Good morning, and welcome to the Information Services Group Fourth 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. Will Thoretz for opening remarks and introduction. Mr. Thoretz, please go ahead.

Thank you, operator. Hello, and good morning. My name is Will Thoretz. I'm Head of Corporate Communications for 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 Sherrick, 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 8-K that was furnished last night to the SEC and the Risk Factors section of our most recent Form 10-K and 10-Q filings. You should also read ISG's annual report on Form 10-K and in the 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.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 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. A 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 last night with the SEC. And now I would like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Mike?

Thank you, Will, and good morning, everyone. I should note that Will is now handling the opening of our call after the passing of a long-time colleague, Barry Holt in December. Barry was with me when I started the firm in 2006 and was heard on all of our investor calls up until now. Our condolence is again to the whole family. Today, we will review our solid Q4 results driven by double-digit growth in Europe and in our recurring revenues. Progress on our AI initiatives, our view of the current demand environment and our outlook for Q1. ISG delivered a strong Q4 to cap off in an outstanding year, powered by continuing client interest in our AI-centered transformation services. In the fourth quarter, nearly 35% of our revenues were from AI-related research and advisory services. For the full year, that number was nearly 30%, up 3x from 2024. This shows that AI is rapidly being mainstreamed as a core aspect of our traditional technology transformation work. Technology disruption has always fueled our growth in times of significant change, enterprises often struggle to adapt, so they turn to a trusted adviser for insights and expertise to chart the path forward and our results reflect that. We are still in the early stages of AI adoption will continue to accelerate as the technology and its governance matures. For our clients, it's not a question of if they will leverage AI, it's a question of how. Success requires the right data engineering, proper governance and workers ready to embrace the operating model changes AI is creating. We're seeing our AI clients leverage our entire value chain, research, benchmarking, advisory and governance, so they can navigate this new paradigm quickly and effectively. For the fourth quarter, ISG delivered revenues of $61.2 million, at…

Thank you, Mike, and good morning, everyone. Revenue for the fourth quarter was $61.2 million, up a solid 6% from the prior year. For the quarter, currency had a positive $1.3 million impact to revenue. Americas revenue was $38.3 million, up 1% in the fourth quarter. For the full year, excluding the 2024 results from our divested automation unit Americas revenue was up 11%, its best year-over-year growth in 4 years. For the quarter, Europe delivered revenue of $19.1 million, up 28%, while Asia Pacific revenue was $3.9 million, down $1.1 million from the prior year. Fourth quarter adjusted EBITDA was $8.1 million, up 24% from $6.5 million in the year-ago period and resulting in an EBITDA margin of 13.2%, which was 189 basis points higher year-on-year. For the quarter, ISG delivered operating income of $5.1 million, resulting in an operating margin of 8.4%. Reported net income for the quarter was $2.6 million or $0.05 per fully diluted share as compared with net income of $3 million or $0.06 per fully diluted share in the prior year. I would note, during the fourth quarter of 2024, ISG recorded a $2.3 million net gain on the sale of its automation unit. Excluding this gain, net income and GAAP EPS would have been $0.7 million and $0.01 per fully diluted share, respectively. Fourth quarter adjusted net income was $4 million or $0.08 per fully diluted share compared with adjusted net income of $3 million or $0.06 per fully diluted share in the prior year's fourth quarter. Headcount as of December 31, 2025, was 1,290. For the quarter, consulting utilization was 69%, in line with our average fourth quarter utilization. Full year utilization of 73% was in line with our mid-70s target. We ended the year with cash of $28.7 million, flat from the end of the third quarter and up $5.6 million year-on-year. For the quarter, net cash provided by operations was $5.1 million, supported by our solid operating results and continued focus on working capital. For the full year, we generated operating cash flow of $29 million, up 46% year-on-year. During the quarter, we paid dividends of $2.2 million and repurchased $2.3 million of stock. Our next quarterly dividend will be paid March 26 to shareholders of record as of March 20. At quarter's end fully diluted shares outstanding were $50.5 million, down $100,000 from the prior year. Our quarter-end gross debt-to-EBITDA ratio was just under 1.9x, down from 2.4x at December 31, 2024, and just below our 2x to 2.5x target range. At quarter's end, our debt was unchanged. And for the quarter, our average borrowing rate was 5.8%, down 125 basis points year-on-year. Overall, our balance sheet remains solid and continues to improve, providing us with a strong foundation to both operate and invest in the business, especially in our AI initiatives. Mike will now share concluding remarks before we go to Q&A. Mike?

Thank you, Michael. To summarize, ISG delivered another strong quarter, continuing our AI-powered momentum. Our 6% revenue growth in Q4 was led by double-digit growth in Europe and our recurring revenue businesses. We grew our adjusted EBITDA by 24% and margins by nearly 200 basis points. Our strong Q4 capped an outstanding year with revenues up 7%, driven by an 11% growth in the Americas. Adjusted EBITDA was up 28% and margins for the year up 300 basis points. We continue to generate strong cash flow, delivering operating cash of $29 million for the year, up 46%. Looking ahead to disruptive and powerful force of AI will continue to be a growth catalyst for ISG as the technology matures and adoption begins to scale. In this environment, our ability to deliver the full value chain of our research, our benchmarking, advisory and governance is a key competitive advantage for ISG. One that we believe enhances ROI for our clients and creates long-term value for our shareholders. So thank you very much for calling in this morning. And now let me turn the session over to the operators for your question.

[Operator Instructions] Our first question comes from Marc Riddick from Sidoti.

Good morning. So I wanted to start with some of the things that you're seeing. Maybe you could talk a little bit about -- you touched on this in the prepared remarks might be a little bit on what you're seeing as to differentiation of climate verticals. But also maybe you could talk a little bit about -- you've talked in the past about the sort of the offensive versus defensive spending that you're seeing? Maybe you could talk a little bit about maybe how that's evolved and maybe what you're seeing currently there?

Yes. So look, I think, first of all, there is -- I think it's a mix, Marc, there's a lot of defense going on, but there's also a lot of offense. I think it varies by industry segment, if I was thinking about the industries and thinking about offense, defense. First of all, where we're seeing a real significant area is around consumer, around retail. We see it around the financial services area, energy, utilities. And why is all that? Well, certainly, the consumer has been hit pretty hard in this whole kind of macro environment. The challenges around AI and the data centers puts pressure on the energy and utility companies. With the oil kind of moving, now the energy companies are flushing a bit more with cash. But we're seeing kind of a combination of trying to get a transformation journey going, and it varies. The consumer side is very defensive, I would say, on most of the areas. And clients like the energy side or even health sciences, I would say, are a little more offensive. So it's mixed back but all of them are working to try to figure out how they can embed AI to make their operations efficient, make it smoother for our client, customer exchange or user experience. And so it's kind of all over the board, which is good for us. There's a lot of disruption, and we like disruption from both a technology and an industry standpoint, Marc.

Great. And then I know it's a little early in the process, I suppose, but maybe you can talk a little bit about the acquisition early days. It seems as though it's something that's it's fairly attractive for you and as well as the opportunities and maybe add clients from the base that you currently work with. But maybe you could talk a little bit about be it the early days of what you're seeing with the maturity innings as well as then maybe you could segue into sort of the current acquisition appetite and maybe what you're seeing out there?

Yes. So again, what this does is it assesses kind of the readiness by individual in an organization. And then you add up all the individuals and you get a good picture of the readiness of the workforce. Let me give you an example. There was a company, there was a large, let's call it, audit firm that one of the big technology firms was developing a new audit platform for. And as a result of this or platform, they estimated that they could save if you think about a lot of the work that goes on and quarterly gatherings of information from audit firm, they thought they could estimate savings of somewhere between 20% and 30%. It turns out that technology was great, but the audit partners were not willing to engage and embrace the new platform. Why? Well, the new platform, if you can actually take 20% to 30% cost out of some of those services, if you're charging a large client x millions of dollars for that audit today, likely you are not charging that same amount for that audit tomorrow with a new kind of efficient audit platform. That group was not ready, although they spent the money from a technology standpoint to prepare them. What this assessment does is it allows us to go into clients, assess individuals, build it up and clear prices understand what is the readiness level of their workforce to embrace, engage views and be ready for AI. And so for us, this is opening doors because our AI, energy and efforts around a lot of our clients. This readiness is an important factor to be sure that they can have success when implementing them. So anyway, it's -- as we think it's a great door opener for us, and it really has been a nice little add-on to our overall AI advisory business. And I will say, Marc, we are happy to have you or anyone on this call, we're happy to send you a link. You can take it yourself, this readiness on an individual basis. It literally takes only about 15 minutes. You get your own report, you get your own assessment. It's all done digitally, if you will, and it's pretty cool. So just let us know.

Sounds good. Looking forward to that, definitely. And then maybe just thoughts on the current acquisition pipeline out there or appetite for -- certainly with the balance sheet being stronger, continuing to improve. Maybe talk a little bit about your appetite, currently.

Yes. So we are still in the market. We are constantly looking at M&A, as you know, that is kind of our heritage. We're looking at anything that can help us around recurring revenues and help us around our AI journey with clients. And the market is pretty good. We're having some good discussions, and we'll see how things unfold. But we're in a pretty strong position, and we feel pretty good about what may be out there during the course of the next year or so.

Our next question comes from David Storms from Stonegate.

Just wanted to maybe circle back to the acceleration unit. What do early wins look like for them? I know there's a lot up in the air and things are changing rapidly. But what would you hope to accomplish over maybe the short to medium term?

Yes. I think from a quantitative standpoint, I'll start there and kind of build into it. We have about 30% of our revenues today that are AI related. Now that's up from about 10% about a year or so ago. We are looking to get to 50%. And one of the reasons for that is, is that we have a great talented upskilled workforce globally. And because of that, we are in high demand on all things AI. And with that, that means we want to be able to utilize the capabilities we have with our client base, and we have, I think, some pretty firm pricing as a result of that. . So number one, just from a targeting standpoint, we want this unit to help us move from kind of 30% to 50%. So if you want to look at it on a quantitative basis. The key is this is kind of a small almost I'll look at it as a seal team where we have our Chief Software Analyst, we have a Chief Change Management Officer. We have our Chief AI Officer, which Steve Hall has been that for almost 3 years now. We have this small group of people that are really helping us accelerate on a global basis. And that's what we're looking to accomplish, continuing to add features like the AI Maturity Index and other things as we move through '26 and '27. So that's our thinking around it, Dave.

That's great color. I appreciate that. With a lot of the movement that we're seeing with [indiscernible] landscape, how are you seeing the visibility in your pipeline change? Or is it becoming more difficult to manage that as things move through the process faster? Or are you seeing customers maybe measure twice and cut once and still have maybe some extended sales cycles?

Yes, it's a good question. It does mix. We have seen -- let me use the U.S. We have seen some things in the U.S. move out of the first quarter into the second quarter. The pipeline is still very strong. The pace is a bit mixed, again, depending on what's going on in the world. We have the new tariff situation. Now we have a bit of the geopolitical, that always puts a little bit of a little bit of fear into the buyers, if you will. But having said that, I think our view of '26 is that we will see our work, we will see an acceleration as we go through the year. I think you'll continue to see Europe where it is. I think Asia Pacific will be a back half. I think the U.S. will be -- we have a tough compare quarter-over-quarter in the first quarter, but you'll see the U.S. really accelerate, I think, in Q2 onwards based on our pipeline. So it's a little bit mixed, and it just kind of depends on this macro environment and how people behave. But the demand is there. The pipe is there, the pace I think will be choppy for a quarter or 2 quarters, depending on how the world reflects.

That's great. I do really appreciate that. And then maybe just one more for me, trying to tie together your recurring revenue and the AI revenue. Are you seeing AI spend be pretty recurring? Or are there sections of it that tends to be more or less recurrent than others? Just any thoughts there would be great.

Yes, Dave, it's Michael. I mean, I think it's a mix. I mean, as you can imagine, AI is very quickly becoming a part of most projects and things that we do. And so as a result, some will be in things that are recurring, right? Things like governance, things like research, those will be recurring and others will be embedded into two projects, right, where we're looking at back office towers that are moving to a genetic AI and other forms of technology to help automate and drive efficiency. So it's going to be a combination, very similar, I think, to prior technology movements.

Our next question comes from Vince Colicchio from Barrington Research.

So I'd like to have you talk about labor supply for a moment. we know that with -- in AI type work, labor is leverageable, highly productive. But having said that, is your AI -- are your AI capabilities where they need to be to meet current demand. And to get to your 50% target, will it be difficult to get the people you need?

Yes. Good question, Vince. First of all, we have now -- while we scale the entire workforce up on AI skills and so on through the end of last year, we now have what we call an advanced training that's ongoing that we expect all of our client-facing colleagues around the world to be completed by the end of April. So this will take them to another level. The second bit is because we have 30% of our revenues and engagements that have embedded, if you will, and we're getting a lot of hands on experience with our team. So one, I think we're going to be in a very good place skill-wise, I think we're going to be in a very good place in terms of real, live engagements, hands-on work with our clients, and we feel pretty good that we have the talent base or can attract the talent base to supplement what we currently have, but we have been reskilling and upskilling our teams now for almost 18 months and feel pretty good about it. So from a labor standpoint, we've always had very low turnover industry, as you know, quite a bit below industry averages, and that continues today. So that allows the retention of the skill sets that we have and then we'll complement it accordingly.

So it sounds like Europe will continue to be strong in Q1. And just curious about what service lines should lead in Q1 into early Q2?

Yes. So I think you're right, that's how we see it, if we see the U.S., they have a tough quarter-over-quarter compare, but Europe still continue kind of their strong, if you will, growth areas. But the area there will continue to be and all things on the recurring revenue streams in Europe. The backlog, as you know, we talked about this, Europe was a little behind the U.S. It began to catch up in terms of buyer behavior and movement on AI journey during the second half of last year, it's picked up momentum. You saw that in the fourth quarter, and we think you'll see that in in the first quarter. The pipeline in the U.S., in particular, is very heavy. Things have moved out a little bit, but we expect that also to move nicely upwards as the year progresses. So our recurring revenues around research, our governance, especially AI governance are all very hot, and we expect that to continue during the first quarter.

When I think about this index business, it seems like a really good tip of the spear to get you into a lot of new accounts. I assume you're thinking like that. And are you seeing that pay off so far? I mean it's very early.

Yes. It is a tip of the spear, and it's -- we've got about 30 clients that are currently in our pipeline. But more importantly, we are using it as a door opener with our AI services. It's a terrific tool. It's a terrific assessment. It gives instant feedback to an enterprise in terms of where their workforce is. So yes, we're very excited about. It's kind of the tip of the spear. We like it and as I said earlier, we're happy to send you the link for you to do it yourself. It's all gone electronically digitally. It's pretty swift. You'll see how it operates with the clients as well.

Our next question comes from Kasi SriHari from Singular Research.

Yes. So my first question is for what you're seeing in the field, are clients beginning to consolidate their advisory and benching spend around a smaller set of partners for AI and sourcing? Or is the wallet share still spread across multiple firms?

Good question. I think from our perspective, we think there's going to be some consolidation. And the reason we think it is because clients want more of them being informed with information. They want an outcome. So the insights are going to be very important, but execution with scale is probably even more important. And if you can combine the insight with the advisory of sale, and then you can actually help them AI govern, we think that's nirvana. And that's why we think we're really well positioned. So we'll see how this progresses over the next year or 2 years. But our sense is that clients are becoming much more interested in an outcome based, not just being informed. So that's how we see this evolving over the next couple of years.

And as you deploy this majority index with more clients. Are you seeing any patterns by industry or geography in terms of who's actually generally ready to scale versus who is still in the early stage? And how does that prioritize your own go-to-market strategy?

No, it's a good question. I think it's too early to give you a, I'll call it, a fact-based assessment on that. I would say that based on what we have done from an assessment standpoint, what this index has done, it's pretty all over the board. It's really the -- because it's still so new, we think it's we all are seeing this every day, and we think it's been around. But the reality is this is 2.5 years old, but really less than that in terms of any kind of scale going on. So I think it's a mixed bag. I don't have an industry specific, if it's that. I would say that when the workforce is as dispersed and divested as a major Global 200, Global 300 company, much more difficult to get the readiness. If the enterprise is smaller and a little more contained, maybe a bit better. But we'll need a little more time to get a fact-based approach. But right now, it's pretty broad-based, I would say.

Got it. And given that with your new team related to, given that most 30% of your revenue is now AI-related, what portion of your delivery teams are actually spending majority of the tape in AI-centric versus more traditional sourcing and transformation mix to evolve in 2026?

Yes. No, that's a very good question. I think I would say 75%, 80% of our workforce is now engaged in something AI related. It may be very early stage and therefore, converting from revenue maybe smaller in some cases. But when you have 30% of your revenue, you're getting it heavier in some spots, lighter and others. But I would say 75% to 80% of our workforce now is touching AI in their work. .

And does the AI world come with premium pricing in terms of billable holes?

We think that the AI work that we're doing is, I'll call it, firmly priced.

Okay. Got you. And on the consumer side, you mentioned that that's a very hot vertical for you, partly because of the tariffs. And with the recent consumer win, are the consumer engagements tending to be -- I assume are not to be short on the urgent but cost takeouts more long term? And can you talk about how you're transforming that into a multiyear relationship, if you could talk about that over?

Yes. No, good question. So on the consumer side, we're very very active with a number of large consumer companies globally, and I gave a few examples, I think, in our prepared remarks. But what they're really looking at is taking their entire kind of operating cost base kind of breaking that up into different, I'll call it, towers and saying, how can we optimize that cost base in the very near term utilizing all the technology capability that's out there and do it at scale and with a significant outcome. And that's why I think some of the examples I gave you, we have one we're working on a very large consumer company. Their goal is 40% of their operating costs reduced within the next 3 to 4 years. It's a very large number. It's a multibillion dollar, if you will, optimization, using technology, using AI, using automation, using lots of other techniques but that is not atypical of the consumer companies, different scale on that one. The other one you saw -- I think I gave an example was a 20% optimization using it. The way they're looking at it is first inform me, give me the research you have around AI, the capabilities, what does the ecosystem look like, you are experts in that. Tell me who is out there, who is doing one at what levels? How does that apply to my particular business and then importantly, help me execute it. So don't just inform me, don't just give me an analyst kind of perspective, but give it to me, advise me, help me execute it all the way to the end. And that is what we're seeing there.

Our last question comes from Joe Gomes from NOBLE Capital.

Jacob Mutchler on for Joe Gomes this morning. My first question is related to ISG Tango. Just curious if you could talk about what is driving that growth and how that -- how Tango's performing with mid-market clients and -- and then also if you could touch upon a comment you made on the prepared remarks about, I believe it was increasing, was it the technical capabilities of Tango or maybe the amount of flow that it could handle -- any color would be appreciated.

Sure. Well, first of all, on pain, let me cover a couple of things just to give you the scope and scale. We have about $25 billion of contract value now running through that approximately. So this is at approximately $11 billion of that, so call it a little over 40% of that is the mid-market. You'll recall when we launched this, we felt that this platform would enable us to go into companies that we had not been into before. because of the way we price, which is higher priced, if you will, tougher to justify at a mid-market company. But what Tango does is it digitizes a lot of the process. And so the beauty of it is that it's a win-win for the enterprise. And the enterprise, we put all the data onto our platform. The ones that are bidding for some of the work that the enterprise wants to have done, whether it's in infrastructure or applications or supply chain, they get to go to the digital platform. The client then can see everything that the technology companies like the IBMs or Accenture are doing. And then what the outcome is, is that for the enterprise, they get speed to value. So what may have taken longer will take shorter because it's all digitized. And from the technology provider standpoint, take it the Accenture, the IBM, they know that there's going to be an outcome. So the the cost of the pursuit of the enterprise X., they know that they're making an investment. They may win they may lose, but they know they're going to be a winner or a loser. And so from that standpoint, they know there'll be an outcome, and they also get speed to the outcome. So the process from beginning to end is also quicker. And then from an ISG standpoint, we are able to gather of all that data. We put it into our black box. And importantly, we're able to utilize talent in a bit more flexible way on a global basis because it takes us a little less time, and we can take our talent and spread them over multiple kind of engagements. So that's the win-win-win with Tango, and that's why I think it's moved at the pace that it has. So the mid market, by the way, is -- yes, I said about 30%. I think it's around 25% -- it's around 25%, just to give you -- just to clarify, Jason.

Got you. Okay. And then briefly turning to Asia. What is the -- I know you mentioned that you're expecting to return to growth in the back half. Is there a catalyst of what's going to precipitate that event? Or just any color around what's going to help drive Asia back to growth?

Yes. Jacob, I think it's Michael. As Mike commented, for Asia, we really need to see the the public sector begin to improve. We've seen some improvement in the pipeline there. Obviously, we need to close that business, but that's obviously the the early sign of beginning to see some life come back is that we're seeing some better opportunities in our pipeline.

And I'm showing no further questions. I'll turn the call back over to Mike Connors for his closing remarks.

Okay. In closing, let me thank all of our professionals worldwide for our continuing progress and further collaboration and unwavering dedication to our clients in driving our long-term success. I think our people have a passion for delivering the best information, insights, 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 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.