Information Services Group, Inc.

Thank you, operator. Hello, and good morning.

My name is Barry Holt. I am the Senior Communications Executive at ISG.

I’d like to welcome everyone to ISG’s 2012 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 would 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 and the risk factors section in ISG’s Form 10-K ending December 31, 2011.

You should also read ISG’s Annual Report on Form 10-K for the fiscal year ending December 2011, and any other relevant documents including any amendments or supplements to these documents filed with the SEC when they become available. You will be able to obtain free copies of any of ISG’s SEC filings on either the 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.

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 the fourth quarter and our full year 2012 business and financial highlights.

We’ll update you on some of our recent business developments and our plan going forward. And then we will conclude with some comments on our guidance for revenues and adjusted EBITDA for the full year 2013.

We finished the year strong and have entered 2013 in a good position.

Our fourth quarter results are at the top ends of our guidance. We beat the consensus for the year.

Our cash in the fourth quarter jumped $8.5 million or about 57% from Q3, and we closed the year with Q4 revenue growth of 11%. The Americas demand and pipeline remained robust, even after a very strong 31% revenue growth in Q4 that capped our 7th consecutive double-digit growth quarter in this region.

We also see signs of our 2012 investment in the U.K. public sector are beginning to bear fruit.

Our recurring revenue pipeline, which is our research, managed services and our U.S. public sector is strong as we enter 2013.

And Germany and Asia remain great anchors for their respective regions. So we feel we are set to execute on our 3-year plan to achieve the growth and deliver enhanced value to our stakeholders.

Our fourth quarter revenues were nearly $50 million, 11% ahead of the prior year with the Americas up a robust 31% helping to offset a 7% decline in Europe and a 3% drop in Asia-Pacific. These regions performed as we had indicated on our last call.

We’ve reported full year revenues of approximately a $193 million, up 7% for the full year in constant currency. The 21% revenue growth for the full year in the Americas and 8% growth in Asia-Pacific more than offset the decline in Europe due to the macro environment.

Our fourth quarter adjusted EBITDA was $4.5 million and the full year was $18.2 million, down slightly in constant currency versus the prior year due to the softness in Europe and our continued investment for future growth. With these results, we finished the year at the upper ends of our guidance.

We served 465 clients globally in 2012 with 25% of these new to ISG and consistent with previous years where 75% were repeat clients.

from research and benchmarking to design and transaction services; from transition transformation and project management services to our managed services.

Our success can be measured in our results. Revenue from our top 50 clients was up 18% from 2011, consistent with our strategy of targeting an increased share of wallet for additional product and services to our existing client base by going to market as 1 brand.

Client wins for the quarter included National Grid, Hydro One Networks, Caliber Systems, and CareFirst BlueCross and BlueShield. Our 2012 revenue growth was led by our continued drive to increase recurring revenue streams in the firm led by managed services.

Our recurring services, which is research, managed services, and the U.S. public sector, now account for nearly 20% of our total revenue, up from near 0 3 years ago and up from 13% in 2011.

Over the next 18 months, our goal is to have 25% of our total revenues derived from recurring sources. And also during 2012, we secured our first managed services clients in Europe and Latin America.

We also improved our capital structure significantly in 2012. Our operating business model has strong cash characteristics.

We generated about $9 million in free cash flow and used 80% of it to lower our bank debt and most of the remaining balance to buy back III shares. We ended the year with a cash balance of $23.5 million, up $8.5 million from the third quarter even after our debt payment and share purchases of $2 million.

We intend to refinance our existing loan agreement this year and take advantage of our stronger position and the strength of the debt markets.

Now let me update you on some other business developments. As I have previously indicated during 2012, we invested in building our capabilities to penetrate the U.K.

public sector. I am pleased to report we are currently operating in a number of U.K.

public sector agencies including the U.K. Home Office, the Post Office and the BBC, and we are also awaiting a final decision on a larger contract that was delayed by the U.K.

government.

Even though this contract has been delayed, our recent wins in the U.K. public sector are serving as well as we gain experience and credibility into the U.K.

public market. We remain optimistic that the consortium which includes ISG will be awarded the larger contract.

We expect an answer soon. We believe this will position us well for the next 3 years to participate in a broader way in assisting the U.K.

government in its desire to significantly reduce expenses while achieving operational excellence. This would be a major win for ISG Europe.

Other recent business developments include the announcement that our Asia-Pacific hub in Bangalore, India, which includes the nerve center for our managed services business, reached a new milestone in November by breaking the 200 employee threshold, doubling its head count in just 15 months. This is significant as it reflects the growth of our managed services business, which on its own grew by over 40% in 2012.

Now during the fourth quarter to demonstrate my confidence and our growth plans going forward, I personally bought an additional 250,000 shares of ISG in the open market.

Lastly, let me address our full year guidance for 2013. Our guidance is based on the assumption that the macro environment in Europe and Australia remains relatively the same.

Clearly as this improves, our full year results will improve as well. We are optimistic about our 2013 prospects with the investments made last year and our ability to continue to advance our long-term strategy.

With our recurring revenue streams growing significantly, the continued growth trajectory in the Americas and the initial penetration of the U.K. public sector, we have entered 2013 in a strong position.

In terms of guidance for 2013, we are targeting revenues of between $200 million and $208 million and adjusted EBITDA of $19 million to $21 million excluding the impact of currency. And of course we’ll continue to monitor the economic environment.

So with that, let me now turn the call over to David Berger, who will summarize our financial results.

Thanks, Mike, and good morning, everyone. Before I discuss our financial results, I would like to reiterate that ISG is presenting GAAP financial results as well as certain non-GAAP financial information in our earnings release.

During this call, I 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 I will touch on today include adjusted EBITDA, adjusted net earnings and the presentation of selected financial data on a constant currency basis. A complete reconciliation of non-GAAP financial measures is included in our earnings release which was furnished to the SEC on Form 8-K yesterday.

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.

ISG reported fourth quarter revenues of $49.5 million, up 11% versus the prior year both in constant currency as well as on a reported basis. Reported revenues were driven by growth in our recurring revenue streams and deeper penetration into a bigger share of wallet with existing clients.

Revenues increased by 31% in the Americas to $27 million, our 7th straight quarter of double-digit growth, offset by a 7% decline in Europe to $60.7 million, and a 3% decline in Asia-Pacific to $5.8 million. Growth rates are at constant currency.

Operating income totaled $1.7 million for the fourth quarter of 2012, compared to an operating loss of $59.9 million in the fourth quarter of 2011. The operating loss for the fourth quarter of 2011 included a $61.7 million noncash charge for the impairment of goodwill and indefinite life assets and 900,000 in acquisition related and restructuring costs.

Reported fully diluted earnings per share for the fourth quarter of 2012 totaled $0.00, which compared to fully diluted loss per share of $1.44 for the same period in 2011.

Diluted adjusted fourth quarter earnings per share in 2012 was $0.05, which compared with $0.03 for the fourth quarter of 2011. Fourth quarter adjusted EBITDA totaled $4.5 million compared with $5.1 million in the fourth quarter of 2011.

Adjusted EBITDA for the fourth quarter of 2011 included $900,000 of acquisition-related and restructuring costs.

ISG reported full year 2012 revenues of $192.7 million, an increase of 7% in constant currency, up 5% on a reported basis and up $8.3 million from $184.4 million in 2011. The strengthening dollar negatively impacted revenue by $4.2 million compared to the prior year.

Revenues were $104.9 million in the Americas, up 21% and $25.1 million in Asia-Pacific, up 8% offsetting a 10% decline in Europe to $62.7 million. Growth rates are at constant currency.

ISG reported operating income of $6.6 million for the year ended December 31, 2012 compared to an operating loss of $60.8 million for the year ended December 31, 2011. Operating income for 2012 included the third quarter release of a $1.9 million performance based liability, tied to the STA Consulting earn out that is not projected to materialize.

The operating loss for 2011 included the noncash impairment charge of $61.7 million and $4 million in acquisition related and restructuring costs.

ISG reported 2012 diluted earnings per share totaled $0.02 compared to a loss of $1.54 in 2011. The diluted adjusted earnings per share for 2012 of $0.18 was up 17% compared to 2011, excluding acquisition related and restructuring costs.

Adjusted EBITDA for 2012 was $18.2 million compared to $15 million of adjusted EBITDA for 2011. Currency negatively affected adjusted EBITDA by $500,000 versus the prior year.

Adjusted EBITDA for 2012 included the release of a $1.9 million performance related liability tied to the STA Consulting earn out that is not projected to materialize.

Adjusted EBITDA for 2011 included $4 million in acquisition-related and restructuring costs. ISG continues to maintain the strong liquidity position to support the implementation of our business plan.

ISG cash and cash equivalents totaled $23.5 million at December 31, 2012, which was a net increase of $8.5 million for September 30, 2012, after debt repayment and share repurchases of $2 million.

Our accounts receivable balance decreased from $45 million as of September 30, 2012 to $41.7 million as of December 31, 2012. Our days sales outstanding was 74 days.

During 2012, we generated $8.9 million in free cash flow to find this cash provided by operating activities less capital expenditures. We spent $1.8 million in 2012 on capital expenditures.

We’ve reduced our term loan by $7 million, or 11% to $56.8 million and purchased $1.5 million in ISG shares.

Total outstanding debt as of December 31, 2012 was $63.1 million. Our average borrowing rate in the fourth quarter for our term loan was 4%.

As Mike indicated, for 2013, we are targeting revenues between $200 million and $208 million and adjusted EBITDA between $19 million and $21 million, constant currency. Mike will now share concluding remarks before we go to Q&A.

Okay, thank you, David. We have exited 2012 stronger than anticipated when we spoke last quarter.

This has put us into a strong position for the full year of 2013. Our clients, we believe have embraced our go-to-market one-brand strategy as reflected in the 18% increase in revenue of our top 50 clients.

Our vision remains to create an industry-leading, high growth, information-based services company. We are focused our over 800 professionals on a single mission, delivering operational excellence to our clients.

Clients choose ISG for our unique insights and innovative solutions, for leveraging technology, our deep data source and more than 5 decades of experience in information-based services. I’m pleased with what we’ve accomplished in 2012, which is our first full-year operating as an integrated company.

Now, let me review for a moment where we are. Our full-year revenues grew by 7% last year, while we continue to invest in future growth opportunities.

Our adjusted earnings per share was up 17%. We generated $9 million in free cash flow.

We strengthened our capital structure by reducing our term loan by 11% during the year.

Our strategy to build and grow our recurring revenue streams has momentum, as we approach nearly 20% of our overall revenue in this category. And we are positioned well to help our clients on 4 key mega trends emerging for many companies that we see.

One, social media; 2, mobile; 3, analytics and big data; and 4, cloud computing, commonly referred to in the industry at SMAC, which creates opportunities for ISG to expand our work with clients.

We will continue to ensure our thought leadership by hiring and retaining the most insightful professionals in the industry, and continue to invest in client-driven solutions. We will of course continue to monitor the macroeconomic environment especially in Europe, but as the global economies improve and as demonstrated with the robustness of our America’s business, we expect to take advantage of new opportunities.

We truly have harnessed the power of one, the continuing execution of our strategic business plan remains our #1 priority and will translate into shareholder value. We remain focused on delivering value to clients, investing to grow our business and expanding our capabilities.

I’m optimistic about our 2013 prospects, and our ability to progress our long-term strategy.

I want to thank everyone for calling in this morning, and now let me turn the session back over to our operator.

Real quick, I just wanted to talk a little bit about the Q4 earnings obviously a little bit better than expected also this seemed to bump [ph] the seasonal trend, seasonal declines that you have normally seen on a sequential basis. Were there any kind of onetime items in there that was particularly strong?

No, it was just a continuation of the strength that started in the back half, but there’s nothing unusual in the fourth quarter.

Okay. The U.K.

announcement or the U.K. businesses that you saw, is that what maybe kicked up the European revenue by pretty significant margins sequentially?

No, these new yields that U.K. contracted that has not materialized at this point.

Just to add, the U.K. departments we referenced, most of that work began very late last year, but into this year and we’re still awaiting the larger contract announcement, Marco.

Just so we’re clear on that one.

Right, that’s what you were referring to as the additional U.K. institutions or agencies you were working with you announced there on your remarks.

Yes, most of those came really at the end of 2012, so would have had a small, very minor impact on 2012 but certainly will enhance 2013.

Okay. So that was the highest revenue quarter for the year for Europe and that kind of -- I think I might be missing something because we’re still talking about weakness in Europe, but that’s pretty significantly strong here?

Yes, well, I mean again, as we said we put some investments over there in Europe, we made the call especially on the public sector to keep people on the ground and to penetrate that business. We knew it would take a while.

We had good business going in Germany. We closed out in France stronger than normal, so I think that should be an indicator of what we believe will occur in 2013 as that environment begins to slightly improve, number one.

Number two, we’ve got the new revenue stream in the public sector that we did not have in the full year 2012 that we will have in 2013. So it’s early days.

We are cautious, but the fourth quarter could be an indicator of good progress for 2013, Marco.

Okay, got it. And then the significant U.K.

opportunity that was delayed by the government, any additional color you can provide as to why it was delayed and expectations as far as when you might see an announcement?

Yes. I mean it was delayed because of some internal U.K.

government issues. We do expect it soon -- I hate to give a date, because then it will be missed, but we are expecting an answer soon and when we do, we will announce something.

Okay, perfect. And then in regard to your direct costs for your advisors, as a percent of revenue, it's continuing to climb year-over-year, I know obviously you have been adding some significant headcount on the managed services side, but how should we be thinking about this going forward, that line item?

You should look at -- our gross profit margin should continue to increase slightly. The last 2 quarters, it was 40%.

When we add people, we add, we know we never going to get a contribution margin on that additional incremental dollar, so the people we add for the most part are billable and will generate a margin for the company.

Okay. So you are expecting that margin to go up?

We are expecting the overall margin for the EBITDA margin for the company to go up in 2013, yes.

Okay. And then in terms of your guidance for revenues, I know obviously you’ve given it for annual.

Is there -- can you kind of give us some sense, not looking for specific guidance, but how should we be thinking about it as we progress through the year on a quarterly basis?

As you know Marco, we don’t give quarterly guidance, but I think historically roughly 40% to 45% comes in the first half, and 55% comes in the second half or thereabouts.

Okay, so return to kind of like normal seasonality if you well?

Yes.

Okay. And then in regards to your adjusted EBITDA guidance, what are the assumptions for D&A?

Well, D&A would be, our cap spending this year was $1.8 million, so that’s a good assumption for the D, and the amortization is $5.7 million for 2013. Actually $5.8 million.

Outside of the U.K. contract, are there any other large contracts in the sales pipeline that could change the growth trajectory 2013?

Well, the reason we actually identified the U.K. one because it is a larger one and one of the largest ones we would have had in that environment.

We don’t really communicate the size of the contracts with our clients. But I would say that if you look at the Americas, we now gone 7 quarters of double-digit growth.

We expect that for the full year to continue. Demand is high and I think what is resonating is our full broad range of product and service offerings.

So we do get contracts from large clients that will be of size during the course to the year, we don't tend to announce what those are.

On the U.K. contract, is there anything that you could better as part of that process and also with the folks that have been hard to work in the U.K., will you be able to redeploy them in any way at this point?

So, couple of things. One is the delay have nothing to do with ISG and everything to do with the U.K.

government. So there is nothing different we would have done or would do.

We’re just awaiting their response and we've been very patient and I think they’ve appreciated that patience. As it relates to the people, they were the ones to penetrate that target.

They also have been the ones to penetrate some of the work we have now won in other departments and I think I mentioned the Home Office, which does the immigration and policing and so on, the BBC and one other. So we are now deploying them into those departments and some of them now will be ready if we win this larger contract to be deployed soon thereafter.

So I think for 2013, we will now have those resources in a billing format and not just any business development format, but as I stated last year, this takes a while. You need to spend the time to develop the business and this team has done a great job in doing that and we are now seeing the fruits of that labor.

In your faster-growing businesses, managed services and government advisory, did the pipeline for both grow sequentially?

Yes, absolutely. Our managed services continue to grow as does our public sector business.

And the managed services side, are you generating a sort of buzz, is word of mouth helping you out there. I assume the feedback has been fairly positive and also curious if there’s any competitive response, anyone else that’s entered the market to do the same thing?

Good question. First of all, I think we have some very good momentum on managed services.

These are long sales cycles, because part of it is an education. We’re first to market with this.

We’re also very unique to do this work, because we’re in with clients. We understand that the transaction, the contracts.

So our pipeline continues to be robust. These things just take time to close out on each of these clients.

So the business last year grew by about 40% plus. In 2012, we went from somewhere like $11 million to $17 million of revenue.

Again, we expect significant growth in 2013. And as it relates to both of the other -- what was the other part of your question, I’m sorry, Vince?

On the competition side.

Yes.

Of course, there are people that are out there, are nipping, trying to nip at the heels, people like some of the Big Four, but the reality is no one has a installed client base like we have, no one has the unique qualifications that we have and we think we’re in a good position and we have a great first mover advantage here.

So on the Australia situation, could you remind us what type of work you are doing there? Any other color would be helpful.

Yes. So in Australia we do similar work as we do globally, but one of our clients is the Australian government, multiple departments within the Australian government, and they have slowed down their spending.

And until they pick that back up, which we expect to happen during the second half of 2013, then the Australian business on a year-over-year comparison will be down a bit. But we know we can overcome that elsewhere in the world, but that’s what’s happening in Australia.

So we are just really waiting for the purse strings kind of loosen up a bit more on the Australian government and right now based on everything we know, that should loosen up during the second half of 2013. So that’s what’s happening in that market.

Okay. And this one for David, what tax rate should we assume going forward?

You should use a 40%.

I have a real quick follow-up, what was the headcount at the end of the quarter?

813.

213 you said?

813.

That was only up, what 3 or something. That was up only about 3 people, Marco.

Okay. And can you break that down as far as the managed services people and the more traditional consultants?

Let me just correct that, just make it 812. We have a little over 200 people in India.

A significant portion of that is dedicated to assisting on the managed services area, but we don't really break out our total managed services headcount.

Well, let me just close here by thanking all of our ISG's over 800 professionals worldwide. I think your passion and dedication has led us to enter 2013 in a strong position.

So we’re in great shape. I think we're poised to build on our market leadership in the year ahead, and I want to thank all of you on the call for your continued support and confidence in our firm.

Have a great weekend.