP report Michael measures to X-K, please call the who David GAAP current now our to morning

Michael Connors

Thank our morning, will revenues We'll EBITDA. ISG. you second levels and adjusted and everyone. you, our good client by Barry, our quarter full ever on and for guidance record we the in review and revenues year Today, and key EBITDA, reaffirm any quarter highlights operating achieved highest brief

digital building is shareholders. profitable we First and as growth our positioned services growing an go and delivering are expanded of to and and continue for streams well working. remain recurring Together management revenue digital overall capabilities, clients and results, our comment, record-setting value strategy our revenue disciplined approach delivering driving recurring

quarter our review at to moment a $XX our reported take me largest-revenue million. Let ever We progress.

at million revenues half would our half $XX the and RPA, not million. Services, in ISG US the the XX% revenue than public first higher, of been or represented more sector Recurring in quarter Digital generated Automation, were soft Our have revenues for ISG Robotic QX, over recurring Process revenue million for even up revenues. $XX $XX including X% first market. the for if and of were

in dollar Globally a the mix million managed record we contracts back back services Australia and services, XX% client of EBITDA total of drove Network EBITDA XX%. bounced verticals next multiyear, up increased multimillion transportation demand client revenue slightly in-house manufacturing the of QX worth its than value growth the the drive and in million. our services in the This would for $X in about strong much managed our is and quarter. that business be financial and secured quarter loss for the offset that year. quarter of by three of quarterly million, $XX.X since moving saw with contract nicely Our insurance for $X.X more helped that contract record significant especially to services XXXX revenue margins

we to management ISG. new business accelerator clients, Play, quarter, partner, XXX of including technology I largest XX our served and returned that the team Plug visiting world’s During the were our platform. from and recently Members innovation

of ISG strong tech, the were best our voice introduced Silicon visit of consumer will industry tech, areas. like help the insure technologies tech market clients. to incubator believe with firms our During and Valley, their commercial HR with we our to areas in other bring these to several We

being our value. in mix, including automation, reshaped for continues Our by in digital grow services, demand part business to

We such as vendors a strong and one Series which trailing of vendors software, times] during automation in $X valuation equating valuations automation enterprise our the the over of market Blue are area the an services the automation of [XX revenue M&A quarter, in is received traded automation seeing recently billion of investment, anywhere received software $X.X billion. and with software Prism, another $XXX million to A value publicly our valuation for

Recently ISG RPA the reflected last million automation run fully year to sold software this we early our RPA having appears recognized price. to strong increased services rate other a now year XXXX. in a it in In revenues comparison in and million or New projected automation York. rate from $XX ISG’s valuation as RPA, remain Our run share new is services, our event players $XX business $XX out hosted being million of with summit not certainly in

their off. today enterprises As is where companies first [Bots] [Bot accomplished need become to we X.X] [Bot are To that will and value companies the future for discussed have and implemented They of paying lies their have truly many event, and investments assessed get need to digital the ISG. at X.X]. initial the wave for

ISG to help it and initiatives deploying coordinate clients Companies turn a selecting, is for configuring, we right maintaining platform scale enterprise needs For out, digital its with a automation scale program vision a automation across need the multiyear to is their them come positioned automation high-level, that and allows automation company framework rolling up to into reality. and uniquely enterprise our that plan in. technologies. a where

regions. our In to demand as were well with as revenues continued is that $XX million, network services, research. up X%, services managed for turning Americas, digital strong Now and the

sector Our strong. commercial Americas remained

Americas up sector, public the X% our the revenues quarter. in were Excluding

good included growth and company, I during verticals. Key in [indiscernible] As Archer-Daniels-Midland, the at US life Hancock growth mentioned healthcare energy, manufacturing, the market sciences, Americas insurance of our the remained engagements in sluggish last life near-term. in quarter, quarter John insurance the quarter Gas Stryker. states transformation lack across Southwest and reported We client overall public the Americas will with engagements soften sector revenue enterprise-wide saw the and

implement to future in sourcing Turning engagement IT and We won for operating model the our global a agile notable few of a global design a auto client and significant to strategy wins manufacturer. a Americas.

last the in a of digital an food design this client’s solution support business. US-based of ISG entire and engagement IT future advantage with client, digital the solutions, launched and won major and while to technology will company. beverage provider Our take global factors cloud. and ISG presence, our including were winning this the sourcing company value strategy source year positioning modernized large all new expertise relationships rationalization ISG of also an

sourcing methodology. infrastructure multistate source refreshed services. accounting, a model we clothing has HR, OCM, develop future internationally organizational an an and The a management RPA IT finally services client, based been digital agility, large And ISG or strategy, shared comprehensive will change and and awarded company, strategy will strategy known new project ISG our operating engagement and on approach include company. another Finance, with using enterprise For utility and a design again including

also earlier Workday, capabilities deep our We HR client base access also alliance of Ultimate and them announced clients tech human OCM better marketplace. partnership so in with give solutions. recently available of in our range a this their advice us It with on gives work. a provider a we us the the HR our US ecosystem partnership can will solutions to Software, by major SaaS background for to Like Software’s Ultimate management, capital expanded forming transformation

$XX growth UK up to a reported revenues led driven our Europe. the Turning to XX% and The quarterly Europe, bright in UK, in XX% by continues growth of by million, be services digital highest in we spot XX% the Nordics. Europe, in our

to KMD, Westpac, major solutions employees. the You were have government, which team strong in weathered we serve for we engagement take growth decision but and the made Among second a bite growth a banking, Key storm. cost, the in Group, the we European-based Australia Insurance with quarter is from Europe growth and in to the ready Paribas, wins engagement Allianz, Brexit the provider travel Telstra. and revenue business at that included we large double-digit full a significant in some to offset four bullet, to the and transportation decision HR or engagements saw growing in Australia. XXXX and our year. good believe transformation remember with there the during transformation due With although national slightly down end has a BASF, Airservices of in region verticals. have supporting the good technology Overall, of we Asia place, able and and second quarter large BNP in consecutive this Shifting our region in [Fresenius], technology, our tech we We this retain the will revenues off That insurance significant our BMW. Pacific, our verticals. in quarters team demand Australia, during proved paid retail won UK. quarter group, completion saw now saw for client Key the automation Danish services digital a second performance to This client a of XX,XXX clients growth decline last IAG, quarter Asia a our manufacturing included insurance, good we rebound.

recurring record guidance continued for are and market Now of markets the commercial dynamics achieve Europe. summarize the ISG. our be Berger, track let confident will will our growth that, on what in to to Americas year guidance, turning for turn adjusted to digital the services EBITDA will believe our me remain results. another promising based year over who our David we With and revenue we on financial revenues and we and full demand call We

David Berger

Mike, Thanks, morning, good and everyone.

currency. an compared or revenues by Europe, million with XXXX; from Currency reported million. prior X% $X.X and constant in $XX up prior $XX year. Second period same million. Revenues in Pacific, an a of X% Asia year, X% positively on Americas, in up revenues X%; $X.X $XX were million of This the and in the impacted the XX% $XXX,XXX million million increase from down in reported basis in $XX.X increase quarter were the

income operating million income reported second was $X $XXX,XXX million, We the year, XX%. of adjusted almost versus EBITDA X times, operating Second quarter versus million which was quarter up $X.X XXXX of $X.X prior XXXX. the in of in quarter second up

Our net the compared was quarter $XXX,XXX prior year. million, net for in income $X.X the with loss of

of basis or managed solutions. adjusted in growth $X.X for Our the which $X.XX second XX% share approximately a million up addition share year's the share digital compared per prior in headcount income net Quarter-end the loss diluted diluted million reported $X.XX per diluted a support compared per period for the was basis, in on or per and with with XXXX. to X,XXX in on Utilization March, fully same XX%. $X.XX diluted services were income of the versus Adjusted $X.XX X,XXX fully for net with $X.X quarter quarter. share was was primarily second earnings over quarter was

and the operations for balance sheet last half Net continues to over versus provided $X.X was by cash support million first Our year. strength the million term. the have our to long $X.X flexibility business

$X.X we repurchased acquisitions. capital half, $X.X in first in expenditures, million invested shares million consideration debt, repaid $X.X the in in with prior During contingency and million paid million associated $X.X we

On quarter ended million of the $XX.X $XXX.X balance cash, with and debt. million sheet, we the in

and rate million borrowing for had as X.X%, Mike XX.X concluding Our was go we remarks before outstanding XX. shares average of we share the July our will now Q&A. quarter to

Michael Connors

our we QX David. $XX representing XX% best million. That of and our revenue first ISG momentum remain full our year. any strong revenue half, almost our an continues quarter. ever. growth about summarize, in revenues we for translated EBITDA complete Overall, be operating EBITDA margin as Digital a the into engine for and million we services optimistic quarter the you, with of are of one of delivered over of quarters To pleased in highest EBITDA to ever with Thank $XX in the XX%,

debt and Our last our first have year year, $X.X target in reached to revenues revenues million $XX way And EBITDA. our guidance We generated adjusted recurring the we and time this $XXX our of for three-year $X.X half million million at in we in repaid $X.X million. cash on half. million versus first full reaffirmed

of the and to Overall, creating digital, are Who focused mission value always, automation our is Who's steadfast long for blue-chip clients As are in in our recurring let excellence professionals middle the of revolution. deliver revenues, much team shareholder on to global services, for over X,XXX turn talented foundation And clients. a a the Thanks we session solid, this on list now operational and ground morning. this including the to questions. term the calling very operator of digital in for me our

Operator

from [Operator Research. Instructions] Please first We'll Barrington Vincent Colicchio go question from take our ahead.

Vincent Colicchio

Mike. morning quarter. Nice Good

Michael Connors

Good morning Vince.

Vincent Colicchio

Can it give the from the So will your on continue side, will specifically It causing you balance what it? the weakness this US public more and over us sounds sector comment, color? of like year? is

Michael Connors

mentioned is enterprise I primarily the the part number among requested for being solutions last is RPFs very, most as very is soft. sector – public the all by quarter, the states of it driven and Yes,

So of of it see soft run these the would pick up ended we also our be during rate, shows year. it part half so been dramatically during which anything second are managing seven first reported year, but West [indiscernible] think and state that of us during that spurts the possible is things I keep that we course, year it you soft. it in kind has in that had first go that help we different that going We year. to mind could don't of quite the of It last and, is was that a is mentioned of the half for growth April Virginia, last its years with overall the

was continuing a not that $X year. is roughly million that So and

So, we combined all of sluggishness of us see to as those kind the what Vince. leads

Vincent Colicchio

nice engagements? some a services. then in network those had tied engagements I you Were you know and wins delayed quarter. Okay, managed to had network few last

Michael Connors

Yes.

did as happen. we points. completed that and them in not of the still on QX is completed in We network. it be did network. and different So, few QX One would QX fact A many QX. two We in have some in mentioned are QX,

So dollar through services as we multimillion and these these thought managed on would flowed it are agreements. network multiyear,

beginning begin the We very, three revenue have were year. large to in the market able the quarter this got we third that in names very we brand and those will secure in of

Vincent Colicchio

from repeat the that then And I quarter could [digital] in mentioned just contribution the recurring please? you [percent]

David Berger

over Yes XX%.

Vincent Colicchio

On the right? digital,

David Berger

Correct.

Vincent Colicchio

the And recurring?

Michael Connors

and was reported roughly. XX year recurring the was Revenue compare that XX last XX for million would half quarter what David for the of first half first

David Berger

half The first XX million. year last was

Vincent Colicchio

guys. Thanks

Next year.

Michael Connors

Yes thank you.

Operator

We Sarkis Please will Company. ahead. Riley question from Sherbetchyan take & B. our from next go

Sarkis Sherbetchyan

morning taking question thanks Good here. for and the

Michael Connors

Good morning Sarkis.

Sarkis Sherbetchyan

it you XQ like EBITDA So obviously pretty near nice for posted XX%. looks a percentage margin guys

the be thinking of think half we continues you either As year lever downside to look a performance do back the should to would that or there the bad be we about? upside from that something or

David Berger

our what changed and looking below the our first use that EBITDA the Obviously we're guidance as average. for guidance. second We for we a full -- the half. year the the quarter are in haven't margins proxy usually Well, revenue year revenue at for our

from our So full year guidance. a full-year we've given

Sarkis Sherbetchyan

in Understood little and of higher nature. margin additional expect to the XQ think a pulling you bit I network those work believe sounds XQ I mentioned services like are and it more and for some third some

materialize So for for you can you flow-through expect the maybe comment that on margin what period? to XQ

Michael Connors

is Well, Sarkis. Mike, this

have for Let in it the of higher-margin margin, but given way mean course it total network is depends our on mix is go quarters that. if me think any the QX higher XX% QX, recurring at higher only quarter answer is we're maybe this we certain we've history I with think like XX% couple in our look you and X% a I had that would I of back in --

they're. drive mix. So it our client's mix to We'll was course but order good solutions very it to the what has to needs continuing in drive of are be a the

to very our hard for balance the of the business So year. good it we forecast feel about network but

Sarkis Sherbetchyan

more Got you mean you the Do for the contribute looking towards that more arising negatively I of me obviously positively or recently. of to year? here are the expect respect to back it. it's kind index One as with Thanks. up dollar either

David Berger

has impact an it's year; particularly of in the It no quarter third the quarter. less the probably versus on in much reported the Yes. half effect third the going second have the of to reported in

Sarkis Sherbetchyan

Thank you. me. That's all for

Michael Connors

Sarkis. Thanks

Operator

We from will Rodriguez Capital Markets. now move to Marco Stonegate

Marco Rodriguez

my guys, morning questions. you thank taking for Good

Michael Connors

Marco. morning Good

Marco Rodriguez

of and and pretty some some I of on little to sort growth. there? you year you about macroeconomic I since we've of was just bit Can accelerate flat a kind little strategies Asia much the What wondering about of there. if might last talk is if kind bit is an half drivers guys what's talk and year-over-year the it's market place seen flat. we or a It's growth just maybe that of some year can't try decent this really in be mean going end been kind control? issue first time

Michael Connors

a good we it Well, first actually Australia. but around X% broke of all very somewhere I don't out or X% Australia had growth think it was quarter. in

was in all put this that did you down large engagement think results will so driven down it year I a the not a reported overall repeat by on last damper XXX,XXX with region that Asia if Asia. or something year, very was Asia

we overall it then overall and so the I primarily of Canberra The isn't soft it's we large chunk very or it's such outside all federal that's for that which growth still back X% our government or and if don't ANZ, for but in all for government top-line half at half to quarter that say that in rate So much X% government region because see X% spending does it QX, growth have of line that governments of that We least very don't us there half hold a did but don't to factor government government half in the the shake the Australia that's X% with for I Australia federal that around second federal but moment see good commercial of going is on Australia growth the we quarter sector. the indicate of both don't marketplace a AZ state back see rates first but year work back movement had think for good revenue in. a the out do at can kind will back I at nothing the that very, see that year. we I

Marco Rodriguez

you're Perfect. really there see being kind and of expectation state out circling to the I know kind there's seeing; start Is the quarter of back of I there. and much to could local here spending break public out there increase And half the seeing the calendar you sector? remain the soft sector in in that's spend where of not your where second kind the a break for and particular or soft year going your they're will on U.S. comments things their with really repeated kind nothing last to potential governments market guess you that. of point change I the on public there heard just time for

Michael Connors

to that we than contracts are are the will the to spending revenue terms save, will I know states. of republican-controlled Well, say states very that if strained order to is in there spend usually you drives faster government's the in but coming I up mean yet also democratic-controlled we move tend know what the nothing

of keep announce announced We be could be particular eyes state about not that in may can West we mind have that you Virginia one to there out those. help us. is if think So but but have in our that generate that do in that something QX ran think on coming we all on we ready

of of turn certainly the moment. that XXXX is kind business well that and in at actively as have we'll in difficult So right the year-over-year report for we're could so a the couple that but but state we involved now QX that's of states the

bullish overall if we on that because sector So agreements when FYI like but the because markets to report it we It's margin. and it's recurring with the have you in it but they're factoring particular commercial that the multi-year will we're we're you patient market. and good be very-very get public

Marco Rodriguez

what applications here Maybe if it main of services advisory you can question of quick the of by you it sort for region. this in well quarter. last demand like the digital digital just for And advisory for in is very it. services Europe are are kind obviously Got of and compare/contrast guys looking kind the sounds on people kind exceptionally each here done region the well

Michael Connors

it from Europe Sure, the the and the of moving and more I process from would I most I the ahead is to of more call Asia-Pacific mind. of autonomous ahead three they're the moving dramatically is segments artificial world come in Europe but around say examples all that in in terms first everything automation; to is industry specific of bigger intelligence, cloud, U.S. much, see process. use cars. workloads but the In robotics and the One just Europe more of services that cognitive and that U.S. would of we mobility to would parts bangs range Europe begun have say

AD of that a automotive driving suppliers. automotive in AD in They involved number number we industry. practice our autonomous call it a the are focusing with around We of are

calling elevators with banking We companies smart to largest or that have we're services with the moving large from standpoint very world elevators what a they're of digital financial elevator so with we're and digitization Nordics the in we like also in bank. on one areas the Bank we're them two a working case helping working have and banks banks are that those a create

because quite butter say services, of and bread tremendous. do there's of and accounting, high is the finance, kind HR, basic how of that shared our it's would receivables, the quite Theory U.S. automate ROI the digitization services, I approach the Big some and payables, the more Bang you on services So on shared in IT Europe the

engagements. the are those So

on regard specific I with during examples that's I behind gave industry, very etc. examples few But adapt. that contrast very And would maybe slow much-much those remarks my in Asia-Pacific in also food clients, I with regions. then say I two to would prepared how think some further a

Marco Rodriguez

it. I your appreciate Thanks Got a time. lot.

Michael Connors

Thanks Marco.

Operator

question Klieve Capital Noble go We will Ben Please next from from take ahead. our Markets.

Ben Klieve

growth All makes various kind of you. questions this what right. of Thank up and parts RPA on this. Few morning

So you run are curious break from XX] the to as seen engagements earlier the kind adopters with versus who XX growth you are experience that can customers between of who million; rate those [now of technology. down brand-new XX, expanding the scope

Michael Connors

Ben, think is clients, have bit way existing probably I do new, at not look clients. that our but is automation on XX% the would the I breakdown I it roughly a higher ratio XX% it's

gauge So ISG existing XX/XX be a are the the clients but clients. consider you RPA good so maybe would on for to these

the if precisely it's but gauge. each into the We really few as XX% will for automate or digital it a to work. know are and can they're years. Bot speak. helps now process We've we but wow XX.XX a As though and testing can I say that Bot automation moving to don't think we proof this if you about next automate down getting arena or claims you over oh evolve of what have those concept what had They're are the areas them so first processing of I testing through never it automating a certain X.X, mortgage the client. I actually lot my of relates time. will our clients area can we call break clients of in don't they're my that's

Ben Klieve

not And the technology was their versus Got were they've sticking RPA you. is that this they the expansion world. their but universal services new that was already if first -- in more to their in necessarily on clients I toe curious helpful. of to brand water if RPA you had

Michael Connors

I estimate would quarter to precise first four two. their don't are be I least kind on stage a of number that I but have that that at advancing quarters, three to now would estimate that, Yes,

Ben Klieve

X.X would the to then you and you? look work how and can as you the X.X margin from the at about X.X investment for it of then the Got structure scale talk in evolution

Michael Connors

I recurring dollar that generate increase embedded So generate the increase and the the on for those XX% and on more where mix we agreements it fast where us the will XX:XX, services between licensing it revenue services, license Bots runs $X.XX get Today stronger. our and our last about, gets others we think how like recurring the clearly more XX% was the on around think installed as time licensing our I depending adopt, software. XX:XX, mix that licenses somewhere will about and year increase may over

the depends fast course Of how services on it grow.

to won't closer to the on or you're I be new to what have a So same mature that's as but definitely XX:XX want for I if you that that because way possibly faster want mix careful the described XX:XX if just software. you will think store mix sales, entries you would you mix services if be grow to services is it look then I and it at going have

So time. that over increase will

Ben Klieve

results if then the on That's the side kind relationship the of looking in of you're last general kind that being it. then date any kind from for though. also on year perfect. to kind with second there's forward and engagement milestones comment half of can of that realized And from particularly look aligns we and from of that Got Thornton the here RPA Grant value question

Michael Connors

but our several that's is been Thornton part one Thornton of all out Grant of with So breaking automation. it kind the We're not using of that XXXX Grant have we [roughly] for as process they we are channel. channels that agreement because love robotics our

is the of for partners pleased certainly not play would I our that on growth way has our Grant any well brand our own it say us. say is one probably driving channels as just on ISG not I into clients partners our but if all impact of anything the force Grant Thornton we're we're I not Thornton. think say would material but channels, So banking that total just material come using it's it had could as channels new our I

Ben Klieve

Thanks That's queue. great. back Mike. Perfect. in I'll get

Michael Connors

very Okay Ben. much. Thanks

Operator

session. for the today's [Operator call closing Instructions] time any back to remarks. At That today's this will turn concludes additional speaker or I question-and-answer

Michael Connors

Thanks very much.

be Let around their to growth the by transformation me saying and my It ability continues you that to base fellow world. is especially help for X,XXX through client digital just close faster their clients thank achieve professionals operational these excellence call in our very have strong for to firm. and and Thanks support me let you all of our for reason that the performance thank confidence the great With continued terrific and on everyone day. a your our today much.

Operator

you and today's conclude participation a good day. will have Thank your for conference. That

Information Services (III) 6 Aug 182018 Q2 Earnings call transcript