Information Services Group, Inc.

Good morning and welcome everyone to the Information Services Group third 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 third 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. Before we begin, I'd like to read a forward-looking statement. It's 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 will be able to obtain free copies of any of the 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 in preparation in accordance with GAAP. For the reconciliation of all non-GAAP measures, presented to the most closely applicable gap 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 Michael Sherk. Mike? Well, thank you, Barry, and good morning, everyone.

Today we will focus on four areas. First, our record third quarter revenues, including our fast-growing recurring revenue streams. Second, our acquisition of Ventana Research, Third are gen AI engagements and a view of this emerging market. And fourth, an update on the demand environment. ISG delivered its best top-line performance ever in a third quarter with revenues of $72 million. Through the first nine months of the year, we generated a record $225 million in revenue, up nearly 7% on an operating basis. Performance in the third quarter was driven by strong double-digit growth in Europe, and in our recurring revenue streams. Clients are increasingly focused on leveraging technology to improve customer experience and reduce operating costs, a traditional sweet spot for ISG. And this is reflected in our strong pipeline. With that said, client decision-making right now is slower than usual, and spending is being stretched over longer periods of time as clients weigh the impacts of the macro environment and rising geopolitical concerns. We expect the pace of spending on large-scale transformations to pick up again in the new year, when demand is likely to increase. In the meantime, clients are focused on cost optimization and making targeted digital investments that will help them prepare for the next wave of growth. During the third quarter, our ISG Next operating model and disciplined approach to operating efficiency allowed us to improve our firm-wide EBITDA margins by 120 basis points, quarter over quarter. Our team execution remains stellar. We also achieved 19% growth in our recurring revenue streams in the third quarter, driven by an increase in our multi-year contracts and our investments in proprietary platforms and research. For the first nine months, recurring revenues were up 22% to $95 million and accounted for 42% of our firm-wide total. Our focus in this area continues to pay off and will help drive our margin expansion plans over the next two years. ISG is already well-known and highly valued for our industry-leading data on sourcing transactions. our comprehensive market research on the managed services sector, and our market-making influence with buyers of technology and business services. Now we are expanding the reach of our research business with our acquisition of Ventana Research announced yesterday. Ventana is a well-respected technology research firm specializing in coverage of the $800 billion software industry. The firm tracks more than 2,000 software vendors and provides detailed coverage on more than 250 of them. In addition to expanding our ISG research coverage, this move gives us the unique ability to guide our clients' decision-making with proprietary research that now spans the entire software and services ecosystem. Software is an important sector for ISG and our clients. It now represents more than half of global technology spend and growing. Ventana gives us unparalleled coverage of this market, adding to our market-leading coverage of the technology and business services industry. The client list of Ventana Research reads like a who's who of the software industry. ADP, ServiceNow, Salesforce, SAP, and Workday, to name a few. Ventana brings more than 40 unique new clients to ISG and the opportunity to cross-sell our broad array of ISG products and services to them. Beyond adding to our recurring revenue streams, Ventana research is a valuable complement to our existing software advisory business. On the buy side, we have a long history of advising our enterprise clients on software selection and implementation price and feature optimization. Indeed, more than 80% of our advisors are involved in sourcing transactions where software plays a big role. That's particularly noteworthy considering we are the market leader in sourcing advisory. On the sell side, Ventana Research gives us a new growth platform for advising software vendors. We can help them identify client needs in areas such as cost optimization, governance, and tech modernization, and help them hone their go-to-market approaches. We are excited to add Ventana Research's capabilities to our portfolio and welcome Ventana founder and CEO Mark Smith and his nearly two dozen experienced industry analysts to our firms. Now a brief look at the active role ISG is playing in the hot new area of generative AI. Our clients are increasingly exploring and testing concepts to utilize generative AI in their businesses. ISG is involved in a number of these initiatives, including we are advising a large US metal resources firm on using generative AI to forecast the demand and price of minerals on a monthly basis. We're advising a state auditor on creating Gen AI foundational models to identify fraud, and advising another client on creating guidelines and frameworks to control Gen AI for ethics, bias, and data poisoning. And we are formulating an ethics and compliance management system for two large U.S.-based insurance firms that will provide guardrails for their Gen AI experiments and proofs of concept. In September, ISG released our global research study on the state of applied generative AI from an enterprise perspective. Among many insights, our research shows the first adopters of Gen AI on the commercial side are banking, financial services, insurance, healthcare, travel, and hospitality. It's still early days, but GenAI is starting to gain some traction with the promise of much more ahead as we support our clients in this emerging area over the next few years. Now moving to shareholder returns. Our commitment to shareholders is demonstrated by our discipline management approach that allows us to continue returning cash to our investors. During the quarter, we paid a quarterly dividend for the ninth quarter in a row since we instituted the cash dividend in 2021 and raised it last year by 12.5%. In fact, we have returned $62 million to our shareholders since the start of 2021. As we move through the next few quarters, we will continue to deploy capital in a disciplined way for our shareholders, including accelerating our share buybacks. Our goals remain, by 2025, as part of phase two of ISG Next, We are aiming to expand our adjusted EBITDA margin of further 200 basis points from the end of 2022 to approximately 17 percent. We feel we are tracking to achieve this goal as our product and service mix continues to change. And we will accelerate the growth of our recurring revenues to $150 million after surpassing our previous target of $100 million last year. Now, turning to our regions. The Americas delivered $42 million of revenue up 1% versus the prior year. Year-to-date, revenues in the Americas are up more than 8% on the strength of our digital solutions and cost optimization services. During the quarter, we saw double-digit growth in our consumer, banking, manufacturing, and public sector industry verticals. Key client engagements included Corning, Centene, Carnival, and McDonald's. During the quarter, ISG continued to expand its relationship with a major U.S. utility. This is a multimillion-dollar engagement to support a divestiture and right-size the provider ecosystem for this reorganized company. We also had several significant million-dollar wins in the banking and financial services sector. We won an infrastructure strategy and sourcing engagement with a leading fintech company, and we won new business with a leading pension fund to support the client's selection of technology, operations, and client service providers. In the healthcare sector, we want a large multimillion-dollar technology engagement with a regional healthcare provider to support the client's adoption of an electronic health record system. Turning to Europe, our Q3 revenues of $22 million were up 14% over last year, and through the first nine months, Europe is up 5%. For the quarter, Europe delivered double-digit revenue growth in our health sciences, energy, utilities, banking, and public sector industry verticals and in our research business. Key client engagements in Europe in the third quarter included Excite, New Day, Wintershaw, British Red Cross, and Shell. Following the merger of two high-speed rail operators in Europe, ISG was awarded a significant agreement to rationalize the client's post-merger technology environment, including infrastructure, apps, security, and customer experience. We also expanded our work in the energy sector, securing new business with a major global energy company to provide a range of tech strategy and sourcing-related services for all divisions of this company. And we expanded our work with a European oil and gas company adding $1 million of revenue to support a large SAP S4 HANA project and business transformation. Now, turning to Asia Pacific, our Q3 revenues of $7 million were down $100,000 on a reported basis and up 3% on an operating basis. FX remains a headwind in Asia Pacific. Key clients in the quarter included several departments of the Australian government, as well as such commercial clients as IAG, Australia broadband provider NBN, and the Reserve Bank of Australia. During the quarter, we won a new million-dollar engagement with an Australian lottery company following its spinoff from a gaming company. We are supplying sourcing advisory and benchmarking services to this client and have also signed a contract with its former parent company. Now, let me take a moment on the demand environment in terms of guidance. Cost optimization and our recurring revenue businesses remain ongoing pillars of strength for ISG. Our digital transformation and tech modernization pipeline is healthy, but client consulting projects and spending are being stretched out. We expect the speed of those engagements to reignite in the first half of 2024 as tech spending and market sentiment pick up based on our forecasts. This underscores the importance of technology as a competitive advantage for enterprises. As ever, we remain confident in our future and optimistic about our long-term prospects. Balancing our strong pipeline and the economic factors that could impact the timing of client decision-making and the pace of our execution, for the fourth quarter, we are targeting revenues of between 68 and 71 million dollars and adjusted EBITDA between 9 and 10.5 million dollars. As you know, Michael Sherrick joined our firm this summer as our new CFO. Many of you have already spoken with Michael, but since this is his maiden voyage on our quarterly investor call, I want to officially welcome him to ISG. So let me turn it now over to Michael, who will summarize our financial results. Michael?