Earnings call transcript Q2 2023

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Operator

Good morning, and welcome, everyone, to the Information Services Group Second Quarter Conference Call. This call is being recorded and will be available on ISG's website within 24 hours.

Now, I would like to turn the call over to Mr. Barry Holt for his opening remarks and introductions. Mr. ahead. go please Holt,

Barry Holt

call. Hello Alfonso, a morning. ISG. Senior everyone Financial Executive quarter to operator. Connors, by Barry and Officer. Vice Chairman I'd name President Holt. welcome Chief conference second ISG's I'm Communications and to joined and you, today My Michael Bert good Officer; is like I'm Executive Thank Executive Chief at and

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

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

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

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

of which adjusted financial adjusted Company's and provides certain presentation net Company's EBITDA, today, touch transparency key selected constant results the believes on the the will improves performance. we will greater to of financial used basis. we The ISG a earnings discuss and comparability the non-GAAP on periods call, currency non-GAAP data measures, evaluate include financial measures this which measures, During between of for

in accordance as in a for with considered prepared provided isolation and GAAP. should measures substitute Non-GAAP financial additional as or results are information not be

For measures current closely measure, presented all with was non-GAAP to applicable the on SEC. our of X-K, report night GAAP which to refer the last the reconciliation Form most please filed

call I'd Connors, be turn to over Mike? followed now, like will Bert by And Alfonso. to who the Michael

Michael Connors

good will Today, Barry, we morning, everyone. four areas. and review you, Thank

growth third second first revenues, commitment our returning and record quarter our top-line shareholders; recurring view third, including driving our streams; quarter demand capital up. second, shaping First, environment our record our is our how half and revenues, the the performance; on finally, revenue growing to

top-line revenues X% of start a generate half ISG operating record $XXX revenues, that the X% first our cost year quarter as over QX, basis. $XX unique million, continued, digital evidenced second prior in transformation, strong up year. strong the Demand generated its saw at to Capping a us record by combination we half up our and on platform an of remain services million for optimization, growth. first

services successfully cost optimization experienced cost as demand for clients surge a baseline in year the have their overall help Our long-term. our reset this we

and takeout Our to includes sourcing, approach cost automation. software holistic network,

infrastructure renewed in and cloud. data seeing also are outsourced centers, We private interest services,

budget that transformation much client to And digital strong organizations expenses pandemic, point, during cloud an public up balloon engagement these expertise that in reign to look in our efforts priority of to initiatives. and to aggressively companies more free needed high their As digital area be the fund to allow continues demand.

analytics, include clients focus our which and modernization, data of become cybersecurity, enterprises. of customer all Key cloud, secure, connected intelligent, helps areas application experience,

hitting a major the negative unique expect do repeated. Now, self-insured once $XXX,XXX expenses was be circumstance impacted health profitability a in status. by all in expense a an not our This to that about quarter, of unexpected healthcare to our due the related quarter at EBITDA we comment to was

expense severance our half of resource optimized had back our of a in million the a that during we in the with addition the enhance This $X In profitability Europe. slightly and will of year. quarter, approximately levels majority downward

$XX our our in in and an Now by recurring to XX% to demand multi-year driven be our recurring revenues, turning and million research our robust platform revenues services, continue for overall quarter the to increase contracts. of

For first revenues XX% $XX reached million revenue. firm-wide the or recurring of half, our

To XXXX. in put recurring the revenues perspective, this we all for nearly of net is this same amount had of

we growth EBITDA surpassing Next, of target of aiming by of a previous to under million what As last XXXX X adjusted further ISG $XXX our to basis end to revenues expand of points XXX recurring $XXX approximately last year. XXXX, after million and accelerate from margin quarter reminder the we're Phase of announced the our XX% of

management Now returning to discipline shareholder is demonstrated our to continue us allows approach by shareholders to returns, moving our cash our that to investors. commitment

quarter, XXXX dividend we year. eighth the after a for we since a During dividend in and in quarter paid it cash row the quarterly instituted by XX.X% this a earlier raising

announced $XX we that our release. expansion for share now our earmark the repurchases. nearly million million Our buyback commitment in We is of further in $XX have share earnings reflected program

acquisition includes automation capital acquisitions business, share long-term shareholder to continue and drive we dividends which that allocation our of to to Beyond buybacks, explore reducing the reinvesting organic debt, avenues last unit. strategic our and point, growth, our and in unlock actively value look strategy targets disciplined supplementing value. our at On

solid all the Americas Now, versus turning research X% services up of QX regions, our had change, and a of up enterprise to strength optimization, million $XX cost revenue, year delivering the double-digits. prior the our on

the XX%. Americas the half, for revenues were For up

During double Exelon, included Key sector we saw quarter during Energy engagements banking, quarter, also growth second the Constellation and and public verticals. Cognizant. AIG, in digit media, our client consumer, the health industry sciences,

contract has technology million new and the leading our dollar this million a GovernX global supplier The contracts awarded about client, healthcare via quarter, contract. extends ISG ISG of manages ISG, with the XXX a users services GovernX scope company active During of platform. $XXX which

targeted and for with development of $X $XX and its also ISG newly maintenance of savings the the business with streamline expanded clean million insurance set its million of energy We also provider in to a added apps company major excess divested $X X,XXX support U.S. them to an ISG. client, more in worth existing relationship nearly million. than their about portfolio with engagement ecosystem new spinoff company and up helping a

of million to QX Europe, the X% were up turning last our $XX revenues over Now year.

included For Europe the Bank quarter, in Europe our and in TalkTalk, health double-digit and the delivered and sector utilities, revenue client Allianz. second business. verticals energy, Key our sciences, Danske industry growth automation engagements public quarter Volkswagen, in in

its ISG expand During manufacturer. the long global quarter automotive standing with continued leading to a relationship

in revenues with brands and half this Company seven major the $X generated client. are serving We within million more than first

helping product and subsidiary, providers electric management its work includes the client the Our whose for power infrastructure source new vehicles. latest batteries Company's lifecycle manufacturing battery

engagement developed covers company that high facilities and model for with and for million client also We management. one tech governance want IT designs semiconductor the and pharmaceutical the program The builds industries. a engineers sourcing center we and $X design data service organization IT

our and In addition, a another services with provider ISG extended years UK for revenue. broadband for two we million based licenses in automation dollars

Now our company the government with of double-digit Department Australia. Key quarter Australia year. revenues in turning [Hygrid] business. agency in last our insurance and Australian $X in research Affairs, Home included compared of were million flat state of the clients to GovernX growth the Victoria, We Office, generated Bupa, QX Taxation and Asia the Pacific, VicRoads

of recently to-date development, begins year. Asia one payment GovernX the we positive this a dollar a sector. contract were Pacific, for half in largest solution contract awarded of Australian the financial multimillion second In the in independent services providers engagement largest with very the This

me let Now, turn guidance. to

underscoring We strength enterprise are cybersecurity From transformation and our as the by revenues solutions the and we of growth recurring the of our set portfolio energized change, of had unmatched the record half into this of year. to today. addresses our our needs our clients second of optimization and digital top-line cost scaling

than faster we Organizations our efficiency, halfway So clients at most served and that ISG far critical advise step with are year, we and more organizational this leads new greater good and at every XXX navigating that XXX to reason, the their operating growth. clients operation, have technological mark. with clients change trusting initiatives including

the strength portfolio market continued our of ahead. On we our opportunities, see and growth

economic near-term. in decision are uncertainties mindful that making the may the of We current also affect enterprise

revenues this, guidance the adjusted million, In consistent growth X% between objective top consideration $XX.X at end up highest single the for have between range of and are $XX quarterly in ever $XX $XX.X and and and third million The targeting we EBITDA quarter, digit with all given. million our high million. we

from Michael Sherrick, you platform ISG is as this engineering. his the who and role the of that Bert As new retiring Financial Michael most ISG. operating COO firm. is and Vice month serving Cognizant today, Officer with Software as of Executive and Chief us President brings recently to recently the will we know, of announced in become Alfonso CFO a industry strong room background

and I And want Bert leadership, many for his to to for his team. thank personally his to firm, to the Michael friendship. I welcome contributions want our

that, with let who to results. call our summarize will turn over me So Bert, the Bert? financial

Bert Alfonso

CFO I Thank work It an years, honor all two and and everyone. been with thank has a good indeed serve the ISG to over you Mike, past of and morning of privilege and as to year. to second support. $XX.X you delivered the up the quarter Revenues X% last the compared Mike revenues. million, record now quarter mentioned, with second your on quarter, were And for as quarter ISG for second you

million, quarter, million the up Americas and were reported versus FX Asia the the And no revenues revenues prior Pacific were essentially was and in Europe X% million, year. flat There versus were prior revenues $XX.X in year. the up X%, $XX.X impact $X

an of XX%. $XX.X million, in Second EBITDA X% year quarter was margin from EBITDA resulting last adjusted down

net share million was fully or prior $X.XX fully Second in $X.X per of income year. quarter $X.X share $X.X the with income diluted in prior quarter $X for million operating diluted per Net compared $X.XX income year. million or was with the million compared the

per compared adjusted year's Second $X.X $X.XX share second per prior income share diluted quarter. of or the million in fully quarter was adjusted $X.XX income diluted fully net or million net $X.X with

QX. second or for quarter was XX%. Head count as XX, Consulting XXXX the X.X% professionals of X,XXX was utilization from down XX June

Our our to flexibility the balance strength to sheet over long-term. and continues support have the business

$X.X cash million operations with of net cash, the was positive of $XX.X by quarter, at million end the and QX. million, we the down XX.X quarter generated For ended from from

acquisition earn totaling $X.X and related Change purchased to the quarter, of We made million. second XXXX paid ISG the dividends X.X of Growth. of payments million During X.X for million out shares

dividend shareholders quarterly be next to Xth. Our of on September September payable record will on XXth

our end second the XX.X was times. debt and quarter shape ratio prior year-end, from X.X million, remained balance Our unchanged the at at the debt great to EBITDA of in

the and quarter we was cost ended X.X%, X.X% shares up quarter million the with borrowing from Our XX.X last for outstanding. year,

to concluding Mike. you to before some Over Q&A. share now will Mike remarks the move we on

Michael Connors

half. is record a revenues To summarize, the XXXX quarter to first ISG delivering off start in and for second strong

opportunities clients growth our good ahead economy. and higher. prepare wave to our next for as have our the we their We the research revenues for platforms help and of push businesses digital optimize Demand recurring continues

to of points growth after half $XXX from over year. the total, the to Now, million deliver We of our year-end crossing XX%, on threshold last XX% margin resume of our our we XXXX way recurring million the target XXXX, look $XXX of firm-wide to revenues up end last basis aim second year. at in our XXX

continue And our our our quarterly increasing dividend with to authorization and by we repurchase $XX share reward regular million. by shareholders

our for creating we are steadfast the in to we always, As deliver focused clients. to operational excellence long-term our are value shareholder on and mission

operator the session in turn very morning. let your over for questions. for you this calling much thank And So the me to now

Operator

from [Operator Dave of Markets. Your Stonegate comes line Capital question with Storms Instructions] first the

Your open. is line

Dave Storm

Is we to Just appetite, starting are kind any anything any and market start to that? size, there hopefully you're there stabilize you're of wondering, M&A that now could looking inflation the seeing down. with coming rates take, like if price what

Michael Connors

Yes.

environment, we are history. really the whole we as been have On M&A our for active

is of which are continuing a bolt-on a of strategy. kind on our focus string to We on pearl strategy,

focused things on revenue that frames are recurring also We continue on digital. and to increase all to

So yes, targets. we continue we are in possible to with talk the market,

try are what value. always to you think you is always a journey, These things and balance fair

will, to financial we the but able are makes growth, channels sense ends that if So and we that would a we some of something the will for we be on and up that and those. active fill with situation, we our accelerate all firm act like find win-win to

Dave Storm

think do up about revenue $XXX it's more on track recurring to your you an forward? where great of it frontier about revenues? And goal, see efficient to you when X amount possible, streams, be be think going that from well hitting would or do a mind you you revenues that would revenues How one you then just if XXX% to recurring over have XX% your million me, want of to want

Michael Connors

is I'm XXX% them have then I not hesitant like the Well, that of do our other look, grow. would percentage a don't the model. that really if a we at business to rates to them recurring, I that, because business to parts grow do to but the love want not have I'd

we why of kind see We'll how use that's of absolute So an performs as the the number. firm well. rest

know, we of or could XX% point, recurring significant But level around multiple we in if you revenues. we as of XX% from think even at a to at I where recurring some firm approach expansion for our is revenues, that are today, the get

we margin I So have then and if time, to we expansion us. continue of feel undervalued again, like multiple that ahead we over both have climb are and

Operator

Singular Michael Matheson of Your next question line comes from with the Research.

open. is line Your

Michael Matheson

seeing I down levels from by do levels those revenues to about forward, see margin other that the so, though, XXXX, margin or gross return for modeling basis the to up, impressive. are very in So, points not particularly in XX% cover, One I'm levels? annually thing just that is XXX at going while XX% in purposes, companies recurring, you a ask gross our current

Michael Connors

They it does up across SG&A talked accounted terms only the accounting thanks over It impacted severance quarter, applies the costs was about X%. bit that million million SG&A. about board direct for question while us. quite that and clearly higher. from you're our that we a and really an of right, perspective, second Michael. for higher Yes, In X by the were in the include were $X gets

higher, controlled and job but good And was so, little do we that part. looks fairly SG&A a it actually well a on

more. XX% But yes, no, at or be our objective is clearly to

first As we first were were quarter we about quarter, the at XX.X. in

So the our that as when is onetime below XXX,XXX severance, expectations the you well as in medical, number was in the talked which that about on look at it quarter. we the

to our half is that and back to So clearly in the plus. objective get where we're heading XX%

right. quite You're

Michael Matheson

final geographic just comes to trends that My observed. back question you

see of Your concentrated flat the year? Where didn't revenue looked growth separations second were are Europe you release of that mentioned seeing for your I half it Europe. the was being Europe. It up. in like in kind

Michael Connors

of We So, U.S. challenge if I Europe more context the about think bit a than think the U.S. has The Europe had of environment in a had from the in. has I macro macro for had on year. would at the in that Europe quarter, higher would environment. anticipate really the the we good But X% for be that growth back basis operating of despite the half

some driven our And the and the by our of streams, demand reason research, around environment is primarily our revenue optimization GovernX. platforms, recurring around our

not like there their pipeline the a a it's is about of decision-making be decision. timing we So, feel slower, bit the is, decision, if the but will

will So, likely higher optimistic continue on and half we're that the grow back Europe to of at the year a pace.

Operator

line of with next comes Research. Your question the from Vincent Barrington Colicchio

open. is line Your

Vincent Colicchio

think that led grow in are for I which second the on of side, your and quarter, what this half? balance Question the on APAC, thoughts also the America year the should

Michael Connors

in on always look holistic kind at Asia Asia Pacific, of it full year. its Pacific, I On say

growth our on a We normal double-digit thereabouts for full or each expect kind year that of basis year. region

ups some little and quarter. there's governments downs, of on So, some a the bit by

the to half year. So read we think it a in flat into I and growth back expect as during second of would it way nothing the but that Asia quarter look Pacific, about region,

good. XX% there. environment the matter growth For I they but demand it's so on that course, than know but there, bit Americas we a demand Americas, think normal, Decision-making, of is top-line. don't looks of first yes, level can had of a the decisioning continuously, growth great is, the half, a we America's do if slower the

good feel about well. we Americas the as So

Vincent Colicchio

cycles, this from of that any Any change nature general across sales in geographies? last quarter quarter, question, board sentiment, your anything the in

Michael Connors

up measured I But not is they in either. its sped timing it's the is don't of same was timing, it's say, think than No, it earlier. but would are, I terms now different it it

I There's few is lack and to timing takes things about It the close get and to a a a they just that we moving long of bit a think more at some these there. not get of approvals done. still started. demand, what it's is demand things take it of pace. the But of slower is like how

Vincent Colicchio

could know related your generative you work? if talking year early a, thoughts companies next could I you And still as Are minimal. AI lot it'd a of just be see being doing retained generative about is any of tailwind were, Everyone concept. work curious AI you I'm now? a you proof from would assume for But on meaningful if be

Michael Connors

is decade now I similar likely think right a to of are what cloud it. ago. mean, to was transformation here's Enterprises years starting what XX we how kind about long be

So center regard. advising through kind be time to our speed right of on of that in to harness and less clients of this line think about here puts The in more it ISG AI. done allowing is how the kind in

We doing providers now, use ensure from clients the we so tracking have cases. navigate. offerings our that. a are that best of We're number we Right can can

creating because are brand expertise. an damage is I it's with there AI ecosystem elements not kind especially an think this if important handled there. can are with of enterprise We treacherous that some And

we yes, are focused So that. on

GovernX obligations, AI pages through for beginning and combs terms deliverables DNOs our them Watson client terms I The AI to AI. stage. clients. ISG one aspect And of It's we working data of a our hundreds and as is early would we with call standpoint, for we and used so it own with where other From platform, in forth. with contract how years this, add then we've use extractions are developing do extracts Vince, and

contracting year, called had we into that And our AI And Agreement. because you'll some smart incorporated tech did model. we we that have GovernX quarter they company did technology first now around recall and an last a acquisition

you'll announcements to think I the over from topic. months So on this next continue ISG see ahead

around from ranging to say would research I to contract management advisory automation.

out as Vince, an use for and XX will And ago again, AI. early I So but this stages years it's and I it the that, keep helps. over cloud that time. with eye analogy would look an build hope at

Operator

Joe Your next question is from Noble with Gomes line of Capital.

is line open. Your

Joe Gomes

wanted a pay you hiring quarter, understanding little quarter, to beginning half one guys first XXXX or here. about second the I severance Last of get talked The took better this a in was and And it restructuring just off. you to obviously charges.

trying Just in beginning all last your to, off quarter. some as fit pay severance how out we're commentary this to quarter figure together the to to that hey, doing

Michael Connors

let look, no, Yes, me that you. reconcile for

to we up like clients, improve over helping in to a our As year. resources do growth XXX, drive of the in the would. you and in bit resources you know, we couple XXX, last base. with hired What upgrade line quarter did X% if a skills That year. levels, third performance to always and half we're top decided the our optimize first overall XXX, just is QX we looking And skill is our our we a this

think you if about it's of a people, fairly number. the So small numbers

prior a that as our we second But at versus complimentary think to county little outsized. I that. because see think a our what quarter you concentrated I the about overall it of little small in there's severance bit it's And quarter, that really, kind think it head year. it's XXX you'd at here a of compared and brought to just If down we really trimming Europe, in, is that is normally the it's do net number. XX. look over kind each We the But

Joe Gomes

a how much had you of us was maybe too past, talked training -- been the I've is And don't wondering about you then an kind you things lately, on in but option. give service unfolding? update one that here the of I as recall about talking the

Michael Connors

very that hot. is Yes,

is We bit have cycle close than cycle, the found a that we longer sales the little anticipated.

service. that we are for as the, have close It's think what trying during XX to we yes, a we resonating. will one that call get hope closed, pass We in been quarter. we on days, a significant we've training very over the But third hot frankly,

also have is some an the stage is blue chip for rates very but early at definite Again, growth firm references. outsized we rate. use large opportunity grow we'll as clients overall growth We and firm this this growth from a emerging, that our

I So yes, much to on third to in quarter are and have it we the hope very say. something

Joe Gomes

earlier Michael, talking how were undervalued. feel to a the one you question, you And one, is your more for answer me, about stock previous

on You level the the the million million going here, the noted a a XX aggressive at to buyback, still near-term? X thinking you to in in any about with thoughts more million basis getting least stick buyback? that Are X increase in little quarterly more

Michael Connors

the No, late were a good question. this last Last aggressive earlier year, or obviously we obviously made year more we year, bit acquisition.

So acquisition we've had costs. some

the of increased capital so And matter allocate We allocation. by really a it's we how the XX%. across dividend

we're it our So, we focused and our like looks what on, how for flow cash deploy always shareholders.

should The based signal a down this necessarily said in to account take any way, We're our before, increase, that the be that and continue more will you any from future. to our us. stock that drive trying of as from us to but from compensation. significant our dilution see obviously, objective our the share I've to the you'll that in not and important investors philosophically shield And is objective buyback is

Operator

Sidoti. question comes with Riddick of next line Marc from Your the

Your line open. is

Marc Riddick

Bert, couple with pleasure the and you been going it's last hope enjoy thank you years, for efforts everything your in certainly a over you forward. all retirement working your

Bert Alfonso

Thank you.

Marc Riddick

some shift detail lot seeing the Well, Maybe want gears client vertical of maybe certainly little share maybe of savings a AI around bit taken, did a of sort on, with my the efforts. the a since that given drivers growth to question of could was cost little and you're already you've some and you I behaviors bit. what

industry there negatively? seeing positively that stand particular you're if any wondering, either were out verticals Just or

Michael Connors

question. good no, Yes,

call ago. I a ones, would services, decent, public sciences hot flat. BFSI to healthcare, just it, would degree of some relatively Life manufacturing, all, technology hot. above kind very hot, very maybe surprisingly year overall of consumer say Energy's I and tick hot. First sector, media very the hot;

how that's about segments. think would the we different So

that environment, kind lot that, travel that cost four op there phase on we of with kind where is of One on little industries tourism. macro stabilization a point the things other media, a scenario the look at work a in industries the et of are box are we, with in are optimization, those like and the and on cetera. that tech, bit like now A clients airlines

Then have the the other kind top side the medical you spectrum box of the in kind you devices that you've of the pharma, of got you that spectrum, they in the are of all them have, healthcare, have And kind then growth where market. the right the you will seizing opportunities if type of between kind have rest see of out you there.

cost to still in they more their to optimization going So, I also they're it using is for but that can out up free drive their say swift to growth a what's initiatives, it future. funds the manner, digital drive using in would and take their the really which that cost so lead is budget

different little So industry the that's how would we think more. verticals about

Marc Riddick

And potential I years shoots green along Thanks. little though up though it picked was this lines was driving those sort seems of any have maybe where if record it's global then the from big M&A sequentially, but come further I anything couple activity, down like seen you're of bit just certainly going period from time seeing a picture and wise we've wondering down this driving I road, highs little M&A is any interest forward? activity, wondering a wondering, a ago. maybe or was as

Michael Connors

been, Again, the on I active, there's greater worth seller the than say of don't think that always asset terms M&A, I we're is would the in we've there's buyer. thinking difference much always. their

two remains now tighter a with overall, years that but a been at, that's about between had both little those I couple it think environment bit a I know a assets think, the phenomenon consideration. look ago. we it's when an that we this than financial we emotional also still that the So it's consideration, maybe, think delta is But of

are which ISG? you elements stock would transaction and to choose of you a owner, we would that cash, ask when an Those ability think did is we that the that what and reasons. business combination have, attractive component consummate and acquire a earn-out we And scale we the be why the the

still good about we our confident those work. very So feel in M&A and

Operator

the am questions queue. turn showing for his Connors I further to in Mike call no closing I'll the back remarks.

Michael Connors

worldwide, for to close for by our and half. saying your working clients, dedication Well, to a all professionals deliver together me team top-line in as strong you to thank the our our global let first of results

Our the a best could advice I for passion they journeys, as people clients them. prouder of to be digital support not our have their continue and delivering and

of And call and you thanks the to your all on for today in…. continued support confidence

Information Services (III) 4 Aug 232023 Q2 Earnings call transcript