Information Services Group (NASDAQ:III) reported second-quarter revenue and adjusted EBITDA above its expectations, citing growth in the Americas and Europe, record recurring revenue and rising demand for AI-related advisory, research and governance services.
Revenue for the quarter ended June 30 was $65.5 million, up 6.4% from a year earlier, including a $700,000 favorable foreign-exchange impact. Adjusted EBITDA rose 12.9% to $9.4 million, while adjusted EBITDA margin expanded 80 basis points to 14.3%.
“AI is a tailwind for ISG,” Connors said, adding that the company is positioning itself as an AI-centered technology research and advisory firm while also using AI to improve service delivery.
AI Revenue, Recurring Revenue Reach New Levels
AI-related revenue increased 64% year over year to $26 million in the second quarter, according to Connors. For the first half of 2026, AI-related revenue totaled $47 million, representing 37% of firm-wide revenue. Nearly half of ISG’s clients generated AI-related revenue during the quarter, with consumer, health sciences and manufacturing among the leading industries.
Connors said AI is increasingly integrated into research, sourcing, governance and advisory assignments, creating opportunities for larger engagements and expanded client relationships. He identified AI governance as incremental demand and “new white space” for the firm, as companies seek to manage AI safely and at scale.
Recurring revenue reached a quarterly record of $30 million, up 7% year over year, driven by the research and governance businesses. Connors said ISG’s objective is to generate more than 50% of total revenue from recurring sources. The company currently estimates recurring revenue at roughly 45% to 47% of its business, compared with about half that level five years ago.
During the question-and-answer session, Connors said enterprise clients are shifting portions of technology budgets away from routine operations and toward growth initiatives, particularly AI. While decision-making remains measured, he said clients are making decisions more actively than they were in 2024 and early 2025.
Regional Growth Led by Europe
Americas revenue rose 6.7% to $42.1 million, with double-digit growth in research and governance as well as the health sciences and insurance verticals. The company cited client engagements with 3M, Suntory and the Commonwealth of Pennsylvania.
Connors said ISG expanded a relationship with a major global oil and gas company, adding $1 million in revenue to an existing multimillion-dollar account. The company is supporting the client’s technology transformation, including service-agreement and provider ecosystem changes, AI initiatives and a major application-sourcing program that ISG expects will save the client more than $100 million.
Europe revenue increased 9.8% to $18.3 million, supported by double-digit growth in advisory, software and governance services. Consumer, banking, manufacturing and health sciences were among the stronger verticals. Key European clients included Roche, Olympus and BNP Paribas.
Connors said Europe remains behind the United States in AI spending, but demand has improved as companies increasingly view AI as a competitive tool for speed, quality and productivity. He also pointed to activity in European consumer, pharmaceutical and merger-and-acquisition-related work.
Asia-Pacific revenue was $5.1 million, down 6.7% from the prior-year period. However, the region posted double-digit growth in health sciences, energy and utilities, and ISG saw what Connors described as a public-sector spending breakthrough late in the quarter. The company expects the region to return to growth during the second half of 2026.
Profitability, Cash Flow and Capital Returns
Operating income increased 25.6% year over year to $5.9 million, producing an 8.9% operating margin, which Chief Financial Officer Michael Sherrick said was a three-year high. GAAP net income was $3.3 million, or $0.07 per diluted share, compared with $2.2 million, or $0.04 per diluted share, a year earlier.
Adjusted net income rose to $5 million, or $0.10 per diluted share, from $4.1 million, or $0.08 per diluted share, in the prior-year quarter.
ISG ended the quarter with $23.7 million in cash, up from $22.7 million at the end of the first quarter. Net cash generated from operations was $5.2 million, compared with cash usage of $700,000 in the first quarter. The company said it expects strong operating cash flow for the remainder of the year.
Headcount was 1,281 at quarter-end, essentially unchanged from the prior quarter, while consulting utilization was 74%. ISG’s gross debt-to-EBITDA ratio declined to 1.7 times from 1.9 times at the end of 2025, and its average borrowing rate fell 81 basis points year over year to 5.3%.
The board approved a new $30 million share-repurchase authorization, the largest in company history. The new authorization will begin after the current program, which had about $2.3 million remaining as of June 30, is completed. During the quarter, ISG paid $2.3 million in dividends and repurchased $1.5 million of stock. Connors said the company expects buyback activity to accelerate in the second half.
Third-Quarter Outlook
For the third quarter, ISG projected revenue of $63.5 million to $64.5 million and adjusted EBITDA of $8.5 million to $9.5 million. Connors said the outlook accounts for the summer months in Europe and is expected to extend the company’s year-over-year revenue growth and margin expansion.
Management said its pipeline remains strong, though visibility has not materially improved from six to 12 months ago because the timing of client decisions remains uncertain. Connors said the company is pursuing several large engagements but did not provide projections for their potential timing or impact.
Sherrick said ISG has not seen pressure on consulting billing rates from clients’ use of AI. Instead, he said AI is accelerating companies’ review of programs and contracts, potentially increasing transaction activity for the company’s services.
About Information Services Group (NASDAQ:III)
Information Services Group, Inc (ISG) is a leading global technology research and advisory firm specializing in digital transformation, sourcing strategies and technology-driven business operations. Headquartered in Stamford, Connecticut, the company leverages deep market insights and data analytics to help clients optimize cost structures, accelerate growth and navigate complex technology landscapes. Since its founding in 2006, ISG has cultivated expertise across industries including financial services, healthcare, manufacturing and the public sector.
ISG’s core offerings include sourcing advisory, managed governance, market intelligence and research services.
