Information Services Group Inc (III) 2021 Q2 法說會逐字稿

Good day, and welcome to the Information Services Group's Second Quarter '21 Results Conference Call. Today's conference is being recorded, and a replay will be available on ISG's website within 24 hours.

At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. Barry Holt. Please go ahead, sir.

Thank you, operator. Hello, and good morning. My name is Barry Holt. I'm a senior communications executive at ISG. I'd like to welcome everyone to ISG's second quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer; and Bert Alfonso, Executive Vice President and Chief Financial Officer.

Before we begin, I'd like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements, which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated.

For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our Form 8-K that was furnished this morning to the SEC and the Risk Factors section in ISG's Form 10-K covering full year results. You should also read ISG's annual report on Form 10-K and any other relevant documents, including any amendments or supplements to these documents filed with the SEC. You will be able to obtain free copies of any of ISG's SEC filings on either ISG's website at www.isg-one.com or the SEC's website at www.sec.gov.

ISG undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

During this call, we will discuss certain non-GAAP financial measures, which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non-GAAP measures, which we will touch on today, include adjusted EBITDA, adjusted net earnings and the presentation of selected financial data on a constant currency basis. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non-GAAP measures, please -- measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8-K, which was filed this morning with the SEC.

And now I'd like to turn the call over to Michael Connors, who will be followed by Bert Alfonso. Mike?

Thank you, Barry, and good morning, everyone. This morning, I will review our second quarter results, provide guidance for the third quarter and discuss an increase in our share repurchase authorization. ISG had an excellent second quarter, continuing our momentum. It was the fourth quarter in a row, we delivered outstanding results, and the outlook for the second half remains strong. Overall, our services continue to be in high demand as companies accelerate their digital transformations coming out of the pandemic and embrace cloud computing in growing numbers.

Our Q2 results were terrific across the board. For the quarter, we delivered revenues of $71 million, up 23% over the prior year, with all regions up double digits. Recurring revenues of $22 million, up 18% from the prior year and representing 31% of our firm-wide revenues and EBITDA of nearly $10 million, up 32% versus the prior year.

Our results overall reflect the success of our ISG NEXT operating model, which is improving our agility to respond to client needs, increasing our account expansion opportunities with our solution-centric approach and contributing to our margin expansion. The continuing impact of ISG NEXT is reflected in our adjusted EBITDA margin, which at 14% was up 100 basis points versus last year and in our consulting utilization, up 400 basis points to 74%.

Our balance sheet is strong with our debt leverage down to 2.1x EBITDA, a multiyear low and a cash balance of $44 million after generating $9 million of operating cash in Q2.

Finally, we lowered our debt to $77 million with a net debt-to-EBITDA ratio under 1, again, a multiyear low. So just an outstanding performance across the board. Looking at the first half, our adjusted EBITDA reached a record $18.4 million, up 17% from our previous high. And we delivered record GAAP EPS of $0.15 per share, and that's up 67% over our previous best. In addition, we generated $21 million of operating cash in the first half and $38 million over the trailing 12 months, underscoring ISG's durable cash-generating business model.

From a client perspective, in Q2, we served 583 clients, and that was up 19% versus last year. Of that total, 64 were brand new to ISG, and that's an increase of 31% year-over-year. All of these were won from a work-from-home selling environment.

As I mentioned, ISG NEXT is increasing our account expansion opportunities. Year-to-date, our revenues from existing clients grew by 15%. As we look in the second half, we see a continuing strong market for our services. Despite the potential impact of the Delta variant and uneven vaccination levels around the world, we see many of our enterprise clients stepping up their digital investments coming out of this pandemic. ISG is ideally positioned to meet this pent-up demand and help our clients adapt to what we see as a structural shift to more cloud adoption and digital business overall.

To strengthen our demand response in the second quarter, we added 3 senior partners to our firm that will enable us to address some of our largest growth opportunities in 3 areas; enterprise cloud, digital transformation and digital engineering while strengthening our diversity.

Turning to our regions. The Americas delivered a terrific Q2 performance with $40 million of revenue in the quarter, up 28% versus the prior year. This is as strong a quarter as we have ever seen from the Americas. In the Americas, we saw double-digit growth in our consumer services, energy, utilities, health sciences and media verticals. Among our service lines, consulting, automation and research, all were up double digits. Key client engagements during the second quarter includes Caesars Entertainment;[Mosaic]; PPD, which is a global contract drug research and development organization; the State of Idaho; and FedEx.

One of our key client wins in Q2 came when we signed a new technology sourcing engagement with a major financial services company worth nearly $1 million. The win was due to a strong client relationship and our banking insight and market knowledge. ISG also has been awarded a $1 million technology engagement with a leading global health care and pharmaceutical distribution company. The engagement will leverage ISG future source, our industry-leading proprietary methodology to achieve optimal results for both infrastructure and applications.

Additionally, ISG has been awarded a new sourcing and invoice engagement valued at more than $1 million with a live video production and distribution services company. This is a new client for ISG that we won leveraging a long-standing positive relationship with the company's private equity owner.

Now turning to Europe. Our Q2 revenues of $24 million were up 13% versus the prior year. The European macro environment remains cautious due to uneven vaccination rates across the region and in particular, in the quarter, flares up of the delta variant in places like the U.K. During the quarter, EMEA delivered double-digit revenue growth in our consulting, research and GovernX businesses. Among our industry segments, banking, consumer, energy, utilities and insurance verticals grew by double digits versus the prior year. Key client engagements in Europe in the first quarter included Nestle, Munich Re, Fresenius, BNP Paribas and Chemical Company, LANXESS. We continue to grow our business with existing clients, including expanding our relationship with a major global financial services company based in Germany with a new $2 million cybersecurity engagement.

We also added nearly $1.5 million of business with a major health care company for a digital transformation strategy. In the automotive arena in Europe, we won digital transformation business with a brand-new client, a manufacturer -- a major manufacturer of trucks and buses that is majority owned by one of our largest European automotive clients. And we won a contract assessment engagement of nearly $1 million with one of the U.K.'s major automotive manufacturers.

Finally, we are seeing a continuing terrific performance in Asia Pacific. Revenues in the region were up 36% versus the prior year driven by growth in the public sector, banking, insurance and energy industry verticals. Key clients in the quarter included the Australian Taxation Office, SunCorp, Rio Tinto, The Australian Departments of Defense and Home Affairs and Worley, an engineering services company to the energy chemical sectors. We continue to expand our relationships with existing clients. In Australia, we were awarded a significant extension for enterprise change management valued at nearly $2 million with a leading global mining company. The award continues ISG's relationship with this client for a third straight year.

Now turning to our ongoing efforts to increase shareholder value. We continue to believe that ISG shares are undervalued. In consideration of this, our Board approved increasing our share repurchase authorization by $25 million. This brings our current total authorization to $28 million. The timing and the amount of any repurchases will be determined based on our evaluation of market conditions, capital allocation alternatives and other factors. Our Board of Directors also approved a third quarter cash dividend of $0.03 per share of common stock payable on September 24 to shareholders of record at the close of business on September 7. I should note that in Q2, we returned nearly $10 million to our shareholders, including $8.3 million of share buybacks and $1.5 million in dividends. The increase in our share repurchase authorization and declaration of a quarterly dividend underscores our long-held commitment to reward our shareholders through a robust capital return program.

Now let me turn to guidance. The pandemic continues to have lingering effects on several client industries and in certain markets in Europe where vaccination rates are uneven. As I mentioned at the outset, the demand environment remains strong. Clients are accelerating their digital investments coming out of the pandemic. This reflects both pent-up demand and the structural shift to more cloud adoption and digital transformation. We see demand for our services moving in lockstep with these market dynamics. Balancing summer seasonality and the uneven recovery of the macro environment in Europe with the robust U.S. and Asia Pacific demand environment, we are still targeting double-digit growth over the prior year in the third quarter with revenues of between $66 million and $68 million and adjusted EBITDA between $8 million and $9 million.

Now it's my pleasure to welcome our new CFO, Bert Alfonso, who joined us in June and is participating in his first ISG investor call. We are delighted to have him as part of our ISG leadership team and as your primary investor contact. So with that, let me turn the call over to Bert, who will summarize our financial results. Bert?

Well, thank you, Mike, and good morning, everyone. It's my pleasure to be addressing you for the first time as ISG's new CFO. I want to thank David Berger for a very smooth transition into my new role and I look forward to a continuing dialogue with you.

Looking at the quarter, our momentum continues following record Q1 results. Revenues for the second quarter were $70.6 million, up 23% on a reported basis and up 17% in constant currency compared with the second quarter of last year. Currency positively impacted reported revenues by $3 million versus the prior year. Reported revenues were $40.3 million and particularly strong in the Americas, up 28% versus the prior year; $23.7 million in Europe, up 13%; and $6.5 million in Asia Pacific, up 36%.

Second quarter 2021 adjusted EBITDA was $9.7 million, up 32% from last year's second quarter. Second quarter operating income increased 66% to $5.8 million compared with $3.5 million in the prior year. Net income was very strong for the quarter at $4.1 million or $0.08 per fully diluted share compared with a net income of $0.6 million or $0.01 per diluted share in the prior year.

Second quarter adjusted net income of $6.3 million or $0.12 per fully diluted share compared with adjusted net income of $2.9 million or $0.06 per share in the prior year's second quarter. Consulting utilization for the second quarter was 74%, up 400 basis points versus the prior year, reflecting the impact of our new ISG NEXT operating model.

Our balance sheet continues to have the strength and flexibility to support our business over the long term. Net cash provided by operations for the second quarter was $8.9 million, and we ended the quarter with $43.8 million of cash, up 39% from $31.6 million in the prior year. We repaid $1.1 million of debt in the quarter, lowering our debt balance to $76.6 million and our net debt-to-EBITDA ratio to 0.9x. In addition, we paid $1.5 million in dividends to ISG shareholders and repurchased $8.3 million in ISG shares. Our average borrowing rate for the quarter was 2.2%, down 27% from last year's rate, and we had 48.4 million shares outstanding as of June 30.

Now I'd like to turn the call back over to Mike, who will share some concluding remarks and take some Q&A. Over to you, Mike.

Thank you, Bert. To summarize, we continued on our outstanding performance in the second quarter. Q2 revenue, up 23%; EBITDA, up 31% with revenue, EBITDA and EPS all beating expectations. Our balance sheet remains strong, $44 million of cash and net debt down below 1x EBITDA.

Our new operating model, ISG NEXT is driving a more profitable enterprise with a 100 basis point improvement in our EBITDA margin in the quarter. We see strong demand for all things digital playing to the ISG sweet spot. To reward our shareholders, we increased our share repurchase authorization by $25 million, and we announced our second consecutive quarterly dividend. And we expect our momentum to continue as we target double-digit growth in the third quarter. As always, we are focused on creating shareholder value for the long term, and we are steadfast in our mission to deliver operational excellence to our clients.

So thank you very much for calling in this morning. And now let me turn the session over to the operator for your questions.

(Operator Instructions) We will now take our first question from Marc Riddick of Sidoti.

So there's quite a bit to get into. So certainly a very strong quarter, and it sounds like off to a good start in the guidance commentary. So wondering if you could talk a little bit about how we should think about the pacing through the quarter? And as far as -- not just as far as demand, but how we should think about how things kind of flow to maybe in terms of utilization as well?

So Marc, first of all, thanks for the questions. Look, second half, I think, is looking very good. There's a couple of things to keep in mind. Third quarter in Europe, of course, is vacation time with all the clients, so it gets a little slower. We have to keep an eye on this pandemic situation. But having said all of that, if you balance kind of the Europe situation, which we expect to be relatively flat in Q3 with the robustness everywhere else in the world right now, U.S., Asia Pacific, that's why we're guiding towards what we are targeting, which is double-digit growth.

On utilization, utilization tends to be slightly less in the third quarter, again because our teams take vacations in Europe as well with the clients. So we do expect to still see something that has a [7] in front of it. So utilization should still be quite strong for us with our new operating model. but slightly less than what we saw in Qs 1 and 2, but that's more just seasonality involved there. So that's how we see the kind of the second half unfolding.

Okay. Great. And then thanks for the color on the 3 senior partners being in. I was wondering if you could bring us up-to-date on where we are overall on headcount and what we might see there going through the end of the year?

Yes. Well, first of all, let me just comment on the partners, and then I'll have Bert give you the headcount numbers. But first of all, we brought in, which we normally do not do, but we brought in 3 really industry players that -- into the market, 1 around digital engineering. In that role, we define digital engineering really as the integration of IT kind of operational technology and engineering technology. And so we see that playing out mostly in industries like manufacturing and automotive and pharma and chemicals and so forth. So that's an important area.

Second, of course, is cloud, enterprise cloud, we call it. And as we know, more and more is moving to the cloud, and this is around us helping develop cloud implementation strategy and readiness and around kind of cloud ops, we call it, designing cloud operational models and so forth. And then, of course, thirdly, is we're beefing up our digital area with another senior partner. So we're very heavy into digital transformation. So that's kind of where we are on those 3 partners. Bert, do you want to comment on the head count?

Yes, we had some head count increase in the second quarter. We were at about 1,290 and that's up from about 1,265 in Q1. And really, that reflects the continuing growth in the business. We look at the back half to be similar in number to about where we have in the second quarter.

Okay. Great. And then I was wondering if you could talk a little bit about the -- certainly, the margin benefits are pretty clear, and we're seeing the benefits of NEXT. I was wondering if you could sort of give us sort of your own thoughts as to what -- how that is rolled out and so maybe a little more background as to the benefits of NEXT?

Okay. So Marc, this is -- we're very -- this has been a, frankly, a very strong strategic move on our part dating back to last -- second quarter last year. And essentially, the way this is working is that we kind of grouped our business into ISG Digital and ISG Enterprise. And we put our colleagues kind of in those 2 buckets globally. And now with our iFlex model, which is our work-from-home model, if you will, we can now leverage our skill sets and our talent anywhere in the world on any given day.

So if we have a digital transformation piece of work with a major automotive manufacturer in Germany, our digital transformation experts in the United States and in Australia and in Europe, can all participate with that client because they don't need to physically be on-site or if we have a digital engineering with a major manufacturer here in the United States, or cybersecurity, we can take our teams of experts. And on Monday, Tuesday and Wednesday, they can work out with Microsoft from Seattle from home. And then on Thursday and Friday, they can work with the automotive manufacturers over in Munich.

So that's how we are leveraging this model. That's how we're taking our ISG NEXT by simplifying ISG really into digital and enterprise. And that is really what's leveraging this expansion on the multiple front. As you know, I committed to moving 400 basis points of improvement off of our 2020 over 2 years. And certainly, in year 1 this year, we are well on our way there.

Excellent. And then I could maybe sneak in one last one. I was wondering if you could give sort of an update as to -- certainly, the cash flow has been strong, and the commitment to returning capital to shareholders is very encouraging. Wanted to tell a little bit about what you're looking at from an acquisition pipeline perspective and maybe some of the things that you might see there and some potential target areas?

Yes. Okay, Marc. So look, first on the acquisition front, as you know, we are very active acquirers. We are also importantly, very disciplined in our pricing there. And we are very active in all things around digital or things around recurring revenue streams and anything in the area of kind of transformation, business transformation. Those are our focus areas. We call that our string of pearls strategy. And of course, we're always on the hunt if there is a transformational acquisition out there. But as we all know, those tend to be more opportunistic. But from a strategic standpoint, the acquisitions are focused around digital recurring and, if you will, kind of the overall business transformation areas, and we are quite active in the market as we speak there, but nothing imminent.

We will now take our next question from Joe Gomes at NOBLE Capital.

Excellent quarter. So the first one, I kind of want to talk a little bit about the ISG Automation business. Last quarter, you talked about the big win there. I wanted to know how that was unfolding? Or are you seeing that big win translate into additional opportunities or momentum for this business in the succeeding period?

Yes. So Joe, first of all, on ISG Automation, it is performing exceedingly well, as is all of our digital businesses. And we see that continuing in a double-digit scenario for the balance of 2021. Our digital business overall, if you think about it that way, I mean, it's much, much deeper and broader than just "automation". Automation is a small segment of that. And I would say our overall digital business is literally on fire. And that's why we invested in bringing in some additional talent into the organization and hire them during the quarter is because for the foreseeable future, we believe this whole area, all things digital, if you will, is going to be the hottest area for ISG. And as you know, our revenues now are well over 50% what we call our digital revenue. So that's how I'd probably answer that, Joe.

Okay. And is there any reason you guys continue to build cash? Or is that kind of just being conservative with your capital at this point? I know you do have some of the debt outstanding there, and you got the dividend and the buyback, but just -- you continue to build cash, great. But just wondering if -- what is the rationale behind that?

Yes. I mean the cash buildup is really more a consequence of how well the business is doing and the fact that we're generating strong cash from operations over the last several quarters. Certainly, the authorization that the Board approved of the $25 million gives us more optionality in terms of buying back shares and returning capital to shareholders in that regard.

On the debt side, we're very pleased with the interest rate we're playing today, having much better financial metrics. Our interest rate, as I mentioned, was down to 2.2% from 3 plus. So we think that's still a decent leverage level to have. In fact, our leverage is the lowest it's been in many years. So from that perspective, it's something that we do think about and we do discuss with the Board. So we do plan on deploying that capital in the right way to grow shareholder value and to, as Mike said, opportunistically add to the business in an inorganic way if the opportunity presents itself.

Okay. And one more, if I may. Mike, as you just mentioned here, you can just see fantastic results from the ISG NEXT model that you guys have adopted. Are you seeing any of your competitors trying to replicate or move closer to your ISG NEXT model?

It's very -- that's a very good question, Joe. I would say that sometimes imitation is flattering. And yes, we are beginning to see some others take note. We've had a number of calls from our peers. I won't call them "competitors". They are, of course, from time to time, but we stay very well connected, trying to understand how our iFlex model, in particular, works. So yes, I think we have been a firm that essentially was born virtual back when we founded the company in 2006. We have very little real estate around the world. And essentially, what the COVID virus did was kind of put a big spotlight on the model that we established way before COVID.

But what we've been able to do is clients now are adapting to that model, whereas they may have wanted this on-site before they can see the virtues of there's a less cost. You don't have travel costs that they have to eat, et cetera. We do see some of that kind of beginning to break probably later this year, depending on how the variant works in the U.S. So we do expect it to be a hybrid model going into 2022. But yes, I think our model is working. And when those things happen, others take note.

Again, congratulations on the quarter and looking forward to the second half of the year.

We will now take our next question from Marco Rodriguez at Stonegate Capital Markets.

Mike, I was wondering if you can maybe expand a little bit more on your prepared remarks, your comments about the existing client growth? I believe I have written down here if I wrote it done correctly, 15% growth along the existing clients. Can you maybe discuss, I mean, presumably, most of your clients are already doing the cloud or the digital transformation type services. Can you maybe talk about what is sort of driving that? Is it just perhaps other types of services that they're trying to pick up or maybe they're spreading the digital transformation to different parts of their business?

Yes. Good question, Marco. So Look, what we're seeing with the current client base, clearly, they trust us. So we've established a pretty significant trusted relationship with these clients. So if we do well in one area, they ask us in other areas. But I would say a lot of our clients in the key industry segments such as in banking and the consumer areas and health care and insurance just to name a few. They're expanding and accelerating what was happening pre-COVID in areas like cloud adoption, cybersecurity, digital engineering, and importantly, I would call it enterprise change with all of the change that's occurring, whether it's their work from home models, whether it is moving more workloads to the cloud, whether it is digitizing parts of their businesses, whether that's automation, in terms of robots or whether that's simply changing the processes from a little more inefficiency to more efficiencies, it creates a lot of change in those organizations.

And so we've asked -- we've been asked on many occasions, and I think I identified 1 or 2 examples in my prepared remarks to kind of put a wrapper around all of this change in these major companies and take enterprise change, and those tend to be 6-, 12-, 18-month type assignments. So that is where our clients are expanding and allowing us as a trusted adviser to expand with them.

Got it. Very helpful. And then in terms of the performance here in this quarter, obviously, very solid revenue growth year-over-year. And I know the main focus from a margin standpoint for you guys is adjusted EBITDA. But just kind of looking at the gross margin line, you did have better utilization rates year-over-year, obviously, higher revenues, but the gross margin was off a bit. With this new model, is there maybe a slight shift in terms of the structural aspects of gross margins where instead of up at the 42% level in that range, you're down a little bit lower than that?

No, Marco, I wouldn't put it in those terms. I think part of what you're seeing is that last year in the depth of the virus when the economy was completely shut down, the firm took some pretty strong actions from a cost control perspective. And so there were furloughs, there were actually some voluntary salary reductions. And luckily, our business has really responded in a positive way. So you see some of those costs coming back into the second quarter. So there's a little bit of an anomaly there that you might think of as a onetime. I think that over time, we go back to more of what you're used to in terms of our margin structure.

Got it. And then, Mike, kind of a high-level question. In terms of your regions, if you can maybe discuss where do you think are the biggest opportunities for driving revenue growth for the particular regions themselves, if they have any sort of differences there, that would be helpful?

So if I was to go around the world, U.S., it's everything digital. It's cloud, it's automation. It's digitizing certain processes. That is the hot area in the U.S. In Europe, it is hot in Germany. It is hot in the Nordic region. And then I would say, second-tier hot, if you will, would be in the French or South Europe and in the U.K. Over in Australia, as an example, in the Asia Pacific region, digital is catching up. Digital was not at the forefront. You've got a lot of banks, you have the mining companies, resource companies. And of course, they have been in lockdown in one form or another for a number of months on and off. And that normally delays major transformation.

So you will see -- you're beginning to see, you saw that in this quarter with a very large growth in the region in Asia Pacific. And I think you will see that during the back half of the year going into next year as things loosen up. And I know that peak places like Sydney and Melbourne are still in lockdown, but they also know that they've got to move faster on digital -- on their digital journeys, and we are seeing companies in that region gearing up. So that would be how I would probably characterize the different parts of the world.

But digital transformation, business transformation, enterprise change, those all areas. And then, of course, staying informed around our research. Our research has been growing significantly. It's double digit. And why is that? Clients want more insight, more perspectives in terms of trends and emerging and who's hot, who's not? Who are the suppliers in the market that are emerging. And so they're accessing our research to have a better understanding in that regard as well. So those would be the areas.

Got it. And last quick question, if I might. Just kind of following up on a prior question about the building cash and then also kind of dovetailing into the share repurchase you had in this quarter. It seemed like it was a little bit bigger of a bite on the share repurchase that you guys normally do with the sequential decline in share count. I think it was 2016, where you last had a large tender offer on the share repurchase. Just trying to get a sense as far as capital allocation decisions as you look to the second half of this year and maybe into early next year.

Yes, I think what you're seeing is what we talked about previously, which is we're generating more cash. And so we're -- in terms of how we think about our capital allocation, share repurchase, we felt was a good way to get back to shareholders. Obviously, in the last quarter, we had the initial dividend that was approved by the Board, and we see that as an ongoing income stream to shareholders. So I would just think of it as we generate more, we have more options to return cash to shareholders. And you can think of that as how we would operate going forward as we continue to generate higher levels of cash than we have in the past.

We will now take our next question from Vincent Colicchio of Barrington Research.

Mike, nice quarter. Just a few for me. So what caused the upside in the -- the majority of the upside versus your expectations in the quarter by region and service line?

Yes. So look, the combination of accelerating kind of the digital transformations in the consumer sector, the health sciences sector and the insurance sector, in particular, drove more revenue for us, number one. Number two, our research business was red hot as clients were coming out of the pandemic at least in some regards, wanting to be more informed about what was happening in the market. So that took off for us.

And then we're beginning to see signs in what we call digital engineering in industries like manufacturing and automotive and pharmaceutical when they are looking at everything from products to as-a-service models, a lot of these clients, and they want to understand how that can play and can we help them, if you will, in structuring and sourcing solutions for them. And so those areas begin to take off over in the European market.

And then down in Australia, as I mentioned, digital, which had been slow to begin down there, really took off in the quarter, and you saw some significant growth during that part of the region. So I would say an acceleration there around in research. And I would say our network business, where clients are still expanding with work-from-home and other model is also emerging at a little faster clip than we would have anticipated for the quarter, Vince.

And the -- what are you seeing in terms of the tight labor market? And is that affecting wage inflation? And did that have maybe an impact in the quarter on margin?

So look, I think we certainly brought in some additional talent during the quarter. If you look back a number of quarters, we brought in more people this quarter than we have in recent quarters. So that will certainly add a little bit of cost. But that is to be able to get ourselves ready for the continued growth stream that we anticipate kind of going forward.

On the talent front, we have always had the ability, in our view, to attract the talent that we need. Our turnover rates remain at historical lows despite all the noise in the marketplace regarding people moving from one place to the next. Our teams love the flexibility that we have. They love the idea to work where they want to work, where they've always been able to do that, pre-COVID, now COVID. And so our ability to attract talent, we think remains, and I think it's indicative of the 3 partners that we brought in during the quarter, which we have never done before in one quarter in significant areas and be able to attract top talent. So we feel very good about that. I would not say that there's wage inflation at least from an ISG standpoint during this quarter, Vince.

And then the pipeline for new clients remains substantial. And could you remind us the new clients usually start off with small deals? How does that work?

Yes. So as we have said during the prepared remarks, the number of new clients was significant during the quarter. And normally, what happens is they start small, and they build up over 12 months, and then they turn into what we hope are $1 million clients. Not all of them, but they normally start small and think about it in kind of $100,000 or $150,000 in a particular quarter where they join in. And we had -- I think it was almost 20% growth in new clients in the quarter.

So they like our digital-first strategy. They like our ROI. And I would hope that, that kind of ability to attract new clients will continue through 2022. So that is kind of how I would view that one, Vince.

So it looks like that is all the questions that we have for today. So I would like to turn the call back to the speakers for any closing or additional remarks.

Thank you. Let me just close by saying thank you to all our professionals worldwide for going above and beyond to serve our clients remotely in these difficult environment and really helping us deliver these terrific second quarter results. There's really been no letup in our passion for delivering the best advice and support to our clients as they continue their digital journeys. And thanks to all of you on the call for your continued support and confidence in our firm. Stay well, everyone, and have a great rest of the day.

This concludes today's call. Thank you for your participation, you may now disconnect.