Earnings call transcript: Information Services Corporation Q1 2025 reveals earnings beat

Information Services Corporation (ISC) reported its first-quarter 2025 earnings, surpassing analyst expectations with an earnings per share (EPS) of $0.61 against a forecast of $0.4918. Revenue came in at $59.31 million, slightly below the anticipated $60.25 million. Following the earnings announcement, ISC’s stock price rose by 0.6%, reflecting positive investor sentiment despite the revenue miss. According to InvestingPro analysis, ISC currently appears undervalued, with an overall financial health score rated as "GREAT" at 3.13 out of 5.

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Key Takeaways

• ISC’s EPS exceeded expectations, signaling strong operational performance.
• Revenue slightly missed forecasts, but still showed a 5% year-over-year growth.
• Stock price increased by 0.6% post-earnings, indicating positive market reaction.
• The company’s Technology Solutions segment is a key growth driver.
• Regulatory and market adaptations are ongoing, with a focus on customer retention.

Company Performance

ISC demonstrated robust performance in Q1 2025, with a notable improvement in net income, which rose to $7.5 million from $400,000 in Q1 2024. The company’s diversified business model, encompassing registry, services, and technology segments, continues to show resilience. The Saskatchewan real estate market’s resilience and the strong performance of the Countercyclical Recovery Solutions division contributed to this positive outcome. The company maintains an impressive gross profit margin of 76% and has consistently paid dividends for 13 consecutive years, currently yielding 3.4%.

Financial Highlights

• Revenue: $59.31 million, up 5% year-over-year
• Net Income: $7.5 million, significantly up from $400,000 in Q1 2024
• Adjusted Net Income: $11.4 million ($0.62 per basic share)
• Adjusted EBITDA: $21.8 million, with a 36.7% margin
• Net Cash Flow from Operations: $5.8 million, a decrease of $4.7 million from Q1 2024

Earnings vs. Forecast

ISC reported an EPS of $0.61, beating the forecast of $0.4918 by approximately 24%. However, revenue was slightly below expectations at $59.31 million compared to the $60.25 million forecast. The EPS beat suggests efficient cost management and operational performance, despite the revenue shortfall.

Market Reaction

Following the earnings release, ISC’s stock price increased by 0.6%, closing at $27.00. This movement reflects investor confidence in the company’s ability to navigate challenges and capitalize on growth opportunities. Analyst consensus suggests further upside potential, with target prices ranging from $20.31 to $26.47. The stock trades at an EV/EBITDA multiple of 8.8x, which InvestingPro analysis indicates as relatively low for the sector.

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Outlook & Guidance

ISC maintains its 2025 revenue guidance of $257-267 million, with an adjusted EBITDA projection of $89-97 million. The company continues to focus on deleveraging and expects robust free cash flow, with current free cash flow yield at 14%. Revenue is expected to grow 6% in FY2025, supported by a strong five-year revenue CAGR of 13%. Significant investments in the Technology Solutions segment and the Ontario Business Registry (OBR) are anticipated to drive future growth.

Executive Commentary

Sean Peters, President and CEO, emphasized the company’s resilience and customer-centric approach, stating, "We focus on what we can control. We treat our customers well. We treat our people well." He also highlighted ISC’s strategic focus on diversification and resilience, which have historically driven strong results.

Risks and Challenges

• Potential regulatory changes affecting the OBR could impact revenue.
• Economic fluctuations in the real estate market may pose challenges.
• The NOSI service ban in Ontario requires strategic adaptation.
• Ongoing investments in registry enhancements could strain cash flow.
• Market competition in the technology segment may pressure margins.

Q&A

During the earnings call, analysts inquired about the strong services margins from vehicle sales commissions and potential impacts of external commentary on shareholder sentiment. ISC addressed these concerns, highlighting its strategic focus on adapting to changes in the OBR contract and maintaining robust working capital management through share-based compensation adjustments.

Full transcript - Information Services Corporation (ISC) Q1 2025:

Brianna, Conference Operator: Good day, and thank you for standing by. Welcome to the ISC Quarter One twenty twenty five Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone, and then you will hear an automated message advising your hand is raised.

To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Jonathan Hackshaw, Senior Director of Investor Relations and Capital Market. Please go ahead.

Jonathan Hackshaw, Senior Director of Investor Relations and Capital Market, ISC: Thank you, Brianna, and good morning to everyone joining us today. Welcome to IRC’s conference call for the quarter ended 03/31/2025. On the call today are Sean Peters, President and CEO and Bob Antichao, Chief Financial Officer. This morning, Sean will take you through some of the highlights of the quarter. Bob will then provide some comments on our financial and operating performance for the quarter before passing the call back over to Sean for some closing remarks.

Before we begin, we would like to remind everyone that we will only be summarizing results today. The company’s financial statements and MD and A have been filed on SEDAR plus and are available on our website. We encourage you to review those reports in their entirety. I would like to remind you that any statements made today that are not historical facts are considered to be forward looking statements within the meaning of applicable securities laws. The statements may involve a number of risks and uncertainties that are described in detail in the company’s SEDAR plus filings.

Those risks and uncertainties may cause actual results to differ materially from those stated. Today’s comments are made as of today’s date and will not be updated except as required under applicable securities laws. Today’s conference call is being broadcast live over the Internet and will be archived for replay shortly after the call on the Investors section of website. I would now like to turn the call over to Sean.

Sean Peters, President and CEO, ISC: Thank you, Jonathan, and good morning to everyone joining us for today’s call. I’m pleased to report that our overall performance for the first quarter of twenty twenty five was in line with our expectations. Our registry operations, which is underpinned by the strength of the Saskatchewan Registries division, surpassed our performance in the prior year period. The main driver was increased volumes across the Saskatchewan Registries, and in particular the Saskatchewan Land Titles Registries, which saw both increased volumes and higher residential resale prices, demonstrating the resilience of the local economy coupled with a high demand for residential real estate and low inventory levels in Saskatchewan’s two major cities. In services, as you know, the sudden ban on nosies by the government of Ontario in June of twenty twenty four presented an unexpected challenge.

We’ve talked before that there’s no direct replacement for the nosies service in Ontario, but our team has been working diligently to grow organically through our other products and services. In particular, the countercyclical nature and higher margin attributes of our Recovery Solutions division continues to play a significant role in that growth. This has been further supported by Regulatory Solutions, where fee adjustments in KYC and due diligence offerings have helped balance softer activity in our Collateral Management Solutions business. The end result was a solid performance compared to Q1 of twenty twenty four, especially when taking the loss of the NOSI business into consideration. Wrapping up with our Technology Solutions segment, progress in this business is encouraging with respectable increases in top and bottom line metrics compared to the same quarter in 2024.

Our focus remains on delivering double digit growth from this segment, as indicated in our outlook provided at the beginning of the year. Before I turn the call over to Bob to discuss some of the financial highlights in more detail, I’d summarize the quarter as another strong performance. The diversification and resiliency of our business has proven in the past and will continue to demonstrate in the future strong results even in more uncertain macroeconomic backdrops. By remaining focused on our operations, our customers and our organic growth, we’re confident in our ability to deliver meaningful value and strong compelling returns. I’ll now turn the call over to Bob.

Thank you, Sean, and good morning, everyone.

Bob Antichao, Chief Financial Officer, ISC: As Sean mentioned, 2025 has begun in line with our expectations, delivering strong performance across the business. Overall results are tracking as anticipated, driven by several key factors that I will now walk you through. Revenue was $59,300,000 for the quarter, an increase of 5% compared to the first quarter of twenty twenty four. Growth was driven by increased volumes across the Saskatchewan Registries division of registry operations, combined with annual CPI pricing increases and new bank act security registry revenue. This was partially offset by a decrease in services revenue as a result of the Government of Ontario’s unexpected ban on NOESIs in June 2024, counterbalanced by strong growth in the higher margin Recovery Solutions division.

Net income was $7,500,000 or zero four zero dollars per basic share and diluted share for the quarter, compared to $400,000 or $02 per basic and diluted share in the first quarter of twenty twenty four. The increase was due to lower share based compensation, strong adjusted EBITDA results and lower net finance expense. These were partially offset by increased income tax expense. Net cash flow provided by operating activities was $5,800,000 for the quarter, a decrease of $4,700,000 from $10,500,000 in the first quarter of twenty twenty four. The decrease was due to strong operating results being offset by a decrease in cash from net changes in noncash working capital, primarily due to timing differences on trade and other receivables and accounts payable and accrued liabilities.

Adjusted net income was $11,400,000 or zero six two dollars per basic share and $0.61 per diluted share compared to $8,500,000 or $0.47 per basic share and diluted share in the first quarter of twenty twenty four. The increase reflects strong operating results across all operating segments and lower net finance expense. Adjusted EBITDA was $21,800,000 for the quarter compared to $19,400,000 in the first quarter of twenty twenty four. The increase was due to contributions from the Registry Operations and Services segments, as discussed previously. Adjusted EBITDA margin was 36.7% compared to 34.5% in the first quarter of twenty twenty four.

This growth was driven by the same reasons noted for adjusted EBITDA. Adjusted free cash flow for the quarter was $15,200,000 compared to $11,600,000 in the first quarter of twenty twenty four, due to stronger results in our operating segments in addition to lower net finance expense. Now turning to expenses. Expenses were down by $5,300,000 for the quarter compared to the same quarter last year. The decrease is largely due to decreases in wages and salaries, depreciation and amortization and cost of goods sold because of lower revenue in the Regulatory and Corporate Solutions divisions and services.

Sustaining capital expenditures, including registry enhancement capital, was $1,900,000 for the quarter, consistent with the first quarter of twenty twenty four. After all this, as at 03/31/2025, we held $16,800,000 in cash compared to $21,000,000 as at 12/31/2024, which is a reflection of our deleveraging plan following voluntary prepayments of $1,000,000 that were made towards the company’s credit facility during the quarter. As you know, this is part of the company’s plan to deleverage towards a long term net leverage target of two to 2.5 times. Before I turn the call back over to Sean, I’d like to finish by highlighting that we also announced yesterday that our Board of Directors approved a quarterly cash dividend of $0.23 per share. That dividend will be payable on or before 07/15/2025 to shareholders of record as of 03/31/2025.

I’ll now turn the call back over to Sean for some concluding remarks.

Sean Peters, President and CEO, ISC: Thanks, Bob. With another strong quarter behind us, as we look ahead, our guidance for 2025 reflects our continued confidence in the business, while at the same time keeping a watchful eye on the current macroeconomic climate and related uncertainty. We’re therefore reiterating our guidance and continue to expect revenue to be within the range of $257,000,000 to $267,000,000 and adjusted EBITDA to be in a range of $89,000,000 to 97,000,000 Keeping with our historical performance, we also expect to see robust free cash flow in 2025, which will support our continued deleveraging to realize that long term leverage target of two to 2.5 times. Finally, we want to acknowledge and thank our many shareholders for their continued support. We don’t take that for granted.

We’ve had and continue to have meaningful dialogue with all stakeholders as we look forward to the future success of the company. We sift through the noise and the distractions and are attentive to constructive and impactful ways to continue to improve the business and the returns to our shareholders. We focus on what we can control. We treat our customers well. We treat our people well.

And just as importantly, we run the business well. I’m excited about the opportunities ahead, and I want to thank each of you for being on that journey with us. With that, I’ll now hand the call back over to Jonathan.

Jonathan Hackshaw, Senior Director of Investor Relations and Capital Market, ISC: Thanks, Sean. Brianna, we’d now like to begin the question and answer session, please.

Brianna, Conference Operator: Perfect. Thank you. At this time, we will conduct the question and answer Our first question comes from Scott Fletcher of CIBC. Your line is now open.

Scott Fletcher, Analyst, CIBC: Hi, good morning and thanks for taking the question. Services margins very strong in the quarter and you mentioned commissions on vehicle sales in the recovery business were a contributor there. Do those commissions flow right through to the bottom line? And then can you share any color on how much that would have contributed in the quarter?

Bob Antichao, Chief Financial Officer, ISC: Yeah, hi Scott. Yeah, flow through right to the bottom line and as we’ve discussed, trend higher than the average margin for the services business. And we disclose the actual percentage there, but they are as we’ve talked, they are the higher margin of the within the divisions of the services segment.

Scott Fletcher, Analyst, CIBC: Okay, thanks. And then sticking with services, the MDMA mentioned that the fee increases on the KYC and due diligence solutions helped offset some of the noisy band reduction. Were those normal course fee adjustments? Or do you have some additional pricing power in that business there that you’re taking advantage of?

Bob Antichao, Chief Financial Officer, ISC: Yes, Scott. As we’ve sort of discussed before, we’ve got contracts with a number of customers and as those contracts expire, we negotiate then fee increases as part of normal course of business. And so then that’s what we’re seeing come into play for this quarter.

Scott Fletcher, Analyst, CIBC: All right. Well, thanks for taking the questions. Appreciate it.

Stephen Boland, Analyst, RJ: Thanks, Scott.

Brianna, Conference Operator: Thank you. Our next question comes from Stephen Boland of RJ. Your line is now open.

Stephen Boland, Analyst, RJ: So I have to ask the awkward questions here. I mean, I know you said you just want to talk about the operations, but some of the comments from Plantarial talk about the operations. You’re not in a lawsuit here, so I’m kind of trying to figure out why you can’t speak about or respond to some of the questions or the concerns that Plantarial has put out there and maybe some other shareholders at this point. Maybe you could just explain or even elaborate on some of the responses that you’ve put out in the public. Here’s your opportunity to kind of talk about this a little bit more.

Sean Peters, President and CEO, ISC: Hi, Steve, it’s Sean, thanks for the question. So I’ll address that in a couple of ways. First of all, as you know, we talk to shareholders, potential shareholders, investors, analysts, even people where IAC just comes up on their screen all the time. And in those conversations, we’re always happy to entertain any comments or commentary or constructive comments that they might have on the business. And this is no different.

We sift through that, we’ll look for things that are constructive and help, and we take those into account. I think to sort of state the obvious, if you’re trying to cast shadow on a business, then you’re going to try to take data and points and manipulate those into a way that suits the narrative. And I think that’s what you’re seeing there. And so we’ll respond the way we always do, which is we’ll run the business well, we’ll talk with our shareholders and address any comments or questions that they have, and go from there. As far as the other public things, you know, we’ve got on record our public responses, and I think those stand on their own.

Stephen Boland, Analyst, RJ: Okay, I know you’re probably not going to ask or answer too much more, so I’ll just leave it there. Thanks, guys.

Sean Peters, President and CEO, ISC: Thanks, Steve. Thank you.

Brianna, Conference Operator: Our next question comes from Jesse Pytialak of Cormark Securities. Your line is now open.

Jesse Pytialak, Analyst, Cormark Securities: Hey, good morning. Just with respect to the OBR related attrition, was there some acceleration in that this quarter? And can you just maybe speak to how much longer do you expect this to be a headwind?

Bob Antichao, Chief Financial Officer, ISC: As you saw in our MD and A and our news release in April, we did extend our contract with the OBR. And as we go forward, we are adding new products as we’ve mentioned before to add value to those customers that are using our services. We’ve expanded the service offering in our systems to retain those customers, just providing more value add to them. I don’t know Sean, if you had anything to add there.

Sean Peters, President and CEO, ISC: Only thing I’d add to that is that, I mean, it is going to be something that we’ll probably talk about for a couple more quarters as that normalizes itself out. But as Bob said, know, we’re looking at ways to help counteract that revenue and look to add the new products and services. But you’ll probably hear us talk about it for a couple more quarters.

Jesse Pytialak, Analyst, Cormark Securities: Okay. And then maybe just moving over to working capital. I know, Bob, you touched on it briefly in your your comments, but was there anything particularly unusual this quarter? Is there anything special about the first quarter that would contribute to such a big working capital build? And as you think about the rest of the year, will there be further working capital investment?

Will there be some release?

Bob Antichao, Chief Financial Officer, ISC: Yes. Biggest part in that accounts payable accounts liability change relates to our share compensation. Last year, at this time, we had a significant increase in the share price from December to March. This year there was a decline and with the shared compensation items, they’re mark to market. And so that’s the biggest component in there.

Within accounts receivable was another big area of change and that relates as we complete contracts with customers, we’re invoicing and really what you’re seeing there is an increase primarily related to the technology solutions business. So really on the share based comp, it’s a mark to market, so that a non cash mark to market and really the accounts receivable is just the business operates and we continue to progress on our

Sean Peters, President and CEO, ISC: business.

Jesse Pytialak, Analyst, Cormark Securities: All right. Got it. And then maybe just one last question. On the registry enhancement CapEx, can you just speak to maybe how far along you are in the process? When can this maybe start to tail off a little bit?

Sean Peters, President and CEO, ISC: Yeah, so thanks for the question. I think we’re we’ve always said that these projects are sort of eighteen to twenty four to thirty six months, and I think we’d be about sort of halfway through that now. Depending on, there’s lots of factors that go into that because we are, of course, working with Saskatchewan as a jurisdiction and legislation in some of that, but that’s sort of a rough estimate of where we’d be.

Jesse Pytialak, Analyst, Cormark Securities: Okay. That’s helpful. That’s all for me. I’ll pass the line. Thank you.

Jonathan Hackshaw, Senior Director of Investor Relations and Capital Market, ISC: Thanks, Jesse.

Brianna, Conference Operator: Thank you. One moment, please. I’m showing no further questions at this time. I would now like to turn it back to Jonathan Hackshaw for closing remarks.

Jonathan Hackshaw, Senior Director of Investor Relations and Capital Market, ISC: Thanks very much, Brianna. With that, we’d like to thank everybody for joining us on the call today, and we look forward to speaking with you again when we report our second quarter. Thanks very much, and have a great day.

Brianna, Conference Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.

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