Q2 2024 Information Services Group Inc Earnings Call
Good morning and welcome everyone to the Information Services Group's second quarter 2024 conference call. This call is being recorded and a replay will be available on ISG's website within 24 hours.
Operator: 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. Holt, please go ahead.
Speaker Change: Now, I'd like to turn the call over to Mr. Barry Holt for his opening remarks and introductions. Mr. Holt, please go ahead.
Barry Holt: Thank you, Operator. Hello and good morning. My name is Barry Holt.
Barry Holt: Thank you, operator. Hello and good morning. My name is Barry Holt. I'm a senior communications executive at ISG. I'd like to welcome everyone to ISG's second quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Michael Sherrick, Executive Vice President and Chief Financial Officer.
Barry Holt: I'm a senior communications executive at ISG. I'd like to welcome everyone to ISG's second quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Michael Sherrick, Executive Vice President and Chief Financial Officer.
Barry Holt: Before we begin, I'd like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our Form 8K that was furnished last night to the SEC and the risk factors section in ISG's Form 10K covering full-year results.
Barry Holt: You should also read ISG's annual report on Form 10-K 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 any of ISG's SEC filings on either ISG's website at www.isg-1.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances.
Speaker Change: Before we begin, I would like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects.
These statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated.
For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our Form 8K that was furnished last night to the SEC and the risk factors section in ISG's Form 10K covering full-year results.
You should also read ISG's annual report on Form 10-K and any other relevant documents, including any amendments or supplements to these documents, filed with the SEC.
Barry Holt: You'll be able to obtain free copies of any of ISG's SEC filings on either ISG's website at www.isg-1.com or the SEC's website at www.sec.gov.
Speaker Change: ISC undertakes no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances.
Barry Holt: 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.
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.
Barry Holt: 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.
Barry Holt: For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8K, which was filed last night with the SEC. Now, I'd like to turn the call over to Michael Connors, who will be followed by Michael Sherrick.
Barry Holt: For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8K, which was filed last night with the SEC.
Barry Holt: And now, I'd like to turn the call over to Michael Connors, who will be followed by Michael Sherrick.
Michael Connors: Thank you, Barry. And good morning, everyone.
Barry Holt: Mike?
Michael Connors: Today we will review our sequentially stronger results for the second quarter, our perspective on the demand environment, and our outlook for Q3. ISG delivered sequentially stronger profits in Q2, with adjusted EBITDA up more than 60% at $7.1 million. Our adjusted EBITDA margin, at 11%, was up more than 400 basis points versus Q1 on an improved product and service mix. And our utilization improved more than 800 basis points sequentially to reach a record high of 78%, reflecting a pickup in demand we saw in the back half of the quarter.
Michael Connors: Thank you, Barry, and good morning, everyone.
Michael Connors: Today we will review our sequentially stronger results for the second quarter, our perspective on the demand environment, and our outlook for Q3.
Michael Sherrick: ISG delivered sequentially stronger profits in Q2 with adjusted EBITDA up more than 60% at $7.1 million.
Speaker Change: Our adjusted EBITDA margin at 11% was up more than 400 basis points versus Q1 on an improved product and service mix.
Barry Holt: And our utilization improved more than 800 basis points sequentially to reach a record high of 78%, reflecting a pickup in demand we saw in the back half of the quarter.
Michael Connors: Our revenue base stabilized in Q2 at $64.3 million, even with the first quarter. This was good sequential progress in a challenging market where client decision making and spending continue to be impacted by the macro environment. While reported results were down versus the prior year, we also had record revenues in Q2 last year, making for a difficult comparison.
Michael Connors: Our revenue base stabilized in Q2 at $64.3 million, even with the first quarter.
Michael Connors: So, good sequential progress in a challenging market where client decision-making and spending continue to be impacted by the macro environment.
Michael Connors: While reported results were down versus the prior year, we also had record revenues in Q2 last year, making for a difficult comparison.
Michael Connors: Our recurring revenue streams continue to be a strength for ISG, led in Q2 by our research and Govern-X businesses. We generated $32 million of recurring revenue in the second quarter, representing half of our firm-wide revenue, with recurring revenue growing 5% now in the trailing 12 months. One early sign of improving demand can be found in the contract value flowing through ISG Tango, our new digital sourcing platform. Total contract value, or TCV, on ISG Tangle has reached $4 billion in just the first 100 days or so since we launched the platform.
Michael Connors: Our recurring revenue streams continue to be a strength for ISG, led in Q2 by our Research and Govern-X businesses.
Michael Connors: We generated $32 million of recurring revenue in the second quarter, representing half of our firm-wide revenue, with recurring growing 5% now in the trailing 12 months.
Michael Connors: One early sign of improving demand can be found in the contract value flowing through ISG Tango, our new digital sourcing platform.
Michael Connors: Total contract value or TCV on ISG Tangle has reached four billion dollars in just the first 100 days or so since we launched the platform.
Michael Connors: ISG Tangle is a growth and margin enhancement opportunity for ISG. The innovative AI-powered solution accelerates speed to value for our enterprise clients and the provider community. It also supports our margin expansion and allows us to extend our addressable market to mid-sized companies. Indeed, more than 25% of the current TCV on ISG Tango is from midsize companies.
Michael Connors: ISG Tangle is a growth and margin enhancement opportunity for ISG.
Michael Connors: This innovative AI-powered solution.
Michael Connors: Accelerate speed to value for our enterprise clients and the provider community.
Michael Connors: It also supports our margin expansion.
Michael Connors: and allows us to extend our addressable market to mid-sized companies.
Michael Connors: Indeed, more than 25% of the current TCV on ISG Tango is from mid-sized companies.
Michael Connors: We also see the adoption of AI as a catalyst for growth. Our experts leverage ISG's towering strengths in operating model design, sourcing advisory and governance, and our deep knowledge of the entire provider ecosystem, to guide our clients in deploying AI at scale and accelerate business outcomes. Our ISG research team has recently produced a series of detailed surveys on AI that have been a key source of guidance for our clients. This includes a deep dive generative AI software buyer's guide from our Ventana research team. Currently 98% of our clients express both broad satisfaction with our services.
Michael Connors: We also see the adoption of AI as a catalyst for growth.
Michael Connors: Our experts leverage ISG's towering strengths in operating model design, sourcing advisory, and governance.
Michael Connors: and our deep knowledge of the entire provider ecosystem to guide our clients in deploying AI at scale and accelerate business outcomes.
Michael Connors: Our ISG research team has recently produced a series of detailed surveys on AI that have been a key source of guidance for our clients.
Michael Connors: This includes a deep dive generative AI software buyer's guide from our Ventana research team.
Michael Connors: As clients progress from proofs-of-concept to full-scale implementation,
Michael Connors: ISG will be with them every step of the way, making sure they have the right platforms.
Michael Connors: and Operating Models in Place and are using AI effectively and responsibly.
Michael Connors: And with the momentum of AI, there will be a knock-on effect in other areas, with increased spending on cloud-based infrastructure, software-defined networking, and advanced data and analytics, to name a few.
Michael Connors: In short, AI is a net positive for ISG.
Michael Connors: With that, let me turn to our regents.
Speaker Change: As I mentioned at the outset, our revenues were stable quarter over quarter.
Michael Connors: But on a reported basis, we faced a difficult compare with a record Q2 last year.
Michael Connors: and the America's Reported Revenues at $40 million.
Michael Connors: We're down 2% sequentially and down 5% versus the prior year.
Michael Connors: During Q2, we saw double-digit growth in our manufacturing industry vertical and in automation in Govern-X.
Michael Connors: Key client engagements during the second quarter included Thermo Fisher Scientific, Carnival, GE Aerospace, GE Vernova, and Centene.
Michael Connors: During the quarter, ISG won a $4 million engagement to renew the intelligent automation ecosystem of a clinical research business.
Michael Connors: ISG has delivered a range of services and has been a trusted advisor to this client for more than seven years.
Michael Connors: We're also realizing new opportunities by way of divestitures.
Speaker Change: Because of our long-standing relationships with large enterprise clients,
Michael Connors: ISG is well positioned to support spinoffs as they separate from their parent companies.
Speaker Change: For instance, in Q2, we signed a million-dollar-plus transformational technology sourcing engagement with a global aerospace spinoff with further growth opportunities on the horizon.
Speaker Change: And we won a three-year, nearly $2 million, Govern-X engagement with a new global healthcare company that was spun off from a large Fortune 500 firm.
Speaker Change: Also of note, we recently announced a new partnership with CoreTrust.
Speaker Change: One of North America's largest group purchasing organizations.
Speaker Change: Under the agreement, ISG will initially provide a custom package of intelligent automation services.
Michael Connors: The Core Trust, 3200 member companies.
Michael Connors: Importantly, the partnership represents a bigger opportunity.
Michael Connors: to serve the cost optimization needs of these 3,200 companies with additional ISG services such as network, software, and sourcing to be offered in the future.
Speaker Change: Turning to Europe , our Q2 revenues of $19 million were up 6% sequentially, down 23% from last year.
Michael Connors: During the quarter, Europe delivered double-digit revenue growth in our consumer and insurance industry verticals.
Michael Connors: and in our network, software, and research businesses.
Speaker Change: Key client engagements in Europe in the second quarter included Volkswagen, Excite, Allianz, and BASL.
Speaker Change: During Q2, ISG was awarded a sourcing engagement with a new client in Germany, a leading science and technology company with opportunities for expansion.
Speaker Change: Significantly, we won this business on a referral from another large client based in Germany.
Speaker Change: Underscoring the strength of our client relationships.
Speaker Change: That strength is represented in ISG's Global Client Experience Scores, which are among the highest in the industry.
Speaker Change: Currently 98% of our clients express both broad satisfaction with our services and a willingness to recommend ISG to other companies.
Speaker Change: Now turning to Asia-Pacific.
Speaker Change: Our Q2 revenues of $5.5 million were essentially flat on a sequential basis, down 31% from last year.
Speaker Change: Key clients in the quarter included the Australian Taxation Office, Department of Home Affairs,
Speaker Change: Endeavor Group, another spin-off client.
Speaker Change: and New Clients Smart Group, a provider of salary packaging and fleet management services.
Speaker Change: Now let me turn to guidance.
Speaker Change: As I mentioned at the outset, our higher margin mix and strong utilization positions us well as the market begins to recover.
Speaker Change: Our blue chip clients are telling us that technology modernization remains a top priority and investments will slowly catch up as macro conditions improve.
Speaker Change: Efficiency, cost optimization, and transformation remain the key themes.
Speaker Change: As clients become more cautiously optimistic, we expect demand to inch up in the months ahead.
Speaker Change: In line with this view and considering the seasonality of summer holidays, especially in Europe , we will remain cautious on Q3 guidance.
Speaker Change: So for the third quarter, we are targeting revenues of between $64 and $66 million, and adjusted EBITDA between $7 and $8 million.
Speaker Change: We remain confident in our strategy and stand ready to capitalize on new business opportunity as growth returns.
Speaker Change: So with that, let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael? Thank you, Mike, and good morning, everyone.
Michael Sherrick: Revenues for the second quarter were $64.3 million, down 14% compared with the second quarter last year. Currency had a modest $180,000 negative impact on reported revenue.
Speaker Change: Similar to Q1, our Q2-24 results faced a difficult compare with a year ago when we generated our highest second quarter revenue ever. I would also note that second quarter revenue was flat sequentially, supporting our view that demand has stabilized.
Michael Sherrick: In the Americas, recorded revenues were $40 million, down 5% versus the prior year. In Europe , revenues were $18.8 million, down 23%, and in Asia Pacific, revenues were $5.5 million, down 31%.
Speaker Change: Second quarter adjusted EBITDA with $7.1 million, down from $10.1 million in the year-ago period, resulting in an EBITDA margin of 11.1% as compared with 13.6% in the year-ago quarter.
Speaker Change: Sequentially, our adjusted EBITDA improved by $2.7 million, while margin rose 420 basis points, fueled in part by our record utilization and corresponding gross margin.
Speaker Change: For the quarter, growth margin reached 39.5%, up a strong 340 basis points from the March quarter.
Speaker Change: ISG had a second quarter operating income of $3.7 million, compared with operating income of $4.9 million in the prior year.
Speaker Change: Our reported net income for the quarter was $2 million, or income of $0.04 per fully diluted share, compared with net income of $2.3 million, or $0.05 per fully diluted share in the prior year.
Speaker Change: Second quarter adjusted net income was $3.8 million or $0.08 per fully diluted share compared with adjusted net income of $5.3 million or $0.11 per fully diluted share in the prior year's second quarter.
Speaker Change: I would note again that sequentially we saw adjusted net income and earnings per share increase by $3.1 million and $0.07 respectively.
Speaker Change: Head count as of June 30, 2024 was 1,497, down 100 professionals compared with the prior year, and down 64 from Q1.
Speaker Change: For the quarter, consulting utilization was a record 78% as compared to 70% in the first quarter and 72% in the prior year.
Speaker Change: For the quarter, net cash provided by operations was $2.2 million, as compared to generating $2.8 million a year ago. We ended the quarter with cash of $11.8 million, down from $14 million at the end of the first quarter.
Speaker Change: During the second quarter, we repurchased $2 million of shares and made earn-out payments of $1.7 million related to prior acquisitions.
Speaker Change: Our next quarterly dividend will be paid October 4th to shareholders of record as of September 6th.
Speaker Change: We ended Q2 with a debt balance of $74.2 million, down $5 million from Q4, and flat quarter-on-quarter.
Speaker Change: Our average borrowing rate for the quarter was 7.3%, up from 6.6% last year. We ended the quarter with 49.7 million fully diluted shares outstanding.
Speaker Change: Overall, our balance sheet continues to provide us with the flexibility to support our business over the long term.
Speaker Change: Mike will now share concluding remarks before we go back to Q&A.
Mike: Thank you, Michael. To summarize, we made good progress in Q2 with strong sequential profit growth on an improved mix and higher utilization.
Michael: Our revenue base stabilized and our strong pipeline provides clear signs that demand could pick up late this year as macro conditions improve.
Speaker Change: Our recurring revenue business remains strong, representing about half of our total firm-wide revenues.
Speaker Change: And we are confident that our operating model and our product and service portfolio, including ISG Tango and AI, positions us for success.
Speaker Change: As always, we are focused on creating shareholder value for the long term, and we are steadfast in our mission to deliver operational excellence to our clients.
Speaker Change: So, thank you very much for calling in this morning and now let me turn the session over to the operator for your questions.
Speaker Change: Today's question and answer session will be conducted electronically. If you'd like to ask a question, you can do so by pressing star and one on your telephone keypad.
Speaker Change: If you find that your question has been answered and you would like to remove yourself from the queue, you may do so by pressing the pound sign.
Speaker Change: And again, if you would like to ask a question, you can do so by pressing the star and 1 on your touchtone keypad. We'll pause for a moment to allow any questions into the queue.
Speaker Change: And your first question comes from the line of Joe Gomes.
Joe Gomes: of Noble Capital Markets.
Speaker Change: Please go ahead.
Speaker Change: I'm filling in for Joe.
Speaker Change: [inaudible]
Joe Gomes: Alright, so yeah, just congrats guys on getting that utilization rate up to about, you know, that 78% mark, you know, how do you guys kind of expect that going forward throughout the year? Do you guys want it? You guys kind of are seeing it?
Speaker Change: I just wanted to have that steady, or do you guys expect it maybe to trend upward very slightly?
Speaker Change: So on utilization, 78 is, I'll call it lava hot in terms of, in terms of utilization levels. And again, just to remind everyone, we use
Speaker Change: [inaudible]
Speaker Change: on an ongoing basis. So if we can be in that range, and especially with
Speaker Change: summer holiday season, we would not expect to be able to have that level of utilization that often, and certainly likely not in the summer holiday season. So something in kind of the mid-70s is our ongoing range, and that would produce
Speaker Change: A very good outcome for us if we can attain that on an ongoing basis.
Speaker Change: Okay, great. And then, um...
Speaker Change: Just, you know, kind of shifting towards the pipeline, you know.
Speaker Change: What are you guys seeing during the quarter? Was there any kind of growth there? Any more discussions with other clients? And, you know, are those clients kind of still wanting you guys to spend more time up front on projects? Or have clients kind of started wanting to have the company start to move quicker on those?
Speaker Change: So first of all, a couple of things just in terms of kind of the industry segments.
Speaker Change: The two hottest segments right now are manufacturing and consumer.
Speaker Change: And they're slightly different. The manufacturing are really pushing on a lot of transformation, and consumer is higher on cost optimization, just to give you a flavor of the two. Both of those are growing at a significant double-digit rate right now for us.
Speaker Change: And I think, you know, as we look at what the demand environment, our pipeline is pretty robust.
Speaker Change: The issue is getting the pipeline out, and then once we get it out, the pace of execution.
Speaker Change: We've not seen that change yet. Our sense is that the macro environment needs to lighten up before we'll see any kind of speed in the pace of burning through that pipeline. But we're very encouraged by the pipeline. We're very encouraged with the discussions.
Speaker Change: So I don't see it moving at a faster clip than what we saw in second quarter for the third quarter. But we do believe with the pipeline pent up that we might be able to see that move at a faster pace when we get to quarter number four. That's our view at the moment.
Speaker Change: So yes, we think that that level makes sense for us.
Speaker Change: So sitting these numbers up kind of in the 120s looks pretty good for us. So yes, we're tracking at a good pace. We'll continue to do all things recurring when we can. And, you know, being at half the revenue is a good spot for us right now.
Speaker Change: Thank you. And then I didn't hear what you said on Tango, the percent that was for mid-sized companies.
Speaker Change: Yes, it's actually a little faster clip. I don't know if that can be sustainable yet. That's a pretty fast clip to go to kind of...
Speaker Change: previously tackled because we thought that our premium pricing might not be able to do that. So, you know, I'm looking here at just a couple of the stats that we have on these things. The margins look
Speaker Change: are going to be healthier as we turn into the fourth quarter and into next year. And we should get back to margins that we all are used to. All we need is just a little bit of cooperation with the macro environment for the top line.
Speaker Change: Because we're going to be able to leverage our fixed costs with the incremental revenue that we think is on the horizon.
Speaker Change: Okay, I'll get back in queue. Thank you. Thanks, man.
Speaker Change: Your next question comes from the line of Marc Riddick with Siddhoti and Company. Please go ahead.
Speaker Change: Morning!
Mark: Good morning, Mark.
Speaker Change: So, I was wondering if maybe we could stay on Tango for a moment. So, we're looking at $4 billion up from, I think it was about $2.6 billion, if I remember correctly.
Mark Riddick: Can you talk maybe a little bit about, you talk about the size of the customers, you're talking about maybe the industry verticals that are maybe attracted to Tango and are working with it, or maybe what that type of mix looks like?
Speaker Change: Yeah, so first of all, the Tango is going to be good for all the industry segments that we serve. It's really industry agnostic. And what we're seeing is what we expected, which is Tango as a digital platform.
Speaker Change: is looking like in its early days, but it looks like it's going to achieve kind of two pieces of kind of objectives. One is to accelerate time to value for the enterprise. So think about a sourcing transaction that a client wants.
Speaker Change: and it takes X number of weeks to get done. Under this scenario, we think it will be something less than what they previously did, which means that the value and savings and efficiencies that they were able to achieve will get done sooner. So that's for the enterprise.
Speaker Change: For the tech providers, so think Accenture, the IBMs, and others who are on the platform, what it does for them is also accelerates an outcome for them.
Speaker Change: So what might have taken a bit longer to get to a solution and an outcome and a win.
Speaker Change: Now we'll go a little quicker, which means their revenue begins.
Speaker Change: So that's why both the enterprise and the provider.
Speaker Change: We think of it as efficiency, speed, and productivity.
Speaker Change: Early days, but I think it is moving to what we think the objectives were, and we're looking to accomplish those over the next 12 to 18 months, and you'll see our margins expand as a result of that as we go through 2025.
Speaker Change: That's very helpful. Thank you. And then you touched on the
Speaker Change: So to bring us up to date on the Ventana benefits that you've seen, and it's been, we're closing in, I guess we've got a few more months, but we're closing in about a year or so, but certainly from a, you know, from a perspective of,
Speaker Change: sort of leading the way of sort of Mindshare and that AI playbook sort of that you refer to. Can you sort of talk a little bit about how that's kind of...
Speaker Change: Gelled into the organization and what you're seeing there. Thanks. Yeah. Good question, Marc.
Speaker Change: So first of all, Ventana Research is fully integrated now into ISG, and we...
Speaker Change: Just as a couple of examples, this year we've been able to double...
Speaker Change: And that is very helpful. We use it with our clients.
Speaker Change: We are using it with our ISG Tango. We use it in what we call our CPQ, our Candidate Provider Qualifications.
Speaker Change: So it has been a, I'll call it an outsized advantage for us.
Speaker Change: And as we move into 2025, the software industry itself is 800 billion moving to a trillion.
Speaker Change: So being able to report out in a very analytical way, like we do with all of the kind of service and tech providers.
Speaker Change: is really a leg up for us, we believe. So, you know, we kind of focus on AI platforms, gen AI platforms.
Speaker Change: and Machine Learning Ops, if you will, or LLM Ops, if you will, the two of them. Those three areas, AI platforms, general AI, and then the ML and LLM kind of ops, that's where Ventana Research has been very helpful in helping us evaluate.
Speaker Change: The providers that are out in the market and provide some kind of independent assessment. So we're very pleased with Ventana Research.
Speaker Change: Mark Smith, who's the founder of that, and his team have been terrific, and we've gotten them involved in a lot of broader areas than they had even prior to joining ISG. So, all in all, very good start.
Speaker Change: Great. And then the last one for me, I was wondering if you could maybe give us an update on your thoughts on the potential acquisition pipeline or what you're seeing out there and maybe thoughts on valuations.
Speaker Change: There are some things that might be attractive to add to the platform at this point.
Speaker Change: Thank you. Yeah. So we remain, as we always have, very active in the market. I think there is a little bit of some reluctance on the ...
Speaker Change: By sell side, as the market softened a little bit over the last year, the expectation levels have not softened the way the market has softened, so you continue to kind of balance value, but we are optimistic. We continue to look
Speaker Change: for areas around digital and recurring revenue streams.
Speaker Change: And if we find something that we think can give us an acceleration of growth or capability, then we will pounce on that. So that remains.
Speaker Change: An active area. I would say the balance of value though isn't quite where it was. I think sellers still have a value expectation that may be a bit higher than the buyers at the moment.
Speaker Change: But a little bit of time helps ease that.
Speaker Change: I appreciate it. Thank you. Thanks, Marc.
Speaker Change: Your next question comes from the line of Dave Storms from Stonegate. Please go ahead.
Rob: Hey Barry, Mike, this is Rob filling in for Dave. Just have a few questions for you here. I wanted to start by asking just one question on guidance.
Speaker Change: Just wanted to touch on that. Could you just...
Speaker Change: To help clarify the key factors influencing your Q3 guidance, I understand Q3 guidance is consistent with Q2. Does this imply that we might just face delayed client decision-making in regards to demand for the latter half of 2024, and possibly not experience the same growth going into the second half of the year?
Speaker Change: Hi, this is Michael. I'll take the question. So, you know, I think as we said, I mean, you know, Q2 saw, you know, stable revenue quarter-on-quarter and obviously significantly improved profitability. We expect those trends to continue as we look at Q3, but also recognize that there's a seasonality in Q3, in particular, you know, summer vacations, Europe specifically, but also in the U.S. So as I think
Speaker Change: was asked earlier with regard to utilization, we wouldn't expect the business to run as hot as a result of that type of seasonality. And for those reasons, that's why we've we've given the guidance that we provided earlier on the call.
Speaker Change: Okay, great. And I've just got one more here for you regarding ISG Tango. I know that continues to grow and there's some new sectors or clients that you, client types, you can see or expect. Are there any specific sectors or client types that you expect to use this platform to have the most impact forward looking?
Speaker Change: You know, I think Tango is industry agnostic.
Michael Connors: And we would expect to have nearly by the time we're in the middle of this time next year, we would expect to have nearly all
Speaker Change: And we would expect to have nearly, by the time we're in the middle of this time next year, we would expect to have nearly all
Speaker Change: All of our sourcing transactions flow through ISG Tango.
Speaker Change: And that would mean that's any industry, and that means basically any service, infrastructure.
Speaker Change: Applications, etc. All would flow through Tango.
Speaker Change: And with that, that enables us, as I mentioned earlier, we think to, from our perspective, in addition to the benefits that the enterprise and the tech providers get by using it, this will allow us to be a bit more efficient.
Speaker Change: It'll speed things along, which means productivity will be better, and ultimately it helps our overall firm margins. So when we think about margin expansion,
Speaker Change: Tango is one of the elements, not the only, but one of the elements that we think will get us back into kind of the mid-teens kind of margin that we we are targeting.
Speaker Change: Okay, great. Thanks for taking my questions and good luck in Q3. Thanks so much.
Speaker Change: Your next question comes from the line of Galaxy 3 of Singular Research. Please go ahead.
Speaker Change: Good morning, can you hear me?
Speaker Change: Yes, good morning.
Speaker Change: Thanks for taking my call.
Speaker Change: Given the highly competitive market for AI talent, what strategies or incentives are you guys employing to attract and retain top AI professionals? And given that the interest in AI is still at the proof of concept stage, is this a temporary headwind for margins?
Speaker Change: and then I'll...
Speaker Change: Okay, thanks. First of all on the on the on the on the AI...
Speaker Change: If you will, we are developing our internal team.
Speaker Change: and training them up on AI. We have a full AI training university that we are sending many of our consultants.
Speaker Change: Consultants Throat. So our first course of talent is our workforce globally around the world and we are we are making very good progress on training.
Speaker Change: All of our teams in the areas that we need them to build up in relative to AI. So I would say that's...
Speaker Change: That's kind of our source.
Speaker Change: We have very low turnover for our industry. We've always been at the low end turnover, so we feel very confident investing in our teams around the world.
Speaker Change: to get AI, if you will, skilled up. So that's objective number one. I don't think, from our standpoint, we see AI as a headwind. We see it actually potentially as a tail.
Speaker Change: [inaudible]
Speaker Change: [inaudible]
Speaker Change: or from kind of helping them with proof of concept, moving them to production and then scaling and then governing. We think all of those areas will be beneficial to us. So that's our view on AI.
Speaker Change: Thank you. I just have one follow-up. I'm relatively new to this name, so can you help me understand the revenue model for ISP Tango and how that ties into the $4 billion number? And also, I guess you kind of mentioned that
Speaker Change: It requires, for Tango to be successful, it needs adoption, both on the...
Speaker Change: from the client and as well as the vendor side. So, how is the adoption on the vendor side going and is there any objections and how are you guys addressing those objections?
Speaker Change: So, first of all, we have not really come across any objections. The vendors side, we have a great relationship with the entire supplier-vendor community.
Speaker Change: They have used our methodologies for years. This is just an extension, if you will, of how they've operated with ISG with enterprise clients.
Speaker Change: The only time we might see an issue on Tango might be if there was a government contractor that might have an issue with a particular platform. We've not run across it.
Speaker Change: But if we did, we would still use Tango for our internal purposes. So we do expect more than 90% of our client base
Speaker Change: that is doing a sourcing transaction would use our Tango, ISP Tango platform going forward. So we've had great adoption, we've trained
Speaker Change: Over 100 of the vendors on ISG Tango. In fact, it's closer to 200 to date, and they've all received it quite well, and all of them are using it on any transaction that we are working with enterprise clients on. So we feel pretty good about that.
Speaker Change: The hotel would be on the platform, the providers would be on the platform, ISU would be on the platform.
Speaker Change: We would be advising the enterprise to ultimately make a selection.
Speaker Change: And I'm showing no further questions. I'll turn the call back to Mike Connors for his closing remarks.
Mike Connors: Our people have a passion for delivering the best advice.
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