Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this Management's Discussion and Analysis ("MD&A") is to facilitate an understanding of significant factors influencing the operating results, financial condition and cash flows of the Company. Additionally, the MD&A conveys our expectations of the potential impact of known trends, events or uncertainties that may impact future results. You should read this discussion in conjunction with our consolidated financial statements and related notes included in this Annual Report on Form 10-K. Historical results and percentage relationships are not necessarily indicative of operating results for future periods. References to "ISG", "we," "our" and "us" in this MD&A are to the Company and its consolidated subsidiaries.

This MD&A provides an analysis of our consolidated financial results and cash flows for 2025 and 2024 under the headings "Results of Operations," "Non-GAAP Financial Presentation," "Non-GAAP Financial Measures," and "Liquidity and Capital Resources." "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2024.

BUSINESS OVERVIEW

Information Services Group, Inc. (Nasdaq: 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 and research, in-depth knowledge and governance of provider ecosystems, and the expertise of its 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. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Annual Report on Form 10 K or any other filings.

Our strategy is to strengthen our existing market position and develop new services and products to support future growth plans. As a result, we are focused on growing our existing service model, expanding geographically, developing new industry sectors, productizing market data assets, expanding our managed services offerings and growing via acquisitions. Although we do not expect any adverse conditions that will impact our ability to execute against our strategy over the next twelve months, the more significant factors that could limit our ability to grow in these areas include global macro-economic conditions and the impact on the overall sourcing market, competition, our ability to retain advisors and reductions in discretionary spending with our top client accounts or other significant client events. Other areas that could impact the business would also include natural disasters, pandemics, wars, legislative and regulatory changes and capital market disruptions.

We principally derive revenues from fees for services generated on a project-by-project basis. Prior to the commencement of a project, we reach agreement with the client on rates for services based upon the scope of the project, staffing requirements and the level of

client involvement. Revenues for services rendered are recognized on a time and materials basis or on a fixed-fee or capped-fee basis in accordance with accounting and disclosure requirements for revenue recognition.

Revenues for time and materials contracts are recognized based on the number of hours worked by our advisors at an agreed upon rate per hour and are recognized in the period in which services are performed. Revenues for time and materials contracts are billed monthly, semimonthly or in accordance with the specific contractual terms of each project.

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 offerings are characterized by subscriptions (i.e., renewal-centric as opposed to project-centric revenue streams) or, in some instances, multi-year contracts. Our digital services now span a volume of offerings and have become embedded as part of our traditional transaction services. Digital enablement provides capabilities, digital insights and better engagement with clients and partners.

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 also be affected by seasonal variations in the demand for our services from our clients. 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. Unexpected changes in the demand for our services can result in significant variations in utilization and revenues and present a challenge to optimal hiring and staffing. The volume of work performed for any particular client can vary widely from period to period.

CURRENT ENVIRONMENT

Inflation rates and the adverse effect of interest rates continued to be volatile in the past year. Inflation has not had a material effect on our business operations, financial performance and results of operations, other than its impact on the general economy. Changes to interest rates has impacted our business operations, financial performance and results of operations, as our interest expense has decreased from $5.8 million in 2024 to $4.1 million in 2025. The Company continuously monitors these changes and evaluates any effect. If our costs, in particular personnel-related costs, were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases in future periods. Our inability or failure to realize these offsets could adversely affect our business operations, financial performance and results of operations.

EXECUTIVE SUMMARY

2025 was a year of accelerating growth for ISG. Fueled by continuing client interest in our AI-powered transformation services, an improved business mix and our disciplined operating approach.

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Our 2025 results were achieved in the face of macroeconomic headwinds that resulted in longer decision cycles and cautious spending. Leading the way was our Americas business, which had its strongest revenue growth since 2021, up 11 percent, excluding 2024 results from our divested automation unit. We also saw solid improvement in our EMEA region in the second half, capped by 28 percent growth in the fourth quarter as the region began to recover from earlier macro challenges.

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Enterprise AI consulting and research, not surprisingly, played a significant part in our growth, and now represents about 30 percent of our firmwide revenue, up from 10 percent last year. We have served more than 350 clients with AI advisory and research services this year, focusing on strategy, sourcing, data transformation and agentic AI. That's up more than 200 percent from the prior year.

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Our recurring revenue, meanwhile, continues to be a strength, with growth driven by our Research and Governance units. Recurring revenues, highly valued for their predictability, represented 46 percent of our firmwide total in 2025.

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Our ISG Research business delivered double-digit growth, led by our ISG Provider Lens® provider evaluation research and ISG Events. Client interest in AI-related content continues to rise, evidenced by our five sold-out AI Impact Summit events held across the globe in 2025. In addition, our third annual State of Enterprise AI Adoption study quickly became our most downloaded report ever.

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Software continues to be a significant spend category for enterprises, with global spending expected to double to more than $1.4 trillion by end of 2030, with AI as a catalyst. In 2025, our Software unit achieved double-digit growth, reflecting strong enterprise demand for insights and support in this area.

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Our ISG Platforms, infused with the power of AI, also performed well, especially our ISG GovernX® supplier governance and risk management platform. Leveraging GovernX, our Governance unit served more than 80 clients in 2025, growing both revenue and capabilities. Soon to be launched is a new AI governance solution that will help clients manage AI risk.

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ISG Tango™, our AI-powered, future-proof sourcing solution, has quickly become our most successful platform product to date. We are now managing more than $25 billion of total contract value through the platform, as we continue to transition our sourcing work to Tango. In addition to modernizing and ensuring our entire sourcing process is more efficient, ISG Tango also gives us the platform capabilities we need to expand into the underserved mid-market (enterprises with $10 billion of revenue or less). With the power of Tango and our dedicated approach, we have been very successful in penetrating this market, adding more than 50 new clients in 2025.

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Our Enterprise Change and Training as a Service (TaaS) business had a strong year, landing some of our largest multi-year accounts in 2025. Importantly, the number of our broader advisory engagements that included OCM increased by 20 percent this year, as change management becomes more integral to our solutioning.

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In addition to our organic growth initiatives, we expanded our business in Europe this year by acquiring Martino & Partners, a highly regarded strategic advisory firm that serves primarily public sector clients in Italy. This acquisition expands our addressable market in Italy, where we see an emerging growth opportunity.

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In another move to expand our capabilities, we acquired the AI Maturity Index in January this year. This AI readiness benchmarking and intelligence platform allows organizations to identify gaps in their workforce readiness and use a data-driven approach to achieve rapid improvement. This offering is already generating strong interest and opening up new client discussions about our broad range of AI-related capabilities.

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RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2025 COMPARED TO YEAR ENDED DECEMBER 31, 2024

Revenues

Revenues are generally derived from fixed-fee contracts as well as engagements priced on a time and materials basis, which are recorded based on actual time worked as the services are performed. In addition, we also earn revenues which are contingent on the attainment of certain contractual milestones. Revenues related to materials required during an engagement (mainly out-of-pocket expenses such as airfare, lodging and meals) generally do not include a profit mark up and can be charged and reimbursed separately or as part of the overall fee arrangement. Invoices are issued to clients monthly, semimonthly or in accordance with the specific contractual terms of each project.

We operate in one segment, fact-based sourcing advisory services. We operate principally in the Americas, Europe and Asia Pacific. Our foreign operations are subject to local government regulations and to the uncertainties of the economic and political conditions of those areas, and the revenue for our foreign operations is predominantly invoiced and collected in local currency.

Geographical revenue information for the segment is as follows:

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Total revenues for the year ended December 31, 2025 decreased by $2.9 million or approximately 1% in 2025, with revenues decreasing in Europe and Asia Pacific but increasing in the Americas. The increase revenue in the Americas was primarily due to an increase in the Consulting, Research, and GovernX service lines, partially offset by a decrease due to the prior year's sale of the Automation service line and lower revenue in the Network & Software ("NaSa") service line. The decrease in revenue 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. The revenue decrease in Asia Pacific was primarily attributable to a decrease in the Consulting, NaSa 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 $2.3 million.

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Operating Expenses

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

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Total operating expenses decreased by $14.9 million, or approximately 6%, in 2025. The decrease in operating expenses was primarily due to lower automation license fees expense of $8.0 million, restructuring costs of $2.6 million, acquisition and disposition-related costs of $2.4 million, compensation expense of $2.7 million, expense reversal associated with an amount that was no longer due to a sub-contractor of $1.9 million,computer expense of $0.3 million, bad debt expense of $0.2 million, and stock-based compensation of $0.2 million. These costs were partially offset by the prior year's contingent consideration adjustment of $1.5 million, higher legal reserves of $1.9 million,travel and entertainment expense of $1.2 million, and professional fees of $0.6 million.

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Compensation costs consist of a mix of fixed and variable salaries, annual bonuses, benefits and retirement plan contributions. Statutory and 401(k) plans are offered to employees as appropriate. Direct costs also include employee taxes, health insurance, workers compensation and disability insurance.

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.

Selling costs consist principally of compensation expense related to business development, proposal preparation, acquisition and disposition-related cost and delivery and negotiation of new client contracts. Selling 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. Additionally, we maintain a dedicated global marketing function responsible for developing and managing sales campaigns, brand promotion, the ISG Index and assembling client proposals.

We maintain a comprehensive program for training and professional development with the related costs included in SG&A. Related expenses include product training, updates on new service offerings or methodologies and development of client 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 remotely or on client premises, all occupancy expenses are recorded as general and administrative.

Depreciation and amortization expenses amounted to $4.5 million in 2025 and $5.9 million in 2024, respectively. The decrease of $1.4 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 expenses are generally computed by applying the straight-line method over the estimated useful lives of assets. We also capitalize some 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.

Other Income (Expense), Net

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

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The total increase of $2.7 million was primarily attributable to the reduction of gain on the sale of business of $3.8 million that is related to the prior year sale of the Automation business, and lower interest income and partially offset by lower interest expense attributable to a lower debt balance and lower interest rates.

Income Tax Expense

Our effective tax rate varies from period to period based on the mix of earnings among the various state and foreign tax jurisdictions in which our business is conducted and the level of non-deductible expenses incurred in any given period. Our effective tax rate for the year ended December 31, 2025 was 35.7% compared to 45.7% for the year ended December 31, 2024. The variance from the U.S. statutory rate of 21.0% for the year ended December 31, 2025, was primarily caused by state taxes, the impact of higher tax rates applicable on company earnings in foreign jurisdictions, non-deductible expenses for tax purposes in the United States, and a benefit from the sale of the automation business.

NON-GAAP FINANCIAL PRESENTATION

This MD&A presents supplemental measures of our performance that are derived from our consolidated financial information but are not presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We refer to these financial measures, which are considered "non-GAAP financial measures" under SEC rules, as adjusted EBITDA, adjusted net income and adjusted earnings per diluted share, each as defined below. See "Non-GAAP Financial Measures" below for information about our use of these non-GAAP financial measures, including our reasons for including these measures and reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure.

NON-GAAP FINANCIAL MEASURES

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, loss on assets disposal, change in contingent consideration, acquisition and disposition-related costs, gain on sale of business 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, loss on assets disposal, change in contingent consideration, and severance, integration and other expense, gain sales of business on a tax-adjusted basis) and adjusted net income per diluted share, excluding the net of 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. These non-GAAP measures are used by the Company to evaluate the Company's business strategies and management's performance and exclude non-cash and certain other special charges that some investors may believe obscure the user's overall understanding of the Company's current financial performance and the Company's prospects for the future. We believe that these non-GAAP financial measures provide useful information to investors because

they improve the comparability of the financial results between periods and provide for greater transparency of key measures used to evaluate the Company's performance.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our primary sources of liquidity are cash flows from operations, existing cash and cash equivalents and borrowings under our revolving line of credit. Operating assets and liabilities consist primarily of accounts receivable and contract assets, prepaid expense and other assets, accounts payable, contract liabilities, accrued expenses and other liabilities. The volume of billings and timing of collections and payments affect these account balances.

The following table summarizes our cash flows for the years ended December 31, 2025 and 2024:

As of December 31, 2025, our liquidity and capital resources included cash, cash equivalents and restricted cash of $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:

Capital Resources

The Company's current outstanding debt may limit our ability to fund general corporate requirements and obtain additional financing, impact our flexibility in responding to business opportunities and competitive developments and increase our vulnerability to adverse economic and industry conditions.

On February 22, 2023, the Company amended and restated its senior secured credit facility to increase the revolving commitments per the revolving facility from $54.0 million to $140.0 million and eliminate its term loan (as further amended on June 27, 2024, the "2023 Credit Agreement"). The material terms under the 2023 Credit Agreement are as follows. Capitalized terms used but not defined herein have the meanings ascribed to them in the 2023 Credit Agreement:

The Company's financial statements include outstanding borrowings of $59.2 million at both of December 31, 2025 and December 31, 2024, 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 December 31, 2025 and December 31, 2024, 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 5.3% and 6.4% for December 31, 2025 and December 31, 2024, 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. In 2025, the Company borrowed $15.0 million and subsequently repaid $15.0 million of its revolving credit facility. The Company is currently in compliance with its financial covenants.

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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. If we require additional capital resources to grow our business, either internally or through acquisition, or maintain liquidity, we may seek to sell additional equity securities or to secure additional debt financing. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future.

The Company has financial covenants underlying its debt which require a debt to adjusted EBITDA ratio of 1.85. The Company was in compliance with its financial covenants under the 2023 Credit Agreement as of December 31, 2025.

Employee Retirement Plans

For the fiscal years ended December 31, 2025 and 2024, we contributed $1.8 million and $0.7 million, respectively, to our 401(k) plan (the "Savings Plan") on a fully discretionary basis. These amounts were invested by the participants in a variety of investment options under an arrangement with a third-party asset manager. All current and future financial risks associated with the gains and losses on investments are borne by Savings Plan participants.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies, many of which require management to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results may differ from estimates. Such differences may be material to out consolidated financial statements.

We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found the application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

Our accounting policies are more fully described in Note 2-Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. We have identified revenue recognition as a critical accounting estimate:

Revenue Recognition

We recognize our revenues by applying the following five steps: (1) identifying the contract with the customer; (2) identifying the performance obligation(s) in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligation(s); and (5) recognizing revenue when (or as) the Company satisfies the performance obligation(s).

We principally derive revenues from fees for services generated on a project-by-project basis. Prior to the commencement of a project, we reach agreement with the client on rates for services based upon the scope of the project, staffing requirements and the level of client involvement. It is our policy to obtain written agreements from clients prior to performing services or when evidence of enforceable rights and obligations is obtained. In these agreements, the clients acknowledge that they will pay based upon the amount of time spent on the project or an agreed upon fee structure.

Revenues for time and materials contracts, which may include capped-fees or "not-to-exceed" clauses, are recognized based on the number of hours worked by our advisors at an agreed-upon rate per hour and are recognized in the period in which services are performed. Revenues for time and materials contracts are billed monthly, semimonthly or in accordance with the specific contractual terms of each project. For contracts with capped fees or not-to-exceed clauses, we monitor our performance and fees billed to ensure that revenue is not recognized in excess of the contractually capped fee.

Revenues related to fixed-fee contracts are recognized as value is delivered to the customer, consistent with the transfer of control to the customer over time. Revenue for these contracts is recognized proportionally over the term of the contract using an input method based on the proportion of labor hours incurred as compared to the total estimated labor hours for the fixed-fee contract performance obligations, which we consider the best available indicator of the pattern and timing in which contract performance obligations are fulfilled and control transfers to the customer. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period. The contracted amount used in this calculation typically excludes the amount the client pays for reimbursable expenses. There are situations where the number of hours to complete projects may exceed our original estimate as a result of an increase in project scope or unforeseen events. The results of any revisions in these estimates are reflected in the period in which they become known.

For managed service implementation contracts, revenue is recognized over time as a percentage of hours incurred to date as compared to the total expected hours of the implementation, consistent with the transfer of control to the customer. For ongoing managed services contract, revenue is recognized over time, consistent with the weekly or monthly fee specified within such arrangements.

We also derive revenues based on negotiating reductions in network and software costs of companies with the entities' related service providers and providing other services such as audits of network and communication expenses and consultation for network architecture. These contracts can be fixed in fees or can be based on the level of savings achieved related to its communications costs. Additionally, these contracts can also have a fixed component and a contingent component based on the savings generated by the Company. For network and software contingency contracts with termination for convenience clauses, revenue is recognized over time due to the existence of provisions for payment for progress incurred to date plus a reasonable profit margin. The contract periods range from a few months to in excess of a year.

We also previously entered into arrangements for the sale of automation software licenses and related delivery of consulting or implementation services at the same time or within close proximity to one another. Such software-related performance obligations included the sale of on-premises software, hybrid and software-as-a-service licenses, as well as other software-related services. Revenue associated with the software performance obligation is primarily recognized at the point at which the software is installed, or access is granted. We sold our automation business line in Q4 2024.

Revenue associated with events is recognized at the point of time at which the event occurs and is primarily comprised of sponsorships. Conversely, revenue associated with research subscriptions is recognized over time, as the customer accesses our data or related platforms. In addition, we sell research products for which the revenue is recognized at a point in time upon delivery to the client.

The agreements entered into in connection with a project typically allow our clients to terminate early due to breach or for convenience with 30 days' notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by us through the effective date of the termination. In addition, from time to time, we enter into agreements with clients that limit our right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit us from performing a defined range of services that we might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

When we recognize revenues in advance of billing, those revenues are recorded as contract assets. When we invoice in advance of earning revenues, those amounts are recorded as contract liabilities.

Recent Accounting Pronouncements

See Note 2 to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.