Michael Connors: Yes. So, look, it’s a good — it’s a very good question. And let me tell you how we think about it and the context that we think about it in. If you go back to kind of the cloud adoption, call it, 10 years ago and think about how that has matured over the last 10 years. Today, you might see 50%, 55% of the workloads that could go to the cloud are in the cloud today. So, that’s number one to think about 10 years later. The second way to look at AI is it’s new. It’s definitely going to be revolutionary. It still requires lots of education and proof of concepts. It requires kind of understanding what it is and what it can do. So there’s a large education component. They need to understand how the information and the data architect would feed into AI models.
And one of the other elements that all of the tech providers that I’m sure you follow Vince as well is there is also a liability question. So if a technology provider develops a model for Client A. Client A uses that model — and all of a sudden, if it’s an insurance company, as an example, something goes awry in their claims using this AI model, who’s the liable and responsible parties. So, there are a lot of guardrails and legalities around the use of AI models that will take a while to kind of sort out. So I think we’re in the stage of pilots, proof-of-concepts. I think the hype is much bigger than the reality, and I think it will be that way for 12 or 18 months. I don’t expect to see large amounts of real AI, if you will, differentiators before that time frame.
The other aspect of it is that all the enterprises that we are now dealing with are asking us to consider AI as part of the sourcing transaction that they are doing. And they want to understand from the Accentures and the Capgeminis and all these other providers. How are they thinking about the use of AI. And from the enterprise standpoint, one of the things they want is, well, how can I benefit from a cost standpoint? I don’t really want my tech providers to benefit the entirety of that, how do I, as an enterprise, get value from the use of AI. And that will be ongoing over the course of the next, call it, 12 or 18 months. But there’s definitely the hype is bigger than the actual at the moment, but not unexpectedly so, I think, then.
Vincent Colicchio: That was very helpful color. Thank you for that. And then could you highlight the top three practices that should lead growth going forward?
Michael Connors: Well, number one for us is the recurring revenue streams. And in that recurring revenue stream, we have our research. We have our governance. We have our platforms. We have things like our Pro benchmark software platform. We have things like our GovernX platform. So number one is around our recurring revenue streams. Number two is, I believe that the sourcing component where clients are looking at the sourcing element to help them optimize costs and possibly use some of those savings for growth initiatives will accelerate. We’re seeing it in our pipeline right now. So that will be a second area. And thirdly, the transformation journey is still in a long way to go. So transformation is still going to be ongoing.
The pace of those transformations has been slowed because of the macro cloud. And frankly, I think if we start to see a cut or two in the U.S. from a Fed rate or from the European theater over the course of this year. That might also change the sentiment among some of the client buyers that, okay, maybe the worst is behind us because one day, there’s no cuts. The other day, there are cuts. One day is, wait a minute, are we moving toward a recession. The other day is no recession. So, there’s a lot of noise out there. And I think until we see an affirmative kind of movement that will help indicate that, that may help free things up late this year as we turn into 2025 events, at least that would be our take.
Vincent Colicchio: And then one more on the — related to the sourcing platform. So, is there a way for you to parse out business you happen to win on the platform versus — I don’t know if it’s too early to tell to what extent do you think the platform is the cause for the win?
Michael Connors: So, I think first — I think that because we are the global leader in sourcing transactions, and we’ve said this before, we have a greater — we believe we have a greater than 50% share of that marketplace. Number one, they’re going to go to ISG no matter what. That’s step one. What this platform enables is that it enables a client then to also understand that I may be able to get time to value or speed to value much faster using the ISG platform, which then enables me to get to my savings at a faster pace, if I so chose. It also enables the technology providers that we deal with every day to understand that there will be a likely outcome, and that outcome might come a little sooner, and therefore, they might be a little more aggressive in their pricing and therefore, it will benefit the enterprise.
So, I think it’s the combination that we have the leadership position. We’re now adding a nice, strong, efficient and effective platform. Together, I think that is why we will continue to lead in this space.
Vincent Colicchio: Thanks for answering my questions.
Michael Connors: Yes. Thanks, Vince.
Operator: And your next question comes from the line of Michael Mathison with Singular Research. Your line is open.
Michael Mathison: Good morning and thanks for taking my questions.
Michael Connors: Morning Michael.
Michael Mathison: So, obviously, a challenging environment. Just a couple of questions about your income statement in the quarter. SG&A was $24 million. I know that included some severance costs. Can you quantify how much of that was severance and what a good working figure would be for modeling going forward?
Michael Sherrick: Yes. So, Michael, it’s Michael. So the severance in the quarter was $2.1 million. excuse me, $2.9 million. Thank you, was $2.9 million. So you remove that, you’re down around that 21.5% level, and we would expect to remain pretty consistent with that as we look at our outlook for Q2.
Michael Mathison: Okay, great. Now secondly, coming back to Tango, like everybody else, I’m pretty excited by the possibilities there. Particularly since you’re now having your own analysts do their work on Tango, you mentioned you’re getting some efficiencies out of that. Your current gross margin is kind of high 30s, 38, 39, 40 sometimes. Do you have any sort of target of what kind of a lift you would get from the increased efficiency, — nothing to pin you on, but are we talking 2:1 or 10%, something like that?
Michael Sherrick: Yes, I think it’s early in the process, Michael. I mean we clearly expect to see better efficiency and therefore, better profitability. But as Mike said, we’re still in the early stages. It’s a little over $2.5 billion of volume that’s on it. So we want to really see how it matures and what goes in it before we really put a number against that.
Michael Mathison: Understood. Well, good luck with it, though. It’s a very exciting idea. That runs me out of questions. Thanks again.
Michael Connors: Thank you, Michael.
Operator: And I am showing no further questions. So, I will turn the call back to Mr. Mike Connors for his closing remarks.
Michael Connors: Thank you. Well, let me just close by saying thank you to all of our professionals worldwide for your dedication to our clients and for working together as a global team to drive our long-term success. Our people have a passion for delivering the best advice and support to our clients as they continue their digital journeys in both good times and uncertain times, and I could not be more prouder of them. And I want to thank to all of you on the call for your continued support and confidence in our firm. Have a great rest of the day.
Operator: And ladies and gentlemen, this concludes today’s teleconference. We thank you for your participation and you may disconnect at any time.
