Information Services Group Inc. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Q2 Performance: Adjusted EBITDA up over 60% to $7.1 million, margin at 11% (up 400 basis points from Q1). Utilization at record high 78%. Revenue base stabilized at $64.3 million.
• ISG Tango: Launched platform with $4 billion TCV in first 100 days. AI adoption is a catalyst for growth, with experts guiding clients in deploying AI at scale.
• Regions: Detailed performance of Americas, Europe, and Asia Pacific with key clients and growth areas.
• Recurring Revenue: Strong, led by Research and GovernX businesses, representing half of firm-wide revenue.

Segment Performance

• Americas: Reported revenues of $40 million in Q2, down 2% sequentially and 5% year-over-year. Saw double-digit growth in manufacturing industry vertical, automation, and GovernX. Key clients included Thermo Fisher Scientific, Carnival, etc.
• Europe: Q2 revenues of $19 million, up 6% sequentially, down 23% year-over-year. Had double-digit revenue growth in consumer, insurance industry verticals, network, software, and research businesses. Key clients included Volkswagen, Xcite, etc.
• Asia Pacific: Q2 revenues of $5.5 million, essentially flat sequentially, down 31% year-over-year. Key clients included Australian Taxation Office, Department of Home Affairs, etc.
• Recurring Revenue: Generated $32 million in recurring revenue in Q2, representing half of firm-wide revenue. Recurring grew 5% in the trailing 12 months. ISG Tango had total contract value (TCV) of $4 billion in the first 100 days since launch.

Guidance

• Q3 Target: Targets revenues between $64 million and $66 million and adjusted EBITDA between $7 million and $8 million for Q3. Cautious due to seasonality and macro conditions improving slowly.

Risks

• Macro Environment: Impact on client decision-making and spending due to macro conditions.
• Competition: In AI talent acquisition and market adoption of new solutions.

Question and Answer

Q: On utilization going forward?

A: Utilization at 78% is high, target mid-70s. Seasonality (especially in Europe) may affect sustained high utilization.

Q: Pipelines in geographies?

A: Americas ahead of rest of world in pipeline, Europe to follow as macro conditions improve.

Q: Tango midsize companies?

A: 25% of TCV on ISG Tango is for midsize companies, pleased with progress as it's an incremental market for ISG.

Q: AI talent strategies?

A: Training internal teams globally through a full AI training university, with low turnover supporting investment in skilling up teams.

Q: Tango revenue model?

A: Charge fee to enterprise clients based on sourcing transactions. The $4B TCV is the value to tech providers if a transaction goes to them.