III

Business Context and Reporting Period

Company: Information Services Group, Inc. (ISG)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2026
Business Overview: ISG is a global AI-centered technology research and advisory firm serving over 900 clients, including 75 of the world's top 100 enterprises. The company operates as a single reportable segment with geographic presence in the Americas, Europe, and Asia Pacific.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 6% ($3.9M) in Q2 2026 and 5% ($5.5M) for the six months ended June 30, 2026, compared to the prior year. Growth was driven by the Americas (+7% Q2) and Europe (+10% Q2), partially offset by a decline in Asia Pacific (-7% Q2).
• Profitability: Net income increased 51% in Q2 and 64% for the six-month period year-over-year. Operating margins improved due to revenue growth outpacing expense increases, despite specific one-time charges.
• Expense Volatility: Selling, general, and administrative (SG&A) expenses increased 24% in Q2 primarily due to a $4.3 million bad debt expense related to a specific client write-off. This was offset by a $4.3 million reversal of accrued subcontractor costs, resulting in no net impact on operating income for the period.
• Cash Flow: Net cash provided by operating activities decreased significantly to $4.5 million for the six months ended June 30, 2026, compared to $12.9 million in the prior year period, largely due to changes in working capital and the timing of collections.

Guidance, Outlook, and Risks

• Acquisitions: In January 2026, ISG acquired the AI Maturity Index for $750,000 to enhance its AI-related offerings. In September 2025, the company acquired Martino & Partners in Italy for approximately $2.3 million in cash and stock to expand its European footprint.
• Capital Allocation: On August 4, 2026, the Board approved a new $30.0 million share repurchase authorization and a third-quarter dividend of $0.045 per share.
• Legal Contingencies: The company is engaged in litigation to collect a disputed receivable of $4.7 million. While a judgment was obtained for a separate $5.6 million receivable, it was fully written off in Q2 2026 after collection efforts failed.
• Risk Factors: Key risks include global macroeconomic conditions, competition, advisor retention, foreign currency fluctuations, and the impact of U.S. tariffs or trade barriers. The company notes that forward-looking statements are subject to uncertainties regarding wars (e.g., conflict in Iran) and capital market disruptions.

Investor Verification Checklist

• Bad Debt Impact: Verify the net impact of the $4.3 million bad debt expense and the corresponding $4.3 million subcontractor cost reversal to ensure no hidden liabilities remain regarding the terminated client projects.
• Working Capital Trends: Investigate the significant decline in operating cash flow ($12.9M to $4.5M) and the increase in accounts receivable days to assess collection efficiency.
• Debt Covenants: Confirm continued compliance with the consolidated leverage and interest coverage ratios under the $140 million revolving credit facility, especially given the floating interest rate exposure.
• Geographic Mix: Monitor the continued decline in Asia Pacific revenue (-10% for six months) to determine if this is a temporary fluctuation or a structural shift in demand.
• Share Repurchase Execution: Track the utilization of the new $30 million repurchase authorization and its impact on diluted share count and EPS.