Good day and welcome to the Information Services Group Fourth Quarter and 2015 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 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 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, 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, 2015 and any other relevant documents, including any amendments or supplements for these documents filed with the SEC. You’ll be able to obtain free copies of any of ISG’s SEC filings on either ISG’s website at www.isg-one.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 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, brief you on some operating highlights, update you on our most recent bolt-on acquisition, discuss our shareholder initiatives that we announced last night and review our revenue and EBITDA guidance for 2016. So we have a lot to discuss this morning. I would like to start off by reminding everyone that in 2016, ISG will be celebrating its 10th anniversary. This is a notable milestone for our firm. We are proud of what we have accomplished over our first 10 years in business and excited about what the future has in store. Since our inception in 2006, we have expanded from a concept to a firm that is a leader in our space. We have grown through acquisitions, seven of them, counting yesterday's announcement and through innovation, and we have succeeded by holding fast to our mission, achieving operational excellence for our clients. As we start 2016, I can confidently say, that as a management team, we have never began a year with such optimism about the future. I recently returned from meetings with our teams throughout Europe and Australia, and can tell you our people are as excited about our growth prospects as we are. Our clients are also excited about the new products and services we are bringing to market, as we continue to free up resources to invest and expanding our capabilities, especially in the digital space. We are also seeing significant changes in enterprises leading to the need for increased capabilities around change management. We finished 2015 with record fourth quarter revenues, that were up 9%, which put our growth rate for the full-year at 8%, at the top of the guidance we provided at the…

Thanks Mike, and good morning, everyone. ISG reported record fourth quarter revenues of $53.9 million, an increase of 9% in constant currency and up 1% on a reported basis for $53.2 million in the fourth quarter of 2014. Currency negatively impacted reported revenues by $3.9 million versus the prior year. Revenues were $24.8 million in the Americas, down 2% from the prior year; $23 million in Europe, up 10%; and $6.1 million in Asia-Pacific, up 55%, with growth rates in constant currency. Record fourth quarter 2015 adjusted EBITDA of $6.5 million was up 23% in constant currency. Currency negatively impacted reported adjusted EBITDA by $1.2 million versus the prior-year. ISG’s reported operating income of $2.5 million for the fourth quarter of 2015, this compares with operating income of $3.3 million in the fourth quarter of last year. Included in the fourth quarter of 2015 operating income was an $800,000 reversal of a tax indemnity receivable associated with the Compass acquisition. This was offset by an $800,000 reduction in the tax provision. Net income for the fourth quarter was $1.2 million compared with $700,000 in the fourth quarter of 2014. Reported fully diluted earnings per share were $0.03 per share compared with $0.02 per share in 2014. Adjusted net income for the fourth quarter was $3.1 million or $0.08 per share on a diluted basis, compared with adjusted net income of $2.2 million or $0.06 per share on a diluted basis in the prior year’s fourth quarter. We reported full-year 2015 revenues of $209.2 million, an increase of 8% on a constant currency basis and flat on a reported basis from the prior-year total of $209.6 million. Currency negatively impacted reported revenues by $16.2 million or 8% versus last year. Revenues were $108.9 million in the Americas, up 4% from 2014;…

Okay, David. Thanks very much. This was our best fourth quarter in the history of our firm. As we enter 2016, we have good momentum and we remain focused on key initiatives that would drive our growth over the next few years, especially in the digital services area. So to sum up, we grew revenues by 8%, that was at the top of our guidance we provided last March. EBITDA was up 11%. Recurring revenue streams now 28% of our total as we move toward our next target of 35%. We continue to invest in digital services and our recurring revenue streams with demand for these new and expanded services are fueling in 11% increase this past year in our client base. We acquired Saugatuck Technology expanding our research and analyst capabilities, and we just announced the acquisition of Experton. We continue to return capital to our shareholders, $8.6 million last year with the dividend and a share buyback. Today we commenced the modified Dutch auction tender offer to purchase up to $12 million in value of our common stock at a price ranging from $3.30 to $4 per share, and we've announced our guidance for 2016 at continuation of our strong growth momentum. We remain confident on our growth prospects over the next three years even as we remain cognizant of the global macro and political environment. Thanks very much for calling in this morning and now let me turn the session over to the operator for your questions.

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

Yes. Good morning, guys. Terrific quarter

Thanks. Good morning, Vince.

Good morning. So it sounds like Americas is going to quite strong relatively speaking for 2016, followed with good growth in the other two regions as well. Could you give us some more color in terms of Europe and APAC, what the growth drivers will be?

Yes. Thanks Vince. So yes, let's start with Europe. One of the things we are seeing with a lot of the large multinationals in Europe is everyone is struggling on the top line, and almost - this is almost universal across all the key industry verticals. So what we bring to the table is how we can help them pull costs out of kind of running their day-to-day business and taking some of that costs and moving it into growth initiatives. It used to be everyone would take the cost savings, drop it to the bottom line, increase their earnings per share. Now they are taking a chunk of those savings and shifting it and they are building up new growth initiatives for the top line. So that is in the essence the core of the workload. And how we are going about that is using a lot of the new technologies that are out in the marketplace today everywhere from cloud to automation to robotics to help them become more operational excellence, take that cost out of the run side of the business. That's everywhere from the financial services sector, so that's banking, insurance, a lot of the large auto companies, some of the chemical companies that are going through the issues with the oil dropping and the commodity pricing accordingly. So the energy and the chemical companies both are, if you will, hemorrhaging a bit on their cost structure, so they are looking to take cost out quickly. So all of those are contributing to both, I would say, Europe and over in the Asia-Pacific region. In the U.S., I think I mentioned that our clients overall for the year were up 11%, driven primarily by a series of new clients in the Americas. Normally what happens is we go in. We are doing a series of assessments. We create business cases for them here in the U.S. and then that has the follow-on work that comes. So in the Americas, we expect to see sequential growth in Q1 from Q4, and then because we have such a very strong, I would say, first quarter a year ago, you should see the year-over-year growth in the Americas beginning in Q2 as these clients begin to build out their services that we can provide to them. So that would be the landscape I think Vince.

And you just mentioned the Americas, how that lays out in terms of the model. How about Europe and APAC? Will we see - what will the first quarter look like versus sequential basis, and then how will those two ramp as the year progresses?

So on the year-over-year basis in Europe and Asia-Pacific, again they will be right in our range. We expect kind of the continued steady performance out of both of them. Keep in mind, over in Europe in particular Q4 to Q1, Q1 is usually the lightest revenue growth. So from a sequential standpoint, you typically do not see that over there year-over-year, you should see it.

Within recurring revenue were there any areas of the three areas that grew more rapidly than others? And I'm curious if managed services came in with your expectation?

Yes. So managed services continues to grow, but I would also say in the recurring revenue as a research has really taken off for us, is resonating because of a lot of the emerging technologies. Both enterprises and service providers want to understand what is happening, what are we forecasting, what are the changes, what does that mean for the clients from the service provider side and then from the client standpoint. They look at it to say, how can I take advantage of these imaginings technologies? So those two in particular are - we expect to see them driving our growth during 2016 as well.

Okay. Again nice quarter. I'll go back in the queue. Thanks guys.

Okay. Thank you, Vince.

We will take our next question from Brian Kinstlinger with Maxim Group.

Hi. Good morning, guys.

Hi. Good morning, Brian.

So I'm curious you’ve highlighted the tougher macro environment. How is that impacting demand in both advisory and research? Obviously research is recurring advisory, can be some sort term project, so maybe take us through how we should think about those comments?

So all I was really commenting there Brian was we're working through, what is I think a challenging macro environment, especially what we see in Europe and so on. But having said that, I think the product and service offerings that we have are perfect for that kind of an environment. You saw that with our revenue growth at 8% for the year. You saw that with good revenue growth that you saw out of the Asia-Pacific. And aside from France, which is a difficult operating environment and something that I indicated last year, I don't see changing a whole lot over the near-term. So we look at that market as relatively flat, although we did see - we are seeing a little bit of growth as we enter this year. But I look at that market as a relatively flat, but all of our other markets, the Nordics, Germany, U.K. in particular should all be growing at good strong rates, certainly within the range we've guided, if not higher.

Great. And then just to understand your 28% of revenue is recurring. Is that a fourth quarter metric or is that a year-end metric?

That's a year-end metric.

So where were you in the fourth quarter just so we can get a sense for how it progressed through the year?

It was 27% in the fourth quarter.

Great. And then, can you comment on what Saugatuck added to those research revenues in the quarter?

Not a lot. I mean, keep in mind that closed at the end of August. I think we said that we expect this year to have $2 million-plus out of Saugatuck, so…

2016.

In 2016. So we had about four months there, so nothing material there, Brian.

Great. And then what about the acquisition - the small acquisition that you just completed today? What is the - I’m just trying to get an inorganic for 2016, what's the contribution from there. Is it smaller than Saugatuck, is it...

We expected it to contribute about $2 million of revenue this year.

Great. And then based on today's exchange rate, we’re almost going into quarter, would you expect to hedge within 1Q to be greater than fourth quarter, about the same, if nothing changes from where we sat today as we speak?

We see about 3% impact of FX going forward if rates remained around today.

And what about if they remain today for the year? Is that about the same thing, is it still - is that about 3% accurate or is it…

Yes, we think about 3% for the year. It's going to vary slightly by quarter, but for the year about 3%.

Great. And then last question, in the first quarter based on your comments and Europe seasonality and the currency headwinds, should we expect first quarter to be down 5%-ish in the first quarter, or is that a reasonable assumption compared to the fourth quarter?

No, we see constant currency growth quarter-to-quarter with the reported being backed off by around 3% for the currency. So we expect the revenues in reported to be up versus the prior-year.

Yes, year-over-year. So that means sequentially we have a modest downtick. Is that right?

It’s fairly flat.

Okay. That's helpful for us to get it right. Thank you so much.

Thanks Brian.

We'll take our next question from Allen Klee with Sidoti.

Yes, hi. Just on the Dutch tender, can you help me understand the timing and mechanics of it?

Yes. So the tender began today. There is a 21-day period where the tender is open, where shareholders can make their election to participate or not. Then the tender closes on April 7. So an offer to purchase was filed this morning with the SEC, which provides further details on the offer.

Thank you.

Thanks Allen.

We'll take our next question from Sarkis Sherbetchyan with B. Riley & Co.

Hey. Good morning, guys.

Good morning.

So first on the Experton Group acquisition. I know you mentioned, Mike, that you expect $2 million in revenue contribution this year. What's the EBITDA profile of the business and how much did you pay for this business?

I'll let David cover the financials here in a second, but we expect - we don't break down all the EBITDA of all the businesses but as we move into 2017, because this will be a transition year as we load up that business with some additional products and services out of our other research offerings, we expect 2017 going forward that their EBITDA margins will be higher than our firm average as it is for all of our recurring revenue stream. So that contribution will be greater than whatever the average term margins are.

And in terms of the purchase, you'll see it in the 10-K that was filed this morning. Net of cash, the initial payment is around €400 and we have an additional €1.6 million to be paid over the next three years.

Okay, understood.

Similar earn-out structure to our prior deals where there is revenue targets and if those targets are hit, there will be an earn-out paid over three years.

So as you can see the multiple is quite low. We think it's a win-win for them and for us because they get part of a broader ISG research umbrella, and importantly, that market is our second largest market next to the United States. And this will accelerate our offering of all of our research services over in that market not only what Experton has but allows to take our Saugatuck and our other ISG products and services in there. So we are going to spend the next few months putting all of it back together and we expect that to be a contributor to our business really ‘17 forward and benefit from the EBITDA margins we get from recurring revenues starting next year. So that's a great transaction, as was Saugatuck.

That's very helpful. And then I think in the prepared remarks, you mentioned that the managed services in recurring revenues bucket for the quarter was $15 million. Is that correct?

Yes.

And I'm not sure if you already have kind of deeper visibility but maybe if you can provide us with some color on the margin progression for that slice of the business, just kind of a flavor of how the margins are ramping as you keep adding recurring revenues?

Well, I think the way we describe this because we don't break it out on our margins but here is I would say it how you should look at it. The reason we keep pushing recurring revenue is clearly the predictability but second of all the margins are higher than our overall average for the firm. Let's take managed services for one, managed services, we've said it before in year one they are single-digit EBITDA margins because we are ramping up new contracts. We have to bring people on board a few months ahead of time, three months, sometimes maybe a little bit more, depending on the complexity of the client, get them trained up. Again most of this is done out of India, so cost basis is accordingly. And then after year one, our margins are approaching closer to 20%. So think about that also and the research business as we really kick-up and scale that business and we can syndicate essentially the same research to multiple clients once you put in your investment for the product and services upfront and you continue with the good strong retention rate, which runs around 90%, then you can also lever that up from a margin standpoint. So that's why we have this strong push, if you will, on our revenue - recurring revenue, and why we've always said that I don't think we get credit where you have the Gartners and the Foresters and the EBs [ph] out there that are trading 12x, 13x, 16x EBITDA with 70%, 75% recurring revenue, and as we approach 35%, we are not going to achieve that. But we should not be sitting down where the specialty consulting firms are like Integreon and FTI and others that do not have such recurring streams but we should be sitting on a multiple in between that. So that's our thesis. That's what we are moving toward and that's why we are putting so much emphasis on the recurring revenues.

That's a helpful overview. And then kind of bridging into my next question, and I'll hop back into the queue. Was the catalyst right for the company to pursue a tender offer? I mean, what alternative projects for the capital were available right, either organic or tuck-in, and then how did those projects compete with the plan to execute this tender?

Well, we don't believe that the tender prohibits us from doing any of those other - those projects you mentioned. We believe the tender is a prudent use of our resources, given our assets. But we also take a look at the price, the market price of our shares in the market and we believe that the tender reflects our confidence and our future outlook for the long-term value. So we think that the investment of our shares at that range is an attractive use of our cash. As you noted, we increased our credit facility capacity, so we have continued capacity to do acquisitions and continue to invest in our business for growth.

Great. Thank you. And I'll hop back in the queue.

Thank you.

[Operator Instructions] We will take our next question from Juan Pablo Bejarano with Noble Financial.

Hi, good morning. Congrats on the quarter.

Good morning. Thank you.

I just had a few follow-ups, and I may have missed some of your commentary but regarding your goal of recurring revenues to reach 35% of total company revenues, maybe you can give us some color on how you essentially expect to reach that over the coming years? I mean, do you feel like most of that growth would be coming from this type of tuck-in acquisitions, or do you feel like it's more going to come from just organic growth?

Yes. First of all, mostly organic. I had to put a percentage on it, call it, at least 80/20, so just to put in perspective. And we have that because what we add here is when we add capabilities like an Experton or a Saugatuck, it brings in some real capability, real client base that you can then expand your product and service offerings that you currently have. So for example with Experton, they are bringing in 75-plus unique clients that we as ISG do not have as research clients today. So a great opportunity to not on continue to sell the Experton product and services, but for us now to target that 75 as an example to be able to go out and push our Saugatuck and other ISG research offerings there. So organic is the name of the game for us, so guideline is kind of 80/20, if that's helpful.

Great. Thank you. Yes, that's very helpful. And just to follow-up on Saugatuck. Just want to get a sense of how it’s performing. Obviously you just acquired that company, but you also recently launched ISG Insight, maybe comment on that, what clients are saying about it. And is the business performing as you expected, better than expected, any comments?

Yes. First of all, better than expected. The founder, Bill McNe, has been fantastic. He has helped us pull together this ISG Insights where we are packaging up a lot of the offerings we had within Saugatuck as well as adding to some of the things we had in ISG as well. The receptivity - it's only been a few weeks but the receptivity from the client base is extremely strong and we are very optimistic on that. We also envision taking the ISG Insights into the DACH market with Experton later this year.

Great. Thank you. That's it for me.

Yes, okay. Thank you.

We will take our next question from Matthew Brooks from Macquarie.

Good morning guys. I was wondering if you could give us an update on the engineering outsourcing project, it's sort of developing, and also anything you can say about the traction you're getting with the Cloud Index, which I think was launched last year?

Yes. Okay, first on engineering services, thanks for the question. Yes, we are hard at engineering services. We continued to educate and develop the market. We’ve continued to remain that we think that could be a large opportunity for us. It's slowly evolving because it's an education. Most all of that work is being done internally just as managed services was a few years ago when we launched. So these things do take a bit of time. But we have won a number of new client engagements around engineering services, places like UTC up in Connecticut, so United Technologies and some of their subsidiary companies et cetera. So we feel very good about it. It is slow to evolve because we have to educate the client, explain to them how it can work, establish the trust on the engineering side. The good news is we are targeting almost all of our current client base and manufacturing aerospace technology areas and autos in particular, because that is where a large spend is occurring on the engineering side. So one other kind of metric or thing to look at to see if we think we are on the right path is that we just had the third major service provider just cross over a $1 billion of providing engineering services as a service provider. So there is something. There is the fastest growing segment of a number of service providers. So we know we are in the right space, but we also know these things take some time to evolve. But we continue to be bullish on it and we continue to work the market to try to create a market for ISG. On the Cloud Comparison Index, yes, we should be launching our next index here very, very shortly. It's been well received. It's also been primarily a great entrée into some new engagements around the whole area of digital. I think I may have mentioned to you that we expect somewhere in the neighborhood, I believe it was around $40 billion of infrastructure contracts to come up over the next 24 months. We would estimate that well over half of those will include a cloud component that did not included in the previous contract. And so we will see - we believe we will see a lot of activity around infrastructure over the next two years and we want our piece of that, if you will.

On the engineering one as a follow-up, if you compare it to say the recent acquisitions which are both roughly around $2 million a year in revenue, how many quarters or years that will have made you think till you get to that kind of level of contribution from the engineering?

Well, I would expect that to occur this year.

Okay. So that's going to be multiples of small acquisitions next year and the year after?

That would be - I mean, we have to start with the base and then you build off of it, but I would expect our engineering services to be at least in the range of what we just did with Experton.

Yes. And lastly, David, do you have any plans to hedge in other markets?

No, we don’t. Not right now. The euro is around 25% of our total revenues, so it was our largest currency outside of that. So that's the only currency we are anticipating doing for this year.

Okay. Thank you very much. Good result guys.

Yes. Thank you, Matthew.

We will take our next question from Vincent Colicchio with Barrington Research.

Yes. Mike, I was curious to Service Integration and Management business, which sounds like it's really getting nice traction. Is that helping you add new clients, or is it mostly selling to your existing base?

No, good point. The Service Integration and Management, we call SIAM, is terrific and what is really driving that is the multi-sourcing that clients have been moving to which is instead of having one contract or even two contracts to do certain work, they are opening it up to multiple suppliers to get kind of best-in-breed to get innovation to keep it competitive. So with the multi-sourcing environment kind of proliferation to be able to ensure that you can integrate all of those pieces together is quite important. So yes, the Service Integration and Management is opening up new opportunities for us. And I would add that the CCI acquisition that we did two years ago down in Australia that I mentioned in my prepared remarks is also quite key here with this multi-sourcing environment, because what they do is they go into both enterprises and service providers, but let's takes enterprises, and they would go in and do what they would call a User Experience Index to allow that CIO for example or CFO to get a better understanding of how their users are perceiving their outsourcing providers like an HP or an HCL or Cognizant. And based on those inputs, they get an analytical - very detailed analytical report from our CCI team that shows them where the gaps are. They then can use that if they think about going to market to the outside, if you will, to say, hey look, I want to modify my current suppliers because the users are not that happy and he has got good quantitative data, if you will, to support whatever moves he wants to make. So that’s also been quite a nice factor for us to include there with our Service Integration and Management.

One last one for me. David, what was the revenue number for the year ex-currency impact? I missed that.

The currency was $16.2 million on the full-year results.

Thank you. That's it. Thanks guys.

Okay. Thanks Vince.

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

Good morning. This is Shane Svenpladsen for Pete. Just a quick one for me. And forgive me if I'm calculating this wrong, but it looks like the foreign currency headwind was larger on the adjusted EBITDA line than on the revenue line. Can you just walk us through what was driving that?

It wasn’t - the percentage basis, because you have the margin dropped through on a percentage basis, it's going to be larger on the EBITDA line. We basically - we deliver our services in local currency, but you earn a margin on that engagement which impacts the currency. So if you have 8% impact on the top line, it drops to a 20% impact on the bottom line. It’s just - the margin impact of that revenue is going to not be able to offset by the fact that we have a natural hedge in place where we are billing and delivering the same currencies. So it's the margin that has the impact on the bottom line.

Okay. Thanks. I'll get back in the queue.

And we have no further questions at this time.

Okay. So let me just close by saying thank you to our more than 900 professionals around the world for their continued passion and tremendous dedication to our clients. That's the lifeblood of our firm. Their ability to help our clients, achieve operational excellence and help them navigate through the digital changes is the reason for our strong performance in 2015. And let me thank all of you who are on the call today for your continued support and confidence in our firm. Thanks for joining and have a great day.

This does conclude today's conference call. Thank you all for your participation, and you may now disconnect.