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Information Services Group Inc. (III)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $61.565M, up 7% year over year excluding the divested automation unit; adjusted EBITDA was $8.298M with a 13.5% margin, and adjusted EPS was $0.08 .
  • III beat Wall Street consensus on revenue ($59.98M*) and EPS ($0.07*), aided by a $0.8M FX tailwind, strong Americas growth (+16% ex-automation), and higher utilization; note S&P tracks “Primary EPS,” which aligns with adjusted EPS here .
  • Management guided Q3 revenue to $60.5–$61.5M and adjusted EBITDA to $7.5–$8.5M, and declared a $0.045 per-share dividend (payable Sep 26, 2025) .
  • Strategic catalysts: AI-centered positioning, AI-related revenue ~20% of total, sold-out AI Impact Summit events, and the acquisition of Martino & Partners to expand Italy footprint and recurring public-sector work .

What Went Well and What Went Wrong

What Went Well

  • Americas revenue reached $39.5M (+16% YoY ex-automation) on double-digit growth in technology advisory, network, software research, and GovernX, with strong wins across consumer, energy, utilities, health sciences, and public sector .
  • Profitability and cash generation improved: adjusted EBITDA margin rose +241 bps to 13.5%, with $11.9M operating cash flow and cash balance up to $25.2M at quarter-end .
  • AI momentum accelerated: “AI-related revenue was 2.5x higher than a year ago” and ~20% of total revenue; “ISG delivered an excellent second quarter…” with sold-out AI Impact Summit events and expanding AI capabilities (ISG Tango $11B TCV) .

What Went Wrong

  • Europe remained soft year over year: revenue $16.6M (-7% ex-automation, -12% reported); APAC was essentially flat with $5.4M (-1% reported) amid lingering macro/geopolitical uncertainty .
  • Reported revenue declined 4% YoY to $61.565M due to the automation divestiture (ex-automation +7%); GAAP EPS stayed at $0.04 with a more normal tax rate vs unusually low prior-year rate (CFO: ~39% vs 12%) .
  • Management noted tariff-related caution and timing variability (Europe’s slower response), requiring continued cost optimization and disciplined operating approach into 2H25 .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$57.777 $59.583 $61.565
Operating Income ($USD Millions)$0.179 $3.396 $4.665
GAAP Net Income ($USD Millions)$3.042 $1.488 $2.183
Diluted EPS ($USD)$0.06 $0.03 $0.04
Adjusted EBITDA ($USD Millions)$6.537 $7.396 $8.298
Adjusted EBITDA Margin %11.3% 12.4% 13.5%
Q2 2025 vs S&P Global ConsensusConsensus*ActualSurprise
Revenue ($USD Millions)59.98*61.565 Beat
Primary EPS ($USD)0.07*0.08 Beat

Values retrieved from S&P Global.*

Segment Breakdown (Q2 2025)

RegionRevenue ($USD Millions)YoY ex-automationYoY reported
Americas$39.5 +16% -1%
Europe$16.6 -7% -12%
Asia Pacific$5.4 n/a-1%

KPIs

KPIQ4 2024Q1 2025Q2 2025
Cash from Operations ($USD Millions)$6.6 $1.0 $11.9
Cash Balance ($USD Millions)$23.1 $20.1 $25.2
Dividends Paid ($USD Millions)$4.5 $2.2 $2.4
Share Repurchases ($USD Millions)$2.3 $3.3 $4.0
Diluted Shares Outstanding (Millions)50.638 50.252 50.129
FX Impact on Revenue ($USD Millions)+$0.3 -$0.6 +$0.8
Recurring Revenue ($USD Millions; % of revenue)$—$26; 44% $28; 45%
Consulting Utilization (%)72% 77.7% 76%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ1 2025$58–$59M ——
Adjusted EBITDAQ1 2025$6.5–$7.5M ——
RevenueQ2 2025$59.5–$60.5M ——
Adjusted EBITDAQ2 2025$7.0–$8.0M ——
RevenueQ3 2025—$60.5–$61.5M Raised vs Q2 guide
Adjusted EBITDAQ3 2025—$7.5–$8.5M Raised vs Q2 guide
Dividend per shareQ1 2025$0.045 —Maintained
Dividend per shareQ2 2025$0.045 —Maintained
Dividend per shareQ3 2025—$0.045 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
AI initiativesRepositioned as AI-centered; doubling AI clients; embedding AI in platforms (Tango, GovernX) AI-related revenue 2.5x YoY; ~20% of total; sold-out AI events; strong pricing Accelerating
ISG Tango platform$7B TCV in Q4; >$9B in Q1 ~$11B TCV; opening mid-market; margin accretive Rising adoption
Recurring revenue45% in Q4; $108M FY recurring (ex-automation) $28M; 45% in Q2 Stable to slightly up
Regional trendsAmericas returned to growth; Europe cautious, APAC slower Americas strong; Europe up 21% seq. from Q1 but still down YoY; APAC flat Improving sequentially
Tariffs/macroCost optimization demand; clients planning around tariffs “Uncertainty has become the norm”; clients modernize infra, pursue savings Manageable headwind
Public sectorUS state/local strong; no federal exposure US state/local up ~30% YoY; double-digit growth; red states moving faster Strengthening
Capital allocation/leverageDebt down to $59.2M; target 2.0–2.5x leverage; active buybacks/M&A Strong cash generation; buybacks; steady capital allocation priorities Improved flexibility
GCCs (Global Capability Centers)Advisory activity building “GCCs are hot”; CEO forum planned; enterprise control shifting beyond labor arbitrage Rising focus

Management Commentary

  • “ISG delivered an excellent second quarter, underscoring our momentum as an AI-centered firm… Excluding our divested automation unit, Q2 revenues were up 7 percent, led by our surging Americas business, up 16 percent… strong operating cash flow of $12 million, one of our best quarters ever” — Michael P. Connors, CEO .
  • “Our AI-related revenue was 2.5 times higher than it was a year ago… nearly 20% of our total revenue was AI related… we produced two sold-out AI Impact Summit events in Q2” .
  • On Martino & Partners: “Further investment in our European business… expands public sector reach… adds more than 20 new clients… strong presence in northern Italy” .
  • On Q3 outlook: “We are targeting revenues of between $60.5 million and $61.5 million and adjusted EBITDA of between $7.5 million and $8.5 million” .

Q&A Highlights

  • Cash sustainability: CFO cited strong collections (DSO down ~10 days QoQ) driving $11.9M CFO; expects continued strong cash generation but not at Q2 levels every quarter .
  • Pipeline acceleration: CEO described faster decision cycles (e.g., $1–2B cost review at a cosmetics company in ~6 weeks) and urgency amid tariff clarity; multiple large engagements won .
  • AI margins and pricing: AI work “strongly priced” with targeted and end-to-end deals; management targeting ~300 bps margin improvement YoY supported by mix and demand .
  • Public sector: US state/local up ~30% YoY; stronger receptivity in Republican states to cost efficiency and AI; no federal exposure .
  • Capital allocation/M&A: Priority order unchanged (dividend, buybacks, invest, M&A); focus on recurring revenue, transformation, digital, AI; valuations viewed as fair .

Estimates Context

  • Q2 2025 results exceeded S&P Global consensus on revenue ($61.565M actual vs $59.98M*) and Primary EPS ($0.08 actual vs $0.07*), reflecting FX tailwinds, utilization improvements, and Americas-led growth .
  • EBITDA comparisons require caution: III reports adjusted EBITDA ($8.298M), while S&P tracks EBITDA under a different definition; consensus was ~$7.37M*, so we do not infer a beat/miss on this metric .
  • With Q3 guidance set above Q2 guidance for both revenue and adjusted EBITDA, Street models may need to lift 2H top-line and margin assumptions, particularly if Europe’s sequential improvement continues and AI-driven mix persists .
    Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Near-term: III delivered a clean revenue and EPS beat with stronger cash flow; guidance implies continued margin expansion and resilient demand in cloud/AI/data modernization — supportive of positive revisions and potential multiple support .
  • Mix shift: AI-centered work, platforms (Tango), and recurring public-sector contracts are expanding higher-margin revenue streams, underpinning margin trajectory and cash conversion .
  • Americas strength offsets Europe softness: sequential European improvement and Italy acquisition should aid 2H; APAC flatness could improve as government spending normalizes .
  • Capital discipline: steady dividend ($0.045) and buybacks alongside M&A for recurring/AI capabilities provide balanced return/ growth optionality .
  • Watch risks: tariff policy, FX, inflation, and European macro/geopolitics; management monitoring and adjusting plans; tax rate normalization dampens GAAP EPS optics vs prior year .
  • Tactical angle: AI narrative (sold-out events, 20% revenue), recurring revenue at 45%, and Q3 guide above Q2 guide are near-term catalysts; monitor Q3 execution and Europe’s YoY inflection .

Appendix: Source Documents

  • Q2 2025 Form 8-K (Item 2.02) and press release with detailed financials and guidance .
  • Q2 2025 earnings press release (Business Wire) .
  • Q2 2025 earnings call transcript (prepared remarks and Q&A) .
  • Q1 2025 Form 8-K and call transcript for prior-quarter trend analysis .
  • Q4 2024 Form 8-K and call transcript for two-quarters-prior context .
  • Q2 2025 call announcement press release (logistics) .