Information Services Group, Inc.

Good morning and welcome everyone to the Information Services Group second quarter conference call. 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.

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 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 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 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 for 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 Mike O'Connor, who will be followed by Bert Alfonso.

Mike? Thank you, Barry, and good morning, everyone. Today, we will review four areas. First, our top line growth, including our record second quarter revenues, record first half revenues, and the demand environment driving our performance. Second, our growing recurring revenue streams. Third, our commitment to returning capital to shareholders. And finally, our view on how the third quarter is shaping up. ISG continued its strong start to the year in Q2. We generated record second quarter revenues of $75 million, up 6% over the prior year, capping a first half that saw us generate a record $153 million of revenues, up 9% on an operating basis. Demand for our unique combination of cost optimization, digital transformation, and platform services remains strong as evidenced by our first half top line growth. Our cost optimization services have experienced a surge in demand this year as we successfully help our clients reset their overall cost baseline for the long term. Our holistic approach to cost takeout includes sourcing, network, software, and automation. We are also seeing renewed interest in outsourced infrastructure services, data centers, and private cloud. as companies look to rein in public cloud expenses that balloon during the pandemic. These efforts free up much needed budget to allow organizations to more aggressively fund their high priority digital initiatives. And to that point, our expertise in digital transformation continues to be an area of strong client engagement and demand. Key areas of focus include customer experience, cybersecurity, cloud, application modernization, and data analytics, all of which helps our clients become secure, intelligent, connected enterprises. Now, a comment about profitability in the quarter. Our EBITDA was impacted by a negative $400,000 in the quarter due to an unexpected healthcare expense related to our self-insured status. This was a unique circumstance of major health expenses hitting all at once that we do not expect to be repeated. In addition, in the quarter, we optimized our resource levels slightly downward and had a severance expense of approximately $1 million, with a majority of that in Europe. This will enhance our profitability during the back half of the year. Now turning to our recurring revenues. Our recurring revenues continue to be robust. of 21% in the quarter to $32 million, driven by demand for our research and platform services and an overall increase in our multi-year contracts. For the first half, recurring revenues reached $65 million, or 42% of our firm-wide revenue. To put this in perspective, this is nearly the same amount of recurring revenues we had for all of 2019. As a reminder of what we announced last quarter under Phase 2 of ISG Next, by 2025, we are aiming 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. Now moving to shareholder returns. Our commitment to shareholders is demonstrated by our disciplined management approach that allows us to continue returning cash to our investors. During the quarter, we paid a quarterly dividend for the eighth quarter in a row since we instituted a cash dividend in 2021, and after raising it by 12.5% earlier this year. Our commitment is further reflected in the $25 million expansion of our share buyback program that we announced in our earnings release. We now have nearly $29 million earmarked for share repurchases. Beyond dividends and share buybacks, our disciplined capital allocation strategy includes reinvesting in our business, reducing debt, and supplementing our organic growth with strategic acquisitions to drive long-term shareholder value. On that last point, we continue to actively look at acquisition targets and explore avenues to unlock the value of our automation unit. Now, turning to our regions, the Americas had a solid Q2, delivering $42 million of revenue, up 7% versus the prior year. on the strength of our cost optimization, enterprise change, and research services, all up double digits. For the half, revenues for the Americas were up 12%. During the quarter, we also saw double-digit growth in our consumer, banking, health sciences, media, and public sector industry verticals. Key client engagements during the second quarter included Exelon, AIG, Constellation Energy, and Cognizant. During the quarter, a leading global healthcare technology company awarded ISG a new million-dollar ISG GovernX contract. The contract extends our scope of services with this client, which has 140 active GovernX users and manages about $400 million of supplier contracts via the ISG platform. We also added nearly $2 million of business with an existing insurance client, helping them streamline the development and maintenance of more than 1,000 apps in their portfolio, with targeted savings in excess of $40 million. ISG also expanded its relationship with a major U.S. clean energy company to support its spinoff and set up a new provider ecosystem for the newly divested company. an engagement worth about a million dollars to ISG. Now turning to Europe, our Q2 revenues of $24 million were up 5% over the last year. For the quarter, Europe delivered double-digit revenue growth in our health sciences, energy, utilities, and public sector industry verticals, and in our automation business. Key client engagements in Europe in the second quarter included Volkswagen, TalkTalk, Donsky Bank, and Allianz. During the quarter, ISG continued to expand its longstanding relationship with a leading global automotive manufacturer. We are serving seven major brands within the company and generated more than $5 million in first half revenues with this client. Our latest work includes helping the client source infrastructure and product lifecycle management providers or its battery manufacturing subsidiary, whose batteries power the company's new electric vehicles. We also won a million-dollar engagement with a company that designs, engineers, and builds high-tech facilities for the semiconductor, pharmaceutical, and data center industries. The One IT program we developed for the client covers sourcing, organization, and governance model design, and IT service management. In addition, we extended our ISG automation services and licenses for two years with a UK-based broadband provider for $9 million in revenue. Now turning to Asia Pacific, our Q2 revenues of $8 million were flat compared with last year. We generated double-digit growth in our research and GovernX business. Key clients in the quarter included the Australian Taxation Office, the Australia Department of Home Affairs, the insurance company Bupa, Hygree, and VicRoads, a state government agency in Victoria, Australia. In a very positive development, we recently were awarded the largest GovernX engagement to date in Asia Pacific. A multi-million dollar contract with one of the largest independent payment solution providers, for the Australian financial services sector. This contract begins in the second half of this year. Now let me turn to guidance. We are energized by our record top-line growth and the scaling of our recurring revenues, underscoring the strength of our portfolio as we head into the second half of this year. From cost optimization and cybersecurity to digital transformation and enterprise change, Our unmatched set of solutions addresses the needs of our clients today. So far this year, we have served 660 clients, including more than 100 new clients at the halfway mark. Organizations that are trusting ISG with their most critical initiatives. And with good reason. We advise our clients at every step navigating technological and organizational change that leads to greater operating efficiency and faster growth. On the strength of our portfolio and our market opportunities, we see continued growth ahead. We are also mindful of the current economic uncertainties that may affect enterprise decision-making in the near term. In consideration of all this, for the third quarter, we are targeting revenues of between $73 and $75 million, up 9% at the top end, and consistent with our high single-digit growth objective, and adjusted EBITDA between $10.5 and $11.5 million, the highest quarterly guidance range we have ever given. As you know, we recently announced that Bert Alfonso is retiring this month from his role as Executive Vice President and Chief Financial Officer of the firm. Michael Sherrick, who is with us in the room today, will become the new CFO of ISG. Michael brings a strong industry and operating background to ISG, most recently serving as COO of Cognizant Software and Platform Engineering. I want to personally thank Bert for his many contributions to our firm, his leadership, and for his friendship. And I want to welcome Michael to the team. So with that, let me turn the call over to Bert, who will summarize our financial results. Bert?