Information Services (III) 10 Nov 192019 Q3 Earnings call transcript

Good day, and welcome to the Information Services Group's Third Quarter 2019 Results Conference Call. Today's conference is being recorded and a replay will be available on ISG's website within 24 hours.

At this time for opening remarks and introductions, I would like to turn the conference over to Mr. Barry Holt. Please go ahead sir.

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

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

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

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

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

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

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

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

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

morning, Thank a EBITDA. third $XX since strongest sequentially. were the by up ISG everyone. the X%, and XXXX. you, million, quarter. Barry, region's the ever ISG a that exceeded Americas, Revenues driven XX% of were EBITDA up is growth ago good year strong $XX $XX.X million record and from XX% million levels first quarter This of has a had

was XX% best strong EBITDA Our at our margin this performance decade.

to firm well have continues XX% representing of perform than digital business, margins higher which to tends more our Our revenues.

quarter cash over and and verticals the in saw In our the products generated our Software-as-a-Service in quest of services Globally, we management in flow strong advisory margins, improving for including change profitable and a QX. offering continue services. development XX% on balance revenue we focus energy, growth our And platform anchored and manufacturing by insurance more ISG cash managed by higher automation, our lines. organizational our we research, service network GovernX, to for creating growth our

XXX served through brand-new more XXX nine than the months clients clients. now have first We including

you update initiatives. growth -- me let Now of our

First blockchain.

their During database technology. research platform to of comprehensive collaboration exchange, for QX, announced ledger industry or enterprises adopt blockchain we launch ISG and a expand looking of the use distributed

invited the for improve and blockchain of Our advocate the of Drug blockchain food to Food blockchain before to Head our when and trace Administration recently, recognized U.S. ISG expertise was safety. the was solutions appear in track business to use

that than higher-margin Digital our of firm XX% of Solutions part is represent Blockchain revenues. our more

Second, transformation change management.

delivery multibillion-dollar of by partner of the Infor, management During named organizational XXXX leading year quarter, a applications. industry-specific the change we provider OCM tech were cloud the or

in prepare today. their them change of to revolution occurring with our transformational proud the clients business management we the environments do are work digital We for

XXXX. Our is of OCM to size in TracePoint more this and since in doubled than XX% OCM from our has acquisition grow business projected by year

in We million. continue invest to and us drive platform, revenues recurring our develop ISG which help to $XXX will

is as offering. the rolled part SaaS product have managed platform services our out Our we of GovernX, anchor

including quarter, cruise we new the line company. large During secured fast-food GovernX a an clients, international and

clients billion This GovernX, quarter contract quarter was billion. million. total documents and X,XXX under added alone, we under management Including total our revenue contracts recurring this overall management our $X contract value of bringing $XX $XX for to

largest with its versus XXXX revenues to X% regions, revenue growth up year. the our Turning Americas the delivered prior since

our service technology the During and tech quarter, good insurance OCM and network saw in HR and region growth verticals lines. industry and energy the in our

renewed sector public beginning year. expect are in Technologies, next United and we Key which Caesars Entergy include pick quarter engagements U.S. see We client Industries, to business, demand will Entertainment. the in Messer USAA up our

success the of One is company. insurance our for Bitcoin we health are doing U.S.-based a stories work major

worth we the to During digital a project worth This from digital than on engagement with $XXX,XXX. client, continued quarter, adding a new million. $X relationship more expand transformation this a follows major strategy our

client a the selected company. past has revenue this to Canadian ISG. been years, Over utility two ISG multi-tower for generated provide in million approximately $X also has benchmarking to

expertise industry big a play win. role and utilities in Our this

Overall, Turning Germany's X% well prior Brexit up up up versus and versus digital revenues regions and other the security macro tougher year revenues are to to sequentially. due X% the which we in were prior adoption Europe, Europe XX% year in down X% noise, environment. Despite revenues trailing concerns. performed privacy our declined in data with over U.K. growing a seeing prior is although of the year. our X% business sequentially

lot quarter engagements our industry in service saw of client Munich full-scale we signed third the networking VW, IT In support our automation sourcing we to BMW. their lines. in client quarter sourcing this and manufacturing included major Allianz, companies transaction. A in Reinsurance our when telecommunication Bayer, and Key and energy industry and Europe in and came verticals our wins multinational a large segments, growth good

the computing an covering run ISG one and for the competitive integration. largest process approach over size Agile of providers is service billion suppliers in $X deal in global The eight total end-user FutureSource time. will Europe some and ISG likely five to Using applications with methodology, the years, infrastructure

to revenues transactions In turn Asia as quarter Suncorp. Key versus corners Taxation has government Defence the the Office, the year. an Department Australian awarded for Department EnergyAustralia were heats to of contract Pacific, a quality with of prior XX-month and additional clients the work the in XXXX. The provide X% XX beyond assurance Australian XX% around and advisory up the included up. and sequentially months sector This our Australian option new an IT September extend Defence, ISG sourcing region

to perform. Our ISG continues Automation business

million XXXX. is today's This asset valuable during that's exceed to not reflected $XX in a expect in revenues We stock price.

increasing believe In are $X.X our $XX ISG to that Board continue million. share undervalued. our repurchase million of this from authorization We to recently shares approved consideration

The market timing valuation alternatives factors. The amount and consistent any us capital to credit and the our authorization on terms based repurchases the of other agreement. of of with conditions, will share increase ability our allocation gives repurchases be new determined our

near in to on $XX $XX present QX demand half quarter our especially in EBITDA $XX continue EBITDA ISG. the reach monitor the million, million global revenues on At QX, are our we six means least more million it Turning in performance any Solutions. range based in guidance, than to with projecting Europe impact record million overall our of second fourth have for the $XX term. may we Digital will months higher-margin to of for macroeconomic this Together of at and increasing quarter a adjusted we EBITDA for environment, record

will Berger the let me over turn with who David call So summarize to financial results. that our

the and reported down a compared million in million year is $XX.X Mike, Asia up a a basis. currency reported prior Revenues were in Thanks, and versus good and the constant reported million $XX in X% a million an were and year, in $XX.X Pacific, down in X% Americas, currency Revenues X% up $X.X for currency everyone. in morning, $XX.X the X% X% prior with of in basis. third on constant constant basis reported the X% million increase flat on down on Europe, basis. quarter and which on

X% by revenues Currency negatively versus year. the or million prior $X.X impacted reported

XXXX third a adjusted million, record with of $X.X X.X XX% -- quarterly quarter Third quarter. $XX.X million compared year's last EBITDA reached up in

the $X.X Net $X.X million XX% in $X prior $X.X with operating which or million prior compared Adjusted operating of quarter last quarter $X.X third of with year. income income million was $X.X was million income million, adjusted for year. income of million with $X.X year. third reported We was the in up income net net net of million income compared the compared

by and associated of million $X.X in tax quarter was with the adjusted accruals which $XXX,XXX to income acquisition. net reversal a was third XXXX income charge net the of for in SG&A prior offset Included

good a delivered EPS ISG quarter.

was share tax diluted Excluding last $X.XX in per reversals diluted versus last fully $X.XX $X.XX and was fully mentioned per adjusted year XXXX, earnings year. earnings versus reported share the $X.XX previously

Including diluted for quarter the per XXXX basis earnings the Consultant end points was tax share $X.XX. was was was with $X.XX utilization impact year. last quarter. share versus diluted flat XXXX, prior of and which adjusted Quarter earnings XX%, per headcount fully up the XXX fully reported the was reversal in essentially

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

of $XX.X balance XX% sheet up On was and outstanding ended million our $XX.X with quarter cash, the debt the we total million.

September XXXX. million We of have $X through repurchased stock

had for XX.X XX. borrowing shares average the Our was million outstanding we as X.X% October and rate of quarter

now Mike concluding will remarks share to we go Q&A. before

our summarize, you, million EBITDA growth ever our building best than at Thank of in To business. profitable more XX%. are momentum $XX quarterly generated with margins we David. We

strategy our more quarterly delivered revenue Digital since Americas revenues XXXX. best Our is digital and with of than business its our Go growth working XX% total

QX generated share and quarter up flow year our to program. of our solid And repurchase strong. cash we balance the increased with Board cash expect XX% in We our close the size the from

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

this in operator calling for now let morning. much the very questions. session Thanks turn to the me for over And

[Operator and like question Stonegate this from Marco for will time we you Rodriguez, very open come much. Our Thank gentlemen, Markets. first at to floor Capital the would Ladies questions. Instructions]

Good Thank morning, guys. questions. taking my for you

Marco. morning, Good

maybe I little strength wondering if in was on you U.S. you are work side. Hey, that some seeing the government talk a more bit could the here about

obviously XXXX, head fiscal thoughts as federal an kind Just level. the give election us at of of year kind we into your

Just kind seeing that And you of couple at the that? the driving how U.S. the during at what last of quarters least through of is are sort level? resurgence you're thinking

Yes, thanks.

in government think So local occurred. began as Governor would been to state of large That I now earlier the activity changes or I and has of especially levels look around we the sectors. the settle year a of either I'll of say in in with up all the about and reelections loosening talked Republican lot there has call large digitization states, a it that

So on beginning are there expand on able that you're us RFPs of to to and that and you're look once into more that there. work states, allows get we're complete in the to that some be certain to able goes extend to now more market

as XXXX contribute believe year. contribute we business, to the the U.S. during it public speaking was our will last for business I'm in first year part we did into not was the and sector it So as grow of move down the of our during that XXXX public fact sector moment it where

So we of there. kind movement going see nice a

kind if federal the the We pain U.S. of state during the changes. of impact a have I not public sector of on with think had all governor our will course our you business lot elections XXXX. will

that So our we growth for to a like, looks the looks about as where good XXXX member look contributing and Marco. pipeline that we pretty of strong feel see

can business a Got it. Very helpful. on of the side the you more recurring bit if talk little revenue And maybe here.

You of services. the GovernX the out part as managed called

may If about that little the the talk just push, initiative you or maybe changed. not have sales a could marketing bit may

kind going customers? how those from particular services to receiving market feedback you're of Just and potential you're the with

Yes.

of in So been That to discussed enable of the platform we efficient products calls. ISG on us investing have here a we've will it much a into way. more few platform build which call what kind we

is Our in called big GovernX. the first market product

SaaS of from the processes a with It It's product. a a helps software standpoint, large enterprises supplier understand contracts. lot

SaaS to good was a automation Our in move with world the felt move digital. like We of to -- leading this GovernX move from services make. a to and product

made to traction that that during beginning with product. now are XXXX we we and So see good transition

database et product. in SaaS put We which clients also technology product InformX, This systems product on a of a around if launched and peers a that our cetera their also industries, companies, called their will compare cost to you like is all then and is it can load masked.

group move of would They into what-if area and stack my scenarios peer another $XXX it relative cetera. out moved do the to if up that how can I million applications et

GovernX between as-a-service. and benchmarking have So InformX we

at looking that XXXX. we'll whole area potential new are the We sourcing product for in a consider

So drive million $XXX recurring the platform will us the of toward revenue. help

Our hurt a the sector be public this many the overall those in well. all move those because on tend in revenue recurring as weren't on recurring government our revenue bit and very contracts to as of XXXX them. help multiyear will will contracts But multiyear question there's year our we your contracts just XXXX to

or much Got to seeing Or larger with spend as GovernX you it. InformX they are these products IT a pick-up solo And you platform purchases? it customers like integrate guys?

So larger they are normally a spend.

instance every has a almost to services it. dimension also -- always with GovernX So

them but have have to around et the those then a of premises agreements then we Marriott it's they course have would with would it are have at the they of clients or So McDonald's, they on-premise, And and would cetera. those services cloud that agreements available -- would enterprises. in on it the like set software multiyear

So stream we have software stream. we a a and services have

we and the than services with then cetera. downstream, with So tends to the lead assessment our services software that to it's and packages case strategy et benchmarking do to workaround execution, around tend InformX

are nature, downstream the services. its but it's for have all plus those products in only actually we So not also recurring of drive combination software almost a business to reasons cases and the

next increasing your maybe you're buyback. stock I Very in doesn't make in where to for the quarter. If if limits next It you so process your to particular capital shares were credit helpful. then priorities. address the like capital of -- XX XX mentioned you on the look also to just guys then could or couple any for share talked And repurchases of you based be in purchased say this terms going landscape? allocation walk remarks And you the terms acquisition your of the allocation can also ability mean about kind And thought you're through seeing months possibly agreements. priorities? of us prepared

the let have talk start so David I'll then and strategy. me repurchase Okay, about

acquisitions. we have debt, have We clearly, we areas have we and three the strategic buyback have

me Let all cover three.

our acquisition are look revenue on us the around stream recurring that primarily assets to business could So front we help continuing digital business. and/or our

we standpoint think make and focus the a digital, both think in That's discussions a to research, if business. and the out that in have certain of that could think So there's complete see sense marketplace dialogues have automation number accelerate value we is continue growth and to areas. something that there from

so side the things. of the On -- acquisition that's

debt to David do the that? On comment want just repayment you on

from to down mean, we I the pay debt. continue where to obviously were we We're focus Yes. prior year. down in

to to we down September million million we the year of last the balance debt priority $XX were Our balance. business it to and continues $XXX a debt drive a remain overall down

we to cash notice utilize to of that cash the had repurchase the you generation we plan our quarter. In generate increase third we prepare with the some authorization repurchase good particularly in terms of in the --

have good expect in the a We fourth quarter. cash generation to

clearance So to we buybacks we plan our to once be from our do that. able to increase banks have

Got it. guys. time. Appreciate lot your a Thanks

Thanks, Marco.

you Thank very much.

question Colicchio, next come Barrington Our will Vincent Research. from

are what and Mike they had Did you delay last start to what's the some come with --X quarter the a a client there? large-order other back outlook delays. Yes. project outlook

does fourth recall that one and our $X million-plus quarter. largest effect continue through -- clients largest each here to Vince, had morning, quarter you a had and yes, bullet we will Yes. the automotive bite about Good our that clients of -- we it

house and of of reset to will them the of have few rate have $X large And the we As during largest run top will XXXX. our that client. so or you believe will -- if not reduction XXXX be client the if expect we one have XXXX then that with for we our be to stabilized particular move million we roughly top

move So XXXX on will as be that drag a not if it to will growth XXXX. a was as standpoint we you in from growth

one large was in Or U.K two broad-based? there is the -- it the deals growth the was or sustainable? growth And

Yes.

U.K. the all with the the of growth with of in be tendency automation longer-term higher-margin around is us. bit and The the around little business for work. a But shorter-term work that enterprises at Brexit. So digital the is noise to do moment the lot not also to happens a a

So it helps us.

So even work to and that opens expectation UK the both you in the again transformational saw growth and up quarter larger Brexit fourth We the for do expect overall. way again. the work once is they the our opportunity thing sequentially their through can grow

So the for performed and like optimistic pretty we're QX cautious QX certainly it's did. looks QX as good as in UK, us just but with the UK looks

Okay. quarter. Nice you. Thank

Thanks very much, Vince.

come much. question Marc will you Riddick, Instructions] [Operator Thank next Our Sidoti. very from

morning. Good Hi.

Hey, Marc. good morning,

could give by moving and to I wanted I one pick-up to behind was tensions? was have follow-up there you that was a sense or specific wanted sense sort you things legs going think somewhat you of, stimulated not get activity a as using wanted something I forward? if a potential to, -- that government of of and and that this over touch that might that maybe if of Or far of mentioned thread that any whether on to driver particular Asia-Pac was

Yes.

over So overall nice our we government the region there the chunk there grow the it a I because size think really is Marc to opportunities business in the of Asia work view have represents that market. Pacific of is that

workloads as few to you instability Prime opened not has see Australia the there once uncertainty occurring all of that seems have of that That level been the leadership over through and they've were Ministers. Australia few in few last we literally there's the before such a well because settled kept up the think opening the an settled government a I in it's down, and been changes that regarding with now up at federal years now know down

saw up, that actually sector saw we we We a the and some for opening into government taxation. departments And some few contracts XXXX. optimistic we Australian move as the Taxation Department were of -- So saw are about us. we Department of other issued

So over ISG. stability unless there government of opportunities bit lot out we type of few some up take change there uncertainty to of is which relative the other has that think and for a been last opens other helps the a years, --

we to opportunity that and a XXXX growth. but us be we're to we as Pacific would believe Asia move So return then I should our back more cautious, what normalized call a good for will region

I what your Great. And you recurring and views project revenue XXXX beyond? and there for as might on to get mix, might the Okay. be revenue business as Thank near sort we then there. be an with whether or to and more color a far some specific switch in update little of Thanks. gears and come see follow-up may not bit wanted the term maybe the recurring growth on

Thanks Marc. Yeah. very much

own Blue like Anywhere Prism licensing automation yeah, our with multi-year on good revenue. as also have recur software government in sales a But back terms that InformX, recurring growth in and sector recurring rate and the are held of help that primarily contracts little particular UiPath the bit on because we revenue So I were year the our didn't Automation GovernX, sales mean, that we around revenue, included on license this we well. our our had strong contracts things recurring

ProBenchmark, in also Our product. now have called software a we benchmarking is market also should a subscription-based XXXX. a And the subscription research of pricing nice as-a-service also is our we from business product lift see out a standpoint which business,

the in then helping in not would drag the toward we continue reduction, by on on achieve contracts when factors, XXXX. get And in government which combine can So million down growth a to the see you which a being journey those a rate you also terms We not like recurring recurring of they were $XXX end XXXX. of we revenues. all revenue, holding our you put that

good feel we all So very That's organic standpoint. we -- on that. about are the

at some now look capability organic. recurring around as But revenue well. to right continue just inorganic talking We about I'm

So we double-digits streams should growth in think revenue back recurring XXXX. to the pickup rate

what me. And $XX I then close And wanted where quick if -- for were update last we think -- the to Okay. could one I we just a Great. automation? if last about seeing -- million, you're on like give are on I quarter. you runway

from still So a maybe if as as seems of quick because opportunity? a far way Thanks. there customer to update sort on we automation, adoption a get seeing can long there's what it go you're

Yeah.

Okay, good.

continues red be our hot business automation to This robotic marketplace. out automation. the our, in So is you process the recall

going cognitive quote It by have market some work doing a demand on gone again. early high to continues we're enterprises. The of have innings. to as yet. still well. Now There's scale is lot Not many adoption

So opportunities and that ISG as we real automation market the see for overall.

the You've and UiPath big seen valuations Automation of public over with some Anywhere U.K. Prism's the in Blue and

-- you some companies. software very So got strong, they've for there's if will, the valuations the

we We inside around also such this as to in ourselves, a out advisory also is side, we have not marketplace is that why still stock. market. quite tends little our the see recognizing of of robust bit This frustration asset a value that the the see be on

that. to to So unleash at we'll look ways continue

confident very in we're our business. automation So

of million that emerging million a in should as number plus mentioned a I be not an position during got as year, see nice we you we've there. startup ourselves XXXX. this $XX started will essentially And should that at of We earlier, January from but in become, as kind business XXXX we is know $XX we

value of deliver us, look undervalued expect market we the growth can today. think double-digit unleash we asset continue to to So this that but in type how continuing for be business we'll is also we at the to that

much color. encouraging. you very Certainly, Okay. Thank for the

Marc. Thanks

next [Operator Gomes, much. Capital. question Joe very will you Our come NOBLE Thank from Instructions]

Thanks for Good my questions. morning. taking

Good morning, Joe.

Yeah.

sign repurchases on as get the can a more here. us to clearance banks, When aggressive point have a what the color you to talk for once just from you of guys if give have doing repurchase the stock more little in said, program? clarification about banks for Just the you you order to off the on some you potential on

Yeah.

recall, you'll we under we to we million right the have have then buy back have Xx can year do flexibility banks with what our debt to now EBITDA if a ratio -- we is the our of done. So we we Once agreements $X Xx cash. which like achieve

Thanks And you be something then me for Okay. that. can may for clarify here.

wondering XX the last -- been half have to public revenue sector sector, On now XXXX, what's that it again it was of the think is in here we contributions second seems little about contracts going on public you modest their but color like quarter, I then side? you're happening what and was a detail more talked more contributing and just you some provide you see here you can or the signed them being XXXX, I of on on and sector the public if to in expected

then into we We overall so began on those They third the first to not I fourth no, see it public the mean no, contracts. go on have do didn't was back down, XXXX, modest. be they No, saying us the growth half overall in was what growth. during the will year the full will Yeah. because quarter held I sector But quarter.

those contracts stated, we in out today and So as There picking I we few see are others are that up, no that have pursuing. signed. the we are that market market

able contribute I contribute held this in year be whereas us will it growth public a will sector give see meant. back. what our we to to growth, think the it XXXX I basis year said, did I to That's us not as full So

Okay. Thanks. Great. appreciate it. Thanks the I for time.

much, very Thanks Yeah. Joe.

this the Instructions] have at [Operator time, questions no in queue. further speakers you. we Well, Thank

back for conference I'd remarks. closing turn So like any this Connors Mr. to to

Thank you much. very

Let our by showing enthusiasm me for the our by great close I energized am future. saying, employees are

world's a transforming I meeting that's our the faster employees enterprises firm revolution and digital the a travel have forward with that we the excellence of excitement are I of around top get clients, and people operational our momentum being as growth. building part the for real sense for and As

I our all and ISG. want of thank of support a have success. their the I on to great around in continued the for confidence call to all holiday for to season our rest want world you thank of upcoming day. And and the professionals the Enjoy your contributions

very conclude much. today's and gentlemen does you Thank conference. Ladies that now

may rest and your great week. of you. the phone disconnect You lines Thank a have