Good day everyone and welcome to the Information Services Group Fourth Quarter and 2016 Year End 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 would like to turn the conference over to Mr. Barry Holt.

Please go ahead sir..

Thank you, Operator. Hello, good morning, my name is Barry Holt. I’m a Senior Communications Executive at ISG. I’d like to welcome everyone to ISG’s 2016 fourth quarter 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’s 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 this morning to the SEC in 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, 2015, and any other relevant documents including any amendments or supplements of these documents filed with the SEC.

You will 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 statements to reflect subsequent events or circumstances.

During this call, we will discuss certain non-GAAP financial measures which ISG 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 filed yesterday with the SEC. And now, I'd like to turn the call over to Michael Connors, who'll be followed by David Berger.

Mike?.

Thank you, Barry, and good morning everyone. Today, we will discuss the five areas we focused on in 2016 to position the firm for the future. We'll review our fourth quarter and full year performance and brief you on key operating and client highlights.

We'll update you on the progress we are making with our Alsbridge integration and on our synergy plan and provide our guidance for 2017 revenue and EBITDA. 2016, our 10th anniversary as ISG will be remembered as a year of momentous change, growth and new opportunity for the firm.

We focused on the future and continued to build a high value premium global technology research and advisory firm.

Our five high impact areas of focus were one; combining our firm with Alsbridge which we announced the 1st of December, the combination broad and expanded portfolio of services including automation and network carrier services and an opportunity to have a step change in our financial results this year.

We're ahead of plan in our integration and on plan with our cost synergy targets. Two, expanding our recurring revenue services and positioning for much more, our recurring revenues reached $61 million in 2016 with the fourth quarter up 8%. Our new goal is to reach a $100 million of recurring revenues within the next three years.

Third, becoming the go-to firm for clients participating in a digital enterprise revolution, we continue to expand our digital services adding robotic process automation referred to as RPA in the industry and positioning ISG for a more SaaS subscription services during 2017.

Currently 20% of our revenues come from digital services and this number is expected to decline. Four, pruning our portfolio of non-core marginally profitable services in late 2016, this included closing our China operations and eliminating certain sourcing services that were not meeting not expected to meet our margin threshold.

And five, weather in the UK softness driven we believe by Brexit while retaining much of the team and associated costs; so ISG is well positioned to serve commercial enterprises when the market rebounds. The UK was down 28% over the prior year and was the primary driver for the reduction in our overall EBITDA for 2016.

We do expect a bounce back this year. Given our progress I believe we're well positioned for a step change in financial performance and ready to deliver a breakout year. I recently returned from a meeting with our team in Europe and the U.S. and can tell you our people are as excited about our growth prospects as we are.

They're already capitalizing on the many cross-selling opportunities we now have with our newly expanded product and service portfolio.

Our clients too are showing great interest in our expanded capabilities, judging from our growing pipeline of new business opportunities; in particular, there's strong interest in our digital advisory services especially RPA, the next big thing for our clients.

Clients are embracing our organizational change management services as they adapt to new operating model driven by cloud, automation and digital transformation. We expect the growing demand for our expanded offerings will have a positive impact on our first quarter results.

We ended 2016 after our combination with Alsbridge by investing in training and a global leadership meeting to introduce our leaders to our expanded products and services portfolio under our one ISG brand.

We also turbocharged our digital marketing capabilities by launching a simply stronger ISG brand identity including a new logo, new sales, marketing and communication materials and a new website focused on communicating our expertise around client issues.

Turning to our financial performance for Q4, revenues were 54.3 million, up 1% versus the prior year with overall revenue growth held back primarily due to continued softness in the UK. We had a strong Q4 in the Americas, up 20% which offset essentially flat revenues in Asia-Pacific and an 18% decline in EMEA.

Without the UK, our firm wide revenue growth for the quarter was a strong 8%. As we'll discuss shortly significant growth is projected to return in the first quarter as our pipeline continues to grow and our UK business begins to stabilize. Full year revenues were 216.5 million, up 4% in constant currency, and 8% for the full year excluding the UK.

By region the Americas was up 7%, Asia-Pacific up 9% offsetting a small 2% decline in EMEA. EMEA as discussed the growth was held back by the UK, which was down 28% versus the prior year; excluding the UK EMEA had solid growth of 9% for the full year 2016.

Fourth quarter adjusted EBITDA of 2.9 million was held back due to the softness in the UK along with product and service training costs and other expenses associated with the launch of the New ISG particularly against the strong fourth quarter in the prior year.

Full year adjusted EBITDA of approximately 20 million was down 2.7 million versus the prior year driven by the fourth quarter EBITDA result that was impacted by continued softness in the UK and our decision to streamline and position ISG for a strong 2017.

In terms of cash flow we generated $10 million of cash flow from operations versus $7 million in the prior year, and our year-end cash balance was up 93% to 34.5 million. During 2016, we served over 600 clients, up over 35% from the prior year.

These clients included the top seven global auto manufacturers; 24 of the top 50 global banks, including 11 of the top 50 major banks in the Americas, and 12 of the top 20 banks in EMEA. 10 of the top 15 global insurance companies, 11 of the top 20 global pharma companies, and 15 of the top 30 telecom companies globally.

ISG remains the go-to farm in our areas of expertise including digital services sourcing management and much more. Turning to our regions in the Americas, our growth in the fourth quarter was fueled by strong demand for our digital merger support, RPA and SIAM services.

We saw especially good growth during the quarter in our energy, life sciences, healthcare and public sector verticals. Key client engagements in the quarter included Exelon, Monsanto, the centers for disease control Marriott and Elliott. We are also won a $1 million contract extension with the City of Fort Worth, Texas.

In Europe, revenues were down 18% in the quarter driven by the 46% decline in the UK. We've faced a strong fourth quarter comparison with 2015 and Brexit continued to weigh on decision making in the UK. Excluding the UK, Europe was down 7% with 6% growth in the dock region offsetting small declines in France and the Nordics.

By industry, we saw a good growth in our manufacturing and public sector verticals. Key client engagements in Europe during the quarter included the UK Ministry of Defense, BASF, BMW and AXA, the insurance company.

We believe that Brexit will be a net positive for ISG over the next few years as your clients adapt to the changes such as a relocation of certain financial operations out of the UK and the focus on cost intensifies. The Brexit related economic softness in the UK we believe should began to ease during 2017.

That's why we decide to keep the majority of our UK team in place ready for the rebound in business to come. In Asia, pacific our fourth quarter revenues essentially flat despite growth in the energy and public sector verticals.

Key clients in the regions included the Department of Defense, The Department of Immigration and Border Protection, Qantas Airways and Telstra. In our continuing drive for recurring revenues, we generated nearly $16 million of these more predictable revenue streams in the fourth quarter up 8% year-over-year.

Research especially around emerging technology such as digital and automation was particularly strong. Overall recurring revenues reached 61 million for 2016. As previously mentioned, our new target is to achieve a 100 million in recurring revenues within the next three years.

Now let's turn to our progress on the Alsbridge integration and our synergy plan. I'm pleased to report that the integration is progressing ahead of plan and as we remain on target to deliver synergy cost savings of at least $7 million over 18 months.

We've retired the Alsbridge brand going to market is one ISG and we have fully integrated the organizations. We are working together with our new colleagues to leverage our cross-selling opportunities, especially as we roll-out our new capabilities in automation and network services to our clients this year.

We expect robotic process automation in particular to be a strong growth engine for ISG over the next few years, as demand steadily increases for the automation of business processes and services.

Indeed after we gave a presentation on our RPA at an industry event this week in Orlando, interest was so high that we are averaging more than one new business lead on RPA every hour. Our RPA business starting was essentially zero revenues last year and we expect it to exceed $10 million in the next 18-months.

That means the rapid growth of the RPA market overall, which could exceed $5 billion by 2020, up from a $0.5 billion just a few years ago. Our RPA services have plans to assess which business processes are right for automation.

Select and implement the right software to meet their needs and reconfigure their operations and train their people to take whole advantage of automation. Beyond these immediate advisory revenues, our RPA engagements also generate strong recurring revenues in the form of multiyear software licenses.

Many industries are quickly adopting RPA specially banking which is automating back-office functions and insurance which is automating such things as claims processing with many more industry on the way.

They are using software bots to dramatically improve accuracy and cycle time in business and IT processes, while increasing productivity and allowing work to shift, the higher value priorities. It's no wonder that interest in RPA is so high. The typical ROI on such investments with ISG is well over a 100%.

Clearly, the age of digital labor has arrived and it promises to continue revolutionizing all forms of business in the years ahead. Another digital growth area for ISG is HR technology, as we help clients move their people services for the cloud.

We added strength in this area by forming a partnership with Workday one of a number of alliances we're creating with leading technology providers in the digital space. One such partner [Atheo] recently recognized ISG for its digital thinking by naming us their product and engineering partner of the year for 2016.

We're also having great success expanding our client relationships through global account management and cross-selling. Here is one example, in just a matter of weeks we took a million dollar sourcing and transition engagement with major transportation company and turned it into a multimillion dollar two year contract.

Starting with the additional sourcing and transition work, we expanded the relationship by introducing the client to our organizational change management capabilities and then further deepen the relationship by offering them our operational strategy and design services.

This all happen because we became their trusted business partner and we're able to meet their needs with our expanded portfolio of services. Another growth opportunity for ISG comes with our newly formed ISG provider services business.

We believe there significant revenue to be made helping technology and service providers, understand and address their market opportunities with enterprise clients. Here is a good example, leveraging the capabilities of our ISG events business that we've launched last year.

We held our inaugural executive provider summit this January in Orlando, Florida. This senior level event gave five technology and service provider CEOs and their executive teams unprecedented access to more than 60 of our key ISG market makers.

It was the first million dollar revenue event ever held by ISG and it comes with great margins, and we're just beginning. Now turning to our 2017 guidance, we are off to a good start this year with demand increasing for our expanded portfolio of products and services.

For 2017, we're targeting revenue growth of approximately 25% to 34% or $270 million to $290 million, and adjusted EBITDA growth of approximately 68% to 83% or $33.5 million to $36.5 million over the prior year.

This guidance takes in the consideration a negative impact of currency translation since December when we announced our preliminary guidance. We believe that FX could have negative impact of approximately 3% this year. In general, we're taking an optimistic but measured approach to our 2017 guidance. Knowing for instance the changes in U.S.

government policy could impact the industries we serve, some in a positive way that we believe could add to our opportunities. In addition, it's still unclear how our client industries may be impacted by Brexit and other elections in Europe this year. Our guidance assumes that UK stabilizes in 2017.

Being aware of these another global macroeconomic conditions, we continue to believe the fundamentals of our business and industry overall remains strong and then our markets will continue to provide attractive growth opportunity for ISG.

All-in-all we’re bullish about our growth prospects this year as we continue to innovate and cross-sell our growing portfolio of products and services to a now expanded roaster of more than 700 clients.

Our late fourth quarter actions to position the firm for a financial step change should begin to bear fruit in the first quarter and continue to deliver throughout the year and beyond. So with that, 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 54.3 million compared with 53.9 million in the prior year, which was an increase of 1% in both constant currency and on a reported basis.

Revenues were 29.7 million in the Americas, up 20% from the same period in 2015; 18.3 million in Europe, down 80%; and 6.3 million in Asia-Pacific essentially flat. Fourth quarter 2016 adjusted EBITDA was 2.9 million compared with 6.5 million in last year's fourth quarter.

The decline in adjusted EBITDA was primarily related to the revenue decline in the UK and some additional costs incurred to position ISG for a step change in financial results in 2017. We reported a fourth quarter operating loss of 8.6 million compared with operating income of 2.5 million in the fourth quarter of 2015.

Included in the fourth quarter 2016 operating loss was $6.4 million in acquisition related and severance costs. Stock compensation expenses increased by 500,000 and amortization expenses by 600,000 versus the prior year. The net loss for the fourth quarter was 8.1 million compared with net income of 1.2 million for the fourth quarter of 2015.

The net loss for the quarter was impacted by the previously discussed items. The reported fully diluted loss per share was $0.22 compared with fully diluted earnings per share of $0.03 for the same period in 2015.

Adjusted net loss for the fourth quarter was 1.5 million or $0.04 per share on a diluted basis, compared with adjusted net income of 3.1 million or $0.06 per share on a diluted basis in the prior year's fourth quarter. Utilization for the quarter was approximately 60%, year-end headcount was 1,267.

We continue to maintain a strong liquidity position to support the implementation of our business plan. As Mike indicated, net cash provided by operations for the full year was strong 10.3 million which was 3.5 million favorable to the prior year. We invested $2.4 million in capital expenditures and repurchased 11.6 million in shares.

Total outstanding debt at December 31st was 125.3 million, we will be borrowing at LIBOR plus 3.5%, and we had 42.3 million shares outstanding as of February 24th.

For 2017 planning purposes, we've been looking at planning more depreciation at around 3.2 million, amortization of intangibles at 9.2 million, interest expense at around 6.3 million, stock compensation at around 8.5 million and our expected tax rate of around 40%. Mike will now share concluding remarks before we go to Q&A..

Thank you, David. To summarize, 2016 was a momentous year for ISG with the Alsbridge acquisition setting us up for a step change in financial performance this year. Our integration of Alsbridge is progressing ahead of plan and we remain on target to deliver the synergy cost savings of at least $7 million over 18 months.

Our fourth quarter results were impacted by softness in the UK and some additional costs we decided to incur set us up for a strong Q'17. We're optimistic about our growth prospects this year anticipating significant revenue and adjusted EBITDA growth per our guidance.

Digital services continue to grow representing 20% of ISG revenues in the second half of last year and with automation services promising to accelerate that growth, and our cash balance was up to 34.5 million.

Overall, our foundation is solid, recurring revenues, digital and automation services, a growing list of blue chip clients, and a talented global team of 1,300 professionals on the ground in the middle of the digital revolution.

The strength of this foundation allows us to weather the occasional storm like we had in the UK and still turn in a strong performance elsewhere with revenues up 8% outside the UK. We're well positioned for a major step change in our financial performance this year.

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

Thank you, sir. [Operator Instructions] Our first question comes from Sarkis Sherbetchyan with B. Riley & Co..

First question here was on the elimination of the non-performing services.

Can you maybe speak specifically to what those are and maybe shared some more depth to that statement?.

Yes. So, number one is we close our China operations, so we've eliminated all of our people and we will look at China as an opportunistic when those opportunities arise, so we shut that down. Secondly, there were a number of sourcing services that in the combination with Alsbridge with ISG.

We felt that we can fine tune that combination as the industry leader, and so we've eliminated a number of services and people as it relates to that. Those were the primary areas, Sarkis..

Okay, that sounds fair. And then with respect to the training for the senior business development teams, it sound like there were some cost associated with that in the quarter.

Can you maybe help us understand first what those cost may have been, and if you expect that to recur and also where that would show up on your P&L?.

It's basically on the SG&A lines. Those are about $0.5 million we had about some rebranding cost. We had trading cost. We do continue we continually have a training through the year but there was an extra effort in the fourth quarter to bring our team up to speed on the transformation and R&D integration..

Okay, that's helpful. And then in your comments you did kind of mention you expect the bounce back in the UK this year.

What are you seeing specifically that gives you confidence in that remark and also maybe if you can point to something you are seeing on the ground that will help us kind of frame it?.

Yes. So, look the UK performance last year was poor driven as we said by that we believe the Brexit decision making kind of freezing over there.

We do see it stabilizing and the reason we see it stabilizing is that our digital or transformation services are of keen interest even in the UK at this point in time, which includes our robotics process automation business that we've launched over there post our combination with Alsbridge.

So what we currently see is a stabilization of the UK so we believe we've hit bottom there so that's what gives the confidence primarily around our digital transformation services, Sarkis. We will watch it closely, but that's how we gave our guidance based on a stabilization of that market..

Okay, that's helpful. And just kind of moving on to the fiscal 2017 outlook here, and I realized that it includes obviously the Alsbridge acquisition.

So maybe if you can remind us what you anticipate for the organic growth rate of the business? Are you still thinking high single-digit on a constant currency basis?.

Yes, we will obtain that in 2017..

Okay, and then also just kind of thinking about the cadence and distribution of the revenue and EBITDA.

Is there just kind of significant difference versus what you've historically done in the ISG business?.

It's good question. Well, first of all I mean if you think about seasonality, our first quarter is always kind of the lightest quarter of the year as businesses began to kick it off. The only thing other than that and that's of course has traditionally been the way for ISG.

The only thing that will be different is in our --we discussed in December's in our networks services. The network services business will be a bit lumpy, it's very lucrative in the sense that you recall it is a success fee or gain sharing if you will type model.

Where we go into our clients on the network side, so I think about Telecom, I think about data. We help them to identify transformational cost changes etcetera, and we take a percentage of the first year's savings. That recognition of that revenue occurs once we have a signed new contract.

So, we will incur some expense until the contract is signed between client and the provider like an AT&T or BT, that's the only thing that would be of any difference from what you traditionally seen for ISG..

Our next question comes from Vincent Colicchio with Barrington Research..

So, the people you eliminated from the sourcing side, I assume that was from the traditional sourcing business.

I'm curious how large that business is today and if you expect that they grow going forward?.

We think we really don’t breakout sourcing as a separate line, but obviously in combination, we were the number one player, we believe we have 150% share. Alsbridge was also a strong player. We believe that market will continue to grow.

We did indicate during our transition, when we acquired Alsbridge back at December that there is certain amount of opportunities that there might be a little drop off because it provides potentially another player to come in and some competitor pursuits. With that said, 80% of our revenue is from existing or customer, our clients our referrals.

So it's really a small percent that actually RFP, but there could be small drop off as another player has an opportunity to get in where previously ISG or Alsbridge we think with two players bidding on that engagement..

Good, thanks for that color. And then, can you give us some help in terms of the growth expectation by segment for the year maybe if not precise number sort of magnitude in terms of directional changes..

Are you talking about the segments like recurring revenue and so on?.

No, no, the geographic region?.

The geographic region, well, look, I think that we would expect all of our regions to be up to meet the overall organic growth targets that we set, which is the high single digits.

But as you know this is a project, lot of it is a project based business, so we have to earn at each day, but we would expect and know looking toward double digit growth everywhere in the world during 2017, Vince..

Okay and then in terms of the integration, are there any meaningful changes for how the sales force of each company will be compensated or anything institutionally that will be different for them and has that caused any turbulence in terms of turnover?.

No, we -- good question Vince. No, our compensation plans have all been integrated as part of the ISG of one family, one go to market approach. So, no issues there, we were very, very similar in our approach and frankly in some of our organization.

We put the organizations together immediately after the announcement that we were going to market together. So I think all of that it has run extremely smoothly. As I said we're well ahead of our integration plan that we laid out for ourselves. Everyone is going to market. We trained everyone now on the product and services.

We're going to market and selling -- beginning to cross-sell our robotics, cross-sell our network, cross-sell our organization change management, so about 100 days into this, I would say we are well ahead of where we thought we would be and making good progress and that should service well as we proceed through 2017..

We will take our next question from Peter Heckmann with Avondale Partners..

Good morning. It's a Shane Svenpladsen in for Pete. Looking at our current guidance versus the guidance you gave in December.

Is there anything besides currency worth calling out there?.

No, Shane, good question. It's roughly, if you think about it, if we estimated about $10 million or roughly 3% would be the impact during 2017. So when you look at our guidance it's tweaked around essentially the currency and where we close out in 2017. So, I think you will see that the bands are approximately where they were pre kind of currency..

Okay, that makes sense.

And then I think you mentioned this but I missed, what were the recurring revenues in the quarter?.

60 million, up about 8%..

And then just one last one before I get in the queue.

How would you characterize the customer reaction to the deals since you've made it?.

We think the reaction has been terrific. They love the fact that we've an expanded set of services. The biggest thing we have is a trusted relationship with our client base both ISG and our legacy Alsbridge colleagues had built up a nice reputation as well.

And what they see is it we're doing well in one area and they trust us, they see great ROI, they're more than happy to listen and explore other opportunities at their firm based on the relationship they have. And the best example I can give you is around the robotics process automation component.

We have our existing legacy ISG clients clamoring for us to comment and pitch that particular service for them.

This is a very hot area and will be in the U.S., and we think in Europe we will beginning to see -- beginning to see some signs down in Australia; but over the next two or three years, you'll see some quite explosive growth in this area and we plan to be a major participant there. So, all in all, the clients have great respect for both firms.

They see two quality firms coming together with a broader set of services and it's been well received..

Our next question comes from Allen Klee with Sidoti & Company..

Can you remind me what percent of total sales UK represents?.

Well, the UK is around in the 14 million range, for the quarter -- for the year..

Down from….

So, the quarter that was down over $3 million, quarter-by-quarter, about 3 million in the quarter..

Just in terms of I mean what you're hearing from the customers.

Is it -- what is the feedback you're hearing for why they're not really doing as much as they had been?.

Allen, it's all around uncertainty. They're clearly not sure from their enterprise what is going to be the result of Brexit and their impact on their business.

And a lot of the work that we do is around transformation and transformational change, and until that gets kind of cleared a little bit, they're more reluctant to spend money on discretionary change until they've a better feel as to its impact.

One of the reasons we think that it'll stabilize a bit, our robotics process automation is kind of an immediate type of event that a client can institute and it does not take six, 12 or 18 months to see an immediate impact for their business.

This is something we can go and over the course of the couple of months make a dramatic change with the client. So, it's all around the uncertainty and that's what has been driving the reduced demand in the UK market..

And then David I missed some of the things you mentioned of the more specific things that you were giving guidance on for '17.

Could you just repeat them please?.

Yes, and just to clarify that UK number I gave was like the UK and Ireland combined. So, I gave you depreciation of 3.2 million, amortization of 9.2 million, interest expense of 6.3 million, stock compensation of 8.5 million and effective tax rate of 40%..

[Operator Instructions] We'll take our next question from Ben Klieve with Noble Financial Capital Markets..

I just have a couple of questions left. Most of all have already been covered.

But question specific to your RPA technology, I'm wondering what legacy ISG clientele, how they have responded to the technology? And if you can comment on any traction that you've gotten in cross selling this what's your legacy customers just in these first couple of months?.

So, Ben thanks for the question. This is one of the most hot areas that our client base is asking us about, and I would say in most major industries that have a lot of process, so whether that's banking, insurance or healthcare et cetera.

Quite an interest level and this RPA piece of business and what we do there as we go into our client help them understand what tax might be automated, we then typically do a proof-of-concept with our clients to show them how back if you will a piece of software the robotics can actually transpose their business.

I think I may have given this example before, but in insurance company where you have a claims group of 40 people handling claims in a certain area whether it's [yak] sales as an example and the tax can be or fairly routine, you can go out and take that kind of a group and reduce 40%, 50%, 60%, 70% of the cost by automating it because instead of having 40 people doing it 8 hours a day, you can have a robot basically do the work 24 hours, 7-days a week, no vacations, no holidays, no sick time.

And it's quite a, if you will, it's quite as a productivity tool for them. So, the interest level is broad. I mentioned that we just completed an industry event down in Orlando.

It's called the shared service network down there, a large cloud, and the interest level when we're pitching our RPA business and we're doing it with an existing client of ours, was very well received and is generating a lot additional leads for us. So, this is an area we will keep a close eye on. We think it's hot.

We think it'd to be one of our growth engines for the next few years..

Okay, thank you.

And with regards to the growth, I believe you commented that just growing up from basically a zero revenue contributor in 2014 and 2015 up to $10 million within 18-months, and I'm wondering when you said that did you mean to imply that you think there is could be a $10 million revenue contribution like over the next six quarters or is that $10 million on an annualized basis?.

No, that would be a $10 million contribution over 18-months..

Our next question comes from Marco Rodriguez with Stonegate Capital Markets..

Couple of quick just housekeeping items here on the charges in the quarter.

Can you just kind of help me understand where they all SG&A related or was there a mix between SG&A and direct cost?.

Total booked on the SG&A line. So, they were acquisition related and some severance cost some integration cost..

And then, not to kind of beat a dead horse here, but just kind of looking at Europe and the UK, I understand a lot of the commentary you mentioned here kind of sound it like RPA is kind of helping a little of that confidence to stabilize environment in the UK.

Can you maybe perhaps give us a little bit better of a sense, is this confidence is RPA initiative? Are you seeing actual request for proposals or you are putting out actual bids or is it just kind of an alleviative level of conversation?.

It's a combination of on the job engagements that we currently have signed during this first quarter on RPA as well as the demand in terms of leads, and if you will see presentations that we are giving that's why we have the level of confidence, and why we think RPA will be have helped out for the UK to help stabilize that particular market..

And are you expecting organic growth in UK in fiscal 2017?.

Yes..

I'm assuming that would be probably a lower single digit versus everywhere else where it's upper single?.

That's, yes. I think that's true and I think the difference could be as if RPA takes off at a faster rate that could increase, Marco. Marco, but I can't, but just for clarity, the way we set our guidance was we said it with the UK being stabilized, so close to flat.

But we are planning to have some growth there if you will, but in terms of our guidance, we've expected it to be post to flat, coat stabilized..

Got it, okay it's helpful. And just kind based on the guidance here as well, just want to kind to confirm. So the guidance you just put is inclusive of FX headwinds, which I think you call that at about 3%. In the past, I believe you've always given guidance on a constant currency basis.

So, are we going to be kind switching the guidance in the way you kind talk about things will be inclusive of the FX or potential FX headwinds?.

The reason we did it here is because of the changes that have occurred which are, we thought were material. I guess 3% is roughly $10 million. We prefer doing it the other way because we don’t like to guesstimate, but the reality is since December we now see that there is going to be impact in Q1 and Q2 as a result of where the currencies have moved.

So, we thought we should call it out. I don’t know if we will always do it, but in this particular case, we felt that to be transparent on what we see and what has changed, we would call it out for you Marco..

Got it.

And last quick question just on the debt level you currently have here on the balance sheet, may be if you can talk a little bit about your comfort level on the rations and what your plans may or may not be for that going for in the couple of years?.

Yes. So, we have a 125.3 million that’s comprised of $118 million of bank debt. We have a $7 seller note that was due 18 months after the deal, and just full amount that $200,00 little bit less will be with encompass, we plan to pay $5.5 million worth of debt amortization during 2017. We're going to continue to deliver.

We feel comfortable at the current position. But obviously we took on extra debt to support the acquisition, and we look to drive that down through the payment, but also more than playing through the increased EBITDA that will happen 2017 versus where we are today..

[Operator Instructions] And we have a question from Allen Klee with Sidoti & Company..

Just quick follow up. I think last year you talked about how you hedged the euro.

Did you have any plans about doing any hedging of currency this year?.

No, we decided not to do that and last year turned out to be a breakeven, almost a breakeven transaction, but this year we do not do that. The currency will fall again. Our FX exposure is translation. We bill in local currency. We pay our staff in local currency. So, what we're looking at is translation exposure here. So, we decided not to do it in 2017..

And that does conclude the question and answer session. I would like to turn the conference back over to speakers for any additional or closing remarks..

Well, thank you and let me close just by saying, thank you to all of our professionals around the world for their continued individual and collective contributions and writing the chapters in our growth story over the last ten years.

And for the significant stride they will take on behalf of the firm on the road ahead, especially the step change we expect in 2017. And thanks to all of you on the call for your continued support and confidence of our firm. So, with that, everyone have a great day..

And that concludes today’s presentation. Thank you for your participation. And you may now disconnect..