Information Services Group(III) - 2025 Q1 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements (Unaudited) Information Services Group achieved a $1.5 million net income in Q1 2025, reversing a $3.4 million net loss from Q1 2024, primarily due to reduced operating expenses despite a 7% revenue decrease Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $20,116 | $23,075 | | Total current assets | $90,101 | $91,281 | | Total assets | $202,365 | $204,515 | | Total current liabilities | $37,247 | $38,420 | | Long-term debt, net | $59,175 | $59,175 | | Total liabilities | $107,329 | $108,229 | | Total stockholders' equity | $95,036 | $96,286 | Condensed Consolidated Income Statement Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenues | $59,583 | $64,269 | | Operating income (loss) | $3,396 | $(2,370) | | Net income (loss) | $1,488 | $(3,389) | | Diluted earnings (loss) per share | $0.03 | $(0.07) | Condensed Consolidated Cash Flow Highlights (in thousands) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $978 | $2,333 | | Net cash used in investing activities | $(837) | $(1,022) | | Net cash used in financing activities | $(3,473) | $(9,718) | | Net decrease in cash | $(2,956) | $(8,684) | Notes to Condensed Consolidated Financial Statements - The company is a global AI-centered technology research and advisory firm, serving over 900 clients, including 75 of the world's top 100 enterprises[18] - In Q1 2025, the company received an additional $2.0 million in cash proceeds from the previous sale of its Automation business line based on the achievement of contractual requirements[22] - As of March 31, 2025, the company had $120.5 million in remaining performance obligations, the majority of which are expected to be satisfied within the next twelve months[38] - The company is pursuing legal action against a former client regarding a $4.8 million allowance for doubtful accounts and is in litigation with another client over a disputed $4.7 million receivable for which no reserve has been recorded[39][40] - The company operates as a single reportable segment, providing fact-based sourcing advisory services[49] - On May 6, 2025, the Board of Directors approved a second-quarter dividend of $0.045 per share[58] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 7% revenue decline to weakness in Europe and Asia Pacific, while a 16% reduction in operating expenses significantly improved profitability, with Adjusted EBITDA rising to $7.4 million Business Overview - ISG is a global AI-centered technology research and advisory firm with a strategy focused on growing its existing service model, expanding geographically, developing new industry sectors, and pursuing acquisitions[61][62] - Revenues are derived from project-based fees (time and materials, fixed-fee) and recurring revenue streams from offerings like ISG GovernX and ISG Research Lens[63][65] Results of Operations Revenues by Geographic Area (in thousands) | Geographic Area | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Americas | $41,002 | $40,840 | 0% | | Europe | $13,794 | $17,796 | (22)% | | Asia Pacific | $4,787 | $5,633 | (15)% | | Total revenues | $59,583 | $64,269 | (7)% | Operating Expenses (in thousands) | Operating Expenses | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Direct costs and expenses for advisors | $33,927 | $41,047 | (17)% | | Selling, general and administrative | $21,155 | $24,087 | (12)% | | Depreciation and amortization | $1,105 | $1,505 | (27)% | | Total operating expenses | $56,187 | $66,639 | (16)% | - The $10.5 million decrease in operating expenses was primarily due to lower automation license fees ($3.7 million), restructuring costs ($2.6 million), and compensation expense ($2.4 million)[69] - The effective tax rate for Q1 2025 was 37.9%, compared to 6.4% for Q1 2024, with the increase primarily due to higher pre-tax earnings[78] Non-GAAP Financial Measures Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) | $1,488 | $(3,389) | | Interest expense (net) | $1,001 | $1,243 | | Income taxes expense (benefit) | $910 | $(231) | | Depreciation and amortization | $1,105 | $1,505 | | Other adjustments | $2,892 | $5,286 | | Adjusted EBITDA | $7,396 | $4,414 | Reconciliation of Net Income (Loss) to Adjusted Net Income (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) | $1,488 | $(3,389) | | Non-cash & other adjustments | $3,210 | $6,041 | | Tax effect | $(1,027) | $(1,933) | | Adjusted net income | $3,671 | $719 | - Adjusted net income per diluted share was $0.07 in Q1 2025, compared to $0.01 in Q1 2024[82] Liquidity and Capital Resources - As of March 31, 2025, cash, cash equivalents, and restricted cash totaled $20.2 million, a net decrease of $3.0 million from year-end 2024[85] - The decrease in cash was primarily driven by $2.2 million in dividend payments and $2.6 million in share repurchases, partially offset by $1.0 million in cash from operations and $2.0 million from the sale of the automation business[85][88] - The company has a $140 million revolving credit facility maturing in 2028, with $59.2 million in borrowings outstanding as of March 31, 2025[86][87] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from its $59.2 million floating-rate debt and foreign currency risk from international operations, with a $0.4 million positive translation impact in Q1 2025 - The company is exposed to interest rate risk due to its $59.2 million in outstanding debt based on a floating rate (SOFR)[94][95] - A significant portion of revenues are derived from sales outside the U.S., creating exposure to foreign currency translation risk, mainly from the Euro, British Pound, and Australian dollar[96] - For the three months ended March 31, 2025, the impact of foreign currency translation on stockholders' equity was a positive $0.4 million[97] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[101] - No changes occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[102] Part II - Other Information Item 1 & 1A. Legal Proceedings and Risk Factors The company reports no material legal proceedings but identifies risks from changes in international trade policies, tariffs, and employment-related claims - The company and its subsidiaries are not currently subject to any material legal proceedings[104] - The company identifies changes in U.S. or international trade policies, including new tariffs and regulations, as a risk that could adversely affect its business[106] - The company is exposed to risks from employment-related claims (e.g., wage and hour violations) and may have to indemnify clients for certain acts of its consultants[108][109] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2025, the company repurchased 1.012 million shares for $3.4 million, with $14.9 million remaining in the program, and approved a $0.045 per share Q2 dividend - On May 6, 2025, the Board approved a second-quarter dividend of $0.045 per share[110] Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | January 2025 | 208 | $3.22 | | February 2025 | 263 | $3.17 | | March 2025 | 541 | $3.55 | - As of March 31, 2025, the company had approximately $14.9 million of capacity available under its current share repurchase program[111][113]