Information Services at Sidoti: AI-Centric Growth Plans

On Wednesday, 19 March 2025, Information Services Group (NASDAQ: III) presented at the Sidoti Small-Cap Virtual Conference, outlining its strategic focus on AI-driven growth. The company, led by CEO Michael Connors and CFO Michael Sherrick, emphasized its unique position in the technology advisory market, highlighting both its positive momentum in the US and challenges in Europe due to geopolitical uncertainties.

Key Takeaways

• ISG aims to increase recurring revenue to 50% by expanding AI advisory services and platforms.
• The company has returned over $80 million to shareholders through dividends since 2020.
• ISG’s balance sheet has improved with a $20 million debt reduction in 2024.
• The US market shows strong growth potential, while Europe faces delays in transformation initiatives.
• ISG’s AI strategy includes the Tango platform, which offers significant cost savings for clients.

Financial Performance

• Recurring revenue has grown to approximately 47% of total revenue, with a target of 50%.
• Reoccurring revenue remains stable at 85%, indicating strong client retention.
• The company has $23 million in cash and $59 million in debt, reduced by $20 million over the year.
• ISG has actively repurchased stock, viewing it as undervalued, and plans continued shareholder returns in 2025.

Operational Updates

• ISG provides research, benchmarking, and advisory services with a database of 10 million data points.
• The AI-powered ISG Tango platform connects enterprises with technology providers, offering cost-saving solutions.
• ISG GovernX is a proprietary platform for managing large contracts, generating significant recurring revenue.
• The company acts as an independent advisor, influencing over $200 billion in annual spending.

Future Outlook

• ISG anticipates strong growth in the US market, driven by AI transformation initiatives.
• Europe is expected to shift towards transformation later in the year despite current geopolitical challenges.
• Key industry verticals like BFSI, energy, and health sciences are leading in AI investments.
• ISG forecasts an incremental $175 billion in AI-related revenue by the end of the decade.

Q&A Highlights

• Clients are increasingly focusing on transformation initiatives, moving beyond cost optimization.
• ISG’s AI advisory services are positioned to capture significant market opportunities.
• The company has improved its balance sheet with better collection processes and payment terms.
• BFSI, energy, and public sector spending are major contributors to growth in AI and technology investments.

For a detailed understanding of ISG’s strategic plans and financial performance, refer to the full transcript below.

Full transcript - Sidoti Small-Cap Virtual Conference:

Mark Riddick, Senior Analyst, Sidoti and Company: Good morning, everyone. It’s now 09:15 here on the East Coast, and we are ready to begin our next presentation. Now my name is Mark Riddick, a senior analyst with Sidoti and Company, and I thank you for joining us at the Sidoti and March small cap virtual, conference. Our next presenting company is Information Services Group. The ticker is the letter I three times.

And joining us today is Michael Connors, Chairman, CEO, and Founder, and Michael Sherrick, Chief Financial Officer. Now before we begin, just a reminder, we will have time for Q and A at the end of prepared remarks, but you won’t need to wait until the end. Just click on the Q and A button at the bottom of your screen and feel free to submit questions at any point during our time together. And with that, we can turn the call over to Mike and Mike. Good morning, gentlemen.

Michael Sherrick, Chief Financial Officer, Information Services Group: Good morning.

Michael Connors, Chairman, CEO, and Founder, Information Services Group: Thanks, Mark. And good morning, everyone. And thank you for taking the time, to end your interest in, Information Services Group. Let me dig right in, on our charts here and talk a little bit about who we are. We are a firm that was founded.

I founded the company in 02/2006. We are a global AI centered technology research and advisory firm. And essentially what that means is all of the work that we do with the largest corporations in the world, there is an AI element to, all of the work that we do and we’ll talk about that. We have 1,600 of our employees on the ground that operates in 20 countries. We are differentiated, mainly because of the great data and database that we have.

It’s we believe the deepest technology benchmark and contract database in the world. We have 10,000,000 real world data points and, we are the world leader in sourcing with a market share of greater than 50%. Our work is all around the top enterprises in the world. We operate with in 20 different industry segments. And if you go to each of those segments, ten, twelve or 13 of the largest companies by revenue in those segments are clients of ours.

We have 900 clients, and we operate, on a global basis. If you go to, kind of, the areas that we operate in, and think about it from left to right, we provide research. So think of our firm as kind of a combination of a Gartner and McKinsey put together. That’s who we are. Research, think about it as subscriptions.

That research is focused, almost exclusively around technology. So think about Cloud, think about Blockchain, think about AI, so forth. We then have a terrific benchmarking service. This is where a large company might ask us to come in, benchmark their $500,000,000 technology spend, compare it to industry peers and talk about, whether they stack up in the first quartile of efficiency or not. And the third bucket again going around the horn here on the advisory.

On the advisory, bit here think about the consulting areas. This is where we help our clients. We advise them on their technology the most efficient way to operate and we have a terrific platform called ISG Tango. This is an AI powered platform where the enterprise, the technology providers like the IBMs and the Accentures all gather on this platform. And when a company like a Stanley Black and Decker or a Marriott or others are looking for technology capability through an Accenture, an IBM, a Capgemini, this platform is where we all come together and we find out who might be the best to help our enterprise client move forward.

And then on governance, what we do is when a client, when we help them negotiate a big contract with an IBM or an AT and T, that contract usually is for three, four or five years. We will help them govern that contract to help them ensure that they have the right, value that they’re getting for $10.15, $20,000,000 a month from these clients. And we use a a platform we call ISG GovernX, which is a proprietary platform. We sell this on a fixed fee basis over multi years. Think about it as a 500,000 to a million dollar, subscription if you will on an annual basis and it might be a three year contract.

So research, benchmarking, advisory, and governance, if you think about the life cycle, we inform, we provide our data, we help execute, and then we will govern. Then where’s the data come in? My background is from Nielsen. It was all about data. Our firm is all about data.

Our database is rich. Clients come back to us time and time again. They want access to current information. This is not survey information. This is real engagement data from the largest corporations in the world.

We put it all into a black box. We then spit it out, of course, anonymously, but we can be able to tell a health sciences firm where they stack up in applications or where they may stack up in their network cost versus their peer groups, etcetera. We put all this together and this data is our special sauce in our firm. Now our unique position is we sit in the middle on the left hand side of this of this slide. These are the global enterprises, the Stanley Black and Decker’s, the Pfizer’s of the world.

The right hand side are the tech providers or software providers. Think about the Salesforce or the, ServiceNow or the Accenture’s or the IBMs or the Capgemini’s, HCL tech, etcetera, who are vying for the enterprises work. We sit in the middle as a third party independent, not attached to anybody on the right, serving our clients on the left, helping them build an ecosystem of technology partners that can help them either outsource some of their work, help them become more efficient, etcetera. But that’s our unique positioning. And because of that, we’re able to kind of influence billions of dollars a year because of that influence that we have.

Whether that’s through our GovernX, whether that’s through our engagement, or whether that’s through our benchmarking. We come across over $200,000,000,000 of spend during the course of any given year. So that’s our that’s our independent positioning and why clients come back to us, year after year. Here on the ecosystem, you can see what the what the market look like. It is big.

The managed services market is about a hundred and $25,000,000,000. We have a 50% share of that market. If you think about the kind of sourcing that goes on with those firms, if something is going to be advised, we have a one in two chance of doing that work for the enterprise clients. And then on the right hand side, you know that the software environment is continuing to expand. It’s big, it’s getting bigger, and we’re playing a major part in that role as well.

Now here’s an example just to give you an idea of how we operate with our enterprise clients. Here’s an example of a top manufacturing company. The initial request was to come in, they had a billion 2 of tech spend. That tech spend across all kinds of functions IT, finance, procurement. And they asked us to come in benchmark it and compare it to a certain set of industry peers and broader peers.

We found that, they had a big opportunity for savings. We charged them about $500,000. It took us about two and a half months to pull all of the data together that they had and then do the comparisons. But we found that we thought that we could save them somewhere between 50 and a hundred million dollars if they wanted to proceed. And they did.

So we did a number of things in box number two here. We helped them around, research and network and tech modernization, and sourcing. And what they ultimately ended up with here as a client over three years, we received fees of $12,000,000 They had savings, hard savings of $90,000,000 And because of some of the savings they had, they had a brand new revenue stream for this client that’s now generating, over a hundred million dollars So what starts off as a benchmarking or an assessment of a situation at call it this case $500,000 can be a terrific client over a period of a lot of months and years. And in this case, it was $12,000,000 for this client. Very typical kind of life cycle that we work with with our clients.

Then we have kind of two sets of revenue. We have recurring revenue, that’s revenue that we know at the beginning of the year we’re gonna have that year. It’s up, from around 35% or around a third of our business to close to half today. That’s 47% that includes things like subscriptions to our research. That includes like licensing our platform, like using our GovernX platform to help govern contracts, and large multi year contracts, and that comprises almost 50% of our revenue.

We also talk about reoccurring revenue. This is revenue that for the client base we had last year, what would we expect to generate in revenue this year? And this is held pretty steady at 85% every year for the last decade. This is saying that all of our clients from last year, we know will generate 80% of our revenue this year from them. It might be $3,000,000 from Marriott last year and $5,000,000 this year or vice versa.

But we know as an aggregate, we will receive about 80% of our revenue from that client base. Very good in terms of stabilization of our revenue. Now in the industries I mentioned earlier, we serve 20 different industries. We picked five or six here. As you can see of the top 15 in each of these industry segments, we serve ten, eleven, 12, 13 in some cases of the top 15 by revenue.

And we also have great ROI and great recommendations. 96% of our clients would recommend us and that’s why they come back to us year in and year out. Now the AI opportunity, we’re bringing our trusted independent voice, I think, into one of the largest technology ships that we’ve all have ever seen. We know today that at least one out of two and now we know it’s more, it’s surprising everyone might say, isn’t every company doing this? Well, surprisingly no.

But one out of two are working on a roadmap around AI. And this, landscape is going to get quite large by the end of this decade, and we’re gonna be a big player in that. And this next chart will show you how we’re thinking about, playing here. Right now, we’re playing in three different areas. We are doing, we have created an AI advisory unit.

That unit helps with clients and having them understand what their strategy might be and how technology strategy might be and how AI plays into that. We know that with our ISG Tango platform that almost every transaction that is occurring has an AI element into it. And the reason it has an AI element into it is because you can save 30%, forty %, fifty % or more by automating by using AI as part of your solution if you’re an enterprise client. And we help them understand how the AI ecosystem is working, who are the emerging players, who are the traditional players that are using AI and leveraging it to your advantage as an enterprise client. In the middle, we have a lot of AI research that we provide around software, around technology providers and what clients are doing in enterprises.

And then of course we use ISG and inside ISG we use AI as well. Our platforms around GovernX has intelligent contracting involved in it. Our AOA platform around, Tango for our sourcing has in it. ISG GPT, we have a closed system that we can utilize inside our firm. So we’re looking at advisory, we’re looking at research, and we’re looking at using and are using AI, to our benefit as well.

Now if you think about the competitive landscape, who do we compete with? There is no one competitor that looks like ISG, but there are certain competitors or peers out there that do segments of what we do. The number one competitor that we have is the large procurement departments in these big corporations worldwide. Their answer is, oh, we can do this for the end user who might be the CIO or the COO of the firm. Our answer to that with procurement is look, we’ll partner with you, but we do this for a living.

We have a database goes way beyond your firm. You can have access to that. We can benchmark, etcetera. But on the research side, think about Gartner. That is our biggest competitor around research and benchmarking.

On the advisory side, we will run into the audit firms like KPMG, here in The United States or might be PwC over in Germany. And then on the governance side, where we govern using our GovernX platform, we might run run into some small technology players that specialize in certain bits of software. But overall, our number one competitor is procurement. In our view is let’s take some share from the procurement departments and we’ll be in great shape. We also are known as the authoritative voice of the industry in the whole area of sourcing.

Each quarter, we get on a call with, we call it the ISG Index. We’ve done it for eighty seven consecutive quarters. We get a thousand to 2,000 people on these calls. These are the industry analysts that follow the IDMs, the Accentures, the Cognizance. These are the technology providers as well.

These are enterprise clients. And all they they want to know every quarter is who are the winners, who are the losers. Where is the industry going, where are the contracts, who is earning them, who is gaining them, who is losing them. And we report on all of this. We put this index onto our website after we have these index calls each quarter, so that the industry can access to them, access, our data from our from our website.

We do this primarily so that we keep our brand in the market and we are known as the authoritative voice in this brand in this industry and have been doing this for a very long time. The last slide that I’ll cover and then I’ll hand it over to Michael is just to comment on our culture and values. We have one of the lowest turnover rates in the industry. We do because we offer a cultural environment where everybody can innovate, everyone can be an entrepreneur, and they can operate in multiple industries with leading edge technology. And we can also do it because we make everybody an owner operator in our firm.

When individuals come into our firm, especially the management teams into our firm or when we do an acquisition, we always have, stock as a component of our compensation or a component of any deal. And that’s so that everyone can operate as an owner operator in our firm, and you can see some of the great, recognitions that we get, from third parties around the world. So with that, let me turn it over to Michael, who will, kind of, walk you through, kind of, our strategic growth plan and our numbers. Michael?

Michael Sherrick, Chief Financial Officer, Information Services Group: Hey. Thank you, Mike. And, again, thanks everyone for, for their interest and for joining us this morning. Hopefully, some of this slide is going to feel a bit repetitive because I I’m hoping what you’ll see is that our growth plan is very much tied to the strategy and to the positioning that Mike just laid out. First and foremost for us is that recurring revenue stream, as Mike highlighted, in the mid 40s to upper 40s today with a target of of 50%.

That’s a key pillar of our growth plan is it gives us stability, it gives us backlog, and it gives us visibility. Second, you know, Mike touched on AI. We did a rebranding and a pivot this past quarter, really, the quarter prior to this one. But I think what was important is that we’ve been investing in this now for over two years. For those of you who remember, Chat GPT really came into came into the mainstream market and the end of twenty twenty two.

We began an immediate pivot at that point, investing in and certifying all of our own advisors and resources to be AI ready. And so we’ve put a big investment behind that. And that’s a strong piece of our growth plan. Third is, you know, the Mike mentioned the tango, our AI powered platform. This really is just a further investment on our part to keep us competitive and to move us forward and ahead of the curve from the sourcing market.

So, very important piece of our growth plan. And then third, obviously, the digital and business transformation continues. AI is only going to accelerate that. This next one is really the expansion of our portfolio services, and I think this one is actually very important. You know, we’ve talked a lot, for those of you who’ve listened to our calls, on things like change management, training as a service, movement in HCM, all these areas that technology is impacting and creating change creates an opportunity for us, and these are exciting opportunities for us in our growth as we go forward.

And then lastly, you know, we continue to leverage our ISG flex, which is our ability to staff and deploy people from anywhere onto any project. That’s really helped us to support our growth. You’ve seen it also reflected in the utilization levels as our utilization has improved significantly over the last few years. And in particular, the last really four quarters, as we’ve been able to use that flexible staffing to staff people on projects regardless of where they are located. What this is translated into and what you see in front of you here, this is a really an important slide.

In October of last year, we divested of a business unit, our automation business unit. And what you see here is really what I’ll call it the restated revenue numbers showing our ongoing business excluding automation. And what this demonstrates and shows is really a business that has been stable to up over the course of all four quarters of last year. And again, if I think about and you look at our guidance for the current quarter for Q1, it would be a continuation of this trend. So, a solid and stable business that’s showing the improvement that we want to see on a quarter on quarter basis.

Shareholder returns is an important part of our story. Really two main components you see on this slide here. One is our repurchases. We are an active buyer of our stock given we believe it represents significant value at current levels. And so, you see that here.

And then the other is our return of cash to shareholders via dividend. And since 2020, we’re excited to say we’ve returned over $80,000,000 and we expect for that to continue here in 2025. From a capital structure balance sheet perspective, we have a solid balance sheet. End of last year, dollars 23,000,000 in cash, debt of $59,000,000 and I’m happy and proud to say that we reduced that debt over the course of ’24 by $20,000,000 So, we came into ’25 with a very strong capital structure, cash and debt for us to run the business and to operate. So, lastly, on just why ISG, I mean, hopefully, what you’ve taken away from this is one, first and foremost is the market share and what I would call the data moat that we have, right?

We have a competitive advantage with our benchmarking data, the market share we have, the twenty plus years of experience we have in the market positions us extremely well. Mike noted the customer advocacy. He noted the reoccurring revenue that 80% that really tells you that year in and year out, we have the same customers, right? They believe in us. They see value in the work, the ROI that we deliver from them.

That’s extremely powerful in terms of growing the business as we go forward. Hopefully, I outlined for you, when I started the pillars of our growth plan that we’ve put in place. And what we see is the drivers of growth over the next twelve, twenty four and thirty six months. And then lastly, I think, you know, we’ve shown that we have a very methodical and disciplined return of capital and use of capital, which, you know, I think over the medium and long term will continue to create shareholder value. So, with that, we’ll conclude our prepared comments and I’ll turn it back to Mark.

And I think we’ve got a couple of minutes still so we can open it up for Q and A.

Mark Riddick, Senior Analyst, Sidoti and Company: Thank you very much. And as a reminder, if you would like to submit a question, just click on the Q and A button at the bottom of your screen. I wanted to start with the, the question of the day, of course, is around how clients are behaving and acting. I thought the earnings call was was fairly upbeat with with the feedback that you were getting from clients and maybe you could sort of share, your your thoughts on what you’re seeing since the beginning of the year and how the, you know, the the macro and political environment has sort of played into that at all.

Michael Connors, Chairman, CEO, and Founder, Information Services Group: Yeah. Good good question, Mark. I, I think what we communicated and what we’re seeing, first, here in The United States, is the macro environment for the last twelve, let’s call eighteen months has been a bit challenging as all of us know. But what we’re seeing now, I think, is once the election was settled in The US, became certainty what we had. Of course, there’s a lot going on, the tariffs and so forth.

But I would say that from our client base, they have shifted from just thinking about cost optimization to now reigniting their transformation initiatives. And as part of that transformation initiative is because of AI. They know they have to move, they should move with speed, They can’t keep holding back. And so that has began to open up here in The US. And what our view was that we will see that growth and you will see it in our results starting in The Americas in the fourth quarter, which we do it.

We saw Americas was up plus 6%. We expect to see a a good growth level in The United States through the course of 2025, and we’ll see that again, I think, in the first quarter. Europe, on the other hand, I think, will be a back half of next of this year’s story. Again, lots of elections, Germany, France, The UK. We’ve got the geopolitical issues going on with Ukraine and with Israel, etcetera.

So there’s still a bit of a cloud there. And so the focus in Europe still heavily on cost optimization. They have not shifted as fast as The US has on transformation, but we expect to see that, starting later this year. So that’s how we see the environment right now, Mark.

Mark Riddick, Senior Analyst, Sidoti and Company: Excellent. And then that actually in the in the, AI related commentary leads into, I guess, one of the questions that’s come in, from one of our attendees. They’re asking about how you, look out and forecast AI spending maybe over the next five to ten years, and how you see companies CapEx expanding over the next few years?

Michael Connors, Chairman, CEO, and Founder, Information Services Group: So the it’s hard to imagine some of the the numbers that we, are forecasting, frankly. I think you may have seen one of our charts. We think that there’s probably an incremental between now and the end of the decade of a hundred and $75,000,000,000 of incremental revenue that’s out there in the market to be had. And we think that because almost everything that we are seeing with our clients is an AI element. You know, I’ll give you a couple of examples.

So, you know, we are working. Clients want to be able to cost optimize all of their applications. They, you know, one large insurance company top five, spends, spends over $350,000,000 in applications. They have over 2,000 apps. The question is, can we do something with AI to take that, shrink it, shrink not only the number of apps we use, but the cost of applications.

And of course, yes. Infrastructure, there are a number of large enterprises that have their own, you know, capability centers. Can we help, in some way either help using AI automate a lot of that work? Or on another way, could we actually sell our capability centers to a technology provider, get some money upfront, and maybe give them a long term contract. So there’s a lot of elements on AI.

It’s just emerging. But either there’s gonna be a lot of spend there, and we think it’s going to increase the technology spend in these corporations over the next decade.

Mark Riddick, Senior Analyst, Sidoti and Company: Excellent. And then in the midst of the, the growth that you’ve you’ve highlighted and the investments in future opportunities, I think it’s kind of been underestimated how much improvement has taken place in the balance sheet over these last few years, including of course, as Michael alluded to, following the automation sale. Can you talk a little bit about, sort of how you feel about that process and sort of where you’re maybe ultimately targeting?

Michael Connors, Chairman, CEO, and Founder, Information Services Group: Bob, you want to take that?

Michael Sherrick, Chief Financial Officer, Information Services Group: Yeah. No, absolutely. No, I appreciate it, Mark. I think that the teams have done a great job focusing on the balance sheet and focusing on things like collections, which starts with payment terms, right, in the contracts that we sign. So, it’s not just chasing someone down.

It starts at the beginning. So, I do think over the last, you know, twelve to eighteen months, I think we have a balance sheet that is in much better shape. Our DSOs are much more in line with traditional service organizations. And I think that, you know, our objective going forward is to continue that. I think we’ve seen a lot of incremental improvement.

I hope we’ll still see incremental improvement probably won’t be to the magnitude that we’ve seen in terms of the reduction in DSO, the pay down in debt, etcetera. But we’re looking to continue to use our cash in a prudent manner to create shareholder value, whether that be returning via share buyback and dividend, or, you know, the continued improvement of our balance sheet to just position us, you know, to be on the offense as we move forward through what we think is another significant spending cycle.

Mark Riddick, Senior Analyst, Sidoti and Company: And then Mike, you made comments on the industry verticals, which you work with, which is certainly across the board. Wondering if you talk a little bit about what you’re seeing as far as maybe some of the leading industry, as far as current activity and maybe kind of leading the way on the offensive investment side of things. Obviously, there’s gonna be some some leaders and laggards, but maybe if you could sort of highlight a few industry verticals that are sort of beginning to take those steps toward AI and and and investment spending again.

Michael Connors, Chairman, CEO, and Founder, Information Services Group: One of the biggest course, spenders in technology is the whole BFSI or banking, financial services and insurance industry. And that has taken off. That had been a bit of a lull the last year or so. They have now begun to spend again. In fact, just looking at our numbers here, last quarter up 24%.

So that that’s high. If you look at energy and the utility industry, think about AI the amount of energy needed, that is up and that is high. Last quarter, 22.8%, call it 23. Health Sciences just under 10% in terms of growth. Manufacturing is up except for auto.

Auto is not up with the whole issues going on in the automotive industry with EVs hot not hot. Now you have the tariffs possibly factoring in there. And then you have media and the technology side was up 17%. And we see the public sector, not federal in The US, but the public sector on the state and local levels. Here, we also see it in the Ministry of Defense, in Italy and in The UK and in Australia, all beefing up spending.

Those would probably be the hot industry verticals that we see right now, Mark.

Mark Riddick, Senior Analyst, Sidoti and Company: Okay. Excellent. And then we, are at our last moment or so together, so maybe we can sort of turn the call back over to you for some closing comments.

Michael Connors, Chairman, CEO, and Founder, Information Services Group: Great. Well, look, we are very excited about the direction of ISG. We’re right in the middle of technology disruption. We’re right in the middle of several industries going through their own transformation, like the energy industry because of the the whole AI movement. But we’re right in the center of it.

We’re ready. And we believe we have a great future ahead of us because we’re in the center of everything. And that’s why we call ourselves the AI centered, technology research and advisory firm. So we’re excited, and we think there’s a lot of good things happening over the next year or so, Mark.

Mark Riddick, Senior Analyst, Sidoti and Company: Excellent. And with that, I thank you so much. Thank ISG for joining us today, and thank all of our participants. Everybody have a wonderful and productive remainder of the day. Thank you so much.

Michael Connors, Chairman, CEO, and Founder, Information Services Group: Thank you.

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