What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-08 compared with 2025-11-03 · 48 added, 129 removed, 162 unchanged (52% of the section changed)

6 unchanged sentences

Forward-looking statements are based on our beliefs as well as assumptions based on information currently available to us, including financial and operational information, the volatility of our stock price, current competitive conditions and the impact of U.S.

tariffs, trade barriers and restrictions, as well as wars.

tariffs, trade barriers and restrictions, as well as wars, such as the conflict in Iran.

As a result, these statements are subject to various risks and uncertainties.

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Information Services Group, Inc.

III) (the “Company,” “ISG,” “we,” “us” or “our”) is a global AI-centered technology research and advisory firm.

III) is a global AI-centered technology research and advisory firm.

A trusted partner to more than 900 clients, including 75 of the world’s top 100 enterprises, ISG is a long-time leader in technology and business services sourcing that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth.

The firm, founded in 2006, is known for its proprietary market data, in-depth knowledge of provider ecosystems and the expertise of its 1,300 professionals worldwide working together to help clients maximize the value of their technology investments.

For more information, visit www.isg-one.com.

The firm, founded in 2006, is known for its proprietary market data and research, in-depth knowledge and governance of provider ecosystems, and the expertise of its approximately 1,500 professionals worldwide working together to help clients maximize the value of their technology investments.

For more information,

visit www.isg-one.com.

The content on our website is available for informational purposes only.

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We also derive our revenues from certain recurring revenue streams.

These include such annuity-based ISG offerings as ISG GovernX, ISG Research Lens, ISG Inform and our multi-year ISG Public Sector contracts.

These include such annuity-based ISG offerings as ISG GovernX, ISG Research Lens.

ISG Inform and the multi-year Public Sector contracts.

These offerings are characterized by subscriptions (i.e., renewal-centric as opposed to project-centric revenue streams) or, in some instances, multi-year contracts.

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The number of business workdays is also affected by the number of vacation days taken by our consultants and holidays in each quarter.

We typically have fewer business workdays available in the fourth quarter of the year, which can impact revenues during that period.

Time-and-expense engagements do not provide us with a high degree of predictability as to performance in future periods.

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The volume of work performed for any particular client can vary widely from period to period.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2025 AND SEPTEMBER 30, 2024

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND MARCH 31, 2025

The following table presents a breakdown of our revenue by geographic area:

Three Months Ended September 30,

Three Months Ended March 31,

Geographic Area

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Total revenues

Revenues increased $1.1 million, or approximately 2%, in the third quarter of 2025 compared to the third quarter of 2024.

The increase in revenues in the Americas was primarily due to increases in the Network & Software (“NaSa”), GovernX and Consulting service lines, partially offset by a decrease driven by the prior year’s sale of the Automation service line (excluding the prior year’s Automation revenues, revenues was up 11%).

The decrease in revenues in Europe was driven by the prior year sale of the Automation service line and the decline in revenues in the NaSa service line (excluding the prior year’s Automation revenue, revenues would have been up 7%).

The revenue decrease in Asia Pacific was attributable to a decrease in each of the service lines.

Revenues increased $1.6 million, or approximately 3%, in the first quarter of 2026 compared to the first quarter of 2025.

The increase in revenues in Europe was primarily due to increases in the Consulting and Network & Software (“NaSa”) service lines.

The decrease in revenues in the Americas was primarily due to the decline in the NaSa and the Consulting service lines, partially offset by an increase in GovernX and Research service lines .

The decrease in revenues in Asia Pacific was attributable to a decrease in the Consulting and Research service lines.

The translation of foreign currency revenues into U.S.

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The following table presents a breakdown of our operating expenses by category:

Three Months Ended September 30,

Three Months Ended March 31,

Operating Expenses

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Total operating expenses

Total operating expenses increased $0.8 million, or approximately 1% for the third quarter of 2025 compared to the third quarter of 2024.

The increase in operating expenses was primarily due to the prior year’s contingent consideration adjustment of $2.4 million, and increased contractor labor of $0.6 million.

These cost increases were partially offset by lower automation license fees expense of $0.9 million, stock-based compensation expense of $0.6 million, bad debt expense of $0.5 million, and acquisition-related costs of $0.5 million.

Total operating expenses were relatively consistent for the first quarter of 2026 compared to the first quarter of 2025.

The increase in operating expenses was primarily driven by higher contract labor of $0.9 million, travel and entertainment of $0.3 million, and computer expense of $0.2 million.

These increases were partially offset by lower compensation expense of $0.8 million, stock-based compensation expense of $0.7 million, and professional fees of $0.1 million.

Compensation costs consist of a mix of fixed and variable salaries, annual bonuses, benefits and profit-sharing plan contributions.

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Because our billable personnel operate primarily on client premises or work remotely, all occupancy expenses are recorded as general and administrative.

Depreciation and amortization expenses were $1.1 million and $1.6 million for the third quarters of 2025 and 2024, respectively.

The decrease of $0.5 million was primarily due to the sale of the Automation business on October 1, 2024.

Depreciation and amortization expenses were $1.0 million and $1.1 million for the first quarters of 2026 and 2025, respectively.

Our fixed assets consist of furniture, fixtures, equipment (mainly personal computers) and leasehold improvements.

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The following table presents a breakdown of other income (expense), net:

Three Months Ended September 30,

Three Months Ended March 31,

Other income (expense), net

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Interest expense

Gain on the sale of business

Foreign currency transaction (loss) gain

Foreign currency transaction gain

Total other expense, net

The total decrease in other expenses of $1.0 million, or approximately 72% in the third quarter of 2025 compared to the third quarter of 2024, was primarily attributable to the gain on the sale of the Automation business of $0.7 million, related to the final working capital settlement previously described, and lower interest expense attributable to a lower debt balance and lower interest rates, partially offset by lower interest income.

The total decrease in other expenses of $0.3 million, or approximately 30% in the first quarter of 2026 compared to the first quarter of 2025, was primarily due to lower interest expense attributable to lower interest rates, and fluctuations in foreign exchange rates.

Income Tax Expense

Our quarterly effective tax rate varies from period to period based on the mix of our earnings among the various state and foreign tax jurisdictions in which our business is conducted and the level of non-deductible expenses projected to be incurred during the current fiscal year.

Our effective tax rate for the quarter ended September 30, 2025 was 27.2% compared to 60.2% for the quarter ended September 30, 2024.

The difference for the quarter ended September 30, 2025 was primarily due to the impact of an increase in pre-tax earnings.

The Company’s effective tax rate for the quarter ended September 30, 2025 was higher than the statutory rate primarily due to non-deductible expenses and the impact of earnings in foreign jurisdictions.

There were no significant changes in uncertain tax position reserves during the quarter ended September 30, 2025.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025 AND SEPTEMBER 30, 2024

The following table presents a breakdown of our revenue by geographic area:

Nine Months Ended September 30,

Geographic Area

($ in thousands)

Total revenues

Revenues decreased $6.3 million, or approximately 3%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.

The increase in revenue in the Americas was primarily due to an increase in the Consulting and NaSa service lines, partially offset by a decrease due to the prior year’s sale of the Automation service line (excluding the prior year’s Automation revenues, revenues were up 14%).

The decrease in revenues in Europe was primarily attributable to the prior year’s sale of the Automation service line and lower revenues in the NaSa and GovernX service lines, partially offset by an increase in the Consulting service line (excluding the prior year’s Automation revenues, revenues were down 5%).

The revenue decrease in Asia Pacific was primarily attributable to a decrease in the

Consulting and NaSa service lines.

The translation of foreign currency revenues into U.S.

dollars positively impacted performance in Europe and Asia Pacific compared to the prior year by $1.1 million.

Operating Expenses

The following table presents a breakdown of our operating expenses by category:

Nine Months Ended September 30,

Operating Expenses

($ in thousands)

Direct costs and expenses for advisors

Selling, general and administrative

Depreciation and amortization

Total operating expenses

Total operating expenses decreased $13.4 million, or approximately 7%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.

The decrease in operating expenses was primarily due to lower automation license fees expense of $8.0 million, restructuring costs of $2.9 million, compensation expense of $2.6 million, expense reversal associated with an amount that was no longer due to a sub-contractor of $1.9 million, bad debt expense of $1.0 million, conference expense of $0.4 million and computer expense of $0.3 million.

These costs were partially offset by the prior year’s contingent consideration adjustment of $2.4 million, higher legal reserves of $1.8 million, travel and entertainment expense of $0.7 million, stock-based compensation expense of $0.5 million and professional fees of $0.5 million.

Compensation costs consist of a mix of fixed and variable salaries, annual bonuses, benefits and profit-sharing plan contributions.

A portion of compensation expenses for certain billable employees are allocated between direct costs and selling, general and administrative costs based on relative time spent between billable and non-billable activities.

Bonus compensation is determined based on achievement against Company financial targets and is accrued monthly throughout the year based on management’s estimates of target achievement.

Statutory and elective profit-sharing plans are offered to employees as appropriate.

Direct costs also include employee taxes, health insurance, workers’ compensation and disability insurance.

Sales and marketing costs consist principally of compensation expenses related to business development, proposal preparation and delivery and negotiation of new client contracts.

Costs also include travel expenses relating to the pursuit of sales opportunities, expenses for hosting periodic client conferences, public relations activities, participation in industry conferences, industry relations, website maintenance and business intelligence activities.

The Company maintains a dedicated global marketing function responsible for developing and managing sales campaigns, brand promotion, the ISG Index and assembling proposals.

We maintain a comprehensive program for training and professional development.

Related expenses include product training, updates on new service offerings or methodologies and development of project management skills.

Also included in training and professional development are expenses associated with the development, enhancement and maintenance of our proprietary methodologies and tools and the systems that support them.

Selling, general and administrative expenses consist principally of executive management compensation, allocations of billable employee compensation related to general management activities, IT infrastructure and costs for finance, accounting, information technology and human resource functions.

General and administrative costs also reflect continued investment associated with implementing and operating client and employee management systems.

Because our billable personnel operate primarily on client premises or work remotely, all occupancy expenses are recorded as general and administrative.

Depreciation and amortization expenses for the nine months ended September 30, 2025 and September 30, 2024 were $3.4 million and $4.7 million, respectively.

The decrease of $1.3 million was primarily due to the sale of the Automation business on October 1, 2024.

Our fixed assets consist of furniture, fixtures, equipment (mainly personal

computers) and leasehold improvements.

Depreciation expense is generally computed by applying the straight-line method over the estimated useful lives of assets.

We also capitalize certain costs associated with the purchase and development of internal-use software, system conversions and website development costs.

These costs are amortized over the estimated useful life of the software or system.

We amortize our intangible assets (e.g., client relationships and databases) over their estimated useful lives.

Goodwill related to acquisitions is not amortized but is subject to annual impairment testing and interim impairment tests, if triggering events are identified.

Other Income (Expense), Net

The following table presents a breakdown of other income (expense), net:

Nine Months Ended September 30,

Other income (expense), net

($ in thousands)

Interest income

Interest expense

Gain on the sale of business

Foreign currency transaction (loss) gain

Total other income (expense), net

The total decrease in other expenses of $1.5 million, or approximately 38%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, was primarily attributable to the gain on the sale of the Automation business of $0.7 million, related to the final working capital settlement previously described, and lower interest expense attributable to a lower debt balance and lower interest rates, partially offset by lower interest income.

Income Tax Expense

Our nine months effective tax rate varies from period to period based on the mix of our earnings among the various state and foreign tax jurisdictions in which our business is conducted and the level of non-deductible expenses projected to be incurred during the current fiscal year.

Our effective tax rate for the nine months ended September 30, 2025 was 33.8% compared to 112.9% for the nine months ended September 30, 2024.

The difference for the nine months ended September 30, 2025 was primarily due to the impact of an increase in pre-tax earnings.

The Company’s effective tax rate for the nine months ended September 30, 2025 was higher than the statutory rate primarily due to non-deductible expenses and the impact of earnings in foreign jurisdictions.

There were no significant changes in uncertain tax position reserves during the nine months ended September 30, 2025.

Our effective tax rate for the quarter ended March 31, 2026 was 37.2% compared to 37.9% for the quarter ended March 31, 2025.

The difference for the quarter ended March 31, 2026 was primarily due to the impact of an increase in pre-tax earnings.

The Company’s effective tax rate for the quarter ended March 31, 2026 was higher than the statutory rate primarily due to non-deductible expenses and the impact of earnings in foreign jurisdictions.

There were no significant changes in uncertain tax position reserves during the quarter ended March 31, 2026.

NON-GAAP FINANCIAL PRESENTATION

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We use non-GAAP financial measures to supplement the financial information presented on a GAAP basis.

net income plus amortization of intangible assets, non-cash stock compensation, foreign currency transaction gains/losses, interest accretion associated with contingent consideration, acquisition and disposition-related costs, severance, integration and other expense, on a tax-adjusted basis) and adjusted net income per diluted share, excluding the net tax effect of the items set forth in the table below.

We provide adjusted EBITDA (defined as net income plus interest, taxes, depreciation and amortization, foreign currency transaction gains/losses, non-cash stock compensation, interest accretion associated with contingent consideration, acquisition and disposition-related costs, gain on assets disposal and severance, integration and other expense), adjusted net income (defined as net income plus amortization of intangible assets, non-cash stock compensation, foreign currency transaction gains/losses, interest accretion associated with contingent consideration, acquisition and disposition-related costs, gain on assets disposal and severance, integration and other expense, on a tax-adjusted basis) and adjusted net income per diluted share, excluding the net tax effect of the items set forth in the table below.

These are non-GAAP measures that the Company believes provide useful information to both management and investors by excluding certain expenses and financial implications of foreign currency translations that management believes are not indicative of ISG’s core operations.

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Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the respective financial results presented in accordance with GAAP.

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

($ in thousands)

Net income (loss)

Interest expense (net of interest income)

1 unchanged sentence

Depreciation and amortization

Gain on assets disposal

Interest accretion associated with contingent consideration

Loss on assets disposal

Gain on the sale of business

Change in contingent consideration

Acquisition and disposition-related costs (1)

Severance, integration and other expense

Foreign currency transaction loss

Foreign currency transaction gain

Non-cash stock compensation

Adjusted EBITDA

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

($ in thousands)

Net income (loss)

Non-cash stock compensation

Intangible amortization

Gain on assets disposal

Interest accretion associated with contingent consideration

Change in contingent consideration

Loss on assets disposal

Gain on the sale of business

Acquisition and disposition-related costs (1)

Severance, integration and other expense

Foreign currency transaction loss

Foreign currency transaction gain

Tax effect (2)

Adjusted net income

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss) per diluted share

Three Months Ended March 31,

Net income per diluted share

Non-cash stock compensation

Intangible amortization

Gain on assets disposal

Interest accretion associated with contingent consideration

Loss on assets disposal

Gain on the sale of assets

Change in contingent consideration

Acquisition and disposition-related costs (1)

Severance, integration and other expense

Foreign currency transaction loss

Foreign currency transaction gain

Tax effect (2)

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The volume of billings and timing of collections and payments affect these account balances.

As of September 30, 2025, our cash, cash equivalents and restricted cash totaled $28.8 million compared to $23.2 million as of December 31, 2024, a net increase of $5.6 million, which was primarily attributable to the following:

● net cash provided by operating activities of $24.0 million;

As of March 31, 2026, our cash, cash equivalents and restricted cash totaled $22.8 million compared to $28.8 million as of December 31, 2025, a net decrease of $6.0 million, which was primarily attributable to the following:

● net cash used in operating activities of $0.7 million;

● repayment of outstanding debt of $20.0 million;

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● purchase of furniture, fixtures and equipment of $0.8 million;

● proceeds from the sale of the Automation business of $2.0 million;

● payment for the acquisition of Martino & Partners of $1.6 million;

● proceeds from UST Global Inc.

for final working capital settlement of $0.7 million, in connection with sale of the Automation business;

● treasury shares repurchased of $1.3 million;

● payments related to tax withholding for stock-based compensation of $0.8 million;

● payment of contingent consideration of $0.6 million;

● proceeds from issuance of employee stock purchase plan shares of $0.2 million.

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The applicable margin is adjusted quarterly based upon the Company’s consolidated leverage ratio.

For the first quarter of 2025, applicable margin was decreased by 0.25% percentage of the revolving loans maintaining a Base Rate loans of 1.75% for the revolving loans maintained as Term SOFR loans.

During the fourth quarter of 2025, the applicable margin was decreased by 0.25 percentage of the revolving loans maintaining a Base Rate loans of 1.50% for the revolving loans maintained as Term SOFR loans.

● The senior secured credit facility contains a number of covenants that, among other things, place restrictions on matters customarily restricted in senior secured credit facilities, including restrictions on indebtedness (including guarantee obligations), liens, fundamental changes, sales or dispositions of property or assets, investments (including loans, advances, guarantees and acquisitions), transactions with affiliates, dividends and other payments in respect of capital stock, optional payments and modifications of other material debt instruments, negative pledges and agreements restricting subsidiary distributions and changes in line of business.

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● The senior secured credit facility contains customary events of default, including cross-default to other material agreements, judgment default and change of control provisions.

The Company’s financial statements include outstanding borrowings of $59.2 million at both September 30, 2025 and December 31, 2024, which are carried at amortized cost.

The Company’s financial statements include outstanding borrowings of $59.2 million at both March 31, 2026 and December 31, 2025, which are carried at amortized cost.

The fair value of debt is classified within Level 3 of the fair value hierarchy.

The fair value of the Company’s outstanding borrowings was approximately $59.5 million and $59.6 million as of September 30, 2025 and December 31, 2024, respectively.

The fair value of the Company’s outstanding borrowings was approximately $59.5 million at both March 31, 2026 and December 31, 2025, respectively.

The fair values of debt have been estimated using a discounted cash flow analysis based on the Company’s incremental borrowing rate for similar borrowing arrangements.

The incremental borrowing rate used to discount future cash flows was 5.8% and 6.4% as of September 30, 2025 and December 31, 2024, respectively.

The incremental borrowing rate used to discount future cash flows was 5.3% at both March 31, 2026 and December 31, 2025, respectively.

The Company also considered recent transactions of peer group companies for similar instruments with comparable terms and maturities as well as an analysis of current market conditions and interest rates.

During the nine months ended September 30, 2025, the Company borrowed $5.0 million and repaid $5.0 million of the revolver loan.

During the three months ended March 31, 2026, the Company borrowed $20.0 million and subsequently repaid $20.0 million of the outstanding balance on its revolving credit.

The Company is currently in compliance with its financial covenants.

We anticipate that our current cash and the ongoing cash flows from our operations will be adequate to meet our working capital, capital expenditure and debt financing needs for at least the next twelve months.

The anticipated cash

needs of our business could change significantly if we pursue and complete additional business acquisitions, if our business plans change, if economic conditions change from those currently prevailing or from those now anticipated or if other unexpected circumstances arise that may have a material effect on the cash flow or profitability of our business.

The anticipated cash needs of our business could change significantly if we pursue and complete additional business acquisitions, if our business plans change, if economic conditions change from those currently prevailing or from those now anticipated or if other unexpected circumstances arise that may have a material effect on the cash flow or profitability of our business.

If we require additional capital resources to grow our business, either internally or through acquisitions, or to maintain liquidity, we may seek to sell additional equity securities or to secure additional debt financing.

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Dividend Program

On October 31, 2025, the Company’s Board of Directors (the “Board”) approved a fourth-quarter dividend of $0.045 per share, payable on December 19, 2025, to shareholders of record as of December 5, 2025.

On March 3, 2026, the Company’s Board of Directors (the “Board”) approved a first-quarter dividend of $0.045 per share, which was paid on March 26, 2026, to shareholders of record as of March 20, 2026 .

On May 5, 2026, the Board approved a second-quarter dividend of $0.045 per share, payable June 26, 2026, to shareholders of record as of June 5, 2026.

The dividends are accounted for as a decrease to Stockholders’ Equity.

All future dividends will be subject to the Board’s approval.

All future dividends will be subject to the Board’s prior approval.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis