What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-03 compared with 2025-08-07 · 77 added, 60 removed, 214 unchanged (39% of the section changed)

27 unchanged sentences

We also derive our revenues from certain recurring revenue streams.

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

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

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

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

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

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

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

Three Months Ended June 30,

Three Months Ended September 30,

Geographic Area

1 unchanged sentence

Total revenues

Revenues decreased $2.7 million, or approximately 4%, in the second quarter of 2025 compared to the second quarter of 2024.

The decrease in revenue in the Americas was primarily due to a decrease in Automation revenue (excluding the prior year Automation revenue due to sale of the Automation service line, revenues would have reported an increase of 16%), partially offset by an increase in Consulting service lines.

The decrease in revenue in Europe was primarily attributable to a decrease in Automation and Network & Software Advisory Services (“NaSa”) service lines (excluding the prior year Automation revenue, revenues would have reported a decrease of 7%).

The revenue decrease in Asia Pacific was primarily attributable to a decrease in our Consulting and NaSa service lines.

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

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

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

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

The translation of foreign currency revenues into U.S.

dollars positively impacted performance in Europe and Asia Pacific compared to the prior year by $0.9 million.

dollars positively impacted performance compared to the prior year by $0.7 million.

Operating Expenses

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

Three Months Ended June 30,

Three Months Ended September 30,

Operating Expenses

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Total operating expenses

Total operating expenses decreased $3.7 million, or approximately 6%, for the second quarter of 2025 compared to the second quarter of 2024.

The decrease in operating expenses was primarily due to lower automation license fees expense of $3.4 million, expense reversal associated with an amount that was no longer due to a sub-contractor of $1.9 million, compensation expense of $0.5 million, restructuring costs of $0.4 million, conference expense of $0.4 million, bad debt expense of $0.3 million and contract labor expense of $0.2 million.

These costs were partially offset by higher legal reserves of $1.8 million, stock-based compensation expense of $0.9 million and travel and entertainment expense of $0.8 million.

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

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

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

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

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

Depreciation and amortization expense was $1.2 million and $1.6 million for the second quarters of 2025 and 2024, respectively.

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

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

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

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

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

Three Months Ended June 30,

Three Months Ended September 30,

Other income (expense), net

2 unchanged sentences

Interest expense

Gain on the sale of business

Foreign currency transaction (loss) gain

Total other expense, net

The total decrease in other expenses of $0.2 million, or approximately 17% in the second quarter of 2025 compared to the second quarter of 2024, was primarily the result of lower interest expense attributable to a lower debt balance.

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

Income Tax Expense

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

Our effective tax rate for the quarter ended June 30, 2025 was 38.7% compared to 12.0% for the quarter ended June 30, 2024.

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

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

There were no significant changes in uncertain tax position reserves or valuation allowances during the quarter ended June 30, 2025.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2025 AND JUNE 30, 2024

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

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

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

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

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

Geographic Area

1 unchanged sentence

Total revenues

Revenues decreased $7.4 million, or approximately 6%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

The revenue for the Americas was flat with an increase in Consulting partially offset by a decrease in Automation (excluding the prior year Automation revenue due to sale of the Automation service line, revenues would have reported an increase of 16%).

The decrease in revenue in Europe was primarily attributable to a decrease in Automation, NaSa, and GovernX service lines (excluding the prior year Automation revenue, revenues would have reported a decrease of 10%).

The revenue decrease in Asia Pacific was primarily attributable to a decrease in our Consulting, and NaSa service lines.

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

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

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

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

Consulting and NaSa service lines.

The translation of foreign currency revenues into U.S.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Operating Expenses

4 unchanged sentences

Total operating expenses

Total operating expenses decreased $14.2 million, or approximately 11%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

The decrease in operating expenses was primarily due to lower automation license fees expense of $7.1 million, restructuring costs of $3.0 million, compensation expense of $2.9 million, expense reversal associated with an amount that was no longer due to a sub-contractor of $1.9 million, contract labor expense of $0.9 million, bad debt expense of $0.5 million, conference expense of $0.4 million and computer expense of $0.3 million.

These costs were partially offset by higher legal reserves of $1.8 million, stock-based compensation expense of $1.1 million and professional fees of $0.4 million.

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

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

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

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

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

Depreciation and amortization expense for the six months ended June 30, 2025 and June 30, 2024 were $2.3 million and $3.1 million, respectively.

The decrease of $0.9 million was primarily due to the sale of our Automation business on October 1, 2024.

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

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

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

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

computers) and leasehold improvements.

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

Other income (expense), net

2 unchanged sentences

Interest expense

Gain on the sale of business

Foreign currency transaction (loss) gain

Total other income (expense), net

The total decrease in other expenses of $0.5 million, or approximately 19%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024, was primarily the result of lower interest expense attributable to a lower debt balance, partially offset by lower interest income.

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

Income Tax Expense

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

Our effective tax rate for the six months ended June 30, 2025 was 38.4% compared to (3.7%) for the six months ended June 30, 2024.

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

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

There were no significant changes in uncertain tax position reserves or valuation allowances during the six months ended June 30, 2025.

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

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

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

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

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

NON-GAAP FINANCIAL PRESENTATION

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

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

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

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.

1 unchanged sentence

However, they are not measurements of financial performance under GAAP and should not be considered as alternatives to measures of performance derived in accordance with GAAP.

These non-GAAP financial measures exclude non-cash and certain other special charges that some investors believe may obscure the user’s overall understanding of the Company’s current

financial performance and the Company’s prospects for the future.

These non-GAAP financial measures exclude non-cash and certain other special charges that some investors believe may 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 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.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

4 unchanged sentences

Interest accretion associated with contingent consideration

Loss on assets disposal

Gain on the sale of business

Change in contingent consideration

Acquisition and disposition-related costs (1)

Severance, integration and other expense

Foreign currency transaction loss (gain)

Foreign currency transaction loss

Non-cash stock compensation

Adjusted EBITDA

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

3 unchanged sentences

Interest accretion associated with contingent consideration

Change in contingent consideration

Loss on assets disposal

Gain on the sale of business

Acquisition and disposition-related costs (1)

Severance, integration and other expense

Foreign currency transaction loss (gain)

Foreign currency transaction loss

Tax effect (2)

Adjusted net income

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss) per diluted share

2 unchanged sentences

Interest accretion associated with contingent consideration

Loss on assets disposal

Gain on the sale of assets

Change in contingent consideration

Acquisition and disposition-related costs (1)

Severance, integration and other expense

Foreign currency transaction loss (gain)

Foreign currency transaction loss

Tax effect (2)

8 unchanged sentences

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

As of June 30, 2025, our cash, cash equivalents and restricted cash totaled $25.3 million compared to $23.2 million as of December 31, 2024, a net increase of $2.1 million, which was primarily attributable to the following:

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

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

4 unchanged sentences

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

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

● proceeds from UST Global Inc.

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

● treasury shares repurchased of $7.3 million;

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● The Company’s direct and indirect existing and future wholly owned domestic subsidiaries serve as guarantors to the Company’s obligations under the senior secured facility.

● At the Company’s option, the credit facility bears interest at a rate per annum equal to either (i) the “Base Rate” (which is the highest of (a) the rate publicly announced from time to time by the administrative agent as its “prime rate”, (b) the Federal Funds Rate plus 0.5% per annum and (c) Term SOFR, plus 1.0%), plus the applicable margin, or (ii) Term SOFR (which is the Term SOFR screen rate for the relevant interest period plus a credit spread adjustment of 0.10%) as determined by the administrative agent, plus the applicable

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

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

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

The Company’s financial statements include outstanding borrowings of $59.2 million at both September 30, 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 $59.6 million at both June 30, 2025 and December 31, 2024.

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

The fair 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 6.1% and 6.4% as of June 30, 2025 and December 31, 2024, respectively.

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

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

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

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

The Company is currently in compliance with its financial covenants.

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

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

The anticipated cash

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

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

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Dividend Program

On August 5, 2025, the Company’s Board of Directors (the “Board”) approved a third-quarter dividend of $0.045 per share, payable on September 26, 2025, to shareholders of record as of September 5, 2025.

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

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

13 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis