| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. These consolidated financial statements and footnotes are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, references to the Company include ISG and its consolidated subsidiaries. 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. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the revenue recognition guidance for contracts in which control is transferred to the customer over time affect the amounts of revenues, expenses, contract assets and contract liabilities. 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 evaluating goodwill for impairment, income taxes and deferred tax asset valuation and the valuation of stock-based compensation. Business Combinations We have acquired businesses critical to the Company’s long-term growth strategy. Results of operations for acquisitions are included in the accompanying consolidated statement of comprehensive income from the date of acquisition. Acquisitions are accounted for using the purchase method of accounting and the purchase price is allocated to the net assets acquired based upon their estimated fair values at the date of acquisition. The excess of the purchase price over the net assets is recorded as goodwill. Acquisition-related costs are expensed as incurred and recorded in selling, general and administrative expenses. Cash and Cash Equivalents The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents, including certain money market accounts. The Company principally maintains its cash in money market and bank deposit accounts in the United States of America, which typically exceed applicable insurance limits. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. Restricted Cash Restricted cash consists of cash and cash equivalents which the Company has committed for rent deposits and are not available for general corporate purposes. Accounts Receivable, Contract Assets and Allowance for Doubtful Accounts Our trade receivables primarily consist of amounts due for services already performed. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of clients to pay fees or for disputes that affect its ability to fully collect billed accounts receivable. The allowance for these risks is prepared by reviewing the status of all accounts and recording reserves on a specific identification method based on previous experiences and historical bad debts. However, our actual experience may vary from these estimates. If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness to pay their invoices, we may need to record additional allowances or write-offs in future periods. To the extent the provision relates to a client’s inability or unwillingness to make required payments, the provision is recorded as bad debt expense, which is classified within selling, general and administrative expense in the accompanying consolidated statement of comprehensive income. Historically, the Company’s bad debt reserves and write-offs have not been significant. The provision for unbilled services is recorded as a bad debt expense to the extent the provision relates to fee adjustments and other discretionary pricing adjustments. Historically, the Company’s unbilled receivable reserves and write-offs have not been significant. During the fourth quarter of 2023, a client that had engaged us for two multi-year projects, which previously commenced in 2021 and 2022, failed to make payments as per the contracted payment schedule and we ceased performing services under the agreements. After unsuccessful negotiations, we provided the client with notice that we would be terminating the respective projects. Accordingly, during the fourth quarter of 2023, the Company recorded through bad debt expense an allowance for doubtful accounts reserve of 31, 2023 represents management' s best estimate of the probable amount of collection related to the outstanding amounts under these agreements. In the event that collection efforts prove unsuccessful, the Company may seek payment through other means, including legal action. Actual collections from the client may differ from the Company's estimate. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist primarily of prepaid expenses for insurance, conferences, deposits for facilities, programs, software and promotion items. Furniture, Fixtures and Equipment, net Furniture, fixtures and equipment are recorded at cost. Depreciation is computed by applying the straight-line method over the estimated useful life of the assets, which ranges from two two The Company capitalizes internal-use software and website development costs and records these amounts within Furniture, Fixtures and Equipment, net. Accounting standards require that certain costs related to the development or purchase of internal-use software and systems as well as the costs incurred in the application development stage related to its website be capitalized and amortized over the estimated useful life of the software or system. They also require that costs related to the preliminary project stage, data conversion and post implementation/operation stage of an internal-use software development project be expensed as incurred. During the years ended December 31, 2023, 2022 and 2021 the Company capitalized $1.7 million, $1.7 million and $0.8 million, respectively, of costs associated with system and website development. Goodwill Our goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired at the date of acquisition. Goodwill is not amortized but rather tested for impairment at least annually in accordance with accounting and disclosure requirements for goodwill and other indefinite-lived intangible assets. This test is performed by us during our fourth fiscal quarter or more frequently if we believe impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value of the reporting unit is less than its carrying amount. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value then goodwill is tested further for impairment. If the fair value of goodwill is lower than its carrying amount, an impairment loss is recognized in an amount equal to the difference. Subsequent increases in value are not recognized in the financial statements. There was no impairment of goodwill during the years ended December 31, 2023, 2022 and 2021. There were no indicators identified in 2023, 2022 or 2021 that would suggest that it is more likely than not that the Company’s reporting unit is impaired. Long-Lived Assets Long-lived assets, excluding goodwill and indefinite-lived intangibles, to be held and used by the Company are reviewed to determine whether any significant change in the long-lived asset’s physical condition, a change in industry conditions or a reduction in cash flows associated with the asset group that contains the long-lived asset. If these or other factors indicate the carrying amount of the asset group, which is the lowest level for which identifiable cash flows exist that are separately identifiable from other cash flows, may not be recoverable, the Company determines whether impairment has occurred through the use of an undiscounted cash flow analysis. If impairment has occurred, the Company recognizes a loss for the difference between the carrying amount and the fair value of the asset group. The fair value of the asset group is measured using market prices or, in the absence of market prices, an estimate of discounted cash flows. Cash flows are generally discounted at an interest rate commensurate with our weighted average cost of capital. Assets are classified as held for sale when the Company has a plan for disposal of certain assets and those assets meet the held for sale criteria. Debt Issuance Costs Costs directly incurred in obtaining long-term financing, typically bank and attorney fees, are deferred and are amortized over the life of the related loan. Deferred issuance costs are classified as a direct deduction to the long-term debt in the accompanying consolidated balance sheet. Amortization of debt issuance costs is included in interest expense and totaled $0.2 million, $0.3 million and $0.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. Revenue Recognition six Reimbursable Expenditures Amounts billed to customers for reimbursable expenditures are included in revenues and the associated costs incurred by the Company are included in direct costs and expenses for advisors in the accompanying consolidated statement of comprehensive income. Non-reimbursable amounts are expensed as incurred. Reimbursable expenditures totaled $1.5 million $0.8 million and $0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. The increase was attributable to pandemic-related travel restrictions being lifted and attending more in person meetings with clients to drive revenue. Direct Costs and Expenses for Advisors Direct costs and expenses for advisors include payroll expenses and advisory fees directly associated with the generation of revenues and other program expenses. Direct costs and expenses for advisors are expensed as incurred. Direct costs and expenses for advisors also include expense accruals for discretionary bonus payments. Bonus accrual levels are adjusted throughout the year based on actual and projected Company performance. Stock-Based Compensation We grant restricted stock units with a fair value that is determined based on the closing price of our common stock on the date of grant. Such grants generally vest ratably over a two four - We follow the provisions of accounting and disclosure requirements for share-based payments, including the measurement and recognition of all share-based compensation under the fair value method. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The Company places its cash investments with high-quality financial institutions. The Company extends credit to its customers based upon an evaluation of the customer’s financial condition and credit history and generally does not require collateral. Treasury Stock The Company makes treasury stock purchases in the open market pursuant to the share repurchase program, which was most recently approved by the Board of Directors on August 1, 2023. Treasury stock is recorded on the consolidated balance sheet at cost as a reduction of stockholders’ equity. Shares are released from Treasury at original cost on a first-in, first-out basis, with any gain or loss on the sale reflected as an adjustment to additional paid-in capital. Foreign Currency Translation The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the end of the reporting period. Revenue and expense items are translated at average exchange rates for the reporting period. Resulting translation adjustments are included in the accompanying statement of comprehensive income and accompanying statement of stockholders’ equity as a component of Accumulated Other Comprehensive Loss The functional currency of the Company and its subsidiaries is the respective local currency. The Company has contracts denominated in foreign currencies, and therefore a portion of the Company’s revenues are subject to foreign currency risks. Transactional currency gains and losses that arise from transactions denominated in currencies other than the functional currencies of our operations are recorded in Foreign Currency Translation Fair Value of Financial Instruments The carrying value of the Company’s cash and cash equivalents, receivables, accounts payable, other current liabilities and accrued interest approximate fair value. 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 goodwill, intangible assets and other long-lived assets and assets acquired and liabilities assumed 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: ● ● ● During 2023, there were no transfers of our financial assets between Level 1, Level 3 fair value The following tables summarize assets and liabilities measured at fair value on a recurring basis at the dates indicated: Basis of Fair Value Measurements December 31, 2023 Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 7,067 $ — $ — $ 7,067 Total $ 7,067 $ — $ — $ 7,067 Liabilities: Contingent consideration (1) $ — $ — $ 5,894 $ 5,894 $ — $ — $ 5,894 $ 5,894 Basis of Fair Value Measurements December 31, 2022 Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 18 $ — $ — $ 18 Total $ 18 $ — $ — $ 18 Liabilities: Contingent consideration (1) $ — $ — $ 5,593 $ 5,593 $ — $ — $ 5,593 $ 5,593 (1) The current and noncurrent contingent consideration are included in “Accrued expenses and other current liabilities,” and “Other liabilities”, respectively, as of December 31, 2023 and December 31, 2022. The fair value measurement of 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 discounted using a rate The following table represents the change in the contingent consideration liability during the years ended December 31, 2023 and 2022: December 31, 2023 2022 Beginning Balance $ 5,593 $ 2,420 Neuralify earnout adjustment (1) — (1,420) Neuralify earnout payment — (1,000) Change 4 Growth contingent consideration payment (1,460) — Change 4 Growth contingent consideration accrued — 5,560 Ventana contingent consideration accrued 1,657 — Accretion of contingent consideration 104 33 Ending Balance $ 5,894 $ 5,593 (1) Neuralify earnout adjustment relates to a change in the achievement of a certain milestone specific to the acquisition. The Company’s financial instruments include outstanding borrowings of $79.2 million both as of December 31, 2023 and December 31, 2022, which are carried at amortized cost. The fair value of debt is classified within Level 3 of the fair value hierarchy. The fair value of the Company’s outstanding borrowings was approximately $79.8 million and $76.5 million at December 31, 2023 and December 31, 2022, respectively. The fair values of debt have been estimated using a discounted cash flow Income Taxes We use the asset and liability method to account for income taxes, including recognition of deferred tax assets and liabilities for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax basis. We review our deferred tax assets for recovery. A valuation allowance is established when we believe that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in the valuation allowance from period to period are included in our tax provision in the period of change. For uncertain tax positions, we use the prescribed model for assessing the financial recognition and measurement of all tax positions taken or expected to be taken in tax returns. This guidance provides clarification on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. Our provision for income taxes also includes the impact of provisions established for uncertain income tax positions, as well as the related interest. Recently Issued Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable and contract assets, and available for sale debt securities. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses and additional disclosures. We adopted this standard using the modified retrospective approach with an effective date of January 1, 2023 . |
