III - Information Services Group: Opportunity Still Intact

2024-05-26 19:30:22 ET

Summary

• Information Services Group (III) posted softer sales in Q1, but the company is still positioned for growth from various initiatives and from the shift to recurring revenue.
• III's new product, ISG Tango, has the potential to add additional sales to their legacy Sourcing segment, while their recurring revenue business continues to target untapped accounts.
• As sales grow over time, there should be material operating leverage driving additional EBITDA growth in excess of sales.

Introduction

Information Services Group ( III ) posted a softer first quarter for what I believe represents more transient macro issues. In other words, as noted last time I still think III is positioned to grow from various initiatives and from the shifting mix to recurring revenue, all of which should be further boosted by operating leverage. With their share price down low-single-digit percent from the Q1 earnings release, I think today’s price offers attractive forward returns assuming the aforementioned assumption is correct.

Sales: Pressures Continuing

III posted sales of $64M in 1Q24, ~$14M or 18% lower than the $78.5M posted in 1Q23 (year-over-year), and ~$2M or ~3% lower than the $66M posted in 4Q23 (sequentially). By region, sales were lower across the board: Americas was down 18% year-over-year, Europe was down 23%, and APAC was down 20%. Sequentially though, the Americas was up marginally, while Europe was down ~11%, and APAC was down ~5%. By product type, recurring revenue was ~$30M in 4Q23 ( 45% of sales) and ~$30M in 1Q24 (“ about half ” of sales), implying that non-recurring sales were ~$36M in 4Q23 declining to $34M in 1Q24. So specifically, it was their non-recurring sales that declined sequentially....

For further details see: