Q2 2026 Information Services Group Inc Earnings Call
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Speaker #3: Thank you for holding. May I have the name of your conference? Thank you. May I have your first and last name? Thank you. I'll send you the answer.
Speaker #4: We will discuss our strong Q2 results. How AI is creating new opportunities across our business. The expansion of our share buyback program and our outlook for Q3.
Organizations. Continue to focus on improving performance. Reducing costs, modernizing operations, and adopting AI. Responsibly
Isg is uniquely positioned at the intersection of these priorities.
And that's demonstrated by our broad-based growth.
Increasing recurring, Revenue, expanding margins, larger longer-term engagements and deeper relationships with our clients.
Our Revenue was 65.5 million up more than 6%.
Led by 10% growth in Europe and 7% growth in the Americas.
Equally important this quarter, we reached another record and recurring revenues 30 million up to 7% powered by our research and governance businesses.
In terms of profits, Q2 marks the 7th quarter in a row are adjusted. Ibaa has grown by double digits.
For the latest quarter, it was up 13% to 9.4 million.
While our adjusted, EBA doll, margin Rose more than 80, B points, the 14.3%.
Both revenue and EBITDA this quarter were our best results since 2023.
In addition to discipline cost management, our expanding margins, reflect the continued evolution of our business.
Toward higher value advisory work growth in recurring revenues and increasing leverage from AI enabled delivery.
AI is a Tailwind for isg and we are taking advantage of it. We shaping our business as an AI centered technology research and advisory firm.
The drive stronger client demand and improve how we deliver our own services.
In the second quarter, our AI related, Revenue grew, 64% to 26 million.
With growth spread across our AI, advisory research and governance.
For the first half, AI Revenue, increased to 47 million in represented, 37% of firmwide Revenue.
For isg, AI is not an aspiration. It is delivering results right now.
Our AI revenues reflect more than growing interest in AI.
They show how Enterprises are increasingly turning to isg to solve their most important business challenges.
Making better technology decisions, improving performance, and reducing costs.
Modernizing systems and managing increasingly complex environments.
AI has become an integral part of each of those conversations.
Nearly half of our clients generated AI-related revenue during the quarter.
Growth was broad-based across Industries.
Led by consumer health sciences and Manufacturing.
What is particularly encouraging is? That AI is increasingly embedded across our research.
Sourcing governance.
And advisory engagements.
Creating larger opportunities and expanded client relationships over time.
the reason this momentum is sustainable is that it reflects broader changes in Enterprise priorities,
not simply growing interest in AI.
According to ISG research on companies globally, the top three client needs today around technology are: 1. cost optimization; 2. business transformation; and 3. vendor and contract optimization.
These priorities align exceptionally well with isg's capabilities.
Our integrated platform combines advisory services, proprietary research, and governance expertise to help clients move from strategy to execution.
And increasingly, to AI-enabled business transformation.
That combination is difficult to replicate.
And that is one of the reasons we're seeing stronger growth, improving margins, and deeper client relationships.
Part of a disciplined Capital, allocation strategy that includes reinvesting in our business.
Returning Capital shareholders via dividends and and share repurchases.
And supplementing, our organic growth with strategic Acquisitions to drive long-term shareholder value.
Expect and acceleration in BuyBacks during the second half.
The turning to our region, the Americans, the Americans delivered 42 million of Revenue in Q2 up 7% from last year and up, 6% sequentially from the first quarter.
The region saw double digit growth in research and governance.
And in our health sciences and insurance industry verticals.
Key client engagements are in the second. Quarter included, 3M.
Centauri and the Commonwealth of Pennsylvania.
During the quarter, we continue to expand our relationship with a major Global oil and gas company, adding 1 million, dollars of Revenue to an already multi-million dollar account.
Beginning a few years ago with a benchmarking engagement, we have become a strategic partner for this client supporting their Enterprise Wide Technology transformation.
Our work includes revamping their service agreements and provider ecosystems.
And realizing greater savings through AI initiatives, including AI Ops.
Our latest engagement a major application sourcing program is expected to save this client more than 100 million dollars.
also, in the quarter, we want a major new engagement with a us-based, global manufacturer of heating, cooling and Refrigeration Solutions,
This million-dollar engagement—one, through our Private Equity channel—to support portfolio companies,
Will transform this client's technology supplier landscape, modernize their network, and strengthen provider governance.
This is opening the door to a broader relationship involving the use of AI to optimize customer experience and generate further operating efficiencies.
our Europe region continued, its momentum from the second half of 2025, and first quarter of 2026 with an excellent second quarter.
Revenues were up 10% to 18 million driven by double-digit growth in our advisory software and governance. Businesses
And in our consumer banking manufacturing and Health Sciences industry verticals.
Key client engagements in Europe and the second quarter included rosh Olympus and BNP parabol.
During the quarter, we continued to expand our relationship with the leading health insurance company.
We began by supporting a 1 billion dollar sourcing program for the client's workplace and core tech services driving cost savings for them up to 50%.
We've since added transition, network security, and now governance.
And are in discussions to add change management and software advisory all leading to a growing multi-million dollar relationship with this client.
We also want new business with a leading health and Pharmacy Chain by leveraging existing, relationships with Senior Management.
Which asked ISG to advise them on a struggling Technology Services contract.
Based on our strategy recommendations, we were able to reset the agreement and achieve millions of dollars in savings this year, while significantly improving the client's sourcing model.
Based on that success, we are jointly exploring other opportunities, including AI driven process improvements to help them unlock further value.
In asia-pacific our Q2 revenues of 5.1 million were down, 400,000 dollars compared with the prior year.
We saw double-digit growth in our Health Sciences, energy and utility verticals.
In addition, an importantly, we saw a breakthrough in public sector spending late in the quarter. And based on this trend, we expect this region to return to growth during the back half of this year.
Key clients in the quarter included, Woolworths data center company are trunk and the Australian Department of Home affairs.
Entity in Australia.
our successful negotiations with the government's Telecom providers, will net saving will provide net Savings of more than 12 million greatly exceeding, the client's expectations,
This is leading to additional engagements to design and support AI lead future, workplace services.
And optimize the client's other existing tech services.
now, turning to the broader market and our guidance for Q3
Though. Clients remain measured in their pace of spending. They continue to focus their Investments on cost optimization business transformation and AI adoption.
As I mentioned earlier, this place to isg strengths.
So keeping in mind the summer months in Europe. For the third quarter, we are targeting revenues in between 63.5 and 64.5 million and adjusted ibaa between 8.5 and 9.5 million, which will continue our year-over-year growth and margin expansion.
Now, let me turn the call over to Michael Sheri. Who will summarize our financial results? Michael.
Thank you, Mike and good morning everyone. Revenue for the second quarter was 65.5 million up a solid 6.4% year-over-year, including a 700,000 positive impact from FX by region America's Revenue. Reached 42.1 million up 6.7% Europe, delivered revenue of 18.3 million of 9.8% and asia-pacific was 5.1 million down 6.7%
Adjusted, EBA, for the quarter, climbed to 9.4 million up 12.9% year-over-year.
In expanded 80 basis points to 14.3%.
Operating income was 5.9 million up, 25.6% year-over-year resulting in an operating margin of 8.9%. I would note that our operating margin is at a 3-year High fueled by solid pricing and our continued focus on cost optimization.
Gaap, net income was 3.3 million or 7 cents per fully. Diluted share compared with 2.2 million or 4 cents per fully diluted share last year.
Adjusted net income was 5 million or 10 cents per fully diluted share up from 4.1 million or 8 cents per fully diluted share a year ago.
Headcount quarter end was 1281 essentially flat with last quarter, while our Consulting utilization remains solid at 74%.
We ended the quarter with cash of 23.7 million compared with 22.7 million at the end of the first quarter.
For the quarter, net cash generated from operations was $5.2 million, as compared to a $700,000 cash usage in the first quarter. We continue to expect strong operating cash flow for the remainder of the year.
This week, our board of directors approved a new share repurchase authorization of dollars. The largest such program in our history.
The new share repurchase program will take effect upon completion of the firm's current program which has approximately 2.3 million remaining as of June 30th 2026.
During the quarter, we paid dividends of 2.3 million and repurchase 1.5 million of stock.
Our next quarterly dividend will be paid September 25th to shareholders of record, as of September 4th.
At quarter end, fully diluted shares outstanding were 49.8 million and our gross debt to ebitda ratio was 1.7 times down from 1.9 times at December 31st 2025.
Our average borrowing rate for the quarter was 5.3%, down 81 basis points year over year.
Overall, our balance sheet remains solid. Providing us with a strong Foundation to both operate and invest in the business. Michael. Now share concluding remarks before we go to Q&A, Mike.
Thank you, Michael to summarize. We delivered a strong second quarter and first half. Both are best since 2023 with a broad base growth of regions, service lines and industries, and we expect continued strength in the second half.
We continue to improve the quality of our business with record, recurring, Revenue expanding margins, and deeper client relationships.
Our strong performance and balance sheet allowed us to expand our share repurchase program by an additional 30 million.
Is driven by a diversified portfolio. That helps clients improve business performance.
Our strategy is delivering results today and positions I achieve for continued profitable growth as Enterprises accelerate their transformation.
As always, we are focused on creating shareholder value for the long term and we are steadfast in our mission to deliver operational, excellence and Roi to our clients.
So, thank you very much for calling in this morning. And now, let me turn the session over to the operator for your questions.
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Our first question comes from Joe Gomes from Noble Capital markets. Please go ahead. Your line is open
Thank you. Hi. It's Jacob muttler on for Joe, Gomes this morning. Um, first question, uh, could you just provide any color on what you're seeing in terms of just total Enterprise technology spend with your clients and just uh across the um industry in general. And um, if you could just compare today with 3 to 6 months ago
Yes, good morning. Thank you uh for the questions we'll look. Um what we are seeing is first of all, there is a shift
and the spending of the total budgets around technology. And the shift of course,
Is trying to move things from there. I'll call the normal day to day or run operations into growth initiatives and especially uh, AI to help them run their business, more effectively. Um, AI is clearly a structural growth theme. Uh, for sure. The economics around it, I think are pretty uneven depending on which business which industry that you're talking about, but certainly infrastructure and software are compounding and kind of Labor based. Um, work in. These Enterprises are facing a lot of uh, uh, pressure. If you will around improving productivity around them. So we see spending accelerating certainly in AI to be able to get AI beginning to begin to scale. Uh, their AI, uh, in these Enterprises
Says it is still very early innings.
Uh but the spending is there but it is Shifting and the pace in which they're making their decisions. If I think about it to your question of 3 to 6 months ago, is not much different than it was 3 to 6 months ago. It is still a measured response.
But the important factor here is, they are making decisions unlike what I would characterize back in 24 or early 2025. So the the money is there, the spending is there, the pace is measured but decisioning is, is happening now much more so than a year ago. I hope that answers that question.
Yeah, absolutely. And that address 1 of my, um, 1 of my other questions about the, uh, decision making, uh, process if if that is sped up. So thank you for addressing that. Um, my next question, uh, is just in regards to the the AI pipeline. Um, could you talk about what region you're seeing? Um, the bulk of that AI business come from. Is it across the board? You know, um, I know you've mentioned in the past that Europe was behind the US and AI spend. So just curious if we're seeing a little bit of a, a catch up here in the in Europe,
Yeah, good question. So, definitely, the US leads Europe, but still trails.
Um, and I would say the asia-pacific region. Certainly trails that um,
But not at the pace of the US yet.
I got you and and thank you for taking my questions today and congratulations on a solid quarter.
Thanks very much.
Our next question comes from Vincent callow. From barington research, please go ahead. Your line is open.
Good morning. Mike. Um, morning Vince. So I'm curious. Um, how does your visibility compared today to say 6 to 12 months ago?
Um,
yeah, I mean, look, I think
the visibility is, is we call it roughly the same vents? I, I wouldn't call it. Uh, I wouldn't call it greatly improved.
Um, there's no deterioration in it, um, and it's primarily again around the pacing of decisions. The good news is that our pipeline is strong, we know those decisions are going to be made the pace in which is, you know, a little unknown. Um, but it looks pretty good. And, you know, we have some very good momentum. We have some very large, engagements, our research, and our governance especially around AI. Governance is, is, is really resonating with clients. Um, so, you know, it looks, it looks good. But, you know, and we're cautious with all of the, the geopolitical and other things that are going on in terms of their pace of decisioning. But we're confident,
That decisions are being made and will be made. It just may be at a at a at a pace that, you know, we prefer a little faster but uh it is there and we like that. So uh I would say we're optimistic about it.
And, uh, are there any large deals in your pipeline that could, uh, significantly, uh, benefit your trajectory of growth?
Well, we do have a number of large ones. I I can't tell you whether they come to fruition or not.
Um, but, you know, if the pace happens and it happens sooner than we'll have a, we'll have a little bit of a nice jolt but uh, I can't really project it, uh, per se events. But uh, we do have a number of large engagements that we are. We are pursuing.
So so how should we think about the economics of your, um, Consulting business? So clients know that AI is reducing Consulting costs. Uh, is there any pressure or talk on on billing rate? Uh, relief? I know that sounds contrary to what, you're likely seeing right now.
Hey, Vince. It's, uh, it's Michael. I think it's a good question. Um, I think that, you know, for us, it's about the value provided, right? And so we're not seeing that pressure in terms of billing rates, and I think that, you know, again, for us, it's about number of transactions, right? And processing transactions. And, you know, the expectation, as you look forward from our perspective,
Perspective is that, you know, AI is driving a more rapid acceleration in, in people's review uh, of their existing programs contracts, Etc, and that'll drive transactions. And that's that's good for us. So, you know, we continue to see this as as Mike had said as a Tailwind, um, and a benefit from, you know, where where we sit
Thanks for all that color.
Thanks man.
And our next question comes from Dave storms from Stonegate Capital Partners, please go ahead, your line is open.
Hello, good morning. This is Maximus. I'll be asking questions for Dave this morning. Um, good morning. Good morning to start off. Uh, recurring revenues. Definitely seemed to stabilize this quarter and, you know, curious to hear. What would you use like assume this is pretty fair to run, right? Moving forward, or if there if there are any goals on growing this
Yeah, so on the recurring Revenue, the recurring revenue is strong. We had our largest
Absolute number in the, in any quarter at 30 million 30 million dollars in the quarter. Um, it clearly is a priority for us. Um, it is expanding, it is driven by both our research which is focused around clearly technology. The trends AI,
Uh as you might imagine and and our governance Services businesses which includes AI governance.
Um That Grew at a faster rate than the overall firm and we would expect recurring revenues to continue to grow. Our objective is to get to over 50% of our Revenue to be recurring.
And just to remind you, five years ago it was half of that.
Um and we're approaching that now at around, you know, 4547 percent. So um, that is a continued focus and we expect that to continue to uh, to grow over the next couple of years.
Got it. Great. Thank you. That's great color. Um you know in the past few quarters you guys had mentioned that the AI maturity index was more of like a door opener, you know. Yeah. So I kind of wanted to you know curious to hear more about what typically the next Services. You know clients will tend to purchase or contract out and how long that conversion usually takes place?
Yeah. So we are using um the the AI uh index. If you will as top of the funnel um it helps. It's part of the conversation. It's part of our proposal management. If you will and you can see that with our AI related revenues, our AI related revenues were 26 million dollars in the quarter. Um it's significant it was up you know, whatever, it was 30, some odd percent,
Uh, for the uh for the quarter year over year over year. So we're using a number of tools at the at the if you will at the front end of our discussions. Um, but frankly it is a Hot Topic so it allows us in. So we use the tools to help show them around Workforce Readiness, you know, how to leaders and teams absorb Ai and the real work it's it's 1 thing to to develop AI capabilities. It's another to have the workforce, uh, engage and embrace.
So we focus on Workforce Readiness with them. We focus on AI economics, you know, how can they turn productivity into into credible? You know, business economics for their business.
And then we talk about governance, how do you AI govern? If you will, how do you govern AI, safely, invisibly and at scale? So by using those as our openers. If you will, it is driving our AI related revenue. And you can see that with the robustness uh that we had uh in this quarter and really in the first half of the Year Dave.
Great. Thank you. And congratulations on the quarter. That's all that I have for today.
Okay, thanks so much, Dave.
And our next question comes from gausi sriharan from singular research. Please go ahead. Your line is open.
Uh, good morning. Gentlemen, can you hear me?
Yes, good morning Galpin, good morning. Um, just following up on that AI governance work. As you were saying is that is that genuinely new demand, or are you winning that from, uh, competitors or internal teams, or has that changed in a couple of quarters and will it? And as you progress, it will it change the uh, uh, the mix of the top 10, uh, logos or the client base that um, that you, you traditionally had
So the AI component of the governance is new, it's incremental. Um, every business is thinking about it talking about it.
I sit on a very large corporate board. It's a discussion at the board level. Um, everybody wants to understand, how are we going to govern? How does this runaway train? Whether it's um, you know, whether it's the economics around tokens. Whether it's the, the, um, the way that we use Ai and a constructive and Safe Way in different Enterprises. So we see this as, as new white space for our firm. Um, so it gives us an opportunity to expand with our current client base, as well as with new prospects. I don't know that it changes what our top 10 looks like by itself.
But we do think it adds to revenue for our top clients as well.
I hope that answers that Galaxy. That's perfect. Thank you. Thank you for that call. And um, and now Martino, um, has been in, in, in, in New York in the in the mix for about a year. Now, how much of that growth this month, you know? And is it tracking the kind of the early earnout targets you underwrote?
Yeah. So first of all, it is not material at all, um, but it is performing well in Italy. Uh, the whole South-South region, all of Europe—as you can see—that was up 10% on the year.
Uh, they've had a strong, uh, first first half of the year, uh, driven by if you will a little more demand opening up in that, uh, European theater as someone else asked the question about Europe, uh, we do see that opening up a bit more than it did, uh, a year ago or even 6 months ago. Uh, so all of these are contributing factors, um, to it Galaxy but I wouldn't look at that as any materiality in the quarter.
The organic growth disagrees. And can you give us a call on that?
Yeah, think about it as mid single digits.
Okay.
And on the on the on the um gross margin side, just adjusting for the receivable, write off. Um we're looking at gross margins, kind of uh taper uh flat plateau.
Being run, its course, or was there something specific about this quarter?
I I think yeah I think your question sorry you were breaking up. I think your question is the overall gross margin know. I don't think there's anything, you know, specific or different in the quarter. I mean, you know some of you know our margin is is mixed right in terms of the different uh offerings and services that we have sbu Etc, but I wouldn't read anything you know, into it in the quarter as as I said in, I think in an earlier question that we got, you know, we continue um, to have a very strong value proposition. And as long as you continue to have that strong value proposition and can demonstrate value to the clients, uh, then you have, you know, an ability to price and, and that has not changed for us.
Awesome. Thank you, guys. Congratulations. Um take offline, thank you.
Thanks, Kelsey.
Our last question comes from Mark, Riddick from sedoti, please go ahead. Your line is open.
Hey, good morning.
Good morning, Mark.
So it it certainly encouraging to see the the progress that you're you've been making here. I was wondering if you talk a little bit about the the visibility that uh that that you have currently relative to maybe you know a year or so ago particularly given the the strength of recurring revenues and and the the shift that you you're you were discussing as far as sort of maybe a little less from a defensive to an offensive stance. How how do you
Up plays into sort of uh, revenue and project visibility.
Well, I think first, Mark, I think, you know, overall the pipeline is, is probably as strong as it's ever been. So we have clearly visibility in building building pipe and we use pipe and we rebuild, you know, rebuild rebuild pipe. I think the recurring Revenue clearly gives us visibility because that's now representing almost 50% of our business. We know that our collection of 900 clients that we get 85% of our revenue from that client base, every year and that's kind of been 80 to 85 for more than a decade. So that gives us some visibility in terms of who I would say that the there's really no change on visibility in terms.
Terms of amounts. You don't really have the visibility to know for sure whether the clients, you know, a, B and C are going to be spending uh X or Y during a given quarter. We are engaged with them. Um, and and so we do our best. If you will to try to provide the best guidance on what we think closest, uh, and gets recognized in any in any given quarter. But I would say because the demand environment is is, is is good because that we are focused on. I think the most important things that clients are thinking about today, around cost, optimization around AI adoption and how you can scale it, it all fits into our portfolio of services. So we have it for those that are moving at a fast pace. We have it for those that are moving slower. We are working with industries that are being disrupted like healthcare and energy. Um, they love our kind of portfolio of services that can help them, uh, the health care.
Industry is being turned upside down. Uh, it is likely, it is our highest growing industry. At the moment, energy is not that far behind. Think about all the data centers and what is happening uh around that area utilities also. So we have disruption going on and and a number of Industries which gives us if you will insight into where we think the work and the and the uh acceleration uh might happen.
Over the course of the next several quarters. So that's how we think about it, Mark.
Great. And then I wanted to shift gears to
Cache usage.
Prioritization, certainly encouraging to see the, the expansion of of, uh, the authorization. I was wondering if you could share any, any thoughts as to, uh, thoughts of use as to, uh,
For Acquisitions maybe availability valuations. I mean what what are you seeing out there? Is there anything that that you think that uh you know appetite for for either you know adding services or any particular fits that that that might make sense for you?
Mark, we are as you know, uh, acquisitive, um, we are in the market. Um we are looking at uh capabilities that we could add to accelerate growth.
Um, we are focused around
If you will all things digital and Ai and and things that we could use our channels, our distribution channels into the sea Suite that we could sell more, um, um, opportunities into them and and help them solve more business problems. I would say that based on what we are seeing in the market, um, that the, the, the value, um, expectations are beginning to rise.
More so than they were a year ago.
So we keep an eye on that, so I would call it a little bit more frothy than it was. Maybe if, if you were to ask this question a year ago,
Um, but yes, we are active, we are in the market, but we also are seeing. We also are seeing a little bit of an uptick, if you will, on expectation levels on the, uh, on the, on the sell side.
Gotcha, it makes sense. Um, well uh, just last thing for, for me, I guess the, um, the, the regional, uh, commentary is certainly, uh, appreciated as. As I was wondering, if you could, maybe talk a little bit about if if you're seeing differentiation of of catalysts and and um,
Uh in in Europe and you know, versus particularly Europe versus the the uh, the Americas right now. Um and and maybe sort of and I'm where I'm going with this is, I mean, you know, whether we're we certainly seen a lot of m&a lately. And you know, you know, I was sort of curious as to maybe some of the the Catalyst and drivers if you're seeing much differentiation regionally
Yeah, it's a good question. Well, specifically in Europe, I think consumer Pharma
And m&a are all very active right now. Um more so than they were 6 9 months ago. Um, and what that does clearly consumer is is more on the cost optimization side. But also using AI to assist with that Pharma is not too far behind that. We have see a lot of kind of overall in the Health Sciences area different than the payer and provider community in the US. So it's a little different. But the Pharma suitical companies in particular uh are very active. Um and then we are seeing m&a picking up in the region. So that means both on the diligence standpoint and on a portfolio I'll call it clean up to prepare them for sale as as increased. Uh those are 3, if you will drivers that we have been seeing over in uh over over in Europe and that a little bit different. Um,
Then maybe here in the us where we see the, the health care side, the energy side, the Utility side, being bigger drivers than than maybe what we see in Europe at the moment.
That makes sense. Thank you so much. Michael.
Yep, thanks Mark.
I'm showing no further questions, I'll turn the call back to Mike Connors for his closing remarks.
Well, look, in closing, ISG is winning because enterprise clients
Are prioritizing performance, not just technology.
AI is accelerating that Trend and with our success built on a diversified platform of advisory research and governance capabilities that solve the business problem. Clients care about most none of this is possible, of course, without the dedication of our professionals worldwide. And I want to thank them for their contributions to Our Success. Our people are passionate about helping our clients solve their most important business challenges. That commitment to client success continues to strengthen our business, and deepen, our relationships and creates long-term value for you. Our shareholders.
So, thanks to all of you for joining us on the call, and for your continued support and confidence in our firm. Have a great rest of the day.
This concludes today's teleconference. You may disconnect at any time.
