Barry Holt - Senior Communications Executive Michael Connors - Chairman and CEO David Berger - EVP and Chief Financial Officer.

Peter Heckmann - Avondale Partners Vincent Colicchio - Noble Financial Marco Rodriguez - Stonegate Securities Justin Ruiss - Sidoti & Company.

Good day, everyone and welcome to the Information Services Group First Quarter 2014 Results Conference Call. Today’s conference is being recorded and a replay will be available on ISG’s website within 24 hours. At this time for opening remarks and introductions, I’d like to turn the conference over to Mr. Barry Holt. Please go ahead, sir..

Thank you, Operator. Hello and good morning. My name is Barry Holt. I’m a Senior Communications Executive at ISG. I’d like to welcome everyone to ISG’s 2014 first quarter results conference call. I’m joined today by Michael Connors, Chairman and Chief Executive Officer; and David Berger, Executive Vice President and Chief Financial Officer.

Before we begin, I’d like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects.

These 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.

For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our Form 8-K that was furnished yesterday through the SEC and the Risk Factors section in ISG’s Form 10-K covering full-year results.

You should also read ISG’s annual report on Form 10-K for the fiscal year ending December 31, 2013 and any other relevant documents, including any amendments or supplements to these documents filed with the SEC when they become available.

You’ll be able to obtain free copies of any of ISG’s SEC filings on either ISG’s website at www.isg-1.com or the SEC’s website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances.

Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8-K which was submitted yesterday. And now I’d like to turn the call over to Michael Connors, who will be followed by David Berger.

Mike?.

A multi-year multi-million dollar engagement with the state of Illinois tollway authority that begins during this quarter and an extension with the State of Kansas for continued IT advisory work.

Asia Pacific revenues in the first quarter declined by $700,000 in constant currency with softness as expected in the Australian public sector, growth however is anticipated in the second half of the year.

We recently expanded our work in the region with state and local governments in Australia with wins in New South Wales and with the University of Canberra, in addition to recent new business wins with the Australian government’s Department of Immigration, Border Protection and the Department of Defense.

With these wins we are beginning to see an increase in government spending in Australia after a period of budget constraints. Globally blue chip client wins for the quarter included Northeast Utilities, Thomson Reuters, Volkswagen, Bank of America, National Grid, Raiffeisen Bank International, Allied Irish Bank and Altria Group.

We served 259 clients in the first quarter, 10% of which were new to ISG. And our recurring revenues for the quarter totaled $12 million, up 7%. Adjusted EBITDA for the quarter was $3.4 million. We remain confident in achieving our full year guidance as I will discuss shortly.

In anticipation of increased client demand which we are now experiencing in the second quarter, we held staffing levels flat in the first quarter.

This combined with our previously announced investment in growth initiatives that includes our engineering services outsourcing opportunity and deal costs associated with our two tuck in acquisitions, negatively impacted adjusted EBITDA for the first quarter by about $1 million.

As I mentioned in last quarter’s call, we are investing during the first half in a new growth area we call engineering services outsourcing or ESO, which we believe is an under advise market that offers a potentially bigger opportunity.

After initial assignment with the key client, further study and talking with perspective clients and service provider in the first quarter, we believe ISG could be uniquely positioned to create a market in this space, by leveraging our strength and traditional sourcing services and in our manufacturing and technology verticals in particular.

I'll update you later this year on our progress in this area. Now turning to our two tuck-in acquisitions; last month we acquired CCI Consulting, a leader in business-to-business client research and benchmarking based in Australia.

And in March we formed an ISG majority owned joint venture in Italy with Convergent Technologies Partners or CTP, a leader in providing information technology advisory services to Italy's public sector.

Our acquisition of CCI and our joint venture with CTP expands our capabilities and presence in two areas of increasing importance to ISG; research and benchmarking and the public sector.

CCI provides research and client satisfaction measurement to service providers and enterprises primarily in Australia and is a natural complement to our assessment services that help our clients major among other things service level agreements and the cost of services.

Our joint venture with CTP in Italy meanwhile, expands our continued global penetration into the public sector, building on our success working with governments in North America, Australia and as you know most recently, in the UK. Together the two will generate about $2 million in revenue during 2014.

Beyond that, CTP adds to our public sector credentials especially in Europe where we’re looking to expand, while CCI expands our global research and benchmarking capabilities.

Both businesses will contribute to our longer term strategy of building ISG into a premier global information-based services company for both private and public sector enterprises. We also announced yesterday that our Board of Directors approved the new share repurchase authorization of up to $20 million.

Expected to be executed overtime, the repurchase program reflects our continued confidence in ISG’s future cash generation capabilities. Given our strong balance sheet and outlook, this program is a measured way to maintain ample financial capability, reinvest in our businesses for growth and deliver attractive returns to our shareholders.

Finally, turning to guidance; we are reaffirming our guidance for 2014, targeting revenues between $215 million and $225 million and adjusted EBITDA of $23 million to $26 million. Our 2014 growth is expected to be weighted to the second half of the year.

We should see sequential strength in the second quarter as our decision to retain staff should begin to pay dividends with our pipeline increasing. So with that now let me turn the call over to David Berger who will summarize our financial results..

Thanks, Mike and good morning everyone. Before I discuss our financial results, I would like to reiterate that ISG has presented GAAP financial results as well as certain non-GAAP financial information in our earning release.

During this call, I will discuss certain non-GAAP financial measures, which ISG believes improves the comparability of the company's financial results between periods and provides a greater transparency of key measures used to evaluate the company’s performance.

The non-GAAP measures, which I will touch on today, include adjusted EBITDA, adjusted net earnings and the presentation of selected financial data on a constant currency basis. A complete reconciliation of non-GAAP financial measures is included in our earnings release, which was furnished to the SEC on Form 8-K yesterday.

Non-GAAP financial measures are provided as additional information and should not be considered an isolation or as a substitute for financial results prepared in accordance with GAAP.

First quarter revenues totaled $48.2 million which was a decrease of 5% on both the reported and constant currency basis from the $50.6 million in the first quarter of 2013.

Revenues were $19.8 million in Europe which is up 15% from the same period in 2013; $24.4 million in the Americas, down 15%; and $4 million in Asia Pacific, down $700,000 or 14%, growth rates in constant currency.

Operating income totaled $1 million for the first quarter of 2014, this compares to operating income of $2.6 million in the first quarter of 2013. Net income for the first quarter was $0.1 million, reported fully diluted earnings per share was zero cents per share compared with $0.03 per share for the same period in 2013.

Adjusted net income for the first quarter was $1.3 million or $0.03 per share on a diluted basis compared with an adjusted net income of $2.2 million or $0.06 per share on a diluted basis in the prior year’s first quarter.

The first quarter 2014 adjusted EBITDA of $3.4 million compared with $5 million in the first quarter of 2013 a decline of $01.6 million. Utilization for the quarter was 70% versus 72% last year. Headcount of 852 was basically flat with year-end.

This is deliberate as we do not think it was prudent to trim resources for what we believe is a short-term revenue reduction in the U.S. Gross margins were negatively impacted by keeping headcount flat with the fourth quarter.

As Mike discussed holding staffing levels flat combined with our investment in growth initiatives negatively impacted adjusted EBITDA for the quarter by about $1 million. We continue to maintain a strong liquidity position to support the implementation of our business plan.

Cash and cash equivalents totaled $26.2 million at the end of the quarter a net decrease of $8.9 million from the year end. The seasonal decline in cash provided operations was $6.8 million and we spent $700,000 on capital spending during the quarter. During the first quarter of 2014 we repaid $844,000 of debt and repurchased $1 million of stock.

Total outstanding debt at March 31, 2014 was $55.9 million, which compared with $56.7 million at December 31, 2013. Our gross debt to adjusted EBITDA [leverage] ratio was 2.7 times and our net debt leverage ratio, which is net of our cash balance was 1.4 times at March 31, 2014. Our average borrowing rate for the quarter was 3.1%.

I also wanted to note with regards to our convertible note, the triggering event incurred in the quarter with ISG stock exceeding $4 per share for 60 consecutive trading days. We anticipate that the convertible not would convert to equity at some point this year. The additional shares are already included in our fully diluted share count.

This conversion would further decrease our debt by $3.4 million. As Mike noted earlier, we entered in to a 51% joint venture with CTP in Italy in March. We invested $700,000 in CTP and assume $700,000 in cash. Net cash investment at closing was zero.

We entered in to a put-and-call option for the remaining 49%, which was valued at $700,000 on our balance sheet. In addition, we purchased substantially all the assets of CCI in April. $900,000 was paid at closing and additional $800,000 will be paid in April of 2015.

The sellers are eligible to receive up to an additional AUS$3 million of earn-out payment if certain earnings targets are met through 2016. Our accounts receivable balance as of March 31, was $44.6 million and our DSOs were 69 days. Mike will now share concluding remarks before we go Q&A..

Thank you David. Let me summarize, we recorded our fourth consecutive quarter of double-digit growth in Europe, which continues to be a terrific growth engine for ISG.

As expected revenues in the Americas were down in the first quarter, due primarily to three large clients shifting into steady state spending mode, but the pipeline is growing and Americas’ revenues are projected to grow sequentially by double digits in the second quarter and we expect a stronger second half.

We added additional research coverage and now have four analysts following III. And we like to welcome Peter Heckmann with Avondale Partners to our call. We closed two tuck in acquisitions that we believe strengthen our position in research and benchmarking and the public sector.

We have reaffirmed our full year guidance for 2014 with the growth weighted more to the second half of the year. And we announced we are expanding on share buyback program by up to $20 million, returning capital to our shareholders. We believe that the fundamentals of our business and the industry overall remains strong.

The client demand across all segments is healthy and that our markets will continue to provide attractive growth opportunities for ISG. Thanks very much for calling in this morning. And now let me turn the session over to the operator for questions..

Thank you sir. (Operator Instructions). And we'll go first to Peter Heckmann with Avondale Partners..

Good morning, gentlemen. Thanks for taking my question..

You bet. Good morning..

Good morning.

So David, maybe just for simplification, you said total headcount [flat] at 852, what was the billable number there?.

654..

For the total. Okay. And….

It's up one..

Okay.

And what would be your plan at this point; do you think you'll see the company adding to the overall bench in '14 based upon some of the bookings activities seen over the last couple of quarters or do you think we more likely see maybe utilization client as that work starts to get engaged?.

So Peter, a couple of things. We are going to be adding some people if we believe that our ESO opportunity is -- can be significant for us. As I said before, we would expect not much until 2015.

So we will watch that, if we find through our studies and our client work that we can do that we'll begin to add some more people, we are hunting in the market for a few now, so there will b the a little bit there.

Our managed services business, if we are able to secure a few additional contracts, you will see headcount going up that will be primarily in India. And as demand continues, we will do our normal selective kind of hiring in Europe and the U.S. And then we've also -- we'll be adding in the employees out of CCI and CTP going forward as well.

So those would be the headcount changes you would most likely see in 2014..

Okay.

And then on approximate pieces, the headcount to the acquisition and joint venture?.

Included in the quarter, there was about 7 added in the first quarter..

Okay. And then just last question, I’ll get back in the queue, but when we do look at the second quarter results, last quarter I think you’d gone through several contracts, particularly in Australia that you thought were going to ramp up in the second quarter.

You talked about now that Canadian piece of business that is shifted into the second quarter and you talked about double-digit sequential growth in the second quarter.

Can you walk through some of the things that you’re seeing and remind us the biggest thing to show I think sequential growth in the second quarter? And then just to put a final point on it, would you still expect revenues to be down year-over-year in the second quarter or do you expect to see a shift to positive growth?.

Okay. This is Mike. Peter, let me start here. I think in terms of demand, the reason we are strong on the year in total and quarters is that demand is increasing. We saw that which is why we held the people in the first quarter despite kind of the down draft with those three major clients.

But a lot of what we’re seeing is our front-end work which is our assessment in benchmarking which can lead them to larger and bigger engagements, we will then begin to see some of that pull through during the second half of the second quarter.

Also in the verticals of both public sector and the healthcare in particular in the U.S., the healthcare, we’re doing a lot of work with the blues if you will with all of the Obama Care and there is a lot of work around cost and administration reduction in those costs which is perfect for us. So, we’re seeing a big larger pick up there.

And we also were picking up the Illinois tollway contract that we won in the first quarter, begins in the second quarter and then clients like Thomson Reuters. So on the Americas standpoint, we see demand in the pipeline increasing. And that’s why we believe that we will get some strong sequential second quarter growth in the Americas.

As it relates to Asia Pacific, in particular Australia, I think I mentioned we won a few right at the end of the quarter, both - some new work which we’ve not done in the state and local area out in Australia with the University of Canberra and so on.

And we see wins with the Department of Immigration, Customs, and Department of Defense which all begin here in the second quarter.

So for that region also we should see good strong sequential growth from Q1, so those are the reasons if you will that we are seeing the demand and the reason why we are reaffirming what we think we see for the full year..

Got it, very helpful. I will get back in the queue..

Okay, thank you, Peter..

And we will take our next question from Vincent Colicchio with Noble Financial..

Hey, good morning, guys..

Good morning, Vince..

Michael, you correct me that you had a 10% revenue contribution from new clients?.

No, I said we had 10% in terms of numbers, more clients in the first quarter, so of the 259 clients, 10% of those were brand new clients to the firm. It does not match necessarily revenue. Normally new clients revenue is less in year one than our traditional ongoing clients..

Okay.

Curious outside of your three clients and so a decline to a more steady state in the quarter, did you see any gain this year and the quarter with your top 47 clients and what is your expectation with the top 50 this year?.

We would expect -- so over the last couple of years, our top 50 have produced double digit growth for us. I believe last year was around 20%, a year before I believe it was around 17% or 18%. We would continue to expect that our top 50 would generate double digit growth for us. We continue to gain a larger share of their wallet.

We have more items if you will in our tool box. And that’s enabling us to increase the share. So, our expectation is that our top clients will again generate on an annual basis this year, generate double digit growth for us..

And related to that the managed services business, do you continue to have aspirations for that to be a double digit grower this year and has interest continue to build there?.

Yes, so managed services saw overall recurring revenue streams grew by about 7% in the first quarter. We do expect double digit growth out of managed services. Some of the sales cycles take a little bit longer to get to fruition as you know. But we remain very bullish on our overall managed services business.

We are chasing a number of prospects and continue to build it strong over the next few years. That will be a significant contributor to our business..

And a macro question, the growth in mega contracts seems to be a positive this year and to be strong this year.

And I would expect it to give positive effect for your business given you relatively high market share; is that the right way to look at it?.

Yes. Vince, we have a very large market share on larger mega deals. And there are number of those that are occurring during this year. We are working on a very large one now and we are expecting to receive a new engagement on yet another one.

So yes, those are always terrific for us and we always receive a very large share of those that are able to be advised go to ISG based on our experience in the marketplace. So yes, those will continue to be a lucrative for us..

Great, I’ll go back in the queue. Thanks..

Okay Ben, thank you..

And we’ll take our next question from Marco Rodriguez with Stonegate Securities..

Good morning guys. Thanks for taking my questions. I want to talk a little bit more about Asia-Pac, obviously you are pretty bullish on Australia, you are coming into the second half and obviously made an acquisition there as well.

Can you provide maybe a little bit more color on the growth you might be expecting for Asia-Pac for the fiscal year? Are you expecting year-over-year growth or is it still going to be a little bit weak because of first half results?.

No, we expect for the full year to have growth. We are ramping up, again we do need the public sector because it is such a large outsourcing market in Australia with the Australian government to spend. And we're seeing some good signs of that spending. The budget constraints are beginning to loosen up.

And we’ve also expanded into the state and local area in addition to the “Federal” if you will apart of the Australian government. So as that business begins to start, which is starting in this quarter that’s why we believe you will see sequential, some solid sequential growth in Asia-Pacific starting in Q2. And that should carry through the year..

Got it, okay. And then shifting over here to Europe, in your prepared remarks you talked about some strength in the few areas, I don't think I heard that UK mentioned which has been a pretty strong area in the past for you guys.

Have things slowed down there? Is there any kind of color you can provide?.

No, it has not slowed down, I was highlighting because I normally always highlight the UK. I was highlighting that France, Germany and the Nordics in particular in the first quarter were very strong and was primarily driven by the energy and BFSI or the financial services if you will, sector.

And so they are contributing to the growth as is the UK contributes to the growth. But for the quarter in particular, when you look at it quarter-over-quarter, those three markets even outperformed the UK during the first quarter. So I thought I would highlight that for you..

Got it. And last quick question, I'll jump back in the queue on the acquisition and on the JV. I understand you are trying to increase your strategic position in those respective markets, but I was wondering if you can talk a little bit more about the driving factors that were behind this.

I mean why not just add a couple of more headcount in minority in those particular areas.

Any sort of color that you can provide that would be great?.

Yes. Let me start with Convergent Technology Partners or CTP in Italy. One of the things we have found in our public sector expansion over the last few years is there are certain areas you can organically grow and are certain areas to get a foothold that if you can acquire the reputation and expertise, it's good way to go. So for example, in the U.S.

we acquired STA Consulting who had a nice foothold into the public sector, they have reputation, talent, experience [gaining] back to 1997 and that was our entry into penetrating deeper into the public sector in the U.S. And as I said before that business continues to grow at a very strong double-digit growth year-over-year.

In the UK, our sense was that we were able to find a talent growth plus we have been poking around the UK public sector for some time. We invested in that at the end of 2012 and that's how we attack the UK market.

In Italy, we felt that we did not have the expertise, we felt that you needed to have in roads and reputation to be able to break through the Italian government side and CTP, which has been around 25 years have that reputation. We had also done work together on certain clients over the past couple of years, so we knew each other.

So we felt that if we could bring in CTP now, we could penetrate the Italian government, number one. But number two; we have aspirations in France and Germany right now. And we are looking at both France and Germany public sector on an organic basis.

And we felt that if we had another set of credentials in Europe in particular in addition to the UK, it could assist us to potentially breakthrough into the French and German marketplace public sectors.

So we are not anticipating that breakthrough to occur necessarily this year, but we would hope that with the ground work we are setting in France and Germany during 2014, we will have a great through next year. So, now we have good strong credentials that we can point to in the UK and Italy.

We can also point to clearly our work in Australia and the U.S. and that's the reason we went after the one in Italy. So that's our view and strategic view of that one. In the Australia with CCI Consulting, one of things that we’ve always done is to be able to assess our service performance and cost of services for our clients.

One of the capabilities that the co-founders of CCI had developed was a set of business intelligence in diagnostic tools. They call them user experience index or UEI and a voice of the customer VOC that has a proprietary benchmarking database that they owned that had extensive information around user experience and business kind of relationship have.

So for example, if I am an enterprise client and I want to have a better understanding of how HP is performing with other clients, CCI has great benchmarking data to be able to talk about the customer experiences that are occurring with HP what other clients have for example in Australia. It is a great complement to what we have.

They have data, we do not have. And I have stressed before that if we could find certain research and analytic capability that can help us accelerate that area that will be good news for us because most of it becomes recurring revenue stream overtime because clients want longitudinal data. So that’s why we went after CCI Consultant.

We had also done work with them with several of our clients, so we knew both Lisa and Andrea the two co-owners of CCI over the last number of years and had worked closely with them and felt like it was a great complement to our overall enterprise..

Absolutely that was great.

So does that proprietary database the CCI has, I am assuming that’s Australia centric?.

Yes, it is. Although they have clients out of the U.S. and in fact several of the clients we work with in the U.S., they have experienced there. So our plan here Marco is to first penetrate further into the Australia, Asia Pacific market and then take the engine that CCI has developed and see if we can expand that in other markets with the U.S.

being our first target possibly in 2015..

Perfect, that’s all I needed. Thanks guys..

Thank you..

And we will go next to Justin Ruiss with Sidoti & Company..

Good morning..

Good morning, Justin.

How are you?.

I am doing well, how are you? With what you just noted with the CCI and the acquisitions that you made, seeing the competitive landscape out there, do you see other potential acquisitions that could benefit you on that level out there, or if there is anything that’s worth taking a look at?.

Yes. No, we are actively looking for other assets that might be able to complement and accelerate our growth. The areas that we continue to focus on are areas around research and analytics, recurring revenue streams or in areas where we are thinking that the growth will continue to expand like energy, healthcare and the public sector.

So we have our own heat map if you will and all of these things take some time. We have been talking as example with CTP in Italy for a series of month before concluding; and CCI, we began chatting with them in the middle of last year. So these things always take a bit of time.

But we also all want to make sure that when we do something it’s the right one. But yes we continue to look and there are opportunities out there we believe..

Alright, perfect. Thank you very much..

Okay, thank you Justin..

And we do have one question left in the queue. (Operator Instructions). We’ll take our follow up from Peter Heckmann with Avondale Partners..

Just as a follow up and you may have addressed part of this in some of your answers but as regards to the general M&A appetite, I am encouraged to see the deals, the CCI and CTP.

But am I correct in assuming that to the extent that you can find the right deal, you’d rather spend the $20 million on acquisition rather than repurchases?.

I think we don’t necessarily look at it as a Sophie's choice if I can say at that way. We look at it as saying that a combination of paying down our debt, looking at some buyback, get a minimum to take care of our dilution and acquisitions is the approach that we prefer to take. And we want to invest in our business number one.

And so I don’t know that I would prioritize one over the other but certainly we’ll continue to look opportunistically at acquisitions to invest and grow the business and if they make some sense and can accrete real value for our shareholders, certainly that would be a preferred route..

Okay.

And then if I missed it, I apologize but if you want to take this opportunity to update any early thoughts on 2015?.

No, we didn’t mention it. Thanks for that. We continue to target about $30 million of EBITDA next year. And as we get close to the end of this year or maybe early next year, we will talk about our plan beyond 2015. But we still believe we are on track for that level of EBITDA.

We started on that journey when we generated $18 million and we feel like we made great progress and continued to do so. And we're tracking along those lines..

Great, I appreciate it..

Thank you..

And that does conclude today’s question-and-answer session. Gentlemen, I'll turn the call back over to you for any additional or closing remarks..

Okay. Well, thank you very much. And in closing, I do want to thank ISG’s more than 850 professionals worldwide for their consistent and continuous passion and tremendous dedication to our clients in our firm. And I want to thank all of you on the call for your continued support and confidence in ISG. Have a great day..

And that will conclude today’s conference. Thank you for your participation..