Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2018 | Oct. 26, 2018 | |
Document and Entity Information | ||
Entity Registrant Name | Information Services Group Inc. | |
Entity Central Index Key | 1,371,489 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 45,186,419 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q3 | |
Entity Small Business | false | |
Entity Emerging Growth Company | false |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Current assets | ||
Cash and cash equivalents | $ 13,510 | $ 28,420 |
Accounts receivable and contract assets, net of allowance of $707 and $503, respectively | 76,403 | 70,824 |
Prepaid expense and other current assets | 4,277 | 4,467 |
Total current assets | 94,190 | 103,711 |
Restricted cash | 91 | 94 |
Furniture, fixtures and equipment, net | 6,896 | 5,229 |
Goodwill | 85,446 | 85,619 |
Intangible assets, net | 21,868 | 25,684 |
Deferred tax assets | 2,997 | 2,521 |
Other assets | 1,069 | 1,902 |
Total assets | 212,557 | 224,760 |
Current liabilities | ||
Accounts payable | 8,016 | 7,192 |
Current maturities of long-term debt | 8,250 | 15,499 |
Contract liabilities | 4,794 | 8,898 |
Accrued expenses | 17,621 | 21,486 |
Total current liabilities | 38,681 | 53,075 |
Long-term debt, net of current maturities | 91,113 | 98,838 |
Deferred tax liabilities | 1,891 | 1,569 |
Other liabilities | 4,362 | 7,741 |
Total liabilities | 136,047 | 161,223 |
Commitments and contingencies (Note 7) | ||
Stockholders' equity | ||
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued | ||
Common stock, $0.001 par value, 100,000 shares authorized; 45,193 shares issued and 45,138 outstanding at September 30, 2018 and 44,490 shares issued and 43,560 outstanding at December 31, 2017 | 45 | 44 |
Additional paid-in capital | 233,394 | 230,134 |
Treasury stock (55 and 930 common shares, respectively, at cost) | (228) | (3,161) |
Accumulated other comprehensive loss | (7,456) | (5,666) |
Accumulated deficit | (149,245) | (157,814) |
Total stockholders' equity | 76,510 | 63,537 |
Total liabilities and stockholders’ equity | $ 212,557 | $ 224,760 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Accounts receivables and contract assets, allowances | $ 770 | $ 503 |
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000 | 10,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000 | 100,000 |
Common stock, shares issued | 45,193 | 44,490 |
Common stock, shares outstanding | 45,138 | 43,560 |
Treasury stock, shares | 55 | 930 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Revenue from Contract with Customer, Excluding Assessed Tax | $ 67,965 | $ 68,349 | $ 207,868 | $ 202,942 |
Operating expenses | ||||
Direct costs and expenses for advisors | 38,624 | 38,214 | 121,761 | 119,153 |
Selling, general and administrative | 23,990 | 23,710 | 70,898 | 68,815 |
Depreciation and amortization | 1,977 | 2,951 | 5,872 | 9,773 |
Operating income | 3,374 | 3,474 | 9,337 | 5,201 |
Interest income | 3 | 15 | 113 | 94 |
Interest expense | (1,675) | (1,716) | (5,140) | (5,132) |
Foreign currency transaction (loss) gain | (6) | (111) | 19 | (292) |
Income (loss) before taxes | 1,696 | 1,662 | 4,329 | (129) |
Income tax (benefit) provision | (2,307) | 234 | (2,200) | (681) |
Net income | 4,003 | 1,428 | 6,529 | 552 |
Net income attributable to non-controlling interest | 32 | |||
Net income attributable to ISG | $ 4,003 | $ 1,428 | $ 6,529 | $ 520 |
Weighted average shares outstanding: | ||||
Basic (in shares) | 45,115 | 43,305 | 44,491 | 42,893 |
Diluted (in shares) | 47,100 | 44,658 | 46,349 | 43,344 |
Earnings (loss) per share attributable to ISG: | ||||
Basic (in dollars per share) | $ 0.09 | $ 0.03 | $ 0.15 | $ 0.01 |
Diluted (in dollars per share) | $ 0.08 | $ 0.03 | $ 0.14 | $ 0.01 |
Comprehensive income: | ||||
Net income | $ 4,003 | $ 1,428 | $ 6,529 | $ 552 |
Foreign currency translation, net of tax benefit (expense) of $110, $(232), $421 and $(1,161), respectively. | (786) | 601 | (1,790) | 1,950 |
Comprehensive income | 3,217 | 2,029 | 4,739 | 2,502 |
Comprehensive income attributable to non-controlling interest | 32 | |||
Comprehensive income attributable to ISG | $ 3,217 | $ 2,029 | $ 4,739 | $ 2,470 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Foreign currency translation, benefit (expense) | $ 110 | $ (232) | $ 421 | $ (1,161) |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Cash flows from operating activities | ||
Net income | $ 6,529 | $ 552 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation expense | 2,075 | 2,640 |
Amortization of intangible assets | 3,797 | 7,133 |
Deferred tax (benefit) expense from stock issuances | (152) | 315 |
Amortization of deferred financing costs | 600 | 739 |
Loss on sublease | 578 | |
Stock-based compensation | 7,230 | 5,383 |
Change in fair value of contingent consideration | 362 | 145 |
Changes in accounts receivable allowance | 501 | 398 |
Deferred tax provision (benefit) | (245) | (2,338) |
Loss on disposal of fixed assets | 32 | 23 |
Changes in operating assets and liabilities, net of acquisitions: | ||
Accounts receivable | (5,778) | (10,424) |
Prepaid expense and other assets | (26) | 1,628 |
Accounts payable | 509 | (1,458) |
Deferred revenue | (1,865) | (980) |
Debt issuance costs | (38) | |
Accrued expenses | (2,415) | (1,023) |
Net cash provided by operating activities | 11,154 | 3,273 |
Cash flows from investing activities | ||
Acquisitions, net of cash acquired | (889) | |
Purchase of furniture, fixtures and equipment | (3,603) | (2,270) |
Net cash used in investing activities | (3,603) | (3,159) |
Cash flows from financing activities | ||
Principal payments on borrowings | (8,574) | (7,151) |
Payment of the Alsbridge Notes | (7,000) | |
Proceeds from issuance of employee stock purchase plan shares | 642 | 494 |
Installment payment for acquisitions | (543) | |
Payment of contingent consideration | (1,200) | (2,665) |
Payments related to tax withholding for stock-based compensation | (2,743) | (2,174) |
Equity securities repurchased | (2,879) | (2,853) |
Net cash used in financing activities | (21,754) | (14,892) |
Effect of exchange rate changes on cash | (710) | 2,115 |
Net decrease in cash, cash equivalents, and restricted cash | (14,913) | (12,663) |
Cash, cash equivalents, and restricted cash, beginning of period | 28,514 | 34,982 |
Cash, cash equivalents, and restricted cash, end of period | 13,601 | 22,319 |
Non-cash investing and financing activities: | ||
Issuance of treasury stock for vested restricted stock awards | $ 5,151 | $ 6,437 |
DESCRIPTION OF ORGANIZATION AND
DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS | 9 Months Ended |
Sep. 30, 2018 | |
DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS | |
DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS | NOTE 1—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS Information Services Group, Inc. (the “Company”, or “ISG”) was founded in 2006 with the strategic vision to become a high-growth, leading provider of information-based advisory services. In 2007, we consummated our initial public offering and completed the acquisition of TPI Advisory Services Americas, Inc. (“TPI”). In December 2017, we consummated our transformational acquisition of Alsbridge Holdings, Inc. (“Alsbridge”), a U.S.-based sourcing, automation and transformation advisory firm. |
BASIS OF PRESENTATION
BASIS OF PRESENTATION | 9 Months Ended |
Sep. 30, 2018 | |
BASIS OF PRESENTATION | |
BASIS OF PRESENTATION | NOTE 2—BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements as of September 30, 2018 and for the three and nine months ended September 30, 2018 and 2017, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are considered necessary for a fair statement of the financial position of the Company as of September 30, 2018, the results of operations for the three and nine months ended September 30, 2018 and 2017 and the cash flows for the nine months ended September 30, 2018 and 2017. The condensed consolidated balance sheet as of December 31, 2017 has been derived from the Company’s audited consolidated financial statements. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with GAAP have been omitted from these interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended December 31, 2017, which are included in the Company’s 2017 Annual Report on Form 10-K filed with the SEC. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2018 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. Additionally, ISG has to determine the nature and timing of the satisfaction of performance obligations, the standalone selling price (“SSP”) of certain performance obligations, among other judgments associated with revenue recognition. Numerous internal and external factors can affect estimates. Estimates are also used for (but not limited to): allowance for doubtful accounts; useful lives of furniture, fixtures and equipment and definite-lived intangible assets; depreciation expense; fair value assumptions in analyzing goodwill and other long-lived assets for impairment; income taxes and deferred tax asset valuation; and the valuation of stock-based compensation. Restricted Cash Restricted cash consists of cash and cash equivalents which the Company has committed for rent deposits. Fair Value The carrying value of the Company’s cash and cash equivalents, restricted cash, receivables, accounts payable, other current liabilities, and accrued interest approximated their fair values at September 30, 2018 and December 31, 2017 due to the short-term nature of these accounts. Fair value measurements were applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which would consist of measurements primarily to contingent consideration in a business combination. Fair value is the price that would be received upon a sale of an asset or paid upon a transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). Market participants can use market data or assumptions in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. Under the fair-value hierarchy: · Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market; · Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and · Level 3 measurements include those that are unobservable and of a highly subjective measure. The following tables summarize assets and liabilities measured at fair value on a recurring basis at the dates indicated: Basis of Fair Value Measurements September 30, 2018 Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 315 $ — $ — $ 315 Total $ 315 $ — $ — $ 315 Liabilities: Contingent consideration (1) $ — $ — $ 1,704 $ 1,704 Total $ — $ — $ 1,704 $ 1,704 Basis of Fair Value Measurements December 31, 2017 Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 303 $ — $ — $ 303 Total $ 303 $ — $ — $ 303 Liabilities: Contingent consideration (1) $ — $ — $ 3,698 $ 3,698 Total $ — $ — $ 3,698 $ 3,698 (1) The short-term portion is included in “Accrued expenses.” The long-term portion is included in “Other liabilities.” The fair value measurement of this contingent consideration is classified within Level 3 of the fair value hierarchy and reflects the Company’s own assumptions in measuring fair values using the income approach. In developing these estimates, the Company considered certain performance projections, historical results, and industry trends. This amount was estimated through a valuation model that incorporated probability-weighted assumptions related to the achievement of these milestones and the likelihood of the Company making payments. These cash outflow projections have then been discounted using a rate ranging from 14.5% to 28.5%. The following table represents the change in the contingent consideration liability during the nine months ended September 30, 2018 and 2017: Nine Months Ended September 30, 2018 2017 Beginning Balance $ 3,698 $ 6,073 Payments of contingent consideration (2,401) (3,386) Change in value of contingent consideration 362 145 Accretion of contingent consideration 44 1,030 Unrealized gain related to currency translation 1 28 Ending Balance $ 1,704 $ 3,890 The Company’s financial instruments include outstanding borrowings of $101.2 million at September 30, 2018 and $116.7 million at December 31, 2017, 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 $100.9 million and $116.5 million at September 30, 2018 and December 31, 2017, 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 ranged from 5.01% to 5.15%. 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. Recently Issued Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance on accounting for leases which requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The guidance requires the use of a modified retrospective approach. The Company has less than fifty leases for which a corresponding asset and liability will be recorded on the balance sheet as of January 1, 2019. The adoption of this guidance will not have a material impact on our results of operations and will have no impact on our cash flows. In August 2016, the FASB issued new guidance intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees. The guidance became effective for interim and annual periods beginning after December 15, 2017, and we adopted the guidance as of January 1, 2018. The guidance requires application using a retrospective transition method. The adoption of this guidance by the Company did not have a material impact on our results of operations. In August 2018, the FASB issued an update that modifies the disclosure requirements for fair value measurements by removing, modifying or adding disclosures. The guidance is effective for fiscal year beginning after December 15, 2019 and early adoption is permitted. Certain disclosures in the update are applied retrospectively, while others are applied prospectively. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements. In September 2018, the FASB issued new guidance which requires a customer in a cloud computing arrangement to determine which implementation costs to capitalize as assets or expense as incurred. Under the new guidance, capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, and early adoption is permitted. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements. |
REVENUE
REVENUE | 9 Months Ended |
Sep. 30, 2018 | |
REVENUE | |
REVENUE | NOTE 4—REVENUE In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASC Topic 606”), “Revenue from Contracts with Customers”. ASC Topic 606 supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition” (“ASC Topic 605”), and requires the recognition of revenue upon transfer of control of promised services and products to clients in an amount that reflects the consideration we expect to receive in exchange for those services and products. We adopted ASC Topic 606 as of January 1, 2018 using the cumulative catch-up transition method. The most significant changes resulting from the adoption of ASC Topic 606, as previously disclosed in our 2017 Form 10-K, are as follows: · For software and implementation contracts, revenue recognition on the software component will be accelerated to the point at which the software is installed, while revenue on the implementation component will be recognized over the software implementation period as a percentage of hours incurred to date as compared to the total expected hours. · For network contingency contracts with termination for convenience clauses, revenue will be recognized over time due to the existence of provisions for payment for progress incurred to date plus a reasonable profit margin. · For managed service implementation contracts, revenue will be recognized over time as a percentage of hours incurred to date as compared to the total expected hours of the implementation. We recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of retained earnings at the beginning of 2018. The comparative information has not been adjusted for the effect of ASC Topic 606 and continues to be reported under the accounting standards in effect for the periods presented. Upon the adoption of ASC Topic 606 on January 1, 2018, we recorded a net increase to opening retained earnings of $2.0 million. The cumulative effect of the changes made to our Condensed Consolidated Balance Sheet as of January 1, 2018 for the adoption of ASC Topic 606 was as follows: As of January 1, 2018 As Previously Reported As Adjusted Under ASC 605 Adjustments for ASC 606 Assets Accounts receivables and contract assets, net of allowance of $503 $ 70,824 $ 1,468 $ 72,292 Prepaid expenses and other current assets $ 4,467 $ (1,071) $ 3,396 Deferred tax assets $ 2,521 $ (549) $ 1,972 Liabilities Contract liabilities $ 8,898 $ (2,418) $ 6,480 Accrued expenses $ 21,486 $ 133 $ 21,619 Deferred tax liabilities $ 1,569 $ 95 $ 1,664 Stockholders' equity Accumulated deficit $ (157,814) $ 2,038 $ (155,776) The majority of our revenue is derived from contracts that can span from a few months to several years. We enter into contracts that can include various combinations of services and products, which, depending on contract type, are sometimes capable of being distinct. If services are determined to be distinct, they are accounted for as separate performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the client and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct. For contracts with multiple performance obligations, including our managed service implementation and software and implementation contract types, the Company allocates the transaction price to each performance obligation using our best estimate of the standalone selling price, or SSP, of each distinct good or service in the contract. As of September 30, 2018, the Company had $89.4 million of remaining performance obligations, the majority of which are expected to be satisfied within the next year. As part of our adoption of ASC Topic 606, we used practical expedients permitted by the standard when applicable. These practical expedients included: · applying the new guidance only to contracts that are not completed as of January 1, 2018; · expensing the incremental costs to obtain a contract as incurred when the expected amortization period is one year or less; and · presenting all revenue net of any related sales tax. Our contracts may include promises to transfer multiple services and products to a client. Determining whether services and products are considered distinct performance obligations that should be accounted for separately versus together may require judgment. Estimates were required to determine the SSP for each distinct performance obligation identified within our managed service implementation contracts and software and implementation contracts. Further details of our approach to determining the SSP for each contract type is described below. · For our software and implementation contracts, we had to determine the SSP for both the software license and implementation service performance obligations. For the software license performance obligation, we utilized the adjusted market assessment approach and determined that our listed price of the software licenses generally approximated the SSP. For the implementation service performance obligation, we utilized the residual approach, which resulted in the difference between the total contract value and the software license price in the arrangement being allocated to the implementation service. · For our managed service implementation contracts, we had to determine the SSP for both the managed services and implementation performance obligations. For each performance obligation, we estimated the SSP using the expected cost plus a reasonable profit margin approach, under which we forecasted our expected costs of satisfying a performance obligation and then added an appropriate margin for the distinct service. Adjustments to Financial Statements from the Adoption of Accounting Pronouncements The following table presents the effect of the adoption of ASC Topic 606 on our condensed consolidated balance sheet as of September 30, 2018. September 30, 2018 As Reported Under ASC 606 Adjustments ASC 605 Assets Accounts receivable and contract assets, net of allowance of $770 $ 76,403 $ (4,305) $ 72,098 Prepaid expenses and other current assets $ 4,277 $ 2,285 $ 6,562 Deferred tax assets $ 2,997 $ 549 $ 3,546 Liabilities Contract liabilities $ 4,794 $ 6,166 $ 10,960 Accrued expenses $ 17,621 $ (150) $ 17,471 Deferred tax liabilities $ 1,891 $ (1,380) $ 511 Stockholders' equity Accumulated deficit $ (149,245) $ (6,107) $ (155,352) The following table presents the effect of the adoption of ASC Topic 606 on our condensed consolidated statement of comprehensive income for the three months ended September 30, 2018. Three Months Ended September 30, 2018 As Reported Under ASC 606 Adjustments ASC 605 Revenues $ 67,965 $ (2,620) $ 65,345 Operating expenses Direct costs and expenses for advisors 38,624 (211) 38,413 Selling, general and administrative 23,990 — 23,990 Depreciation and amortization 1,977 — 1,977 Operating income 3,374 (2,409) 965 Interest income 3 — 3 Interest expense (1,675) — (1,675) Foreign currency transaction loss (6) — (6) Income (loss) before taxes 1,696 (2,409) (713) Income tax benefit (2,307) (578) (2,885) Net income $ 4,003 $ (1,831) $ 2,172 The following table presents the effect of the adoption of ASC Topic 606 on our condensed consolidated statement of comprehensive income for the nine months ended September 30, 2018. Nine Months Ended September 30, 2018 As Reported Under ASC 606 Adjustments ASC 605 Revenues $ 207,868 $ (6,587) $ 201,281 Operating expenses Direct costs and expenses for advisors 121,761 (1,230) 120,531 Selling, general and administrative 70,898 — 70,898 Depreciation and amortization 5,872 — 5,872 Operating income 9,337 (5,357) 3,980 Interest income 113 — 113 Interest expense (5,140) — (5,140) Foreign currency transaction gain 19 — 19 Income (loss) before taxes 4,329 (5,357) (1,028) Income tax benefit (2,200) (1,286) (3,486) Net income $ 6,529 $ (4,071) $ 2,458 Contract Balances The timing of revenue recognition, billings, and cash collections results in billed accounts receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities). Our clients are billed based on the type of arrangement. A portion of our services is billed monthly based on hourly or daily rates. There are also client engagements in which we bill a fixed amount for our services. This may be one single amount covering the whole engagement or several amounts for various phases, functions, or milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits, particularly on our software and implementation contracts, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheet at the end of each reporting period. See the table below for a breakdown of contract assets and contract liabilities. January 1, 2018 September 30, 2018 (as adjusted) Contract assets (i.e., unbilled receivables) $ 30,680 $ 18,838 Contract liabilities (i.e., deferred revenue) $ 4,794 $ 6,480 Revenue recognized for the three months ended September 30, 2018 that was included in the contract liability balance at July 1, 2018 was $4.2 million and represented primarily revenue from our software and implementation contracts and managed services contracts. Revenue recognized for the nine months ended September 30, 2018 that was included in the contract liability balance at January 1, 2018 was $6.2 million and represented primarily revenue from our software and implementation contracts and managed services contracts. Disaggregation of Revenue The following table presents our revenue disaggregated by geographic area for the three and nine months ended September 30, 2018. Three Months Ended Nine Months Ended Geographic area September 30, 2018 September 30, 2018 Americas $ 38,502 $ 121,009 Europe 24,033 69,834 Asia Pacific 5,430 17,025 $ 67,965 $ 207,868 |
NET INCOME PER COMMON SHARE
NET INCOME PER COMMON SHARE | 9 Months Ended |
Sep. 30, 2018 | |
NET INCOME PER COMMON SHARE | |
NET INCOME PER COMMON SHARE | NOTE 5—NET INCOME PER COMMON SHARE Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would share in the net income of the Company. For the three and nine months ended September 30, 2017, the effect of 34,374 stock appreciation rights (“SARs”) have not been considered in the diluted earnings per share, because the market price of the stock was less than the exercise price during the period in the computation, respectively. In addition, 2.5 million restricted shares have not been considered in the diluted earnings per share calculation for the nine months ended September 30, 2017, as the effect would be anti-dilutive. The following tables set forth the computation of basic and diluted earnings per share: Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Basic: Net income attributable to ISG $ 4,003 $ 1,428 $ 6,529 $ 520 Weighted average common shares 45,115 43,305 44,491 42,893 Earnings per share attributable to ISG $ 0.09 $ 0.03 $ 0.15 $ 0.01 Diluted: Net income attributable to ISG $ 4,003 $ 1,428 $ 6,529 $ 520 Interest expense of convertible debt, net of tax — 2 — 6 Net income attributable to ISG, as adjusted $ 4,003 $ 1,430 $ 6,529 $ 526 Basic weighted average common shares 45,115 43,305 44,491 42,893 Potential common shares 1,985 1,353 1,858 451 Diluted weighted average common shares 47,100 44,658 46,349 43,344 Diluted earnings per share attributable to ISG $ 0.08 $ 0.03 $ 0.14 $ 0.01 |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2018 | |
INCOME TAXES | |
INCOME TAXES | NOTE 6—INCOME TAXES The Company’s effective tax rate for the three and nine months ended September 30, 2018 was (136.0)% and (50.8)% based on pretax income of $1.7 million and $4.3 million, respectively. The Company’s effective tax rate for the quarter was less than the statutory rate primarily due to discrete tax benefits related to the release of a valuation allowance and the reversal of an uncertain tax position reserve. The effective tax rate was 14.1% and 527.9% for the three and nine months ended September 30, 2017. The difference for the nine months ended September 30, 2018 was primarily due to the impact of current quarter earnings in jurisdictions where the Company is currently precluded from recording a tax provision, the release of accruals for uncertain tax positions of $1.7 million due to the expiration of statute of limitations in a foreign and U.S. jurisdictions and $1.3 million due to Company establishing its position on foreign source income component of its U.S. foreign tax credit claims, as well as the release of $1.3 million of valuation allowance against U.S. foreign tax credit positions, during the nine months ended September 30, 2018. The difference for the three months ended September 30, 2018 was primarily due to the reversals of $2.3 million of accruals for these uncertain tax positions and the $1.3 million of valuation allowance release related to foreign tax credits. As of September 30, 2018, the Company had total unrecognized tax benefits of approximately $1.4 million all of which would impact the Company’s effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax provision in its condensed consolidated statement of operations. As of September 30, 2018, the Company’s accrual of interest and penalties amounted to $0.7 million. The Company recorded no material year-to-date change in the accrual of unrecognized tax benefits and associated interest and penalties. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2018 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | NOTE 7—COMMITMENTS AND CONTINGENCIES The Company is subject to contingencies which arise through the ordinary course of business. All material liabilities of which management were aware are properly reflected in the financial statements at September 30, 2018 and December 31, 2017. Saugatuck Contingent Consideration During the quarter ended September 30, 2018, the Company reversed the remaining $0.3 million contingent consideration liability related to the acquisition of Saugatuck as the related earn-out payment is no longer expected. The Company paid $0.3 million in April 2018 related to 2017 performance, of which 50% was paid with shares of ISG common stock. Experton Contingent Consideration As of September 30, 2018, the Company has recorded a liability of $0.3 million representing the estimated fair value of contingent consideration related to the acquisition of Experton which is classified as current and included in accrued expenses on the consolidated balance sheet. The Company paid $0.5 million in April 2018 related to 2017 performance, of which 50% was paid with shares of ISG common stock. TracePoint Contingent Consideration As of September 30, 2018, the Company has recorded a liability of $1.4 million representing the estimated fair value of contingent consideration related to the acquisition of TracePoint which is classified as current and included in accrued expenses on the consolidated balance sheet. The Company paid $1.6 million in April 2018 related to 2017 performance, of which 50% was paid with shares of ISG common stock. |
SEGMENT AND GEOGRAPHICAL INFORM
SEGMENT AND GEOGRAPHICAL INFORMATION | 9 Months Ended |
Sep. 30, 2018 | |
SEGMENT AND GEOGRAPHICAL INFORMATION | |
SEGMENT AND GEOGRAPHICAL INFORMATION | NOTE 8—SEGMENT AND GEOGRAPHICAL INFORMATION The Company operates as one reportable segment consisting primarily of fact-based sourcing advisory services. The Company operates principally in the Americas, Europe and Asia Pacific. Geographical revenue information for the segment is as follows: Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Revenues Americas $ 38,502 $ 41,524 $ 121,009 $ 122,581 Europe 24,033 19,732 69,834 61,443 Asia Pacific 5,430 7,093 17,025 18,918 $ 67,965 $ 68,349 $ 207,868 $ 202,942 The segregation of revenues by geographic region is based upon the location of the legal entity performing the services. The Company does not measure or monitor gross profit or operating income by geography or by service line for the purposes of making operating decisions or allocating resources. |
FINANCING ARRANGEMENTS AND LONG
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | 9 Months Ended |
Sep. 30, 2018 | |
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | |
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | NOTE 9—FINANCING ARRANGEMENTS AND LONG-TERM DEBT On December 1, 2016, the Company entered into an amended and restated senior secured credit facility (as amended from time to time, the “2016 Credit Agreement”) comprised of a $110.0 million term facility and a $30.0 million revolving facility, amending and restating its senior secured credit facility originally entered into on May 3, 2013. The material terms of the 2016 Credit Agreement are as follows: · Each of the term loan facility and revolving credit facility has a maturity date of December 1, 2021 (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 described 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 and ranges from 3.5% to 1.75% for the Eurodollar Rate and 2.5% to 0.75% for the Base Rate. · The Term Loan is repayable in four consecutive quarterly installments of $1,375,000 each, commencing March 31, 2017, followed by eight consecutive quarterly installments in the amount of $2,062,500 each, commencing March 31, 2018, followed by seven consecutive quarterly installments of $2,750,000 each, commencing March 31, 2020 and a final payment of the remaining outstanding principal amount of the Term Loan on the Maturity Date. · Mandatory repayments of term loans shall be required from (subject to certain 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), transaction 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 a 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. On February 10, 2017, as required by the 2016 Credit Agreement, the Company entered into an agreement to cap the interest rate at 4% on the LIBOR component of its borrowings under the term loan facility until December 31, 2019. This interest rate cap was not designated for hedging or speculative purposes. The expense related to this interest rate cap was not material. As of September 30, 2018, the total principal outstanding under the term loan facility and revolving credit facility was $97.2 million and $4.0 million, respectively. The Company paid $7.3 million related to the term loan facility and $1.0 million related to the revolving credit facility during the nine months ended September 30, 2018. As of September 30, 2018, the debt issuance cost was $1.8 million. The effective interest rate for the term loan facility and revolving credit facility as of September 30, 2018 was 5.1% and 5.0%, respectively. Compass Convertible Notes On January 4, 2011, as part of the consideration for the acquisition of Compass, we issued an aggregate of $6.3 million in convertible notes to Compass (the “Compass Notes”). The Compass Notes matured on January 4, 2018 and interest was payable on the outstanding principal amount, computed daily, at the rate of 3.875% per annum on January 31 of each calendar year and on the seventh anniversary of the date of the Compass Notes. The Compass Notes were subject to transfer restrictions until January 31, 2013. If the price of our common stock on the Nasdaq Global Market exceeded $4 per share for 60 consecutive trading days (the “Trigger Event”), the holder of the Compass Notes could convert all (but not less than all) of the outstanding principal amount of the Compass Notes into shares of our common stock at the rate of 1 share for every $4 in principal amount outstanding. After the Trigger Event, we could prepay all or any portion of the outstanding principal amount of the Compass Notes by giving the holder 30 days written notice. On March 21, 2014, the Trigger Event occurred. As a result, a holder of the Compass Notes could convert all (but not less than all) of the outstanding principal amount of the Compass Notes into shares of our common stock at the rate of 1 share for every $4 in principal amount outstanding. In addition, ISG could elect to prepay all or any portion of the outstanding principal amount of the Compass Notes by giving a holder 30 days written notice; however, such holder had to be given the opportunity to convert the outstanding principal amount into shares as described above. No holder of the Compass Notes had the option to require cash payment as a result of the Trigger Event. In 2013 and 2016, we prepaid substantial portions of the outstanding principal amount of the Compass Notes. On January 4, 2018, we paid off the $0.2 million remaining on the Compass Notes. Alsbridge Notes On December 1, 2016, as part of the merger consideration for the acquisition of Alsbridge, we issued an aggregate of $7.0 million in unsecured subordinated promissory notes (the “Alsbridge Notes”). The Alsbridge Notes accrued interest on the principal amount daily at a rate of 2.0%. At maturity, on September 4, 2018, we paid off the full $7.0 million of principal and $0.2 million of interest outstanding under the Alsbridge Notes |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2018 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. Additionally, ISG has to determine the nature and timing of the satisfaction of performance obligations, the standalone selling price (“SSP”) of certain performance obligations, among other judgments associated with revenue recognition. Numerous internal and external factors can affect estimates. Estimates are also used for (but not limited to): allowance for doubtful accounts; useful lives of furniture, fixtures and equipment and definite-lived intangible assets; depreciation expense; fair value assumptions in analyzing goodwill and other long-lived assets for impairment; income taxes and deferred tax asset valuation; and the valuation of stock-based compensation. |
Restricted Cash | Restricted Cash Restricted cash consists of cash and cash equivalents which the Company has committed for rent deposits. |
Fair Value | Fair Value The carrying value of the Company’s cash and cash equivalents, restricted cash, receivables, accounts payable, other current liabilities, and accrued interest approximated their fair values at September 30, 2018 and December 31, 2017 due to the short-term nature of these accounts. Fair value measurements were applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which would consist of measurements primarily to contingent consideration in a business combination. Fair value is the price that would be received upon a sale of an asset or paid upon a transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). Market participants can use market data or assumptions in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. Under the fair-value hierarchy: · Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market; · Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and · Level 3 measurements include those that are unobservable and of a highly subjective measure. The following tables summarize assets and liabilities measured at fair value on a recurring basis at the dates indicated: Basis of Fair Value Measurements September 30, 2018 Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 315 $ — $ — $ 315 Total $ 315 $ — $ — $ 315 Liabilities: Contingent consideration (1) $ — $ — $ 1,704 $ 1,704 Total $ — $ — $ 1,704 $ 1,704 Basis of Fair Value Measurements December 31, 2017 Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 303 $ — $ — $ 303 Total $ 303 $ — $ — $ 303 Liabilities: Contingent consideration (1) $ — $ — $ 3,698 $ 3,698 Total $ — $ — $ 3,698 $ 3,698 (1) The short-term portion is included in “Accrued expenses.” The long-term portion is included in “Other liabilities.” The fair value measurement of this contingent consideration is classified within Level 3 of the fair value hierarchy and reflects the Company’s own assumptions in measuring fair values using the income approach. In developing these estimates, the Company considered certain performance projections, historical results, and industry trends. This amount was estimated through a valuation model that incorporated probability-weighted assumptions related to the achievement of these milestones and the likelihood of the Company making payments. These cash outflow projections have then been discounted using a rate ranging from 14.5% to 28.5%. The following table represents the change in the contingent consideration liability during the nine months ended September 30, 2018 and 2017: Nine Months Ended September 30, 2018 2017 Beginning Balance $ 3,698 $ 6,073 Payments of contingent consideration (2,401) (3,386) Change in value of contingent consideration 362 145 Accretion of contingent consideration 44 1,030 Unrealized gain related to currency translation 1 28 Ending Balance $ 1,704 $ 3,890 The Company’s financial instruments include outstanding borrowings of $101.2 million at September 30, 2018 and $116.7 million at December 31, 2017, 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 $100.9 million and $116.5 million at September 30, 2018 and December 31, 2017, 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 ranged from 5.01% to 5.15%. 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. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance on accounting for leases which requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The guidance requires the use of a modified retrospective approach. The Company has less than fifty leases for which a corresponding asset and liability will be recorded on the balance sheet as of January 1, 2019. The adoption of this guidance will not have a material impact on our results of operations and will have no impact on our cash flows. In August 2016, the FASB issued new guidance intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees. The guidance became effective for interim and annual periods beginning after December 15, 2017, and we adopted the guidance as of January 1, 2018. The guidance requires application using a retrospective transition method. The adoption of this guidance by the Company did not have a material impact on our results of operations. In August 2018, the FASB issued an update that modifies the disclosure requirements for fair value measurements by removing, modifying or adding disclosures. The guidance is effective for fiscal year beginning after December 15, 2019 and early adoption is permitted. Certain disclosures in the update are applied retrospectively, while others are applied prospectively. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements. In September 2018, the FASB issued new guidance which requires a customer in a cloud computing arrangement to determine which implementation costs to capitalize as assets or expense as incurred. Under the new guidance, capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, and early adoption is permitted. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Summary of assets and liabilities measured at fair value on a recurring basis | Basis of Fair Value Measurements September 30, 2018 Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 315 $ — $ — $ 315 Total $ 315 $ — $ — $ 315 Liabilities: Contingent consideration (1) $ — $ — $ 1,704 $ 1,704 Total $ — $ — $ 1,704 $ 1,704 Basis of Fair Value Measurements December 31, 2017 Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 303 $ — $ — $ 303 Total $ 303 $ — $ — $ 303 Liabilities: Contingent consideration (1) $ — $ — $ 3,698 $ 3,698 Total $ — $ — $ 3,698 $ 3,698 (1) The short-term portion is included in “Accrued expenses.” The long-term portion is included in “Other liabilities.” |
Schedule of change in the contingent consideration liability | Nine Months Ended September 30, 2018 2017 Beginning Balance $ 3,698 $ 6,073 Payments of contingent consideration (2,401) (3,386) Change in value of contingent consideration 362 145 Accretion of contingent consideration 44 1,030 Unrealized gain related to currency translation 1 28 Ending Balance $ 1,704 $ 3,890 |
REVENUE (Tables)
REVENUE (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |
Schedule of contract assets and liabilities | January 1, 2018 September 30, 2018 (as adjusted) Contract assets (i.e., unbilled receivables) $ 30,680 $ 18,838 Contract liabilities (i.e., deferred revenue) $ 4,794 $ 6,480 |
Schedule of disaggregation of revenue | Three Months Ended Nine Months Ended Geographic area September 30, 2018 September 30, 2018 Americas $ 38,502 $ 121,009 Europe 24,033 69,834 Asia Pacific 5,430 17,025 $ 67,965 $ 207,868 |
ASU 2014-09 (“ASC Topic 606”) | |
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |
Schedule of effect of the adoption of Accounting Standards Update | The cumulative effect of the changes made to our Condensed Consolidated Balance Sheet as of January 1, 2018 for the adoption of ASC Topic 606 was as follows: As of January 1, 2018 As Previously Reported As Adjusted Under ASC 605 Adjustments for ASC 606 Assets Accounts and unbilled receivables, net of allowance of $503 $ 70,824 $ 1,468 $ 72,292 Prepaid expense and other current assets $ 4,467 $ (1,071) $ 3,396 Deferred tax asset $ 2,521 $ (549) $ 1,972 Liabilities Deferred revenue $ 8,898 $ (2,418) $ 6,480 Accrued expenses $ 21,486 $ 133 $ 21,619 Deferred tax liability $ 1,569 $ 95 $ 1,664 Stockholders' equity Accumulated deficit $ (157,814) $ 2,038 $ (155,776) The following table presents the effect of the adoption of ASC Topic 606 on our condensed consolidated balance sheet as of September 30, 2018. September 30, 2018 As Reported Under ASC 606 Adjustments ASC 605 Assets Accounts receivable and contract assets, net of allowance of $770 $ 76,403 $ (4,305) $ 72,098 Prepaid expenses and other current assets $ 4,277 $ 2,285 $ 6,562 Deferred tax assets $ 2,997 $ 549 $ 3,546 Liabilities Contract liabilities $ 4,794 $ 6,166 $ 10,960 Accrued expenses $ 17,621 $ (150) $ 17,471 Deferred tax liabilities $ 1,891 $ (1,380) $ 511 Stockholders' equity Accumulated deficit $ (149,245) $ (6,107) $ (155,352) The following table presents the effect of the adoption of ASC Topic 606 on our condensed consolidated statement of comprehensive income for the three months ended September 30, 2018. Three Months Ended September 30, 2018 As Reported Under ASC 606 Adjustments ASC 605 Revenues $ 67,965 $ (2,620) $ 65,345 Operating expenses Direct costs and expenses for advisors 38,624 (211) 38,413 Selling, general and administrative 23,990 — 23,990 Depreciation and amortization 1,977 — 1,977 Operating income 3,374 (2,409) 965 Interest income 3 — 3 Interest expense (1,675) — (1,675) Foreign currency transaction loss (6) — (6) Income (loss) before taxes 1,696 (2,409) (713) Income tax benefit (2,307) (578) (2,885) Net income $ 4,003 $ (1,831) $ 2,172 The following table presents the effect of the adoption of ASC Topic 606 on our condensed consolidated statement of comprehensive income for the nine months ended September 30, 2018. Nine Months Ended September 30, 2018 As Reported Under ASC 606 Adjustments ASC 605 Revenues $ 207,868 $ (6,587) $ 201,281 Operating expenses Direct costs and expenses for advisors 121,761 (1,230) 120,531 Selling, general and administrative 70,898 — 70,898 Depreciation and amortization 5,872 — 5,872 Operating income 9,337 (5,357) 3,980 Interest income 113 — 113 Interest expense (5,140) — (5,140) Foreign currency transaction gain 19 — 19 Income (loss) before taxes 4,329 (5,357) (1,028) Income tax benefit (2,200) (1,286) (3,486) Net income $ 6,529 $ (4,071) $ 2,458 |
NET INCOME PER COMMON SHARE (Ta
NET INCOME PER COMMON SHARE (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
NET INCOME PER COMMON SHARE | |
Schedule of computation of basic and diluted earnings per share | Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Basic: Net income attributable to ISG $ 4,003 $ 1,428 $ 6,529 $ 520 Weighted average common shares 45,115 43,305 44,491 42,893 Earnings per share attributable to ISG $ 0.09 $ 0.03 $ 0.15 $ 0.01 Diluted: Net income attributable to ISG $ 4,003 $ 1,428 $ 6,529 $ 520 Interest expense of convertible debt, net of tax — 2 — 6 Net income attributable to ISG, as adjusted $ 4,003 $ 1,430 $ 6,529 $ 526 Basic weighted average common shares 45,115 43,305 44,491 42,893 Potential common shares 1,985 1,353 1,858 451 Diluted weighted average common shares 47,100 44,658 46,349 43,344 Diluted earnings per share attributable to ISG $ 0.08 $ 0.03 $ 0.14 $ 0.01 |
SEGMENT AND GEOGRAPHICAL INFO_2
SEGMENT AND GEOGRAPHICAL INFORMATION (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
SEGMENT AND GEOGRAPHICAL INFORMATION | |
Schedule of geographical revenue information for the segment | Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Revenues Americas $ 38,502 $ 41,524 $ 121,009 $ 122,581 Europe 24,033 19,732 69,834 61,443 Asia Pacific 5,430 7,093 17,025 18,918 $ 67,965 $ 68,349 $ 207,868 $ 202,942 |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value (Details) $ in Thousands | 9 Months Ended | ||
Sep. 30, 2018USD ($)item | Sep. 30, 2017USD ($) | Dec. 31, 2017USD ($) | |
Change in the contingent consideration liability | |||
Beginning Balance | $ 3,698 | $ 6,073 | |
Payment of contingent consideration | (2,401) | (3,386) | |
Change in value of contingent consideration | 362 | 145 | |
Accretion of contingent consideration | 44 | 1,030 | |
Unrealized gain related to currency translation | 1 | 28 | |
Ending Balance | 1,704 | $ 3,890 | |
Outstanding borrowings | 101,200 | $ 116,700 | |
Fair value of outstanding borrowing | $ 100,900 | 116,500 | |
Minimum | |||
Change in the contingent consideration liability | |||
Incremental borrowing rate used to discount future cash flows from financial instruments (as a percent) | 5.01% | ||
Minimum | Discount rate | |||
Liabilities: | |||
Contingent consideration, measurement input | item | 0.145 | ||
Maximum | |||
Change in the contingent consideration liability | |||
Incremental borrowing rate used to discount future cash flows from financial instruments (as a percent) | 5.15% | ||
Maximum | Discount rate | |||
Liabilities: | |||
Contingent consideration, measurement input | item | 0.285 | ||
Recurring | |||
Assets: | |||
Cash equivalents | $ 315 | 303 | |
Total | 315 | 303 | |
Liabilities: | |||
Contingent consideration | 1,704 | 3,698 | |
Total | 1,704 | 3,698 | |
Recurring | Level 1 | |||
Assets: | |||
Cash equivalents | 315 | 303 | |
Total | 315 | 303 | |
Recurring | Level 3 | |||
Liabilities: | |||
Contingent consideration | 1,704 | 3,698 | |
Total | $ 1,704 | $ 3,698 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Recently Issued Accounting Pronouncements (Details) | Jan. 01, 2019property |
Maximum | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Number of leases | 50 |
REVENUE - Effect on Balance She
REVENUE - Effect on Balance Sheet (Details) - USD ($) $ in Thousands | 9 Months Ended | ||
Sep. 30, 2018 | Jan. 01, 2018 | Dec. 31, 2017 | |
Assets | |||
Accounts receivables and contract assets, net of allowance of $661 | $ 76,403 | $ 72,292 | $ 70,824 |
Prepaid expense and other current assets | 4,277 | 3,396 | 4,467 |
Deferred tax assets | 2,997 | 1,972 | 2,521 |
Liabilities | |||
Contract liabilities | 4,794 | 6,480 | 8,898 |
Accrued expenses | 17,621 | 21,619 | 21,486 |
Deferred tax liabilities | 1,891 | 1,664 | 1,569 |
Stockholders' equity | |||
Accumulated deficit | (149,245) | (155,776) | (157,814) |
Accounts receivables and contract assets, allowances | 770 | 503 | $ 503 |
Remaining performance obligations | $ 89,400 | ||
Practical expedient incremental costs to obtain a contract | true | ||
As Previously Reported Under ASC 605 | ASU 2014-09 (“ASC Topic 606”) | |||
Assets | |||
Accounts receivables and contract assets, net of allowance of $661 | $ 72,098 | 70,824 | |
Prepaid expense and other current assets | 6,562 | 4,467 | |
Deferred tax assets | 3,546 | 2,521 | |
Liabilities | |||
Contract liabilities | 10,960 | 8,898 | |
Accrued expenses | 17,471 | 21,486 | |
Deferred tax liabilities | 511 | 1,569 | |
Stockholders' equity | |||
Accumulated deficit | (155,352) | (157,814) | |
Adjustments | ASU 2014-09 (“ASC Topic 606”) | |||
Assets | |||
Accounts receivables and contract assets, net of allowance of $661 | (4,305) | 1,468 | |
Prepaid expense and other current assets | 2,285 | (1,071) | |
Deferred tax assets | 549 | (549) | |
Liabilities | |||
Contract liabilities | 6,166 | (2,418) | |
Accrued expenses | (150) | 133 | |
Deferred tax liabilities | (1,380) | 95 | |
Stockholders' equity | |||
Accumulated deficit | $ (6,107) | $ 2,038 |
REVENUE - Effect on Income Stat
REVENUE - Effect on Income Statement (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Revenue | ||||
Revenues | $ 67,965 | $ 68,349 | $ 207,868 | $ 202,942 |
Operating expenses | ||||
Direct costs and expenses for advisors | 38,624 | 38,214 | 121,761 | 119,153 |
Selling, general and administrative | 23,990 | 23,710 | 70,898 | 68,815 |
Depreciation and amortization | 1,977 | 2,951 | 5,872 | 9,773 |
Operating income | 3,374 | 3,474 | 9,337 | 5,201 |
Interest income | 3 | 15 | 113 | 94 |
Interest expense | (1,675) | (1,716) | (5,140) | (5,132) |
Foreign currency transaction loss | (6) | (111) | 19 | (292) |
Income (loss) before taxes | 1,696 | 1,662 | 4,329 | (129) |
Income tax benefit | (2,307) | 234 | (2,200) | (681) |
Net income | 4,003 | $ 1,428 | 6,529 | $ 552 |
ASU 2014-09 (“ASC Topic 606”) | Adjustments | ||||
Revenue | ||||
Revenues | (2,620) | (6,587) | ||
Operating expenses | ||||
Direct costs and expenses for advisors | (211) | (1,230) | ||
Operating income | (2,409) | (5,357) | ||
Income (loss) before taxes | (2,409) | (5,357) | ||
Income tax benefit | (578) | (1,286) | ||
Net income | (1,831) | (4,071) | ||
ASU 2014-09 (“ASC Topic 606”) | As Previously Reported Under ASC 605 | ||||
Revenue | ||||
Revenues | 65,345 | 201,281 | ||
Operating expenses | ||||
Direct costs and expenses for advisors | 38,413 | 120,531 | ||
Selling, general and administrative | 23,990 | 70,898 | ||
Depreciation and amortization | 1,977 | 5,872 | ||
Operating income | 965 | 3,980 | ||
Interest income | 3 | 113 | ||
Interest expense | (1,675) | (5,140) | ||
Foreign currency transaction loss | (6) | 19 | ||
Income (loss) before taxes | (713) | (1,028) | ||
Income tax benefit | (2,885) | (3,486) | ||
Net income | $ 2,172 | $ 2,458 |
REVENUE - Contract Assets and L
REVENUE - Contract Assets and Liabilities (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2018 | Jan. 01, 2018 | Dec. 31, 2017 | |
REVENUE | ||||
Contract assets (i.e., unbilled receivables) | $ 30,680 | $ 30,680 | $ 18,838 | |
Contract liabilities (i.e., deferred revenue) | 4,794 | 4,794 | $ 6,480 | $ 8,898 |
Revenue recognized included in contract liability at beginning of each year | $ 4,200 | $ 6,200 |
REVENUE - Disaggregation of Rev
REVENUE - Disaggregation of Revenue (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Revenue | ||||
Revenues | $ 67,965 | $ 68,349 | $ 207,868 | $ 202,942 |
Americas | ||||
Revenue | ||||
Revenues | 38,502 | 41,524 | 121,009 | 122,581 |
Europe | ||||
Revenue | ||||
Revenues | 24,033 | 19,732 | 69,834 | 61,443 |
Asia Pacific | ||||
Revenue | ||||
Revenues | $ 5,430 | $ 7,093 | $ 17,025 | $ 18,918 |
NET INCOME PER COMMON SHARE - A
NET INCOME PER COMMON SHARE - Antidilutive Securities (Details) - shares | 3 Months Ended | 9 Months Ended |
Sep. 30, 2017 | Sep. 30, 2017 | |
Stock Appreciation Rights (SARs) | ||
Antidilutive securities | ||
Securities considered antidilutive (in shares) | 34,374 | 34,374 |
Restricted Stock | ||
Antidilutive securities | ||
Securities considered antidilutive (in shares) | 2,500,000 |
NET INCOME PER COMMON SHARE - C
NET INCOME PER COMMON SHARE - Computation of Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Basic: | ||||
Net income attributable to ISG | $ 4,003 | $ 1,428 | $ 6,529 | $ 520 |
Weighted average common shares | 45,115 | 43,305 | 44,491 | 42,893 |
Earnings per share attributable to ISG | $ 0.09 | $ 0.03 | $ 0.15 | $ 0.01 |
Diluted: | ||||
Net income attributable to ISG | $ 4,003 | $ 1,428 | $ 6,529 | $ 520 |
Interest expense of convertible debt, net of tax | 2 | 6 | ||
Net income attributable to ISG, as adjusted | $ 4,003 | $ 1,430 | $ 6,529 | $ 526 |
Basic weighted average common shares | 45,115 | 43,305 | 44,491 | 42,893 |
Potential common shares | 1,985 | 1,353 | 1,858 | 451 |
Diluted weighted average common shares | 47,100 | 44,658 | 46,349 | 43,344 |
Diluted earnings per share attributable to ISG | $ 0.08 | $ 0.03 | $ 0.14 | $ 0.01 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
INCOME TAXES | ||||
Effective income tax rates (as a percent) | (136.00%) | 14.10% | (50.80%) | 527.90% |
Pretax income | $ 1,696 | $ 1,662 | $ 4,329 | $ (129) |
Release of accruals for uncertain tax positions | 2,300 | 1,700 | ||
Establishing position on foreign source income component of US foreign tax credit claims | 1,300 | |||
Release of valuation allowance related to foreign tax credits | 1,300 | 1,300 | ||
Unrecognized tax benefits | 1,400 | 1,400 | ||
Interest and penalties accrued | $ 700 | $ 700 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | 9 Months Ended | |||
Apr. 30, 2018 | Sep. 30, 2018 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | |
Contingent Consideration | ||||||
Contingent consideration reversed | $ (362) | $ (145) | ||||
Payment of contingent consideration | 1,200 | 2,665 | ||||
Contingent acquisition liability | $ 1,704 | 1,704 | $ 3,890 | $ 3,698 | $ 6,073 | |
Saugatuck Technology Inc. | ||||||
Contingent Consideration | ||||||
Contingent consideration reversed | 300 | |||||
Payment of contingent consideration | $ 300 | |||||
Percentage of contingent consideration made in shares of common stock | 50.00% | |||||
Experton Group | ||||||
Contingent Consideration | ||||||
Payment of contingent consideration | $ 500 | |||||
Contingent acquisition liability | 300 | 300 | ||||
Percentage of contingent consideration made in shares of common stock | 50.00% | |||||
TracePoint | ||||||
Contingent Consideration | ||||||
Payment of contingent consideration | $ 1,600 | |||||
Contingent acquisition liability | $ 1,400 | $ 1,400 | ||||
Percentage of contingent consideration made in shares of common stock | 50.00% |
SEGMENT AND GEOGRAPHICAL INFO_3
SEGMENT AND GEOGRAPHICAL INFORMATION (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018USD ($) | Sep. 30, 2017USD ($) | Sep. 30, 2018USD ($)segment | Sep. 30, 2017USD ($) | |
Segment and geographical information | ||||
Number of segments | segment | 1 | |||
Revenues | $ 67,965 | $ 68,349 | $ 207,868 | $ 202,942 |
Americas | ||||
Segment and geographical information | ||||
Revenues | 38,502 | 41,524 | 121,009 | 122,581 |
Europe | ||||
Segment and geographical information | ||||
Revenues | 24,033 | 19,732 | 69,834 | 61,443 |
Asia Pacific | ||||
Segment and geographical information | ||||
Revenues | $ 5,430 | $ 7,093 | $ 17,025 | $ 18,918 |
FINANCING ARRANGEMENTS AND LO_2
FINANCING ARRANGEMENTS AND LONG-TERM DEBT - Narrative (Details) | Mar. 31, 2020USD ($)installment | Mar. 31, 2018USD ($) | Mar. 31, 2017USD ($)installment | Feb. 10, 2017 | Sep. 30, 2018USD ($)installment | Dec. 01, 2016USD ($) |
Credit Agreement 2016 | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Debt issuance costs | $ 1,800,000 | |||||
Credit Agreement 2016 | Base Rate | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Interest rate basis | Base Rate | |||||
Credit Agreement 2016 | Prime Rate | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Interest rate basis | prime rate | |||||
Credit Agreement 2016 | Federal Funds Rate | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Interest rate basis | Federal Funds Rate | |||||
Applicable margin (as a percent) | 0.50% | |||||
Credit Agreement 2016 | Eurodollar Rate | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Interest rate basis | Eurodollar Rate | |||||
Applicable margin (as a percent) | 1.00% | |||||
Credit Agreement 2016 | Secured Debt | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Maximum borrowing capacity under senior secured credit facility | $ 110,000,000 | |||||
Number of quarterly installments | installment | 4 | 8 | ||||
Periodic repayment | $ 2,062,500 | $ 1,375,000 | ||||
Outstanding borrowings | $ 97,200,000 | |||||
Repayment of term loan facility | $ 7,300,000 | |||||
Effective interest rate | 5.10% | |||||
Percentage of proceeds from asset sales used for mandatory repayments of the debt | 100.00% | |||||
Percentage of net proceeds from issuances of debt and equity used for mandatory repayments of the debt | 100.00% | |||||
Percentage of net proceeds from insurance recovery and condemnation events used for mandatory repayments of the debt | 100.00% | |||||
Credit Agreement 2016 | Secured Debt | Scenario Forecast | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Number of quarterly installments | installment | 7 | |||||
Periodic repayment | $ 2,750,000 | |||||
Credit Agreement 2016 | Secured Debt | London Interbank Offered Rate L I B O R | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Interest rate basis | LIBOR | |||||
Credit Agreement 2016 | Revolving Credit Facility | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Maximum borrowing capacity under senior secured credit facility | $ 30,000,000 | |||||
Outstanding borrowings | $ 4,000,000 | |||||
Repayment of term loan facility | $ 1,000,000 | |||||
Effective interest rate | 5.00% | |||||
Minimum | Base Rate | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Quarterly leverage ratio | 2.50% | |||||
Minimum | Eurodollar Rate | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Quarterly leverage ratio | 3.50% | |||||
Maximum | Base Rate | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Quarterly leverage ratio | 0.75% | |||||
Maximum | Eurodollar Rate | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Quarterly leverage ratio | 1.75% | |||||
Maximum | Credit Agreement 2016 | Secured Debt | London Interbank Offered Rate L I B O R | ||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||
Applicable margin (as a percent) | 4.00% |
FINANCING ARRANGEMENTS AND LO_3
FINANCING ARRANGEMENTS AND LONG-TERM DEBT - Compass Convertible Notes and Alsbridge Notes (Details) $ / shares in Units, $ in Thousands | Sep. 04, 2018USD ($) | Jan. 04, 2018USD ($) | Jan. 04, 2011USD ($)$ / shares | Sep. 30, 2018USD ($) | Sep. 30, 2017USD ($) | Dec. 31, 2017USD ($) | Dec. 01, 2016USD ($) | Oct. 01, 2016 |
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||||
Amount outstanding | $ 101,200 | $ 116,700 | ||||||
Payment of compass notes | $ 8,574 | $ 7,151 | ||||||
C C G H Limited | Convertible Notes Payable | ||||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||||
Proceeds from debt | $ 6,300 | |||||||
Rate of interest (as a percent) | 3.875% | |||||||
Trigger event condition related to number of consecutive trading days on which market price of common stock exceeds $4 per share on the Nasdaq Global Market | 60 days | |||||||
Conversion rate | 0.25 | |||||||
Written notice period after trigger event, that company need to serve for prepayment of all or portion of the outstanding principal amount of the Notes | 30 days | |||||||
Payment of compass notes | $ 200 | |||||||
Alsbridge | Unsecured subordinated promissory notes | ||||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||||
Rate of interest (as a percent) | 2.00% | |||||||
Unsecured subordinated promissory notes issued | $ 7,000 | |||||||
Principal paid off | $ 7,000 | |||||||
Interest outstanding paid off | $ 200 | |||||||
Minimum | C C G H Limited | Convertible Notes Payable | ||||||||
FINANCING ARRANGEMENTS AND LONG-TERM DEBT | ||||||||
Trigger Event condition related to minimum market price of common stock on the Nasdaq Global market (in dollars per share) | $ / shares | $ 4 |