Information Services Group (III) reported solid quarterly results last night. Indeed, led by strong demand for its digital transformation, cost optimization, research, workplace and governance solutions from clients in the Americas and Europe, Q4 revenues rose 6.6% year-over-year to $74.2 million and would have been up by an even greater 11.2% if not for the severe currency headwinds the company has been facing. But even with the latter shaving $3.2 million off the top line, the revenues for the period easily exceeded both III’s guided range of $70-72 million and the $71.2 million consensus view. Combined with a more profitable mix of products and services and the efficiencies the company derives from its ISG NEXTXT
operating model, this drove a 30.0% increase in adjusted earnings to 13 cents per share, which was 2 cents better than expected, as well as a 164% surge in operating cash flows from $2.5 million to $6.6 million.

More importantly, with this momentum expected to persist as clients from industries and geographies facing the toughest market conditions increasingly turn to III for its unmatched combination of data, insights, expertise, tools and solutions to help them streamline their technology and operating environments, reinvest in continuous transformation and get the most out of the collaboration between people and technology, the company expects revenues of $73-75 million in Q1. The midpoint of $74 million indicates year-over-year growth of 2% and is slightly ahead of the $73.8 million analysts are projecting even as unfavorable foreign exchange is expected to cut another 2% off the top line. However, the midpoint of the company’s adjusted EBITDA outlook of $10.5 million falls a bit short of the $10.7 million the Street was looking for.

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On a day where investors are already selling anything and everything from the small-cap space, this slightly softer profit forecast is enough to have III’s stock down about 6% today. I think that’s ridiculous when you consider that the slightly softer profit forecast is mostly due to the continued FX headwinds and higher costs related to the additional hiring III has been doing to be able to support its strong pipeline of demand. Most notably, as these new hires get up to speed, the company’s consulting utilization rate should improve dramatically from the 67% it was at last quarter in the periods ahead. If this brings with it a similar boost to profitability as I believe, I think III’s earnings performance will continue to trend better than expected and have its stock back on the upswing it was enjoying prior to today’s market-driven setback.