What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-06 compared with 2026-05-08 · 114 added, 46 removed, 164 unchanged (49% of the section changed)

13 unchanged sentences

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 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 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 the multi-year 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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Our results are impacted principally by our full-time consultants’ utilization rate, the number of business days in each quarter and the number of our revenue-generating professionals who are available to work.

Our utilization rate can be negatively affected by increased hiring because there is generally a transition period for new professionals that result in a temporary drop in our utilization rate.

Our utilization rate can be negatively affected by increased hiring because there is generally a transition period for new professionals that results in a temporary drop in our utilization rate.

Our utilization rate can also be affected by seasonal variations in the demand for our services from our clients.

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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 MARCH 31, 2026 AND MARCH 31, 2025

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND JUNE 30, 2025

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

Three Months Ended March 31,

Three Months Ended June 30,

Geographic Area

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Total revenues

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.

Revenues increased $3.9 million, or approximately 6%, in the second quarter of 2026 compared to the second quarter of 2025.

The increase in revenues in the Americas was primarily due to the increase in the Research, GovernX and Consulting service lines, partially offset by a decrease in Network & Software (“NaSa”) service line .

The increase in revenues in Europe was primarily due to increases in the Consulting, NaSa and GovernX service lines, partially offset by a decrease in the Research service line.

The decrease in revenues in Asia Pacific was attributable to a decrease in the Research service line.

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 March 31,

Three Months Ended June 30,

Operating Expenses

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Total operating expenses

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.

Total operating expenses increased $2.7 million, or approximately 5%, for the second quarter of 2026 compared to the second quarter of 2025.

The increase in operating expenses was primarily attributable to higher bad debt expense of $4.3 million (refer to Note 5 – Revenue – “Accounts Receivable and Contract Assets” for further details), higher compensation expense of $1.4 million, and higher stock-based compensation expense of $0.2 million.

These increases were partially offset by lower contractor labor expense of $3.0 million, of which $4.3 million is discussed in Note 5, lower professional fees of $0.1 million and lower restructuring costs of $0.1 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.

A portion of compensation expenses for certain billable employees is 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.

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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.

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.

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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 $1.0 million and $1.1 million for the first quarters of 2026 and 2025, respectively.

Depreciation and amortization expenses were $1.1 million and $1.2 million for the second 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 March 31,

Three Months Ended June 30,

Other income (expense), net

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Interest expense

Foreign currency transaction gain

Foreign currency transaction gain/(loss)

Total other expense, net

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.

The total decrease in other expenses of $0.5 million, or approximately 44%, in the second quarter of 2026 compared to the second quarter of 2025, was primarily due to fluctuations in foreign exchange rates and lower interest expense attributable to lower interest 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 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.

Our effective tax rate for the quarter ended June 30, 2026 was 37.1% compared to 38.7% for the quarter ended June 30, 2025.

The difference for the quarter ended June 30, 2026 was primarily due to the impact of an increase in pre-tax earnings as well as the mix of earnings as discussed above.

The Company also wrote off a receivable in Europe which was recognized as a discrete event in the quarter.

The Company’s effective tax rate for the quarter ended June 30, 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 June 30, 2026.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2026 AND JUNE 30, 2025

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

Six Months Ended June 30,

Geographic Area

($ in thousands)

Total revenues

Revenues increased $5.5 million, or approximately 5%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025.

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

The increase in revenue in Europe was primarily attributable to an increase in Consulting and NaSa service lines.

The revenue decrease in Asia Pacific was primarily attributable to a decrease in our Research, Consulting, and GovernX 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 $2.5 million.

Operating Expenses

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

Six Months Ended June 30,

Operating Expenses

($ in thousands)

Direct costs and expenses for advisors

Selling, general and administrative

Depreciation and amortization

Total operating expenses

Total operating expenses increased $2.7 million, or approximately 2%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025.

The increase in operating expenses was primarily attributable to higher bad debt expense of $4.3 million (refer to Note 5 – Revenue – “Accounts Receivable and Contract Assets” for further details), compensation expense of $0.6 million, travel and entertainment expenses of $0.4 million, and computer expenses of $0.3 million.

These increases were partially offset by lower contractor labor expense of $2.1 million, of which $4.3 million is discussed in Note 5, lower stock-based compensation expense of $0.5 million and lower deal cost of $0.1 million.

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

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.

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 expense for the six months ended June 30, 2026 and June 30, 2025 was $2.1 million and $2.3 million, respectively.

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:

Six Months Ended June 30,

Other income (expense), net

($ in thousands)

Interest income

Interest expense

Foreign currency transaction gain /(loss)

Total other income (expense), net

The total decrease in other expenses of $0.8 million, or approximately 38%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, was primarily the result of fluctuations in foreign currency and lower interest expense attributable to lower interest rates.

Income Tax Expense

Our six 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 six months ended June 30, 2026 was 37.1% compared to 38.4% for the six months ended June 30, 2025.

The difference for the six months ended June 30, 2026 was primarily due to the impact of an increase in pre-tax earnings as well as the mix of earnings discussed above.

The Company also wrote off a receivable in Europe which was recognized as a discrete event in the quarter.

The Company’s effective tax rate for the six months ended June 30, 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 or valuation allowances during the six months ended June 30, 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.

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.

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/loss on asset 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/loss on asset 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

2 unchanged sentences

Depreciation and amortization

Gain on assets disposal

Loss (gain) on asset disposal

Interest accretion associated with contingent consideration

1 unchanged sentence

Severance, integration and other expense

Foreign currency transaction gain

Foreign currency transaction (gain) loss

Non-cash stock compensation

Adjusted EBITDA

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

1 unchanged sentence

Intangible amortization

Gain on assets disposal

Loss (gain) on asset disposal

Interest accretion associated with contingent consideration

1 unchanged sentence

Severance, integration and other expense

Foreign currency transaction gain

Foreign currency transaction (gain) loss

Tax effect (2)

Adjusted net income

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net income per diluted share

1 unchanged sentence

Intangible amortization

Gain on assets disposal

Loss (gain) on asset disposal

Interest accretion associated with contingent consideration

1 unchanged sentence

Severance, integration and other expense

Foreign currency transaction gain

Foreign currency transaction (gain) loss

Tax effect (2)

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

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;

As of June 30, 2026, our cash, cash equivalents and restricted cash totaled $23.8 million compared to $28.8 million as of December 31, 2025, a net decrease of $5.0 million, which was primarily attributable to the following:

● net cash provided by operating activities of $4.5 million;

● repayment of outstanding debt of $20.0 million;

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● purchase of furniture, fixtures and equipment of $1.4 million;

● treasury shares repurchased of $1.3 million;

● treasury share repurchases of $1.3 million;

● payments related to tax withholding for stock-based compensation of $2.3 million;

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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 March 31, 2026 and December 31, 2025, which are carried at amortized cost.

The Company’s financial statements include outstanding borrowings of $59.2 million at both June 30, 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 at both March 31, 2026 and December 31, 2025, respectively.

The fair value of the Company’s outstanding borrowings was approximately $59.5 million at both June 30, 2026 and December 31, 2025.

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 5.3% at both March 31, 2026 and December 31, 2025, respectively.

The incremental borrowing rate used to discount future cash flows was 5.3% at both June 30, 2026 and December 31, 2025.

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 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.

During the six months ended June 30, 2026, the Company borrowed $20.0 million and subsequently repaid $20.0 million of the outstanding balance on its revolving credit facility.

The Company is currently in compliance with its financial covenants.

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Dividend Program

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.

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

On August 4, 2026, the Board approved a third-quarter dividend of $0.045 per share, payable September 25, 2026, to shareholders of record as of September 4, 2026.

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

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Recently Issued Accounting Pronouncements

See Note 3 to our condensed consolidated financial statements included elsewhere in this report.

See Note 3—Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this report.

Critical Accounting Policies and Accounting Estimates

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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