Information Services Group (NASDAQ:III) reported third-quarter revenue growth, higher profitability and record recurring revenue, as artificial intelligence-related work expanded to more than half of the company’s total revenue.
Revenue for the third quarter was $65.1 million, up 4.4% from a year earlier, with a $200,000 positive foreign-exchange impact. Adjusted EBITDA increased 18.7% year over year to $10 million, while adjusted EBITDA margin expanded nearly 200 basis points to 15.4%, the company’s highest level in four years.
GAAP net income was $3.4 million, or $0.07 per fully diluted share, compared with $3.1 million, or $0.06 per share, in the prior-year quarter. Adjusted net income rose to $5 million, or $0.10 per fully diluted share, from $4.7 million, or $0.09 per share, a year earlier.
AI Revenue Surpasses Half of Total Sales
Chairman and CEO Michael Connors said AI-related revenue grew 56% to nearly $34 million in the quarter, representing more than 50% of firm-wide revenue. The company had expected to reach that threshold later in 2027, he said.
“AI is our key growth driver, and its impact is expanding across ISG,” Connors said. He described four primary AI offerings: helping clients scale AI programs and redesign operating models; preparing workforces to use AI; assessing AI economics and productivity gains; and governing AI deployments.
Connors said companies are increasing spending on both AI-linked transformation and cost optimization. He said clients are seeking help to convert productivity gains into measurable business results while managing the potentially rising costs of AI consumption, data preparation, integration, infrastructure and oversight.
The company is also seeing interest in reviewing outsourcing arrangements as AI becomes a component of contract renewals. Connors said billions of dollars of contracts are set to come due over the next 24 months and that those contracts are expected to include AI elements.
Regional Results and Client Activity
Americas revenue was $41.9 million, roughly flat from the prior-year quarter. The region recorded double-digit growth in research, as well as strong activity in the energy and public-sector verticals. Connors said some client decisions moved from the third quarter into the fourth quarter, but he expects a “robust” fourth quarter in the Americas.
Europe generated $17 million in revenue, up 6.2% year over year, or 7% on a constant-currency basis. Growth was driven by the company’s software and governance businesses and by health sciences and consumer-sector clients.
Asia-Pacific revenue rose 46.8% to $6.2 million, supported by double-digit growth in advisory services and research. The region saw broad-based growth across consumer, energy and public-sector clients, with Connors citing a rebound in government spending.
Among engagements discussed on the call, ISG won a million-dollar project with a U.S. regional health insurer to establish a global capability center supporting AI-enabled technology and cybersecurity operations. Connors said the center is expected to provide run-rate savings of approximately 40%.
The company also expanded work with a state government entity on change-management services connected to a migration to SAP S/4HANA. In Europe, ISG said it helped a consumer-products client reduce software-product license costs by 15% during the quarter as part of a broader engagement involving software, network and governance services.
Connors said public-sector revenue grew more than 15% globally during the quarter. Other high-growth industry sectors included energy, up 35%; utilities, up 26%; and health sciences, which grew at a double-digit rate.
Cash Flow, Capital Returns and Staffing
Chief Financial Officer Michael Sherrick said operating income rose 40.6% to $6.5 million, producing an operating margin of 9.9%, up 255 basis points year over year. He attributed the higher margin to pricing and cost optimization.
Cash generated from operations totaled $12.3 million, compared with $5.2 million in the second quarter. ISG ended the quarter with $28.6 million in cash, up from $23.7 million at the end of the prior quarter.
During the quarter, the company paid $2.4 million in dividends and repurchased $4.3 million of stock. Sherrick said ISG expects to maintain a similar level of capital returns in the fourth quarter, based on its cash flow and cash position. The next quarterly dividend is scheduled to be paid Dec. 18 to shareholders of record as of Dec. 4.
Headcount was 1,273 at quarter-end, essentially unchanged from the second quarter. Consulting utilization was 74%, up 190 basis points year over year. Sherrick said the company targets utilization in the mid-70% range and will balance employee hiring and contractor use as demand develops.
Gross debt-to-EBITDA was 1.6 times at quarter-end, down from 1.9 times at the end of 2025. The company’s average borrowing rate was 5.4%, down 87 basis points from the prior year.
Fourth-Quarter Outlook
For the fourth quarter, ISG is targeting revenue of $64 million to $65 million and adjusted EBITDA of $9 million to $10 million. Connors said the outlook would extend the company’s year-over-year revenue growth and margin expansion.
He said the sales pipeline is stronger than it was a year ago, though the pace of client decisions remains influenced by macroeconomic uncertainty and by each organization’s ability to absorb change. ISG continues to target high-single-digit long-term revenue growth and EBITDA growth at roughly 1.5 times the revenue growth rate.
About Information Services Group (NASDAQ:III)
Information Services Group, Inc (NASDAQ:III) is a global technology research and advisory firm that helps organizations evaluate, plan and manage technology-related business initiatives. The company provides data, insights and consulting services to enterprises, technology providers and other organizations navigating changes in digital technology and business operations.
ISG’s services cover areas including digital transformation, cloud computing, artificial intelligence, automation, cybersecurity, data and analytics, enterprise applications, and information technology sourcing.
