What changed in this filing

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Item 1A. Risk Factors

2023-03-10 compared with 2022-03-11 · 44 added, 49 removed, 246 unchanged (27% of the section changed)

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We urge you to consider carefully the factors described below and the risks that they present for our operations, as well as the risks addressed in other reports and materials that we file with the SEC and the other information included or incorporated by reference in this Form 10-K.

When the factors, events and contingencies described below or elsewhere in this Form 10-K materialize there could be a material adverse impact on our business, prospects, results of operations, financial condition, and cash flows, and could therefore have a negative effect on the trading price of our common stock.

When the factors, events and contingencies described below or elsewhere in this Form 10-K materialize there could be a material adverse impact on our business, prospects, results of operations, financial condition and cash flows, and could therefore have a potential negative effect on the trading price of our common stock.

Additional risks not currently known to us or that we now deem immaterial may also harm us and negatively affect your investment.

In addition to the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations discussed in Item 7 of this Form 10-K and in the risk factors below, additional or unforeseen effects from the COVID-19 pandemic and the global economic climate may give rise to or amplify many of these risks discussed below.

Risks Related to the Coronavirus (COVID-19) Pandemic

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.

In addition to the effects of the global economic and geopolitical climate on our business and operations discussed in Item 7 of this Form 10-K and in the risk factors below, additional or unforeseen effects from the global economic and geopolitical climate may give rise to or amplify many of these risks discussed below.

Risks in this section are grouped in the following categories:

(1) risks related to outstanding debt;

(2) risks related to acquisitions;

(3) strategy and operation risks;

(4) risks related to management and employees;

(5) macroeconomic risks;

(6) risks related to data, cybersecurity and confidential information;

and (7) general risks.

Many risks affect more than one category, and the risks are not in order of significance or probability of occurrence because they have been grouped by categories.

Risks Related to Outstanding Debt

We have a substantial amount of debt outstanding, which may limit our ability to fund general corporate requirements and obtain additional financing, limit our flexibility in responding to business opportunities and competitive developments and increase our vulnerability to adverse economic and industry conditions and changes in our debt rating.

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.

On March 10, 2020, the Company amended and restated its senior secured credit facility (the “2020 Credit Agreement”) to include an $86.0 million term facility and to increase the revolving commitments per the revolving facility from $30.0 million to $54.0 million.

As a result of the substantial fixed costs associated with the debt obligations, we expect that:

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A failure to pay interest or indebtedness when due could result in a variety of adverse consequences, including the acceleration of our indebtedness.

In such a situation, it is unlikely that we would be able to fulfill our obligations under or repay the accelerated indebtedness or otherwise cover our fixed costs.

In such a situation, it is unlikely that we would be able to fulfill our obligations under, repay the accelerated indebtedness or otherwise cover our fixed costs.

As of December 31, 2022, the total principal outstanding under the term loan facility and revolving credit facility was $70.2 million and $9.0 million, respectively.

On February 22, 2023, the Company entered into a third amended and restated senior secured credit facility comprising a $140.0 million revolving credit facility, amending and restating the 2020 Credit Agreement.

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

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Poor financial performance could cause us to be in default of these covenants.

While we were in compliance with these covenants on December 31, 2021, there can be no assurance that we will remain in compliance in the future.

If we fail to comply with the covenants in our credit agreement, this could result in our having to seek an amendment or waiver from our lenders to avoid the termination of their commitments and/or the acceleration of the maturity of outstanding amounts under the credit facility.

While we were in compliance with these covenants as of December 31, 2022, there can be no assurance that we will remain in compliance in the future.

If we fail to comply with the covenants in our credit agreement, we may have to seek an amendment or waiver from our lenders to avoid the termination of their commitments and/or the acceleration of the maturity of outstanding amounts under the credit facility.

The cost of our obtaining an amendment or waiver could be significant, and further, there can be no assurance that we would be able to obtain an amendment or waiver.

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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

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Our results of operations are affected by the level of business activity of our clients, which in turn is affected by the level of economic activity in the industries and markets that they serve.

A decline in the level of business activity of our clients, such as the impact of a pandemic, could have a material adverse effect on our revenue and profit margin.

A decline in the level of business activity of our clients, such as the impact of a pandemic, inflation, slowing growth, rising interest rates and recession, could have a material adverse effect on our revenue and profit margin.

Future economic conditions could cause some clients to reduce or defer their expenditures for consulting services.

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However, current and future cost-management initiatives may not be sufficient to maintain our margins if the economic environment should weaken for a prolonged period.

The rate of growth in the broadly defined business information services & advisory sector and/or the use of technology in business may fall significantly below the levels that we currently anticipate.

The rate of growth in the broadly defined business information services and advisory sector and/or the use of technology in business may fall significantly below the levels that we currently anticipate.

Our business is dependent upon continued growth in sourcing activity, the use of technology in business by our clients and prospective clients and the continued trend towards sourcing of complex information technology and business process tasks by large and small organizations.

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Our engagements may be terminated, delayed or reduced in scope by clients at any time.

Our clients may decide at any time to abandon, postpone and/or to reduce our involvement in an engagement.

Our clients may decide at any time to abandon, postpone and/or reduce our involvement in an engagement.

Our engagements can be terminated, or the scope of our responsibilities may be diminished, with limited advance notice.

If an engagement is terminated, delayed or reduced unexpectedly, the professionals working on the engagement could be underutilized until we assign them to other projects.

If an engagement is terminated, delayed

or reduced unexpectedly, the professionals working on the engagement could be underutilized until we assign them to other projects.

Accordingly, the termination or significant reduction in the scope of a single large engagement, or multiple smaller engagements, could harm our business results.

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strategic decisions by us, our clients or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

● global economic and political conditions and related risks, including acts of terrorism, pandemics, such as COVID-19;

global economic and political conditions and related risks, including acts of terrorism, war, such as the war in Ukraine, pandemics, such as COVID-19, inflation, slowing growth, rising interest rates and recession;

conditions in the travel industry that could prevent our advisors from traveling to client sites.

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We face competition for the limited pool of these qualified professionals from, among others, technology companies, market research firms, consulting firms, financial services companies and electronic and print media companies, some of which have a greater ability to attract and compensate these professionals.

Moreover, increasing wage inflation may affect our profit margin as we strive to provide compensation packages that are competitive.

We face risks related to global labor shortages, and competitive markets have increased attrition throughout our sector.

Some of the personnel that we attempt to hire may be subject to non-compete agreements that could impede our short-term recruitment efforts.

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Our international operations expose us to a variety of risks that could negatively impact our future revenue and growth.

Approximately 42% and 43% of our revenues for 2021 and 2020, respectively, were derived from sales outside of the Americas.

Approximately 42% of our revenues for both 2022 and 2021, respectively, were derived from sales outside of the Americas.

Our operating results are subject to the risks inherent in international business activities, including:

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restrictions on the repatriation of profits or payment of dividends;

● crime, strikes, riots, civil disturbances, pandemics, such as COVID-19, terrorist attacks and wars;

crime, strikes, riots, civil disturbances, pandemics, such as COVID-19, terrorist attacks and wars, such as the war in Ukraine;

nationalization or expropriation of property;

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We have significant international revenue, which is predominantly collected in local currency.

It is expected that our international revenues will continue to grow as European and Asian markets adopt sourcing solutions.

It is expected that our international revenues will continue to grow as European and Asian Pacific markets adopt sourcing solutions.

The translation of our revenues into U.S.

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Data protection laws and self-regulatory codes may restrict our activities and increase our costs.

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.

Various statutes and rules regulate conduct in areas such as privacy and data protection that 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.

In addition, there is an increasing public concern regarding data and consumer protection issues, with the result that the number of jurisdictions with data protection laws continues to increase and the scope of existing privacy laws and the data considered to be covered by such laws is expanding.

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.

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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.

To mitigate the risk and negative exposure of data outside ISG, we have put in place a data protection framework which includes policies, procedures, guidance and records.

This includes policies and procedures for rights and usage of personal and client data.

ISG employs a Data Privacy Manager who works closely with a governing board made up of the Chief Financial Officer, Chief Human Resource Officer, Chief Information Officer, Chief Data and Analytics Officer, Chief Information Security Officer, Legal Counsel and Director of Corporate Compliance.

The Data Privacy Manager completes an internal audit annually and works with a specialist third party to complete one external Data Protection Compliance review annually.

Data Protection and Privacy training is included in the mandatory Information Security and Privacy training module for all new joiners.

Training is updated and republished for completion by all employees and contractors on an annual basis.

We are exposed to risks related to cybersecurity.

A significant portion of our business is conducted over the internet and we rely on the secure processing, storage and transmission of confidential, sensitive, proprietary and other types of information relating to our business operations and confidential and sensitive information about its clients and employees in our computer systems and networks, and in those of our third-party vendors.

A significant portion of our business is conducted over the internet, and we rely on the secure processing, storage and transmission of confidential, sensitive, proprietary and other types of information relating to our business operations and confidential and sensitive information about our clients and employees in our computer systems and networks, and in those of our third-party vendors.

Individuals, groups and state-sponsored organizations may take steps that pose threats to our operations, our computer systems, our employees and our clients.

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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.

With the ISG NEXT operating model 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 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.

Most of our service contracts with clients contain service level and performance requirements, including requirements relating to the quality of our services.

Failure to consistently meet service requirements of a client or errors made by our employees in the course of delivering services to our clients could disrupt the client’s business and result in a reduction in revenues or a claim for damages against us.

Failure to consistently meet service requirements of a client or errors made by our employees in the course of

delivering services to our clients could disrupt the client’s business and result in a reduction in revenues or a claim for damages against us.

Additionally, we could incur liability if a process we manage for a client were to result in internal control failures or impair our client’s ability to comply with our own internal control requirements.

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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.

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Auditing Standard No.

5 provides the professional standards and related performance guidance for auditors to attest to, and report on, management’s assessment of the effectiveness of internal control over financial reporting under Section 404.

Management’s assessment of internal control over financial reporting requires management to make subjective judgments and, some of the judgments will be in areas that may be open to interpretation.

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This guidance, which consists of forward-looking statements, is prepared by our management and is qualified by, and subject to, the assumptions and the other information contained or referred to in the release.

Our guidance is not prepared with a view toward compliance with published guidelines of the Public Company Accounting Oversight Board (United States), and neither our independent registered public accounting firm nor any other independent expert or outside party compiles or examines the guidance and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.

Our guidance is not prepared with a view toward compliance with published guidelines of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), and neither our independent registered public accounting firm nor any other independent expert or outside party compiles or examines the guidance and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.

Guidance is based upon a number of assumptions and estimates that, while presented with numerical specificity, is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change.

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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