Q1 2025 Information Services Group Inc Earnings Call
Okay.
Good morning, and welcome everyone to the information services group first quarter 'twenty twenty-five conference call.
This call is being recorded and a replay will be available on isg's website within 24 hours now.
Now I would like to turn the conference over to Barry Holt for his opening remarks and introductions. Please go ahead.
Barry Holt: Thank you operator, Hello, and good morning, My name is Barry Holt Im a senior communications executive at ISG I'd like to welcome everyone to Isg's first quarter Conference call I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Michael <unk>, Executive Vice President and Chief Financial Officer.
Before we begin I'd like to read a forward looking statement it's.
Barry Holt: It is important to note that this communication may contain forward looking statements, which represent the current expectations and beliefs.
Barry Holt: The trend of ISG concerning future events and their potential effects.
Barry Holt: They 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.
Barry Holt: For a more detailed listing of the risks and other factors that could affect future results. Please refer to the forward looking statements contained in our form 8-K that was furnished last night to the SEC and the risk factors section in Isg's Form 10-K, covering full year results.
Barry Holt: You should also read Isg's annual report on Form 10-K, and any other relevant documents, including any amendments or supplements. These documents filed with the SEC youll be able to obtain free copies of any of Isg's SEC filings on either Isg's website at www Dot ISG dash, one dot com or the Sec's website at www.
Barry Holt: <unk> SEC Gov.
Barry Holt: Hi, she 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 perform.
Barry Holt: 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.
Barry Holt: For a reconciliation of 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.
Thank you.
Barry Holt: And now I'd like to turn the call over to Michael Connors, who's been followed by Michael Sherrick. [inaudible]
Mike.
Thank you, Barry, and good morning, everyone Good morning, everyone.
Barry Holt: Today we will review our strong Q1 results, including our accelerating margins, our view of the current market, and our outlook for Q2.
Barry Holt: Our momentum continues. After finishing 2024 with a strong fourth quarter, ISG began this year with an even stronger first quarter.
Barry Holt: Our execution was superb and our underlying fundamentals are in great shape.
We delivered Q1 revenues at $60 million up 5%.
Excluding results from our divested Automation Unit.
Barry Holt: Growth was led by our largest revenue region, the Americas, up 17%.
Barry Holt: This is the largest year over your growth quarter in the Americas in the last two years.
Barry Holt: During our fourth quarter call, I indicated that we expected acceleration in 2025, beginning with the America's during the first half of the year, followed by Europe and the rest of the world later in the second half.
Barry Holt: For Q1, our adjusted EBITDA was up 68% to $7 $4 million with our adjusted EBITDA margin of more than 550 basis points to 12, 4%.
Barry Holt: Our enhanced profitability as a result of our improved business mix and our disciplined operating approach.
Barry Holt: Including Q1 utilization up 745 basis points year over year.
Barry Holt: Recurring revenues continue to be an important pillar of our success.
Barry Holt: In Q1, they reached $26 million up slightly from Q4 and represented 44% of our overall revenue.
Barry Holt: AI continues to be at the heart of everything we do with AI increasingly embedded in all areas of technology and services.
Barry Holt: We have served more than 200 clients with AI focus for research and advisory services in the trailing 12 months up from the 150, we noted last quarter.
Barry Holt: As AI evolves, so do our offerings.
Barry Holt: For example, last month ISG research published a strategic guide to <unk> AI for enterprise leaders.
Barry Holt: With our strong expertise and knowledge of the AI ecosystem.
Barry Holt: Clients continue to look for our advice and support on adopting and scaling AI across their organizations.
Barry Holt: Our AI powered platforms also continued to gain traction with clients.
Barry Holt: For example, more than $9 billion in contract value now flows through ISG tango.
Barry Holt: Our groundbreaking sourcing platform launched last year.
Barry Holt: That's up more than 30% from the fourth quarter.
Barry Holt: Looking at the broader market, we see a growing number of clients accelerating their cloud adoption.
Barry Holt: Modernizing their infrastructure and leveraging AI ops to improve their.
Barry Holt: Operating efficiency.
This plays right to ISG strengths in digital transformation and cost optimization.
Barry Holt: Howard by AI and sourcing.
Barry Holt: Today's market landscape presents both challenges and opportunities for organizations.
Barry Holt: To maintain competitive momentum.
Barry Holt: We are in a great position to turn market disruption in the long term advantage for our clients.
By optimizing through AI future proofing partner ecosystems and.
Barry Holt: And rigorously tracking ROI, we help our clients achieve cost efficiencies, while protecting strategic growth initiatives.
Barry Holt: With that let me turn to our regions.
Barry Holt: As you recall, we divested our automation unit last October.
Barry Holt: The year over year comparisons I cite here exclude automation revenues of about $8 million in last year's first quarter.
Barry Holt: Our Americas region delivered an excellent quarter with revenues up 17% to $41 million.
Barry Holt: Driven by double digit growth in our technology advisory business.
Barry Holt: And in our banking energy utilities health Sciences, and public sector industry verticals.
Barry Holt: Key client engagements during the first quarter included Lockheed Martin Kraft Heinz and Exxonmobil.
Barry Holt: During the quarter, we won a $1 million plus engagement with a leading CPG company.
Barry Holt: To support a major sourcing initiative covering applications and infrastructure modernization.
Barry Holt: Including leveraging AI ops to enhanced security and efficiency.
Barry Holt: We also won a $1 million engagement with a leading global energy company to support a major infrastructure and applications modernization program extending our work for this long term client.
Barry Holt: And our push into the middle market, which we define as companies under $10 billion in revenues.
Barry Holt: We also won a $2 million plus engagement with a multinational food processing company that specializes in private label products.
Barry Holt: We are supporting this first time outsourcer in developing and operating model and selecting providers for the client shared services functions.
And ensuring a seamless transition with our change management services.
Barry Holt: Our ISG Tango platform, which allows us to provide a level of service attractive to mid market clients was instrumental in this win.
Barry Holt: We also signed a large research subscription with a leading U S provider of streaming services the biggest win ever for our software research business.
Barry Holt: Turning to Europe. This market is showing early signs of a rebound with growth in our technology advisory business and double digit growth in our insurance industry vertical.
Barry Holt: We expect further improvement later in the year as demand continues to pick up.
Barry Holt: Key client engagements in Europe in the first quarter included in Star Air Lockheed <unk>.
Barry Holt: Heineken and bomber.
Barry Holt: During the quarter, we won a new million dollar plus engagement with a healthcare client that we have been working with the last 10 years.
Our latest work involves supporting the clients business transformation two.
Barry Holt: <unk>.
Anna: For Anna.
Anna: We also continued our work to support the IP arm of the Germany Ministry of Defence under a long term framework contract.
Anna: With our latest award we are providing benchmarking services worth more than $1 million annually.
Anna: The lower cost streamline processes and optimize the organization in support of the German armed forces.
Anna: Now turning to Asia Pacific, Our Q1 revenues of $5 million were down $800000 from last year, primarily due to sluggish Australian government spending ahead of the may elections.
Anna: With the elections now behind US, we expect government spending to pick up again later this year.
Anna: For Q1 Asia Pacific delivered double digit revenue growth in our banking manufacturing energy and health Sciences industry verticals.
Anna: Key clients in the quarter included I E Moe.
Anna: Standard Chartered Asia Bank of Queensland, and AGL energy.
Anna: During the quarter, we won a new engagement with a large multinational bank in the region.
Anna: To support a major cost optimization program.
Anna: Now a few comments on the overall tech services industry.
Anna: I think we have seen the first order effects of U S tariffs.
Anna: Lots of uncertainty followed by action planning.
Anna: We will see the second order effects, the real economic impacts in the quarters to come.
Anna: Businesses that experienced a direct impact from the administration's current policies.
Anna: Are pivoting to new supply chains and cost optimization.
Anna: For others volatility is acting as a catalyst for technology transformation.
Anna: Either way our clients are not standing still.
Anna: Last week I spent time in Europe, and the environment is a bit different there.
Anna: <unk> by a realization that Europe needs to be more self sufficient and less reliant on the U S.
Anna: And that means investment in some industries.
Anna: Defense and Aerospace for example, and cost optimization and other areas.
Anna: To either reduce cost or shift spending.
Anna: There is a sentiment maybe it's our hope that much of the tariff uncertainty for Europe will be resolved by the end of the summer.
Anna: For ISG, we have seen no material change in buyer behavior to date.
Anna: Clients are turning to AI and tech modernization to gain strategic advantage.
Anna: And this plays to our transformation work.
Anna: Our clients more directly impacted by the tariffs our cost optimization is the sweet spot.
Anna: Of course, we will continue to monitor monitor the tariff uncertainty, but for now we remain optimistic that we have the right portfolio mix to meet client needs in the months ahead.
Anna: Now, let me turn to guidance.
Anna: As I mentioned earlier, we are seeing positive signs of strong demand for technology services in the U S.
Anna: And Thats reflected in our Q1 results.
Anna: We expect demand to continue in Q2, driven by cloud AI data analytics.
Anna: And infrastructure modernization.
Anna: Clients are not standing still they are looking to get ahead of the curve.
Anna: We like our position to meet that demand.
Anna: But given the macro uncertainty we will remain conservative in our outlook.
Anna: So with that said for the second quarter, we are targeting revenues of between 59, five and $65 million and adjusted EBITDA between seven and $8 million.
Speaker Change: Now, let me turn the call over to Michael Sherry, who will summarize our financial results Michael.
Michael Sherry: Thank you, Mike and good morning, everyone as Mike stated earlier, our revenue comparison with the first quarter of 2024 excludes our divested automation unit, which contributed about $8 million a year ago. This provides a more accurate view of our go forward business.
Michael Sherry: Revenue for the first quarter was $59 $6 million up a solid 5% versus the prior year.
Michael Sherry: For the current for the quarter currency had a $600000 negative impact on revenue.
Michael Sherry: America's revenue was $41 million up 17%.
Michael Sherry: Europe revenue was $13 $8 million down 13% in Asia Pacific revenue was $4 8 million down 15%.
Michael Sherry: First quarter adjusted EBITDA was $7 4 million up sharply from $4 4 million in the year ago period, and resulting in an EBITDA margin of 12, 4% up 554 basis points year on year.
Michael Sherry: Driving this solid improvement with consulting utilization of 77, 7% up from 72% in the year ago quarter.
For the quarter ISG delivered operating income of $3 $4 million.
Michael Sherry: Compared with an operating loss of $2 4 million in the prior year.
Michael Sherry: Our reported net income for the quarter was $1 5 million or <unk> <unk> per fully diluted share compared with a net loss of $3 4 million or <unk> <unk> per fully diluted share in the prior year.
Michael Sherry: First quarter adjusted net income was $3 7 million or <unk> <unk> per share on a fully diluted basis compared with adjusted net income of zero point $7 million or <unk> <unk> per fully diluted share in the prior year's first quarter.
Michael Sherry: Our head count as of March 31, 2025, with one 320, which was basically flat with <unk> 24.
Michael Sherry: We ended the quarter with cash of $20 1 million down from $23 1 million at the end of the fourth quarter.
Michael Sherry: For the quarter net cash provided by operations was $1 million during.
Michael Sherry: During the quarter, we paid dividends of $2 2 million and repurchased $3 $3 million of stock.
Our next quarterly dividend will be paid June 20, <unk> to shareholders of record as of June six.
Michael Sherry: Fully diluted shares outstanding for the quarter were $50 3 million down 300000 from the prior quarter.
Michael Sherry: And at quarter's end, we had approximately $15 million remaining on our share repurchase authorization.
Michael Sherry: Our quarter end gross debt to EBITDA ratio was two one times at the bottom of our two to two five times target range and down from two four times at December 31 2024.
Michael Sherry: For the quarter, our average borrowing rate was six 5% down from 7% last quarter.
Michael Sherry: Overall, our balance sheet remains solid and continues to offer us the flexibility to support our business over the long term.
Mike: Mike will now share concluding remarks before we go to Q&A Mike.
Speaker Change: Thank you Michael.
Speaker Change: To summarize ISG has momentum.
Speaker Change: After a strong Q4, we delivered an even stronger Q1.
Speaker Change: Led by double digit growth in the Americas, our revenues of $60 million exceeded our expectations and our adjusted EBITDA was up a robust 68% as our margin expanded more than 550 basis points.
Speaker Change: Despite the uncertainty around tariffs and maybe because of it we see good market demand with a focus on leveraging technology for cost optimization and competitive advantage.
Speaker Change: And that plays right into our sweet spot and bodes well for the success of ISG.
Speaker Change: As always we are focused on creating shareholder value for the long term and we are steadfast in our mission to deliver operational excellence for our clients.
Speaker Change: So thank you very much for calling in this morning, and now let me turn the session over to the operator for your questions.
Speaker Change: Thank you 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 he would like to remove yourself from the queue. You may do so by pressing star one again.
Speaker Change: And again, if you would like to ask a question you can do so by pressing the star and one on your Touchtone Keith.
Keypad, and we will pause for a moment to allow any questions into the queue.
Speaker Change: And we will take our first question from Dave storms at Stonegate.
Dave Storms: Good morning.
Dave Storms: Good morning.
Dave Storms: Just wanted to start with.
Dave Storms: Maybe starting with the Americas.
Dave Storms: Or how would you characterize that pacing relative to your expectations would you expect a similar.
Dave Storms: Jumping growth going into Q2 or was a lot of your expectations and a strong one passed in America is already.
Dave Storms: As seen in Q1 here.
Dave Storms: So Dave Thanks for the question first of all just a little context for my response to that is <unk>.
Dave Storms: Right now in the U S. We are seeing some some very strong demand and it's both on the transformation side and on the optimization side, it varies depending on which industry and which industry is a little more impacted by the tariff.
Dave Storms: Conversations, but we would expect Q2 to be double digits again in the Americas.
Dave Storms: Understood. That's very helpful and then just.
Dave Storms: Looking at Europe, I know you've mentioned.
Dave Storms: A couple of times now that Youre expecting a rebound in the second half year are there any end markets.
Dave Storms: You're expected to lead the charge any end markets that youre, starting to see green shoots in already anything like that would be helpful.
Dave Storms: Okay. So the issue in Europe, and I just came back from there is still a lot of uncertainty in their uncertainty is probably captured threefold one <unk>.
Dave Storms: Clearly tariffs and what does it mean, so not unlike the U S.
Dave Storms: But there. They also have a lot of geopolitical cloud still think the Ukraine more et cetera.
Dave Storms: And so that is difficult and third theyre, just getting through a bit of an election cycle and that also had uncertainty and even if you think about what's happened in Germany.
Dave Storms: We still we have we have new leader there, but we also have a difficulty getting a coalition together. So you add all those factors together I would say there is still a cloud of uncertainty around a lot of the buying behavior, having said that what we are seeing in the pipeline is an increase in the.
Dave Storms: Pipeline in Europe, we saw it with some of our advisory services or consulting around cost optimization around using AI for efficiencies, increasing so I think if the tariff situation begins to clear a bit that is our expectation.
Dave Storms: Dictation that some of this pipeline will be released and Thats what gives us.
Dave Storms: Our thought process for the back half of the year not in Q2, but we would expect to see Q3, Q4, Q2 will be better, but I don't see growth in Q2, but we do see it beginning to ramp starting in Q3 and four then that's how we see it at the moment Dave.
Speaker Change: That's very helpful. Thank you I'll get back in queue.
Dave Storms: Thank you.
Speaker Change: We will move to our next question from Marc Riddick of Sidoti.
Marc Riddick: Hey, good morning.
Speaker Change: Morning, Mark.
Marc Riddick: So I wanted to touch a little bit on the.
Marc Riddick: Strong start to the year in the guidance.
Marc Riddick: Q2, and sort of how that plays into where you finished with utilization. It seems like the utilization was strong not only just numerically, but it seems maybe from a seasonal perspective as well.
Marc Riddick: A number of that high end the first quarter, maybe you could talk a little bit about your comfort levels. There and if there is any hiring needs that might come from that how should we be thinking about that.
Marc Riddick: Hey markets, it's Michael So I appreciate the question I think that a couple of things, obviously hats off to all of our resources. It was an extremely strong utilization and everybody really contributing we're probably at the high end of the range of where we really want to operate on a continual basis. So we would we would not.
Marc Riddick: Any significant improvement or uptick from here with regard to seasonally I am not sure I would say there was anything seasonal in it I think the seasonal really impacts us more in really in Q3 and in Q4 right as we start to get towards latter part of the summer and you had the pressure in <unk>.
Marc Riddick: Europe from vacations, and then Q4, just traditional vacation so I think utilization, we're comfortable with where it is.
Marc Riddick: Didn't expect to see it go up and are hiring again, we're being prudent and disciplined given uncertainty our hiring is aligned to the demand in the pipeline that we that we see.
Speaker Change: Okay, Great and then maybe you could shift over to use of pads with the leverage now coming down to the lower end of your comfort range. It seemed as though there was a pickup in share repurchase activity in the first quarter, maybe talk a little about that as well as maybe what you are seeing potentially for acquisition pipeline available.
Marc Riddick: And valuations.
Michael Sherry: Yes, so I'll take the first part and then I'll pass to Mike on M&A. So you are right. We are at the low end of the range and so as you think about our cash allocation opportunities right in terms of buyback dividend M&A and then investment in the business.
Michael Sherry: We have an active process of looking at all four of those and assessing all four of those to see where we can create the most value. So we will continue to look at all four especially to your point now that we're at the low end of our range.
Michael Sherry: And we expect to continue to see EBITDA improvement on the M&A pipeline and what we're seeing I'll turn it over to Mike.
Mike: Yes, so we continue to be active in the market.
Mike: We are looking for additional recurring revenue streams that we can put into kind of our distribution.
Mike: Channels.
Mike: We're also continuing to look at everything around digital and AI that might accelerate our growth in those areas.
Mike: So we will continue to look there is always a delta between the ask.
Mike: And what we would like to be able to purchase at so theres always that that's really no change despite the differences in the markets.
Mike: But we would expect.
Mike: We would expect to utilize some of our cash.
Mark: At the M&A level, but keep in mind the way we do most all of our deals is a little bit of cash a little bit of stock in a little bit of the earn out and that's worked out quite well for us over the year. So that's how we would view it mark.
Mark: Great and then last one for me I, just wanted to touch a little bit I know that your exposure to federal.
Mark: Government is pretty much de minimis, if anything but I wanted to talk a little bit about if <unk> seen much in the way of response on the state and local level.
Mark: Is it too early to have those conversations are you beginning to ask conversations with state and local government customers.
Mark: And where they may be looking to move thanks.
Mark: Yes first of all in the U S on the on the on the on the.
Speaker Change: Public sector.
Mark: We actually had double digit growth in the first quarter.
Mark: In the U S and think about it in the I'll call. It more of the Red States because theres more receptivity frankly in terms of.
Mark: Willingness on cost efficiencies, so think about it in terms of the.
Mark: In all kind of the Doge for the state Department. If you will our pipeline is also quite solid in the public sector in the U S. So state and local is strong for us.
Mark: And again to your point, we do know federal so we have no exposure to the federal kind of Doge work, that's going on in the market. So we feel we feel good about the public sector. They are having a good year.
Speaker Change: Excellent. Thank you very much.
Mark: Thanks Mark.
Mark: We'll move next to Vincent Colicchio at Barrington Research.
Vincent Colicchio: Yes, Mike good morning.
Mike: Good morning.
Mark: Just curious.
Mark: How youre addressing the rapid interest in AI and you are rapidly growing needs.
Mark: Are you are hiring aggressively there are you able to hire especially there are you facing high turnover was employees that either developer currently have skills.
Mark: Yes. So good good question, so from an NII standpoint.
Mark: We are almost in every instance, now have an AI component and almost all of our work. So the first thing. We did is we've trained 90% of our client facing around AI and we have an ongoing if you will scale up program related to that because there is.
Mark: Constant changing of course in AI. So that's one two is the hiring the surgical hiring that we are doing is around transformation is around AI and that is what we bring in we are also trimming. If you will skill sets that maybe we don't need don't need us.
Mark: As much when we think about AI I think about it from the client standpoint, and then kind of reflected back to to US. One is most clients are looking to how to secure funding for AI and they do that by looking at what else. They have in one of their spending and how can they shifted so one is securing the funding.
Mark: Two is how can I use AI to increase productivity third is how can I then yet some scalable cost effective.
Mark: Use of AI in my particular in micro ticket business.
Mark: And then related Theyre looking at I would call. It a wave two scenario, which is how do I accelerated whether you're using a gen take AI or other areas. In addition to kind of Gen. AI use cases that are sitting out there.
Mark: So as we think about how clients are kind of one.
Mark: One step at a time looking at it we are right there with them. We've had 200 clients in the last 12 months 50 unique new clients in the first quarter. We went from $1 50 to 200 as we mentioned. So this is this is a very hot area and why we kind of pivoted our firm does say and look at our.
Mark: Yourselves as more of an AI centered.
Technology research and advisory firm, so thats, how we think about it to events.
Mark: And.
Mark: Next question Americas strength.
You appear to be on quite solid footing right now with what Youre delivering in America in the Americas, So I'm curious.
Mark: Your commentary on second half being stronger Europe, and APAC does that assume a slowing in Americas or based on your pipeline or will that continue to be strong throughout the year.
Mark: No I mean, I think I think we see the U S is strong I mean, I think it's going to be on a percentage growth basis, certainly stronger than the first half than the second half.
Mark: Because you can't you can't do 15% to 17% a quarter, but we do see good strong double digit growth there and one way that we look at it.
Mark: As we look at the disruption.
Mark: And we kind of put it into three buckets.
Mark: Low impact verticals industry verticals kind of moderate and then the high impact and we kind of bucket them and as we think about what they are asking us to do when those that are the kind of the lower impact of the ones that are not affected.
Mark: Directly or as much like public sector like defense like health care.
Mark: That is very very strong in the in the U S. When you look at kind of the moderate somewhat impacted you have things like BFS side, you have the energy you have utilities you have media technology and then you think about the high impacts of these other ones, having a really direct hit and <unk>.
Mark: Really are wanting to move fast on cost optimization because of the high impact they are having and we think about manufacturing automotive.
Mark: CPG retail in that category. So we think about it as we go about our work and how we are focusing our work kind of in that low impact moderate and high impact and in the U S. Because there is a bit of a mix between all of those thats why I think it's it's running on all cylinders.
Mark: If you apply the same model into and into Europe. The thing with Europe is that the LOE impacts in Europe are not that many kind of industry segments. Because they also have the geopolitical.
Mark: The whole kind of macro environment challenges. In addition to the tariffs. So you don't see as many low impacts over there so.
Mark: So as this tariff situation clears and as I said I just came back from Europe, and some think that this clears.
Mark: By the end of the summer if true and if that should happen then I think thats why we think this will open up Europe, a bit more in terms of our offerings and what they would be willing to spend during the latter half of next.
Mark: Latter half of the share Vince.
Vincent Colicchio: Thanks for all the color I appreciate it.
Mark: Got it.
Joe Jones: We'll move next to Joe Jones at Noble capital.
Joe Jones: Good morning.
Speaker Change: Good morning, Joe.
Speaker Change: I wanted to continue on the NII discussion.
Speaker Change: You mentioned you gained 50, new clients this quarter and I think the goal that you mentioned.
Speaker Change: The fourth quarter call was to double that business.
Speaker Change: From the 150 to 300 this year I was wondering maybe if the goal might be a little more ambitious than that now and the second part of the question on AI and given the high demand.
Four.
Speaker Change: All things AI.
Speaker Change: Are you finding any challenges and adding AI based consultants and or if there's any type of wage pressure.
Speaker Change: For that the consultant is focused on AI.
Speaker Change: Good good question, Joe first of all we do not see wage pressure I think we we have a good model of a combination of.
Speaker Change: Wage plus.
Speaker Change: Plus plus.
Speaker Change: Plus stock that helps us both on.
Speaker Change: On the traction as well as and importantly on retention.
Speaker Change: If you will but in terms of AI I mean.
Speaker Change: We said hey look lets double our client base there from 150 to 300, certainly we're sitting at 200 now at the end of Q1.
Speaker Change: We're not going to do another number but I would say that as we turn into 2026.
Speaker Change: I would expect a large majority of our clients all to have an AI component now some will start slower because just like cloud shockingly.
Speaker Change: And just like outsourcing shockingly there are companies that have done done either one even at this date in 2025, so theres always the slower starters. If you will so I can't say at what point all of them would be but we certainly would envision that by the time, we get into the middle of 'twenty six.
Speaker Change: All of our clients will have an AI component with it but it does gain steam as you go through in Europe, we need Europe to kind of come around and begin spending and utilizing it in a way other than a point.
Speaker Change: <unk>.
A proof of concept type type type way and to do it in a real let's begin to scale. This way and that will really generate the kind of client increase on AI, we do have good.
Speaker Change: I'll call it firm pricing.
Speaker Change: On all of our AI work.
Speaker Change: So that helps and as we think about our margin acceleration from call. It eight 5% closing out last year.
Speaker Change: Youre seeing the mix when we talk about our mix AI is clearly one of them recurring revenues is clearly a second one you're seeing our margins.
Speaker Change: Gradually move up and we're looking again to be a teenager in our in our margins.
Speaker Change: And so all of these factors help with that including things like the platform with Tango. So that's how we would think about it Joe.
Joe Jones: Okay, and then on Tango I mean, you've done a great job.
Joe Jones: And getting the value of contracts under there I think you mentioned 7 billion now.
Joe Jones: So how do we how should we think about kind of the revenue contribution you basically that business has gone from a.
Joe Jones: Call it a standing start to $7 billion.
Joe Jones: And how do we think about how thats, adding revenue.
Joe Jones: For the company.
Joe Jones: I think the web over $9 billion now by the way we went from seven in the fourth quarter to over nine now in the first quarter.
Joe Jones: First of all the biggest thing it does is it helps us accelerate margins and the reason it helps accelerate margins is that we're able to complete the work much more efficiently and therefore that from our client standpoint, they are able to achieve value for money fat.
Joe Jones: <unk>.
Joe Jones: And so if we're able to do something in less time for the same amount of money. If you just look at it the same amount of money clearly our margin is going to be enhanced and we are seeing that every day. The second part of it is is tangos enabled us to open up the mid market for us our pricing in the mid market was more.
Joe Jones: <unk>.
Joe Jones: In the past because they are in terms of what they could afford to do with an outside advisor now with tango. They can get value for money of much quicker. They can see the return much faster and I think I gave you a couple of examples including a major food distributor that we are in without tango.
Joe Jones: We would not have had that multimillion dollar client. So it's a combination of the margin acceleration and the opening up of a new market and kind of the mid market for us at what Tango is that's how we look at in terms of our success with.
Joe Jones: With tango and at some point.
Joe Jones: I won't even report on how much value going through tango, because we will have almost all of our transactions and value going through tango. Some time by the time, we get into 2026. So thats, how we think about it as that will help us and youre seeing it with acceleration in margins.
Joe Jones: With our sourcing business. So that's the beauty of tank up for us.
Speaker Change: Thanks for that insight I'll get back in queue.
Speaker Change: And next we'll go to Kashi Sri at singular research.
Kashi Sri: Good morning can you hear me yes.
Speaker Change: Yes, good morning.
Speaker Change: Good morning, Congratulations on your golf clubs.
Speaker Change: Thank you last question is given the rapid 60 gains in AI and it services.
Speaker Change: How would you guys thinking about calibrating your delivery model and pricing strategy to tap.
Speaker Change: Sure.
Speaker Change: Our value and defend your margins.
Speaker Change: Since you were saying that.
Speaker Change: The margins has improved.
Speaker Change: Well I think I think.
Speaker Change: Thanks for the question, Yes, I think we have a combination.
Speaker Change: Of things around AI number one from a client standpoint.
Speaker Change: Clearly our AI advisory business is humming, especially in the United States.
Speaker Change: And we are using AI in our platforms like Tango light govern acts in terms of intelligence contracting.
The second area is as we're doing a lot of work around AI to inform clients using our our world class research and software research capabilities to inform clients and that enables us to expand our recurring revenues in software and in research and then thirdly.
Speaker Change: Our selves, we are using AI to become more productive if you will with our operations and the combination of all three of those will be enhanced margins with our clients.
Speaker Change: And enhanced productivity at which you are seeing with our workforce. If you will and that combination will help us to accelerate.
Speaker Change: Our overall margins.
Speaker Change: Gotcha.
Speaker Change: And in terms.
Speaker Change: With the shift to.
Speaker Change: Two increased tariffs what kind of increased activity are you seeing and look with global capability centers is that is that is that it's early stages.
Speaker Change: From cost centers to innovation.
Speaker Change: Related to the real opportunity here is it that really at the early stages.
Speaker Change: Our multinationals really putting some thought into it.
Speaker Change: Yes, Gcc's I'll start and then Michael will jump in here.
Speaker Change: <unk> our hot Okay. These are global capability centers.
Speaker Change: And hot in the sense that what our work is around advising clients.
Speaker Change: Around gcc's, whether formulate one.
Speaker Change: Whether to shrink or whether to sell them and do something else differently.
Speaker Change: And in fact in July.
Speaker Change: I am holding a CEO.
Speaker Change: Conference for a half a day with some of the major gcc's.
Speaker Change: Globally in Bangalore, because of the how hot this whole areas, we've had quite a demand for that so we've kind of created an kind of an end by invitation only event.
Speaker Change: For a few hours in Bangalore to cover this particular particular topic, but let me ask Michael <unk>, who is really right on point for us on GCC Cielo comment further yes, yes, yes, I think I think it's a really good question.
Speaker Change: In a really good point on kind of the evolution of kind of the industry ended piece that AI is driving because it's moving so much beyond the technology component to business function and activities and Thats really whats driving this move to gcc's and the desire for the enterprise to control it.
Speaker Change: Differently than they would have done with labor arbitrage. So I think theres a lot more to come on this we're very active in this space from an advisory standpoint in helping our customers or enterprises.
Michael Sherry: And as Mike said, we've got a whole bunch of things coming up on the calendar directly aligned to this as we continue to be out in the marketplace.
Michael Sherry: Okay and just my last question in terms of given your balance sheet.
Michael Sherry: In order to.
Speaker Change: Jake advantage of all the new developing areas what kind of investments.
Michael Sherry: Do you still need.
Michael Sherry: Okay.
Michael Sherry: Captured the value proposition.
Michael Sherry: Yes.
Michael Sherry: It's more.
Didn't use the concept that need its more staying on top of and relevant so when you think about.
Michael Sherry: And the tools and platforms that we have it's ensuring that we are making the proper investments.
Michael Sherry: So that we are embedding AI technology into them across the board whether its tango whether it's.
Michael Sherry: Our enterprises and providers use our research.
Michael Sherry: Maintaining relevancy of the things that we've already built so those are the areas that we are focused on not necessarily anything new but more just the enhancement and upgrading of existing.
Michael Sherry: Thank you guys.
Michael Sherry: Thank you.
Michael Sherry: And I'm showing no further questions I'll turn the call back to Mike Connors for his closing remarks.
Mike Connors: Well, let me close by saying, Thank you to all our professionals worldwide for our continuing progress.
Mike Connors: And further collaboration and unwavering dedication to our clients and driving our long term success.
Mike Connors: Our people have a passion for delivering the best advice and support to our clients.
Mike Connors: As they continue their AI powered transformations and I could not be prouder of them.
Mike Connors: And I want to thanks to all of you on the call for your continued support and confidence in our firm have a great rest of the day.
Speaker Change: This does conclude today's teleconference. You may disconnect at any time.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Thanks.
Speaker Change: [music].