Information Services Group Inc. [III] Filings

10-Q 1 iii-20230630x10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-33287

INFORMATION SERVICES GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware		20-5261587
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2187 Atlantic Street
Stamford, CT 06902
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (203) 517-3100

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Shares of Common Stock, $0.001 par value	III	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ◻		Accelerated filer ☒		Non-accelerated filer ◻		Smaller reporting company ☐
						Emerging growth company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ⌧ No

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at July 28, 2023
Common Stock, $0.001 par value		48,557,696 shares

CAUTIONARY NOTE REGARDING

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10–Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Our actual results may vary materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors. Because of these and other factors that may affect our operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical results to anticipate results or trends in future periods. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that we file from time to time with the Securities and Exchange Commission, including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS (UNAUDITED)

INFORMATION SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)


	June 30,		December 31,
	2023		2022
ASSETS
Current assets
Cash and cash equivalents	$	19,568	$	30,587
Accounts receivable and contract assets, net of allowance of $472 and $272, respectively		87,377		80,170
Prepaid expenses and other current assets		5,968		4,724
Total current assets		112,913		115,481
Restricted cash		170		83
Furniture, fixtures and equipment, net		5,180		5,929
Right-of-use lease assets		5,938		6,780
Goodwill		94,954		94,972
Intangible assets, net		12,796		14,380
Deferred tax assets		2,858		2,818
Other assets		3,921		2,585
Total assets	$	238,730	$	243,028
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	8,928	$	15,925
Current maturities of long-term debt		—		4,300
Contract liabilities		6,902		7,058
Accrued expenses and other current liabilities		23,701		23,908
Total current liabilities		39,531		51,191
Long-term debt, net of current maturities		79,175		74,416
Deferred tax liabilities		2,560		2,391
Operating lease liabilities		4,072		4,857
Other liabilities		9,931		9,742
Total liabilities		135,269		142,597
Commitments and contingencies (Note 8)
Stockholders’ equity
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued		—		—
Common stock, $0.001 par value, 100,000 shares authorized; 49,472 shares issued and 48,490 outstanding at June 30, 2023 and 49,472 shares issued and 48,300 outstanding at December 31, 2022		49		49
Additional paid-in capital		221,094		226,293
Treasury stock (982 and 1,172 common shares, respectively, at cost)		(5,128)		(7,487)
Accumulated other comprehensive loss		(9,521)		(9,677)
Accumulated deficit		(103,033)		(108,747)
Total stockholders’ equity		103,461		100,431
Total liabilities and stockholders’ equity	$	238,730	$	243,028

The accompanying notes are an integral part of these condensed consolidated financial statements.

INFORMATION SERVICES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenues	$	74,609	$	70,701	$	153,095	$	143,264
Operating expenses
Direct costs and expenses for advisors		45,847		41,370		95,016		85,325
Selling, general and administrative		22,330		20,885		43,000		40,472
Depreciation and amortization		1,569		1,298		3,166		2,587
Operating income		4,863		7,148		11,913		14,880
Interest income		97		44		181		89
Interest expense		(1,407)		(610)		(3,143)		(1,173)
Foreign currency transaction (loss) gain		156		94		(38)		118
Income before taxes		3,709		6,676		8,913		13,914
Income tax provision		1,376		1,719		3,089		4,027
Net income	$	2,333	$	4,957	$	5,824	$	9,887
Weighted average shares outstanding:
Basic		48,476		48,160		48,457		48,343
Diluted		50,317		50,742		50,302		51,034
Earnings per share:
Basic	$	0.05	$	0.10	$	0.12	$	0.20
Diluted	$	0.05	$	0.10	$	0.12	$	0.19
Comprehensive income:
Net income	$	2,333	$	4,957	$	5,824	$	9,887
Foreign currency translation (loss) gain, net of tax benefit (expense) of $56, $717, $(42), and $886, respectively		(167)		(2,268)		156		(2,802)
Comprehensive income	$	2,166	$	2,689	$	5,980	$	7,085

The accompanying notes are an integral part of these condensed consolidated financial statements.

INFORMATION SERVICES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)


								Accumulated
				Additional				Other				Total
	Common Stock			Paid-in-		Treasury		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Stock		Loss		Deficit		Equity
Balance March 31, 2023	49,472	$	49	$	225,333	$	(6,878)	$	(9,354)	$	(105,366)	$	103,784
Net income	—		—		—		—		—		2,333		2,333
Other comprehensive income	—		—		—		—		(167)		—		(167)
Treasury shares repurchased	—		—		—		(2,834)		—		—		(2,834)
Proceeds from issuance of ESPP shares	—		—		(132)		405		—		—		273
Issuance of treasury shares for RSUs vested	—		—		(4,179)		4,179		—		—		—
Accrued dividends on unvested shares	—		—		(314)		—		—		—		(314)
Cash dividends paid to shareholders ($0.045 per share)	—		—		(2,226)		—		—		—		(2,226)
Stock based compensation	—		—		2,612		—		—		—		2,612
Balance June 30, 2023	49,472	$	49	$	221,094	$	(5,128)	$	(9,521)	$	(103,033)	$	103,461

								Accumulated
				Additional				Other				Total
	Common Stock			Paid-in-		Treasury		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Stock		Loss		Deficit		Equity
Balance December 31, 2022	49,472	$	49	$	226,293	$	(7,487)	$	(9,677)	$	(108,747)	$	100,431
Net income	—		—		—		—		—		5,824		5,824
Other comprehensive loss	—		—		—		—		156		—		156
Impact of change in accounting policy (Note 3)	—		—		—		—		—		(110)		(110)
Treasury shares repurchased	—		—		—		(3,531)		—		—		(3,531)
Proceeds from issuance of ESPP shares	—		—		(222)		702		—		—		480
Issuance of treasury shares for RSUs vested	—		—		(5,188)		5,188		—		—		—
Accrued dividends on unvested shares	—		—		(257)		—		—		—		(257)
Cash dividends paid to shareholders ($0.085 per share)	—		—		(4,186)		—		—		—		(4,186)
Stock based compensation	—		—		4,654		—		—		—		4,654
Balance June 30, 2023	49,472	$	49	$	221,094	$	(5,128)	$	(9,521)	$	(103,033)	$	103,461

INFORMATION SERVICES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)


								Accumulated
				Additional				Other				Total
	Common Stock			Paid-in-		Treasury		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Stock		Loss		Deficit		Equity
Balance March 31, 2022	49,362	$	49	$	236,724	$	(8,325)	$	(7,474)	$	(123,543)	$	97,431
Net income	—		—		—		—		—		4,957		4,957
Other comprehensive loss	—		—		—		—		(2,268)		—		(2,268)
Treasury shares repurchased	—		—		—		(6,034)				—		(6,034)
Proceeds from issuance of ESPP shares	—		—		(91)		353		—		—		262
Issuance of treasury shares for RSUs vested	—		—		(3,483)		3,483		—		—		—
Accrued dividends on unvested shares	—		—		(156)		—		—		—		(156)
Dividend Payable					1,447								1,447
Cash dividends paid to shareholders ($0.04 per share)	—		—		(3,389)		—		—		—		(3,389)
Stock based compensation	—		—		1,942		—		—		—		1,942
Balance June 30, 2022	49,362	$	49	$	232,994	$	(10,523)	$	(9,742)	$	(118,586)	$	94,192

								Accumulated
				Additional				Other				Total
	Common Stock			Paid-in-		Treasury		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Stock		Loss		Deficit		Equity
Balance December 31, 2021	49,362	$	49	$	237,628	$	(3,871)	$	(6,940)	$	(128,473)	$	98,393
Net income	—		—		—		—		—		9,887		9,887
Other comprehensive loss	—		—		—		—		(2,802)		—		(2,802)
Treasury shares repurchased	—		—		—		(11,523)		—		—		(11,523)
Proceeds from issuance of ESPP shares	—		—		(100)		548		—		—		448
Issuance of treasury shares for RSUs vested	—		—		(4,323)		4,323		—		—		—
Accrued dividends on unvested shares	—		—		(257)		—		—		—		(257)
Cash dividends paid to shareholders ($0.07 per share)	—		—		(3,399)		—		—		—		(3,399)
Stock based compensation	—		—		3,445		—		—		—		3,445
Balance June 30, 2022	49,362	$	49	$	232,994	$	(10,523)	$	(9,742)	$	(118,586)	$	94,192

The accompanying notes are an integral part of these condensed consolidated financial statements.

INFORMATION SERVICES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(In thousands)


	Six Months Ended
	June 30,
	2023		2022
Cash flows from operating activities
Net income	$	5,824	$	9,887
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation expense		1,583		1,532
Amortization of intangible assets		1,583		1,055
Deferred tax expense (benefit) from stock issuances		41		(464)
Write-off of deferred financing costs		379		—
Amortization of deferred financing costs		127		172
Stock-based compensation		4,654		3,445
Change in fair value of contingent consideration		51		1,420
Provisions for credit losses		464		363
Deferred tax provision		67		540
Changes in operating assets and liabilities:
Accounts receivable and contract assets		(7,411)		(3,773)
Prepaid expenses and other assets		(991)		2,626
Accounts payable		(7,119)		(4,484)
Contract liabilities		(157)		352
Accrued expenses and other liabilities		352		(7,735)
Net cash (used in) provided by operating activities		(553)		4,936
Cash flows from investing activities
Purchase of furniture, fixtures and equipment		(969)		(2,104)
Net cash used in investing activities		(969)		(2,104)
Cash flows from financing activities
Proceeds from revolving facility (Note 10)		79,175		—
Repayment of outstanding debt (Note 10)		(79,175)		—
Principal payments on borrowings		—		(2,150)
Proceeds from issuance of employee stock purchase plan shares		480		448
Debt financing costs		(827)		—
Payments related to tax withholding for stock-based compensation		(1,537)		(1,362)
Payment of contingent consideration		(1,460)		—
Cash dividends paid to shareholders		(4,186)		(3,399)
Treasury shares repurchased		(1,994)		(9,596)
Net cash used in financing activities		(9,524)		(16,059)
Effect of exchange rate changes on cash		114		(2,828)
Net decrease in cash, cash equivalents, and restricted cash		(10,932)		(16,055)
Cash, cash equivalents, and restricted cash, beginning of period		30,670		47,609
Cash, cash equivalents, and restricted cash, end of period	$	19,738	$	31,554

Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	2,405	$	869
Taxes, net of refunds	$	4,659	$	8,288

Non-cash investing and financing activities:
Issuance of treasury stock for vested restricted stock units	$	5,188	$	4,323

The accompanying notes are an integral part of these condensed consolidated financial statements.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts in thousands, except per share data)

(unaudited)

NOTE 1—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

Information Services Group, Inc. (Nasdaq: III) (the “Company,” “ISG,” “we,” “us” or “our”) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the top 100 enterprises in our markets, ISG is committed to helping corporations, public sector organizations and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; technology strategy and operations design; change management; market intelligence and technology research and analysis. Based in Stamford, Connecticut, ISG employs approximately 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com. The information on or accessible through our website is not part of and is not incorporated by reference into this Quarterly Report on Form 10-Q, and the inclusion of our website address in this Quarterly Report on Form 10-Q is only for reference.

Our Company was founded in 2006 with the strategic vision to become a high-growth, leading provider of information-based advisory services. We continue to believe that our vision will be realized through the acquisition, integration and successful operation of market leading brands within the data, analytics and advisory industry.

NOTE 2—BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are considered necessary for a fair statement of the financial position of the Company as of June 30, 2023, the results of operations for the three and six months ended June 30, 2023 and 2022 and the cash flows for the six months ended June 30, 2023 and 2022. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the Company’s audited consolidated financial statements. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with GAAP have been omitted from these interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended December 31, 2022, which are included in the Company’s 2022 Annual Report on Form 10-K filed with the SEC.

NOTE 3—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the revenue recognition guidance for contracts in which control is transferred to the customer over time affect the amounts of revenues, expenses, contract assets and contract liabilities. Numerous internal and external factors can affect estimates. Estimates are also used for but are not limited to: allowance for credit

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(tabular amounts in thousands, except per share data)

(unaudited)

losses, useful lives of furniture, fixtures and equipment and definite lived intangible assets, depreciation expense, fair value assumptions in evaluating goodwill for impairment, income taxes and deferred tax asset valuation and the valuation of stock-based compensation.

Restricted Cash

Restricted cash consists of cash and cash equivalents which the Company has committed for rent deposits and are not available for general corporate purposes.

Fair Value

The carrying value of the Company’s cash and cash equivalents, receivables, accounts payable, other current liabilities, and accrued interest approximated their fair values as of June 30, 2023 and December 31, 2022 due to the short-term nature of these accounts.

Fair value measurements were applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which would consist of measurements primarily to goodwill, intangible assets and other long-lived assets and assets acquired and liabilities assumed in a business combination.

Fair value is the price that would be received upon a sale of an asset or paid upon a transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). Market participants can use market data or assumptions in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated or generally unobservable. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. Under the fair-value hierarchy:

●

Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market;

●

Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and

●

Level 3 measurements include those that are unobservable and of a highly subjective measure.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(tabular amounts in thousands, except per share data)

(unaudited)

The following tables summarize the assets and liabilities (as applicable) measured at fair value on a recurring basis at the dates indicated:


	Basis of Fair Value Measurements
	June 30, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	18	$	—	$	—	$	18
Total	$	18	$	—	$	—	$	18

Liabilities:
Contingent consideration ⁽¹⁾	$	—	$	—	$	4,184	$	4,184
Total	$	—	$	—	$	4,184	$	4,184


	Basis of Fair Value Measurements
	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	18	$	—	$	—	$	18
Total	$	18	$	—	$	—	$	18

Liabilities:
Contingent consideration ⁽¹⁾	$	—	$	—	$	5,593	$	5,593
Total	$	—	$	—	$	5,593	$	5,593

(1)	The current and noncurrent contingent consideration are included in “Accrued expenses and other current liabilities” and “Other liabilities,” respectively, as of June 30, 2023 and December 31, 2022.

The following table represents the change in the contingent consideration liability during the six months ended June 30, 2023:


	Six Months Ended
	June 30,
	2023
Beginning Balance	$	5,593
Change 4 Growth contingent consideration payment		(1,460)
Accretion of contingent consideration		51
Ending Balance	$	4,184

The Company’s financial instruments include outstanding borrowings of $79.2 million both as of June 30, 2023, and December 31, 2022, 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 $79.9 million and $76.5 million as of June 30, 2023 and December 31, 2022, 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 6.9% and 6.3% as of June 30, 2023 and December 31, 2022, 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.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(tabular amounts in thousands, except per share data)

(unaudited)

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable and contract assets, and available-for-sale debt securities. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses and additional disclosures. We adopted this standard using the modified retrospective approach with an effective date of January 1, 2023. The Company recognized a cumulative-effect adjustment increasing accumulated deficit and increasing the allowance for credit losses by $0.1 million.

NOTE 4—ACQUISITIONS

Agreemint Acquisition

On March 28, 2022, ISG executed an asset purchase agreement for the purchase of substantially all of the assets of Agreemint, which is an automated, platform-based contracting solution that will enhance the value of ISG GovernX and our other platform solutions now in development. We determined the transaction to be an asset acquisition as substantially all the fair value of the gross assets acquired was concentrated in a single identifiable asset: the software and related intellectual property rights. The cash paid for the acquisition as of the balance sheet date is reflected in Cash flows from investing activities of the Statement of Cash Flows. The related software acquired, which is capitalized within “Furniture, fixtures and equipment, net”, is being depreciated over four years.

Change 4 Growth Acquisition

On October 31, 2022, a subsidiary of the Company executed an Asset Purchase Agreement with Change 4 Growth, LLC (“Change 4 Growth”) and consummated the acquisition of substantially all the assets, and assumed certain liabilities, of Change 4 Growth. The purchase price was comprised of $3.8 million of cash consideration, $0.6 million of shares of ISG common stock issued promptly after closing and Change 4 Growth will also have the right to receive additional consideration paid via earn-out payments, if certain financial targets are met. At the agreement date, the Company estimated such earn-out payment would be $5.6 million.

The following table summarizes the consideration transferred to acquire Change 4 Growth and the amounts of identified assets acquired, and liabilities assumed, as of the agreement date:


Cash	$	3,450
Accrued working capital adjustment		378
ISG common stock		600
Contingent consideration		5,560
Total allocable purchase price	$	9,988

This acquisition was accounted for under the acquisition method of accounting, and as such, the aggregate purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values as of the closing

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(tabular amounts in thousands, except per share data)

(unaudited)

date. Based on the valuation and other factors as described above, the purchase price assigned to intangible assets were as follows:


Accounts receivable and contract assets	$	1,841
Intangible assets		4,300
Accounts payable and accrued expense		(428)
Contract liabilities		(85)
Net assets acquired	$	5,628

Goodwill	$	4,360

The primary factors that drove the goodwill recognized, the majority of which is deductible for tax purposes, were the inclusion of the legacy Change 4 Growth workforce and associated organizational change management expertise to enhance and expand the offerings of the ISG Enterprise Change service line.

Costs associated with this acquisition are included in the selling, general and administrative expense in the Consolidated Statement of Income and Comprehensive Income and totaled $0.2 million during year ended December 31, 2022. Based on the valuation and other factors as described above, the purchase price assigned to intangible assets and the amortization period were as follows:


	Purchase Price		Estimated
	Allocation		Useful Lives
Amortizable intangible assets:
Trademark and trade name	$	1,100	3 years
Customer relationships		2,900	8 years
Noncompete agreements		300	2 years
Total intangible assets	$	4,300

NOTE 5—REVENUE

The majority of our revenue is derived from contracts that can span from a few months to several years. We enter into contracts that can include various combinations of services, which, depending on the contract type, are sometimes capable of being distinct. If services are determined to be distinct, they are accounted for as separate performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the client and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, is not distinct. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using our best estimate of the standalone selling price, or SSP, of each distinct product or service in the contract. The Company establishes SSP based on management’s estimated selling price or observable prices of products or services sold separately in comparable circumstances to similar clients.

Our contracts may include promises to transfer multiple services and products to a client. Determining whether services and products are considered distinct performance obligations that should be accounted for separately versus together may require judgment.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(tabular amounts in thousands, except per share data)

(unaudited)

Contract Balances

The timing of revenue recognition, billings and cash collections result in billed accounts receivables, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities). Our clients are billed based on the type of arrangement. A portion of our services is billed monthly based on hourly or daily rates. There are also client engagements in which we bill a fixed amount for our services. This may be one single amount covering the whole engagement or several amounts for various phases, functions or milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits before revenue is recognized, resulting in contract liabilities. Contract assets and liabilities are generally reported in the current assets and current liabilities sections of the consolidated balance sheet, at the end of each reporting period, based on the timing of the satisfaction of the related performance obligation(s). For multi-year software sales with annual invoicing, we perform a significant financing component calculation and recognize the associated interest income throughout the duration of the financing period. In addition, we reclassify the resulting contract asset balances as current and noncurrent receivables as receipt of the consideration is conditional only on the passage of time and there are no performance risk factors present. See the table below for a breakdown of contract assets and contract liabilities:


	June 30,		December 31,
	2023		2022
Contract assets	$	40,307	$	32,249
Contract liabilities	$	6,902	$	7,058

Revenue recognized for the three and six months ended June 30, 2023 that was included in the contract liability balance at January 1, 2023 was $1.8 million, and $5.3 million respectively, and primarily represented revenue from our subscription contracts.

Remaining Performance Obligations

As of June 30, 2023, the Company had $126.0 million of remaining performance obligations, the majority of which are expected to be satisfied within the next twelve months.

NOTE 6—NET INCOME PER COMMON SHARE

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would share in the net income of the Company. For the three and six months ended June 30, 2023 and 2022, 0.6 million and 0.0 million restricted stock units, respectively, have not been considered in the diluted earnings per share calculation, as the effect would be anti-dilutive.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(tabular amounts in thousands, except per share data)

(unaudited)

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended June 30,				Six Months Ended June 30,

	2023		2022		2023		2022
Basic:
Net income	$	2,333	$	4,957	$	5,824	$	9,887
Weighted average common shares		48,476		48,160		48,457		48,343
Earnings per share	$	0.05	$	0.10	$	0.12	$	0.20
Diluted:
Net income	$	2,333	$	4,957	$	5,824	$	9,887

Basic weighted average common shares		48,476		48,160		48,457		48,343
Potential common shares		1,841		2,582		1,845		2,691
Diluted weighted average common shares		50,317		50,742		50,302		51,034
Diluted earnings per share	$	0.05	$	0.10	$	0.12	$	0.19

NOTE 7—INCOME TAXES

The Company’s effective tax rate for the three and six months ended June 30, 2023 was 37.1% and 34.7%, respectively, based on pretax income of $3.7 million and $8.9 million, respectively. The Company’s effective tax rate for the quarter ended June 30, 2023 was impacted by non-deductible expenses and earnings and losses in certain foreign jurisdictions and the impact of the vesting of restricted stock units. The Company’s effective tax rate for the three and six months ended June 30, 2022 was 25.7% and 28.9%, respectively. The difference is primarily due to the impact of earnings and losses in certain foreign jurisdictions and the impact of the vesting of restricted stock units.

NOTE 8—COMMITMENTS AND CONTINGENCIES

The Company is subject to contingencies which arise through the ordinary course of business. All material liabilities of which management is aware are properly reflected in the financial statements as of June 30, 2023 and December 31, 2022.

Change 4 Growth Contingent Consideration

As of June 30, 2023, the Company has recorded a liability of $4.2 million representing the estimated fair value of contingent consideration related to the acquisition of Change 4 Growth, which is classified as “Accrued expense and other current liabilities” and “Other liabilities” on the consolidated balance sheet. In April 2023, the Company made a contingent consideration payment of $1.5 million.

NOTE 9—SEGMENT AND GEOGRAPHICAL INFORMATION

The Company operates as one reportable segment consisting primarily of fact-based sourcing advisory services. The Company operates principally in the Americas, Europe and Asia Pacific.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(tabular amounts in thousands, except per share data)

(unaudited)

Geographical revenue information for the segment is as follows:

Three Months Ended