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 improve 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 allows 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 are leaning heavily on us for the independent AI expertise they need to navigate a vast number of critical choices, from partners to pricing to governance. In the third quarter, our AI-related revenue was $20 million, 4 times what it was 1 year ago. Year-to-date we have supported 350 clients with AI-related advisory and research services. That's up more than 200% from the same period last year. We are seeing demand for AI strategy, data transformation and agentic AI adoption accelerate across multiple industries. Client interest in AI continues to rise. Our sold-out AI Impact Summit in London was the largest client event in ISG's history, demonstrating the market's appetite for practical AI insight. And we published our third annual state of the enterprise AI adoption report, which quickly became the most downloaded report we've ever produced. Together, these achievements highlight that ISG's AI strategy is not just resonating, it's scaling. We are expanding client relationships, broadening our AI offerings and strengthening our position as the AI-centered technology research and advisory firm. Within ISG, we are leveraging AI to improve the efficiency of client delivery. Most notably, our AI-powered ISG Tango sourcing platform continues to expand. More than $15 billion of total contract value now flows through the platform, and that's up more than 30% from Q2. As expected, ISG Tango is helping improve our margins and opening up the mid-market to us, increasing our total addressable market. In 2024, ISG began embedding AI into the core of our research and advisory services. The goal was not just to improve productivity but to redefine how we deliver value. Now, nearly 2 years later, AI is the organizing principle for how enterprises operate and invest in technology. In this environment, ISG is well positioned to support our clients in building AI-enabled organizations that generate innovation and results. From a macro perspective, AI is driving the technology research and services market worldwide. We see growth continuing as clients invest in the infrastructure and data needed to power their AI ambitions. Our recent state of enterprise AI adoption report shows the number of AI use cases moving into full-scale deployment has doubled versus 1 year ago. The report also shows use cases that broaden beyond cost efficiency to focus even more on competitive advantage and growth. Now let me turn to our regions. The year-over-year comparisons I cite here exclude revenues of about $3.5 million from our divested automation unit in last year's third quarter. Our Americas region delivered another excellent quarter with revenues up 11% to $42 million, driven by double-digit growth in our research, software and GovernX businesses and in our consumer, health sciences and public sector industry verticals. Key client engagements during the third quarter include Lockheed Martin, Carnival Cruise Lines and Baxter International. During the quarter, ISG continued to expand its work with a large U.S.-based healthcare company, generating revenues of more than $1 million. We're currently helping the client negotiate new software, network and technology services contracts. We're also working with one of the world's top consumer products companies to help them create a next-generation AI-driven technology operating environment. This $1 million-plus engagement is expected to help the client realize cost savings of about 40% and should lead to future opportunities for ISG. Turning to Europe, this market returned to growth for the first time in 2 years since the start of the tech recession. Revenues were up 7% to $16 million, driven by double-digit growth in our advisory business and in our banking, financial services, consumer and health sciences industry verticals. Key client engagements in Europe in the third quarter included Fresenius, Diageo and Evonik, a German chemicals company. ISG is currently working on 2 of the largest technology transformations this year in Europe. First, ISG is partnering with a global leader in business travel services to advise them on $1 billion of spend on an enterprise-wide sourcing program. The program covers AI-driven finance, accounting, technology services and product development. We expect this engagement will open up even more doors to follow-on opportunities. Second, we are also working with a global leader in workforce services and solutions to support their $1.2 billion AI-powered initiative. We are helping the client transform their operations through agentic AI, leveraging new AI pricing models to drive down costs. Now turning to Asia Pacific, our Q3 revenues of $4.2 million were down 15% compared with the prior year. We did see double-digit growth in our banking, energy and utilities industry verticals. We will need the public sector to reignite spending for this region. Key clients in the quarter included IEMO, Standard Chartered Asia and the Reserve Bank of Australia. ISG is working with a large Australian telecommunications provider to negotiate more than $1 billion of tech applications and infrastructure spend. We are helping the client achieve significant savings through the use of AIOps to manage its technology environment. Now a few comments about the market. As I mentioned earlier, AI is the propellant that is driving overall demand for technology services. In the near term, we are seeing modest improvement in the macroenvironment, with some lingering caution as companies take time to adapt to the new normal. We're seeing that play out, especially in the managed services sector, while demand for cloud computing services needed to support AI continues to soar. Growth is not the same in all geographies with the U.S. leading the way and Europe catching up. Looking ahead, we see an improving interest rate environment, stimulating further tech spending as we move through 2026, with AI remaining the dominant long-term growth driver for the industry. So, with that, let me turn to guidance. For the fourth quarter, including the slower year-end holiday period, we are targeting revenues of between $60.5 million and $61.5 million and adjusted EBITDA to increase year-over-year by 15% to 20%, or between $7.5 million and $8.5 million, which will continue our year-over-year growth and margin expansion. Now let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael?

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.

Your first question comes from 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. We have several opportunities for margin expansion. One key area is our efficiencies through AI. A significant metric for this is ISG Tango, which currently processes around $15 billion in sourcing transactions. This system not only speeds up the value realization for enterprises but also benefits technology providers competing for our enterprise clients' business. It enhances efficiency, speed, and productivity. When we introduced it about 1 to 1.5 years ago, we anticipated it would help us expand our margins by enabling us to operate faster and more efficiently while achieving a higher margin. Another area contributing to our margin growth is the mix of services we provide to clients, especially our expanding recurring revenue streams. The ability to develop a solution once and sell it multiple times is beneficial. Additionally, our AI projects are high-quality work, which gives us strong pricing power. As the demand for these services continues to grow, we are optimistic about our ability to maintain and expand our margins. I hope that addresses your question, Dave.

No, that's very helpful. I appreciate that information. My second question is a follow-up, focusing more on Europe. It's encouraging to see growth returning to that market. Could you discuss more about the pipeline you are observing there? Are you still engaging with customers who are at the forefront, or are you beginning to connect with a broader segment of that client base?

Again, good question, Dave. The pipeline is growing, and the main concern has been the speed and pace at which European clients want to move. We observed some acceleration mainly in cost optimization areas, while transformation efforts are taking longer to adapt in Europe. In the U.S., the pace of transformation is also slower compared to optimization. However, our pipeline remains strong, and we anticipate continued growth for our European business. We remain cautious given the overall macroenvironment but currently see an increased appetite in Europe, particularly around optimization and utilizing AI for assistance. As mentioned in my earlier remarks, we are engaged in two of the largest transformations in Europe by any enterprises at the moment, both of which are expected to yield significant cost savings. In one instance, we anticipate around 40% savings, which is substantial. It's important that clients are prepared to move forward, and these two large clients were ready. That's what we're experiencing in Europe, Dave.

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

Could we discuss the potential drivers you mentioned in your prepared remarks? You noted that interest rate cuts might be beneficial. While it's early, are you starting to see any signs of that? Regarding the loosening of budgets, do you feel it's still primarily a large enterprise issue, or are smaller companies starting to engage with AI as well?

Thank you. First, I believe the interest rate environment, based on my discussions with many operators and clients, is largely about sentiment. A loosening of interest rates instills some confidence, allowing companies to proceed more vigorously with their initiatives. This shift creates opportunities for us to engage more proactively with our clients. In my view, interest rates contribute to an overall sense of optimism that conditions may improve. While we acknowledge rising unemployment and other concerns, a potentially changing interest rate environment could open up avenues such as housing in the U.S. next year, which are more positive indicators than negative. From our standpoint, this may facilitate additional spending. Additionally, I think the opportunities presented by utilizing AI at scale are becoming more recognized among clients, showcasing significant potential to evolve business models over time. When combined with greater confidence and the realization that substantial returns are possible, we see these developments moving beyond mere small projects into larger, scalable initiatives, like the examples I cited in Europe.

Thanks for the insight. Given your broad client and industry exposure, are there any notable highlights from the third quarter or what you're observing early in the fourth quarter that you would like to share?

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 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 want to discuss the labor market a bit. Your labor costs were flat. Was that intentional, or is it becoming more challenging to hire people?

No, that's by plan. We've been utilizing our own products, and we've integrated a lot of automation into our work processes. This has allowed us to make selective hires at this time. So that was a planned decision. We may have a few additional hires before the end of the year, but it should align with that number by 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 zero federal business. Our focus in the U.S. is all on state, local and higher education. So we have no exposure at all to any federal issue.

And then, what's happening in the public sector in APAC? Can you provide some insight into when we might see a turnaround there?

Yes. So the public sector outside the U.S., we do work in the federal area. So we do it in the U.K., Italy, Germany, and 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, that's a great question. When we launched Tango, it was designed to achieve two primary goals. First, it aimed to accelerate the time to value for both our clients and ecosystem providers, resulting in greater efficiency, productivity, and higher margins. Second, it provided us an entry point into the mid-market, which we define as companies with revenues between $1 billion and $10 billion. This is a segment we hadn't actively pursued in the U.S. Previously. Tango has been a significant success, with over 25% of the platform now serving mid-market clients, which we believe would not have been possible without this platform. We view it as our gateway into this market. We believe the mid-market will drive our growth in the coming years, and AI enhances that opportunity. However, most mid-market companies lack the internal expertise to effectively execute their AI strategies, which aligns perfectly with our strengths.

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, there has been no impact at all. In fact, our public sector in the U.S. saw nearly a 30% increase this quarter. This growth is largely due to the need for modernization among a significantly aging workforce and outdated technology. Implementing AI to help them move faster has proven beneficial. The government shutdown has not affected us, and this is evident in our growth of about 30% for the quarter.

Okay. Regarding recurring revenues, they seem to have remained stable compared to the second quarter, maintaining the same $28 million in revenue and accounting for about 45% of the total. I'm curious about what you believe needs to occur in order to see accelerated growth in recurring revenue for the business.

We believe that a 9% increase year-over-year is quite positive. For the quarter, we were around $28 million, which represents a 9% growth compared to last year. We feel optimistic about our recurring revenue stream, which is currently about $100 million. By the end of this year, we expect it to be around $110 million, and we anticipate it will exceed $120 million next year, providing an indication of our growth trajectory.

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 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?

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?

That's a great question. I believe larger enterprises are currently prioritizing profits a bit more than aggressive growth. As a result, they are exploring how to leverage AI and improve their delivery models to manage costs and mitigate risks. In some instances, they are concentrating on data acquisition, engineering, and governance related to the core systems that support their operations. From our perspective, we see them aiming to scale in a cost-effective manner, starting with an AI road map that we assist in developing, and then implementing it at a pace they are comfortable with. Overall, optimizing operations and integrating AI within large enterprises remains crucial. While they naturally want to use AI to promote growth, they also recognize the potential financial benefits from optimization. Depending on their industry, some may channel these savings into earnings per share, while others might use them for growth initiatives, often a blend of both.

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, etc. 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.