Good morning, and welcome, everyone, to the Information Services Group's Third Quarter 2025 Conference Call. This call is being recorded, and a replay will be available on ISG's website within 24 hours. Now, I'd like to turn the call over to Mr. Barry Holt for his opening remarks and introduction. Mr. Holt, please go ahead.

Thank you, operator. Hello, and good morning. My name is Barry Holt. I'm the Senior Communications Executive at ISG. I'd like to welcome everyone to ISG's Third Quarter Conference Call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer; and Michael Sherrick, 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 sections of our most recent Form 10-K and 10-Q filings. 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'll be able to obtain free copies of any of the ISG 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 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 Michael Sherrick. Mike?

Thank you, Barry, and good morning, everyone. Today, we will review our outstanding Q3 results driven by strong AI demand, our view of the current market, and our outlook for Q4. ISG delivered an excellent third quarter, continuing our AI-powered momentum with clients and underscoring our solid operating fundamentals. Our powerful combination of strategic, operational and research capabilities allow ISG not just to comment on AI trends, but to shape them as we work with clients to achieve measurable business value from AI. This is the power of having both a technology research and an advisory model. Our Q3 revenues were $62 million, up 8%, excluding results from our previously divested automation unit. Growth was broad-based and led by our largest revenue region, the Americas, up 11%. We also saw a return to growth in Europe with revenues up 7% and continued global growth in our recurring revenues, which were up 9%. From a profitability standpoint, our adjusted EBITDA was up 19% to $8.4 million, and our adjusted EBITDA margin was up 200 basis points to 13.5%. Our profit growth was driven by our improved mix of higher-margin platforms, research and services revenues, combined with our disciplined operating approach. We also had another strong cash quarter, producing $11 million of cash from operations. Over the last 2 quarters, we delivered $23 million of cash, demonstrating the strong cash-generating power of our business. Recurring revenues continue to be an important component of our success, representing 45% of our overall revenue. In Q3, recurring revenues were $28 million, up 9%, led by double-digit growth in our platforms business, including GovernX, ISG Tango and our research business. Our AI-centered approach continues to drive exceptional growth and differentiation for ISG. AI offers so much promise, but also brings new complexity and challenges. Our clients…

Thank you, Mike, and good morning, everyone. As Mike stated earlier, our revenue comparison with the third quarter of 2024 excludes our divested automation unit, which contributed about $3.5 million a year ago. This provides a more accurate view of our go-forward business. Revenue for the third quarter was $62.4 million, up a strong 8% versus the prior year. For the quarter, currency had a $700,000 positive impact on revenue. Americas revenue was $42.2 million, up 11%. Europe revenue was $16 million, up 7% and Asia Pacific revenue was $4.2 million, down 15% from the prior year. Third quarter adjusted EBITDA was $8.4 million, up 19% from the year ago period and resulting in an EBITDA margin of 13.5%, which was up nearly 200 basis points year-on-year. For the quarter, ISG delivered operating income of $4.6 million, up 7% from the prior year's $4.3 million. Reported net income for the quarter was $3.1 million, or $0.06 per fully diluted share as compared with net income of $1.1 million, or $0.02 per fully diluted share in the prior year. Third quarter adjusted net income was $4.7 million, or $0.09 per fully diluted share compared with adjusted net income of $2.5 million, or $0.05 per fully diluted share in the prior year's third quarter. Our headcount as of September 30, 2025, was 1,316, essentially flat with Q2. For the quarter, consulting utilization was a solid 72%, in line with our average third quarter utilization. Year-to-date, utilization of 75% is in line with our long-term target. We ended the quarter with cash of $28.7 million, up $3.5 million from $25.2 million at the end of the second quarter. A key driver of the increase was strong operating cash flow. For the quarter, net cash provided by operations was $11.1 million, fueled by our robust operating results. During the quarter, we paid dividends of $2.4 million and repurchased $2.8 million of stock. Our next quarterly dividend will be paid December 19th to shareholders of record as of December 5th. Fully diluted shares outstanding for the quarter were 50.4 million, down 201,000 from year-end 2024. At quarter's end, we had approximately $8.2 million remaining on our share repurchase authorization. Our quarter end gross debt-to-EBITDA ratio was 1.95x, down from 2.4x at December 31, 2024, and just below our 2 to 2.5x range. At quarter's end, our debt was unchanged. And for the quarter, our average borrowing rate was 6.2%, down 110 basis points year-over-year. Overall, our balance sheet is solid and continues to improve, providing us with a strong foundation to both operate and invest in the business. Mike will now share concluding remarks before we go to Q&A. Mike?

Thank you, Michael. And, to summarize, ISG delivered another excellent quarter, continuing our AI-powered momentum. Our revenues of $62 million were led by another double-digit growth quarter in the Americas, a return to growth in Europe and continuing strength in recurring revenues. We grew our adjusted EBITDA by 19% and our margins by 200 basis points. And we had another very strong cash quarter, generating $11 million in cash from operations. Looking to the future, our AI-centered capabilities and relentless drive for operational excellence positions us well for continued year-over-year growth and margin expansion. 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] Your first question comes from the line of David Storms with Stonegate Capital.

Just wanted to start maybe with the EBITDA margin expansion. It was mentioned that you had a nice improvement in mix, which I'm assuming is the divestiture of the automation portion of the business and then also some nice efficiency in OpEx. How would you characterize the stickiness or stability of the efficiency improvement? Should we expect this margin to kind of continue?

Thanks, Dave. Yes, so look, our -- we've got a number of kind of margin expansion avenues. One is our own efficiencies using AI. And one of the best metrics of that is ISG Tango, which we are using for all of our sourcing transactions. It's now got about $15 billion going through it. But importantly, what it does is it accelerates time to value for the enterprises, and frankly, for the technology providers who may be bidding on that business with our enterprise client. So it creates efficiency. It creates speed, it creates productivity. And then, when we launched it just a little over 1 year, maybe almost 1.5 years ago, I think we said that it would be one of our drivers to expand margins. And the reason for that is that we can do it faster, more efficiently, and we can do it with a higher level of margin because of it. So that's one area. The second area is the mix of what we are actually able to provide with our clients and areas around our recurring revenue streams, which continue to expand. And of course, when you're able to build it once and sell it many times, it helps a lot. But importantly, all of the AI work that we are doing, it is premium work. Therefore, we have good pricing, if you will, power around the work that we're doing in AI. But it's only going to expand because it's still in the very early innings. So you couple both our internal efficiencies along with a mix that is in high demand at the client level and you add in the growth that we're getting in recurring, we're pretty confident we're going to be able to continue our expansion in our margins. I hope that helps, Dave.

No, that's very helpful. I appreciate that color. My second question here and kind of a follow-up to that, maybe dialing in a little more on Europe. It's great to see growth kind of returning to that market. I was hoping you could spend maybe a little more time talking about the pipeline you're seeing there? Are you -- do you feel like you're still working with customers that are maybe on the cutting-edge first movers? Or are you starting to get into maybe the meat and potatoes of that client base?

Again, good question, Dave. We are -- the pipeline is growing, and it's never been really a big issue as much on the pipeline as it has been on the speed and pace that the European clients are wanting to move. We saw that accelerate a bit, primarily in the cost optimization areas. The transformation areas are slower to adapt over in Europe. And frankly, in the U.S., it's a little slower on transformation than it is on optimization. But I think what you'll see is we're -- that our pipeline is strong, that we see a continued growth level for our European business. We're cautious because of the overall macroenvironment. But right now, there is an appetite that has increased in Europe, especially around optimization, using AI to assist. And if you heard a couple of the points I was making in the remarks, we are operating with 2 of probably the largest transformations going on in Europe by any enterprises right now. And both of them will generate very significant cost savings for those 2 businesses. And when you can start to see real dollars flow through, and in one case we think it will be around 40% savings, that's significant and material. But clients have to be able to be ready to move. These 2 large clients were ready. So that's what we're seeing in Europe, Dave.

Your next question comes from the line of Marc Riddick with Sidoti.

Maybe we could talk a little bit about -- in your prepared remarks, you made mention of some of the potential drivers. You also touched on the potential for interest rate cuts being a benefit. Maybe, I mean, obviously, it's pretty early, but are you beginning to see that already? And as far as loosening of purse strings, are you getting the sense that, that's still a large enterprise-driven issue? Or are we beginning to see some of the smaller movers tend to act on AI?

Yes. Good. Thank you. Look, I think, first of all, the -- to me, the interest rate environment, based on my discussions with a lot of operators and our clients, it's all about the sentiment. And I think that the interest rate environment loosening up gives some a little more strength to move forward with some of their work efforts that they're feeling a little more confident of. And because of that, then that frees up the opportunity to move a little faster on our part with our clients. So to me, the interest rates really add a level of sentiment and confidence that things are going to be a bit better. Yes, we hear a little more higher unemployment, some of these other things. But the reality is, with an interest rate environment that may change a little bit, that may open up things like housing in the United States next year. These things are all positive signs versus a negative sign. So from our perspective, it may free up additional spending. And I would add, Mark, I think the use cases that are being marketed or being stated out in the market that there is really a huge opportunity if you utilize AI at scale, that you can change your business model over time, that -- that's beginning to, I would say, kind of -- is beginning to get resonated with a number of clients. So you couple the 2 together, a little bit more confidence and a little bit more that you're now seeing that there's real returns that could happen. These are not just, in some cases, just kind of little projects, they're becoming much more scalable projects like the 2 that I mentioned in Europe.

Great. Thanks for the color there. And then, you always -- you're sort of broad-based as far as your client exposure and industry vertical exposure. Are there any kind of callouts or standouts either during the third quarter or what you're seeing early in the fourth that you think are worth mentioning?

Yes. I'd say the hot industries, let me start with that maybe, Mark. When I say hot, I mean, the ones that are moving for different reasons, but it's consumer, health sciences, energy, utilities and the public sector. Those kind of 4 or 5 areas are moving each industry segment for different reasons. Consumer, in some cases, because of the tariffs, because that if you're a consumer and you start off with a 4% or 5% margin business and you slap tariffs on, it makes some of your products very unprofitable in a hurry. So what do I do about that? So we're working with a number of consumer companies because of that. Flip it to the other side where you have the energy industry, which is literally on fire, if I may say it that way. And because of that, they are looking for money to help grow their businesses. And so they look at areas around AI that can help them. So it varies a little bit by industry, but those 5 industries, in particular, I think, are quite strong as we go through the balance of this year and probably the turn of '26.

Great. And then just last one for me, I guess, the balance sheet having improved as much as it has over the last few years, now just below 2 times. Maybe you could talk a little bit about maybe the potential for acquisition pipeline out there, maybe what the pipeline looks like, valuations are looking like and maybe if there are any areas or any things that you have your eye out on at the moment?

So good question, Mark. Yes, we are in the market. We continually have conversations. We're focused on everything around increasing our AI capabilities and our recurring revenue streams. And I would say at the end of the day, the market is still what we always believe, and that is you have to provide fair value for a great asset. So we'll continue to have these discussions, and we'll see where they evolve as we go into 2026. But we certainly have our targets in mind, and we'll see if we can do something in '26.

Your next question comes from the line of Vincent Colicchio with Barrington Research.

Nice quarter. I'm just -- I'd like to talk a little bit about the labor market. So your labor was flat. Is that by plan? Or is it getting increasingly difficult to hire people?

No, that's by plan. We've been using -- we eat our own dog food, as they say. We've been putting a lot of automation capabilities into our work efforts, and that has enabled us to, I would say, just have some surgical hires at the moment. So that was a -- that's a planned event. And we might have a few extra between now and the end of the year, but it should be in or around that number at the end of '26.

And then, I don't recall your exposure to the federal market. Remind me of that? And are you being meaningfully impacted by the shutdown?

Yes. We have 0 federal business. Our focus in the U.S. is all on state, local and higher education. So we have no exposure at all to DOGE or any other kind of related federal issue.

And then, on the government -- on the other side of the world, what's going on in the public sector in APAC? And just some color on when we might see that turn?

Yes. So the public sector outside the U.S., we do, do work in the federal area. So we do it in the U.K. We do it in Italy. We do it in Germany. We do it in Australia. And so, the European public sector business is actually quite good. Australia is still not come back. We anticipate it second quarter next year at the moment based on what we can see in terms of pipeline. But that particular region, I think, flips to growth once the public sector, which is a large piece of the spending, comes back, and we anticipate that being kind of roughly second quarter next year.

And then last one for me. Are you seeing a meaningful traction with Tango in the mid-market?

Yes, very good question. So Tango, when we launched it, was intended to do 2 things. One was to help create -- kind of accelerating time to value for both our clients and for the ecosystem providers, which would make it more efficient, more productive, higher margin. So that's the one hand. On the other hand, it gave us an entry into the mid-market. And for us, we call the mid-market kind of $1 billion to $10 billion. So it's a bit of a spread. But it's a market that we never really -- in the U.S. never really went after. Now with Tango, it's been a great success. Over 25% of the platform is now mid-market clients running through there. That could not have been possible without that platform, we don't think. We use it as kind of our entry point in. So we expect the mid-market to be a growth driver for us over the next few years. And AI is helping that because AI clearly adds complexity and opportunity. But I would say most mid-market companies do not have the level of expertise internally to help execute on their AI initiatives, and that plays right into our strength.

Your next question comes from the line of Joe Gomes with NOBLE Capital Markets.

So I just want to go back to the APAC for a second here, a follow-up on Vince's question. I think earlier in the year you were talking about, you expected to see some improvement there after some elections had gone through. And just trying to get a better handle on what is kind of pushing out a return to growth in that market, especially on the federal spending?

Yes. Look, the elections were over, I think it was May, June, so end of second quarter. We expected it may take a little time to gen up, but it's taking longer. We see the pipeline beginning to build, but the pace in which they are moving in the new regime is not quite at the pace we had expected early on. So, again, I don't want to overplay this one because it's really the difference between having about $1 million more of revenue in a quarter down there than anything. So on the scope of things, it's a small piece, but that is what will be necessary to turn that because the commercial side is not big enough to drive the growth without public.

Okay. Thanks for that. And then I understand there's very limited, I'll call it, if any at all, exposure to the federal government here. But are you seeing any secondary impacts from like the government shutdown on any of the areas, whether it would be state and local or the education market?

No, 0. In fact, I think our public sector was up in the U.S. almost 30% in the quarter, just to give you kind of a flavor and primarily because they are moving on -- they have a lot of -- they have a large older workforce. The technology is still pretty old. So using AI to assist them to move at more of an accelerated pace defined in the public sector as accelerated, has been a good thing. So nothing from the shutdown has impacted and it's reflected in our growth for the quarter of about 30%.

Okay. And then on the recurring revenues, I was just looking -- it looks like they were basically flat with what occurred in the second quarter, the same $28 million of revenue and about 45% of the overall. And just wondering, what do you think needs to happen to start seeing some of the faster growth on the recurring revenue side of the business?

Well, first, we think 9% is pretty good. So year-over-year is how we look at it mostly. So we were around [ $20 million ] -- Michael, $28 million, I think, for the quarter, and that was up 9%, Joe, from a year ago. So look, we feel very good, and we think that recurring revenue stream will -- we're probably sitting at about $100 million. And this year, we'll sit at about $110 million, I think, roughly when the year is out. That's just a quick estimate. And we expect that to be $120 million plus next year, to give you an indicator on where we're going.

Okay. Great. And just real quick, if I may, maybe can you give us a little update on the Martino acquisition and how that is progressing?

It's now almost fully integrated. It will be by the end of the year. We had a kickoff meeting the first week of September, taking our Italian business and theirs together, and we're very, very pleased with the leadership, Andreas Martino, who is the CEO now of our overall Italian business coming out of Martino. So that's pacing nicely. And we have some good, nice little recurring revenue stream there, and it's a nice little strategic add-on for us. So it's moving well.

Your next question comes from the line of Gowshi Sri with Singular Research.

Can you hear me?

Yes, sir.

Finally, with so much boardroom focus on AI, are you sensing any increased effort from the traditional IT consultants or the hyperscalers to encroach on your advisory relationships?

I'm sorry, I didn't catch the last part, Gowshi?

Are you sensing any increased competition from the traditional IT consultants or the hyperscalers on your advisory relationships?

No. From our standpoint, no. They are excellent relationship partners with us. I mean, most all of them, AWS and others, are clients of ours, but we do not run into them in a competitive standpoint for the work that we do.

And in terms of AI business, how are the clients quantifying the ROI? And how much of that savings are you able to directly link back to a follow-on project?

Okay. Good question. I mean, I think a couple of things. I think most of the larger enterprises are prioritizing -- if I can say it this way, they're prioritizing profits a little bit over more aggressive growth. And because of that, they are looking at kind of how can they utilize AI and their delivery models to help with cost and risk. And in some cases they're focusing on data acquisition and engineering and governance of kind of the underlying systems that drive some of their business. So from our standpoint, I think we're seeing them wanting to try to scale and do it in a cost-effective way, utilizing a road map to start with, an AI road map, which we help them with and develop, and then begin to execute it at the pace that they're comfortable in doing so. So I think overall, optimization and using AI inside the large enterprises is still paramount. Of course, they want to use it to drive growth. But if they can get the cost from the -- if they can get the dollars from the optimization side, they either will take that to earnings per share or they move it over to their growth initiatives. And it's some combination of both depending on the industry, typically, on which they're operating in at the moment.

Got you. And on the uncertainty around H-1B visa policies under the current administration, any impact of positive or negative on your competitive space or delays either from your side or on the client side?

Gowshi, it's Michael, and good question. Look, I think like anything, change in uncertainty creates opportunity for us, right? The changes that are taking place will no doubt require enterprises to rethink the staffing model and how they've negotiated with providers. And that just creates an opportunity for us for advisory, right? Obviously, we sit here with all the benchmarking and data to be able to share what can and can't be done from on-site versus offshore, et cetera. So I think it creates opportunity for us. It's still yet to be seen, because obviously, this is going to impact the incoming class, if you will, that's applied for this year, which wouldn't be until October that any of them would have landed in the U.S. But I think it can create opportunity for us as people have to rethink their models, and we'll be a part of that process.

As I'm showing no further questions, I'll turn the call back to Mike Connors for his closing remarks.

Well, let me close by saying thank you to all our professionals worldwide for our continuing progress and for their collaboration and unwavering dedication to our clients and driving our long-term success. Our people have a passion for delivering the best advice and support and research to our clients as they continue their AI-powered transformations, and I could not be prouder of them. And thanks to all of you on the call for your continued support and confidence in our firm. Have a great rest of the day.

This concludes today's teleconference. You may disconnect at any time.