What changed in this filing

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Item 1A. Risk Factors

2025-03-13 compared with 2024-03-08 · 53 added, 44 removed, 262 unchanged (27% of the section changed)

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The following sections address significant factors, events and uncertainties that make an investment in our securities risky.

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, any of which could have a potential negative effect on the trading price of our common stock.

When the factors, events and contingencies described below or elsewhere in this Annual Report on Form 10-K materialize, there could be a material adverse impact on our business, prospects, results of operations, financial condition and cash flows, any of which could 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 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.

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;

(2) risks related to acquisitions and dispositions;

(3) strategy and operation risks;

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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 February 22, 2023, the Company amended and restated its senior secured credit facility to increase the revolving commitments per the revolving facility (the “2023 Credit Agreement”) from $54.0 million to $140.0 million and eliminate its term loan.

On February 22, 2023, the Company amended and restated its senior secured credit facility to increase the revolving commitments per the revolving facility from $54.0 million to $140.0 million and eliminate its term loan (as further amended on June 27, 2024, the “2023 Credit Agreement”).

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

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

Our indebtedness under the senior secured revolving credit facility is secured by substantially all of our assets, leaving us with limited collateral for additional financing.

Moreover, the terms of our indebtedness under the senior secured revolving credit facility restrict our ability to take certain actions, including the incurrence of additional indebtedness, mergers and acquisitions, investments and asset sales.

Our indebtedness under the 2023 Credit Agreement is secured by substantially all of our assets, leaving us with limited collateral for additional financing.

Moreover, the terms of our indebtedness under the 2023 Credit Agreement restrict our ability to take certain actions, including the incurrence of additional indebtedness, mergers and acquisitions, investments and asset sales.

Our ability to pay the fixed costs associated with our debt obligations will depend on our operating performance and cash flow, which in turn depend on general economic conditions and the advisory services market.

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

As of December 31, 2023, the total principal outstanding under the revolving credit facility was $79.2 million.

As of December 31, 2024, the total principal outstanding under the 2023 Credit Agreement was $59.2 million.

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

Our credit agreement contains financial covenants requiring that we maintain, among other things, certain leverage and interest coverage ratios.

The 2023 Credit Agreement contains financial covenants requiring that we maintain, among other things, certain leverage and interest coverage ratios.

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

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If our lenders were unwilling to enter into an amendment or provide a waiver, all amounts outstanding under our credit facility would become immediately due and payable.

Our variable rate indebtedness will subject us to interest rate risk, which could cause our annual debt service obligations to increase significantly.

Borrowing under our 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) Term SOFR, plus 1.0%), plus the applicable margin (as defined below) or (ii) Term SOFR (which is the Term SOFR screen rate for the relevant interest period plus a credit spread adjustment of 0.10%) as determined by the administrative agent, plus the applicable margin.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.

Borrowing under 2023 Credit Agreement 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) Term SOFR, plus 1.0%), plus the applicable margin or (ii) Term SOFR (which is the Term SOFR screen rate for the relevant interest period plus a credit spread adjustment of 0.10%) as determined by the administrative agent, plus the applicable margin.

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

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An increase in debt service obligations under our variable rate indebtedness could affect our ability to make payments required under the terms of our credit facility.

Risks Related to Acquisitions

Risks Related to Acquisitions and Dispositions

We have risks associated with acquisitions or investments.

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We may not be able to successfully integrate businesses that we acquire in the future without substantial expense, delays or other operational or financial problems.

We may not be able to identify, acquire or profitably manage additional businesses.

In addition, we may not be able to identify, acquire or profitably manage additional businesses.

If we pursue acquisition or investment opportunities, these potential risks could disrupt our ongoing business, result in the loss of key customers or personnel, increase expenses and otherwise have a material adverse effect on our business, results of operations and financial condition.

Difficulties in integrating businesses we have acquired, or may acquire in the future, may demand time and attention from our senior management.

Integrating businesses we have acquired, or may acquire in the future, may involve unanticipated delays, costs and/or other operational and financial problems.

Integrating businesses we have acquired, or may acquire in the future, may involve unanticipated delays, costs and/or other operational and financial difficulties.

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.

We have risks associated with dispositions.

We have conducted dispositions in the past and may again in the future.

Disposition involve risks and uncertainties, such as our ability to sell such businesses for a satisfactory price and terms and in a timely manner, or at all, potential disruptions to other parts of our organization and distraction of management, the reallocation of internal resources that would otherwise be devoted to completing strategic acquisitions, potential losses of key employees or customers, exposure to unanticipated liabilities, any ongoing obligations to support the business following any such disposition, and other adverse financial impacts.

The realization of any of these risks could adversely affect our business.

Strategy and Operation Risks

Our operating results have been, and may in the future be, adversely affected by worldwide economic conditions and credit tightening.

Our operating results have in the past been, and may in the future be, adversely affected by worldwide economic conditions and credit tightening.

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.

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Companies that have already invested substantial resources in developing in-house information technology and business process functions may be particularly reluctant or slow to move to a sourcing solution that may make some of their existing personnel and infrastructure obsolete.

We may not be successful in our artificial intelligence initiatives, which could adversely affect our business, reputation or financial results.

Artificial Intelligence (“AI”) presents new risks and challenges that may affect our business.

We have made, and expect to continue to make, investments to integrate AI and machine learning technology into our services.

Given the nature of AI technology, we face significant competition from other companies and an evolving regulatory landscape.

Our AI efforts may not be successful, and our competitors may incorporate AI into their products more successfully than us, which could impair our ability to compete effectively and adversely affect our financial results.

The rapid evolution of AI combined with the uncertain and often inconsistent regulatory landscape may require significant additional resources and costs and could in some cases limit our ability to implement AI capabilities in our solutions or potentially result in the implementation failing to produce the desired outcome.

Despite our implementation of programs designed to support responsible AI use and development, we may not successfully address all issues that may arise.

For example, privacy concerns, user consent, supply chain security, transparency and the accuracy, completeness and suitability of data sets are all potential issues that could adversely affect our business, reputation or financial results.

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

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● maintaining a global business operation.

Any material decline in our ability to secure new advisory arrangements could have an adverse impact on our revenues and financial condition.

Any material declines in our ability to secure new advisory arrangements could have an adverse impact on our revenues and financial condition.

If we are unable to achieve or maintain adequate utilization for our consultants, our operating results could be adversely impacted.

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As part of our strategy, from time to time, we enter into fixed-fee contracts, in addition to contracts based on payment for time and materials with capped fees.

Because of the complexity of many of our client engagements, accurately estimating the cost, scope and duration of a particular engagement can be a difficult task.

Because of the complexity of many of our client engagements, accurately estimating the cost, scope and duration of a particular engagement can be difficult.

If we fail to make accurate estimates, we could be forced to devote additional resources to these engagements for which we will not receive additional compensation.

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● competition from more established market participants;

● our inability to estimate demand for the new service offerings;

● any inability to estimate demand for the new service offerings;

● unanticipated expenses to hire qualified consultants and to market our new service offerings.

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We rely on copyright and trademark laws, as well as nondisclosure and confidentiality arrangements, to protect our proprietary rights in our methods of performing our services, our data and our tools for analyzing financial and other information.

There can be no assurance that the steps we have taken to protect our intellectual property rights will be adequate to deter misappropriation of our rights or that we will be able to detect unauthorized use and take timely and effective steps to enforce our rights.

There can be no assurance that the steps we have taken, or may take in the future, to protect our intellectual property rights will be adequate to deter misappropriation of our rights or that we will be able to detect unauthorized use and take timely and effective steps to enforce our rights.

If substantial and material unauthorized uses of our proprietary methodologies, data and analytical tools were to occur, we may be required to engage in costly and time-consuming litigation to enforce our rights.

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We may not be able to retain these managers and may not be able to enforce the restrictive covenants.

If we were to lose a number of key members of our management team and were unable to replace these people quickly, we could have difficulty maintaining our growth and certain key relationships with large clients and face competition from these former managers if the restrictive covenants are unenforceable.

If we were to lose a number of key members of our management team and were unable to replace such individuals quickly, we could have difficulty maintaining our growth and certain key relationships with large clients and face competition from these former managers if the restrictive covenants are unenforceable.

We depend upon our ability to attract, retain and train skilled advisors and other professionals.

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

Any failure to retain key personnel or hire and train additional qualified personnel as required supporting the evolving needs of clients or growth in our business could adversely affect the quality of our products and services, and our future business and operating results.

Any failure to retain key personnel or hire and train additional qualified personnel as required to support the evolving needs of clients or growth in our business could adversely affect the quality of our products and services, and our future business and operating results.

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

We provide services primarily in connection with significant or complex sourcing transactions and other matters that provide potential competitive advantage and/or involve sensitive client information.

We provide services primarily in connection with significant or complex sourcing transactions and other matters that provide potential competitive advantages and/or involve sensitive client information.

Our engagement by a client occasionally precludes us from staffing certain advisors on new engagements with other clients because the advisors have received confidential information from a client who is a competitor of the new client.

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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 Pacific markets adopt sourcing solutions.

It is expected that our international revenues will start to show growth as European and Asian Pacific markets adopt to sourcing solutions.

The translation of our revenues into U.S.

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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 keep expanding.

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

As a global firm, ISG must comply with various international and domestic data privacy regulations such as (i) the EU and UK General Data Protection Regulation (“GDPR”), which has extra-territorial scope and substantial fines for breaches (up to 4% of global annual revenue or €20 million, whichever is greater), (ii) the California Consumer Privacy Act, which, unlike data privacy provisions enacted by other US states, covers individuals acting in a commercial or employment context not just as consumers, and (iii) the Australian Privacy Act, among others.

In addition, the new India Digital Personal Data Protection Act 2023 (“DPDP”) is likely to come into force in 2024.

As a global company, ISG must comply with various international and domestic data privacy regulations such as (i) the EU and UK General Data Protection Regulation (“GDPR”), which has extra-territorial scope and substantial fines for breaches (up to 4% of global annual revenue or €20 million, whichever is greater), (ii) the California Consumer Privacy Act, which, unlike data privacy provisions enacted by other US states, covers individuals acting in a commercial or employment context not just as consumers, and (iii) the Australian Privacy Act, among others.

In addition, the new India Digital Personal Data Protection Act 2023 (“DPDP”) draft rules are out for consultation, which closed in February 2025.

The DPDP is anticipated to come into force within two years.

Like the GDPR, the DPDP has extra-territorial reach.

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However, like the GDPR, failure to comply with the DPDP may lead to substantial fines.

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, if it is adopted.

ISG is continuing to monitor the development of the EU’s ePrivacy Regulation and published guidelines to determine whether further action as required.

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

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

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.

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 attempts at other coordinated disruptions, to more advanced threats that target us because of our prominence in the global research and advisory field.

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

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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 while 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 their own internal control requirements.

Failure to consistently meet the service requirements of a client or errors made by our employees while 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 was to result in internal control failures or impair our client’s ability to comply with their own internal control requirements.

Under our service agreements with our clients, our liability for breach of our obligations is generally limited to actual damages suffered by the client and is typically capped at the greater of an agreed amount or the fees paid or payable to us under the relevant agreement.

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The successful assertion of one or more large claims against us that exceed available insurance coverage or changes in our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements) could have a material adverse effect on our business.

We could be subject to liability and our reputation could be damaged if our confidential information or client data is compromised through security breaches, cyberattacks or otherwise.

We may be liable to our clients for damages caused by disclosure of confidential information or personal data.

We are often required to collect and store sensitive or confidential client data to perform the services we provide under our contracts.

Many of our contracts do not limit our potential liability for breaches of confidentiality.

If any person, including any of our current or former employees, penetrates our network security or misappropriates sensitive data or if we do not adapt to changes in data protection legislation, we could be subject to significant liabilities to our clients or to our clients’ customers for breaching contractual confidentiality provisions or privacy laws.

Also, we could face cyber-based attacks and attempts by hackers and similar unauthorized users to gain access to or corrupt our information technology systems to gain access to confidential information and client data.

Such attacks could disrupt our business operations, cause us to incur unanticipated losses or expenses, and result in unauthorized disclosures of confidential or proprietary information.

We could have liability, or our reputation could be damaged, if we fail to protect client and/or our data from security breaches or cyberattacks.

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As the breadth and complexity of this infrastructure continues to grow, because 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.

In addition, third party Cyber Security Risk is a critical focus for us.

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Tier 3 third parties are recorded on the DPIA register, but no further due diligence is performed by the security team, as Tier 3 third parties process no client or personal data and have no access or integration to ISG’s network or systems.

As part of our continuous improvement in our third-party risk management process, we plan to engage the services of a third-party risk monitoring services to monitor threat intelligence and known vulnerabilities.

As part of our continuous improvement in our third-party risk management process, we engage the services of a third-party risk monitoring service to monitor threat intelligence and known vulnerabilities.

Although we seek to prevent, detect, and investigate cybersecurity threats and incidents, and have taken steps to mitigate the likelihood of network security breaches, there can be no assurance that attacks by unauthorized users will not be attempted in the future or that our security measures will be effective.

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

We may also be subject to civil actions and/or criminal prosecution by government or quasi-government agencies for breaches relating to such

We may also be subject to civil actions and/or criminal prosecution by government or quasi-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.

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Failure to maintain effective internal control over financial reporting could adversely affect our business and the market price of our common stock.

Pursuant to rules adopted by the SEC implementing Section 404 of the Sarbanes Oxley Act of 2002, we are required to assess the effectiveness of our internal control over financial reporting and provide a management report on our internal control over financial reporting in all annual reports.

in all annual reports.

This report contains, among other matters, a statement as to whether or not our internal control over financial reporting is effective and the disclosure of any material weaknesses in our internal control over financial reporting identified by management.

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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) (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.

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 or firm 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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Investors should also recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data is forecast.

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

In light of the foregoing, investors are urged to put any 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.

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