Earnings call transcript: Information Services Group Q4 2024 beats EPS forecast

Information Services Group (ISG) reported its fourth-quarter 2024 earnings, showcasing a strong performance that surpassed analysts’ expectations. The company posted an earnings per share (EPS) of $0.20, significantly beating the forecast of -$0.002. Revenue for the quarter reached $57.8 million, slightly above the anticipated $57.61 million. Following the announcement, ISG’s stock price rose by 2.9%, reflecting investor confidence in the company’s strategic direction and financial health. According to InvestingPro data, ISG maintains a healthy liquidity position with a current ratio of 1.97, indicating strong ability to meet short-term obligations.

Key Takeaways

• ISG’s Q4 2024 EPS of $0.20 exceeded forecasts, marking a significant earnings surprise.
• Revenue for the quarter was $57.8 million, surpassing expectations.
• The company’s stock increased by 2.9% in post-earnings trading.
• ISG’s repositioning as an AI-centered firm is driving growth and innovation.
• Strong performance in the U.S. market, particularly in banking, financial services, energy, and manufacturing sectors.

Company Performance

Information Services Group demonstrated resilience and growth in Q4 2024, despite a slight year-over-year revenue decline of 2%. The company’s strategic shift towards AI-centric services and advisory has been a key driver of its robust performance. ISG’s repositioning efforts have not only enhanced its service offerings but also improved operational efficiencies, evidenced by an 11% increase in adjusted EBITDA and a 240 basis point rise in EBITDA margin.

Financial Highlights

• Revenue: $57.8 million (down 2% year-over-year)
• EPS: $0.20 (compared to a forecast of -$0.002)
• Adjusted EBITDA: $6.5 million (up 11%)
• Net Income: $3 million or $0.06 per share
• Cash from Operations: $6.6 million in Q4, $20 million for the full year

Earnings vs. Forecast

ISG’s actual EPS of $0.20 significantly outperformed the forecast of -$0.002, marking a substantial positive surprise. Revenue slightly exceeded expectations, coming in at $57.8 million against a forecast of $57.61 million. This earnings beat reflects the company’s successful execution of its AI-focused strategy and its ability to capitalize on market opportunities.

Market Reaction

Following the earnings announcement, ISG’s stock price rose by 2.9%, closing at $3.19. This upward movement underscores investor optimism about the company’s future prospects, particularly its AI-centered initiatives. The stock is currently trading near its 52-week low of $2.92, with InvestingPro analysis suggesting the stock is undervalued at current levels. Notable for income investors, ISG offers a significant dividend yield of 5.81%. Want deeper insights? InvestingPro offers exclusive access to detailed valuation metrics and 12 additional ProTips for ISG.

Outlook & Guidance

Looking ahead, ISG has set a revenue target of $58-$59 million for Q1 2025, with an adjusted EBITDA target of $6.5-$7.5 million. The company anticipates accelerated growth in the Americas and is exploring potential mergers and acquisitions, as well as stock buyback opportunities. ISG also expects to further reduce its debt to around 2x levels, enhancing its financial stability. With a market capitalization of $156.54M and a beta of 1.17, ISG shows moderate market correlation. Discover comprehensive analysis and future growth potential with InvestingPro’s exclusive Research Report, part of our coverage of 1,400+ US stocks.

Executive Commentary

CEO Michael Connors emphasized the centrality of AI to ISG’s operations, stating, "AI is at the heart of everything we do." He highlighted the company’s transformation into a global AI-centered technology research and advisory firm, noting, "We expect AI-related activities to become an increasingly important component of our business."

Risks and Challenges

• Potential weakness in the automotive and consumer sectors could impact future performance.
• Macroeconomic pressures, including inflation and interest rate fluctuations, may affect client spending.
• Competition in the AI advisory space could intensify, challenging ISG’s market position.
• Dependence on U.S. market recovery, with slower growth in Europe and APAC regions.

Q&A

During the earnings call, analysts inquired about the impact of AI on contract lengths and sizes, with management noting that AI is driving longer, larger contracts. Questions also focused on the scalability of the Training as a Service (TAS) model, which ISG believes will become a significant recurring revenue stream. Concerns about potential weaknesses in the automotive and consumer sectors were addressed, with management expressing confidence in the strength of energy, utilities, health sciences, and technology markets.

Full transcript - Information Services Group Inc (III) Q4 2024:

Conference Operator: Good morning, and welcome everyone to the Information Services Group Fourth Quarter twenty twenty four Conference Call. This call is being recorded and a replay will be available on ISG’s website within twenty four hours. Now, I’d like to turn the call over to Mr. Will Thorets for his opening remarks and introduction. Mr.

Thorets, please go ahead.

Will Thorets, Senior Communications Executive, ISG: Thank you, operator. Hello and good morning. My name is Will Thorets. I’m a Senior Communications Executive at ISG. I’d like to welcome everyone to ISG’s fourth quarter conference call.

I’m joined today by Michael Connors, Chairman and Chief Executive Officer and Michael Sharrock, Executive Vice President and Chief Financial Officer. Before we begin, I would 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 eight K that was furnished last night to the SEC and the Risk Factors section in ISG’s Form 10 K covering full year results.

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 will be able to obtain free copies of any of ISG’s SEC filings on either ISG’s website at www.isg1.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 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 eight K, which was filed last night with the SEC. And now, I would like

Michael Connors, Chairman and Chief Executive Officer, ISG: to turn the call over to Michael Connors, who will be followed by Michael Schererk. Mike? Thank you, Will, and good morning, everyone. Today, we will review our strong Q4 results, our further improved balance sheet, trends we are seeing in the market and our outlook for Q1. ISG finished the year with a strong fourth quarter.

We began the quarter by selling our automation unit for more than $20,000,000 in cash, which significantly improved our balance sheet. We delivered revenues of $58,000,000 and adjusted EBITDA of $6,500,000 improving our EBITDA margins by more than 200 basis points from a year ago. With our strong cash position, we further reduced our debt by $7,000,000 in the quarter. For the year, total debt reduction was 25% or $20,000,000 When you combine the $7,000,000 of debt reduction with dividends of $4,500,000 and share repurchases of $2,300,000 dollars we created almost $14,000,000 of value in Q4. On an operating basis, our profitability improved with adjusted EBITDA up 11%.

This is due to our disciplined operating approach, our higher utilization in Q4 up more than 700 basis points year over year and our improved business mix. Our focus on operational excellence also is reflected in our strong cash flow from operations. With $6,600,000 in Q4, coupled with nearly $9,000,000 in Q3, we generated over $15,000,000 in cash in the last two quarters. On the top line, revenues in our largest region, The Americas, were up 6% versus the prior year, excluding automation. This is an early sign of the improving market conditions we expect in 2025 starting here in The U.

S. And our recurring revenues for the quarter were 45% of firm wide revenues, led by our Govannex supplier management platform. For the full year, excluding the automation unit, recurring revenues were $108,000,000 A few weeks ago, we announced a strategic repositioning of our firm, reflecting the expanding role ISG is playing in helping our clients adopt AI at scale. We are now positioned as a global AI centered technology research and advisory firm. This new description captures our two year journey thus far of deep AI investments in our people, platforms and products to help enterprises navigate the biggest inflection point in a generation.

AI is at the heart of everything we do from the technology strategies we develop and the partners we recommend to our clients to the impact of AI on the future of work. We have truly become an AI centered firm. ISG has served more than 100 clients with AI focused research and advisory services over the past twelve months. We expect this number to double in the year ahead. We are working with our clients to set AI strategy, create AI ready infrastructure and data, build AI provider ecosystems and establish AI governance frameworks.

ISG Research meanwhile has produced detailed AI market surveys and analysis covering both the service and software provider ecosystems. We expect these AI related activities to become an increasingly important component of our business over the next two years. Growth will accelerate as enterprises move beyond the planning and experimentation phases and begin to adopt AI more broadly across their organizations. At the same time, ISG is leveraging AI to improve the speed and efficiency of our proprietary client platforms, most notably ISG Tango, our groundbreaking sourcing platform last year. More than $7,000,000,000 of sourcing contract value now flows through ISG Tango, up 40% from the third quarter.

Looking ahead, we believe our investments in sourcing, AI and software position ISG for strong growth. Before I turn to our regions, I want to emphasize that our U. S. Public sector business has no U. S.

Federal government exposure. It is focused solely on state and local governments. I also want to share some comments on two key trends we are seeing in the market that should benefit ISG. First, our resurgence in cloud transformation. We are engaging with clients on their accelerated AI driven cloud adoption and infrastructure investments.

With added momentum to push even more infrastructure and applications to the cloud, The market is moving right into a sweet spot for ISG. Second, we are seeing market hesitation lifted. There is a greater degree of certainty that tax cuts will be extended, geopolitical conflicts are directionally heading toward a positive conclusion, and inflation and labor costs are becoming more manageable. Of course, the real impact of tariffs is not known, but we see clients sourcing larger and longer duration contracts to optimize costs, thereby freeing crucial discretionary spend for more investments in AI driven transformation. This is right in our power alley.

In short, we are optimistic about our prospects. With that, let me turn to our regions. Bear in mind that the comparisons I cite here are versus the prior year and exclude automation revenues to provide a more accurate view of our ongoing business. In The Americas, revenues were $38,000,000 up 6%. During the quarter, we saw double digit growth in banking, the public sector, manufacturing, energy and the utilities industry verticals, and in our consulting and governance businesses.

Key client engagements during the fourth quarter included Carnival, PSE and G and Syncora, formerly AmerisourceBergen. AI continues to be embedded in almost everything we do with our clients. Many of our client engagements, including those I mentioned here, have strong elements of AI, including adopting artificial intelligence for IT operations or AI ops as part of sourcing strategies, designing operating models to integrate AI and understanding the productivity and financial impacts of AI. In the healthcare sector, for example, ISG ran a major sourcing engagement for our large healthcare solutions company. We advised this multimillion dollar client on its transition to SAP’s S4HANA and developed a strategic roadmap for sourcing infrastructure and security services, leveraging AIOps.

We also delivered a multi tower sourcing engagement for a large regional healthcare provider using our ISG Tango platform, part of a multimillion dollar series of engagements with this client. After a successful assessment phase, we have continued our training as a service work supporting a major aerospace and defense company in its transition to SAP S4HANA. This significant multimillion dollar contract covers the training of tens of thousands of employees across four major business units of this company. AI will be leveraged here to improve the delivery efficiency of our services. Turning to Europe, the European market remains cautious in the face of challenging macro conditions, but we expect improvement later in the year as demand begins to rebound.

Q4 revenues of $15,000,000 were down 15%. Europe was led by double digit growth in our insurance industry vertical in the quarter. Key client engagements in Europe in the third quarter included Volkswagen, Allianz and Barmer. During the quarter, ISG provided change management, benchmarking and software services to a new client, a large European insurance company and is currently working on an infrastructure sourcing engagement involving multiple towers, again incorporating AI ops to drive efficiency gains and cost savings. This client will soon cross the $1,000,000 threshold in revenues with further growth anticipated this year.

We also expanded our work with a large engineering solutions and construction firm to support the client’s overall digital transformation. Our multi pronged engagements include IT sourcing, supplier management, cybersecurity and data governance, as we support this client in leveraging AI across its organization. Now, turning to Asia Pacific, we had Q4 revenues of $5,000,000 down $1,000,000 from last year. During the quarter, Asia Pacific delivered double digit revenue growth in our banking, consumer services, energy, utilities and health sciences industry verticals. Key clients from the quarter included IEMO, the Australian energy market operator, Endeavour Group and AGL Energy.

During the quarter, we worked with one of Australia’s leading regional banks to support its digital banking strategy. This included helping them select a provider to modernize the bank’s IT services with AI ops and supporting its transition to the cloud. Now, let me turn to guidance. As I mentioned last quarter, we are seeing positive signs that demand for technology services is picking up as we expected, most notably in The U. S.

Where our pipeline is strong. ISG is well positioned to capitalize on our market opportunities. We have the AI expertise and sourcing capabilities along with unmatched software and services research to guide our clients through the next technology wave powered by AI. So for the first quarter, we are targeting revenues of between $58,000,000 and $59,000,000 and adjusted EBITDA between $6,500,000 and $7,500,000 or at least 45% higher than the first quarter last year. Our guidance reflects the expectation that growth will continue to accelerate in The Americas with Europe picking up later in the year.

So with that, let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael?

Michael Sharrock, Executive Vice President and Chief Financial Officer, ISG: Thank you, Mike, and good morning, everyone. Before I start, I just want to reiterate that all of our revenue comments this morning will compare fourth quarter twenty twenty four revenue to fourth quarter twenty twenty three, excluding automation. We think this provides a more accurate view of our business performance going forward. For the fourth quarter, revenue was $57,800,000 down 2% versus the prior year. Currency had a $300,000 positive impact to revenue in the quarter.

Americas revenue was $37,900,000 up 6%. Europe revenue was $14,900,000 down 15% and Asia Pacific revenue was $5,000,000 down 16%. Fourth quarter adjusted EBITDA was $6,500,000 up 11% from $5,900,000 in the year ago period resulting in an EBITDA margin of 11.3%, up a solid two forty basis points from 8.9% in the year ago quarter. This improvement in profitability allowed us to deliver absolute EBITDA dollar growth despite the year over year decline in revenue. ISG had a fourth quarter operating income of $200,000 compared with an operating loss of $3,500,000 in the prior year.

I would note that these results included transaction costs of $2,200,000 for the automation divestiture. Adjusting for these costs, operating income was $2,400,000 Our reported net income for the quarter was $3,000,000 or $0.06 per fully diluted share compared with a net loss of $2,900,000 or $0.06 per fully diluted share in the prior year. Our 2024 results included a net gain of $2,300,000 on the sale of our automation unit. Excluding this gain, our GAAP EPS was $0.01 per share. Fourth quarter adjusted net income was $3,000,000 or $0.06 per share on a fully diluted basis compared with adjusted net income of $3,100,000 dollars or $0.06 per fully diluted share in the prior year’s fourth quarter.

Headcount as of 12/31/2024 was thirteen twenty three, down 195 positions compared with the prior year, primarily due to the sale of our automation unit. For the quarter, consulting utilization was 72% as compared to 65% in the prior year. Net cash provided by operations for the quarter was $6,600,000 as compared to $9,700,000 a year ago. Importantly for the year, operating cash flow was $20,000,000 despite the drop in revenue, a very strong result. We ended the quarter with cash of $23,100,000 up from $9,700,000 at the end of the third quarter.

During the quarter, we paid down an additional $7,000,000 in debt, bringing the total twenty twenty four pay down to $20,000,000 and our year end debt level to $59,200,000 For the quarter, our average borrowing rate was 7% consistent with last year. During the quarter, we paid dividends of $4,500,000 and repurchased $2,300,000 of stock. Our next quarterly dividend will be paid March 28 to shareholders of record as of March 21. Our fully diluted shares outstanding for the quarter were $50,000,000 and at quarter’s end, we had approximately $18,300,000 remaining on our share purchase authorization. Overall, we have a solid balance sheet that provides us with the flexibility to support our business over the long term.

Mike will now share concluding remarks before we go to Q and A. Mike?

Michael Connors, Chairman and Chief Executive Officer, ISG: Thank you, Michael. To summarize, we delivered a strong quarter with Q4 revenue and adjusted EBITDA both at the high end of our guidance. Adjusted EBITDA was up 11% and The Americas, our largest region, returned to growth with revenues up 6%. Recurring revenue remained strong, representing 45% of our firm wide revenue. We delivered strong cash flow and strengthened our balance sheet with the sale of our automation business.

Our strong cash position allowed us to lower our debt by $7,000,000 in the quarter, 25% for the year. And with dividends and share buybacks, we created nearly $14,000,000 of value in the quarter. AI is at the center of everything we do at ISG, and this bodes well for our future as we capitalize on the AI driven wave of growth that will accelerate in the months and years ahead. 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 our operator for your questions.

Conference Operator: Thank you. Today’s question and answer session will be conducted electronically. And we’ll go first to Joe Gomes at Noble Capital Markets.

Joe Gomes, Analyst, Noble Capital Markets: So Mike, you touched on this a little bit in your prepared comments,

Michael Connors, Chairman and Chief Executive Officer, ISG: but maybe you

Joe Gomes, Analyst, Noble Capital Markets: could do a little expand on a little bit. There’s this uncertainty in the economy, the federal government going back and forth on what they’re doing is not helping confidence out there. A lot of other industries or companies we’ve talked to were kind of frozen in place in the decision making because they’re not seeing that long term stable situation. And just what’s going to give you guys the confidence that things are improving and will continue to improve?

Michael Connors, Chairman and Chief Executive Officer, ISG: Yes, good. Thanks, Joe. Look, here’s how we are seeing the market today versus even a quarter or two ago. Number one, the elections are done in The U. S.

That creates certainty, you know who it is, you know kind of what his policy directions are, corporate tax, overall tax, etcetera. We know that the tariffs are sitting out there and they’re a bit of an unknown. And from our standpoint so far, we’re not in the middle of that fray. We actually think there may be a beneficial side to this kind of tariff noise, I’ll call it, in the market. And that’s because our cost optimization offering is thriving now as some companies that may be more impacted by tariffs if they hold consumer etcetera are looking for ways to be more efficient to take cost out now.

And that has expedited in here in The United States and you’re seeing that with the growth in the fourth quarter and I think you will see that as we move into the first quarter. So although tariffs as an example are putting some cost pressure on some enterprises, We think that the driving of the cost out to either free up money for further transformation or to drop it to the bottom line is a net positive for ISG. Then we look at some of the industries and where they are now versus where they were even a quarter or so ago. The banking and financial services industry in The United States was up 24% in the quarter for us. That is the first time that’s turned to double digits in a number of quarters.

They are moving even despite some of the kind of noise in the market. They feel like there’s certainty in terms of direction, not necessarily a certainty on all aspects of tariffs, etcetera. We’re also seeing it in energy and utilities, up 23% in the quarter health sciences, just under 10% manufacturing in The U. S, not automotive, but manufacturing broader was up 24%. And media or the public sector in The U.

S, and remember, we only have local state and local, we do no work for the federal government, so we’re not part of the whole Doge thing. We saw the public sector up 17% in the quarter as they’re looking to utilize AI to become more efficient in a number of the states. So when we look at all of that for The U. S, that gives us a high level of confidence that we expect an acceleration. Europe is still a bit subdued, primarily driven by the whole geopolitical environment.

You saw that the took down the rates a quarter point this week. So there’s still a bit more uncertainty in the European market driven somewhat by the political atmosphere and what all that means in terms of spending. But I will say our defense and our public sector business in Europe is strong as some of those countries begin to look to put more money into areas like defense. So, Joe, that’s how we think about it. That’s what we’re seeing now in the market and that’s different from a couple of quarters ago.

I hope that helps.

Joe Gomes, Analyst, Noble Capital Markets: Very much so. Thanks for that. And just one more follow-up for me. It’s

Conference Operator: kind of

Joe Gomes, Analyst, Noble Capital Markets: a dual question. Obviously, with the sale, you now got a nice little cash kitty sitting on the balance sheet. You’ve talked about doing some more debt pay down. You’ve talked in the past about keeping an eye out on the M and A environment. Just kind of maybe rank as you’re looking at this year the uses of cash for you guys?

Michael Connors, Chairman and Chief Executive Officer, ISG: So the way we think about it, our debt is sitting at around 2.4 times today. That’s going down to hover around two as we evolve here in the first half of this year. I think we guided before that we’re very comfortable kind of toggling between kind of two and two point five. I don’t know that I would see our the need to take our debt down anything levels below that. So therefore, it frees up use of cash.

We’re looking at two areas, M and A and stock buyback at the rates that the stock is. Of course, we’re limited on volume levels that we can purchase, but we will be and are aggressive in the market for that. But also on the M and A front, we continue to look at areas that can help accelerate where we’re headed on the whole digital and AI front. So, anything that we can drive toward recurring revenues is also of course of interest for us. So that’s how we would think about it.

So think about it more on the M and A and the buyback front with the debt being kind of closer to kind of the two level, if you will, as we go through the first half of the year, we’ll feel very comfortable kind of where those levels are when you look at what our EBITDA will improve at.

Joe Gomes, Analyst, Noble Capital Markets: That help? Great. Yes, that does very much. Thanks. I’ll get back in queue.

Michael Connors, Chairman and Chief Executive Officer, ISG: Thanks, Joe.

Conference Operator: We’ll move next to Vincent Colicchio at Barrington Research.

Vincent Colicchio, Analyst, Barrington Research: Could you give us a bit more color on the sales pipeline in The Americas, sort of what areas are strongest there?

Michael Connors, Chairman and Chief Executive Officer, ISG: Yes. So I think for The U. S, what we’re seeing is kind of two buckets. Our cost optimization bucket, which has always been pretty steady has picked up. I think I mentioned with the tariffs, certain industry segments like consumer, I think are thinking that they may be felt harder than maybe even some of the other industry segments.

So we’re seeing a pickup as it relates in a few industries to accelerate the cost optimization. But importantly, I think in a number of the other industry segments, the idea to be able to utilize AI to become more efficient in their operations is increasing. You’ll recall that our view has been that the transformation side has been somewhat paused because of the macro environment With some certainty with the elections having taken place, I think that some industry segments and you can tell by the growth in The U. S. And some of the segments I mentioned are now feeling like they can begin to pursue and accelerate the transformations that includes an AI transformation in those companies.

So from our standpoint, the cost optimization and now an increasing level to work on AI and digital transformation will be the catalyst for The U. S. Business over the next few quarters. Europe will be a bit slower and Asia Pacific will not kick in, I think, until the government spending returns with the elections happening in Australia over the next in a couple of months. I think we’ll see that happen during the back half of the year once that gets settled down in that region in Australia.

So that’s how we look at it, Vince.

Vincent Colicchio, Analyst, Barrington Research: And Mike, Sharrock, what was the utilization rate number you cited? I missed that.

Michael Sharrock, Executive Vice President and Chief Financial Officer, ISG: Utilization was 72%, up from 65% a year ago.

Vincent Colicchio, Analyst, Barrington Research: Can you remind us what level you’re comfortable with at that brand?

Michael Sharrock, Executive Vice President and Chief Financial Officer, ISG: Yes. I mean, low to mid-70s, we are definitely remain comfortable. We are running, I wouldn’t call it overheated, but it’s definitely hot as you get up towards those levels.

Vincent Colicchio, Analyst, Barrington Research: And Mike, any comments on APAC, thoughts on how that will progress this year?

Michael Connors, Chairman and Chief Executive Officer, ISG: Yes, I think it’s going to be driven by the return to government spending in Australia. It’s been slowed. They have elections coming up in the April, May timeframes. Everybody’s kind of pulled back. There will be a new budget year coming up about the middle of the year.

And once that returns, then our commercial business is good. We just need some more spending on the government side, and I think that you’ll see the return to growth there. So think about the second half there.

Conference Operator: We’ll take our next question from Mark Riddick of Sidoti.

Vincent Colicchio, Analyst, Barrington Research: I wanted to touch a little bit on maybe you could spend some time on the strategic repositioning and sort of how that might flow as far as throughout the year as well as maybe go to market strategies and things of that nature and sort of maybe what you’ve already done, maybe I should take a step back, what you’ve already done in that vein and then what we should expect to see going forward?

Michael Connors, Chairman and Chief Executive Officer, ISG: Yes. No, good question. Look, we let me give you some of the areas that we have been investing in and now are becoming more and more part of our business and why we reposition. We have in our research area, we have now flooded, if you will, the market with AI specific information around what we call market guides, buyers guides or provider lens to understand for enterprises where is AI going, what is out in the market, what are the ecosystems being built. There is a lot of written thought, research leadership out in the market for us.

We started with the first State of the Gen AI report two years ago, those have all been updated. Our Tango platform is AI powered. That now has over $7,000,000,000 of contract value driving through that. That will get up in the double digit billions as we go through the year. The AI advisory business that we launched a little over a year ago, that is what is driving a lot of our advisory work, especially in The U.

S. And in Germany and The U. K. Clients have a high appetite in demand that also will help us because our pricing will remain firm there because it’s in higher demand. Our benchmarking, we have great data now over the past year, fifteen months into our database around how AI is improving efficiencies.

And so when we’re in front of enterprise clients, we can say with confidence what type of cost reductions they could expect with their partners using AI in terms of operations. We’ve launched AI Impact Summits to get enterprise clients together to exchange kind

Vincent Colicchio, Analyst, Barrington Research: of best

Michael Connors, Chairman and Chief Executive Officer, ISG: practices. We’ve trained up our entire 1,200 people that are facing clients with AI certification so that they’re well versed in this area as best as you can be. So as we think about all of those areas, that’s how we’ve now become so AI centered as a firm and that’s why we kind of defined our repositioning because it’s now into everything that we are doing that clients are demanding from us. So that’s how we think about it, Mark.

Vincent Colicchio, Analyst, Barrington Research: That’s really helpful. Thank you. And then, wanted to just double check something timing wise. So the sale of the automation unit had the component of the $20,000,000 initially, and then there was the second, I think it was $4,000,000 or so, there was a timing thing there. Does the cash balance at the end of the year, did that include that $4,000,000 or was the $4,000,000 dollars afterwards or how should we think about that?

Michael Sharrock, Executive Vice President and Chief Financial Officer, ISG: Yes. So Mark, it’s Michael. So you’re spot on. So it was $20,000,000 upfront. There was a $7,000,000 escrow.

$4,000,000 has been earned. Of the $42,000,000 has been collected. So there’s $2,000,000 of the escrow that at year end was sitting on the balance sheet as a receivable. So that will be received in the first quarter.

Vincent Colicchio, Analyst, Barrington Research: Got you. Okay. Excellent. Thank you very much.

Michael Connors, Chairman and Chief Executive Officer, ISG: Thanks, Mark.

Conference Operator: Our next question comes from Dave Storms at Stonegate.

Michael Connors, Chairman and Chief Executive Officer, ISG: Good morning, Ann. I appreciate your questions.

Dave Storms, Analyst, Stonegate: Just wanted to start with recurring revenue. It looked like it was flat quarter over quarter. I just wanted to kind of see what you thought your visibility was going into 2025, how this recurring revenue might change with maybe upcoming contracts come to term, renewals, how the pipeline looks overall, anything of that nature?

Michael Sharrock, Executive Vice President and Chief Financial Officer, ISG: Yes, it’s Michael. So excluding automation, which is how we’re looking at it, on an absolute level, you’re right, it was flat, which is not anything that would be surprising or of concern to us. It has to do with just timing of contracts and how things come on. So when you think about it again, that segment, that piece of our revenue is heavily concentrated in things like GovernX, our research business, the long term public sector contracts. So we remain very optimistic.

I mean, Mike highlighted the growth in public services. We expect to continue to see strong growth there and across the other two that I mentioned as we look at 2025. So we’re looking for continued year on year growth in the recurring revenue absolute in 2025.

Dave Storms, Analyst, Stonegate: Understood. Very helpful. And then just one more for me. You mentioned a couple of key end markets like banking, the APAC government strengthened throughout the year. Is there any other end markets that we should be keeping an eye on looking through 2025?

Michael Connors, Chairman and Chief Executive Officer, ISG: I think energy, I think utilities, think about all the what AI needs to be powered up. I think we’re going to see both of those be quite healthy. I think the whole health sciences area will continue to you’ll see some real help there. I think on the technology front, you’ll see that. So think about the Googles and the sales forces, etcetera, you’ll see that up.

I think the weak part will be automotive and a combination of the electric vehicle and what does that mean and how does that proceed and tariffs and all those things. I expect that component of manufacturing, I would expect to be weak and possibly consumer depending on what happens with the tariff. So I gave you the positive ones and I would say those might be the two might be lighter ones during the course of the year.

Conference Operator: And we’ll go next to Gautam Shreedharan at Singular Research.

Gautam Shreedharan, Analyst, Singular Research: Good morning. Can you hear me?

Michael Sharrock, Executive Vice President and Chief Financial Officer, ISG: We can. Thank you.

Gautam Shreedharan, Analyst, Singular Research: Good morning. Thanks for taking my call. So I apologize if you might have covered this in your prepared remarks. I had a slight technical difficulty. But in terms of your AI with 100 clients already served in the past year, Could you help us share some of these AI centric conversations that are maybe translating into committed revenue streams?

Are clients moving beyond the exploratory phases into multiyear contracts and what percentage would you say are doing that?

Michael Connors, Chairman and Chief Executive Officer, ISG: Okay. Good question. Yes. So what we are seeing around the whole AI is because of the efficiencies of using artificial intelligence to help automate, there’s both a speed and there’s a cost element. And we are seeing that now in almost every transaction that we are working with our enterprise clients.

We’ve been working with a chipmaker, major utility company, a gasoline retailer in Canada, financial services companies, global hospitality and entertainment companies, a Canadian bank, insurance company, all of them now are looking on how AI ops uses AI, including kind of GenAI, Genic AI to help automate the operations. And what that is doing is because of the efficiency, we are seeing the contracts are going to go a little longer in its length because they can take advantage of some of these cost efficiencies and they want to take them a bit longer. So we’re seeing the size of the contracts a bit larger, the length of the contracts being a bit longer and we reflected that in our ISG index call that we did with the industry in January. So those are the trends that we’re seeing and I expect those to continue through the year.

Gautam Shreedharan, Analyst, Singular Research: Okay. Thanks for that. And in terms of APAC in Europe, I know you guys mentioned that it’s probably kind of a wait and see on your end as the markets there improve. But is there a case for investments on your side? Is the brand perception in The U.

S. Much better for ISU than maybe in Europe is not as strong? Is there a case for reinvestment of the brand for Europe APAC?

Michael Connors, Chairman and Chief Executive Officer, ISG: No. I would say our brand is strong globally. I mean, we are one of the key players in Germany, which is the biggest market in Europe, for example. We’re strong in France, we’re strong in Italy, and we’re strong in The UK. So, I don’t think the brand has any impact at all.

I think that the overhang is the geopolitical environment that is holding back spending by some of our enterprise clients in Europe. And as I mentioned in Asia Pacific, it’s just a matter of when the government spending picks up in Australia, in Canberra, and we expect it to pick up post their elections, which are before the end of the second quarter. So, that’s how we would think about and why we would see that Asia Pacific and Europe will lag The U. S. Acceleration.

But of course, The U. S. Is our bread and butter business right now in our firm.

Gautam Shreedharan, Analyst, Singular Research: Awesome. And you mentioned training as a service kind of becoming scalable. Is this becoming a standalone high margin revenue line? What’s the kind of the TAM for this offering you think?

Michael Connors, Chairman and Chief Executive Officer, ISG: Yes. So that’s a good question. So our we call it TAS, training as a service. It’s a recurring revenue stream. It’s multi year.

And what we go in and we help large enterprises understand the technology change. So, think about it from change management standpoint. And then when there is change like S4HANA, for example, large installation with a top two aerospace company, then all the people need to be trained and educated around the new technology. And so, they will contract with us for a multi year to train them and basically training as a service is how we sell it. So, yes, that is a component of our recurring revenue growth out into the future.

We are very bullish on that.

Gautam Shreedharan, Analyst, Singular Research: And will that be tied in with the AI story?

Michael Connors, Chairman and Chief Executive Officer, ISG: Yes. I mean, we are using AI. Actually, AI makes this more makes it efficient for us to scale our TAS business. So we’re able to use AI to help on training the development, training materials, information and then the delivery of that training. So, yes, AI is enabling us to take this TAS concept that we had two years ago and now begin to scale it.

Conference Operator: And we’ll move next to Mark Riddick with Sidoti.

Vincent Colicchio, Analyst, Barrington Research: I realized I forgot to ask one thing. And I was wondering if you could spend some time talking about what you’re seeing with the potential for acquisitions and acquisition pipelines currently and maybe what you’re thinking about for what you’re seeing out there valuation wise? Has there been any opportunities that are kind of beginning to uncover now relative to maybe three to six months ago?

Joe Gomes, Analyst, Noble Capital Markets: Yes,

Michael Connors, Chairman and Chief Executive Officer, ISG: we are active as you know. We’ve done 14 in our firm here and we are always in the market and we are active discussions and we are focused around all things digital, all things AI, all things around recurring revenue. So if we feel like we can accelerate our growth or fill some gaps like we did with the purchase of Dentana research about eighteen months ago around software and the economy, We’re going to jump on that. In terms of values, I mean, as always, sellers think it’s worth more than the buyer. So nothing’s changed on the dynamics there.

I would say that to me the valuations that are in the market are pretty fair, I would just characterize them as. So if we were able to find something that made sense and we can do it at a win win and a fair evaluation as well as do, we would jump on it. So I think the market is pretty good. It’s pretty ripe. It’s picking up.

And I think from valuations to me, they’re pretty fair.

Vincent Colicchio, Analyst, Barrington Research: Excellent. Thank you very much.

Michael Connors, Chairman and Chief Executive Officer, ISG: Thanks, Mark.

Conference Operator: And I’m showing no further questions. I’ll turn the call back to Mike Connors for his closing remarks.

Michael Connors, Chairman and Chief Executive Officer, ISG: Yes. Well, thank you. 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 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 our call today for your continued support and confidence in our firm and have a great rest of the day.

Conference Operator: This does conclude today’s teleconference. You may disconnect at any time.

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