Good day and welcome to the Information Services Group First Quarter 2017 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 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 yesterday 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, 2016, 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'll review our first quarter results and brief you on our key operating and client highlights. Let me begin by saying that our excellent first quarter results, our growing pipeline of new business opportunities and our investments in the business are positioning us well to deliver on our financial objectives. We're off to an excellent start marked by record-setting first quarter revenues and adjusted EBITDA that was more than double the prior year. Our fast start was built on solid demand in the marketplace for our digital advisory services including Robotic Process Automation or RPA along with our network advisory services and an acceleration of our recurring revenue offering. Increasingly, we are top of mind for our clients as they look to capitalize on the growth and cost savings opportunities brought about by the digital revolution. Our strategy is working and we're executing with excellence. Europe returned to double-digit growth in the quarter, as the U.K. stabilized and Germany grew by more than 30%. Coupled with a robust demand in the U.S., we're operating at full throttle. Let me take a few moments now to update you on the progress we've made on the five focus areas we discussed on our last call. First, combining with our firm -- combining our firm with Alsbridge. As you know the combination we announced in December enabled us to expand our portfolio of services including adding automation to our digital offerings and network services. The demand for our expanded services is reflected in our strong first-quarter results. This is the first indication of what we expect will be a real step change in our financial performance in 2017. I'm pleased to report that our integration essentially is complete and we're going to market as one…

Thanks Mike and good morning, everyone. First quarter revenues were $66.6 million compared with $49.9 million in the prior year, which was an increase of 35% in currency and 33% on a reported basis. Revenues were $41.1 million in the Americas up 58% from the same period in 2016, $20.2 million in Europe up 11% and $5.2 million in Asia-Pacific, which was essentially flat with growth rates supported here in constant currency. First quarter 2017 adjusted EBITDA was $7 million. This compared with $3.3 million in last year's first quarter. This result was driven by the increase in revenues. As a reminder, last year's first quarter was negatively impacted by $400,000 in costs associated with our stock tender offer. We reported operating income of $1.2 million for the first quarter of 2017. This compares with operating income of $100,000 in the first quarter of 2016. Included in the first quarter 2017 operating income, was an additional $500,000 in stock compensation versus the prior year. The net loss for the first quarter was $600,000 compared with a net loss of $700,000 in the first quarter of 2016. Reported fully diluted loss per share was $0.01 compared with fully diluted loss per share of $0.02 for the same period in 2016. Adjusted net income for the first quarter was $2.7 million or $0.06 per share on a diluted basis compared with adjusted net income of $1.3 million or $0.04 per share on a diluted basis in the prior year's first quarter. Utilization for the quarter was approximately 67% versus 59% in Q4. Quarter end headcount was 1,240. Our balance sheet continues to have the strength and flexibility to support our business over the long term. Net cash provided by operations for the quarter was $2.3 million. We invested $879,000 in capital expenditures and repurchased $1.2 million in shares. On the balance sheet, we ended the quarter with $33.2 million in cash and total debt outstanding of $123.9 million. Our average borrowing rate for the quarter was 4.5% and we had 43 million shares outstanding as of April 28. Mike will now share concluding remarks before we go to Q&A.

Thank you, David. So, let me summarize. We had an excellent start to the year, putting solidly on the path to achieving our 2017 financial guidance. We had record first-quarter revenue $67 million up 35%. EBITDA of $7 million more than double the prior year with an EBITDA margin of 10.5% and our cash balance remained strong and $33 million. Our digital services continue to grow, now representing over 30% of ISG revenues in the quarter up from 20% in Q4 with Automation Services helping to accelerate our growth. Our expanding recurring revenue streams are also accelerating our growth as we reached $19 million of these in Q1 by far our best ever quarter. And our integration of Alsbridge is essentially complete and we remain on target to deliver our synergy savings. As always, we're focused on creating shareholder value for the long-term. I'm optimistic about our 2017 prospects and our ability to progress our long-term strategy. We believe the equity market will realize the significant value we are creating as a firm. 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'll take our first question from Vincent Colicchio with Barrington Research.

Good morning, Mike and David. Good quarter.

Good morning, Vince.

Good morning. So, to be sure you're reiterating your prior financial guidance, is that correct?

That's correct.

Okay. And then and in terms of U.K. you due to Brexit you had said that several projects were delayed and your folks are still on-site which gave you confidence that the projects are going to be started. So, I am just curious, what portion of the -- if you could come up with some such a number of those delayed projects are looking like they're going to come back.

So, I think maybe start with our premise for the year, our assumptions in our providing guidance is that the U.K. would stabilize in 2017. So what did we see in Q1? What we saw is a pickup of some shorter-term projects that were on pause. So, the emphasis around digital and our robotic process automation picked up during Q1, which is really what drove some of our revenue increase, which was up 3% in the quarter and 11% sequentially over Q4. So, I don't have a quantifiable number other than to say that we see some sparks currently in the U.K. that the hesitation during the back half of the year now that as of March, they’ve actually given their two-year notice so to speak. We are beginning to see some movement in the U.K., but we'll remain cautious, but we're optimistic that our assumption for the year is accurate and there may be upside of the U.K. can progress as it did in Q1.

Okay. And then in terms of your recurring revenue it looks like a nice pick-up there. Do you expect that to continue to grow sequentially for the balance of the year?

So, our recurring revenues, we think -- I think if we go back to last year, we estimated that we would grow our recurring revenues from $60 million to roughly $70 million in 2017. That was the guidance that we gave clearly with $19 million in Q1, we are on track to meet or exceed that number. But we had very strong quarter because we launched benchmarking as a service and we launched what we're calling your software sorry benchmarking of the subscription and we also launched our what we're calling our SaaS, which is a software-as-a-subscription by pushing RPA out in the market. So, I don't want to talk about sequential, but I will talk about that the growth rate for recurring we anticipate being at or above the levels that we gave guidance on which was $70 million over the $60 million that we did a year ago.

And then the strength you're seeing in the German region, is that something you expect to continue in terms of new opportunities. What does the pipeline look like there?

So, the pipeline in Germany looks very good. They were up 30% in the quarter. We nailed a number of new projects there. We have a very strong position in Germany and we do expect Germany to be very strong again in Q2 based on the demand and the pipeline. So that serves us well for Europe because if U.K. can stay stabilized or better, then we have a long history of double-digit growth in Europe and it showed that with 11% this quarter. So, we think that with those elements, we should be in good shape for Europe for the year.

Okay. Thanks for answering my questions.

Thanks Vince.

And next, we'll go to Sarkis Sherbetchyan with B. Riley & Company.

Hey. Good morning, guys.

Good morning, Sarkis.

So, first one thing that really struck out from the press release was that more than 30% of your revenues in the quarter were from RPA. Can you talk about that a little bit because that amounts to maybe about $20 million or so?

Yeah, I think you should look at that, I think we said digital services including RPA was 30%. So, it's not just RPA, it's our digital service offerings including our new our robotics process automation. So, when you add the two together, yes 30% of the 67 is going to give you whatever that around $20 million of digital services, which includes RPA. So, as we've been saying during the back half of last year, our revenue grew to about 20% that was digital. We've now added an automation component during Q1, which is adding to our digital capability in terms of our offerings with our clients. So yes overall, it's nearing $20 million in the quarter of our digital offerings, which includes RPA. So that demand is we've been talking about for a few quarters has been picking up steam. We've gone from 5% digital to 10% to the back half last year of 20% and we're now saying 30% and the pipeline is quite strong on all things digital, which includes RPA.

That's very helpful. Also with regards to the Americas, obviously some of that growth includes the inorganic piece from Alsbridge, is it possible to parse out what was kind of the organic legacy growth versus what you've added?

No, but I'll say our target because we fully integrated the company, but I will say that our target this year in our guidance was to have our high single-digit organic growth and to win all of the business that we brought over from Alsbridge minus China that we closed and minus our cannibalization that we build in the model which is around $5 million to $6 million I think it was. So, you can assume in the quarter that our organic growth on the overall business was high single-digits, in addition to we had to win all of that business in the quarter because the only thing we have in recurring starting the year was our recurring revenue streams at a $60 million annualized basis. So, we started the quarter if you will with $50 million. So, we had to go find the extra $50 million. So, you should look at it also that we are now cross-selling Alsbridge services into ISG clients and I think I gave a couple of example during my opening presentation of how we've taken RPA network services into ISG clients and by the way, vice versa into the unique clients that Alsbridge has taking our digital and our sourcing services into their. So that's why you're seeing the kind of growth rate that we see in Q1 and that we have in terms of our overall guidance for the year.

Good. And then with respect to the recurring revenues, you mentioned the $19 million for Q1, that's a pretty solid metric there. I guess are you seeing a margin uplift as you start to layer in more and more of that type of revenue profile?

Yes, there are a few start-ups in some of the recurring revenues for example in managed services just as a reminder that when we signed new managed services contracts, it's usually kind of mid-single digit margins year one, but year two onwards they get up into the high teens. I would say the same thing when as we launched, as we prepared and launched out our new benchmarking as a subscription or BaaS as we call it, there are some prep work and some expense and so on, but those businesses all will be higher margin than kind of the overall business. And I think you saw a bit of that with our 10.5% EBITDA margin in Q1 is reflecting a bit of our new product mix.

That's very helpful. And then just to come back home on the annual guidance, I think most people kind of want to make sure that the range is still intact. I think the revenues it was a range of $270 or $290 and for EBITDA it was 33.5 to 36, but why not included in the press release right?

Well, we don't included every quarter, but yes as I said in my script, everything is -- we've reaffirmed both of those numbers.

Perfect and then with regards to just the fact that you've gone the integration through, do you see any seasonality as the year plays out from the topline perspective?

As the seasonality that you've seen in prior years will continue. So, the second quarter tends to be a stronger quarter than the first quarter from a revenue perspective.

Very good. That's all for me.

Thanks a lot, Sarkis.

All right, and our next question, we'll go to Allen Klee with Sidoti & Company.

Good morning.

Good morning, Allen.

Good morning. That the RPA was beneficial in stabilizing, slightly improving I think actually more than slightly improving the U.K. Could you give us some examples of what was done in robotics that caused that? Thank you.

To give you an example, so the U.K. has I believe it's 14 policing departments in the U.K. and one of the things we are working with them on to think about this is they're ticketing process. So, think about the police in the U.K. giving you a written ticket, that ticket goes to a data entry operator. The data entry operator enters the data, can't read what's been written. Goes back to the officer for clarification. The officer changes it. Cleans it up, gives it back to the data entry operator etcetera, etcetera. We are helping them with robotics if you will in the policing area as one example. We also have billing systems, customer care, account information that is some back office -- some work with a few clients in the UK as well. We've also started looking at a major telecom company based in the U.K. working with them to transform a substantial part and automating their shared service center. So those are some examples of what I would consider movement in the market there because they can get almost immediate ROI. And when I say immediate over a three or four-month period as opposed to 12 months or longer and some of the major transformations, we see that our digital and our RPA offerings are allowing us to turbocharge that market as things get more stabilized in the U.K. and people begin to spend more money on more major transformation project. So, Allen, hopefully that's a couple of examples of how we go about our work and what's beginning to turbocharge over in the U.K. for us.

Okay. And then just another one on RPA any new samples anywhere of success in the insurance claim processing or underwriting areas?

Yes. So, we are doing work for actually several insurance companies. They are prime target as our banks and an example of the bank in New York City, very, very top-tier bank when we're beginning the process with them on automations. Insurance is the same thing around claims processing. So, a number of them are moving and I would call it early stage automation of points processing. So yes, insurance sector of the financial sector, health services, utilities are all right now prime examples of automation occurring among some of our clients.

Thank you very much.

Yes. Thank you.

And next we'll go to Marco Rodriguez with Stonegate Capital Markets.

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

Good morning, Marco.

Hey. I wanted to talk a little bit more about digital services and RPA, is RPA the main driver there for the growth you're seeing right now in digital services?

No. It is a component of and I don't want to overplay robotics process automation, but it is going to be growing very rapidly. In Q1, I would say our overall digital services were dramatically greater than our RPA if you will, but remember we had no RPA a year ago. So, everything is incremental on the robotics and the digital is just continuing to expand. So, I wouldn't say it overshadows the digital law. It is a subset of our digital offerings, not the majority of.

Got you and can you maybe rank the top three of the main drivers here that you're seeing strengthen for digital services?

Well, first of all almost everyone is looking for now a digital solution and it might be a mobile solution, I can think of a large transportation company that if you think about, you walk into Rent a Vehicle. You see all the counters. You see all the people. Think about how you could automate all of that. Think about how can automate walking into a hotel lobby where you have a reservation desk with a number of reservation or a client representatives behind the counter. Think about automating that. Think about a fast food restaurant based in Chicago that's the largest fast food restaurant in the world and think about automating the front end of their environment and in what that might mean. So, there's a number of automations that are in their early stages because this is still quite new, but it varies and it's across multiple industries and because we support 23 different industry segments, we got a pretty good view of those markets and what might be possible in terms of participating in the digitization of their businesses.

Got it. That's helpful. And would you say that the demand for the digital services are being driven more by the end customer or are you kind of helping push that that agenda as well if you will.

Well, I think it's a combination, this one also is an education. Most all the clients we're dealing with it's a first-time automation for them. So first you have to go through a bit of an education process, but we created what we think is a nice proprietary proof of concept or a POC that we could go in in approximately two weeks’ time, show them how a process could be automated at their particular environment. So that's kind of the approach we've taken. So, we go from proof of concept than right into helping them think about and select a software and then help them with implementation and training, that's kind of the process points.

Got you. And are you seeing particular strength on your digital services in one of the particular geographic areas or is it broad based?

Well, we saw it both in the U.S. and in Europe, part of the European drivers both in the U.K. and in Germany as our overall digital services that continue to expand. So, we see the demand there. It's is just, just beginning in Australia and I would say Asia lags the rest of it.

Got you. And last quick question. I'll get back in the queue, just coming circling back around on the U.K. and I guess the stabilization from Brexit there, are you -- did you see, the digital strength or continued stabilization if you will for the first month or so here in the second quarter?

Yes, we see, knock on wood here, I think what we said is we plan for stabilization and if we can grow the U.K. it will be a plus. We grew at 3% in Q1 and at the moment, the demand looks like growth could continue into Q2.

Got you. Appreciate it. Thanks a lot guys.

Thanks Marco.

And next we'll go to Ben Klieve with Noble Capital Markets.

All right. Thank you. Good morning, gentleman. Couple just quick questions for you guys, first of all regarding recurring revenues, during the quarter, I know Alsbridge brought in minimal revenue -- minimal levels of recurring revenues and I guess I am curious, what average you've undertaken to develop this season, what their legacy customers or what their legacy services. And if you've seen any progress there, if that's just kind of an ongoing goal of yours, is that really hasn’t taken place yet?

So, a couple of things here for recurring revenue is four drivers of the growth in the quarter. One is our research offerings, which is our subscription offering continue to expand. Our clients want complementary knowledge from a trusted source. So, in addition to other sources they may secure research from or emerging technology research in particular has become even more important for our client base. So, research continues to grow. Managed services where we're managing on behalf of the supplier -- of the client supplier contracts also grew in the quarter and then two areas that we expanded was we launched benchmarking as a subscription using the platform that -- software platforms that Alsbridge had in order to leverage it out to use it as a subscription model and so that was launched in Q1. And then also our robotics where we also have license subscriptions by adding that into our digital offerings, we have what we're calling our software as a subscription recurring revenue streams where licenses are one, two or three years in length and that also got kicked off in ISG during Q1. So, the four elements together is what drove our highest ever if you will $19 million of recurring in the quarter.

Okay. Thank you. And one other question regarding Europe, is it fair to say that your comments regarding kind of some of the smaller projets that are starting to take off and is it fair to say that that seems to be kind of an early indicator of growth coming from that region? And then second kind of a follow-up on that then is you described earlier in the Q&A that some of the larger projects continue to be -- continue to be delayed, do you have any sense of what the catalysts are that your clients are looking for that that will give them confidence in really starting those bigger projects.

So first on the smaller ones, yes, I believe that was a catalyst in Q1 because the ROI is faster and so they're more receptive to moving now. I think on some of the larger transformations in the U.K. by the way there is no pause in Germany, but in the U.K. I just think that a number of clients including the retail segment as well as the financial services segment are still plotting their thinking and they're planning on what does this look like post euro zone. And I think once they settle in on that, we should begin to see some of these projects take hold and you'll see that in the grow in the U.K. market and it possibly could occur frankly in Q2 based on the demand that we're seeing, but again we're going to remain cautious on that. But I will say we are pleased with the stabilization and now the early growth in the U.K. and it looks very promising in Q2 as well.

Very good. Thank you so much Mike.

Thanks Ben.

And I show we have no further questions. I'll now turn the call over to management for any additional comments or closing remarks.

Thanks very much. Well let me just close by saying thank you to all of our approximately 1,300 professionals around the world. It's their ability to help our clients achieve operational excellence and faster growth, especially through as we discussed digital transformation continues to be one of the key reasons for our strong performance. And I would like to thank all of you on the call for your continued support and confidence in our firm. Have a great day.

And that does conclude today's conference and we thank you for your participation. You may now disconnect.