Information Services Group, Inc.

Good morning and welcome everyone to the Information Services Group first quarter conference call. This call is being recorded and will be available on ISG's website within 24 hours. Now I would like to turn the call over to Mr. Barry Holt for his opening remarks and introductions. Mr. Holt, please go ahead.

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 first quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Bert Alfonso, Executive Vice President and Chief Financial Officer. 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 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 factor section in ISG's Form 10K covering full-year results. You should also read ISG's annual report on Form 10K 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. During this call, we will discuss certain non-GAAP financial measures which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non-GAAP measures, which we will touch on today, include adjusted EBITDA, adjusted net earnings, and the presentation of selected financial data on a constant currency basis. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8K, which was filed last night with the SEC. And now, I'd like to turn the call over to Michael Connors, who will be followed by Bert Alfonso. Mike?

Thank you, Barry, and good morning, everyone. Today, we will review our record revenue for the first quarter, our significant recurring revenue growth, our 2025 targets for margins and recurring revenues, under phase two of our ISG Next operating model, the increase in our dividend and our outlook for the second quarter. ISG delivered a strong start to the year, with revenues reaching an all-time quarterly high of $78 million, up 12% in constant currency, and led by 17% growth in the Americas, our largest region. We continue to expand our recurring revenues, reaching a record $33 million, up 27% versus the prior year, and representing 42% of our firm-wide revenues this quarter. Recurring revenues were driven by double-digit operating growth in our GovernX, vendor compliance, and risk management business, and in our research business. Our adjusted EBITDA reached a first-quarter record of $11 million, As you recall, we decided to further invest during the second half of last year in hiring additional talent in anticipation of growing client demand the next couple of years. That decision is beginning to pay off in our top-line growth. We expect this group to blend in from a productivity standpoint by mid-year. The client demand environment is being driven in two areas, ongoing transformation, both digital and business, and secondly, cost optimization. Transformation is focused on key digital areas, including customer experience, future workplace, cloud, cybersecurity, application modernization, and data analytics. In the end, it's all about creating a secure, intelligent, connected enterprise. Clients are also prioritizing transformation projects that focus on cost takeout, productivity, and quick returns. When it comes to cost optimization, they are taking one of two approaches, taking out cost and dropping the savings to the bottom line, or utilizing the savings to grow the business through digital initiatives. ISG is in an ideal position to help our clients power through in the current environment. Our portfolio of digital transformation, digital sourcing, and cost optimization services, supported by our proprietary research and SaaS platforms, continues to be a winning combination for our clients. Under our ISG Next operating model, we have realized tremendous results over the last two years. We have grown our adjusted EBITDA by more than 50% and our adjusted EBITDA margin by more than 30%, or about 375 basis points, due in large part to our efficient IFLEX delivery network and higher margin portfolio of solutions. We have also grown our client base by more than 20% to over 900 clients, thanks to our enhanced value proposition and solution-centric approach. ISG Next has served us and our clients very well during the pandemic years. Now in the post-pandemic era, we are ready to embark on phase two of ISG Next. By the end of 2025, We aim to expand our adjusted EBITDA margin a further 200 basis points from the end of 2022 to approximately 17% and accelerate the growth of our recurring revenues to $150 million after surpassing our previous target of $100 million last year. We are excited about the future of ISG and look forward to our next phase of growth as we prepare our clients now for the post-pandemic digital economy. We are already seeing early glimpses of what lies ahead. ChatGPT and other types of generative AI are grabbing headlines, but that's only the tip of the spear among the new technologies being developed today that will transform our world tomorrow. At ISG, we are harnessing our growing expertise in AI and applying it to our own operations and product development. For example, in 2022, we acquired a company called Agreement and its AI-driven smart contracting tool. We are now using Agreement to help drive recurring revenue growth in such areas as our flagship platform solution, ISG GovernX. There will be many more such developments going forward as we look to build out our repeatable platform capabilities, improve our efficiency, and deliver more value to additional segments of the market. ISG is built on a culture of innovation and entrepreneurship. I'm confident our unrelenting drive to excel will carry us into the future and allow us to capture the growth opportunities ahead and meet the 2025 targets we are unveiling today. Now turning to our regions, the Americas had an excellent Q1, delivering $48 million of revenue, up 17% versus the prior year, on the strength of our digital cost optimization and market-leading sourcing offerings. During Q1, we saw double-digit growth in our consumer, banking, insurance, manufacturing, energy, and utilities industry verticals. And among our services, network, software advisory, and GovernX were also all up double digits. Key client engagements during the first quarter included Bell Canada, C&O Financial Group, Owens & Miner, and Centene. During the quarter, a global IT service provider renewed its subscription to Pro Benchmark. our market-leading pricing research service for three years in a deal worth more than a million dollars. We also want a multimillion-dollar technology cost optimization engagement with a major managed healthcare provider covering many of our services, including operating model design, automation, benchmarking, network, software, and cybersecurity. Our holistic approach, we expect to save this client more than $100 million annually. In addition, we extended our ISG automation services and licenses for three years with a large Canadian telecommunications provider. Now, turning to Europe, our Q1 revenues of $23 million were up 5% in constant currency over last year. For the quarter, Europe delivered double-digit revenue growth in our media, energy, utilities, and manufacturing industry verticals, and in our GovernX network, software advisory, and research businesses. Key client engagements in Europe in the first quarter included Hygrieve, Munich Re, Union IT Services, and Belpheus Bank. During the quarter, the Ministry of Finance of one European country awarded ISG a million-dollar engagement to modernize their legacy application architecture. Scope includes IT service management and an identity and access management framework. We also won a million-dollar engagement with a major European banking company to redesign their technology delivery model and select new partners to support their future business and digital strategy. And we secured a significant extension with an oil and gas company in Germany to provide advisory and project management services on an SAP engagement. Now, turning to Asia Pacific, our Q1 revenues of $7 million were down about $200,000 in constant currency, or essentially flat with last year. We generated double-digit growth in our network, software advisory, and governance businesses. Key clients in the quarter included the Australian Department of Home Affairs and the Insurance Australia Group. In a very positive development, we very recently won a new $5 million contract with longtime client, the Australian Taxation Office, or ATO. to revamp their provider ecosystem and lay the groundwork for their digital future. Now turning to our dividend. In our ongoing commitment to reward shareholders, I am delighted to announce our board of directors has authorized a 12.5% increase in our quarterly dividend. The new quarterly rate, 4.5 cents per share, or 18 cents per year, will be reflected in our dividend payment on June 30 to shareholders of record as of June 7. This decision reflects our continuing long-term progress and outlook for the business. Now, let me turn to guidance. Even in an uncertain macro environment, demand for our services remains strong. Enterprises continue to invest in digital to maintain and build competitive advantage. and they are looking for ways to fund those investments by optimizing their technology and business environments. This is right in our sweet spot. ISG is the go-to partner for helping clients create their digital futures and achieve operational excellence. We are optimistic and energized by our prospects. We are also mindful of the economic factors that could impact the timing of client decision-making, including inflation, possible recession, geopolitical and banking concerns, and talent shortages. In consideration of all this, for the second quarter, we are targeting revenues of between $73 and $75 million, and adjusted EBITDA between $10 and $11 million. So with that, let me turn the call over to Bert, who will summarize our financial results. Bert?

Thank you, Mike, and good morning, everyone. As Mike mentioned, ISG delivered all-time record revenues and recorded first quarter adjusted EBITDA to start the year. Revenues for the first quarter were $78.5 million, up 8% on a reported basis, and 12% in constant currency, compared with the first quarter of last year. Currency negatively impacted reported revenues by $2.1 million versus the prior year. In the Americas, reported revenues were $48.4 million, up 17% versus the prior year. In Europe, revenues were $23.1 million, down 2% on a reported basis, and up 5% in constant currency. And in Asia Pacific, revenues were $7 million, down 8% reported, and down 3% in constant currency. First quarter adjusted EBITDA was $11 million, up 3% from last year, resulting in an EBITDA margin of 14%, down 68 basis points, compared with the prior year's first quarter. In constant currency, adjusted EBITDA was up 8%, compared with the prior year. First quarter operating income was $7.1 million, compared with $7.7 million in the prior year. Net income for the quarter was $3.5 million, or $0.07 per fully diluted share, compared with net income of $4.9 million, or $0.10 per fully diluted share, in the prior year. First quarter adjusted net income was $6 million, or $0.12 per fully diluted share, compared with adjusted net income of $6.4 million, or $0.12 per fully diluted share, in the prior year's first quarter. Headcount as of March 31st, 2023 was 1,628 of 29 professionals or 1.8% from Q4. Consulting utilization for the first quarter was 71% impacted by our additional second half hiring last year and the time needed to onboard billable resources. Our balance sheet continues to have the strength and flexibility to support our business over the long term. For the quarter, net cash used from operations was 3.4 million. We ended the quarter with 23.7 million of cash, down from 30.6 million at year end. During the first quarter, ISG paid dividends totaling $2 million and repurchased $0.6 million of shares. Our next quarterly dividend will be payable on June 30th to shareholders of record on June 7th. Our debt balance is at 79.2 million, unchanged from the year end. And our debt to EBITDA ratio remains in great shape at 1.8 times. Our average borrowing rate for the quarter was 6.3%, up from 2% last year. And we ended the quarter with 48.4 million shares outstanding. Mike will now make some concluding remarks before we go to the Q&A. Back to you, Mike.

Thank you, Bert. To summarize, ISG is off to a strong start in 2023, delivering record revenues, record recurring revenues, and record adjusted EBITDA in the first quarter. Our portfolio of digital transformation, sourcing, and cost optimization services, research and SaaS platforms continues to be a winning combination for our clients. We have tremendous growth opportunities ahead as we help our clients prepare for the next wave of the digital economy and become secure, intelligent, connected enterprises. Capitalizing on those opportunities, we plan to deliver an additional 200 basis points of margin improvement and reach $150 million in recurring revenue by the end of 2025 under phase two of ISG Next. And we continue to reward our shareholders raising our dividend 12.5% to 18 cents per share annually. 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. So thank you very much for calling in this morning, and now let me turn the session over to the operator for your questions.

Absolutely. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. We will pause it briefly as questions are registered. We will now take the first question from Joe Gomez with Noble Capital Markets. You may proceed.

Hi, guys. It's Joshua. We'll fill up and Joe Gomez is on another call. So I just wanted to say congrats on the quarter.

Thank you.

And I just wanted to just kind of get a first question in there. I saw that, you know, just with obviously these revenues increasing, I saw also direct cost and advisory services kind of increasing as well, probably about like 200 basis points. Is that kind of a – should we expect that to come down, or do you think that might be just the new run rate we have?

Yeah, Josh, let me sort of cover that for you on the operating income. You know, our direct costs, as you mentioned, we're up about $5 million or 200 basis points. We had some small offset to that on the SG&A side. We were down about 60 basis points. And we had a little bit of higher amortization as well. But we typically have some higher costs in Q1. They tend to be payroll tax-related as they come back in. But our expectation, and we also commented on the utilization rate, which is that 71 is really on the low end of our targeting. We have tended to be in the mid-70s, and our expectation is that we will bring that back into the mid-70s as the hiring that we did in the back half of last year, which was more concentrated than Q4, come up to speed in terms of full potential. for our billable resources. So we do expect that to improve into the second quarter and certainly into the back half.

Okay, perfect. And so, you know, now that we're kind of a quarter into the year, you know, what are you guys noticing just in the trend regarding just in-person events? And, you know, what is the expectation you guys have for just the rest of this year?

Did you say in-person events? Yes. Yeah, yeah, yeah. So no, we definitely have a full roster of events planned for the full year. We've held a few of those during the first quarter, all in person, and we have a series of events in each of the next three quarters that we are planning to do both here in the US as well as in Europe.

OK, perfect.

And then just, you know, lastly, you know, just regarding just the pipeline acquisition, you know, I know you guys kind of commented last year that you guys are more focused on recurring revenue prospects. You know, just how is that looking? And just pricing-wise, has the kind of the economic uncertainty kind of made things just look a little bit better pricing-wise, a little bit worse? Just probably just a little color on that.

So, yeah, on the M&A side, you know, our focus continues to be our, we call our string of pearls approach, which is around both on acquisitions in areas like recurring revenue or increasing our capabilities around digital or high areas. And we continue to have dialogue with possible targets. In terms of the pricing, we have always been very disciplined in our approach to pricing. And I don't know that I would say that the pricing is all that different at the moment. You know, you still have owner-operators who have a feel and a value that they expect. And yes, the environment's slightly softer, but if their business overall is holding up, then frankly, we have not seen a lot of softness on the pricing side of it. Overall, you might have a tick down, but it's nothing of real significant materiality in my view.

Okay, perfect. Yeah, well, congrats on the quarter again, guys.

Yep. Thank you, Sean.

Thank you. The next question comes from the line of Mark Riddick with SOTI and company. You may proceed.

Hey, good morning.

Good morning, Mark.

Good morning.

So I wanted to jump right into a couple things. First of all, it was a pleasant surprise to see the Phase 2 announcement. You've kind of hinted on multiple pieces as to maybe how we're going to get there. But I was wondering if you'd talk a little bit about, I mean, between the strength of the recurring revenue as well as sort of the ramp up of those that were hired last year. Maybe you could talk a little bit about those margin expansion opportunities and sort of what gives you that level of confidence to announce phase two at this point going ahead.

Yeah. So, you know, first, Mark, thanks for the question. You know, look, we have You know, we had a very robust quarter on recurring revenue, as you saw, over $30 million. But we continue to build out our research capabilities. We continue to build out our platform, which is anchored by GovernX, which is our risk management platform that a lot of clients like because of supply chain, regulatory issues, etc., ProBenchmark, which is our pricing platform, and our longer-term contracts that we have with clients and especially in the public sector. And when we think about how that is moving along, we're using our AI platform. that we acquired from agreement a year ago that is able to use artificial intelligence to read these contracts has been also quite a boost for us relative to our GovernX business. And as we think about subscriptions, we think about solutions in these areas, we feel confident that we can reach $150 million Just as we had said back in 2020, we would get to 100 million. Maybe we don't know the exact complete path, but we have a way forward and we see these businesses continuing to excel. And that's why we're confident along that line. And that's why we decided to come out today and let you know that that's where we're headed.

Great, and then I was wondering if you could talk a little bit about, you mentioned in your prepared remarks as far as new accounts, and I was wondering if you could talk a little bit about that, because that certainly obviously is encouraging, and it sounds as though these new accounts are coming on for both offensive and defensive reasons, and maybe I could talk a little bit about how those, I mean, are these sort of driven by cost optimization more than growth, and maybe you could talk a little bit about the sales cycle as well. Is it along the lines of the traditional sales cycle, or are you getting a sense that it's a little accelerated because of the macroeconomic environment?

Yeah, good question. So let me parse it slightly. First, in terms of what are we seeing, and it varies a bit by industry segment. So if we think about it, we kind of ourselves, we put kind of a four-boxed together and we think about companies right now that are looking to stabilize and we see a lot of that around specialty retailers, media, airlines, high tech firms. If you think about who's wanting to kind of seize the moment because they can, we see companies like pharma, medical devices, utilities, manufacturing that are increasing and moving at maybe a faster pace and are not in a, quote, stabilization mode. So as a result, kind of the two forks in the road, one is cost optimization, and that tends to be those that really need to stabilize. And you have on the other side of it, you have let me continue to pursue with some energy around transformation. So it varies by industry segment, but to the speed point that you asked, cost optimization is moving fast. So we might get a meeting with a CIO today who wants to take out $200 million of cost, and how fast can that be done, and can you start on Monday? So that's kind of a speed on optimization. On transformation, on the other side, what a lot of them are doing, that's a little bit slower, so the pace is still moving, but maybe at a slower pace than the optimization engagements are moving. So having both of those in our toolkit have been quite helpful to us, and that is kind of what has driven the significant growth for us, as you saw in the first quarter. I hope that answers your question. So industry... No, it definitely does, yeah.

No, that's very, very helpful. Thank you. I guess the last one from me, I was wondering if you could talk a little bit about, we had the headcount additions last year that have ramped up. Do you get the sense that you'll need to add more folks to take advantage of these new wins and new opportunities that you're seeing? And if so, can you sort of maybe give an update as to maybe the availability of talent that you see out there?

Thanks. Well, yeah, the burst I think that we did during the back half of the year we think will carry us through 2023. The exceptions to that will be some surgical hires in specialty areas like digital or cyber. And then there's a few instances that we may do that might get us up to chunks of employees if we execute against it, which is we have some clients who are asking to take advantage of our new TAS service, which you'll recall is training as a service. We have a very large top 20 fortune company who is negotiating with us basically to kind of take over their training organization and put it into our TAS service. And if you do something like that, you might pick up 10, 15, 25 people because we would probably transfer those out of the enterprise and take some of them. We would not need all of them with a service like that. So that's the only other, I would call it kind of exception mark that we might see during the course of the year because we have a few clients that like our TAS concept and are looking to maybe an alternative way to go forward in their enterprise. So that's how we see the headcount. On talent availability, I will say that we, because of our business model and the way we do our mix with cash and stock, et cetera, we are very attractive, and that was why we were able to add since first quarter last year. I think it's around 225-plus people. We're able to access the talent that we need, and we think it's available if we need it.

Thank you very much.

Thanks, Mark.

Thank you. The next question comes from the line of Michael Matheson with Singular Research. You may proceed.

Good morning, gentlemen.

Good morning.

Congratulations. Great numbers across the board. I have a couple of questions. Your year-over-year comparisons have been hurt for a long time due to currency headwinds. When you look across your geographic mix, should we be lifting our long-term revenue forecasts with the dollar stabilizing a bit or possibly trending down?

Yes, thanks, Michael. Thanks for the question. You know, first quarter certainly was a downshift from the fourth quarter. We had over 3 million of impact in Q4 and down to about 2 in Q1. You know, to your point, we see the second quarter being not really heavily impacted on the downside. And so while we may have some negative impact, with the euro up around 110 and and the pound around 125. It's starting to approach numbers that we saw last year. And so we think the second quarter will be somewhat benign. We could see some tailwind, if you want to describe it that way, in the back half if the trend continues. And again, that assumes that the Fed will be finished around mid-year and the European banks still has a little ways to go, because they have a bit more energy inflation than we do. But we're not projecting that right now, to be honest. We're thinking it sort of levels out in Q2 and stays reasonably flat to year end. We don't think there's going to be a big impact one way or another in the back half. But we certainly don't see the headwind that we're seeing in the first quarter continue.

Great. Very helpful. Thank you. Last one for me. In most quarters, ISG's assets generate a lot of operating cash flows. This quarter was an exception, negative 3.4 million. Would you comment on what drove the swing?

Yes, sure. Well, you know, as you might have noted, we did have slightly lower net income in the quarter. And what drove it really was working capital requirements. With the increase in the first quarter of sales reaching a new high. And that also was a little bit compounded by we had a very strong finish to the quarter in March. And so our higher receivables, if you look at them quarter on quarter, we're up about 3.4 million. And we also had slightly higher payables. And some of that comes from additional payroll taxes that come into the first quarter of the year. So those sort of level out to the year. I would mention that our receivables are in very good shape. We're sort of approaching almost 90% in terms of our current and 1 to 30s overdue. So no concerns on collectability. And we haven't had to put up any reserves that are material in any way. So it really was a working capital question. And as I mentioned, we also did have slightly lower net income. No tax implications. It was about even year on year.

Okay, great. A very helpful explanation. Thanks and congratulations again. Thank you.

Thanks, Michael. Thank you. The next question comes from the line of Vincent Colicchio with Bereson Research. You may proceed.

Yes, nice quarter, Mike. I have a couple of questions. Is there anything systematic in terms of why the Americas was so relatively strong this quarter? And, you know, perhaps Europe and APAC are seeing slower sales cycles or anything like that, or maybe there was a big deal in the Americas market. And should we continue to see the Americas outperform in the balance of the year?

Yeah, so on the Americas, Vince, thanks for the comments. On the Americas, there was no you know, outlier in terms of big deal or anything in the quarter. But what the environment is in the U.S., slightly different, I think, elsewhere, is the digital transformation work continues at some pace. That coupled with optimization efforts somewhat to fund the digital transformation efforts in the U.S., We've got both of those categories, if you will, really humming on all cylinders. So the optimization is driving cost takeout, which is then being moved over to the digital side in the US. In Europe, slightly different, we're seeing cost optimization But they are using cost optimization in many instances to take to the bottom line. As the markets over in Europe, companies are experiencing, I would say, a little more softness, a little more macro than the U.S. environment is. So we see the heavier demand on kind of the optimization, sourcing optimization, et cetera. And digital transformation continues, but I would say it's at a bit of a slower pace in Europe. On Asia Pacific, I wouldn't read anything into it. That has some ups and downs. They had very strong comps in the first two quarters of this year. We expect Asia Pacific to perform on a full-year basis, as they always have, so I wouldn't read anything into Asia Pacific. The only area that we continue to keep an eye on, of course, I think is in Europe, where their macro environment, UK in particular, is a little tougher than it is, I think, elsewhere in the world.

And if you look at your sales pipelines for the areas that you mentioned where demand sweet spots are, digital transformation, digital sourcing, cost optimization, does that give you confidence that we could see a healthy second half versus the prior year?

Yes. I mean, I think we are confident in our full year. Of course, the health warning I always give is, We don't know what the macro environment has ahead of us, so we just use that as a bit of a caution. But if that is somewhat neutral and nothing goes off the path too far, then we feel very good about the demand environment and our role to help execute against it for the full year.

And on your recurring revenue objective of $150 million, I assume a portion of that is going to be acquisitions. How fast do you think that the recurring revenue can grow organically the next two years?

Yeah, so that 150 is organic. If we were able to do any inorganic, then that would be additive to that, Vince. But we think on an organic basis that we can reach that. around that number in the time frame we described. We're quite confident in how we are building that business.

That's a fairly impressive number. Could you give a little detail on which areas you think would be the most important growth drivers?

I think it's three. Number one is our research business continues to thrive. That's our proprietary research. We have insights that no one else can have because we have such a large market share in the sourcing environment. We're number one there by a wide degree, and that gives us lots of real live engagement data. That is a powerful force on the market. So we continue to believe that research will outperform the overall firm in terms of growth. Our GovernX business, which is our risk management, supplier management platform that large enterprises use to help manage their large technology contracts with the likes of IBM or AT&T and others. We continue to believe that will also thrive and outgrow our overall firm and using our agreement technology, which is the AI smart contract technology that we acquired a year ago. has been a big boom for that business, and we expect that to continue over the next few years. Thirdly is our larger multi-year contracts in areas of the public sector. We continue to feel that our digital environment to help with a lot of legacy technology in government, whether that's in the state or local in the U.S., or whether that's in major governments in the U.K., Italy, Germany, or Australia where we have our federal government type work. We continue to see that as legacy technology gets older and the workforce in many of these governments are aging, then the modernization becomes more pronounced, and we feel we're pretty well positioned there. So when we add all of those elements together, we feel quite strong about our recurring revenue capabilities.

Thank you. And Bert, one quick one for you. I don't want to leave you out. What was the contribution of acquisitions in the quarter?

Acquisitions was not quite about a million and a half.

Thank you. Thanks, man. You're welcome.

Thank you. The final question comes from the line of Dave Storms with Stonegate Capital Markets. You may proceed.

Good morning. Good morning. Just wondering if you could touch on your revenue came in above guidance, as you mentioned. Congrats on that. Just wondering if you could touch on what the main drivers of that outperformance was. Was it a timing thing? Was there something systematic? Anything else you can give us there would be helpful.

Thanks, David. Look, I think the demand environment around our portfolio was higher than we would even have expected. And as I mentioned earlier, there's kind of two forks in the road that companies are taking at the moment. One is around deep optimization of costs. and the other is to continue or accelerate their digital transformation journey, both of which are our sweet spots. And on the cost optimization, because it is a bit of a faster decisioning than the other, and when cost optimization increases, which it has during the first quarter, then decisions are made faster and you can start sooner and therefore the revenue generates maybe earlier than a normal sales cycle goes because the need to take the cost out is more immediate than a more transformation journey which takes some time. So those would be probably the key drivers that we would see during the first quarter that kind of drove the outperformance.

Very helpful. Thank you. And then lastly, could you just talk a little more about your current leverage levels? You have a lot of headroom before hitting your covenants. Just curious as to how you're thinking about either using or not using that liquidity.

Yeah, thanks for the question, David. As you know, in the first quarter, we had announced the renewal of our credit agreement. We're on full revolver now. We've been able to maintain a... a trailing EBITDA net debt ratio that's, you know, sub 2% or two times, you know, about 1.8. So we're very pleased with that. You know, we consider it under leveraged, if you will. I think it gives us optionality with respect to, you know, acquisitions, which we don't include in any of our forecasts. We do have additional flexibility now under the previous credit agreement. We had mandatory principal payments of a little over a million per quarter, and those have gone away. I don't want to insinuate that we wouldn't continue to pay down debt as cash flow permits, but right now we feel that we have that optionality. We like that. We continue to look in the marketplace for opportunities to grow inorganically. And, you know, we're not, you know, for the right strategic acquisition, we're fine with, you know, being at, you know, two and a half plus if that makes perfect sense, you know, for the firm in terms of growth and profit generation. So we're really happy with our balance sheet leverage, but we think that gives us, you know, more options in the future and that's a good thing for us and for the shareholders.

That's very helpful. Thank you, and congrats on the strong quarter.

Thank you. Thanks, David.

Thank you. There are no additional questions waiting at this time, so I would now like to pass the conference back to the management team for any additional or closing remarks.

Well, let me close by saying thank you to all our professionals worldwide for their dedication to our clients and for working together as a global team to achieve our record first quarter results. Our people have a passion for delivering the best advice and support to our clients as they continue their digital journeys, and I could not be prouder of them. And thanks to all of you on the call today for your continued support and confidence in our firm. Have a great rest of the day.

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.