EDGAR 10-K Filing

Company CIK: 1371489
Filing Year: 2021
Filename: 1371489_10-K_2021_0001558370-21-002901.json

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ITEM 1. BUSINESS
Item 1. Business
As used herein, unless the context otherwise requires, ISG, the registrant, is referred to in this Form 10-K annual report (“Form 10-K”) as the “Company,” “we,” “us” and “our.”
Our Company
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to over 700 clients, including more than 75 of the top 100 enterprises in our markets, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; technology strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs approximately 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. For more information, visit www.isg-one.com.
Our Company was founded in 2006 with the strategic vision to become a high-growth, leading provider of information-based advisory services. We continue to believe that our vision will be realized through the acquisition, integration, and successful operation of market-leading brands within the data, analytics and advisory industry. While one unified company and brand, we have global reach to service the various technology needs of our multinational clients, as we operate in over 20 countries and employ approximately 1,300 professionals specializing in digital transformation services, including automation, cloud and data analytics, sourcing advisory, managed governance and risk services, network carrier services, technology strategy and operation design, change management, market intelligence and technology research and analysis.
Our private and public sector clients continue to face significant technological, business and economic challenges that will continue to fuel demand for the professional services we provide. We are focused on providing unique solutions that solve for key client problems. In the private sector, for example, we believe that companies will continue to face significant challenges associated with globalization and technological innovation, including the need to decrease operating costs, increase efficiencies and deal with increasing numbers of emerging and transformational technologies such as cloud computing and automation. Similarly, public sector organizations at the national, regional and local levels increasingly must deal with the complex and converging issues of outdated technology systems, reduced budgets and an aging workforce. These technological challenges have only been intensified by the COVID-19 pandemic and the resulting remote work environment and, therefore, present further opportunity for ISG to assist our private and public sector clients with digital transformation services.
Overall, we believe that the global marketplace dynamics at work in both the private and public sectors support the increased demand of the professional services, analytics, platforms, and advice ISG can provide. In this dynamic environment, the strength of our client relationships greatly depends on the quality of our advice and insight, the independence of our thought leadership and the effectiveness of our people in assisting our clients to implement strategies that successfully address their most pressing operational challenges.
We are organized as a corporation under the laws of the State of Delaware. The current mailing address of the Company’s principal executive office is: Information Services Group, Inc., 2187 Atlantic Street, Stamford, CT 06902. Our telephone number is (203) 517-3100.
Our Services
ISG specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; technology strategy and operations design; change management; market intelligence and technology research and analysis. ISG supports both private and public sector organizations to transform and optimize their operational environments. During periods of expansion or contraction, for enterprises large or small, public or private, in the Americas, Europe or Asia Pacific, our services have helped organizations address their most complex operational issues. The functional domain experience of our experts and deep empirical data resources help clients better understand their strategic options.
ISG has launched a new operating model, ISG NEXT, aimed at extending the firm’s market leadership, enhancing growth opportunities, and driving significant value for all stakeholders. Under ISG NEXT, we are pivoting from services to solutions to address our clients’ most pressing business challenges in two areas most important to them-their continuing digital transformation and getting the most from their digital investments. To meet these needs, we have formed two global client solution areas: ISG Digital, focused on developing technology, transformation, sourcing and digital solutions for clients, and ISG Enterprise, focused on helping clients manage change and optimize operations in such areas as finance, HR and Procure2Pay.
Our core solutions are supported by ISG Research, with its extensive market analyses and provider evaluations; our ISG Network and Software Advisory services, and our software platforms, including ISG GovernX®. We also are building more industry-specific capabilities, in such areas as banking, insurance and smart manufacturing.
Every client engagement now passes through our dedicated Solution Hub, to bring the best thinking, tools and capabilities to bear to solve every client challenge. Integrated solutions are then delivered through our new ISG iFlex™ global delivery model, which enables us to rapidly deploy our resources to support clients, regardless of geography or time zone.
Our Competitive Advantages
We believe that the following strengths differentiate us from our competition:
● Independence and Objectivity. We are not a business process outsourcing service provider. We are an independent, fact-based data, analytics and advisory firm with no material conflicting financial or other interests. This enables us to maintain a trusted advisor relationship with our clients through our unbiased focus and ability to align our interests with those of our clients.
● Domain Expertise. Averaging over 20 years of experience, our strategic consulting teams bring a wealth of industry and domain-specific knowledge and expertise to address our clients’ most complex transformational needs.
● Strong Brand Recognition. ISG continues to gain marketplace traction as a leading brand in our industry. ISG offers an integrated product and service offering for our clients.
● Proprietary Data Assets and Market Intelligence. We have assembled a comprehensive and unique set of data, analytics and market intelligence built over more than thirty years of data collection and analysis, providing insight into the comparative cost and quality of a variety of operational alternatives.
● Global Reach. We possess practical experience in global business operations, and we understand the significance of interconnected economies and companies. Our resources in the Americas, Europe and Asia Pacific make us a truly global advisory firm able to consistently serve the strategic and implementation needs of our clients.
We believe that the strengths disclosed above are central to our ability to deal successfully with the challenges that our clients and we face.
Our Strategy
We intend to use our competitive strengths to develop new services and products, sustain our growth and strengthen our existing market position by pursuing the following strategies:
● Preserve and Expand Our Market Share Positions. We expect the trend toward globalization and greater operating efficiency and technological innovation to play an increasing role in the growth of demand for our services. We plan to leverage our combined operating platform to serve the growing number of private and public enterprises utilizing outside advisors when undertaking transformational projects. We are focused on growing our existing client base with broader services. In addition, we will seek to continue to expand our products and services and the geographic markets we serve opportunistically as global competition spurs demand for cost savings and value creation.
● Strengthen Our Industry Expertise. We have strengthened our market facing organization to drive increased revenue around 22 global industries: Automotive, Aerospace & Defense, Banking, Chemicals, Consumer Goods, Energy & Utilities, Financial Services, Government, Health Care, Insurance, Life Sciences, Manufacturing, Media & Entertainment, Metals & Mining, Pharma/Biotech/Medical Devices, Private Equity & M&A, Public Sector & Education, Retail, Technology & Service Providers, Telecommunications, Transportation & Logistics, Travel & Hospitality.
● Aggressively Expand Our Market Focus. We are seeking to drive our service portfolio and relationships with clients further into: Digital Advisory Services including Cloud Solutions, Automation, Business Advisory Services, Strategy, Data & Analytics, Transition and Organizational Change and Network Advisory are all areas where we are investing additional focus to drive increased revenues and expanded relationships with clients.
● Further Develop Digital Cloud Competency. There is a nexus of distinct, yet complementary, technology trends that are creating a perfect storm of disruption for some companies. Among the most significant technology trends are the speed with which products get to market, large-scale digitization, the efficiency of the cloud and the immediacy with which new disruptors can become omnipresent. We continue to see clear opportunities in the execution of large-scale digital transformation - helping enterprises in executing their transformations by using their large technology platform and partner ecosystems. Our offerings around cost management have never been more important as enterprises search for funds to invest into their digital ambitions. We think the pandemic will accelerate client demand for, and investment in, the digital transformation services ISG provides.
ISG plans to expand resources and intellectual property (“IP”) around digitization and the cloud. Digitization is the ‘softwarization’ of business. Processes that were once executed over analog channels (such as phone and ‘real life’) increasingly happen over software. Also, digitization has elevated the profile of software. Software no longer merely supports business processes but is central to the enterprise strategy. Our purpose in the digital marketplace is to be the trusted advisor, guiding our clients through the digital transformation toward practical innovation of their business models, leveraging strategic partners, emerging technology and thought leadership.
Our digital services now span a volume of offerings and have become embedded as part of even our traditional transaction service. Advancements continue to be made to ‘digitize’ further our traditional services. For example, we have continued the modernization of our traditional sourcing services toward digital with the launch of ISG FutureSourceTM which has brought agility and nimbleness to the process of sourcing, RFP’s and contracting. ISG FutureSource™ is a unique and comprehensive sourcing solution that helps enterprises and public sector organizations evaluate their business requirements, identify desired outcomes, fast-track the provider identification and selection process, collaborate with providers on developing the right solution, get to a signed contract and transition operations faster than ever before.
We have also expanded the reach of ISG GovernX®. This proprietary ISG software platform continues to drive broader insights from additional market and performance data, while delivering increased value to our clients. ISG GovernX® leverages cognitive technology to automate the management of third-party supplier relationships, including contract and project lifecycles and risk management. ISG GovernX 2020, the newest version of the platform, automates the management of the entire end-to-end contract lifecycle and provides a complete, customized view of the user’s contract and supplier ecosystem to improve supplier performance, decrease spend and reduce third-party risk. Enterprises can leverage cognitive technology and optimized workflows to mitigate supply chain risks and deliver up to 30 percent more value from their outsourcing spend. ISG GovernX® users can easily manage new contracts and proactive renewals, make timely amendments and handle contract terminations-all on one platform. In times of crisis, ISG GovernX® clients can mitigate supply chain risks and ensure business continuity by reviewing and validating their providers’ business and IT continuity plans and procedures. The platform delivers easy integration with other enterprise applications, such as ServiceNow, and is tightly connected to ISG Research offerings, such as benchmarks, assessments and total-cost-of-ownership evaluations.
In 2019 we launched ISG Inform™ 2.0, an enhanced version of our data-as-a-service solution that provides benchmarking capability to track digital transformation and application development maturity and performance against industry peers. ISG Inform™ 2.0 provides a quantified view of the health of the user's enterprise IT landscape through a series of easy-to-read visual dashboards that display key performance indicators for infrastructure, applications and digital capabilities, compared with industry peers. Data and insights are drawn from the ISG sourcing database.
Robotic Process and Cognitive Automation technology is fundamentally reshaping the way businesses work. Automation is increasingly enabling automated 24/7/365 execution of business processes at a fraction of the cost of human equivalents, as well as the dramatic improvements in process execution and cost models.
ISG Automation helps clients navigate the myriad challenges, risks and opportunities from software selection to building their bot workforce to leverage the technology to transform and improve business outcomes.
● Expand Emerging Services. The focus will be on creating repeatable methods used to drive growth of emerging services including ISG Automation, HR Technology & Transformations; Providers as a Business; ISG Platform; and ISG Network Select™.
1.
ISG Automation: ISG’s capabilities and service offerings include implementation services for Robotic Process and Cognitive Automation Technology. ISG Automation guides clients through the hurdles of adoption, ensuring the optimal future state with best-fit technologies. ISG Automation tailors programs to specific business needs and helps build governance that works inside the culture of our clients. The Automation market size is expected to continue to grow significantly over the next few years. Automation is fundamentally reshaping the world of Information Technology Outsourcing (“ITO”) and Business Process Outsourcing (“BPO”). Our solutions will work to optimize repetitive processes using ‘bots’ instead of human labor. ISG Automation will continue to be marketed by industry (e.g., claims processing for insurance) and by back office functions (e.g., accounting).
2.
HR Technology & Transformations: Advances in technology are transforming the business of HR. From intuitive and mobile self-service software to predictive analytics and integrated talent management suites, technological solutions are changing the way leaders acquire, develop and engage their employees. New applications, enhanced functionality and competition among software providers make it difficult to stay on top of this ever-evolving space. ISG provides deep subject matter expertise, market data and financial frameworks to help organizations develop and execute HR technology strategies that are right for them.
3.
Providers as a Business (“PaaB”): Historically, ISG had targeted traditional service providers for these types of services, which included a combination of consulting and research solutions. These services include market
intelligence, client retention programs, pursuit effectiveness, satisfaction benchmarking, go-to-market consulting and health checks.
4.
ISG Platform: We see growth opportunities in tool-enabling the part of consulting that solves for standard problems. The digital solutioning of ISG will reach its next level as we develop the ISG Platform, an integrated set of software-driven solutions, data and research that will allow us to increase our subscription-based recurring revenues and penetrate new market segments. ISG Inform™ and ISG GovernX® will be at the core of the ISG Platform, as will our new set of ISG Select™ offerings that will continue to streamline and digitize the provider selection process. We continue to develop and invest in our ISG Platform, which will help us drive recurring revenues.
5.
ISG Network Select™: ISG Network Select™ helps streamline and simplify how enterprises build their network solutions. It enables ISG to better meet the growing demand for such leading-edge networking solutions as software-defined networking (SD-WAN, SD-LAN), SD security services, 5G mobility, unified communications as a service (UCaaS) and call center as a service (CCaaS) - all critical to enterprise digital transformation. Client demand for networks that are secure, interconnected, interoperable and profitable is rising, as are concerns over security, scale, cost and the complexity of the expanding Internet of Things (“IoT”) landscape. ISG Network Select is designed to help clients find the best solutions, faster, to power their digital transformation initiatives. Clients get access to detailed and current data on their vendor and technology options, insights to help negotiate better pricing, and processes to accelerate next-generation networking solutions.
● Expand “Recurring Revenue Streams.” These include such annuity-based ISG offerings as ISG GovernX®, Research, Software as a Subscription, ISG Inform™ and the multi-year Public Sector contracts. All are characterized by subscriptions (i.e., renewal centric as opposed to project centric revenue streams) or multi-year contracts. As companies begin to recognize the importance of managing the post sourcing transaction period, managed services has emerged as a revenue driver for us where our offerings are delivered through multi-year managed services contracts. We believe that our experience with outsourcing transactions and software implementation initiatives make us uniquely equipped to provide research insights and direct support to help our clients manage their transformational projects or act as a third-party administrator. We will continue to pursue opportunities to leverage our experience to make research and managed services an even greater revenue generator for us. The U.S. public sector, particularly state governments, local municipalities, and higher education-presents a significant opportunity to ISG. Systems are typically outdated, maintenance is expensive, and the workforce charged with maintenance is aging. There is a need to refurbish systems to reduce the cost of operations (particularly because governments’ tax revenues are under pressure). We are well-positioned as a third party, objective advisory group with no affiliation to the software providers. ISG will continue to invest in the digitization of these services, driving up automation, greater profitability and even more value for our clients. ISG continues to invest in the digitization of these services, leveraging automation and cognitive technologies to deliver greater value to our clients.
● Consider Acquisition and Other Growth Opportunities. The business services, information and advisory market is highly fragmented. We believe we are well-positioned to leverage our leading market positions and strong brand recognition to expand through acquisitions. Acquiring firms with complementary services and products allows us to further develop and broaden our service offerings and domain expertise. We will consider and may pursue opportunities to enter into joint ventures and to buy or combine with other businesses.
Our Proprietary Data Assets and Market Intelligence
One of our core assets is the information, data, analytics, methodologies and other intellectual property the Company possesses. This intellectual property underpins the independent nature of our operational assessments, strategy development, deal-structuring, negotiation and other consulting services we provide to our clients.
With each engagement we conduct, we enhance both the quantity and quality of the intellectual property we employ on behalf of our clients, thus providing a continuous, evolving and unique source of information, data and analytics.
This intellectual property is proprietary, and we rely on multiple legal and contractual provisions and devices to protect our intellectual property rights. We recognize the value of our intellectual property and vigorously defend it. As a result, the Company maintains strict policies and procedures regarding ownership, use and protection with all parties, including our employees.
Clients
We operate in over 20 countries and across numerous industries. Our private sector clients operate primarily in the manufacturing, banking and financial services, insurance, health sciences, energy & utilities and consumer services industries. Our private sector clients are primarily large businesses ranked in the Forbes Global 2000 companies annually. Our public sector clients are primarily state and local
governments (cities and counties) and authorities (airport and transit) in the United States and national and provincial government units in the United Kingdom, Italy and Australia.
Competition
Competition in the sourcing, data, information and advisory market is primarily driven by independence and objectivity, expertise, possession of relevant benchmarking data, breadth of service capabilities, reputation and price. We compete with other sourcing advisors, research firms, strategy consultants and sourcing service providers. A significant number of independent sourcing and advisory firms offer similar services. In our view, however, these firms generally lack the benchmarking data, scale and diversity of expertise that we possess. In addition, most research firms do not possess the data repository of recent, comparable transactions and benchmarking data. Management consultants bring strategic service capabilities to the sourcing and advisory market. However, they generally lack the depth of experience that sourcing, data and advisory firms such as ISG possess. In addition, management consultants do not possess the sourcing and technology implementation expertise nor the benchmarking data capabilities that are critical to implementing and managing successful transformational projects for businesses and governments. Other service providers often lack the depth of experience, competitive benchmarking data and independence critical to playing the role of “trusted advisor” to clients.
Employees
As of December 31, 2020, we employed 1,258 people worldwide.
Our employee base includes executive management, service leads, partners, directors, advisors, analysts, technical specialists and functional support staff.
We recruit advisors from service providers and consulting firms with direct operational experience. These advisors leverage extensive practical expertise derived from experiences in corporate leadership, consulting, research, financial analysis, contract negotiations and operational service delivery.
All employees are required to execute confidentiality, conflict of interest and intellectual property agreements as a condition of employment. There are no collective bargaining agreements covering any of our employees.
Our voluntary advisor turnover rate has ranged between 11% and 22% over the last three years.
Human Capital Management
ISG strives to employ the brightest, most innovative people in the industry, so that we can provide world class solutions to our clients. Employees at ISG are anchored in our core values, which include trust, integrity, respect, diversity, passion, entrepreneurship, balance and mentorship.
Our almost 1,300 employees, located in over 20 countries with about one-third in the United States, perform a variety of different roles. We are participants in the competitive research and advisory industries. Attracting, developing and retaining talented people in advisory, research and other positions is critical to executing on our strategy. Our ability to compete effectively depends upon a number of factors including learning opportunities, compensation/benefits, work environment and career opportunities. To make this happen, we have certain programs, policies and practices in place including the following:
Diversity/Inclusion
ISG believes a key to our success is our value of diverse backgrounds, experiences and cultures. Our employees function within a collaborative community that welcomes varied ideas and styles. These diverse perspectives produce enhanced results for our clients and result in a preferred place to work.
We exhibit our commitment to diversity and inclusion through our hiring practices, opportunities for learning and advancement and the distribution of rewards. Through efforts, such as our Women-In-Digital industry group, we are able to help in the identification and advancement of diverse talent. While we have made progress in our workforce diversity representation, we seek to continually improve in this area.
ISG WorkLife
In 2018, we introduced ISG WorkLife which is a series of progressive, best practice, next-generation HR offerings designed to improve the quality of our work-life experience, while helping us achieve our firm-wide objectives. ISG believes this will help us attract and retain productive talent. Some of the key offerings here include:
● ISG Cares, our enhanced volunteering program which, among other things, provide employees paid time off to attend to charitable pursuits.
● ISG Aspire which is a global mentoring program.
● ISG iTime which provides flexible paid time off arrangements for employees in certain countries.
We understand that employees have varied interests both in and outside of the workplace. These programs, and others under ISG WorkLife, provide employees with the opportunity to pursue these activities. These allow us to attract and retain productive employees.
Corporate Social Responsibility
ISG has a history of various programs, policies and activities which would be considered in the category of corporate social responsibility. In 2020, the firm decided to consolidate these efforts and establish an employee governing body to focus on continued enhancement of these efforts. While the firm already has some robust practices in these areas, we will continue to improve on them and ensure our appropriate development.
Learning
ISG’s success depends on the knowledge and productivity of its employees. To that end, the firm invests a significant amount of time and money into providing development opportunities. Our ISG Academy is robust in offering learning in such topics specific to the employee’s industry and functional areas, leadership and people management, certifications, software and technical skills among others. In 2020, most learning was virtual; our employees completed nearly 20,000 courses, spending over 55,000 hours in doing so. While we hope to reinstate some in-person learning when safe, virtual learning is essential to our efforts.
COVID-19 Response
With the onset of the COVID-19 pandemic, ISG acted swiftly. We immediately articulated our principles which were:
1. Ensure all our ISG colleagues and their families are safe.
2. Serve our clients with minimal disruption and be available during these challenging times to assist, support and advise them.
3. Preserve the fundamental financial performance of the firm to support our payroll, investments, and stockholders.
We addressed the principles in that order and we believe faster than many other companies. We began to bring employees back home from clients and settled in for what we thought would be a few weeks of disruption but ultimately lasted longer than anyone expected. We addressed the issues and remained resilient in ensuring employee safety, focused on client needs and preserved our firm’s financial strength.
Available Information
Our Internet address is www.isg-one.com. The content on our website is available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Form 10-K or any other filings. We make available through our Internet website under the heading “Investor Relations,” our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K after we electronically file any such materials with the Securities and Exchange Commission. Copies of our key corporate governance documents, including our Code of Ethics and Business Conduct for Directors, Officers and Employees, Corporate Governance Guidelines and charters for our Audit Committee, our Nominating and Corporate Governance Committee and our Compensation Committee are also on our website. Stockholders may request free copies of these documents including our Annual Report to Stockholders by writing to Information Services Group, Inc., 2187 Atlantic Street, Stamford CT 06902, Attention: David E. Berger, or by calling (203) 517-3100.
Our annual and quarterly reports and other information statements are also available to the public through the SEC’s website at www.sec.gov. In addition, the Notice of Annual Meeting of Stockholders, Proxy Statement and 2020 Annual Report to Stockholders are available free of charge at www.proxyvote.com.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
We operate in a highly competitive and rapidly changing environment that involves numerous risks and uncertainties, some of which are beyond our control. In addition, we and our clients are affected by global economic conditions and trends. 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, and could therefore have a negative effect on the trading price of our common stock. Additional risks not currently known to us or that we now deem immaterial may also harm us and negatively affect your investment. In addition to the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations discussed in Item 7 of this Form 10-K and in the risk factors below, additional or unforeseen effects from the COVID-19 pandemic and the global economic climate may give rise to or amplify many of these risks discussed below.
Risks Related to the Coronavirus (COVID-19) Pandemic
The COVID-19 pandemic is having a material adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of our clients, and the duration and extent to which the COVID-19 pandemic will continue to affect our operations, financial performance, results of operations, achievement of strategic objectives, and/or stock price remains uncertain.
The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected, and is expected to continue to adversely affect, our operations, financial performance and demand for our products and services. It has also adversely affected the operations and financial performance of many of our clients. Additionally, the COVID-19 pandemic has resulted in, and is expected to continue to result in, a substantial curtailment of business activities (including the decrease in demand for a broad variety of products and services both regionally and globally), weakened economic conditions, significant economic uncertainty and volatility in the financial markets.
Additionally, we face challenges from evolving factors related to the COVID-19 pandemic that are not within our control, remain uncertain and to which we may not effectively respond. For example, our operations span numerous locations around the world, and many local governments and countries have imposed or may impose various restrictions on our employees, partners and clients’ physical movement to limit the spread of COVID-19. These restrictions are constantly changing, and we cannot predict how long and to what extent they will continue.
Further, the duration and extent of the impact from the COVID-19 pandemic and its impact on our operations and financial performance depend on future developments that cannot currently be accurately predicted, such as:
● the severity and transmission rate of the virus;
● the extent and effectiveness of containment actions;
● the timing of the development and distribution of effective vaccines and/or treatments and their acceptance by the general public;
● the health and well-being of our workforce;
● the extent and duration of the effect on client spending and the impact of these and other factors on our employees, clients, partners and vendors;
● the impact on our liquidity;
● increased volatility and pricing in the capital markets;
● the effect of the pandemic on the credit-worthiness of our customers;
● global economic conditions and levels of economic growth; and
● the pace of recovery when the COVID-19 pandemic subsides.
The occurrence or continuation of any of the foregoing could have a material adverse effect on our operations or financial performance.
The impact of COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, may also precipitate or intensify other risks discussed in Item 1A. Risk Factors in this Annual Report on Form 10-K, any of which could have a material effect on us. This situation is changing rapidly, and additional effects may arise that we are not presently aware of or that we currently do not consider to present significant risks to our operations. If we are not able to respond to and manage the impact of such events effectively, our business and financial condition will be negatively impacted.
Risks Related to Outstanding Debt
We have a substantial amount of debt outstanding, which may limit our ability to fund general corporate requirements and obtain additional financing, limit our flexibility in responding to business opportunities and competitive developments and increase our vulnerability to adverse economic and industry conditions and changes in our debt rating.
On March 10, 2020, the Company amended and restated its senior secured credit facility to include a $86.0 million term facility and to increase the revolving commitments per the revolving facility (the “2020 Credit Agreement”) from $30.0 million to $54.0 million. As a result of the substantial fixed costs associated with the debt obligations, we expect that:
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a decrease in revenues will result in a disproportionately greater percentage decrease in earnings;
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we may not have sufficient liquidity to fund all of these fixed costs if our revenues decline or costs increase;
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we may have to use our working capital to fund these fixed costs instead of funding general corporate requirements, including capital expenditures;
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we may not have sufficient liquidity to respond to business opportunities, competitive developments and adverse economic conditions; and
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our results of operations will be adversely affected if interest rates increase because, based on our current outstanding borrowings in the amount of $78.8 million, a 1% increase in interest rates would result in a pre-tax impact on earnings of approximately $0.8 million per year.
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 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. A failure to pay interest or indebtedness when due could result in a variety of adverse consequences, including the acceleration of our indebtedness. In such a situation, it is unlikely that we would be able to fulfill our obligations under or repay the accelerated indebtedness or otherwise cover our fixed costs. As of December 31, 2020, the total principal outstanding under the term loan facility and revolving credit facility was $78.8 million and $0.0 million, respectively.
In addition, variable-rate borrowings under our 2020 Credit Agreement typically use LIBOR as a benchmark based on market participant judgments for establishing the rate of interest. LIBOR is the subject of recent national and international regulatory scrutiny, which may result in changes that cause LIBOR to disappear entirely after June 2023 for rates applicable to the 2020 Credit Agreement. The changes may also cause LIBOR to perform differently than in the past. The Alternative Reference Rates Committee (ARRC), which was convened by the Federal Reserve Board and the New York Fed, has identified the Secured Oversight Financing Rate (SOFR) as the recommended risk-free alternative rate for USD LIBOR. The future consequences of these LIBOR developments on our variable-rate borrowings, including the possible transition to rates based on observable transactions, such as the Secured Overnight Financing Rate (SOFR), cannot be predicted at this time, but could include an increase in the cost of our variable-rate indebtedness and volatility in our earnings and cash flows.
Our failure to comply with the covenants in our credit agreement could materially and adversely affect our financial condition and liquidity.
Our credit agreement contains financial covenants requiring that we maintain, among other things, certain levels of debt coverage and fixed charges. Poor financial performance could cause us to be in default of these covenants. While we were in compliance with these covenants on December 31, 2020, there can be no assurance that we will remain in compliance in the future. If we fail to comply with the covenants in our credit agreement, this could result in our having to seek an amendment or waiver from our lenders to avoid the termination of their commitments and/or the acceleration of the maturity of outstanding amounts under the credit facility. The cost of our obtaining an amendment or waiver could be significant, and further, there can be no assurance that we would be able to obtain an amendment or waiver. 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.
Risks Related to Acquisitions
We have risks associated with acquisitions or investments.
Since our inception, we have expanded through acquisitions. In the future, we plan to pursue additional acquisitions and investments as opportunities arise. 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. 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. 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.
Strategic and Operation Risks
Our operating results have 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. A decline in the level of business activity of our clients, such as the impact of a pandemic, could have a material adverse effect on our revenue and profit margin. Future economic conditions could cause some clients to reduce or defer their expenditures for consulting services. We have implemented and will continue to implement cost-savings initiatives to manage our expenses as a percentage of revenue. However, current and future cost-management initiatives may not be sufficient to maintain our margins if the economic environment should weaken for a prolonged period.
The rate of growth in the broadly defined business information services & advisory sector and/or the use of technology in business may fall significantly below the levels that we currently anticipate.
Our business is dependent upon continued growth in sourcing activity, the use of technology in business by our clients and prospective clients and the continued trend towards sourcing of complex information technology and business process tasks by large and small organizations. If sourcing diminishes as a management and operational tool, the growth in the use of technology slows down or the cost of sourcing alternatives rises, our business could suffer. 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.
Our engagements may be terminated, delayed or reduced in scope by clients at any time.
Our clients may decide at any time to abandon, postpone and/or to reduce our involvement in an engagement. Our engagements can be terminated, or the scope of our responsibilities may be diminished, with limited advance notice. If an engagement is terminated, delayed or reduced unexpectedly, the professionals working on the engagement could be underutilized until we assign them to other projects. Accordingly, the termination or significant reduction in the scope of a single large engagement, or multiple smaller engagements, could harm our business results.
Our operating results may fluctuate significantly from period to period as a result of factors outside of our control.
Our revenues and operating results may vary significantly from accounting period to accounting period due to factors including:
● fluctuations in revenues earned on contracts;
● commencement, completion or termination of engagements during any particular period;
● additions and departures of key advisors;
● transitioning of advisors from completed projects to new engagements;
● seasonal trends;
● introduction of new services by us or our competitors;
● changes in fees, pricing policies or compensation arrangements by us or our competitors;
● strategic decisions by us, our clients or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
● global economic and political conditions and related risks, including acts of terrorism, pandemics, such as COVID-19; and
● conditions in the travel industry that could prevent our advisors from traveling to client sites.
We depend on project-based advisory engagements, and our failure to secure new engagements could lead to a decrease in our revenues.
Advisory engagements typically are project-based. Our ability to attract advisory engagements is subject to numerous factors, including the following:
● delivering consistent, high-quality advisory services to our clients;
● tailoring our advisory services to the changing needs of our clients;
● matching the skills and competencies of our advisory staff to the skills required for the fulfillment of existing or potential advisory engagements; and
● 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.
If we are unable to achieve or maintain adequate utilization for our consultants, our operating results could be adversely impacted.
Our profitability depends to a large extent on the utilization of our consultants. Utilization of our consultants is affected by a number of factors, including:
● additional hiring of consultants because there is generally a transition period for new consultants;
● the number and size of client engagements;
● the unpredictability of the completion and termination of engagements;
● our ability to transition our consultants efficiently from completed engagements to new engagements;
● unanticipated changes in the scope of client engagements; and
● our ability to maintain an appropriate level of consultants by forecasting the demand for our services.
We could lose money on our fixed-fee or capped fee contracts.
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. 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. While losses on our fixed fee contracts are rare, to the extent that an expenditure of additional resources is required on an engagement, this could reduce the profitability of, or result in a loss on, the engagement.
Our contracts with contingent-based revenue may cause unusual variations in our operating results.
As part of our strategy, from time to time, we earn incremental revenues, in addition to hourly or fixed fee billings, which are contingent on the attainment of certain contractual milestones or objectives. Because it is uncertain when the milestones or objectives will be achieved, if ever, any such incremental revenues may cause unusual variations in quarterly revenues and operating results. Also, whether any contractual milestones or objectives are achieved may become subject to dispute.
We may not be able to maintain our existing services and products.
We operate in a rapidly evolving market, and our success depends upon our ability to deliver high quality advice and analysis to our clients. Any failure to continue to provide credible and reliable information and advice that is useful to our clients could have a significant adverse effect on future business and operating results. Further, if our advice proves to be materially incorrect and the quality of service is
diminished, our reputation may suffer and demand for our services and products may decline. In addition, we must continue to improve our methods for delivering our products and services in a cost-effective manner.
Expanding our service offerings may not be profitable.
We may choose to develop new service offerings because of market opportunities or client demands. Developing new service offerings involves inherent risks, including:
● a lack of market understanding;
● competition from more established market participants;
● our inability to estimate demand for the new service offerings; and
● unanticipated expenses to hire qualified consultants and to market our new service offerings.
If we cannot manage the risks associated with new service offerings effectively, we are unlikely to be successful in these efforts, which could harm our ability to sustain profitability.
We may not have the ability to develop and offer the new services and products that we need to remain competitive.
Our future success will depend in part on our ability to offer new services and products. To maintain our competitive position, we must continue to enhance and improve our services and products, develop or acquire new services and products in a timely manner, and appropriately position and price new services and products relative to the marketplace and our costs of producing them. These new services and products must successfully gain market acceptance by addressing specific industry and business sectors and by anticipating and identifying changes in client requirements. The process of researching, developing, launching and gaining client acceptance of a new service or product, or assimilating and marketing an acquired service or product is risky and costly. We may not be able to introduce new, or assimilate acquired, services and products successfully. Any failure to achieve successful client acceptance of new services and products could have an adverse effect on our business results.
We may fail to anticipate and respond to market trends.
Our success depends in part upon our ability to anticipate rapidly changing technologies and market trends and to adapt our advice, services and products to meet the changing sourcing advisory needs of our clients. Our clients regularly undergo frequent and often dramatic changes. That environment of rapid and continuous change presents significant challenges to our ability to provide our clients with current and timely analysis, strategies and advice on issues of importance to them. Meeting these challenges requires the commitment of substantial resources. Any failure to continue to respond to developments, technologies, and trends in a manner that meets market needs could have an adverse effect on our business results.
We may be unable to protect important intellectual property rights.
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. 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. There can be no assurance that we would prevail in such litigation. If others were able to use our intellectual property or were to independently develop our methodologies or analytical tools, our ability to compete effectively and to charge appropriate fees for our services may be adversely affected.
We face competition and our failure to compete successfully could materially adversely affect our results of operations and financial condition.
The business information services and advisory sector is highly competitive, fragmented and subject to rapid change. We face competition from many other providers ranging from large organizations to small firms and independent contractors that provide specialized services. Our competitors include any firm that provides sourcing or benchmarking advisory services, IT strategy or business process consulting, which may include a variety of consulting firms, service providers, niche advisors and, potentially, advisors currently or formerly employed by us. Some of our competitors have significantly more financial and marketing resources, larger professional staffs, closer client relationships, broader geographic presence or more widespread recognition than us.
In addition, limited barriers to entry exist in the markets in which we do business. As a result, additional new competitors may emerge, and existing competitors may start to provide additional or complementary services. There can be no assurance that we will be able
to successfully compete against current and future competitors and our failure to do so could result in loss of market share, diminished value in our products and services, reduced pricing and increased marketing expenditures. Furthermore, we may not be successful if we cannot compete effectively on quality of advice and analysis, timely delivery of information, client service or the ability to offer services and products to meet changing market needs for information, analysis or price.
We derive a significant portion of our revenues from our largest clients and could be materially and adversely affected if we lose one or more of our large clients.
Our 25 largest clients accounted for approximately 36% and 38% of revenue in 2020 and 2019, respectively. If one or more of our large clients terminate or significantly reduce their engagements or fail to remain a viable business, then our revenues could be materially and adversely affected. In addition, sizable receivable balances could be jeopardized if large clients fail to remain a going concern.
Risks Related to Management and Employees
The loss of key executives could adversely affect our business.
The success of our business is dependent upon the continued service of a relatively small group of key executives, including Mr. Connors, Chairman and Chief Executive Officer; Mr. Lavieri, Vice-Chairman; Mr. Berger, Executive Vice President, Chief Financial Officer; and Mr. Kucinski, Executive Vice President and Chief Human Resources Officer, among others.
Although we currently intend to retain our existing management, we cannot assure that such individuals will remain with us for the immediate or foreseeable future. The unexpected loss of the services of one or more of these executives could adversely affect our business.
We rely heavily on key members of our management team.
We are dependent on our management team. We grant restricted stock units (“RSUs”) from time to time to key employees and, in connection with such grants, require recipients to execute a restrictive covenant agreement. Vested and unvested RSUs will be forfeited upon any violation of the restrictive covenant agreement. 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.
We depend upon our ability to attract, retain and train skilled advisors and other professionals.
Our business involves the delivery of advisory and consulting services. Therefore, our continued success depends in large part upon our ability to attract, develop, motivate, retain and train skilled advisors and other professionals who have advanced information technology and business processing domain expertise, financial analysis skills, project management experience and other similar abilities. These advisors could resign and join one of our competitors or provide sourcing advisory services to our clients through their own ventures.
We must also recruit staff globally to support our services and products. We face competition for the limited pool of these qualified professionals from, among others, technology companies, market research firms, consulting firms, financial services companies and electronic and print media companies, some of which have a greater ability to attract and compensate these professionals. 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.
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. 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. Furthermore, it is possible that our engagement by a client could preclude us from accepting engagements with such client’s competitors because of confidentiality concerns.
Macroeconomic Risks
Our international operations expose us to a variety of risks that could negatively impact our future revenue and growth.
Approximately 43% and 41% of our revenues for 2020 and 2019, respectively, were derived from sales outside of the Americas. Our operating results are subject to the risks inherent in international business activities, including:
● tariffs and trade barriers;
● regulations related to customs and import/export matters;
● restrictions on entry visas required for our advisors to travel and provide services;
● tax issues, such as tax law changes and variations in tax laws as compared to the United States;
● cultural and language differences;
● an inadequate banking system;
● foreign exchange controls;
● restrictions on the repatriation of profits or payment of dividends;
● crime, strikes, riots, civil disturbances, pandemics, such as COVID-19, terrorist attacks and wars;
● nationalization or expropriation of property;
● law enforcement authorities and courts that are inexperienced in commercial matters; and
● deterioration of political relations with the United States.
Air travel, telecommunications and entry through international borders are all vital components of our business. If a pandemic, such as COVID-19, or terrorist attack were to occur, our business could be disproportionately impacted because of the disruption, including potential cancellation of ISG events.
Further, conducting business abroad subjects us to increased regulatory compliance and oversight. For example, in connection with our international operations, we are subject to laws prohibiting certain payments to governmental officials, such as the Foreign Corrupt Practices Act. A failure to comply with applicable regulations could result in regulatory enforcement actions as well as substantial civil and criminal penalties assessed against us and our employees.
We intend to continue to expand our global footprint in order to meet our clients’ needs. This may involve expanding into countries beyond those in which we currently operate. We may involve expanding into less developed countries, which may have less political, social or economic stability and less developed infrastructure and legal systems. As we expand our business into new countries, regulatory, personnel, technological and other difficulties may increase our expenses or delay our ability to start up operations or become profitable in such countries. This may affect our relationships with our clients and could have an adverse effect on our business.
The uncertainty surrounding the effect of Brexit may cause increased economic volatility, affecting our operations and business.
Tariffs, trade barriers and restrictions, and other acts by governments to protect domestic markets or to retaliate against the trade tariffs and restrictions of other nations could negatively affect our business operations. In addition, the withdrawal of nations from existing common markets or trading blocs, such as the exit of the United Kingdom (“UK)” from the European Union (“EU”), commonly referred to as Brexit, could be disruptive and negatively impact our business and the business of our clients. We continue to monitor Brexit and its potential impacts on our results of operations and financial condition. In connection with Brexit, on December 24, 2020, the EU and the UK reached an agreement on a new trade arrangement that became effective on January 1, 2021. Once the new rules are formalized, there could be near or long-term negative impacts on our UK business. If this agreement and the new rules, once formalized, lead to legal uncertainty and potentially divergent national laws and regulations in the UK and EU, then we, as well as our clients who have significant operations in the UK, may incur additional costs and expenses as we adapt to the new trade agreements. For example, we may face additional administrative procedures when purchasing tangible goods and equipment from the EU. Additionally, volatility in foreign currencies and other markets may also arise as the UK and EU work though the new trade arrangements. The impact of any of these effects of Brexit, among others, could materially harm our business and financial results.
We operate in a number of international areas which exposes us to significant foreign currency exchange rate risk.
We have significant international revenue, which is predominantly collected in local currency. It is expected that our international revenues will continue to grow as European and Asian markets adopt sourcing solutions. The translation of our revenues into U.S. dollars, as well as our costs of operating internationally, may adversely affect our business, results of operations and financial condition.
Risks Related to Data, Cybersecurity and Confidential Information
Data protection laws and self-regulatory codes may restrict our activities and increase our costs.
Various statutes and rules regulate conduct in areas such as privacy and data protection which may affect our collection, use, storage and transfer of information both abroad and in the United States. Compliance with these laws and self-regulatory codes may require us to make certain investments or may dictate that we not offer certain types of services or only offer such services after making necessary
modifications. Failure to comply with these laws and self-regulatory codes may result in, among other things, civil and criminal liability, negative publicity, restrictions on further use of data and/or liability under contractual warranties.
In addition, there is an increasing public concern regarding data and consumer protection issues, with the result that the number of jurisdictions with data protection laws continues to increase and the scope of existing privacy laws and the data considered to be covered by such laws is expanding. Changes in these laws (including newly released interpretations of these laws by courts and regulatory bodies) may limit our data access, use and disclosure, and may require increased expenditures by us or may dictate that we may not offer certain types of services.
The EU’s General Data Protection Regulation (“GDPR”), which took effect in May 2018, has extra-territorial scope and substantial fines for breaches (up to 4% of global annual revenue or €20 million, whichever is greater). Additionally, compliance with the GDPR is resulting in operational costs to implement new procedures corresponding to new legal rights granted under the law, but has had little direct impact on ISG products. ISG is continuing to monitor the development of the EU’s ePrivacy Regulation proposal and industry response and will determine whether to take further action, as needed, following its final adoption.
We are exposed to risks related to cybersecurity
A significant portion of our business is conducted over the internet and we rely on the secure processing, storage and transmission of confidential, sensitive, proprietary and other types of information relating to our business operations and confidential and sensitive information about its clients and employees in our computer systems and networks, and in those of our third-party vendors. 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. As a result of the COVID-19 pandemic and shelter-in-place orders, most of our employees in affected areas are working remotely, which magnifies the importance of the integrity of our remote access security measures.
We may be subject to claims for substantial damages by our clients arising out of disruptions to their businesses or inadequate service and our insurance coverage may be inadequate.
Most of our service contracts with clients contain service level and performance requirements, including requirements relating to the quality of our services. Failure to consistently meet service requirements of a client or errors made by our employees in the course of delivering services to our clients could disrupt the client’s business and result in a reduction in revenues or a claim for damages against us. Additionally, we could incur liability if a process we manage for a client were to result in internal control failures or impair our client’s ability to comply with our own internal control requirements.
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. These limitations and caps on liability may be unenforceable or otherwise may not protect us from liability for damages. In addition, certain liabilities, such as claims of third parties for which we may be required to indemnify our clients or liability for breaches of confidentiality, are generally not limited under those agreements. Although we have general commercial liability insurance coverage, the coverage may not continue to be available on acceptable terms or in sufficient amounts to cover one or more large claims. 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 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.
We may be liable to our clients for damages caused by disclosure of confidential information. We are often required to collect and store sensitive or confidential client data in order 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 in order 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. Although we seek to prevent, detect and investigate these network security 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 also damage our reputation and cause us to lose existing and potential clients. We may also be subject to civil actions and criminal prosecution
by government or government agencies for breaches relating to such data. 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.
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.
We are dependent on information technology networks and systems to securely process, transmit and store electronic information and to communicate among our locations around the world and with our people, clients, alliance partners and vendors. As the breadth and complexity of this infrastructure continues to grow, including as a result of the use of mobile technologies, social media and cloud-based services, the risk of security breaches and cyberattacks increases. Such breaches could lead to shutdowns or disruptions of or damage to our systems and those of our clients, alliance partners and vendors, and unauthorized disclosure of sensitive or confidential information, including personal data.
Client restrictions on the use of client data could adversely affect our activities.
The majority of the data we use to populate our databases comes from our client engagements. The insight sought by clients from us relates to the contractual data and terms, including pricing and costs, to which we have access in the course of assisting our clients in the negotiation of our sourcing agreements. Data is obtained through the course of our engagements with clients who agree to contractual provisions permitting us to consolidate and utilize on an aggregate basis such information. If we were unable to utilize key data from previous client engagements, our business, financial condition and results of operations could be adversely affected.
General Risks
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. 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.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides a framework for companies to assess and improve their internal control systems. Auditing Standard No. 5 provides the professional standards and related performance guidance for auditors to attest to, and report on, management’s assessment of the effectiveness of internal control over financial reporting under Section 404. Management’s assessment of internal control over financial reporting requires management to make subjective judgments and, some of the judgments will be in areas that may be open to interpretation. Therefore, our management’s report on our internal control over financial reporting may be difficult to prepare, and our auditors may not agree with our management’s assessment.
While we currently believe our internal control over financial reporting is effective, we are required to comply with Section 404 on an annual basis. If, in the future, we identify one or more material weaknesses in our internal control over financial reporting during this continuous evaluation process, our management will be unable to assert such internal control is effective. Therefore, if we are unable to assert that our internal control over financial reporting is effective in the future, or if our auditors are unable to express an opinion on the effectiveness of our internal control, our investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our business and the market price of our Common Stock.
Our actual operating results may differ significantly from our guidance.
From time to time, we release guidance regarding our future performance that represents our management’s estimates as of the date of release. This guidance, which consists of forward-looking statements, is prepared by our management and is qualified by, and subject to, the assumptions and the other information contained or referred to in the release. Our guidance is not prepared with a view toward compliance with published guidelines of the Public Company Accounting Oversight Board (United States), and neither our independent registered public accounting firm nor any other independent expert or outside party compiles or examines the guidance and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto. 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. The principal reason that we release this data is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any such persons. Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date of release. Actual results will vary from the guidance and the variations may be material. 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. 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.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
We maintain our executive offices in Stamford, Connecticut. The lease on our executive offices covers approximately eighteen thousand square feet and expires on August 31, 2025. The majority of our business activities are performed on client sites or remotely. We do not own offices or properties. We have leased offices in the United States, Canada, Denmark, Switzerland, Netherlands, Finland, Australia, France, Germany, India, Italy, Spain, Sweden and the United Kingdom.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
From time to time, in the normal course of business, we are a party to various legal proceedings. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The following table sets forth the high and low closing sales price of our common stock, as reported on The Nasdaq Stock Market LLC under the symbol “III” for the periods shown:
Common Stock
Quarter Ending
High
Low
March 31, 2020
$
3.70
$
1.62
June 30, 2020
2.69
1.72
September 30, 2020
2.34
2.00
December 31, 2020
3.28
2.03
Common Stock
Quarter Ending
High
Low
March 31, 2019
$
4.48
$
3.60
June 30, 2019
3.84
2.94
September 30, 2019
3.18
2.27
December 31, 2019
2.54
2.16
On March 3, 2021, the last reported sale price for our common stock on The Nasdaq Stock Market was $3.69 per share.
As of December 31, 2020, there were 627 holders of record of ISG common stock. The actual number of stockholders is significantly greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividend Policy
On December 2, 2014, the Company’s Board of Directors authorized a special dividend of $0.14 per share on the Company’s issued and outstanding shares of common stock. This cash dividend was paid on January 28, 2015 to shareholders of record as of January 15, 2015. Prior to this special dividend we had not paid any dividends on our common stock. Our Credit Agreement limits our ability to pay dividends. We amended the Credit Agreement in order to exclude the payment of the special dividend from the calculation of our fixed charge coverage ratio covenant under the Credit Agreement. The payment of dividends in the future will be within the discretion of our Board of Directors and will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition.
Issuer Purchases of Equity Securities
On November 1, 2019, the Company’s Board of Directors approved a share repurchase authorization of up to $10.8 million. The new share repurchase program will take effect upon completion of the Company’s current program, which has approximately $3.6 million remaining as of December 31, 2020. Therefore, the Company has approximately $14.4 million in the aggregate available under its share repurchase program as of December 31, 2020. The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, pursuant to a Rule 10b5-1 repurchase plan or by other means in accordance with federal securities laws. The timing and the amount of any repurchases will be determined by the Company’s management based on its evaluation of market conditions, capital allocation alternatives, and other factors. There is no guarantee as to the number of shares that will be repurchased, and the repurchase program may be extended, suspended or discontinued at any time without notice at the Company’s discretion.
The following table details the repurchases that were made during the three months ended December 31, 2020.
Total Numbers of
Approximate Dollar
Securities
Value of Securities
Total Number of
Purchased
That May Yet Be
Securities
Average
as Part of Publicly
Purchased Under
Purchased
Price per
Announced Plan
The Plan
Period
(In thousands)
Securities
(In thousands)
(In thousands)
Oct 1 - Oct 31
$
2.09
$
14,494
Nov 1 - Nov 30
2.05
14,479
Dec 1 - Dec 31
3.17
14,381
Securities Authorized for Issuance under Equity Compensation Plan
The following table lists information regarding outstanding options and shares reserved for future issuance under our Amended and Restated 2007 Equity and Incentive Award Plan and our Amended and Restated Employee Stock Purchase Plan as of December 31, 2020. We have not issued any shares of our common stock to employees as compensation under a plan that has not been approved by our stockholders.
Number of Shares of
Number of Shares of
Weighted
Common Stock
Common Stock to
Average
Remaining Available
be Issued upon
Exercise Price
for Future Issuance
Exercise of
of Outstanding
under our Stock Option
Outstanding
Options,
Plans (Excluding
Options, Warrants
Warrants and
Shares Reflected in
Plan Category
and Rights(1)
Rights(2)
Column (2)(3)
Approved by Stockholders
6,865,496
$
-
4,617,020
Not Approved by Stockholders
-
-
-
Total
6,865,496
$
-
4,617,020
(1)
Of the 6,865,496 shares listed in this column, none are stock options issued under the Amended and Restated 2007 Equity and Incentive Award Plan, 6,865,496 are restricted stock units issued under that Plan, and none are options issued during the current offering period under our Amended and Restated Employee Stock Purchase Plan.
(2)
The weighted-average exercise price includes outstanding options and RSUs, treating RSUs as stock awards with an exercise price of zero.
(3)
Includes 1,161,220 shares available for future issuance under the Company’s Employee Stock Purchase Plan. Also includes 3,455,800 shares that were available for grant under the Amended and Restated 2007 Equity and Incentive Award Plan as options and SARs and also for restricted stock, restricted stock units or other awards that could provide to the grantee an opportunity to earn the full value of an underlying share (in other words, such earning opportunity is not limited to the appreciation in value of our stock following the grant of the award).

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
As a smaller reporting company, we are not required to provide the information described in this item.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. 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; the uncertainty surrounding the effect of Brexit; 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; and other 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.
BUSINESS OVERVIEW
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to over 700 clients, including more than 75 of the top 100 enterprises in our markets, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; technology strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs approximately 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. For more information, visit www.isg-one.com.
Our strategy is to strengthen our existing market position and develop new services and products to support future growth plans. As a result, we are focused on growing our existing service model, expanding geographically, developing new industry sectors, productizing market data assets, expanding our managed services offerings and growing via acquisitions. Although we do not expect any adverse conditions that will impact our ability to execute against our strategy over the next twelve months, the more significant factors that could limit our ability to grow in these areas include global macro-economic conditions and the impact on the overall sourcing market, competition, our ability to retain advisors and reductions in discretionary spending with our top client accounts or other significant client events. Other areas that could impact the business would also include natural disasters, pandemics, such as COVID-19, legislative and regulatory changes and capital market disruptions.
We principally derive revenues from fees for services generated on a project by project basis. Prior to the commencement of a project, we reach agreement with the client on rates for services based upon the scope of the project, staffing requirements and the level of client involvement. Revenues for services rendered are recognized on a time and materials basis or on a fixed fee or capped fee basis in accordance with accounting and disclosure requirements for revenue recognition.
Revenues for time and materials contracts are recognized based on the number of hours worked by our advisors at an agreed upon rate per hour and are recognized in the period in which services are performed. Revenues for time and materials contracts are billed monthly, semimonthly or in accordance with the specific contractual terms of each project.
We also derive our revenues from certain recurring revenue streams. These include such annuity-based ISG offerings as ISG GovernX®, Research, Software as a Subscription (Automation licenses), ISG Inform™ and the multi-year Public Sector contracts. These offerings are characterized by subscriptions (i.e., renewal centric as opposed to project centric revenue streams) or, in some instances, multi-year contracts. Our digital services now span a volume of offerings and have become embedded as part of even our traditional transaction services. Digital enablement provides capabilities, digital insights and better engagement with clients and partners.
Our results are impacted principally by our full-time consultants’ utilization rate, the number of business days in each quarter and the number of our revenue-generating professionals who are available to work. Our utilization rate can be negatively affected by increased hiring because there is generally a transition period for new professionals that result in a temporary drop in our utilization rate. Our utilization rate can also be affected by seasonal variations in the demand for our services from our clients. The number of business work days is also affected by the number of vacation days taken by our consultants and holidays in each quarter. We typically have fewer business work days available in the fourth quarter of the year, which can impact revenues during that period. Time-and-expense engagements do not provide us with a high degree of predictability as to performance in future periods. Unexpected changes in the demand for our services can result in significant variations in utilization and revenues and present a challenge to optimal hiring and staffing. The volume of work performed for any particular client can vary widely from period to period.
CURRENT ENVIRONMENT
On March 11, 2020, the World Health Organization categorized the novel coronavirus (COVID-19) as a pandemic, and COVID-19 has spread throughout the United States and the rest of the world with different geographical locations impacted more than others. The outbreak of COVID-19 and public and private sector measures to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, have, to some degree, adversely impacted our business and demand for our
services. Businesses have adjusted, reduced or suspended operating activities, which has negatively impacted the markets and some of the clients we serve. We continue to believe our focus on our strategic strengths, including technology expertise, digital transformation, data management capabilities, and the relevance of our service offerings will continue to serve our Firm well as we navigate a rapidly changing marketplace.
New vaccines are coming to market and the pandemic shows early signs of receding. This is the first indication that life may begin to return to normal in 2021 and release the pent-up demand for our advice, data, and support. If there is a silver lining to the pandemic for ISG, it is this: it is accelerating digital adoption and transformation.
Every company now sees, clearer than ever, the need for digital-to get closer to their customers, enhance customer experience and analyze customer data for new growth opportunities; to digitize the workplace to make work more efficient and collaborative, improve employee engagement and attract the best talent; to become more agile and flexible to address rapid-fire changes in the market, and to make operations smarter and leaner, streamline the entire supply chain and generally reduce the friction of business.
ISG is ideally positioned to be our clients’ partner in digital transformation. Our full range of digital, network and research solutions, and subscription software platforms, are here to help clients see, plan for and realize what’s next.
We have taken steps to strengthen our financial position, which will serve us well during this period of heightened uncertainty. On March 10, 2020, we refinanced our credit facility and expanded our borrowing capacity under our revolving credit agreement, and extended the maturity date, lowered the interest rate, and secured less restrictive debt covenants. During 2020, we lowered our cost base as well as introduced a new operating model, ISG NEXT, that we believe will enhance our growth opportunities and drive significant value for all stakeholders.
EXECUTIVE SUMMARY
2020 was a year like no other. We began the year with a solid growth plan and strong momentum coming off a successful second half of 2019. Then, the bottom fell out as the pandemic spread. We immediately adjusted our business plan. We pivoted quickly to a work-from-home model, made tough but necessary decisions to lower our cost base to match anticipated client demand, and reset our financial expectations. In parallel, we began the process of creating a business model that would allow us to meet the challenge of the pandemic head on-not only to survive a difficult year, but to emerge from the pandemic a stronger, more energized and vital firm for our clients. Thanks to our swift and decisive actions, and the collective contributions of our professionals around the world, ISG bounced back from the initial economic shock of the pandemic and turned a challenging year into a successful one. Before the pandemic hit, our clients were focused on large-scale digital transformation programs. Then, facing business disruption, they quickly turned to us for help with immediate needs, such as cost takeout, captive monetization and supply chain management, as well as digital workplace, cloud and network modernization initiatives to support remote work and digital customer experience.
As with most businesses, the pandemic had an immediate negative impact on our revenues. But that impact was short-lived. After a difficult first half, ISG turned the corner, delivering quarter-over-quarter revenue and adjusted EBITDA growth in the second half. Client demand rose, as companies realized they needed to continue investing in digital to recover faster and emerge stronger from this crisis. Our renewed revenue momentum, coupled with our disciplined operating approach, enabled ISG to generate a record $44 million of cash flow from operations in 2020. We used $8 million of that cash to pay down debt, lowering our balance by 9 percent.
Our Go Digital investments over the last few years helped ISG pivot quickly to new ways of working, collaborating and engaging with clients. Importantly, we did not allow the pandemic to impact our long-term vision for the firm. We continued to invest in the ISG Platform, our suite of subscription-based, on-demand software solutions. That included expanding the capabilities of ISG GovernX®, to meet rising demand from clients looking to manage their supply chains and mitigate risk. We also created an internal platform, the ISG Workbench, that reimagines how we collaborate and access the tools, information, and IP we need to make our delivery more efficient and more valuable for our clients. Considering our current work-from-home model, the timing could not have been better. As it has for many of our clients, the pandemic has opened our eyes to the art of the possible and allowed us to think differently about our business. The result is ISG NEXT, an entirely new operating model for ISG.
Under ISG NEXT, we are pivoting from services to solutions, building our capabilities around two major consulting practices, ISG Digital and ISG Enterprise, complemented by ISG Research and Events and our SaaS platforms. Every client engagement now passes through our dedicated Solution Hubs, to bring the best thinking, tools and capabilities to bear to solve every client challenge. A key part of ISG NEXT is our new ISG iFlex™ virtual delivery model, which enables us to rapidly deploy our global resources to support clients, regardless of geography or time zone. We also are building more industry-specific capabilities, particularly in the Americas and Europe.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2020 COMPARED TO YEAR ENDED DECEMBER 31, 2019
Revenues
Revenues are generally derived from fixed fee contracts as well as engagements priced on a time and materials basis, which are recorded based on actual time worked as the services are performed. 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. Invoices are issued to clients monthly, semimonthly or in accordance with the specific contractual terms of each project.
We operate in one segment, fact-based sourcing advisory services. We operate principally in the Americas, Europe, and Asia Pacific. Our foreign operations are subject to local government regulations and to the uncertainties of the economic and political conditions of those areas, and the revenue for our foreign operations is predominantly invoiced and collected in local currency.
Geographical revenue information for the segment is as follows:
Years Ended December 31,
Percent
Geographic Area
Change
Change
(in thousands)
Americas
$
141,227
$
156,075
$
(14,848)
(10)
%
Europe
87,131
90,739
(3,608)
(4)
%
Asia Pacific
20,770
18,949
1,821
%
Total revenues
$
249,128
$
265,763
$
(16,635)
(6)
%
Revenues decreased by $16.6 million or approximately 6% in 2020. The decrease in revenues in the Americas and Europe was primarily attributable to a decline in our Advisory service line, related to the COVID-19 pandemic and its impact on certain of our clients’ operations, and was partially offset by an increase in our Research service line. The increase in revenues in Asia Pacific was primarily attributable to an increase in our public sector service line in Australia. Revenues also declined by $7.9 million due to lower travel and expense reimbursement resulting from pandemic related travel restrictions. The translation of foreign currency revenues into U.S. dollars positively impacted performance compared to the prior year in Europe and Asia Pacific.
Operating Expenses
The following table presents a breakdown of our operating expenses by functional category:
Years Ended December 31,
Percent
Operating Expenses
Change
Change
(in thousands)
Direct costs and expenses for advisors
$
149,878
$
153,179
$
(3,301)
(2)
%
Selling, general and administrative
83,785
92,518
(8,733)
(9)
%
Depreciation and amortization
6,196
6,708
(512)
(8)
%
Total operating expenses
$
239,859
$
252,405
$
(12,546)
(5)
%
Total operating expenses decreased by $12.5 million for 2020 with decreases in direct costs and expenses for advisors, selling, general and administrative (“SG&A”) expenses, and depreciation and amortization. The decrease in SG&A and direct costs and expenses for advisors were due primarily to lower travel expenses of $16.9 million. The cost decreases were partially offset by higher RPA license fees of $2.8 million, severance, integration, and other expense of $1.0 million, and bad debt expense of $0.7 million.
Compensation costs consist of a mix of fixed and variable salaries, annual bonuses, benefits and retirement plan contributions. Statutory and 401(k) plans are offered to employees as appropriate. Direct costs also include employee taxes, health insurance, workers compensation and disability insurance.
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.
Selling costs consist principally of compensation expense related to business development, proposal preparation and delivery, and negotiation of new client contracts. Selling 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. Additionally, we maintain a dedicated global marketing function responsible for developing and managing sales campaigns, brand promotion, the ISG Index and assembling client proposals.
We maintain a comprehensive program for training and professional development with the related costs included in SG&A. Related expenses include product training, updates on new service offerings or methodologies and development of client 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 the 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, all occupancy expenses are recorded as general and administrative.
Depreciation and amortization expense in 2020 and 2019 were $6.2 million and $6.7 million, respectively. The decrease of $0.5 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. We also capitalize some 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.
Other Expense, Net
The following table presents a breakdown of other expense, net:
Years Ended December 31,
Percent
Other income (expense), Net
Change
Change
(in thousands)
Interest income
$
$
$
%
Interest expense
(3,563)
(6,267)
2,704
%
Foreign currency loss
(98)
(146)
%
Total other income (expense), net
$
(3,401)
$
(6,219)
$
2,818
%
The total decrease of $2.8 million was primarily the result of lower interest expense attributable to our lower debt balance and lower interest rates.
Income Tax Expense
Our effective tax rate varies from period to period based on the mix of earnings among the various state and foreign tax jurisdictions in which business is conducted and the level of non-deductible expenses incurred in any given period. Our effective tax rate for the year ended December 31, 2020 was 53.1% compared to 53.2% for the year ended December 31, 2019. The variance between the US statutory rate of 21.0% for the year ended December 31, 2020 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.
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 SEC rules, as adjusted EBITDA, adjusted net income, and adjusted earnings 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.
NON-GAAP FINANCIAL MEASURES
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, tax indemnity receivable, 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. 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 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.
Years Ended December 31,
Net income
$
2,755
$
3,341
Interest expense (net of interest income)
3,303
6,073
Income taxes
3,113
3,798
Depreciation and amortization
6,196
6,708
Change in contingent consideration
Acquisition-related costs (1)
Severance, integration and other expense
2,717
1,740
Tax indemnity receivable
-
Financing-related costs
-
Foreign currency transaction loss
Non-cash stock compensation
8,891
9,589
Adjusted EBITDA
$
28,340
$
31,514
Years Ended December 31,
Net income
$
2,755
$
3,341
Non-cash stock compensation
8,891
9,589
Intangible amortization
3,532
4,011
Change in contingent consideration
Acquisition-related costs (1)
Severance, integration and other expense
2,717
1,740
Financing-related costs
-
Write-off of deferred financing costs
-
Foreign currency transaction loss
Tax effect (2)
(5,335)
(4,984)
Adjusted net income
$
14,092
$
13,931
Years Ended December 31,
Net income per diluted share
$
0.06
$
0.07
Non-cash stock compensation
0.18
0.20
Intangible amortization
0.07
0.08
Change in contingent consideration
0.01
0.00
Acquisition-related costs (1)
0.02
0.00
Severance, integration and other expense
0.05
0.04
Financing-related costs
0.00
-
Write-off of deferred financing costs
0.00
-
Foreign currency transaction loss
0.00
0.00
Tax effect (2)
(0.11)
(0.10)
Adjusted net income per diluted share
$
0.28
$
0.29
________________________________________
(1)
Consists of expenses from acquisition-related costs and non-cash fair value adjustments on pre-acquisition contract liabilities.
(2)
Marginal tax rate of 32%, reflecting U.S. federal income tax rate of 21% plus 11% attributable to U.S. states and foreign jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
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 receivables from billed and unbilled services, accounts payable, accrued expenses, and accrued payroll and related benefits. The volume of billings and timing of collections and payments affect these account balances.
The following table summarizes our cash flows for the years ended December 31, 2020 and 2019:
Years Ended December 31,
(in thousands)
Net cash provided by (used in):
Operating activities
$
43,971
$
20,437
Investing activities
(3,498)
(1,922)
Financing activities
(15,695)
(18,934)
Effect of exchange rate changes on cash
(65)
Net increase (decrease) in cash, cash equivalents, and restricted cash
$
25,584
$
(484)
As of December 31, 2020, our liquidity and capital resources included cash, cash equivalents, and restricted cash of $43.8 million compared to $18.2 million as of December 31, 2019, a net increase of $25.6 million, which was primarily attributable to the following:
● our operating activities provided net cash of $44.0 million for the year ended December 31, 2020. Net cash provided from operations was primarily attributable to $23.5 million provided by working capital and our net income after adjustments for non-cash charges of approximately $20.5 million. The change in working capital was primarily attributable to a $13.1 million increase in accrued expenses, $10.1 million decline in accounts receivable and contract assets, and $2.1 increase in accounts payable partially offset by a $1.7 million increase in prepaid expense and other assets;
● net principal payments on borrowings of $8.1 million;
● treasury share repurchases of $5.2 million;
● Neuralify acquisition of $2.3 million;
● payments of $2.0 million related to tax withholding for stock-based compensation;
● capital expenditures for property, plant and equipment of $1.2 million; and
● debt financing costs of $0.9 million.
Capital Resources
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. The material terms under the 2020 Credit Agreement are as follows:
● Each of the term loan facility and revolving credit facility has a maturity date of March 10, 2025 (the “Maturity Date”).
● The credit facility is secured by all of the equity interests owned by the Company, and its direct and indirect domestic subsidiaries and, subject to agreed exceptions, the Company’s direct and indirect “first-tier” foreign subsidiaries and a perfected first priority security interest in all of the Company’s and its direct and indirect domestic subsidiaries’ tangible and intangible assets.
● 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. 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.
● 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.
● The senior secured credit facility contains a number of covenants that, among other things, place restrictions on matters customarily restricted in senior secured credit facilities, including restrictions on indebtedness (including guarantee obligations), liens, fundamental changes, sales or disposition of property or assets, investments (including loans, advances, guarantees and acquisitions), transactions with affiliates, dividends and other payments in respect of capital stock, optional payments and modifications of other material debt instruments, negative pledges and agreements restricting subsidiary distributions and changes in line of business. In addition, the Company is required to comply with a total leverage ratio and fixed charge coverage ratio.
● 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 $78.8 million and $86.9 million at December 31, 2020 and December 31, 2019, 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 $77.7 million and $86.7 million at December 31, 2020 and December 31, 2019, 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 2.49%. 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.
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. The anticipated cash needs of our business could change significantly if we pursue and complete additional business acquisitions, if our business plans change, if economic conditions change from those currently prevailing or from those now anticipated, or if other unexpected circumstances arise that may have a material effect on the cash flow or profitability of our business, including the potential impacts of the COVID-19 pandemic and the severity of the related economic downturn and length of time of an economic recovery. If we require additional capital resources to grow our business, either internally or through acquisition, or maintain liquidity, we may seek to sell additional equity securities or to secure additional debt financing. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future.
The Company has financial covenants underlying its debt which require an adjusted Debt to EBITDA ratio of 3.25. In light of the pandemic, there is uncertainty regarding the marketplace demand for the Company’s services and thus the Company’s future revenue generation. Accordingly, in light of this uncertainty, the Company has developed plans to further reduce operating expenses to the extent more prolonged revenue shortfalls are experienced which would prevent the Company from complying with its financial covenants. We believe that cash flows generated from operations, existing cash and cash equivalents and borrowing capacity under our senior secured credit facility are sufficient to finance the requirements of our business for 12 months from the date of issuance of these financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity.
Employee Retirement Plans
For the fiscal years ended December 31, 2020 and 2019, we contributed $0.9 million and $0.1 million, respectively, to the 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. All current and future financial risks associated with the gains and losses on investments are borne by Savings Plan participants.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies, many of which require management to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results may differ from estimates. Such differences may be material to the consolidated financial statements.
We believe the application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found the application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.
Our accounting policies are more fully described in Note 2 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements.” We have identified revenue recognition as a critical accounting estimate:
Revenue Recognition
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).
We principally derive revenues from fees for services generated on a project-by-project basis. Prior to the commencement of a project, we reach agreement with the client on rates for services based upon the scope of the project, staffing requirements and the level of client involvement. It is our policy to obtain written agreements from clients prior to performing services or when evidence of enforceable rights and obligations is obtained. In these agreements, the clients acknowledge that they will pay based upon the amount of time spent on the project or an agreed upon fee structure.
Revenues for time and materials contracts, which may include capped fees or “not-to-exceed” clauses, are recognized based on the number of hours worked by our advisors at an agreed upon rate per hour and are recognized in the period in which services are performed. Revenues for time and materials contracts are billed monthly, semimonthly or in accordance with the specific contractual terms of each project. For contracts with capped fees or not-to-exceed clauses, we monitor our performance and fees billed to ensure that revenue is not recognized in excess of the contractually capped fee.
Revenues related to fixed fee contracts are recognized as value is delivered to the customer, consistent with the transfer of control to the customer over time. Revenue for these contracts is recognized proportionally over the term of the contract using an input method based on the proportion of labor hours incurred as compared to the total estimated labor hours for the fixed fee contract performance obligations, which we consider the best available indicator of the pattern and timing in which contract performance obligations are fulfilled and control transfers to the customer. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period. The contracted amount used in this calculation typically excludes the amount the client pays for reimbursable expenses. There are situations where the number of hours to complete projects may exceed our original estimate as a result of an increase in project scope or unforeseen events. The results of any revisions in these estimates are reflected in the period in which they become known.
For managed service implementation contracts, revenue is recognized over time as a percentage of hours incurred to date as compared to the total expected hours of the implementation, consistent with the transfer of control to the customer. 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 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. 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 Company. For network 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. The contract periods range from a few months to in excess of a year.
We also enter into arrangements for the sale of robotics 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 software licenses and other software-related services. For software and implementation contracts, revenue associated with the software performance obligation is recognized at the point at which the software is installed, 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.
Revenue associated with events is recognized at the point of time at which the event occurs. Conversely, revenue associated with research subscriptions is recognized over time, as the customer accesses our data or related platforms.
The agreements entered into in connection with a project typically allow our clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by us through the effective date of the termination. 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 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 receive cash in advance of completing services or earning revenues, those amounts are recorded as contract liabilities.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this report.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Reference is made to our financial statements beginning on page of this report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020, as required by the Rule 13a-15(b) under the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, as required by Rule 13a-15(c) under the Exchange Act. In making this assessment, we used the criteria set forth in the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2020.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no controls can provide absolute assurance that misstatements due to error or fraud will not occur, and no evaluation of any such controls can provide absolute assurance that control issues and instances of fraud, if any, within our Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
(a)
Identification of Directors and Executive Officers.
The information required hereunder is incorporated by reference from the sections of our Proxy Statement filed in connection with our 2021 Annual Meeting of Stockholders under the caption “Management.”
(b)
Code of Ethics.
The information required hereunder is incorporated by reference from the sections of our Proxy Statement filed in connection with our 2021 Annual Meeting of Stockholders under the caption “Corporate Governance.”
(c)
Nominating Committee, Audit Committee, Audit Committee Financial Expert.
The information required hereunder is incorporated by reference from the sections of our Proxy Statement filed in connection with our 2021 Annual Meeting of Stockholders under the caption “Corporate Governance.”

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required hereunder is incorporated by reference from the sections of our Proxy Statement filed in connection with our 2021 Annual Meeting of Stockholders under the caption “Corporate Governance,” “Executive Compensation,” “Summary Compensation Table” and “Outstanding Equity Awards At 2020 Fiscal Year End.”

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required hereunder is incorporated by reference from the sections of our Proxy Statement filed in connection with our 2021 Annual Meeting of Stockholders under the caption “Security Ownership of Certain Beneficial Owners.”

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required hereunder is incorporated by reference from the sections in our Proxy Statement filed in connection with our 2021 Annual Meeting of the Stockholders under the caption “Corporate Governance.”

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
The information required hereunder is incorporated by reference from the sections in our Proxy Statement filed in connection with our 2021 Annual Meeting of the Stockholders under the caption “Proposal No. 2 Ratification of Engagement of Independent Registered Public Accounting Firm.”
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedule
(a)(1) Documents filed as a part of this report:
Financial Statements of Information Services Group, Inc.:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statement of Income and Comprehensive Income for the years ended December 31, 2020 and 2019
Consolidated Statement of Stockholders’ Equity as of December 31, 2020 and 2019
Consolidated Statement of Cash Flows for the years ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II-Valuation and Qualifying Accounts for the years ended December 31, 2020, and 2019
G-1
(a)(3) Exhibits:
We hereby file as part of this Annual Report on Form 10−K the Exhibits listed in the attached Exhibit Index.