What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-12 compared with 2020-03-11 · 14 added, 323 removed, 57 unchanged (86% of the section changed)

Market for Registrant’s Common Equit y, Related Stockholder Matters and Issuer Purchases of Equity Securities

The following table sets forth the high and low closing sales price of our common stock, as reported on The Nasdaq Stock Market LLC under the symbol “III”

for the periods shown:

Market for Registrant’s Common Equit y, Related Stockholder Matters and Issuer Purchases of Equity Securities

The following table sets forth the high and low closing sales price of our common stock, as reported on The Nasdaq Stock Market LLC under the symbol “III” for the periods shown:

Quarter Ending

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Dividend Policy

On December 2, 2014, the Company’s Board of Directors authorized a special dividend of $0.14 per share on the Company’s issued and outstanding shares of common stock.

This cash dividend was paid on January 28, 2015 to shareholders of record as of January 15, 2015.

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Issuer Purchases of Equity Securities

On November 1, 2019, the Company’s Board of Directors approved a new share repurchase authorization of up to $10.8 million.

The new share repurchase program will take effect upon completion of the Company’s current program, which had approximately $9.2 million remaining as of November 1, 2019.

Therefore, the Company had approximately $20 million in the aggregate available under its share repurchase program as of November 1, 2019.

On November 1, 2019, the Company’s Board of Directors approved a share repurchase authorization of up to $10.8 million.

The new share repurchase program will take effect upon completion of the Company’s current program, which has approximately $3.6 million remaining as of December 31, 2020.

Therefore, the Company has approximately $14.4 million in the aggregate available under its share repurchase program as of December 31, 2020.

The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, pursuant to a Rule 10b5-1 repurchase plan or by other means in accordance with federal securities laws.

The timing and the amount of any repurchases will be determined by the Company’s management based on its evaluation of market conditions, capital allocation alternatives, and other factors.

There is no guarantee as to the number of shares that will be repurchased, and the repurchase program may be extended, suspended or discontinued at any time without notice at the Company’s discretion.

The timing and the amount of any repurchases will be determined by the Company’s management based on its evaluation of market conditions, capital allocation alternatives, and other factors.

The following table details the repurchases that were made during the three months ended December 31, 2020.

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(In thousands)

October 1 –

November 1 –

December 1 –

Oct 1 - Oct 31

Nov 1 - Nov 30

Dec 1 - Dec 31

Securities Authorized for Issuance under Equity Compensation Plan

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Plan Category

and Rights(1)

Column (2)(3)

1 unchanged sentence

Not Approved by Stockholders

Of the 6,865,496 shares listed in this column, none are stock options issued under the Amended and Restated 2007 Equity and Incentive Award Plan, 6,865,496 are restricted stock units issued under that Plan, and none are options issued during the current offering period under our Amended and Restated Employee Stock Purchase Plan.

The weighted-average exercise price includes outstanding options and RSUs, treating RSUs as stock awards with an exercise price of zero.

(2) Includes 198,946 shares available for future issuance under the Company’s Employee Stock Purchase Plan.

Includes 1,161,220 shares available for future issuance under the Company’s Employee Stock Purchase Plan.

Also includes 3,455,800 shares that were available for grant under the Amended and Restated 2007 Equity and Incentive Award Plan as options and SARs and also for restricted stock, restricted stock units or other awards that could provide to the grantee an opportunity to earn the full value of an underlying share (in other words, such earning opportunity is not limited to the appreciation in value of our stock following the grant of the award).

1 unchanged sentence

As a smaller reporting company, we are not required to provide the information described in this item.

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

You should read the following discussion together with our audited consolidated financial statements and the related notes listed in the index appearing under Item 15 (a)(1).

In addition to historical consolidated financial information, this discussion contains forward‑looking statements that reflect our plans, estimates and beliefs.

These forward‑looking statements are subject to numerous risks and uncertainties.

Statements, other than those based on historical facts, which address activities, events or developments that we expect or anticipate may occur in the future are forward‑looking statements.

Such forward‑looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to our operations and business environment that may cause actual results to be materially different from any future results, express or implied, by such forward‑looking statements.

These forward‑looking statements must be understood in the context of numerous risks and uncertainties, including, but not limited to, those described previously in section 1A “Risk Factors.”

BUSINESS OVERVIEW

ISG (Information Services Group) (Nasdaq:

III) is a leading global technology research and advisory firm.

A trusted business partner to approximately 700 clients, including more than 75 of the top 100 enterprises in our markets, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth.

The firm specializes in digital transformation services, including automation, cloud and data analytics;

sourcing advisory;

managed governance and risk services;

network carrier services;

technology strategy and operations design;

change management;

market intelligence and technology research and analysis.

Founded in 2006, and based in Stamford, Conn., ISG employs approximately 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data.

For more information, visit www.isg-one.com.

Our strategy is to strengthen our existing market position and develop new services and products to support future growth plans.

As a result, we are focused on growing our existing service model, expanding geographically, developing new industry sectors, productizing market data assets, expanding our managed services offerings and growing via acquisitions.

Although we do not expect any adverse conditions that will impact our ability to execute against our strategy over the next twelve months, the more significant factors that could limit our ability to grow in these areas include global macro‑economic conditions and the impact on the overall sourcing market, competition, our ability to retain advisors and reductions in discretionary spending with our top client accounts or other significant client events.

areas that could impact the business would also include natural disasters, pandemics, such as COVID-19, legislative and regulatory changes and capital market disruptions.

We principally derive revenues from fees for services generated on a project by project basis.

Prior to the commencement of a project, we reach agreement with the client on rates for services based upon the scope of the project, staffing requirements and the level of client involvement.

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

Revenues for time and materials contracts are recognized based on the number of hours worked by our advisors at an agreed upon rate per hour and are recognized in the period in which services are performed.

Revenues for time and materials contracts are billed monthly, semimonthly or in accordance with the specific contractual terms of each project.

We also derive our revenues from certain recurring revenue streams.

These include such annuity-based ISG offerings as ISG GovernX®, Research, Software as a Subscription (Automation licenses), ISG Inform™

and the multi-year Public Sector contracts.

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

Our digital services now span a volume of offerings and have become embedded as part of even our traditional transaction services.

Digital enablement provides capabilities, digital insights and better engagement with clients and partners.

Our results are impacted principally by our full‑time consultants’

utilization rate, the number of business days in each quarter and the number of our revenue-generating professionals who are available to work.

Our utilization rate can be negatively affected by increased hiring because there is generally a transition period for new professionals that result in a temporary drop in our utilization rate.

Our utilization rate can also be affected by seasonal variations in the demand for our services from our clients.

The number of business work days is also affected by the number of vacation days taken by our consultants and holidays in each quarter.

We typically have fewer business work days available in the fourth quarter of the year, which can impact revenues during that period.

Time‑and‑expense engagements do not provide us with a high degree of predictability as to performance in future periods.

Unexpected changes in the demand for our services can result in significant variations in utilization and revenues and present a challenge to optimal hiring and staffing.

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

EXECUTIVE SUMMARY

During 2019 ISG continued its journey to digitally-enable our service delivery and expand our client relationships.

We are creating a firm with a unique value proposition:

building on our core strength as a fact-based services firm specializing in operational excellence, we are fast becoming a solutions firm—one that combines products and services to drive greater efficiency and faster growth for clients as they revamp their enterprises for success in the digital age.

Our clients continue to see us as a go-to partner for executing their large-scale digital transformations.

Our IT Sourcing Solutions remain the core and largest part of our business, yet we have pivoted our firm “beyond the transaction.”

We have shifted left, helping clients set strategy, design the right operating model, and connect with the broader digital ecosystem to find the right technology and service partners.

And we have shifted right, helping organizations adapt to new ways of working, embrace change, and realize the full benefits of their digital partnerships and transformations.

At a time when large enterprises, especially, are burdened with heavy technology debt from legacy systems, and are struggling to find ways to invest in the future and achieve their digital ambitions, our cost management services have never been more important.

Such services, which help clients release funds to reinvest in digital transformation, remain a key differentiator for ISG.

Digital is the new normal for our clients.

ISG Research shows that today nearly half of all managed services contracts have a digital component.

Our revenue reflects that market reality as more and more clients shift workloads to the cloud, adopt SaaS solutions, leverage automation and embrace other digital technologies, such data analytics and IoT.

Our firm is uniquely positioned to help clients unleash the power of digital in their enterprises.

We understand how to make digital work.

We know that plugging new technology into old ways of doing business rarely results in significant improvement, and going it alone never works.

Instead, we show the way to new operating models that function at the speed of digital business, and we connect our clients to the digital ecosystems they need for success.

We help clients reduce operating costs, so they can reinvest in digital capabilities.

And we help them transform the way they think about business, and adopt new ways of working, sharing, co-creating and collaborating.

In short, we get them ready for digital, and help them evolve with digital over the long term.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2019 COMPARED TO YEAR ENDED DECEMBER 31, 2018

Revenues are generally derived from fixed fee contracts as well as engagements priced on a time and materials basis, which are recorded based on actual time worked as the services are performed.

In addition, we also earn revenues which are contingent on the attainment of certain contractual milestones.

Revenues related to materials (mainly out‑of‑pocket expenses such as airfare, lodging and meals) required during an engagement generally do not include a profit mark up and can be charged and reimbursed separately or as part of the overall fee arrangement.

Invoices are issued to clients monthly, semimonthly or in accordance with the specific contractual terms of each project.

We operate in one segment, fact‑based sourcing advisory services.

We operate principally in the Americas, Europe, and Asia Pacific.

Our foreign operations are subject to local government regulations and to the uncertainties of the economic and political conditions of those areas, and the revenue for our foreign operations is predominantly invoiced and collected in local currency.

Geographical revenue information for the segment is as follows:

Years Ended December 31,

Geographic Area

(in thousands)

Total revenues

Revenues decreased by $10.0 million or approximately 4% in 2019.

The decrease in revenues in Europe was primarily attributable to a decline in our Advisory service line.

The decrease in revenues in the Americas and Asia Pacific was primarily attributable to a decline in our Managed Services service line.

The translation of foreign currency revenues into U.S.

dollars negatively impacted performance compared to the prior year in Europe and Asia Pacific.

Operating Expenses

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

Years Ended December 31,

Operating Expenses

(in thousands)

Direct costs and expenses for advisors

Selling, general and administrative

Depreciation and amortization

Total operating expenses

Total operating expenses decreased by $10.7 million for 2019 with decreases in direct costs and expenses for advisors, selling, general and administrative (“SG&A”) expenses, and depreciation and amortization.

The decrease in SG&A and direct costs and expenses for advisors were due primarily to lower:

compensation and benefits of $7.8 million, professional fees of $2.2 million, travel expenses of $1.2 million, tax indemnity receivable of $0.9 million, acquisition-related costs of $0.6 million, occupancy expenses of $0.4 million, and contingent consideration of $0.4 million.

These cost decreases were partially offset primarily by higher:

license fees of $1.9 million, contract labor expenses of $1.4 million, and severance, integration and other expenses of $0.9 million.

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

Statutory and 401(k) plans are offered to employees as appropriate.

Direct costs also include employee taxes, health insurance, workers compensation and disability insurance.

A portion of compensation expenses for certain billable employees are allocated between direct costs and selling, general and administrative costs based on relative time spent between billable and non‑billable activities.

Selling costs consist principally of compensation expense related to business development, proposal preparation and delivery, and negotiation of new client contracts.

Selling costs also include travel expenses relating to the pursuit of sales opportunities, expenses for hosting periodic client conferences, public relations activities, participation in industry conferences, industry relations, website maintenance and business intelligence activities.

Additionally, we maintain a dedicated global marketing function responsible for developing and managing sales campaigns, brand promotion, the ISG Index and assembling client proposals.

We maintain a comprehensive program for training and professional development with the related costs included in SG&A.

Related expenses include product training, updates on new service offerings or methodologies and development of client project management skills.

Also included in training and professional development are expenses associated with the development, enhancement and maintenance of our proprietary methodologies and tools and the systems that support them.

Selling, general and administrative expenses consist principally of executive management compensation, allocations of billable employee compensation related to general management activities, IT infrastructure, and costs for the finance, accounting, information technology and human resource functions.

General and administrative costs also reflect continued investment associated with implementing and operating client and employee management systems.

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

Depreciation and amortization expense in 2019 and 2018 were $6.7 million and $7.8 million, respectively.

The decrease of $1.1 million in depreciation and amortization expense was primarily due to prior year intangible assets that are now fully amortized.

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

We also capitalize some costs associated with the purchase and development of internal‑use software, system conversions and website development costs.

These costs are amortized over the estimated useful life of the software or system.

We amortize our intangible assets (e.g., client relationships and databases) over their estimated useful lives.

Goodwill related to acquisitions is not amortized but is subject to annual impairment testing.

Other Expense, Net

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

Years Ended December 31,

(in thousands)

Interest income

Interest expense

Foreign currency gain (loss)

Total other expense, net

The total decrease of $0.3 million was primarily the result of lower interest expense attributable to our lower debt balance, partially offset by a net foreign currency loss.

Income Tax Expense

Our effective tax rate varies from period to period based on the mix of earnings among the various state and foreign tax jurisdictions in which business is conducted and the level of non‑deductible expenses incurred in any given period.

Our effective tax rate for the year ended December 31, 2019 was 53.2% compared to 7.1% for the year ended December 31, 2018.

The variance between the US statutory rate of 21.0% for the year ended December 31, 2019 was primarily caused by the impact of higher tax rates applicable on company earnings in foreign jurisdictions and non-deductible expenses for tax purposes in the U.S.

NON-GAAP FINANCIAL PRESENTATION

This management’s discussion and analysis presents supplemental measures of our performance that are derived from our consolidated financial information but are not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

We refer to these financial measures, which are considered “non-GAAP financial measures”

under SEC rules, as adjusted EBITDA, adjusted net income, and adjusted earnings per diluted share, each as defined below.

See “Non-GAAP Financial Measures”

below for information about our use of these non-GAAP financial measures, including our reasons for including these measures and reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure.

NON-GAAP FINANCIAL MEASURES

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

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

These are non-GAAP measures that the Company believes provide useful information to both management and investors by excluding certain expenses and financial implications of foreign currency translations that management believes are not indicative of ISG’s core operations.

These non-GAAP measures are used by the Company to evaluate the Company’s business strategies and management’s performance.

These non-GAAP financial measures exclude non-cash and certain other special charges that many 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.

Years Ended December 31,

(in thousands)

Interest expense (net of interest income)

Depreciation and amortization

Change in contingent consideration

Acquisition-related costs (1)

Severance, integration and other expense

Tax indemnity receivable

Foreign currency transaction (gain) loss

Non-cash stock compensation

Adjusted EBITDA

Years Ended December 31,

(in thousands)

Non-cash stock compensation

Intangible amortization

Change in contingent consideration

Acquisition-related costs (1)

Severance, integration and other expense

Foreign currency transaction (gain) loss

Tax effect (2)

Adjusted net income

Years Ended December 31,

Net income per diluted share

Non-cash stock compensation

Intangible amortization

Change in contingent consideration

Acquisition-related costs (1)

Severance, integration and other expense

Foreign currency transaction (gain) loss

Tax effect (2)

Adjusted net income per diluted share

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(1) Consists of expenses from acquisition-related costs and non-cash fair value adjustments on pre-acquisition contract liabilities.

(2) Marginal tax rate of 32%, reflecting U.S.

federal income tax rate of 21% plus 11% attributable to U.S.

states and foreign jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash flows from operations, existing cash and cash equivalents and borrowings under our revolving line of credit.

Operating assets and liabilities consist primarily of receivables from billed and unbilled services, accounts payable, accrued expenses, and accrued payroll and related benefits.

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

The following table summarizes our cash flows for the years ended December 31, 2019 and 2018:

Years Ended December 31,

(in thousands)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Effect of exchange rate changes on cash

Net decrease in cash, cash equivalents, and restricted cash

As of December 31, 2019, our liquidity and capital resources included cash, cash equivalents, and restricted cash of $18.2 million compared to $18.7 million as of December 31, 2018, a net decrease of $0.5 million, which was primarily attributable to the following:

our operating activities provided net cash of $20.4 million for the year ended December 31, 2019.

Net cash provided from operations was primarily attributable to our net income after adjustments for non‑cash charges of approximately $21.4 million partially offset by a $1.0 million use of working capital primarily attributable to a $1.3 million change in contract liabilities and $1.4 million change in accounts receivable and contract assets, partially offset by a $1.5 million change in prepaid expenses and other assets and $0.2 million change in accounts payable and accrued expenses;

net payments on borrowings of $12.3 million;

payment of contingent consideration of $0.9 million;

payments of $3.1 million related to tax withholding for stock-based compensation;

capital expenditures for property, plant and equipment of $1.9 million;

equity repurchases of $3.4 million.

Capital Resources

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

On December 1, 2016, the Company amended and restated its senior secured credit facility to include a $110.0 million term facility and a $30.0 million revolving facility (the “2016 Credit Agreement”).

The material terms under the 2016 Credit Agreement are as follows:

Each of the term loan facility and revolving credit facility has a maturity date of December 1, 2021 (the “Maturity Date”).

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.

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) the Eurodollar Rate, plus 1.0%), plus the applicable margin (as defined below) or (ii) Eurodollar Rate (adjusted for maximum reserves) as determined by the Administrative Agent, plus the applicable margin.

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

The Term Loan is repayable in four consecutive quarterly installments of $1,375,000 each, that commenced March 31, 2017, followed by eight consecutive quarterly installments in the amount of $2,062,500 each, that commenced March 31, 2018, followed by seven consecutive quarterly installments of $2,750,000 each, commencing March 31, 2020 and a final payment of the outstanding principal amount of the Term Loan on the Maturity Date.

Mandatory repayments of term loans shall be required from (subject to agreed exceptions) (i) 100% of the proceeds from asset sales by the Company and its subsidiaries, (ii) 100% of the net proceeds from issuances of debt and equity by the Company and its subsidiaries and (iii) 100% of the net proceeds from insurance recovery and condemnation events of the Company and its subsidiaries.

The senior secured credit facility contains a number of covenants that, among other things, place restrictions on matters customarily restricted in senior secured credit facilities, including restrictions on indebtedness (including guarantee obligations), liens, fundamental changes, sales or disposition of property or assets, investments (including loans, advances, guarantees and acquisitions), transactions with affiliates, dividends and other payments in respect of capital stock, optional payments and modifications of other material debt instruments, negative pledges and agreements restricting subsidiary distributions and changes in line of business.

In addition, the Company is required to comply with a total leverage ratio and fixed charge coverage ratio.

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

On December 1, 2016, as part of the merger consideration for the acquisition of Alsbridge, we issued an aggregate of $7.0 million in unsecured subordinated promissory notes (the “Alsbridge Notes”).

The Alsbridge Notes accrued interest on the principal amount daily at a rate of 2.0%.

At maturity, on September 4, 2018, we paid off the full $7.0 million of principal and $0.2 million of interest outstanding under the Alsbridge Notes.

On February 10, 2017, as required by the 2016 Credit Agreement, the Company entered into an agreement to cap the interest rate at 4% on the LIBOR component of its borrowings under the term loan facility until December 31, 2019.

This interest rate cap was not designated for hedging or speculative purposes.

The expense related to this interest rate cap was not material.

On May 9, 2019, ISG amended its 2016 Credit Agreement to increase the maximum permitted leverage ratio through and including September 30, 2019 to 3.75 to 1.00, which then declines to 3.25 to 1.00 until September 30, 2020 and further declines to 3.00 to 1.00 until the Maturity Date.

On December 4, 2019, ISG amended its 2016 Credit Agreement to allow the Company to repurchase up to $8 million of its equity in any fiscal year as long as the consolidated leverage ratio is not greater than 3.25 to 1.00 through and including September 30, 2020 which then declines to 3.00 to 1.00 until the Maturity Date and the Consolidated Fixed Charge coverage ratio is not less than 1.25 to 1.00.

As of December 31, 2019, the total principal outstanding under the term loan facility was $86.9 million with an effective interest rate of 5.2%.

During 2019, the Company paid off all amounts drawn from its revolving credit facility.

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

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

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

The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders.

We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future.

We believe that cash flows generated from operations, existing cash and cash equivalents and borrowing capacity under our senior secured credit facility are sufficient to finance the requirements of our business during future periods.

Refer to Item 9B of this Annual Report on Form 10-K and Note 17 –

Subsequent Event for additional information regarding the Company’s 2016 Credit Agreement.

Off‑Balance Sheet Arrangements

We do not have any off‑balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity.

Employee Retirement Plans

For the fiscal years ended December 31, 2019 and 2018, we contributed $0.1 million and $2.4 million, respectively, to the 401(k) plan (the “Savings Plan”) on a fully discretionary basis.

These amounts were invested by the participants in a variety of investment options under an arrangement with a third party asset manager.

All current and future financial risks associated with the gains and losses on investments are borne by Savings Plan participants.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies, many of which require management to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements and related notes.

Since future events and their impact cannot be determined with certainty, the actual results may differ from estimates.

Such differences may be material to the consolidated financial statements.

We believe the application of accounting policies, and the estimates inherently required therein, are reasonable.

These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change.

Historically, we have found the application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

Our accounting policies are more fully described in Note 2 “Summary of Significant Accounting Policies”

in the “Notes to the Consolidated Financial Statements.”

We have identified the following critical accounting estimates:

Revenue Recognition

We recognize our revenues by applying the following five steps:

(1) identify the contract with the customer;

(2) identify the performance obligation(s) in the contract;

(3) determine the transaction price;

(4) allocate the transaction price to the performance obligation(s);

and (5) recognize revenue when (or as) the company satisfies the performance obligation(s).

We principally derive revenues from fees for services generated on a project‑by‑project basis.

Prior to the commencement of a project, we reach agreement with the client on rates for services based upon the scope of the project, staffing requirements and the level of client involvement.

It is our policy to obtain written agreements from clients prior to performing services or when evidence of enforceable rights and obligations is obtained.

In these agreements, the clients acknowledge that they will pay based upon the amount of time spent on the project or an agreed upon fee structure.

Revenues for time and materials contracts, which may include capped fees or “not-to-exceed”

clauses, are recognized based on the number of hours worked by our advisors at an agreed upon rate per hour and are recognized in the period in which services are performed.

Revenues for time and materials contracts are billed monthly, semimonthly or in accordance with the specific contractual terms of each project.

For contract with capped fees or not-to-exceed clauses, we monitor our performance and fees billed to ensure that revenue is not recognized in excess of the contractually capped fee.

Revenues related to fixed fee contracts are recognized into revenue as value is delivered to the customer, consistent with the transfer of control to the customer over time.

Revenue for these contracts is recognized proportionally over the term of the contract using an input method based on the proportion of labor hours incurred as compared to the total estimated labor hours for the project, which we consider the best available indicator of the pattern and timing in which contract obligations are fulfilled and control transfers to the customer.

This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period.

The contracted amount used in this calculation typically excludes the amount the client pays for reimbursable expenses.

There are situations where the number of hours to complete projects may exceed our original estimate as a result of an increase in project scope or unforeseen events.

The results of any revisions in these estimates are reflected in the period in which they become known.

For managed service implementation contracts, revenue is recognized over time as a percentage of hours incurred to date as compared to the total expected hours of the implementation, consistent with the transfer of control to the customer.

For ongoing managed services contract, revenue is recognized over time, consistent with the weekly or monthly fee specified within such arrangements.

We also derive revenues based on negotiating reductions in network costs of companies with the entity’s related service providers and providing other services such as audits of network and communication expenses, and consultation for network architecture.

These contracts can be fixed in fees or can be based on the level of savings achieved related to its communications costs.

Additionally, these contracts can also have a fixed component and a contingent component that is based on the savings generated by the Company.

For network contingency contracts with termination for convenience clauses, revenue is recognized over time due to the existence of provisions for payment for progress incurred to date plus a reasonable profit margin.

The contract periods range from a few months to in excess of a year.

We also enter into arrangements for the sale of robotics software licenses and related delivery of consulting or implementation services at the same time or within close proximity to one another.

Such software-related performance obligations include the sale of

software licenses and other software-related services.

For software and implementation contracts, revenue associated with the software performance obligation is recognized at the point at which the software is installed, while revenue associated with the implementation service performance obligation is recognized over the software implementation period as a percentage of hours incurred to date as compared to the total expected hours.

Revenue associated with events is recognized at the point of time at which the event occurs.

Conversely, revenue associated with research subscriptions is recognized over time, as the customer accesses our data or related platforms.

The agreements entered into in connection with a project typically allow our clients to terminate early due to breach or for convenience with 30 days’

In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by us through the effective date of the termination.

In addition, from time to time, we enter into agreements with clients that limit our right to enter into business relationships with specific competitors of that client for a specific time period.

These provisions typically prohibit us from performing a defined range of services that we might otherwise be willing to perform for potential clients.

These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

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

When we receive cash in advance of completing services or earning revenues, those amounts are recorded as contract liabilities.

Our goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired at the date of acquisition.

Goodwill is not amortized but rather tested for impairment at least annually in accordance with accounting and disclosure requirements for goodwill and other indefinite‑lived intangible assets.

This test is performed by us during our fourth fiscal quarter or more frequently if we believe impairment indicators are present.

A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value of the reporting unit is less than its carrying amount.

If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment.

If the fair value of goodwill is lower than its carrying amounts, an impairment loss is recognized in an amount equal to the difference.

Subsequent increases in value are not recognized in the financial statements.

The Company adopted Accounting Standards Update (“ASU”) 2017-04, "Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment" effective December 30, 2017 which has eliminated Step 2 from the goodwill impairment test.

Under this update, if an impairment is identified, an entity should record the goodwill impairment as an amount resulting from the comparison of the fair value of a reporting unit with its carrying amount.

There was no impairment of goodwill during the years ended December 31, 2019 and 2018, nor were any indicators identified in 2019 or 2018 that would suggest that it is more likely than not that the Company’s reporting unit is impaired.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this report.

Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this item.

Financial Statements and Supplementary Data

Reference is made to our financial statements beginning on page F‑1 of this report.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 5. Market for Registrant’s Common Equity