Information Services Group, Inc. (NASDAQ: III) reported second-quarter 2026 results that surpassed guidance, driven by a 64% year-over-year increase in AI-related revenue and a record level of recurring revenue, according to an update from Stonegate Capital Partners. The company's revenue rose 6.4% year-over-year to $65.5 million, while adjusted EBITDA increased 13% to $9.4 million, with margins expanding 80 basis points to 14.3%. These results underscore ISG's ability to convert improving demand, pricing power, and AI-enabled delivery efficiencies into stronger operating leverage.
The standout performance in AI-related revenue, which reached $26 million, reflects that nearly half of ISG's clients are now generating AI-related revenue. This growth is not only boosting the top line but also enhancing the company's earnings model on both sides—generating demand across governance, sourcing, research, and advisory services while simultaneously improving delivery efficiency and margin expansion. The combination of AI-driven demand and operational efficiencies is a key differentiator for ISG, positioning it to capitalize on the expanding AI governance market.
Recurring revenue increased 7% year-over-year to a record $30 million, providing greater visibility into ISG's traditionally project-oriented advisory model. This shift toward recurring revenue is critical for investors, as it adds a layer of predictability to the company's financial performance. Management noted that the pipeline is "probably as strong as it has ever been," although client decision timing remains the primary constraint on visibility. The strength of the pipeline, coupled with improving regional trends, supports a constructive outlook for the second half of 2026.
Geographically, growth broadened across the Americas and Europe, despite measured enterprise decision-making. Underlying growth remained in the mid-single digits when excluding the effects of foreign exchange and the Martino acquisition. Management guided to continued year-over-year growth and margin expansion in the third quarter, reinforcing confidence in the company's trajectory.
Stonegate Capital Partners, which provides the coverage update, highlighted key areas to monitor, including AI governance expansion, conversion of larger opportunities, recurring-revenue mix, and APAC's return to growth. These factors will be pivotal in sustaining ISG's momentum. The company's ability to leverage AI across its service lines while expanding recurring revenue streams positions it well to navigate the evolving enterprise technology landscape.
For the broader industry, ISG's results signal that AI is becoming a significant driver of growth for advisory and research firms. The acceleration in AI-related revenue, combined with a strong pipeline, suggests that enterprises are increasingly seeking guidance on AI governance, sourcing, and implementation. This trend could have far-reaching implications for how companies approach AI adoption and manage related risks.
Investors and stakeholders will be watching ISG's progress in converting its robust pipeline into revenue and expanding its recurring revenue base. The company's focus on AI governance and higher-value advisory services, along with its operational efficiencies, positions it to deliver sustained growth in a competitive market. As enterprise decision-making becomes less constrained, ISG appears well-positioned to capitalize on the opportunities ahead.
