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Information Services Group (III) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 6, 2026

Source: earnings call transcript

Executive summary

Information Services Group Q2 FY26 — Strong AI-driven Growth and Expanded Share Buyback

Information Services Group delivered a strong second quarter, driven by broad-based growth across regions and a significant tailwind from AI-related services, which now constitute a substantial portion of firm-wide revenue. The company continues to improve its business quality with record recurring revenues and expanding margins, supported by disciplined cost management and higher-value advisory work. Management remains optimistic about the pipeline and decision-making pace, while also expanding its capital return program.

Highlights

5

  • Revenue of $65.5 million, up 6.4% year-over-year, exceeding expectations.

  • Adjusted EBITDA increased 12.9% to $9.4 million, marking the seventh consecutive quarter of double-digit growth.

  • AI-related revenue grew 64% to $26 million in Q2, representing 37% of firm-wide revenue for the first half.

  • Recurring revenues reached a record $30 million, up 7%, now representing 45-47% of total revenue.

  • Expanded share buyback program by an additional $30 million, the largest in company history.

Concerns

3

  • Asia Pacific revenue was down $400,000 or 6.7% compared to the prior year.

  • Clients remain measured in their pace of spending, leading to slower decision-making, though this is improving compared to a year ago.

  • Acquisition valuation expectations are rising, making the M&A market "a little bit more frothy" than a year ago.

Guidance & targets

CategoryTargetConfidence
Q3 FY26 Revenue
$63.5 million to $64.5 million
high materiality
High
Q3 FY26 Adjusted EBITDA
$8.5 million to $9.5 million
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Americas
Key client engagements included 3M, Centauri, and the Commonwealth of Pennsylvania. Expanded relationship with a major global oil and gas company, adding $1 million of revenue. Won a new $1 million engagement with a U.S.-based global manufacturer.
Double-digit growth in research and governanceDouble-digit growth in health sciences and insurance industry verticals
$42.1 million6.7%6%—
Europe
Key client engagements included Roche, Olympus, and BNP Paribas. Expanded relationship with a leading health insurer, driving cost savings up to 50%. Won new business with a leading health and pharmacy chain, achieving $10 million of savings this year.
Double-digit growth in advisory, software and governance businessesDouble-digit growth in consumer, banking, manufacturing and health sciences industry verticals
$18.3 million9.8%——
Asia Pacific
Saw a breakthrough in public sector spending late in the quarter, expected to return to growth in H2 FY26. Key clients included Woolworths, AirTrunk, and the Australian Department of Home Affairs. Won a significant public sector agreement providing over $12 million in net savings.
Double-digit growth in health sciences, energy and utility verticals
$5.1 million-6.7%——

Deals & partnerships

Major global oil and gas company Expanded relationship, supporting enterprise-wide technology transformation, including revamping service agreements, provider ecosystems, and AI initiatives (AIOps). Latest engagement is a major application sourcing program. adding $1 million of revenue to an already multimillion dollar account

Began with a benchmarking engagement a few years ago, now a strategic partner.

U.S.-based global manufacturer of heating, cooling and refrigeration solutions New engagement to transform technology supplier landscape, modernize network, and strengthen provider governance. Won through private equity channel to support portfolio companies. $1 million engagement

Opening door to broader relationship involving AI to optimize customer experience and operating efficiencies.

Leading health insurer Expanded relationship, initially supporting a $1 billion sourcing program for workplace and core tech services. Added transition, network, security, and governance. Discussions to add change management and software advisory.

Growing multimillion dollar relationship.

Leading health and pharmacy chain Won new business to advise on a struggling technology services contract, resetting the agreement based on ISG's strategy recommendations.

Jointly exploring other opportunities, including AI-driven process improvements.

Government entity in Australia Significant agreement in the public sector to provide sourcing support, including negotiations with telecom providers.

Leading to additional engagements to design and support AI-led future workplace services and optimize existing tech services.

Risks & headwinds

Clients remain measured in their pace of spending ongoing

not much different than it was 3 to 6 months ago

Mitigation:ISG's strategy aligns with client priorities (cost optimization, business transformation, AI adoption); pipeline is strong and decisions are being made more frequently than a year ago.

Geopolitical issues in different parts of the main countries in Europe ongoing

AI spending not at the pace of the U.S. yet

Mitigation:Europe has seen a pickup in AI spending as clients recognize AI as a competitive weapon.

Value expectations for acquisitions are beginning to rise current market

a little bit more frothy than it was maybe if you were to ask this question a year ago

Mitigation:ISG remains active in the M&A market, looking for capabilities to accelerate growth, but is mindful of valuation levels.

What to watch in Q3 FY26

Asia Pacific Revenue Growth

back half of this year
Current down 6.7%
Target return to growth

Why it matters

Management expects a return to growth in this region following a breakthrough in public sector spending, indicating a potential turnaround for a previously underperforming segment.

In Asia Pacific, our Q2 revenues of $5.1 million were down $400,000 compared with the prior year. ... And based on this trend, we expect this region to return to growth during the back half of this year.

Find out whether III delivers this. Inve re-checks your case every morning.

Q&A highlights

What are the current trends in client tech spending, especially compared to 3-6 months ago, and has the decision-making process sped up?

There's a shift in spending towards growth initiatives and AI, with AI being a structural growth theme. Spending is accelerating in AI, but the overall pace of decision-making is still measured, similar to 3-6 months ago, though decisions are being made more frequently than a year ago.

“The money is there. The spending is there. The pace is measured, but decisioning is happening now much more so than a year ago.”

asked by Jacob Mutchler · answered by Michael P. Connors

2 min read 5 chapters

Detailed narrative

AI as a Strategic Tailwind

ISG is actively reshaping its business to be an AI-centered technology research and advisory firm, leveraging AI to drive client demand and improve service delivery. AI-related revenue surged 64% to $26 million in Q2, contributing significantly to the firm's overall performance and representing 37% of first-half revenue. This growth is broad-based across advisory, research, and governance, indicating AI's integral role in client engagements.

Expanding Margins and Cost Management

The company achieved its seventh consecutive quarter of double-digit adjusted EBITDA growth, with a 12.9% increase to $9.4 million and an 80 basis point expansion in adjusted EBITDA margin to 14.3%. This margin improvement is attributed to a shift towards higher-value advisory work, growth in recurring revenues, and increased leverage from AI-enabled delivery, alongside disciplined cost management. Operating margin reached an 8.9% three-year high.

Client Priorities and ISG's Alignment

ISG's strategy is closely aligned with current enterprise priorities, which include cost optimization, business transformation, and vendor/contract optimization. The company's integrated platform, combining advisory services, proprietary research, and governance expertise, positions it uniquely to address these needs, particularly as AI becomes central to business transformation discussions. This alignment is driving stronger growth and deeper client relationships.

Regional Performance and Key Engagements

The Americas region delivered $42.1 million in revenue, up 6.7%, with double-digit growth in research, governance, health sciences, and insurance. Europe continued its strong momentum with revenues up 9.8% to $18.3 million, driven by advisory, software, and governance businesses. Asia Pacific revenue was down 6.7% to $5.1 million but is expected to return to growth in the second half due to a breakthrough in public sector spending.

Capital Allocation Strategy

ISG maintains a disciplined capital allocation strategy, balancing reinvestment in the business, shareholder returns via dividends and share repurchases, and strategic acquisitions. The Board approved a new $30 million share repurchase authorization, the largest in company history, signaling confidence in future performance and a commitment to enhancing shareholder value. An acceleration in buybacks is expected in the second half.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.