What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-10 compared with 2022-03-11 · 96 added, 143 removed, 210 unchanged (53% of the section changed)

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

We operate in a very competitive and rapidly changing environment that involves numerous known and unknown risks and uncertainties, some of which are beyond our control.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.

Our future quarterly and annual revenues, operating income, results of operations and cash flows, as well as any forward-looking statement, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission.

Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following:

uncertainty of the magnitude, duration, geographic reach and impact on the global economy of the COVID-19 pandemic;

our ability to pay our debt;

compliance with our credit agreements;

risks associated with acquisitions or investments;

integration of businesses we have acquired;

worldwide economic conditions and credit tightening which could impact our operating results;

less than anticipated growth rates in broadly defined business information services & advisory sector;

the termination, delay, or reduction in scope to engagements with our clients;

fluctuating operating results from factors outside of our control;

a decrease in revenues from failure to secure new project-based advisory engagements;

the inability to achieve or maintain adequate utilization for our consultants;

the loss of money on our fixed-fee or capped fee contracts;

contracts with contingent-based revenue may cause unusual variations in our operating results;

our ability to maintain our existing services and products;

the profitability from expanding our service offering;

our ability to develop and offer the new services and products that we need to remain competitive;

our potential failure to anticipate and respond to market trends;

our ability to protect important intellectual property rights;

our ability to face and compete with competition;

a loss of key executives could adversely affect our business;

our reliance on key members of our management team;

the ability to attract, retain and train skilled advisory and other professionals;

agreements with certain clients that limit the ability of particular advisors to work on some engagements for a period of time;

the financial impact of losing one or more of our large clients;

the exposure to international operations could negatively impact our future revenue and growth;

data protection laws and self-regulatory codes may restrict our activities and increase our costs;

our exposure to risks related to cybersecurity;

our international operations expose us to foreign currency exchange rate risk;

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;

we could be liable to our clients for damages and subject to liability and our reputation could be damaged if our confidential information or client data is compromised;

failure to maintain effective internal control over financial reporting could adversely affect our business and the market price of our Common Stock;

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

we may not be able to maintain the equity in our brand name;

our actual operating results may differ significantly from our guidance;

risks and uncertainties.

The potential fluctuations in our operating income could cause period-to-period comparisons of operating results not to be meaningful and could provide an unreliable indication of future operating results.

A description of the risk factors associated with our business is included under “Risk Factors” in Item 1A.

of this Annual Report on Form 10-K, which is incorporated herein by reference.

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to facilitate an understanding of significant factors influencing the operating results, financial condition and cash flows of the Company.

Additionally, the MD&A conveys our expectations of the potential impact of known trends, events or uncertainties that may impact future results.

You should read this discussion in conjunction with our consolidated financial statements and related notes included in this Annual Report on Form 10-K.

Historical results and percentage relationships are not necessarily indicative of operating results for future periods.

References to “we,” “our” and “us” in this MD&A are to the Company and its consolidated subsidiaries.

This MD&A provides an analysis of our consolidated financial results and cash flows for 2022 and 2021 under the headings “Results of Operations,” “Non-GAAP Financial Presentation and Measures,” and “Liquidity and Capital Resources.” For a similar detailed discussion comparing 2021 and 2020, refer to those headings under Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2021.

BUSINESS OVERVIEW

ISG (Information Services Group) (Nasdaq:

Information Services Group, Inc.

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

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market intelligence and technology research and analysis.

Founded in 2006, and based in Stamford, Conn., ISG employs more than 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.

Founded in 2006, and based in Stamford, Connecticut, ISG employs approximately 1,600 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.

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CURRENT ENVIRONMENT

In March 2020, the World Health Organization categorized the disease caused by the novel coronavirus ("COVID-19") as a pandemic, and it continues to spread extensively throughout the United States and the rest of the world, particularly in recent months with the impact of the Omicron variant of the COVID-19 virus identified in the fourth quarter of 2021.

The outbreak of COVID-19 and public and private sector measures to reduce its transmission, such as business closures and limits on operations, the adoption of social distancing measures and public and private mandates to work-from-home, stay-at-home and shelter-in-place, in particular in the early months of the pandemic, adversely impacted our business and demand for our services as some businesses adjusted, reduced or suspended operating activities, which negatively impacted the markets we serve and our results of operations, cash flows and financial position throughout 2020.

In 2021, despite the economic and health impacts from the spread of the Delta and Omicron variants of the COVID-19 virus, we positively benefited from the effects of robust economic recovery in many of our principal markets as vaccination efforts took hold and the overall

public health situation improved in many markets.

We continue to believe that our focus on our strategic strengths, which include talent, our ISG NEXT operating model, data management capabilities, and the relevance of our offerings, position us well to navigate a rapidly changing marketplace.

The future course of the pandemic is unpredictable, and the extent of its impact on our business will vary depending on the duration and severity of the continuing economic and operational impacts of COVID-19.

The impact of the variants identified in 2021 and the pace of improvements in health and economic conditions has not been uniform across all geographies and could be threatened by such factors as the continued spread of the Omicron or other variants to the COVID-19 virus and limitations on the effectiveness of mass vaccination and other public health efforts to mitigate the impact of the pandemic.

At the outset of the COVID-19 pandemic, we responded swiftly in support of our people, our clients and our communities.

To protect our employees, and to do our part in stopping the spread of COVID-19, within days, our entire global workforce had moved to a remote work environment.

Prior to the rapid spread of the Omicron variant in the fourth quarter of 2021, a significant portion of our workforce had begun to return to the office at least part of the time, although much of our worldwide workforce continues to work from home.

We recognized the importance of regular communication to reassure employees and to keep them updated on our plans as the pandemic continues to unfold.

We continue to adjust our practices to facilitate the new working environments and take into account the need of many employees to work during non-traditional hours and juggle home lives and work responsibilities.

We believe we have had significant success in maintaining and continuing to advance the quality of our services notwithstanding extensive changes required by the pandemic.

With respect to managing costs, we undertook multiple initiatives to align our expenses with changes in revenue.

The steps we took in 2020 across the firm, included freezes on hiring and temporary labor, major cuts in non-essential spending, staff reductions and furloughs and salary reductions, including voluntary salary reductions for our senior corporate management team.

Several of these actions were discontinued in 2021 as revenue growth returned.

In 2020, the Company also took restructuring actions to lower our operating expenses structurally and permanently relative to revenue and to accelerate the transformation of our business.

Most of these actions were based on our experience and learning in the COVID-19 pandemic and a resulting review of our operations.

Notably, we foresee a greater role for work-from-home in a hybrid office-home model to deliver and support our services in a post-COVID world.

Inflation rates and the adverse effect of interest rates have increased significantly in the past year.

Inflation has not had a material effect on our business operations, financial performance and results of operations, other than its impact on the general economy.

Our exposure from changes to interest rates also has not had a material impact.

The Company continuously monitors these changes and evaluates any effect.

If our costs, in particular personnel-related costs, were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases in future periods.

Our inability or failure to realize these offsets could adversely affect our business operations, financial performance and results of operations.

EXECUTIVE SUMMARY

ISG delivered its best year ever in 2021.

Our success is reflected in our share price, as investors continue to take note of our performance.

During 2021, our share price rose 133 percent.

For the year, we increased shareholder value by more than $214 million and returned $21 million of capital to our shareholders in the form of dividends and share repurchases.

Our ISG NEXT operating model, introduced in the third quarter of 2020, really proved to be a game-changer in 2021.

Our solution-centric approach is resonating with clients and allowing us to expand our relationships by offering more end-to-end solutions, supported by our ISG Research and ISG Platform businesses.

We also have sharpened our focus on key industry segments, marshalling our vertical expertise with targeted industry solutions to capture more business in several sectors.

And we are realizing the service and productivity benefits of our virtual ISG iFlex™ global delivery network, which allows us to support our clients as one firm, across borders and time zones, leveraging the tools and information found in our cloud-based ISG Workbench.

Our ISG Platform business, anchored by our ISG GovernX supplier management solution, continues to grow—in the breadth of its offerings, in the number of clients we serve, and in revenues.

In 2021, we added new third-party risk management capabilities to GovernX, and continued to expand our other platform offerings.

Our ISG Research business delivered double-digit revenue growth, fueled, in particular, by the expansion of our ISG Provider Lens™ provider evaluation research business, which doubled in size in 2021.

During 2021, we took steps toward building our capabilities in several areas that show great promise for the firm, including ISG Digital Engineering, ISG Cybersecurity, and ISG Enterprise Cloud, a new approach to the market aimed at partnering with hyperscalers to support client transitions to the public cloud.

We are proud of our efforts to advance our Corporate Social Responsibility (CSR) agenda in areas including Inclusion, Diversity, Equity and Awareness (the IDEA team), Environmental Practices, Women in Digital and ISG Cares.

Each of these have fostered greater awareness of social issues and enhanced our ability to make a positive impact in our firm and in the communities we serve.

As we look ahead to even greater success in 2022, we can look back on 2021 as a year of enormous accomplishment and success.

It was a year when we began to emerge from the worst of the pandemic, streamlined our operations and positioned ourselves for greater efficiency and growth.

Under the umbrella of ISG NEXT, we simplified what we do, how we go to market and concentrated on the essence of how our clients benefit from ISG.

As a result, we achieved record financial results and our investors rewarded us with a growing share price.

Most importantly, we now have a solid foundation upon which to deliver robust growth in 2022 and in the years ahead.

ISG continues to have momentum in the marketplace and with our clients.

Market demand for all things digital is at record highs, and there is no doubt we have the right people, the right solutions, and the right approach to help every client navigate the still-challenging passage to becoming a fully digital enterprise.

Most every enterprise today is focused on continuous transformation:

being nimble and agile to continuously adjust their operating models to rapidly changing technology and business conditions.

This will create ongoing, sustainable demand for our advice, support, and services.

We are confident the best lies ahead for our firm and our clients as we power through the challenges of a rapidly changing world—and realize new levels of operational excellence and growth, together.

ISG delivered another record performance in 2022.

Coming off our best year ever, we elevated our results to new heights.

The Company’s 2022 success was built on our strong portfolio of services and solutions, our proven ISG NEXT operating model and our growing client base.

We exceeded 900 clients for the first time, continuing a trend that has seen our client base grow significantly over the past few years.

Nearly every one of our clients today is a digital business.

Each is using digital technology to redefine how they operate, how they engage with customers, employees and business partners, and how they create new revenue streams through connected products and services.

Our record revenue and profitability were the result of the operating efficiencies we derive from our ISG NEXT operating model, as well as our more profitable mix of products and services.

Our iFlex delivery model, part of ISG NEXT, is generating strong utilization across the firm, allowing us to effectively manage our resources across borders and time zones and deliver greater value to our clients, mostly on a virtual basis.

Our strong financial position and operating results allowed us to return $24 million of capital to our shareholders in the form of dividends and share repurchases in 2022.

It also allowed us to amend our existing $140 million credit agreement in early 2023, converting it to an all-revolver facility, with more favorable terms and an extended maturity date.

Looking ahead, we remain confident about our overall prospects for 2023 and beyond.

We are investing now for when the overall market rebounds and demand surges forward again during the next big wave of digitalization.

During 2022, we added more than 250 new professionals to the firm to support our future growth.

We also added new and important capabilities with our acquisitions of Change 4 Growth, an award-winning company specializing in transformational change for enterprises, and Agreemint, an automated contracting solution.

Change 4 Growth is a perfect complement to our existing ISG Enterprise Change business and makes ISG a global leader in change management.

This acquisition will expand the ISG Enterprise Change business by offering organizational change management (OCM), communications, training development and delivery, leadership development, mentoring, DEI programs, executive coaching and culture change.

Agreemint, meanwhile, complements our ISG GovernX business.

This AI-powered contract authorizing tool allows clients to negotiate better contracts and accelerate time to completion.

Our clients continue to be the lifeblood of our firm.

Our success requires our shared commitment to delivering value to them every day.

And by all measures, we are doing a very good job of that.

Environmental, Social and Governance (ESG) has become firmly entrenched in the culture of ISG.

We are delighted our people, through individual and group efforts, are helping to lead the charge for better communities, a better environment and better opportunities for all.

Throughout the pandemic years, we reinvented ISG and invested in our future.

That has resulted in two back-to-back years of record-breaking financial results and a continuously growing client base.

It also has created a solid foundation for the future.

With our ISG NEXT operating model and unmatched portfolio of solutions, advice, research and support, we are ready to take on all challenges and build on our momentum as a stronger, more valuable firm.

RESULTS OF OPERATIONS

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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.

Revenues related to materials required during an engagement (mainly out-of-pocket expenses such as airfare, lodging and meals) 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.

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Revenues increased by $8.4 million or approximately 3% in 2022.

The increase in revenues in the Americas was primarily attributable to an increase in our Advisory and Research service lines, as our clients made investments in their digital infrastructure and spending levels rebounded from the COVID-19 pandemic.

The increase in revenues in Asia Pacific was primarily attributable to an increase in our Advisory service line, primarily in Australia.

The increase in revenues in Europe was primarily attributable to an increase in our Research service line, primarily in Germany.

The increase in revenue in the Americas was primarily attributable to an increase in our Advisory, Research, NaSa and GovernX service lines, partially offset by a decrease in our Automation service line.

The revenue in Europe was flat with an increase in our Automation and GovernX service lines, being offset by a decrease in our Advisory, Research and NaSa service lines.

The increase in revenue in Asia Pacific was primarily attributable to an increase in our NaSa, Advisory and GovernX service lines, partially offset by a decrease in our Research service line.

The translation of foreign currency revenues into U.S.

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

dollars negatively impacted performance in Europe and Asia Pacific compared to the prior year by $12.7 million.

Operating Expenses

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Total operating expenses increased by $4.2 million, or approximately 2%, for 2022.

The increase in operating expenses were due primarily to higher compensation expenses of $12.2 million and contract labor of $11.9 million.

The cost increases were partially offset by lower travel and entertainment of $4.5 million, non-cash stock compensation of $2.4 million, restructuring costs of $1.4 million, bad debt

expense of $1.0 million, communications expense of $0.5 million, occupancy expenses of $0.4 million, and contingent consideration of $0.3 million, as well as general cost savings initiatives implemented in response to the COVID-19 pandemic and the ISG NEXT operating model.

The increase in operating expenses was due primarily to higher travel and entertainment expenses of $3.3 million, compensation expenses of $3.0 million, event-related expenses of $1.5 million, non-cash stock compensation of $1.0 million, professional fees of $0.6 million, bad debt expenses of $0.5 million, occupancy expenses of $0.4 million, subscriptions fees of $0.3 million and computer expenses of $0.3 million.

The cost increases were partially offset by lower contract labor of $4.2 million, changes in fair value of contingent consideration of $1.5 million, lower restructuring costs of $0.8 million and communication expenses of $0.4 million.

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

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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.

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 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 remotely or on client premises, all occupancy expenses are recorded as general and administrative.

Depreciation and amortization expense in 2021 and 2020 were $5.3 million and $6.2 million, respectively.

The decrease of $0.9 million in depreciation and amortization expense was primarily due to intangible assets that were fully amortized in the prior year.

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

Depreciation and amortization expenses in 2022 and 2021 were $5.4 million and $5.3 million, respectively.

Our fixed assets consist of furniture, fixtures, equipment (mainly personal computers) and leasehold improvements.

Depreciation expenses are 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.

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

Other Expense, Net

Other Income (Expense), Net

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

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Interest expense

Foreign currency gain (loss)

Foreign currency transaction gain

Total other income (expense), net

The total decrease of $1.2 million was primarily the result of lower interest expense attributable to our lower debt balance and lower interest rates.

The total increase of $0.6 million was primarily the result of higher interest expense attributable to higher interest rates and higher borrowings outstanding.

Income Tax Expense

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Our effective tax rate for the year ended December 31, 2022 was 26.1% compared to 32.8% for the year ended December 31, 2021.

The variance between the US statutory rate of 21.0% for the year ended December 31, 2021 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.

The variance from the U.S.

statutory rate of 21.0% for the year ended December 31, 2022 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 United States.

NON-GAAP FINANCIAL PRESENTATION

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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, and financing-related costs), 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, financing-related costs, and write-off of deferred financing costs 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.

We provide adjusted EBITDA (defined as net income, plus interest, taxes, depreciation and amortization, foreign currency transaction gains/losses, non-cash stock compensation, interest accretion associated with contingent consideration, acquisition-related costs, and 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, interest accretion associated with contingent consideration, acquisition-related costs, and severance, integration and other expense on a tax-adjusted basis) and adjusted net income 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 or credits 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.

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.

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,

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Depreciation and amortization

Change in contingent consideration

Interest accretion associated with contingent consideration

Acquisition-related costs (1)

Severance, integration and other expense

Financing-related costs

Foreign currency transaction (gain) loss

Foreign currency transaction gain

Non-cash stock compensation

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Intangible amortization

Change in contingent consideration

Interest accretion associated with contingent consideration

Acquisition-related costs (1)

Severance, integration and other expense

Financing-related costs

Write-off of deferred financing costs

Foreign currency transaction (gain) loss

Foreign currency transaction gain

Tax effect (2)

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Intangible amortization

Change in contingent consideration

Interest accretion associated with contingent consideration

Acquisition-related costs (1)

Severance, integration and other expense

Financing-related costs

Write-off of deferred financing costs

Foreign currency transaction (gain) loss

Foreign currency transaction gain

Tax effect (2)

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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 accounts receivable and contract assets, prepaid expense and other assets, accounts payable, contract liabilities, accrued expenses, and accrued payroll and related benefits.

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

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Effect of exchange rate changes on cash

Net increase in cash, cash equivalents, and restricted cash

As of December 31, 2021, our liquidity and capital resources included cash, cash equivalents, and restricted cash of $47.6 million compared to $43.8 million as of December 31, 2020, a net increase of $3.8 million, which was primarily attributable to the following:

Net (decrease) increase in cash, cash equivalents, and restricted cash

As of December 31, 2022, our liquidity and capital resources included cash, cash equivalents and restricted cash of $30.7 million compared to $47.6 million as of December 31, 2021, a net decrease of $16.9 million, which was primarily attributable to the following:

● our operating activities provided net cash of $11.1 million for the year ended December 31, 2022.

Net cash provided from operations was primarily attributable to $14.4 million provided by working capital and our net income after adjustments for non-cash charges of approximately $27.6 million.

The change in working capital was primarily attributable to a $4.5 million increase in accounts payable, $5.5 million increase in accrued expenses, $1.9 million increase in contract liabilities, $2.6 million decrease in accounts receivable and contract assets, and a $0.2 million increase in prepaid expense and other assets;

Net cash provided from operations was primarily attributable to our net income after adjustments for non-cash charges of approximately $34.1 million partially offset by $23.0 million use of working capital primarily attributable to a $14.0 million change in accounts receivables and contract assets, a $7.2 million change in accrued expenses and other liabilities, a $1.0 million change in prepaid expense and other assets, a $0.7 million change in accounts payables;

and $0.1 million change in contract liabilities;

● treasury share repurchases of $12.1 million;

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● cash dividends paid to shareholders of $7.5 million;

● proceeds from revolving facility of $9.0 million;

● principal payments on borrowings of $4.3 million;

● payment of contingent consideration of $1.0 million;

● payment for Change 4 Growth acquisition of $3.5 million:

● capital expenditures for property, plant and equipment of $3.4 million;

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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 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 the 2020 Credit Agreement to include a $86.0 million term facility and to increase the revolving commitments per the revolving facility from $30.0 million to $54.0 million.

The material terms under the 2020 Credit Agreement are as follows:

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● 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.

● 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 or (ii) Eurodollar Rate (adjusted for maximum reserves) as determined by the Administrative Agent (as defined in the 2020 Credit Agreement), 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.

● The term loan is repayable in nineteen consecutive quarterly installments of $1,075,000 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.

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● 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 $74.5 million and $78.8 million at December 31, 2021 and December 31, 2020, respectively, which are carried at amortized cost.

The Company’s financial statements include outstanding borrowings of $79.2 million and $74.5 million as of December 31, 2022 and December 31, 2021, 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 $73.6 million and $77.7 million at December 31, 2021 and December 31, 2020, respectively.

The fair value of the Company's outstanding borrowings is approximately $76.5 million and $73.6 million as of December 31, 2022 and December 31, 2021, 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 2.0% and 2.5% for December 31, 2021 and 2020, respectively.

The incremental borrowing rate used to discount future cash flows was 6.3% and 2.0% for December 31, 2022 and December 31, 2021, 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 December 31, 2021 and 2020, there were no borrowings under the revolver.

As of December 31, 2022 and December 31, 2021, there were $9.0 million and $0.0 million borrowings, respectively, under the revolver.

The Company is currently in compliance with its financial covenants.

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

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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.

The Company was in compliance with its financial covenants under the 2020 Credit Agreement as of December 31, 2022.

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.

Employee Retirement Plans

For the fiscal years ended December 31, 2021 and 2020, we contributed $2.1 million and $0.9 million, respectively, to the 401(k) plan (the “Savings Plan”) on a fully discretionary basis.

For both fiscal years ended December 31, 2022 and 2021, we contributed $2.1 million, respectively, to our 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.

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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).

(1) identifying the contract with the customer;

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

(3) determining the transaction price;

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

and (5) recognizing 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.

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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 and software 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.

We also derive revenues based on negotiating reductions in network and software costs of companies with the entities’ 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

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 and software 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.

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We also enter into arrangements for the sale of automation 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 on-premise software and software-as-a-service licenses, as well as other software-related services.

Revenue associated with the software performance obligation is primarily recognized at the point at which the software is installed or access is granted, 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.

Such software-related performance obligations include the sale of on-premise software, hybrid and software-as-a-service licenses, as well as other software-related services.

Revenue associated with the software performance obligation is primarily recognized at the point at which the software is installed or access is granted.

Revenue associated with events is recognized at the point of time at which the event occurs and is primarily comprised of sponsorships.

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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 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 invoice in advance of completing services or earning revenues, those amounts are recorded as contract liabilities.

When we invoice in advance of earning revenues, those amounts are recorded as contract liabilities.

Recent Accounting Pronouncements

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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 7. Management’s Discussion and Analysis