Earnings call transcript: Information Services Group beats Q3 2025 expectations

Information Services Group Inc. (ISG) reported its third-quarter 2025 earnings, surpassing analyst expectations with an earnings per share (EPS) of $0.06 compared to the forecasted $0.036, marking a 66.67% surprise. Revenue reached $62.4 million, slightly above the anticipated $60.97 million. Following the announcement, ISG shares surged 16.33% in pre-market trading, reflecting investor optimism.

Key Takeaways

• ISG’s Q3 revenue grew by 8% year-over-year, driven by AI-related projects.
• The company achieved a 19% year-over-year increase in adjusted EBITDA, reaching $8.4 million.
• ISG’s stock rose by 16.33% following the earnings announcement.
• The company continues to expand its AI capabilities and mid-market presence.

Company Performance

ISG demonstrated robust performance in Q3 2025, with revenue increasing by 8% year-over-year. The company’s focus on AI-related services significantly contributed to this growth, as evidenced by a fourfold increase in AI-related revenue to $20 million. ISG’s strategic initiatives, including the expansion of its ISG Tango platform, have bolstered its competitive position in the technology services market.

Financial Highlights

• Revenue: $62.4 million, an 8% increase year-over-year.
• Earnings per share: $0.06, exceeding the forecast by 66.67%.
• Adjusted EBITDA: $8.4 million, a 19% increase year-over-year.
• EBITDA Margin: 13.5%, up 200 basis points.

Earnings vs. Forecast

ISG’s actual EPS of $0.06 surpassed the forecasted $0.036 by 66.67%, while revenue of $62.4 million exceeded expectations by 1.72%. This marks a positive deviation from previous quarters, highlighting ISG’s strong operational execution and strategic focus on AI integration.

Market Reaction

Following the earnings announcement, ISG’s stock price climbed 16.33% to $5.81 in pre-market trading. This significant increase reflects investor confidence in the company’s growth trajectory and strategic direction. The stock’s performance is notable against its 52-week range, with a high of $6.41 and a low of $2.95.

Outlook & Guidance

ISG projects Q4 revenue between $60.5 million and $61.5 million, with adjusted EBITDA expected to rise by 15-20% year-over-year. The company aims to further enhance its AI capabilities and increase recurring revenue streams, targeting over $120 million in recurring revenue by 2026.

Executive Commentary

"AI is the propellant that is driving overall demand for technology services," stated Michael Connors, CEO of ISG. He emphasized the role of AI in improving client delivery efficiency. CFO Michael Sherrick added, "Our balance sheet is solid and continues to improve," highlighting the company’s financial stability.

Risks and Challenges

• Macro-economic pressures could impact technology spending.
• Potential competition from emerging AI-focused firms.
• Dependence on successful AI integration for sustained growth.
• Fluctuations in interest rates affecting client budgets.
• Geopolitical uncertainties impacting global operations.

Q&A

During the Q&A session, analysts focused on ISG’s margin expansion, driven by AI efficiency and premium pricing. Questions also addressed the recovery in the European market and opportunities for mid-market growth through AI complexity. Management reassured investors of no impact from the federal government shutdown and potential M&A targets in AI and recurring revenue sectors.

ISG’s strong Q3 performance and optimistic outlook underscore its strategic positioning in the AI-driven technology services market, with investors responding positively to its growth prospects.

Full transcript - Information Services Group Inc (III) Q3 2025:

Operator: Good morning and welcome everyone to the Information Services Group 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 introductions. Mr. Holt, please go ahead.

Barry Holt, Senior Communications Executive, ISG: Thank you, Operator. Hello and good morning. My name is Barry Holt. I’m a 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 factor 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-1.com or the SEC’s website at www.SEC.gov. ISG undertakes no obligation to update or revise any forward-looking statement 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. Now I’d like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Mike.

Michael Connors, Chairman and Chief Executive Officer, ISG: 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 return to growth in Europe with revenues up 7%.

We 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. 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 two 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, four times what it was a 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.

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 two 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 a year ago. The report also shows use cases have broadened 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 US-based healthcare company, generating revenues of more than $1 million. We are 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 two 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 two 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 macro environment, 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 US 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%-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 6 cents per fully-diluted share, as compared with net income of $1.1 million, or 2 cents 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 19 to shareholders of record as of December 5. 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 1.95 times, down from 2.4 times at December 31, 2024, and just below our 2-2.5 times 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. 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 position 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. Thank you very much for calling in this morning. Now, let me turn the session over to the operator for your questions. Today’s question-and-answer session will be conducted electronically. If you’d like to ask a question, you can do so by pressing star and one on your telephone keypad.

If you find that your question has been answered and you would like to remove yourself from the queue, you may do so by pressing the pound sign. Again, if you would like to ask a question, you can do so by pressing the star and one on your touchtone keypad. We’ll pause for a moment to allow any questions into the queue. Your first question comes from the line of David Storms with StoneGate Capital. Please go ahead. Good morning, and thank you for taking my questions. Good morning. 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, and good morning. Yes. Look. 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. 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. It creates efficiency. It creates speed. It creates productivity. When we launched it just a little over a year, maybe almost a year and a half ago, I think we said that it would be one of our drivers to expand margins.

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. That’s one area. The second area is the mix of what we are actually able to provide with our clients. Areas around our recurring revenue streams, which continue to expand. Of course, when you’re able to build it once and sell it many times, it helps a lot. 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. It’s only going to expand because it’s still in the very early innings.

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 and our margins. I hope that helps, Dave. No, that’s very helpful. I appreciate that, Caller. 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. 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.

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. Frankly, in the U.S., it’s a little slower on transformation than it is on optimization. I think what you’ll see is our pipeline is strong, that we see a continued growth level for our European business. We’re cautious because of the overall macro environment. Right now, there is an appetite that has increased in Europe, especially around optimization using AI to assist.

If you’ve heard a couple of the points I was making in the remarks, we are operating with two of probably the largest transformations going on in Europe by any enterprises right now. Both of them will generate very significant cost savings for those two businesses. When you can start to see real dollars flow through, and in one case, we think it’ll be around 40% savings, that’s significant and material. Clients have to be able to be ready to move. These two large clients were ready. That’s what we’re seeing in Europe, Dave. That’s great. Thank you for the commentary. Good luck with Q4. Your next question comes from the line of Mark Riddick with Sidoti. Please go ahead. Hey, good morning. Good morning, Mark. 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? 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? Thanks. Yeah. Good. Thank you. Look, I think, first of all, to me, the interest rate environment, based on my discussions with a lot of operators and our clients, it’s all about the sentiment. 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. Because of that, then that frees up the opportunity to move a little faster on our part with our clients.

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. From our perspective, it may free up additional spending. 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 is beginning to, I would say, kind of, is beginning to get resonated with a number of clients.

You couple the two 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 that are becoming much more scalable projects like the two that I mentioned in Europe. Great. Thanks for the color there. 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 during either the third quarter or what you’re seeing early in the fourth that you think are worth mentioning? Yeah. 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 four or five 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. What do I do about that? 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. Because of that, they are looking for money to help grow their businesses. They look at areas around AI that can help them. It varies a little bit by industry, but those five industries in particular I think are quite strong as we go through the balance of this year and probably the turn of 2026.

Great. 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 two times. Maybe you could talk a little bit about the potential for acquisition pipeline out there, maybe what the pipeline looks like, valuations are looking like, and if there are any areas or any things that you have your eye out on at the moment. 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. 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. We will continue to have these discussions, and we will see where they evolve as we go into 2026.

We certainly have our targets in mind, and we will see if we can do something in 2026. Great. Thank you very much. Thank you, Mark. Your next question comes from the line of Vincent Colicchio with Barrington Research. Please go ahead. Good morning, Mike. Nice quarter. Morning, Vince. I would like to talk a little bit about the labor market. Your labor was flat. Is that by plan, or is it getting increasingly difficult to hire people? No, that is by plan. We have been using—we eat our own dog food, as they say. We have 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. That is a planned event.

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 2026. I do not recall your exposure to the federal market. Remind me of that. 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. We have no exposure at all to DOGE or any other kind of related federal issue. On the government on the other side of the world, what is going on in the public sector in Asia-Pacific, and just some color on when we might see that turn? The public sector outside the U.S., we do do work in the federal area. We do it in the U.K. We do it in Italy. We do it in Germany.

We do it in Australia. The European public sector business is actually quite good. Australia has still not come back. We anticipate it second quarter next year at the moment, based on what we can see in terms of pipeline. That particular region, I think, flips to growth once the public sector, which is a large piece of the spending, comes back. We anticipate that being kind of roughly second quarter next year. Last one for me. Are you seeing meaningful traction with ISG Tango in the mid-market? Very good question. ISG Tango, when we launched it, was intended to do two 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 margins. That is the one hand. On the other hand, it gave us an entry into the mid-market.

For us, we call the mid-market kind of $1 billion-$10 billion. It is a bit of a spread, but it is a market that we never really, in the U.S., never really went after. Now with Tango, it has 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 do not think. We use it as kind of our entry point in. We expect the mid-market to be a growth driver for us over the next few years. AI is helping that because AI clearly adds complexity and opportunity. 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 strengths. Thanks, Mike. Yep. Thanks, Vince.

Your next question comes from the line of Joe Gomes with Noble Capital Markets. Please go ahead. Morning, Joe. I just wanted to go back to the Asia-Pacific for a second here and follow up on Vincent’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. I am 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. Yeah. The elections were over, I think it was May, June, so end of second quarter. We expected it may take a little time to gain up, but it is 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. I do not want to overplay this one because it is really the difference between having about $1 million more of revenue in a quarter down there than anything. On the scope of things, it is 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. I understand there is very limited, I will call it, if any at all, exposure to the federal government here. Are you seeing any secondary impacts from the government shutdown on any of the areas, whether it would be state and local or the education market? No. Zero.

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. Primarily because they are moving on. 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. Nothing from the shutdown has impacted. It is reflected in our growth for the quarter of about 30%. Okay. 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, about 45% of the overall. Just wondering, what do you think needs to happen to start to start seeing some faster growth on the recurring revenue side of the business?

First, we think 9% is pretty good. Year over year is how we look at it mostly. We were around, might call it $28 million, I think, for the quarter. That was up 9%, Joe, from a year ago. Look, we feel very good. We think that recurring revenue stream will, we are probably sitting at about $100 million, and this year we will sit at about $110 million, I think, roughly when the year is out. That is just a quick estimate. We expect that to be $120 million plus next year to give you an indicator on where we are going. Okay. Great. Thanks, Adam. Just real quick, if I may, maybe you can give us a little update on the Martino acquisition and how that is progressing. It is 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. We are very, very pleased with the leadership, Andreas Martino, who is the CEO now of our overall Italian business coming out of Martino. That is pacing nicely. We have some good, nice little recurring revenue stream there. It is a nice little strategic add-on for us. It is moving well. Great. Thanks for that. Congrats on the quarter. Thank you, Joe. Your next question comes from the line of Gao Xi Shi with Singular Research. Please go ahead. Good morning, gentlemen. Can you hear me? Yes, sir. Good morning. Morning, Mike. 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 am sorry. I did not catch the last part, Gao Xi.

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. Most all of them, AWS and others, are clients of ours. We do not run into them in a competitive standpoint for the work that we do. Okay. 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? Good question. I think a couple of things. I think most of the larger enterprises are prioritizing, if I can say it this way, they are prioritizing profits a little bit over more aggressive growth. Because of that. They are looking at kind of how can they utilize AI and their delivery models to help with cost and risk.

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. From our standpoint, I think we’re seeing them wanting to try to scale and do it in a cost-effective way, utilizing a roadmap to start with, an AI roadmap, which we help them with and develop, and then begin to execute it at the pace that they’re comfortable in doing 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. 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.

It’s some combination of both, depending on the industry, typically, on which they’re operating in at the moment. Gotcha. Thanks for that, Joe. With the uncertainty around H-1B visa policies under the current administration, any impact, positive or negative, on your competitive space or delays, either from your side or on the client side? Hey, Gao Xi. It’s Michael. Good question. Look, I think like anything, change and 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. 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. 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 US. I think it can create opportunity for us as people have to rethink their models, and we’ll be a part of that process. Awesome. That’s all I had. Thanks, guys. Thank you. As I’m showing no further questions, I’ll turn the call back to Mike Connors for his closing remarks. 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 in 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. I could not be prouder of them.

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.

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