Q4 2024 Information Services Group Inc Earnings Call
Speaker Change: [music].
Good morning, and welcome everyone to the information services Group fourth quarter 2024 Conference call. This call is being recorded and a replay will be available on I S cheese website within 24 hours now.
Speaker Change: Now I'd like to turn the call over to Mr. Wilson rats for his opening remarks and introduction Mr. Threats. Please go ahead.
Will Forex: Thank you operator, Hello, and good morning, My name is will Forex I'm, a senior communications executive at ISG I'd like to welcome everyone to Isg's fourth quarter Conference call I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Michael <unk>, Executive Vice President and Chief Financial Officer.
Will Forex: 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.
Will Forex: 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 8-K that was furnished last night to the SEC and the risk factors section in ISG.
Will Forex: <unk> Form 10-K, covering full year results.
Will Forex: 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 will be able to obtain free copies of any of Isg's SEC filings on either Isg's website at www Dot ISG.
Will Forex: Hyphen, one dot com or the Sec's website at Www Dot FCC Dot Gov.
Will Forex: <unk> 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.
Will Forex: <unk> 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.
Will Forex: 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. Please refer to our current report on form 8-K, which was filed last night with the SEC and now I would like to turn the call over to.
Speaker Change: Michael Connors who'll be followed by Michael sure Mike.
Michael: Thank you will and good morning, everyone.
Michael: Today, We will review our strong Q4 results are further improved the balance sheet.
Michael: <unk>, we are seeing in the market and our outlook for Q1.
Michael: ISG finished the year with a strong fourth quarter.
Michael: We began the quarter by selling our automation unit for more than $20 million in cash, which significantly improved our balance sheet.
Michael: We delivered revenues of $58 million and adjusted EBITDA of $6 5 million.
Michael: Improving our EBITDA margins by more than 200 basis points from a year ago.
Michael: With our strong cash position, we further reduced our debt by $7 million in the quarter.
Michael: For the year total debt reduction was 25% or $20 million.
Michael: When you combine the $7 million of debt reduction with dividends of $4 5 million and share repurchases of $2 3 million, we created almost $14 million of value in Q4.
Michael: On an operating basis, our profitability improved with adjusted EBITDA up 11%.
Michael: This is due to our disciplined operating approach.
Michael: Our higher utilization in Q4 up more than 700 basis points year over year, and our improved business mix.
Michael: Our focus on operational excellence also is reflected in our strong cash flow from operations.
Michael: With $6 6 million in Q4, coupled with nearly $9 million in Q3, we generated over $15 million in cash in the last two quarters.
Michael: On the topline revenues in our largest region the Americas were up 6% versus the prior year excluding automation.
Michael: This is an early sign of the improving market conditions, we expect in 2025, starting here in the U S.
And our recurring revenues for the quarter were 45% of firm wide revenues led by our government <unk> supplier management platform.
Michael: For the full year, excluding the automation unit recurring revenues were $108 million.
Michael: A few weeks ago, we announced a strategic repositioning of our firm, reflecting the expanding role of ISG is playing in helping our clients adopt AI at scale.
Michael: We are now positioned as a global AI centered technology research and advisory firm.
Michael: This new description captures our two year journey, thus far.
Michael: Deep AI investments in our people platforms and products.
Michael: Help enterprises navigate the biggest inflection point in a generation.
Michael: AI is at the heart of everything we do from the technology strategies, we develop and the partners, we recommend to our clients to the impact of AI on the future of work we.
Michael: We are truly be common AI centered firm.
Michael: ISG has served more than 100 clients with AI focused research and advisory services over the past 12 months.
Michael: We expect this number to double in the year ahead.
Michael: We are working with our clients to set AI strategy create AI ready infrastructure and data.
Michael: Build AI provider ecosystems.
Michael: And establish AIG governance frameworks.
Michael: ESG research. Meanwhile, has produced detailed AI market surveys and analysis covering both the service and software provider ecosystems.
Michael: We expect these AI related activities to become an increasingly important component of our business.
Michael: Over the next two years.
Michael: Growth will accelerate as enterprises move beyond the planning and experimentation phases and begin to adopt AI more broadly across their organizations.
Speaker Change: At the same time ISG is leveraging AI to improve the speed and efficiency of our proprietary client platforms, most notably ISG tango, our groundbreaking sourcing platform launched last year.
Speaker Change: More than $7 billion of sourcing contract value now flows through ISG tango up 40% from the third quarter.
Speaker Change: Looking ahead, we believe our investments in sourcing AI and software.
Speaker Change: <unk> ISG for strong growth.
Speaker Change: Before I turn to our regions.
Speaker Change: Want to emphasize that our U S public sector business has no U S federal government exposure.
Speaker Change: It is focused solely on state and local governments.
Speaker Change: I also wanted to share some comments on two key trends, we are seeing in the market that should benefit ISG.
Speaker Change: First.
Speaker Change: A resurgence in cloud transformation.
Speaker Change: We are engaged with clients on their accelerated AI, driven cloud adoption and infrastructure investments with.
Speaker Change: With added momentum to push even more infrastructure and applications to the cloud the market is moving right into our sweet spot for ISG.
Speaker Change: Second.
Speaker Change: We are seeing market hesitation lifting.
There is a greater degree of certainty that tax cuts will be extended.
Speaker Change: Oh political conflicts are directionally heading toward a positive conclusion.
Speaker Change: And inflation and labor costs are becoming more manageable.
Speaker Change: Of course, the real impact of tariffs is not known but we see clients sourcing larger and longer duration contracts to optimize costs.
Speaker Change: Thereby freeing crucial discretionary spend for more investments in AI driven transformation.
Speaker Change: This is right in our power Alley.
Speaker Change: In short we are optimistic about our prospects.
Speaker Change: With that let me turn to our regions.
Speaker Change: Bear in mind that the comparisons I cite here are versus the prior year and exclude automation revenues to provide a more accurate view of our ongoing business.
Speaker Change: In the Americas revenues were $38 million up 6%.
Speaker Change: During the quarter, we saw double digit growth in banking.
Speaker Change: Public sector manufacturing energy and the utilities industry verticals.
Speaker Change: And in our consulting and govern X businesses.
Speaker Change: Key client engagements during the fourth quarter included Carnival, PFS, EMG and Syncora, formerly Amerisourcebergen.
Speaker Change: AI continues to be embedded in almost everything we do with our clients.
Speaker Change: Many of our client engagements, including those I mentioned here at.
Speaker Change: We have strong elements of AI.
Including adopting artificial intelligence for IP operations.
Speaker Change: Our AI ops.
As part of sourcing strategies.
Speaker Change: Designing operating models to integrate AI and understanding the productivity and financial impacts of AI.
In the healthcare sector. For example, ISG ran a major sourcing engagement for a large healthcare solutions company.
Speaker Change: We advised this multimillion dollar client on its transition to SAP <unk> Hana and developed a strategic roadmap for sourcing infrastructure and security services leveraging AI ops.
Speaker Change: We also delivered a multi tower sourcing engagement for a large regional healthcare provider using our ISG tango platform.
Speaker Change: Part of a multimillion dollar series of engagements with this client.
Speaker Change: After a successful assessment phase.
Speaker Change: We have continued our training as a service work supporting a major aerospace and defense company in its transition to SAP for Ana.
Speaker Change: This significant multimillion dollar contract covers the training of.
Speaker Change: Tens of thousands of employees across four major business units of this company.
Speaker Change: AI will be leveraged here to improve the delivery efficiency of our services.
Speaker Change: Turning to Europe, the European market remains cautious in the face of challenging macro conditions.
Speaker Change: But we expect improvement later in the year as demand begins to rebound.
Speaker Change: Q4 revenues of $15 million were down 15% Europe was led by double digit growth in our insurance industry vertical in the quarter.
Speaker Change: Key client engagements in Europe in the third quarter included Bulks wagon Ali ons and bomber.
Speaker Change: During the quarter ISG provided change management benchmarking and software services to a new client a large European insurance company and is currently working on an infrastructure sourcing engagement involving multiple towers again, incorporating AI ops to dry.
Speaker Change: The efficiency gains and cost savings this.
Speaker Change: This client will soon cross the $1 billion threshold in revenues with further growth anticipated this year.
Speaker Change: We also expanded our work with a large engineering solutions and construction firm to support the client's overall digital transformation.
Speaker Change: Our multi pronged engagements include sourcing supplier management.
Speaker Change: Cyber security and data governance, as we support this client and leveraging AI across its organization.
Speaker Change: Now turning to Asia Pacific we.
Speaker Change: We had Q4 revenues of $5 million down $1 million from last year.
Speaker Change: During the quarter Asia Pacific delivered double digit revenue growth in our banking consumer services energy utilities, and health Sciences industry verticals.
Speaker Change: Key clients in the quarter included I E mail, the Australian energy market, operator, Endeavour group and AGL energy.
Speaker Change: During the quarter, we worked with one of Australia's leading regional banks to support its digital banking strategy. This.
Speaker Change: This included helping them selected provider to modernize the bank services with AI ops and supporting its transition to the cloud.
Speaker Change: Now, let me turn to guidance.
Speaker Change: As I mentioned last quarter, we are seeing positive signs that demand for technology services is picking up as we expected most notably in the U S where our pipeline is strong.
Speaker Change: ISG is well positioned to capitalize on our market opportunities.
Speaker Change: We have the <unk> AI expertise and sourcing capabilities.
Speaker Change: Along with unmatched software and services research to guide our clients through the next technology wave powered by AI.
Speaker Change: So for the first quarter, we are targeting revenues of between 58 and $59 million.
Speaker Change: And adjusted EBITDA between $6 5 million and $7 $5 million or at least 45% higher than the first quarter last year.
Speaker Change: Our guidance reflects the expectation that growth will continue to accelerate in the Americas with Europe picking up later in the year.
Speaker Change: So with that let me turn the call over to Michael Sherry, who will summarize our financial results. Michael. Thank you, Mike and good morning, everyone before I start I just want to reiterate that all of our revenue comments. This morning will compare fourth quarter 2020 for revenue to fourth quarter 2023, excluding automation, we think that provides.
Speaker Change: A more accurate view of our business performance going forward.
Speaker Change: For the fourth quarter revenue was $57 8 million down 2% versus the prior year.
Currency had a $300000 positive impact to revenue in the quarter.
Speaker Change: Americas revenue was $37 9 million up 6% Europe revenue was $14 9 million down 15% in Asia Pacific revenue was $5 million down 16%.
Speaker Change: Fourth quarter, adjusted EBITDA was $6 5 million up 11% from $5 9 million in the year ago period, resulting in an EBITDA margin of 11, 3% up a solid 240 basis points from eight 9% in a year ago quarter.
Speaker Change: This improvement in profitability allowed us to deliver absolute EBITDA dollar growth despite the year over year decline in revenue.
Speaker Change: ISG had a fourth quarter operating income $200000 compared with an operating loss of $3 5 million in the prior year.
Speaker Change: I would note that these results included transaction costs of $2 2 million for the automation divestiture adjusting for these costs operating income was $2 $4 million.
Speaker Change: Our reported net income for the quarter was $3 million or <unk> <unk> per fully diluted share compared with a net loss of $2 9 million or <unk> <unk> per fully diluted share in the prior year. Our 2024 results included a net gain of $2 3 million on the sale of our automation unit. Excluding this gain.
Speaker Change: Our GAAP EPS was <unk> <unk> per share.
Speaker Change: Fourth quarter, adjusted net income was $3 million or <unk> <unk> per share on a fully diluted basis compared with adjusted net income of $3 1 million or <unk> <unk> per fully diluted share in the prior year's fourth quarter.
Speaker Change: Head count as of December 31, 2024, with one 323 down 195 positions compared with the prior year, primarily due to the sale of our automation unit.
Speaker Change: For the quarter consulting utilization was 72% as compared to 65% in the prior year.
Speaker Change: Net cash provided by operations for the quarter was $6 6 million as compared to $9 $7 million a year ago importantly for the year operating cash flow was $20 million. Despite the drop in revenue a very strong result, we ended the quarter with cash of $23 1 million.
Speaker Change: Up from $9 7 million at the end of the third quarter.
During the quarter, we paid down an additional $7 million in debt, bringing the total 2024 paid out to $20 million and our year end debt level to $59 2 million.
Speaker Change: For the quarter, our average borrowing rate was 7% consistent with last year.
Speaker Change: During the quarter, we paid dividends of $4 5 million and repurchased $2 $3 million of stock.
Speaker Change: Our next quarterly dividend will be paid March 28 to shareholders of record as of March 21.
Speaker Change: Our fully diluted shares outstanding for the quarter were $50 million and at quarter's end, we had approximately $18 $3 million remaining on our share purchase.
Speaker Change: Authorization overall, we have a solid balance sheet that provides us with the flexibility to support our business over the long term.
Nick: Nick will now share concluding remarks before we go to Q&A.
Nick: Thank you Michael.
Nick: To summarize we delivered a strong quarter with Q4 revenue and adjusted EBITDA, both at the high end of our guidance adjusted.
Nick: EBITDA was up 11%.
Nick: In the Americas, our largest region returned to growth with revenues up 6%.
Nick: Recurring revenue remained strong representing 45% of our firm wide revenue.
Nick: We delivered strong cash flow and strengthen our balance sheet with the sale of our automation business.
Nick: Our strong cash position allowed us to lower our debt by $7 million in the quarter, 25% for the year.
Nick: And with dividends and share buybacks, we created nearly $14 million of value in the quarter.
Nick: AI is at the center of everything we do at ISG and this bodes well for our future as we capitalize on the AI driven wave of growth that will accelerate in the months and years ahead.
Nick: 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.
Nick: So thank you very much for calling in this morning, and now let me turn the session over to our operator for your questions.
Nick: Thank you 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. If you find your question has been answered and you would like to remove yourself from the queue. You may do so by pressing star one again.
Nick: And again, if you would like to ask a question you can do so by pressing the star and one on your Touchtone keypad.
Speaker Change: And we'll go first to Joe Gums at Novo Noble capital markets.
Speaker Change: Good morning, Thanks for taking my questions.
Speaker Change: Morning.
Speaker Change: So Mike you touched on this a little bit in your prepared comments, but maybe.
Speaker Change: Maybe you can do a little expand on a little bit.
Speaker Change: There is this uncertainty in the economy the federal government.
Speaker Change: Going back and forth on what Theyre doing.
Speaker Change: Helping confidence out there and a lot of other industries or companies, we've talked to you and we were kind of frozen in place.
Speaker Change: And the decision, making because im not seeing that long term stable situation and just what's going to gift, giving you guys. The confidence that things are improving and will continue to improve.
Speaker Change: Yes, good thanks, Joe.
Speaker Change: Look here's how we are seeing the market today versus even a quarter or two ago number one the elections are done in the U S that create certainty you know who it is.
Speaker Change: Kind of what his policy directions are corporate tax overall tax et cetera.
Speaker Change: We know that the tear ups are sitting out there and they're a bit of an unknown and from our standpoint, so far.
Speaker Change: We're not in the middle of that Fray.
Speaker Change: We actually think there may be a beneficial side to this kind of tariff noise I'll call. It in the market and that's because our cost optimization offering is is thriving now as some companies that may be more impacted by tariffs if they hold consumer et cetera are looking.
Speaker Change: For ways to be more efficient to take cost out now and that has expedited in here in the United States and you're seeing that with the growth in the fourth quarter and I think you will see that as we move into the first quarter. So all of those tariffs as an example, or putting some cost pressure on some enterprises.
Speaker Change: We think that the driving of the cost out to either free up money for further transformation or to drop it to the bottom line is a net positive for ISG than.
Speaker Change: Then we look at some of the industries and where they are now versus where they were even a quarter or so ago.
Speaker Change: The banking and financial services industry in the United States was up 24% in the quarter for US that is the first time, that's turned the double digits in a number of quarters. They are moving even despite some of the kind of noise in the market. They feel like theyre certainty in terms of direction not necessarily.
Speaker Change: A certainty on all aspects of tear ups et cetera, We're also seeing in energy and utilities up 23% in the quarter Health Sciences, just under 10% manufacturing in the U S not automotive, but manufacturing broader was up 24% and media are the public sector in the U S and <unk>.
Speaker Change: Remember, we only have local.
Speaker Change: State and local we do no work for the federal government. So we are not part of the whole Doge thing.
Speaker Change: We saw the public sector up 17% in the quarter as Theyre looking to utilize AI to become more efficient in a number of the states. So when we look at all of that for the U S that gives us a high level of confidence that we expect an acceleration Europe is still a bit subdued.
Speaker Change: Primarily driven by the whole geopolitical environment you saw that the EU took down that took down the rates a quarter point this week.
Speaker Change: So theres still a bit more uncertainty in the European market, driven somewhat by the political atmosphere and what all that means in terms of spending, but I will say, our defense and our public sector business in Europe is strong.
Speaker Change: Some of those countries begin to look to put more money into areas like like defense. So Joe that's how we think about it that's what we're seeing now in the market and that's different from a couple of quarters ago I hope that helps.
Speaker Change: Very much so thanks for that and just one more follow up for me.
Speaker Change: It's kind of a dual question, obviously with the sale you've now got a.
Nice little cash Katy sitting on the balance sheet, you've talked about doing some more debt pay down.
You've talked in the past about keeping an eye out on the M&A environment.
Speaker Change: Just kind of maybe rank.
Speaker Change: Looking at this year the uses of cash.
Speaker Change: For you guys.
Speaker Change: So the way we think about it in our data is sitting at around two four times today, that's going down to hover around two as.
Speaker Change: As we evolve here in the first half of this year I think we guided before that we're very comfortable kind of toggling between two and two five.
Speaker Change: I don't know that I would see the need to take our debt down anything levels below that so therefore, it frees up use of cash we're looking at two areas M&A and stock buyback at the rates that the stock is of course, we're limited on volume levels that we can purchase but we will be in.
Speaker Change: Our aggressive in the market for that but also on the M&A front, we continue to look at areas that can help accelerate.
Speaker Change: Where we're headed on the whole digital and AI front so.
Speaker Change: Anything that we can drive toward recurring revenues is also of course of interest for us. So that's how we would think about it so think about it more on the M&A and the buyback front with the debt being kind of can be closer to kind of the two level. If you will as we go through the first half of the year, we will feel very comfortable kind of where.
Speaker Change: Those levels all when you look at what our EBITDA will improve that.
That helps great.
Speaker Change: Yes, it does very much thanks, I'll get back in queue.
Thanks, Joe.
Speaker Change: We'll move next to Vincent Colicchio at Barrington Research.
Vincent Colicchio: Yes, good morning, Mike.
Speaker Change: Morning.
Speaker Change: Could you give us a bit more color on the <unk>.
Speaker Change: Sales pipeline in the Americas sort of.
Speaker Change: What areas are strongest.
Speaker Change: Sure.
Speaker Change: Yeah, So I think for the U S.
Speaker Change: What we're seeing is kind of two buckets, our cost optimization bucket, which has always been pretty steady as picked up I think I mentioned with the tear ups certain industry segments like consumer.
Speaker Change: I think our thinking that they may be felt harder than maybe even some of the other industry segments. So we're seeing a pickup as it relates in a few industries to accelerate the cost optimization, but importantly, I think in a number of the other industry segments.
Speaker Change: The idea to be able to utilize AI.
To become more efficient.
Speaker Change: In their operations is increasing.
Speaker Change: Youll recall that our view has been that the transformation side has been somewhat paused because of the macro environment.
Speaker Change: With some certainty with the elections, having taken place.
Speaker Change: I think that some industry segments and you can tell by the growth in the U S and some of the segments. I mentioned are now feeling like they can begin to pursue and accelerate the transformation that includes an AI transformation and those companies so from our standpoint.
Speaker Change: Cost optimization, and now an increasing level to work on AI and digital transformation will be the catalyst for the year for the U S business over the next few quarters, Europe will be a bit slower and our Asia Pacific will not kick in I think until the government spending returns with.
Speaker Change: The elections happening in Australia, and the over the next in a couple of months.
Speaker Change: I think we'll see that happen during the back half of the year once that gets settled down in that region in Australia.
Speaker Change: So that's how we look at events.
Speaker Change: And Mike sure what was the utilization rate number you cited I missed that.
Utilization was 72% up from 65 a year ago.
Speaker Change: And can you remind us what level you're comfortable with at the upper end.
Speaker Change: Yes, low to mid seventies, we're definitely remain comfortable we're running.
Speaker Change: I wouldn't call it overheated, but it's definitely hard as you get up towards towards those levels.
Speaker Change: And Mike any comments on APAC.
Speaker Change: Thoughts on how that will progress this year.
Mike: Yes, I think I think I think it's going to be driven by the return to government spending in Australia.
Mike: It's been slowed they have elections coming up in the April may timeframe.
Mike: Everybody has kind of pulled back there will be a new budget year coming up.
Mike: About the middle of the year.
Mike: At once that returns than our commercial business is good we just need some more spending on the government side and I think youll see the return to growth. There. So think about the second half there.
Speaker Change: Okay ill go back in the queue. Thank you.
Speaker Change: We will take our next question from Marc Riddick of Sidoti.
Marc Riddick: Hey, good morning.
Speaker Change: Wanted to I wanted to touch a little bit on maybe you could spend some time on the strategic repositioning and sort of how that debt.
Speaker Change: That might slow as far as throughout the year as well as maybe go to market strategies and things that things of that nature and sort of maybe what you've already done maybe I should take a step back what you've already done in that in that vein and then what we should expect to see going forward yes.
Speaker Change: Yes, no. Good good question look we let me give you some of the areas that we have been investing in and now are becoming more and more part of our business and why we repositioned we have in our research area. We have now flooded if you will the market with AI specific information.
Speaker Change: And what we call market Guide's buyer's guides, our provider lens to understand for enterprises, whereas AI going what is actually out in the market. What are the ecosystems being built there is a lot of written thought research leadership out in the market for US we started with the first stated that Jim.
Speaker Change: AI report two years ago, those have all been updated our tango platform is AI powered.
Speaker Change: That now has over $7 billion of contract value.
Speaker Change: Driving through that that will get up into double digit billions as we go through the year. The AI advisory business that we launched a little over a year ago that is what is driving a lot of our advisory work, especially in the U S and in Germany, and the UK clients have a high appetite.
Speaker Change: Demand that also will help us because our pricing will remain firm there because it's in higher demand. Our benchmarking we have great data now over the past year 15 months into our database around how AI is improving efficiency and so when we're in front of enterprise clients we can.
Speaker Change: We can say with confidence what type of cost reductions they could expect with their with their partners using AI in terms of operations, we've launched AI impact summits that get enterprise clients together to exchange kind of best practices. We've trained up our entire 200 people that while Fei.
Speaker Change: <unk> clients.
Speaker Change: With AI certification, so that they are well versed in this area as best as you can be so as we think about all of those areas Thats. How we have now become so AI centered as a firm and Thats why we kind of defined our repositioning because it's now into everything that we're doing that clients are demanding from us. So.
Speaker Change: That's how we think about mark.
Speaker Change: That's really helpful. Thank you and then wanted to double check something timing wise, so with the sale of the automation.
Speaker Change: Unit had the component of the $20 million initially and then there was.
Speaker Change: The second.
Speaker Change: I think it was $4 million or so there was a timing thing there.
Speaker Change: Does the cash balance at the ended the year did that include that $4 million was the 4 million afterwards, or how should we think about that.
Michael: Yes, so market, it's Michael so.
Michael: Youre spot on so it was $20 million upfront there was a 7 million escrow $4 million has been earned of the four two has been collected so there is $2 million of the escrow.
Michael: Year end was was sitting on the balance sheet as a receivable so that'll be that'll be received in the first quarter.
Michael: Gotcha, Okay excellent. Thank you very much.
Thanks Mark.
Michael: Our next question comes from Dave storms at Stonegate.
Michael: Good morning.
Speaker Change: Good morning, Dave.
Speaker Change: Just wanted to start with a recurring revenue it looked like it was flat quarter over quarter.
Speaker Change: Just wanted to ask what you thought your visibility was going into 2025, how this firm revenue might change your accounts, maybe upcoming contracts come to term renewables, how the pipeline looks overall anything of that nature.
Speaker Change: Yes, Hey, David it's Michael So excluding automation, which is how we're looking at it on an absolute level Youre right. It was it was flat which is not anything that would be surprising here of concern to us. It has to do with just timing of contracts and how things come on so when you think about it again.
Speaker Change: That.
Speaker Change: That segment that piece of our revenue is heavily concentrated in things like govern ex our research business. The long term public sector contracts. So we remain very optimistic I mean, Mike highlighted the growth in public services. We expect this to continue to see strong growth there and across the other two that I mentioned as we look at 2025, So we're looking for.
Speaker Change: Continued year on year growth in the in the recurring revenue absolute in 2025.
Speaker Change: Understood very helpful. And then just one more for me you mentioned a couple of key end markets.
Speaker Change: And APAC governmental.
Speaker Change: The strengthened throughout the year is there any other end markets that we should be keeping an eye on bookings.
Speaker Change: Bookings through 2025.
Speaker Change: I think energy utilities think about all the what AI needs to be powered up I think we're going to see both of those be quite healthy I think the whole health Sciences area, we'll continue to you'll see some real help there.
Speaker Change: On the technology front, you will see that to think about the googles and the sales forces et cetera, Youll see that up I think the weak part will be automotive.
Speaker Change: And a combination of the electric vehicle and what does that mean and.
Speaker Change: How does that proceed and tear ups and all of those things I expect that component of manufacturing.
Speaker Change: I would expect to be weak and possibly consumer depending on what happens with the tear ups. So.
Speaker Change: Hi.
Give you the positive ones and I would say those might be the two might be lighter ones. During the course of the year.
Speaker Change: And we'll go next to go she Sri herein at singular research.
Speaker Change: Good morning can you hear me.
Speaker Change: We can thank you.
Speaker Change: Good morning.
Speaker Change: Thanks for taking my call.
Speaker Change: I apologize if you might have covered this in your prepared remarks I had a slide.
Speaker Change: Thanks, a lot of difficulty but in terms of your AI.
Speaker Change: With 100 clients already said in the past year could.
Speaker Change: Could you help us share some of.
Speaker Change: These AI centric conversations that al maybe translating into committed revenue streams, our clients moving beyond the X fluctuating facing into a multiyear contract and what percentage would you say of BMO.
Speaker Change: Okay. Good good question, yes, so what we are seeing around the whole AI is because of the efficiencies of using artificial intelligence to help automate there is both a speed and there's a cost element and we are seeing that now in almost.
Speaker Change: Most almost every transaction that we are working with our enterprise clients, we've been working with the Chipmaker major utility company gasoline retailer in Canada financial.
Services companies.
Speaker Change: Global hospitality and entertainment companies.
Speaker Change: Our Canadian banks insurance companies all of them now are looking.
Speaker Change: On how AI ops uses.
Speaker Change: AI, including kind of Gn AI at Geneka AI to help automate the operations and what that is doing is because of the efficiency. We're seeing the contracts are going to go a little longer and its length because they can take advantage of some of these cost efficiencies.
Speaker Change: And they want to take them a bit longer. So we're seeing the size of the contracts a bit larger the length of the contracts being a bit longer and we reflected that in our ISG index call that we did with the industry.
Speaker Change: In in.
Speaker Change: In January so those are the trends that we're seeing and I expect those to continue through the year.
Speaker Change: Okay.
Speaker Change: Matt.
Speaker Change: And in terms of APAC and Europe I know you guys mentioned that was probably kind of a wait and see.
Speaker Change: The market stayed tools, but is there a case for.
Investments on your side.
Speaker Change: Is the brand perception.
Speaker Change: In the U S much better for ISG.
Speaker Change: And then maybe in Europe is not as great.
Speaker Change: A strong case for investment in the brand.
Speaker Change: So you update that.
Speaker Change: No I would say our brand is strong globally.
Speaker Change: We are we are one of the key players in Germany, which is the biggest market.
Speaker Change: In Europe for example, we're strong in France were strong in Italy and were strong in the U K.
Speaker Change: So I don't think the brand has any impact at all I think that the overhang.
Speaker Change: As the geopolitical environment that is holding back spending by some of our enterprise clients in Europe, and as I mentioned in Asia Pacific. It's just a matter of when the government spending picks up in Australia in camera and we expect it to pick up post their elections.
Speaker Change: Our before the end of the second quarter. So that's how we would think about and why we would see that Asia Pacific and Europe will lag the U S acceleration.
Speaker Change: But of course in the U S is our bread and butter business right now in our firm.
Speaker Change: Awesome.
Scott: A mentioned training office staff, and Scott kind of are being becoming scalable.
Speaker Change: Is this.
Speaker Change: Becoming a standalone high margin, while the Blue line.
Whats the kind of the Tam for this offering.
Speaker Change: Yes, so thats a good question so our we call it task training as a service it's.
Speaker Change: It's a recurring revenue stream, it's multi year and what we don't we go in and we help large enterprises.
Speaker Change: Understand the technology change so think about it from change management standpoint, and then when there is change like as for Hana for example, large installation with a top two aerospace.
Speaker Change: <unk> company.
Speaker Change: Then then all of the people need to be trained and educated around the new technology and so they will contract with us for a multi year to.
Speaker Change: To train them and basically training as a service is how we.
Speaker Change: How we sell it so yes.
Speaker Change: That is a component of our recurring revenue growth out into the future. We are very bullish on that.
Speaker Change: Will that be will that be.
Speaker Change: Titan will be AI stone.
Yes, I mean, we are we are using AI actually AI makes this more efficient for us to scale our tag business. So we're able to use AI to help on training the development of training materials information and then the delivery of that training. So yes.
Speaker Change: AI is enabling us to take this taz a concept that we had two years ago and now begin to scale it.
Speaker Change: Okay.
Speaker Change: Awesome. Thank you so much guys congratulations.
Speaker Change: Thank you for the call.
Speaker Change: And we'll move next to Marc Riddick with Sidoti.
Speaker Change: Okay.
Speaker Change: Hey, guys I realized I forgot to add one thing and I was wondering if you could spend some time talking about what youre seeing with.
Speaker Change: The potential for acquisitions in the acquisition pipeline is currently and maybe what youre thinking about for what Youre seeing out there valuation wise has there been any opportunities that are kind of beginning to uncover now relative to maybe three to six months ago.
Speaker Change: Okay. Good. Good question. Yes. We are we are active as you know we've done 14, and our firm here and we are always in the market and we are active discussions and we are focused around all things digital all things AI all things around recurring revenue. So if we feel like.
Speaker Change: We can accelerate our growth.
Speaker Change: Some.
Some gaps like we did with our with.
Speaker Change: With the purchase of Ventana.
Speaker Change: Research about 18 months ago around software in the economy, we're going to jump on that in terms of values.
As always sellers think it's it's.
Speaker Change: It's more it's worth more than the buyer so nothing's changed on the dynamics.
Speaker Change: There I would say that to me.
Speaker Change: Sure.
Speaker Change: Valuations that are in the market are pretty fair.
Speaker Change: I'd just characterize them at so if we were able to find something that made sense and we can do it at a at.
Speaker Change: In a win win in a fair evaluation as well as do we would jump on it. So I think the market is pretty good it's pretty right it's picking up.
Speaker Change: And I think from valuations to me, they're pretty fair.
Speaker Change: Excellent. Thank you very much thanks.
Speaker Change: Thanks Mark.
Speaker Change: And Im showing no further questions I will turn the call back to Mike Connors for his closing remarks.
Speaker Change: Yep.
Speaker Change: Thank you, let me close by saying, Thank you to all of our professionals worldwide.
Speaker Change: For our continuing progress and for their collaboration.
Speaker Change: And unwavering dedication to our clients and driving our long term success.
Speaker Change: Our people have a passion for delivering the best advice and support to our clients as they continue their AI powered transformations and I could not be prouder of them and thanks to all of you on our call today for your continued support and confidence in our firm and have a great rest of the day.
Speaker Change: This does conclude today's teleconference. You may disconnect at any time.
Speaker Change: Yes.
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