Barry Holt - Senior Advisor-Communications Michael P. Connors - Chairman and Chief Executive Officer David E. Berger - Executive Vice President and Chief Financial Officer.

Vincent Colicchio - Noble Financial Peter Heckmann - Avondale Partners, LLC. Marco Rodriguez - Stonegate Capital Partners.

Good day and welcome to the Information Services Group Fourth Quarter and Full-Year 2014 Results Conference Call. Today’s conference is being recorded, and a replay will be available on ISG’s website within in 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..

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 fourth quarter and full-year 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 to 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 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 measures 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 and good morning everyone. Today David and I will review our fourth quarter and full-year results. We will update you on the growing client demand and momentum we are seeing in the marketplace, as well as we will give you some operating highlights.

We will review our initial revenue and EBITDA guidance for 2015 and also we will discuss our current thinking around our three-year growth prospects. Before we get started let me say that based on our strong start to 2015 we are extremely confident in our prospects this year, but more on that in a moment.

Looking at the fourth quarter, we achieved revenues of more than $53 million up 4% driven by double-digit growth in Europe. We had record fourth quarter EBITDA up $6.3 million up 20% versus the prior year.

We generated $9 million in free cash flow in the fourth quarter strengthening our balance sheet and lowering our gross leverage ratio below 2.3 times EBITDA. For the full-year, revenues were flat with the prior year, EBITDA was up 3% and adjusted earnings per share was up a 11%.

The expansion of our digital capabilities cloud, digitization and automation services and our enhanced solutions for Service Integration and Management known as SIAM are just a few examples of investments we are making in the future of our firm that will strengthen our capabilities and increase our ability to produce sustainable value for clients and shareholders.

We are focused on the prudent management of our capital. We reduce debt by $3 million in 2014 to lower our leverage ratios. We repurchased more than $5 million of ISG’s shares and announced our first ever dividend, i.e. special payout of $5.2 million to shareholders this past January. We also completed two small tuck-in acquisitions during the year.

For the quarter, revenues in Europe grew by 18% an acceleration from the third quarter and up a 11% for the full-year. The continued growth in Europe was driven by our strong performance in Germany and in the Nordics and Italy where we are making good progress with our growth investments in those two markets.

During the quarter we saw growth in our banking, financial services and insurance segment, the energy verticals and our public sector business. In Europe, key client engagements during the quarter included Volkswagen, the UK Ministry of Defense, Alliance, Allied Irish Bank, the Co-op Bank and BNP Paribas.

In the Americas revenues were down 6% for the quarter, 7% for the year. As previously discussed during 2014 we focused on rebuilding our sales pipeline after a few of our large U.S. clients transitioned from a higher spend level into a study state mode.

That effort took some time and what we saw some delays in clients starting dates, demand trends for January and February are very promising. We now anticipate the Americas to achieve double-digit top line growth during the first half of 2015. Key client engagements in the quarter in the U.S. included Abbott Labs, S.C.

Johnson, Symantec and Southwest Airlines. We saw good growth during the quarter and our energy, life sciences and health verticals. The U.S. public sector had a strong year recording double-digit revenue growth versus a year ago.

And we were recently awarded the second contract with the state of Florida and we have expanded our relationship with the state of Mississippi to provide additional post implementation services. In Asia Pacific, our revenues were down 2% for the quarter and 3% for the year.

Like the Americas we are projecting Asia Pacific returns to growth during the first half of 2015. Key clients in that region include Qantas, Leighton Holdings, BMW, and the Australian Department of Defense. Our global recurring revenue streams which include research, managed services and our U.S.

public sector reached $15 million in the quarter and $56 million for the full-year both up 19%. Recurring revenue streams now account for almost 27% of ISG's total revenues up from 22% last year. Surpassing our previously stated goal to you of having recurring revenues represent a quarter of our firm revenue by the end of 2015.

Now turning to our initial 2015 guidance. Based on increased demand trends globally and our pipeline building especially in the Americas where we expect to deliver double-digit top line growth during the first half.

With our recurring revenue streams at more than 25% of firm revenue also remaining mindful of the current macro environment, we believe that the fundamentals of our business and the industry overall remain strong and then our markets will continue to provide attractive growth opportunities for ISG.

We are off to a good start in 2015 and remain confident in our strategy and on our relentless to drive to execute with excellence. Therefore, for 2014 we are targeting revenue growth in the range of 6% to 8% and adjusted EBITDA growth of between 10% and 15% both in constant currency.

Now, let me take a few moments to discuss our thinking around ISG's growth prospects over the next three years. ISG is the number one advisory firm and a growing sourcing industry. We serve a stable blue-chip client base of the world’s top companies and governments. More than 75% of our annual revenue comes from existing clients.

We see a big opportunity in the growing wave of digitization that is impacting every aspect of work, life and business. Digital disrupters such as automation, robotics, social media, analytics and big data, mobility, cloud and the Internet of things are coming at as faster than ever before.

They are changing whole business models and very reason some companies exist. I believe we have tremendous opportunities at ISG to help clients navigate this change and transform their businesses to compete and what is clearly becoming an increasingly digital future.

Over the next three years, we plan to develop and deliver a series of digital transformation services to our clients. By expanding our capabilities in cloud digitization and automation services and leveraging our firm, expertise to develop enterprise wide solutions that we think will help accelerate ISG’s growth.

Another of our key initiatives is our investment in engineering services late last year and area that we believe will be growing in demand as every product, service, process and system gets smarter and more connected.

We are also helping CIOs manage the business of IT and maximize the value of their digital investments through our technology business management practice. And we launched the cloud solutions practice to meet the growing demand among clients for advice on how to devise and execute cloud transformation strategies.

This is important because we expect some $50 billion of infrastructure related annual outsourcing contracts to be renegotiated in the next 24 months. But unlike in previous cycles we expect the sizeable portion of that spending will move to the cloud and ISG will be there to help our clients.

Taking all of this into consideration over the next three years we believe we can deliver revenue growth on average in the high single-digits.

EBITDA operating leverage of at least 1.5 times to growth of our revenues, EBITDA margins that are growing on average a 100 basis points per year to reach approximately 14% by the end of 2017 and recurring revenue streams that will grow from about a quarter of our revenues today to more than 35% of our revenues by the end of 2017.

By achieving these metrics and adding a few small bolt-on acquisitions along the way we believe ISG will approach revenues of $300 million, and approach EBITDA of $40 million by the end of 2017. 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. Fourth quarter revenues were $53.2 million, which was an increase of 4% from the prior year on a constant currency basis and flat on a reported basis.

Revenues were $23.2 million in Europe, which was up 18% from the same period in 2013, $25.4 million in the Americas down 6% and $4.6 million in Asia Pacific down 2% with growth rates in constant currency.

Our operating income was $3.3 million for the fourth quarter of 2014, up 12% this compares to operating income of $3 million in the fourth quarter of 2013. Net income for the fourth quarter was $700,000 down from $1 million in the prior year due to higher stock compensation expense.

Reported fully diluted earnings per share were $0.02 per share compared with $0.03 per share for the same period in 2013. Adjusted net income for the fourth quarter was $2.2 million, with adjusted EPS of $0.06 per share on a fully diluted basis up 20% from the prior year.

This compares with adjusted net income of $2.1 million or $0.05 per share on a fully diluted basis in the prior year's fourth quarter. We continue to maintain a strong liquidity position to support the implementation of our business plan.

Strong operating results and cash collections drove our quarter end balance of cash and cash equivalents to $27.7 million, a net increase of $6 million from September 30. Cash provided by operations for the quarter was $9.2 million and capital spending was $468,000 during the quarter.

In 2014, we continue to focus on improving shareholder value through our prudent allocation of capital. We repurchased $5.3 million of ISG stock we repaid $3.4 million debt and we closed two tuck-in acquisitions. And in December we announced our first ever special dividend distributing $5.2 million to shareholders in January of 2015.

Total outstanding debt as of December 31, 2014 was $53.4 million, which compared $54.2 million at September 30, 2014. Our gross debt to adjusted EBITDA leverage ratio was 2.3 times versus a target of 3.5 times and our net debt leverage ratio, which is net of a cash balance, was 1.1 times at December 31, 2014.

Our average borrowing rate for the quarter was 2.7%. Our accounts receivable balance as of December 31 was $41.1 million and our DSOs were 60 days. Let me remind you that ISG is a global company doing business in 21 countries. We report revenues and EBITDA on a constant currency basis to reflect our operating performance.

Like many multi nationals during the fourth quarter we saw foreign currency impacts is virtually every currency in the world devalued versus the U.S. dollar. Just let you knowwe don’t take our third-party transactional risk and the matching of revenues and expenses in non-U.S. dollar currencies creates a natural hedgefor us.

Having said this currency negatively impacted revenues by $2 million in the fourth quarter and could impact our 2015 results. For the year we expect our effective tax rate to be 40% consistent with 2014.

Amortization of intangibles for 2015 is projected at $5 million stock compensation and between $5 million and $5.5 million and capital spending between $2 million and $2.5 million. Mike, will now share concluding remarks before we go to Q&A..

Great, thanks David. In closing, let me just summarize our fourth quarter revenue was up 4% to just over $53 million. We achieved a record fourth quarter EBITDA of $6.3 million adjusted earnings per share of $0.06 that were both up 20%. Europe continued its solid growth trend up 18% in the quarter and 11% for the full-year.

Our recurring revenue streams were up 19% for both the quarter and the full-year and now make up 27% of our total revenues. We had strong cash generation bringing our cash balance at the end of the year to almost $28 million.

And during 2014 we continue to deleverage the balance sheet paying down $3 million in debt, repurchasing $5 million in stock and announcing a special dividend.

Looking ahead ISG remains the leader in our space, and we’re committed to expanding the breadth and the depth of our information, advice and support to help clients digitally transform their enterprises and achieve operational excellence. In 2015, we anticipate a year of solid revenue growth driven especially by our growing pipeline in the Americas.

Overall, our business model is compelling, we are building momentum behind major initiatives and we are also nimble enough to take advantage of any rapidly changing market conditions. We expect our global markets to continue growing with expanded opportunities especially in the area of digital transformation with companies.

Combined with our continued product and service innovations and our relentless focus on execution, we expect to drive strong revenue and profit growth for ISG in 2015 and continue to produce value for our shareholders. Thanks very much for calling in this morning and now let me turn the session over to the operator..

Thank you. [Operator Instructions] And we will take our first question from Vincent Colicchio with Noble Financial..

Good morning guys..

Good morning, Vince..

So Mike your Americas business including from the [indiscernible] feels lot better will it grow the first half and then come into the second half and what is European growth look like versus Americas for the year.

Could you give us some color how to rise out throughout the year?.

Sure, thanks Vince. Yes, the Americas has done a terrific job I think during the back half of this year throughout 2014 developing a solid pipeline. We have our overall revenue guidance that we give our initial guidance which is six to eight overall.

In the Americas in particular during the first half of the year, we do expect based on demand and momentum that they should come in with double-digit top line growth.

And in Europe I don’t think we can sustain a kind of revenue growth that we had in the fourth quarter clearly at 18%, we had a 11% full growth last year in Europe and we are saying that for purposes of our guidance that it would be more inline with what our overall guidance for 2015, but we see Europe continuing to grow, but maybe not at the same robust levels and that’s why we have our overall guidance where we have it..

And in Europe will the key drivers be - will it be outside of the UK where you’ve seen a lot of strength in the recent years?.

Yes, I think our drivers continue to be the UK with our public sector, our German operations or Germany we call it the dark region is continuing to do, it’s continuing to do well and the growth that we’ve had in the Nordics where we put some investment dollars, and during 2014 I think we’ll see continued growth there and I think France which is our other large market will be - we suspect and anticipating it to be relatively flat based on their macro environments in that market at the moment..

So it sounds like we’ll have an up quarter in the 1Q versus the 4Q, is that right and revenue?.

No, I wouldn’t say that would definitely going to have growth coming out of the suites here because demand is quite strong, but I don’t know that kind of plod out by quarters here Vince, but I think from a quarter - from a year-over-year standpoint we are going to have a strong start to the year..

Okay fair enough.

On the recurring revenue side where each of the pieces of that business that each piece grow strongly for the quarter or certain piece it was managed service for example would standup?.

They all grew double-digits..

Okay, and in the managed services side is there been any competitive response to your success there?.

We have seen a few competitive bids, but I don’t think we are seeing much I would not - I’m trying to see how to say this. I think we are well-positioned with our clients and so even though some of them maybe doing a bit of checking to check on a competitive bid there is not very strong offerings on the market that can compete with us at the moment.

So we still feel quite strongly about our managed services growth projections..

And last question for now and I’ll go back in the queue.

What verticals would strongest in the Americas for 2015?.

Yes, I think we are going to see first of all with the whole energy meltdown I think our energy vertical is going to be high, our retail vertical is red hot at the moment, we’ve got a number of large engagements going on as the retailers are looking at how they can continue to kind of manage down their cost.

I think we will see managed services in the U.S. and also in terms of some of our offerings Vince, I think our whole area around cloud, cloud solutions to help our clients understand their clouds spending what they can actually do or they cloud already also will be a contributor to the growth..

Okay, nice job guys. I go back in the queue..

Yes, thanks Vince..

Thank you. We will go next to Peter Heckmann with Avondale Partners..

Good morning gentlemen..

Good morning. Pete..

Question on the guidance relatively straight forward to calculate the FX headwind based upon the disclosures you provided for revenue, but thinking about adjusted EBITDA growth in constant currency with the fourth quarter and the full-year results in terms of the gearing, it look like your currency was about a third of the headwind related to the revenue headwind.

Is that how we should think about it or you’ve get some natural hedges in place, but then you’ve got corporate overhead in the state.

So how do you think about how a top line FX headwind translates into EBITDA headwind?.

I mean that’s a good way of looking at it and sort of a third of the total or on a percentage basis, 6% on the top would be 12% on the bottom, so similar to that..

Okay, and then David you had said on the balance sheet debt levels were down to about 2.3 times growth stat and then you gave a target figure and I’m not….

Yes, that’s our target from a bank compliance perspective is that we have to be under 3.5..

Okay, you are ceiling, got it..

That’s not ceiling, right. Our target is to get to around two times ratio although we feel very comfortable at the current levels..

Yes, okay. And then just lastly with good strong cash flow in the fourth quarter buyback little over $5 million worth of shares last year.

Once we see you achieve that $2.0 million target should we assume that all incremental cash flow will be directed towards either repurchases or tuck-in M&A?.

Yes, that’s correct..

Okay, great. I’ll get back in the queue. Thanks..

Thanks Pete..

[Operator Instructions] We’ll go next to Marco Rodriguez with Stonegate Capital..

Good morning guys, thanks for taking my questions..

Good morning..

Most of my questions have actually been asked, but just kind of a quick follow-up here in regard to the long-term guidance, obviously some of it is associated with maybe some bolt-on acquisitions and maybe if you could provide a little bit more color as far as how much of an impact we might see from the acquisition versus just your normal organic growth if you will?.

Yes0, I think if you look at the kind of revenue guidance there and assume kind of high single-digit over the next three years just kind of rounding a little bit, it probably means that we’d get around the $280 million range organically.

So to get to kind of close to $300 million you are probably talking about $20 million of bolt-on acquisition revenue wise just ballpark, so it’s little bit rounding here or there, but that’s kind of roughly what that guidance would indicate..

Got it.

And I’m assuming that long-term guidance also is net if you will or gets on constant currency?.

Correct, I mean obviously we can’t project currency over a 30-year period, we are talking what we could control, which is the organic growth..

Gotcha.

Okay and then last quick question in terms of any bolt-on acquisitions you might be looking at or thinking about into the future would these being more of kind of adding a little bit to your current services or would you thinking about perhaps adding on a small tangential if you will so obviously you guys currently don’t provide?.

The order here of our priorities number one is research and recurring revenue streams that’s our target at the moment, we are very active in that arena.

And then on the capability side let me answer the back part of your question this way as that we look for capability out there that if we can accelerate our growth in some of the hot areas so that might be either in a vertical like a public sector higher ed or a healthcare area or a capability around cloud or something of that nature that can accelerate our skill sets quicker that would be priority 1A if you will that’s the focus area of any bolt-ons..

Gotcha and last question I will jump back in the queue.

An expectation as far as headcount for your – for the consultants for this fiscal year?.

I mean we don’t really provide headcount growth but we are adding particularly in the managed services level to support growth in that area..

Got it, thanks a lot guys..

Okay, thank you. End of Q&A.

[Operator Instructions] And that concludes our question-and-answer session. I would like to turn the conference back to Mr. Connors for any closing remarks..

Okay, thank you and let me just close by saying thank you to our more than 900 professionals around the world for their continued passion and dedication and helping deliver what we think is another successful year for ISG and thanks all of you on the call for your continued support and confidence in our firm. So have a great weekend.

Thanks very much..

Thank you, everyone that does conclude today’s conference. We thank you for your participation..