Information Services Group (ISG) reported second-quarter results that surpassed expectations, with revenue increasing 6.4% year-over-year to $65.5 million and adjusted EBITDA rising 13% to $9.4 million, exceeding guidance. The adjusted EBITDA margin expanded by 80 basis points to 14.3%, reflecting improved demand, pricing, a higher-value advisory mix, and AI-enabled delivery efficiencies. These results underscore the company's ability to convert market opportunities into stronger financial performance.
A key highlight was the acceleration of AI-related revenue, which surged 64% year-over-year to $26 million, with nearly half of ISG's clients now generating AI-related revenue. This growth is driven by increasing demand for AI governance, sourcing, research, and advisory services. Concurrently, recurring revenue reached a record $30 million, up 7% year-over-year. This combination is pivotal: AI is not only fueling demand but also enhancing delivery efficiency and margin expansion, while recurring revenue provides greater visibility into ISG's traditionally project-oriented model.
The company's growth broadened across the Americas and Europe, with management describing the pipeline as "probably as strong as it has ever been." Despite measured enterprise decision-making, the strength of the pipeline and improving regional trends support a constructive outlook for the second half of 2026. Management also guided to continued year-over-year growth and margin expansion in the third quarter.
Underlying growth remained mid-single digits when excluding the effects of foreign exchange and the Martino acquisition. The record recurring revenue enhances visibility beneath ISG's advisory work, a critical factor given the project-based nature of its services. However, client decision timing remains the primary constraint on near-term visibility, a factor investors should monitor.
Stonegate Capital Partners, which updated coverage on ISG, highlighted the importance of AI's dual impact on ISG's earnings model. AI is strengthening both demand generation and operational efficiency, leading to a higher-value mix and improved margins. This dynamic is expected to continue as AI governance expands and larger opportunities convert.
Looking ahead, Stonegate is keeping an eye on several key factors: the expansion of AI governance offerings, the conversion of larger opportunities, the mix of recurring revenue, and a return to growth in the Asia-Pacific region. These elements will be crucial in sustaining ISG's momentum and achieving its long-term objectives.
In summary, ISG's second-quarter performance demonstrates that AI is not just a growth driver but also a margin enhancer. The record recurring revenue and robust pipeline provide a solid foundation for future growth, even as enterprise decision-making remains cautious. The company's ability to leverage AI across its service lines positions it well to capitalize on emerging opportunities in the consulting and advisory market.
