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

Peter Heckmann - Avondale Partners, LLC Vincent Colicchio - Barrington Research.

Good day and welcome to the Information Services Group First Quarter 2015 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 2015 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 which 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, 2014 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 to everyone. Today David and I will review our first quarter results. We will update you on some operating highlights, discuss our capital allocation, update you on our amended credit agreement and reaffirm full year guidance.

Before I review our results in more detail, I want to welcome to our call two research analysts who recently initiated coverage of ISG. Sarkis Sherbetchyan of B Riley and Brian Kinstlinger of the Maxim Group. Thank you both for joining us today. Now let's take a look at the first quarter.

It was a great quarter, reflecting our solid business results and the progress we are making and executing our strategy. First quarter revenues grew 13% on constant currency basis, with growth in all regions led by double digit growth in the Americas and Asia Pacific and solid 7% growth in Europe.

Adjusted EBITDA was up 55% in constant currency reflecting the scalability of our business and the tremendous work by our team around the globe. And adjusted earning per share up 67%. Our reported numbers as expected were negatively impacted by currency translation. And David will provide you some more details about that in a few moments.

First quarter revenues in the Americas were up 14% and up 9% sequentially from the fourth quarter of 2014. Key client engagements in the US during the quarter included Fossil, Marriot, Symantec, Hydro One and the states of West Virginia and Arizona. We saw good growth during the quarter in our technology and retail verticals.

Our energy, life sciences and healthcare verticals and in our public sector business. We recently extended our engagement through June of 2016 with the Louisiana Road Home program which disperses federal funds to Louisiana residents displaced by Hurricane Katrina and Rita.

And we signed a new contract with the City of Jacksonville, Florida, providing IT advisory services. For the quarter revenues in Europe were up 7%. The continued growth in Europe was driven by our strong performance in Germany, the UK and Italy.

During the quarter, we saw growth in our banking, financial services and insurance verticals, our technology vertical and our public sector business. In Europe, key client engagements during the quarter included post bank systems, Imperial Tobacco Group, E.ON and BMW. Our business with the UK public sector continues to expand.

During the quarter we extended our multiyear, multimillion dollar agreement with a large UK government agency.

In addition, we are targeting growth opportunities in the UK health, UK policing and local government sector where a combination of strategic IT advice and data driven analysis is delivering value for money and driving additional savings for our UK public sector clients.

In Asia Pacific, our revenues were up 34% for the quarter, driven by growth in financial services, transportation and our public sector vertical. Key clients in a region included Quantis, Origin Energy, Transport of New South Wales, Zurich and the Australian Taxation Office. The Department of Immigration and Border Protection.

And the Department of Defense. We continue to provide ongoing support and advice for IT and business process transformation for all of these clients. Our global recurring revenue streams which include research managed services and our US public sector was up 11% in the quarter.

As discussed last quarter, 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 the investments we are making in the future of our firm.

During the first quarter we hired a cloud technology executive to lead our new dedicated cloud solutions practice, an area in which we expect significant growth as cloud adoption continues to rise. We also announced that we formed a strategic partnership with NPI, an expert in enterprise software licensing agreements.

NPI's contractual experience along with ISG's data will be a powerful combination to help clients understand the true cost of moving to the cloud. During the quarter, we continue to execute on our balanced capital allocation framework as well. We reduced debt by almost a $1 million. We purchased a $1 million of ISG's shares.

And we paid our first ever dividend a special payout of $5.2 million to our share owners. These actions demonstrate our ongoing commitment to delivering shareholder value. As further evidenced of that commitment, yesterday we announced that we amended our credit agreement. Extending its maturity and improved terms.

David will provide additional details in a moment but it is important to note that we were able to refinance because of our improved financial results. This is an excellent result for ISG that will help us achieve our strategic objectives. So overall we are off to a great start in 2015.

And remain confident in our strategy and in our relentless drive to execute with excellence. We remain on track to hit our guidance for constant currency growth rates for revenues and EBITDA for the full year. 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. As Mike indicated the year is off to a great start. We had solid execution around the world with steady revenue growth and margin expansion in the quarter and we are delivering on our capital allocation strategy.

First quarter revenues were $50.5 million which is an increase of 13% from the prior year on a constant currency basis. Revenues were $27.6 million in the Americas, up 14% from the same period in 2014. $18.1 million in Europe, up 7%, and $4.8 million in Asia Pacific, up 34%, with growth rates in constant currency.

Our first quarter adjusted EBITDA, $4.6 million compared with $3.4 million in the first quarter of 2014, which was an increase of $1.2 million. Excluding the impact of currency translations, adjusted EBITDA was up 55%. Utilization for the quarter was a strong 72%.

Headcount of 933 was up 31 physicians from yearend with most of the increase to support growth in managed services. Global headcount was 695. I want to remind you that we report revenues and EBITDA on a constant currency basis to reflect our operating performance.

We don't take on transactional risks in the matching of revenues and expenses in non-US dollar currency, create natural heads for us. Nonetheless we are impacted by translation gains and losses for reporting purposes. And like many multinationals we saw a significant foreign currency impact on revenues in EBITDA during the quarter.

Currency translation negatively impacted reported revenues by $3.7 million or 8% during the quarter. And EBITDA by $500,000 or 15%. Currency is anticipated to have more than a 10% negative impact on Q2 reported revenues with a corresponding impact to EBITDA of about a $1 million.

Our operating income for the first quarter was $2 million which compares with income of $1 million -- operating income of $1 million in the first quarter of 2014. Net income for the first quarter was $907,000, up from $88,000 in the first quarter of 2014.

Reported fully dilutive earnings per share were $0.02 per share compared with $0.0 per share for the same period in 2014. Adjusted net income for the first quarter was $2 million, up 58% or $0.05 per share on a diluted basis, compared with adjusted net income of $1.2 million, or $0.03 per share on diluted basis in the prior year's first quarter.

We continue to maintain the strong liquidity position to support the implementation of our business plan. With seasonal decline in cash provided by operations was $2.2 million versus the decline of $6.8 million in the prior year and we had $290,000 in capital spending during the quarter.

During the first quarter of 2015, we repaid $844,000 of debt and repurchased $1 million of stock. Total outstanding debt in March 31, 2015 was $52.5 million which compared with $53.4 million at December 31, 2014. Our gross debt to adjusted EBITDA leverage ratio was 2.2x and our net debt leverage ratio was 1.5x at March 31, 2014.

Our average borrowing rate for the quarter was 2.7% and we paid our first ever special dividend during the quarter amounted to $5.2 million. We were pleased to announce that we amended our five year senior secured credit facility with Bank of America in the lead with the following revisions. We extended the term by two years to May 2020.

We reduced the annual principal amortization from 10% to 5% with the remaining 2015 principal payments totaling $1.7 million or $563,000 quarterly and 2016 principal payments totaling $2.25 million. We lowered the LIBOR spread on the pricing grid.

We eliminated restricted payments from the calculation of the fixed covered ratio if our leverage ratio is equal to or about to 2.25x and we are able to prepaid the outstanding subordinated convertible notes associated with the Compus [ph] acquisition. This leads well position to help meet our growth needs over the next few years.

Our accounts receivable balance as of March 31 was $42.6 million and our DSOs were 65 days. Mike will now share concluding remarks before we go to Q&A..

Thank you, David. And in closing let me summarize. I think we are off to a strong start and our positive momentum gives us confidence that we are on track to hit our constant currency growth target for revenues and EBITDA for the full year. Our first quarter revenues were $51 million, up 13%. Adjusted EBITDA, up 55%, adjusted EPS, up 67%.

The Americas and Asia Pacific posted double digit revenue growth. Europe continued its solid growth, up 7%. Recurring revenue streams, up 11%. And we continue to de-leverage the balance sheet paying a $1 million off in debt, we purchased a $1 million in stock and we paid $5.2 million special dividend.

And with our new credit agreement at favorable terms, it pushes up the maturity of our debt to May, 2020 and provides the flexibility to help us achieve our strategic growth plan.

We are focused on creating shareholder value and will continue to use our cash flow to repay debt, repurchase shares, reinvest in the business including making strategic tuck-in acquisitions. Our 900 plus professionals are focused on a single mission, delivering operational excellence to our clients.

The fact that we served 38 of the Top 100 firms in the world clearly shows that our services remain in high demand. With our strong start to the year, I am optimistic about our 2015 prospects. And our ability to make progress on our long-term growth strategy. Thanks very much for calling in this morning.

And now let me turn the session over to the operator for questions. .

[Operator Instructions] We will go first to Peter Heckmann with Avondale Partners..

Hi, good morning, guys. Nice results. How do you -- I was just looking at March end and the first quarter, fairly strong for a period that has somewhat seasonally weak.

What do you attribute the stronger margins to -- I mean I would assume it is a little bit of number of things, utilization looks pretty good, increase in managed services, is there anything else to call out there? And do you see that type of kind of year-over-year margin gains continuing?.

Yes, Pete, thanks. Yes, utilization was strong at 72% so that provides better margin because you have less leakage but managed service is all over our recurring revenues stream which is a better margin mix which is why we have been focusing on it over the last couple of years.

And the Americas quite frankly, the Americas with its strong revenue showing for the quarter, margins are always quite good in US business in particular and I think when you roll all three together and you look at the growth that we are also getting a little bit out of Asia Pacific and continued kind of strong growth on revenue top line in Europe.

We are able to leverage as we talk about before when those revenues can come in, we have a lot better opportunity to kind of lever that on our bottom line. So that's kind of where we see it.

We've always said that if we on overall an average if you will, that for every dollar of revenue, for every percent increase we can get on the top line we think we can get at least 1.5% on the bottom line using the leverage that we've established in the company. So Pete those would be the -- I think the key aspects. .

Okay, that's helpful. And then a little bit of bigger uptick in non billable sequentially, is that related to some contract that you have already talked about or you took potentially building up some capacity for some things to come. .

Yes. That was basically to address the current growth in revenue during the quarter of 11%. .

Okay and just last question. I'll get back in the queue. Anything to -- and apologize if you have already answered it in the prepared remarks, but anything to call out in the energy sector.

Certainly the pressures being put on the energy sector by low oil price that it would encourage firms to do some transformative outsourcing to seek the lower cost but are they still on the fear mode or is this kind of freezing decision making or could you just give an update for that vertical?.

Yes. No, so for energy now I would say this is globally, so not only US but US, Europe, Australia.

The whole sector is looking for ways to clean up their cost areas and allowing some transformational change to help drive some results while the oil pricing was depressed even though it is kind of had a little bit won back a bit, but I would tell you if we have seen a lot of pressure from the energy companies on the service provider themselves, where they have -- we know a few big very large energy companies that we are working with them on some other things, where they have gone to the service provide, where they already have established contracts and asking for discounts of 10%-15% of what they are currently doing, take it or leave it.

So they are taking a lot of actions, Pete, right now relative to what's happening in the kind of a whole oil and gas arena. So we are seeing a lot of that. But one other area I would point out in addition to energy that we are seeing a lot of increased demand activities in the retail segment.

As the retailers continue to struggle especially high end retailers, we are doing a lot of work with the retail segment now demand is significantly up again looking to transform their cost structure as the luxury brands continue to get pinched.

And if you look at the lower end with the competition is enormous, those two ends if you will the luxury and the lower end, are both under extreme pressure and that also is driving some new demand for us in the US and elsewhere. .

[Operator Instructions] We will go next to Vincent Colicchio with Barrington Research. .

Hello, Mike. Nice quarter.

Yes, can you hear me?.

Yes, I can hear. Thank you, Vince. .

Yes, you're welcome.

So if you want to talk about how the revenue will fall in place for the balance of the year in terms of seasonality and so forth?.

Yes. I mean I think we will see -- first of all coming off we have very, very strong first quarter demand in the US when you look at back was significantly higher than I think we have been anticipated. But we see -- we are going to stick with our full year constant currency revenue at 6% to 8%. We think all regions will contribute to that growth.

We will continue to monitor the levels of demand and take a look at this again when we are regroup in August. But we are quite confident that we are able to achieve what we set out to achieve which is constant currency growth of 6% to 8%. So we see those revenue trends continuing throughout the full year to achieve that. .

This NPI relationship you mentioned. It sounds like fairly important relationship.

Have you worked for them in the past and do you have a strong pipeline in this business?.

Yes, good question. We have done some work with NPI which is really a very specialized spend management firm. One other things we mentioned on the last call as we expect over the next 24 months to have roughly a $100 billion of infrastructure contracts come up for bid.

And as a result of that we think that a chunk of that $100 billion will move to the cloud and the new sets of negotiations during the next 24 months.

We think combination of the work licensing agreement et cetera kind of work that NPI does plus all of our cost stuff, we think we can help our clients kind of work their way through, what decisions they need and what they can move to the cloud at what price points going forward.

So with this kind of emerging contractual things coming on the horizon as we speak, that's why we are putting a big focus on our cloud practice while we brought in a new executive from the outside there. Why we are partnering with NPI and I think you will see some other things from us over the course of the next several months.

It is a whole area to really attack the next 24 months with this infrastructure contracts coming up..

And could you give us an update on the engineering services sourcing side where that stands?.

Yes. I mean nothing new to report here. We are still on the emerging, developing stage, Sampath Kumar, our Head of Engineering Services which we brought from the outside. We brought on about half a dozen other engineering services experts, we are inside two clients right now, so we are doing real work getting IP developed along side our clients.

So nothing more to report, still early stage, not ready to declare victory yet there but it will take the course of this year I think to see what kind of market we can make. We are making a market here because there is no one and sometimes those things take some time to do.

So we will see how that unfolds over the next few quarters and I will report back later in the year. .

[Operator Instructions].

Okay. Well, look I think let me just close. Thank you for those questions. Let me just close so by saying thank you to our more than 900 professionals around the world for your passion and tremendous dedication to our clients.

Their ability to help our clients achieve operational excellence is the reason for our strong performance coming out of the gates in 2015. And let me also thank all of you on the call for your continued support and confidence in our firm. Have a great day and thanks for calling in. .

Ladies and gentlemen, that does conclude today's conference. We appreciate your participation..