Information Services Group (NASDAQ: III) reported second-quarter 2026 results that exceeded expectations, with revenue increasing 6.4% year-over-year to $65.5 million and adjusted EBITDA rising 13% to $9.4 million, both above guidance. The adjusted EBITDA margin expanded by 80 basis points to 14.3%, reflecting the company's ability to convert improving demand, pricing, and higher-value advisory mix into better operating leverage.
The standout performance came from AI-related revenue, which surged 64% year-over-year to $26 million, with nearly half of clients now generating AI-related revenue. This acceleration is a key differentiator, as AI is strengthening both sides of ISG's earnings model. On the demand side, AI governance is creating incremental demand across existing client relationships in governance, sourcing, research, and advisory. On the supply side, AI-enabled delivery efficiencies are supporting higher-value mix and margin expansion.
Recurring revenue also reached a record $30 million, up 7% year-over-year, providing greater visibility beneath ISG's traditionally project-oriented advisory work. This combination of AI-driven demand and recurring revenue is crucial for the forward setup, as it enhances the predictability of earnings and underscores the sustainability of growth.
Geographically, growth broadened across the Americas and Europe, despite measured enterprise decision-making. Management described the pipeline as "probably as strong as it has ever been," although client decision timing remains the primary visibility constraint. The company guided to continued year-over-year growth and margin expansion in the third quarter of 2026, supporting a constructive outlook for the second half of the year.
Stonegate Capital Partners, which updated coverage on ISG, highlighted that underlying growth remained mid-single digits excluding FX and Martino, with broadening growth across regions. Analysts are monitoring AI governance expansion, larger opportunity conversion, recurring-revenue mix, and APAC's return to growth as key factors for future performance.
The positive results and forward guidance signal that ISG is well-positioned to capitalize on the growing demand for AI-related consulting services, while its increasing recurring revenue base adds stability to its financial model. As enterprises continue to navigate digital transformation and AI adoption, ISG's expertise in governance and advisory is likely to remain in high demand, driving further growth and margin improvement.
