What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-09 · 104 added, 39 removed, 170 unchanged (46% of the section changed)

6 unchanged sentences

Forward-looking statements are based on our beliefs as well as assumptions based on information currently available to us, including financial and operational information, the volatility of our stock price, current competitive conditions and the impact of U.S.

tariffs, trade barriers and restrictions, as well as wars, such as the war in Ukraine and the

conflict in the Middle East.

tariffs, trade barriers and restrictions, as well as wars.

As a result, these statements are subject to various risks and uncertainties.

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The volume of work performed for any particular client can vary widely from period to period.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND MARCH 31, 2024

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2025 AND JUNE 30, 2024

The following table presents a breakdown of our revenue by geographic area:

Three Months Ended March 31,

Three Months Ended June 30,

Geographic Area

1 unchanged sentence

Total revenues

Revenues decreased $4.7 million, or approximately 7%, in the first quarter of 2025 compared to the first quarter of 2024.

The revenue for the Americas were flat with an increase in Consulting partially offset by a decrease in Automation and Network & Software Advisory Services (“NaSa”) (excluding the prior year Automation revenue due to sale of the Automation service line, revenues would have reported an increase of 17%).

The decrease in revenue in Europe was primarily attributable to a decrease in Automation, NaSa, GovernX and Research service lines (excluding the prior year Automation revenue, revenues would have reported a decrease of 13%).

The revenue decrease in Asia Pacific was primarily attributable to a decrease in our Consulting, GovernX and Research service lines.

Revenues decreased $2.7 million, or approximately 4%, in the second quarter of 2025 compared to the second quarter of 2024.

The decrease in revenue in the Americas was primarily due to a decrease in Automation revenue (excluding the prior year Automation revenue due to sale of the Automation service line, revenues would have reported an increase of 16%), partially offset by an increase in Consulting service lines.

The decrease in revenue in Europe was primarily attributable to a decrease in Automation and Network & Software Advisory Services (“NaSa”) service lines (excluding the prior year Automation revenue, revenues would have reported a decrease of 7%).

The revenue decrease in Asia Pacific was primarily attributable to a decrease in our Consulting and NaSa service lines.

The translation of foreign currency revenues into U.S.

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The following table presents a breakdown of our operating expenses by category:

Three Months Ended March 31,

Three Months Ended June 30,

Operating Expenses

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Total operating expenses

Total operating expenses decreased $10.5 million, or approximately 16%, for the first quarter of 2025 compared to the first quarter of 2024.

The decrease in operating expenses was primarily due to lower automation license fees expense of $3.7 million, restructuring costs of $2.6 million, compensation expense of $2.4 million, contract labor expense of $0.6 million and travel and entertainment expense of $0.4 million.

These costs were partially offset by higher stock-based compensation expense of $0.2 million and professional fees of $0.1 million.

Total operating expenses decreased $3.7 million, or approximately 6%, for the second quarter of 2025 compared to the second quarter of 2024.

The decrease in operating expenses was primarily due to lower automation license fees expense of $3.4 million, expense reversal associated with an amount that was no longer due to a sub-contractor of $1.9 million, compensation expense of $0.5 million, restructuring costs of $0.4 million, conference expense of $0.4 million, bad debt expense of $0.3 million and contract labor expense of $0.2 million.

These costs were partially offset by higher legal reserves of $1.8 million, stock-based compensation expense of $0.9 million and travel and entertainment expense of $0.8 million.

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

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Sales and marketing costs consist principally of compensation expenses related to business development, proposal preparation and delivery and negotiation of new client contracts.

Costs also include travel expenses relating to the pursuit of sales opportunities, expenses for hosting periodic client conferences, public relations activities, participation in industry

conferences, industry relations, website maintenance and business intelligence activities.

Costs also include travel expenses relating to the pursuit of sales opportunities, expenses for hosting periodic client conferences, public relations activities, participation in industry conferences, industry relations, website maintenance and business intelligence activities.

The Company maintains a dedicated global marketing function responsible for developing and managing sales campaigns, brand promotion, the ISG Index and assembling proposals.

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Because our billable personnel operate primarily on client premises or work remotely, all occupancy expenses are recorded as general and administrative.

Depreciation and amortization expense was $1.1 million and $1.5 million for the first quarters of 2025 and 2024, respectively.

Depreciation and amortization expense was $1.2 million and $1.6 million for the second quarters of 2025 and 2024, respectively.

The decrease of $0.5 million was primarily due to the sale of our Automation business on October 1, 2024.

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

Three Months Ended March 31,

Three Months Ended June 30,

Other income (expense), net

2 unchanged sentences

Interest expense

Foreign currency transaction gain

Foreign currency transaction (loss) gain

Total other expense, net

The total decrease in other expenses of $0.3 million, or approximately 20%, was primarily the result of lower interest expense attributable to a lower debt balance, partially offset by lower interest income.

The total decrease in other expenses of $0.2 million, or approximately 17% in the second quarter of 2025 compared to the second quarter of 2024, was primarily the result of lower interest expense attributable to a lower debt balance.

Income Tax Expense

Our quarterly effective tax rate varies from period to period based on the mix of our earnings among the various state and foreign tax jurisdictions in which our business is conducted and the level of non-deductible expenses projected to be incurred during the current fiscal year.

Our effective tax rate for the quarter ended March 31, 2025 was 37.9% compared to 6.4% for the quarter ended March 31, 2024.

The difference for the quarter ended March 31, 2025 was primarily due to the impact of an increase in pre-tax earnings.

The Company’s effective tax rate for the quarter ended March 31, 2025 was larger than the statutory rate primarily due to non-deductible expenses and the impact of earnings in foreign jurisdictions.

There were no significant changes in uncertain tax position reserves or valuation allowances during the quarter ended March 31, 2025.

Our effective tax rate for the quarter ended June 30, 2025 was 38.7% compared to 12.0% for the quarter ended June 30, 2024.

The difference for the quarter ended June 30, 2025 was primarily due to the impact of an increase in pre-tax earnings.

The Company’s effective tax rate for the quarter ended June 30, 2025 was higher than the statutory rate primarily due to non-deductible expenses and the impact of earnings in foreign jurisdictions.

There were no significant changes in uncertain tax position reserves or valuation allowances during the quarter ended June 30, 2025.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2025 AND JUNE 30, 2024

The following table presents a breakdown of our revenue by geographic area:

Six Months Ended June 30,

Geographic Area

($ in thousands)

Total revenues

Revenues decreased $7.4 million, or approximately 6%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

The revenue for the Americas was flat with an increase in Consulting partially offset by a decrease in Automation (excluding the prior year Automation revenue due to sale of the Automation service line, revenues would have reported an increase of 16%).

The decrease in revenue in Europe was primarily attributable to a decrease in Automation, NaSa, and GovernX service lines (excluding the prior year Automation revenue, revenues would have reported a decrease of 10%).

The revenue decrease in Asia Pacific was primarily attributable to a decrease in our Consulting, and NaSa service lines.

The translation of foreign currency revenues into U.S.

dollars positively impacted performance in Europe and Asia Pacific compared to the prior year by $0.4 million.

Operating Expenses

The following table presents a breakdown of our operating expenses by category:

Six Months Ended June 30,

Operating Expenses

($ in thousands)

Direct costs and expenses for advisors

Selling, general and administrative

Depreciation and amortization

Total operating expenses

Total operating expenses decreased $14.2 million, or approximately 11%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

The decrease in operating expenses was primarily due to lower automation license fees expense of $7.1 million, restructuring costs of $3.0 million, compensation expense of $2.9 million, expense reversal associated with an amount that was no longer due to a sub-contractor of $1.9 million, contract labor expense of $0.9 million, bad debt expense of $0.5 million, conference expense of $0.4 million and computer expense of $0.3 million.

These costs were partially offset by higher legal reserves of $1.8 million, stock-based compensation expense of $1.1 million and professional fees of $0.4 million.

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

A portion of compensation expenses for certain billable employees are allocated between direct costs and selling, general and administrative costs based on relative time spent between billable and non-billable activities.

Bonus compensation is determined based on achievement against Company financial targets and is accrued monthly throughout the year based on management’s estimates of target achievement.

Statutory and elective profit-sharing plans are offered to employees as appropriate.

Direct costs also include employee taxes, health insurance, workers’ compensation and disability insurance.

Sales and marketing costs consist principally of compensation expenses related to business development, proposal preparation and delivery and negotiation of new client contracts.

The Company maintains a dedicated global marketing function responsible for developing and managing sales campaigns, brand promotion, the ISG Index and assembling proposals.

We maintain a comprehensive program for training and professional development.

Related expenses include product training, updates on new service offerings or methodologies and development of project management skills.

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

Depreciation and amortization expense for the six months ended June 30, 2025 and June 30, 2024 were $2.3 million and $3.1 million, respectively.

The decrease of $0.9 million was primarily due to the sale of our Automation business on October 1, 2024.

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

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

We also capitalize certain costs associated with the purchase and development of internal-use software, system conversions and website development costs.

These costs are amortized over the estimated useful life of the software or system.

We amortize our intangible assets (e.g., client relationships and databases) over their estimated useful lives.

Goodwill related to acquisitions is not amortized but is subject to annual impairment testing and interim impairment tests, if triggering events are identified.

Other Income (Expense), Net

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

Six Months Ended June 30,

Other income (expense), net

($ in thousands)

Interest income

Interest expense

Foreign currency transaction (loss) gain

Total other income (expense), net

The total decrease in other expenses of $0.5 million, or approximately 19%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024, was primarily the result of lower interest expense attributable to a lower debt balance, partially offset by lower interest income.

Income Tax Expense

Our six months effective tax rate varies from period to period based on the mix of our earnings among the various state and foreign tax jurisdictions in which our business is conducted and the level of non-deductible expenses projected to be incurred during the current fiscal year.

Our effective tax rate for the six months ended June 30, 2025 was 38.4% compared to (3.7%) for the six months ended June 30, 2024.

The difference for the six months ended June 30, 2025 was primarily due to the impact of an increase in pre-tax earnings.

The Company’s effective tax rate for the six months ended June 30, 2025 was higher than the statutory rate primarily due to non-deductible expenses and the impact of earnings in foreign jurisdictions.

There were no significant changes in uncertain tax position reserves or valuation allowances during the six months ended June 30, 2025.

NON-GAAP FINANCIAL PRESENTATION

This management’s discussion and analysis presents supplemental measures of our performance that are derived from our consolidated financial information but are not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

We refer to these financial measures, which are considered “non-GAAP financial measures” under rules promulgated by the Securities and Exchange Commission, as adjusted EBITDA, adjusted net income and adjusted net income per diluted share, each as defined below.

We refer to these financial measures, which are considered “non-GAAP financial measures” under rules promulgated by the Securities and Exchange Commission (the “SEC”), as adjusted EBITDA, adjusted net income and adjusted net income per diluted share, each as defined below.

See “Non-GAAP Financial Measures” below for information about our use of these non-GAAP financial measures, including our reasons for including these measures and reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure.

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However, they are not measurements of financial performance under GAAP and should not be considered as alternatives to measures of performance derived in accordance with GAAP.

These non-GAAP financial measures exclude non-cash and certain other special charges that some investors believe may obscure the user’s overall understanding of the Company’s current financial performance and the Company’s prospects for the future.

These non-GAAP financial measures exclude non-cash and certain other special charges that some 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.

Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the respective financial results presented in accordance with GAAP.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

1 unchanged sentence

Interest expense (net of interest income)

Income taxes expense (benefit)

Income taxes provision

Depreciation and amortization

2 unchanged sentences

Severance, integration and other expense

Foreign currency transaction (gain) loss

Foreign currency transaction loss (gain)

Non-cash stock compensation

Adjusted EBITDA

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

5 unchanged sentences

Severance, integration and other expense

Foreign currency transaction (gain) loss

Foreign currency transaction loss (gain)

Tax effect (2)

Adjusted net income

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss) per diluted share

4 unchanged sentences

Severance, integration and other expense

Foreign currency transaction (gain) loss

Foreign currency transaction loss (gain)

Tax effect (2)

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

As of March 31, 2025, our cash, cash equivalents and restricted cash totaled $20.2 million compared to $23.2 million as of December 31, 2024, a net decrease of $3.0 million, which was primarily attributable to the following:

As of June 30, 2025, our cash, cash equivalents and restricted cash totaled $25.3 million compared to $23.2 million as of December 31, 2024, a net increase of $2.1 million, which was primarily attributable to the following:

● net cash provided by operating activities of $12.9 million;

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● purchase of furniture, fixtures and equipment of $1.7 million;

● proceed from the sale of the automation business of $2.0 million;

● proceeds from the sale of the Automation business of $2.0 million;

● treasury shares repurchased of $4.7 million;

● payments related to tax withholding for stock-based compensation of $2.6 million;

● payment of contingent consideration of $0.6 million;

● proceeds from issuance of employee stock purchase plan shares of $0.3 million.

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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) 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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● The senior secured credit facility contains customary events of default, including cross-default to other material agreements, judgment default and change of control provisions.

The Company’s financial statements include outstanding borrowings of $59.2 million at both March 31, 2025 and December 31, 2024, respectively, which are carried at amortized cost.

The Company’s financial statements include outstanding borrowings of $59.2 million at both June 30, 2025 and December 31, 2024, 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 was approximately $59.5 million and $59.6 million as of March 31, 2025 and December 31, 2024, respectively.

The fair value of the Company’s outstanding borrowings was approximately $59.6 million at both June 30, 2025 and December 31, 2024.

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 was 6.1% and 6.4% as of March 31, 2025 and December 31, 2024, respectively.

The incremental borrowing rate used to discount future cash flows was 6.1% and 6.4% as of June 30, 2025 and December 31, 2024, 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.

During the first quarter of 2025, the Company borrowed $5.0 million and repaid $5.0 million of the revolver loan during the quarter.

During the six months ended June 30, 2025, the Company borrowed $5.0 million and repaid $5.0 million of the revolver loan.

The Company is currently in compliance with its financial covenants.

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Dividend Program

On May 6, 2025, the Company’s Board of Directors (the “Board”) approved a second-quarter dividend of $0.045 per share, payable on June 27, 2025, to shareholders of record as of June 6, 2025.

On August 5, 2025, the Company’s Board of Directors (the “Board”) approved a third-quarter dividend of $0.045 per share, payable on September 26, 2025, to shareholders of record as of September 5, 2025.

The dividends are accounted for as a decrease to Stockholders’ Equity.

13 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis