NASDAQ:III Information Services Group Q2 2023 Earnings Report $3.63 -0.04 (-1.09%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$3.63 0.00 (0.00%) As of 04/25/2025 04:05 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Information Services Group EPS ResultsActual EPS$0.07Consensus EPS $0.09Beat/MissMissed by -$0.02One Year Ago EPSN/AInformation Services Group Revenue ResultsActual Revenue$74.61 millionExpected Revenue$74.16 millionBeat/MissBeat by +$450.00 thousandYoY Revenue GrowthN/AInformation Services Group Announcement DetailsQuarterQ2 2023Date8/3/2023TimeN/AConference Call DateFriday, August 4, 2023Conference Call Time9:00AM ETUpcoming EarningsInformation Services Group's Q1 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled on Friday, May 9, 2025 at 9:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Information Services Group Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 4, 2023 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Good morning, and welcome everyone to the Information Services Group Second Quarter Conference Call. This call is being recorded and a replay will be available on ISG's website within 24 hours. Now I'd like to turn the call over to Mr. Barry Holt for his opening remarks and introductions. Mr. Operator00:00:21Holt, please go ahead. Speaker 100:00:24Thank you, operator. Hello and good morning. My name is Barry Hulte. I'm a Senior Communications Executive. I'd like to welcome everyone to ISG's conference called. Speaker 100:00:33I'm joined today by Michael Connors, Chairman and Chief Executive Officer and Bert L. Alphonse, Executive Vice President and Financial Officer. Recorded. Before we begin, I'd like to read a forward looking statement. It is important to note that the patient may contain forward looking statements which represent the current based on the management of IHG concerning future events and near future events. Speaker 100:00:54These statements are not guarantees of future results subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. For a more detailed a listing of the risks and other factors that could affect future results. Please refer to the forward looking statement contained in our Form 8 ks that was furnished last night to the SEC and the Risk Factors section in ISG's Form 10 ks covering full year results. You should also read ISG's Annual Report on Form 10 ks and any other relevant documents, including any amendments or supplements to these documents filed with the SEC. You'll be able to obtain free copies of many of ISG's SEC filings on either ISG's website at www .isgone.com or the SEC's website at www.sec .gov. Speaker 100:01:46ISG undertakes no obligation to update or revise any forward looking statement to reflect subsequent events or circumstances. During this call, we will discuss certain non GAAP financial measures, which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non GAAP measures, which we will touch on today, include adjusted EBITDA, adjusted net earnings and the presentation of selected financial data on a constant currency basis. Non GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non GAAP measures presented to the most closely applicable GAAP measure. Speaker 100:02:31Please refer to our current report on Form 8 ks, which was filed last night with the SEC. And now, I'd like to turn the call over to Michael Connors, who will be followed by Bert Alsomso. Mike? Speaker 200:02:43Thank you, Barry, and good morning, everyone. Today, we will review 4 areas. First, our top line growth including our record second quarter revenues, record first half revenues and the demand environment driving our performance. 2nd, our growing recurring revenue streams. 3rd, our commitment to returning capital to shareholders and finally, our view on how the Q3 is shaping up. Speaker 200:03:11ISG continued its strong start to the year in Q2. We generated record second quarter revenues at $75,000,000 up 6% over the prior year. Capping a first half that saw us generate a record 150 $3,000,000 of revenues, up 9% on an operating basis. Demand for our unique combination of cost optimization, in digital transformation and platform services remain strong as evidenced by our first half top line growth. Our cost optimization services have experienced a surge in demand this year as we successfully help our clients reset their overall cost baseline for the long term. Speaker 200:03:57Our holistic approach to cost takeout includes sourcing, network, software and automation. We are also seeing renewed interest in outsourced infrastructure services, Data Centers and Private Cloud as companies look to rein in public cloud expenses that ballooned during the pandemic. These efforts free up much needed budget to allow organizations to more aggressively fund their high priority digital initiatives. And to that point, our expertise in digital transformation continues to be an area of strong client engagement and demand. Key areas of focus include customer experience, cybersecurity, cloud, application modernization and data analytics, all of which helps our clients become Now a comment about profitability in the quarter. Speaker 200:04:58Our EBITDA was impacted by a negative $400,000 in the quarter due to an unexpected healthcare expense related to our self insured status. This was a unique circumstance of major health expenses hitting all at once that we do not expect to be repeated. In addition in the quarter, we optimized our resource levels slightly downward And had a severance expense of approximately $1,000,000 with the majority of that in Europe. This will enhance our profitability during the back half of the year. Now turning to our recurring revenues. Speaker 200:05:36Our recurring revenues continue to be robust, up 21% in the quarter to $32,000,000 driven by demand for our research and platform services And an overall increase in our multi year contracts. For the first half, recurring revenues reached 60 $5,000,000 or 42 percent of our firm wide revenue. To put this in perspective, this is nearly the same amount of recurring revenues we had for all of 2019. As a reminder of what we announced last quarter under Phase point from the end of 2022 to approximately 17% and accelerate the growth of our recurring revenues to $150,000,000 after surpassing our previous target of $100,000,000 last year. Now moving to shareholder returns. Speaker 200:06:41Our commitment to shareholders is demonstrated by our disciplined management approach that allows us to continue returning cash to our investors. Recorded. During the quarter, we paid a quarterly dividend for the 8th quarter in a row since we instituted a cash dividend in 2021 and after raising it by 12.5% earlier this year. Our commitment is further reflected in the $25,000,000 expansion of our share buyback a program that we announced in our earnings release. We now have nearly $29,000,000 earmarked for share repurchases. Speaker 200:07:17Beyond dividend and share buybacks, our disciplined capital allocation strategy includes reinvesting in our business, reducing debt On that last point, we continue to actively look at acquisition targets and explore avenues to unlock the value of our automation unit. Now turning to our regions. The Americas had a solid Q2 delivering $42,000,000 of revenue, up 7% versus the prior year on the strength of our cost optimization, enterprise change and research services all up double digits. For the half, revenues for the Americas were up 12%. During the quarter, we also saw double digit growth in our consumer, banking, Health Sciences, Media and Public Sector Industry Verticals. Speaker 200:08:16Key client engagements during the Q2 included Exelon, AIG, Constellation Energy and Cognizant. During the quarter, a leading global healthcare technology company awarded ISG a new $1,000,000 ISG GovernX contract. The contract extends our scope of services with this client, which has 140 active GovernX users and manages about $400,000,000 of supplier contracts via the ISG platform. We also added nearly $2,000,000 of business with an existing insurance client, helping them streamline the development and maintenance of more than 1,000 apps in their portfolio with targeted savings in excess of $40,000,000 ISG also has its relationship with a major U. S. Speaker 200:09:09Clean energy company to support its spin off And set up a new provider ecosystem for the newly divested company, an engagement worth about $1,000,000 to ISG. Now turning to Europe. Our Q2 revenues of $24,000,000 were up 5% over the last year. For the quarter, Europe delivered double digit revenue growth in our Health Sciences, Energy, Utilities and Public Sector Industry Verticals and in our Automation business. Key client engagements in Europe in the 2nd quarter included Volkswagen, TalkTalk, Donsky Bank and Allianz. Speaker 200:09:50During the quarter, ISG continued to expand its longstanding relationship with a leading global automotive manufacturer. We are serving 7 major brands within the company and generated more than $5,000,000 in first half revenues with this client. Our latest work includes helping the client source infrastructure and product lifecycle management providers for its battery manufacturing subsidiary, whose batteries power the company's new electric vehicles. We also won a $1,000,000 engagement with a company that designs, engineers and builds high-tech facilities for the semiconductor, pharmaceutical and data center industries. The 1IT program we developed for the client covers sourcing, organization and governance model design and IT Service Management. Speaker 200:10:46In addition, we extended our ISG Automation Services and licenses for 2 years with a UK based broadband provider for $500,000,000 in revenue. Now turning to Asia Pacific, our Q2 revenues of $8,000,000 were flat compared with last year. Generated double digit growth in our research and GovernX business. Key clients in the quarter included the Australian Taxation Office, the Australia Department of Home Affairs, the insurance company Bupa, Hygri and VicRoads, a state government agency in Victoria, Australia. In a very positive development, we recently were awarded the largest GovernX engagement to date in Asia Pacific, a multimillion dollar contract with 1 of the largest independent payment solution providers for the Australian Financial Services Sector. Speaker 200:11:42This contract begins in the second half of this year. Now let me turn to guidance. We are energized by our record top line growth And the scaling of our recurring revenues, underscoring the strength of our portfolio as we head into the second half of this year. From cost optimization and cybersecurity to digital transformation and enterprise change, Our unmatched set of solutions addresses the needs of our clients today. So far this year, we have served 6.60 clients, including more than 100 new clients at the halfway mark, organizations that are trusting ISG with their most critical initiatives And with good reason. Speaker 200:12:31We advise our clients at every step navigating technological and organizational change That leads to greater operating efficiency and faster growth. On the strength of our portfolio and our market opportunities, We see continued growth ahead. We are also mindful of the current economic uncertainties that may affect enterprise decision making in the near term. In consideration of all this, for the Q3, we are targeting revenues of between $73,000,000 $75,000,000 up 9% at the top end and consistent with our high single digit growth objective and adjusted EBITDA between $10,500,000 $11,500,000 the highest quarterly guidance range we have ever given. As you know, we recently announced that Bert Alfonso is retiring this month from his role as Executive Vice President and Chief Financial Officer of the firm. Speaker 200:13:31Michael Sherrick, who is with is in the room today will become the new CFO of ISG. Michael brings a strong industry and operating background to ISG, most recently serving as COO of Cognizant Software and Platform Engineering. I want to personally thank Bert for his many contributions to our firm, his leadership and for his friendship. And I want to welcome Michael for the team. So with that, let me turn the call over to Bert, who will summarize our financial results. Speaker 200:14:04Bert? Speaker 300:14:05Well, thank you, Mike, and good morning, everyone. It has indeed been an honor and a privilege to serve as CFO of ISG and to work with all of you over the past 2 years, and I thank you for your support. And now on to the quarter. As Mike mentioned, ISG delivered record 2nd quarter revenues. Revenues for the Q2 were $74,600,000 up 6% compared with the Q2 last year. Speaker 300:14:31There was essentially no FX impact in the quarter. In the Americas, reported revenues were $42,300,000 up 7% versus the prior year. In Europe, revenues were $24,400,000 up 5%, and in Asia Pacific, revenues were $8,000,000 flat versus the prior year. 2nd quarter adjusted EBITDA was $10,100,000 down 6% from last year, resulting in an EBITDA margin of 14%. 2nd quarter operating income was $4,900,000 compared with $7,400,000 in the prior year. Speaker 300:15:06Net income for the quarter was $2,300,000 or $0.05 per fully diluted share compared with net income of $5,000,000 or $0.10 per fully diluted share into the prior year. 2nd quarter adjusted net income was $5,300,000 or $0.11 per fully diluted share compared with adjusted net income of 6 point $8,000,000 or $0.13 per fully diluted share in the prior year's Q2. Headcount as of June 30, 2023 was 1597, down 31 professionals or 1.9% from Q1. Consulting utilization for the Q2 was 70%. Our balance sheet continues to have the strength and flexibility to support our business over the long term. Speaker 300:15:52Recorded. For the quarter, net cash generated from operations was positive by $2,800,000 and we ended the quarter with $19,600,000 of cash, down from $23,700,000 at the end of Q1. During the Q2, ISG paid dividends totaling 2,200,000 repurchased $2,900,000 of shares and made $1,500,000 of earn out payments related to the 2022 acquisition of Change For Growth. Our next quarterly dividend will be payable on September 28 to shareholders of record on September 6. Our debt balance recorded at the end of the second quarter with $79,200,000 unchanged from the prior year end. Speaker 300:16:34And our debt to EBITDA ratio remains in great shape at 1.8x. Our borrowing costs for the quarter were 6.6%, up from 2.4% last year recorded and we ended the quarter with 48,500,000 shares outstanding. Mike will now share some concluding remarks before we respond to the Q and A. Speaker 200:16:56Over to you, Mike. Thank you, Bert. To summarize, ISG is off to a strong start in 2023, delivering record revenues for the 2nd quarter and first half. We have good growth opportunities ahead pushed our recurring revenues higher now over 40% of our firm wide total. We aim to deliver $150,000,000 of recurring revenues at the end 2025 after crossing the $100,000,000 threshold last year. Speaker 200:17:39We look to resume our margin growth in the second half on our way to our year end 2025 target of 17%, up 200 basis points from last year. And we continue to reward our shareholders with our regular quarterly dividend and by increasing our share repurchases of $25,000,000 As always, we are focused on creating value for the long term and we are steadfast in our mission to deliver operational excellence to our clients. So thank you very much for calling in this morning. And now let me turn the session over to the operator for your questions. Operator00:18:17Today's question and answer session will be conducted electronically. Your line is Speaker 100:19:05open. Speaker 400:19:08Thank you for taking my call. Just wondering if we could start with the F and A market and kind of what you're seeing there now that rates are starting to hopefully stabilize. Is there any appetite, any size place you're looking to take, anything like that? Speaker 200:19:27Dave, anyway, first, good morning. Thank you for the question. Yes, on the M and A environment, we are active As we have been for really our whole history, we are continuing to focus on our string of pearls strategy, which is kind of a bolt on strategy. We are focused on recurring revenue streams To continue to increase that and also on all things digital. So yes, we are in the market. Speaker 200:19:57We continue to talk with possible targets. These things are always a journey, and you always try to balance What you think is fair value, so that all ends up with a win win situation. But we are active and we will If we find something that makes financial sense for the firm and fill some of the channels that we would like to be able to accelerate our growth and we will act on those. Speaker 400:20:30That's perfect. Thank you. And then just one more from me. When you think about your current revenue streams, great to see that it's up over 40% well on track to hitting your $150,000,000 goal. Do you have an efficient frontier in mind where you would want recurring revenues to be X amount of revenues or if possible, would you want it to be 100% of revenues? Speaker 400:20:52How do you think about that going forward? Speaker 200:20:55Well, look, I'd love to have 100% recurring, but that really is not our business model. I'm hesitant to do a Percentage because if I do that then the other parts of the business, I don't want them not to grow at the rate that we would like to have them grow. So that's why we use kind of an absolute number. We'll see how the rest of the firm performs as well. But as we approach at some point, if we could get to a level of in or around 50% recurring revenues, I think that the multiple expansion for our firm is significant from where we are today, even at 40% of recurring revenues. Speaker 200:21:41So if we continue to have that climb over time, Again, I feel like we are undervalued and we have both margin and multiple expansion ahead Speaker 300:21:52of us. Speaker 400:21:57That's very helpful. Thank you for taking my questions and congrats on the quarter. Operator00:22:02Your next question comes from the line of Michael Maff with Singular Research. Your line is open. Speaker 500:22:10Congratulations on all the revenue growth. Very impressive. Speaker 200:22:13Thank you, Michael. Thank you. Speaker 500:22:16So So particularly in annual recurring, I'm just not seeing that in the other companies that I cover. So very impressive. One thing to ask about though, while revenues are up, gross margin is down by 290 basis points from the 40% levels in 2022. For our modeling purposes, do you see gross margin at current levels going forward or a return to those 40% levels? Speaker 300:22:42Yes. Thanks for the question, Michael. In the second quarter, you're quite right. Our direct costs is They were higher by a bit over $4,000,000 and that clearly impacted us. SG and A was really only up about 2%. Speaker 300:23:01It does include the $1,000,000 that we talked about in terms of severance. And while that applies across the board from an accounting perspective, it gets accounted for in SG and A. And so it looks a little higher, but SG and A is actually fairly well controlled, and we do a good job on that part. But yes, no, our objective is clearly to be at 40% Or more as we were in the Q1. Q1, we were about 14.5%. Speaker 300:23:33So when you look at the onetime severance, is, which is in that number as well as the 400,000 that we talked about on the medical. It was below our expectation in the quarter. So our objective and clearly where we're heading in the back half is to get to that 40% plus. Speaker 400:23:51You're quite right. Speaker 500:23:53Thank you for that. Very helpful. My final question just comes back to geographic trends that you observed. Your release mentioned that your separations were concentrated in Europe. I didn't see revenue growth being flat in Europe. Speaker 500:24:07It looked like it was up. Where are you seeing Europe kind of for the second half of the year? Speaker 200:24:13So, good question, Michael. So, if I think about Europe in the context of the U. S, Europe, I think, has had a bit more challenge from a macro environment than the U. S. Has had. Speaker 200:24:27And we had really good growth in Europe at 5% on an operating basis for the quarter despite the macro environment. But We would anticipate that that would be higher for the back half of the year. And the reason is primarily driven by the demand environment around optimization and around some of our recurring revenue streams, our But it's about the timing of the decision, not if there will be a decision. So we're optimistic on the back half of the year that Europe will continue to grow and likely at a higher pace. Speaker 500:25:13Great. Thank you and congratulations again. Operator00:25:19Your next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open. Speaker 600:25:27Yes. Good morning, Mike. Nice quarter. Thanks, Mike. And congrats on Bert. Speaker 600:25:32Question on APAC, what are your thoughts for the balance of the year? And also on the Americas side, which I think led this quarter, Should that grow in the second half? Speaker 200:25:46Yes. On Asia Pacific, I would I would say on Asia Pacific, look at it kind of in this holistic full year. We expect our normal kind of double digit growth for that region on a full year basis or thereabouts So there's some ups and downs a little bit on some of the government spending by quarter. So I would read nothing into flat second quarter in Asia Pacific, but think about it As a growth region and we expect it to look that way during the back half of the year. For the Americas, yes, we think the Americas is They had a great first half, 12% growth on the top line. Speaker 200:26:29I don't know if we can do that level of growth continuously, but The Americas demand environment looks good. Decision making, of course, a bit slower than normal, but the demand is there. It's a matter of decisioning there. So we feel good about the Americas as well. Speaker 600:26:47Any general question, From last quarter to this quarter, any change in sentiment, sales cycles, anything of that nature across the board in your geographies? Speaker 200:27:00No. It's the same. They are it's measured in terms of its timing, but I don't think it's different Timing now than it was earlier, but it's not sped up either. I think everybody still is moving to a bit of a slower pace. Takes a few more approvals to get things done. Speaker 200:27:19But what we like about it is that the demand is there. There's not a lack of demand. It's just the timing of some of these things and how long they take to close and get started. Speaker 600:27:30Open. Hi. Everyone, as you know, is talking about generative AI. Still early, a lot of companies doing proof of concept. Are you being retained for any work now? Speaker 600:27:40And if you were, I would assume it'd be minimal. But I'm just curious your thoughts on if next year could be You can see a meaningful tailwind from generative AI related work. Speaker 200:27:52Yes. Vince, good question. I mean, here's how we think about it. Enterprises right now are starting what is likely to be a decade long kind of transformation similar to what Cloud was 10 years ago, so think about it in that regard. The true line here is to be allowing more to be done in kind of less time and this puts ISG right in the center Of kind of advising our clients on how to harness AI. Speaker 200:28:25We are doing that right now. We have a number of use cases. We're tracking offerings from the providers so that we can ensure our clients can best navigate. We are creating an ecosystem there. And I think this is especially important because with AI, there are some kind of treacherous elements that can damage an enterprise brand if it's not handled with expertise. Speaker 200:28:51So yes, we are focused on that. From a client standpoint, we are working with clients. It's early stage. The one other aspect I would add to this, Vince, is in terms of how do we as ISG use AI. And we've used AI for years with our GovernX platform, beginning with Watson and then developing our own AI for contract data extractions where it comes through hundreds of pages and extracts deliverables and obligations. Speaker 200:29:24We call them DNOs, terms and so forth. And You'll recall we did an acquisition Q1 last year, a tech company called Agreement, and we did that because they had some AI technology around smart contracting and we have now incorporated that into our GovernX model. So I think you'll continue to see announcements from ISG over the next month ahead on this topic, I would say ranging from research to advisory to contract management around automation. So Keep an eye out for that, but it's early stages and this will build over time. Again, I would look at the cloud 10 years ago and use it as an analogy with AI, Vince. Speaker 200:30:14I hope that helps. Speaker 600:30:16That's very helpful perspective. Thanks for the color. I'll go back in the queue. Operator00:30:23Your next question is from the line of Joe Gomes with NOBLE Capital. Your line is open. Speaker 600:30:31Good morning. Thanks for taking my questions. Speaker 200:30:34Hey, good morning, Doug. Good morning. Speaker 600:30:37So the first one, I just Wanted to get a little better understanding here. Last quarter, you guys talked about the second half 2022 hiring and it was beginning to pay off. And in this quarter, obviously, you took restructuring our severance charges. Just trying to figure out how that all fit together As to the beginning to pay off in your commentary last quarter to, hey, we're doing some severance this quarter. Speaker 200:31:11Yes. No, look, let me reconcile that for you. As you know, we hired up over a couple of 100, 200, 250 last year. That is helping drive the 9% top line growth in the first half of this year. What we did in the 3rd quarter is just like we do with our clients, we're always looking to upgrade our resources and skill base and we decided to optimized our resources a bit in Q2 to improve our overall skills and performance levels, if you would. Speaker 200:31:46So if you think about the numbers of people, it's a fairly small number. If you think about what our headcount is versus prior quarter, I think it's kind of net down a little over 30, and compared that to the 250 we brought in, I think you'd see that There's really a it's complementary to that. But look at it as kind of our overall trimming that we normally do each year. We just concentrated here in the Q2 and really at a small number, but because it's Europe, the severance is a little bit outsized. Speaker 600:32:22Okay. Thanks for that. Appreciate it. Speaker 300:32:24And then one Speaker 600:32:26of the things you had talked about in the past that I haven't Paul, you're talking about too much here lately, the training as a service option. I was wondering maybe you can kind of give us an update on how that is unfolding. Speaker 200:32:39Yes. That is very hot. We have found that the closed cycle, the sales cycle is a little bit longer than we anticipated. We have a significant 1 in the that we've been trying to get closed frankly for over 45 days, that we think we hope will close during the Q3. But yes, we are very hot on what we call CAS, training as a service. Speaker 200:33:10It's resonating. We have some very large blue chip clients that we also use as references. Again, this is an early stage emerging, but this is a definite growth opportunity for our firm And will grow at outsized growth rate from the overall firm growth rate. So yes, we are very much on it And I hope to have something in the Q3 to say. Speaker 600:33:35Great. And one more for me. Michael, earlier Your answer to one a previous question that you were talking about how you feel that The stock is undervalued. You noted the $25,000,000 increase in the buyback. Any thoughts about getting a little more aggressive on a quarterly basis with the buyback? Speaker 600:34:00Or you still think you're going to more in that $2,000,000 to $3,000,000 level here, at least in the near term. Speaker 300:34:08Yes. No, good question. Last Obviously, we were a bit more aggressive earlier this year. Late last year, obviously, we made the acquisitions. We've had some acquisition costs. Speaker 200:34:19And so really it's a matter Speaker 300:34:20of how we allocate across the capital allocation. We increased the dividend by 12 So we're always focused on what our cash flow looks like and how we deploy it for our shareholders. The increase, obviously, you should take that as a signal that the buyback is important to us. And philosophically, and I've said this before, our objective is to Shield our investors from any dilution from our stock based compensation. We're not necessarily trying to drive the share count down in any significant way, but that will continue to be our objective and you'll see more of that from us in the future. Speaker 600:35:10Great. Thanks. I'll get back in queue. Speaker 300:35:12Thank you. Thank you. Operator00:35:15Your next question comes from the line of Marc Riddick with Sidoti. Your line is open. Speaker 600:35:23Hey, good morning, everyone. Speaker 200:35:25Good morning, Mark. How are you? Speaker 600:35:27Very good, very good. And Bert, thank you for everything and all your efforts over the last couple of years. It's certainly been a pleasure working with you and hope you enjoy your return going forward. So I want to thank you for your first thoughts. Speaker 300:35:39I appreciate the Speaker 600:35:41Absolutely, absolutely. Well, since my AI question was already taken, I did want to sort of maybe shift gears a little bit. Speaker 400:35:48Maybe you could share Speaker 600:35:49a little bit on maybe what you're seeing on client vertical behaviors, certainly with a lot of the details you've given and some of the growth drivers and some of the cost savings efforts. Just wondering if there were any particular industry verticals that you're seeing stand out either positively or Speaker 200:36:09Yes. No, good question. First of all, maybe the hot ones. Consumer Services, very hot. Life Sciences and Healthcare, very hot. Speaker 200:36:23Surprisingly to some degree, public sector, very hot. Media Technology, hot. I would say BFSI overall relatively flat. Energy is decent. Manufacturing, I would call it just tick above kind of a year ago. Speaker 200:36:44So that's how we would think about the different segments. One other Point on the industries is that we look at the industries in kind of a 4 box Scenario where there are clients that are in a stabilization phase with the macro environment and Those are things like media, like tech, a little bit now on kind of travel and tourism, a lot of work with the airlines on op cost optimization, etcetera. Then you've got kind of the other side of the spectrum, if you will, kind of the top right box type spectrum where you have the healthcare, you have the pharma, You have the medical devices that are all seizing kind of growth opportunities that they see out in the market and then you have the rest of them kind of in between there. I would say that cost optimization is still the lead and they're using it to take cost out in a more swift manner, But also using it so that they can free up funds for their budget to drive their digital initiatives, which is really what's going to drive their growth in the future. So that's how we would think about the different industry verticals, Mark. Speaker 600:38:07That's very helpful. And then I was sort of wondering and this is maybe a little further down the road, but we've seen like this period of time where M and A activity, global M and A activity just and big picture wise has certainly come down from recognized a couple of years ago. I was wondering though it seems though it's maybe picked up a little bit sequentially. I was wondering if you're seeing anything along those lines driving any interest or driving any potential green shoots going forward. Thanks. Speaker 200:38:36Yes. Again, on the M and A, we're active. We've always been, I would say there's always I don't think there's much difference in terms of the seller thinking that their asset is worth greater than the buyer. So I think that's still a phenomenon that remains. Maybe the delta between those two is a little bit tighter now with this environment than it had been a couple of years ago. Speaker 200:39:04But overall, I think when we think about the assets that we look at, We know it's both a financial consideration, but it's also an emotional consideration. And we think that what we have, which is a combination of cash, stock and earn out component and the ability to The AAL, the business that we would acquire are the attractive elements that when we consummate a transaction And you asked an owner why did you choose ISG, those would be the reason. So we still feel very good and confident about those in our M and A work. Speaker 600:39:45That's very helpful. Thank you very much. Speaker 200:39:47Thanks, Martin. Thank you, Mark. Operator00:39:51I am showing no further questions in the queue. I'll turn the call back to Mike Connors for his closing remarks. Speaker 200:39:59Well, let me close by saying thank you to all of our professionals worldwide for your dedication to our clients and for working together as a global team to deliver our strong top line results in the first half. Our people have a passion for delivering the best advice and support to our clients as they continue their digital journey And I could not be prouder of them. So and thanks to all of you on the call today for your continued support and confidence in ISG. Have a great day. Operator00:40:35This does conclude today's teleconference. You may disconnect now.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallInformation Services Group Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Information Services Group Earnings HeadlinesRapid Adoption of AI Reshapes Industrial Operations Landscape in EuropeApril 25 at 5:00 AM | businesswire.comISG to Evaluate Public Sector Consulting Services in the U.K. and AustraliaApril 24 at 9:00 AM | businesswire.comReal Americans Don’t Wait on Wall Street’s Next MoveWhat's happening in the markets right now should concern every freedom-loving American who's worked hard and saved smart. Your 401(k) doesn't deserve to be dragged through the mud by tariffs, trade wars, reckless spending, and political standoffs. And you don't have to stand by while Wall Street plays roulette with your future.April 27, 2025 | Premier Gold Co (Ad)Cloud Adoption Accelerates SAP S/4HANA Demand in Asia PacificApril 23, 2025 | businesswire.comStrong Cloud Demand Fuels Q1 Double-Digit Growth in Asia Pacific's IT and Business Services Market, ISG Index™ FindsApril 15, 2025 | businesswire.comISG to Assess AWS Ecosystem PartnersApril 15, 2025 | businesswire.comSee More Information Services Group Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Information Services Group? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Information Services Group and other key companies, straight to your email. Email Address About Information Services GroupInformation Services Group (NASDAQ:III), together with its subsidiaries, operates as a technology research and advisory company in the Americas, Europe, and the Asia Pacific. The company offers digital transformation services, including automation, cloud, and data analytics; sourcing advisory; managed governance and risk; network carrier; technology strategy and operations design; change management; and market intelligence and technology research and analysis services. It supports private and public sector organizations to transform and optimize their operational environments. The company also provides ISG Digital, a client solution platform that helps clients developing technology, transformation, sourcing, and digital solutions; and ISG Enterprise, a client solution platform that helps clients manage change and optimize operations in areas comprising finance, human resource, and Procure2Pay. In addition, it offers ISG GovernX to automate the management of third-party supplier relationships that comprise contract and project lifecycles, and risk management; ISG Generative AI; ISG Network Select to streamline and simplify how enterprises build their network solutions; HR technology and transformations; providers-as-a-business services; ISG Digital Engineering; ISG Research; and training-as-a-service. The company serves private sector clients operating in the manufacturing, banking and financial services, insurance, health sciences, energy and utilities, and consumer services industries; and public sector clients, including state and local governments, airport and transit authorities, and national and provincial government units. Information Services Group, Inc. was founded in 2006 and is based in Stamford, Connecticut.View Information Services Group ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 7 speakers on the call. Operator00:00:00Good morning, and welcome everyone to the Information Services Group Second Quarter Conference Call. This call is being recorded and a replay will be available on ISG's website within 24 hours. Now I'd like to turn the call over to Mr. Barry Holt for his opening remarks and introductions. Mr. Operator00:00:21Holt, please go ahead. Speaker 100:00:24Thank you, operator. Hello and good morning. My name is Barry Hulte. I'm a Senior Communications Executive. I'd like to welcome everyone to ISG's conference called. Speaker 100:00:33I'm joined today by Michael Connors, Chairman and Chief Executive Officer and Bert L. Alphonse, Executive Vice President and Financial Officer. Recorded. Before we begin, I'd like to read a forward looking statement. It is important to note that the patient may contain forward looking statements which represent the current based on the management of IHG concerning future events and near future events. Speaker 100:00:54These statements are not guarantees of future results subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. For a more detailed a listing of the risks and other factors that could affect future results. Please refer to the forward looking statement contained in our Form 8 ks that was furnished last night to the SEC and the Risk Factors section in ISG's Form 10 ks covering full year results. You should also read ISG's Annual Report on Form 10 ks and any other relevant documents, including any amendments or supplements to these documents filed with the SEC. You'll be able to obtain free copies of many of ISG's SEC filings on either ISG's website at www .isgone.com or the SEC's website at www.sec .gov. Speaker 100:01:46ISG undertakes no obligation to update or revise any forward looking statement to reflect subsequent events or circumstances. During this call, we will discuss certain non GAAP financial measures, which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non GAAP measures, which we will touch on today, include adjusted EBITDA, adjusted net earnings and the presentation of selected financial data on a constant currency basis. Non GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non GAAP measures presented to the most closely applicable GAAP measure. Speaker 100:02:31Please refer to our current report on Form 8 ks, which was filed last night with the SEC. And now, I'd like to turn the call over to Michael Connors, who will be followed by Bert Alsomso. Mike? Speaker 200:02:43Thank you, Barry, and good morning, everyone. Today, we will review 4 areas. First, our top line growth including our record second quarter revenues, record first half revenues and the demand environment driving our performance. 2nd, our growing recurring revenue streams. 3rd, our commitment to returning capital to shareholders and finally, our view on how the Q3 is shaping up. Speaker 200:03:11ISG continued its strong start to the year in Q2. We generated record second quarter revenues at $75,000,000 up 6% over the prior year. Capping a first half that saw us generate a record 150 $3,000,000 of revenues, up 9% on an operating basis. Demand for our unique combination of cost optimization, in digital transformation and platform services remain strong as evidenced by our first half top line growth. Our cost optimization services have experienced a surge in demand this year as we successfully help our clients reset their overall cost baseline for the long term. Speaker 200:03:57Our holistic approach to cost takeout includes sourcing, network, software and automation. We are also seeing renewed interest in outsourced infrastructure services, Data Centers and Private Cloud as companies look to rein in public cloud expenses that ballooned during the pandemic. These efforts free up much needed budget to allow organizations to more aggressively fund their high priority digital initiatives. And to that point, our expertise in digital transformation continues to be an area of strong client engagement and demand. Key areas of focus include customer experience, cybersecurity, cloud, application modernization and data analytics, all of which helps our clients become Now a comment about profitability in the quarter. Speaker 200:04:58Our EBITDA was impacted by a negative $400,000 in the quarter due to an unexpected healthcare expense related to our self insured status. This was a unique circumstance of major health expenses hitting all at once that we do not expect to be repeated. In addition in the quarter, we optimized our resource levels slightly downward And had a severance expense of approximately $1,000,000 with the majority of that in Europe. This will enhance our profitability during the back half of the year. Now turning to our recurring revenues. Speaker 200:05:36Our recurring revenues continue to be robust, up 21% in the quarter to $32,000,000 driven by demand for our research and platform services And an overall increase in our multi year contracts. For the first half, recurring revenues reached 60 $5,000,000 or 42 percent of our firm wide revenue. To put this in perspective, this is nearly the same amount of recurring revenues we had for all of 2019. As a reminder of what we announced last quarter under Phase point from the end of 2022 to approximately 17% and accelerate the growth of our recurring revenues to $150,000,000 after surpassing our previous target of $100,000,000 last year. Now moving to shareholder returns. Speaker 200:06:41Our commitment to shareholders is demonstrated by our disciplined management approach that allows us to continue returning cash to our investors. Recorded. During the quarter, we paid a quarterly dividend for the 8th quarter in a row since we instituted a cash dividend in 2021 and after raising it by 12.5% earlier this year. Our commitment is further reflected in the $25,000,000 expansion of our share buyback a program that we announced in our earnings release. We now have nearly $29,000,000 earmarked for share repurchases. Speaker 200:07:17Beyond dividend and share buybacks, our disciplined capital allocation strategy includes reinvesting in our business, reducing debt On that last point, we continue to actively look at acquisition targets and explore avenues to unlock the value of our automation unit. Now turning to our regions. The Americas had a solid Q2 delivering $42,000,000 of revenue, up 7% versus the prior year on the strength of our cost optimization, enterprise change and research services all up double digits. For the half, revenues for the Americas were up 12%. During the quarter, we also saw double digit growth in our consumer, banking, Health Sciences, Media and Public Sector Industry Verticals. Speaker 200:08:16Key client engagements during the Q2 included Exelon, AIG, Constellation Energy and Cognizant. During the quarter, a leading global healthcare technology company awarded ISG a new $1,000,000 ISG GovernX contract. The contract extends our scope of services with this client, which has 140 active GovernX users and manages about $400,000,000 of supplier contracts via the ISG platform. We also added nearly $2,000,000 of business with an existing insurance client, helping them streamline the development and maintenance of more than 1,000 apps in their portfolio with targeted savings in excess of $40,000,000 ISG also has its relationship with a major U. S. Speaker 200:09:09Clean energy company to support its spin off And set up a new provider ecosystem for the newly divested company, an engagement worth about $1,000,000 to ISG. Now turning to Europe. Our Q2 revenues of $24,000,000 were up 5% over the last year. For the quarter, Europe delivered double digit revenue growth in our Health Sciences, Energy, Utilities and Public Sector Industry Verticals and in our Automation business. Key client engagements in Europe in the 2nd quarter included Volkswagen, TalkTalk, Donsky Bank and Allianz. Speaker 200:09:50During the quarter, ISG continued to expand its longstanding relationship with a leading global automotive manufacturer. We are serving 7 major brands within the company and generated more than $5,000,000 in first half revenues with this client. Our latest work includes helping the client source infrastructure and product lifecycle management providers for its battery manufacturing subsidiary, whose batteries power the company's new electric vehicles. We also won a $1,000,000 engagement with a company that designs, engineers and builds high-tech facilities for the semiconductor, pharmaceutical and data center industries. The 1IT program we developed for the client covers sourcing, organization and governance model design and IT Service Management. Speaker 200:10:46In addition, we extended our ISG Automation Services and licenses for 2 years with a UK based broadband provider for $500,000,000 in revenue. Now turning to Asia Pacific, our Q2 revenues of $8,000,000 were flat compared with last year. Generated double digit growth in our research and GovernX business. Key clients in the quarter included the Australian Taxation Office, the Australia Department of Home Affairs, the insurance company Bupa, Hygri and VicRoads, a state government agency in Victoria, Australia. In a very positive development, we recently were awarded the largest GovernX engagement to date in Asia Pacific, a multimillion dollar contract with 1 of the largest independent payment solution providers for the Australian Financial Services Sector. Speaker 200:11:42This contract begins in the second half of this year. Now let me turn to guidance. We are energized by our record top line growth And the scaling of our recurring revenues, underscoring the strength of our portfolio as we head into the second half of this year. From cost optimization and cybersecurity to digital transformation and enterprise change, Our unmatched set of solutions addresses the needs of our clients today. So far this year, we have served 6.60 clients, including more than 100 new clients at the halfway mark, organizations that are trusting ISG with their most critical initiatives And with good reason. Speaker 200:12:31We advise our clients at every step navigating technological and organizational change That leads to greater operating efficiency and faster growth. On the strength of our portfolio and our market opportunities, We see continued growth ahead. We are also mindful of the current economic uncertainties that may affect enterprise decision making in the near term. In consideration of all this, for the Q3, we are targeting revenues of between $73,000,000 $75,000,000 up 9% at the top end and consistent with our high single digit growth objective and adjusted EBITDA between $10,500,000 $11,500,000 the highest quarterly guidance range we have ever given. As you know, we recently announced that Bert Alfonso is retiring this month from his role as Executive Vice President and Chief Financial Officer of the firm. Speaker 200:13:31Michael Sherrick, who is with is in the room today will become the new CFO of ISG. Michael brings a strong industry and operating background to ISG, most recently serving as COO of Cognizant Software and Platform Engineering. I want to personally thank Bert for his many contributions to our firm, his leadership and for his friendship. And I want to welcome Michael for the team. So with that, let me turn the call over to Bert, who will summarize our financial results. Speaker 200:14:04Bert? Speaker 300:14:05Well, thank you, Mike, and good morning, everyone. It has indeed been an honor and a privilege to serve as CFO of ISG and to work with all of you over the past 2 years, and I thank you for your support. And now on to the quarter. As Mike mentioned, ISG delivered record 2nd quarter revenues. Revenues for the Q2 were $74,600,000 up 6% compared with the Q2 last year. Speaker 300:14:31There was essentially no FX impact in the quarter. In the Americas, reported revenues were $42,300,000 up 7% versus the prior year. In Europe, revenues were $24,400,000 up 5%, and in Asia Pacific, revenues were $8,000,000 flat versus the prior year. 2nd quarter adjusted EBITDA was $10,100,000 down 6% from last year, resulting in an EBITDA margin of 14%. 2nd quarter operating income was $4,900,000 compared with $7,400,000 in the prior year. Speaker 300:15:06Net income for the quarter was $2,300,000 or $0.05 per fully diluted share compared with net income of $5,000,000 or $0.10 per fully diluted share into the prior year. 2nd quarter adjusted net income was $5,300,000 or $0.11 per fully diluted share compared with adjusted net income of 6 point $8,000,000 or $0.13 per fully diluted share in the prior year's Q2. Headcount as of June 30, 2023 was 1597, down 31 professionals or 1.9% from Q1. Consulting utilization for the Q2 was 70%. Our balance sheet continues to have the strength and flexibility to support our business over the long term. Speaker 300:15:52Recorded. For the quarter, net cash generated from operations was positive by $2,800,000 and we ended the quarter with $19,600,000 of cash, down from $23,700,000 at the end of Q1. During the Q2, ISG paid dividends totaling 2,200,000 repurchased $2,900,000 of shares and made $1,500,000 of earn out payments related to the 2022 acquisition of Change For Growth. Our next quarterly dividend will be payable on September 28 to shareholders of record on September 6. Our debt balance recorded at the end of the second quarter with $79,200,000 unchanged from the prior year end. Speaker 300:16:34And our debt to EBITDA ratio remains in great shape at 1.8x. Our borrowing costs for the quarter were 6.6%, up from 2.4% last year recorded and we ended the quarter with 48,500,000 shares outstanding. Mike will now share some concluding remarks before we respond to the Q and A. Speaker 200:16:56Over to you, Mike. Thank you, Bert. To summarize, ISG is off to a strong start in 2023, delivering record revenues for the 2nd quarter and first half. We have good growth opportunities ahead pushed our recurring revenues higher now over 40% of our firm wide total. We aim to deliver $150,000,000 of recurring revenues at the end 2025 after crossing the $100,000,000 threshold last year. Speaker 200:17:39We look to resume our margin growth in the second half on our way to our year end 2025 target of 17%, up 200 basis points from last year. And we continue to reward our shareholders with our regular quarterly dividend and by increasing our share repurchases of $25,000,000 As always, we are focused on creating value for the long term and we are steadfast in our mission to deliver operational excellence to our clients. So thank you very much for calling in this morning. And now let me turn the session over to the operator for your questions. Operator00:18:17Today's question and answer session will be conducted electronically. Your line is Speaker 100:19:05open. Speaker 400:19:08Thank you for taking my call. Just wondering if we could start with the F and A market and kind of what you're seeing there now that rates are starting to hopefully stabilize. Is there any appetite, any size place you're looking to take, anything like that? Speaker 200:19:27Dave, anyway, first, good morning. Thank you for the question. Yes, on the M and A environment, we are active As we have been for really our whole history, we are continuing to focus on our string of pearls strategy, which is kind of a bolt on strategy. We are focused on recurring revenue streams To continue to increase that and also on all things digital. So yes, we are in the market. Speaker 200:19:57We continue to talk with possible targets. These things are always a journey, and you always try to balance What you think is fair value, so that all ends up with a win win situation. But we are active and we will If we find something that makes financial sense for the firm and fill some of the channels that we would like to be able to accelerate our growth and we will act on those. Speaker 400:20:30That's perfect. Thank you. And then just one more from me. When you think about your current revenue streams, great to see that it's up over 40% well on track to hitting your $150,000,000 goal. Do you have an efficient frontier in mind where you would want recurring revenues to be X amount of revenues or if possible, would you want it to be 100% of revenues? Speaker 400:20:52How do you think about that going forward? Speaker 200:20:55Well, look, I'd love to have 100% recurring, but that really is not our business model. I'm hesitant to do a Percentage because if I do that then the other parts of the business, I don't want them not to grow at the rate that we would like to have them grow. So that's why we use kind of an absolute number. We'll see how the rest of the firm performs as well. But as we approach at some point, if we could get to a level of in or around 50% recurring revenues, I think that the multiple expansion for our firm is significant from where we are today, even at 40% of recurring revenues. Speaker 200:21:41So if we continue to have that climb over time, Again, I feel like we are undervalued and we have both margin and multiple expansion ahead Speaker 300:21:52of us. Speaker 400:21:57That's very helpful. Thank you for taking my questions and congrats on the quarter. Operator00:22:02Your next question comes from the line of Michael Maff with Singular Research. Your line is open. Speaker 500:22:10Congratulations on all the revenue growth. Very impressive. Speaker 200:22:13Thank you, Michael. Thank you. Speaker 500:22:16So So particularly in annual recurring, I'm just not seeing that in the other companies that I cover. So very impressive. One thing to ask about though, while revenues are up, gross margin is down by 290 basis points from the 40% levels in 2022. For our modeling purposes, do you see gross margin at current levels going forward or a return to those 40% levels? Speaker 300:22:42Yes. Thanks for the question, Michael. In the second quarter, you're quite right. Our direct costs is They were higher by a bit over $4,000,000 and that clearly impacted us. SG and A was really only up about 2%. Speaker 300:23:01It does include the $1,000,000 that we talked about in terms of severance. And while that applies across the board from an accounting perspective, it gets accounted for in SG and A. And so it looks a little higher, but SG and A is actually fairly well controlled, and we do a good job on that part. But yes, no, our objective is clearly to be at 40% Or more as we were in the Q1. Q1, we were about 14.5%. Speaker 300:23:33So when you look at the onetime severance, is, which is in that number as well as the 400,000 that we talked about on the medical. It was below our expectation in the quarter. So our objective and clearly where we're heading in the back half is to get to that 40% plus. Speaker 400:23:51You're quite right. Speaker 500:23:53Thank you for that. Very helpful. My final question just comes back to geographic trends that you observed. Your release mentioned that your separations were concentrated in Europe. I didn't see revenue growth being flat in Europe. Speaker 500:24:07It looked like it was up. Where are you seeing Europe kind of for the second half of the year? Speaker 200:24:13So, good question, Michael. So, if I think about Europe in the context of the U. S, Europe, I think, has had a bit more challenge from a macro environment than the U. S. Has had. Speaker 200:24:27And we had really good growth in Europe at 5% on an operating basis for the quarter despite the macro environment. But We would anticipate that that would be higher for the back half of the year. And the reason is primarily driven by the demand environment around optimization and around some of our recurring revenue streams, our But it's about the timing of the decision, not if there will be a decision. So we're optimistic on the back half of the year that Europe will continue to grow and likely at a higher pace. Speaker 500:25:13Great. Thank you and congratulations again. Operator00:25:19Your next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open. Speaker 600:25:27Yes. Good morning, Mike. Nice quarter. Thanks, Mike. And congrats on Bert. Speaker 600:25:32Question on APAC, what are your thoughts for the balance of the year? And also on the Americas side, which I think led this quarter, Should that grow in the second half? Speaker 200:25:46Yes. On Asia Pacific, I would I would say on Asia Pacific, look at it kind of in this holistic full year. We expect our normal kind of double digit growth for that region on a full year basis or thereabouts So there's some ups and downs a little bit on some of the government spending by quarter. So I would read nothing into flat second quarter in Asia Pacific, but think about it As a growth region and we expect it to look that way during the back half of the year. For the Americas, yes, we think the Americas is They had a great first half, 12% growth on the top line. Speaker 200:26:29I don't know if we can do that level of growth continuously, but The Americas demand environment looks good. Decision making, of course, a bit slower than normal, but the demand is there. It's a matter of decisioning there. So we feel good about the Americas as well. Speaker 600:26:47Any general question, From last quarter to this quarter, any change in sentiment, sales cycles, anything of that nature across the board in your geographies? Speaker 200:27:00No. It's the same. They are it's measured in terms of its timing, but I don't think it's different Timing now than it was earlier, but it's not sped up either. I think everybody still is moving to a bit of a slower pace. Takes a few more approvals to get things done. Speaker 200:27:19But what we like about it is that the demand is there. There's not a lack of demand. It's just the timing of some of these things and how long they take to close and get started. Speaker 600:27:30Open. Hi. Everyone, as you know, is talking about generative AI. Still early, a lot of companies doing proof of concept. Are you being retained for any work now? Speaker 600:27:40And if you were, I would assume it'd be minimal. But I'm just curious your thoughts on if next year could be You can see a meaningful tailwind from generative AI related work. Speaker 200:27:52Yes. Vince, good question. I mean, here's how we think about it. Enterprises right now are starting what is likely to be a decade long kind of transformation similar to what Cloud was 10 years ago, so think about it in that regard. The true line here is to be allowing more to be done in kind of less time and this puts ISG right in the center Of kind of advising our clients on how to harness AI. Speaker 200:28:25We are doing that right now. We have a number of use cases. We're tracking offerings from the providers so that we can ensure our clients can best navigate. We are creating an ecosystem there. And I think this is especially important because with AI, there are some kind of treacherous elements that can damage an enterprise brand if it's not handled with expertise. Speaker 200:28:51So yes, we are focused on that. From a client standpoint, we are working with clients. It's early stage. The one other aspect I would add to this, Vince, is in terms of how do we as ISG use AI. And we've used AI for years with our GovernX platform, beginning with Watson and then developing our own AI for contract data extractions where it comes through hundreds of pages and extracts deliverables and obligations. Speaker 200:29:24We call them DNOs, terms and so forth. And You'll recall we did an acquisition Q1 last year, a tech company called Agreement, and we did that because they had some AI technology around smart contracting and we have now incorporated that into our GovernX model. So I think you'll continue to see announcements from ISG over the next month ahead on this topic, I would say ranging from research to advisory to contract management around automation. So Keep an eye out for that, but it's early stages and this will build over time. Again, I would look at the cloud 10 years ago and use it as an analogy with AI, Vince. Speaker 200:30:14I hope that helps. Speaker 600:30:16That's very helpful perspective. Thanks for the color. I'll go back in the queue. Operator00:30:23Your next question is from the line of Joe Gomes with NOBLE Capital. Your line is open. Speaker 600:30:31Good morning. Thanks for taking my questions. Speaker 200:30:34Hey, good morning, Doug. Good morning. Speaker 600:30:37So the first one, I just Wanted to get a little better understanding here. Last quarter, you guys talked about the second half 2022 hiring and it was beginning to pay off. And in this quarter, obviously, you took restructuring our severance charges. Just trying to figure out how that all fit together As to the beginning to pay off in your commentary last quarter to, hey, we're doing some severance this quarter. Speaker 200:31:11Yes. No, look, let me reconcile that for you. As you know, we hired up over a couple of 100, 200, 250 last year. That is helping drive the 9% top line growth in the first half of this year. What we did in the 3rd quarter is just like we do with our clients, we're always looking to upgrade our resources and skill base and we decided to optimized our resources a bit in Q2 to improve our overall skills and performance levels, if you would. Speaker 200:31:46So if you think about the numbers of people, it's a fairly small number. If you think about what our headcount is versus prior quarter, I think it's kind of net down a little over 30, and compared that to the 250 we brought in, I think you'd see that There's really a it's complementary to that. But look at it as kind of our overall trimming that we normally do each year. We just concentrated here in the Q2 and really at a small number, but because it's Europe, the severance is a little bit outsized. Speaker 600:32:22Okay. Thanks for that. Appreciate it. Speaker 300:32:24And then one Speaker 600:32:26of the things you had talked about in the past that I haven't Paul, you're talking about too much here lately, the training as a service option. I was wondering maybe you can kind of give us an update on how that is unfolding. Speaker 200:32:39Yes. That is very hot. We have found that the closed cycle, the sales cycle is a little bit longer than we anticipated. We have a significant 1 in the that we've been trying to get closed frankly for over 45 days, that we think we hope will close during the Q3. But yes, we are very hot on what we call CAS, training as a service. Speaker 200:33:10It's resonating. We have some very large blue chip clients that we also use as references. Again, this is an early stage emerging, but this is a definite growth opportunity for our firm And will grow at outsized growth rate from the overall firm growth rate. So yes, we are very much on it And I hope to have something in the Q3 to say. Speaker 600:33:35Great. And one more for me. Michael, earlier Your answer to one a previous question that you were talking about how you feel that The stock is undervalued. You noted the $25,000,000 increase in the buyback. Any thoughts about getting a little more aggressive on a quarterly basis with the buyback? Speaker 600:34:00Or you still think you're going to more in that $2,000,000 to $3,000,000 level here, at least in the near term. Speaker 300:34:08Yes. No, good question. Last Obviously, we were a bit more aggressive earlier this year. Late last year, obviously, we made the acquisitions. We've had some acquisition costs. Speaker 200:34:19And so really it's a matter Speaker 300:34:20of how we allocate across the capital allocation. We increased the dividend by 12 So we're always focused on what our cash flow looks like and how we deploy it for our shareholders. The increase, obviously, you should take that as a signal that the buyback is important to us. And philosophically, and I've said this before, our objective is to Shield our investors from any dilution from our stock based compensation. We're not necessarily trying to drive the share count down in any significant way, but that will continue to be our objective and you'll see more of that from us in the future. Speaker 600:35:10Great. Thanks. I'll get back in queue. Speaker 300:35:12Thank you. Thank you. Operator00:35:15Your next question comes from the line of Marc Riddick with Sidoti. Your line is open. Speaker 600:35:23Hey, good morning, everyone. Speaker 200:35:25Good morning, Mark. How are you? Speaker 600:35:27Very good, very good. And Bert, thank you for everything and all your efforts over the last couple of years. It's certainly been a pleasure working with you and hope you enjoy your return going forward. So I want to thank you for your first thoughts. Speaker 300:35:39I appreciate the Speaker 600:35:41Absolutely, absolutely. Well, since my AI question was already taken, I did want to sort of maybe shift gears a little bit. Speaker 400:35:48Maybe you could share Speaker 600:35:49a little bit on maybe what you're seeing on client vertical behaviors, certainly with a lot of the details you've given and some of the growth drivers and some of the cost savings efforts. Just wondering if there were any particular industry verticals that you're seeing stand out either positively or Speaker 200:36:09Yes. No, good question. First of all, maybe the hot ones. Consumer Services, very hot. Life Sciences and Healthcare, very hot. Speaker 200:36:23Surprisingly to some degree, public sector, very hot. Media Technology, hot. I would say BFSI overall relatively flat. Energy is decent. Manufacturing, I would call it just tick above kind of a year ago. Speaker 200:36:44So that's how we would think about the different segments. One other Point on the industries is that we look at the industries in kind of a 4 box Scenario where there are clients that are in a stabilization phase with the macro environment and Those are things like media, like tech, a little bit now on kind of travel and tourism, a lot of work with the airlines on op cost optimization, etcetera. Then you've got kind of the other side of the spectrum, if you will, kind of the top right box type spectrum where you have the healthcare, you have the pharma, You have the medical devices that are all seizing kind of growth opportunities that they see out in the market and then you have the rest of them kind of in between there. I would say that cost optimization is still the lead and they're using it to take cost out in a more swift manner, But also using it so that they can free up funds for their budget to drive their digital initiatives, which is really what's going to drive their growth in the future. So that's how we would think about the different industry verticals, Mark. Speaker 600:38:07That's very helpful. And then I was sort of wondering and this is maybe a little further down the road, but we've seen like this period of time where M and A activity, global M and A activity just and big picture wise has certainly come down from recognized a couple of years ago. I was wondering though it seems though it's maybe picked up a little bit sequentially. I was wondering if you're seeing anything along those lines driving any interest or driving any potential green shoots going forward. Thanks. Speaker 200:38:36Yes. Again, on the M and A, we're active. We've always been, I would say there's always I don't think there's much difference in terms of the seller thinking that their asset is worth greater than the buyer. So I think that's still a phenomenon that remains. Maybe the delta between those two is a little bit tighter now with this environment than it had been a couple of years ago. Speaker 200:39:04But overall, I think when we think about the assets that we look at, We know it's both a financial consideration, but it's also an emotional consideration. And we think that what we have, which is a combination of cash, stock and earn out component and the ability to The AAL, the business that we would acquire are the attractive elements that when we consummate a transaction And you asked an owner why did you choose ISG, those would be the reason. So we still feel very good and confident about those in our M and A work. Speaker 600:39:45That's very helpful. Thank you very much. Speaker 200:39:47Thanks, Martin. Thank you, Mark. Operator00:39:51I am showing no further questions in the queue. I'll turn the call back to Mike Connors for his closing remarks. Speaker 200:39:59Well, let me close by saying thank you to all of our professionals worldwide for your dedication to our clients and for working together as a global team to deliver our strong top line results in the first half. Our people have a passion for delivering the best advice and support to our clients as they continue their digital journey And I could not be prouder of them. So and thanks to all of you on the call today for your continued support and confidence in ISG. Have a great day. Operator00:40:35This does conclude today's teleconference. You may disconnect now.Read morePowered by