Information Services Group (NASDAQ: III) reported second-quarter 2026 results that exceeded expectations, with revenue of $65.5 million, up 6.4% year-over-year, and adjusted EBITDA of $9.4 million, up 13%, both above guidance. The adjusted EBITDA margin expanded 80 basis points to 14.3%, reflecting a conversion of improving demand, pricing, higher-value advisory mix, and AI-enabled delivery efficiencies into stronger operating leverage.
The standout metric was AI-related revenue, which surged 64% year-over-year to $26 million, with nearly half of clients now generating AI-related revenue. This growth is not just a top-line driver; it is strengthening both sides of ISG's earnings model. AI is generating demand across governance, sourcing, research, and advisory services, while simultaneously supporting delivery efficiency and a higher-value mix. This dual effect is a key differentiator, as it allows ISG to expand margins even as it invests in growth.
Recurring revenue also reached a record $30 million, up 7% year-over-year. This is significant because it adds visibility to a traditionally project-oriented model, reducing the lumpiness of revenue and providing a more stable base for future planning. The combination of accelerating AI-related revenue and record recurring revenue improves the forward setup, giving investors greater confidence in sustained 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 constraint on visibility. This suggests that demand is robust, but conversions may be delayed, which could impact near-term revenue recognition. However, the strength of the pipeline and improving regional trends support a constructive second-half outlook.
Management guided to continued year-over-year growth and margin expansion in 3Q26. The company is also keeping an eye on AI governance expansion, larger opportunity conversion, recurring-revenue mix, and APAC's return to growth. These factors will be critical in sustaining momentum.
Underlying growth remained mid-single digits when excluding foreign exchange and the Martino acquisition. This indicates that organic demand is healthy, but not booming, as enterprises continue to make measured decisions. The acceleration in AI-related revenue, however, suggests that ISG is well-positioned to capitalize on the growing need for AI governance and advisory services.
For investors, the key takeaway is that ISG is converting improving market conditions into better financial performance. The record recurring revenue and strong pipeline provide a foundation for continued growth, while AI-related revenue is becoming a significant and fast-growing component of the business. The margin expansion demonstrates operational discipline and the benefits of AI-enabled efficiencies.
As enterprises increasingly adopt AI, the demand for governance, sourcing, and advisory services is likely to grow. ISG's early leadership in this area, as evidenced by the 64% increase in AI-related revenue, positions it well to capture this opportunity. The company's focus on recurring revenue also enhances its financial stability and attractiveness to investors.
In summary, ISG's 2Q26 results underscore the importance of AI in driving both top-line growth and margin expansion. With record recurring revenue and a strong pipeline, the company is well-positioned for the remainder of 2026. Investors should monitor the conversion of the pipeline and the continued expansion of AI-related revenue as key indicators of future performance.
