ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For additional information, visit www.ISG-One.com
Joe Gomes, Managing Director – Generalist Analyst, Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Continuing the Trend. Like the previous quarter, the momentum for ISG has been positive in terms of demand for the Company’s digital services along with cost optimization services as companies are continuing to navigate a volatile economic environment. In addition, the Company had $108 million in recurring revenue for the year, exceeding the Company’s goal of $100 million, which brings along higher margins.
4Q Results. ISG reported revenues for the fourth quarter were a record $74.2 million, up 7% from $69.6 million in the prior year, and up 11% in constant currency. We estimated revenue at $71.0 million. Net income was a record $4.3 million, or diluted EPS of $0.09, compared to $3.6 million, or $0.07 per fully diluted share, in the prior year. Adjusted EBITDA was at a record $11.1 million, up 9% from the prior-year fourth quarter.
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Reports fourth-quarter GAAP revenues of $74 million,an all-time quarterly high, exceeding guidance and including a negative FX impact of $3.2 million
Reports fourth-quarter net income of $4 million, GAAP EPS of $0.09 and adjusted EPS of $0.13, all fourth-quarter records
Reports record fourth-quarter adjusted EBITDA of $11 million, exceeding guidance
Achieves record full-year results: GAAP revenues of $286 million, up 8% in constant currency; operating income of $29 million, up 17%; net income of $20 million, up 27%; adjusted net income of $27 million, up 18%, GAAP EPS of $0.39, up 30%; adjusted EPS of $0.53, up 20%; adjusted EBITDA of $43 million, up 11%
Declares first-quarter dividend of $0.04 per share, payable March 31, 2023, to shareholders of record as of March 20, 2023
As previously announced, amends credit agreement to include more favorable terms, an extended maturity date, elimination of $4.3 million of mandatory annual principal payments, and conversion to an all-revolving credit facility with $140 million of borrowing capacity
Sets first-quarter guidance: revenues between $73 million and $75 million and adjusted EBITDA between $10 million and $11 million
STAMFORD, Conn.–(BUSINESS WIRE)– Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, today announced record financial results for the fourth quarter and full year ended December 31, 2022.
“ISG delivered our best quarterly and full-year performance in our 17-year history—on every key financial metric,” said Michael P. Connors, chairman and CEO. “Fourth-quarter revenue and profitability reached record highs, led by double-digit operating growth in the Americas and Europe as client demand for efficiency and optimization escalates. Our suite of client solutions in digital transformation, cost optimization, research, workplace and governance services, supported by our successful ISG NEXT operating model, is a winning combination.”
Some clients, especially those in industries and geographies facing the toughest market conditions, are turning to ISG to help them optimize their IT and operating environments, Connors said. “Clients trust ISG for our unmatched combination of data, insights, expertise, tools and solutions to help streamline their technology and operating environments, reinvest in continuous transformation and get the most out of the collaboration between people and technology,” he said.
Fourth-Quarter 2022 Results
Reported revenues for the fourth quarter were a record $74.2 million, up 7 percent from $69.6 million in the prior year, and up 11 percent in constant currency. Currency translation negatively impacted reported revenues by $3.2 million versus the prior year. Reported revenues were $43.6 million in the Americas, up 12 percent; $23.9 million in Europe, up 1 percent on a reported basis and up 12 percent in constant currency; and $6.7 million in Asia Pacific, down 4 percent on a reported basis and up 5 percent in constant currency, all versus the prior year.
ISG reported fourth-quarter operating income of $7.2 million, flat versus the prior year. Reported fourth-quarter net income was a record $4.3 million, up 20 percent, compared with net income of $3.6 million in the prior year. Fully diluted earnings per share was a record $0.09, compared with $0.07 per fully diluted share in the prior year. Net income margin (calculated by dividing net income by reported revenues) increased to 5.8 percent, from 5.1 percent in the fourth quarter of 2021.
Adjusted net income (a non-GAAP measure defined below under “Non-GAAP Financial Measures”) for the fourth quarter was $6.5 million, or a record $0.13 per share on a fully diluted basis, compared with adjusted net income of $5.1 million, or $0.10 per share on a fully diluted basis, in the prior year’s fourth quarter.
Fourth-quarter adjusted EBITDA (a non-GAAP measure defined below under “Non-GAAP Financial Measures”) was a record $11.1 million, up 9 percent from the prior-year fourth quarter. Adjusted EBITDA margin (a non-GAAP measure calculated by dividing adjusted EBITDA by reported revenues) was 15 percent, up 33 basis points from the prior year.
Full-Year 2022 Results
Reported revenues for the full-year were a record $286.3 million, up 3 percent versus the prior-year, and up 8 percent in constant currency. Currency translation negatively impacted reported revenues by $12.7 million versus 2021. Reported revenues were $166.7 million in the Americas, up 4 percent; $89.9 million in Europe, flat on a reported basis and up 12 percent in constant currency; and $29.7 million in Asia Pacific, up 8 percent on a reported basis and up 16 percent in constant currency, all versus the prior year.
ISG reported record full-year operating income of $29.5 million, up 17 percent from $25.3 million in the prior year. The firm also reported record net income and fully diluted earnings per share of $19.7 million and $0.39, respectively, versus net income of $15.5 million and earnings per share of $0.30 in the prior year. Net income margin (calculated by dividing net income by reported revenues) increased to 6.9 percent, from 5.6 percent in the same period last year.
Adjusted net income (a non-GAAP measure defined below under “Non-GAAP Financial Measures”) for the full year was a record $26.9 million, or $0.53 per share on a fully diluted basis, compared with adjusted net income of $22.9 million, or $0.44 per share on a fully diluted basis, in the prior year.
Full-year adjusted EBITDA (a non-GAAP measure defined below under “Non-GAAP Financial Measures”) reached a record $43.3 million, up 11 percent from the prior year. Adjusted EBITDA margin (a non-GAAP measure calculated by dividing adjusted EBITDA by reported revenues) was a record 15 percent, up more than 110 basis points from the prior year.
Other Financial and Operating Highlights
ISG generated $6.6 million of cash from operations in the fourth quarter, compared with $2.5 million in the prior year, and $11.1 million for the full year. The firm’s cash balance totaled $30.6 million at December 31, 2022, up from $19.7 million at September 30, 2022.
During the fourth quarter, ISG paid dividends of $2.0 million, paid down $1.1 million of debt and drew down $9.0 million on its revolving credit agreement with the funds used for the acquisition of Change 4 Growth and for general operating purposes. As of December 31, 2022, ISG had $79.2 million in debt outstanding, compared with $74.5 million at the end of the fourth quarter last year. The firm’s gross-debt-to-adjusted-EBITDA ratio (a non-GAAP measure calculated by dividing outstanding debt by adjusted EBITDA) was 1.8 times, a record low for year end.
“Our strong operating results allowed us to return $23.6 million of capital to our shareholders in the form of dividends and share repurchases in 2022,” Connors said. “It also allowed us to amend our existing credit agreement, converting it to an all-revolver facility, with more favorable terms and an extended maturity date.”
Amended Credit Agreement
As previously announced, on February 22, 2023, ISG successfully amended the credit agreement that the firm originally entered into on March 10, 2020. The amended agreement provides $140 million of borrowing capacity at more favorable terms, converts the previous term and revolving loan into an all-revolving credit facility, eliminates $4.3 million of mandatory annual principal payments under the previous agreement, and extends the maturity date of the previous agreement by three years, to February 2028.
2023 First-Quarter Revenue and Adjusted EBITDA Guidance
“For the first quarter, ISG is targeting revenues of between $73 million and $75 million – including 200 basis points of FX headwinds – and adjusted EBITDA of between $10 million and $11 million. We will continue to monitor the macroeconomic environment, including the impact of FX, inflation and other factors, and adjust our business plans accordingly.”
Quarterly Dividend
The ISG Board of Directors declared a first-quarter dividend of $0.04 per share, payable on March 31, 2023, to shareholders of record as of March 20, 2023.
Conference Call
ISG has scheduled a call for 9 a.m., U.S. Eastern Time, Friday, March 10, 2023, to discuss the company’s fourth-quarter results. The call can be accessed by dialing +1 833-470-1428; or, for international callers, by dialing +1 929-526-1599. The access code is 356636. A recording of the conference call will be accessible on ISG’s website (www.isg-one.com) for approximately four weeks following the call.
Forward-Looking Statements
This communication contains “forward-looking statements” which represent the current expectations and beliefs of management of ISG concerning future events and their potential effects. Statements contained herein including words such as “anticipate,” “believe,” “contemplate,” “plan,” “estimate,” “target,” “expect,” “intend,” “will,” “continue,” “should,” “may,” and other similar expressions, are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking 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. Those risks relate to inherent business, economic and competitive uncertainties and contingencies relating to the businesses of ISG and its subsidiaries including without limitation: (1) failure to secure new engagements or loss of important clients; (2) ability to hire and retain enough qualified employees to support operations; (3) ability to maintain or increase billing and utilization rates; (4) management of growth; (5) success of expansion internationally; (6) competition; (7) ability to move the product mix into higher margin businesses; (8) general political and social conditions such as war, political unrest and terrorism; (9) healthcare and benefit cost management; (10) ability to protect ISG and its subsidiaries’ intellectual property or data and the intellectual property or data of others; (11) currency fluctuations and exchange rate adjustments; (12) ability to successfully consummate or integrate strategic acquisitions; (13) outbreaks of diseases, including coronavirus, or similar public health threats or fear of such an event; and (14) engagements may be terminated, delayed or reduced in scope by clients. Certain of these and other applicable risks, cautionary statements and factors that could cause actual results to differ from ISG’s forward-looking statements are included in ISG’s filings with the U.S. Securities and Exchange Commission. ISG undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.
Non-GAAP Financial Measures
ISG reports all financial information required in accordance with U.S. generally accepted accounting principles (GAAP). In this release, ISG has presented both GAAP financial results as well as non-GAAP information for the three and twelve months ended December 31, 2022, and December 31, 2021. ISG believes that evaluating its ongoing operating results will be enhanced if it discloses certain non-GAAP information. These non-GAAP financial measures exclude non-cash and certain other special charges that many investors believe may obscure the user’s overall understanding of ISG’s current financial performance and the Company’s prospects for the future. ISG believes that these non-GAAP measures provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency of key measures used to evaluate the Company’s performance.
ISG provides adjusted EBITDA (defined as net income plus interest, taxes, depreciation and amortization, foreign currency transaction gains/losses, non-cash stock compensation, interest accretion associated with contingent consideration, acquisition-related costs, and severance, integration and other expense), adjusted net income (defined as net income plus amortization of intangible assets, non-cash stock compensation, foreign currency transaction gains/losses, interest accretion associated with contingent consideration, acquisition-related costs, and severance, integration and other expense, on a tax-adjusted basis), adjusted net income per diluted share, adjusted EBITDA margin, gross-debt-to-adjusted-EBITDA ratio and selected financial data on a constant currency basis which are non-GAAP measures that the Company believes provide useful information to both management and investors by excluding certain expenses and financial implications of foreign currency translations, which management believes are not indicative of ISG’s core operations. These non-GAAP measures are used by ISG to evaluate the Company’s business strategies and management’s performance.
We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP financial measure, excludes the impact of year-over-year fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, thereby facilitating period-to-period comparisons of our business performance and is consistent with how management evaluates the Company’s performance. We calculate constant currency percentages by converting our current and prior-periods local currency financial results using the same point in time exchange rates and then compare the adjusted current and prior period results. This calculation may differ from similarly titled measures used by others and, accordingly, the constant currency presentation is not meant to be a substitution for recorded amounts presented in conformity with GAAP, nor should such amounts be considered in isolation.
Management believes this information facilitates comparison of underlying results over time. Non-GAAP financial measures, when presented, are reconciled to the most closely applicable GAAP measure. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of the forward-looking non-GAAP estimates contained herein to the corresponding GAAP measures is not being provided, due to the unreasonable efforts required to prepare it.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For additional information, visit www.ISG-One.com
Joe Gomes, Managing Director – Generalist Analyst, Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
4Q22 Results. ISG reported record fourth quarter revenue of $74.2 million, up from $69.6 million in the year ago period. FX negatively impacted revenue by $3.2 million. We had estimated $71 million. Fourth quarter net income was $4.3 million, GAAP EPS was $0.09, and adjusted EPS was $0.13. Adjusted EBITDA was $11.1 million, a 9% increase year-over-year. We forecasted net income of $4.45 million, EPS of $0.09, adjusted EPS of $0.13, and adjusted EBITDA of $10.6 million.
Segment Results. Reported revenues were $43.6 million in the Americas, up 12%; $23.9 million in Europe, up 1% on a reported basis and up 12% in constant currency; and $6.7 million in Asia Pacific, down 4% on a reported basis and up 5% in constant currency, all versus the prior year.
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This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For additional information, visit www.ISG-One.com
Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Business Remains on Track. Information Services Group remains on track to post record revenue and adjusted EBITDA. According to management, demand remains strong for digital services, driving a strong profitable mix of products and services, while ISG continues to see an uptick in demand for its cost takeout services given the uncertain economic environment.
Priming the Pump for Additional Growth. ISG added 56 professionals during the quarter, an increase of 3.8%. The new hires are expected to focus on the higher growth digital and recurring revenue opportunities. During the quarter, ISG serviced 625 clients, including 65 new to ISG, both up from the prior year and quarter-over-quarter.
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
Acquisition creates a global powerhouse in change management
STAMFORD, Conn., November 3, 2022 ― Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, today announced it has acquired Change 4 Growth, an award-winning company specializing in transformational change for enterprises.
Founded in 2017, Change 4 Growth offers market-leading change solutions and expertise to support large-scale business transformations involving people, process and technology. Last year it was named a top 10 change management company in the U.S. by Manage HR magazine.
“The combination of Change 4 Growth and our existing ISG Enterprise Change business creates a global powerhouse in change management at a time when demand for such services is expected to grow significantly,” said Michael P. Connors, chairman and CEO of ISG. “Enterprises are in a state of continuous transformation, as they adjust to new technologies, new competitors, and ever-changing market forces. To be successful, they need a highly adaptable, change-ready workforce.”
The combined business will go to market as ISG Enterprise Change with capabilities in organizational change management (OCM), communications, training development and delivery, leadership development, mentoring, Diversity, Equity and Inclusion (DEI) programs, executive coaching and culture change.
“Transformational change is a complex journey best undertaken with a strong and knowledgeable partner,” said Beth Thomas, CEO and founder of Change 4 Growth, who has been named partner and co-leader of ISG Enterprise Change. “Together, we will offer unrivalled expertise, methodologies and tools to help our clients build and sustain change-capable organizations. We could not be more excited to be joining ISG and expanding the reach of both firms’ industry-leading solutions.”
Among those solutions is ATLAS™, a transformational change platform developed by Change 4 Growth that provides access to OCM templates and tools for greater efficiency and gives clients real-time visibility via dashboards into the progress and health of their business transformations. ISG Enterprise Change intends to offer this new solution to its clients immediately.
Change 4 Growth and ISG Enterprise Change together have successfully conducted more than 1,000 change management engagements involving more than 5 million employees. The two businesses have served more than 300 clients in industries including retail, automotive, manufacturing, banking and financial services, insurance, utilities and healthcare.
For more information about ISG’s OCM services, visit the ISG website.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 800 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.
Reports third-quarter GAAP revenues of $69 million, reflecting negative FX impact of $4 million
Reports net income of $6 million, GAAP EPS of $0.11 and adjusted EPS of $0.14
Reports adjusted EBITDA of $11 million
Achieves record year-to-date results: GAAP revenues of $212 million, up 6% in constant currency; net income of $15 million, up 29%; adjusted EBITDA of $32 million, up 12%; GAAP EPS of $0.30, up 30%; adjusted EPS of $0.40, up 18%
Returns $7 million to shareholders in the form of share repurchases and dividends in Q3
Declares fourth-quarter dividend of $0.04 per share, payable December 19 to record holders as of December 5
Sets fourth-quarter guidance for achieving record full-year revenue and EBITDA performance: revenues between $70 million and $72 million and adjusted EBITDA between $10 million and $11 million
STAMFORD, Conn.–(BUSINESS WIRE)– Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, today announced financial results for the third quarter ended September 30, 2022.
“ISG remains on track to deliver record full-year revenue and profitability after another solid operating performance in Q3,” said Michael P. Connors, chairman and CEO. “Despite macroeconomic headwinds, in the third quarter we delivered double-digit growth in recurring revenues, as well as in Europe, on an operating basis. Our product mix of higher-margin digital advisory, research and platform services drove the expansion of our adjusted EBITDA margin to 16 percent, our highest-ever quarterly margin.”
Change 4 Growth Acquisition
ISG said today it has acquired Change 4 Growth, a business specializing in transformational change for enterprises. Founded in 2017, Change 4 Growth offers market-leading change solutions and expertise to support large-scale business transformations involving people, process and technology.
“The combination of Change 4 Growth and our existing ISG Enterprise Change business creates a global powerhouse in change management at a time when demand for such services is expected to grow significantly,” said Connors.
ISG estimates demand for organizational change management (OCM) services will grow at a compound annual rate of more than 15 percent over the next five years, as companies continuously adjust to new technologies, new competitors, and ever-changing market forces.
With the acquisition, Connors noted that ISG adds a new platform solution, ATLAS™, that provides access to OCM templates and tools for greater engagement efficiency and gives clients real-time visibility via dashboards into the progress and health of their business transformations.
Third-Quarter 2022 Results
Reported revenues for the third quarter were $68.8 million, down 3 percent from $71.1 million in the prior year, and up 2 percent in constant currency. Currency translation negatively impacted reported revenues by $4.0 million versus the prior year. Reported revenues were $42.2 million in the Americas, down 2 percent versus the prior year, impacted by the completion of a large Automation engagement; $19.3 million in Europe, down 4 percent versus the prior year on a reported basis and up 13 percent in constant currency, and $7.3 million in Asia Pacific, down 10 percent versus the prior year on a reported basis and down 3 percent in constant currency.
ISG reported third-quarter operating income of $7.4 million, up 2 percent from $7.3 million in the third quarter of 2021. Reported third-quarter net income was $5.6 million, up 26 percent, compared with net income of $4.4 million in the prior year. Fully diluted earnings per share was $0.11, compared with $0.09 per fully diluted share in the prior year. Net income margin (calculated by dividing net income by reported revenues) increased to 8.1 percent, from 6.2 percent in the third quarter of 2021.
Adjusted net income (a non-GAAP measure defined below under “Non-GAAP Financial Measures”) for the third quarter was $7.2 million, or $0.14 per share on a fully diluted basis, compared with adjusted net income of $5.9 million, or $0.12 per share on a fully diluted basis, in the prior year’s third quarter.
Third-quarter adjusted EBITDA (a non-GAAP measure defined below under “Non-GAAP Financial Measures”) was $10.7 million, up 5 percent from the third quarter last year. Adjusted EBITDA margin (a non-GAAP measure calculated by dividing adjusted EBITDA by reported revenues) was 16 percent, up 120 basis points from the prior year.
Nine-Month Year-to-Date Results
Reported revenues for the first nine months were a record $212.1 million, up 2 percent versus the prior-year period, and up 6 percent in constant currency. Currency translation negatively impacted reported revenues for the nine-month period by $9.5 million versus the prior year. Reported revenues were $123.1 million in the Americas, up 1 percent versus the prior year; $66.0 million in Europe, down 1 percent versus the prior year on a reported basis and up 11 percent in constant currency, and $23.0 million in Asia Pacific, up 13 percent versus the prior year on a reported basis and up 20 percent in constant currency.
ISG reported year-to-date operating income of $22.3 million, up 23 percent from $18.1 million in the first nine months of 2021. The firm also reported record year-to-date net income and fully diluted earnings per share of $15.4 million and $0.30, respectively, versus net income of $12.0 million and earnings per share of $0.23 in the prior year. Net income margin (calculated by dividing net income by reported revenues) increased to 7.3 percent, from 5.7 percent in the same period last year.
Adjusted net income (a non-GAAP measure defined below under “Non-GAAP Financial Measures”) for the first nine months was $20.4 million, or $0.40 per share on a fully diluted basis, compared with adjusted net income of $17.7 million, or $0.34 per share on a fully diluted basis, in the prior-year period.
Year-to-date adjusted EBITDA (a non-GAAP measure defined below under “Non-GAAP Financial Measures”) reached a record $32.1 million, up 12 percent from same period last year. Adjusted EBITDA margin (a non-GAAP measure calculated by dividing adjusted EBITDA by reported revenues) was 15 percent, up more than 140 basis points from the prior year.
Other Financial and Operating Highlights
The firm’s cash balance totaled $19.7 million at September 30, 2022, down from $31.5 million at June 30, 2022. During the third quarter, ISG repurchased $4.8 million of shares, paid dividends of $2.0 million, paid $1.0 million in a final earnout associated with the 2020 Neuralify acquisition, and paid down $1.1 million of debt. As of September 30, 2022, ISG had $71.3 million in debt outstanding, compared with $75.6 million at the end of the third quarter last year. At 1.7 times, the firm’s gross-debt-to-adjusted-EBITDA ratio (a non-GAAP measure calculated by dividing outstanding debt by adjusted EBITDA) was at a record low as of September 30, 2022.
2022 Fourth-Quarter Revenue and Adjusted EBITDA Guidance
“Based on achieving our fourth-quarter guidance, ISG will deliver record revenues and profitability for the full year,” said Connors. “For the fourth quarter, ISG is targeting revenues of between $70 million and $72 million and adjusted EBITDA of between $10 million and $11 million. We will continue to monitor the macroeconomic environment, including the impact of FX, inflation and other factors, and adjust our business plans accordingly.”
Quarterly Dividend
The ISG Board of Directors declared a fourth-quarter dividend of $0.04 per share, payable on December 19, 2022, to shareholders of record on December 5, 2022.
Conference Call
ISG has scheduled a call for 9 a.m., U.S. Eastern Time, Friday, November 4, 2022, to discuss the company’s third-quarter results. The call can be accessed by dialing 1-833-927-1758; or, for international callers, by dialing +1 929-526-1599. The access code is 121223. A recording of the conference call will be accessible on ISG’s website (www.isg-one.com) for approximately four weeks following the call.
Forward-Looking Statements
This communication contains “forward-looking statements” which represent the current expectations and beliefs of management of ISG concerning future events and their potential effects. Statements contained herein including words such as “anticipate,” “believe,” “contemplate,” “plan,” “estimate,” “target,” “expect,” “intend,” “will,” “continue,” “should,” “may,” and other similar expressions, are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking 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. Those risks relate to inherent business, economic and competitive uncertainties and contingencies relating to the businesses of ISG and its subsidiaries including without limitation: (1) failure to secure new engagements or loss of important clients; (2) ability to hire and retain enough qualified employees to support operations; (3) ability to maintain or increase billing and utilization rates; (4) management of growth; (5) success of expansion internationally; (6) competition; (7) ability to move the product mix into higher margin businesses; (8) general political and social conditions such as war, political unrest and terrorism; (9) healthcare and benefit cost management; (10) ability to protect ISG and its subsidiaries’ intellectual property or data and the intellectual property or data of others; (11) currency fluctuations and exchange rate adjustments; (12) ability to successfully consummate or integrate strategic acquisitions; (13) outbreaks of diseases, including coronavirus, or similar public health threats or fear of such an event; and (14) engagements may be terminated, delayed or reduced in scope by clients. Certain of these and other applicable risks, cautionary statements and factors that could cause actual results to differ from ISG’s forward-looking statements are included in ISG’s filings with the U.S. Securities and Exchange Commission. ISG undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.
Non-GAAP Financial Measures
ISG reports all financial information required in accordance with U.S. generally accepted accounting principles (GAAP). In this release, ISG has presented both GAAP financial results as well as non-GAAP information for the three and nine months ended September 30, 2022, and September 30, 2021. ISG believes that evaluating its ongoing operating results will be enhanced if it discloses certain non-GAAP information. These non-GAAP financial measures exclude non-cash and certain other special charges that many investors believe may obscure the user’s overall understanding of ISG’s current financial performance and the Company’s prospects for the future. ISG believes that these non-GAAP measures provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency of key measures used to evaluate the Company’s performance.
ISG provides adjusted EBITDA (defined as net income plus interest, taxes, depreciation and amortization, foreign currency transaction gains/losses, non-cash stock compensation, interest accretion associated with contingent consideration, acquisition-related costs, and severance, integration and other expense), adjusted net income (defined as net income plus amortization of intangible assets, non-cash stock compensation, foreign currency transaction gains/losses, interest accretion associated with contingent consideration, acquisition-related costs, and severance, integration and other expense, on a tax-adjusted basis), adjusted net income per diluted share, adjusted EBITDA margin, gross-debt-to-adjusted-EBITDA ratio and selected financial data on a constant currency basis which are non-GAAP measures that the Company believes provide useful information to both management and investors by excluding certain expenses and financial implications of foreign currency translations, which management believes are not indicative of ISG’s core operations. These non-GAAP measures are used by ISG to evaluate the Company’s business strategies and management’s performance.
We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP financial measure, excludes the impact of year-over-year fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, thereby facilitating period-to-period comparisons of our business performance and is consistent with how management evaluates the Company’s performance. We calculate constant currency percentages by converting our current and prior-periods local currency financial results using the same point in time exchange rates and then compare the adjusted current and prior period results. This calculation may differ from similarly titled measures used by others and, accordingly, the constant currency presentation is not meant to be a substitution for recorded amounts presented in conformity with GAAP, nor should such amounts be considered in isolation.
Management believes this information facilitates comparison of underlying results over time. Non-GAAP financial measures, when presented, are reconciled to the most closely applicable GAAP measure. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of the forward-looking non-GAAP estimates contained herein to the corresponding GAAP measures is not being provided, due to the unreasonable efforts required to prepare it.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 800 clients, including 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.
Information Services Group, Inc.
Condensed Consolidated Statement of Income and Comprehensive Income
(unaudited)
(in thousands, except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Revenues
$
68,836
$
71,095
$
212,100
$
208,263
Operating expenses
Direct costs and expenses for advisors
39,786
43,249
125,111
127,412
Selling, general and administrative
20,334
19,236
60,806
58,768
Depreciation and amortization
1,286
1,347
3,872
3,962
Operating income
7,430
7,263
22,311
18,121
Interest income
37
65
126
196
Interest expense
(824
)
(538
)
(1,997
)
(1,794
)
Foreign currency transaction gain (loss)
131
1
248
(2
)
Income before taxes
6,774
6,791
20,688
16,521
Income tax provision
1,218
2,370
5,245
4,570
Net income
$
5,556
$
4,421
$
15,443
$
11,951
Weighted average shares outstanding:
Basic
47,888
48,751
48,191
48,521
Diluted
49,844
51,510
50,637
51,713
Earnings per share:
Basic
$
0.12
$
0.09
$
0.32
$
0.25
Diluted
$
0.11
$
0.09
$
0.30
$
0.23
Information Services Group, Inc.
Reconciliation from GAAP to Non-GAAP
(unaudited)
(in thousands, except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Net income
$
5,556
$
4,421
$
15,443
$
11,951
Plus:
Interest expense (net of interest income)
787
473
1,871
1,598
Income taxes
1,218
2,370
5,245
4,570
Depreciation and amortization
1,286
1,347
3,872
3,962
Interest accretion associated with contingent consideration
–
47
8
113
Acquisition-related costs (1)
25
18
41
(14
)
Severance, integration and other expense
8
41
458
1,341
Foreign currency transaction (gain) loss
(131
)
(1
)
(248
)
2
Non-cash stock compensation
1,987
1,499
5,432
5,075
Adjusted EBITDA
$
10,736
$
10,215
$
32,122
$
28,598
Net income
$
5,556
$
4,421
$
15,443
$
11,951
Plus:
Non-cash stock compensation
1,987
1,499
5,432
5,075
Intangible amortization
525
643
1,580
2,001
Interest accretion associated with contingent consideration
–
47
8
113
Acquisition-related costs (1)
25
18
41
(14
)
Severance, integration and other expense
8
41
458
1,341
Foreign currency transaction (gain) loss
(131
)
(1
)
(248
)
2
Tax effect (2)
(772
)
(719
)
(2,327
)
(2,726
)
Adjusted net income
$
7,198
$
5,949
$
20,387
$
17,743
Weighted average shares outstanding:
Basic
47,888
48,751
48,191
48,521
Diluted
49,844
51,510
50,637
51,713
Adjusted earnings per share:
Basic
$
0.15
$
0.12
$
0.42
$
0.37
Diluted
$
0.14
$
0.12
$
0.40
$
0.34
(1)
Consists of expenses from acquisition-related costs and non-cash fair value adjustments on pre-acquisition contract liabilities.
(2)
Marginal tax rate of 32%, reflecting U.S. federal income tax rate of 21% plus 11% attributable to U.S. states and foreign jurisdictions.
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For additional information, visit www.ISG-One.com
Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
3Q22 Results. ISG announced revenue of $68.8 million, down from $71.1 million in the year ago period, management’s $71-$73 million guide, and our $72 million estimate. The key culprit was a $4 million negative FX impact. Third quarter net income was $5.6 million, GAAP EPS was $0.11, and adjusted EPS was $0.14. Adjusted EBITDA was $10.7 million, a 5.1% increase year-over-year. We forecasted net income of $4.17 million, $0.11 fully diluted EPS, and adjusted EBITDA of $10.4 million.
Cap Structure and Returning Capital. Cash balance totaled $19.7 million at September 30, 2022, down from $31.5 million at June 30, 2022, while outstanding debt was $71.3 million at the end of the third quarter. During the third quarter, ISG repurchased $4.8 million of shares, paid dividends of $2.0 million, paid $1.0 million in a final earnout associated with the 2020 Neuralify acquisition, and paid down $1.1 million of debt.
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
