What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-03-11 compared with 2021-03-12 · 41 added, 58 removed, 254 unchanged (28% of the section changed)

7 unchanged sentences

Risks Related to the Coronavirus (COVID-19) Pandemic

The COVID-19 pandemic is having a material adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of our clients, and the duration and extent to which the COVID-19 pandemic will continue to affect our operations, financial performance, results of operations, achievement of strategic objectives, and/or stock price remains uncertain.

The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected, and is expected to continue to adversely affect, our operations, financial performance and demand for our products and services.

It has also adversely affected the operations and financial performance of many of our clients.

Additionally, the COVID-19 pandemic has resulted in, and is expected to continue to result in, a substantial curtailment of business activities (including the decrease in demand for a broad variety of products and services both regionally and globally), weakened economic conditions, significant economic uncertainty and volatility in the financial markets.

Additionally, we face challenges from evolving factors related to the COVID-19 pandemic that are not within our control, remain uncertain and to which we may not effectively respond.

For example, our operations span numerous locations around the world, and many local governments and countries have imposed or may impose various restrictions on our employees, partners and clients’ physical movement to limit the spread of COVID-19.

These restrictions are constantly changing, and we cannot predict how long and to what extent they will continue.

Further, the duration and extent of the impact from the COVID-19 pandemic and its impact on our operations and financial performance depend on future developments that cannot currently be accurately predicted, such as:

● the severity and transmission rate of the virus;

● the extent and effectiveness of containment actions;

● the timing of the development and distribution of effective vaccines and/or treatments and their acceptance by the general public;

● the health and well-being of our workforce;

● the extent and duration of the effect on client spending and the impact of these and other factors on our employees, clients, partners and vendors;

● the impact on our liquidity;

● increased volatility and pricing in the capital markets;

● the effect of the pandemic on the credit-worthiness of our customers;

● global economic conditions and levels of economic growth;

● the pace of recovery when the COVID-19 pandemic subsides.

The occurrence or continuation of any of the foregoing could have a material adverse effect on our operations or financial performance.

The impact of COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, may also precipitate or intensify other risks discussed in Item 1A.

Risk Factors in this Annual Report on Form 10-K, any of which could have a material effect on us.

This situation is changing rapidly, and additional effects may arise that we are not presently aware of or that we currently do not consider to present significant risks to our operations.

If we are not able to respond to and manage the impact of such events effectively, our business and financial condition will be negatively impacted.

The continuing impact of the COVID-19 pandemic is highly uncertain and cannot be predicted and may adversely impact our business, financial condition and results of operations.

The continuing global reach of COVID-19, including the emergence of new variants of the virus, has created significant worldwide operational volatility, uncertainty and disruption.

The COVID-19 pandemic adversely impacted our business, financial condition and results of operations, particularly in the early months of the pandemic, and the extent of the continuing impact will depend on numerous evolving factors, which are highly uncertain, rapidly changing and unpredictable, including:

● the duration, severity and scope of the pandemic, including as new variants emerge and spread;

● governmental, business and individual actions that may be taken in response to the outbreak, including travel restrictions, quarantines, social distancing, work-at-home, and stay-at-home mandates and business shut-downs;

● the effectiveness and timing of COVID-19 vaccination campaigns, or any perceived limitations of or setbacks in these efforts;

● the impact of the pandemic on the financial markets and economic activity generally;

● the impact of the pandemic on labor costs and supply;

● the effect of the pandemic on our clients and other business partners, including the impact of supply-chain disruptions;

● our ability to access usual sources of liquidity on reasonable terms;

● our ability to achieve the full benefits of the restructuring actions we took in 2020 and other cost-saving initiatives;

● our ability during the pandemic to provide our services, including those related to the health and wellbeing of our employees;

● the ability of our clients to pay for our services during and following the pandemic if significant disruptions develop or continue.

The COVID-19 pandemic has significantly increased financial and economic volatility and uncertainty.

Resulting downturns in the economy have had, and we expect will continue to have, a negative impact on many of our clients.

Some clients, particularly in the early months of the pandemic, responded to weak or volatile economic and financial conditions by reducing their IT budgets, thereby decreasing the market and demand for our services.

In addition, many businesses adjusted, reduced or suspended operating activities, which negatively impacted certain of the markets or industries we serve.

These patterns may recur in future periods, including as a result of pandemic developments such as the emergence of new virus variants that may be more transmissible, virulent or both.

All of the foregoing has impacted, and will likely continue to impact, our business, financial condition, results of operations and forward-looking expectations.

Furthermore, modified processes, procedures and controls have been required to respond to the changes in our business environment as the majority of our employees have continued to work from home.

The significant increase in remote working of our employees may exacerbate certain risks to our business, including the increased demand for information technology resources, increased risk of malicious technology-related events, such as cyberattacks and phishing attacks, and increased risk of improper dissemination of personal, proprietary or confidential information.

The potential effects of COVID-19 could also heighten the risks disclosed in many of our other risk factors that are included below, including as a result of, but not limited to, the factors listed above.

Risks Related to Outstanding Debt

6 unchanged sentences

we may not have sufficient liquidity to respond to business opportunities, competitive developments and adverse economic conditions;

our results of operations will be adversely affected if interest rates increase because, based on our current outstanding borrowings in the amount of $78.8 million, a 1% increase in interest rates would result in a pre-tax impact on earnings of approximately $0.8 million per year.

our results of operations will be adversely affected if interest rates increase because, based on our current outstanding borrowings in the amount of $74.5 million as of December 31, 2021, a 1% increase in interest rates would result in a pre-tax impact on earnings of approximately $0.7 million per year.

These debt obligations may also impair our ability to obtain additional financing, if needed, and our flexibility in the conduct of our business.

5 unchanged sentences

As of December 31, 2021, the total principal outstanding under the term loan facility and revolving credit facility was $74.5 million and $0.0 million, respectively.

In addition, variable-rate borrowings under our 2020 Credit Agreement typically use LIBOR as a benchmark based on market participant judgments for establishing the rate of interest.

LIBOR is the subject of recent national and international regulatory scrutiny, which may result in changes that cause LIBOR to disappear entirely after June 2023 for rates applicable to the 2020 Credit Agreement.

The changes may also cause LIBOR to perform differently than in the past.

The Alternative Reference Rates Committee (ARRC), which was convened by the Federal Reserve Board and the New York Fed, has identified the Secured Oversight Financing Rate (SOFR) as the recommended risk-free alternative rate for USD LIBOR.

The future consequences of these LIBOR developments on our variable-rate borrowings, including the possible transition to rates based on observable transactions, such as the Secured Overnight Financing Rate (SOFR), cannot be predicted at this time, but could include an increase in the cost of our variable-rate indebtedness and volatility in our earnings and cash flows.

Our failure to comply with the covenants in our credit agreement could materially and adversely affect our financial condition and liquidity.

15 unchanged sentences

In integrating acquired businesses, we may not achieve expected economies of scale or profitability or realize sufficient revenue to justify our investment.

If we encounter unexpected problems as we try to integrate an acquired firm into our business, our management may be required to expend time and attention to address the problems, which would divert their time and attention from other aspects of our business.

If we encounter unexpected problems as we try to integrate an acquired firm into our

business, our management may be required to expend time and attention to address the problems, which would divert their time and attention from other aspects of our business.

Strategic and Operation Risks

41 unchanged sentences

● our ability to transition our consultants efficiently from completed engagements to new engagements;

● unanticipated changes in the scope of client engagements;

● unanticipated changes in the scope of client engagements or unexpected terminations of client engagements;

● our ability to maintain an appropriate level of consultants by forecasting the demand for our services.

11 unchanged sentences

Any failure to continue to provide credible and reliable information and advice that is useful to our clients could have a significant adverse effect on future business and operating results.

Further, if our advice proves to be materially incorrect and the quality of service is

diminished, our reputation may suffer and demand for our services and products may decline.

Further, if our advice proves to be materially incorrect and the quality of service is diminished, our reputation may suffer and demand for our services and products may decline.

In addition, we must continue to improve our methods for delivering our products and services in a cost-effective manner.

Expanding our service offerings may not be profitable.

We may choose to develop new service offerings because of market opportunities or client demands.

We may choose from time to time to develop new service offerings because of market opportunities or client demands.

Developing new service offerings involves inherent risks, including:

30 unchanged sentences

As a result, additional new competitors may emerge, and existing competitors may start to provide additional or complementary services.

There can be no assurance that we will be able

to successfully compete against current and future competitors and our failure to do so could result in loss of market share, diminished value in our products and services, reduced pricing and increased marketing expenditures.

There can be no assurance that we will be able to successfully compete against current and future competitors and our failure to do so could result in loss of market share, diminished value in our products and services, reduced pricing and increased marketing expenditures.

Furthermore, we may not be successful if we cannot compete effectively on quality of advice and analysis, timely delivery of information, client service or the ability to offer services and products to meet changing market needs for information, analysis or price.

7 unchanged sentences

Connors, Chairman and Chief Executive Officer;

Lavieri, Vice-Chairman;

Berger, Executive Vice President, Chief Financial Officer;

Lavieri, Vice-Chairman and President – ISG Americas and Asia Pacific;

Alfonso, Executive Vice President, Chief Financial Officer;

Kucinski, Executive Vice President and Chief Human Resources Officer, among others.

45 unchanged sentences

This may affect our relationships with our clients and could have an adverse effect on our business.

The uncertainty surrounding the effect of Brexit may cause increased economic volatility, affecting our operations and business.

Tariffs, trade barriers and restrictions, and other acts by governments to protect domestic markets or to retaliate against the trade tariffs and restrictions of other nations could negatively affect our business operations.

In addition, the withdrawal of nations from existing common markets or trading blocs, such as the exit of the United Kingdom (“UK)” from the European Union (“EU”), commonly referred to as Brexit, could be disruptive and negatively impact our business and the business of our clients.

We continue to monitor Brexit and its potential impacts on our results of operations and financial condition.

In connection with Brexit, on December 24, 2020, the EU and the UK reached an agreement on a new trade arrangement that became effective on January 1, 2021.

Once the new rules are formalized, there could be near or long-term negative impacts on our UK business.

If this agreement and the new rules, once formalized, lead to legal uncertainty and potentially divergent national laws and regulations in the UK and EU, then we, as well as our clients who have significant operations in the UK, may incur additional costs and expenses as we adapt to the new trade agreements.

For example, we may face additional administrative procedures when purchasing tangible goods and equipment from the EU.

Additionally, volatility in foreign currencies and other markets may also arise as the UK and EU work though the new trade arrangements.

The impact of any of these effects of Brexit, among others, could materially harm our business and financial results.

We operate in a number of international areas which exposes us to significant foreign currency exchange rate risk.

6 unchanged sentences

Various statutes and rules regulate conduct in areas such as privacy and data protection which may affect our collection, use, storage and transfer of information both abroad and in the United States.

Compliance with these laws and self-regulatory codes may require us to make certain investments or may dictate that we not offer certain types of services or only offer such services after making necessary

modifications.

Failure to comply with these laws and self-regulatory codes may result in, among other things, civil and criminal liability, negative publicity, restrictions on further use of data and/or liability under contractual warranties.

1 unchanged sentence

Changes in these laws (including newly released interpretations of these laws by courts and regulatory bodies) may limit our data access, use and disclosure, and may require increased expenditures by us or may dictate that we may not offer certain types of services.

The EU’s General Data Protection Regulation (“GDPR”), which took effect in May 2018, has extra-territorial scope and substantial fines for breaches (up to 4% of global annual revenue or €20 million, whichever is greater).

Additionally, compliance with the GDPR is resulting in operational costs to implement new procedures corresponding to new legal rights granted under the law, but has had little direct impact on ISG products.

The EU’s General Data Protection Regulation (“GDPR”) has extra-territorial scope and substantial fines for breaches (up to 4% of global annual revenue or €20 million, whichever is greater).

Additionally, compliance with the GDPR is resulting in operational costs to implement new procedures corresponding to new legal rights granted under the law but has had little direct impact on ISG.

ISG is continuing to monitor the development of the EU’s ePrivacy Regulation proposal and industry response and will determine whether to take further action, as needed, following its final adoption.

3 unchanged sentences

The cybersecurity risks we face range from cyberattacks common to most industries, such as the development and deployment of malicious software to gain access to our networks and attempt to steal confidential information, launch distributed denial of service attacks, or attempt other coordinated disruptions, to more advanced threats that target us because of our prominence in the global research and advisory field.

As a result of the COVID-19 pandemic and shelter-in-place orders, most of our employees in affected areas are working remotely, which magnifies the importance of the integrity of our remote access security measures.

Ransomware risk has increased significantly in recent years and presents a significant risk of financial extortion and loss of data.

As a result of the COVID-19 pandemic, most of our employees continue to work remotely or on a hybrid basis, which magnifies the importance of the integrity of our remote access security measures.

We also face risk from our third-party suppliers if they are affected by cyber security incident, which could result in their loss of service (which could be a significant component of our services to clients), exposure of ISG or client data, or as a potential backdoor into ISG systems and network.

We may be subject to claims for substantial damages by our clients arising out of disruptions to their businesses or inadequate service and our insurance coverage may be inadequate.

16 unchanged sentences

Unauthorized disclosure of sensitive or confidential client data, whether through breach of our processes, systems or otherwise, could also damage our reputation and cause us to lose existing and potential clients.

We may also be subject to civil actions and criminal prosecution

by government or government agencies for breaches relating to such data.

We may also be subject to civil actions and criminal prosecution by government or government agencies for breaches relating to such data.

Our insurance coverage for breaches or mismanagement of such data may not continue to be available on reasonable terms or in sufficient amounts to cover one or more large claims against us.

2 unchanged sentences

As the breadth and complexity of this infrastructure continues to grow, including as a result of the use of mobile technologies, social media and cloud-based services, the risk of security breaches and cyberattacks increases.

Such breaches could lead to shutdowns or disruptions of or damage to our systems and those of our clients, alliance partners and vendors, and unauthorized disclosure of sensitive or confidential information, including personal data.

Such breaches could lead to shutdowns or disruptions of or damage to our

systems and those of our clients, alliance partners and vendors, and unauthorized disclosure of sensitive or confidential information, including personal data.

Client restrictions on the use of client data could adversely affect our activities.

27 unchanged sentences

In light of the foregoing, investors are urged to put the guidance in context and not to place undue reliance on it.

Any failure to successfully implement

our operating strategy or the occurrence of any of the events or circumstances set forth in this Annual Report on Form 10-K could result in the actual operating results being different than the guidance, and such differences may be adverse and material.

Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this Annual Report on Form 10-K could result in the actual operating results being different than the guidance, and such differences may be adverse and material.

Unresolved Staff Comments

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 1A. Risk Factors