BUSINESS OVERVIEW

ISG is a leading global technology research and advisory firm, providing services related to digital transformation, sourcing advisory, managed services, network carrier services, change management, market intelligence and more. They have over 900 clients globally, including large enterprises. ISG employs approximately 1,500 professionals across over 20 countries.

ISG’s strategy focuses on strengthening its existing services, expanding geographically, developing new industry sectors, expanding its managed services and data offerings, and pursuing acquisitions. Potential limiting growth factors include macro-economic conditions impacting the sourcing market, competition, inability to retain advisors, and reductions in top client spending.

ISG generates revenues primarily from project-based consulting services. Revenues are recognized over time as services are provided, based on hourly rates or fixed fees. ISG also has some recurring revenue streams such as subscriptions and multi-year public sector contracts.

Q1 2024 RESULTS

Revenue

• Total Q1 revenues decreased 18% to $64.3 million
• Americas revenues decreased 16% due to lower Advisory and Automation revenues, partially offset by higher Research revenues
• Europe revenues decreased 23% due to lower Advisory revenues, partially offset by higher Network & Software Advisory revenues
  
• Asia Pacific revenues decreased 20% due to lower Advisory and Network & Software Advisory revenues

Expenses

• Total operating expenses decreased 7% to $66.6 million
• Direct costs and expenses decreased 17% due to lower contract labor and compensation costs
• SG&A expenses increased 17% due to higher severance and integration costs
• Depreciation and amortization decreased 6% to $1.5 million

Operating Income & EBITDA

• Operating loss was $2.4 million compared to operating income of $7.1 million in Q1 2023
• Adjusted EBITDA was $4.4 million compared to $11.0 million in Q1 2023

EPS & Adjusted EPS

• EPS was $(0.07) compared to $0.07 in Q1 2023
• Adjusted EPS was $0.01 compared to $0.12 in Q1 2023

CASH FLOW & CAPITAL

• Cash and cash equivalents decreased by $8.7 million in Q1 to $14.1 million due to debt repayments, dividends, and share repurchases, partially offset by cash from operations
• Amended credit facility in February 2023, increasing revolver commitments to $140 million
• Compliant with all debt covenants
• Have adequate cash resources to meet needs over next 12 months

OUTLOOK

ISG maintains a strong market position and appears financially stable despite some revenue pressures in Q1 2024. The recent expansion of their credit facility also provides additional flexibility. However, continued weakness in Advisory revenues bears monitoring going forward. Macroeconomic uncertainty could pose a risk if client spending slows further.