Information Services Group(III) - 2022 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, reporting $9.9 million net income on $143.3 million revenue for the six months ended June 30, 2022 Condensed Consolidated Balance Sheets Total assets decreased to $221.3 million as of June 30, 2022, from $236.8 million at year-end 2021, primarily due to reduced cash and equivalents, while total liabilities also decreased | Balance Sheet Items (In thousands) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $31,473 | $47,521 | | Total current assets | $103,512 | $116,110 | | Total assets | $221,275 | $236,794 | | Total current liabilities | $48,885 | $56,838 | | Long-term debt, net | $67,454 | $69,490 | | Total liabilities | $127,083 | $138,401 | | Total stockholders' equity | $94,192 | $98,393 | Condensed Consolidated Statement of Income and Comprehensive Income Q2 2022 revenues remained flat at $70.7 million, while net income increased to $5.0 million, and for the six months, revenues grew 4.4% to $143.3 million with net income reaching $9.9 million | Income Statement (In thousands, except per share) | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $70,701 | $70,597 | $143,264 | $137,168 | | Operating income | $7,148 | $5,843 | $14,880 | $10,858 | | Net income | $4,957 | $4,106 | $9,887 | $7,530 | | Diluted EPS | $0.10 | $0.08 | $0.19 | $0.15 | Condensed Consolidated Statement of Cash Flows Net cash from operating activities significantly decreased to $4.9 million for the six months ended June 30, 2022, from $20.9 million in 2021, leading to a $16.1 million decrease in cash balance | Cash Flow Activities (In thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,936 | $20,930 | | Net cash used in investing activities | ($2,104) | ($965) | | Net cash used in financing activities | ($16,059) | ($19,125) | | Net (decrease) increase in cash | ($16,055) | $62 | | Cash, end of period | $31,554 | $43,887 | Notes to Condensed Consolidated Financial Statements Key notes detail accounting policies, the Agreemint acquisition, $119.1 million in remaining performance obligations, geographic revenue breakdown, and $72.3 million in outstanding debt - On March 28, 2022, ISG acquired the assets of Agreemint, an automated contracting solution, to enhance its ISG GovernX platform[30] - As of June 30, 2022, the company had $119.1 million of remaining performance obligations, the majority of which are expected to be satisfied within the next twelve months[36] Geographic Revenues (In thousands) | Geographic Revenues (In thousands) | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Americas | $39,448 | $40,339 | $80,885 | $78,429 | | Europe | $23,255 | $23,715 | $46,718 | $46,457 | | Asia Pacific | $7,998 | $6,543 | $15,661 | $12,282 | | Total | $70,701 | $70,597 | $143,264 | $137,168 | - The company has a senior secured credit facility with a maturity date of March 10, 2025, with outstanding borrowings of $72.3 million as of June 30, 2022, and was in compliance with all financial covenants[45][47][48] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting a 4% revenue increase to $143.3 million and Adjusted EBITDA growth to $21.4 million for the six months ended June 30, 2022, while maintaining solid liquidity Results of Operations for the Three Months Ended June 30, 2022 and 2021 Q2 2022 total revenues remained flat at $70.7 million, with Asia Pacific growing 22% despite a $3.5 million negative foreign currency impact, while operating expenses decreased 2% Geographic Revenues - Q2 (In thousands) | Geographic Revenues - Q2 (In thousands) | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Americas | $39,448 | $40,339 | $(891) | (2)% | | Europe | $23,255 | $23,715 | $(460) | (2)% | | Asia Pacific | $7,998 | $6,543 | $1,455 | 22% | | Total revenues | $70,701 | $70,597 | $104 | 0% | - The translation of foreign currency revenues into U.S. dollars negatively impacted performance in Europe and Asia Pacific by $3.5 million compared to the prior year[58] - Total operating expenses decreased by $1.2 million (2%) in Q2 2022, driven by lower contract labor ($1.7 million), compensation costs ($1.0 million), and severance ($0.8 million), partially offset by higher travel ($1.0 million) and event expenses ($0.5 million)[59][60][61] Results of Operations for the Six Months Ended June 30, 2022 and 2021 Revenues for the six months ended June 30, 2022, increased 4% to $143.3 million, driven by Asia Pacific's 28% growth, despite a $5.5 million negative currency impact, with operating expenses rising 2% Geographic Revenues - Six Months (In thousands) | Geographic Revenues - Six Months (In thousands) | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Americas | $80,885 | $78,429 | $2,456 | 3% | | Europe | $46,718 | $46,457 | $261 | 1% | | Asia Pacific | $15,661 | $12,282 | $3,379 | 28% | | Total revenues | $143,264 | $137,168 | $6,096 | 4% | - The translation of foreign currency revenues into U.S. dollars negatively impacted performance in Europe and Asia Pacific by $5.5 million compared to the prior year[70] - Total operating expenses increased by $2.1 million (2%) in the first six months of 2022, driven by higher compensation costs ($2.4 million) and travel expenses ($1.8 million), partially offset by lower contract labor ($1.9 million)[71] Non-GAAP Financial Measures Non-GAAP measures show Adjusted EBITDA increased to $10.7 million in Q2 2022 and $21.4 million for the six-month period, with adjusted diluted EPS at $0.26 for the six months Adjusted EBITDA Reconciliation (In thousands) | Adjusted EBITDA Reconciliation (In thousands) | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income | $4,957 | $4,106 | $9,887 | $7,530 | | Adjustments | $5,785 | $5,632 | $11,499 | $10,853 | | Adjusted EBITDA | $10,742 | $9,738 | $21,386 | $18,383 | Adjusted Net Income Reconciliation (In thousands) | Adjusted Net Income Reconciliation (In thousands) | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income | $4,957 | $4,106 | $9,887 | $7,530 | | Adjustments (pre-tax) | $2,729 | $3,282 | $4,851 | $6,265 | | Tax effect | ($873) | ($1,048) | ($1,554) | ($2,007) | | Adjusted net income | $6,813 | $6,334 | $13,189 | $11,794 | Liquidity and Capital Resources Cash and equivalents decreased by $16.1 million to $31.6 million as of June 30, 2022, primarily due to share repurchases and dividends, while the $54.0 million revolving credit facility remains undrawn - The $16.1 million net decrease in cash from December 31, 2021, was primarily due to treasury share repurchases ($9.6 million), cash dividends ($3.4 million), negative currency effects ($2.8 million), debt payments ($2.2 million), and equipment purchases ($2.1 million), partially offset by $4.9 million in cash from operations[88] - The company has a senior secured credit facility that includes an $86.0 million term loan and a $54.0 million revolving facility, maturing in March 2025, with no borrowings under the revolver as of June 30, 2022[89][90] - In May 2022, the company announced a Q2 dividend of $0.04 per share, and on August 2, 2022, the Board approved a Q3 dividend of $0.04 per share[93] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company is not required to provide market risk disclosures as it qualifies as a smaller reporting company - The company is not required to provide information for this item as it qualifies as a smaller reporting company[97] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - Based on an evaluation as of June 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective[99] - No changes in internal control over financial reporting occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[100] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reported no material legal proceedings - None[102] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - The risk factors included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 have not materially changed[103] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details dividend program and share repurchase activity, including 963,000 shares repurchased for $6.0 million in Q2 2022, with $11.5 million remaining under the program - As of June 30, 2022, the company has approximately $11.5 million available under its share repurchase program[105] Share Repurchases - Q2 2022 | Share Repurchases - Q2 2022 | Total Securities Purchased (In thousands) | Average Price per Security | | :--- | :--- | :--- | | April 2022 | 182 | $6.56 | | May 2022 | 133 | $6.18 | | June 2022 | 648 | $6.19 |