IS
Information Services Group Inc. (III)·Q3 2025 Earnings Summary
Executive Summary
- Q3 revenue was $62.4M, up 2% reported (up 8% ex-divested automation) and above S&P Global consensus ($60.9M*) while adjusted EPS of $0.09 beat $0.08*; adjusted EBITDA rose 19% to $8.4M with margin at 13.5% . Q3 consensus: Revenue $60.94M*, EPS $0.08*; Actuals: Revenue $62.36M, EPS $0.09 .
- Mix and efficiency drove margin expansion; recurring revenue was $28M (45% of total), and AI-related revenue reached $20M (4x YoY), underscoring the AI-centered strategy .
- Q4 guidance: revenue $60.5–$61.5M and adjusted EBITDA $7.5–$8.5M (implying YoY EBITDA growth of 15–20%); guidance aligns with consensus revenue ($61.10M*) and EBITDA near the midpoint, though EBITDA comparability vs SPGI standardization may differ .
- Regional: Americas +11% ex-divested to $42.2M; Europe returned to growth (up 7% ex-divested, $16.0M); APAC remained weak at $4.2M (-15%). Cash from operations was $11.1M; leverage improved to 1.95x gross debt/EBITDA; quarterly dividend maintained at $0.045 .
Note: Asterisked values are from S&P Global. Values retrieved from S&P Global.*
What Went Well and What Went Wrong
What Went Well
- Adjusted EBITDA rose 19% YoY to $8.4M with margin up ~200 bps to 13.5%, driven by a more profitable mix and operating efficiency; cash from operations was $11.1M, reflecting strong cash generation .
- AI-centered execution: recurring revenue was $28M (45% of revenue) and AI-related revenue reached $20M, quadruple last year; “ISG delivered an excellent third quarter, continuing our AI-powered momentum with clients” — Michael P. Connors, CEO .
- Regional recovery: Europe returned to growth (ex-divested +7%) alongside double-digit Americas growth (ex-divested +11%); pipeline in Europe improving with two large AI-driven transformations underway .
What Went Wrong
- Asia-Pacific softness persisted: revenue fell 15% YoY to $4.2M; management highlighted public sector spend as the key swing factor, now expected to improve around Q2 next year .
- Reported revenue growth only +2% YoY due to automation unit divestiture (underlying +8% ex-divested), highlighting reliance on adjusted views to demonstrate momentum .
- Macro/transformation pace: Europe still cautious; transformation programs lag optimization-led demand; Q4 seasonality plus lingering caution may cap near-term sequential growth (Q4 revenue guide slightly below Q3) .
Financial Results
P&L and Cash Flow (Sequential view)
Actual vs. S&P Global Consensus (Q3 2025)
Note: Asterisked values are from S&P Global. Values retrieved from S&P Global.*
Regional Revenue
KPIs (Q3 2025)
Guidance Changes
Earnings Call Themes & Trends
Management Commentary
- “ISG delivered an excellent third quarter, continuing our AI-powered momentum with clients.” — Michael P. Connors, Chairman & CEO .
- “Our AI-related revenue was $20 million, four times what it was a year ago… recurring revenues were $28 million, up 9%” .
- “For the fourth quarter… revenues of between $60.5 million and $61.5 million, and adjusted EBITDA of between $7.5 million and $8.5 million” .
- “Our quarter-end gross debt-to-EBITDA ratio was 1.95 times… average borrowing rate was 6.2%, down 110 bps YoY” — CFO Michael Sherrick .
Q&A Highlights
- Margin durability: Mix shift (higher-margin platforms/research/AI), internal efficiencies, and Tango-driven productivity support continued margin expansion .
- Europe outlook: Pipeline improving; optimization moving faster than transformation; two large AI-driven transformations underway, potentially driving ~40% cost savings at one client .
- Macro and rates: Lower rates improve sentiment and may free budgets; use cases increasingly support business model change with AI at scale .
- Mid-market via Tango: >25% client mix mid-market on Tango; opens new TAM and supports growth over next few years .
- APAC/public sector: APAC remains constrained; public sector recovery seen around Q2 next year; U.S. public sector up ~30% with zero U.S. federal exposure .
Estimates Context
- Q3 vs S&P Global consensus: Revenue $62.36M vs $60.94M* (Beat); Adjusted EPS $0.09 vs $0.08* (Beat). 4 EPS and 4 revenue estimates contributed to consensus .
- Q4 setup: Revenue guide $60.5–$61.5M vs consensus $61.10M* (inline); EPS consensus $0.075* (no company EPS guide). EBITDA consensus $7.775M* vs company adjusted EBITDA guide $7.5–$8.5M — note SPGI EBITDA is standardized and not directly comparable to company-defined adjusted EBITDA .
- Target price consensus mean: $7.17* [GetEstimates].
Note: Asterisked values are from S&P Global. Values retrieved from S&P Global.*
Q4 2025 Outlook vs Consensus
Key Takeaways for Investors
- Print was clean: Revenue and adjusted EPS both beat consensus; adjusted EBITDA grew 19% with steady 13.5% margin, supporting a mix/efficiency-led margin story .
- AI narrative is scaling: $20M AI-related revenue (4x YoY), 45% recurring revenue, and Tango’s >$15B TCV flow point to durable visibility and pricing power .
- Regional setup improving: Europe returning to growth; Americas strong; APAC remains the drag until public sector reaccelerates (management points to ~Q2 next year) .
- Q4 guide is seasonal and inline; near-term setup looks stable; watch execution on EBITDA amid year-end holiday timing and macro caution .
- Balance sheet and cash flow strengthen optionality: $11.1M CFO in Q3; gross leverage 1.95x; dividend maintained; repurchase capacity remains .
- 2026 setup: Management highlighted potential tailwinds from improving rate environment and enterprise AI scale-up; Europe’s transformation pace is a swing factor .
- Monitor estimate revisions: Likely modest upward EPS/Revenue adjustments post-beat; ensure models reconcile company adjusted EBITDA vs standardized EBITDA in SPGI .
Appendix: Additional Detail
Q3 2025 Company-Reported vs S&P Global Consensus
Note: Asterisked values are from S&P Global. Values retrieved from S&P Global.*