STAMFORD, Conn., March 14, 2019 /PRNewswire/ -- Information
Services Group (ISG) (Nasdaq: III), a leading global technology
research and advisory firm, today announced financial results for
the fourth quarter and full year ended December 31, 2018.
"2018 was another year of great progress for ISG," said
Michael P. Connors,
chairman and CEO. "Continuing our Go Digital journey, we
delivered record revenues in both the fourth quarter and full year
as we focused on evolving our product and service portfolio to
meet the growing digital needs of our clients. Digital services
represented more than 45 percent of our revenues in the fourth
quarter and for the full year topped $100 million
for the first time. We expect these numbers to increase
as more of our work focuses on helping clients transform their
businesses for greater efficiency and faster growth.
"We delivered a particularly strong performance in Europe, with revenues up 18 percent in
the fourth quarter and 15 percent for the
year, driven by increasing penetration of our digital services
across all markets. Our fourth-quarter and full-year revenue
in the Americas, meanwhile, was impacted by sluggishness in the
U.S. public sector business and the timing of several client
engagements.
"ISG continues to grow both in importance and value with our
clients, especially as we guide them on their digital
transformation journeys. That gives us great confidence in our
growth prospects for the future."
Fourth-Quarter 2018 Results
Revenues for the fourth quarter reached a record $67.9 million, compared with $66.6 million in the prior-year quarter, an
increase of 4 percent in constant currency (2 percent on a reported
basis). Currency negatively impacted reported revenues by
$1.1 million versus the
prior year. Reported revenues were $25.3 million in Europe (up 21 percent in constant currency and
18 percent on a reported basis), $38.1 million in the Americas (down 3 percent),
and $4.5 million in Asia Pacific (down $1.4
million).
ISG reported fourth-quarter operating income of $3.3 million, compared with operating income of
$4.0 million in the fourth quarter of
2017. The net loss for the fourth quarter was $0.9 million, compared with a net loss of
$2.7 million in the fourth quarter of
2017. Reported fully diluted loss per share was $0.02, compared with a fully diluted loss per
share of $0.06 for the same period in
2017. Included in the net loss was $1.6
million and $2.1 million of
income tax expense for the fourth quarters of 2018 and 2017,
respectively, related to changes in the U.S. federal tax code under
the Tax Cuts and Jobs Act ("TCJA").
Adjusted net income (a non-GAAP measure defined below under
"Non-GAAP Financial Measures") for the 2018 fourth quarter was
$2.3 million, or $0.05 per share on a fully diluted basis,
compared with adjusted net income of $0.1
million, or $0.00 per share on
a fully diluted basis, in the prior year's fourth quarter.
Fourth-quarter 2018 adjusted EBITDA (a non-GAAP measure
defined below under "Non-GAAP Financial Measures") was
$8.6 million, compared with
$8.9 million in last year's fourth
quarter.
Full-Year 2018 Results
ISG reported record full-year 2018 revenues of $275.8 million, an increase of 2 percent on a
reported basis and 1 percent on a constant-currency basis from
$269.6 million in the prior
year. Currency positively impacted reported revenues by
$2.8 million versus 2017. Reported
revenues were $95.1 million in
Europe (up 15 percent on a
reported basis and 11 percent in constant currency), $159.1 million in the Americas (down 2 percent)
and $21.5 million in Asia Pacific (down $3.3
million).
ISG reported operating income for the full year of $12.7 million, a $3.5
million increase from 2017 operating income of $9.2 million. Intangible amortization decreased
by $4.5 million versus 2017 due to
prior year intangibles being fully amortized. Net income for
2018 was $5.7 million, compared
with a net loss of $2.1 million in
the prior year. Included in net income for 2018 was a reversal
of $2.8 million in tax
accruals, of which $0.9 million
was offset by a charge to SG&A associated with contingent
consideration related to prior acquisitions. Included in the net
income for 2018 and the net loss for 2017 was $1.6 million and $2.1
million of income tax expense, respectively, related
primarily to changes in the U.S. federal tax code under TCJA.
Reported fully diluted income per share for 2018 was $0.12 versus a loss per share of $0.05 in 2017.
Adjusted 2018 net income of $17.0
million was up 56 percent versus adjusted net income of
$10.9 million in 2017. Diluted
adjusted earnings per share for 2018 increased by 48 percent, to
$0.37, compared with $0.25 in 2017.
Adjusted EBITDA of $33.0 million
in 2018 compares with $33.5
million in the prior year.
ISG Automation
"ISG Automation is growing in value for both our clients and our
firm," said Connors. Last month, ISG formed a partnership with
WorkFusion and in the fourth quarter with
UiPath, both leading robotic process automation (RPA)
software companies, to leverage their software in helping ISG
clients automate key business processes across the enterprise. With
the addition of WorkFusion and UiPath, ISG is now partnering with
four of the world's top automation software companies to bring the
benefits of business process automation to ISG clients.
"Given the growing demand and market valuations for RPA, we
continue to seek opportunities to create additional value in this
business," said Connors.
Other Financial and Operating Highlights
ISG cash and cash equivalents totaled $18.6 million at December
31, 2018, an increase of $5.1
million, or 38 percent, from September 30, 2018. The increase in cash balances
from September 30, 2018 was
principally attributable to operating results and collections. Net
Cash Provided by Operating Activities of $19.1 million in 2018 was up 67 percent versus
the prior year. Total outstanding debt at December 31, 2018 was $99.1 million, compared with $116.7 million at December
31, 2017. ISG expects to reduce its debt by an additional 8
to 10 percent in 2019.
2019 Full-Year Revenue and Adjusted EBITDA Guidance
"For 2019, ISG is targeting revenues of between $276-$285 million
and adjusted EBITDA of between $33-$35 million. We
expect currency headwinds to impact results in the first half and
we are taking a cautious approach to the macro-economic
environment. We anticipate the next update to our guidance will be
in August, when we announce second-quarter results," said
Connors.
Returning Cash to Shareholders
"With the filing of our first-quarter 2019 results in May, we
anticipate being able to accelerate the return of cash to our
shareholders during 2019, including increasing our share
repurchases under our current $12
million board authorization," said Connors.
Conference Call
ISG has scheduled a call for 9 a.m.,
Eastern Time, Friday, March 15,
2019, to discuss the company's fourth-quarter and full-year
results. The call can be accessed by dialing 1-800-239-9838 or, for
international callers by dialing 001-323-794-2551. The access code
is 2251145. A recording of the conference call will be accessible
on ISG's website (www.isg-one.com) for approximately four
weeks following the call.
Forward-Looking Statements
This communication contains "forward-looking statements" which
represent the current expectations and beliefs of management of ISG
concerning future events and their potential effects. Statements
contained herein including words such as "anticipate," "believe,"
"contemplate," "plan," "estimate," "expect," "intend," "will,"
"continue," "should," "may," "target," and other similar
expressions, are "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements are not guarantees of future results and are subject to
certain risks and uncertainties that could cause actual results to
differ materially from those anticipated. Those risks relate to
inherent business, economic and competitive uncertainties and
contingencies relating to the businesses of ISG and its
subsidiaries including without limitation: (1) failure to secure
new engagements or loss of important clients; (2) ability to hire
and retain enough qualified employees to support operations; (3)
ability to maintain or increase billing and utilization rates; (4)
management of growth; (5) success of expansion internationally; (6)
competition; (7) ability to move the product mix into higher margin
businesses; (8) general political and social conditions such as
war, political unrest and terrorism; (9) healthcare and benefit
cost management; (10) ability to protect ISG and its subsidiaries'
intellectual property or data and the intellectual property or data
of others; (11) currency fluctuations and exchange rate
adjustments; (12) ability to successfully consummate or integrate
strategic acquisitions and other value-creation opportunities; and
(13) engagements may be terminated, delayed or reduced in scope by
clients. Certain of these and other applicable risks, cautionary
statements and factors that could cause actual results to differ
from ISG's forward-looking statements are included in ISG's filings
with the U.S. Securities and Exchange Commission. ISG undertakes no
obligation to update or revise any forward-looking statements to
reflect subsequent events or circumstances.
Non-GAAP Financial Measures
ISG reports all financial information required in accordance
with U.S. generally accepted accounting principles (GAAP). In this
release, ISG has presented both GAAP financial results as well as
non-GAAP information for information for the three and twelve
months ended December 31, 2018 and
December 31, 2017. ISG believes that
evaluating its ongoing operating results will be enhanced if it
discloses certain non-GAAP information. These non-GAAP financial
measures exclude non-cash and certain other special charges that
many investors believe may obscure the user's overall understanding
of ISG's current financial performance and the Company's prospects
for the future. ISG believes that these non-GAAP measures
provide useful information to investors because they improve the
comparability of the financial results between periods and provide
for greater transparency of key measures used to evaluate the
Company's performance.
ISG provides adjusted EBITDA (defined as net income before net
income attributable to non-controlling interest, plus interest,
taxes, depreciation and amortization, foreign currency transaction
gains/losses, non-cash stock compensation,
change in contingent consideration, acquisition-related
costs, tax indemnity receivable,
and severance and integration expense), adjusted net income (defined as
net income plus amortization of intangible assets, non-cash stock
compensation, foreign currency transaction gains/losses, change in contingent
consideration, acquisition-related costs, and severance and integration expense, on a tax-adjusted basis), adjusted
net income as earnings per diluted share and selected financial
data on a constant currency basis which are non-GAAP measures that
the Company believes provide useful information to both management
and investors by excluding certain expenses and financial
implications of foreign currency translations, which management
believes are not indicative of ISG's core operations. These
non-GAAP measures are used by ISG to evaluate the Company's
business strategies and management's performance.
We evaluate our results of operations on both an as reported and
a constant currency basis. The constant currency presentation,
which is a non-GAAP financial measure, excludes the impact of
year-over-year fluctuations in foreign currency exchange rates. We
believe providing constant currency information provides valuable
supplemental information regarding our results of operations,
thereby facilitating period-to-period comparisons of our business
performance and is consistent with how management evaluates the
Company's performance. We calculate constant currency percentages
by converting our current and prior-periods local currency
financial results using the same point in time exchange rates and
then compare the adjusted current and prior period results. This
calculation may differ from similarly-titled measures used by
others and, accordingly, the constant currency presentation is not
meant to be a substitution for recorded amounts presented in
conformity with GAAP nor should such amounts be considered in
isolation Management believes this information facilitates
comparison of underlying results over time. Non-GAAP
financial measures, when presented, are reconciled to the most
closely applicable GAAP measure. Non-GAAP measures are provided as
additional information and should not be considered in isolation or
as a substitute for results prepared in accordance with GAAP. A
reconciliation of the forward-looking non-GAAP estimates contained
herein to the corresponding GAAP measures is not being provided,
due to the unreasonable efforts required to prepare it.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading
global technology research and advisory firm. A trusted business
partner to more than 700 clients, including more than 70 of the top 100 enterprises in
the world, ISG is committed to helping corporations, public sector
organizations, and service and technology providers achieve
operational excellence and faster growth. The firm specializes in
digital transformation services, including automation, cloud and
data analytics; sourcing advisory; managed governance and risk
services; network carrier services; strategy and operations design;
change management; market intelligence and technology research and
analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300
digital-ready professionals operating in more than 20 countries—a
global team known for its innovative thinking, market influence,
deep industry and technology expertise, and world-class research
and analytical capabilities based on the industry's most
comprehensive marketplace data. For more information, visit
www.isg-one.com.
Information
Services Group, Inc.
|
Condensed
Consolidated Statements of Operations
|
(unaudited)
|
(in thousands,
except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Twelve Months
Ended December 31,
|
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$
67,901
|
|
$
66,612
|
|
$
275,769
|
|
$
269,554
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Direct costs and
expenses for advisors
|
|
|
38,160
|
|
37,477
|
|
159,921
|
|
156,630
|
Selling, general and
administrative
|
|
|
24,502
|
|
22,231
|
|
95,400
|
|
91,046
|
Depreciation and
amortization
|
|
|
1,899
|
|
2,948
|
|
7,771
|
|
12,721
|
Operating
income
|
|
|
3,340
|
|
3,956
|
|
12,677
|
|
9,157
|
Interest
income
|
|
|
3
|
|
13
|
|
116
|
|
107
|
Interest
expense
|
|
|
(1,548)
|
|
(1,689)
|
|
(6,688)
|
|
(6,821)
|
Foreign currency
transaction (loss) gain
|
|
|
(12)
|
|
(51)
|
|
7
|
|
(343)
|
|
|
|
|
|
|
|
|
|
|
|
Income before
taxes
|
|
|
1,783
|
|
2,229
|
|
6,112
|
|
2,100
|
Income tax
provision
|
|
|
2,635
|
|
4,879
|
|
435
|
|
4,198
|
Net (loss) income
|
|
|
(852)
|
|
(2,650)
|
|
5,677
|
|
(2,098)
|
Net
income attributable to non-controlling interest
|
|
|
-
|
|
-
|
|
-
|
|
32
|
Net (loss) income attributable to
ISG
|
|
|
$
(852)
|
|
$
(2,650)
|
|
$
5,677
|
|
$
(2,130)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,219
|
|
43,423
|
|
44,673
|
|
43,025
|
Diluted
|
|
|
45,219
|
|
43,423
|
|
46,067
|
|
43,025
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings
per share attributable to ISG:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
(0.02)
|
|
$
(0.06)
|
|
$
0.13
|
|
$
(0.05)
|
Diluted
|
|
|
$
(0.02)
|
|
$
(0.06)
|
|
$
0.12
|
|
$
(0.05)
|
Information
Services Group, Inc.
|
Reconciliation
from GAAP to Non-GAAP
|
(unaudited)
|
(in thousands,
except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Twelve Months
Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
attributable to ISG
|
|
$
(852)
|
|
$
(2,650)
|
|
$
5,677
|
|
$
(2,130)
|
Plus:
|
|
|
|
|
|
|
|
|
Net
income attributable to non-controlling interest
|
|
-
|
|
-
|
|
-
|
|
32
|
Interest
expense (net of interest income)
|
|
1,545
|
|
1,676
|
|
6,572
|
|
6,714
|
Income
taxes
|
|
2,635
|
|
4,879
|
|
435
|
|
4,198
|
Depreciation and amortization
|
|
1,899
|
|
2,948
|
|
7,771
|
|
12,721
|
Change
in contingent consideration
|
|
3
|
|
(226)
|
|
380
|
|
882
|
Acquisition-related costs(1)
|
|
332
|
|
50
|
|
613
|
|
1,236
|
Severance and integration expense
|
|
363
|
|
103
|
|
801
|
|
1,617
|
Tax
indemnity receivable
|
|
-
|
|
-
|
|
931
|
|
454
|
Foreign
currency transaction loss (gain)
|
|
12
|
|
51
|
|
(7)
|
|
343
|
Non-cash
stock compensation
|
|
2,631
|
|
2,055
|
|
9,862
|
|
7,439
|
Adjusted
EBITDA
|
|
$
8,568
|
|
$
8,886
|
|
$
33,035
|
|
$
33,506
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
attributable to ISG
|
|
$
(852)
|
|
$
(2,650)
|
|
$
5,677
|
|
$
(2,130)
|
Plus:
|
|
|
|
|
|
|
|
|
Non-cash
stock compensation
|
|
2,631
|
|
2,055
|
|
9,862
|
|
7,439
|
Intangible amortization
|
|
1,236
|
|
2,381
|
|
5,032
|
|
9,514
|
Change
in contingent consideration
|
|
3
|
|
(226)
|
|
380
|
|
882
|
Acquisition-related costs(1)
|
|
332
|
|
50
|
|
613
|
|
1,236
|
Severance and integration expense
|
|
363
|
|
103
|
|
801
|
|
1,617
|
Foreign
currency transaction loss (gain)
|
|
12
|
|
51
|
|
(7)
|
|
343
|
Tax
effect (2)
|
|
(1,465)
|
|
(1,677)
|
|
(5,338)
|
|
(7,992)
|
Adjusted net
income
|
|
$
2,260
|
|
$
87
|
|
$
17,020
|
|
$
10,909
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
45,219
|
|
43,423
|
|
44,673
|
|
43,025
|
Diluted
|
|
45,219
|
|
43,423
|
|
46,067
|
|
43,025
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
0.05
|
|
$
0.00
|
|
$
0.38
|
|
$
0.25
|
Diluted
|
|
$
0.05
|
|
$
0.00
|
|
$
0.37
|
|
$
0.25
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists of expenses from
acquisition-related costs and non-cash fair value adjustments on
pre-acquisition contract liabilities.
|
(2)
|
Marginal tax rate of
32.0% and 38.0% applied, respectively.
|
Information
Services Group, Inc.
|
Selected Financial
Data
|
Constant Currency
Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
Three Months
Ended
|
|
Three Months
Ended
|
Constant
currency
|
December 31,
2018
|
|
Three Months
Ended
|
Constant
currency
|
December 31,
2017
|
|
December 31,
2018
|
impact
|
Adjusted
|
|
December 31,
2017
|
impact
|
Adjusted
|
Revenue
|
$
67,901
|
$
588
|
$
68,489
|
|
$
66,612
|
$
(492)
|
$
66,120
|
Operating
income
|
$
3,340
|
$
53
|
$
3,393
|
|
$
3,956
|
$
9
|
$
3,965
|
Adjusted
EBITDA
|
$
8,568
|
$
42
|
$
8,610
|
|
$
8,886
|
$
(2)
|
$
8,884
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
Ended
|
|
|
|
Twelve Months
Ended
|
|
Twelve Months
Ended
|
Constant
currency
|
December 31,
2018
|
|
Twelve Months
Ended
|
Constant
currency
|
December 31,
2017
|
|
December 31,
2018
|
impact
|
Adjusted
|
|
December 31,
2017
|
impact
|
Adjusted
|
Revenue
|
$
275,769
|
$
(1,472)
|
$
274,297
|
|
$
269,554
|
$
1,318
|
$
270,872
|
Operating
income
|
$
12,677
|
$
(61)
|
$
12,616
|
|
$
9,157
|
$
529
|
$
9,686
|
Adjusted
EBITDA
|
$
33,035
|
$
(100)
|
$
32,935
|
|
$
33,506
|
$
517
|
$
34,023
|
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SOURCE Information Services Group, Inc.