Good day, everyone and welcome to the Information Services Group First Quarter 2016 Financial 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'd 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 2016 first 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 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 this morning 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 to 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-1.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances. During this call, we will discuss certain non-GAAP financial measures which ISG's believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non-GAAP 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 this morning with the SEC. 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 first quarter results. We will brief you on our some key operating highlights, update you on our most recent Bolton acquisition, discuss our shareholder initiatives and will wrap up by sharing our new higher revenue guidance for the year. Let me begin by saying our first quarter results, our strengthening pipeline and our investments in the business we believe had position us to deliver on our financial objectives for the full year. First quarter 2016 revenues were essentially flat with the prior year with double digit constant currency revenue growth in Asia-Pacific and solid growth in Europe offsetting a decline in the Americas. As we continue to innovate, create alliances and expand our capabilities to help our clients go digital, I’m confident we’re making the right moves to serve this expanding market and revise our growth potential. During Q1 we remained focus on building out our digital advisory services business. Highlights include publishing our third ISG Cloud Comparison index, with Charles Enterprises on your stand IT costs across various delivery models including Cloud, Outsourcing and on premises. And the accelerating the growth of our digital pipeline, winning more than 15 major clients during the quarter and adding more than $5 million of new sales in Q1. The wins include such companies as Western Union where we were engaged to develop an enterprise agility strategy for their digital business unit. BMW where we are a key partner and a strategy for their [indiscernible] car technology, and Monsanto where we developed a cloud strategy and a cloud contract for their data center as well as working on an enterprise agility strategy. Our recent successes helping these major companies are product of our core expertise in digital technology. We…

Thanks, Mike, and good morning everyone. First quarter revenues were $49.9 million were flat on a constant currency basis and down 1% on a reported basis from $50.5 million in the first quarter of 2015. Currency negatively impacted reported revenues by $800,000 versus the prior year. Revenues were $25.9 million in the Americas, down 6% from the same period in 2015; $19 million in Europe, up 7%; and $5 million in Asia Pacific, up 12%, with growth rates in constant currency. First quarter 2016 adjusted EBITDA was $3.3 million compared with $4.6 million in last year’s first quarter. This year’s first quarter was negatively impacted by $400,000 deal, associated with the stock tender and the previously discussed increased in costs associated with building new revenue streams. We reported operating income of $100,000 for the first quarter of 2016, this compares with operating income of $2 million in the first quarter of 2015. The net loss in the first quarter was $700,000 compares with net income of $900,000 in the first quarter of 2015. Including in the first quarter of 2016 net loss were the $500,000 foreign currency transaction loss versus a $400,000 transaction gain in the prior year. The 2016 first quarter loss resulting from a hedging and majority of our projected Euro EBITDA translation exposure versus the U.S. dollar. Reported fully diluted loss per share was negative $0.02 per share compared with income of $0.02 per share for the same period in 2015. Adjusted net income for the first quarter was $1.3 million or $0.04 per share on a diluted basis compared with adjusted net income of $2 million or $0.05 per share as diluted basis in the prior year’s first quarter. Utilization for the quarter was 68% versus 72% in the prior year. Headcount of 1,044 was up…

Thank you, David. In conclusion, we approached this quarter differently than we have in previous first quarters. Hiring ahead of revenue to address what we see as the emerging and immediate growth opportunities. We invested in resources to accelerate the growth of our research business, expand our digital advisory services and higher education businesses and to launch ISG events. For the immediate benefit of our shareholders, in the last couple of months we have brought back 8% of our fully diluted shares outstanding through the Dutch auction and our convertible long note redemption. We completed the acquisition of TracePoint to take advantage of an organizational change management market, we see growing dramatically with digital transformation and the continued rapid change in technologies. And in light of all of these positive developments in our business, we raised our full year revenue guidance, growth guidance and reaffirmed our EBITDA growth for the year. We are pleased with our operating trends and the momentum we are seeing building in the market, as well as the favorable reaction we had to our successful stock tender offer. Taking together, they demonstrate the confidence we have in our ability to strategically deliver value to our clients and to 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’ll take our first question from Vincent Colicchio with Barrington Research.

Good morning, Mike. I was just wondering in the Americas if you can give us a little more color over what caused the slippage, and I apologize if you mentioned, I got on a little bit late in the call.

Yeah, no problem. Look, the Americas had 4% sequential growth, very difficult comps in the first half of the Americas, you may recall last year the Americas were on fire during the first quarter, they grew by 14% and so the comps are going to be a little tougher. We are not at all concerned about the Americas, the pipeline is extremely robust and we expect them to deliver good growth for us for the full year. The only other thing that happened in the quarter there in the Americas is we didn’t get a tail off in a couple of public sector multiyear contracts that we’ve had in one of the State of Arizona, another at a major city that kind of tailed off during the first quarter but that pipeline is build up and we see significant growth going especially in the back half on the public sector including I announced the West Virginia win, we also announced the Arkansas win, we should have another announcement with another major university during Q2. So, overall from the Americas standpoint we feel good about the full year on how they’ll perform.

And how do recurring revenue perform in the quarter, and what are your thoughts going forward?

The recurring revenue was flat during the first quarter and we see recurring revenue starting to build in the second half of the year.

Okay. And then Mike, I was wondering on some of your certainly investments you’ve made in the SIAM business and the engineering outsourcing, how are those two shaping up for the year?

Yeah, good question. So first on engineering we had a very strong first quarter, we won a number of assignments with companies like Geometric which is an engineering services firm based out of India and Amdocs, Symbian, HCL, L&T and some others during the quarter. So, our engineering services I think is performing well, it’s still emerging, it’s still very much like our managed services where we are educating the enterprise clients. All of the service provider community are well on board. They see the engineering services over the next two, three, four years as one of or if not, the largest growth area for them and we planned to be the leader in that space. So we’re getting some good traction, we feel good about engineering services is evolving. On SIAM which is the Service Integration and Management continues to be very strong and the TracePoint acquisition will be a terrific rapper around our services in this space, and just to take a moment on this. Our clients look with these multi suppliers that they have and were renegotiating with the number of enterprise clients so that they can get the best in breed and get expertise and as they look to move out of some of their longer term infrastructure and moving things to the cloud there will be more and more suppliers in the market and inside enterprises. That allows us to use our service integration and management to help and pile those together. But while doing so, there is enormous change that is occurring as a result of that. So adding this 25 plus people that are experts on OCM, Organizational Change Management, we will also be assisting all of our work around SIAM and our digital services using the IT and capabilities of TracePoint to really help expand our businesses there. So that is still a very hot business, change is incurring very rapidly and we see the OCM business that’s helping us not only what they’ve been doing on their own but also helping our overall ISG business as we integrate them in.

Actually on the headwinds, a friend of mine in the markets now doesn’t seem to – the economic backdrop doesn’t seem to help your pipeline. Any thoughts on that?

Yeah, look I think right now we have a pretty – we think we’ve a pretty good product and service capability. If you think about Europe for example where they’re all struggling company wise to grow the top line so they look to the bottom line to generate some funds to move in the growth initiatives, used to be a few years ago they would take all of that drop at the earnings per share if you just take the cost out. Now they want to take the cost out of IT moving into growth initiatives like digital, mobility and so on. So, I think it plays to our strength, we’re certainly continuing to be cautious of all that. We’re cautious of the [indiscernible] vote in June, not that we think would have any direct impact but what it might do to decision making in the market place, so we’re cautious on that. But having said all that and factored all of that in, we believe that we’re going to have a very strong year in 2016.

Okay, I’ll go back to the queue. Thank you.

Thank you, Vince.

And we’ll take our next question from Marco Rodriguez with Stonegate Capital Markets.

Good morning, guys, thank you for taking my questions.

Good morning, Marco.

Morning. Hey, just a couple real quick housekeeping items before I have few of additional questions. On the investments that you guys made ahead of revenues, if I’m doing my math correctly and also including the costs of the tender offer, it sounded like about $2.2 million or so roughly in additional cost in the quarter, is that correct?

It just a little – it’s under, it’s between kind of $1.4 million and $2 million, Marco.

Okay, got you. And the additional investments that you made ahead of revenues, if you can maybe just kind of walk us through the process that you guys took, what you were looking at, what kind of made you pull the trigger if you will, ahead of everything. And also just to confirm, I know I’m sorry there is a lot of questions here that additional investment, is that all inside of your direct cost and expenses?

The answer to your last question is yes on where the costs are, and why we decided, as you know I think I mentioned, we’ve not done this in five years. Here is what our thinking was, we see an expanding market for our services, digital services in particular. There is a lot of work around digital trans – we’ll be called digital enablement and digital leverage. Digital enablement in companies are things like just their digital transformation, their security, their automation, the cloud adoption level which is increasing rapidly. And the digital leverage if you will is around the marketing side, the CMO or HR Technology which is also very, very red hot in area that we are moving in and gaining at a very significant leadership position. And so our sense was number one, we see a lot of movement on the – just the whole digital and cloud transformation moving at a little faster speed, so that was one. Two, we saw opening in the higher education area with our public sector strength that we had that we wanted to expand and move rapidly and we’ve added to the team there including bringing in an expert from the outside to lead that effort of partner. And as I’ve said, we’ve had a significant win already at the end of the quarter and we have one tied up we believe that will close in Q2. We also believe on the ISG events area this is where in the past we’ve done some conferences etcetera. It’s been more about brand building and breakeven, we’re going to make this into a business, a P&L business, we brought in a leader from the outside that launched Gartner’s events businesses back in the day when they were nothing. She grew that business…

Got you, very helpful, thanks. And in regard to the acquisition here of TracePoint, just want to get a little bit better of a sense as far as their kind of financial picture if you will, I think I heard you guys mentioned that you’re expecting about $3 million in revenue in fiscal 2016 from TracePoint and I think you said an additional, maybe $6 million plus in 2017. Are there revenues primarily or predominately in the Americas and what is their margin profile look like?

So yeah, first of all on the revenue stream those are the numbers that we’ve indicated for them. And it is primarily in the U.S. business but our intension here is to take their IP, their capability and their knowledge base and expand this globally as we move into 2017 which is why I said $6 million plus. We think this whole OCM business can be quite large, quite lucrative. I think we’re going to use 2016 to kind of tie up and [indiscernible] out their back office if you will and moving into our one platform services and that will enable us to get into a business that we think will have at or greater than our firm wide EBITDA margin. So we’re very, very bullish on this space, TracePoint is a fantastic company, great reputation, as Randy Geoghagan who has led it and the founder as we take him on our journey to help lead us in our broader OCM business. So that’s how we look at the financials there.

Got you. And how many billable people do you have?

We’re bringing across 25 or so.

Got you. Great, thanks a lot guys. I’ll jump back in the queue.

Thanks, Marco.

And we’ll take our next question from Mark Jordan with Noble Financial.

Thank you. Question relative to TracePoint and the overall OCM business, two questions there. One, what assets are you planning to put from the current company into TracePoint to consolidate the OMG activities? And secondly, what have you done to retain and motivate the current employee base that you’ve acquired?

Okay, good. Thanks for the questions. First of all they have greater IP and they have great qualifications. They’ve been at this now since 2009 for the kind of coming out of the recession, last few years they’ve picked up [indiscernible] they have partners in SAP and Infor as an examples that utilize their change management capabilities when there are large installations at both Infor software as well as SAP to name two. But our intension here is that we will take what we have in OCM capabilities, what Randy and his team have, and as we emerge into 2017 we will have all of that capability together in the U.S. and begin to expand it in the outside the U.S. markets. The way we are setting the team is how we’ve done all of our acquisitions in the past and as we have an earnout on certain financial targets for Randy and his team to meet and we fully expect that we will be able to retain Randy and his entire team for not only the duration which is three years with the earnout but beyond as we have done with all of our other acquisition. So we feel like we’ve got in a good position. They’ve got great capability, we will pace them this year just as we’ve done other acquisitions to ensure that it stabilized and we continue to deliver on what we’ve committed to work for the balance of this year and then we will expand at the pace that we can expand that as we’ve done in past acquisitions as well, but that’s the plan, Mark.

Okay. The second question, you mentioned you’re launching ISG events, could you talk about what your strategy is there, what are you trying to provide incrementally? And then secondly, what are the goals or benchmarks that we should look for to see that that is gaining traction?

So few things here, one is the events business can be very lucrative on an EBITDA margin standpoint if you get enough scale. Our sense is that if we can drive this to essentially from nothing to about a $5 million business over the next few years, but that should generate a very high EBITDA margins higher than anything we have in the firm, probably matching kind of a research margins are greater. That means you’re going to have EBITDA margins well over 30% in that business, maybe even 40%. So our own internal tracking of this business will be as we would like to drive it at first stage let’s get it to $5 million and that will require a couple of years to get there and we believe we can generate 30% to 40% EBITDA margins in so doing. So now there will be a revenue contributing, it’ll be a disproportion at profit contributor and it will allow us to stay engage and keep our brand out of the market place so we can kill a couple of birds if you will with one sound, so that’s the idea we have behind it. It will take a little while, events usually take about a year to get schedule in advance, we’re going to launch a couple of new ones this year and we’ll be looking to do a much more expensive effort, sorry in 2017 and we hope that will deliver fruits in 2017 and 2018 as our plan.

Okay. And in terms of what investment would that reflect in this year in terms of cost?

We’ve already added that in into the first quarter cost, so we did not think that there will be any other cost that would – that would not be offset by revenue other than what we installed is part of that – as I said in the first quarter, we added about a $1.5 million to $2 million of cost that included the Dutch auction and events was part of that. We do not anticipate adding any other cost that would not be offset by revenue.

Okay. Final question from me that the increased revenue range for this year, you obviously had TracePoint which is adding $3 million but given the size of the increase versus prior guidance in the areas embedded in that increase higher organic assumptions, is that correct?

Yes, I mean if you think about coming off kind of the first quarter which was essentially flat that should give you kind of a flavor as to what we believe at this stage that the robustness can deliver for the balance of this year and as we move into 2017.

Okay, thank you very much.

Thanks, Mark.

And we’ll take our next question from Sarkis Sherbetchyan with B. Riley & Company.

Yeah, good morning. Most of my questions have been answered, but just real quick, do you mind disclosing what the managed services in research revenues were for Q1?

As you know, we grouped managed services research and U.S. public sector together, the combined that was $14 million.

$14 million, got it. And then with respect to just the pipeline, you mentioned in the Americas it’s been building, can you maybe just talk about any potential delays you’re seeing or if you’re seeing the lengthening of the pipe as far as the delivery is concerned?

Well no, I mean I think the pipeline is growing and I don’t see any softness in decision making. We will watch it carefully with the elections and with Brexit but we don’t see it at this stage. So that’s why we raised our overall guidance instead of leaving it alone.

Got it. And then the 40 positions you got it during the quarter, I mean that’s pretty material. Any kind of notion here that as far as getting the revenues against that 40 position, would that be something here in the near term immediately or is that something that you expect in the next six months or so?

Yeah, our hope and desire is, is that those will begin to produce starting in Q2, probably back half of Q2 throughout this year and into 2017. So that’s why we decided to make the investments because we saw some immediate kind of revenue opportunities ahead of us.

Good. That’s all from me.

Thank you.

[Operator Instructions] We’ll go next to Brian Kinstlinger with Maxim Group.

This is actually Josh Seide for Brian. Thanks for taking the questions.

Yeah, good morning.

Good morning. So, despite the acquisition your EBITDA guidance stayed the same, is that – so can you give us a sense of this trace is profitable and if so, what the EBITDA margins are? And then how should we think about the profitability of the core business?

So, first of all on TracePoint it is profitable but it will deliver kind of the minimize profitability for us this year because we are investing there, so don’t look for anything that - any material out of TracePoint in 2016. Moving forward though, we expect TracePoint to be at or above our firm wide margins after our investments this year. And what was the back part of your question Josh?

Just hoping to get a sense of how we think about the profitability of the core business and what is the fact that EBITDA guidance was reaffirmed while the topline guidance was raised?

Yeah, well look, we have a pretty good range on the EBITDA guidance already 10% to 15% so we thought that was sufficient for our guidance for the year. They won’t allow answer that one Josh.

Sure, that’s helpful. Thanks. And then with limited top line growth in the first quarter in the constant currency basis, can you give us a sense of what gives you confidence in the growth and the second half will be what seems to be double digit which seems to be needed, excuse me, in order to achieve the full year guidance?

Well, yeah I mean…

And maybe…

Yeah.

I’m sorry, go ahead.

Yeah, go ahead. Well, I think the reason we did it is because we think that by hiring ahead of the curve here a little bit we’re going to take advantage a lot of these digital services, the SIAM business, our research revenue will be accelerated. Again, keep in mind there that sales will be faster than the revenue because we do 1.12 of course, on subscription based revenue, higher education business, by expanding that we think we can gain more new clients and we’ve already named one and I think we’ll have more. So our sense overall is that that revenue pipe – base on the pipeline that we have in all the regions including the Americas should allow us to accelerate our growth during the course of the year to achieve the 7% to 9% full year basis.

That’s helpful. Thank you.

Yeah, thank you.

And we’ll take our next question from Matthew Brooks with Macquarie.

Good morning, guys. I was wondering if you can…

Good morning, Matthew.

A few comments about the acquisition market as you’re seeing it, so can you say a little bit about how the TracePoint deal came about, whether there was any bidders and more in general like how are expectations of vendors and how does your pipeline look for more of these Bolton over the next say 12 to 24 months?

Yeah. So, TracePoint, we started discussions with them last year. We initiated some discussions with them, we have targeted the OCM area as an area of possibility of expanding our capabilities, so we came up with kind of our heat map of potential targets. We really liked Randy and his team that we met, we like what they had been able – they had been able to work on. We actually had TracePoint included in one or two of our public sector deals recently so we could see them in action, and so we felt like this was the best available asset on the market that would enable us to kind of turbo charge the OCM business that we think is pickup real steam in the market because of all the changes in technology. As it relates to kind of the market overall, our view is that we are an attractive partner for these Bolton acquisitions because we give scale, size and we give if you will, an entry into nearly 500 large companies globally every year as another channel to be able to take the capabilities of companies like TracePoint and be able to broaden out their client base as a result of that. So, our sense is that the M&A market for companies that we are looking for in targeting which are things such as expanding our capabilities, expanding our recurring revenue streams is pretty robust for us and we continue to be in the market and looking at such deals.

With the earnout for TracePoint, does it depend only on the U.S. results or did they also get an announced contribution if you do well globally?

I’m sorry, say that again?

Do you know that you’re going to give the TracePoint, does that only depend on the earnings generated in the U.S. or do they also get a kind of the earnings you generate by leveraging their product globally?

They will have the earnout based on wherever they sell it, so it can’t be globally.

Right, thank you for your time guys.

Thank you, Matthew.

And gentlemen, we have no further questions. I’ll turn the call back to you for any additional or closing remarks.

Okay. Well thank you very much. Let me just close by saying thank you to our more than a 1,000 professionals around the world including those who had recently joined us from experts and TracePoint for their passion and dedication to clients. It’s the ability to help our clients I think achieve operational excellence and navigate through the digital transformation I think is the reason for our optimism regarding our business. And thanks to all of you on the call today for your continued support and confidence on our firm. We look forward to having a very strong 2016. Have a great day.

Thank you. And that does conclude today’s conference. Thank you for your participation.