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IS

Information Services Group Inc. (III)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered revenue of $59.6M and adjusted EPS of $0.07, both above guidance; adjusted EBITDA rose 68% YoY to $7.4M with margin expanding 554 bps to 12.4% .
  • Against S&P Global consensus, III posted a beat on revenue ($59.6M vs $58.6M*) and Primary EPS ($0.07 vs $0.06*), continuing sequential margin gains and utilization strength ; estimates from S&P Global*.
  • Q2 2025 guidance calls for revenue of $59.5–$60.5M and adjusted EBITDA of $7.0–$8.0M, with a declared $0.045 dividend payable June 27, 2025 .
  • Americas led with 17% YoY growth (ex-automation) to $41.0M; Europe ($13.8M) and APAC ($4.8M) remained soft on macro/geopolitical and pre-election dynamics, respectively .
  • Management’s AI-centered positioning, recurring revenues (44% of total), and the ISG Tango platform ($9B+ contract value flow) underpin margin uplift and are key narrative catalysts for the stock .

What Went Well and What Went Wrong

What Went Well

  • Margin acceleration: adjusted EBITDA up 68% YoY to $7.4M; margin up >550 bps to 12.4%, driven by improved mix and disciplined operations .
  • Americas strength: revenue $41.0M, up 17% YoY (ex-automation), with double-digit growth in technology advisory and verticals including banking, energy, utilities, health sciences, and public sector .
  • AI-centered execution: 200+ clients served in last 12 months; ISG Tango contract flow >$9B, enabling efficiency and opening mid-market opportunities; “AI increasingly embedded in all areas” .

What Went Wrong

  • Top-line reported decline: revenue down 7% YoY to $59.6M (vs $64.3M), reflecting divestiture of the automation unit; FX was a ~$0.5M headwind YoY .
  • Europe softness: $13.8M, down 13% YoY (ex-automation) and 22% reported; management cites tariff uncertainty, geopolitics, and elections limiting low-impact verticals .
  • APAC headwinds: $4.8M, down 15% reported YoY, driven by sluggish Australian government spending ahead of May elections; recovery expected later in 2025 .

Financial Results

Sequential trend (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$61.3 $57.8 $59.6
Operating Income ($USD Millions)$4.3 $0.2 $3.4
Net Income ($USD Millions)$1.1 $3.0 $1.5
Diluted EPS (GAAP) ($)$0.02 $0.06 $0.03
Adjusted EBITDA ($USD Millions)$7.1 $6.5 $7.4
Adjusted EBITDA Margin (%)11.6% 11.3% 12.4%

YoY comparison

MetricQ1 2024Q1 2025
Revenue ($USD Millions)$64.3 $59.6
Net Income ($USD Millions)$(3.4) $1.5
Diluted EPS (GAAP) ($)$(0.07) $0.03
Adjusted Net Income ($USD Millions)$0.7 $3.7
Adjusted EPS (Diluted) ($)$0.01 $0.07
Adjusted EBITDA ($USD Millions)$4.4 $7.4
Adjusted EBITDA Margin (%)6.9% 12.4%

Consensus vs Actual (S&P Global; oldest → newest)

MetricQ3 2024 Consensus*Q3 2024 ActualBeat/MissQ4 2024 Consensus*Q4 2024 ActualBeat/MissQ1 2025 Consensus*Q1 2025 ActualBeat/Miss
Revenue ($USD Millions)$60.6*$61.3 Beat$57.6*$57.8 Beat$58.6*$59.6 Beat
Primary EPS ($)$0.055*$0.05 Miss$0.05*$0.06 Beat$0.06*$0.07 Beat

Values retrieved from S&P Global*.

Geographic revenue breakdown (reported; oldest → newest)

RegionQ3 2024 ($M)Q4 2024 ($M)Q1 2025 ($M)
Americas$40.1 $37.9 $41.0
Europe$16.2 $14.9 $13.8
Asia Pacific$4.9 $5.0 $4.8

KPIs and balance sheet (oldest → newest)

KPIQ4 2024Q1 2025
Consulting Utilization (%)72.0 77.7
Recurring Revenue ($M; % of total)$—$26; 44%
Cash from Operations ($M)$6.6 $1.0
Cash Balance ($M)$23.1 $20.1
Gross Debt/EBITDA (x)2.4x 2.1x
Average Borrowing Rate (%)7.0 6.5
Share Repurchases ($M)$2.3 $3.3
Dividends Paid ($M)$4.5 $2.2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q1 2025$58–$59 Actual $59.6 Beat vs guidance (top end exceeded)
Adjusted EBITDA ($M)Q1 2025$6.5–$7.5 Actual $7.4 Delivered near top end
Revenue ($M)Q2 2025—$59.5–$60.5 New
Adjusted EBITDA ($M)Q2 2025—$7.0–$8.0 New
Dividend ($/share)Q2 2025—$0.045 (payable Jun 27; record Jun 6) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
AI/Technology InitiativesBuilding AI advisory; ISG Tango at $5B flow; embedding AIOps in sourcing AI-centered repositioning; Tango at $7B; goal to double AI clients in 12 months 200+ AI clients TTM; Tango >$9B; 90% client-facing trained in AI; recurring SW research wins Accelerating adoption and monetization
Tariffs/MacroCautious demand; tariffs uncertain; larger/longer contracts for cost optimization U.S. demand improving; cost optimization thriving amid tariff noise U.S. double-digit growth expected in Q2; Europe pipeline improving as tariff/geopolitical clarity emerges U.S. strengthening; Europe set to rebound H2
Regional TrendsAmericas down YoY; Europe/APAC weaker Americas up 6% ex-automation; Europe down; APAC down Americas +17% ex-automation; Europe/APAC soft; APAC likely to benefit post elections Americas leadership; APAC recovery later
Recurring Revenue—45% firm-wide; GovernX strong $26M; 44% of revenue; mid-market unlocked via Tango Stable/high-quality mix
Global Capability Centers (GCCs)——“GCCs are hot”; CEO summit planned; advisory expanding Emerging growth vector
Capital AllocationDebt reduction; cash generation 25% debt paydown FY; buybacks/dividends; M&A pipeline Leverage at low end; continued buybacks; evaluate M&A in digital/AI/recurring revenue Ongoing balanced deployment

Management Commentary

  • “Excluding results from our divested automation unit, Q1 revenues were up 5 percent, led by 17 percent growth in the Americas… Our adjusted EBITDA was up 68 percent and our adjusted EBITDA margin was up more than 550 basis points… Our new ‘AI-centered’ positioning is resonating with clients” .
  • “We expect demand to continue in Q2, driven by cloud, AI, data analytics and infrastructure modernization… targeting revenues of between $59.5 million and $60.5 million and adjusted EBITDA between $7 million and $8 million” .
  • “More than $9 billion of contract value now flows through ISG Tango… up more than 30% from the fourth quarter” .
  • “Consulting utilization of 77.7%, up from 70.2% in the year ago quarter… gross debt-to-EBITDA ratio was 2.1x” .

Q&A Highlights

  • Americas outlook: Management expects double-digit growth again in Q2 in the Americas, citing strong demand across transformation and optimization work tied to tariffs and sector dynamics .
  • Europe pipeline: Uncertainty (tariffs, geopolitics, elections) persists, but pipeline is building; management anticipates improvement starting Q3/Q4 2025 .
  • Utilization and hiring: Utilization at high end; no expectation to move higher; hiring remains “prudent and disciplined” aligned to demand .
  • Capital allocation: With leverage at low end of the range, III will balance buybacks, dividends, and selective M&A focused on recurring revenue and AI/digital assets .
  • AI talent and pricing: No wage pressure; 90% of client-facing trained in AI; firm pricing in AI services supports margin trajectory towards “teenager” margins .

Estimates Context

  • Revenue and Primary EPS beat S&P Global consensus in Q1 2025; sequential beats also registered in Q4 2024, while Q3 2024 saw an EPS miss despite a revenue beat .
MetricQ3 2024 Consensus*Q3 2024 ActualQ4 2024 Consensus*Q4 2024 ActualQ1 2025 Consensus*Q1 2025 Actual
Revenue ($USD Millions)60.6*61.3 57.6*57.8 58.6*59.6
Primary EPS ($)0.055*0.05 0.05*0.06 0.06*0.07

Values retrieved from S&P Global*.

Where estimates may need to adjust:

  • Continued margin uplift and high utilization, plus Americas-led demand, may support upward revisions to FY EBITDA/EPS; Europe/APAC recovery timing remains a swing factor .

Key Takeaways for Investors

  • III beat revenue and Primary EPS consensus in Q1 and guided Q2 to flat-to-up revenue with higher EBITDA, signaling demand resilience amid tariff uncertainty .
  • Margin expansion is broad-based (mix, platforms, utilization); recurring revenue and AI-centered offerings are driving structurally better profitability .
  • Americas demand is the near-term growth engine; watch H2 inflection in Europe and APAC (post-elections) for full-year upside .
  • ISG Tango (> $9B flow) and AI advisory scale are catalysts for mid-market penetration and faster, higher-margin delivery—key to the narrative and valuation re-rating .
  • Capital allocation remains shareholder-friendly (dividends, buybacks) with optionality for targeted M&A in AI/digital/recurring revenue .
  • Short-term: Stock may respond to beats and guidance stability; monitor Q2 execution in Americas and any early signs of European pipeline conversion .
  • Medium-term: AI adoption curve, platform monetization, and recurring revenue mix support thesis for sustained margin expansion and EPS growth .