Information Services Group Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ​ INFORMATION SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except par value) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2021 2020 ASSETS ​ ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 54,504 ​ $ 43,730 Accounts receivable and contract assets, net of allowance of $ 43 and $ 368 , respectively ​ 65,208 ​ 67,473 Prepaid expenses and other current assets ​ 3,643 ​ 3,412 Total current assets ​ 123,355 ​ 114,615 Restricted cash ​ 90 ​ 95 Furniture, fixtures and equipment, net ​ 5,173 ​ 5,001 Right-of-use lease assets ​ 4,766 ​ 5,909 Goodwill ​ 90,813 ​ 91,008 Intangible assets, net ​ 13,052 ​ 15,064 Deferred tax assets ​ 2,164 ​ 2,255 Other assets ​ 4,101 ​ 5,573 Total assets ​ $ 243,514 ​ $ 239,520 LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 15,668 ​ $ 11,176 Current maturities of long-term debt ​ 4,300 ​ 4,300 Contract liabilities ​ 6,984 ​ 5,121 Accrued expenses and other current liabilities ​ 34,935 ​ 30,064 Total current liabilities ​ 61,887 ​ 50,661 Long-term debt, net of current maturities ​ 70,506 ​ 73,551 Deferred tax liabilities ​ 3,857 ​ 3,811 Operating lease liabilities ​ 3,228 ​ 4,332 Other liabilities ​ 5,759 ​ 8,028 Total liabilities ​ 145,237 ​ 140,383 Commitments and contingencies (Note 8) ​ ​ ​ ​ ​ ​ Stockholders’ equity ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.001 par value; 10,000 shares authorized; none issued ​ — ​ — Common stock, $ 0.001 par value, 100,000 shares authorized; 49,362 shares issued and 48,952 outstanding at September 30, 2021 and 48,297 shares issued and 48,189 outstanding at December 31, 2020 ​ 49 ​ 48 Additional paid-in capital ​ 239,362 ​ 248,018 Treasury stock ( 410 and 108 common shares, respectively, at cost) ​ ( 2,600 ) ​ ( 256 ) Accumulated other comprehensive loss ​ ( 6,483 ) ​ ( 4,671 ) Accumulated deficit ​ ( 132,051 ) ​ ( 144,002 ) Total stockholders’ equity ​ 98,277 ​ 99,137 Total liabilities and stockholders’ equity ​ $ 243,514 ​ $ 239,520 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 2 INFORMATION SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Unaudited) (In thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 2020 ​ 2021 2020 Revenues ​ $ 71,095 ​ $ 61,635 ​ $ 208,263 ​ $ 182,739 Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Direct costs and expenses for advisors ​ 43,249 ​ 36,762 ​ 127,412 ​ 111,539 Selling, general and administrative ​ 19,236 ​ 20,318 ​ 58,768 ​ 60,792 Depreciation and amortization ​ 1,347 ​ 1,581 ​ 3,962 ​ 4,641 Operating income ​ 7,263 ​ 2,974 ​ 18,121 ​ 5,767 Interest income ​ 65 ​ 61 ​ 196 ​ 188 Interest expense ​ ( 538 ) ​ ( 687 ) ​ ( 1,794 ) ​ ( 2,890 ) Foreign currency transaction gain (loss) ​ 1 ​ ( 66 ) ​ ( 2 ) ​ 14 Income before taxes ​ 6,791 ​ 2,282 ​ 16,521 ​ 3,079 Income tax provision ​ 2,370 ​ 227 ​ 4,570 ​ 1,772 Net income ​ $ 4,421 ​ $ 2,055 ​ $ 11,951 ​ $ 1,307 Weighted average shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 48,751 ​ 47,880 ​ 48,521 ​ 47,599 Diluted ​ 51,510 ​ 49,908 ​ 51,713 ​ 49,546 Earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.09 ​ $ 0.04 ​ $ 0.25 ​ $ 0.03 Diluted ​ $ 0.09 ​ $ 0.04 ​ $ 0.23 ​ $ 0.03 Comprehensive income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 4,421 ​ $ 2,055 ​ $ 11,951 ​ $ 1,307 Foreign currency translation, net of tax benefit (expense) of $ 303 , ($ 398 ), $ 579 , and ($ 207 ) respectively ​ ( 960 ) ​ 1,261 ​ ( 1,812 ) ​ 740 Comprehensive income ​ $ 3,461 ​ $ 3,316 ​ $ 10,139 ​ $ 2,047 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. 3 INFORMATION SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ ​ Paid-in- ​ ​ Treasury ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ ​ Shares ​ Amount ​ ​ Capital ​ ​ Stock ​ Loss ​ Deficit ​ Equity Balance June 30, 2021 ​ 49,362 ​ $ 49 ​ $ 243,710 ​ $ ( 4,883 ) ​ $ ( 5,523 ) ​ $ ( 136,472 ) ​ $ 96,881 Net Income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 4,421 ​ ​ 4,421 Other comprehensive loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 960 ) ​ ​ — ​ ​ ( 960 ) Treasury shares repurchased ​ — ​ ​ — ​ ​ — ​ ​ ( 2,142 ) ​ ​ — ​ ​ — ​ ​ ( 2,142 ) Proceeds from issuance of ESPP shares ​ — ​ ​ — ​ ​ 26 ​ ​ 136 ​ ​ — ​ ​ — ​ ​ 162 Issuance of treasury shares ​ — ​ ​ — ​ ​ ( 4,289 ) ​ ​ 4,289 ​ ​ — ​ ​ — ​ ​ — Issuance of common stock for RSUs vested ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Accrued dividends on unvested shares ​ — ​ ​ — ​ ​ ( 95 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 95 ) Cash dividends paid to shareholders ​ — ​ ​ — ​ ​ ( 1,489 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,489 ) Stock based compensation ​ — ​ ​ — ​ ​ 1,499 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,499 Balance September 30, 2021 49,362 ​ $ 49 ​ $ 239,362 ​ $ ( 2,600 ) ​ $ ( 6,483 ) ​ $ ( 132,051 ) ​ $ 98,277 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ ​ Paid-in- ​ ​ Treasury ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ ​ Shares ​ Amount ​ ​ Capital ​ ​ Stock ​ Loss ​ Deficit ​ Equity Balance December 31, 2020 ​ 48,297 ​ $ 48 ​ $ 248,018 ​ $ ( 256 ) ​ $ ( 4,671 ) ​ $ ( 144,002 ) ​ $ 99,137 Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 11,951 ​ ​ 11,951 Other comprehensive loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,812 ) ​ ​ — ​ ​ ( 1,812 ) Treasury shares repurchased ​ — ​ ​ — ​ ​ — ​ ​ ( 13,358 ) ​ ​ — ​ ​ — ​ ​ ( 13,358 ) Proceeds from issuance of ESPP shares ​ — ​ ​ — ​ ​ 47 ​ ​ 402 ​ ​ — ​ ​ — ​ ​ 449 Issuance of treasury shares ​ — ​ ​ — ​ ​ ( 10,612 ) ​ ​ 10,612 ​ ​ — ​ ​ — ​ ​ — Issuance of common stock for RSUs vested ​ 1,065 ​ ​ 1 ​ ​ ( 1 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — Accrued dividends on unvested shares ​ — ​ ​ — ​ ​ ( 225 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 225 ) Cash dividends paid to shareholders ​ — ​ ​ — ​ ​ ( 2,940 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,940 ) Stock based compensation ​ — ​ ​ — ​ ​ 5,075 ​ ​ — ​ ​ — ​ ​ — ​ ​ 5,075 Balance September 30, 2021 49,362 ​ $ 49 ​ $ 239,362 ​ $ ( 2,600 ) ​ $ ( 6,483 ) ​ $ ( 132,051 ) ​ $ 98,277 ​ 4 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ ​ Paid-in- ​ ​ Treasury ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ ​ Shares ​ Amount ​ ​ Capital ​ ​ Stock ​ Loss ​ Deficit ​ Equity Balance June 30, 2020 ​ 48,112 ​ $ 48 ​ $ 244,257 ​ $ ( 847 ) ​ $ ( 7,659 ) ​ $ ( 147,505 ) ​ $ 88,294 Net Income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,055 ​ ​ 2,055 Other comprehensive income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,261 ​ ​ — ​ ​ 1,261 Treasury shares repurchased ​ — ​ ​ — ​ ​ — ​ ​ ( 277 ) ​ ​ — ​ ​ — ​ ​ ( 277 ) Proceeds from issuance of ESPP shares ​ — ​ ​ — ​ ​ ( 21 ) ​ ​ 141 ​ ​ — ​ ​ — ​ ​ 120 Issuance of treasury shares ​ — ​ ​ — ​ ​ ( 664 ) ​ ​ 664 ​ ​ — ​ ​ — ​ ​ — Stock based compensation ​ — ​ ​ — ​ ​ 2,159 ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,159 Balance September 30, 2020 48,112 ​ $ 48 ​ $ 245,731 ​ $ ( 319 ) ​ $ ( 6,398 ) ​ $ ( 145,450 ) ​ $ 93,612 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ ​ Paid-in- ​ ​ Treasury ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ ​ Shares ​ Amount ​ ​ Capital ​ ​ Stock ​ Loss ​ Deficit ​ Equity Balance December 31, 2019 ​ 48,112 ​ $ 48 ​ $ 245,572 ​ $ ( 2,051 ) ​ $ ( 7,138 ) ​ $ ( 146,757 ) ​ $ 89,674 Net income — ​ — ​ — ​ — ​ — ​ 1,307 ​ 1,307 Other comprehensive income — ​ — ​ — ​ — ​ 740 ​ — ​ 740 Treasury shares repurchased — ​ — ​ — ​ ( 5,052 ) ​ — ​ — ​ ( 5,052 ) Proceeds from issuance of ESPP shares — ​ — ​ ( 80 ) ​ 479 ​ — ​ — ​ 399 Issuance of treasury shares ​ — ​ ​ — ​ ​ ( 6,305 ) ​ ​ 6,305 ​ — ​ — ​ — Stock based compensation — ​ — ​ 6,544 ​ ​ — ​ — ​ — ​ 6,544 Balance September 30, 2020 48,112 $ 48 $ 245,731 ​ $ ( 319 ) ​ $ ( 6,398 ) ​ $ ( 145,450 ) ​ $ 93,612 ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 5 INFORMATION SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In thousands) ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ September 30, ​ 2021 2020 Cash flows from operating activities ​ ​ ​ ​ ​ Net income $ 11,951 ​ $ 1,307 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ Depreciation expense 1,961 ​ 2,023 Amortization of intangible assets 2,001 ​ 2,618 Deferred tax (benefit) expense from stock issuances ( 2,155 ) ​ 972 Write-off of deferred financing costs ​ — ​ ​ 167 Amortization of deferred financing costs 267 ​ 313 Stock-based compensation 5,075 ​ 6,544 Change in fair value of contingent consideration ​ 113 ​ ​ — (Benefits) provisions for accounts receivable ​ ( 152 ) ​ ​ 599 Deferred tax provision (benefit) 2,873 ​ ( 984 ) Changes in operating assets and liabilities: ​ ​ ​ ​ ​ Accounts receivable and contract assets 1,889 ​ 10,764 Prepaid expense and other assets 1,718 ​ 2,134 Accounts payable 4,080 ​ 323 Contract liabilities 1,863 ​ ( 669 ) Accrued expenses 7,980 ​ 11,196 Net cash provided by operating activities 39,464 ​ 37,307 Cash flows from investing activities ​ ​ ​ ​ ​ Purchase of furniture, fixtures and equipment ( 1,500 ) ​ ( 795 ) Neuralify acquisition (Note 4) ​ — ​ ​ ( 2,282 ) Net cash used in investing activities ( 1,500 ) ​ ( 3,077 ) Cash flows from financing activities ​ ​ ​ ​ ​ Principal payments on borrowings ( 3,225 ) ​ ( 7,013 ) Proceeds from issuance of employee stock purchase plan shares 449 ​ ​ 399 Debt financing costs — ​ ​ ( 934 ) Payments related to tax withholding for stock-based compensation ( 6,738 ) ​ ( 1,909 ) Cash dividends paid to shareholders ​ ( 2,940 ) ​ ​ — Treasury shares repurchased ( 13,358 ) ​ ( 5,052 ) Net cash used in financing activities ( 25,812 ) ​ ( 14,509 ) Effect of exchange rate changes on cash ( 1,383 ) ​ 270 Net increase in cash, cash equivalents, and restricted cash 10,769 ​ 19,991 Cash, cash equivalents , and restricted cash, beginning of period 43,825 ​ 18,241 Cash, cash equivalents , and restricted cash , end of period $ 54,594 ​ $ 38,232 ​ ​ ​ ​ ​ ​ Non-cash investing and financing activities: ​ ​ ​ ​ ​ Issuance of treasury stock for vested restricted stock awards $ 10,612 ​ $ 6,305 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 6 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (tabular amounts in thousands, except per share data) (unaudited) ​ NOTE 1—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS ​ Information Services Group, Inc. (the “Company”, or “ISG”) is a leading global technology research and advisory firm. A trusted business partner to over 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. ​ NOTE 2—BASIS OF PRESENTATION ​ The accompanying unaudited condensed consolidated financial statements as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020, 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, 2021 and the results of operations for the three and nine months ended September 30, 2021 and 2020 and the cash flows for the nine months ended September 30, 2021 and 2020. The condensed consolidated balance sheet as of December 31, 2020 has been derived from the Company’s audited consolidated financial statements. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. ​ Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with GAAP have been omitted from these interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended December 31, 2020, which are included in the Company’s 2020 Annual Report on Form 10-K filed with the SEC. ​ NOTE 3—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ​ Use of Estimates ​ The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the revenue recognition guidance for contracts in which control is transferred to the customer over time affect the amounts of revenues, expenses, contract assets and contract liabilities. Numerous internal and external factors can affect estimates. Estimates are also used for but not limited to: allowance for doubtful accounts, useful lives of furniture, fixtures and equipment and definite lived intangible assets, depreciation expense, fair value assumptions in evaluating goodwill for impairment, income taxes and deferred tax asset valuation, and the valuation of stock-based compensation. ​ 7 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ Restricted Cash ​ Restricted cash consists of cash and cash equivalents which the Company has committed for rent deposits and are not available for general corporate purposes. ​ Fair Value ​ The carrying value of the Company’s cash and cash equivalents, receivables, accounts payable, other current liabilities, and accrued interest approximated their fair values at September 30, 2021 and December 31, 2020 due to the short-term nature of these accounts. ​ Fair value measurements were applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which would consist of measurements primarily to contingent consideration in a business combination. ​ Fair value is the price that would be received upon a sale of an asset or paid upon a transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). Market participants can use market data or assumptions in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. Under the fair-value hierarchy: ​ ● Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market; ​ ● Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and ​ ● Level 3 measurements include those that are unobservable and of a highly subjective measure. ​ 8 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ The following tables summarize the assets measured at fair value on a recurring basis at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basis of Fair Value Measurements ​ ​ ​ September 30, 2021 ​ ​ Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents $ 5,018 $ — $ — $ 5,018 ​ Total $ 5,018 $ — $ — $ 5,018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration (1) $ — $ — $ 5,432 $ 5,432 ​ Total $ — $ — $ 5,432 $ 5,432 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basis of Fair Value Measurements ​ ​ ​ December 31, 2020 ​ ​ Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents $ 17 $ — $ — $ 17 ​ Total $ 17 $ — $ — $ 17 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration (2) $ — $ — $ 5,319 $ 5,319 ​ Total $ — $ — $ 5,319 $ 5,319 ​ (1) Contingent consideration is included in “Accrued expenses and other current liabilities” as of September 30, 2021. (2) The current and noncurrent Contingent consideration is included in “Accrued expenses and other current liabilities” and “Other liabilities,” respectively, as of December 31, 2020. ​ The fair value measurement of the 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 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, 2021: ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ ​ 2021 Beginning Balance ​ $ 5,319 ​ Accretion of contingent consideration ​ 113 ​ Ending Balance ​ $ 5,432 ​ ​ The Company’s financial instruments include outstanding borrowings of $ 75.6 million at September 30, 2021 and $ 78.8 million at December 31, 2020, 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 $ 74.7 million and $ 77.7 million at September 30, 2021 and December 31, 2020, respectively. The fair values of debt have been estimated 9 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ using a discounted cash flow analysis based on the Company's incremental borrowing rate for similar borrowing arrangements. The incremental borrowing rate used to discount future cash flows is 1.9 % and 2.5 % at September 30, 2021 and December 31, 2020, 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. ​ Recently Issued Accounting Pronouncements ​ In June 2016, the FASB issued new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable, and available-for-sale debt securities. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses and additional disclosures. As a smaller reporting company, this guidance is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements. ​ NOTE 4 — ACQUISITION ​ Neuralify Acquisition ​ On July 8, 2020, a subsidiary of the Company executed an Asset Purchase Agreement with Neuralify, LLC (“the Agreement”), a firm focused on 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 certain former employees of 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. In October 2021, the 18-month period was extended six months to July 2022. On the date of the Agreement, the Company estimated such earn-out payments would 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: ​ ​ ​ ​ ​ Cash $ 2,282 Contingent consideration ​ 4,900 Total allocable purchase price ​ $ 7,182 ​ The primary factors that drove the goodwill recognized, the majority of which is deductible for tax purposes, are the inclusion of legacy Neuralify workforce and know-how 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 Consolidated Statement of Income and Comprehensive Income and totaled $ 0.1 million during the year ended December 31, 2020. This business combination was accounted for under the acquisition method of accounting, and as such, the aggregate purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values as of the closing date. Based on the valuation and other factors as described above, the purchase price assigned to intangible assets were as follows: ​ 10 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ ​ ​ ​ ​ Accounts receivable ​ $ 226 Contract assets ​ 1 Intangible assets ​ 1,970 Accounts payable ​ ( 79 ) Contract liabilities ​ ( 280 ) Net assets acquired ​ $ 1,838 ​ ​ ​ ​ Goodwill ​ $ 5,344 ​ The Consolidated Statement of Income and Comprehensive Income includes the results of the Neuralify acquisition subsequent to the closing. Had the acquisition occurred as of January 1, 2020, the impact on the Company’s results of operations would not have been material. ​ ​ NOTE 5—REVENUE ​ The majority of our revenue is derived from contracts that can span from a few months to several years. We enter into contracts that can include various combinations of services, which, depending on contract type, are sometimes capable of being distinct. If services are determined to be distinct, they are accounted for as separate performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the client and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct. For contracts with multiple performance obligations, including our managed service (GovernX) implementation, software and implementation, and research and subscription contracts, the Company allocates the transaction price to each performance obligation using our best estimate of the standalone selling price, or SSP, of each distinct good or service in the contract. Our contracts may include promises to transfer multiple services and products to a client. Determining whether services and products are considered distinct performance obligations that should be accounted for separately versus together may require judgment. Estimates were required to determine the SSP for each distinct performance obligation identified within our managed service (including GovernX) implementation contracts, software and implementation contracts, and research and subscription contracts. ​ Contract Balances ​ The timing of revenue recognition, billings, and cash collections results in billed accounts receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities). Our clients are billed based on the type of arrangement. A portion of our services is billed monthly based on hourly or daily rates. There are also client engagements in which we bill a fixed amount for our services. This may be one single amount covering the whole engagement or several amounts for various phases, functions, or milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits before revenue is recognized, resulting in contract liabilities. Contract assets and liabilities are generally reported in the current assets and current liabilities sections of the consolidated balance sheet, at the end of each reporting period, based on the timing of the satisfaction of the related performance obligation(s). For multi-year software sales with annual invoicing, we perform a significant financing component calculation and recognize the associated interest income throughout the duration of the financing period. In addition, we reclassify the resulting contract asset balances as current and noncurrent receivables as 11 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ receipt of the consideration is conditional only on the passage of time and there are no performance risk factors present. See the table below for a breakdown of contract assets and contract liabilities. ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ 2021 2020 Contract assets ​ $ 24,768 ​ $ 21,825 Contract liabilities ​ $ 6,984 ​ $ 5,121 ​ Revenue recognized for the three and nine months ended September 30, 2021 that was included in the contract liability balance at January 1, 2021 was $ 0.2 million and $ 3.4 million, respectively, and represented primarily revenue from our fixed fee and subscription contracts. Remaining Performance Obligations As of September 30, 2021, the Company had $ 98.0 million of remaining performance obligations, the majority of which are expected to be satisfied within the next twelve months. NOTE 6—NET INCOME PER COMMON SHARE ​ Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would share in the net income of the Company. For the three and nine months ended September 30, 2021, 0.0 million and 0.3 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 September 30, ​ Nine Months Ended September 30, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2021 2020 ​ Basic: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 4,421 ​ $ 2,055 ​ $ 11,951 ​ $ 1,307 ​ Weighted average common shares ​ 48,751 ​ 47,880 ​ 48,521 ​ 47,599 ​ Earnings per share ​ $ 0.09 ​ $ 0.04 ​ $ 0.25 ​ $ 0.03 ​ Diluted: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 4,421 ​ $ 2,055 ​ $ 11,951 ​ $ 1,307 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic weighted average common shares ​ 48,751 ​ 47,880 ​ 48,521 ​ 47,599 ​ Potential common shares ​ 2,759 ​ 2,028 ​ 3,192 ​ 1,947 ​ Diluted weighted average common shares ​ 51,510 ​ 49,908 ​ 51,713 ​ 49,546 ​ Diluted earnings per share ​ $ 0.09 ​ $ 0.04 ​ $ 0.23 ​ $ 0.03 ​ ​ ​ NOTE 7—INCOME TAXES ​ The Company’s effective tax rate for the three and nine months ended September 30, 2021 was 34.9 % and 27.7 % based on pretax income of $ 6.8 million and $ 16.5 million, respectively. The Company’s effective tax rate for the quarter ended September 30, 2021 was impacted by the earnings and losses in certain foreign jurisdictions and the impact of vesting of restricted stock units. The Company’s effective tax rate for the three and nine months ended September 30, 12 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ 2020 was 9.9 % and 57.6 %. The difference was primarily due to the impact of earnings and losses in certain foreign jurisdictions and the impact of vesting of restricted stock units. NOTE 8—COMMITMENTS AND CONTINGENCIES ​ The Company is subject to contingencies which arise through the ordinary course of business. All material liabilities of which management is aware are properly reflected in the financial statements at September 30, 2021 and December 31, 2020. ​ Neuralify Contingent Consideration ​ As of September 30, 2021, the Company has recorded a liability of $ 5.4 million representing the estimated fair value of contingent consideration related to the acquisition of Neuralify, all of which is classified as current and included in Other current liabilities on the consolidated balance sheet. ​ NOTE 9—SEGMENT AND GEOGRAPHICAL INFORMATION ​ The Company operates as one reportable segment consisting primarily of fact-based sourcing advisory services. The Company operates principally in the Americas, Europe and Asia Pacific. ​ Geographical revenue information for the segment is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Americas ​ $ 42,825 ​ $ 34,968 ​ $ 121,254 ​ $ 103,422 Europe ​ 20,138 ​ 20,928 ​ 66,595 ​ 64,044 Asia Pacific ​ 8,132 ​ 5,739 ​ 20,414 ​ 15,273 ​ ​ $ 71,095 ​ $ 61,635 ​ $ 208,263 ​ $ 182,739 ​ 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. ​ NOTE 10—FINANCING ARRANGEMENTS AND LONG-TERM DEBT ​ On March 10, 2020, the Company amended and restated its senior secured credit facility to include a $ 86.0 million term facility and to increase the revolving commitments per the revolving facility (the “2020 Credit Agreement”) from $ 30.0 million to $ 54.0 million. The material terms under the 2020 Credit Agreement are as follows: ● Each of the term loan facility and revolving credit facility has a maturity date of March 10, 2025 (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. 13 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ ● 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 nineteen consecutive quarterly installments of $ 1,075,000 each that commenced on June 30, 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. The Company’s financial statements include outstanding borrowings of $ 75.6 million and $ 78.8 million at September 30, 2021 and December 31, 2020, 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 $ 74.7 million and $ 77.7 million at September 30, 2021 and December 31, 2020, respectively. The fair values of debt have been estimated using a discounted cash flow analysis based on the Company's incremental borrowing rate for similar borrowing arrangements. The incremental borrowing rate used to discount future cash flows is 1.9 % and 2.5 % at September 30, 2021 and December 31, 2020, 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. As of September 30, 2021 and December 31, 2020, there were no borrowings under the revolver. ​ NOTE 11 - RISKS AND UNCERTAINTIES ​ On March 11, 2020, the World Health Organization declared the coronavirus (COVID-19) a pandemic, following the rapid spread of the disease from where it was first diagnosed, in China, to nations worldwide. The outbreak sparked responses across countries, states and cities worldwide to enforce various measures of social distancing and shelter-in-place orders and temporary closure of non-essential businesses to reduce further transmission of the virus. 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 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. Given the uncertainty of the marketplace, during fiscal year 2020, the Company implemented business continuity plans to ensure that the Company is able to remain 14 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ 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. These measures reduced personnel costs and other operating expenses, including reductions in staffing and contractor levels, vendor spending, travel, and other measures. ​ The Company has financial covenants underlying its debt which require a Debt to adjusted EBITDA ratio of 3.25 . The Company is currently in compliance with its financial covenants. ​ Management's plans would allow the Company to generate sufficient cash flows to reduce the Company's outstanding net debt and enable the Company to comply with the terms of its debt arrangements. 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 12 — RESTRUCTURING CHARGES ​ 2020 Restructuring Plan ​ In the third and fourth quarters 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 “Restructuring 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, 2021 is as follows: ​ ​ ​ ​ ​ ​ Restructuring Plan Balance at January 1, 2020 $ — Amounts accrued ​ 2,349 Amounts paid/incurred ​ ( 2,040 ) Balance at September 30, 2021 $ 309 ​ The $ 2.3 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 Restructuring Plan will be completed over the next three months . ​ ​ ​ ​ 15 ​