Barry Holt – Senior Communications Executive Michael Connors – Chairman & CEO David Berger – EVP & CFO.

Marco Rodriguez – Stonegate Securities Vincent Colicchio – Noble Financial.

Welcome to the Information Services Group Third Quarter 2014 Results Conference Call. (Operator Instructions). 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 everyone. My name is Barry Holt. I'm a Senior Communications Executive at ISG. I'd like to welcome everyone to ISG's 2014 third 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.

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

The non-GAAP which we will touch on today include adjusted EBITDA, adjusted net earnings and the presentation of selected financial data on a constant currency basis. 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?.

Thank you Barry. Good morning everyone. Today David and I will review our third quarter results, update you on some operating highlights and review our full year guidance. Our momentum continues; demand for our services remain strong despite a mixed global economic environment.

This underscores both the value we provide to our clients and the opportunity we have in our markets. We’re pleased to report record third quarter revenues of over 53 million up 4% and EBITDA of $6.5 million up 12% versus the prior year. Our recurring revenues for the quarter were up 18% to over $14 million versus the prior year.

And on LTM basis they were over $50 million for the first time ever, a strong indication that our strategy to grow recurring revenues is working.

We served 283 clients in the third quarter nearly 10% of which were new to ISG, we generated $8 million in free cash flow strengthening the balance sheet and maintaining our gross leverage ratio below 2.5 times EBITDA. Last quarter we projected double digit growth in Europe and we grew revenues by 12% versus the prior year.

The continued growth in Europe was driven by our strong performance in Germany, the Nordics, and Italy. We made investments to grow the Nordics in Italy and we’re pleased with the progress we’re making.

During the quarter we saw growth in our banking, financial services and insurance segment, our technology, retail and other enterprise verticals and the public sector. Key client engagements during the quarter in Europe included Siemens, Allied Irish Bank, BASF, and Alcatel-Lucent.

The Americas revenues were flat for the quarter; we were able to offset the drop in revenues from a few large U.S. clients discussed in our prior calls that moved from a higher stem level last year into a study state mode this year. Overall we’re continued to be pleased with the pace in which the Americas is building its sales pipeline.

Key client engagements in the quarter included Fossil, AbbVie, Suncor, Amgen, Hydro One and Pepsi Co. We saw good growth in the quarter in our energy, life sciences and health verticals. The U.S. public sector followed a strong first half with a robust third quarter recording double digit revenue growth versus the prior year.

During the quarter we expanded work with the states of West Virginia, Mississippi, Louisiana and Arizona. In Asia Pacific, our revenues were down slightly by about a $150,000 from a year ago. Key clients in the region included Westpac, Leighton Holdings, BMW, the Australian Department of Defense and the Transport of New South Wales.

Our global recurring revenue streams which include research, managed services in the U.S. public sector reached $14 million in the quarter up 18% and we recently signed over $20 million in managed services contracts. Recurring revenue streams now account for almost 27% of ISG's total revenues up from 22% last year.

As I mentioned in last quarter's call we were investing in a growth area called engineering services and I'm pleased to report that we hired Sampath Kumar [ph] to lead this important initiative. An experienced advisor with a strong background developing businesses from the ground up.

Sampath joins ISG from TATA Consulting services where he was the Head of Engineering and Process Manufacturing for North America. He worked with such clients as Boeing, Honeywell, United Technologies, Dell and Owens Corning.

And during the quarter we engaged with one of our existing technology clients to help them outsource to a service provider, aspects of their engineering function including design, integration testing, validation, documentation and maintenance.

Engineering services is a still in the early planning phase for ISG and we look to see it unfold during the second half of 2015. Now looking beyond 2014, our leadership team recently met at our annual strategy offsite to review our growth initiatives for the next three years.

We reaffirm that our strategy is working and are even more optimistic about the future growth opportunities.

We will continue to expand our focus from a transactional approach driven by outsourcing to a broader strategic discussion with our clients that is driven by the impact of emerging technologies, big data, and the need for operational efficiencies, integration and coordination across the entire client enterprise.

For example we recently announced that strategic partnership with Apptio that will allow us to broaden our impact across our client organizations through a process called TBM, our Technology Business Management.

The combination of ISG's data, operational insights and strategic consulting, together with Apptio's leading SaaS based TBM applications will help our clients better manage the business of IT and to derive more value from their technology investments. Finally, turning to guidance, we’re confident with our full year 2014 guidance.

Like other global companies the strengthening dollar will have a small negative impact on reported results primarily revenues. We will be providing guidance for 2015 and for our three year growth targets when we report our full year results in March. I will say now that we anticipate good growth on the top and the bottom-lines next year.

So with that now let me turn the call over to David Berger, who will summarize our financial results..

Thanks Mike. Good morning everyone. Third quarter revenues were 53.3 million, an increase of 4% from the prior year on a reported and 3% in constant currency.

Revenues were 19.7 million in Europe up 10% from the same period in 2013, 28.4 million in the Americas which was flat with the prior year and 5.1 million in Asia Pacific down a 150,000 or 5% with growth rates in constant currency.

Our operating income was 3.8 million for the third quarter of 2014, this compares to operating income of 1.8 million in the third quarter of 2013. Net income for the third quarter was 2.4 million which was up from 400,000 in the prior year.

The 2013 third quarter results included 2.1 million in stock based compensation recorded to SG&A versus 900,000 in 2014 third quarter. This was driven by the vesting of performance based restricted stock units triggered by the 115% rise in ISG share price during the 2013 third quarter.

Reportedly fully diluted earnings per share were $0.06 per share compared with $0.01 per share for the same period in 2013. Adjusting net income for the third quarter was 3.8 million, with adjusted EPS of $0.10 per share on a fully diluted basis up 43% from the prior year.

This compares with adjusted net income of 2.6 million or $0.07 per share on a fully diluted basis in the prior year's third quarter. Third quarter 2014 adjusted EBITDA on non-GAAP measure was 6.5 million up 12% on a reported basis and up 10% on a constant currency basis for 5.8 million in the third quarter of 2013.

Utilization for the third quarter was 69%, total head count of 894 was up three positions from Q2. We continue to maintain a strong liquidity position to support the implementation of our business plan.

Strong operating results and cash collections during the quarter drove our quarter-end balance of cash and cash equivalents included restricted cash to 21.8 million a net increase of 4.7 million from June 30. Cash provided from operations for the quarter was 8.6 million and capital spending was 553,000 during the quarter.

During the third quarter, we repaid $844,000 of debt and repurchased $1.5 million of stock. Total outstanding debt at September 2014 was 54.2 million which compared with 55.1 million at June 30, 2014.

Our gross debt to adjusted EBITDA leverage ratio was 2.5 times and our net debt leverage ratio which is a net of a cash balance was 1.5 times at September 30, 2014. Our average borrowing rate for the quarter was 2.9%. Our accounts receivable balance as of September 30, was 44.6 million and our DSOs were 67 days.

Mike will share concluding remarks before we go to Q&A..

Thank you David. In closing, let me summarize our third quarter. We achieved record third quarter revenues of more than $53 million. EBITDA of $6.5 million was up 12% and ahead of consensus estimates. Adjusted earnings per share of $0.10 was up 43%.

Europe continued its solid growth trend up 12%, our recurring revenue streams were up 18% and we recently signed more than $20 million in managed services contracts. We had strong cash generation bringing our cash balance to almost $22 million.

We continued to deleverage the balance sheet and repurchase stock and we hired an experienced industry executive to lead our new engineering services practice. Overall business model is compelling and we firmly believe we’re building momentum behind our major initiatives around the world that will drive strong revenue and profit growth in 2015.

Thanks very much for calling in this morning and now let me turn the session over to our operator for questions..

(Operator Instructions). We will take our first question from Marco Rodriguez with Stonegate Securities..

I was wondering if you could talk a little bit more guidance, obviously you have reiterated your annual guidance and if you can just kind of take a look at what the mid-point of that range implies. It's obviously above current consensus if my number is right.

So can you talk a little bit what are the drivers you kind of have or the assumptions you’ve behind your guidance and the range itself?.

Again we’re reaffirming our full year guidance, the guidance is based on continuing growth in Europe. We experienced double digit growth in Europe during the third quarter and we expect to have strong growth in Europe during the fourth quarter.

As we said, the Americas we continue to build the pipeline and so the Americas will start showing growth in the near future. So we feel confident in the guidance we gave previously, and it will be driven by Europe..

And then when looking at your operating structure here real quick, SG&A came in a little bit lower than what we were expecting. You had revenues, they were a little bit higher year-over-year but SG&A kind of declined year-over-year.

So can you kind of talk about anywhere there any one off items that kind of drove those results, any kind of color that you can provide there?.

Well the one-off on the SG&A as we noted last year in the stock compensation due to the accelerated vesting, due to the performance of our stock last year in the third quarter we had an additional charge that did not reoccur this year. So that was really the big drive between the year-to-year change in SG&A..

And then a couple of housekeeping items here. What was the – the tax rate was relatively low this quarter, can you talk about what was going on there and what should we be using for modeling purposes..

The tax rate similar to last quarter is driven by the mix of foreign sourced income and for the full year I would use in the high-30s in that going forward..

And what was your utilization rate and billable headcount and total headcount?.

Our utilization for the quarter was 69, our billable headcount was 677..

(Operator Instructions). And we will take our next question from Vincent Colicchio with Noble Financial..

I’ve got a question on the recurring revenue, I don’t know if you said that as such, but what was managed services itself in terms of (indiscernible) year-over-year..

Vince we don’t break out managed services but we have managed services research and our multi-year public sector contracts grew by 18% for the quarter and it came in around 14 million I believe is that right David? 14 million and then if you look at the LTM you will see that it's now over 50 million than so managed services is a key part of that recurring revenue stream.

So the overall growth rate is probably somewhat reflective..

And I assume that will continue to grow in the fourth quarter, the recurring revenue, is that right?.

Yes. I mean our recurring revenue as you know we put a big emphasis on it, our objective was to get to 25% of our funds revenue.

In 2015 we’re ahead of schedule on that and by being a bit over 25% before this year is out and when we do our guidance in March for 2015 and the next three years we will have a different target above that number clearly for the next three years..

And growth in wallet shares [ph] has been important driver for your growth.

Curious did you continue to gain share with your Top 50 clients in the quarter? And do you expect that, if you did do you expect that to continue?.

We did in this quarter and the number is impacted by what we talked about for the three large clients in the U.S. that fell back to the steady state mode. Once we recover from that what you could see for the quarter the Americas was able to overcome the drop from those clients by building up with new clients.

So next year we will expect that number to start to going up again..

So if you think those three large clients out then I assume you did relatively for wallet share [ph] right?.

Yes..

Can you give us some color Mike on the United Kingdom, I know you mentioned Nordics, Germany and Italy were important to growth for this quarter.

What's going on these things?.

Well the UK is I didn’t mention them but they are doing very well, we expect from both on the commercial side in the fourth quarter, we expect to have probably our largest commercial client signed in the fourth quarter that we have ever had. So there is good momentum there, number one.

Number two, we also expect in the fourth quarter that our work with the Ministry of Defense if you would call, we ended up with a contract of about £25 million with the consortium of three of us about 20 months ago. We expect that contract to get a sizeable extension in the fourth quarter.

Again something that we will see how that develops and we will report on that our next call if in fact it does, but we see good momentum on both the commercial side and the public sector side in the UK and we have been doing some business development work there and I think that will pay off in the fourth quarter.

So we expect the UK to be pretty robust as we move into 2015..

And Mike you had mentioned that the engineering outsourcing revenue contribution should – I don’t know what you exactly said, should start to be contributing more in the second half of '15.

Is it too early to say if you expect it to be a meaningful contribution?.

It is Vince, only because we want to give Sampath Kumar who just joined us, a chance, we have done a lot of work over the last several months, he is our leader. We want him to take a look at our thoughts, our plans, he is out meeting with clients and service providers now. So we don’t want to get too far out ahead of our ski so to speak.

We want to get a chance to make sure we have the right plan, the right set of service offerings. As I mentioned we did have one client during the quarter that we did engineering services work with which was a good I think kind of trial for us to see how we can do and I think we’re just about ready to sign another.

So it's early days, so it's too early to call but the way we have tried to set this up is to say that we expect the revenue to begin kind of second half of next year but we need a little time with Sampath on board to see how that will unfold. So we’re excited about the opportunities there for sure..

(Operator Instructions). And we will return to you Vincent Colicchio..

Yes just one follow-up Mike, in APAC, I know Australia was few quarters ago you were pretty excited about the opportunity there.

Is it come fruition or you’re still out there to do in terms of growth?.

It's still in development, I mean you saw the Australian Department of Defense, we just signed the Transport of New South Wales, so that’s kind of "state government" side of it. We’re now beginning to see the per strings beginning to open up. So it has not progressed at the speed that we anticipated, but we’re seeing good signs in that marketplace.

We have a great leader that we brought in from Accenture to help drive some new growth areas for us there. So we’re optimistic that will turn the corner as we move into 2015..

(Operator Instructions). And with no further questions I would like to turn the call back over to Michael Connors for any additional or closing remarks..

Thanks very much. Let me close by saying thank you to all of our ISG's almost 900 professionals worldwide for their continued passion and tremendous dedication to our clients and to thank all of you on the call for your continued support and confidence in our firm. With that I will send you off and have a great day. Thanks very much for joining..

And this does conclude today's conference. Thank you for your participation..