Company Quick10K Filing
Information Services Group
Price2.57 EPS0
Shares48 P/E100
MCap124 P/FCF21
Net Debt82 EBIT8
TEV207 TEV/EBIT25
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-09
10-Q 2020-06-30 Filed 2020-08-10
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-11
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-05
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-15
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-16
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-09
10-K 2016-12-31 Filed 2017-03-15
10-Q 2016-09-30 Filed 2016-11-08
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-09
10-K 2015-12-31 Filed 2016-03-10
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-13
10-Q 2014-09-30 Filed 2014-11-05
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-07
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-07
10-Q 2013-03-31 Filed 2013-05-14
10-K 2012-12-31 Filed 2013-03-13
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-03-15
10-Q 2011-09-30 Filed 2011-11-07
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-10
10-K 2010-12-31 Filed 2011-03-16
10-Q 2010-09-30 Filed 2010-11-09
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-08
8-K 2020-11-09
8-K 2020-08-10
8-K 2020-05-11
8-K 2020-04-30
8-K 2020-03-10
8-K 2019-12-04
8-K 2019-11-06
8-K 2019-08-05
8-K 2019-07-01
8-K 2019-05-09
8-K 2019-04-30
8-K 2019-03-14
8-K 2018-11-08
8-K 2018-08-06
8-K 2018-07-26
8-K 2018-05-09
8-K 2018-04-26
8-K 2018-03-14

III 10Q Quarterly Report

Part I - Financial Information
Item 1.Financial Statements (Unaudited)
Note 1 - Description of Organization and Business Operations
Note 2 - Basis of Presentation
Note 3 - Summary of Significant Accounting Policies
Note 4 - Acquisition
Note 5 - Goodwill
Note 6 - Revenue
Note 7 - Net Income per Common Share
Note 8 - Income Taxes
Note 9 - Commitments and Contingencies
Note 10 - Segment and Geographical Information
Note 11 - Financing Arrangements and Long - Term Debt
Note 12 - Risks and Uncertainties
Note 13 - Restructuring Charges
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosure About Market Risk
Item 4.Controls and Procedures
Part II - Other Information
Item 1.Legal Proceedings
Item 1A. Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.Exhibits
EX-31.1 iii-20200930xex31d1.htm
EX-31.2 iii-20200930xex31d2.htm
EX-32.1 iii-20200930xex32d1.htm
EX-32.2 iii-20200930xex32d2.htm

Information Services Group Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
240192144964802012201420172020
Assets, Equity
856647289-102012201420172020
Rev, G Profit, Net Income
704520-5-30-552012201420172020
Ops, Inv, Fin

0001371489--12-312020Q3falseus-gaap:ValuationTechniqueDiscountedCashFlowMemberus-gaap:MeasurementInputDiscountRateMemberus-gaap:ValuationTechniqueDiscountedCashFlowMemberInformation Services Group Inc.us-gaap:IncomeApproachValuationTechniqueMemberus-gaap:MeasurementInputDiscountRateMemberus-gaap:MeasurementInputDiscountRateMember0001371489us-gaap:TreasuryStockCommonMember2019-07-012019-09-300001371489us-gaap:TreasuryStockCommonMember2019-01-012019-09-300001371489us-gaap:TreasuryStockCommonMember2020-07-012020-09-300001371489us-gaap:TreasuryStockCommonMember2020-01-012020-09-300001371489us-gaap:CommonStockMember2019-07-012019-09-300001371489us-gaap:TreasuryStockCommonMember2020-09-300001371489us-gaap:RetainedEarningsMember2020-09-300001371489us-gaap:AdditionalPaidInCapitalMember2020-09-300001371489us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-300001371489us-gaap:TreasuryStockCommonMember2020-06-300001371489us-gaap:RetainedEarningsMember2020-06-300001371489us-gaap:AdditionalPaidInCapitalMember2020-06-300001371489us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-3000013714892020-06-300001371489us-gaap:TreasuryStockCommonMember2019-12-310001371489us-gaap:RetainedEarningsMember2019-12-310001371489us-gaap:AdditionalPaidInCapitalMember2019-12-310001371489us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001371489us-gaap:TreasuryStockCommonMember2019-09-300001371489us-gaap:RetainedEarningsMember2019-09-300001371489us-gaap:AdditionalPaidInCapitalMember2019-09-300001371489us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-300001371489us-gaap:TreasuryStockCommonMember2019-06-300001371489us-gaap:RetainedEarningsMember2019-06-300001371489us-gaap:AdditionalPaidInCapitalMember2019-06-300001371489us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-3000013714892019-06-300001371489us-gaap:TreasuryStockCommonMember2018-12-310001371489us-gaap:RetainedEarningsMember2018-12-310001371489us-gaap:AdditionalPaidInCapitalMember2018-12-310001371489us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001371489srt:EuropeMember2020-07-012020-09-300001371489srt:AsiaPacificMember2020-07-012020-09-300001371489srt:AmericasMember2020-07-012020-09-300001371489srt:EuropeMember2020-01-012020-09-300001371489srt:AsiaPacificMember2020-01-012020-09-300001371489srt:AmericasMember2020-01-012020-09-300001371489srt:EuropeMember2019-07-012019-09-300001371489srt:AsiaPacificMember2019-07-012019-09-300001371489srt:AmericasMember2019-07-012019-09-300001371489srt:EuropeMember2019-01-012019-09-300001371489srt:AsiaPacificMember2019-01-012019-09-300001371489srt:AmericasMember2019-01-012019-09-300001371489us-gaap:OneTimeTerminationBenefitsMemberiii:RestructuringPlan2020Member2020-09-300001371489us-gaap:SellingGeneralAndAdministrativeExpensesMemberus-gaap:OneTimeTerminationBenefitsMemberiii:RestructuringPlan2020Member2020-01-012020-09-300001371489us-gaap:OneTimeTerminationBenefitsMemberiii:RestructuringPlan2020Member2020-07-012020-09-300001371489us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001371489us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-09-300001371489us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-07-012019-09-300001371489us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-09-300001371489us-gaap:RetainedEarningsMember2020-07-012020-09-300001371489us-gaap:RetainedEarningsMember2020-01-012020-09-300001371489us-gaap:RetainedEarningsMember2019-07-012019-09-300001371489us-gaap:RetainedEarningsMember2019-01-012019-09-300001371489us-gaap:RevolvingCreditFacilityMemberiii:CreditAgreement2020Member2020-03-100001371489us-gaap:RevolvingCreditFacilityMemberiii:CreditAgreement2020Member2020-03-090001371489us-gaap:LineOfCreditMemberiii:CreditAgreement2020Member2020-03-102020-03-100001371489us-gaap:EurodollarMember2020-03-102020-03-100001371489us-gaap:RevolvingCreditFacilityMember2020-09-300001371489us-gaap:LineOfCreditMember2020-09-300001371489iii:CreditAgreement2020Memberus-gaap:FederalFundsEffectiveSwapRateMember2020-03-102020-03-100001371489iii:CreditAgreement2020Memberus-gaap:EurodollarMember2020-03-102020-03-100001371489us-gaap:CommonStockMember2020-09-300001371489us-gaap:CommonStockMember2020-06-300001371489us-gaap:CommonStockMember2019-12-310001371489us-gaap:CommonStockMember2019-09-300001371489us-gaap:CommonStockMember2019-06-300001371489us-gaap:CommonStockMember2018-12-3100013714892019-09-300001371489iii:NeuralifyLlcMemberus-gaap:TrademarksAndTradeNamesMember2020-07-080001371489iii:NeuralifyLlcMemberus-gaap:NoncompeteAgreementsMember2020-07-080001371489iii:NeuralifyLlcMemberus-gaap:CustomerRelationshipsMember2020-07-080001371489iii:NeuralifyLlcMemberus-gaap:ComputerSoftwareIntangibleAssetMember2020-07-080001371489us-gaap:OtherNoncurrentLiabilitiesMemberiii:NeuralifyLlcMember2020-09-300001371489us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-3000013714892018-12-310001371489iii:NeuralifyLlcMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2020-01-012020-09-300001371489us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001371489us-gaap:FairValueMeasurementsRecurringMember2020-09-300001371489us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001371489us-gaap:FairValueMeasurementsRecurringMember2019-12-310001371489us-gaap:RestrictedStockUnitsRSUMember2020-07-012020-09-300001371489us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-09-300001371489us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001371489us-gaap:AdditionalPaidInCapitalMember2020-01-012020-09-300001371489us-gaap:AdditionalPaidInCapitalMember2019-07-012019-09-3000013714892019-07-012019-09-300001371489iii:NeuralifyLlcMemberus-gaap:TrademarksAndTradeNamesMember2020-07-082020-07-080001371489iii:NeuralifyLlcMemberus-gaap:NoncompeteAgreementsMember2020-07-082020-07-080001371489iii:NeuralifyLlcMemberus-gaap:CustomerRelationshipsMember2020-07-082020-07-080001371489iii:NeuralifyLlcMemberus-gaap:ComputerSoftwareIntangibleAssetMember2020-07-082020-07-080001371489us-gaap:AdditionalPaidInCapitalMember2019-01-012019-09-300001371489us-gaap:CommonStockMember2019-01-012019-09-300001371489us-gaap:OneTimeTerminationBenefitsMemberiii:RestructuringPlan2020Member2020-01-012020-09-300001371489iii:CreditAgreement2020Member2020-03-102020-03-100001371489us-gaap:LineOfCreditMemberiii:CreditAgreement2020Member2020-03-1000013714892020-07-012020-09-300001371489iii:NeuralifyLlcMember2020-07-080001371489iii:NeuralifyLlcMember2020-07-082020-07-0800013714892019-01-012019-09-3000013714892020-09-3000013714892019-12-3100013714892020-10-3100013714892020-01-012020-09-30xbrli:sharesiso4217:USDxbrli:pureiii:installmentiso4217:USDxbrli:sharesiii:segment

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 September 30, 2020

OR

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 October 31, 2020

Common Stock, $0.001 par value

48,019,773 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. The actual results of ISG 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 ISG’s 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 ISG files 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.

1

PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS (UNAUDITED)

INFORMATION SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)

September 30,

December 31,

    

2020

    

2019

ASSETS

Current assets

Cash and cash equivalents

$

38,141

$

18,153

Accounts receivable and contract assets, net of allowance of $749 and $343, respectively

 

66,239

 

77,076

Prepaid expenses and other current assets

 

4,556

 

4,572

Total current assets

 

108,936

 

99,801

Restricted cash

 

91

 

88

Furniture, fixtures and equipment, net

 

5,003

 

6,014

Right-of-use lease assets

 

4,983

 

6,572

Goodwill

 

90,789

 

85,349

Intangible assets, net

 

15,962

 

16,605

Deferred tax assets

 

3,349

 

3,589

Other assets

 

957

 

737

Total assets

$

230,070

$

218,755

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

$

9,410

$

8,862

Current maturities of long-term debt

 

4,300

 

11,000

Contract liabilities

 

4,546

 

4,935

Accrued expenses and other current liabilities

 

25,622

 

16,454

Total current liabilities

 

43,878

 

41,251

Long-term debt, net of current maturities

 

74,564

 

74,823

Deferred tax liabilities

 

3,460

 

3,472

Operating lease liabilities

 

3,784

 

5,013

Other liabilities

 

10,772

 

4,522

Total liabilities

 

136,458

 

129,081

Commitments and contingencies (Note 9)

Stockholders’ equity

Preferred stock, $0.001 par value; 10,000 shares authorized; none issued

 

 

Common stock, $0.001 par value, 100,000 shares authorized; 48,112 shares issued and 47,954 outstanding at September 30, 2020 and 48,112 shares issued and 47,478 outstanding at December 31, 2019

 

48

 

48

Additional paid-in capital

 

245,731

 

245,572

Treasury stock (158 and 634 common shares, respectively, at cost)

 

(319)

 

(2,051)

Accumulated other comprehensive loss

 

(6,398)

 

(7,138)

Accumulated deficit

 

(145,450)

 

(146,757)

Total stockholders’ equity

 

93,612

 

89,674

Total liabilities and stockholders’ equity

$

230,070

$

218,755

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

2

INFORMATION SERVICES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2020

    

2019

2020

    

2019

Revenues

$

61,635

$

68,143

$

182,739

$

200,262

Operating expenses

Direct costs and expenses for advisors

 

36,762

 

37,725

 

111,539

 

116,636

Selling, general and administrative

 

20,318

 

23,092

 

60,792

 

70,327

Depreciation and amortization

 

1,581

 

1,672

 

4,641

 

5,031

Operating income

 

2,974

 

5,654

 

5,767

 

8,268

Interest income

 

61

 

41

 

188

 

133

Interest expense

 

(687)

 

(1,598)

 

(2,890)

 

(4,763)

Foreign currency transaction (loss) gain

 

(66)

 

7

 

14

 

(28)

Income before taxes

 

2,282

 

4,104

 

3,079

 

3,610

Income tax provision

 

227

 

2,373

 

1,772

 

2,363

Net income

$

2,055

$

1,731

$

1,307

$

1,247

Weighted average shares outstanding:

Basic

 

47,880

 

47,426

 

47,599

 

46,704

Diluted

 

49,908

 

48,404

 

49,546

 

47,204

Earnings per share:

Basic

$

0.04

$

0.04

$

0.03

$

0.03

Diluted

$

0.04

$

0.04

$

0.03

$

0.03

Comprehensive income:

Net income

$

2,055

$

1,731

$

1,307

$

1,247

Foreign currency translation, net of tax (expense) benefit of ($398), $294, ($207) and $309, respectively.

 

1,261

 

(927)

 

740

 

(982)

Comprehensive income

$

3,316

$

804

$

2,047

$

265

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

3

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 June 30, 2020

48,112

$

48

$

244,257

$

(847)

$

(7,659)

$

(147,505)

$

88,294

Net Income

2,055

2,055

Other comprehensive income

1,261

1,261

Treasury shares repurchased

(277)

(277)

Proceeds from issuance of ESPP shares

(21)

141

120

Issuance of treasury shares

(664)

664

Stock based compensation

2,159

2,159

Balance September 30, 2020

 

48,112

$

48

$

245,731

$

(319)

$

(6,398)

$

(145,450)

$

93,612

Accumulated

Additional

Other

Total

Common Stock

Paid-in-

Treasury

Comprehensive

Accumulated

Stockholders’

Shares

Amount

Capital

Stock

Loss

Deficit

Equity

Balance December 31, 2019

48,112

$

48

$

245,572

$

(2,051)

$

(7,138)

$

(146,757)

$

89,674

Net Income

1,307

1,307

Other comprehensive income

740

740

Treasury shares repurchased

(5,052)

(5,052)

Proceeds from issuance of ESPP shares

(80)

479

399

Issuance of treasury shares

(6,305)

6,305

Stock based compensation

6,544

6,544

Balance September 30, 2020

 

48,112

$

48

$

245,731

$

(319)

$

(6,398)

$

(145,450)

$

93,612

4

Accumulated

Additional

Other

Total

Common Stock

Paid-in-

Treasury

Comprehensive

Accumulated

Stockholders’

Shares

Amount

Capital

Stock

Loss

Deficit

Equity

Balance June 30, 2019

48,063

$

48

$

241,983

$

(3,179)

$

(7,210)

$

(150,582)

$

81,060

Net Income

1,731

1,731

Other comprehensive loss

(927)

(927)

Treasury shares repurchased

Proceeds from issuance of ESPP shares

51

146

146

Issuance of treasury shares

(847)

847

Stock based compensation

2,456

2,456

Balance September 30, 2019

 

48,114

$

48

$

243,738

$

(2,332)

$

(8,137)

$

(148,851)

$

84,466

Accumulated

Additional

Other

Total

Common Stock

Paid-in-

Treasury

Comprehensive

Accumulated

Stockholders’

Shares

Amount

Capital

Stock

Loss

Deficit

Equity

Balance December 31, 2018

45,477

$

45

$

235,998

$

(203)

$

(7,155)

$

(150,098)

$

78,587

Net Income

 

 

 

 

 

 

1,247

 

1,247

Other comprehensive loss

 

 

 

 

 

(982)

 

 

(982)

Treasury shares repurchased

 

 

 

 

(2,976)

 

 

 

(2,976)

Proceeds from issuance of ESPP shares

 

173

 

 

575

 

 

 

 

575

Issuance of treasury shares

(847)

847

 

 

 

Issuance of common stock for contingent earn-out

243

 

1

 

864

865

Issuance of common stock for RSUs vested

 

2,221

 

2

 

(2)

 

 

 

Stock based compensation

 

 

 

7,150

 

 

 

7,150

Balance September 30, 2019

 

48,114

 

$

48

 

$

243,738

$

(2,332)

$

(8,137)

$

(148,851)

$

84,466

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

5

INFORMATION SERVICES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Nine Months Ended

September 30,

2020

    

2019

Cash flows from operating activities

Net income

$

1,307

$

1,247

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation expense

 

2,023

 

2,022

Amortization of intangible assets

 

2,618

 

3,009

Deferred tax expense from stock issuances

 

972

 

172

Write-off of deferred financing costs

167

Amortization of deferred financing costs

 

313

 

460

Stock-based compensation

 

6,544

 

7,150

Provisions for accounts receivable

599

738

Deferred tax (benefit) provision

 

(984)

 

68

Loss on disposal of fixed assets

 

 

4

Changes in operating assets and liabilities:

Accounts receivable and contract assets

 

10,764

 

(8,090)

Prepaid expense and other assets

 

2,134

 

1,008

Accounts payable

 

323

 

189

Contract liabilities

 

(669)

 

(2,184)

Accrued expenses

 

11,196

 

9

Net cash provided by operating activities

 

37,307

 

5,802

Cash flows from investing activities

Purchase of furniture, fixtures and equipment

 

(795)

 

(1,115)

Neuralify acquisition (Note 4)

(2,282)

Net cash used in investing activities

 

(3,077)

 

(1,115)

Cash flows from financing activities

Principal payments on borrowings, net

 

(7,013)

 

(2,688)

Payment of contingent consideration

(865)

Proceeds from issuance of employee stock purchase plan shares

 

399

575

Debt financing costs

 

(934)

Payments related to tax withholding for stock-based compensation

 

(1,909)

 

(2,732)

Treasury shares repurchased

 

(5,052)

 

(2,976)

Net cash used in financing activities

 

(14,509)

 

(8,686)

Effect of exchange rate changes on cash

 

270

 

(433)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

19,991

 

(4,432)

Cash, cash equivalents, and restricted cash, beginning of period

 

18,241

 

18,725

Cash, cash equivalents, and restricted cash, end of period

$

38,232

$

14,293

Non-cash investing and financing activities:

Issuance of treasury stock for vested restricted stock awards

$

6,305

$

847

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

6

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. (the “Company” or “ISG”) was founded in 2006 with the strategic vision to become a high-growth, leading provider of information-based advisory services.  The Company 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.

NOTE 2—BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019, 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 September 30, 2020 and the results of operations for the three and nine months ended September 30, 2020 and 2019 and the cash flows for the nine months ended September 30, 2020 and 2019.  The condensed consolidated balance sheet as of December 31, 2019 has been derived from the Company’s audited consolidated financial statements.  Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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, 2019, which are included in the Company’s 2019 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.  Additionally, ISG has to determine the nature and timing of the satisfaction of performance obligations, the standalone selling price (“SSP”) of certain performance obligations, among other judgments associated with revenue recognition.  Numerous internal and external factors can affect estimates.  Estimates are also used for (but not limited to): allowance for doubtful accounts; useful lives of furniture, fixtures and equipment and definite-lived intangible assets; depreciation expense; fair value assumptions in analyzing goodwill and other long-lived assets 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.

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 at September 30, 2020 and December 31, 2019 due to the short-term nature of these accounts.

7

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(tabular amounts in thousands, except per share data)

(unaudited)

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 contingent consideration 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.

The following tables summarize the assets measured at fair value on a recurring basis at the dates indicated:

Basis of Fair Value Measurements

September 30, 2020

     

Level 1

     

Level 2

     

Level 3

     

Total

 

Assets:

Cash equivalents

 

$

17

 

$

 

$

 

$

17

Total

 

$

17

 

$

 

$

 

$

17

Liabilities:

Contingent consideration (1)

 

$

 

$

 

$

4,948

 

$

4,948

Total

 

$

 

$

 

$

4,948

 

$

4,948

Basis of Fair Value Measurements

December 31, 2019

     

Level 1

     

Level 2

     

Level 3

     

Total

 

Assets:

Cash equivalents

 

$

17

 

$

 

$

 

$

17

Total

 

$

17

 

$

 

$

 

$

17

Liabilities:

Contingent consideration (1)

 

$

 

$

 

$

 

$

Total

 

$

 

$

 

$

 

$

(1)Contingent consideration is included in “Other liabilities.” 

The fair value measurement of this contingent consideration is classified within Level 3 of the fair value hierarchy and reflects the Company’s own assumptions in measuring fair values using the income approach. In developing these  

8

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(tabular amounts in thousands, except per share data)

(unaudited)

estimates, the Company considered certain performance projections, historical results, and industry trends.  This amount was estimated through a valuation model that incorporated probability-weighted assumptions related to the achievement of these milestones and the likelihood of the Company making payments.  These cash outflow projections have then been discounted using a rate of 2.50%.

The following table represents the change in the contingent consideration liability during the nine months ended September 30, 2020 and 2019:

 

Nine Months Ended

 

September 30,

     

2020

     

2019

  

Beginning Balance

$

$

1,703

Neuralify contingent consideration accrued

 

4,900

 

Payment of contingent consideration

 

 

(1,730)

Accretion of contingent consideration

 

48

 

30

Unrealized gain (loss) related to currency translation

 

 

(3)

Ending Balance

$

4,948

$

The Company’s financial instruments include outstanding borrowings of $79.9 million at September 30, 2020 and $86.9 million at December 31, 2019, 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 is approximately $78.8 million and $86.7 million at September 30, 2020 and December 31, 2019, 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 is 2.48%. 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.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable, 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. As a smaller reporting company, this guidance is effective for fiscal years beginning after December 15, 2022.  The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.

NOTE 4ACQUISITION

Neuralify Acquisition

On July 8, 2020, a subsidiary of the Company executed an Asset Purchase Agreement with Neuralify, LLC (“the Agreement”), a market leader in intelligent automation enablement solutions and services, and consummated the acquisition of substantially all of the assets and assumed certain liabilities of Neuralify, LLC.  The primary reason for the acquisition was to expand the capabilities of ISG’s pure-play automation service line, ISG Automation.  The purchase price was comprised of $2.3 million of cash consideration paid at closing and Neuralify, LLC will also have the right to receive additional consideration paid via earn-out payments during the next 18 months, if certain financial targets are met.  The Company estimates such earn-out payments will be up to $4.9 million.

The following table summarizes the consideration transferred to acquire Neuralify, LLC and the amounts of identified assets acquired, and liabilities assumed as of the Agreement date:

9

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(tabular amounts in thousands, except per share data)

(unaudited)

Cash

    

$

2,282

Contingent consideration

 

4,900

Total allocable purchase price

$

7,182

Recognized amounts of identifiable assets acquired and liabilities assumed as of the Agreement date:

Accounts receivable

$

226

Contract assets

 

1

Intangible assets

 

1,970

Accounts payable

 

(79)

Contract liabilities

 

(280)

Net assets acquired

$

1,838

Goodwill

$

5,344

The primary factors that drove the goodwill recognized, the majority of which is deductible for tax purposes, are the inclusion of legacy Neuralify software and workforce which expands the Company’s pure-play automation service line, ISG Automation.

Costs associated with this acquisition are included in the selling, general and administrative expenses in the condensed consolidated statement of comprehensive income and totaled $0.1 million during the nine months ended September 30, 2020. This business combination was accounted for under the acquisition method of accounting, and as such, the aggregate purchase price was allocated on a preliminary basis to the assets acquired and liabilities assumed based on estimated fair values as of the closing date. The purchase price allocations will be finalized after the completion of the valuation of certain intangible assets and any adjustments to the preliminary purchase price allocations are not expected to have a material impact on the Company’s results of operations. 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 names

$

240

 

3 years

Software

160

7 years

Customer relationships

1,560

7 years

Noncompete agreements

10

2 years

Total intangible assets

$

1,970

The Condensed Consolidated Statements of Comprehensive Income includes the results of the Neuralify acquisition subsequent to the closing. Had the acquisition occurred as of January 1, 2019, the impact on the Company’s results of operations would not have been material.

10

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(tabular amounts in thousands, except per share data)

(unaudited)

NOTE 5—GOODWILL

The changes in the carrying amount of goodwill for the period ended September 30, 2020 are as follows:

Balance as of December 31, 2019

    

$

85,349

Neuralify Acquisition

 

5,344

Foreign currency impact

 

96

Balance as of September 30, 2020

 

$

90,789

NOTE 6—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 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, not distinct.  For contracts with multiple performance obligations, including our managed service implementation and software and implementation contract types, the Company allocates the transaction price to each performance obligation using our best estimate of the standalone selling price, or SSP, of each distinct good or service in the contract.  

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.

Estimates were required to determine the SSP for each distinct performance obligation identified within our managed service implementation contracts, software and implementation contracts, and research and subscription contracts.

Contract Balances

The timing of revenue recognition, billings, and cash collections results 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 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).  See the table below for a breakdown of contract assets and contract liabilities.

    

September 30,

    

December 31,

    

2020

    

2019

Contract assets

$

29,569

$

28,529

Contract liabilities

$

4,546

$

4,935

Revenue recognized for the three months ended September 30, 2020 that was included in the contract liability balance at July 1, 2020 was $2.4 million and represented primarily revenue from our fixed fee and subscription contracts.

11

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(tabular amounts in thousands, except per share data)

(unaudited)

Revenue recognized for the nine months ended September 30, 2020 that was included in the contract liability balance at January 1, 2020 was $4.6 million and represented primarily revenue from our fixed fee and subscription contracts.

Disaggregation of Revenue

The following table presents our revenue disaggregated by geographic area for the three and nine months ended September 30, 2020 and 2019.

Three Months Ended

Nine Months Ended

September 30,

September 30,

Geographic area

    

2020

    

2019

    

2020

    

2019

Americas

$

34,968

$

40,253

103,422

$

118,738

Europe

20,928

22,558

 

64,044

67,562

Asia Pacific

5,739