What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 156 added, 59 removed, 251 unchanged (46% of the section changed)

3 unchanged sentences

(In thousands, except par value)

September 30,

Current assets

25 unchanged sentences

Common stock, $ 0.001 par value, 100,000 shares authorized;

48,112 shares issued and 47,675 outstanding at June 30, 2020 and 48,112 shares issued and 47,478 outstanding at December 31, 2019

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

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Operating expenses

6 unchanged sentences

Foreign currency transaction (loss) gain

Income (loss) before taxes

Income tax provision (benefit)

Net income (loss)

Income before taxes

Income tax provision

Weighted average shares outstanding:

Earnings (loss) per share:

Comprehensive income (loss):

Net income (loss)

Earnings per share:

Comprehensive income:

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

Comprehensive income (loss):

Comprehensive income

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

4 unchanged sentences

Stockholders’

Balance June 30, 2020

Other comprehensive income

Treasury shares repurchased

Proceeds from issuance of ESPP shares

Issuance of treasury shares

Stock based compensation

Balance September 30, 2020

Comprehensive

Stockholders’

Balance December 31, 2019

Other comprehensive loss

Other comprehensive income

Treasury shares repurchased

2 unchanged sentences

Stock based compensation

Balance September 30, 2020

Comprehensive

Stockholders’

Balance June 30, 2019

Other comprehensive loss

Treasury shares repurchased

Proceeds from issuance of ESPP shares

Issuance of treasury shares

Stock based compensation

Balance September 30, 2019

Comprehensive

4 unchanged sentences

Proceeds from issuance of ESPP shares

Issuance of treasury shares

Issuance of common stock for contingent earn-out

1 unchanged sentence

Stock based compensation

Balance June 30, 2019

Balance September 30, 2019

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

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities

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

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

Depreciation expense

5 unchanged sentences

Provisions for accounts receivable

Deferred tax provision

Deferred tax (benefit) provision

Loss on disposal of fixed assets

8 unchanged sentences

Purchase of furniture, fixtures and equipment

Neuralify acquisition (Note 4)

Net cash used in investing activities

5 unchanged sentences

Payments related to tax withholding for stock-based compensation

Equity securities repurchased

Treasury shares repurchased

Net cash used in financing activities

20 unchanged sentences

NOTE 2—BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements as of June 30, 2020 and for the three and six months ended June 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 June 30, 2020, the results of operations for the three and six months ended June 30, 2020 and 2019.

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 six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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”).

15 unchanged sentences

Restricted cash consists of cash and cash equivalents which the Company has committed for rent deposits.

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

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.

INFORMATION SERVICES GROUP, INC.

1 unchanged sentence

(tabular amounts in thousands, except per share data)

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).

8 unchanged sentences

Basis of Fair Value Measurements

June 30, 2020

September 30, 2020

Cash equivalents

Contingent consideration (1)

Basis of Fair Value Measurements

1 unchanged sentence

Cash equivalents

The Company’s financial instruments include outstanding borrowings of $ 80.9 million at June 30, 2020 and $ 86.9 million at December 31, 2019, which are carried at amortized cost.

Contingent consideration (1)

(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

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(tabular amounts in thousands, except per share data)

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,

Beginning Balance

Neuralify contingent consideration accrued

Payment of contingent consideration

Accretion of contingent consideration

Unrealized gain (loss) related to currency translation

Ending Balance

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 $ 79.9 million and $ 86.7 million at June 30, 2020 and December 31, 2019, respectively.

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 ranged from 2.41 to 2.55 %.

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.

2 unchanged sentences

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

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 4 — ACQUISITION

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:

INFORMATION SERVICES GROUP, INC.

1 unchanged sentence

(tabular amounts in thousands, except per share data)

beginning after December 15, 2022.

The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.

Contingent consideration

Total allocable purchase price

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

Accounts receivable

Contract assets

Intangible assets

Accounts payable

Contract liabilities

Net assets acquired

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

Amortizable intangible assets:

Trademark and trade names

Customer relationships

Noncompete agreements

Total intangible assets

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.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(tabular amounts in thousands, except per share data)

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

Neuralify Acquisition

Foreign currency impact

Balance as of September 30, 2020

NOTE 6—REVENUE

19 unchanged sentences

See the table below for a breakdown of contract assets and contract liabilities.

September 30,

Contract assets

Contract liabilities

Revenue recognized for the three months ended June 30, 2020 that was included in the contract liability balance at April 1, 2020 was $ 2.0 million and represented primarily revenue from our fixed fee and subscription contracts.

Revenue recognized for the six months ended June 30, 2020 that was included in the contract liability balance at January 1, 2020 was $ 4.5 million and represented primarily revenue from our fixed fee and subscription contracts.

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.

INFORMATION SERVICES GROUP, INC.

1 unchanged sentence

(tabular amounts in thousands, except per share data)

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 six months ended June 30, 2020 and 2019.

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

Six Months Ended

Nine Months Ended

September 30,

Geographic area

Remaining Performance Obligations

As of June 30, 2020, the Company had $ 86.0 million of remaining performance obligations, the majority of which are expected to be satisfied within the next year.

As of September 30, 2020, the Company had $ 102.6 million of remaining performance obligations, the majority of which are expected to be satisfied within the next year.

NOTE 7—NET INCOME PER COMMON SHARE

1 unchanged sentence

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, 2020, 1.2 million and 5.8 million restricted stock units, respectively, have not been considered in the diluted earnings per share calculation, as the effect would be anti-dilutive.

For the three and nine months ended September 30, 2020, 1.9 million and 3.7 million restricted stock units, respectively, have not been considered in the diluted earnings per share calculation, as the effect would be anti-dilutive.

The following tables set forth the computation of basic and diluted earnings per share:

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss)

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted average common shares

Earnings (loss) per share

Net income (loss)

Earnings per share

Basic weighted average common shares

1 unchanged sentence

Diluted weighted average common shares

Diluted earnings (loss) per share

Diluted earnings per share

INFORMATION SERVICES GROUP, INC.

2 unchanged sentences

NOTE 8—INCOME TAXES

The Company’s effective tax rate for the three and six months ended June 30, 2020 was 77.0 % and 193.6 % based on pretax income of $ 2.7 million and $ 0.8 million, respectively.

The Company’s effective tax rate for the quarter ended June 30, 2020 was impacted by the earnings and losses in certain foreign jurisdictions and the impact of restricted stock units vesting.

The Company’s effective tax rate for the three and six months ended June 30, 2019 was 76.4 % and 2.0 %.

The difference was primarily due to the impact of earnings and losses in certain foreign jurisdiction.

During the quarter ended June 30, 2020, the Company has recorded the impact of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) signed into law on March 27, 2020.

The Company’s effective tax rate for the three and nine months ended September 30, 2020 was 9.9 % and 57.6 % based on pretax income of $ 2.3 million and $ 3.1 million, respectively.

The Company’s effective tax rate for the quarter ended September 30, 2020 was impacted by the earnings and losses in certain foreign jurisdictions, the impact of a tax law in a foreign jurisdiction, and the impact of vesting of restricted stock units.

The Company’s effective tax rate for the three and nine months ended September 30, 2019 was 57.8 % and 65.5 %.

The difference was primarily due to the impact of earnings and losses in certain foreign jurisdictions.

The Company has recorded the impact of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) signed into law on March 27, 2020.

The CARES Act implemented changes to raise the limitation on interest expense current deductibility and leasehold improvement asset classification for bonus depreciation eligibility, which allowed the Company to reduce prior accruals made for its 2019 income tax provision.

The tax effect of these changes total $ 0.8 million and are included in Prepaid expenses and other current assets and Deferred tax assets;

there is no impact on the Company’s effective tax rate for the quarter ended June 30, 2020 as a result of the CARES Act.

there is no impact on the Company’s effective tax rate for the three and nine months ended September 30, 2020 as a result of the CARES Act.

NOTE 9—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 at June 30, 2020 and December 31, 2019.

All material liabilities of which management is aware are properly reflected in the financial statements at September 30, 2020 and December 31, 2019.

Neuralify Contingent Consideration

As of September 30, 2020, the Company has recorded a liability of $ 4.9 million representing the estimated fair value of contingent consideration related to the acquisition of Neuralify, all of which is classified as non-current and included in Other liabilities on the consolidated balance sheet.

NOTE 10—SEGMENT AND GEOGRAPHICAL INFORMATION

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

The segregation of revenues by geographic region is based upon the location of the legal entity performing the services.

The Company does not measure or monitor gross profit or operating income by geography or by service line for the purposes of making operating decisions or allocating resources.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(tabular amounts in thousands, except per share data)

NOTE 11—FINANCING ARRANGEMENTS AND LONG-TERM DEBT

2 unchanged sentences

● Each of the term loan facility and revolving credit facility has a maturity date of March 10, 2025 (the “Maturity Date”).

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(tabular amounts in thousands, except per share data)

● The credit facility is secured by all of the equity interests owned by the Company, and its direct and indirect domestic subsidiaries and, subject to agreed exceptions, the Company’s direct and indirect “first-tier” foreign subsidiaries and a perfected first priority security interest in all of the Company’s and its direct and indirect domestic subsidiaries’ tangible and intangible assets.

7 unchanged sentences

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

The Company’s financial statements include outstanding borrowings of $ 80.9 and $ 86.9 million at June 30, 2020 and December 31, 2019, respectively, which are carried at amortized cost.

The Company’s financial statements include outstanding borrowings of $ 79.9 million and $ 86.9 million at September 30, 2020 and December 31, 2019, respectively, 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 $ 79.9 million and $ 86.7 million at June 30, 2020 and December 31, 2019, respectively.

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 ranged from 2.41 % to 2.55 %.

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.

As of June 30, 2020, the total principal outstanding under the term loan facility and revolving credit facility was $ 80.9 million and $ 0.0 million, respectively.

The effective interest rate for the term loan facility and revolving credit facility as of June 30, 2020 was 2.55 % and 2.41 %, respectively.

INFORMATION SERVICES GROUP, INC.

1 unchanged sentence

(tabular amounts in thousands, except per share data)

As of September 30, 2020, the total principal outstanding under the term loan facility and revolving credit facility was $ 79.9 million and $ 0.0 million, respectively.

The effective interest rate for the term loan facility and revolving credit facility as of September 30, 2020 was 2.48 % and 2.40 %, respectively.

NOTE 12 - RISKS AND UNCERTAINTIES

2 unchanged sentences

As a result of these measures, the US and global markets have seen significant disruption, the extent and duration of which remains highly uncertain.

The impact of COVID-19 pandemic is rapidly developing and, therefore, the Company cannot predict with certainty the extent to which the pandemic will negatively impact our results of operations, cash flows and financial position, liquidity and ability to remain in compliance with our financial covenants.

In the second quarter of 2020, the Company experienced a year-over-year revenue decline and this impact is expected to continue through at least the fourth quarter of 2020.

The impact of COVID-19 pandemic continues to evolve and, therefore, the Company cannot predict with certainty the extent to which the pandemic will negatively impact our results of operations, cash flows and financial position, liquidity and ability to remain in compliance with our financial covenants.

In the third quarter of 2020, the Company experienced a year-over-year revenue decline and this impact is expected to continue through at least the fourth quarter of 2020.

Given the uncertainty of the marketplace, the Company has implemented business continuity plans to ensure that the Company is able to remain fully operational with a remote workforce, conducted financial modeling scenarios in order to ensure prudent cost containment, and has proactively implemented a series of cash conservation measures.

5 unchanged sentences

Accordingly, the Company believes that based upon current facts and circumstances, its existing cash coupled with the cash flows generated from operations will be sufficient to meet its cash needs for 12 months from the date of issuance of these financial statements.

NOTE 11 – SUBSEQUENT EVENT

On July 8, 2020, a subsidiary of the Company executed an Asset Purchase Agreement with Neuralify, LLC (“the Agreement”) and consummated the acquisition of substantially all of the assets and assumed certain liabilities of Neuralify, LLC.

The purchase price was comprised of $ 2 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.

NOTE 13 — RESTRUCTURING CHARGES

2020 Restructuring Plan

In the third quarter of 2020, the Company took restructuring actions to lower our operating expenses structurally and permanently relative to revenue and to accelerate the transformation of our business (the “September 2020 Plan”).

Most of these actions are based on our recent experience and learning in the COVID-19 pandemic and a resulting review of our operations, which continues to address certain operating expenses such as occupancy expense and salaries and related expenses.

A summary of the activity affecting the Company's accrued contractual termination benefit liability for the period ended September 30, 2020 is as follows:

INFORMATION SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(tabular amounts in thousands, except per share data)

September 2020 Plan

Balance at June 30, 2020

Amounts accrued

Amounts paid/incurred

Balance at September 30, 2020

The $ 1.4 million of net restructuring charges was primarily related to contractual termination benefits, and was recorded in selling, general and administrative expenses.

We expect that the remaining actions of the September 2020 Plan will be completed over the next three months .

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 1. Financial Statements